Planet Money

As the New Year rolls around, I find myself engrossed in several new books received over the holiday season. The largest, by far, is Neal Stephenson’s Anathem, weighing in at 960 pages. I’m currently deep into it - and enjoying every second. Stephenson is perhaps my favorite writer.

What’s up next on the docket? For Whom the Bell Tolls by Ernest Hemingway and Team of Rivals by Doris Kearns Goodwin are likely going to be the next two books I read once I finish Anathem.

Oh, how I wish I had a few more hours in the day just to read!

They Told Me That Madoff Never Lost Money If it sounds too good to be true, that’s probably because it is too good to be true. Ben Stein lays it out very well here. (@ new york times via get rich slowly)

The “One Big Lump” Theory of Your Money The advice here is simple: don’t think of your money as split up among a bunch of different accounts (401(k), Roth IRA, checking account, savings account, major assets, etc.). Instead, think of it all as one big lump. Then, you can treat the whole thing as a diversified portfolio of investments - and you won’t sweat as much if your stocks lose some of their value, because other parts of your “portfolio” will have gained value. (@ wisebread)

How to Protect Kids from Identity Theft This article takes an interesting angle on identity theft that I hadn’t considered before. In short, there’s no good reason to have your child’s identity out there - so protect it as much as you can. Your young child does not need a credit card to establish their credit history. (@ carrie & danielle)

Is Your Business Prepared for a Disaster? The Simple Dollar is as prepared as can be. I have plans in place for most of the disastrous situations I can think of. (@ freelance switch)

22 Secrets to Discovering Your Dream and Living It This is an excellent collection of advice on following your dreams, even if it seems like there’s no room in your life to give chase. (@ dumb little man)

Post-Christmas Hacks I’ve been thoroughly enjoying browsing the archives of Ikea Hacker over the past few weeks - lots of good frugal stuff there. The premise is simple: buy relatively cheap stuff from Ikea, then modify it to make something classy or interesting. (@ ikeahacker)

Today I am reviewing new books written by two colleagues: Trent from The Simple Dollar and Leo from Zen Habits. As you read these reviews, please remember that I am friends with both authors.

Zen Habits is one of my favorite weblogs. For the past two years, Leo Babauta’s exploration of productivity and simple living has helped me make the most of my time. (Plus sometimes, like yesterday, he just hits it out of the park.)

Babauta recently published his first book, The Power of Less, which seeks to help readers become more efficient — and more relaxed at the same time — by limiting themselves only to the essential.

Six lessons
The Power of Less is divided into two sections. In the first, Babauta explores the six guiding principles of his philosophy, “the ideas that will help you to maximize your productivity while simplifying your life”:

1. Set limitations. By setting limitations, we must chose the essential. So in everything you do, learn to set limitations.
2. Choose the essential. By choosing the essential, we create great impact with minimal resources. Always choose the essential to maximize your time and energy.
3. Simplify. Eliminate the nonessential.
4. Focus is your most important tool in becoming more effective.
5. Create new habits to make long-lasting improvements.
6. Start small. Start new habits in small increments to ensure success.

The second section of the book offers practical tips for applying these six principles in various parts of your life: goals and projects, time management, e-mail, filing, daily routine, etc.

The power of less
The first section of this book disappointed me. Babauta’s six principles are good, but the chapters describing them are too long and the examples vague.

Babauta writes, “These days we consume information, food, and media at a breakneck pace that was unimagined two hundred years ago.” Maybe so (that’s my impression too), but I want a bit of research to back it up. This sort of book lends itself to facts and figures. There’s no research cited in The Power of Less, and that frustrated me.

But I thought the second section of the book was great. It’s filled with ideas that I can use in my own life. As one who is completely overwhelmed by his work, the idea of doing more by working less appeals to me. As I read, I jotted down some techniques I can use to improve my own life today:

• Have only three active projects at a time, with all others waiting “on deck”. Finish all three projects, and then move three more projects to the active list.
• Every evening, create a list of three Most Important Tasks for the following day. Try to complete these as soon as possible, before you get distracted.
• Limit e-mail. Check only twice per day. (Babauta recommends 10am and 4pm.)
• If you’re leaving e-mail in your inbox because you need to do something, move the task to an external list. Get the task out of your inbox.
• Limit the length of your replies. Kris has been trying to convince me of this for months. When I reply to reader e-mail, I often want to write long, personal replies. This takes time. Although I’d like to write more, I’m going to try to limit myself to 3-4 sentences.
• Create a simple filing system. Get rid of stacks on your desk. I’m a “stacks” kind of guy, and often feel overwhelmed by them. I bought an accordion folder, and have been working to move my stacks to this.
• Learn to say “no”. This is a difficult one for me. For the past two years, I’ve been a proponent of the power of yes. I’ve achieved a lot by accepting the offers that have come my way. But now I’m finding I don’t have time to say “yes” to everything.

More or less?
As you might expect, The Power of Less is very much like a refined and extended version of Babauta’s blog, Zen Habits. This alone may tell you whether you’ll enjoy the book. I liked it, but do have some reservations.

For one, the book is tech-centric. The examples are great if you’re an office worker, but much less relevant if you have a blue-collar job or are a stay-at-home parent.

Also, at times the book feels like a group of unrelated parts instead of unified whole. For example, in one chapter Babauta encourages readers to focus on only one goal at a time. But in the next (and in the rest of the book), he writes of having multiple goals. Which is it? One goal or many?

Quibbles aside, I’m glad to have read The Power of Less. I’ve reached a point in my life where I’m questioning my priorities. Do I really want to spend 60 hours a week writing? How important is money relative to fitness and relationships? How can I find balance?

When I read The Power of Less on Christmas Day, it had quite an impact. Over the past two weeks, I’ve used its lessons to help me re-structure how I organize my time. I’m pleased with the changes. I have embraced the power of less — and so far it seems to be working.

Learn more about this book at the Power of Less website.

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Related Articles at Get Rich Slowly:

• links for 2007-06-19
• Steve Pavlina: The Power of Now
• Review: Kill-a-Watt Electricity Usage Monitor
• Book Review: Debt is Slavery
• Daily Roundup: Cars, Cars, Cars

I was recently browsing a comment thread on Lifehacker when one particular comment stood out to me:

Having kids is one of the most expensive poverty-inducing things you can do right now. - kalibar

I understand completely where kalibar is coming from with this comment. Many estimates with regards to the cost of raising a child put that figure at $200,000-$250,000 per child over their lifetime - and that’s a serious chunk of change.

When I read these estimates, however, and I look at our own spending, something doesn’t quite add up. To put it simply, we’re not spending that much, even during these expensive years of the child’s life.

Let’s break down what we’re spending right now on our children.

For 2008, our biggest expense by far for our children was child care while we were working. Combined, we spent about $11,000 on child care for the two children this year. After that, costs went down quickly - we estimate that all other expenses combined (food, health care, toys, clothing, and so on) were roughly $7,000 for both children combined. Add onto that $1,200 per child put away for their college education (and I’ll ignore the tax benefits of this, as we don’t have to pay state taxes on contributions) and you have a total of $20,400 spent on both children this year - or $10,200 per child.

So, if those costs continued as they are over the next eighteen years, we would spend $183,600 per child during their childhood - not too far from those estimates.

But that $183,600 total is extremely naive.

Let’s look at several elements that will save us money during our children’s lives.

First, $6,000 of that $10,200 is tax deductible. It’s our child care tax credit, and it knocks roughly $1,800 (assuming a 30% overall tax rate) off of our total tax bill - or $900 per child. So, boom, we’re quickly down to $9,300 per child.

Second, we now have two more deductions on our tax returns. At $3,750 a pop, our two children shave $7,500 off of our taxable income. Assuming that same 30% tax rate, we quickly shave $2,250 off of our tax bill, so we’re down to $7,050 per child.

Third, the mere presence of the children changes our entertainment structure. Instead of going out to the golf course with the guys, I’m much more content to toss the whiffle ball around in the back yard with my son. Instead of going out to the movies three times a week with my wife (as was once the case), we stay home, watch movies in the family room, and play with our kids while doing it. Instead of eating out all the time, we put our daughter in a high chair, cook a meal at home, and serve her some of that delicious home-cooked food.

In short, both our entertainment and food budgets went way down upon the birth of our children. We knew this change would happen - it was part of our decision-making process when it came to deciding whether to have children. We knew that many of the trivial aspects of our life would change. We chose to give up most of our social opportunities and entertainment opportunities in exchange for being able to raise children in an enriching environment.

How much did this actually save us? This is something that’s very difficult for me to estimate, as I didn’t actually do any sort of budgeting or number-crunching during the year prior to our having children. However, based on what I can estimate from that year, we cut our entertainment and food spending (from 2004 to 2008) by $6,500 a year. That’s a drop of $3,250 per child, bringing our per-child expenses down to $3,800 per child.

So, let’s use that for the first five years of the child’s life - $3,800 per kid. After that, we lose almost all of the child care costs - but we also lose our $900 tax deduction - a total reduction in cost of $4,200. What’s that? During the sixth year, our total child cost is actually a gain of $400!

Obviously, as the child grows, we’ll begin to accrue more non-child-care expenses for them: education costs, growing entertainment costs, and so on. I’ll actually increase our expense per child at $500 per year after age six.

So, for the first five years, we spend $3,800 a year. At year six, we actually gain $400. Each year after that, we spend $500 more per child than the year before, culminating with an overall after-tax and after-savings cost of $5,600 during their eighteenth year.

What does that total up to? $52,800.

Now, you might quibble with my “back of the envelope” calculations described above and inflate some of the costs. You might even be able to double my estimated expenses by skewing the numbers around.

That doesn’t change the underlying point, however. Children aren’t the enormous expense that they’re made out to be. I’m not claiming that they’re not expensive - not at all. Instead, I’m saying that the quoted expenses bandied about - $200,000 to $250,000 over the child’s lifetime - looks only at expenses. It does not look at some of the savings that will come your way naturally during the child-rearing process, nor does it take into account the tax benefits of children.

What’s the take-home lesson here? Don’t be scared into not having children - or delaying having children for years - by the huge costs bandied about. Those costs only look at the “expense” part of the equation and don’t include the many ways that you actually save money once a child enters your life. For example, a single child, merely by existing, will save you thousands and thousands of dollars on your tax bill over their life.

So, do children cause financial burdens? Yes, they do - you’re going to be spending money on them. However, that expense is not as large as one might think at first glance, and when you consider the advantages of having children when you’re younger rather than when you’re older (if nothing else, you have much more energy to share with them), you shouldn’t choose to delay children without looking at the larger picture.

Several GRS readers have written lately with the same credit card problem — but not the one you’d expect. Perhaps in an effort to cut costs, credit card companies are beginning to close their customers’ unused accounts. Nicole shared a typical experience:

I’m 26 and have a solid 8-year credit history. Despite really wanting to get rid of some of my old credit cards that I never use, I’ve held on to the accounts since they help my credit history.

I just got some bad news about my oldest credit card. Because I haven’t charged anything on the account in 13 months, the account has been suspended and closed. I called and was told by several people that there is nothing I can do about it. It’s as if the years I’ve had the account for and the fact that I’ve always paid what I owe means nothing. And for my past loyalty they’re willing to potentially make me take a major hit on my credit score.

I feel like I’m being penalized for doing the right thing. Other than writing a strongly worded letter to Capital One and asking my other credit card companies to increase my limits, is there anything you can think of that might help me to minimize the hit on my credit score?

Other readers have reported similar problems. The irony of this situation is that it only affects people who are using credit cards responsibly. It’s important to note that although closing a credit card — whether you do it or the bank does it — will affect your credit score, the damage is generally minor, and your score should recover quickly. Still, if you’re planning to apply for a loan in the near future, this could be a nasty surprise.

If this has happens to you, absolutely ask the credit card company if there’s anyway to reverse the closure. Be firm but polite. Ask to speak with supervisors. It’s unlikely that they’ll change their minds, but it never hurts to ask.

You might also ask the issuer to grant you a new card with similar terms. You’ll still suffer a ding to the “length of credit history” portion of your credit score, but you’ve lost that already. By obtaining a new card, you’ll at least recover the “credit utilization” portion of your credit score.

If this hasn’t happened to you, there’s an easy way to prevent it from occurring. If you have an unused credit card account that you maintain simply too boost your credit score, make a charge or two every couple of months. Pay off the charges immediately, as normal. By using the card once in a while, the issuer will consider it active, and you won’t be at risk for taking a hit to your credit score.

And, of course, if you’re carrying balances on your cards, this isn’t an issue. You folks should continue to pay down your debt as quickly as possible while not using your cards for new purchases.

For more on this topic, check out this anatomy of a credit score.

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Related Articles at Get Rich Slowly:

• Proper Care and Feeding of Your Credit Score
• How and When to Cancel a Credit Card
• I Do Not Use Credit Cards
• links for 2006-10-30
• Eight Things Every Credit Card User Should Know

One of the biggest financial stories of the last month or so was the revelation that Bernie Madoff, a legendary stock trader if there ever was one, had perpetrated a giant Ponzi scheme on investors, bilking them out of fifty billion dollars.

Personally, I found the story fascinating, and apparently many of you have as well, because I’ve received a ton of questions and comments about Madoff and Ponzi schemes and pyramid schemes. Here are some of my thoughts on the most common questions brought up by readers, especially in terms of understanding what happened and what impact it has on you and your future moves.

What’s a Ponzi scheme?
Most of the descriptions of Ponzi schemes that are floating around out there in articles are really confusing, so I thought I’d start off with a clear example of a Ponzi scheme.

Let’s say I wanted to start a Ponzi scheme to get rich really quickly. I’d put an advertisement out there saying that I had an investment opportunity that would return, say, 25% of your investment each year, guaranteed. Obviously, that’s a claim that I’m not going to be able to back up with any real investment, but it’s a strong enough claim that I’m likely to get a few people who want to invest.

Ten people invest in my scheme the first year at $10,000 each, giving me $100,000 to work with. At the end of the year, I actually pay out that 25% to each investor, sending them checks for $2,500 each, leaving me with $75,000. These ten people are amazed by the success, so they each tell five friends about the scheme, plus my original ad draws in ten more people.

So, at the start of year two, I have fifty referred people into my scheme and ten more from my ad. They send me $10,000 each, giving me $600,000 to add to my account, leaving me with a total of $675,000. I keep promoting, and at the end of the year, I write seventy checks for $2,500 (that 25% return to each investor), totaling $175,000. That leaves me with $500,000.

Now, during that year, I’ve managed to attract 100 more customers, who send me $10,000 each at the start of year three. I now have $1.5 million sitting there, but at the end of the year, I need to pay out $2,500 to 170 customers.

I don’t want to do that, so I take that $1.5 million and vanish to South America. Of the investors, the original ten got 50% of their money back, then the next sixty got 25% of their money back. Everyone else got nothing.

So what is a Ponzi scheme? It’s one where you promise rich returns in order to get a lot of investors into your scheme, then you pay “returns” to the early investors out of the initial investments of later investors, until it looks like you’re going to be paying out more than you’re bringing in, at which point you close up shop and disappear with the loot.

How did Madoff get away with this kind of scheme?
Madoff’s primary tool for making the scheme work was the respect from others he had built up during his long career on Wall Street. He had been the chairman of NASDAQ and was intimately involved in the organization and technology involved in setting it up. He had also been running a fund for many, many years and had discussed at length his investing strategies (which were pretty complicated).

At some point along the line, Madoff began to not see the success that he had been claiming with his investing strategy and quietly began to convert things into a Ponzi scheme. He began to focus heavily on marketing his investment fund, attracting new investors all the time, and when these people would invest, he would use that money to pay out to earlier investors who were leaving the fund. So, for example, if he were taking in new investments and could actually return 8% on them, he was claiming a 12% return and actually paying that out to investors who were leaving the fund.

It’s easier to think of this in raw numbers. Let’s say you have $100 of someone else’s money and you have that invested somewhere where you can earn 8% on it. You tell that person (and everyone else who will listen) that you can earn 12% on their money. After the first year, that initial person wants their $100 back (with that 12% return), but five more want to invest. You take the $100 they invested, plus the $8 you actually earned, plus the $500 the new investors gave you, and you pay out $112 to the original investor. Now you have five investors, but you have only $496 and it’s only earning 8%. Next year, four of those investors want out with their $112 each (total $448). You have only $535.68 on hand, but you pay out the money. You actually only have $87.68 on hand right now (earning 8%), but the lone remaining investor believes he has $112 with you (earning 12%). It won’t be good when that last investor comes to collect his money.

That’s eventually what happened to Madoff. When the stock market tanked in late 2007 and 2008, investors wanted their money out in droves and he simply ran out of money to pay the inflated returns he had been promising everyone because he wasn’t actually earning those returns.

Can any of this possibly affect me?
Madoff’s scheme won’t directly affect you unless you were invested in the scheme.

So why should we pay attention to it at all? It’s a stark reminder of the danger of greed. Madoff got greedy with his own fund and kept seeking more investors so he could keep living the high life. The investors themselves were greedy because they were trying out investments that they didn’t really understand just in the hopes of getting a big return.

What warning signs should I look for?
Here’s the big one: if someone is promising you returns that blow away what can be found easily in the S&P 500, don’t believe it. They’re selling you something fishy. Investing returns in the double digits do not grow on trees, and if they’re guaranteed, something inappropriate is likely going on. Avoid it for your own safety.

That’s not to say you can’t earn returns higher than 10-15% or so - one certainly can. But a person is not going to find that return by investing in someone else’s investment package. You’re much more likely to find it in small events in your everyday life. For example, a couple years ago, I turned a nice and quick profit reselling Nintendo Wiis when they were very hot, earning far more than a 10% annual return. However, such opportunities aren’t sold as investment packages.

Similarly, if you don’t understand how an investment works, don’t invest in it. This is an investing rule I always follow. The only stocks I purchase are very broad mutual funds that basically amount to investments in the idea of American business as a whole. Why? I understand how they work. I don’t invest in individual companies. Why? I don’t have enough information to truly understand how they work. I don’t invest in non-index mutual funds. I don’t invest in hedge funds. I don’t invest in anything I hear about from friends or acquaintances.

If I don’t know how it works, I’m trusting someone else to understand it for me - and, more importantly, I’m trusting that person to always have my best interests at heart. With people like Bernie Madoff out there, it’s not a risk anyone should take.

Good luck!

I recently participated in a conference call with Suze Orman, who is working to promote Best Life Week. This series runs on The Oprah Winfrey Show all this week, and is intended to help viewers “jumpstart 2009 and make it the best year ever!”

Hyperbole aside, it was great to have a chance to speak with Suze Orman, who will be sharing money tips with Oprah viewers this Thursday. I tried to ask her about maintaining motivation and sticking to goals. She answered with how to avoid credit cards. Not exactly what I was after, but the information was still good.

J.D. Roth
Having once been over $35,000 in debt myself, I know that it’s one thing to say you’re ready to get out of debt and to stop using credit cards, but it’s another thing to actually maintain the dedication for the days and the years that are needed to pay that debt off. I’m wondering if you have any favorite behavioral tips or tools for maintaining motivation with new goals for a New Year’s resolution.

Suze Orman
You know, J.D., what’s very fascinating is that the desire to want to use the drug known as credit cards is a very, very strong pull on people. It’s almost as strong — I’m very serious about this when I say this — as a narcotic, as tobacco, as well as alcohol.

And in the same way that if you happen to be a drug addict or you happen to be an alcoholic, that normally what keeps you on the road of the straight and narrow is that you don’t hang out with people who drink. You don’t go into bars. You don’t keep alcohol around your house. You make it so that it’s easy for you to not get yourself in trouble because it’s right there.

Saying “no” to credit
The same, I have to say, is true when it comes to credit cards. You have to, even though you don’t want to close down your credit cards because that will hurt your FICO score, that doesn’t mean that you can’t rip them up. Doesn’t mean that you can’t cut them up as soon as you’re out of credit card debt where you just don’t see them.

So my advice to people who were once in credit card debt and now they’ve gotten themselves out of credit card debt is I would literally cut up all of my credit cards. I would not be carrying them, I would not even have them in the refrigerator. Some people say they put them in the freezer — oh, give me a break. Anything can come out of a freezer. I would cut them up 100%.

And if, in fact, I knew that I might seriously be tempted to call the credit card company and say, you know what, send it to me again — I would not care about my FICO score and I would literally call up the credit card company, close down the account and not give me any temptation whatsoever to get myself into credit card trouble. As soon as I got offers in the mail, they would immediately go into the trash.

Keeping good company
The key is keeping good company, and when it comes to your money, you usually are keeping good company with other people who aren’t in credit card debt, other people who don’t entice you to spend money, other people who don’t say, “Let’s go on this vacation. Oh, just put it on your credit card debt.” Other people that say, “Oh, please, let’s just go out to dinner.”

Good company are people that say:

• “I understand that you have credit card debt and you don’t have the money.”
• “Let’s go to your house and I’ll bring food.”
• “We don’t need to go on a vacation, let’s just go for a walk on the beach.”

Again, when you leave your house, leave your house without any credit cards. You can go to the mall, you can go window-shop, you can enjoy the mall just like everybody else, but do not take your credit cards with you whenever you go out.

If you see something that you want and you don’t have the credit cards, fine — you can’t buy it. If you’re still thinking about it one month later, maybe you really wanted it. Who knew? But that keeps people in check. So:

• Don’t leave your house with credit cards.
• Cut up your credit cards once they’re paid off.
• If you need to go further than that, close them down and who cares about your FICO score.
• And keep good company.

That would be my advice.

You can read more of Orman’s responses at participating personal finance blogs. Jeremy from Gen-X Finance asked about the current economy, and Will from Wise Bread asked about the easiest things people can do to improve their financial situation.

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Related Articles at Get Rich Slowly:

• Suze Orman’s Ultimate Protection Portfolio (and a Do-It-Yourself Alternative)
• Daily Links: Free Downloadable Suze Orman e-Book!
• The True Cost of Souvenirs
• Ten Ways to Drive Down Your Car Insurance
• Credit Card Index

Recently, my mother celebrated her birthday in her usual quiet fashion. She likely never mentioned the day to anyone, remaining just happy to receive a few calls and a gift or two from the people who remembered on that day. That’s just her style.

When I was young, my mother was always the person in the house that managed the checkbook. She would pay the bills, determine whether or not there was any extra money to spend, and prioritize things. She did this pretty quietly - the bills would simply be paid, the allowances would simply appear, and we all had so much faith in her that no one asked questions.

During the hard times - and there were hard ones, when my father was laid off from his job, for example - she managed to somehow keep every bill paid, keep food on the table, and keep the stress of the situation far away from us kids. We weren’t completely naive - we were aware that money was tight. Through it all, though, she kept her composure and calmness, keeping a miserable financial situation from becoming a negative influence on the rest of the family.

When times were good - when our family’s “side hustles” were booming - she didn’t always plan for the future as well as she could have. Instead, she spent the money on us. We would go out to eat as a family at a nice restaurant. She’d quietly pick up a video game or a book that I had been wanting and would just drop it on my lap with a smile and a hug.

More than anything else, though, she taught me to think for myself in a culture that often encouraged groupthink. She would constantly encourage me to read more about a topic I didn’t fully understand. If there was an ethical dilemma, she would sit me down and make me work through it on my own, teaching me how futile and wasteful such things as racism and sexism were along the way.

Through all of this, she would never take credit for the amazing things she did - being a parent for one of her own children and two step-children, being what amounted to a foster parent for several other children that lived nearby in tough home situations, paying the bills, preparing all the meals, keeping the house tidy, working a part-time job, playing a huge role in keeping several “side hustles” going, and still finding time to sit down with anyone who needed a shoulder to cry on or an ear to listen to their problems. If you asked her then - or asked her now - how things were going, she would mostly just reflect on the accomplishments and activities of the people dearest to her, totally minimizing her own contributions to the effort.

Frugality. Humility. Compassion. Encouragement. Reasoning. Ethics. These were the tools that my mother gave to me that built me into the person I became.

With those tools, one might wonder how I ever got into financial trouble at all. If I was raised so well, how could I have dug such a big debt hole?

It’s quite simple. You might have all of the tools in the world, but it takes time and effort to learn how to use them. Consider a four year old with a hammer. He or she might have an understanding as to how the tool is used, but that won’t prevent them from swinging the hammer wildly and smashing their finger.

That’s the state I spent most of my early adulthood in. I was much like a young child with a hammer, swinging my credit cards and my checking account wildly around with only the vaguest ideas of how to use them as tools. Those wild swings hurt me quite a bit, putting me in a financial place that was hard to dig out of.

That’s when the final tool really came in handy: the ability to reflect on my mistakes and learn from them - and apply those lessons to further growth. The ability to recognize that I had messed up, to reflect on exactly how I messed up, and to apply those lessons to my future life was in fact the greatest gift.

I leave you with this one final thought: if you have found yourself in a sticky financial situation, don’t just thrash about for a quick-fix solution to the problem at hand. Instead, spend some time reflecting on how exactly you got into that situation in the first place and look for some larger changes in your life that you can make so that you never go back there. Out of all of the things my mother taught me, this was the most valuable lesson of all.

Thanks, Mom. Happy birthday.

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. Here are some articles that include tips for new homeowners, quite a few of whom have written to me recently with questions.
Reflections On Being A New Homeowner
18 Things a New Homeowner Should Do Immediately to Save Money
Six Maintenance Lessons I’ve Learned During My First Month As A Homeowner

And now for some reader questions!

My question is about savings bonds. Friends and family have purchased federal savings bonds for our little one. Once mature, is it better to “let them ride” and continue earning interest or is it better to cash them in and invest either in more bonds or elsewhere?
- Courtney

It depends really on how little your little ones are - and also depends on how conservatively you wish to invest for your child’s education. If you’re not expecting to spend the money for fifteen years or more, the stock market will quite likely provide you better growth than savings bonds will, and you can invest in stocks easily by cashing in those bonds and putting the cash into a 529 college savings plan (Google for more details on the 529 plan for your state).

The drawback with stock investments is that they’re inherently risky. Over longer periods, stocks are usually a positive investment and regularly have returns substantially better than savings bonds - but there’s no guarantee of that positive return. If the idea of putting that money at risk bothers you, then you should stick with the savings bonds.

For our children, we have the pedal to the floor - our one and three year old have their entire 529 savings in stocks.

How does someone learn more about politics?
- Nate

A big part of the answer revolves around what exactly you want to learn. Usually, people who ask such a question are trying to gain a greater understanding of how government really works and, at the same time, figure out for themselves where they stand on most of the issues of the day.

If you’re just generally lost when it comes to any aspect of politics (or any other topic), you should never be afraid to pick up a “Dummies” book on the topic to help you get a basic grounding. Politics for Dummies is a solid introduction to the topic from a heavily American perspective, for example.

If you’re trying to figure out where you stand on the issues, look for well-written arguments on both sides of the issue. There is no issue that is wholly one-sided - always be open to other perspectives and competing facts.

My favorite book on American politics, actually, is Hunter Thompson’s Fear and Loathing on the Campaign Trail ‘72. I’ve actually read that one several times.

I have recently started looking into couponing. My question is this. I have always shopped at discount stores (WalMart, Sams, etc.) and bought generic brands to save money. Do coupons really save that much money over doing that since you typically have to go to the more expensive stores to get the deals that are advertised (double coupons) and buy brand name things? Thanks!
- Tiffany

Couponing just for the sake of couponing rarely saves you that much when you’re comparing warehouse stores to other stores. Most coupons really don’t save you all that much unless it’s coupled with a truly effective shopping strategy - and that strategy varies from person to person.

What it really comes down to is whether or not it’s a cost-effective use of your time to use coupons. Can you earn minimum wage ($8 an hour in savings) during the time you spend hunting down coupons? If not, you might want to seek a different strategy.

What I’ve found that works best for me is simply sticking with leafing through the coupon sections during breakfast on Sunday mornings and clipping the ones that seem to pretty clearly be a good deal. There’s usually one or two in each flyer that stand out to me. The rest? I don’t worry about them. Given that it only takes a few minutes to do this, if I end up saving a dollar or two, it’s a cost-effective time investment for me.

When did you know that your wife was “the one”?
- Alvin

I knew pretty quickly after we started dating that I wanted her to be a part of my life for a very long time. I even told her this pretty early on.

Given that, though, I still was hesitant about things even up until a month or two before our wedding. I intended our marriage to last a lifetime, and I wanted to be sure about things before I made that commitment. I spent quite a lot of time soul searching in the months leading up to the event.

I made the right decision in the end, though.

Gas prices are so low right now but there is talk of them eventually going back up. Have you heard of any way to buy a large supply at today’s prices that you can use later after the price goes up? (Sort of a gasoline version of what we do at the grocery store when an item is on sale)
- Lois

There are no nationwide solutions for this that I’m aware of, though there are some startup companies that are attempting this, like MyGallons.

My feeling is that there’s a lot of room for success in this market if a company plans things correctly. I think MyGallons‘ model - treating it like a “membership club” with an annual fee - really can work, but I think it requires an organization that already has strong inroads at gas stations across the company. Voyager, are you listening?

Do you cut your hair differently in different seasons, or does it largely stay the same year round?
- Frannie

I keep it largely the same all year, with just a few little exceptions. I tend to let it get a bit longer during the winter to help keep my head warm, and I usually get a very short cut in late spring because my body’s adjusting to the substantially warmer temperatures that Iowa has in the summer as compared to the winter (an 80 to 100 degree shift).

I’ve used the same barber for more than a decade. Whenever I attempt to cut my own hair, I think it looks horrible and find myself returning to using him afterwards. I’m simply not very adept at cutting my own hair.

Hi! My son is 2.5 and we set up a 529 for him when he was born. I just had my second child and I want to know if I have to set up a second 529 for her, or can they share the same one?
- Shelly

You need to set up a second one for your second child, with that second child as the beneficiary. If you want to set one up before the child is born, set it up with you as the beneficiary, then change the beneficiary after the child is born. I did this with my second child and it was quite simple - it also allowed me to start contributing during the prenatal months.

If you simply put all contributions for both children into one 529, only one child will be named as the beneficiary and only that child will actually have any rights to the money.

You’re an RPG fan. What’s the best entry in the Final Fantasy series?
- “Sephiroth”

During my high school years, I played through Final Fantasy VI on the Super Nintendo roughly a dozen times, so I’d have to claim that one as my favorite.

Having said that, though, my favorite Square/Enix RPG is Chrono Trigger. It is everything I’ve ever wanted in a console RPG - great story, tons of replay value, a consistent challenge all the way along, deeply memorable characters - and it really stands out in terms of the uniqueness of the gameplay.

How much cash do you consider to be a reasonable amount to hold at home?
- Walter

I try to avoid keeping more than a few hundred dollars in cash in my home at any given time. The majority of that is spread about in a number of hiding places throughout my home.

Remember, any time you keep cash at home, not only is it not earning a return in some sort of investment vehicle (even a savings account), it’s also at risk from theft and house fire. Because of those risks, and because my local bank is literally within walking distance of my home, I don’t feel comfortable keeping a big wad of cash in my house.

Do you have any phobias?
- Sally

I have a few minor phobias that I can get past with some concentration (closing my eyes and counting works well for me). My worst phobia is flying, especially during takeoff - the first few moments of an airline flight are terrible for me.

However, I don’t have any severe phobias - nothing that would cause me to faint or anything like that.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

2008 was a miserable year for money. The stock market tumbled, unemployment soared, the housing market continued to crumble, and retirement savings shriveled away. Whew! Here’s hoping 2009 will be better!

But hope can only do so much. Hope cannot bring change. Action brings change.

If one of your goals for 2009 is to take control of your money (instead of letting it keep control of you), this crash course in financial basics can help guide the way. Here are nine simple but effective actions you can take to build a better financial future.

Method #1: Track every penny you spend
The authors of Your Money or Your Life admonish readers to “keep track of every cent that comes into or goes out of your life.”

[This is] the best way to become conscious of how money actually comes and goes in your life as opposed to how you think it comes and goes…This is the step that somehow makes the biggest impact.

It doesn’t matter how you track your spending — the most important thing is to do it.

• You can use a cash notebook.
• You can use an online tool like Wesabe, Mint, or Quicken Online.
• You can use a piece of software like Quicken or Microsoft Money.

Whichever method you choose, stick with it. Make it a habit. Don’t fudge the numbers. Record your transactions as soon as possible. Most of all, don’t judge yourself. Tracking your spending is an exercise in data collection; it’s not the appropriate time to change your habits.

Method #2: Develop a budget
After you’ve tracked your spending for a few weeks (or months), use the data you’ve collected to develop a budget. According to The Millionaire Next Door, budgeting is one thing that sets the wealthy apart from the rest of us — 55% of millionaires keep a budget.

Many people — myself included — fail to budget for a variety of reasons: it’s boring, we don’t think we need it, or we don’t know how. But this simple act can provide a roadmap for your money.

There are a variety of budgeting methods you can choose, from Andrew Tobias’ three-step budget to the 60% budget. My recent favorite (and a favorite of GRS readers) is Elizabeth Warren’s balanced money formula: 50% to Needs, 20% to Savings, and everything else to Wants. Simple but effective.

Crave more budgeting tips? Check out this article highlighting 13 tools for building a better budget. Hate the idea of budgeting? Consider the spending plan, a budgeting method for non-budgeters.

Method #3: Optimize your accounts
For eighteen years, I was an account holder at a large national bank. I paid an $8 “service charge” every month, as well as many other fees. I received terrible service and earned no interest. Over the last couple of years, I’ve finally begun to optimize my accounts. If you haven’t already done so, consider the following:

• Open an online high-yield savings account. Even in this era of low interest rates, it’s still possible to earn about 3% on your savings. Internet favorite ING Direct currently offers a 2.50% APY and FNBO Direct offers a 2.80% APY. These rates are about as low as they can go, and should increase in the months and years ahead.
• Choose a rewards checking account. Believe it or not, it’s possible to find checking accounts that pay interest. Online checking accounts generally pay between 1% and 3%, depending on your balance. But you can usually find an even better deal through your local bank or credit union. Check out this huge list of rewards checking accounts by state for rates as high as 6%!
• Use a rewards credit card. If you have trouble with credit, it’s best to avoid plastic altogether. If you can use credit responsibly, be sure to choose a credit card that pays you. Avoid cards that carry an annual fee. Find a rewards program that matches your lifestyle. But don’t choose a card just because it offers a signup bonus or because it gives you a discount at your favorite store. Remember: your goal is to find a useful tool. Look for a long-term relationship you can live with.

It’s important to choose accounts and systems that work for you. I signed up for a rewards checking account at a local credit union, but the nearest branch is fifteen minutes out of my way. I never use it. I had to compromise by opening on online checking account instead. I earn a lower rate, but it’s an account I’ll actually use.

Method #4: Start an emergency fund
For years I lived paycheck-to-paycheck. I spent everything I earned. This worked well until something went wrong. Suddenly I’d find myself without money to pay for a car repair, or facing an expensive doctor’s bill. I financed emergencies with credit cards. I finally paid off all of this debt at the end of 2007.

After you’ve optimized your accounts, make it a priority to save for emergencies. In The Total Money Makeover, Dave Ramsey explains why he believes an emergency fund should come before anything else:

Since I hate debt so much, people often ask why we don’t start with the debt. I used to do that when I first started teaching and counseling, but I discovered that people would stop their whole Total Money Makeover because of an emergency — they felt guilty that they had to stop debt-reducing to survive.

After you’ve saved $1000, then you can attack your debt. Open an online high-yield savings account and add $20 or $50 to your account ever time you get paid. Two years ago, I opened an account at ING Direct, where it’s simple to schedule automatic deposits.

See also: Learning to love the emergency fund.

Method #5: Get out of debt
Are you struggling under a heavy debt load from credit cards or student loans? Make it a priority to unload some of this this burden in 2009. At the end of 2007, I said good-bye to 20 years of debt — it feels fantastic to have that weight off my shoulders.

If you have the mental discipline, you’ll save money by paying down your high-interest debt first. But if you’ve tried that method before and failed, consider using a debt snowball. Pay your debts starting with the smallest balance first. Here’s how:

1. Order your debts from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

The debt snowball can give you awesome psychological payoffs, keeping you motivated to stay in the game. It’s not mathematically ideal, but it worked for me (and for many others besides). However you choose to get out of debt, stick with it. Don’t give up.

Method #6: Fund your retirement
The current economy gives a lot of people the jitters. But if history is any indication, now is a great time to be buying stocks for your retirement. Take advantage of any employer-matched opportunities, such as a 401(k). Also consider starting a Roth IRA.

If you’re young, you probably don’t think you need to start a retirement account. You’re wrong. No matter how old you are, now is the time to begin saving for retirement. The extraordinary power of compound interest favors the young — and in a big way! In The Automatic Millionaire, David Bach writes:

The single biggest investment mistake you can make [is] not using your [retirement] plan and not maxing it out.

After reading The Automatic Millionaire a couple years ago, I opened a Roth IRA at Sharebuilder. It was easier than opening a checking account. I managed to make the maximum contribution in 2006 and 2007. In 2008, I maxed out my 401(k).

Don’t understand retirement accounts? No problem. Last year I explained what a Roth IRA is and why you should care. For more ideas, check out Wesabe’s simple investing group.

Method #7: Automate your finances
For the past eighteen months, I’ve been moving toward a system of paperless personal finance. Along the way, I’m learning the value of automating routine transactions. When you make things automatic, you remove the human element, making it more difficult for you to mess things up.

The classic example is overdraft protection. By tying your checking account to your savings account, you have a safety net if you bounce a check. But there are other ways this can work for you. For example, I’ve set up automatic payments with the gas company, the cable company, and my auto insurance company. I also make automatic deposits to my online savings account.

One terrific advantage to automation: when pay your bills and do your saving and investing automatically, it’s easy to tell how much you have left over to spend at the end of each month!

Method #8: Earn extra money
You can meet a lot of your financial goals by reducing your spending and using the right tools. But nothing supercharges your progress like a boost in income. How can you earn extra money?

• Ask for a raise. Several readers have written to tell me how they’ve given themselves a raise through ambition and ingenuity. Here’s one example.
• Switch employers. Not every employer is able or willing to offer raises, even when they’re merited. If you’re in a position where a raise isn’t possible, consider finding a new employer.
• Take a second job. Many people find that the best way to get out of a financial hole is to temporarily take a second job. Nobody wants to work more than 40 hours per week, but sometimes that’s what is needed to get out of debt or to save for a house. Just remind yourself that you’re doing this for a short time.
• Use your hobbies. Yes, it’s possible to have money-making hobbies. You’re not going to get rich playing World of Warcraft, but many people use productive hobbies to earn a little extra income.
• Volunteer for medical research. Last summer, I earned $120 for a couple of hours spent participating in medical research. My colleague Donna Freedman has earned extra cash by giving blood and watching porn (though not at the same time).
• Sell things. When I decided to get out of debt, one of my first steps was to sell a bunch of the stuff I’d bought with that $35,000. I used eBay, Craigslist, garage sales, and the Amazon Marketplace to sell the things I no longer needed or wanted. The money I earned jump-started my debt reduction.

Another effective way to increase your income is to pursue entrepreneurship. While working to defeat my debt, I started a small computer consulting business. It didn’t generate a lot of income, but it did provide $2,000 a year that I wouldn’t have had otherwise!

Method #9: Educate yourself
Knowledge is power. Personal finance doesn’t have to be a mystery. Subscribe to this site. Read other personal finance blogs. I recommend:

• The Simple Dollar
• I Will Teach You to Be Rich
• The members of the Money Scribes network
• The members of the LifeRemix network

Visit your public library. Borrow money books and self-development manuals. Here are four of my favorites:

• If you’re in debt and can’t seem to find a way out: How to Get Out of Debt and Live Prosperously
• If you’d like to know more about investing: The Random Walk Guide to Investing
• If things are tight and you need to find creative ways to make ends meet: The Complete Tightwad Gazette
• If you want a motivational manual to prompt you to pursue your goals: The Magic of Thinking Big

You don’t have to agree with everything in a book to get something out of it. I read a lot of personal finance books — some are good, but many are not. Even the worst books usually have one or two things I can pull from them. Learn how to read a personal finance book so that you can pick and choose those pieces appropriate for your life.

Final thoughts
Taking control of your finances can be intimidating — there’s so much to do! — but it doesn’t have to be that way. One effective solution is to take a vacation day from work: designate one specific date as your personal “Money Day”. Use this day to finally set up Quicken on your computer, to open a retirement account, and to call around for a better deal on your insurance.

The good news is that you can get out of debt. You can save for retirement. If I can do it, so can you. Best wishes for a prosperous new year!

Note: This is a new version of an article I share every January. I update it annually, incorporating new tools and techniques. Photo credits: Checkbook register by Lemon Jenny, car accident by Incase Designs, gears by Ralph Bijker.

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Related Articles at Get Rich Slowly:

• Daily Links: Public Speaking Edition
• Daily Links: Christmas Vacation Edition
• Daily Roundup: Resumes, Charity, and Living Rich
• How to Make Your New Year’s Resolutions Stick
• Saving and Investing: An Introduction to Stock Valuation

My three-week vacation is officially over. I had a relaxing time, though I didn’t even start on my primary goal (writing my book proposal). Instead, I rested and recharged my batteries, which was probably the best choice. I’m back full of energy and ideas.

First up, however, a look at a few articles that have caught my eye recently, all of them somehow related to college finances:

It’s the new year, and many folks are thinking about resolutions and goals. But Studenomics — a blog offering financial advice for current students and recent graduates — writes that the best New Year’s resolution is “to live a life where you do not need to wait for a new year to change something”. This is an excellent philosophy. Don’t wait, the article says, but challenge yourself constantly.

This morning, Trent at The Simple Dollar detailed seven huge financial mistakes he made during his college career. Trent and I have similar backgrounds, philosophies, and approaches. No surprise then that his list of regrets reads like mine. When I think of the scholarships I squandered, it makes me wan to cry. (On the other hand, without all the dumb decisions, I wouldn’t be where I am today, so it’s not all bad, right?)

GRS-reader Terry from Your Scholarships wrote to tell me about his site. “The goal is to have a scholarship listing service that doesn’t bog you down with a bunch of ads and emails, and let’s you see all of our scholarships without a lengthy profile to fill out,” he says. He’s nearly done with the site, but before he goes live (there are still some features missing), he’d like to have some beta-testers take it for a spin. If you’re interested, he has a special page where 20 or so GRS readers can register for a free one-year subscription to the Your Scholarships. Try it out and give him feedback! Terry extended this offer to 200 GRS readers, but has had to close the free registration. Thanks to everyone who signed up!

Finally, Free Money Finance wonders if students are wising up. He notes a new stat that 57% of students are considering less prestigious colleges for affordability reasons, a trend he likes. I tend to agree with FMF on this. I think that most of the time (but not all of the time), the quality of the education is more dependent upon the student and her efforts than it is upon the institution.

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Related Articles at Get Rich Slowly:

• links for 2006-11-14
• links for 2007-04-19
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Every other Sunday, The Simple Dollar reviews a personal development, personal productivity, or entrepreneurship book.

As I’ve mentioned many times before, I’m a huge fan of David Allen’s book Getting Things Done. That one simple volume (which I identified as one of the ten books that changed my life) pretty much transformed how I organized my time, moving me from an unorganized slacker who had difficulty managing just a tiny apartment, a job, and a dating relationship into a person who managed a full time job, a house, two young children, and launched The Simple Dollar in his spare time. In short, Getting Things Done was a personal epiphany - and the very first book on time management I recommend to anyone (provided that they have the attention span to get through it - it is fairly dense).

Because of that, I was incredibly excited to receive David Allen’s latest book, Making It All Work, in the mail. Making It All Work is Allen’s true follow-up to Getting Things Done (his other book, Ready for Anything is something of a “Getting Things Done for Dummies” book), except this time around, Allen focuses primarily on some of the areas that GTD didn’t really touch upon - namely, control and perspective.

From my reading, I tend to think of the two books in the following way: Getting Things Done is the tool box, providing everything you need to get your life in order, but it’s lacking any sort of guidance on some of the larger things you can construct with it. How does it fit in the larger context of life? That’s where Making It All Work steps in - it’s much more of a context book.

In fact, when I put it down, my initial reaction was “Getting Things Done is stronger for engineers and left-brain types - Making It All Work fits better with right-brain types.”

While I’m a wholehearted “left-brain” type, I did find a ton of intriguing ideas and thoughts from Making It All Work. Let’s dig in and take a look.

A Walk Through Making It All Work

1. Introduction: From Getting Things Done to Making It All Work
Allen opens the book by essentially criticizing the limits of GTD - while it helps you become more effective at accomplishing individual tasks, it doesn’t go very far towards helping you put all of those tasks in perspective. What are you really building towards? What’s genuinely important to you and how does that take priority over other things? How do you make sure that your inbox doesn’t become too full, or that you don’t take on too many relatively minor responsibilities that begin to squeeze out your real priorities in life? These are the questions that Making It All Work intends to address.

2. The GTD Phenomenon
Why did GTD become so popular? Allen takes a rather egoless perspective here, arguing that it was mostly just a collection of appropriate long-existing principles packaged together that matched the needs of the time, that the principles were very easy to pick up, and that they could be folded together in different ways. I know that for me, I only use some of the bits and pieces I learned from reading Getting Things Done - writing down ideas as soon as they come into my head, processing those ideas once a day (at least), and doing a weekly review to make sure I haven’t overlooked anything. (Really, I mean it - if you haven’t read my review of Getting Things Done, you should - it’ll put a lot of these comments in context.)

3. Making It All Work - The Process
Many people like to think about the “work/life barrier” - the separation between their job and their personal life. Most people don’t like things that cross that barrier, and they get quite irritated when their job interferes with what they want to do with their personal time (and vice-versa, sometimes). Allen argues that this is really a trivial point. He believes that the real goal - whether you’re at home, at work, or anywhere else - is to get into “the zone” where you’re so engaged with whatever it is you’re doing that such barriers don’t matter. (I actually agree with him, by the way, but this will be a controversial point for some.) With all of the things being thrown at us all of the time, how can we actually get into “the zone” on a consistent basis.

4. The Fundamentals of Self-Management
The key to getting “in the zone” as often as possible is knowing how to manage your own mind, and Allen argues that the two keys to this are control and perspective. Control merely refers to the ability to choose between different options at any given moment - you don’t have to do any specific thing, but you have a lot of options at your disposal. Perspective refers to the ability to discern which of those options is the best one to choose at the moment. Obviously, these two are intertwined - Allen portrays them as a grid, actually. For example, a person with little control or perspective is a victim, a person with lots of control but little perspective is a micromanager, a person with lots of perspective but little control is a visionary “crazy maker,” and a person with lots of perspective and lots of control is a commander. Allen does point out that there are advantages and disadvantages of each state, but that it’s always better to seek to improve both control and perspective in your own life as it will make you more effective and more able to get in “the zone” of peak productivity. He also points out that these areas are in flux - there are some parts of our life where we are effectively victims, others where we are visionaries, and others where we are commanders - but that we tend to get in “the zone” and be most productive in areas where we are commanders.

5. Getting Control: Capturing
Allen identifies five distinct areas where we can get more control over our situation and lays each one out in a chapter, starting with capturing. Capturing basically means putting down on paper all of the things that are tugging at your mind: the tiny tasks you deal with all the time, the larger projects, the bits of information you’re trying to make yourself remember, the things you’re dreaming about, the things you wish you were working on, the things you’re planning for in the future, and so on. Sweep it all out of your mind onto paper. Don’t worry about how it’s organized yet. Just get out some paper and jot everything down that crosses your mind that has any importance to it - your next work task, the big project you’re considering, the Christmas gift idea you have for your Aunt Jenny, that idea you have for a short story - all of it. This clears your mind from the need to store and recall all of this material, which is important because that information is burning brain cycles. Allen also recommends keeping a journal where you jot down the events of each day, simply so you don’t have to waste time recalling when things happened and the details of such events - they’re in your journal.

6. Getting Control: Clarifying
So what do you do when you have this list of things dumped from your mind? You process it. Go through each item and ask yourself if it’s an action you can take right now. If it is, do it immediately (if it’s quick) or add it to your list of things to do today. If it’s not, add it to your date book, file it away for reference, throw it away, or start a folder for it (if it’s a potential future project). Do this with every item on your list. Then, whenever you have a new idea or something new comes in, add it to your list of things and just process that list every day (or twice a day). This way, you never need to waste your brain space on a to-do list or on remembering little facts or pieces of information - you can just dump it down and deal with it in due time. This enables you to stay in the zone and devote your brain power to the task at hand instead of wasting cycles on this stuff.

7. Getting Control: Organizing
As Allen puts it, “[b]eing organized simply means that where things are suits what they mean to you.” In other words, if you have a list of phone numbers, it makes sense to have them near your phone (or programmed into the phone). If you have books, put them on your bookshelf with the rest of your books. Organization doesn’t have to be the complicated routine that many people make it out to be - it’s simply making sure you can find things when you actually need them. Thus, for some people, their organization scheme can look anarchical to others - the key is that they know where the stuff is and it makes immediate and obvious sense to them. Figure out where your stuff goes intuitively for you - don’t worry about some great organizational scheme. Given that basic idea, however, Allen does spend quite a few pages laying out his own ideas about organizing information and things.

8. Getting Control: Reflecting
Allen argues that the previous three pieces of the puzzle won’t really work if you don’t review them on a consistent basis. He advocates spending an hour or two a week just making sure things haven’t fallen through the cracks, that you’re actually staying on track with your big projects, and that your organization of information hasn’t fallen apart, either. His argument for this is pretty simple - the time lost when your system isn’t working is far greater than the time spent making sure everything is still working fine.

9. Getting Control: Engaging
By engaging, Allen merely refers to the idea that you’re not doing all of this in a vacuum. The choices you make along the way - deciding which tasks to do and so on - always affect other people, and you should consider these effects when you reflect on the choices you’re making. A key part of this is really understanding the true core values of your life. Is your family really the center of your life, or do you value your career above all else? There is no easy and automatic answer to this question.

10. Getting Control: Applying This to Life and Work
So how do these five elements of getting control over a situation apply in the real world? Allen tackles that here with an extended anecdote about Gracie’s Gardens, a business left abandoned after the passing of the proprietor and how the person who is tasked with cleaning it up takes care of the situation - the assets, the correspondence, and so on. Although the situation is pretty simple, it makes the roles of the five elements of control quite clear.

11. Getting Perspective
Here, Allen begins to look at six different key elements of getting perspective over one’s situation. Allen’s basic argument here is that perspective helps you clearly distinguish the important from the unimportant and makes the elements of control you have over your time that much more effective.

12. Getting Perspective on the Runway: Next Actions
Allen starts off at the most basic place: what is your next action? In other words, if you’re sitting there ready to do something, what exactly are you going to do? Some of the time, this choice is very easy - you’ll merely engage whatever fire needs to be put out at the moment - but at other times, the choice is profound. Will you work on that PowerPoint presentation or play catch with your son in the yard? The choice becomes much less clear very quickly, and that’s why it pays to have a higher level of perspective.

13. Getting Perspective at Ten Thousand Feet: Projects
From the immediate action, Allen steps back a bit to look at projects, which he defines as collections of discrete actions that produce an outcome and can be completed within a year (although usually less). For example, my garden might be a project, or teaching my son how to write his letters. Usually, the projects you have on the table all have an immediate action to offer, but how important is that immediate action? It really depends on the relative importance of the project. Do I define it as more important to work on my son’s Qs or to get those tomatoes in the ground? Personally, I view the writing project as more important and would help my son before heading outside - however, perspective is important here, too. If my son wants to go outside and play in the yard, or if he’s taking a nap, that’s the perfect time for me to grab the trowel and head out back.

14. Getting Perspective at Twenty Thousand Feet: Areas of Focus and Responsibility
What aspects of my life need regular maintenance? That’s the question at this level - what are your areas of focus? More importantly, what areas take clear priority over the other ones - can you establish a hierarchy? I have several, with my writing and my family clearly on top of the pile. I also see the value of reflecting on this carefully, because if you truly understand the areas of responsibility in life and understand how they rank and relate to one another, it becomes much easier to just automatically prioritize smaller projects and tasks.

15. Getting Perspective at Thirty Thousand Feet: Goals and Objectives
Beyond your areas of responsibility are your wider goals. What do you want to achieve with your life, particularly in the next two to five years? What will you have accomplished? In many ways, I feel like I accomplished very little for the first twenty seven years of my life. I feel as though I began accomplishing things in the last three years - having children, launching The Simple Dollar, writing a book that’s already begun to turn up in unexpected places. What’s my eventual goal, the one that will probably cover the next few years of my life? I want to push some interesting changes in how people are able to access personal finance education for all ages (something you’ll be hearing about in the future but is already in the works). What Allen is driving at here is how exactly are you going to make your mark on the world? If you don’t know, it’s time to start thinking about it.

16. Getting Perspective at Forty Thousand Feet: Vision
So what’s beyond your life goals? Allen next moves onto what kind of life those goals, if successful, lead to. Let’s say I achieve every major goal I have set out for the next few years. Where will I be? What will come next? How much further can I reach? Do the goals I have in place for the next two to five years put me in a place that I actually want to be? If so, which of those goals are the most effective at putting me in a good place for the long haul?

17. Getting Perspective at Fifty Thousand Feet: Purpose and Principles
From there, we zoom out to your whole life. What principles do you live by? What is the purpose of your life? What do you hope to accomplish with your life, and are you actually setting long-term goals to get there? What do you want written as your epitaph?

What really stands out for me in this is that each level of perspective is something of a filter for the lower levels. More importantly, they each demand a lot of introspection, but once you figure things out, they form a very quick and very effective filter for pretty much every choice you have to make in life. Without this introspection - and it does take time - I might spend a lot of time puzzling over whether I should play with my kids or work on an article. That time spent deciding what to do - or making incorrect rash choices - is time in the present that’s lost. On the other hand, the more time I spend (when I have that spare time) truly reflecting on the higher levels of perspective in my life, the easier (and quicker) such minor choices become - and the easier it becomes to get things done. I think this is one of the biggest points of the book.

18. Getting Perspective: Gracie’s Garden Revisited
To show how the principles of control (from earlier in the book) intersect with the levels of perspective, Allen goes back and takes another look at the analogy from Chapter 10. Allen literally takes the priorities for the project from the level of purpose and basic principles all the way down to next actions and shows how they all link together and inform each other. Knowing each higher level makes it much easier to figure out what needs to be done at that level, all the way down to immediate next actions.

19. Making It All Work - In the Real World
Allen closes the book with a bunch of simple steps on how to get started: among them, start sweeping out all of that stuff that’s in your mind and get it down on paper, spend some time getting your stuff organized, and spend a lot of time reflecting on all of the levels of perspective and how they apply to your life - the latter of which you can do when you’re commuting or waiting at the doctor’s office, for example. When you get all of these pieces in place, it becomes quite easy to figure out what you need to do next, not have things fall through the cracks, and still have more free time than you ever thought possible.

Some Thoughts on Making It All Work
Here are three big thoughts I had while reading Making It All Work.

The “control” portion of the book is basically a rewrite of the mechanics of Getting Things Done. It’s just rewritten in a structurally different way, breaking things apart quite a bit differently than how it was broken down before. For me, the most liberating part of Getting Things Done was simply the idea of doing “head sweeps” - jotting down all of the little ideas in my head so I didn’t have to think about them. I was quite glad to see a chapter devoted to it.

The “perspective” part of the book was where Making It All Work really stood out. Although Allen did include this material in his first book, it took up all of a few pages and was largely glossed over. Here, it takes up the majority of the book - and it’s vital stuff.

The difference between the two books is the difference between engineering and philosophy. Getting Things Done is the “engineering” book - it does a better job than this one of logically laying out the pieces of how to organize all of your tasks. Making It All Work is the “philosophy” book - it doesn’t focus on the details of an organizing system much at all and instead focuses on why you would do it and the thinking you need to do before such a system would work. These two books, in the end, complement each other.

Is Making It All Work Worth Reading?
Making It All Work whether you’re a fan of Getting Things Done or not. The two books are quite different, but very complementary to one another.

If you tried reading Getting Things Done and didn’t like it at all, Making It All Work backs strongly away from the minutiae of organizing your time and instead focuses on why you’re organizing it. Instead of setting up a system, the real meat of this book comes from introspection - the actual “system” here is secondary. Thus, I tend to think this book has quite a bit of useful meat for people interested in time management even if they didn’t like Getting Things Done.

On the other hand, if you did like Getting Things Done, quite a bit of Making It All Work will seem repetitive. You’ll recognize most of the middle chunk of the book as a rewrite of Getting Things Done and, if you already know how to use the system, this part probably won’t contribute new thoughts into your head. Where this book begins to kick into gear for you is in Chapter 11 - the real value of this book for GTD fans is the chapters on perspective.

I thoroughly enjoyed Making It All Work. While it didn’t mechanically change anything I do for time management, it gave me a ton of food for thought about the choices I make each day, thinking that I can already tell is making it easier to make immediate choices about what to do next. Making It All Work is a terrific complement to Getting Things Done and well worth reading for anyone interested in the topic.

Over the last few weeks, I have been reflecting on how many members of my rather close extended family are either near high school graduation or are in college right now. They have so many great opportunities ahead of them in the next few years - and so many chances to botch things, too. Stephen, Brittany, Robert - these are some of the stupid things I did in college that I wound up regretting financially for years. In some ways, I’m still suffering the repercussions. Don’t do the same.

One of the first major articles I wrote on The Simple Dollar was a ten-part series that amounted to my personal financial biography - if you’re interested, it starts here. Reflecting back on a lifetime of financial mistake