Your Money: The Missing Manual

by J.D. Roth

Tip If your family throws away a lot of spoiled food, create a leftover list and post it on the fridge. Every time you store leftovers, note the date, the name of the dish, and how many servings are left. When you’re hungry, check the list!

starting your own vegetable patch: Plan ahead. Decide what you’d like to grow and figure out how much time and space you’re willing to devote to the project. A container garden (http://tinyurl.com/container-garden) might be a good place to start. Or try square-foot gardening (http://tinyurl.com/SF-gardening), which lets you maximize food production in a small space.

Tip Your public library probably has lots of great gardening books, including some tailored to where you live. Two excellent ones are Square-Foot Gardening (Cool Springs Press, 2006) by Mel Bartholomew and The Bountiful Container (Workman Publishing, 2002) by McGee and Stuckey. You might also want to check out You Grow Girl (www.yougrowgirl.com), a blog about gardening.

Saving on food is always a popular topic at Get Rich Slowly. If you crave more tips, here’s 3 years’ worth of articles on the subject: http://tinyurl.com/GRSfoodlist.

Michael Bluejay has a great website about saving electricity (http://tinyurl.com/saving-electricity), where he describes how electricity works and, more importantly, gives real-world examples of how you can use less energy (and thereby save money). The best tactic, he says, is “dealing with the biggest electricity-guzzlers rather than worrying about items that don’t use much electricity.”

Because heating and cooling use the most energy, they also offer the best opportunities for saving. Bluejay estimates that the typical family can save about: $1,200 a year by using space heaters instead of central heating. (And you can save even more with a heat pump — after you recoup the installation costs.) $600 a year by using fans instead of AC. $150 a year by drying clothes on a line instead of in a dryer. $150 a year by washing laundry in cold water instead of hot. $100 a year by replacing regular light bulbs with compact fluorescents. $75 a year by getting rid of your TV. $60 a year by putting your computer in sleep mode when you’re not using it.

Tip A programmable thermostat is an easy way to reduce utility bills. It lets you turn off the furnace automatically when you’re asleep or not home. The government estimates the average homeowner could save $180 per year by installing an Energy Star programmable thermostat (see http://tinyurl.com/ES-thermostat).

If you’re gung-ho about cutting your power bill, Bluejay recommends the Kill-a-Watt electricity meter (http://tinyurl.com/killwatt), which measures how much energy an item is using so you can identify your home’s power hogs.

Thrifty people still shop, but they shop for things they need, not just for fun. They understand that shopping is a means to an end — and they realize the dangers of being burdened by too much Stuff

Beware of shopping momentum. Researchers at Stanford University warn that shopping can lead to more shopping: At first you deliberate over whether to buy something, weighing the pros and cons. But once you’ve made the decision to buy, you spend less time deciding on additional purchases. This phenomenon, dubbed shopping momentum, increases the likelihood you’ll buy more.

Finally, here’s a flowchart April Dykman created to help her stay on track while shopping (http://aprildawnwrites.wordpress.com/). It helps her keep emotions out of the buying process so she can focus on just the things she needs.

In his brilliant essay entitled “Stuff” (www.paulgraham.com/stuff.html), Paul Graham writes that before you buy anything, you should ask yourself, “Will this be something I use constantly?”

If you don’t need it, don’t buy it. In his book Clutter’s Last Stand, Don Aslett argues that the value is in the using, not the owning. “No matter how you look at it,” he writes, “clutter is a poor investment.” So buy only what you need.

Focus on experiences, not things. As you learned in Chapter 1, experiences are more likely to make you happy than material goods. Of course, experiences cost money, but a trip to Thailand, a nice dinner with friends, and the entrance fee for a marathon all have one thing in common: They don’t take up space. You get value for your money without any residual Stuff.

Practice the one-in, one-out rule. Try to keep a steady state of Stuff. If, for example, you have 12 pairs of pants and buy another, get rid of an ol...

For more about the tyranny of Stuff, check out Unclutter Your Life in One Week by Erin Doland (Simon Spotlight Entertainment, 2009), Clutter’s Last Stand by Don Aslett (Marsh Creek Press, 2005), and It’s All Too Much by Peter Walsh (Free Press, 2007). These three websites are also great resources: http://unclutterer.com, www.flylady.com, and http://mnmlist.com. As you purge Stuff from your life, you come to realize that all you really need are the bare essentials — everything else is just Stuff.

As Tyler Durden says in Fight Club, “You’re not your job. You’re not how much money you have in the bank. You’re not the car you drive. You’re not the contents of your wallet.”

Chapter 6. How to Make More Money "Your greatest asset is your earning ability.” — Brian Tracy

When you hear their offer, repeat the top value — and then stop talking. “The most likely outcome of this silence is a raise,” Chapman writes. This technique buys you some time to think while putting pressure on the employer. For more on this step, check out Chapman’s video about it: http://tinyurl.com/theflinch.

Working for Yourself Working for a big company isn’t for everyone. In 2008, there were 29.6 million businesses in the United States. According to the Small Business Administration, about 75% of these had no employees. That means that three quarters of all American businesses are owned by people working for themselves.

Despite the downsides, owning your own businesses can be tremendously rewarding, both emotionally and monetarily. The authors of The Millionaire Next Door write that, “self-employed people are four times more likely to be millionaires than those who work for others.”

Tip If you’re new to the site, check out Dayana Yochim’s article on how to speak Craigslist: http://tinyurl.com/MFcraigslist.

If you can’t find a charity that wants your Stuff, check out Freecycle (www.freecycle.org), a grassroots nonprofit made up of thousands of people who give and get items for free. Their goal is to reduce waste by re-using items that others no longer want or need. Best of all, membership is free.

Chapter 7. Banking for Fun and Profit "A penny saved is a penny earned.” — Benjamin Franklin

Chapter 8. Using Credit Wisely "Credit cards are great for convenience, but terrible for borrowing. Either cut them up, if you can’t pay on time; or — if you can pay on time — make your credit cards pay you.” — Andrew Tobias

On The Money: The Pain of Paying There’s evidence that people spend more when using credit instead of cash. For example, a study in the September 2008 issue of the Journal of Experimental Psychology: Applied (http://tinyurl.com/APA-spend) found that paying with cash leads to “an immediate pain of paying”. But “any payment made that makes the outflow of money less vivid, and thus less painful” — like using a credit card — “reduces the psychological barrier to spend.” Another study found that people remember cash expenses better than those made with credit. So it’s not just you: In general, it looks like most people who use credit cards end up shelling out more when they pay with plastic than with cash. For more on this subject, see http://tinyurl.com/GRS-credit-spending

Here’s the most important thing to remember: If you’re using credit cards to spend more than you earn, you’re using them wrong.

Note According to a 2004 U.S. Public Interest Research Groups report, 79% of credit reports contain an error of some kind, and 25% contain serious errors.

Happily, you don’t need to pay to see your credit report. The Fair Credit Reporting Act says that each of the major credit bureaus has to let you view your credit report for free once per year. They do this through AnnualCreditReport.com, a site set up specifically for requesting these reports. This is the official, government-approved, free credit report site.

Chapter 9. Sweating the Big Stuff "Count the dollars, not the pennies.” — Elizabeth Warren

Financially, the best car-buying decision is almost always not to buy one.

The Right Way to Buy a Car Over a decade ago, my wife decided to buy a new car. She wanted a Honda Civic but didn’t care much about anything else. Together, we drafted a letter that read something like this: Dear Car Dealer: We’re in the market for a new Honda Civic. We don’t care what color it is, but it needs to have features X, Y, and Z. We have $5,000 for a down payment and would like to drive the car home on Saturday afternoon. We’re sending this letter to all the Honda dealers in the area. If you give us the lowest price, we’ll buy from you. We faxed the letter to a dozen Honda dealers in nearby cities. Half of them didn’t bother to reply, and three tried to convince us to visit them today because they couldn’t quote a price over the phone. But three of the dealers gave us prices, and two actually bid for our business.

According to the National Automobile Dealers Association, the average price of a new car is just over $28,000. Let’s say you put $8,000 down to buy a car at that price, and you finance the remaining $20,000 for 4 years at 9% interest, meaning your payments will be just under $500 per month. At the end of those 4 years, you’ll have paid almost $32,000 for a car that’s now worth $14,000. That’s $18,000 vanished into thin air! There is a better way, one recommended by financial gurus like Dave Ramsey and Suze Orman. Instead of financing a new car, take that $8,000 and use it to buy a high-quality used car. Then, instead of paying $500 a month to the finance company, set the money aside in a named bank account specifically for your next car (see Targeted Savings Accounts). That way you’re paying yourself rather than the car company. At the end of a year, your used car will have lost 15% or so of its value, making it worth around $6,800. You can keep driving it and saving for a new car, or take the $6,000 you now have in the bank, combine it with the used car’s value, and trade in for a car worth $12,800. And if you keep saving, the next year you can trade in that second car for one worth $17,000. In theory, after 4 years of this you’ll have paid out $32,000 — just as if you’d bought that new car at 9% interest — but you’ll be driving a car worth $23,000 instead of $14,000.

For more about this clever way of budgeting your way to a new vehicle without a car payment, watch Dave Ramsey’s “Drive Free, Retire Rich” presentation: http://tinyurl.com/drivefree.

Note For an entertaining look at what goes on behind the scenes at dealerships, set aside a couple hours to read “Confessions of a Car Salesman” at Edmunds.com: http://tinyurl.com/car-confessions. It’s funny and will help you get a better deal.

In his presentation “How to Buy a New Car Without Getting Screwed” (http://tinyurl.com/newcar-howto), Rob Gruhl argues that the way to get the best price on a new car is competitive bidding, pitting dealerships against each other: “Call eight to 10 dealerships and tell them, ‘I’m really interested in buying this car today. Can you give me a price? I’m doing competitive bidding.’ They’ll say, ‘We don’t do competitive bidding.’ And you’ll say, ‘If you give me the best price, I’ll come down and buy it from you today‘.” At that point, most dealers will give you a price.

Tip If you really want to save money, consider owning a beater — an older used car that’s near the end of its life. Beater Review (www.beaterreview.com) can help you find great cars for under $5,000.

Many Get Rich Slowly readers swear by the Car Talk Mechanics Files (http://tinyurl.com/cartalk-mechanic), a database of over 16,000 mechanics recommended by folks around the country. Just enter your Zip code and the type of car you own to see a list of shops in your area that includes ratings and reviews.

Change the oil regularly. Changing your oil every 3,000 miles is essentially a scam, a marketing ploy from the quick-lube industry. You might need oil changes that often if you drive lots of miles under rough conditions, but for most vehicles, it’s okay to change the oil every 5,000 miles or 6 months (whichever comes first). Check the manual or ask your mechanic what’s best for your car.

The best way to save money on a car is to not own one. Each year, AAA publishes an estimate of driving costs (http://tinyurl.com/driving-costs). They figure the average American spends about $9,369 each year to own a car. That works out to over $25 a day, or $750 per month. Imagine what else you could do with that money if you ditched your car!

(For an example, see the story of Chris Guillebeau on Reduce clutter.)

If you’re traveling to Europe, be sure to take advice from Rick Steves (www.ricksteves.com). His website, books, and TV show are packed with info on how to make Europe fun and affordable. I’m a huge fan of his packing philosophy: http://tinyurl.com/RS-packing.

Travel light. Experienced travelers always give this advice, but rookies seldom heed it. Even if you’re staying in the same hotel for 3 weeks, packing light can prevent headaches. For example, don’t bother taking stuff you can buy there, like shampoo.

You can learn all about slow travel at www.slowtrav.com and www.sloweurope.com.

Note Professional traveler Nora Dunn has a brilliant piece at IWillTeachYoutoBeRich.com that describes how to travel the world full-time for less than $14,000 per year: http://tinyurl.com/dunn-travel. If you’ve ever dreamed of touring the world, this is a must-read article.

Chapter 10. House and Home "A house is made of brick and mortar, but home is made by the people who live there.” — M.K. Soni

Deciding whether to rent or buy is a complicated financial and emotional decision.

Here are the advantages of owning your home: Stability. When you take out a mortgage, you know what your payments will be for years to come. There’s no landlord to change the rules, and you don’t need to worry about being kicked out at a moment’s notice. Equity. As you make your mortgage payments, and as the property’s value increases, you build equity, which is the difference between what you owe on your house and what you could sell it for. In other words, it’s how much value you have stored in your home. For example, if your house is worth $225,000 and you owe $175,000, you’ve got $50,000 in equity. Freedom. You can do what you want with your home and yard, like plant a garden, paint the ceiling purple, or install a wet bar in the basement.