Last Friday, my wife and I went to the Maryland Science Center to see the Body Worlds 2 exhibit. Body Worlds is an exhibit in which cadavers, properly donated, are plastinized (essentially turned into a plastic-like material through a “plastination” process). It’s a really unreal experience seeing actual bodies, which look like plastic, all opened up, in mid-motion, for all to see but it was certainly worth the price of admission.

Body Worlds 2 focused heavily on the brain, our little three pound nerve center and the little orb controls everything we do. One interesting quote from the exhibit, and one that I felt tied most closely with that of our soaring debt, was this one:

The Adolescent Brain: The immature pre-frontal cortex, the last region of the brain to develop, may be responsible for an increased desire for speed, danger and rebellion, and an indifference to planning and priorities.

The quote was used to explain why adolescent children are so rebellious and behave as though they think they’re invincible. It’s because the pre-frontal cortex is responsible for “executive functions,” such as weighing the future consequences of current activities, and it’s not fully developed by adolescence. The brain isn’t fully developed until age 25 (hmm… maybe that’s why car insurance falls so much when you turn 25!) so you see a seven year window where your body is ready to take on anything but your brain isn’t. See how getting a credit card can be dangerous? How you now have access to credit but aren’t fully aware of the consequences of accumulating debt?

Okay, so what right? Why can you blame your credit card debt on your brain? Isn’t it just shuffling accountability from yourself onto nature? Yes, if you stop there.

All this means is that the debt you may, or may not, have acquired doesn’t define you. If you have a lot of debt, you might feel like defines you but it doesn’t. Just focus on righting the mistakes you made, in your biologically eased rebellious years, and you’ll be just fine. If you need a place to start, check out these ten simple steps to eliminating debt.

(Photo: Gaetan Lee)

A little over four months ago, I left a comfortable, well-paying job that I was quite competent in doing, for the unpredictable, self-employed route of professional blogger. Professional blogging is a lot like many professional sports, you have a handful of rockstar performers getting a ton of headlines, a ton of money and you have the rest squeaking by. Check out this Fortune piece, dated 1998, on #100 ranked tennis player Jack Waite. He’s the 100th best tennis player in the world and his take home page, after expenses and taxes, was less than three thousand dollars. That’s rough.

So, was I destined to be a rockstar or would I be content as one of the rest? I, of course, thought I was going to be a rockstar. As my wife says jokingly, and often, I probably would do well to sell off some of my self-confidence (she used another word) for my sake and hers. Despite the long odds, I left my job, and the predictability and the comfort, and haven’t looked back. When I left, I was scared. I was really really really scared.

To give you an idea of how scared, it was a lot like when I climbed up the two and a half story ladder to inspect our roof after it was replaced. In the case of the roof, I really had no choice. There’s no way in the world we were going to spend four grand on a roof and not inspect it with our own eyes (I did and the roof was as expected) but in climbing up that roof I learned one thing: things are never as bad as you think they are. As I climbed the ladder, I quickly realized that the most unstable point was about the middle. Once I got past the middle, the roof helped stabilize the ladder and it stopped bowing and shaking as much. Fear sharpened my senses, made me more cautious, but it didn’t change my decision. That’s what fear should do.

So, here I was leaving a job that I liked in order to do a job that I also liked, but one that lacked as much predictability and comfortability, if that’s a word (it’s not). I was so afraid of pulling the trigger, despite all the signs saying it could be possible, that I just put off thinking about leaving for at least six months. My wife and I talked about it off and on and she was supportive, but it took an epiphany before I could think about it rationally.

I realized I was more afraid of working the next forty years of my life and wondering “what if?” than I was of blogging full-time and failing. Then I used my fear of failure to hone in on a plan that would, at the very least, give me confidence that everything is progressing as it should be.

So how are things four months later? I love it but it’s still scary. There’s a certain bit of comfort in taking direction from someone else. If your boss tells you to do this and it’s the wrong thing (wrong as in bad decision, not ethically wrong), then the responsibility and the blame falls on your boss’ shoulders. If you are the boss, the burden is on you not to mention the burden of figuring out what it is you’re supposed to do. That freedom is very exciting but also very demanding.

I’d also like to thank all the folks who read this site regularly. It is because of you that I was even able to have a decision four months ago and you all keep me honest. Much thanks. Please continue to email me with comments, questions, sites you’ve found interesting, articles you thought I should check out, anything in the world, I’ll read it and try to get back to you.

So moral of the story, fear isn’t a reason not to do something or not to consider something. This blogging thing may not work out in the end but at least I’ll have tried, right?

There’s an interesting Scientific American article out regarding Why Things Cost $19.95 and it delves deeper into a concept most people understand and generally regard as true. I always had thought that the purpose of pricing something at $19.95 or $19.99 rather than $20.00 was because it seemed psychologically “much cheaper” despite an actual difference of a few cents. While that may still be true, the article in Scientific American seems to paint a picture in which the impact is more subtle. If the original price is in round numbers and we try to guess the wholesale cost, our guess will be far lower than if the item were originally priced a few cents off. The $20.00 price puts our “increments” in whole dollars whereas a $19.95 price puts our “increments” in cents. The mental anchor, whether it’s a round or not-round number, really set the stage for how we guess.

To be honest, I never bought the concept that $19.95 seemed psychologically cheaper than $20.00 but this explanation seems far more plausible. If your eyes see a $20.00 item and your brain unconsciously guesses it’s worth $18.00, you’re less likely to buy it (because you want a good deal). You’re more likely to buy it if your eyes first see $19.95 and then your brain is tricked into thinking it’s worth $19.45, you are paying less of a premium (despite you actually not knowing how much of a premium you’re paying). The trick is far more subtle!

To extend this further, and this is now based on my experience (or perhaps I read this somewhere a long time ago) and not the article, I find that the Wal-Mart pricing structure is intended to give shoppers a sense that they are getting a deal. Now that people are tuned into $19.99 being actually $20 (or more, given sales tax), they gone to weird pricing like $19.43 and $19.57, because I think people see odd numbers and think discount! $19.99 is regular price, but if it’s $18.76, it probably means it’s cheaper because another retailer would probably price it at $19.95. I don’t know if this is actually what happens but I bet that’s what they’re banking on.

What do you all think?

“I usually keep my card wrapped in a picture of my children to remind me of why I shouldn’t spend … ”
                                             – Trent of The Simple Dollar

If you think money is about dollar and cents and things you can hold in your house or your hand, you’re wrong. Personal finance may seem like it’s all about the numbers, where you have to spend less than you earn, where you have to save up an emergency fund, where you have to invest in the stock market and get your 10% return; but the truth of the matter is that personal finance is more about psychology than it is about mathematics. Everyone knows that you have to spend less than you earn, no one is so disconnected or so poorly educated that they don’t realize how basic math works. It’s like physical fitness, we all know what we’re supposed to do, we just have difficulty remember to do it.

Trent made the above quoted statement in response to my post about how you should write your goals on your credit cards. My tip was a simple reminder, his was a simple reminder packed with the power of psychology. You can easily write the goal on your credit card and then dismiss it when you need to spend. Dismissing a picture of your children, the reason you live, breathe, and work every single day… dismissing that would take a Herculean effort. But it works. Trent knows he shouldn’t splurge on food or kitchen tools or video games, JD knows he shouldn’t splurge on comic books, and I know I shouldn’t splurge on vacations. Slap a picture on it, of either your kids or your cats, and it drives that point home like a jackhammer.

If you think Dave Ramsey Is Bad At Math, you’re not alone. You’re also right. Dave Ramsey’s Snowball debt busting methodology is mathematically suboptimal. For those unfamiliar with it, you essentially pay off your smaller debt amounts first, then roll those payments into larger and larger debts. The payments “snowball” and you are also rewarded with positive feelings about knocking out the smaller debts. It’s suboptimal because you would save more money by paying off the highest interest rate debts first, but you lose the psychological benefit of kicking one of those debts in the butt. While suboptimal mathematically, for many it is the optimal solution because it helps them overcome their debt. It may not be smart math, but it’s smart psychology.

The next time you have difficulty with something personal finance, be it spending less than you earn or saving towards something, try some psychological tricks and you may find that it works out better in the long run.

Today, on my way into work, I was listening to some morning radio show talk about how 47% of British men give up six months of sex for a 50″ plasma television. It sounds ridiculous (that’s why they did the study in the first place!) but the interesting part is what followed. Approximately 25% would give up smoking and 25% would give up chocolate for the 50″ plasma television. That’s when one of the hosts said that if you gave up smoking for six months you could buy the television.

So why not reward yourself for frugal behavior? If you’re a smoker and you want a new 50″ plasma television, why not give yourself an added incentive to quit? If you smoke one pack a day at around $5/pack (my guesstimate), it would take 268 days to save up the $1,339.98 for a Samsung HPT5064 50″ Plasma HDTV. That’s a little under nine months at $5 a day. If cigarettes are more expensive in your area or if you’re a heavier smoker, you can save up even faster (and that’s not even taking into account all the positive health benefits you get!).

Don’t smoke? Don’t want a 50″ plasma television? Replace smoking with another dirty little secret habit (mocha lattes?) and replace a plasma television with something you’ve always wanted (trip to Europe?). Having a goal always helps you be frugal.

It’s been said that we Americans live in a world of instant gratification. We want the coolest gadgets and gizmos, the best food, the best cars, the best everything… right this very second. We are impulse, we are impatient, and most important of all, we are able to fund our impulsiveness and impatience with lots and lots of spending.

You know who else knows this? Stores. There’s a very good and profitable reason why there are tabloids and candy bars at the checkout aisles (one of the reasons why self-checkout kiosks haven’t become more ubiquitous is because you can’t sell someone high margin items like magazines and candy if they’re busy checking themselves out… plus the machines always break for some reason). Anywhere you go, you’ll likely see some small little item by the register like a trinket or a small votive candle or whatever. You’re impulsive and stores know it.

You know who else knows this? Salespeople. If you ever get a quote from someone to do work on your house, you’ll always get a special one day deal. You’ll always get an “awesome deal” that will only be good for the next three days. If you go into a store with salespeople, say furniture, you’ll always be offered six or twelve months of 0% financing if you buy today. One day offer!

Advertisers scare you by showing a burglar breaking into your home and then flashing a number for a security system company. They show you beer and snack commercials during football season and they show you pizza delivery commercials late in the evening. They know that they can take advantage of your need for instant gratification to bypass your normal decision making patterns. They’re smart… but you’re smarter.

Remove the allure of instant gratification and you can save yourself big money.

You don’t need that tabloid and your stomach doesn’t need that Three Musketeers bar. You shouldn’t take that contractor’s awesome one day deal because you can probably do better shopping around. Finally, furniture will always have 0% financing. Always. So, remove instant gratification from your life and you can save yourself money; here are two reasons why:

Shopping Around

If you resign yourself to always get at least three quotes on something before you buy it, you’ll save yourself money even if you do nothing else. While this seems obvious for things like high dollar contracting work where there are plenty of differentiated suppliers, it works even for commodity type things like DVDs and books. There are two reasons why this is effective:

• You save money by finding the lowest cost among three similar vendors.
• By not buying immediately and waiting to see the price in at least two other places, you may re-evaluate how badly you need that item or the work. You could decide it’s not what you want.

Is Time A Factor?

Sometimes time is a factor and you need to buy something immediately, such as airline tickets. However, if time is not a factor, consider waiting for the sales to come to you. There are plenty of bargain airline ticket places that will send you their latest fare sales, just wait for a good deal before pulling the trigger on tickets if there isn’t a specific event you’re going to. This same rule applies for items. Amazon.com has rotating deals on all classes of items, just wait until your item goes on sale before you buy it.

So, the next time you want to buy something, take a step back and try to find three alternative stores (or three alternative items that may be cheaper but serve the same function) and think if time is a factor. These two alone will save you a bunch of money you can better spend on a trip to Europe! (just wait for the deals!)