There are several principles at the core of any good financial plan. The first and foremost is this: spend less than you earn, and do it for a long time. And while that doesn’t sound like a lot of fun, it is the only way to get ahead. Over time the few extra snowflakes you don’t spend can turn into a giant snowball, growing more massive with each passing day. But if you don’t seed that snowball with those first few flakes, all you’ll get is - flaky.

Once you decide to spend less than you earn, you’ll be faced with a question: what do I do with the extra? There are many options, of course, but an excellent place to start is with your employer’s retirement plan. The match that your employer contributes to your plan is all gravy - it’s instant profit. To top it off, all the money in the retirement plan usually has quite a while to grow, and in the investment world, time is money.

Once your retirement plan is on autopilot, you should tackle any consumer debt you have, including your credit card debt. Paying a little extra each month on a credit card with an interest rate is the same as earning that same rate in an investment. What I mean is this: if your credit card is charging you 12.99% on your unpaid balance and you send in an extra $100 next month, that $100 is actually earning you 12.99%. This is a rate of return that’s tough to beat without taking a fair amount of risk. (By the way, if you don’t pay that extra $100, the credit card company is earning the 12.99%. Now you know why they’re so anxious for you to carry their card.)

If your credit cards are properly whipped into shape, you should think about building an emergency fund. This is money that will be available to you in case of emergency, so you won’t fall back into the credit card trap. Start out by building up one month’s worth of living expenses. Now when you have an emergency (and that killer pair of shoes at the unheard of sale price is NOT an emergency), you’ll have the money to cover it. And when you don’t have an emergency, that money is sitting in an account quietly earning you interest.

It doesn’t matter what stage of life you are in, or how many of the above principles you have already addressed. Start wherever you are and just take the next step. Once you have addressed all these principles you’ll be in a much better place to begin to think about other investments.

This post originally appeared in the August 29, 2007, edition of the Greenhorn Valley View.

A local car dealer, who shall remain nameless (and who obviously doesn’t subscribe to the Do Not Call list), called today because they are in urgent need of 1999 Plymouth Grand Voyagers.  And would I please consider trading mine in for another vehicle?  They offered a newer model at a lower payment.

Wow.  Car dealers are getting desperate.  This was a new one for me.  I had no idea there was such a hot market for eight year old minivans.

I paid the Voyager off a few years ago, so my current payment is exactly $0, so it would be hard for them to lower my payment, unless…

Unless THEY PAID ME to get a new car!

Which, of course, is exactly what is going to happen a couple years.  In a couple years I’ll have the cash saved up to buy a newer vehicle (without the telemarketer).  The interest payments that I don’t pay the finance company is effectively money that they are paying me to drive the new car off the lot.

I can’t wait!  Paying cash for a car is going to be a lot of fun!

Have you started saving for the holidays yet?  Believe it or not, they’re right around the corner.  And with the holidays come the crisis we love to hate - gift giving.  Although we save throughout the year, it seems like we never have enough money to give the gifts we want to give.  So we have some options: we could borrow the money we need to give the kind of gifts we want to give, we could limit our gift-giving to just the amount of money we have on hand, or we could not give anything.  We’ve tried all three options at different times, and all three have their pros and cons.

Borrowing money to give gifts is the easiest way to meet the social expectation of giving.  You’re going to receive a certain amount of gifts and you should give a similar amount.  Borrowing money from your credit cards allows you to meet that obligation without any social pain.  You look like a generous giver, and nobody has to know you’re now in debt.  And that’s the negative side - debt.  Borrowing money requires you to repay, and many people end up repaying well into the summer.

Or you could try limiting your spending on gifts to just the amount of money you currently have available.  The advantage here is you incur no new debt - nothing to repay!  The disadvantage, of course, is that you might not be giving as much as you’d like to give, or as much as you feel like you should give.

One year we didn’t have any money saved up, and we couldn’t borrow any, either.  So we ended up not giving anything to anybody.  Even if you’re at your counter-cultural, rebellious, anti-capitalism, hippie-loving best, I don’t recommend this choice.  We ended up receiving gifts from people we knew weren’t any better off than we were, but we gave nothing in return.  We felt ungrateful, unappreciative, and cheap.

So what should we do?  What do you do?  We have to give something, but don’t have the cash, and don’t have the desire to borrow.  The best solution I can think of is to be more diligent about saving larger amounts throughout the year, but that’s a plan best implemented in January, not August.  Does anybody else experience this dilemma?  How do you work through it?

This article originally appeared in the August 22, 2007 edition of the Greenhorn Valley View.

Many estates are spent in the getting,
Since women for tea forsook spinning and knitting,
And men for punch forsook hewing and splitting.

Thus Poor Richard explains in one of his famous almanacs.  Read it again; 300 year old quotes sometimes require a couple readings to soak in.

Many estates are spent in the getting means that many people are spending, or never earning, great amounts of money; money which, if properly sown and cultivated, would provide that person a large living.

There is little question that human passions and desires (desires for things, leisure, and renown, for example) pull at us and cause us to spend excessively.  How many times have you bought this year’s sandals when last year’s are still in perfect shape?  How many times have you neglected work because you had already done enough to get by, even though a little more would provide exponential returns?  Pushing past these desires and looking just a few minutes into the future can be an extremely profitable endeavor.  If you begin to look, you’ll find small amounts of money turning up under all manner of rocks.

Since women for tea forsook spinning and knitting, and men for punch forsook hewing and splitting.  How often have you chosen a social engagement over completing the task at hand?  How often have you chosen to toss back a few at the expense of a profitable enterprise?  If you’re like me, this happens all too frequently.  We can’t forgo all pleasure, of course, and unhappy is the man who makes the attempt.  Nevertheless, we should make every effort to complete our work before engaging in other activities.  Have you performed your job superbly?  Have you hit your quota for the week?  If so, your leisure will be sweet; if not, the most luxurious of locations will not make you feel truly relaxed.

Follow Poor Richard’s advice.  Work diligently until your work is done.  And then sit back and enjoy the fruits of your labor.

This post originally appeared in the August 15, 2007 edition of the Greenhorn Valley View.

A very interesting article on vice-president Cheney appeared in the Wall Street Journal yesterday.  The most startling revelation is what George Tenet had to say about the interrogation program that Cheney championed:

The policies he has advocated have been controversial. But they have also been effective. Consider the procedures put in place to extract information from hardcore terrorists. Mr. Cheney did not dream up these interrogation methods, but when intelligence officials insisted that they would work, the vice president championed them in internal White House debates and on Capitol Hill. Former CIA Director George Tenet–a Clinton-era appointee and certainly no Cheney fan–was asked about the value of those interrogation programs in a recent television appearance. His response, ignored by virtually everyone in the media, was extraordinary.

“Here’s what I would say to you, to the Congress, to the American people, to the president of the United States: I know that this program has saved lives. I know we’ve disrupted plots. . . . I know this program alone is worth more than the FBI, the Central Intelligence Agency, and the National Security Agency put together, have been able to tell us.”

Wow, that’s pretty high praise.  The article also points out that the reason Cheney’s opinion poll numbers are so low is probably because Cheney doesn’t get enough time in front of the people.  He is viewed as a shadowy figure always lurking just offstage, the man behind the curtain.  The author of this article believes that people would be less afraid of the vice-president if he were more visible.  Could be.  I know my feelings on Cheney have gone up because of reading this.

Here’s a song I haven’t been able to get out of my head lately:

It’s an older song, but I just discovered it recently. It rocks! Lyrically it’s somewhat lacking, but I defy you to listen to it without banging your head.

You can learn more about the song, or read the lyrics.

My brother recently chastised me for not writing near enough on my blog.  I told him, “Back off, man!  I’m busy!”  But lately I have been thinking a lot about putting up some meaningful content on a daily basis.  I kinda sorta half-heartedly made a decision to write at least one post every morning, but in the back of my mind I have serious doubts about where I’m going to get the ideas for that many posts.  Then along comes this post over at the Simple Dollar, and suddenly I have renewed inspiration.  The Simple Dollar is a personal finance blog that I’ve been following for a while now, and I’ve got some great ideas from it - but this may be the best yet.  I’m going to get myself a set of Thinkertoys and try ‘em out.

There’s an old saw that says, “If you find yourself in a hole, stop digging.”  I think most people intuitively understand this to be true.  Still, it can be very difficult to apply this in real life.  Let’s say you’re in debt up to your eyeballs; your credit cards are maxed out, you have two car payments, and you owe a caring relative for the down payment on your home.  Is the solution as simple as “stop digging”?  How do you begin to stop digging?

One very important step, one that people don’t realize exists, but that is of vital importance, is to learn to hate debt.  Debt is your mortal enemy.  Debt will kill you in worse ways than physically.  Debt will gnaw at you, preventing you from being at peace.  Debt must be eliminated at all costs.

One way to begin eliminating debt is to minimize your expenses.  This frees up more money that you can throw at your debt.  There are usually several expenses that can be trimmed.  Have you shopped around for auto insurance lately?  How about homeowners or renters insurance?  Prices for these products are usually all over the board, and spending a few minutes comparing rates might save you a ton.  Other areas where you may be able to save a little are dining out, shopping discount stores, and cutting a car from your household.

Closely related to trimming expenses is increasing income.  Can you get a part time job?  Can you work extra hours at your existing job?  Can you ask for a raise or promotion?  Obviously, earning more money will help your bottom line.  Just be sure the extra income isn’t being wasted.

Another step many people don’t realize exists is to look for sources of encouragement, not discouragement.  The most expensive friends you can have are the ones who spend for fun.  Look for people who enjoy hanging out; having a friend over for dinner satisfies more than your wallet.  Read about simple living.  Rent movies instead of going to the theater.  Grow a garden.  Make a game of saving, and enjoy the hunt.  And remember to keep your chin up.

This article originally appeared in the August 8, 2007 edition of the Greenhorn Valley View.