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       I borrowed The Complete Tightwad Gazette by Amy Dacyczyn from my local library a while back because I’d read so much about it on other personal finance blogs. I started reading through it, and I found so many good tips and ideas that I decided to buy a copy for myself from Amazon. This post is part of a series where I’ll share my take on some of my favorite tips from the book.

Everything You Already Know

       Amy makes a point of explaining that personal finance advice is a lot like dieting advice. It’s mostly just a bunch of stuff you already know. We all know that to lose weight we need to eat fewer calories than we burn. To save money and get ahead in our personal finances, we need to spend less money than we earn. They’re both simple, and you already know those things. I’m not providing some great insight when I tell you to spend less than you earn.

       But in personal finance advice, you’ll run into some strange ideas. I’m referring to the philosophy of “Don’t worry about being frugal and spending less. Just focus on earning more.” They’ll even go to the point of saying that frugality is stupid and a waste of time. But the problem is that this approach is one-sided and blind to the advantages of a combined approach.

       The equivalent in dieting advice would be saying “Don’t eat less, just exercise more.” How many health professionals do you hear giving that kind of advice? None! The best dieting advice is a combination of eating less and exercising more.

       In the same way, the best personal finance advice is a combination of spending less (frugality and smart choices) and earning more (diligent work, entrepreneurship, and smart investing). That’s what I aim to give you on Provident Planning – a balanced approach. Indeed, God’s Provident Plan is designed with this approach in mind. Contentment and hard work combining to yield generous giving.

       But Amy offers a second part to this analogy. When she joined Weight Watchers, she already knew how to lose weight. But she kept going to the meetings because of the support network they provided. In the same way, she hoped The Tightwad Gazette could serve as a support network for those looking to save money – confirming what they already know, providing some useful tips, and encouraging each other along.

       That’s my desire for Provident Planning as well. I want to create a community where we continue to learn about God’s desire for personal finances and encourage each other along our journey. Together, we can support each other as we seek to glorify God through our personal finances. You can help me with this effort by continuing to read and comment, and I will help by continuing to write what I hope are useful articles. You can help even more by contacting me with any feedback that can improve Provident Planning for everyone.

Sign Up for Free Updates!

       If you want some more good ideas on saving money from The Complete Tightwad Gazette, make sure you sign up for free updates from Provident Planning. I write on a wide variety of personal finance topics, so even if you’re not interested in frugality I’m sure you’ll find something useful here.

       I’m not sure if you’ve seen the commercials for Prudential’s Retirement Red Zone website, but I had and decided to see what it’s about. The commercial claims there’s a video on the website that will help you learn how to plan for a successful retirement when you’re near or just entering retirement.

       But when you get to their website, all you’ll find is one huge sales pitch for variable annuities – probably one of the worst choices you can make when it comes to retirement investments. Not only will you pay high expenses for the insurance side of things (the guarantee of income for life), you’ll pay high expenses on the investment side of things as well (the variable part of the annuity). Variable annuities, especially deferred variable annuities, are only suitable for a small number of people – and it’s not usually retirees (or those near retirement). Annuities can have a place in retirement planning but they’re not for everyone (which is what Prudential and other insurance companies would like you to think).

       The video you’ll find at Prudential’s Retirement Red Zone is not educational either. If you want to learn about annuities, you need to go somewhere else. They’re not something I’ve discussed yet on Provident Planning, but I’ll get to them eventually. Just know that there are some good reasons you probably shouldn’t be buying a variable annuity any time soon:

  1. High Fees – The fees for most annuities are quite high, and this is even more true with variable annuities. Costs do matter, so it’s important to consider them when making investment choices.
  2.  

  3. Complexity – Each annuity comes with a prospectus, which is supposed to explain the product and costs to you, the buyer. But trying to read one of these documents is almost impossible. First, they’re HUGE. I downloaded a prospectus for one of Prudential’s annuities and it was 264 pages (8.5″ x 11″)! Second, they make up their own meanings for words so you must check their definitions, but even those can be difficult to parse out. And third, they’re not laid out in a way that’s easy to understand – even for financial professionals, much less the average consumer.
  4.  

  5. Better Options – Finally, there are better ways to secure guaranteed income in retirement than variable annuities. As I said before, I’ve not explored these options so far, but I will as time goes on. Just know that you really need to consult a trusted financial advisor before purchasing an annuity. Once you buy it you can’t change your mind. (You can switch to another annuity, but you generally can’t get your money back without huge penalties.) And when I say trusted financial advisor, I don’t mean your stock broker or insurance agent. You need to find someone who is held to a fiduciary standard – which means they are legally required to put your best interests first when advising you.



       So that’s my public service announcement for today. If you want to continue learning about personal finance without the sales pitch, then sign up for free updates to Provident Planning today!

       I borrowed The Complete Tightwad Gazette by Amy Dacyczyn from my local library a while back because I’d read so much about it on other personal finance blogs. I started reading through it, and I found so many good tips and ideas that I decided to buy a copy for myself from Amazon. This post is the first in a series where I’ll share my take on some of my favorite tips from the book.

Track Your Spending for 3 Months

       One of the first tips you’ll find in the book (on page 9, in fact) is to track your spending for 3 months. Amy says the first step for anyone who’s looking to become more frugal is to find out where your money is going now. I agree with her. It’s hard to know where you should start looking to save money if you’re not sure what you’re spending it on.

       By taking the time to track all of your expenses, you’ll learn two things. First, you can categorize your expenses into essentials (needs) and non-essentials (wants). Breaking things down this way will help you see where you can make room in your spending.

       Second, you’ll see just how much you’re spending on your budget categories. Knowing this helps you target the biggest expenses to get the most impact. It will also make you more aware of where your money is going. Blind spending is a quick way to destroy your finances.

How to Do It

       So if you want to track your spending, what are your options? Here are some ideas:

  • Paper – You can always do it by hand with pencil and paper. This is a time intensive method and makes it difficult to work with the data you collect. I wouldn’t recommend this method.
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  • Spreadsheet – Microsoft Excel, Open Office Calc, Google Spreadsheets, or Zoho Spreadsheets can be also be used to track your expenses. This is another manual method that takes a bit of time, but at least you can sort and use your data. If you’re not dedicated to routinely entering your expenses, it won’t work for you.
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  • Budgeting Software – Three of the best software choices for budgeting and tracking expenses are Quicken, You Need a Budget, and Gnu Cash. The advantage of these programs is that they store all the information on your computer, and they can automatically download your transactions from your banks and credit cards. They also offer more advanced reports than you’ll want to create in a spreadsheet. This is a much easier solution than the first two.
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  • Online Budgeting Websites – There are multiple options if you’re interested in using an online budgeting website. Mint, Thrive, Wesabe, and Yodlee all offer a free, online solution for budgeting and tracking your spending. You might not be able to use these sites if you bank at a credit union or small local bank, and you might be concerned about security issues with having all your info in one place. Security was my initial concern, but I did some research and decided to go with Mint. I like it so far, and I’d recommend you read their FAQ if you’re interested. This is by far the easiest solution. It only took me about an hour to set it all up the way I wanted.


Sign Up for Free Updates!

       If you want some more good ideas on saving money from The Complete Tightwad Gazette, make sure you sign up for free updates from Provident Planning. I write on a wide variety of personal finance topics, so even if you’re not interested in frugality I’m sure you’ll find something useful here.

       Do you want to eat healthier but you’re afraid it will be too expensive? I have three easy recipes you can combine to make a wholesome meal for less than $1 per serving. And it doesn’t taste like cardboard, either!

       These recipes come from the More-With-Less Cookbook, a collection of Mennonite recipes with a focus on affordable but nutritious meals. It’s also focused on moving away from processed foods and wisely using the world’s resources. I highly recommend you buy a copy if you don’t already have one. It’s a very affordable cookbook ($12.15 on Amazon) and a great value!

Middle Eastern Lentil Soup

Combine in soup kettle:

1 cup lentils
4 cups water
1/2 teaspoon cumin

Cook until the lentils are soft (about 30 minutes), adding water if needed to maintain a soup consistency.

Heat in skillet:

1 tablespoon olive oil

Add and sauté just until yellow:

1 onion, chopped
1 clove garlic, minced

Blend in:

1 tablespoon flour

Cook for a few minutes. Then add the sautéed ingredients to lentils and bring to a boil. After the soup boils, remove from the heat and stir in:

2 tablespoons lemon juice
salt and pepper to taste

Tomato Chutney

Combine in a bowl:

2 cups chopped fresh or canned tomatoes (about two medium tomatoes)
1 medium onion, chopped
3 tablespoons lemon juice
2 tablespoons vinegar
1 tablespoon sugar
salt and pepper to taste

Garnish with fresh cilantro, if available.

Rice

I hope you already know how to make steamed rice… :)

Fix up about 5-6 servings (1 1/4 to 1 1/2 cups dry rice).

The Meal

       Serve the Middle Eastern Lentil Soup over rice and top with the Tomato Chutney. This should make about 5-6 servings. Total cost per serving? $0.80! (Assuming you drink water, of course.) You could probably add a vegetable for an additional $0.20-0.30 per serving (or less if you use fresh veggies or grow them yourself). You can easily prepare and cook this meal in about 40 minutes. (Rice is easy, and you can fix the chutney while the lentils are boiling.)

The Nutrition

       Lentils are one of the healthiest foods you can eat. They’re high in fiber, folate, molybdenum, manganese, iron, and vitamins B1 and B6. They’ve also been shown to reduce the risk of heart disease. Serving lentils with rice ensures that you get the complementary proteins you need to match the complete proteins available in meats. The lack of meat, however, means that this meal is very low in cholesterol.

Eating Healthy for Less

       I plan to share additional recipes that will provide you with healthy meals at an affordable price. While this isn’t a cooking blog, it is about saving money. Saving money on your food bill shouldn’t come at the expense of your health. These types of recipes help you save money and eat healthier. In general, if you want to eat healthier and save money, follow these tips (from the More-With-Less Cookbook):

   Eat More:

  • Whole Grains- rice, wheat, barley, rye, oats, corn, and millet
  • Legumes – dried beans, soybeans, dried peas, lentils, peanuts
  • Vegetables and Fruits – inexpensive, locally grown, in season or homegrown and preserved
  • Nuts and Seeds – inexpensive, locally grown or homegrown

   Use Carefully:

  • Eggs
  • Milk, Cheese, Yogurt
  • Seafood
  • Poultry
  • Meats

   Avoid:

  • Processed and Convenience Foods
  • Foods Shipped Long Distances
  • Foods Heavy in Refined Sugars and Saturated Fats


Your Money & Your Brain:  How the New Science of Neuroeconomics Can Help Make You Rich       Jason Zweig, a senior writer for Money magazine, is the author of a very interesting book called Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich. The book talks about how your brain can affect your money decisions, often detrimentally, and how you can learn to spot the problems you can create for yourself. It isn’t heavy in technical discussion, but it also doesn’t practically lay out exactly how you should invest your money. You should use it more as a guide to understand why it’s foolish to keep reading the investment news all the time and to help you understand why active investing is so widely used even though it has no academic research to stand on.

       Today, I just want to talk about a few excerpts from this book so we can understand why we tend to make the mistake of seeing patterns where there are none. This is often the case for those who believe in technical analysis or market timing or many other tenets of active investing. I hope this example can help you begin to see how our brain tricks us into thinking we can predict the future based on some pattern we see.

Humans Are Great at Finding Patterns

       Zweig acknowledges that humans are very good at finding and understanding simple patterns. This ability was extremely important to our ancestors and still serves us well today.

       That’s what helped our ancestors survive the hazardous primeval world, enabling them to evade predators, find food and shelter, and eventually to plant crops in the right place at the right time of year. Today, our skill at seeking and completing patterns helps us navigate many of the basic challenges of daily life. (“Here comes the train I have to catch.” “The baby’s hungry.” “My boss is always a butthead on Mondays.”)

Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig



       It’s really great that we have this ability – but only when we actually need it. When it comes to investing, obsessively looking for patterns in random data can be extremely detrimental to our investment performance. By trying to find patterns and use them to our advantage, we often do much worse than if we had taken the statistically superior route.

Pigeons and Rats – Why They Can Often Be Smarter Than Us

another rat by asplosh on Flickr       Many people spend an amazing amount of time looking through tons of stock market information trying to find some kind of pattern they can use for a great new investment strategy. Even though the information is essentially random, we look for patterns that aren’t there so we can find a way to make even more money. In the process of doing all this, we often lose much more money than if we had just invested in a diversified portfolio of index funds.


       For decades, psychologists have demonstrated that if rats or pigeons knew what a stock market is, they might be better investors than most humans are. That’s because rodents and birds seem to stick within the limits of their abilities to identify patterns, giving them what amounts to a kind of natural humility in the face of random events. People, however, are a different story.

Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig



       Experimenters can test this by flashing one of two lights, green or red, onto a screen. The sequence is completely random, but 80% of the time they will flash a green light. They’ll flash the red light the other 20% of the time. (For example, a set of 20 flashes could be: GGRGGGGRGGGGRGRRGGGG. Another run might look like this: RRGGGGGRGGGRGGGGGRGG.) If you’re going to try to guess the next color to appear, your best strategy is to always pick green because it’s going to show up 80% of the time. Rats and pigeons generally use this optimal strategy when researchers reward them with some food for guessing the right color.

       Humans, however, tend to flunk this kind of experiment. Instead of just picking green all of the time and locking in an 80 percent chance of being right, people will typically pick green four out of five times, quickly getting caught up in the game of trying to call when the next red flash will come up. On average, this misguided confidence leads people to pick the next flash accurately on only 68 percent of their tries. Stranger still, humans will persist in this behavior even when the researchers tell them explicitly—as you cannot do with a rat or pigeon—that the flashing of the lights is random. And, while rodents and birds usually learn quite quickly how to maximize their score, people often perform worse the longer they try to figure it out.

Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig


To Get Better Results, Stop Trying So Hard

Lonely Hammock by *Micky on Flickr       Once you realize you have a tendency to seek patterns where they don’t exist, you can stop yourself from making stupid mistakes about your investments. Trying to pick stocks based on anyone’s predictions (yours or someone else’s) can easily lead to bad results. Companies can go down for a myriad of reasons you’ll never be able to predict no matter how much research you do. As Jason Zweig says, “No one can predict the unpredictable.” So relax, learn more about index fund investing, and spend more time doing the things you enjoy instead of worrying about your portfolio.

       If you find that you can’t tear yourself away from Jim Cramer or endless hours of researching companies, try this suggestion. Keep 90-95% of your invested money in a diversified portfolio of index funds. Use the other 5-10% to try out Jim Cramer’s predictions or your own hunches, but don’t use all of your money for these “strategies”. Having a play money account can help keep you from making serious mistakes with your entire nest egg—as long as you don’t start believing you’ve just found the best investment strategy in the world. Give it a few years and you’re likely to always see the index portfolio outperforming your play money.

       There’s a ton more discussion and examples of how our brain can mess up good financial decisions in Jason’s book. So if you’re interested, check it out at your local library or purchase a copy from Amazon or another book retailer.

       I’m a big proponent of careful and wise giving to make sure resources are used most effectively. There are many charity watchdogs, but after careful analysis I prefer The American Institute of Philanthropy (AIP) over the rest. Here’s why:

AIP Strives for Independence

       AIP does not charge the charities it reviews and accepts absolutely no advertising in its publications or on its website. Heads of nonprofit organizations are excluded from their board of directors to prevent conflicts of interest. Over 95% of their support comes from individual donations (which provide membership and a subscription to AIP’s Charity Rating Guide). This allows AIP the freedom to speak openly and to be critical of unethical practices in the charities they review without fear of losing funding.

AIP Uses Stringent Review Criteria

       AIP’s standards for evaluating charities are considered the most stringent among charity watchdog organizations. They carefully review the financial information of each charity using audited financial statements. This information has been verified and reported by a third-party outside of the charity. This helps AIP see how charitable gifts are really spent. When rating a charity, AIP considers how much actually goes to charitable programs, effectiveness of fundraising efforts, and years of available assets.

AIP Reviews a Wider Range of Charities

       Other charity watchdog organizations will only review charities that are required to file Form 990 as required by the IRS. They will request audited information from religious charities and social welfare groups (like the ACLU, Human Rights Campaign, National Right to Life Committee, and the Sierra Club). These charities and groups are not reviewed by other popular charity watchdogs like Charity Navigator. For example, AIP is the only place I can find a review of one of my favorite charities, Mennonite Central Committee.

AIP Provides Valuable Tips and Reports

       You can find a list AIP’s top-rated charities and their grades for free online. You can see a list of all the charities they review here. A donation of at least $40 is required to become a member, which will provide you with their triannual Charity Rating Guide where you can read reviews of all the charities. Additionally, they provide several free articles about charities and their practices as well as valuable tips. Check out their article on tips for giving wisely to charities or seven tips for reducing unwanted solicitations.

Do Your Homework

       AIP does not screen charities for certain values (religious or otherwise) – they only look at how effective the charities are at using the money they receive. I think their top charities list is a good place to start. But if you want a charity that also follows your values, you’ll need to do further research on your own. I’ll be looking at some of the top-rated Christian charities in future posts. Sign up for free updates to Provident Planning if you want to get future articles in your email or feed reader!