Nov 21 09

PF Hour Episode 27: Jim and JD Talk Banks! Banks! Banks!

by brian

After a week hiatus, JD and Jim are back on the Personal Finance Hour talking about Banking!  While banking may sound boring to most, Jim has promised an entertaining show to all of the listeners.

When thinking about his book, JD has come to realize that banks are like a tool that you keep in your financial tool box.  He used to feel that banks were all the same, but after his Frisbee story, he has realized that this is not the case.  Meanwhile Jim, like his insurance, he looks for his banks to be boring.

Jim stated that with online banks these days, banks have made themselves commodities.   The days of personal banking has come and gone.  The guys discussed this as both a positive and a negative.  JD talked about his local credit union that sometimes remembers specific transactions he has made years prior.  It’s a bit disconcerting to him as it would be to most people.

JD’s Banking

JD uses his Wells Fargo account for his business banking; a local credit union for his checking account and an ING account for his savings.  He really likes ING for their subaccount (multiple account) feature.

Jim’s Banking

Jim has a ton of accounts throughout his financial network, mostly because of him reviewing the different banks for his blog.  His financial map helps show how his money can move from one account to the next.  He primarily uses Bank of America because they are EVERYWHERE.

In years prior he would check in with each account regularly and write down the balances.  Nowadays he relies on Quicken to go and pull the data from each.

Jim described his perfect account as follows:

  • An account that allows you to transfer instantaneously to savings.
  • An obscene amount of ATMs.
  • The sub savings account feature similar to ING.

Outside of those features, it’s down to what the interest rate is.

Interest Rates and Passive Barriers

Interest Rates

The interest rates at banks have become so low that there is really no difference between each bank.  However, a few years ago there were big fluctuations between each bank.  This was in part because of how well the stock market was doing and the fact that people were seeing great returns on their money.  In order to entice people to save, the banks had to offer really great rates upwards of 4%-6%. Unfortunately, with the way the market is now the banks are trying to de-entice people to save.

The guys then went into a further discussion of the federal rate for banks.  In short, the federal bank is de-incentivizing savings by keeping the rate so low.  This will hopefully pull us out of a recession as people are more likely to spend. JD mentioned how difficult this is for him to deal with considering he writes about the need for people to save, yet it is those that spend that will pull us out of the recession.

Passive Barriers

JD came back to the idea of passive barriers or financial roadblocks which impact his financial life.  He prefers to have his money put aside automatically so that he doesn’t see it nor think about it.  It automatically goes into his subaccounts in ING and makes it difficult for him to access.  Jim cited that this takes the emotion away from JD’s saving habits and ensures that he is doing the right thing with his money.

Callers and Chatters

Craig (Budget Pulse) keeps all of his money in a money market account.  He wonders if it’s worthwhile to switch to a high yield savings account.  Both Jim and JD say that they see no need to transfer money to a new account if he is happy with his service.  They asked Craig if he uses the money market accounts to write checks from.  Craig doesn’t, but the three of them stressed that one of the key features of a money market account that makes it different than a traditional savings account is that you have the ability to write checks from it.

Kelly (The Centsible Life) called in to discuss how her family has their finances set up.  They bank primarily through a local credit union that has ATMs in convenient locations.  Additionally, there is a branch right in her husband’s office.  The credit union also offers promotional rates (7% Interest on the first $500) in addition to things like Christmas funds that automatically deduct money around the holidays so you can spend it on presents.  Kelly also has an ING account because it’s harder to touch.  Furthermore, she has the subaccounts set up similarly to how so many of us have our ING accounts.

Brian (My Next Buck) wanted to discuss what referral or sign up bonuses are out there.  Currently Brian is signing up for an account for a free $100 through Bank of the West.  Jim says that banks used to do this often, but the trend had gone away as the economy got worse.  However, these types of bonuses are starting to make a comeback.  That said, Jim brought up an interesting point that Brian did not know prior to opening his new account.  If you are opening a checking account with overdraft projection it is likely that the bank will do a hard inquiry pull of your credit report.  If you are going to be buying a house or a car in the next few months it may not make sense to make a small amount of cash only to have your interest rate jump up a few tenths of a percentage point.  It would be penny wise yet pound foolish says Jim.

Laura (Green Panda Treehouse) called in to talk about why she decided to switch banks from Bank of America.  She had had a checking account with them that worked well, but once her and her husband opened a joint account, things started to go haywire and she started looking for banks that offered good customer service.  She slowly started transferring her accounts over to ING and with such good service she moved the bulk of her accounts there.  Even when she has had a problem with ING (that was more a problem with the USPS) she called ING and they resolved her issue immediately.   Laura went on to discuss credit unions briefly stating that they often times offer unique services to their clientele.  The example she provided was a teacher’s credit union automatically setting up a teacher’s salary to be deposit over 12 months instead of the standard 10 months they are actually working.

J. Money from Budgets Are Sexy was the last caller to chime and talked about USAA.  He absolutely loves their bank and has several accounts with them.  Jim expanded on his experience with USAA which was the insurance carrier for a person that hit and totaled his car a while back.  He said that there were no problems and that the service was very expedient to take care of his claim and to get reimbursed for his vehicle.

Concluding Thoughts

The guy started to wind down by saying that it’s really helpful to ask for things.  In particular, asking to have fees waived from banks.  It never hurts to ask a customer service rep to waive a fee and they often times do.  The guys did mention that it is important not to act entitled to having fees waived, but it really doesn’t hurt to ask and it’s entirely possible it is within the service reps power to make it happen.

Jim told his story about going through a Bed Bath and Beyond with his wife.  Bed Bath and Beyond are famous for their 20% off coupons.  One day his wife forgot to bring a coupon with her.  At the checkout counter she asked the cashier if she could have a coupon, and without batting an eye, the cashier swiped a previously used coupon to discount the item.

One of the final things the guys discussed was reward checking accounts you can deposit a limit of up to 25,000 or so.  You get a very high interest rate (like 4%) but you have to make several debit transactions.  People ask how they can do this.  Essentially the banks make money off of each debit transaction and they then pass the earnings onto the account holders in the form of interest.  Jim gives a couple of suggestions on how to skirt the system so that you reap maximum benefits from accounts like this.

Concluding the episode the guys decided that, yes, banks and banking can be fun.  Hope to see you next week in the chat room or on the phone with the guys.

Nov 9 09

PF Hour Episode 26: Jim and JD Talk About Personal Finance Rules of Thumb

by brian

This week’s show had both Jim and JD looking at the financial rules of thumb that guide our personal finance decision making. These rules of thumb were created somewhere and usually have some validity for them to stick throughout the years. They examine these “rules” a bit deeper this episode.

The guys started off with an anecdote about a recent furniture shopping adventure that JD undertook at IKEA. This made Jim ask is there a rule of thumb out there that IKEA is just naturally the frugal choice for furniture? After the guys discussed it for a few moments, they decided that IKEA is great for disposable furniture. Furthermore, Jim has his own self-imposed guidelines when shopping at IKEA: the furniture can’t have by movable parts and you can’t plan on moving it from its original location almost ever.

There is some conflict about using rules of thumb for making decisions. Four pillars wrote recently that rules of thumb are bad because they are a poor substitute for proper analysis. Jim added he thinks that rules of thumb are for people that need to take action today and may not be well informed. It simplifies the decision to make someone more comfortable. With that caveat, let’s get going.

Saving and Investing

There are a lot of rules of thumb in terms of saving and investing.

Pay yourself first. Most people say you should save 10% of everything you earn. You should try and save more if you can, but to start building savings, it’s essential to pay yourself first.

Your asset allocation should be 120 minus your age (that is the percentage of your assets that should be in stocks).   This rule of thumb was discussed earlier with the guys when Jeremy from GenXFinance was on the show.  Jim states that this is a rough guideline for people that are just getting started. He doesn’t recommend shifting your asset allocation by 1% on your birthday each year. JF discussed that he actually takes a more conservative approach and goes with the less used rule of thumb 100 minus his age. Additionally, JD joked that his wife Kris unexplainably tends to be very conservative with her own investments but often urges JD to be more aggressive with his money.

You shouldn’t put more than 10% of retirement assets into employer stocks. This is explained because you are not diversified if your primary income and retirement income are both coming from the same source. Jim actually disagrees with this rule as he feels you should have 0% of your employers stock with only rare exceptions.

Assume an 8% long term return. There are lots of complications and caveats but that’s what the majority of people use as a guide when planning their long term investments.  Both Jim and JD use the 8% figure as a rule of thumb.  It’s essential to look at what your goal is and ask yourself will “X”% get you to that goal?  It’s also beneficial to give yourself high and low projections just in case the market under or over perform.  Lastly, readjustment of your portfolio may be necessary if you have just had an up or down year.  For a great example of this, check out Carl from Behavior Gap’s Post on Get Rich Slowly: Average is not Normal.

Callers and Chatters

Jason from the chat room added a common rule of thumb: Max out your employer’s 401(K) match benefits.  Jim and JD couldn’t agree more as this is free money.  In addition, Jim said that one of the rare occasions to invest in your company (as discussed earlier) is if you are offered some form of matching.

Baker (Man vs. Debt) called in to discuss the rule of thumbs for mortgage down payments.  There used to be a rule of thumb that 20% of the cost of the mortgage was an appropriate down payment.  Over recent years, that number shifted to 4% and then more recently 0% (which has helped lead us to our current economic crisis).  The banks tend to lend on those rules of thumb (and you can see where that got us).  Then the banks also have another rule of thumb that your mortgage payment should be no more than 1/3rd of your income.  Baker suggested that we consider rewriting these rules of thumb so that they work in our favor instead of banks or other institutions.

Dylan from the chat room gave another rule of thumb stating: It should take less than 3 years for you to break even on a refinance. This gets back to the core philosophy that Jim and JD both preach about staying in the same home for longer than 5 years.  Additionally, Tim Ellis wrote about Renting vs. Buying on GRS back in 2007 and his article still rings true today.

Nikunj called in to relay his current story about his 94 Acura with 210,000 miles.  He was curious as to if it’s in his best interest to purchase a new vehicle or get his fixed even though it appears on its last legs.  While not being car experts, it made sense for the guys to recommend it may be time for a new car.  15 years is a good run for any vehicle.

Cars

It’s almost always cheaper to fix your car instead of buying a new car. JD mentioned that Kris loves to listen to Car Talk and the hosts almost always recommend fixing your car to the point you feel comfortable driving it instead of trashing it.  However, if it will cost much more than the vehicle’s worth to repair, just to keep it running, your best bet may be to go and buy a different car.
Jeremy from GenXFinance suggested a rule when purchasing a car that discussed how you should finance your vehicle.  The rule was 20:4:10.  You should put 20% down, finance it for 4 years and drive it for 10.

Jim stated the rule of thumb that it’s best to buy a car used, or to buy it new and drive it for ten years.  Jim goes a bit further and states his own opinion that it’s important in personal finance to drive your cars into the ground.
Housing

Frugal Trader from MillionDollarJourney has a rule of thumb that states your mortgage should be no more than double your current household income.  For most people that would make home ownership a heck of a challenge.  Baker even went as far as to disagree with this as it sets limits from the wrong direction (what you can afford instead of you designating a certain amount for housing and then spending accordingly).

Jim mentioned Suze Orman as a means for coming up with an action-oriented rule of thumb prior to owning a home.  She suggests “pretending to play house” before you buy a home.  This means you should open up an account and start dumping a mortgage payment into it (the difference between your current rent), the cost of the extra utilities, insurance, taxes, etc.  If you do this for a number of months, you will likely be better prepared for home ownership.

You should refinance your home when the interest rates are 2% lower than your current rate. Jim wisely noted that this rule of thumb made more sense before there were computers and high performance calculators to help you calculate if your mortgage would actually be less expensive over the duration than if you were to keep it the same.

Miscellaneous and Concluding Thoughts

The guys ended the show about one other rule of thumb and Jim’s opinion on replacement purchases.

The rule of thumb was about windfalls and that you should use 1% of a large windfall to treat yourself.  However, the guys feel that it may be best to keep your spending small, build discipline and help yourself prioritize prior to spending that money.  It’s often best to let the money settle, pay the taxes on it, and then feel free to use that small percent to treat yourself.

Jim concluded the episode with his thoughts on buying replacement goods.  He once heard that you should buy a new appliance if yours needs to be repaired and is over 8 years old (or if the repair cost is half the price of purchasing the item new).  He uses this for even less expensive items as he amortizes them over how many years he expects them to last.  If the cost of the repair of an item won’t increase the life of the product to the point where the benefit outweighs the cost, he goes out and makes a new purchase.

Enjoy these rules of thumb and see you next week.

Nov 3 09

PF Hour Episode 25: Jim and JD Tackle Budgeting With Several Callers

by brian

JD and Jim tackled budgeting this week on the Personal Finance Hour.  The word “budget” evokes negative connotations from lots of people, including people in the personal finance world.  JD mentioned some big names that seem to “hate” budgeting, including Ramit and Suze Orman.  There really seems to be an anti-budget sentiment out there, about budgeting and the guys wanted to delve into what is up with all the negativity.

Budgeting For Different Types of People

Both Jim and JD agreed that budgeting is not a cure all for people that are looking to get their finances on track.  However, one of the most important financial actions you can take is finding out where your money is going.  They discussed tracking your money, but that hardly ever works for people that it doesn’t come natural to (sort of like most new year’s resolutions that just don’t have sticking power in our lives).

What may be easier for people than tracking or coming up with a budget, is to come up with a spending plan.  JD referenced his spending plan (found here) throughout the show as a means of getting himself on track.  The spending plan helped him get to his goal.  Jim described it as a map to get from one side of the country to the other.  Once the framework was set, the rest just sort of fell into place.

Jim stressed that budgeting can be different for different types of people.  If you are a numbers person, a budget may work perfectly for you.  If you hate numbers, a budget may bore you, but you may look for other means to stay on track (a spending plan).

Do The Hosts Budget?

The guys turned the show towards themselves for a minute when JD asked Jim if he currently keeps a budget.  Jim said he used to when he first started working.  The transition from having no income to having income and more expenses made it valuable for him to use a budget to keep track of everything.  However, he no longer keeps track of everything.  He does feel that it’s more important to keep track of your finances specifically when making a bigger purchase.  Specifically, the big expenses for Jim are the same as most young people; eating out and going to bars.  If he reins those expenses in, he knows he will be doing well for the month.

JD uses Quicken to help him budget; however budgeting does not come natural to him.  One thing he tries to do is use the Balanced Money Formula from Liz Warren’s book All Your Worth: The Ultimate Lifetime Money Plan.

JD also mentioned that there are several online tools to help you with your finances including, Mint, Wesabe, MoneyStrands, Budget Pulse, PearBudget, You Need a Budget, Pocketsmith and Mvelops.  Jim stated that the framework of these sites is what is interesting as each take a bit of a different angle to the budgeting and personal finance conundrum.

Callers and Chatters

Brian (My Next Buck) called in to talk about hybrid budgeting.  He currently keeps a monthly budget, but he feels it hampers him slightly as he can’t make any purchases over $50 or so without fear of going over budget in a specific category (new clothes was the example used).  He is considering using a hybrid monthly/yearly budget, and breaking things out to fit what he would like his lifestyle to be.  He also mentioned that budgeting has helped him cut out big expenses, as there isn’t “room” for them in his budget.  JD responded to Brian’s idea of a hybrid budget by citing an August 2008 article in the Journal of Consumer Research which discussed that people making an annual budget are much more accurate than those keeping a monthly budget.

Kelly (The Censtible Life) called in after Brian to talk about how she has handled the hybrid budget.  She says that planning both monthly and yearly is ideal for her and her family because her children have a lot of ups and downs with regards to spending.  She mentioned that there are times when the kids have to go to a lot of birthday parties in one month and they end up having to buy all sorts of gifts in one month and not the next.  This type of spending is hard to plan for.  She puts a larger buffer for herself and her family in the yearly budget than she often does her monthly budget.  She makes adjustments to her budget constantly and if she misses a goal one month, she looks to see if she should pad that category with extra money from somewhere else to make sure she isn’t spending too much.

Baker (Man vs. Debt) dialed into the guys to talk about his wife and his experiment with a three-month budget.  He said it was a challenge as their spending went very quickly in the first month, which left them very cash strapped in the second two months.  He recommends budgeting in shorter blocks of time, but also keeping an eye on the big picture.  Baker also had another suggestion in terms of tracking/budgeting.  He stated that he and his wife use rounding to their advantage by rounding their income down and rounding their expenses up.  This provides another little cushion each month in case they do go slightly over what they planned on spending.

Shara was a first time caller into the show and she stated that she is a budgeting geek.  She keeps eight budgets going at once in case life events alter her course.   She has a budget in case her or her husband lose their jobs; she has a bi-weekly budget, and a yearly budget (to name a few).  Jim asked how she got to the level of running so many budgets at once, and she replied that she is a numbers person and this just came naturally to her.  She said the system took years to develop so that it works perfectly for her and matches her personality.  She also added that if she had to track every penny, there is no way she would have been able to stay on track.

Concluding Thoughts

Budgeting is a valuable tool for people to get started and to stay on track in the personal finance world.  Even a loose framework of a budget may be able to start you down a successful path.  Jim concluded the show with a thought that we all should consider when looking into money management tools, “it doesn’t hurt to try it.”  By setting up a budget, it doesn’t mean you are committed to it.  After a few weeks, or a few months of it not working as intended, feel free to scrap it and find something that works best for you.

Oct 30 09

PF Hour Episode 24: JD and Jim talk to Jeremy of GenXFinance about Retirment

by brian

For this week’s episode the guys were joined by Jeremy of GenXFinance.  Jeremy is a Charter Retirement Planning Coordinator (one of the core elements of a CFP).  He specifically works with 401(K) contributors and helping people with their portfolios.  He can be considered a “plan administrator”.

Outside of his professional life, Jeremy moved online to reach a broader audience than he could at work.  He feels that he is in a unique position being a member of GenX and can relate to people his age that may have kids or may have to take care of their parents one day.  People his/our age don’t have pensions or social security and that’s why they need the type of help he can offer.

Common Mistakes People Make with Their 401(K)’s

Jim started the show off by asking Jeremy about the mistakes people tend to make when contributing to their 401(K)’s.  There are a lot of mistakes people can make, but Jeremy highlighted the following three:

  • Not Saving Enough – The biggest mistake people make with their 401(K)’s is not saving enough.  You really can never save too much, although you don’t want to hamper your current lifestyle too much just to save for retirement.  Some people start late and therefore don’t have enough saved.  Some people start early but fail to put a large enough percentage of their salary into their 401(K) to make their money last throughout retirement.  When considering how much money to put in, there are a couple rules of thumb.  The company match is the bare minimum you should contribute.  Its important to look at what you want to do when you are in retirement.  If you plan on extensive traveling, joining country clubs, etc., you likely will need to save a lot more than someone who plans on staying locally and just visiting with family. For those that are unsure, a good starting point to contribute is 5% of your salary.
  • Sticking to the Default – A lot of people set up their 401(K)’s and forget about it.  Sometimes those people fail to invest that money, and it just sits there, as if it were in a savings account, accruing a small amount of interest.  In terms of structuring your 401(K) most should look at primarily large cap stocks and then secondarily invest in international stocks.  A good rule of thumb tip that the guys discussed was about asset allocation.  The tip stated that the percentage of your assets that you should have invested in stocks is 120 minus your age.  For example, if you are 25 (like me) I will want to have 95% of my assets invested in stocks for maximum growth potential.  Another similar issue is that people often forget to rebalance their 401(K) to ensure their risk is diversified properly.
  • Thinking things are going to be okay – A lot of people, especially the younger generations, feel that time is on their side and they will delay contributing to retirement until it’s almost too late.  When a younger person fails to start immediately, they lose the power of compound interest.  As Jim explains in this video, waiting one year doesn’t mean you are only losing out on one year of investing, you are missing out on 40 year of investing (however long until you retire).

What today’s Economy Means for Retirement

Jim asked Jeremy if he could give advice to all sorts of different age groups when they take social security into account as a form of retirement income.  Jeremy was quick to say that people have become more cautious and more aware of saving for retirement as social security seems less likely to be sufficient income as it was years ago.  He went on to say that younger generations shouldn’t count on having social security at all, and therefore really need to plan accordingly.

While the market was headed down, Jeremy saw several near retirees making adjustments and locking into their losses.  It’s one thing to make some of your investments more conservative, but if you completely reallocate your funds on a downturn, you miss the opportunity for the market to recover and for you to gain some of your losses back.

Another tip that Jeremy offered was how much you should have in your retirement nest egg to live comfortably.  The current wave of thinking is that you want to have a large enough nest egg to be able to spend up to 4% of your portfolio annually.  This will allow for interest to replenish what you spend, and you won’t touch most of the principle in your portfolio.

JD then asked Jeremy what his thoughts were about the Roth IRA.  He stated that he couldn’t be a larger fan of the Roth.  With its withdrawal rules, tax free growth, and availability to be used for college education or if you are a first time homebuyer, the Roth is an exceptional vehicle to save for retirement.  Jim did bring up the much talked about Roth IRA conversion benefits that will be seen in 2010, allowing people to transfer their IRAs into a Roth IRA by paying the taxes on the money transferred.  Jeremy said this is a great idea if you can afford to pay the taxes, however there are people that fear a value added tax that was talked about a week or so prior by Nancy Pelosi.  This would make the funds in your Roth taxed again when you spent it during your years of retirement.

Additionally, Jeremy discussed delaying retirement to support one’s parents.  It’s a very tough and emotional decision for some that may not make sense financially.  However, an emotional decision rarely makes sense financially.  Often times the parents have two options, which is pay for the care they need or go on Medicaid.  The latter being a less than ideal option.  In order to prevent such a situation for yourself and your children, Jeremy recommends looking into long term care insurance.  However, he warns people not to start this type of insurance too early.  It may be worth looking into if you are relatively healthy and in your 40s or 50s.

Another thing that was discussed between the three gentlemen was people’s pensions and how they seem to be shutting down.  One anecdote which was given described a situation where employees were given the option to cash out their pension plans or let them sit until retirement.  A lot of people considered the pension as found money, paid taxes on it, and then paid the penalty for early withdrawal.  If this situation were to be faced by you, Jeremy recommends rolling the money over into an IRA.

Callers & Chatters

Mike Piper (Oblivious Investor) asked Jeremy from the chat room, “Regarding administrative expenses (i.e., expenses aside from fund expense ratios), what portion is paid by the employer and what portion is paid by the plan participant? (Or does it vary for each of your company’s clients?). Jeremy said that it can vary from employer to employer.  It is definitely something to look into and be aware of.  He expanded by saying that not all plans are created equally and generally speaking, the participant often times pays more than the employer.

L. Hanson asked from the chat room for Jeremy to confirm that there are no penalties when rolling a 401(K) into an IRA.  Jeremy responded in the affirmative, saying that the only thing that had to be paid when rolling over would be applicable taxes.

Brett McKay (Art of Manliness) had a couple of questions for Jeremy.  First he asked the age old question of whether to pay off debt or save for retirement, or both. Jeremy responded by saying that you should definitely do both.  Retirement saving is open-ended and you can add as much to it as possible, while debt is closed ended.  Jeremy finished by saying that it’s better to do something in terms of retirement because of the power of compounding.

Brett’s next question involved how the recession is effecting younger people’s retirement planning.  Jeremy had some interesting insight as he says people may start to shy away from viewing real estate as an asset that always appreciates.  Furthermore he said most of GenX will view this downturn as an opportunity, because they have seen some of the cyclical nature of the market.  However, some of GenY may be scared.  If you are a GenY and started investing in your 401(K) at your first job around 2007 or 2008, you likely lost half of everything that was invested.  That may be enough to scare younger people out of the market for years to come.

An anonymous caller called into the guys to say that he views the market as dangerous and he thinks housing is the best option especially as the real estate market starts to recover. Jim disagreed with this philosophy but Jeremy said it had some validity as long as it was not the sole asset the caller held.  Jeremy said to treat real estate like any other asset class.  You don’t have to be a homeowner to invest in real estate.  Real estate could be a means of diversification for some portfolios.

Concluding Thoughts

Jeremy concluded his hour with the boys by recommending a few books on retirement that don’t get too complicated for the reader.  The first book he recommended was Books that he recommends that don’t get too complicated. The first book he recommended was “The Number: A Completely Different Way To Think About The Rest of Your Life” by Lee Eisenberg.  The second book Jeremy recommended was “The Power Years: a User’s Guide to the Rest of Your Life” by Ken Dychtwald.  The second book talks a lot about personal reinvention after 40 and he recommends that to everyone that feels like they need to do “something”.

Oct 21 09

PF Hour Episode 23: JD rejoins Jim to talk Money and Happiness

by brian

JD rejoined the Personal Finance Hour after taking a bow and letting Baker fill in for him last week.  The guys spent some time getting reacquainted as JD talked about his walking marathon and Jim shared some of his experiences from the IzeaFest (where he met up with Jeremy from GenXFinance, Cap from StopBuyingCrap, Ben from MoneySmartLife and SVB from The Digerati Life).

Money and Happiness

The topic for this week’s show was Money and Happiness.  JD got the idea after he began working on his book.  He wanted to conclude the book with a chapter on this very topic, however after talking to his publisher; he was convinced that this chapter should be put up front.  Undertaking writing the chapter, he had to do a large amount of research that helped carry the topic throughout the show.

One thing that JD stressed was that there seems to be diminishing returns in relation to wealth and happiness.  There is a certain base level at which someone feels happy with money, but after that, it really seems that the money people have doesn’t correlate to the amount of happiness they experience.  Jim continued this thought with a smart anecdote saying, “Money is like air.  You can have too much air and never be able to use it all. However, if you have too little air, you are in real trouble.”

A lot of people state that a fulfilling job can lead to happiness.  However, JD states that doing what you love is not always plausible, even if you put a lot of effort into doing that thing which you enjoy so much.  They did discuss that it is possible to do what you love and have it reap rewards long term, but for people that are just starting out in their careers, it is unlikely they will have the opportunity to do what they love when they are staring down at the problems we all face as to how we each pay rent, pay for food, etc.

One thing that seems to stress people, or make them unhappy, is when they compare themselves to others.  Jim and JD agree that you should try your hardest to refrain from doing that.  Especially if you compare yourself to co-workers, you have to focus on more things than just money.  Shift your comparison to other things if you must, but comparing on money is always going to end up poorly.

The media causes us to want for things.  The guys further expanded by how our friends make us wish we had things that we don’t have.  A lot of people often notice that they spend more money when they are out with people that spend more.  It’s not advised to abandon those individuals, but to be consciously aware of your attempts to live their more extravagant lifestyle could alter your behavior a bit and in turn make you happy with what you have.

JD cited that there are a lot of conflicting studies with regards to money and happiness. Some analytical studies say that income has a huge impact on a person’s happiness, while psychological studies say the exact opposite.

Chatters and Callers

Neal from WealthPilgrim first typed in the chat room that you can make any job enjoyable, or you can at least find ways to make it tolerable.  This may or may not be the case, but viewing work as work may help you get through rough patches.   When Neal called in later, he said that money at a certain point will make you happy.  However, he wanted people to think back to when they were young and didn’t need money to enjoy life (college years!).  In fact, it could be argued that the need to have more money and the pressure that’s associated with earning more can actually make someone less happy.

The guys agreed with Neal’s point and went on to discuss the Fulfillment Curve from Your Money or Your Life (to read more about the Fulfillment Curve, check out Trent’s Podcast dedicated to the topic).

Another further discussion popped up about maslow’s hierarchy of needs which vaulted the guys into a brief chat about Daniel Gilbert’s Stumbling on Happiness and his theory of miswanting.

Jim further expanded on a topic that we heard about when Greg Karp visited the show; Memories appreciate while “stuff” depreciates.  That sentiment has hit Jim so hard that he blogged about it over at Bargaineering.

Baker (Man vs. Debt) called in to close out the show to talk about something that may be counterintuitive to most people.  He mentioned something he read on ZenHabits where a lot of people tend to work toward their specific goals and that gives them happiness.  However, Baker stated that it is entirely possible to be happy without goals.  Without the stress of striving to achieve or the fear of failure, you are able to be happy without constantly measuring yourself up against an idea that you have set yourself towards.

Concluding Thoughts

The guys finished up by discussing Baker’s point about being happy without goals.  Jim specifically said that having a goal just isn’t enough in terms of making someone happy, its the process toward that goal which should be the most enjoyable.  Personal finance has a lot of “what now?’s” after completing a goal, which could lead to people feeling lost at times.  That is why the journey is the most important part of any medium to long term goal.

Oct 2 09

PF Hour Episode 22: Baker Joins Jim to Discuss Credit Cards vs. Cash

by brian

This week Jim was able to fulfill a long time dream of faithful listener and blogger, Baker from Man vs. Debt, by allowing him to co-host this week’s show in JD’s absence.  The topic of the day was Cash vs. Credit Cards.  Jim took the side of Credit Cards while Baker is strongly anti-credit and pro-Cash.  This episode was unlike most where all the positives and negatives of each were explained.  However, there were lots of callers and everyone seems to have a story or an anecdote on either side of this debate.

Baker and Jim’s Discussion

Baker has gone almost completely cash only in terms of discretionary spending.  Throughout the show Baker said his “cash only” philosophy started as an experiment just to see if he could do it.  He has lived with credit cards responsibly in the past, so it wasn’t a self-control issue that led him to this lifestyle change.  He and his wife cancelled their cards and jumped headfirst into using only cash.

Jim is Mr. Responsible and has three credit cards that he has used and has never had a problem with them.  He has never carried a balance of credit card debt.  He finds it easier to track his finances with a credit card, and it just works for him.

Baker further expanded upon his opinion saying that the movement away from balancing a checkbook in our culture is a bad thing.  He records each purchase in a notebook at the point of sale.  He described the different emotions as different between using a debit card, a credit card or cash.  The mental connection to his accounts was obvious as he didn’t connect his spending on his credit card to how much was in his checking account (even if he could afford it).  Making a purchase with a debit card made him think back to his account balance.  Then finally, using cash, it was very concrete as to how much money was leaving his pocketbook.

Baker tries to be really targeted with their money.  He and his wife utilize the envelope system, which means he isn’t carrying the random wad around that could become lost.  Additionally, one positive to not having credit cards is that there is less of an opportunity for identity theft, or for people to charge things in Baker’s name on a card.  Even though he may not be responsible for those purchases, it still is a hoop to jump through that is avoided by this strictly cash approach.

Another interesting note about Baker’s “cash only” approach was that he felt an increased desire to grow his emergency fund much larger because he didn’t have the crutch of a large credit limit to bail him out in case a dire situation arose.

Callers and Chatters

Erica (Erica.biz) in the chat room asked how Baker rents a car without a credit card.  Jim partially answered by saying that you can rent a car on a debt card, but they charge you an exorbitant amount to cover the cost of the rental.  Baker added that No Credit Needed recently ran an article about renting a car without a credit card that can be read here.   Erica called into the show later and mentioned the requirement of being a business owner and having a business credit card.  Reimbursing yourself repeatedly for business expenses without a business credit card is an audit waiting to happen.  It also ensures that your company can keep on working instead of running out of funds in your business debit account and being shut off of the services that you offer.

Donna Freedman (Columnist with MSN and Co-Host of MSN’s Smart Spending Blog) called and discussed a couple of personal situations where she was forced to make drastic travel plans to be with loved ones on short notice during very stressful times.  She explained it as a situation where you look around and say, “I can’t believe this is happening.”  She said that it was important to her NOT to have to think about how much was in her checking account so her debit card would be accepted.  Having the credit card allowed her to make those quick plans without having to take her attention off of her family and shift it unnecessarily to her finances.

Cap (Stop Buying Crap) called in to discuss with Baker the benefits of credit cards.  Even though Baker recognizes the conveniences of a credit or debit card, but those benefits just don’t outweigh the concrete feeling of spending cash.  Some of the benefits Jim mentioned included the automatic doubling of a manufacturer’s warranty and reward points.   Baker said he didn’t really take advantage of most of the benefits that credit cards offered and that’s why he doesn’t miss them.  Cap then asked of Baker, if his aversion to credit cards was based on spending habits he had because when he had credit.  He responded that credit cards weren’t a major reason for his debt problems and that getting rid of them wasn’t the solution to his problems.  He reiterated that it was more of an experiment that he wanted to try and has held onto.  Baker expanded saying that he is happy not to take part in the credit industry as it stands right now as it does seem to be an unsympathetic industry to most people on the outside looking in.

FS (Financial Samurai) made his first call into the show by asking Baker about how he dealt with building his credit score without credit cards and how he felt about carrying so much cash since he wasn’t carrying plastic.  Baker did say that he “sort of cheated” as he had a good credit score (in the mid 700s) prior to his cutting up of his cards.  His credit score hasn’t changed much since he shifted to cash only, although he doesn’t ignore it, as there will be a day when he will be looking at buying a house and needing to finance it.  In regards to the amount of cash he carries, Baker is not concerned as he only carries cash for what he is about to spend (for example, if he is going to spend $84 at the grocery store today, that is all he carries).  He isn’t concerned with being mugged or robbed as nothing like that has happened as of yet (knock on wood).

Brian (My Next Buck) called in to discuss two negatives on each side of the fence.  Although he uses only credit now, he did notice a difference in his mentality when spending on his credit card after getting a new cash back card a few months ago.  On the flipside, he did say that he comes from a family where his father would constantly carry around a wad of cash with $500-$700 in it and would lose his money clip and wallet all the time.  Now, not everyone carries this much, but losing a wallet or leaving it at a bar and losing $20-$40 is significant to most of us.  To further emphasize this point, he stated how he has found over $300 in total cash so far this year just laying on the ground.

The next caller was Martha, Jim’s wife.  Jim and Martha started dating when in college, and at that time Jim used credit cards, however Martha only used cash and her debit card.  However, when she started work, she was given the opportunity to travel on her employer’s dime by way of being reimbursed for her business expenses.  This was a problem though, as she didn’t have enough cash in her checking account to cover the expense of airfare, hotels, etc.  She quickly had to get a credit card, but without any credit history, it’s difficult to get a credit card.  She advises that it makes sense for students to get a credit card even for small purchases just to have and pay off so one can build a small amount of credit while in school.

Concluding Thoughts

Baker started to wrap up the show by emphasizing one of JD’s points, “if you find something that works for you, continue to do it.”  He stated that if he hadn’t started to experiment with his finances he would never have found the “cash only” system that works so well for him and his family.  Baker did say using only cash when traveling has been a bit more of a challenge, but not prohibitively so.

Jim’s final question posed to Baker asked what might be the one big headache about being “cash-only” that would push Baker back into getting a credit card.  He responded that the increased automation would benefit him greatly as long as it was properly setup.  Especially with regards to his business accounts (web hosting, domain name, etc.) it is important to keep those paid and to never accidentally miss a payment for fear that his site and/or business would be down for a period of time.

All in all this was a great episode with a ton of participation from listeners and from chatters.  Baker was a popular co-host and we all look forward to the next time he joins the show.

Sep 27 09

PF Hour Episode 21: Michael Hampton Talks Career Counseling with the Guys

by brian

Jim and JD were joined this week by Michael Hampton, Director of Service Learning and Career Development, from Western Oregon University, to talk about Career Development.  (It should be noted that it was Michael that gave JD the copy of Your Money or Your Life that prompted JD to start getting interested in personal finance.  Indirectly we can thank Michael for all that we have read on Get Rich Slowly over the years)

Michael started the show by complimenting both of the hosts about their recent posts on resume writing on each of their respective blogs.  He specifically said it was nice to see them incorporate employment strategies into the personal finance realm.

Finding jobs in a tough economy

Michael mentioned some of the things that people traditionally do is “update their resume, send it out to a lot of potential employers and hope to get a response”.  Michael disagrees with this approach.  He believes that people get jobs from other people; by communicating with others and mentioning your strengths and backing those strengths up in your resume.  With so much automated resume screening these days, it’s important to get through to a person before sending your resume in to a large company, and hopefully being referred to a position by another individual.

JD suggested one way to tap into your network is through social media.  He also asked of Michael, “How does one build a social network?”  Michael responded by saying we already have the start of our network via friends and family members but there are other ways to grow our networks as well.  Search your local paper and find an article by someone that does something that you may want to do, and reach out to that person.  This type of “informational interview” taps into the two things that people enjoy doing, talking about themselves and talking about what they do.   By doing this, you are creating an authentic way of networking and build a relationship.

Michael used to work for Nike.  He was often approached by people that he just met that would ask him one of two questions, “can you get me free stuff?” or “can you get me a job?”  Both of these were turnoffs for him.  However people that asked questions about what it was like to work there, or what the challenges that come with working there, always led to a more fruitful conversation and a better networking connection.

Jim chimed in asking Michael about how one can network without seeming slimy or too desperate for a job.  Michael said a good way to go about this is to network after you have already applied for a job at the location.  Another way is to reach out to a hiring manager and talk to them about the position.  That manager may be more receptive to your resume if your cover letter states something to the effect of, “Thank you for taking the time to talk to me about this position last week” and if it reeks of what the hiring manager is specifically looking for to fill that position.

Another way to try and track down someone is to call the company, and listen to the automated directory; find out who works in what department and whom you want to contact.  Furthermore, if you get through to a receptionist or another gatekeeper, it could be wise to strike up a conversation and ask what they do, and how they feel about the company.  Providing information to you will make them feel good and may be a means of getting passed that gatekeeper in the future.

Not getting too down

Jim asked about the emotional strain that comes from a job search.  Michael’s recommendation was to reach out to your support system and to have that one person that really is in your corner.  There are lots of highs and lows throughout the job search and its helpful to have someone talk you through the process.  Someone that can pump you up and put you in a good place is also essential, as you want to go into an interview excited and in a good mental place.

How do you use your network?

When you make a connection, try to get the names of three other people that are at that same company that you can contact.  This provides you with multiple avenues to approach at the employer and allows you to keep getting information.  One person leads to new smaller networks for you to join.  By connecting to these people and following up with them, they are much more likely to reach out to you about job opportunities that they hear about.

Callers and Chatters

Baker (Man vs. Debt) called in asking about social media in the job market.  He referenced a fellow blogger who has recently received a job offer based solely off of his blog.  Baker wanted to know if there is a new trend in the job market based off of people’s use and creativity with regards to social media.  Michael’s advice was to remain professional and not to seem desperate when using social media.  Also, he said it was important to make sure you make those connections in real life in addition to those online connections.  He also added that social media can have a negative effect on your ability to be hired at an institution if you aren’t keeping it relatively professional or locking it down so that potential can’t see content that you don’t want them to see.

Later in the show it was mentioned that another way an employers often times check credit scores as another way to get a feel for someone’s responsibility level, even if there have been studies that show that a person’s credit score doesn’t correlate at all to the likelihood of a person’s willingness to steal from the company.

Donna Freedman (Columnist with MSN and Co-Host of MSN’s Smart Spending Blog) called in about social capital.  She often gets into situations where people ask her to get her in touch with her editor about a possible job.  Often times, as a freelancer she doesn’t know her editor, but other times she doesn’t feel comfortable giving that information out.  Michael suggests editing and filtering out who you give information to and if you think the person would be receptive to receiving an unsolicited call or email about a job.

Brian (that would be me) from My Next Buck called into the show to ask the two hosts and Michael about a new series I started entitled “Friday Financial F*** Ups”.  I am not blogging anonymously and plan on using my blog as a tool for employers to research me.  That said, I was hesitant to use a curse word in the title of a post, however I felt that it was more “me” (which is to say that I am not always the most politically correct person).  JD suggested that it wasn’t terrible but maybe I should look into possibly changing the name from “F***” to “Foul”.  Jim felt that it was not a big deal; however there may be no added benefit to using a curse word in that instance.  Michael’s response, however, was more blunt.  He said plainly, “I think you are eliminating a lot of chances out there for employment.”  His reasoning was based on the fact that a lot of hiring managers are older, and those older hiring managers may be a bit out of their comfort zone and not as accepting of such unprofessional language being available so openly.

Final Thoughts

Michael suggested looking at volunteer opportunities to work your way into a position slowly by volunteering your time and building a relationship with the company or organization and learning the position while on the job.

Michael suggests following your passions instead of following the money.  Typically by doing something you love, the money will work itself out.  Now for recent grads, this may be difficult to accept because of the massive amounts of student loans that one has, but over the course of your early career, you are likely to find those things you are passionate about and want to pursue further.

Next Week’s Episode: Jim and Baker Go 12 Rounds on the Debate of Cash vs. Credit Cards

Sep 21 09

Episode 20: Greg Karp Joins Jim and JD to Talk All Things Personal Finance

by brian

Greg Karp joined JD and Jim for this week’s episode.  Greg is the author of The 1-2-3 Money Plan and Living Rich by Spending Smart.  He also currently writes a weekly column that is syndicated in 10 or so major newspapers .

The show started off quickly with the guys asking Greg about how he got into this business and how he has seen it grow over the past year or two.  Jim joked that “frugal” is sort of the new exclusive club (the same way spending on expensive or big cars was an “exclusive club”).  Greg said a very profound and true statement saying “you can’t out-earn dumb spending.”

JD asked what the difference is between a cheapskate and a frugal person.  Greg responded that frugal people tend to be clever in their spending while cheapskates end up possibly hurting themselves and people around them with their behaviors and attitudes.

The 1-2-3 Money Plan

Greg started to talk a bit about his book and mentioned specifically, Chapter 4: How to buy stuff.  Jim feels Greg’s description provides a good framework for people to be more deliberate in their spending.  Greg lays out three simple tasks per topic in his book.  In this instance, how to buy products, he states that you should read reviews on anything that costs over $50 (Greg recommends reading Consumer Reports – Jim’s quick research said that the cost of a CR subscription for a year was only $26).  Another place to look is on Amazon (their consumer reviews are often times helpful) as well as Consumer Search.

Money and Happiness

There are a number of ways you can buy happiness, and Greg says spending money on experiences instead of stuff is one way.  He suggests spending money on going to a concert over buying another CD, or buying a vacation as opposed to a new iPod (etc.).  Greg stated that there are studies that actually show experiences can make you happier.  Greg had a very profound thought saying, “Experiences appreciate in value in your mind as often times you remember them fondly, where as goods and “stuff” depreciate as soon as you get them home.”

Greg’s FIT Theory (Food, Insurance & Telecommunications)

The average family spends about $14,000 a year on these three things.  If you are going to start a spending makeover, this is where you want to start because there is a lot of waste in each of these areas.  Insurance in particular, you buy to prevent yourself from financial disaster.  You don’t buy insurance to prevent yourself from financial annoyances.  Greg says NEVER buy an extended warranty.  Odds are any product you buy usually has a 30 day product warranty at the store.  The manufacturer probably has a one-year warranty.  Most credit card companies will double the manufacturer warranty, giving you a 2 year warranty on most products, so what is the point of buying a 3 year warranty?

Especially when talking about insurance, Greg emphatically said “If you don’t understand it, don’t buy it.” As far as lowering insurance costs, you should raise deductibles (he admits this is standard advice, but the problem is, most people don’t do it).  You shouldn’t want to make small claims on your insurance anyway as it raises your premiums and ends up costing more money.   JD even mentioned that at one time he carried a $50 deductible on his auto-insurance.  He said he knows he spent more on premiums than he ever did on claims over the long run.  Jim stated that he hears from people that they feel there is a connection between the amount you pay in premiums and the amount of service that you get.  Greg debunks this by discussing studies by the consumer federation of America that show there is no correlation between cost of premiums and level of service.  Greg also recommends looking for auto-insurance first (and get the best deal you can), and then piggy-back your homeowners insurance to get the multi-line discount.
As far as telecommunications, Greg suggested finding the right size plan for what you use.  Moving to a prepaid wireless plan can also save a ton of money.  Jim mentioned that in Europe all cell-phone users use prepaid plans instead of contract plans.

Can’t Out Earn Dumb Spending

JD came back to this point that Greg mentioned earlier and referenced some of his readers and even a family member that feels like they can spend what they want, because they are able to go out and earn more money.  JD feels that this is dangerous and even cites this economy as a reason why this philosophy isn’t necessarily true.

Greg talks a lot about the spending side of the equation as opposed to the earning side, because he feels that fixing that side is the quickest way to get into a better financial position.  He states that saved money is much better than earned money in the short-term.  His way of explaining it went like this: “If you save a buck, how much of that do you get to keep?  All 100 cents.  Now, if you earn an extra dollar at work, how much of that do you get to keep? 65 cents, 75 cents, maybe?”

Callers and Chatters

The first caller has just started a new position where she was forced with the decision to decide what type of health insurance policy to carry from your employer.  She asked Greg if he had any advice for people that are going through the process for the first time.  He stated that you really need to know yourself, and know the type of health coverage you currently use and may need in the future.  Furthermore, its not wise to forgo health insurance as it is incredibly expensive, and is one of those things that could lead you into financial disaster if you had to be self-insured.

Another caller joined the show looking for advice to help manage her food budget better.  She stated she was on a limited income, and has a son who is picky about what she eats and was looking to Greg to provide her with some tips.

Greg gave good advice by saying the following:

  • Stock up when things are on sale
  • Try store brands. (Store brands are really good. Consumer reports did a story where store brands actually tested better than actual brands)
  • Look at shopping at a place like Aldi’s that is very bare bones. (It doesn’t have great service or great shelving but has great prices.
  • Check out the local dollar store for some food items.

Jim continued talking about generic brands and mentioned that most generic brands are actually made by brand name companies. Those store brands may have been made with a special formula specifically for the stores.  Greg then turned into a tirade about bottled water. He even referenced that Evian spelled backwards spells naive. Jim also mentioned that in countries where drinking water isn’t as good as it is in the states, bottled water is dirt cheap because it is a necessity. Here it is priced like a luxury and has the costs associated with a luxury.

Aaron called in to talk about his own health insurance issues. He mentioned that if you focus on prevention, eat healthy and stay healthy you won’t have to worry about insurance costs on the backend.  All three of the guys appreciated and agreed with his points as it is a very true statement.

JD’s Million Dollar Idea

JD had an idea in the middle of the show that really could have some legs.  After poking fun of some of the people on Joan Rivers’ How’d You Get So Rich he stated that he should come up with a show that highlighted people that have built their wealth to becoming millionaires.  “The true millionaire next door type” he calls it.  Although he doubted if such an idea would have legs or would be relegated to PBS or something, Greg kidded JD by saying, “Well, you know Get Rich Slowly is boring, right?”

Fun Links to Check Out From Greg

  • MagicJack – Free local and long distance calling in the USA and Canada.
  • Zenni – High-quality, complete prescription eyeglasses with high-index, hard-coated lenses, plus case, for $19
  • KeyRingThing – Combine your loyalty cards and tags on one easy card

Next Week’s Episode: Michael Hampton from Western Oregon Univ. – How to find a job in this economy.

Sep 17 09

Thanks Consumerist!

by admin

JD and I wanted to thank Chris and the Consumerist for mentioning the Personal Finance Hour in a recent post. While we always love listeners and callers to the live show, we recognize that it’s not an ideal time slot and that devoting an hour each week may be more than you can handle of us. :)

We also want to thank Brian of My Next Buck for writing these summaries. Without his hard work, these summaries just wouldn’t be possible.

If you can make it, we hope you can join us on Mondays at 6PM Eastern, 3PM Pacific!

Sep 11 09

PF Hour: Episode 19 – Jim and JD Hang Out with Flexo

by brian

This week’s episode of the Personal Finance Hour featured Jim and JD talking to Flexo of Consumerism Commentary. They discussed the financial and emotional considerations as well as the preparation required when someone is thinking of pursuing an entrepreneurial adventure (something that Flexo is currently considering).

Flexo’s Story

Flexo’s site is Consumerism Commentary. The site started as a way for Flexo to hold himself accountable for his personal finances. He wanted to track his net worth back in 2003 and planned on posting updates once a month with the occasional article thrown in. Flexo was one of the first personal finance bloggers before the large online personal finance community was formed.

Flexo is one of the most transparent financial bloggers with regards to how much he earns. His personal balance sheet is out in the open and really does hold him accountable to his audience.

A couple of years ago he had started to bring in enough money from his blog, more so than he makes at his 9-5, where he could consider making the jump to blogging full time. He relayed the story as to why his decision became delayed. At one point in 2008, his site fell off of Google’s radar. This drastically altered his revenue and he lost a lot of his adsense revenue and with reduced traffic, he didn’t receive as many advertising offers.

JD asked Flexo about his situation and stated that an experience like his with Google is the reason to diversify your income. Flexo agreed and stated that he is finding new ways to make income via the web (new projects, new websites, etc.) so he doesn’t solely rely on advertising from Consumerism Commentary.

Jim had a similar situation for a few days that spooked him along the way at Bargaineering. However, he wasn’t deterred to pursue his desire to run the blog fulltime. He stated that with any business online, there is always going to be something that could drastically reduce your income. However, he felt that making the fulltime commitment might actually be able to prevent situations like this from happening.

Callers and Chatters

Baker from Man vs. Debt called in to the show to ask the three gentleman about the positives and negatives of working from home (bloggers and entrepreneurs alike). Baker always suggests that you don’t necessarily have to start from home. JD agreed and cited his wife that receives a lot of joy, intellectual stimulation and interaction at her job that may be lacking if you are a professional blogger. Flexo stated that a few years ago at a previous job within the same company he would have left his job in an instant to pursue blogging fulltime. However, he currently enjoys his job, and doesn’t feel the need to leave his position to become a fulltime blogger.

Baker also added about the stresses of creating a routine while being a stay-at-home dad. JD stated that he is bad at routines and that it took him 15 months of blogging fulltime before he got settled into a routine. That routine required him to have an office outside of his house to help create structure. Jim’s routine isn’t as structured, but he wakes up in the morning and prepares himself as if he was going to work and then sits at his computer. His dog is his stimulation that helps break up the workday and gets him out of the house sporadically.

Donna Freedman (Columnist with MSN and Co-Host of MSN’s Smart Spending Blog) called in wondering if each JD, Jim and Flexo had a spouse with a job that has made or is making their decision easier or more difficult. Does it make the decision scarier when you aren’t supporting only yourself? JD felt that it would be easier to make the leap fulltime if he wasn’t married. His wife’s income made him more comfortable taking the risk, however if he was the sole provider for his family, he may not have left his fulltime job. Jim’s wife doesn’t work fulltime as she is currently pursuing her PHD, but at the time he made the decision to blog fulltime she was employed and providing income to their family. A lot of people that are encouraging Flexo to make the leap often cite that he is still young and that he doesn’t yet have the responsibilities of a home and a family.

Making the Leap to Full Time Blogger

JD’s experience took a lot of guts, as he was comfortable in his job at the box factory, and leaving his job to start blogging full-time was a risk. He said he had at least 3-4 months of expenses built up and saved in case everything went to “heck” and his blog dropped off the map. This gave him the comfort of knowing he had time to find another job if the situation called for it.

One of the reasons Flexo hasn’t made the leap yet to being a full-time blogger is because he doesn’t consider himself to be a good writer. Both JD and Jim disagreed, and JD went as far to cite Flexo’s guest post on Get Rich Slowly about how to be the CFO of your own life, which has had a tremendous response.

Flexo does plan to take the leap to leave the job and run consumerism commentary fulltime. He is going to develop a six-month business plan to help him transition out of his job into the blog. Part of this decision is based on the revenue he has made via the blog that doesn’t seem to be dwindling and appears to be a steady source of income. He also stated that if things don’t work out he is likely able to get a job in his field without too much difficulty.

Flexo Grills the Guys for Answers

Flexo asked both JD and Jim about their opinions of creating information products like ebooks, presentations and seminars. Specifically he asked if they had any plans to create products of that nature. Jim immediately said no, however JD is currently thinking about several projects that would fit in this realm. JD further mentioned that people like Chris Guillebeau from The Art of Nonconformity who have created a business model where their site doesn’t sell advertising, however he sells products in the form of ebooks, podcasts and even one on one consultation.

Diversifying your income online is a challenge. JD referenced Ramit who used his blog to help set up speaking gigs and to help sell his book. Jim said he doesn’t diversify as he feels his model is very sustainable and doesn’t feel like its necessary to branch out beyond advertising. Jim stated that internet advertising doesn’t require the same diversification that something as unpredictable as the stock market would require.

Flexo is also going through an internal debate that he deferred to both Jim and JD about possibly getting rid of the “Flexo” name and start using a pen name or his real name to his site. Both Jim and JD suggested that if he is really considering changing his name, there is no added benefit to putting his real name out there as opposed to a false name, especially considering his net worth is out on the Internet. Jim did state that he is almost certain he has lost readers because he has the name Flexo and an avatar of a television cartoon. However, that very well could be a small percentage.

All in all, this was a great show and it definitely should add some fresh perspective for those individuals who are considering making the leap into fulltime blogging or any other entrepreneurial opportunity.

Next week Greg Karp will join the show. Greg is the author of The 1-2-3 Money Plan.

(Some book recommendations from this week’s episode: Escape from Cubicle Nation & New Job, New You)