Crackerjack Greenback Prudent Advice for a Prosperous Future

December 29, 2008

Stop Driving Through Personal Finance Fog

Filed under: Goals,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

Through the thick fog. by redjar on Flickr       I had to drive through some thick fog Saturday night on my way to visit some friends. I realized I hate driving in fog (especially at night). Why is it so bad? Simply because you can’t see what’s ahead of you. It’s difficult to prepare for obstacles in the road, and you can’t see the potholes until you’ve already hit them.

       Trying to manage your finances without a good plan is a lot like driving in thick fog. If you don’t have a budget and track your spending, it can be very easy to spend too much money and forget about irregular expenses. If you don’t set specific goals for yourself, you have no destination. You’ll end up wherever the road happens to take you. While that can make for an exciting road trip, it’s not really the kind of thrill you want to have in your personal finances. Without a budget and clear goals, you can’t prepare very well for the obstacles ahead and you’ll often hit some big potholes that can send your finances reeling.

       Want to improve your finances next year? Focus on the basics first. Set some clear and specific goals, and figure out a realistic budget you can stick to. Then track your spending using whatever method works best for you. (The next logical step would be to build up an emergency fund. It’ll make smooth driving of those potholes I mentioned earlier.)

       These are not exceptionally difficult steps to take, but they do require time and commitment. Dedicate yourself to setting your financial goals, making a budget, and sticking to it. And stop driving through the fog!

December 18, 2008

The Way to Wealth – Nuggets of Wisdom from Benjamin Franklin: Careful Whom You Trust

Filed under: Prudence,The Basics,The Way to Wealth — Paul Williams @ Crackerjack Greenback @ 4:00 am

       Last week, we talked about Leisure in Benjamin Franklin’s The Way to Wealth. Striving for leisure as an end in itself is never going to afford us any real leisure. But careful use of our time and hard work can provide comfort and leisure. However, it’s far too easy to let your hard work go to waste if you’re not careful whom you trust. Here is today’s quote:

       Trusting too much to others’ care is the ruin of many; … but a man’s own care is profitable; for, saith Poor Dick, learning is to the studious, and riches to the careful … And farther, if you would have a faithful servant, and one that you like, serve yourself.

The Way to Wealth – Benjamin Franklin

       When I wrote “Ripped Off: Can You Trust Your Financial Adviser?“, my main focus was looking at how financial advisers (stock brokers, bankers, realtors, financial planners, insurance agents, lawyers, and accountants) get paid and how that can affect the advice they give you. Franklin sums up the cautionary advice quite well: “Trusting too much to others’ care is the ruin of many.”

Shopping Around by Fabio Mascarenhas on Flickr       Whether you’re getting financial advice, paying for home repairs, or simply trying to run your business, you must always be careful who you trust. Even when you find a trustworthy adviser, repairman, or employee, you need to find a way to check up on their work. This could mean getting a second opinion, shopping around, or setting up a system to review and reward people. In anything you do, it’s wise to be careful and cautious when trusting others.

       Finally, if you can’t find anyone worth trusting with a task, it might be best if you do it yourself. Study up and decide if it is something that’s worth your time and within your abilities. If it is, you just might be the best person for the job.

December 11, 2008

The Way to Wealth – Nuggets of Wisdom from Benjamin Franklin: Leisure

Filed under: Earning,The Basics,The Way to Wealth,Values — Paul Williams @ Crackerjack Greenback @ 4:00 am

       Last week, we talked about Little Strokes in Benjamin Franklin’s The Way to Wealth. By diligently working towards our goals little by little, we can accomplish great things. Does all this talk about diligence, hard work, and industry make you feel like Franklin doesn’t expect us to ever take time for leisure? Here is today’s quote:

       Methinks I hear some of you say, must a man afford himself no leisure? I will tell thee, my friend, what Poor Richard says, employ thy time well if thou meanest to gain leisure; and, since thou art not sure of a minute, throw not away an hour. Leisure is time for doing something useful; this leisure the diligent man will obtain, but the lazy man never; so that, as Poor Richard says, a life of leisure and a life of laziness are two things.

The Way to Wealth – Benjamin Franklin

Yipeeee!!! by lepiaf.geo on Flickr       Much of Franklin’s writing is devoted to the power of industry and frugality, but what about fun? Without hard work, you’ll never have much time at all for leisure and pastimes. If you don’t work hard enough to save some money while covering your basic expenses, how do you ever expect to be able to take time off for relaxing (and be able to afford it)?

       Instead of viewing leisure and laziness as the ultimate goal in life, focus on using your time well and profitably. Labor brings more comfort than idleness. When we’re bored or idle, we often get ourselves in trouble. And we can’t sit around on the couch all day forever—eventually, we’ll need to work for something lest we starve or go homeless. Though the life of idleness and no work sounds appealing, it often leads to a lack of meaning and complete boredom. This is why many people find out retirement isn’t as great as they had once thought while they were slaving away at a job they hated.

       Find useful things to do with your time that you enjoy and work hard at them. Once you begin to enjoy your work and the results of your labor, you may start to view leisure in a different light. Success is likely to follow your hard work, and you’ll get the leisure time you’ve been dreaming of.

December 6, 2008

Guest Post about Emergency Funds on No Credit Needed

Filed under: Budgeting,Frugality,Random Stuff,Saving Money,The Basics — Paul Williams @ Crackerjack Greenback @ 9:54 am

I have a guest post up today at No Credit Needed. Check it out!

The Emergency Fund To The Rescue!

December 5, 2008

Cable/Satellite TV Subscriptions Actually Cost Nearly $64,000!

Filed under: Budgeting,Consumerism,Contentment,Frugality,Saving Money,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

       Think it sounds ridiculous? Bear with me and I’ll explain how I came up with that number. This obviously isn’t the exact cost for every single person, but it probably isn’t far off. I didn’t include the cost of electricity, purchasing and replacing your television, or the cost of lost opportunities due to the hours wasted watching television. I’m also basing the cost on the amount I pay for satellite TV. Your actual costs may be higher or lower.

The Assumptions

       I assumed a cost of $40/month for the subscription. This is the cost of my basic satellite TV subscription. There’s a good chance most people pay more than this, so my estimate is probably conservative.

       I assumed you started your subscription at age 22 (when most people are out on their own) and you keep it until you die at age 80.

       I assumed an inflation rate of 3.8% and an investment rate of return of 8% (very reasonable over a 59 year time period).

The Results

Television by dailyinvention on Flickr       If you decide to give up your cable or satellite TV subscription and instead invest the money, you’d have over $577,000 at age 80. If we adjust for inflation, that $577,000 would be about $63,900 in today’s dollars (e.g., what costs you $63,900 today will cost you $577,000 in 59 years because of inflation).

       By age 65, you’d have an extra $177,700 because you gave up that cable/satellite TV subscription. This is the same as $34,300 in today’s dollars. That could mean retiring a year earlier! (depending on your income needs in retirement)

What About the Cost of Purchasing a TV?

       If you’re 22 and you decide to save $100 instead of purchasing a TV set, you’ll have an extra $2,955 by age 65—or $570 in today’s dollars. (While the price tag says $100, it’s really costing you $570 because you could have invested that $100.)

       If you save $500, that’s an extra $14,780 by age 65—over $2,850 in today’s dollars.

       If you save $1,000, you’ll have an extra $29,550 by age 65—more than $5,725 in today’s dollars! (That $1,000 big screen TV is really costing you $5,725.)

       And we haven’t even figured in the cost of lost opportunities because you watched so many episodes of Lost…

The $64,000 Question

       If Dish Network, DirectTV, or Comcast told you that subscribing to their service would really cost you $64,000, would you do it? Even with the first month free, I just don’t see how it’s worth it. 😉

       Add in the cost of purchasing a TV (and replacement TVs), the higher medical bills because you sat on your butt so much, and the other reasons you should stop watching TV and you’ll soon find that it’s just not worth it.

TV;        If you’re struggling to get by, TV should be one of the first things you cut. It’s a drain on your finances (a $64,000 drain!), wastes your time, and can get in the way of quality family time. Your time is better spent finding ways to increase your income, cut your expenses, and enjoy your life the way you want (instead of the way the TV tells you to enjoy it).

Disclaimer and Other Stuff

       Even though I know how much television costs, I have not given it up completely. However, I do watch a lot less than I used to and I’m amazed at how much more I can accomplish! Now I tend to only watch a couple shows on Discovery Channel. (I’m a science geek at heart.) I’ll watch in social situations as well, but overall I probably watch less than a couple hours a week on average.

       Not all TV is bad. Like I said, I like to watch Discovery Channel. Educational shows can be a good way to get some entertainment while expanding your mind at the same time. But most TV shows are an absolute waste of time—end of story.

December 4, 2008

The Way to Wealth – Nuggets of Wisdom from Benjamin Franklin: Little Strokes

Filed under: Goals,The Basics,The Way to Wealth,Values — Paul Williams @ Crackerjack Greenback @ 4:00 am

Black & White Stones & Water by Johanna Garlike on Flickr       Last week, we talked about Time Management in Benjamin Franklin’s The Way to Wealth. Even with top notch time management skills, we can often run into huge tasks that seem impossible or become so busy that it seems like we’ll never get anything done. Franklin’s advice is to remember that we can accomplish great things when we tackle them little by little. Here is today’s quote:

       ‘Tis true there is much to be done, and perhaps you are weak handed, but stick to it steadily, and you will see great effects, for constant dropping wears away stones, and by diligence and patience the mouse ate in two the cable; and little strokes fell great oaks, as Poor Richard says in his almanac, the year I cannot just now remember.

The Way to Wealth – Benjamin Franklin

       In nearly everything we take on, there is much to be done but often little time to do it in. Franklin’s advice is to “stick to it steadily” or keep at it until you accomplish your goal. Nature provides us many great examples of this truth. Some of the most amazing rock formations on Earth were formed by the power of steady work from water. Even a tiny drop can bore a hole through the thickest rock if given enough time. We, too, can reach astounding goals by simply working at them little by little over enough time.

Johnson's camp by flickr-rickr at Flickr       I really like the quote “little strokes fell great oaks”. It’s easy to remember and it’s a powerful example. Have you ever chopped down a tree with an axe before? Each stroke of the axe only takes out a tiny bit of the tree, but after enough strokes the tree falls over. Taking small steps to achieve your dreams may seem trivial at the time, but every little step gets you that much closer to the goal. Even the tiniest step forward is better than standing still or moving backwards.

       Do you have some huge task waiting for you right now? Perhaps it’s a large project at work, or starting your own business, or getting your finances in shape. Even if it seems like you’re a long way off from finishing these things, start taking small steps to achieve them now. A little progress here and a little progress there—you’ll soon be done!

November 29, 2008

Do It Yourself: Why Your Time Is Not Worth As Much As You Think

Filed under: Earning,Frugality,Saving Money,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

       J.D. Roth at Get Rich Slowly has some good articles on how to figure out your real hourly wage. The first one titled “How to Compute Your REAL Hourly Wage” is a good start to calculating this number, but it leaves out taxes. The second article titled “Beyond “Real Hourly Wage”: How Much Time Does Stuff Actually Cost?” gets closer to a more accurate number, but I personally think you should do it a little differently.

We Still Work by furryscaly on Flickr       J.D. talks about deducting your fixed expenses to calculate your real hourly wage to figure out how many hours things cost in terms of your disposable income. I think this is a good number to keep in mind, but you should also consider your hourly wage in terms of net income as well (income minus work related expenses and taxes). This net income hourly wage can help you see how much of your time is spent paying for your necessities and put those costs in perspective. This is mostly just an interesting experiment, but it can help you realize that your time is worth something and spending money means giving up your time.

       However, what I really want to talk about is the discussion that came up following J.D.’s article about Things It’s Cheaper to Do Yourself. Some commenters contend that if a task would cost less per hour to outsource than you can earn in an hour then you’re better off paying someone else to do it for you. However, this logic is often flawed once you consider reality. This is a topic that’s been on my mind for a while, but J.D.’s article and the discussion prompted me to go ahead with my post.

What Are You Doing Instead?

       When I pay someone to change my oil, what do I do while I wait? I’m usually stuck sitting in a waiting room or browsing through the store (if I’m at Pep Boys or Walmart). I don’t earn any money while I’m waiting, so I can’t say I’m saving money or time by paying someone else to change my oil for me. If I can drop my car off and go do some income-producing activity, then it might be better for me to outsource the oil change. Even then, I need to make sure that my net after-tax hourly rate is going to be large enough to offset the cost of paying someone else to change my oil. If it’s not, then I’m better off changing the oil myself.

       The same can be said of many other activities we outsource. It’s easy to say, “Yeah, I’ll pay Jim $30 to mow my yard because it would take me 3 hours and I can earn $10/hour.” But this logic only works out if we take the time we would have spent mowing the yard and use it to earn money or provide ourselves with some other sort of value. This could mean enjoying a leisure activity or spending time with family. If mowing the yard would have prevented us from those (non-income producing) activities, then paying someone else to mow our yard might make sense depending on how much we value that time.

Sometimes It’s Better to Hire a Professional

Beautiful Tools by geishaboy500 on Flickr       Another exception would be projects that are better completed by a professional. If you do not have the ability to complete a project, then it’s probably best to pay a professional. You’ll save more money by having someone do it right the first time than having to go back and fix the mistakes you made trying to do it yourself. This can also be true if a project requires very specialized tools that we may never use again. This is the same logic we apply when we realize it’s better to rent a bulldozer to dig a hole than to buy it if we’re probably not going to use it again.

       However, it’s sometimes better to do a job yourself because you’ll know the quality of your work. When you hire someone else, you can get unlucky and end up with a “professional” who does shoddy work. With careful research and good referrals, you can usually avoid such misfortune. But if you know how to do a project and can do it well, you’re likely to get better results by doing it yourself than by hiring a “professional”.

What’s It Worth to You?

DoItYourself.com       My point is that most of the time it makes sense to do it yourself. There are a few exceptions where this is not true, but simply valuing our time based on our gross hourly wage is flawed. We have to look at the value of our time spent in the replacement activity (the thing we’re doing instead of the DIY project). If the value of our replacement activity outweighs the cost of outsourcing, then we can safely say it’s better to outsource. This still neglects the benefits of learning new skills and the satisfaction that many people experience when they do something themselves, but that’s a very subjective benefit.

       Just as every other personal finance decision needs to be considered in light of your personal situation, so does weighing the option of doing something yourself or paying someone else to do it. Depending on the value of your time, the activity you’ll do instead of doing it yourself, your skill set, and your desire to do it yourself, it may or may not make sense to outsource a project. Be sure you consider these factors before you say you’re saving yourself money or time by outsourcing.

November 27, 2008

The Way to Wealth – Nuggets of Wisdom from Benjamin Franklin: Time Management

Filed under: Earning,The Basics,The Way to Wealth,Values — Paul Williams @ Crackerjack Greenback @ 4:00 am

       Last week, we talked about Wasting Time in Benjamin Franklin’s The Way to Wealth. Part of the solution to wasting time is time management. Here is today’s quote:

       Sloth makes all things difficult, but industry all easy, as Poor Richard says; and he that riseth late, must trot all day, and shall scarce overtake his business at night. While laziness travels so slowly, that poverty soon overtakes him, as we read in Poor Richard, who adds, drive thy business, let not that drive thee; and early to bed, and early to rise, makes a man healthy, wealthy and wise.

The Way to Wealth – Benjamin Franklin

       By carefully managing our time and working hard, we make it much easier to get things done. If we get a late start to the day, we can hardly catch up. Keeping a schedule and giving time to the tasks we need to accomplish helps us avoid wasting time and get more done in a day than if we wander around aimlessly.

Time by John-Morgan on Flickr       Having control over your business and keeping track of your plans is important to successful work. If you let emergencies and interruptions dictate your activities for a day, you’ll probably find it difficult to do any of the stuff you wanted to. Distractions destroy our focus and make it tough to do anything very well. This is part of the reason why multitasking is a myth.

       Finally, we have one of Franklin’s most famous quotes. Getting enough rest at night is very important to keeping our bodies healthy and our minds clear. If we avoid sleeping in late we have more time to work, which invariably leads to wealth if successful. Franklin’s point in this quote is that careful time management makes our lives easier and less stressful, and hard work is bound to make us successful when combined with time management.

       If you have some time you’d like to spend learning more about personal finance, make sure you check out this week’s Carnival of Personal Finance. But make sure you don’t neglect the more important things you might need to do right now!

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