Stop lying, debunk those myths, and save money

Almost Frugal hosts this week's Carnival of Personal Finance. My top picks from the world of personal finance blogging:

Stop lying, 5 ways to stop overspending. Maybe I should have read this by Adam of Rabbit Funds before I wrote my previous post on how M and I overspend...

12 crazy myths of personal finance. I'd never heard this one before: "Myth 8: I couldn't possibly learn anything about money from a plane crash." But Gary from Total Candor proves that financial lessons are everywhere--even when a plane landed safely on the Hudson River earlier this year.

Grocery Hacks--how to save money on groceries. Matt Jabs at Debt Free Adventure gives a very comprehensive list on how to trim the grocery budget. Plus, as a result of his frugality and health-consciousness, he and his wife lost 60 pounds combined! What more motivation do we need?

Our spending plan is working...I think

“We broke the budget,” my wife M said to me recently with a sigh. “This system isn’t working.”

She gave me a frustrated glance as she scribbled in the checkbook register we use to track our expenses. June and early July are heavy spending months in our household, with birthdays, Father’s Day, and trips to the beach all in the mix. Plus, with all the additional fun-n’-sun activities, the little pile of receipts on our kitchen counter grew relatively big before we got around to logging them. Who wants keep track of your budget when a nice, hot summer day beckons?

As a result, we’d overspent our monthly spending plan to the tune of about $150. And consequently we had less to save toward the down payment we’ve been building to buy a new home.

“Maybe we should try something different.” M said. “This is becoming a habit.”

It’s not broke because it does work

She had me there. It wasn’t the first time we’d “broke the budget.” In truth, our budget is fairly “fluid;” we may overspend one month, and catch up (or almost) in another. August, for example, is a great month for us, with no family birthdays or holidays with gifts we have to wedge into our spending plan.

But our system isn’t broken. In fact, I think it’s working quite well. Here’s why.

• We aren’t overspending with credit cards. Our discretionary spending budget—how much we plan to spend on gas, groceries, gifts, entertainment, etc.—is fairly low, while our goal to save each month for our house down payment is fairly high. So any overspending simply reduces our savings amount that month. If our overspending resulted in racking up credit card debt, I’d be very worried.

(My sister commented to me that it may actually be harder to spend less if you’re saving more, and, ironically, she may be right. I find it easier to agree about to going out to dinner or to the movies when I know we have the money on hand to do so.)

• We know when we’re overspending. Since we’ve been on this tighter discretionary spending budget for several months now, we have a good feel for when we’re exceeding our limit—even before we log in the receipts. And our spending behavior naturally slows down and causes us to question additional purchases when we think we’ve gone over. That’s the whole point of having a budget, to keep our spending under control, and our system is helping us do that.

• We know why we’re overspending. A budget is about making choices, deciding what dollar goes where. In times that we spend more, we save less, and that’s not necessarily a bad thing; neither M nor I want to be so focused on saving that we become misers. Plus, we’re still making steady progress in building up our down payment, so it feels like we have a good balance between the two.

Doubts in the back of my mind

One thing about our overspending does gnaw at me a little; if, for some reason, we had to strictly follow a tight budget, would we have the discipline to do it? I’m not sure. Our record says we wouldn’t, but it doesn’t take into account a big change in mindset. It’s one thing to spend money you have. It's quite another to spend money you don’t.

We could find out soon. Some of the houses we’re seriously considering purchasing will stretch our budget even more and put our discipline to the test. If anything, it could make for some interesting blog posts.

So am I fooling myself that our budget system is working? I’d love to hear from you. Leave a comment and let me know.

Ally Bank: The saver's "friend"

If the folks at Ally Bank were looking to catch some attention, they succeeded. Time will tell if it’s truly warranted.

Ally Bank, if you haven’t heard, is the new name of the old GMAC. That’s right, that GMAC, the former financing unit of General Motors. Ally is not owned directly by the troubled car company. Instead, it’s held by parent bank holding company GMAC Financial Services, of which GM still owns a large piece.

Ally caught my eye with its recent marketing campaign. Suddenly, I saw its ads popping up everywhere; on The Wall Street Journal’s website, during The British Open broadcast a few weeks ago. The TV ads were particularly catchy, with a schmarmy salesperson representing the “typical” bank using fine print and broken promises to hoodwink young kids out of a toy truck and a real pony. Ally, in contrast to other banks, “values integrity as much as deposits,” according to its website.

A good story
Sounds pretty good, especially today when consumer trust in financial institutions is pretty low. But make no mistake; Ally does value deposits pretty highly. It’s looking to grow, and grow fast, by offering very attractive interest rates on its products—among the highest around. Its online savings account, for instance, has a 1.75% rate, better even than traditional market leader, ING Direct (1.40% for its Orange Savings Account).

More competition is a good thing, but it’s also good to question just how real higher rates are, or how long they will continue. One thing Ally doesn’t highlight in ads or currently on its website is that parent GMAC Financial was one of the institutions to receive government bailout money for being undercapitalized. The institution is secure now, but that wasn’t necessarily the case at the end of last year.

And in recent weeks, the American Bankers’ Association cried foul to the Federal Deposit Insurance Company (FDIC) about Ally’s high-growth through high-deposit tactics, which it alluded to as “unsafe and unsound.” Like any bank, Ally loans out depositors’ money and if they depart the bank en masse for higher rates elsewhere, it could conceivably be caught short-handed. An unlikely scenario, but it’s why banks have to have a certain amount of capital on hand in the first place.

The FDIC also required Ally to get written approval to issue debt secured by bank deposits, as well as to keep the regulator informed on just how high above the market average its product rates are. Ally reduced the rates on its savings products from some much higher initial levels it started with in May.

Moral of the story
With savings accounts, like anything, an old rule still applies: If it sounds too good to be true, it often is. Chasing interest rates from one bank to another requires a lot of time and effort for what can often be very little gain. No one’s going to build wealth by getting an extra .25% interest on their emergency cash.

And despite the banking industry’s woes, another old rule also applies: Marketing prevails over common sense. “Valuing integrity” sounds great in a TV commercial. But it’s how actions demonstrate that integrity that really counts.

The true point of living by a budget

In a recent post, Matt at the blog One Million and Beyond describes the fluid budget. I was glad to see it because the "fluid budget" sounds a bit like the one my wife M and I are on.

We've gotten to the cash register at the grocery store and had to take things off the conveyor belt because we exceeded our spending limit for that trip. But at times we've also shifted money from one category because we suddenly decided to spend more in another category. As Matt points out, a "fluid" budget that has some give can work.

Most people think of a budget like a pair of financial handcuffs, very tight and uncomfortable. But the point of a budget is not to determine ahead of time exactly what you are going to spend in every category of your life and then rigidly spend only that amount. A budget is just a tool to help you control your spending so that you are living within--or even better, below--your means.

When your budget is working, it feels good. You know how much you have to spend, you're making conscious decisions about what dollars go where, and most importantly, you're not piling up debt.

Accomplish those things--whether using a rigid or fluid budget--and you'll take a big step toward reaching your financial goals.

More fun at the Carnival of Personal Finance

I saw Matt's post at this week's Carnival, hosted by Christian Personal Finance. Here are couple more of my (and the editor's) picks from the week's selection:

The whole armor of personal finance. At Debt Free Adventure, Matt draws an analogy between the armor of God described in Ephesians 6:10 and the "armor of personal finance." It's a cool and very appropriate parallel (though I prefer the more plain-English version of the verse, instead of ye olde King James version). After all, every financial decision is a spiritual decision.

Buy on the rumor, sell on the news. Dorian from The Personal Financier gives his take on the link between investing and psychology, my favorite aspect of money. One interesting thing he discusses here: How the expectation of getting money, in our own minds, is actually more satisfying than actually getting it. Go figure!

My biggest health care mistake: Choosing the wrong plan

The costs of health care are top of mind lately, and like everyone else, we've felt the effects. I remember the days 10 to 15 years ago of $5 copays for doctor's visits . As a full-time elementary school teacher before we were married, M's doctor visits were completely covered by her paycheck deductions.

Now copays under my current employer's plan are $20 to $25 (though routine physicals and annual checkups are "free"). Meanwhile deductions from my paycheck have increased as well, relative to just a few years back. I don't know if the federal government has the right answer, but at least President Obama is asking some tough questions.

A sweet choice
Rising costs, in fact, led me to make one of my biggest personal finance mistakes: choosing the wrong health care plan. Two years ago, my employer revamped its insurance benefits to reduce its own escalating costs. I opted for the "middle-of-the-road" plan, one with medium-sized paycheck deductions but with higher deductibles and potential out-of-pocket costs. To sweeten the deal, my employer made a $1,000 contribution to a savings account that could help defray any costs we might have to pay on our own.

I'd considered the plan with the highest paycheck deduction and the most coverage, but no $1,000 contribution. I decided against it because we're a pretty healthy family, M and I are through having babies, and our kids aren't in day care and thus prone to bringing home the "virus of the week." I figured the middle plan's $1,000 contribution could get us through half of the year at least.

Best laid plans go awry
Then in February--just a few weeks into having the new plan--my stepdaughter had to make an emergency room visit in the middle of the night. A slew of tests and doctors confirmed that she was, thankfully, okay (and, ironically, that her symptoms weren't an emergency at all, but could have waited for a visit to the doctor in the morning). But that $1,000 which was supposed to help us pay for out-of-pocket costs for several months? Effectively wiped out in one fell swoop.

This year, I bit the bullet and chose the plan with the highest coverage. Naturally, we've had no trips to the emergency room and relatively few visits to the doctor. If that remains true through December, we'll have effectively overpaid for insurance coverage this year after underpaying last year.

Needless to say, that's frustrating. A colleague of mine with several kids who also chose the middle-of-the-road plan last year and the highest coverage plan this year has had a similar experience. We both shared a laugh at life's little ironies.

High coverage a better choice
But I still think the high coverage plan is the right one for us, and what we'll choose again for 2010. Our insurance covers two adults, plus four children ages 2 to 21. Based on that information, the chances that we'll have some significant health care costs throughout the year are probably fairly high. I may end up paying more out of my paycheck compared with a lower coverage plan, but I'll be more certain that no matter what, I'll pay a minimal amount out-of-pocket (and can redirect money I would have saved to pay for deductibles to other goals).

My mistake was trying to be cheap and pay the least amount out-of-pocket possible, and picking a plan based on a prediction of our typical health care costs (which turned out to be wrong, both times). Insurance is about replacing the uncertainty of risk with the certainty of fixed costs. The high coverage plan may mean a little less in my paycheck each month, but it also means a lot more peace of mind.

Back in the saddle...yet again

Wow...has it been three months since my last post? That's a little shocking. I may have to turn in my blogger license.

Today a former boss mentioned in a large meeting at work that I have a blog, which sparked a lot of questions from co-workers. "What's your blog about?" "Where can I find it?" "YOU have a blog?" (I particularly like the disbelief in that last question.)

Not that I've been hiding it--in fact, I can't hide it; being in the financial services industry, I had to get my employer's approval to start it (don't worry, I have complete control over content). I just haven't done a lot of self-promotion, particularly because I'm now in a department full of financial planners. Not exactly a target market for basic articles on personal finance.

Still, I'm a little ashamed that I've been tagged as a "blogger" yet haven't blogged anything in quite some time. Three months is like three centuries on the Internet.

But I'm now also motivated. Today's meeting re-energized me to start posting again. I hope it can last.

Move from NJ because of taxes? Were it that easy...

Next Wednesday, April 29, is Tax Freedom Day in New Jersey. That's the day state residents have earned enough money to pay their total tax bill for the year.

Forgive M and me if we don’t celebrate.

Several times in the past, we’ve discussed getting out of New Jersey because of the tax burden—the biggest in the country. According to the Tax Foundation, Garden State taxpayers give an estimated 11.8% of income, $6,610 per person, to state and local governments.

Stiff price for a back yard
For us, high taxes hit home—literally. We’ve been looking for a while to move up from our three-bedroom townhouse to a four-bedroom, single-family house (“with a back yard,” as my 4-year-old son likes to point out). Higher property taxes mean less house that we can comfortably afford.

Obviously, we’re not alone in our frustration. On Tax Day this year, pseudo-“Boston tea parties” were reportedly held in all 50 states, with participants criticizing the federal government’s proposed tax increases and rash of recent spending. Emotions ran high enough that, at some gatherings, the word “secession” was facetiously hinted at.

Our home, for better or worse
M and I would love to “secede” on a more personal level by moving to lower-tax neighbor Pennsylvania (where I commute to and from for two hours each day). But in reality, we’re not going anywhere soon. New Jersey, whether we like it or not, is home.

The first and foremost reason is that we’re surrounded by family. My stepdaughter’s father lives and works within an easy drive of our house. My parents are five minutes away, M’s father and stepmother perhaps 10 minutes. My brother moved in literally down the street, after spending several years in Boston. Life is (most days) better and easier with family close by.

Second, M worked as a teacher for more than a decade in the New Jersey public school system. In a few years, she’ll go back to work and eventually be eligible for a nice state pension (paid for by those state taxes, and as long as it still exists). Since our only other source of retirement security is a 401(k) plan—which has been slammed in the past several months like everyone else’s—that’s a big incentive to stay put.

Accept what you can't control
We’ve talked round and round about other options, such as moving to one of the Pennsylvania towns just across the Delaware River. In the end, though, we always come back to the same conclusion: The best option is where we are.

It’s easy to get worked up over things you can’t control, like high taxes or the direction of the stock market. But after weighing the pros and cons, both financial and non-financial, you may find you’ve already made the right decision. The next step is to accept it, and move on.

To make it work, make money management personal

A couple posts related to money and behavior stood out in this week's Carnival of Personal Finance at Four Pillars. As JT at The Smarter Wallet and NCN at No Credit Needed point out, the first step to changing poor financial habits is learning what works for you.

JT tried different budgeting software with lots of categories, which worked okay. In the end, though, he found his own three-category system more effective for living within his means.

NCN, on the other hand, realized just seeing his credit cards increased his temptation to overspend. Simply moving his cards from the front of his wallet to the back increased his willpower and curbed his spending appetite.

Our "checkbook register" system
M and I struggled to manage our money until we went "old school"--using a paper checkbook register to track expenses. The register has no connection to our checking account (which I balance using Quicken). Instead, M simply uses it to log our non-fixed expenditures (groceries, gas, eating out, etc.) each month, which were the biggest culprit in getting us off track.

The register works well because it's the same method M used to manage her money years ago as a single mom. Back then she didn't necessarily balance her checkbook, but she used her register to figure exactly how much "extra money" she had beyond her rent, utilities, etc. to spend.

To M's credit, when we got married, she had little credit card debt and had even started saving for her daughter's college. And today our non-fixed expenses are far less than we ever thought they could be, helping us as we save toward our goal of someday buying a larger home.

The right method will stick
If your previous attempts at money management have crashed and burned, don't give up hope. You just haven't found the right method yet. Keep trying. If spreadsheets or software don't work, try paper, or vice versa. Experiment with different methods. Think "out of the box." An effective money management system is as personal as you are. When you find the right one, it will stick.

Scaring Wall Street straight

Wall Street is "shuddering" as Congress moves to change the tax law and "claw back" those big bonuses to AIG employees. And they're not the only ones.

"If the government decides they don't like a guy, all of sudden they are going to tax you, and, boom, and it passes, that's seems a little scary," said Jay Leno while interviewing President Obama late night on Thursday.

It is scary, Jay. That's precisely the point. If you're a CEO, trader, or broker of a bank or insurance company in the "too big to fail" category, the message is loud and clear:

You DO NOT want the government involved in your business. So mind your risk exposure.

Some pundits have called all the outrage and Washington hoopla over the AIG bonuses shameful. And to be sure, there's plenty of political grandstanding going on for the constituents back home. Don't lawmakers have bigger things to worry about right now?

But turns out it's not such a waste. Congress is doing a fair job of, as one of my financial planning colleagues put it, "scaring Wall Street straight."

A big risk of government intervention is creating what's called "moral hazard." That's when a company has no incentive to guard against risk when the company is protected against it. For "too big to fail" institutions, that's understanding the government could step in to pick up the pieces if a high-risk venture they've embarked upon leaves their balance sheet and the financial system a mess.

The drastic step of instituting a 90% tax on bonuses for individuals in companies that take taxpayer money to get above water is a good one. That should at least provide some incentive for CEOs and CFOs to look at their business risks more prudently. "Too big to fail" companies are, and should be, more responsible to the public interest, not less.

I don't want Washington running private businesses. Washington doesn't want Washington running private businesses. ("Generally, government historically hasn't done that very well," President Obama said on "Meet the Press.") Now Wall Street has realized that it really, really doesn't want that either.

Hopefully in the future, that will help financial companies executives think just as much about the extent of their risks, as the size of their potential rewards. And we can avoid getting ourselves in this mess again.

Physical and fiscal fitness: More alike than you think

I don’t like exercise. Many people get a lot of satisfaction from jogging or lifting weights. I'm not one of them. In fact, I hate exercising just to exercise. It’s boring.

I understand the importance of exercise, especially the long-term benefits. But that doesn’t motivate me much to hit the gym or the track.

You may face the same issue managing your money. You dislike budgeting. You think investing is boring. You even understand their importance and long-term benefits. Still, you haven’t been able to build your savings, reduce debt, or make much progress on your financial goals.

Habits and goals go hand-in-hand
Being physically or fiscally fit is about developing good habits that last. That’s most likely to happen if you tie those habits to a specific goal or purpose.

A couple years ago, I set my sights on summiting 14,410-foot Mt. Rainier. For six months prior to my climb, I strength-trained in the gym three times a week. I hated just about every minute of it, but I rarely missed a workout. Every leg press and stomach crunch gave me a better chance of checking Rainier off my “bucket list.”

I’ve noticed the same thing when it comes to our household budget. M and I are aggressively saving to build up a large down payment so we can move up from our townhouse to a single-family home. We’ve cut our discretionary expenses by about a third, and things feel pretty tight. But we’ve stuck to our plan—as painful as it has been. We know that every extra dollar we spend takes away from our larger goal.

“Good for you” isn’t good enough
If good money habits haven’t stuck for you, get specific. Instead of “paying off the credit cards,” for example, identify a direct, tangible benefit of reducing your debt. Maybe it will give you the cash to go on that trip to Italy you’ve always talked about. Or to get the mountain bike you’ve been eyeing. Or help get you and your spouse out of marital counseling.

Whatever the benefit, go beyond just dollars-and-cents logic. The more personal, the better. Good exercise and financial habits are tough beasts to master and maintain, even for those who do them well. If you struggle, find an emotional connection. That will turn your initial steps into ongoing habits that you’ll stick with when the going gets tough.

Do you think like the middle class or the wealthy?

Among this week's Carnival of Personal Finance at Broke Grad Student is a short, yet impactful blog post. Blogger Moneymonk compares the thoughts of the middle class with the thoughts of the wealthy. And all four points related to the middle-class mindset apply to (gulp!) me.

In essence, Moneymonk (and one of the post commenters, Finance Girl) highlights that the middle class focus primarily on financial security. Those who build wealth successfully focus on financial prosperity.

It's a subtle but important difference. Wealth-builders are more willing to take on greater risks, such as starting their own businesses or buying investment properties. Those in the middle-class take on less risk, by working for someone else (which, admittedly, doesn't seem that less risky in these days of mass layoffs and rising unemployment) or putting their money in a tangible, relatively low-risk asset, such as their home.

I work at a large company, and M and I are diligently saving to move up from our townhouse into a single-family home. The one place where we are taking greater risk is in our 401(k), which is invested 80% in broadly diversified stock funds. Essentially, we have a middle-class mindset, with just a pinch of wealth-building. This realization isn't quite enough to make me want to change what we're doing. But it does get me thinking.

Personal finance served family style

Canadian Personal Finance Blog serves up this edition of the Carnival of Personal Finance. It was Family Day in Canada this week, so his blog is themed accordingly: advice that might come from a member of your family. My three fave posts:

• What we learn from tragedy. Jason of MyMoneyMinute offers some heartfelt "practical applications" and "fundamentals" to think about. I'd add that make sure you also have powers of attorney in place.
• A macroeconomic look at credit cards, by David of Davidonfinance. Read the post, and the first few comments. David initially characterizes credit cards as "inherently evil," but then seems to be persuaded otherwise by some readers.
• Valentine Day flowers a rip-off? by MoneySmartLife. Valentine's Day flowers are worth the gouging by flower shops because" they perform a valuable service," according to the unnamed blogger. It made me wish I'd spent a little more on the flowers I got M, which I gave her a few days ahead of Valentine's Day. After her initial surprise and gratitude, she said knowingly, "Were they on sale?" Guilty as charged.

When having a land line and cell phone makes sense

I used to think M and I paid too much for our phone usage. Not anymore. I discovered the costs—largely non-financial—of moving to a cheaper plan actually outweigh the benefits.

We pay how much??
For the past five years, we’ve resented paying more than $100 a month for a cell phone plan and unlimited long distance on our home phone. We’d go back and forth about getting rid of either service to reduce our costs, but honestly, we're hooked on the convenience.

I use the cell during my two hours of commuting time to catch up with family or do “chores,” such as scheduling appointments. M uses the land line while at home with the kids to keep in touch with her mother and best friend, both who live out of state. She also likes not having to keep track of her minutes to avoid overage charges, or having to call late in the evening or on weekends.

But last November, we took a first step and went with a pay-as-you-go land line plan. We expected some small savings, maybe $10-$20 per month, as we better utilized the unused minutes we had each month in our current cell plan to make long distance calls, and took more advantage of the ability to make free calls to each other. Maybe we’d even get rid of the home phone altogether.

Old habits die hard
This week, we went back to unlimited long distance. In the three months, we spent more—not a lot, but still more—for phone calls instead of less. Changing our behavior was not quite as easy as changing our calling plan.

We tried hard to break the habit of reaching for the home phone. At one point, M stuck a “Use cell phone” Post-It on the cordless handset as a reminder.

But obstacles stood in our way. We have phones on three of our townhouse’s four levels, so the temptation to simply make a call, especially a quick one, from the land line was great. M also wasn’t keen on always having to remember to keep the cell phone at her side.

Most importantly, phone calls became a source of friction. I tired of reminding M to call me back on the cell instead of the land line, and she tired of me reminding her. We may have eventually ended up with a lower phone bill by not speaking to each other, but that hardly seems the point.

If we’d stuck with it, we probably would have developed phone habits that could have saved the few bucks each month. But for us, it’s just not worth it. We can find other, less wearisome, ways to trim the budget. And our once “high-cost” phone bill now seems like a pretty good value.

There's no place like...the Carnival of Personal Finance #191

Dollar Frugal hosts this week's Carnival, with a Wizard of Oz theme. So follow the yellow brick road to these cool posts:

• Being married seven years has taught Mighty Bargain Hunter seven lessons about money. Nothing real surprising here, but some good reminders, such as listening to your spouse is key and don't keep secrets!

• Bible Money Matters shares why good financial decisions don't always make financial sense. Amen, brother!

• Michael James offers an interesting analogy between playing poker and successful saving. Deal me in, Michael!
  
  
  
  

A coin jar adds up to more than just saved pennies

Given my new mission, I was mulling over changing the name of this blog to better reflect my goal of linking behavior and spirit to building wealth. Then as I thought about it, I realized that a coin jar is actually a pretty good example of that alignment. Here’s why:

It’s easy to start. You can use just about any container you find hanging around the house to hold your coins, which removes a big barrier to saving and building wealth: Just getting started. I use a medium-sized white porcelain bowl we got as a Christmas gift one year, and I’m not even sure how it ended up being my container. But I need something bigger because it's overflowing.

It’s habitual. Many people keep their containers close to the place where they empty their pockets each day, so they can toss coins in automatically. My bowl is in my nightstand, where I put my cell phone, Ipod, and employer security badge each night after work. When you make saving part of your normal routine, you give yourself a great chance of being a successful saver.

It builds up over time. Coin jars teach a valuable lesson: Wealth-building requires action and patience. You won’t get rich quick by saving pennies a day, but you'll be surprised at just how much your spare change adds up to over a long period of time. And that’s true for any type of saving, whether it’s a down payment on a house or your 401(k). Little things mean a lot.

So nothing's changing: The Coin Jar is here to stay. (Good thing, too, otherwise I’d have to write off as a loss all those Coin Jar t-shirts I printed up…just kidding. ; )

How much money have you saved using a coin jar? Have you ever used the savings to purchase a big-ticket item, like a TV or computer? E-mail me your story and make The Coin Jar Honor Roll.

Carnival of Personal Finance offers good reading

The Carnival of Personal Finance for the week is up at Funny-about-Money. A few favorites related to behavior and money:

Financial lessons learned from my younger self at Monogamoney.
Why I never budget (though he does in a way) at Bret Frolich.com
Biggest financial lesson learned from the bear market at personalfinancestartup.com.

Check 'em out!

Pay off your mortgage? Look at more than just numbers

In financial planning, the first answer to most questions is, “It depends.” And as frustrating as it is for folks to hear, it’s the truest initial answer for most situations. It’s not the final answer—ultimately there is a "Yes" or "No" that makes sense for the individual. But when it comes to money questions, there's usually a lot more gray in the answers than black-and-white. And much of that gray is created by an individual's financial spirit, as well as situation.

Logic versus spirit
For example, you might come to me for advice and ask, “Should I pay off my mortgage?” Personally, I'd like to be able to spend money on something else other than a mortgage payment and have the security of a paid-off home. I’m willing to forego other things in the near-term, such as replacing an out-of-fashion suit for work or enjoying a night out with my wife, to pay additional principal on the mortgage balance each month.

But we’re not talking about me, we’re talking about you. You go on to tell me that your mortgage has a fairly low interest rate of 6%. Wouldn’t it make sense, you ask, to pay the minimum amount of principal on the mortgage each month, and use any additional money to invest in the stock market, which over the long term has grown on average 10% per year?

At face value, your question is financial and logical: If you borrow money at 6% and invest it at 10%, aren’t you making 4%? On a deeper level, though, it’s spiritual: Should you pay off cheap debt when you can conceivably make more money over the long run by investing it?

Align your strategy and goals
Naturally, my initial answer would be, "It depends." But it doesn't depend on whether stocks will earn more than your 6% interest rate, which may be what you want me to focus on. It depends on why you're asking the question in the first place.

For example, you might want a wealthier lifestyle in retirement that requires you to save a substantial amount between now and then. In that case, directing extra money to the stock mutual funds in your 401(k) plan or IRA can make sense. Or being completely debt-free might be extremely important to you, in which case paying extra on the mortgage would be a good approach.

Stop thinking the right answer has to do with just numbers, where the stock market is going or not going. The right answer is the one that best aligns your strategy with your goals and values--essentially, your financial spirit. Get in the habit of answering questions that way, and you'll improve the odds of having financial success.

But really, just pay it off
In actuality, the answer to the money aspect of mortgage question is fairly black-and-white: Pay it off. Financially speaking, the amount you could gain from the excess return of investing in stocks doesn’t justify the high risk, when compared with the certainty of having a paid-off home.

If you’re making good progress on other financial goals, like retirement or college savings, and still have money left over, paying down your mortgage is a smart choice. The real question to ask yourself is, do you think it’s smart, given what you're trying to achieve?

Back with a new mission

I'm back. Did you miss me? Or maybe even more telling, did you even realize I was gone? (Don't answer that.)

It's been nearly a year since my last post, but I've used the time away well. In fact, by the grace of God, my life's gone through a big change. Instead of writing blog posts this past year, I used the time studying to get my Series 7 and Series 66 licenses, and to pass the very tough CERTIFIED FINANCIAL PLANNER (tm) comprehensive exam. Today, I'm no longer writing about personal finance and investing; I'm working with individual clients and advising them as an official financial planner.

I've been three months on the job and I love it, which is saying something given the financial state of mind of people today. I started advising on October 7, less than a week before the Dow Jones plummeted 11% in a single day. If I can love this job after advising clients in what's been the worst financial meltdown in 80 years, I'm guessing it was a pretty good career choice.

A cool revelation
And this brief time in my new role has helped confirm something in my mind. Financial success comes down to this: You are how you manage your money.

Plenty of books, blogs, videos, etc. exist on how to build an investment portfolio, how to save, how to spend wisely, what vehicles to invest in to reach your financial goals. But I'm realizing more and more that you can know everything there is about stocks and bonds, savings accounts and 401(k)s, and still make poor decisions that leave you poorer.

When it comes to money, the most important thing to understand is you. How you act. How you think. What motivates you, what deflates you. Only by discerning the inner-workings of your own mind, and particularly your spirit, can you effectively create a sensible financial plan. You have to know what fits, what doesn’t, and then what that means in the financial vehicles and strategies you use to pursue your own goals.

It's really what I love about my job, getting to know people, helping them to know themselves, and then applying those findings to their investments . Much to my surprise (and thrill!), being a financial planner is as much about helping people understand themselves as it is about understanding correlation coefficients, betas, and other complex math formulas (which make me say yuck! as much as any non-financial person).

My new mission
And that's what I'm hoping to bring you here at The Coin Jar: Ways to help you think about who you are, how you relate to money, and how you can use those findings to achieve success. It'll be a journey we go on together, because I'm applying these ways in my own life today, as I've written about in the past, and will continue to do so.

So please forgive the lengthy absence. I hope we both find it ultimately rewarding.

Posts in the Carnival of Personal Finance

This week's Carnival is up at the Quest for Four Pillars, a Canadian blog, eh? So don't be a hoser...check it out, especially these posts:

Ten financial lessons I learned from my dog, at squawkfox.
How to make a budget work, at beingfrugal.net.
How Wide Open Wallet teaches her kids about money.

A breakthrough: We're staying in our townhouse

The past three years haven’t been easy for M and I when it’s come to discussing our housing situation. We’ve struggled with whether we should stay in our 3-bedroom townhouse or move up to a larger house. Finally, last weekend, we had a breakthrough: We’re staying in the townhouse.

That might seem odd, given all the reports that housing prices are on the decline. But I think it’s the right decision, and most importantly, both M and I do. For the first time, we are on the same page regarding a topic that has been a steady source of conflict. And really, the credit belongs to M, for whom letting go the idea of a bigger house—at least for the time being—was emotional and difficult.

Still a big stretch
The decision is hard for me, too, but for different reasons. It is a good time to buy, or at least better than it was a few years ago. M’s regular monitoring of websites like Realtor.com indicates that single-family home prices in the Burlington County, New Jersey, area have fallen anywhere from 10% to 15% from their highs in 2006.

However, they still ain’t cheap. While we have a fair amount of equity in our townhouse, it would be a financial stretch to buy the kind of home we really want—a contemporary four-bedroom house that we envision living in for the next 20 years or longer.

We toyed with the idea of killing ourselves with extra jobs and belt-tightening over the next 12 months to save for a bigger down payment. But with M juggling full-time mommy duties for a toddler, an infant, and a teenage daughter, and my daily two-hour work commute, our schedules are already tight. And our $500 per month grocery budget is considered “thrifty” by many standards.

A focus on other goals
So instead, we’re going to concentrate on modestly improving our townhouse more to our liking, and saving for our kids’ college. For instance, our 3-year-old son’s basement play area is half-finished (our friends half-kiddingly call it “the dungeon”) and too close to sharp tools and old paint cans for comfort. Plus, my stepdaughter graduates high school in 2012, and we are far short of having the money we’ve agreed to provide for her college (the actual amount requires some explanation; I’ll get into that in another post sometime).

Without the specter of a new house looming in the back of our minds, we can focus on achieving those goals.

Can’t do it all
I asked M what the turning point was for her in deciding it was best to stay where we are. Her personal sacrifice is enormous, on multiple levels: As a young girl, she always envisioned marriage and family life with having a house and a yard in a neighborhood—a far cry from our multi-unit, parking lot-covered townhouse complex. She also knows we could afford that house if she returned to full-time teaching, a job she loves, is good at and well-paid for, and finds much more appealing than cooking and cleaning.

I imagine many women today, balancing work and family, can relate to her response (which I’ve paraphrased).

“It was a combination of things,” she said. “The kids being sick so much this winter. Trying to keep up with doctor and orthodontist appointments and cheerleading practice, while also tutoring just a few hours a week on the side. It’s overwhelming.

“I think God has been showing me that I can’t do it all, that I have to decide what’s really important. And I want to be there for my kids when they need me. I don’t want someone else raising them. If that means waiting to have the bigger house, so be it.”

Peace in exchange for a bedroom
I’m confident we will someday have the house of our desires, probably in about five or six years, when M does return to work. And we are still passively “in the market” if an opportunity arises. We’ll take any miracles God wishes to send our way.

But we’re not counting on a miracle to make us happy. We are hopefully putting to rest our discontent with the blessings He’s already provided, removing it as a flashpoint in our marriage. I’ll trade an extra bedroom for marital peace any day.