The Discretionary Dollar

Paper litters nearly every aspect of our life. Not only is paper a nuisance, but for every piece of paper you decide to keep, you have to organize, store and manage it. What a waste of time and resources.

Is your desk covered with neat (or messy) stacks of paper? Do you find it frustrating to find documents in a file cabinet? Tired of having stacks of mail and paper clutter your life? Are you interested in simplifying your life and spending more time doing the things you love?

Here are just a few reasons to work towards eliminating the endless stream of paper.

Paperless is Safer
I have heard the argument that things online are unsafe. But we easily forget how unsafe a typical mailbox is. Which is easier to gain access to: a large national bank’s system or a typical mailbox in front of your home? Even a locked mailbox is easy to pick an offers little or no protection.

With paperless statements you won’t have files cabinets full of account numbers and other documents in your home for someone to rifle through. If you choose to save documents locally on your computer, look into password protection or other security in case your computer is compromised.

Paperless is Backup-able
If you are storing your bank statements and other paper mail in a file cabinet and your home robbed, burned or you simply misplace them, you are usually out of luck. However, with paperless documents you can easily setup a system for automatically archiving and backing up your important documents. Dropbox.com is my favorite backup and online storage service. (It’s free under 2gigs)

Paperless is Cheaper
You will spend less on storing and organizing all your paper statements and mail. You will also spend less on stamps mailing back all your payments. You won’t have to worry about running out of desk drawers or room in your office with electronic files either. If your office is paperless, you can even lease less space, or fit more desks furthering the savings.

Paperless Produces Less Waste
Take a close look at all the paper you toss after opening your mail next time. Inserts, junk mail and return envelops are all just extra wasted paper in most cases. If you are paying your bills the easy way, you won’t be sending in a good’ol check anyway.

Paperless Saves Time
I dread opening mail because I know that opening it is only the beginning. After I open it, I will need to file it, respond to it, and review it. If you are getting a lot of mail, you know how fast it can pile up. Try coming back from a vacation to a huge pile of mail. Now imagine coming back from a vacation with no mail at all to open! You may not realize how much time you spend processing mail, unnecessarily.

In addition, you won’t have to walk or drive to your mailbox daily (maybe once a week at the most).  You also won’t have to spend time sorting through old statements to locate one. A quick search on your computer, or online document site and you can find your document quickly.

Paperless is Faster
You get online statements immediately. You don’t have to wait for the post office, and online statements can come 24/7 rather than being restricted to the US Mail hours, holidays and routes. You have the ability to check your statements the day they are created.

Paperless is Mobile
Not only are you not tied to a physical location, you can check your online statements on the go. If you travel for any reason, you know how nice it can be to get some of the day-to-day busy work out of the way as you wait in an airport or hotel room. Use this time to review your statements etc.

Now that we understand the benefits of eliminating paper mail, how do we do it? Please check back for:

1. Paperless: Reducing the Stream
2. Paperless: Getting Started
3. Paperless: Managing the Digital Files
4. Paperless: Organizing/Backup/Sync
5. Paperless: Other Creative Ideas

Why do we buy? Do we buy because we need to use or do we buy because we want to have?

This simple question not always has a simple answer.

Are you spending extra time and money purchasing things you could be borrowing instead? Here are a few things to consider before you hit the store next time.

Benefits of Borrowing:

Test Drive Products for Free
Would you dream of buying a car without a test drive? I know I wouldn’t. A major benefit of borrowing is that you get to try before you buy. And if you do end up needing to purchase this item (perhaps rarer than you may think), you will be informed with hands on experiences on what features you like or don’t like.

Spend less
By borrowing you save the money you would have spent buying that “item”. If you only use an item once a year why have it in your life? Instead, spend your cash on something you frequently use or enjoy. Or sock it away in your favorite mutual fund.

Live With Less
By having less you can maintain and enjoy what you do have more. What’s the use of having everything you might need if it takes you 30 minutes to locate it? You may even spend less on housing by having less. You’ll saving time finding (shopping, researching etc) and maintaining excess stuff as well. Less stuff means less storage.

Already have too much? Shed it and fatten your replacement fund.

Build Stronger Relationships
When you borrow you are asking someone else for help in some form. People generally like to help (especially if it involves none of their time or money). I find when I borrow things from friends I end up seeing them more. As an added benefit, I usually get to talking about what I need the item for. You have a chance to hear ideas or suggestions that may save you time or money when you start your project. And sometimes your friends may even want to help you, which of course will make your project go twice as fast.

Spend More on What You Do Buy
If you only buy what you use frequently and absolutely need, you can guiltlessly spend the extra bucks on it. Chances are you have tested and borrowed this item before so you know exactly what you need. For example, would you rather have every cheap tool possible or real nice tools that you use frequently?

Share if Possible
If you are asking to borrow your friend’s power washer every other week perhaps this item may be worth purchasing. But what if your friend lives next door? Why does every home need a lawn mower when two friendly neighbors could split the cost and share? Evaluate your usage and make sure there are no simple and easy ways to borrow. Tell yourself after you borrow x amount of times you will look into buying. We bought a canoe with a family member and it works great to share it. Half the cost, half the storage, half the maintenance and the same enjoyment.

And when you do really need to buy something use your replacement fund.

Talking Point: What types of items have you borrowed instead of purchasing?

Short Synopsis
This book is about Warren Buffett’s life as an investor and citizen. It details his large deals with background and insight. The book’s focus is mainly on his road to wealth but also gives good insight on Buffett’s character and personal relations.

Purchase on Amazon: Buffett: The Making of an American Capitalist

After reading this well written book I feel to I have a good idea of Warren Buffett’s investment strategy and character. Here are the main points I gleaned from the 400+ pages.

Develop Creative Ways of Generating Income
As a boy Warren developed many small business ideas and ventures. These ventures were essential to allow Warren to save up his bankroll. In 1945 (at age 15) Warren was making $175 per month (about $2,100 in 2009 dollars). Some of his ideas/jobs included:

• Golf ball Collection and Resale
• Paper Route/Magazine Subscriptions
• Pinball/Vending Business
• Rental Income (from 40 Acres of farmland purchased for $1,200)

Use Frugality to Preserve Capital
Every dollar you spend brings you one dollar away from tomorrow’s profit. Warren saved nearly every penny for his investments. By 1950 (age 20) Warren had saved $9,800 from his ventures (about $87,000 in 2009 dollars). He was very frugal, even in his later years. As a Billionaire he drives his same American car, and lives in the same house he did when he was starting out.

Be Your Own Light
It is clear that Warren valued his own personal judgement more than anyone elses. He followed his own morals with unwavering determination. Stop listening for stock tips, and find them on your own. Use your own tools to determine a clear picture of things. Warren was fearless when others were fearful and was skeptical when others were fearless. Warren reads hundreds of annual reports a year to get corporate insight. In some cases he’d talk with executives, company employees or others with detailed knowledge. He would always come to his own conclusion with the data he dug up.

You Don’t Need Money to Make Money
Every penny Buffett earned and saved was without any financial help from family or friends. He used his head to leverage other’s financial means, but never used guilt or charity looking for handouts. Early on he made it clear he wanted to be able to say he did it alone, without financial help. He did however have strong family connections that enabled him to find partners in the beginning. These partners were in it for the money, not because they wanted to help Warren.

Search for Value
Most stocks have no real potential. The skill comes in sifting out all the unimportant stocks. There were times Buffett could not find good stocks to invest in.

Warren’s general strategy was to invest in stocks below value. A stock is below value when it is selling below it’s assets. For example a company is selling for $15 per share, but has $20 per share in assets. There would be value in this stock. Earnings per share is also taken into consideration. Value is not market moods or trend analysis. Beating the market is a fools game if you are using volatility or price fluctuations to do it. Look at the source of the price changes, not the changes themselves.

He was a devoted Benjamin Graham fundamentalist. Grahams book, The Intelligent Investor is a must read for those wanting to learn more about this type of security analysis.

Develop Your Opinion of Value
Once you determine a stock price has value, you then need to determine roughly how much value is there. But it’s just an estimate. Warren once said “But one needn’t value a business too precisely. A basketball coach doesn’t check to see if a prospect is 6’1” or 6’2″, he looks for seven footers.”

Keep Your Ideas for Yourself
Once you find value or have an idea, keep it a secret and don’t advertise it. Many times listening to other’s ideas may be too late. Buffet would hatch his own ideas and guard them. He would even protect them from his wife! In fact he protected them from his investors too. During his first partnership he wouldn’t tell any investors where their money was invested. His ideas were top secret.

Don’t Diversify (in a traditional sense)
As Mark Twain once said “Put all your eggs in one basket and watch it closely”. If Buffet were a poker player, and his hand was a winner, he’d go all in. When he found a prospect he liked, he bought a ton of it. Diversification, as the common investor understands it, was not one of his primary strategies. If you determine there is value in a stock then why just buy a little?

Buy for the Long Hold
Warren’s strategy of picking winners and letting the market eventually bring them to the correct value takes time. This investment strategy usually means long term holding. Many of Buffet’s best investments he never sold. Buffet held onto losers when others would have sold and given up.

Invest with Like Minded Partners
Look for companies that value shareholders, not squander their return. It is crucial to invest with those that have your same outlook. At one point an investor came to Buffet’s office demanding to know where his money was invested (clearly against their partnership agreement). Warren of course said no and promptly cashed him out of partnership. Be picky on who you invest with.

Understand Your Investments (Core Business and Profitability)
Learn about what you invest in. Invest in what you understand. If you don’t understand the business, you won’t be able to understand the company’s value. Study prospects (companies that may have unrealized value). Look at their competitors and at the raw data. Don’t base your decisions on analyst summaries. “Trust your own eyes” as Buffett insisted. Warren had already read hundreds of books by the time he graduated college.

Simply Your Financials
Warren learned the hard way that complication is fruitless. Having a complicated web of companies lead Buffett into a major SEC investigation. Immediately after, he consolidated and merged the companies to simplify things.

Speak Softly And Don’t Make Enemies
Buffett had huge influence in all aspects of his dealings. But he had influence not because he demanded it. It is no doubt that Warren’s charisma and homespun nature got him where he is today. He was direct but not bossy. Others listen more the less he would say.

Should You Read it?
If you have any interest in investing in stocks this book is a must read. Much of conventional stock and investment teachings are challenged by Buffett. You won’t get specific tips and methods on investing, but you will get a broad brushed overview of the methods and strategies of the most successful modern investor. The books is long but is packed full of details and quotes aimed to give you a well rounded picture of Warren Buffet.

Purchase on Amazon: Buffett: The Making of an American Capitalist

So you have now identified a few items to sell for your replacement fund. But how do you turn those items into cash and grow your replacement fund? Here are some ideas.

• Part 1: What is a Replacement Fund?
• Part 2: Funding Your Fund
• Part 3: Cash for Clutter

Pick The Best First
Set yourself up for success and sell your best items first. This means items with the highest profit and that are the easiest to ship or transport. These are usually books, electronics and other consumer goods.

Price to Sell Fast
You have already decided you wouldn’t mind shedding these items, so don’t let price get in the way. It’s easy to get hung up on what a “deal” the buyer is getting. After all, you paid -insert your price here- and it has the -insert some feature here-. The past is the past, so don’t get hung up on the other guy. (Yes, he is probably getting a good deal). Good deals are what drive sales. The fact is, if it wasn’t such a good deal the buyer wouldn’t be knocking at your door. Make your item a great deal and don’t look back.

Advertise a Few Items at a Time
Remember to pace yourself. If you have closets full if items to shed, start with just a few. Less than five is ideal. I know it sounds like a slow start but jumping in head first is a great way to drown. On the other hand if you only start with one item and have no success (it doesn’t sell) you may give up too soon. Start with 3 items or so and test the waters. This way you will not be overwhelmed and will have time to ‘learn the ropes’.

Here are a few methods of selling your stuff:

Amazon.com
Amazon is easy and quick. It is best for consumer electronics, books or other common household items. Amazon requires no technical skills and no customer interaction is necessary. Amazon takes a cut (depends on what you are selling) but also gives you a shipping credit that is typically generous (for books it is usually $4). I have listed books in the evening that all sold before I got up the next morning.

eBay.com
Ebay is best for less common or more unique items. You can set your own price and shipping terms. The downside is that auctions (the traditional way to sell on eBay) take a lot time (a few days). The buyer can also skip out on you forcing you to start the auction all over again. In addition, listing your item takes more technical skill (upload photos, type out specs, formatting etc). You must write your own details and supply your own photos. eBay fees are very reasonable.

Local Craigslist.org
This works great for items that are too expensive or too large to ship (couches, cars, washer/dryers). There are no fees but you will have to post your own photos and description. The downside is that you have to deal with customers. You have to meet them in person to exchange the item for payment. However, I bring smaller items to the office so I don’t have the public coming to my house. You can also meet in your front yard, or at a large parking lot if you really don’t like the idea of someone coming to your home.

Tip: Don’t use the Craig’s list photo upload. Instead, use another service and embed the photos. Craig’s list forces you to upload images that are very small which doesn’t provide the detailed photos most buyers want.

inumbr.com
Are you hesitant about giving your number to strangers? This is a free tool that assigns you a free number that forwards to your cell phone. It’s a anonymous number that you can use for free.

Don’t Negotiate
You may end up lowering your price or accepting a lower price than you want. Swallow your pride and take it. Chances are you aren’t a retail salesperson so don’t pretend you are skilled at it. Take whatever reasonable amount you can bear and say goodbye to one item at a time. By attempting to negotiate you risk getting burnt out and frustrated. And for what? A few extra bucks?

Talking point: What techniques or practices have you found success with when selling your stuff?

Do you wonder where your hard earned dollars get spent? Here are some ways to track your expenses in just a few minutes per week.

1. Use Online banking

Some smaller banks are still catching up but the larger banks have done a great job of giving you all the tools you need online. If you aren’t using online banking then tracking your expenses will be much more difficult and may require far too much time and effort.

2. Use Plastic Exclusivly (or as often as you can)

Using your checkcard/credit card is the easiest way to make your purchases trackable. Everytime you pull money out of an ATM or you use cash to purchase something, you lose the ablity to track and account for that money or item. The same generally goes for checks also. There are other ways to keep track of your expenditures but none of them rival plastic. By using plastic you set yourself up for automatic tracking of expenses. Plus there are other benefits of using plastic.

3. Use an Online Account Aggregator

Now that you have all your transactions trackable via online banking, you are ready to process and categorize them. Find a service that will use your online banking credentials to process and cateogorize your transactions automatically. Here are a few:

• Mint.com (Personal Favorite) | Free. Custom Budgeting for all accounts including investment, brokerage and mortgage. Also has Cyberhomes.com integration for real estate valuation. It will give you a pretty accurate net worth in addition to very flexible and easy to use budgeting tools.
• Wells Fargo Spending Report | Free (with certain Wells Fargo accounts). No Hassle Budgeting and Categorization of expenses. Only limited to Wells Fargo accounts, and has no custom bugeting feature. From a trusted source, no other party has your login credentials.
• MoneyStrands.com | Free. Claims to have similar features to Mint.com. I have not used this but it appears to have some neat features.

4. Classify and Demystify

The above sites may not perfectly classify your spending types and accounts. The first few months it may be nesscary to audit your budgeting tools just to make sure Mint.com didn’t classify a few transactions incorrectly. For example your Safeway Gas purchase may default to the groceries category. Make sure to set it up so that future transactions are classified correctly so you won’t have to manually correct any classification more than once.

Mint.com will suggest a few budgets automatically but you will most likly want to tweak them to fit your needs. Check back weekly or as often as you need. You can even setup alerts that warn you as you get close to your budget. You now have a fully automatic way of tracking nearly every expense and income source.

Talking Point: What is your favorite feature of your online bank or budgeting tools?

The biggest drawback to going cashless is the problem of uninformed merchants charging minimums or transaction fees. So are you tired of getting nickel and dimed as you go to use your credit or check cards?

If you are still unclear on the different types of debit/check cards, be sure to read Credit or Debit? Plastic Explained first.

The Problem
Merchants see credit transactions as an additional cost. In general store owners pay between 1-3% per transaction to process your card. They also have a fixed transaction cost ranging from .15 cents to .45 cents. Different accounts have their own prices, but that’s generally the structure.

A cost conscious owner decides they would prefer customers to use cash (after all there is no fee for cash right?). So the next day they craft a small homemade sign and tape it to the cash register with their new policy. $10 minimum purchase for all credit cards! Problem solved! Now customers will use cash, or purchase enough merchandise to cover any costs they have incurred by accepting plastic payment.

The General Rule – Fees Are Not Allowed on Credit Transactions
In most cases it is against any merchant’s VISA/MasterCard agreement to charge a minimum, an extra fee, or in any way discriminate against those using plastic means of payment (with the exception of some schools and government offices). The other exception is debit transactions. Debit transactions may involve cash back and generally allow for the merchant to charge the card holder a fee.

In no way are merchants allowed to require a minimum purchase (amount or quantity) or any extra fee for VISA/MasterCard transactions. Sometimes you will get punished twice and a merchant will try to charge you .75 cents for any purchase under $5.00. That is breaking one policy twice!

$10 Ice Cream Scoop Problem
Several years ago I took my wife to ice cream at a local ice cream shop. They arguably make the best ice cream in town. The door states that they except VISA/MasterCard. When I handed the clerk my check card for our $4 worth of ice cream (that we were already eating), she apologized and informed me they require a $10 minimum for all credit card purchases. Remember this is an ice cream shop! $10 worth of ice cream is a lot of something that is going to melt quickly! What would you do? Hand back the cone? Let’s just say it didn’t end pretty.

What You Can Do
Until several months ago, all I could do is complain to the clerk (with no decision making authority) that their store’s policy was in violation of standard credit card terms/conditions and that if they charged me an extra .75 cents, I’d report them, which may lead to a fine or suspension. Many times their response was an unsympathetic, “sorry sir, I don’t make the rules.”

Now I simply let them know to charge me according to their policy. I don’t put up a stink. You can even be kind and inform them that their policy is in violation of VISA/MasterCard terms and you will be reporting them. I do this knowing I have the final say and will get any fees reimbursed.

Getting Your Money Back!
To dispute such a charge log into your online banking, send an email to your bank about the issue. Many times you can click right on the charge and dispute it right from your bank’s site. Sample email:

“This merchant charged an additional fee for using my check card/credit card. The charge should have been $3.15, they charged an additional $.75 for paying with a visa/mastercard. Please adjust this transactions to reflect the correct $3.15 charge. I understand it is not allowed for a merchant to charge such fees.”

In many cases the very next day you will see a credit in your account for the disputed fee. The merchant will get a letter informing them of the viloation of service and they may get a fine if they have been warned before.

At last justice.  Anyone for ice cream?

Talking Point: What similar enforced policies have you seen or been frustrated with?

We all need garbage service. But the real question is, How Much Do We Need?

The Irony of Trash Service
Every family has different waste needs and your local prices may vary, but the bottom line is the less trash you produce the less you will spend on garbage service. The irony is that we are paying someone to get rid of things that are of no value to us. Most household expenses are for things that bring us something of value such as water, power, insurance, telephone etc. They all provide us with a service that we have determined is important to us.

The irony with trash service, is that we aren’t getting anything, except the ability to get rid of things!

A while back we downsized our trash bin. Initially, we were concerned with the amount of trash we had, and that it would be too much for this small can.  After all, our new can is only a 35 gallon trashcan! Also free with many trash services are recycle bins. In our area, these are free and are huge! They are the largest residential roller size.

The Result
It ended up, we have far less trash than even would fill the 35 gallon can. As our family went to throw things away, we made an extra effort to determine if it was recyclable or not. In the past we always recycled cans, bottles and other typical recyclable items. But now, we are recycling everything possible, from small shampoo bottles, to newspaper, product packing etc. We filled the recycle bin! And our trash can was only half full when trash day came (even after a thanksgiving party). You will be suprised once you start looking at items that can be recycled. Chances are you may be tossing a lot of recyclable items.

Yard Waste
Instead of stuffing our can full of grass and leaves, we started a small compost pile in the back yard, out of sight. If your yard produces a lot of debris, look into a yard waste can. Many times they are cheaper than moving to a large size can. In our area, you can get a yard waste container for $4 per month, where the larger trash bin is $7 more per month. Take the yard waste can, save the cash and help then environment by sending yard waste to the proper place (which is not the dump).

So the bottom line recycling is good for the earth, and good for your pocket book. Take a closer look at the trash you are producing. I challenge you to downsize your trash bin for a month or two. Just try it. There is no risk. If you have a lot of large items, sell them or list them online for free! See if you can make it work. If the money saving part doesn’t motivate you, then focus on being a better caretaker of our planet. Our savings add up to around $100 a year, and we don’t have to lug that huge can out to the street.

So now you have no excuse to trash your cash! Literally, it’s just tossing money in the trash can!

Talking Point: What creative ways have you found to recycle or reduce your household trash?

A mutual fund is a perfect example of yet another simple concept, that has been expanded into a very complex part of personal finance.

Basic Gist
A mutual fund pools money together from thousands of small investors and then it’s manager buys stocks, bonds or other securities with it. When you contribute money to a fund, you get an ownership stake in all its investments.

Major Benefit
The major benefit of mutual funds is easy diversification. Only the very wealthiest investors could afford comparable diversification in regular company stocks. In addition you have a fund manager who is responsible for maintaining the assets and returns of the fund. I don’t know about you, but I like all the help I can get from professionals.

Other Benefits
Another benefit is your abilty to invest in relatively small chunks. Most mutual funds allow you to buy partial shares. So if $25 a week is all you have to invest, no problem. With such a small amount, you can still get the diversification and benefit that large investors get.

Another benefit is the variety of types of funds. You will have a hard time finding a large public company that is centered around your specific needs as an investor. This is not the case with mutual funds. You can find a fund that fits your investment needs perfectly in most cases.

How to Choose a Fund?
Well the easy answer is to ask a qualified financial planner for recommendations. In many cases you will not have to pay anything to have a financial planner manage your funds. Also no load funds are great for starting out, because you can invest small amounts of money and not pay any fees.

Here are a few places to learn more about mutual funds:

• Investing in Mutual Funds | CNN Money 101
• Funds 101 | MSN Money
• Mutual Funds | Wikipedia

Talking Point: What funds have you had good experience with, and how did you hear about them initially?

You might have a good idea about how your cards work, but it seems there is still a whole lot of confusion on what types of plastics are out there. Your bank sends you a card, but what does it really do?

Credit Card - Most Widely Understood.
This is not your money. You simply sign and present this card when you purchase something. You can use it interest free for about 30 days, then you must pay it off, or make minimum payments plus interest.

Check Card – My Personal Favorite.
This is your money. Any purchase with this card comes straight from your checking account. You simply sign and present this card when you purchase something (just like a credit card).  This card also has all the funcationaitly of a debit card defined below.

Debit Card/ATM Card - Practically Extinct.
This is your money. This card only allows you to access funds via an ATM with use of your PIN or with merchants that accept debit/ATM cards. Merchants can charge a fee for this service, since you can ask for cash back. Generally the only reason to use this type of payment is when you need cash back, or when the merchant doesn’t accept credit cards.

* Note: Dependent on your credit card company. You must also have a pin (sent to you when you first get the card many times.)
** Note: Many banks have varing polices on over-drafted transactions. They can even be different for a Debit vs. Credit transaction. It is possible to overdraft your account with either, but generally, it is easier to do it with a credit transaction (compared to debit). Debit transactions check your account in real time, where as credit simply looks for an approval (there can be floating transactions, and unsettled transactions).

Allowable Fees
You will see all sorts of fees and minimums as you use your plastic around town. Most of which most likely are in violation of VISA/MasterCard policies. Generally the only type of transaction that permits a fee (charged by your merchant to you) is an ATM/Debit transaction. But wait? Why all the minimums and fees for using the other types of cards? The answer, for the most part is ignorance. You can dispute these fees also.

So What Should I Use?
Well that depends on your personal situation, but in most cases a check card will be the best type of card for the majority of your purchases. For example my wife and I have a limit, for example let’s stay it’s $20. Anything over $20 we use a credit card, anything below we use a check card. There are a number of reasons we do this but the main reason is simplicity. We don’t have to worry about overdrawing our checking account since the credit card is used for all larger purchases. We get more reward points if we use a credit card (we still earn points on check card purchases but its a smaller point system). You can find your own system.

And if you are a person that still uses cash, you can use this same check card at most ATMs. Just remember only to use your PIN when you have to. Running a transaction as a credit (rather than a debit) not only can earn you reward points, but gives you more protection (like a credit card) and doesn’t permit the merchant to charge extra for it. In addition, using your checkcard makes it easy to track your expenses.

Talking Point: What is your favorite card to use and why?