On Saturday night, I had dinner with Wendy and Dennis, two Get Rich Slowly readers who recently moved from Phoenix to Portland. We talked about a lot of things — most of them nerdy. We also chatted about the ever-evolving nature of Get Rich Slowly.

“I’ve noticed you’re writing more about credit cards lately,” Wendy said. “Is that because you’re using them more often?”

“Well, maybe,” I said. I thought about it for a moment. “My stance on credit has certainly changed in the past five years, so that might be part of it. But it’s probably just an accident. I seem to cover subjects in phases. I might write a lot about frugality for a while, then write a lot about investing, then about making more money. I guess I’ve just had more to say about credit cards recently.”

Wendy confessed that the credit card information doesn’t do much for her. “I’m phobic about credit cards,” she said.

“That’s okay!” I said. “There’s nothing wrong with being phobic about credit cards. I used to be scared of them too. I’ll never argue that you’re making a bad choice by avoiding credit cards.”

“I’m open to the possibility of using credit cards when I know I’ll use them to spend only the money I have,” Wendy said, “but I’m not ready yet. For a while, Dennis and I had a prepaid card, and even with that, we had control issues.”

Numbers versus emotions

We talked about how our money problems didn’t happen because we were bad at math, but because we were unable to separate money from emotions.

The first tenet of the Get Rich Slowly philosophy is that financial success is more about mastering the mental game of money than about understanding the numbers. Wendy summarized this perfectly when describing her past spending habits: “When I bought things, I didn’t buy them with numbers; I bought them with emotions.” She’s trying to do better now, but it’s still a challenge.

“You always think the Future You will have more money,” Wendy said. “It’s okay to spend today because you’ll find some way to pay for it tomorrow. But you never think that the Future You might drop out of college or have kids or get into a car accident. The Present You doesn’t really know the Future You.”

I loved this insight. I’ve thought often about how the Future Me always seems to be vastly different than the Present Me — and different than I would have predicted. Yet I used to make dumb decisions in the present as if my future self would somehow develop the superpowers to save me. Instead, Future Me simply ended up cursing my past choices.

Fantasy versus reality

How tough is it to predict your future path? Here’s a simple test: Think about where you were five years ago — where you lived, who you spent time with, what you did. How does that compare with where you live today, who you spend time with, and what you do with your time? Chances are your life today is much different than it used to be — and much different than you might have predicted it would be.

Here are two examples from my own life:

When I was a junior in college, I expected to graduate, settle in a big city, get a job as a counselor or therapist, get married, have kids, and live happily ever after. I had no inkling that five years later I’d own a house in my hometown, work at the family business (something I swore I’d never do!) in a job I hated, and have over $20,000 in consumer debt. No inkling. (Only the “get married” part of my expectations proved to be correct.)

Five years ago, I was buried under more than $35,000 in consumer debt, still worked at the family business in a job I hated, and hadn’t even conceived of Get Rich Slowly. (I was just beginning to read personal-finance books.) I could never have imagined that today I’d not only be out of debt, but also have substantial savings and be a full-time writer.

Sometimes your future life fails to live up to your expectations, and sometimes it exceeds them. But in nearly every instance, you cannot predict where life will take you. In fact, you can’t even predict what will make you happy! No wonder Present You often does such a poor job of setting things up for Future You.

Present You versus Future You

When I speak to college students, I warn them to not spend based on their expectations for the future. It’s tempting to believe your future self will be richer, smarter, stronger, and more successful — but that doesn’t always happen.

What can you do about it? How can you strike a balance between today and tomorrow? There’s no mystery. You can fund your future by making smart choices in the present, including:

Have a plan. Based on who you are today and what you know about life, set goals for the future. Sure, these goals may change. That’s okay. Use these goals to create a budget or financial plan in the here and now.

Practice conscious spending. Stop spending on the small, unimportant stuff so that you can afford the things that matter to you. This requires long-term thinking, but it’s worth it.

Avoid debt. Don’t expect your future self to be able to cope with the financial mistakes you make today. Don’t make things tougher for yourself than you have to.

Save for retirement (and other goals). Remember the extraordinary power of compound interest: The more you save today, the less you need to save tomorrow.

Before our dinner conversation returned again to dorky topics, Wendy made a final observation: “Once I stopped thinking about the Future Me as being different than the Present Me, my whole perspective changed. I started making decisions on what I needed and could afford today instead of what might happen tomorrow.” Exactly!

To stop making poor decisions with money, it’s often necessary to ignore fantasy and deal with reality. Instead of counting on Future You to save the day, do the hard work now. Your future self will thank you for it.

When Ebooks Are More (and Less) Cost Effective Than Physical Books

While many may prefer eBooks for the convenience they offer (or prefer paper books for the sentimentality), finding out which is cheaper isn't so black-and-white. Personal finance blog Get Rich Slowly shows us how to save the most money when buying books.

Photo by Pen Waggener.

All other preferences aside, it looks like eBooks are cheapest then the books are extremely new or extremely old:

E-books are great for new releases. For new books, the electronic version is almost always the cheapest way to go. At a friend's house the other day, I noticed he'd paid $29 for the latest John Grisham book. $29!!! That's insane. That John Grisham book costs $16 at Amazon, and the Kindle version costs $10. In fact, most e-books cost between $10 and $12. When the cost savings is combined with the space savings, e-books are the clear winner for new releases.

E-books are okay for classics. Anything that's in the Public Domain (published before 1923) can generally be downloaded to your e-book reader for free. Sometimes the formatting is goofy, and there usually isn't any supplemental material (like essays and notes), but you do get the books at no cost. (Searching for free Kindle books? Here's Amazon's list of free eBook collections, and here's their best-sellers in the Kindle store, including free books on the right.) Of course, these books can usually be had for cheap (or free) in their dead tree versions, so there's not a huge savings here.

E-books suck for most titles published between 1923 and, say, 2008. Books from the past century are still priced between $5 and $10 in electronic editions. This is ridiculous. You can borrow these for free from your public library. Or you can go to a used bookstore, a garage sale, or a thrift store to pick them up for less than they cost in digital format. Plus, tons of popular books aren't evenvailable electronically. (A real-life, typical example: Cry, the Beloved Country costs $12 on the Kindle. A brand-new paperback copy from Amazon? $9. The mind boggles.)

It's a rather interesting pattern, though good to know if you don't particularly have a preference for one over the other. Of course, if you find eBooks are just too darn convenient and instantaneous (or you prefer to have the physical copy for sentimental, ease of lending, or other reasons), you can always stick to your preferred media and we won't yell at you.

Note that the above also doesn't take into account the cost of buying an e-reader, which only pays for itself if you read a lot of books, so unless you use it for other things anyway, you'll want to keep that in mind as well. Hit the link to read more, and if you've noticed a similar patter, share how you manage your book buying in the comments below.

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Wednesday, December 22, 2010

personal finance books

When Ebooks Are More (and Less) Cost Effective Than Physical Books

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