Just a simple question for you..are you ready for some football? I know I am. And what’s this rumor about extending the NFL season to 18 games? I don’t like it. As much as I love football, I don’t think extending the season would be popular. With 16 games, every game counts. With 18 games, each game counts a little less.

Besides, the season would drag well into the next year. Imagine Superbowl Sunday in March. Just doesn’t seem right.

The Frugal Roundup

It’s Still a Good Idea to Buy a House in this Economy. You should only be looking to buy if you are debt free with a solid emergency fund, and have a decent down payment. Record low interest rates are not enough to make up for poor financial footing. @Free From Broke)

12 Reasons Why You’ll Be Happier in a Smaller Home. One of the biggest early expenses of buying a much larger home is buying more furniture to fill it up. If I had more money to spend on real estate I’d buy more acreage, not more square footage. (@Becoming Minimalist)

My College Savings Plan, Look Out for #1. It’s fairly easy to convince people to save for their own retirement before savings for their kids’ college education. Perhaps other financial goals should come before college savings, too. (@Budgeting in the Fun Stuff)

Finding the Rhythm. I can certainly relate to this one. As soon as I get in a groove with anything (money, diet, etc.) I hit a speed bump and it completely derails me. (@The Simple Dollar)

7 Simple Ways to Say No. The word “No” continues to be one of the more difficult words to say in the English language. If you struggle saying no, to people, to stuff, to whatever, I suggest reading this one. (@Zen Habits)

Best of the Rest

• Making Donations Truly Count
• 10 Lies You Will Hear Before You Pursue Your Dreams
• The Beauty of Handwritten Note
• 20 Ways to Untie from Whatever is Holding You Back
• Do You Have to Pay Taxes on Unemployment?
• Decorating With Photos

Support Our Sponsors

The Daily Middle. The Daily Middle is a group dedicated to helping those in the middle class cope with the coming financial crisis. And when they say “cope with,” they mean not just surviving the storm, but hopefully even prospering during it.

Monitor Bank Rates. MonitorBankRates.com offers a free rate search and compare service offering the latest best rates on products ranging from certificate of deposits, savings accounts, checking accounts, credit cards, mortgages and insurance.

J.G. Wentworth. Thousands of individuals contact J.G. Wentworth every month to inquire about selling some or all of their monthly payments for a lump sum. For some, selling their structured settlement payments (annuities, settlements, lottery winnings, etc.) is not the best option; for others it clearly is. J.G. Wentworth’s team of experienced representatives will work with clients to customize options tailored to each individual’s needs.

Post by Frugal Dad

When my son was little he had a mild addiction to Thomas the Train collectibles. Those things were everywhere (you may remember Harold the Helicopter’s flight to the bottom of our guest toilet and my mission to retrieve him)! Then it was monster trucks. Now, Legos are all the rage.

And what about these new Legos? When I was a kid you could buy a ton of plastic Legos blocks for cheap. They came in four colors – red, blue, green and yellow. Now, a larger Star Wars Lego set runs about $99, and includes hundreds of tiny pieces and 37-step instructions for assembly! I digress.

You see a pattern developing here? My son, like many kids, goes from one greatest thing to the next. Individually, these things are not that expensive (save the aforementioned Star Wars Lego sets), but collectively they can add up.

In addition to being expensive for parents, they do have a cost for kids, too. And I’m not just referring to toys’ way of eating into allowance savings.

Too many toys usually means too many distractions. Between the television, the Wii, the computer, the buckets of army men, trucks, Legos, etc, etc. there is little time to devote to things like books, and outside play.

I’m certainly not advocating getting rid of all toys. In fact, some toys can be quite educational. Others can be incorporated into outside play (my kids love the game Hyper Dash). But often toys are played with a while and then tossed aside, collecting dust and taking up space in the kids’ closets and toy boxes.

The number of toys accumulating never seems to diminish, nor does our kids’ appetite for more of them. Are kids born with a consumer gene?

Hey Mom and Dad – Make Sure You Don’t Own Too Many Toys

Kids learn much from the behavior modeled for them by their parents. Many parents are guilty of buying too many toys themselves. And many of us fall for the same toy fads that kids do, although our “toys” are often much more expensive.

Need evidence? Just hang out around a Best Buy store the morning Apple releases a new product – any product. I’m quite certain most people in line for the iPhone 4 already owned a phone – maybe even an iPhone 3. But they had to have the latest and greatest.

Kids notice this stuff. Maybe Dad buys a new pickup truck every two years. Mom picks up a new laptop with the first hint of a problem with the one she just bought 6 months ago. And both parents are always buying new shoes, new clothes, new jewelry and watches, etc.

Allow Kids to Buy Their Own Toys…At Least a Few of Them

At around age 5 we started giving our kids an allowance. Over the years we’ve gone back and forth on whether or not this allowance should be tied to chores. A final compromise was to identify a set of basic chores to be performed throughout the week that must be completed as a contributing member of the household. Additional chores could be performed to earn extra money, or not, depending on school schedules, motivation, etc.

We encourage the kids to use a portion of their allowance for spending, a portion for saving and some for giving. With their spending allotment, they usually pick up something small during weekly grocery/household supply trips – a magazine, a CD, a movie, a game, etc.

Of course, we still buy them a few things all along (I rarely turn down a request for a new book), and don’t expect them to pay for things like clothing (not yet, at least) and basic supplies. Eventually, as they mature, I’d like to increase their budget and include more spending categories for which they are responsible.

We’ve noticed that the kids are much more selective about what they buy, and often fret over “spending all their dollars” on a new game – leaving them with an empty wallet for another week.

I’m not unlike any other parent. I want my kids to have things better than I did. I want them to have more. I want them to have the best. But I also want them to grasp the connection between having nice things and the sacrifice required to earn them. I want them to be able to say “no” to themselves; to avoid the trappings of debt and consumerism as they grow older. Maybe they will avoid some of the mistakes I made along the way, or at least be prepared to learn from the ones they are bound to make themselves.

Post by Frugal Dad

Have you ever wondered what it would be like to live a minimalist lifestyle? It’s a movement I’ve been an admirer of for some time, but unwilling to put into practice in my own life until now.

Recently, I began watching a new survival show on Discovery Channel called “Dual Survival.” One of the featured survivalists, Cody Lundin, is also a minimalist, and goes about surviving extreme situations barefoot, and without other forms of survival gear.

My feet are too tender to go around barefoot, so I think I’ll keep my shoes for now. However, I do admire this guy, and others like him. They may have adopted minimalism for environmental reasons, economic reasons, or maybe some combination. Either way, their level of commitment reminds me just how addicted to stuff I still am, and has inspired me to rethink that addiction.

“But I Could Never Give Up My…”

How did you finish that sentence above? Daily cup of Starbucks? CD collection? Season football tickets? All of us probably have one thing we aren’t willing to give up. And maybe that’s the first thing that should go.

On the other hand, life is to be enjoyed. I’m reminded of words of wisdom from my grandfather who often reminded me to, “Stop and smell the roses. Life is to be enjoyed.” Well, there are plenty of “roses” available to smell that don’t cost much, so I am trying to adopt his philosophy with a frugal approach.

How Many Things Do You Own? How Many of Those Things Own You?

As I’ve tried to learn more about the minimalist approach, I’ve discovered a number of new blogs on minimalism. I’ll be sharing a few of my favorites in upcoming editions of the weekly roundup.

Several of the authors behind these blogs have advocated taking an inventory of just how much stuff you own. And they mean that quite literally. If you have 20 DVDs, 30 CDs, an Xbox with 5 games, a house, a car, a bicycle, 10 pairs of shoes, and a 5-piece art collection, you have 74 things. At least I think that’s the idea.

Not sure how far to break down the count – do I count the dishwasher and refrigerator inside my house? Do I count the things inside my refrigerator and the dishes currently in the dishwasher? Probably. You get the idea.

The point is, even if we don’t think we own a lot of stuff, we do. And how many of those things are things we continue to accumulate without receiving much value from them after the initial shine wears off?

I am not much of a collector, and I have few hobbies, so I naturally don’t collect a lot of things. But I haven’t always been that way, and my inventory of stuff is still representative of former life as a spendthrift.

Letting Go of Stuff is Hard

Over the next few weeks, as the weather beings to cool, I plan to begin making a weekly effort to get rid of some number of “things.” My plan is a sort of incremental minimalism in steps. Maybe I’ll get rid of 10 things a week, or completely empty one desk drawer, or garage shelf.

One week I’ll pull ten shirts I no longer wear and donate them to a shelter. Next week I’ll round up 10 games (video games, old board games, etc) I no longer play and drop them off at the children’s hospital. The next week maybe I’ll contribute to a neighbor’s yard sale by adding 10 DVDs to their collection for sale.

I’m still not settled on what is a reasonable number to get rid of each week, or if I’ll even track it by week or specific number. But I am convinced this is something I want to do. Having too much stuff is costly. It costs money to store it. It takes too much time to find the few things that are really important. And of course if you have really expensive things, you might even have to pay to insure it, or operate it, or clean it, or whatever. That’s the point where things begin to own you, and I want to begin moving away from that point.

Traveling Light

Oddly enough, some people are comforted being surrounded by stuff. I am the complete opposite. For me, stuff is a distraction. There is a certain freedom that comes with owning less stuff. You feel less pinned down. You have less payments. You have more options. You more fully appreciate the few things you do have, and find yourself wanting less.

Over the next several weeks I’ll periodically update you on the things I’ve given away – maybe even share pictures of my collections on our Facebook page. I hope it will inspire a few of you to look around and free yourself of an addiction to things.

Look around the room you are in right now. Could you find 10 things to get rid of and barely even miss them? I see at least 10 in my already frugal home office (OK, I cheated a bit because my office doubles as our closet – and there are plenty of things to get rid of in here!). Off to grab a box and get on with round one.

Post by Frugal Dad

We all hate to be told that we can’t do something. Whenever I’ve discussed ways to save money in your everyday life, my readers would get turned off.

When I would discuss strategies on how to cut back without giving up, my readers responded favorably.

Today, I wanted to try something different with the younger readers of Frugal Dad. I wanted to tell you to go ahead and spend the big bucks...BUT. Yes there’s a catch. Actually there’s a few catches (isn’t there always?):

You need to make big money before you spend big money.

You need to ensure that you’re at a stage in life where you’re earning a decent chunk of change if you want to buy that new Infiniti G35. Many college graduates are guilty of extreme lifestyle inflation. If your big spending results in you saving less than you would like to, it’s still somewhat justifiable. If your big spending is paid for by credit card, then you’re headed towards a financial disaster. Even worse is when low-income earners want to spend the big bucks before they’ve even reached the stage where their income justifies it.

The other day I heard yet again another story of a friend that just graduated college, started making a little bit of money, and is already living an extravagant lifestyle. Instead of saving up a buffer in his savings account, he decided to spend 15 grand for two people to go to Australia. I’m all for long term travel and working abroad, but, I’m opposed to spending the big bucks before you’ve saved any bucks or have earned any money to justify your spending.

Where are you cutting back?

If you want to allocate a lot of your income towards one spending area, it’s advisable that you cut back in other areas. I love to go out with friends. Instead of forcing myself to stay in or making my life miserable, I find ways to cut back on other areas. I try to prepare as much of my own food as possible. I try not to indulge in the newest fashion trends. I truly believe that uniforms don’t win games. So I would rather not jump on the newest trends just so that I can have more money for going out with friends.

The key point here is that if you want to spend big money on a specific area, you need to try to cut back somewhere else. If you don’t then you’ll never have any money leftover. Even worse, you might end up in massive amounts of debt. The last thing you want to happen early on in your working career is to rack up debt. The debt will just prevent you from moving on with your life (moving out, getting married, etc.).

You must plan your spending

I’m not here to judge anyone. I’ve spent more money on trips the last few years than celebrities do on plastic surgery (well not really). The reason that I get away with spending the big bucks here is because I plan ahead FAR in advance. I recommend that you find the best online banking account for your situation. This way you can plan all of your expenditures and know where your money is going.

Instead of always stressing about your money and trying to figure out where your hard earned money is being spent, plan ahead. I try to keep a few sub-accounts in my online bank account with ING Direct. This way I can roughly plan my spending for the short term and the long term.

Admit your weak areas.

We all have areas where our spending is horrible. There’s no point to lie about it. Just admit to it and try to slowly work on it over time. The quick fix almost never works (just like dieting) and you end up worse off in the end. If you acknowledge that you spend too much money on eating out, you can begin to improve your spending in this area. There’s no point to deny or to seek a quick fix. Both options will hurt your financial future. If you get realistic and serious about your money management skills, then you’ll eventually notice a big difference in your bank account and your quality of life.

There you go guys. A personal finance article giving you permission to spend the big bucks. What do you think? Where do you spend the big bucks? How do you plan your spending?

Post by Frugal Dad

I believe student loan debt is a cancer attacking the financial futures of young people. While I do believe in the value of a college eduction, I wonder if taking on such exorbitant debt before earning an income is a smart thing.

I had a small student loan when I first entered college, and then racked up credit card debt when I returned to school several years later to finish. I joke that it took me 10 years to finish my degree and nearly as long to pay for it!

If you are already in college, and accumulating debt, consider other ways to pay for the remainder of school. If you are still a few years from college, or the parent of someone a few years from college, I hope the following graph will serve as a wake-up call of sorts. College is not getting any cheaper, and fewer of us are able to pay for it without going deep into debt.

Budget Planner from Mint.com

Frugal Roundup

How Living a Frugal Lifestyle Has Changed My Thought Process. I’ve noticed that my thought process has changed just like in the article. Things that we used to frequently spend money on are not even close to making the cut today. (@Being Frugal)

So You Want My Job: Magician. This isn’t really personal finance related but I still thought it was interesting. I think all of us wanted to be a magician at some point in our childhood. (@The Art of Manliness)

How To Replace Six Vital Documents. If you’ve ever lost an important document, you know how stressful it can make you life. Use this list to relieve some of that tension. (@Get Rich Slowly)

How Personal Finance Changes As You Begin to See Success. Trent shares some more insight into how things change once you begin to alter your financial life for the good. (@The Simple Dollar)

Best of the Rest

• MonaVie Blackmails Me
• My Comcast Saga Continues
• How To Get Hired By Volunteering
• Emergency Preparedness: How Does Your Family Rate?

Post by Frugal Dad

Budgeting: Is it More About Yes or More About No?

Your perspective of budgeting is dependent on how you answer the question listed above.  There are some people who think budgeting is all about no.  No spending.  No entertainment.  No fun.  While any good must have its fair share of occasions where it says no, a good budget is not about saying no.  Instead, an effective budget is about appropriately using no to help you achieve a yes you would really like to accomplish in life.

A good budget must utilize the word no.

Consider the following illustration.  A man goes down to the river to enjoy an afternoon fishing.  A friend comes by and asks if he can use the river to wash his face.  Of course, the man is benevolent, so he allows the man to come and dip his head into the cool river.  A few moments later, another friend is passing his way and makes the same request.  All throughout the day the man provides strangers, friends, and relatives an opportunity to rinse in the river.  He is able to do so because the river provides an unlimited (to a certain extent) amount of water.

But a budget is not like the river because you are dealing with a limited resource.  Budgeting is more like a man with a pie.

A man goes to town to buy a pie.  As he looks at the pie, his mouth begins to water.  Then, as he prepares to take a bite, a friend passes his way and asks for a piece of the pie.  He quickly agrees and cuts the man a piece of pie.  Before long, there comes another and another until only one piece is left.  The man had told his family he would bring them pie, but there is no longer enough.  The problem is that by saying ‘yes’ to his friends, he indirectly said ‘no’ to his family.

Budgeting | The Yes and No Factor

Since money is a limited resource (in the sense that a dollar can only be used once before you must earn another one), each dollar represents the number of yeses we have available to use.  A man who makes $3,500 can say yes to 3,500 things that cost $1.  Beyond that number, he must say no.

The problem with North American culture is that credit cards and loans have made people believe that they have an unlimited number of yeses.  If they run out of money, they just go borrow more.

What if I say ‘yes’ too often?

If you say yes more than you can should, then you can improve your finances by taking away your ability to say yes when you cannot afford it.  As an example:

• While some people properly manage credit cards, others would be better off if they stopped using a credit card.  A credit card simply allows you to say yes to a purchase when you should have said no.
• Other people say yes too often when they go grocery shopping.  Limiting the number of trips you make to the grocery store would be a good way to remove your opportunity to say yes.

Each of us have occasions we say yes when we know we should say no.  A structured budget will help curb reckless spending.

I believe a written budget is a very important component of a financial plan. I’ve experienced it. I believe it’s important because with a budget you can predict and forecast when you want to say yes and when you must say no.  I want to say yes when it comes to family needs, so I budget.  I want to say yes when it comes to taking a family vacation, so I budget.  I want to have money to contribute to the church, so I budget.  I want to help pay for my kids’ college, so I budget.

A budget tells you when you should say yes and when you should say no.  Budgeting is not about saying ‘no,’ but about choosing when to say ‘yes’.

What do you think?  Is budgeting more about saying yes, or more about saying no?

Post by Frugal Dad

I have been investing money at Lending Club for over a year now, so it seemed like a good time to review my progress. While I started small, I have been adding a small amount to my modest portfolio each month. I’ve been lucky to this point; none of my loans have charged off. Here is an overview of my strategy for identifying profitable, relatively safe loans to invest in.

First, a little background for those unfamiliar with Lending Club, directly from their website:

Lending Club is an online financial community that brings together creditworthy borrowers and savvy investors so that both can benefit financially. We replace the high cost and complexity of bank lending with a faster, smarter way to borrow and invest.

Couldn’t have said it better myself. Basically, this is how the process works. Borrowers apply for loans to consolidate debt, start businesses, make home improvements, etc. Their loan requests are made available to investors (people who have signed up as an “investor” and are looking to loan money to borrowers).

If enough investors agree to cover a portion of the loan up to the requested amount, and borrowers agree to terms with Lending Club, the loan is approved and borrowers begin making payments. Each month, a portion of your original investment is repaid, including a bit of interest (minus a small service fee).

Eventually, if the loan is fully repaid you will receive back your initial investment plus interest, an investment that generally yields far more than traditional savings accounts pay. How much more? Well, that depends on the types of loans you invest in.

Borrowers are “graded” by Lending Club based on their creditworthiness, considering a variety of factors. In addition to this grading system, loan listings provide you with a credit score range, credit utilization ratio, debt-to-income ratio, and a variety of other metrics to help make an informed decision. Generally, the riskier the loan, the lower the grade and higher the interest rate.

Most listings also include a discussion thread Q&A between potential borrowers and potential investors interested in learning more about their employment status, intentions for the money borrowed, etc.

At the time of this writing, my net annualized return is running 11.04%. Most of my investments have been in grade A or B loans that meet a set of criteria I’ve developed over the last few months in an effort to avoid charge off (yes, you can lose your money) while maximizing returns.

My Six Secrets for Earning More With Lending Club

1. Invest in loans less than $9,900. Lending Club allows borrowers to borrow up to $25,000, but for me, that’s a lot of burden for someone to take on (even if my portion of the loan is only $25). Requests for an even $10,000 seem fishy to me, too, so I like to invest in amounts less than $9,900. Under this threshold, chances are borrowers are requesting a specific amount for a specific purpose., making it more likely that they will repay.

2. Look for borrowers with debt-to-income ratios less than 15%. The lower the debt-to-income ratio, the higher the chances they will have money freed up for making payments on your loan.

3. Funding progress is at least 70%. If seven out of ten investors were willing to invest, and other criteria has been met, chances are I’ll invest, too.

4. Invest only $25 per note. $25 is the minimum amount allowed by Lending Club, and after experimenting with various amounts, I’ve decided to stick with the minimum amount for maximum diversification. I’d rather have four loans at $25 each than one with $100 exposed.

When I spoke to Rob Garcia, Lending Club’s Sr Director of Product Strategy, he stressed the importance of diversification when investing in Lending Club loans: “Diversification can lead to more steady returns while lowering your risk.  For example, 98.4% of Lending Club investors with 100 Notes or more have experienced positive returns.” See Distribution of Investor Returns

5. Look for borrowers with zero delinquencies…ever. I understand people can change, and past troubles are not necessarily indicative of future troubles. However, I’m investing my money here and I am not into giving second chances through investments. If I want to help someone get a second chance, I’m more inclined to give instead of loan.

6. Do not invest more than 10% of your taxable portfolio in social lending. I’ve been lucky so far earning over 11% and not losing any investment money to charge offs. However, it is possible, so I do not recommend loading up on peer-to-peer loans to chase a big return. As with any risky investment (and I consider anything over savings accounts to be fairly risky these days), I would limit my contributions to 10% of my overall, non-retirement portfolio.

Note: I recommend creating a filter while browsing notes for criteria 1-5. The post How to Earn High Returns with Lending Club inspired this strategy.

A Word About the Ethics of Social Lending

I initially tried Lending Club as an experiment, and before deciding to invest more money I thought long and hard about the ethics of lending money to others. I haven’t forgotten what it’s like to be in debt – after all, I only became debt free in the last year.

I worried that, in a way, I was simply enabling people to borrow money, so I limit myself to those borrowing for consolidation purposes, rather than taking on a project that needs financing. I suppose borrowing is borrowing, but I’d like to think those borrowing to consolidate debt are also interested in eventually paying off that same debt – more so than someone looking to borrow $15k to remodel a kitchen, for instance.

I’m also hopeful that borrowers are obtaining a better interest rate from Lending Club than they were paying to banks and credit card companies. When I was in debt I remember credit card issuers jacking up my interest rates for no apparent reason other than “the economy is bad.”

I suppose in this way, I am making borrowers’ paths to debt freedom a little bit easier. And of course, I like the idea of cutting out big banks and lending directly to borrowers.

In the end, I decided I would invest a small amount with Lending Club, but do so rather selectively in borrowers whose story and financial picture made me believe they would successfully pay off their loan.

If you’re interested in Lending Club, either as a potential borrower or investor, I encourage you to give them a try. Simply follow the banner below, or click here to sign up.

Post by Frugal Dad

Over the weekend I did a little personal finance housekeeping, sorting and filing statements and other paperwork. My “To-Be-Filed” stack was growing rather large, and I recently had two occasions to hunt for a receipt and warranty card and instead of going right to the folder, I had to dig through the stack of stuff.

While sorting and shredding, I ran across something interesting – an old credit card statement dated June 2009. I scanned the statement, remembering this credit card still carried a balance of a few thousand dollars representing all that was left of my school debt. That is, the tuition and books I billed to my Visa for a couple years after returning to school to complete my undergraduate degree (after giving up several years before that).

This particular credit card had a decent interest rate – 9% fixed, and I thought I was doing well to whittle away the balance over time. In June 2009 that balance cost me $29.58 in interest, or roughly $355 a year.

Doesn’t sound like much? Consider the amount of savings at today’s rates it would require to spin off nearly $30 a month interest. About $20,000 yielding 2% annually.

The Switch

The last statement I received from that card was January 2010, just after making my last payment. Paying off debt is a great feeling, but it takes a few months for “the switch” to really sink in. “The switch” is the cross-over point where you know longer pay interest, but begin to earn it. Of course, you quickly discover that it much more difficult to earn interest than to pay it, but it underscores the saying, “The borrower is slave to the lender.”

Those lenders were making 9% interest off of me. Of course, I allowed it, mostly because I was overly ambitious about finishing school and rather than saving and paying cash, I tried to hurry the process along by running up student debt. Looking back, I do regret that decision, but it helped get me to where I am today.

Had I not graduated from college with debt, and been locked into making payments for those first couple years after school, I may not appreciate being debt free as much as I do now (and I may not have been as strongly opposed to taking on new debt as I am today).

Debt Freedom is Great, but Not Without Anxiety

Back when we were deep in debt, I used to daydream about what life would be like without debt. I envisioned a care-free existence, or at least not a care about anything related money. And for a couple months after paying off our last debt (except the house), we were sort of floating on the financial clouds. It felt great not sending part of my paycheck to banks and credit card issuers. But then a cold realization set in. I was simply back to zero.

For the last couple years of our get out of debt plan we basically stopped everything to making giant payments on debt. This meant we had very little in the way of savings – for retirement, college, emergencies, and even everyday sinking funds for those things that happen every now and then (car tag renewals, vacations, etc.). What used to have anxiety over debt, but now we were feeling anxious because of all the ground we had to make up.

I almost immediately began reading investment books, subscribed to new blogs, new magazines, etc. I tried to soak up as much about saving and investing as possible. I scoured the Internet for the best saving rates, learned all I could about CD rates and bonds and stocks, and moved my tiny savings pile from bank to bank looking for a better deal. I realized I was obsessing over saving in much the same way I obsessed over our debt. Neither form of obsession was healthy.

We eventually settled into a more realistic approach to our money, recognizing that yes, we missed a few years worth of compounding growth to pay down debt. Would we do it over again? Absolutely. Without debt, it should be easier to save and invest going forward. The freedom of living without non-mortgage debt is plenty worth the sacrifices we made. For those buried in debt for such a long time, it turns out just “getting back to zero” is victory enough; everything else is gravy.

Post by Frugal Dad

A while back I mentioned tiny houses here at Frugal Dad. While I’m afraid my family has already outgrown most “tiny house” plans, it is still inspiring to see ways others have maximized their space.

I recently ran across a new twist to these tiny houses – tiny solar houses. These small homes are almost entirely off the grid, using a combination of solar, wind and propane to run their homes. The YouTube channel produced by solarcabin (sample below) has a number of interesting videos on the construction of these solar houses, as well as various solar and wind implements to provide power to them.

The full YouTube channel may be found at youtube.com/user/solarcabin

The Frugal Roundup

10 Money-Saving Tips to Save $1,000 for the Holidays. I know it’s still 95 degrees, but Christmas will be here before we know it! Start preparing now by implementing a few of these cost-saving measures to build your Christmas shopping fund. (@Budgeting in the Fun Stuff)

Life After Debt: What It’s Like In The Third Stage of Personal Finance. I have found life after debt to be less rosy than I imagined, though I’m reluctant to even admit that considering I know full well the pains associated with being in debt. It’s a complicated stage of trying to move on with wealth building while not slipping back into the same bad habits, while maintaining the same intensity. (@Get Rich Slowly)

48 Things Frugality Has Taught Me. Trent shares a great list of how frugality has altered his life (in a good way). (@The Simple Dollar)

Do You Have a Plan for Unemployment? I personally know a couple people who thought they were “unemployment invincible,” because they thought their industry was ultra-stable or their skills were quickly transferable to new employers. Unfortunately, they’ve been unemployed for several months. (@Cash Money Life)

The Layoff Kings: The 25 Companies Responsible for 700,000 Lost Jobs. Speaking of unemployment, these companies have laid off nearly three quarters of a million people in the last couple years. Ouch! (via The Daily Crux)

Best of the Rest

• How To Save Money When Eating Out
• How To Save Money On Haircuts (and Funny Pictures)
• 3 Money Sucking Financial Innovations
• Making an Offer on a Home: How to Negotiate a Deal

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Post by Frugal Dad

For most of my adult life I have avoided calculating my net worth, mostly because the number at the bottom of the calculation was always red. The thought of owing more than I owned depressed me. Looking back, I wished I had tracked net worth to show the positive gains we made over the years.

Now that we are debt free, and that small, but ever-so-slowly growing number at the bottom of the net worth calculation is black, I am committed to calculating our net worth once a month and tracking it over time.

Assets Minus Liabilities

The basic definition of net worth reveals the number is essentially the difference of liabilities, or debts, subtracted from your assets. Seems simple enough. The problem is, there are many different classifications of assets.

In corporate finance, assets are generally classified by their liquidity. That is, how easily can they be converted to cash. Cash saved in a bank account is obviously the most liquid form of asset, while equipment might still be counted as an asset, but since it would have to be sold for a depreciated value to convert to cash, it is considered less liquid.

The same goes for most households. For example, our emergency fund is our most liquid asset. The two vehicles we own, and their estimated private sale value, could also be listed as an asset. However, knowing what a pain it can be to sell a car, I’m reluctant to include their value as part of our net worth.

And then there are houses. Assuming your home’s value wasn’t decimated in the recent housing market bubble, or you have been diligently making a mortgage payment for several years, chances are you have equity in your home. For example, if you own a home worth $200,000 and only owe $170,000, listing both the house and the mortgage as an asset and liability, respectively, would net increase your net worth by $30,000.

A more extreme example, after a couple decades of making a mortgage payment, might lead to a $100,000 bump in net worth. But to realize that money, you would have to sell your home, something you might be unwilling to do.

Calculating Two Net Worths

We simply calculate two net worth figures. The first, I call our “Total Net Worth,” is calculated by subtracting all of our liabilities (mortgage) from all of our assets (savings, house, etc.).

I then calculate a second net worth figure I call our “Liquid Net Worth.” This only includes assets that can be quickly converted to cash, or are already in cash form. This calculation would account for any stocks, bonds, CD ladders, and cash-based accounts such as our emergency fund, goal-oriented accounts at Smarty Pig, and various sinking funds, but would not include “hard assets” like cars and houses.

In most cases, this second net worth calculation is much lower, but is, in my opinion, a more realistic look at your current financial situation. Imagine someone $20,000 in credit card debt with negligible savings, but $35,000 in equity in their home. A $15,000 positive net worth presents a skewed view of their real financial shape. A more accurate, and sobering, liquid net worth calculation would show them nearly $20,000 in the red, and would hopefully motivate them to work on getting out of debt.

Ask the Reader: Do you currently track your net worth? What method do you use? Do you include all assets and liabilities, or some assets and all liabilities, or some other combination?

Post by Frugal Dad