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Every other Sunday, The Simple Dollar reviews a personal finance book.

The Little Book of Safe Money by Jason Zweig is the ninth book in the “Little Books…” series, which each tackle a particular investing topic or strategy. To date, I’ve reviewed all of the previous books in the series, so here are links to my reviews of the previous eight entries.

The Little Book That Makes You Rich
The Little Book That Beats The Market
The Little Book of Common Sense Investing
The Little Book That Builds Wealth
The Little Book That Saves Your Assets
The Little Book of Bull Moves in Bear Markets
The Little Book Of Value Investing
The Little Book of Main Street Money

So what’s the focus this time around? To sum it up in one word: risk. Zweig focuses on risk through the overarching idea of keeping your money safe and avoiding unnecessary risk, recalling that risk is often a reasonable portion of a successful investment.

The book goes beyond investment risk, however, and focuses on risk in many aspects of financial life. Let’s dig in and see more of what Zweig has to say.

One – The Three Commandments
Zweig’s “commandments” are simple and straightforward. Don’t take risk you don’t need to take. Don’t put money at risk that you can’t afford to lose. Don’t take risks if they don’t have a clear reward for that risk. These rules are pretty straightforward to apply in most situations – basically, stay away from truly murky things and only invest money that you can afford to invest in risky things.

Two – Solid, Liquid, or Gas?
A liquid asset is something you can convert into cash quickly and easily without losing much value in doing so. Many people think of some of their very illiquid assets as being liquid assets – like their home, for example, or their art collection. To be liquid, you have to have a seller, a buyer, a secure way of completing the trade at a low cost, and a price that’s reasonable to both parties. Stocks? You’ll probably be able to do that. Real estate? A bit less likely. An art collection? Not very likely.

Three – You Are an Egg
There are many risks that aren’t often discussed in financial writings, at least not all together. Inflation risk, your health, your location, your professional future – those are all risks that are often overlooked as people invest. There are investments that will let you hedge against all of these risks, from treasury inflation-protected securities to long-term disability insurance, that should be part of an overall plan.

Four – Keeping Your Cash from Turning into Trash
Cash is a key part of any portfolio. It can be held onto to ensure no loss in the money you’ve saved and can often be put places to earn a small, virtually guaranteed return (in an FDIC-insured savings account, for example). However, virtually everything beyond cash introduces some sort of risk – even treasury notes and money market accounts. Keeping some money in cash (or at least in TIPS) helps hedge all of the risks across your portfolio.

Five – Guarantees Are not All They’re Cracked Up to Be
Most guarantees have loopholes in them that often allow companies to slip right through them if they’re ever called on their guarantees. Things like SIPC insurance, for example, often don’t hold up when you most need them. The most trustworthy guarantees usually come from the federal government in the form of things like FDIC insurance, which are backed by the full faith and credit of the government. If the government fails, all bets are off on many, many, many things.

Six – Fixing Your Fixed Income
Don’t reach for yield. In other words, don’t go chasing bonds based on their yield because such bonds often have really high costs and fees associated with them that eat away quickly at your returns. Instead, focus on bonds and bond funds that have very low costs, like bond index funds. I myself use a bond index fund through Vanguard for part of my investments.

Seven – Stocks for the Wrong Run
Stocks are not guaranteed to beat every other investment over the long run. If you start investing in stocks near the peak of a bull run, you’ll have a hard time ever catching up to returns on other possible investments, even over a very long period. Instead, treat stocks as though they’re likely to earn better long-term returns, but not guaranteed, meaning they need to be mixed with other investments with lower risk (like cash).

Eight – Rules for Stock Investors to Live By
Don’t worry about stock prices. Instead, invest in the stocks of businesses you know well and you know are well-run. You should also do all you can to minimize costs. Diversification often isn’t the big deal it’s made out to be – you’re far better off investing in the things you actually know and understand than diversification for the sake of diversification.

Nine – Little Things Mean a Lot
Frugality. Yes, stare at that word. Here, Zweig makes the very good point that by cutting your personal spending in areas that work for you, you can easily come up with more money to invest and prepare for your future. Use a programmable thermostat and you’ll have $100 a year more to invest – no different than an extra 1% return on a $10,000 investment. Eat at home more often and you’ll have hundreds more to invest per year.

Ten – How to Get Your Kids Through College without Going Broke
Zweig’s real message here is to not overlook prepaid 529 plans – ones offered in some states that effectively allow you to pay tuition in advance for an education at a state school. While they’re not as flexible as investment-based 529 plans, they’re also nowhere near as risky as long as you know what school you’re attending, as you’re passing off the investment risk to the school. If you’d still prefer a normal 529, you’re better off investing as conservatively as possible within it and focus on contributing more (by living frugally).

Eleven – What Makes Ultra ETFs Mega Dangerous?
“Ultra” ETFs – those that are leveraged in other investments – are incredibly risky investments that many investing advisors promote as a good solution in a down market. In fact, such investments are incredibly volatile, swinging wildly on a daily basis. To put it simply, don’t invest in such things – avoid them like the plague.

Twelve – Hedge Fund Hooey
Another common misconception spread around is that hedge funds are a ticket to financial success. Much like “ultra” ETFs, hedge funds also carry a substantial amount of risk, because hedge funds often operate in secret. The name Bernie Madoff comes to mind. Why do hedge funds have such a reputation? Survivorship bias (the ones that survive get to tell the story, ignoring the mountain of failures) and backfill bias (the losing funds are never reported at all) are two big reasons.

Thirteen – Commodity Claptrap
Are commodities (like gold) a sure way to riches? Actually, commodities are incredibly volatile, showing huge gains and losses almost every year. In order to profit from commodities, you have to deeply understand and know them – and be able to eliminate as many variables as possible. For most investors at home, that’s not a realistic picture. If you simply must invest in commodities, balance those investments with some very stable investments (like TIPS).

Fourteen – Spicy Food Does Not Equal Hot Returns
Another investment often promising huge returns is emerging markets. If you invest in countries that are rapidly developing their industries, you reasonably have a chance to invest in companies that get huge very quickly – and make you a mint, right? Several problems. First, such markets are often really poorly regulated. Second, there are a lot of failures in such emerging markets. Third, it’s often hard to get reliable information about what’s actually happening there. In other words, avoid such markets.

Fifteen – WACronyms: Why Initials Are So Often the Beginning of the End
Acronyms are often tossed onto complex investments to make them sound much more palatable. Of course, that means that such investments are being marketed to someone, which then means that the person who developed the investment is selling a product instead of investing in this discovery. Who gets rich when you buy a carefully marketed product? Usually, it’s not the end buyer.

Sixteen – Sex
Men and women work together far better than they work individually, because their various strengths (on the aggregate) balance well. When you enter into a long-term relationship with someone of the opposite gender, you’re far better off opening up your investing and other financial choices to that partner and discuss them in detail. It’s not just because honesty is the best policy, but because your partner often has a different perspective that can counterbalance yours and lead you toward a better solution.

Seventeen – Mind Control
We all have lots of psychological biases. In day-to-day life, those biases help us manage the complexities of everything going on around us. Quite often, though, in investments, the biases work against us, causing us to make mistakes. The best solution is always to do your homework – and lots of it. Move slowly. Make careful choices. Bounce your ideas off of others and see if they see things you don’t.

Eighteen – Financial Planning Fakery
Similarly, it’s usually worthwhile to wait a bit to act on “tips” and advice that you hear. Quite often, such tips are based on rumor and innuendo and are proven to be wrong – or, when they’re proven right, the insiders have already run away with all of the profits and you’re left holding the bag. If you have some good information, sit on it for a day. Watch what happens. Do some follow-up.

Nineteen – Advice on Advice
If you don’t want to manage your investments yourself and want a financial advisor to handle it for you, take your time in making that choice. Take it slowly. Meet lots of people and ask lots of questions. Look at their hard numbers and figure up how much they’ll cost you over a long period. Don’t sign up for an advisor unless you’ve done lots of legwork and are very confident about your choice.

Twenty – Fraudian Psychology
A simple rule of thumb: if someone sends you an email or calls you about a particular investment, ignore it. You’re far better off doing the seeking and discovery themselves. People don’t waste the time and effort to spam you or to call you if they don’t have something that they’re trying to sell – and something that they’ll make a profit from when you jump on board with it.

Twenty-One – The Terrible Tale of the Missing $10 Trillion
People rarely do as well (on average) as one would expect given the annual returns on investments. Why? People often get out at the bottom of a market and get in at the top of a market, meaning their actual returns are worse than the long-term annual returns of a long-term investment. How can you beat that? Be patient. Ride the crests and the valleys. Only sell when you have a personal reason to sell, not because you think you can “time” the market.

Twenty-Two – How to Talk Back to Market Baloney
When people talk about something that “beats the market” or claims large returns, it’s going to be bogus, period. If someone actually had such knowledge, would they be selling it at all? Would they be giving it away? Even more important, if such returns did exist, then everyone would quickly invest that way and such returns would become the norm. They’re not. Stay away from such nonsense – and use some common sense.

Is The Little Book of Safe Money Worth Reading?
The Little Book of Safe Money is a great book for beginning investors to read because it counterbalances the aggressive salesmanship of most of the investment press. The book is logical, accurate, and points toward some great choices to make to keep you safe from the multitudes of risk out there.

Having said that, the book doesn’t really cover a lot of new ground if you’ve read a lot of books and articles on investing over the years. It’s mostly just a thorough coverage of the risks that an investor is exposed to – and investors that are well-studied and have seen risk hammer people (from Bernie Madoff to housing bubbles) are familiar with many of the points.

Zweig’s writing style is really accessible, solid, and dare I say it, enjoyable. If you’re a beginning investor, pick this one up. You won’t regret it.

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A few days after Christmas, Sarah and I will usually head out to the store to stock up on post-Christmas sales. It’s often easy to find many items at bargain-basement prices in the days after Christmas – items which can easily be saved until next year.

We usually make a list of things to look for (as we do virtually every time we go shopping). I thought it might be worthwhile to share that list with you, to help you if you’re out and about the next few days and looking to shave some dollars off of next year’s Christmas budget (and maybe even net a few dollars right now).

Christmas lights If you need to replace some lights – or even just intend to hang more lights outdoors, as we do next year – now is the time to pick up Christmas lights, as many department stores deeply discount such lights. Even better, many energy companies will offer you a rebate for buying LED Christmas lights, so save your receipts and check with your energy company.

Wrapping paper and supplies Wrapping paper is an obvious thing that many people look for at after Christmas sales, but you can often find many other supplies on deep discount as well, such as gift wrapping tape and ribbon.

Cards We usually make our own Christmas cards (so if we see blank cards, we might pick them up), but for many people, Christmas cards can be a spectacular bargain right now as many stores are offloading them.

Non-perishable gift baskets Unsold gift baskets often go at a tremendous discount and if you can find ones that are non-perishable (like bath supplies and such), they can easily be stored for a year and given the following December. Many people often exchange such gift baskets with professional acquaintances and such, so this can be a tremendous savings. If you know you’ll be giving gift baskets of this kind for Christmas 2010, get them now and save yourself some cash.

Electronics – but only if you’re patient The Consumer Electronics Show takes place early each January. During that show, electronics companies unveil their product lines for the coming year and usually eliminate some product lines to replace them. Quite often, retailers know what lines are going to be cut and start trimming the prices on those lines to clear space for the new lines to be unveiled at CES. Thus, late December through January are great times to pick up home electronics.

Of course, you have to be careful with this type of sale. For starters, do not be afraid of the word “clearance” or other such words. Almost always, there’s nothing at all wrong with the model – it’s just being replaced by a different model in the coming year – one HDTV being replaced with a very similar HDTV with a higher price, for example. Also, different stores tend to handle such clearances differently, so you may want to simply shop around for a while to look for what you need. Don’t lock yourself into a particular brand or model – keep your eyes open. Write down clearance models, then research them at home.

Exercise equipment These items are usually on sale due to the upcoming New Year (and related New Year’s resolutions), but there are often spectacular bargains on basic exercise equipment in the week between Christmas and New Years.

The absolute most important thing to remember when considering sales is to focus only on stuff you actually need or have a direct use for. Buying things you don’t really want merely because they’re on sale is a sure way to put yourself in a worse financial position. If you’re intending to replace a flaky television, for example, now is the time to do it – but if you’re thinking of dumping thousands into upgrading your television by 4″, consider other uses for your money.

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Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

One Year Ago (December 20-26, 2008)
Nine Creative Ways to Utilize Leftovers from Common Meals Turning leftovers into a great new meal is a great way to save quite a bit of money on your food bill. Here are nine ways to do just that.

On Giving Up the Dream This article goes out to all of you who are thinking about giving up on their dreams. Don’t do it – always find ways to let the sunshine in.

Some Thoughts on Anniversaries and Their Requisite Gifts The best thing you can always do in such situations is simply to know your spouse. What do they want? What do they value?

The Limits of Frugality: What’s Next When You Can’t Cut Any More? At some point, you have to look at adding income. Here are some ways to move in that direction.

New Year’s Resolution Workshop #1: Get Started with Retirement I really enjoyed the “New Year’s Resolution Workshop” series last year – in fact, I would have done five more if I had five strong ideas. Here’s the first entry in it from last year.

Two Years Ago (December 20-26, 2007)
Heroes, Role Models, and Mentors: Finding People to Believe In Every single one of us is helped by having someone to talk to and to guide us through difficult patches in life. Here are some ways to find those people.

The Day After: Six Ways to Deal With the Post-Christmas Money Blues – And Plan Ahead for Next Year A friend of mine once said that December 26 is the saddest day of the year because the fun is over and the bills start arriving. Here are some ways to avoid that sadness.

Eight Frugal Ways to Prepare for Winter Driving If you have to drive in an icy or snowy climate, doing these things will save you money and energy – and might even save your life.

Review: The Wisdom of Crowds This was a very fascinating book in a lot of ways. As humans, we often tend to do what others do and, over the long scope, there’s often good reasons for that.

Is An All-Cash Lifestyle Useful For Kicking The Debt Habit? It can be, but it has to be approached with the right mindset. If you’re not committed to changing your ways, nothing will really work.

Three Years Ago (December 20-26, 2006)
When Is Frugal Living Taken Too Far? When “frugality” disrupts your ability to actually live a healthy, normal life, there’s a problem. That kind of “frugality” crosses out of frugality, across cheapness, and into serious social problems.

Extra Mortgage Payments Versus Investments: Which Is The Right Move? The advantage of extra mortgage payments (my preferred choice) is that they’re stable. You’re going to get a nice steady return on your invested money.

Yahoo! Finance Disappoints: Powerball Jackpot Climbs To $75 Million? Yahoo! Finance featured an article about a lottery jackpot. I call them to task for this, as lotteries are a sure way to lose money.

I Think I Figured Out Why People Love Dave Ramsey He takes the speaking techniques of a televangelist (”You’ve been saved!”) and applies them to the secular realm of personal finance. And it works.

Christmas Morning Reflections Some thoughts I had on the first Christmas morning in which my son was aware that he was receiving gifts.

If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

Nine Ways to Get More out of The Simple Dollar
This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are nine great ways for new readers to dig deeper into The Simple Dollar.

1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

3. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

4. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

5. Follow me on Twitter – or other social networks. I post tons of interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

I also participate on several other social networks. Feel free to check me out on del.icio.us (it’s where I collect links, from which I select the ones that appear in my weekly roundups), wakoopa (what software I use), GoodReads (what books I’m reading), Facebook, and FriendFeed (which aggregates everything). I also have an irregularly-updated personal site, TrentHamm.com.

6. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

7. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

8. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

9. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

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Several people in my close inner circle of friends and family have made the active choice to go into careers where they will be earning a low income for life. Their calling is in areas of social work and they’ve made the financially difficult choice to follow their heart. That earns a lot of respect from me.

Of course, when you step back from that decision and look at the course of one’s life, many normal financial choices become much more difficult. Many low-paying careers do not offer the same benefits as other careers – there simply isn’t the money available.

So how does a person in a low income career path save for retirement?

First of all, most low income people will have to plan for their own retirement beyond Social Security. Although some non-profits do offer 403(b) and other such retirement plans, many offer nothing of the kind and expect the employees to figure out their own path.

The best option for most people in such a situation is a Roth IRA, which is paid for with after-tax money. Since you’re already earning a pretty low wage, the tax advantages of 401(k)s and 403(b)s are less important.

Roth IRAs are pretty simple to understand. A Roth IRA is an investment account in which you can contribute as you wish throughout the year up to an annual limit (currently $5,000 if you’re below age 49). Once the money is in the account, you can choose to invest that money in whatever options the company managing the IRA has available to you – you can keep it in cash, buy bonds or stocks, or put it in index funds that allow you to own a little bit of everything. Any income you earn from these investments stays in the account and, when you reach age 59 1/2, you can withdraw that income without any taxes or any penalty at all. You can also withdraw the money you contributed at any time, but you can’t put it back into the account to replace it – once it’s gone, it’s gone.

A Roth IRA is pretty simple to open. Most investment firms offer Roth IRA plans of some sort. I use Vanguard for my own Roth IRA and I’ve been very happy with them and the investment choices they offer, but your mileage may vary.

I encourage anyone in a low-income career without a retirement plan to open a Roth IRA for themselves and contribute what they can on a regular basis. The easiest way to do that is to set up an automatic investment plan that withdraws a small amount from your checking account every week. Even $20 a week adds up to $1,040 over the course of a year, which is a good step in the right direction.

A second factor to note is that by choosing a low-income career, you’ll learn how to live on a low income. This means that your retirement needs will be much lower than people who earn a much higher income than you. You don’t need to stress about having millions in retirement when you retire.

Of course, there’s an important catch here – financial independence. If you’ve embarked on such a career but haven’t become fully financially dependent yet, you’re currently living above your means. Move towards financial independence. Start today. If you’re still being supported by someone, direct that support into something distinct, like your student loan bills, and learn how to live off of what you actually make yourself.

Yes, it’s hard. Yes, it often means passing on things you’d like to have. However, there are many valuable lessons to be learned from that process. You’ll learn what’s truly important to you – and what really doesn’t matter too much. You’ll learn how to live frugally and understand quite well how to maximize a dollar. Those are lessons that will help you throughout your life, in more ways than just saving a dollar.

My last suggestion is one that’s good for everyone to follow: don’t let pride stand in your way. When people offer to help you, it’s because they want to help you, and you bring value into their life by accepting a helping hand sometimes. Don’t turn down a free meal from someone who appreciates the work you’re doing. Don’t turn away a friendly gentleman who is impressed with the work you’re doing and gives you $50 to help you out. Just don’t rely on these things – accept them as they come.

Pride is our natural enemy. It constantly causes us to make choices that put us in a worse place than before. It often causes more social negativity than social positivity. Never be too proud to accept someone’s genuine offer of help.

Here’s an example. In my early years, I knew several people who did missionary work for the Latter Day Saints. Even though I’m not a member of that church, I know that such work is long, hard, lonely, and often without reward. Today, I’ll often give a bag of cookies or a few dollars to such missionaries. Quite often, they’ll say no out of pride. Yet, I wouldn’t be offering if I did not genuinely want them to have what I gave them.

Good luck!

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http://www.getrichslowly.org/blog/?p=8035

Here’s a holiday video from 1950 showing Christmas celebrations around the world: in the United States, England, Holland, France, Sweden, Switzerland, Korea, Japan, Canada, Mexico.

As the spirit of Christmas unites all humanity, men and women everywhere reaffirm their faith in the brotherhood of man. The News Magazine of the Screen presents, from around the world, the spirit of PEACE ON EARTH, GOOD WILL TOWARD MEN.

Happy Christmas, everybody. Have a great weekend.

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Related Articles at Get Rich Slowly:

• Start Saving For Next Year’s Christmas Today
• Christmas 1950
• The Four Things Children Really Want for Christmas
• Best Dates for Holiday Travel 2007
• Taking a Break

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I hope that wherever you are and whatever you believe, good tidings are reaching you.

Tune in tomorrow for our regularly scheduled programming.

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Jenna writes in:

My husband and I have been talking about signing up for Netflix, but we’re just not sure if it’s worth the extra monthly bill. Do you have any thoughts or pointers?

Sarah and I have been on-again off-again Netflix users for most of the past decade. Our experience taught us a few things about Netflix – and about some broader money and personal issues related to watching DVDs.

First of all, Netflix really does what it says that it does. You get DVDs in the mail along with a return prepaid envelope. You can keep the DVDs as long as you want and watch them at your convenience. When you’re done, drop them in the envelope and stick it in the mail. It takes between one and two days for you to get a DVD in the mail. Plus, you can watch many of the items Netflix has available directly on your computer via internet streaming.

In all my years as a Netflix customer, the only issues I ever had were a few scratched DVDs, which were handled easily on the Netflix website. As a service, it does exactly what it claims to with very nice customer service.

The question really is do you actually need this service?

One reason that many people subscribe to Netflix is that they believe they’ll use the service a lot. They think of all of the movies and other media they’d like to watch, imagine receiving it in the mail (meaning no hassle at the video store), and they sign up.

But that’s not the reality of the situation.

Before we ever tried Netflix, we would watch about three movies at home per month. When we first signed up, we blew through a big pile of DVDs in the first month or two – a honeymoon period.

After that, we watched about three movies at home per month. And, to put it quite frankly, that wasn’t enough to warrant paying a monthly subscription fee to Netflix, not when we have quite a few friends who are happy to swap DVDs with us all the time and Redbox is easily available to us if we want to watch a new release.

Having Netflix doesn’t change your movie viewing habits beyond the honeymoon period unless there are other adjustments in your life. If you enjoy watching films or watching television series on DVD – and you do this quite often already – then Netflix will probably be a service that you get your money’s worth from.

However, if you don’t watch many movies now and you’re only considering subscribing because you imagine you’ll watch a whole lot more because it’s more convenient, you probably won’t, at least not after the honeymoon period (where you watch a flood of them at first).

That’s not to say no one who subscribes to Netflix doesn’t begin to watch more movies – I know of at least one person who unquestionably does. However, Netflix wasn’t the root cause of that change. That change in how he spent his time was a personal choice to spend more time watching films than to engage in other activities, such as World of Warcraft. This could have been done without Netflix at all – Netflix merely made his new hobby substantially less expensive.

If you watch less than a movie a week at home, Netflix probably won’t be worth it to you. If you watch a movie or more a week at home, Netflix probably will be worth it to you. What matters is your already-existing film watching habits – Netflix alone won’t change them.

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Most of us are lucky. We’re paid every week, every other week, twice a month, or monthly, and this makes it easy to make ends meet each month.

Some of us, however, live different lives. Freelancers, for example, are paid on a highly irregular schedule. Many graduate students receive only stipends three or four times per year. During the gaps between these payments, there’s a great challenge to make ends meet.

We live with a foot in both worlds. I’m basically a freelancer, so I’m paid whenever income opportunities come along. My wife has a very steady job with a steady paycheck. Our solution is simple: we use her income to make sure the regular monthly bills are covered, and my irregular income is often used to save for our big goals and to pay things off much faster.

What would I do if Sarah became unemployed, though? How would we survive if we had income arriving less frequently than once a month – or perhaps far less frequently?

Here are some of the tactics we’d immediately put in place to handle such a situation.

First, my irregular income would no longer go straight into my checking account. Instead, I would deposit all of my income into my savings account, preferably not at my primary bank. Why? I would not want easy access to those large sums of irregular money. Knowing that I had a lot of money in my account would make it easier for me to justify purchases that aren’t really justified.

So, I’d likely open up an online savings account at another bank and make sure all of my initial deposits went there.

Second, I’d set up regular automated transfers from that savings account into my primary checking account. I would effectively treat these automated transfers as my “paycheck.” I’d likely schedule about two a month and the amount would be enough to cover my bills, a little to spend as I saw fit, and a little left over to keep as an emergency fund.

Obviously, the big question here would be how much I actually spend each month. Budgeting would become really important, as I’d need to know how much I needed for bills, how much I would spend on other things, and how much I would want to save as an emergency buffer.

Third, I’d make sure that I was always withdrawing less than I was putting in to that master savings account. That master savings account must never run dry. In fact, over any given period of time, the balance of that account should be moving upwards. Doing this would ensure that I wouldn’t be going broke any time soon, no matter what was happening with my employment.

That extra money serves as something of an emergency fund hedge against unemployment or a big drought between contracts. It can also serve as a very nice bonus for a future time when your financial life changes – you graduate, or you find some sort of long term contract.

Finally, I would tend towards hyper-frugality. That is, until I was very sure that I had a decent money buffer up against unemployment or other events. I’d live in a tiny place, have roommates (if at all possible) to share the rent, and seek out every free service I could.

This is what many graduate students that I was friends with back in the day did. They would eat at every possible free meal, lived with several other students at once, and often potlucked as much as they could. Their entertainment was often purely from the internet or found in a deck of playing cards.

Of course, it’s key to remember that such situations are often the “salad years” for a career that will grow into something more steady – and perhaps more lucrative. Graduate school is preparation for work that requires a higher degree. Freelance work often builds into something much more. Often, this situation is temporary (though temporary can mean many years, sometimes).

http://www.getrichslowly.org/blog/2009/12/24/is-a-reverse-mortgage-right-for-you/

http://www.getrichslowly.org/blog/?p=8000

This is a guest post from Francine Huff, a freelance journalist and writer at BestReverseMortgage.com and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows. Visit her web sites Huff Writes and Super Savvy Spender.

Whether through recent news articles or over the water cooler, you’ve probably heard something about reverse mortgages. But if you (or a loved one) is considering this type of loan, don’t base your opinion on hearsay. For such a major financial decision, it’s worth getting the facts about reverse mortgages. This type of mortgage can actually be a valuable option for people in the right circumstances and who understand the terms of the deal.

Reverse mortgages convert home-equity into cash
What is a reverse mortgage? If you own a home and are 62 or older, a reverse mortgage is a way to convert some of your home equity into cash. Rather than make monthly payments to your lender, your lender is making payments to you. The money you borrow through a reverse mortgage is paid back, with interest, when you move out of your home, sell your home, or die.

The older you are and the more valuable your home, the lower the interest rate you can get in a reverse mortgage — meaning you can borrow more money.

Why and how do people use the money borrowed through a reverse mortgage? Cashing out home equity in this way can be helpful if you have a fixed income and need more money to pay for household bills, debt, medical costs, home repairs, or other expenses. The money from a reverse mortgage can be paid out as a lump sum, in regular payments, or as a line of credit.

Unlike with traditional mortgage loans, your credit history does not matter with a reverse mortgage. However, the house must be your primary residence, so vacation homes and investment properties do not qualify.

Effect on taxes and government program eligibility
If you’re concerned that the additional money will boost your income tax liability, don’t be. Money obtained through a reverse mortgage loan is not considered taxable income. You also keep the title to the home and can never be forced to move as long as you pay the property taxes and insurance. If you and your spouse take out a reverse mortgage together, the loan isn’t due until both spouses have moved or died.

If you receive regular Social Security or Medicare payments, they won’t be affected by taking out a reverse mortgage. However, your eligibility for Medicaid payments could be affected. Money received from a reverse loan may be considered an asset and could keep you from getting Medicaid.

For example, if you receive $4,000 from a reverse mortgage and spend it all the same calendar month, you can receive Medicaid, according to the National Reverse Mortgage Lenders Association. If you spend some of it and put the rest in your savings account, that’s where you can run into problems. If your total liquid assets exceed $2,000 ($3,000 for couples) the next month, you wouldn’t be able to receive Medicaid.

Are you a spendthrift?
One of the disadvantages of a reverse mortgage is that getting money this way won’t correct poor spending habits. If you have trouble managing your money, a reverse mortgage won’t solve your financial problems.

For some folks, getting their hands on a large sum of cash may result in poor spending choices that could leave them without enough money for basic living expenses later on. Who hasn’t heard horror stories of retirees blowing reverse mortgage money in record time on expensive vacations, meals, cars, and other frivolous purchases? Anyone who really has a problem with debt and managing money may need to speak with a credit counselor.

Credit counseling differs from reverse mortgage counseling, which is mandatory for most reverse loans. This free or low-cost counseling can be done in person or by phone. The goal of counseling is to get detailed reverse mortgage information to help you decide if using one of these loans is a wise choice. Counseling can help you review other alternatives to getting a reverse loan. Find a HUD-approved counselor to talk through your options. Seniors who use reverse mortgages can reap a lot of benefits, but these loans aren’t for everyone.

Your home appraisal
You may not benefit much from a reverse loan if you don’t have enough home equity. When you apply for a reverse mortgage, your home will be appraised to determine its current market value. The more equity you have in your home, the more money you can potentially receive through a reverse mortgage. After the past year’s market performance, it’s worth noting that no matter what happens with the housing market, the amount owed on a reverse mortgage never exceeds its market value at the time a house is sold.

Just make sure you really want to cash out that home equity. When you own a home free and clear, you can leave it to your heirs without too many restrictions in most cases. But with a reverse mortgage, one of the disadvantages is that if you want your heirs to have the home, they (or your estate) must pay off the loan balance first. They also could choose to sell the home and keep any remaining equity after repaying the lender. If they don’t want the home, they can do nothing and the mortgage lender takes the property.

Reverse mortgage disadvantages: Loan fees
Reverse mortgages usually have a lot of upfront costs, so you may want to consider other alternatives to getting more funds if you plan to move from your home in a few years. Some other ways to improve your cash flow are to redo your budget to reduce expenses, get a home equity loan or no-interest loan from a local government agency or nonprofit, or look for grants for homeowners in your area.

One thing to remember is that the US Department of Housing and Urban Development’s Home Equity Conversion Mortgage (HECM) allows you to use the proceeds from to buy another home as your primary residence. So you can use the money from a reverse mortgage to downsize to a less expensive place.

Get the reverse mortgage facts to help you decide
As more seniors have struggled to make ends meet in recent years, reverse mortgages have grown in popularity. Some consumer advocates and legislators say reverse home loans are heading for another meltdown like subprime mortgage loans. Others believe that these loans have a lot of value and can help seniors live more comfortably in their golden years.

It’s up to you to make the right decision based on your personal financial situation. And don’t let pushy salespeople pressure you into signing up for a reverse mortgage without understanding all the consequences. Talk to a counselor to discuss reverse mortgage facts and whether one makes sense for your needs.

J.D.’s note: I know absolutely nothing about reverse mortgages. In fact, before doing research for my book, I had vaguely negative feelings about them. But lots of financial experts I trust think they’re a good option — in some cases. Do YOU know anyone who’s taken out a reverse mortgage? Are they glad they did? Or do they wish they hadn’t?

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Related Articles at Get Rich Slowly:

• The Right Way to Use a Reverse Mortgage
• Use “Reverse Credit” to Stick to Your Budget
• The Best Ways to Boost Your Retirement
• Daily Links: Yard Work Edition
• Compare the Best Mortgage Rates

http://feedproxy.google.com/~r/thesimpledollar/~3/Gmwp8PV57vU/

http://www.thesimpledollar.com/?p=4757

With Christmas comes the new year, and with the new year comes the painful cycle of preparing one’s taxes.

I personally loathe tax time – to me, it’s an example of how the government simply doesn’t work very well at all. The tax code should not be tens of thousands of pages in length when it’s expected that everyone navigate it.

Yet, that’s the situation we’re dealt with.

Thankfully, there are many things we can do – starting right now – to make things easier for us when we actually file. Here are nine steps you can take right now to make things easier.

1. Prepare a central location for all of your tax documents. It might be a desk drawer or it might be a folder. Just be sure you have one single place for the tax documents you’ll receive in January and February, so that when you do file your taxes, you can easily and quickly find all of the documents you need in one place.

2. Use this last week of the year to take advantage of any tax breaks. For example, there are many tax breaks available for simple energy efficiency improvements that you can do in this final week of the year.

3. Finish up your charitable contributions. If you’ve been intending to give money to charity this year, get it done now so that you can claim the deduction on your taxes. Keep careful track of what you donated – perhaps even in that central folder for your documents.

4. Purchase and install the tax software of your choice. The mainstream tax software packages all do a pretty good job. Get one early, install it, and make sure it’s updated (and you know how to use it) before crunch time rolls around. You don’t want April to arrive

5. Start hitting some tax-oriented blogs. If you’re obsessed with squeezing every nickel from your return, you can start subscribing to solid tax-oriented blogs like the WSJ Tax Blog or Tax Rascal. (I’m partial to the TurboTax Blog because I’m occasionally a guest contributor.)

6. Do a rough estimate. This is the perfect time to do a “back of the envelope” estimate to see whether or not you’re actually going to owe taxes this year. It doesn’t have to be perfect, but it’s a good idea to do it – and to estimate high, so you don’t get a nasty surprise in a few months.

7. Start saving. If you do have a bill coming, start saving to make sure that bill is well-covered. Again, aim high – having too much savings isn’t really a problem, but not having enough really can be.

8. If you’re afraid of doing taxes yourself, find a good preparer. This is a good thing to ask your friends and associates about. Who prepares their taxes? Do they do a good job? Is there anyone to avoid? You might even find yourself with a foot in the door of a really good preparer.

9. Come up with a plan. Don’t wait until the last day to do all of your taxes at once. Do it a bit at a time, spread out over a longer period. This allows you to check over your work with fresh eyes (and perhaps notice things you didn’t see before). Come up with a plan – maybe you’ll spend an hour each Saturday starting in February on your taxes. Add it to your calendar now so that you’ll know you’ve got to do it.

http://feedproxy.google.com/~r/thesimpledollar/~3/1f9lV0GGaBg/

http://www.thesimpledollar.com/?p=4755

For this week’s roundup, I went to several of my favorite personal finance sites and looked for useful Christmas-related posts to share with you all – and I found quite a few. Enjoy!

Who and How Much to Tip During the Holidays The link to Emily Post’s suggestions in this article is quite useful, but so are the comments. (@ five cent nickel)

The Wealthy Aren’t Who You Think They Are Frugality and tightwaddishness (is that a word?) aren’t the same thing at all. (@ free money finance)

5 Green Gifts of Experience and Time These are gifts that are awesome to receive at Christmastime. (@ bargaineering)

Gifts for the Person who Has Everything It’s always important to remember that no one on Earth has enough time. (@ wisebread)

Start Saving For Next Year’s Christmas Today My Christmas 2010 plans will begin on December 26 at about 10 in the morning. (@ get rich slowly)

100 Ways to a Stress Free Christmas I included this two weeks ago, but I’m including it again today because I’ve read it so many times this Christmas season and a bit of de-stress can really help a lot of us out this time of year. (@ dumb little man)

http://www.getrichslowly.org/blog/2009/12/23/your-money-thermostat-wheres-your-financial-comfort-level/

http://www.getrichslowly.org/blog/?p=7829

This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

I must confess to a new habit: I collect discarded ATM receipts. It all started when I walked by the bank in the building next to Motley Fool Intergalactic Headquarters, and found one such receipt blowing in the wind. I was shocked by how little the person had in her/his bank account, and how much she/he paid to get what cash was available.

To see what I mean, check out the stats on seven receipts I’ve recently picked up:

What comes to your mind when you look at those numbers? Here’s what comes to my mind:

• Some people have very small bank accounts. Only one of those accounts is substantial. Of course, this may not be the only bank accounts these people have. But if it is… well, these people are living on the financial edge. I suspect they have other accounts with much bigger balances: their credit card accounts.
• Some people are willing to pay a lot to get their cash. Three of these people paid three bucks. In the case of the last person, that $3 ATM fee was 15% of the withdrawal and 4.5% of the entire bank balance.
• Some people don’t give a hoot about polluting. I don’t dig through the garbage for these receipts; they all have been thrown on the ground. Some people take the time to rip them up and then throw them on the ground (even though there’s a trash slot under the ATM). I have considered the possibility that the receipts I collect aren’t indicative of banking customers in general but a self-selecting sample — specifically, people who have little regard for their community also have little regard for their own personal finances. Just a theory…

What’s your ther-money-stat?
Here’s another theory I have: We each have an internal level of financial stasis that involves having a certain amount of money in the bank, a certain level of debt, and a certain amount of each paycheck going to savings — an internal “ther-money-stat,” if you will. If we somehow find ourselves in a better situation than our regular level of financial comfortability, we turn up the spending. Perhaps it’s due to a raise, or a bonus, or an unexpectedly large tax refund. But as historian C. Northcote Parkinson wrote, “Expenses rise to meet income.”

On the flip side, there’s a level at which we freak out. Our financial condition drops below our internal ther-money-stat, and we swear off restaurants, movies, vacations, and anything but the necessities. (By the way, a difference in these internal levels is one of the biggest sources of conflict between couples.)

If I had just a few hundred dollars (or less) in the bank — as is the case for plenty of people, according to the ATM receipts I pick up — I would immediately cancel the cable and the cell phone, turn down the heat and layer up the sweaters, and likely get a second or third job. I would barely be able to sleep with that little in the bank.

Of course, I don’t know the stories behind these receipts, but my guess is that these folks have a much lower ther-money-stat than I do. The question is, can it be changed? Can someone who is willing to pay $3 to withdraw $20 from a $71.04 bank account turn into someone who would not rest until there’s three to six months’ worth of living expenses in an emergency fund?

I think it’s possible; you GRS readers have told us before what got you to become fiscally fit. But I bet it’s not easy.

Season’s depletings
I suspect that many of us (myself included) tend to get a bit self-righteous when we see evidence of people making bad financial decisions. However, I can’t help — especially at this time of year — to also feel sorry for these low-balance bank customers. There are plenty of people who are experiencing tough times due to no fault of their own. I can even conjure images of parents withdrawing from their measly accounts to buy gifts for their kids. (I’m a sucker for a holiday sob story.)

So whatever the reason for these folks’ modest bank accounts, here’s to hoping that they — and you — have an enjoyable holiday season, and that 2010 brings bigger bank balances to us all.

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Related Articles at Get Rich Slowly:

• Programmable Thermostats: A Three-Month Review
• Take Small Businesses to the Next Level
• How to Slash Summer Energy Costs
• Cheap Ways to Stay Warm this Winter
• Where’s George? The Dollar-Bill Tracker

http://www.getrichslowly.org/blog/2009/12/22/the-basic-law-of-frugality/

http://www.getrichslowly.org/blog/?p=7956

April’s post this morning about renting designer purses and other luxury items raised a few eyebrows. Because the focus here at Get Rich Slowly is on frugality, it’s not often that we delve into the world of high fashion.

In the comments, for example, Ami wrote:

I thought this was the Get Rich Slowly site, not the fritter your money on fripperies site. For me, Getting Rich Slowly is about changing your mindset about what’s necessary and important, which reduces your list of financial needs.

I think Ami’s comment is spot-on. Smart personal finance is about changing your mindset about what’s necessary and important, about reducing your list of financial needs. But I’ve learned that part of this is finding a balance so that you aren’t ignoring your Wants entirely. As Ramit at I Will Teach You to Be Rich says, there’s a place in every budget for conscious spending.

The basic law of frugality
Last summer, Kris and I had dinner with some of her old teacher friends. (My wife taught high-school chemistry and physics for eight years. She’s been out of the field now as long as she was in it, but we still get together with her former colleagues several times a year.)

During the conversation, one of the women — Linda, who teaches history — revealed that she doesn’t own a computer. She didn’t even have a functional TV until her siblings bought one for her. She’s never felt the need for these things, and she’d rather spend her money on something more important to her, like world travel.

Which is the “better” way to spend your money: world travel, an expensive handbag, or an HDTV? Or should you simply tuck your money into a high-yield savings account? This will come as no surprise, but I don’t think there’s any one right answer.

We each have things we spend on that others think are crazy. Linda is willing to live without a TV or a computer so she can fly to China and Belize and Nepal. Other folks are willing to cut corners on housing so they can afford four surfboards. I buy comic books, but I don’t spend much for clothes.

Are these things frugal? If your goal is to pinch every penny, then no they’re not. But if your goal is financial balance, spending on the things that make you happy is perfectly fine. To me, the basic law of frugality is: Decide what’s important to you. Give yourself permission to spend on these things. Pinch pennies on everything else.

Sometimes you CAN get what you want
I have no concept of fashion. I don’t care about name-brand watches, purses, shoes, jackets, or jewelry. For better or worse (and some would say it’s worse), my style is thrift-store chic. All I want to do is pay as little as possible for basic clothes. But I’m not about to condemn those folks who do like fashion.

If you can afford it — by which I mean you’re not sacrificing your financial goals — and if you’re spending consciously and if you’re comparison shopping and if you’re buying quality…If you’re doing all of these things, then there’s absolutely nothing wrong with buying an expensive purse, if that’s what’ll make you happy.

Frugality doesn’t have to mean sacrificing quality. And it doesn’t have to mean you never buy anything you want ever again. You can’t always get what you want — but you can sometimes!

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Related Articles at Get Rich Slowly:

• Call for Submissions: Festival of Frugality
• Frugality is Important
• links for 2007-02-09
• links for 2006-11-01
• Is Frugality a Necessary Evil?

http://feedproxy.google.com/~r/thesimpledollar/~3/o9kmY0rnGbM/

http://www.thesimpledollar.com/?p=4753

One of my biggest time management weaknesses is gaming. I love taking breaks to try out a new free computer game. Most of the time, though, the game’s not engrossing enough to hold my interest.

This list is filled with the exceptions.

Here are six free computer games that are so filled with incredibly enjoyable game play that I find myself going back to them time and time again for just one more play.

League of Legends
http://www.leagueoflegends.com/
League of Legends is a fast-paced competitive online game that mixes fast-paced game play and careful planning in an interesting mix. In the game, you play as a champion who battles other champions in online matches. The gameplay is really straightforward – mostly, you’re competing on a large map (that’s extremely reminiscent of Warcraft III) where you move your character around with the mouse and order it into combat against the enemy. As you battle, your character grows stronger, learning new abilities, and it also picks up gold, which you can use to buy better weapons and armor within the match. Usually, you play in groups, where two teams of five players compete against each other. The game also includes a really smart matchmaker which pairs you against people of a similar skill and experience level as you.

What makes this game so interesting is that as you play more matches (win or lose), you slowly earn experience points, which allow you to not only unlock new champions to use in the matches, but also allows you to make your various champions stronger. The addictiveness of the gameplay is immense – you find yourself improving your character a bit, then you want to jump back in and play some more.

If you play League of Legends, you might see me on from time to time. My summoner name is Volarus (a name I sometimes use in online games).

Desktop Tower Defense
http://www.handdrawngames.com
I’ve mentioned Desktop Tower Defense before, but I’ll mention it again here for two reasons. One, after four years, I’m still playing it. Two, they have a new “pro” version with a ton of scenarios and other features to play through.

Desktop Tower Defense is a very simple game in which you place towers within a small rectangle while little critters run across the screen. The towers you place shoot the critters and, with each critter taken out, you earn a bit of gold. However, each wave of critters is a bit stronger than the next, so you have to use your gold to either upgrade your current towers or place new ones.

It’s really addictive and plays quite easily in your web browser.

Line Rider
http://www.official-linerider.com/default.aspx
Line Rider isn’t really so much a game as it is a creative sand box. With your mouse, you draw a line, then you click start. A little guy appears and begins to slide along your line, being pulled downwards by gravity. When he reaches the end, he leaps off into the abyss.

Then you try again, with three or four lines – or whatever you want. Then you click start and see what happens.

And again. And again. And again. Until you make something like this. Well, maybe not, but you’ll almost assuredly make something goofy and elaborate.

Bridgecraft
http://www.candystand.com/play/bridgecraft
Bridgecraft’s name basically says it all – you build bridges so that a person can easily cross it. The first few are easy, then suddenly the difficulty goes way up. You have to step back and think about the problem for a while – thus, it almost becomes a puzzle game of sorts.

Never mind the cartoony graphics, there’s a ton of gameplay to be had here.

The Space Collective
http://www.casualcollective.com/#games/the_space_game
A simple version of Starcraft, playable in a web browser? That’s probably how I would describe this one, as it’s a real time strategy game in which you gather resources, defend your resource-gathering structures, and build structures to attack the resource-gathering structures of others.

The learning curve is a bit steep, but if you play around with it, it’s pretty easy to figure out, particularly if you’ve played games like Warcraft and Starcraft in the past.

Fantastic Contraption
http://www.addictinggames.com/fantasticcontraption.html
This is a very addictive little puzzle game in which you’re simply building contraptions in order to move a ball into a goal. As the game goes on, the required contraptions become more and more elaborate and require more and more forethought to assemble.

Like DTD, above, this is a game I’ve played for years and keep coming back to time and time again.

I actually had an seventh game on this list, but I chose to remove it because it featured a very loud ad for a feminine hygiene product as the game was loading. No matter how good the game is, I’m just going to click away from that. (And, no, this isn’t sexism – I have similar feelings about any male ads along similar lines.)

If you reach the end of this post and haven’t enjoyed yourself for several hours (for free, no less!)… well, you need to go back up there and try out some more links.

http://www.festivaloffrugality.com/festival-of-frugality-commiserates-with-birthdays.htm

http://www.festivaloffrugality.com/?p=609

I am on vacation away from home, and my wireless connection is less than ideal at the moment.  So visit Studenomics’ explanation of why birthdays are not always merry, and see who’s who in the Festival of Frugality this week!

And remember to enter for next week’s edition – information on the submission link on the right!  The host is still pending, so it could even be you – see the info on the hosting page linked to the right   Start out the new year right with some Festival goodness.