Books with Impact: Atomic Habits

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The “Books with Impact” series takes a deeper look at specific books that have had a profound impact on my financial, professional, and personal growth by extracting specific points of advice from those books and looking at how I’ve applied them in my life with successful results. The previous entry in this series covered The One Thing by Gary Keller and Jay Papasan.

If there’s one thing I’ve learned over the last few years, it’s that if you want to succeed at any life improvement goal, you have to alter your normal daily routine such that every single day naturally produces some progress toward your goal.

I was really able to observe this through my own personal experience with personal finance. I spent a lot of time during the early years of The Simple Dollar trying to reduce my burn rate and also automating as much of my savings plan as possible. The end result is that I go through what feels like a normal day right now and I simply move closer to my big goal of financial independence.

Over the years, I’ve tried to understand what made us succeed at our big personal finance goals while having a mixed bag of results at other personal goals in our lives. The two biggest runaway successes in my life (aside from my marriage and my children) were the personal finance changes we made and the construction of a successful business. Knowing that it was the daily routine that was at the heart of those successes, why did things work so well for those goals and flop with other goals? What was the difference?

The book Triggers, which was an earlier entry in the Books with Impact series, provided some insights. That book is all about correcting behaviors, and behaviors are simply made up of the things we do that are triggered by our internal and external environments. The book focuses on finding ways to alter one’s internal and external environments so that better behaviors naturally occur, and the system it provides is extremely powerful at doing so, particularly when it comes to altering specific things you notice that you’d like to do differently.

The system in Triggers is really powerful for passive and reactive changes you want to make to yourself – things that are very automatic and internal – but it’s not as good at stimulating proactive change – when you want to actually make doing something normal. For example, Triggers works well if you want to, say, eat X instead of Y or eat less period, but it doesn’t work as well if you’re trying to add a new habit to your life.

That’s where Atomic Habits by James Clear comes in, and I think it’s a great complement to Triggers.

The key idea behind Atomic Habits is that big goals are good for some inspiration and a bit of motivation and perhaps for setting some general direction, but goals alone won’t make you change. Rather, Clear’s book focuses on systems – very simple daily actions that constitute a step in the right direction toward your big goal – and elevating those systems and daily steps to being the main focus for change.

Let’s dig in.

The Fundamentals: Why Tiny Changes Make a Big Difference

Many people, when they think about change, they think about having to make some radical shift in their life to accomplish a huge goal. “I want to lose 100 pounds this year, so I’m going to have to live off of carrots and move into the gym.” That’s not sustainable. Very, very few people are going to be able to do that.

Clear argues on behalf of a systematic approach. Big goals are fine as a tool for figuring out your direction going forward, but what he’s interested in is defining the direction in which you want things to change and then coming up with a system that involves daily action that nudges you in that direction, and then focusing entirely on the system.

So, rather than having that stark “I want to lose 100 pounds this year” goal and planning around that, Clear advocates coming up with a system of very simple daily action that takes you toward that goal. For example, you might focus on something like a daily calorie counting goal or simply maintaining a one-meal-a-day or an intermittent fasting routine.

The point is that you have to have a daily system in place that takes you a step closer each day to your goal, and it has to be a system you can stick to. If you have that system, all you have to do is focus on that system and the goal becomes inevitable.

Clear offers a ton of examples of this in various fields. They all boil down to the same thing: a 1% improvement in your daily routine adds up over time and tends to have a multiplicative effect for many goals. You want to lose weight and feel more energetic? Do a very small amount of exercise daily and tweak your dietary routine just a bit. You will gradually start losing weight and as that starts to happen, you’ll find yourself naturally becoming more active because you weigh less and you’re more fit. This results in more daily calories burnt and if you’re sticking to your tweaked routine, your movement toward a healthier body will accelerate.

A similar phenomenon is true for things like knowledge acquisition. If you spend, say, 30 extra minutes studying each day, you won’t see much of a change at first, but over time, the extra studying you did earlier will enable you to dig further and further into the subject, allowing you to build knowledge and connections and skills at a continuously accelerating rate.

Often, progress like this has a “tipping point,” in that you won’t notice much progress for a while and then suddenly the visible changes come in a flood. I love Clear’s ice cube analogy here, which he discusses on page 20 of the hardcover version of the book. Imagine that you’re watching an ice cube and each day, your system turns up the temperature by one degree. You start at -10 F, and then the next day you go up to -9 F, and there’s no change. -8, -7, -6, no change in the ice cube. Day after day after day, no change. But then, one day, you reach 32 F and suddenly the cube starts to melt – radical change, and you can see all of that effort paying off. That’s why it’s a good idea to trust your system for a long while. Do the homework and planning to make sure your system is good and then give it plenty of time and trust so that you don’t give up before your ice cube melts.

So, how do you make an effective system? How do you come up with very basic daily habits that can be made into a routine that you’ll stick with and will guide you meaningfully toward your goal? That’s most of what the rest of the book is about.

This is the point in the book where the material overlaps the most with Triggers. They both identify a structure in which our normal behaviors become a cycle, each book offering up a few variations. In the case of Atomic Habits, Clear breaks habits down into a four part cycle: cue, craving, response, and reward. The end result of this is that we eventually associate the reward (and, to an extent, the response) with the cue.

Let’s say, for example, that you’re checking your email and this makes you a bit anxious and stressed (cue). You start to crave something that will alleviate your stress and the thing you find that’s convenient is chewing your nails (response). This takes the edge off your feelings of anxiety (reward), and thus you start to associate checking your email with chewing your nails.

A good system identifies and disrupts some of those associations in your life. For example, if you respond to certain cues by eating, a good system will disrupt those relationships.

Clear identifies four “laws,” one for each of the elements in that cycle (cue, craving, response, reward). Together, strategies that address all of these elements will make for a great system that will bring about the changes you want in your life.

The 1st Law: Make It Obvious

The first piece of the puzzle is to address cues, and the place to start with that is to figure out the things in our life that serve as cues. Clear recommends making a giant list of all of our daily habits as a first step in identifying what kinds of cues actually drive us. You’ll find that there are lots of cues that exist in our life, some of which we can control and some of which we can’t.

This is where I feel like Triggers and Atomic Habits diverge. Triggers focuses much more on dealing with habits with cues we don’t control, whereas Atomic Habits deals with habits where we can control the cues.

The basic recipe that Clear proposes is that if we want to establish a new habit, it should follow a recipe:

I will [BEHAVIOR] at [TIME] in [LOCATION].

I will meditate at 7 AM for one minute in my kitchen.

I will study Spanish for 20 minutes at 6 PM in my bedroom.

I will preheat the oven for dinner the moment I walk in the door from work in my kitchen.

I will wash my car on the first Friday of every month on my way home from work at the car wash on Main Street.

You get the idea. A very specific behavior, at a very specific time, and a very specific location.

A system is essentially a handful of these habits that are all pushing you in the same overall direction. Often, these habits can be stacked – you do a handful of these habits at the same time in the same location so that they effectively become one habit.

I will preheat the oven and then meditate for one minute when I walk in the door from work each day in my kitchen.

I will wash my car and air up my tires on the first Friday of every month on my way home from work at the car wash on Main Street.

This sets the stage for things like morning routines, where you do a certain routine of specific actions upon waking up, or an evening routine or a before-bed routine.

Another element of making cues obvious is to make your environment conducive to remembering them. If you need an item to perform a habit, put that item in the right place so that you find it there. It’s the same reason you keep your toothbrush by the sink in the bathroom. Do the same thing for every habit that you have – put the stuff you need right where you’re going to do it so that there’s minimal pushback against doing it. Set it out where you can see it.

Eventually, the habit gets associated with a lot of elements in the environment, and when that happens, it becomes more and more and more natural and ingrained in your life.

Similarly, if you want to reduce a bad habit, remove the cues for it from your environment. Throw away the junk food and the cigarettes. Cut up your credit card. Find a different commute. Remove the cues at all costs.

The 2nd Law: Make It Attractive

The problem with many new habits is that they’re unpleasant. We don’t necessarily want to do things in this new and different way, for any number of reasons. Maybe we don’t want to exercise. Maybe we don’t want to cook meals at home. Maybe we don’t want to put aside time for prayer.

The way around this is to tie that difficult new habit to something we want to do via habit stacking.

For example, let’s say we have a habit we want to establish like “At 7 AM each morning, I will exercise for 20 minutes in the living room.” You don’t really want to exercise, so that’s going to be hard to establish.

So, instead, establish this second habit. “After I exercise for 20 minutes, I’ll have a cup of coffee and sit down with my phone to read the news for 15 minutes.”

That second part sounds really pleasant. If you tack it on to the first habit by linking them together, you utilize the craving you have for the enjoyable part by using it as a carrot to get through the challenging part.

You can also make a new habit feel more attractive by making it feel more normal. We find ourselves taking most of our behavioral cues from three different groups: the close (those we spend a lot of time with), the many (the mass of humanity), and the powerful (those in a strong and/or influential position). Putting effort into tuning each of these groups in your life can make your new systems seem much more natural and supported.

Spend more time with friends who do similar things to your new system. Look for media coverage of people doing things like what you’re trying to do. Look for role models who are doing similar things as well. If you surround yourself with those elements, your new habits and systems feel more natural.

If you want to eliminate a bad habit, apply the inverse of all of this to it. Make it unattractive. Focus on the negatives of the habit and the positives of not doing it. Penalize yourself whenever you do it by associating a penalty of some kind. Look for negative role models associated with that habit – people who ended up in a bad place because of the habit.

The 3rd Law: Make It Easy

The more difficult and intrusive a new habit is, the harder it is going to be to add it to your life. A habit of one minute of meditation is easier to add to your life than an hour of meditation. A habit of one pushup is easier to add to your life than a habit of an hour of exercise.

Clear suggests utilizing this understanding and paring every single habit down to a two minute action. You absolutely should make your daily habit something like “meditate for two minutes” or “read one page” instead of “meditate for an hour” or “read fifty pages.” Why? You’re much more likely to actually do it each day if the habit is less intrusive and burdensome.

The nice part about such habits is that you usually feel inclined to do more of them if there is time. You don’t have to read more than one page, but if you have nothing going on in the next half an hour, why not read ten pages? You don’t have to do more than one push-up, but if you’re down there, why not do a set of ten and then maybe another set of ten? You don’t have to meditate for more than a minute, but you’ve got time, so you set that timer for fifteen minutes.

The point is not to do a very tiny trivial task, but to simply master the art of showing up. If you meditate for one minute a day, meditation is now a daily part of your life and you can choose to meditate for longer if you wish.

Another suggestion that Clear offers is to write down your tiny habit (“Atomic Habit,” perhaps?) and then write down a few bigger versions of it. For example, your super-easy daily habit might be to do one push-up, but what about doing ten? A set of fifteen, a set of ten, then a set of five? A set of 70% of your max, then 60%, then 50%, then 40%, then 30%? The habit is all about doing the easiest version, but you have some options to choose from once you “show up.”

If you want to take it even further, automate that habit if possible. This is a great way to approach a lot of personal finance goals, as you can easily automate savings plans and extra loan payments with online banking. You can set your phone to go to silent from 8 AM to noon and then from 12:30 PM to 5 PM. You can set up a water purifying filter right on or under your faucet so that having good drinking water is practically automatic. In terms of killing negative habits, you can install a website blocker that keeps you from visiting social media.

The 4th Law: Make It Satisfying

Clear argues here that if you want to get a habit to stick, it needs to feel immediately satisfying. If it doesn’t feel good, then you’re probably not going to stick with it for very long, because discipline only lasts so long. The first three laws are all about getting you to do the habit for the first few times; this is about sticking with it over the long haul.

Clear’s big universal suggestion for all habits is to track them. Keep track of the fact that you executed your habit each day and perhaps a number associated with the effort. Try to start building a chain of Xs or of non-zero numbers and you’ll eventually start feeling great satisfaction from that chain and want to keep adding to it. Doing something two days in a row feels good; doing something 100 days in a row feels amazing.

This kind of tracking becomes an addendum to your habit. “After I do my push-up(s), I’ll record how many I did in my spreadsheet.” “After I read, I’ll record my current page count on Goodreads.” “After I put away my dishes, I’ll record what I ate.”

What if you break that chain? Start a new chain as quickly as possible. One misstep isn’t a problem; two missteps is the beginning of a new negative habit.

Eventually, continuing the chain becomes incredibly satisfying, and it can be enough of a lure to keep you doing the habit even when you don’t want to. We all have days where we don’t want to exercise, but pushing through and keeping that chain alive is really rewarding.

The reverse is true when trying to undo a bad habit – you want to make it unsatisfying. A good way to do this is with an accountability partner, where you have to tell that person if you screwed up, or perhaps with a promise to announce your screw-ups on social media. That sounds like misery, so it’s a strong nudge to stay on a good path.

Advanced Tactics: How to Go from Being Merely Good to Being Truly Great

The last, rather short section of the book is essentially a number of short essays on building habits that really don’t fit into the above sections.

For example, Clear goes into a discussion about finding habits that are going to be incredibly transformative for you. One thing he suggests doing is finding things that you enjoy doing that others view as work and using habits to build your skill in that area. Also, look for things that make you lose track of time and things that come naturally to you. Habits centered around those often end up leading to fantastic results, as you become very good at something that other people struggle with. It can be a skill that you can easily make money from.

Another suggestion Clear offers is to find that happy middle point between something being so simple that you’re bored with it and so difficult that you fail at it. You want it to be challenging, but not so difficult you have no chance at it. Don’t lift 5 pounds, but don’t lift 1,000 pounds. Find the spot in the middle that works well for you.

If you’re struggling with being bored in your habit, find some way to add variability to it. For example, I find that rather than having a set fitness plan, I get a lot of value out of doing a random set of exercises each day. My fitness “habit” is just doing the Darebee daily exercises, then doing a random set of taekwondo practices from an app I set up on my phone. That way, it doesn’t feel the same every day. I also switch up my stretching routine regularly; if it begins to feel dull, I find a new one to do, ideally one that’s fairly challenging but not impossible. The goal is to stretch every morning, not to do that specific routine every morning.

Clear also points to the value of developing a handful of synergistic habits, things that actually nudge each other to better results than you would have achieved with a single habit on its own. For example, I stretch, do a bodyweight exercise routine, and do some taekwondo practice every day, and those actually aid each other and make each one easier and more effective. The same is true for habits like saving money for the future and being frugal with your spending – they aid each other and the more you put into frugality, the more you can save.

Final Thoughts

I found that the advice in this book works best for goals and habits that you can approach with very clear and specific daily activities, like a daily exercise routine or writing in a journal each day or meditating each day or doing a load of laundry each day or simply getting out of bed and showering each day. If you have a big goal that can be approached with systematic daily small habits like these, Clear’s advice is tremendous.

However, it doesn’t really hit home as well when you’re trying to change more nebulous things about yourself, like your proclivity to eat out of boredom at random moments throughout the day or your shyness around other people. If the thing you want to improve about yourself is best described with a “to be” verb, this system doesn’t work quite as well. I think that Triggers is a much better system for this.

Over the last few months, I’ve been using both systems in my life. I have a bunch of “atomic habits” I’m tracking in a notebook, along with a bunch of “daily questions” (from Triggers). I will likely show off my system in a future article once I give it a few more months to really refine it.

I think if you’re struggling to make changes in your life, both books are well worth reading and both systems are worth applying in your life, but some elements will click better with some people than others.

Good luck!

The post Books with Impact: Atomic Habits appeared first on The Simple Dollar.

Feeling the Burn Rate

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When I was a little kid, my family really didn’t spend much money at all. We raised a lot of our own food with two huge gardens (and a lot of canning), my father’s side gig as a small-scale commercial fisherman, and a lot of chickens in a chicken pen. We didn’t have cable and just enjoyed five channels that we could pick up on the antenna (ABC, NBC, CBS, PBS, and Fox). We lived in a pretty small house in a rural area. Our cars were bought used and driven into oblivion, then replaced with another used car. We didn’t have cell phones or home internet or Netflix or anything like that. My mom bought almost everything in store brand form when she went grocery shopping.

In short, the actual annual expenses were pretty low. I’m willing to bet that they added up to less than $20,000 per year.

At the same time, however, my parents didn’t earn a lot of money. My mom was a stay-at-home mom, which certainly helped with the home economy but didn’t bring in dollars. My dad worked in a factory some/most of the time, but the factory struggled and frequently had mass layoffs (with the continual promise of rehiring when orders picked up), so he often had to rely on his commercial fishing side gig to bring in income (and food).

Like many American families, this translated into variable spending. In years when there wasn’t a lot of income, things were lean. There wasn’t any extra spending at all. The holidays would be pretty tight and there wasn’t any money for things like extracurricular activities, though there was always food on the table and a roof over our head and clothes on our backs. In other years, there would be more money and at least some of that was spent on unnecessary stuff. There would be a ton of birthday and Christmas presents, for example, and a couple of times we even went on short trips around the Midwest (summer vacations typically didn’t involve any travel at all when I was young).

Along the way, my parents did two really wise financial things.

One, they never allowed much debt to accumulate. There was a mortgage on our home that was paid off at some point in my childhood, and there were occasionally car loans from the local bank that were paid off quickly, but there was never any credit card debt or other debts. It just didn’t exist.

Two, they kept a very nice emergency fund at a credit union associated with where my father worked. My parents had money automatically taken out of his paycheck and put into his credit union account, and that money would come in handy in emergencies, like a layoff or a car breakdown or something like that.

What does this mean? It means that, for almost every single year when I was young, my parents spent less money than they brought in. Even though our family’s income was relatively low, my parents were wise enough to never allow our spending to even match that income. They kept our spending even lower.

The result was that, over the years, and particularly after my brothers moved out and I left for college, my parents became at least somewhat financially prosperous. When a 401(k) became available at my father’s workplace, he started contributing to it. They actually inched up the money they were contributing to the credit union. They were able to travel a little and actually went on some family vacations with us and our children, something that would have never worked when we were younger.

Even now, between my father’s pension and Social Security, they still spend less than they bring in and they still put aside money in the credit union for emergencies and future expenses.

The life they have, and have always had, is quite stable. They’re not at significant risk of having that life fall apart because they couldn’t pay the bills.

In other words, their “burn rate” – the money they have to spend to maintain their normal lifestyle – has almost always been significantly below their income level. On occasion, they’ve splurged above it, but that’s only when there was significant extra money they’ve accumulated because their income was quite a bit higher than their burn rate.

(Of course, part of the problem was that when I was a kid, I didn’t see this. What I saw is that whenever my parents had a bump in income from something, like my father returning to work and getting a bonus or a really good run with his fishing, they would splurge a little, and thus I associated a rise in income with an increase in spending. That was a very poor lesson for me to learn, and I wish I had understood the big picture. We’ll get back to this a bit later.)

Right now, Sarah and I are in the same boat. Our “burn rate” is significantly lower than our household income. We intentionally choose to spend a whole lot less than we bring in, and that excess money is almost entirely going into retirement savings so that, ideally, we can stop working as early as possible.

In other words, we want to reach a point where our investment income can cover our “burn rate” for the rest of our lives, and Social Security is just the icing on the cake.

A High Burn Rate

Here’s the catch, though: modern society practically begs people to have a “burn rate” that’s pretty close to their actual income, or even above it. Modern culture lauds having an affluent standard of living, with a huge house and expensive cars and expensive food and drink and tons of digital goodies and lots of services.

That situation is otherwise known as living paycheck to paycheck, and it’s a state that somewhere around 80% of Americans find themselves in, depending on what statistics you’re looking at.

If that’s your situation – your “burn rate” matches your income – there are a bunch of bad consequences. I’ll summarize by grouping them into three big issues.

One, you’re not building any wealth. You’re not preparing for retirement, which means that you’re hoping that Social Security can sustain you or that you can work until the day you drop dead. You’re not preparing for any other life goals that you might have that have any sort of money requirement. All you’re doing is buying stuff in the moment.

Two, you’re not prepared to handle any sort of unexpected event in life. If something bad happens, you have no way to handle them. You’re either hoping that credit cards can pull you through it or you’re going to be selling stuff off very rapidly. It’s going to be incredibly stressful.

Three, if your income falls, you’ll simultaneously have to deal with radical lifestyle changes at the same time. What if you lose your job and can’t get a job that pays as well? Not only are you going through the life crisis of finding a new job, you’re also dealing with a complete collapse of your lifestyle, an adjustment that’s uncomfortable at best.

But what do you gain from that?

Your standard of living in terms of material goods and luxury experiences is as high as it can get. That’s really what you’re gaining. Money doesn’t buy love or friendship. It does buy stuff and experiences.

That’s a tradeoff that 80% of Americans make. It’s a tradeoff I made for many years. It’s a tradeoff that left me with a ton of background stress and a pretty miserable life in many ways, although I had a lot of nice trappings. It’s a tradeoff I never, ever, ever want to return to.

I would far rather have a lower burn rate.

A Low Burn Rate

Having a low burn rate means that you’re simply keeping your spending low enough that it adds up to significantly less than you earn. Your annual spending is way below that of your annual level of income, not because you’re earning a ton, but because you’re intentionally choosing to keep your spending low.

The benefits and drawbacks of this approach are almost the complete opposite of that of a high burn rate.

You’re building wealth. If you choose a very low burn rate, you are going to build wealth almost regardless of your level of income. The bigger the gap between your burn rate and income, the faster your wealth grows. The lower your burn rate, the easier it is to reach a point where your investment income can fund your burn rate, at which point you never have to work for money again unless you choose to do so.

You can handle almost any kind of emergency. Because you’re building wealth, you have money in the bank for whatever may come. The longer you hold your burn rate low, the more true this becomes.

If your income falls, your lifestyle won’t change unless the drop is enormous. Most income declines for people with a low burn rate end up just taking the form of slower wealth building. Their lifestyle doesn’t really change much at all unless the income drop is enormous. Switching jobs or being without a job for a few months is often not felt at all in terms of lifestyle.

The downside, of course, is that your standard of living in terms of material goods and luxury experiences isn’t as high as it could be. Things like friendships and love and your internal life and things like that are unchanged regardless of your burn rate. All that really changes with a lower burn rate is that you don’t spend as much money on stuff as you possibly could.

You Choose Your Burn Rate

The thing that most people don’t truly appreciate in all of this is that you choose your own burn rate. You decide exactly how much of your income you’re going to live off of. It’s a decision that’s almost completely under your own control.

Take Daniel Norris, for example. He’s a Major League baseball pitcher earning millions of dollars per year and he lives out of a 1970s-era Volkswagen van. Seriously. There’s even a short film about Daniel and his van.

Daniel’s burn rate is very, very low. He’s very obviously at a point where the money he’s made off of his baseball career can fund his lifestyle many, many times over. He continues to pitch because he loves to pitch. He lives in the van because he loves the freedom and simplicity of it.

Daniel’s story is emblematic of a bigger truth regarding how we spend our money: most of the things we really want in our lives can’t be bought. You can’t go to a store shelf and buy personal freedom. You can’t buy love on Amazon. You can’t buy the feeling of being in a flow state – swept away by something such that you lose track of time and place – on eBay. You can’t purchase the feeling of a hug from someone who cares about you at Target.

However, we often spend money buying things that promise those feelings and experiences, whether they deliver them or not. Much of what we look for in media, for example, is a flow state, where we’re drawn deeply into the story or idea. That’s part the feeling we crave when we sit down for a movie or a TV show or a good book – we want to get lost in it, to be sucked into the plot or the characters or the concepts. It feels good. The best movies and books and television do that for us; the bad stuff leaves us looking at our watches.

So many of the things we spend our money on boils down to those feelings. Big houses are about safety and security and environments where we can have the feelings we crave. Expensive foods. Expensive cars. It boils down to feelings, once we get past the very basic requirements of basic food, water, basic clothing, and basic shelter, and the tools needed to acquire those basic things.

A low burn rate is really about figuring out how to get those feelings without spending money chasing them. I want to get lost in a good book, because that’s a tremendous feeling, but I can get there with a book checked out from the library just as efficiently as one that I spent my money on. I want to enjoy a delicious meal, but I can make one from home out of pretty inexpensive ingredients and not go to a restaurant where I shell out the cash. I want to relax in a beautiful green space that makes me feel peaceful, but I can do that for free at the park instead of having a huge home with a sunroom or a conservatory or a greenhouse.

Another interesting aspect is that as your burn rate increases, you’re chasing increasingly minor differences. There’s a huge jump in quality of life when moving from a tent to an efficiency apartment, for example, but the change in quality of life when going from a 2,000 square foot home to a 2,600 square foot home isn’t very big. The thing is, the increase in cost is usually bigger with the home jump than it is to jump from a tent.

Switching from walking to having a beater car to get to work is a huge change, but switching from driving a Toyota to a Lexus to work isn’t a big shift. However, the walking-to-beater cost is much, much less than the Toyota-to-Lexus cost.

In the end, a low burn rate is really about finding cost efficient ways to have the basics and the additional feelings in your life that you want without throwing more and more money chasing smaller and smaller “upgrades” in how you feel. There’s a balance, and the point where spending more money turns into diminishing returns is surprisingly low.

But that’s a topic for another day.

Final Thoughts

If you want to have a rich, low stress life with incomparable freedom, the best way to do that is to have a life with a low burn rate, where the maintenance of your lifestyle costs as little as possible. It might not be a life with luxury trappings, but those luxury trappings are often all about chasing feelings that you can already find in a low burn rate lifestyle if you look close enough.

The challenge is finding those feelings in a low burn rate lifestyle and knowing when exactly you’re just throwing more and more money away for smaller and smaller returns compared to what you can already have for free.

Keep your burn rate low. There’s always greener grass on the other side, but as long as you already have good things, chasing that greener grass won’t get you anything you don’t already have.

Good luck.

The post Feeling the Burn Rate appeared first on The Simple Dollar.

Selling off Your Furniture (and Other Unexpected Thoughts)

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Marty writes in:

Read an article recently about a guy who sold off his furniture to start a coffee business. Seemed weird at first but then I got to thinking, why is it weird? Why did he need furniture or anything more than dirt cheap stuff?

I tried to find this article that Marty referenced without luck, but this comment really stuck with me anyway.

So much of what we consider “normal” in terms of the things we buy and own is influenced by how we were raised, what people in our lives do, and what we see in the media. We buy products, arrange our homes, eat foods, and do so many other little things in accordance with the many, many cues in our lives, starting from when we’re very young. It’s what feels normal to us.

This isn’t a bad thing. The sheer number of choices and decisions that life throws at a modern adult is overwhelming, and in order to not completely fall apart in decision fatigue, we use a lot of shortcuts to get through life. We rely on those cues to build up an instinct for many of the decisions we make in life and simply abide by them, saving our mental energy for the multitude of other choices we constantly face.

I’ve written about decision fatigue before, along with good strategies for not letting it impact your financial choices, but let’s look at the decisions we don’t make. What about all of the decisions we just take for granted in our lives, overlooking them because they’re normal? Things like, well, having furniture and not just selling it off.

Our natural instinct is to not even bother with such thought processes. For most people, when the question of selling off all of our furniture and replacing it with absolute minimalist stuff comes to mind, we shrug it off as not even something we’ll consider.

But why? Why not sell off the furniture? Why not replace it with low-end bare-bones stuff, or with nothing at all?

With questions like this, many people struggle for clear answers. It just feels wrong, so they haven’t ever really thought about the situation and when it pops into their mind, they stick with the “it just feels wrong” idea and simply discard it. Again, as I mentioned earlier, this isn’t a bad thing. It’s very useful for guiding us through a life full of decision points.

The only problem is that such reflex thinking often leads us to poor uses of our money, our time, and our energy. We don’t even go down certain avenues of thought, closing them off without even really thinking about them, and staying on our current path because of the strong nudgings of how we were raised, what we envision other people might think (in truth, they won’t even think about it much at all; we overestimate because of the spotlight effect), and what is presented as “normal” in the media we consume.

A much better approach is to consistently put time aside and think about those avenues of thought we don’t normally go down.

For example, let’s address the furniture question. Why not sell off your furniture, replace it with bare-bones stuff, and use the proceeds to improve your financial state?

Sit down for a moment and try to think of the real, tangible reasons you don’t do so. Your current furniture looks good? Look for lower-end items that look good. Your current furniture is comfortable? You can make almost any furniture super-comfortable by shopping around and choosing the right thing.

On the other hand, consider what you could do with the proceeds, especially if you don’t replace it with anything. You could use it to pay down a debt. Better yet, if you sell off enough stuff, suddenly moving becomes a lot easier and more realistic, which can add up to a ton more savings.

You’ll find, as you’re thinking about this, that you naturally feel inclined to keep your furniture, even if you don’t clearly have reasons for doing so. This is the inertia of that default instinct you have, and it’s difficult to overcome. It shades the direction of thinking even when there’s no clear reason for it.

That’s why it’s important to channel that instinctive but reasonless thought into actual reasons. Why do you want to do things this way instead of that way? It’s often hard to dig into that, but it’s incredibly worthwhile.

It may be that you still decide that keeping your furniture is the better choice, and that’s a completely reasonable conclusion, but make sure that it is a reasonable conclusion for you, that the pros truly outweigh the cons. Or, you might decide that some of your furniture can go, or can be replaced with low-end stuff. In either case, you’ve actually thought about it and tried to resist the impulse to just go with that instinct, and that in itself is a big win.

Put aside time regularly to think about these kinds of things.

Think about why you live where you do and whether a smaller home or a home in a different area might make sense. Do you need that many rooms?

Think about having a roommate, or adding another roommate.

Think about going without a car, or going with one less car.

Think about switching to a vegetarian or a vegan diet.

Think about selling off some or most of or all of the things you’ve collected, the things that fill up shelves but are barely touched. Do you really value the things, or are they just mementos of experiences?

Think about why you own every single thing that you own. Do you really need it? What real purpose does it serve? Is it worth the space it takes up? Could someone else put it to better use?

Think about your yard. Why not just let it go to permaculture?

I try to go down one of these thinking rabbit holes once a week, during my weekly review. I try to come up with all of the reasons to do things the way that doesn’t seem natural, and when that argument seems really strong, I try to break it down. Along the way, I’m just trying to figure out the right way to do things for me.

The more you think about selling the furniture, the easier it is to visualize it and the less strange it seems, and when that happens, you’ve drastically expanded your financial and life possibilities.

Good luck.

The post Selling off Your Furniture (and Other Unexpected Thoughts) appeared first on The Simple Dollar.

Death by a thousand cuts

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I’ve been on the internet for a long, long time.

Via local Bulletin Board Systems, I started reading USENET newsgroups — mostly Star Trek and comic book and computer game stuff — during college in the late 1980s. I got sucked into the world of MUDs. Soon after graduating, I heard about this new thing called the World Wide Web, so I installed Mosaic on my Macintosh SE.

Mosaic on a Mac

Before long, I taught myself HTML and built my first website. Eventually, in 1997, I started my first blog — back before blog was even a word!

I was drawn to the web (and the internet) in part because it seemed so egalitarian. Anyone could start a website about anything, and as long as they produced great stuff and shared it, people would read. I also liked the fact that almost everything was free. It didn’t cost anything (besides your $19.95 monthly dial-up service) to access any of this information. The early web was a de facto sharing economy.

Best of all? The web was a wide open space, a blank slate, a platform free from dominance by mainstream media. Little people like me could have a voice.

None of this lasted long.

The Monetization of the Web

Soon, banner ads came along. I hated banner ads when they first appeared. “My site will never have banner ads,” I told my friends. (This was my first real lesson that you should never say never. My friends have been giving me grief about this for more than fifteen years!)

In 1998, Google arrived and changed everything. Until that point, web search was a miserable experience. It wasn’t very good and it was overly monetized. Google was the opposite. It was amazing and had no monetization at all.

Hahahahahahahaha. How things have changed. Today, Google is all about ads. And using it is more and more a miserable experience. Look at this mess:

Look at all the ads on Google!

How long until Google has transformed itself into AltaVista?

In time, the mainstream media realized that the web wasn’t going anywhere. By the early 2000s, they were treating it as an important part of their operations. By the early 2010s, the web had become the most important part of most media companies’ platforms. And if it hadn’t, those companies would soon be dead.

Meanwhile, two parallel (but related) trends developed.

  • First, there was the rise of “software as a service” (Saas). In the olden days — 1995, say — when you wanted a computer program, you went down to Circuit City and bought it. You paid for it once and you owned it forever. As “web apps” became a thing, companies shifted from one-time payments to a subscription model. Today, even big companies like Microsoft and Adobe have adopted the practice of continually charging for their products. (And if they don’t use a subscription model, they often “sunset” their software, which is essentially the same damn thing.)
  • Second, forward-thinking sites and companies learned there was money to be made by disrupting existing business models. Netflix is a great example. Founded in 1997, this company has single-handedly destroyed multiple industries, most notably retail video. And, eventually, Netflix began to disrupt the monolithic television industry itself! Initially, this was beneficial to consumers. Now, in 2019, it’s become apparent that oops, nope it’s not. (See also.)

Twenty-five years ago, when the web was young, it was all about free. Anyone who could afford a computer and a $19.95/month dial-up connection was free to create and publish whatever they wanted — and free to consume what other people had created. It was like some sort of digital utopia.

Death by a Thousand Cuts

Today, the web is most decidedly not free. And it’s getting less free with every passing month. Let’s be honest: More and more, life online is expensive. It’s like death by a thousand cuts.

This morning as I was pulling together the latest edition of the GRS Insider — this site’s weekly email — I experienced the proverbial straw that broke the camel’s back. And that prompted this article. (And delayed the newsletter haha.)

Crashing into paywalls is a daily occurence now. No — it’s an hourly occurrence. I follow a promising link and bam I’m brought up short because I have to pay to access the article. This happens at newspapers, magazines, and even internet-only sites. It makes me grateful for the publications that produce terrific content and still provide it for free. (One example? I find that I’m frequently drawn to articles at The Atlantic. They provide top-notch quality without asking for payment. But for how long?)

Meanwhile, the subscription software model is starting to take its toll too. I completely understand that some apps and services require subscriptions in order to function properly. I pay a monthly fee to have Get Rich Slowly hosted on a webserver. That makes sense.

  • It does not make sense to me that some of the tools we use to build Get Rich Slowly require monthly (or yearly) subscriptions. There’s no ongoing maintenance. There’s no draw on the vendor’s resources.
  • It does not make sense to me that my favorite weather app for the iPhone requires an annual subscription. In fact, it’s insane. (Yet I still pay it.)
  • It does not make sense to my that Pzizz, a sleep tool that I’ve used for over a decade, moved from standalone pricing to subscription pricing. (And hey, Pzizz people, how many times do I have to pay for your product before you give me lifetime access? Because I’ve paid three or four times already.)

Generally speaking, SaaS and subscription plans aren’t necessary — they’re just profitable for the companies that use them. And as long as we keep paying, they’ll stick to the model.

My current app subscriptions

All Good Things Must Come to an End

The “cut” that’s really going to mess with people’s minds? The upcoming high price of television.

When Netflix and Hulu and similar companies came along, they offered low-cost alternatives to cable. Cord cutting became an act of frugality. I ditched cable television in 2007 and have never looked back. Until now.

Now, big media companies have recognized that they too can get on the act. They too can inflict one of the thousand cuts.

  • CBS was quick on the draw. Want to watch the latest Star Trek shows? No Netflix for you! You have to pay $10 per month for CBS All Access — or $6 per month if you’re willing to put up with commercials.
  • Disney is a heavy hitter and they want to get in on the act. Disney+ — coming November 12th — will cost $8 per month. Want to watch the latest Marvel and Star Wars shows? Want to watch Disney and Pixar movies? This is your only option.
  • By far, the most popular show on Netflix is NBC’s The Office, which accounts for a mind-boggling 7% of all Netflix viewing in the U.S. NBC knows a golden goose when it sees one. When its current deal with Netflix expires, it’s yanking The Office and using it as a tent pole to launch its own subscription service.

Meanwhile, Netflix and Hulu and Amazon all offer their own original programming. (At least the latter is free for folks who pay for Prime, which is nearly one-third of the United States. Holy shit!) Apple will soon get in on the game and they’re using big names to draw viewers: Oprah Winfrey, Steven Spielberg, Reese Witherspoon, Jennifer Aniston, and more.

Streaming used to be a cheaper alternative to cable television. As Consumer Reports notes, these days it’s a toss-up. And soon, streaming is likely to be the more expensive option.

Note: The one huge advantage to this proliferation of options? Users can pick and choose which content they subscribe to. For years (or decades), folks had been asking for a la carte pricing for cable channels. Well, I guess now we have it.

No Free Lunch

To provide supporting evidence for this article, I started to make a list of all of the software subscriptions I have, my software that’s being “sunsetted” and needs to be upgraded (Quickbooks 2016 just notified me yesterday that it’s no longer supported), the most common paywalls I encounter, and the television-related payments I make. I gave up. It’s a doable thing, but it’d take too much time right now. It’s a project for another day.

I know I sound like a cranky old man (again!), but I’ve had enough. I’m mad as hell and I’m not going to take this anymore! Except that I probably am.

“Don’t you expect to pay for services?” Kim asked me as I bitched to her this morning. “How does anybody run a business if it’s free? In your mind, their business model should be to not charge the customer?”

Okay, fair point. I don’t want to be taken for a choosing beggar.

As somebody who runs a website himself and knows how much it costs (in terms of time and money) just to maintain my tiny corner of the web, I absolutely do not begrudge anyone the desire to make money.

And, in fact, my biggest challenge since repurchasing Get Rich Slowly two years ago has been balancing my desire to provide excellent information without destroying the user experience with monetization. It’s a delicate balance, one that I’m not sure I’m achieving. (But hey, I’m working on it!)

My frustration is that there are just so many companies extracting a pound of flesh from me. It’s too much.

Yes, I realize most (of not all) of these expenses are voluntary. Yes, I realize this is capitalism in action. Yes, I realize there are often free (or cheaper) options. Yes, I realize we can’t reset the internet to 1995. Believe me: I’ve been thinking about this issue for years now. I understand all of this stuff. But I don’t like it.

In the end, my solution recently has been to KonMari my digital life. I’ve removed most of the apps from my iPhone and iPad, opting to cut those with subscription fees first. When possible, choose software with a one-time fee instead of an ongoing subscription. I try to steer clear of sites with paywalls. I killed Hulu. (But then Kim promptly joined.) Even though I love Star Trek and the Marvel Universe, I refuse to pay for CBS All Access and Disney+. I never will.

But then, I was never going to have banner ads on my website either, was I?

The post Death by a thousand cuts appeared first on Get Rich Slowly.

Inspiration from Arnold Toynbee, Bagel Sandwiches, Masego, and More!

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Once a month (or so), I share a dozen things that have inspired me to greater personal, professional, and financial success in my life. I hope they bring similar success to your life.

1. Viktor Frankl on living as though this is your second chance

“Live as though you’re living a second time and as though the first time you lived, you did it wrong, and now you’re trying to do things right.” – Viktor Frankl

This is something I find myself doing, except I use earlier stages of my own life as the “first time I lived” and now I’m “trying to do things right” as much as I can in the various areas of my life.

I messed up my finances badly in my twenties. I messed up some interpersonal relationships. I messed up some aspects of my health.

I want to do those things right this time. I saw what impact those bad moves had and can see from the examples of others what that can mean over the long term.

2. Johnny Sun on how you are not alone in your loneliness

From the description:

Being open and vulnerable with your loneliness, sadness and fear can help you find comfort and feel less alone, says writer and artist Jonny Sun. In an honest talk filled with his signature illustrations, Sun shares how telling stories about feeling like an outsider helped him tap into an unexpected community and find a tiny sliver of light in the darkness.

This talk manages to be simultaneously lighthearted, poignant, and thought provoking. It’s one of those things that I really don’t want to spoil, aside from saying that if you deal with loneliness in your life or if you really care about someone struggling with loneliness, this is well worth watching.

There are few things more difficult than feeling like an outsider and having no idea how to change that status in any meaningful way.

3. Mokokoma Mokhonoana on working and living

“There is more to life than making a living. Do not work more than you live.” – Mokokoma Mokhonoana

I did this for several years of my life. I thought I had walked away from it, only for it to pop up again. I never want to return to it.

Living to work is not a way to live. Going to work each day, leaving everything you have inside of you on the table, and then coming home mentally and physically taxed to the point where you can barely prepare food for yourself and fall into bed after staring at a screen for a while… I know too many people who did this or have done this (myself included) and it’s not living, no matter how good the money is or how distracting the treats are that you fill your life with.

Live to work. Find work that you enjoy doing that doesn’t eat you until you’re spent each day.

Driving your tank to empty means that it takes a lot longer to refill.

4. 144blocks

This is from the front page of the website:

Every day has 1440 minutes
Split into 10 minute blocks,
you have 144 blocks in a day
Where do your blocks go?

I recently discussed my passion for time tracking and figuring out how I’m misusing my time. This is a really neat simplified tool for that, something you can easily dive into for a few days and create an interesting simplified way to look at the data of how you live your life.

Are you happy with those blocks? Are there too many junk blocks or wasted blocks you’re unhappy with? Are there too many blocks devoted to things that leave you feeling unhappy?

I converted some of my recent days to the block views in this tool by clicking around for a few minutes, then tried to create my “ideal day” with this tool, too. Unsurprisingly, I found that the more my days diverged from my ideal day, the more unhappy I was with them and the more unhappy they made me. (Remember, an “ideal day” isn’t a day where everything is perfectly fun, but a day where you move forward in some positive way on everything you care about.)

5. Arnold Toynbee on the goal beyond

“It is a paradoxical but profoundly true and important principle of life that the most likely way to reach a goal is to be aiming not at that goal itself but at some more ambitious goal beyond it.” – Arnold Toynbee

In other words, if you focus intensely on a short term goal that’s an important piece of that long term goal and you nail that smaller goal, you’re well on your way to that bigger goal.

A goal like “pay off this $1,000 debt in two months” is a great short term goal, but strongly achieving it goes a long way toward achieving the bigger goal of “debt freedom in two years.”

I find that being aware of that big goal and thinking about all of the benefits of achieving it while aligning all of my efforts toward shorter term goals that are pieces of the big goal is a great way to pull off both.

6. How to make a bagel sandwich from Binging with Babish

From the description:

This week we’re headed back to Beach City for some sammich inspiration, where Steven Quartz Universe repeatedly whips up (and is thwarted from eating) one of his favorite foods: bagel sandwiches. Can we upgrade this breakfast favorite with just a little boilin’ and bakin’?

One of my favorite types of learning experiences is when someone takes something that seems really obvious and simple and I think I know all about it, then they break it down and move through it slowly and thoughtfully, unveiling a whole new world of things to know that often brings about a huge leap in my ability and understanding of that thing.

That’s what this video does. It’s seriously just a bagel breakfast sandwich – egg and cheese on a bagel, basically – but there’s so much value in the little details and the nuances of it that you can easily make a pretty terrible sandwich or a pretty amazing sandwich with the same ingredients and the same general end product.

The difference is in those details, in doing things right at each step along the way. One turns into a doughy, soggy mess, and the other path produces something sublime.

7. The Big Leap by Gay Hendricks and the zones of genius, competence, and incompetence

While I didn’t find enough in this book to really write a full article about it, there was a thread in the book that I found really interesting.

One of the chief ideas in the book is that, within each of us, there is a zone of genius, a zone of competence, and a zone of incompetence. We have a handful of things we’re incredible at, a bigger handful of things that we’re reasonably competent at, and an infinite pool of things that we’re incompetent at. The trick for most of us is figuring out our zones of genius and competence and leveraging those things, mostly in combination with each other, to do things and produce things of exceptional value.

I’ve spent a lot of time in the last few weeks thinking about what my zone of genius is and what my zone of competence is and, perhaps most of all, what my zone of incompetence is. It led me to see pretty strong revelations about what I should be doing with my time and energy going forward.

8. Muhammad Ali on pushing yourself

“I don’t count my sit-ups, I only start counting when it starts hurting because those are the only ones that count.” – Muhammed Ali

Whenever we try to do something to improve our situation, what we notice in the immediate moment is the painful bits. We don’t notice the changes that are positive or the ones that have little impact. We notice what hurts, and we often think of the entire change as painful as a result.

Success is often found when we fight through the pain, when we appreciate what that discomfort really means for us. It’s usually that momentary discomfort that makes us realize what really hurts and what’s just a form of healing ourselves and making ourselves stronger.

The last few pushups in a set, the last few seconds of a long plank, the item or two you really want to buy but you leave on the grocery store shelf – they’re all uncomfortable in the moment but they lead to something much, much stronger.

9. Bundyville

“Bundyville” is a fourteen part audio series (spread across two “seasons”) produced by Oregon Public Radio and Longreads about the conflict between Western ranchers and the federal government over land use, centering on the family of Cliven Bundy, who were at the center of that controversy in recent years that culminated in the Oregon’s Malheur National Wildlife Refuge.

It is easy to have a black and white view of the actions and political stances of people, and nowhere is this more true than in this case. Many Americans view the Bundys as absolute heroes against an oppressive government, while others view them as hateful lawless individuals abusing the property and property rights of all Americans.

What I liked about this series is that it delves in deep enough into that divide to show a lot of grey, no matter which side you initially find yourself on, and in doing so, reveals that there is a lot of grey in the issue, as there always is when you look closer, and that understanding spreads to some of the broader divides in America.

The more you understand any issue, although you may have strong feelings about the conclusion, you often come to understand where people are coming from and what issues have brought them to that conclusion, and it’s in those core issues that we often find we have more in common than we think, even if we don’t necessarily agree on the next steps.

In general, I want to understand people, why they do what they do, and how they think. It is often hard to get to that depth in a culture that is deeply defensive and reactionary and tends to want to idealize people that we agree with and demonize those that we don’t. This podcast series manages to get past that, and that’s why it’s well worth a listen.

Start with Episode 2 from the first season (Episode “1” is basically just a trailer and can be skipped).

10. Bruce Springsteen on idealism and innocence

“The great challenge of adulthood is holding on to your idealism after you lose your innocence.” ― Bruce Springsteen

This quote came so close to being a full article this month. I actually wrote a full article about it and then decided it was just too far off of the beaten path for this site, but there’s definitely room for it here.

When I was a kid, I had all of these big dreams for my life. I wanted to be the perfect parent. I wasn’t going to make the mistakes my parents did. I wanted to be the perfect spouse. I wasn’t going to do the things I saw other adults in my life doing. I was going to have this great job and really change lives and make lots of money and do it super-ethically.

Then the reality of adulthood hit and I realized that those things require a level of perfection that life simply doesn’t afford you. You can call it a loss of innocence, I suppose. I call it a spoonful of reality.

So, what happens to the idealism of youth? You either give up on it entirely, or you find ways to be a better person than you were yesterday. My experience has been that the people with lots of idealism in their youth that figured out how to channel it into molding themselves into being as good as they can be end up being the kind of low-key heroes that are the cornerstones of families and communities and meaningful initiatives. They’re truly great leaders that don’t cast themselves in the spotlight but make things happen.

Those people aren’t Gandhi, but to me they’re the embodiment of what idealism can become. They don’t change the history books, but they do change the world and make it better.

I tend to believe that the world isn’t made great by a handful of great leaders and innovators, but by a larger group of people who still believe in a personal ideal and try to mold themselves to get as close to it as possible, and that effort ends up leaking out into the world making it a better place. I see it all the time with great people in my own life, and I hope to, in some ways, be able to count myself among them.

It starts with me and being the best me I can possibly be, and that’s a journey that never rests.

11. Masego – NPR Tiny Desk Music Concert

From the description:

Imagine for a moment if Cab Calloway, the Cotton Club’s exuberant bandleader, was reincarnated in the 21st Century. Now imagine if he was dropped in the middle of the music world of today. He’d no doubt be a tall and slender, silky-wearing goof ball with a moisturized braid-out, instruments inscribed as knuckle tattoos and a penchant for genre-blending. Yes, the spirit of Cab lives on in Masego, the singer, producer and multi-instrumentalist who surprised NPR’s Tiny Desk audience with a zany sense of showmanship and a demonstration of his own genre, TrapHouseJazz.

Masego’s five-song set at the Desk wound up feeling something like a jam session — props and surprise guests included. First, before opening with the jazzy “Tadow,” Sego pulled off a quick, mini-prank by sending his friend, comedian Lorenzo Cromwell, up to the mic before stepping forth himself. Next, Sego tossed up 100 dollar bills with his face on it and beckoned the crowd into a call-and-response of “hi-di-hi-di-hi-di-ho.” Finally, to have a few more moments of fun after “I Do Everything” — and to prove he really does do everything — Sego juggled water bottles to the rhythm of the luscious music his band providing.

Born in Jamaica and raised in Virginia, Masego grew up on gospel, jazz and hip-hop. With an appetite for all genres and an ambidextrous nature for learning music, the 26-year-old’s been mixing all his influences up, traveling the world and collaborating with the likes of GoldLink, SiR and Ari Lennox. Where his sound takes him next is anyone’s guess, but at the Tiny Desk, the multi-hyphenate found his sweet spot.

This is an incredibly entertaining set of songs that simply wouldn’t work well in the hands of someone less talented and less versed in such a wide variety of musical styles. It’s easy to see these kinds of performances quickly unraveling in the hands of someone with lesser ability.

Somehow, Masego is able to handle all of these varying threads and weave them together into a unique musical tapestry that manages to be incredibly fun and yet unusual and distinct at the same time.

This one’s been played many, many times at my desk in the past week or two.

12. Marcus Aurelius on criticizing faults

“Whenever you are about to find fault with someone, ask yourself the following question: What fault of mine most nearly resembles the one I am about to criticize?” – Marcus Aurelius

When you find a fault in someone else, are you sure that you don’t have the same fault? Maybe you haven’t committed the same exact act, but are you sure you haven’t failed in a similar way at some point?

Once you see that, it’s pretty easy to put yourself in the other person’s shoes. Is a bunch of negativity really going to help here? What will help?

While this doesn’t excuse someone’s fault, it does help you to understand it, and understanding it is often the key to making a situation work. You can’t expect to be perfectly on the same page with everyone all of the time; sometimes, all that takes to get you close enough to the same page is a little bit of this kind of understanding.

The post Inspiration from Arnold Toynbee, Bagel Sandwiches, Masego, and More! appeared first on The Simple Dollar.

A Life Well Lived

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One of the best people I’ve ever known celebrated his 90th birthday very recently. His children put together a wonderful birthday party for him and invited tons of people – old friends, extended family members, all kinds of folks. There were people I knew well, people I knew vaguely, people I didn’t know at all, all drawn together to celebrate this occasion.

At events like this, the most wonderful part is how our shared relationships with this guy drew us all together. It was the common touchstone for all of us, and because of that, stories about him flowed. I wound up swapping stories about the guest of honor with all kinds of people and getting to know some of them along the way.

The thing that stuck out to me more than anything else was that people really don’t care what kind of house you have or what kind of car you drive or whether you have the latest gadgets. No one at that party cared in the least about any of that. They cared about the person – his humor, his kindness, his generosity, his good advice, his character, his reliability. So many of the stories involved the guest of honor opening his door to someone or showing up in a needed moment or coming through over and over again or doing something hilarious.

I didn’t hear stories about his house or the cars he drove or the fancy restaurants he dined at or how well he dressed or anything like that. That’s not what drew literally hundreds of people to his party. That’s not what filled all the bedrooms in several nearby houses and had people camping in tents and campers.

He spent much of the party holding court, with people sitting down to chat with him for a bit, then making room for other people. The sheer number of people and memories that shifted across his table in that afternoon was almost unbelievable, a true celebration of a lifetime of memories.

When I’m 90, what will I remember?

I won’t remember going out to expensive restaurants with my wife or with my friends. I will remember eating with them and laughing with them and enjoying their company.

I won’t remember the expensive watch I owned forty years ago. I will remember a random lazy afternoon with my kids when we rolled down hills and blew tufts of dandelions.

I won’t remember that I had the latest and greatest smartphone. I will remember being able to be there for a friend, and when they were there for me.

I won’t remember the books that filled my bookshelf. I will remember the things I learned from reading books, the lessons they taught me, and some of the great stories.

When I’m at my 90th birthday party, I don’t want to hear people talking about my board game collection. I’d rather hear them talking about the time we stayed up most of the night playing a game together, or how I showed up at their doorstep when they were down with a sack of food, some beverages, and a board game and spent the evening with them.

When I’m at my 90th birthday party, I won’t remember the exact details of some trip I went on with friends years and years ago, but I will remember us doing something new and laughing together.

When I’m at my 90th birthday party, I won’t remember the money I frivolously spent, but I will remember when I was able to help a friend and when they were able to help me.

Those are the things he remembers and laughs about when he talks about his life. Those are the sources of the pieces of wisdom he offers, the things that just come naturally from him. Those are the things that people talk about when they talk about him.

His old farmhouse isn’t full of expensive artifacts from forgotten trips. They’re full of meaningful memories, of things made by him and things made for him by loved ones, of photographs, of well-used and well-loved functional items.

The people who came to that party weren’t there hoping for a spot in a will. They were there to appreciate a wonderful person. They remember his character. They remember time spent with him. They remember the skills he had. They remembered what he gave of himself.

Those things aren’t bought. They’re earned over a lifetime of living.

When I look ahead at the life I have yet to live and I ask myself whether I’d rather have a house full of stuff or a life full of good memories and great relationships, I want the latter, and it’s not even a question.

That’s why my financial plans are largely in service of that. I want to have a life that gives me the ability to be there for friends, to be a part of people’s lives, to be more than just a career and a shiny car and a nice house.

I don’t want to end up in an empty house full of stuff with my kids counting down the days to clean it out and sell it off, without friends and people in my life.

With every year that has passed, he has taught me how to live that life. You don’t get there by spending money on forgettable things. You get there by spending time and care on the people in your life. You don’t get there by getting. You get there by giving.

Later that evening, as the festivities were winding down, I wound up sitting fairly close to the guest of honor, engaged in a conversation that he was merely listening to. I looked over at him and he looked absolutely tired, but he had this half-smile on his face that simply said he’d rather be there than anywhere else in the world.

After he went to bed, about forty people were still hanging out, playing cards and swapping stories and laughing. I can’t imagine a better sound to fall asleep to.

Thanks for the example, Herb.

The post A Life Well Lived appeared first on The Simple Dollar.

A brief guide to the Equifax settlement — and how to get what you’re owed

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Two years ago, credit reporting agency Equifax suffered an enormous security breach. Hackers gained access to the personal data of 147 million Americans: Social Security numbers, credit card details, and other sensitive information. Almost half the U.S. population was affected.

Recently, Equifax reached a settlement agreement with the Federal Trade Commission to provide compensation for those impacted by the data breach. The FTC has posted summary details at its website. And if you’re a real masochist, you can read the entire text of the settlement via PDF.

Over the past week, there have been a lot of stories going around that everyone is entitled to $125 due to the Equifax settlement. Here, for instance, is one of my real-life Facebook friends excited at the possibility of free money.

Equifax settlement conversation on Facebook

On Friday, one U.S. Representative tweeted: “Everyone: go get your check from Equifax! $125 is a nice chunk of change. Get that money and pay off a bill, sock it away, take a day off, treat yourself, whatever you’d like.” And at Slate, one author wrote that you have a moral obligation to claim money in the settlement.

I’ll admit: Even I believed I was going to get $125. I told Kim about it so that she could get her $125 too.

But being a skeptic by nature, I’ve been digging a little deeper. Turns out things with the Equifax settlement are a little more complicated than “everyone gets $125”. In fact, most people won’t (or shouldn’t) get any money.

What the Equifax Settlement Provides

The Equifax settlement contains a number of provisions based on how badly an individual was affected by the data breach.

If your identity was actually stolen, for instance, and you suffered real financial losses because of it, then you’re entitled to a cash payment of up to $20,000. If you had to spend time dealing with the data breach, you’re entitled to $25 per hour (up to 20 hours). The catch? You can’t just say you suffered losses. You have to provide proof. (If you spent less than 10 hours dealing with the issue, no real proof is required.)

If your identity was not stolen as a result of the Equifax data breach, then there are one of two possible outcomes.

  • If you do not currently have a credit monitoring service, then you’re entitled to receive ten years of free credit monitoring: four years at all three major credit bureaus (Equifax, Experian, and TransUnion) followed by six years of Equifax-only monitoring. (If you were a minor in May 2017, you get 18 years of free credit monitoring.)
  • If you do currently pay for credit monitoring, you can either switch to the free credit monitoring or opt for “alternative reimbursement” of up to $125.

It’s this latter provision that everybody is writing about. “Get your free $125!” the headlines shout. But it’s not as simple as that.

For one, this money is only meant for folks who already pay for credit monitoring services. Yes, I know. Plenty of people — probably millions — will lie about this in order to get a claim at that cash. But that doesn’t make it right.

But there’s another, more important point.

This $125 compensation isn’t guaranteed. It’s up to $125 compensation. What the fine print actually says is that there’s a $31,000,000 pool set aside for the “alternative compensation” portion of the program. That’s enough to pay 248,000 people $125 each. If more than 248,000 file claims for alternative compensation, then everyone gets less.

Equifax settlement conversation on Twitter

Don’t believe me? You can find this info on page 36 of the court order or item 10 of the official settlement FAQ (“What if I already have credit monitoring or identity protection services?”). My guess is that in the end, folks who opt for payment in the Equifax settlement will get very little money. And that’s largely because people who weren’t actually affected will have filed in the hopes of getting free money.

Here’s another thing you should know. For most people, opting to take the $125 is a dumb choice — even if they’re actually eligible for the cash and not lying about it.

Ten years of free credit monitoring is worth far more than $125!

These services typically cost about $25 per month. Taking the ten years of free credit monitoring is worth about $3000. Last I checked, $3000 is far more than $125.

[Update: As commenters have noted, credit monitoring might cost this much but it’s not necessarily worth this much. Fair enough. I stand by the main point though. $125 amortized over ten years is about $1 per month. Credit monitoring is worth at least $1 month, right?]

How to Get What You’re Owed

After all that, how can you get what you’re owed? U.S. government websites are always awesome and useful, and this time is no different. The official FTC Equifax data breach settlement page has all the info you need.

That page will route you to the Equifax data breach settlement website where you can check your eligibility (i.e., whether or not your data was compromised) and file a claim. It took me all of two minutes to complete the forms and request my ten years of credit monitoring. Once the case settles (probably sometime in late January), I’ll get info on how to access the service!

Kim, on the other hand, may actually be entitled to a real, cash settlement. She had issues with identity theft right around the time of the data breach. I don’t know how we prove that these problems were due to the data breach, but if she’s kept her records, she could indeed receive cash as part of the Equifax settlement.

The post A brief guide to the Equifax settlement — and how to get what you’re owed appeared first on Get Rich Slowly.

The best cash back credit cards of 2019

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Advertiser Disclosure: I Will Teach You To Be Rich has partnered with CardRatings for our coverage of credit card products. I Will Teach You To Be Rich and CardRatings may receive a commission from card issuers.
Editorial Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

You know what’s awesome?

Free money.

With a cash back card, you get free money. That’s a hard deal to beat.

Take your current spending and pretend someone cut you a check for 1-5% of that spending. You don’t have to lift a finger or do anything, the check magically shows up in your account automatically. That’s what it’s like having a cash back card.

There’s really no catch either.

As long as you already pay your credit cards off every month, there’s no downside. To be honest, you shouldn’t be using credit cards if you don’t pay off your balance each month anyway. Every credit card is a terrible deal if you don’t.

For those of you that do pay off your cards every month, a cash back credit card is one of the best deals in personal finance.

Before breaking down the best cash back cards, let’s make sure a cash back card is the right type of credit card for you.

There are two types of rewards credit cards: travel cards and cash back cards.

We go into a lot of detail on how they differ from each other in our best rewards credit cards guide. The quick summary:

  • Get a travel credit card if you want to maximize the value of your rewards and perks
  • Get a cash back card if you want to maximize simplicity or your don’t travel

So what are the best cash back cards?

The best cash back cards

After scouring all the cash back offers out there, we’ve found these cards to be the best options:

How we evaluate cash back cards

For a card to make it on our list of best cards, we evaluated it using this criteria.

Bonus value

We don’t put much weight on the signup bonus. In fact, we ignore them for the most part.

Yes, the bonuses are great. Always take advantage of them.

But I never pick my credit cards based on the bonus itself. Since I never chase credit card promos or point hack by rotating credit cards quickly, I stick with the same set of cards for years. The rewards program, perks, and fees will all outlast the bonus. In the end, the bonus is a minor benefit.

Pick the card you want without worrying about the signup bonus.

Cash back system

This is the most important part of your cash back card. Sweat the details here.

Lots of cash back cards advertise amazing cash back rewards (get 5% cash back!) and then severely limit it with spend limits, rotating categories, or other nonsense.

As a general rule, the simpler the cash back program, the better. I’d much rather get 80% of the potential cash back if it means I never have to think about anything.

That said, if you’re trying to push your cash back rewards to the limit and are willing to take on the extra complexity, playing these games is the key to maximizing your rewards. It’s not how I personally want to spend my time, but if you do, all the power to you.


Keep a close eye on foreign transaction fees with cash back cards.

The best travel credit cards usually don’t have foreign transaction fees. That makes since they target travelers.

But cash back cards aren’t as generous. Many of them do have foreign transaction fees. This is a 1-3% fee on top of every transaction from a foreign bank. If you travel once per year, you could easily negate all your cash back rewards by paying hefty foreign transaction fees on your whole trip.

Otherwise, cash back cards don’t have many fees, and almost all of them don’t have an annual fee.

As long as you’re paying your card off every month (which you absolutely should be doing), you’ll be able to get your cash back rewards without ever having to pay a single fee.


As you pick your cards, keep an eye on how many banks you’re using.

Managing 2-3 logins across different banks isn’t a big deal but having a dozen or more logins starts to be a real headache. With a spouse and family, it’s surprisingly easy for bank accounts to get out of hand.

Whenever you’re trying to decide between two cards with similar offers, picking the option with a bank that you already use will help keep things simple. Not everything is about optimizing for every last dollar, simplicity and fewer headaches go a long way.

Bank reputation

At I Will Teach You To Be Rich, we have zero tolerance for banks that gouge customers on fees or treat customers poorly. Having a reliable bank is too important to put up with horrible treatment.

Unfortunately, Wells Fargo and Bank of America both have long histories of doing terrible things to their customers. We recommend avoiding them entirely. In fact, we didn’t even consider any cash back cards from either bank.

The best cash back credit cards

Here are all the cash back cards that you should consider.

Citi Double Cash

Highest cash back rewards that are super simple

This is our favorite overall cash back card.

You get 2% cash back on everything, which is a very good rewards rate. There aren’t any rotating categories or spend limits either. It’s truly as simple as it gets.

The only downside is the 3% foreign transaction fee. So definitely avoid using this card when traveling internationally.

Chase Freedom

The Chase Freedom is the best card for those willing to use rotating categories 

The 5% cash back is impressive. Each quarter, you’ll have a new spending category that gets the 5% cash back up to a certain limit. One quarter might be groceries, the next might be and Everything else gets 1% cash back.

I prefer to avoid rotating categories, I don’t want to spend the mental energy keeping track of this stuff.

But if you were trying to maximize the rewards from your cash back cards, having one rotating category card could be worth it. You’d only have one set of rotating rewards to worry about. That would give you a few simple rules for spending:

  • Check the new category once per quarter to see what gets the 5% bonus
  • Use the Chase Freedom card for that category
  • Use your default cash back card for all other spending

As long as you remember to check the rewards category each quarter, this is still a simple system to follow. I’m not going to do it, but I totally understand if you want to.

The 5% cash back does have a quarterly spending limit, usually about $1,500. So the cash back will be limited to about $75 per quarter.

This is very similar to the Discover it card, which we’ve included below. It’s basically the same offer. We recommend the Chase Freedom instead because it’s a Visa, which means it’s accepted at a lot more businesses than a Discover card.

Only consider this card if you’re willing to deal with the rotating categories.

Learn more about this card.

Chase Freedom Unlimited

The Chase Freedom Unlimited is a great card for the first year, then an average card after that

3% cash back up to $20,000 in card spending for the first year, then 1.5% after that.

No annual fee and no other complexities to worry about either.

This would be an amazing card if the 3% cash back on the first $20,000 in spending happened every year. But it doesn’t, you only get 3% during the first year.

It’s best to treat the 3% like a signup bonus and consider this card like a normal 1.5% cash back card. 1.5% is nice, but other cards have higher rates.

I’d look at other cards.

Learn more about this card.

Blue Cash Preferred Amex

An excellent secondary card to maximize specific spending categories

If I had two cash back cards, this would be one of them.

I’d use my Blue Cash Preferred Amex on all my transit, supermarket, gas station, and streaming subscriptions. That would allow me to get 3-6% cash back on all that spending. For everything else, I’d use a card like the Citi Double Cash which would then give me 2% cash back on everything else.

That’s a good way to maximize cash back rewards and still have a very simple set of credit cards.

The annual fee makes this card a bit more complicated though. Not only do we need to earn enough cash back to cover the fee, we also need to earn enough cash back to outweigh the standard 1-2% cash back rewards from any other card.

We could build a super fancy spreadsheet with rewards projections based on your annual budgets. Let’s skip all that. There’s a simple way to find out if Blue Cash Preferred Amex is worth it for you.

I’m going to assume that you spend about:

  • $50/month in streaming subscriptions. That’s $36/year cash back.
  • $100/month in taxis and other transit. That’s $36/year cash back.
  • $100/month in gas. That’s $36/year cash back.

Combined, you’ll get $108/year cash back which covers the annual fee.

Now, if you max out the 6% supermarket category with $6,000 in annual spending, you’ll get another $360 in cash back. That easily covers the opportunity cost of sticking with a straight 2% cash back card.

In other words, if you spend over $100/week at the grocery store, it’s worth getting this card as your second cash back card. You’ll max out the grocery benefit if you average $115/week in spending.

And if you spend more than $100/month in taxis or gas, this card gets even more valuable.

Terms Apply. Learn more about this card.

Capital One Quicksilver Rewards

The best cash back card for travelers

One thing to watch for on cash back cards is the foreign transaction fees. A lot of them have it, which adds 1-3% to any foreign transaction. If you travel internationally at all, you’ll want a card that doesn’t have it.

If you want to use a cash back card while traveling, the Capital One Quicksilver Cash Rewards is a great option. You get all the benefits of having a super simple cash back rewards program, an easy 1.5% cash back on everything, and no foreign transaction fees to worry about.

This also makes an excellent second card when paired with the Citi Double Cash card. Use the Citi Double Cash when in the U.S. to get 2% cash back on everything. Then use the Capital One Quicksilver when traveling to get 1.5% cash back and avoid foreign transaction fees.

Learn more about this card.

Discover it Cash Back

This only a good option if you want rotating categories and a Discover card

Full disclosure: I’m not a huge fan of Discover cards.

They get rejected at stores and restaurants all the time. I hate dealing with that hassle.

Not only is it a Discover card, it also has rotating categories. Like other rotating cash back cards, certain spending categories get 5% cash back while everything else gets 1%. And the categories rotate each quarter.

If you’re a big fan of Discover and want a card with rotating categories, this could be a good option.

But I wouldn’t choose this card myself. Dealing with Discover and the extra headaches or rotating categories is too much hassle for me. I’d choose any of the other cards on this list.

Learn more about this card.

Capital One SavorOne

The best cash back card for dining and entertainment purchases

With the 3% cash back on dining and entertainment, this card makes a great option as a secondary card to maximize your returns in that category.

If you eat out a lot or attend a lot of events, it’s definitely worth considering this card.

It also makes a great backup card for when you’re traveling, since it doesn’t have any foreign transaction fees.

Learn more about this card.

How to use multiple cash back cards to maximize your rewards

Honestly, you can get 80% of the potential cash back value from getting a single cash back card and using that card for everything.

To maximize simplicity, sticking to a single card really is a great move.

But what if you really want to get a couple of cards to maximize your cash back benefits? What does that system look like?

I’m going to walk you through a three-step system on how to build your cash back machine using multiple cards.

You will have to pay attention to a few spending categories and the rules will be a bit more complicated. But if you’re looking to maximize your cash back rewards, this is the simplest way to do it.

Step 1: Pick your default cash back card

Even if you plan on having multiple cards from the get-go, you want to start with your “default” card. This is the cash back card you’ll use for all purchases that don’t fall into any of the spending categories that we’re using other cards for.

For most folks, we highly recommend the Citi Double Cash card as your default cash back card.

The only downside is that the Citi Double Cash does have a 3% foreign transaction fee, which is pretty high.

If you travel regularly and don’t want a travel rewards card, consider using the Capital One Quicksilver as your default card. There’s no foreign transaction fee, and you’ll get 1.5% cash back on everything. It’s not quite as high as the 2% from the Citi Double Cash, but avoiding foreign transaction fees will easily cover the gap.

Step 2: Pick one maximization card

Now we get to have some fun.

It’s time to pick your maximization card. You’ll use this card only when you make purchases that take advantage of the increased cash back rewards in the categories for that card. For everything else, you’ll use your default card that you already picked during step one.

Depending on your personal spending, you have a few options.

Option 1: Blue Cash Preferred Amex for groceries and gas

If you spend $100/week on groceries, you’ll easily max out the benefits of this card. Start using it for your groceries, streaming, transit, and gas. Even with the annual fee, it’s a fantastic card for anyone that spends regularly in these categories. Terms apply. Learn more about this card.

Option 2: Capital One SavorOne for dining and entertainment

You’ll get 3% cash back on all dining and entertainment. I tend to eat out a lot, so this is a great fit for me. It also has a 2% cash back on groceries, but that doesn’t really matter if you get the Citi Double Cash as your default. You’ll already be getting 2% on every purchase. Learn more about this card.

Option 3: Chase Freedom for maxing returns with rotating categories

If you really want to maximize your cash back, you’ll need to get a card with rotating categories. This gets you a 5% cash back, but you have to deal with the headaches of remembering which categories are active. I would never do this myself, it’s too much trouble. But if you don’t mind remembering which categories have the 5% bonus, you’ll be able to maximize your cash back. Learn more about this card.

Also remember to watch the foreign transaction fees on cash back cards

When getting a second cash back card, try to get one card without foreign transaction fees. Then you’ll be covered whenever you travel internationally. The Capital SavorOne is a great option for this. You can use it for the 3% cash back on dining and entertainment when stateside, then use it for everything to get 1% cash back and avoid foreign transaction fees when traveling.

Step 3: Optional second maximization card

If you’re looking at the list of maximization cards above and having trouble picking between two of them because they both fit your spending really well, consider grabbing them both.

This would give you a total of three cash back cards. One is your default, the other two are maximization cards.

For example, let’s say that I spend hundreds of dollars every month on groceries, gas, dining, and entertainment. There would be a strong case for me getting three cash back cards:

  1. Citi Double Cash as my default card
  2. Blue Cash Amex for my groceries and gas
  3. Capital One SavorOne for dining and entertainment

This setup would allow me to maximize my cash back across several spending categories. I’d have 2% cash back as my default and 3-6% across a few categories. That’s a really nice return with a cash back machine that’s still simple enough to remember.

Should you ever consider more than three cash back cards?

I strongly advise against it.

You could get more than three and it won’t hurt you. 

But I consider it completely unnecessary.

After three cards, any additional cards will have diminishing returns. They become more trouble than they’re worth.

Definitely get a default cash back card, get a second if you want to bump your returns, consider a third if your personal spending fits multiple cards, and don’t go past that.

Advertiser Disclosure: I Will Teach You To Be Rich has partnered with CardRatings for our coverage of credit card products. I Will Teach You To Be Rich and CardRatings may receive a commission from card issuers.

The best cash back credit cards of 2019 is a post from: I Will Teach You To Be Rich.

Should We Employ Our Own Kids? (and How Much to Pay Them)

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My Brother Wax Mannequin, training the next generation of workforce last summer.

Way back in 2015, I had a nine year old boy. Even back then, I could see him showing some early flashes of adulthood and maturity, and it got me wondering about his future as it relates to money and freedom.

So I wrote a post called What I’m Teaching My Son About Money, which shared some ideas about how we can raise our next generation of kids to be happy masters of money rather than the stressed-out slaves that most people (even those with high incomes) are today. And now, four years later, some of my predictions and questions from that article are starting to come true, and I’m wondering what to do about it.

To me, the biggest question is this:

Where is the balance between giving your kids a helpful boost, and “helping” them so much that you distort their view of the world and create a generation of Whining Complainypants Adults?

Opinions on this subject can vary widely, and in fact even you and I might have rather different views. But hopefully we can at least agree that the whole thing sits on a spectrum, and that even that spectrum itself is slippery because every child and every upbringing is unique.

So let’s get onto the same page with an attractive and scientific-looking diagram.

Almost any parent would agree that the left side of the spectrum is a bad place for kids to be born. Because it affects not just their childhoods, but their entire lives. So we strive to provide a life that is further to the right, keeping our kids fueled with food, love, and opportunities.

But as with all human pursuits, we have a tendency to go too far and get into the “Too Easy” end of the spectrum. We may be smothering our kids with too much “help”, or perhaps compensating for being so busy with our fancypants careers that we don’t have much time to spend with them.

While this all feels like common sense, there’s also some biology behind it. Babies and young kids who experience a harsh environment during this critical part of development will tend to grow up more optimized for survival and street smarts, with lower levels of trust and a harder time blending in with a peaceful society*.

And on the more fortunate side of the divide, children raised in peace and security will optimize more for “book smarts” intelligence as well as being more trusting and less prone to violence. The entire apparatus of our brain will end up wired differently, based on the experiences we have in early childhood.

The problem for wealthy people is that the human brain is not wired to stop at “enough”, because enough has not been a big part of our shared history.

So we tend to overdo it when creating a comfortable life for our own kids, often justifying it with this exact sentence:

“We work hard, so we can give our kids some of the opportunities and the nice things that we didn’t have in our own childhood.”

It sounds noble and honorable on the surface, but be careful, because we can ratchet that same justification up far beyond any reasonable lifestyles without realizing we are just stoking our own egos or compensating for our own fears (and perhaps battling our peers/competitors in the Who’s-the-Best-Parent Competition on Facebook).

And then these kids respond by developing in a different way that can have its own downsides. Not understanding what it means to be poor. A lack of life’s most valuable skill – the skill of efficiency, optimization and reducing waste. And even a lack of life satisfaction and balance in later adulthood, because of a focus on easy consumption rather than the joy of creation.

So with such a slippery slope and those two pointy arrowheads to navigate, what’s the ideal strategy for us parents?

I don’t have all the answers, but one idea I have been interested in for years seems to have a lot of advantages: Hiring your children to work in your own small business.

Just think about it. You get to do all of these things and more:

  • help your kids earn their own money
  • teach them the value of hard work
  • have more excuses to spend time together solving problems – maybe even as they grow into adults
  • potentially cut the family’s total tax bill by transferring income from the high tax bracket of the parents, to the low (or zero) bracket of the kids.

Of course, there are also a few traps to watch out for in running a family business:

  • the job you give them might be better (or worse) than what they could get elsewhere, leading to a distorted view of what it really means to work for a living
  • if you don’t get along particularly well, tying your fates together even closer in a company will magnify any problems in your relationship
  • your kids might miss out on other, broader life experiences they could have had out there in the real world (like my own formative jobs in the gas stations and convenience stores of my small town, which are still the source of stories and laughs to this day.)

Still, the potential benefits clearly outweigh the risks to me, so the idea remains an exciting one in my mind.

Little MM and the Budding YouTube Project

I have been dabbling with this with my own son for several years – he helped me with the arduous task of mailing out over 1200 MMM T-shirts a few years ago and occasionally helps his mother in her soap production enterprises. His earnings have typically been on a per-shirt or per-soap basis

But things really took a step up this past January when he talked me into dusting off the neglected MMM YouTube Channel and actually starting to produce some shows together. Because we started with the good luck of a partially established audience and we have put some real effort into it (13 episodes over these first six months), it has taken off a little bit and we now have over 27,000 subscribers and the channel has earned about $1600 in YouTube ad revenue so far.

As a fun incentive, I offered at the beginning to pay him a flat (low) fee for editing and producing each episode, then split the income from this venture equally beyond that. So now, the little dude has made $800 on top of his base fees for the work.

If this continues, it could grow into a real income, which is quite exciting but also brings up some interesting tax questions. After all, right now he is a dependent for tax purposes, which means at least one of his parents get a tax deduction for raising him. But if he earns his own money, he might rise out of this dependence and even start owing taxes on his own. So is it worth it?

Hey, Let’s Ask my Accountant!

Outsourcing my taxes to someone younger and more enthusiastic about it than me has worked wonders.

To get better advice, I decided to run this by my own business and personal tax accountant, Chris Care who runs his own firm called Care CPA. We talked over the ideas of family businesses and employing a child in greater detail.

In summary, the results are better than I expected, which explains why people are so keen to hire their children.

Here’s my brief Q&A with him. Thanks for your help Chris!

MMM – So the first question is, what are the basic rules about employing one’s own child in a family business. My first instinct is that it sounds smart, because you are shifting income from parents in a potentially high tax bracket, to kids in a low tax bracket. So overall as a family, your tax bill falls.

But Is it a good idea? How old do they have to be? Any things to watch out for?

Chris Care: The biggest thing to watch out for is making sure the children are old enough to actually work. A lot of business owners want to pay their 1-year-old $15,000 a year for “modeling” by putting their picture on the company website. To me, this is a stretch.

You also want to make sure you’re paying them in accordance with the tasks they’re doing. If they are 12 years old and filing paperwork for you, or cleaning your office, or other administrative tasks, you probably can’t justify paying them $50 an hour. You should make sure there is a clear job description, and keep an accurate record of the number of hours worked and the tasks performed, just like any other employee does at their job

MMM –  What is the current child tax credit amount, and how would it phase out if he started making his own money? And does this scale up and down with the parents income as well?

Chris Care – Currently, the child tax credit is up to $2,000 per child, with up to $1,400 being refundable if the credit exceeds your tax amount.

In general, as long as you can claim the child as a dependent, and your income is below $400k if married filing jointly ($200k otherwise), you can claim the child tax credit no matter how much money your child makes. Above this income, the child tax credit phases out, but it is still not related to the child’s own income.

MMM –  Oh wow, I didn’t realize that. And at what level would he need to start incurring his own income taxes? And as an employer, would I be on the hook for stuff like quarterly tax payments, unemployment insurance, worker compensation, and so on? Could he be more like a contractor and avoid these complexities?

Chris Care – It’s unlikely you could classify your own son as a contractor. The IRS used to have a 20-factor test, but recently they have been narrowing and cracking down on this issue – more details here: Behavior, Financial, and Type of Relationship

Aside from that, you’d have to handle things in the standard employee way:

  •  tax withholding from every paycheck, submitted to the government as part of a standard payroll process. (MMM Note – even I have to do this as an employee of my own LLC, I use a provider called ADP and am evaluating a newer one called Gusto).
  • quarterly payroll taxes for social security and medicare
  • State unemployment insurance if applicable in your state
  • FUTA (A form of Federal Unemployment Tax)

Just like any other taxpayer, the child will need to file a federal tax return if their earned income is above the standard deduction ($12,000 for 2018, and $12,200 for 2019). Note that state filing thresholds are often much lower than federal thresholds – check with your own accountant!

MMM –  If a kid is living at home with no expenses, he might be wise to put as much of this into retirement accounts and otherwise defer taxes. If my company offered an employee 401k plan, could he put away the full $19,000 per year, or is there an even better option? Maybe his own tax-deferred college savings plan?

Chris Care – As with any other employee, the child can participate in the company’s retirement plan, as long as the plan is written to allow minors to participate. The contribution limits will depend on the type of retirement plan. In your example of a 401k, the child could defer the full employee amount ($19,000 in 2019) as long as wages were at least that amount. He would also get the employer match if your company established one.

College savings plans are an option, though whether or not he can open his own would be a question for your specific provider. Financial service firms tend to get a little hesitant opening accounts for minors. You could always open one, and he could contribute to it.

MMM Summary: Wow, this is much better than I had even hoped. In rough terms terms, it sounds like if I can pay my son $30k from my company’s income, I might save about $10k in marginal income taxes, while his resulting tax bill would be quite minimal.

Thus, it makes sense for me to start paying him as a real employee, rather than just paying all the taxes at my own marginal rate and keeping it in our own family spreadsheet, as I do now. 

Chris Care – Yes, there are some good opportunities for tax optimization by hiring kids.

In general, if you can justifiably pay your child a wage from the family business, it is an excellent way to lower the family’s tax burden, and give them a massive boost in retirement savings (since 401k contributions add up way faster than IRA contributions).

Also, by owning the business, you can administer your own 401k plan – which means you don’t have to wonder if your employer’s plan will allow for a mega backdoor Roth, since you can design it that way! Just keep in mind, that 401k plan is for all employees, so any attributes you establish for family members would also be there for non-family members that you may hire.

Another optimization: if you were a sole proprietorship, or a partnership where both partners are parents of the child being employed, the child’s wages would not even be subject to SS/Medicare taxes.

This means you could pay them the $12,000 standard deduction plus $19,000 401k deferral, with zero income tax, zero SS/Medicare taxes, and zero Federal Unemployment tax. They may still be subject to state income tax and state unemployment tax, but those would be relatively minor.

You can essentially shove $31k into a zero tax situation, from potentially a ~35% situation.
This means it may be worth operating the youtube channel as a separate company, and employing your son as a real employee…

MMM – hmmm, lots to consider! For now, YouTube is still only a few hundred bucks per month so we are not there yet. But it sounds like little MM’s future is bright, as long as he remains motivated to work hard and be creative and keep producing.

Which is a good general philosophy for any of us: keep some good hard work as part of every day, whether you’re ten or one hundred years old. Doing good work and producing good things tends to lead to a good life.

A Few More Thoughts and Disclaimers from Mr. Care:

  • In all of these answers, I have assumed the child is a true employee, where he receives a regular paycheck and a W-2 at the end of the year, and the company is a C Corp or S Corp.
  • As with all tax planning, tax credits, and personal situations, there are exceptions and limitations. So we’ve made some broad assumptions to answer these questions. For me to post an exhaustive list of these would take an entire blog post of its own. Always check with your tax professional, or make sure you understand the IRS guidance.
  • generational wealth / inequality / dynasties / buffett
  • effective altruism

A Final Thought from MMM:

If all this sounds like wishful thinking to you because you don’t own your own business yet, I strongly encourage to start one! For the great majority of early retirees, having a small entrepreneurial pursuit is both a reassuring security blanket and a fascinating and fun way to explore life after the cubicles and commuting stage is over. The Joy Of Self Employment.

* This one of many interesting and sometimes untintuitive insights I got into Human nature when reading the rather excellent book Sapiens.


My plan for purchasing a new car

sourced from:

Build Your Own MiniIt’s funny. Fifteen years ago, daily personal finance was a chore for me. I didn’t understand how to go day to day making smart choices that were aligned with my values. I wasn’t even sure what my values were!

Today, things are much easier. Sure, there are challenges. Sometimes I make poor choices. But mostly, what I spend aligns with what I want out of life. (With the caveat, of course, that who I am and what I want shifts over time.)

I’m glad I’ve developed good habits. Right now, it’s keeping me from making a rash decision. For most of 2019, Kim and I have both been fighting the new-car itch. The old J.D. would have succumbed by now. This year’s model still does dumb things like spending hours building custom cars on the Mini website, but so far I’m not scratching that new-car itch.

Instead, I’ve come up with a plan, a path to a car purchase. And Kim has come up with a plan of her own too.

My Plan for Purchasing a New Car

“Look at this,” I told Kim a couple of weeks ago. I carried my laptop over to show her my latest Mini design: a super-powered orange convertible that makes no sense for our lives.

Kim shook her head. “You’ve got to stop going to the Mini website,” she said. “And you especially have to stop using that build-your-own-car tool. That’s dangerous.” She’s right.

Earlier this week, as Tally and I strolled through the hills and picked blackberries, I did some serious thinking about if/when I should get a new car. I think I’ve gained some clarity.

Sure, if I cashed out some of my investments, I could justify making this purchase today. But, as I learned last year, this sort of action carries a huge tax consequence. If I sold investments to buy the car, I’d effectively be paying a 15% premium to make the purchase. I’m not willing to do this.

Plus, it’s hard for me to rationalize paying so much for a new car. It’s crazy how expensive vehicles are these days. (Do I sound like an old man yet?)

Speaking of being an old man: The one thing that even allows me to consider a new new car is that I’m getting older. I’m fifty. It’s highly probable that if I purchased a new vehicle, it’d be the last new-vehicle purchase of my life. (I tend to keep my cars a long time. I can see that at 67 or 70, I’d buy another used car because a new Mini would last me until then.)

While the dog sniffed the roadside for rabbits, I formulated an actual plan for buying a new car. I decided that there are three conditions that would lead me to make this purchase. From least likely to most likely, those conditions are:

  • Interest rates on auto loans drop low enough for me to justify making payments. As I said, I don’t want to cash out my investments to buy a car. My monthly income has reached a level where I could conceivably use part of it to pay for a car, but I don’t want to pay a lot of interest if I do. Right now, the U.S. national average for a 60-month loan is 4.21%. That’s too high. 0.0% would be low enough, obviously. But at what level would I be willing to take out a loan? I’m not sure. I think 2% may be too high, but 1% is okay.
  • My current Mini Cooper dies. My car has had a couple of major repairs since 2016, but mostly it runs fine. There’s no rush to replace it. But if it were totaled in an accident (heaven forbid!) or if something else major were to go wrong, well then I’d consider moving on to a new car.
  • I save enough to pay cash for all (or most) of a new vehicle. GRS is starting to make more money. Not a lot — not like in the olden days — but some. I plan to set this aside in a car fund. Meanwhile, whenever I get lump sums, I’ll stick that money in the car fund too. (I’m negotiating a project that might give me roughly $15,000 — if it ever happens.)

If any one of these three comes to fruition, I’ll do pull the trigger. I’ll buy a new car. (Unless, of course, I manage to shake this new-car itch for good. But that’s unlikely.) In the meantime, I’ll make do with the two vehicles I already own: my 2004 Mini Cooper and my 1993 Toyota truck. I like them both and they run well. They’re good enough, you know?

If I could could MINI to sponsor Get Rich Slowly, I could make a fortune, couldn’t I? I give them enough free advertising as it is…

Kim’s Plan for Purchasing a New Car

Meanwhile, Kim is fighting a similar battle. As much as she cautions me to quit making mock-ups of my dream car, I often walk into the living room to find that she’s browsing Craigslist or the Toyota site, looking wistfully at RAV4s.

Last weekend, we spent Sunday evening in downtown Portland for dinner and a Timbers game. As we walked around, she pointed out various compact SUVs. “That one’s cute,” she said, pointing at a Subaru of some sort. “I like that color. What model is that? Do you think that’s a 2017?”

Between the two of us, we agree that we should have one practical vehicle and one fun vehicle. Our definitions of “practical” and “fun” aren’t exactly the same — I’d never buy an SUV, and she wouldn’t buy another Mini — but they’re close enough. Kim has decided that she’s the one who’ll pursue practical. For her, that means a compact SUV.

After I told her about my plan for a new purchase, I asked if she had a plan.

“Well, I’m further along in the process than you are,” she said. “You don’t have anything saved for a car. I do. I have $15,000. And if I can sell that stupid motorcycle, I should have another $3500. Once I have $20,000 in my Ally account, I’ll buy a car.” (Kim loves her Ally savings account. I’m not kidding. She’s like a walking, talking ad for Ally — just like I’m an ad for Mini. It’s hilarious.)

“You’re close,” I said.

“I know,” she said. “That’s why I’ve been looking at cars. I want to find out what’s available and how much things cost. Yesterday, I called three local dealerships to ask when the 2019 models will go on close-out. They said they’d call me back in a few months. I hope I have enough saved by then.”

So, Kim’s plan is simple: Once she has $20,000 saved, she’ll buy a compact SUV. If she can afford a new one and can find one she likes, she’ll buy it. Else, she’ll buy a recent used model.

In addition, she prefers:

  • A hybrid or electric vehicle.
  • The ability to tow a trailer (although we don’t own one).
  • The ability to carry two kayaks (which we do own but don’t use because we have no way to get them to the river).
  • Low road noise.
  • The ability to listen to podcasts.
  • Good visibility all the way around.

I think she’s going to be surprised when it comes time to buy. I think any modern SUV is going to satisfy her list of requirements. And based on her progress, I’m guessing that sometime this autum or winter, we’ll be visting car dealerships to test-drive cars.

Second Thoughts

I know this is the second (third?) time I’ve written about this same subject in six months. That’s because our car situation is taking up a lot of our brainwidth lately. It’ll continue to do so until we have some sort of resolution.

I have no doubt that by this time next year, either Kim or I — or both of us — will own a new car. But I’m pleased that we’ve both resisted the urge to rush out and make a purchase before we’re ready. We’re taking the time to research what we want (well, Kim is, I guess — I’m just building custom Minis), and we’ve both formulated plans to save for the purchase.

In the meantime, I should thank all of the GRS readers who have left comments (or sent me email) with tips for getting better deals. (My favorite? Find a part of the U.S. where my chosen car sells poorly. Buy the car there for less, then drive it back to Portland.)

There’s a little voice inside my head that says, “J.D., you shouldn’t even buy a new car. You don’t value cars enough to justify a new one. Just keep buying used vehicles. Look how much you love your 1993 pickup. It only cost $1900!”

That little voice has a valid point. Plus, I don’t drive much. I drive maybe three times per week for a total of sixty miles. I make several longer trips each year, though. I’d guess my average annual driving is around 3000 miles.

Wait! I can figure this out! We’ve been back from our RV trip for just over three years. I know what my end-of-trip mileage was on the Mini. Let me go see what the current mileage is…

In the 1114 days since getting home, I’ve driven my Mini 14,601 miles. That’s an average of 13.1 miles per day (or 92 miles per week), which works out to 393 miles per month (or 4718 miles per year).

Does it even make sense to buy a new car if I’m only going to drive it 5000 miles per year? I don’t know. I suspect not. That’s why the rational J.D. says, “Buy used.” Or maybe I could do what my buddy Rob Farrington does: Give up car ownership altogether and just use ridesharing.

p.s. Just after publishing this, I read a great article at A Wealth of Common Sense: The Thing That’s Probably Blowing a Hole in Your Budget. Ben Carlson notes that the three largest debts in most people’s lives are a mortgage, college loans, and car loans. The first two can be rationalized, even for folks who are struggling financially. A new car loan, on the other hand, is tougher to argue. If you’re in good financial shape, fine. But if you’re not, you shouldn’t be borrowing $50,000 to buy a new truck. (See also: Why your luxury car is unlikely to materially boost your happiness.)

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