Friends of the Family

On Saturdays I’m going to list four blog posts that I thought were really good.  I hope you enjoy them as much as I did. I’m trying to come up with a good name for this series of posts.  What do you think of “Friends of the Family”?  Is that too cheesy?

The Human Side at The Simple Dollar: Finance is a pretty dry topic and can get boring.  Just keep in mind that there is another side to it all.

Showrooming: The Battle Between Retailers and Your Wallet at Your Life For Less: I regularly use the ShopSaavy app on my smartphone when I’m out shopping to make sure I’m getting a good deal.

How to Pick Good Mutual Funds for Your 401k or Retirement Plan at My Money Design: A great post with a lot information. Very good reading.

Everything I Learned About Buying a Car, Part 2: Buying Used at Minting Nickels: We used a lot of similar techniques when we bought our minivan earlier this year

Lessons Learned: My First Job

Every Friday I post about one of the lessons I’ve learned so far in life, both financial and about life in general. We’ve all learned valuable lessons along life’s journey, sometimes the easy way and sometimes the hard way. Hopefully someone will read what I learned and avoid having to learn the same thing the hard way. Check back every Friday for a new lesson learned.

My First Job
I’ve mentioned before that during high school and through most of college I worked a part-time job at our local Wal-Mart. I started right after I turned 16 years old and met the age criteria for most retail stores. A good number of my fellow high school students worked there as well, and I was always amazed at how quickly they came and went. They would work for a couple weeks or months, then get tired of working and quit. They saw it as a pretty lame job with nothing to learn from. A lot of them messed around a lot at work, didn’t take anything seriously, and eventually got fired. Maybe that’s just how “average” high school kids are, though certainly not all of us were like that.

I never really understood that. I’ve always believed that you can learn something from just about anything, and I applied that belief to my part-time job. I think working retail is one of the best things a young person can do. You learn how to deal with customers, how the supply chain works, how to deal with other employees, how to prioritize your job duties, and a wide range of other things that you can apply in your future. The thing is you have to actively seek out a lot of that knowledge. My managers were always eager to talk about how and why things worked, and they were always pretty surprised when I’d ask them about these things. I guess a lot of people just never think about the inner workings of their job or company. You’d be surprised at all the intricacies involved at a retail store, from the best methods of stocking shelves to the most efficient way of unloading a truck and getting merchandise out on the floor.

I worked at Wal-Mart for five years, until I landed an accounting internship during college. I always knew that my job at Wal-Mart was temporary, and so did my managers. But every now and then they would try and talk me into going into management. If I didn’t already have other career ambitions, I would have seriously thought about that.

No Such Thing as a Dead End Job
The point is that I don’t believe in the concept of a “dead end job”. If you take your work seriously and learn as much as you can from it, other opportunities will open up for you. It might be a promotion at the same company, or maybe the added skills and knowledge will assist you in landing another job elsewhere. Like most things, you can only get out of something as much as you put into it. If you go into a job with the assumption you won’t learn anything or get anything out of it, you probably won’t.

Success Factors

There was an interesting article at CNN Money this morning that talked about the income disparity between households in the top 20% and households in the bottom 20% between two 10-year time periods (1976 to 1986 and 1996 to 2006). Basically, the household income of the top 20% has grown pretty steadily while the household income of the bottom 20% has barely moved. The article also mentioned that there is less mobility between income levels. In other words the rich tend to stay rich, and the poor tend to stay poor. This kind of article always interests me because I grew up in a pretty poor family. I don’t think we were in the bottom 20%, but I’d put us as “working class”. Things were always really tight, especially with raising four children on my dad’s modest income.

With this being an election year (don’t worry, I’m not going to delve into anything political here), you hear a lot about the income gap. The term “class warfare” gets thrown in every now and then as if there is some kind of ongoing battle between the rich and poor. Personally, I don’t get into all that. For the most part, I like to believe that people can work hard and make a better life for themselves.

However, I do understand that there are a lot of things beyond our control that really can have a profound impact on our situation. One of the best books I’ve read in a while has been Outliers by Malcolm Gladwell. In this book, he writes about what makes successful people successful. A large portion of success is driven by a person’s work ethic and innate abilities. But another large portion of success is determined by random chance.

My Success Factors
There are a number of things over the years that I believe have greatly contributed to my rise from working to middle class (and hopefully beyond):

Household Dynamics: I was raised in a “traditional” home with a married mother and father. They had (and still have) a healthy marriage, and there was always that degree of stability in the home. We had very limited money, and I learned to manage my money carefully once I got a job.

Emphasis on Reading: My parents took us to the library every week, so we learned from a very early age that reading was an important part of life. Reading encourages thought and develops language and literary skills that are essential in life.

Innate Intelligence: I never had to work too hard in school to get good grades. I could listen to the teacher and do my homework, and the material would just “click” for me. This was particularly useful in high school and college because it allowed me to work a part-time job in the evenings without interfering with doing my schoolwork. Important note: I still had to do my schoolwork, but I was able to spend less time on it and get better grades than a lot of my classmates.

Work Ethic: I was always a hard worker in just about anything. Whether it was my schoolwork (I still had to do it, even though I mentioned before that it came easy), household chores, yard work, or my part-time jobs, I always made sure that I did my best. I’ve always been internally motivated to do well. I’m pretty competitive like that. This has helped me in many ways. My college accounting professor thought very highly of my work and provided a great reference that got me an interview that led to my current job. Important note: My professor’s reference got me the interview, but I had to perform well at the interview to land the job.

College Affordability: I live in a state (Indiana) that offered a lot of state grants based on a combination of need and academic achievement. Since I graduated near the top of my class with an Indiana Academic Honors Diploma and came from a pretty poor family with four children, I was able to attend a private four-year college and graduate with minimal student loan debt. Important Note: I still had to do the work in college, but I was able to afford to go due to all the state financial aid.

The Bottom Line
To a large extent, I am a firm believer that hard work is the most important thing to a successful life. I wouldn’t have been able to get where I am today without having the work ethic to make it happen. But I also know that I’ve been pretty lucky as well. My hard work paired with a few “lucky” breaks is the key to the progress that I’ve made. The key is to take advantage of those chance events when they happen, but realize that oftentimes it’s your hard work that helps lead to those lucky breaks.

The Mini-Max Rule

I remember back in my college sociology class, the professor mentioned something called the “Mini-Max Rule”. It’s practically universal and works something like this: when people are faced with a choice, they tend to make the decision that they believe will minimize their cost and maximize their benefit. This principle is one of the primary drivers of every choice that people make. It’s surprisingly simple, but it was kind of an eye opener at the time. Even though a lot of times people end up making bad decisions, their thought process at the time of the decision was such that they believed the benefit would outweigh the cost.

One of the biggest challenges I face (and I’m assuming many others face as well) in managing the family finances is finding the right balance between saving money and saving time. I strive to “minimize” the amount of time spent and “maximize” the amount of money saved. I know that I could potentially save more money on things by spending more time on them. But time is at such a premium that I feel like I should really protect it. Last time I checked, there are still only 24 hours in a day, and I don’t want to shortchange my wife and baby to save a few bucks here and there. These decisions will be different for everyone as we all have varying thresholds of what we consider “worth it”, but here are some examples of our decision-making.

Insurance
Last year I shopped around for new homeowners and auto insurance. I had been happy with my insurance with Allstate. I had used them for my auto insurance since high school, and I really liked my agent. I didn’t think my rates were bad. I know there are those out there that swear by shopping around every year to make sure you’re getting the lowest rate, but I was happy with what I had. To me, I didn’t think it was worth it to spend a few hours online getting rate quotes at a bunch of websites to find a somewhat lower rate. (Time required greater than savings generated)

But last year my Allstate agent retired and sold his practice, and my policies were being moved to another office. At this point, my reason for staying was gone (my agent), and I did think it was worth it to shop around for insurance. I ended up saving around $200 a year on my homeowner’s insurance and about $50 a year on my auto insurance. But even with this, my strategy was to call an independent insurance agency and have them do the hunting. (Time required less than savings generated)

Coupons
I know there are people out there that go “coupon crazy” and to some it’s worth it. Personally, that’s not for us. We do use coupons, but we don’t spend a lot of time collecting them. To spend multiple hours a week finding coupons (both in the newspaper and online), organizing and sorting through them, and checking through the grocery list to make sure we buy the items with coupons, all to save $10 a week or so isn’t worth it to us. (Time required greater than savings generated)

I’d rather just buy the generic brands at the store and save a similar amount. (Time required less than savings generated)

One-Time Household Tasks
The things I love are the one-time tasks that continually generate cost savings.

Almost every light bulb in our house is a CFL bulb. These do have a higher upfront cost, but they last far longer than regular incandescent bulbs and use far less electricity. Some don’t like the lighting put out by these bulbs. For us, we’re so used to them that it doesn’t bother us. (Upfront cost and time required far less than savings generated over the life of the bulb)

One of our bathrooms has a low-flow shower head, and our kitchen sink has a low-flow aerator on it. As a result, they use less water than standard ones do. Since we are on municipal water, this has a direct effect on our monthly water bill. I should replace our other sinks and our other shower head with similar fixtures. The upfront cost is a bit high, but the installation time isn’t too bad. And over the years, the cost savings really add up. (Upfront cost and time required less than savings generated)

Your Stories
What are some of the choices you make between time spent and money saved? Share your story in the comments below…

Being Happy With What You Have

Trent at The Simple Dollar had a very nice post this morning about contentment.

Life is full of unlimited wants and desires that we cannot possibly fulfill. We can sit back and feel sorry for ourselves that we can’t have everything we want or we can choose to be happy with what we have.

Now, this doesn’t mean we shouldn’t strive for those things that we don’t have right now. On the contrary, if something is really important to you, then you should work hard to achieve it. The point is not to dwell on every little thing that you want to do or have but can’t. Contentment (happiness) is achieved when you find a good middle ground. You’re working hard to achieve your important goals, but you don’t worry about not having everything you want (or having everything someone else has).

The Law of Inertia

A major component of success is having the willpower to actually do something. This is certainly true in regards to personal finance, but it is also true in many other facets of life. And of course, since it is such a major component of success, it also tends to be one of the more difficult things to master. Isaac Newton captured the idea quite well when he documented the law of inertia. He stated that an object at rest will remain at rest unless acted on by an unbalanced force. This is another way of saying that your situation, task, to-do list, debt burden, etc. is not going to change unless you act upon it.

Take a look around, and it’s easy to see this in practice almost anywhere. Listen and you’ll hear a lot of people complaining about their lot in life. People hate their jobs, never seem to have any money, have unhealthy relationships, can’t seem to get ahead, etc. However, one commonality among this is that quite often the people doing the most complaining are the least likely to actually do anything about their situation. It seems so simple: if you keep doing the same thing the same way, you’re going to be in the same situation. But trying to make changes in your life can be very difficult.

Even on a smaller scale, we all have little projects that are on our list of things to get done that never seem to actually get done. I’m certainly not exempt from this. I can name a few right now:

– Our upstairs bathroom has a squeaky hinge. I have to be very careful in the mornings when I’m getting ready for work not to move the door too much, because it will wake our little boy down the hall. I make a mental note of it every morning and tell myself “I need to get some WD40 and oil that hinge.” Our little boy is now a year old, and I think I’ve been telling that to myself for the entire year. Yet this morning when I was getting ready, the hinge on the door still squeaked. I made another mental note to buy some WD40 and oil the hinge.

– Since we moved into our house in fall 2008, the downstairs half bath / laundry room has had a burnt out light in it. The room has multiple light sources, so I never bothered to replace the one that was burnt out. It was one of those long, florescent overhead lights. I’d never changed one before, and thought it would be difficult and that the bulbs would cost more than standard ones. This weekend, we finally replaced the burnt out bulbs. It was super easy, and the bulbs were pretty inexpensive. The room looks a lot nicer with the extra lighting.

– We had a regular trash can in our kitchen. It always seemed to be in the way, and the lid didn’t stay on too well. My wife always complained about it and told me she wanted one of those under-the-cabinet, slide out trash bins. They’re more convenient and would clear some floor space in the kitchen. I added it to my mental “to-do” list and kept it there for three years. It was just easier to leave our current trash can in the kitchen. But finally I took the action, went to Lowe’s, bought the under-the-cabinet trash can, and installed it. It really is a lot more convenient, and the kitchen looks a lot nicer with our old trash can out of there.

All three of those situations have some common characteristics:
1. They all required me to go out and purchase something to be able to complete the task
2. They all required me to take time out of my day to work on the task
3. Once the task was completed (though the first one isn’t yet complete), I looked back and said to myself “I should have done this a long time ago”

Conclusion
The point is that it takes a concentrated effort to generate enough inertia to get things done. It’s always going to be easier to leave things the way they are now, but that doesn’t solve the problem. Your hinge will always squeak, the lighting will never be as good, and the trash can will always be in the way. Sure, you’ll get used to those things and come to think of it as normal. But, imagine how much better it would be if you actually took the time to take care of the situation. Just a little something to think about as you start your week…