The Rule of Small Bits

When I was running my own business, I was distressed to see that while I was working hard, and we were taking in hundreds of thousands of dollars in income, we were not making much money.

One of my employees, said, "Well, you just have to cut out the waste!". He had a similar theory about the Federal Government - that all they needed to fix things was to "cut the waste".

Unfortunately, when I check my Quickbooks, there was no pie wedge labeled "waste" that I could just click on and delete.

What I learned, the hard way, over many years, and am still learning, is that "waste" is very hard to trim, as it comes in very small bits that are difficult to track down. Savings come not in huge chunks, but in tiny savings here and there, that when added up, save large amounts of money over time. a few dollars on the phone bill, a penny here on copy paper, 10% on your utility bill - things like that. These are difficult savings to find and implement, but they pay off. It is hard work.

For example, you may wonder why, at the gas station, there is no hot water when you wash your hands. I wondered too. Until I realized that at my office, there was a sticker on the side of the hot water heater that said "This appliance uses $450 of electricity a year." Well, I went and turned off the circuit breaker and bam! saved $450. All we used water there for was to make coffee, flush the toilets and wash our hands. Since it took several minutes for the hot water to even get to the sinks, no one ever had hot water anyway.

Did this change my business overnight? No. Did I get a check for $450 in the mail? No. But the savings were there, equal to about $30 a month or so on my utility bill. You have to think outside of the box, and sometimes come up with creative cost-cutting solutions.

And small savings are cumulative. Just as time is the big wheel that multiplies compound interest, time is the big engine pushing debt and costs. One reason our Government is in financial trouble right now is not that we have spent a lot of money in any one given year, but rather that we have not trimmed waste over the years, and have allowed debt to accumulate.

During the last year or so, I have been able to trim my budget considerably, using the rule of small bits. I shopped my homeowners insurance and saved $500 - not an inconsiderable amount of money. I reviewed my auto policies and realized I was paying for collision insurance on a car worth $6000 and driven maybe 3000 miles a year. I saved $1500. Here and there, we found a dollar, ten dollars, 20 dollars, particularly in recurring costs (like the cell phone bill). Each savings wasn't much, but over a year, cumulatively, we've probably knocked $15,000 to $20,000 off our expenses - without changing our lifestyle all that much (Your savings may be less, we do have an extravagant lifestyle).

With debt, this works the same way. If you have $20,000 in intractable credit card debt, you did not come to this overnight. Rather, you more likely spend a dollar here and a dollar there, and every month, added another $100 to the pile, which, with interest and over time, "suddenly" balloons to twenty grand.

Weight loss, as I discuss in my companion blog, works the same way. You run a calorie surplus of maybe 50 calories a day for a decade, and you will be 60 pounds overweight. It does not take much, just an extra snack or a candy bar. "Suddenly" one day, you look in the mirror and you are overweight.

Trying to fix such problems with radical solutions, like cutting all spending, or starving yourself rarely works. Problems that take years to manifest themselves can take years to fix. The Federal Budget crises will not be resolved by years end - or perhaps even by the end of the decade. But we can make progress on all fronts.

The Rule of Small Bits applies in other areas as well. For example, Gambling can cause you a world of pain, but not all at once. Rather, the gambler dies by a "death of a thousand cuts". What do I mean by this? Well, let me explain.

Every gambler I know has a gambling problem. And every gambler I know insists they don't. When you ask them about their gambling habit (and it is a habit) they rationalize it away by saying, "Well, I went to the Indian Casino last weekend, and I won $50!". Gamblers tend to selectively remember wins and forget about losses.

If you push them on the latter, they will admit, "Well, most weekends, I come out behind, but usually only by $50 or so. But if you factor in all the free drinks, and such, it is not a bad deal, for the entertainment involved!"

Again, the gambler deceives themselves, as the losses are likely much higher than that. And unlike "high rollers", the gambler is not "comped" meals and rooms. So the overall expense, including travel, is higher than they'd like to admit.

And some would argue, "Well, what's wrong with spending $50, $100, or even $200 a weekend on gambling losses?" And again, the Rule of Little Bits applies.

Suppose our gambler spends one day a week at the Indian Slots and loses $50 each time. Over a month, that's $200. Over a year, that's $2400. Over a decade, that's $24,000. For the average middle-income person, that's a lot of money, particularly as a percentage of their disposable income.

And yet most of the gamblers I know are middle class or lower-middle-class people (mostly lower) and a surprising number are poor. They have serious money issues, but would never consider giving up gambling as one approach to solving their money problems.

And here is where the law of Little Bits doesn't apply in the cure: You can't "wean" yourself from compulsive gambling (and there really is no other kind) by trying to cut back or taper off your participation. Gambling, like alcoholism or drug use, is one of those "cold turkey" kind of things. It may take us years to become gambling addicts, or drug addicts, or alcoholics, but we can't afford to spend years undoing that kind of behavior - and the taper-off approach rarely works.

Gambling is a very bad idea. It is nearly impossible to go to a casino to "gamble a little bit" as it is to go to an "all you can eat" buffet to "have a snack." You can't have a credit card in your wallet and go to the mall and expect not to spend. No one has that kind of self control, and that is just what they count on - your human weakness. So wheenver possible, just resist the temptation by avoiding it entirely.

So for many types of behavior, we find that small bits of excess over time can result in large problems that may take small bits of corrective behavior, over time, to fix. The only exception to this Rule of Small Bits is in the case of addictive behavior, which generally requires a "cold turkey" approach in order to fix.

And sometimes this means cutting up credit cards, stopping the habit of "shopping", avoiding the "all you can eat" buffet, kicking the drug habit, or stopping gambling alltogether.

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Closing a Credit Card Account

Paying off and closing a credit card account is a wonderful feeling.  They will refer you to a "closing specialist" when you close the account.  Listen carefully to see if you can get a good deal, but don't be tempted by the siren song of more debt.  In most cases, you are better off just closing the account.

Hopefully, if you have followed some of the advice here and elsewhere, and cut back on spending and paid down your debts, you will reach a point where you have paid off one or more of your credit cards.

The question is, should you keep that card, now that it is paid off? As it is hard to survive in this economy without a credit card, I would not suggest closing all your credit card accounts. But it does not pay to have multiple credit card accounts.

Many Americans have two, three, four or more credit cards, all with high balances, as well as store cards, gas cards, and other consumer debts. I would suggest it is better to have one, low interest rate credit card (6-8%) with a reasonable balance limit ($5000) than to have all these open lines of credit.

If you don't have a lot of debt, and need to borrow money, trust me, you'll be able to. The idea that you should keep a credit card open "just in case" you need a line of credit later on is troublesome. Human nature being what it is, an open line of credit is a temptation to spend - a temptation that you will give into, eventually.

Not only that, but an open line of credit will lower your credit score. Even if your credit card is "paid off", if you have a $20,000 credit limit, it shows on your credit report, and will lower your score and make lenders more reluctant to lend, as you could rack up a lot of debt, in not a lot of time.

So, once you have paid off a credit card (preferably the higher interest rate cards first) it is probably a good idea to close the account. This can be done by phone. When you call the credit card company and tell them you are closing the account, they will switch you to a "closing specialist". Some consumers get upset that they have to talk to yet another person. However, this "closing specialist" chat can be an opportunity.

You see, now that the card is paid off, you are in the catbird seat. If you have been making payments on time, then they don't want to lose you as a customer. Before, when you had credit card debt, you were not in a position to negotiate anything. But now, with one foot out the door, you may be able to wrangle concessions.

For example, I closed a Citibank Visa account a couple of years back. The card had a high interest rate and it was no bargain. The closing specialist asked me why I was closing the account and when I told him it was the interest rate, he immediately offered me a lower rate, if I would stay on with them. When I demurred, he put me on hold for a moment and then came back with a new offer: If I would switch to a Mastercard, they would lower the rate to 5.99%.

That's a pretty attractive offer - lower than many people's mortgage interest rates, these days. And far below the average interest rate on most credit cards (14.5%) Not only that, but they were willing to do a balance transfer from a higher rate card with zero percent interest for 10 months. Now note that balance transfers can be tricky things - see my posting on this subject. But in some instances, they can be used, if you are very, very careful, to save money and help you pay down debt.

The point is, once you have paid off a card and threaten to leave, they are willing to do things to keep you onboard. This can be an opportunity, so look into it.

Other card companies might not be so eager to keep you on. Barclay's Bank, for example, did not have much to offer me. It was a mileage rewards card, and as I have learned from hard experience, these are often no bargains. When I paid off the balance on the card and closed it, they sent me to the "closing specialist". He was not able to offer any serious interest rate cuts (to less than the other cards I have) but did offer a balance transfer. However, at this point, such a transfer makes little or no sense, as my base interest rates on my cards, and the remaining balances are low.

It made better sense to close the card. By the way, once you close the card account, make sure you monitor the account (through the card website) for at least a few months. While the card may show as closed, the account will remain active, as recurring charges or late closed charges may still appear. You may still own the card company money. Once the card has been closed for several months, make sure you check the status on your free annual credit report (the really free one, not the con-job that is advertised heavily) to make sure it shows as closed.

If you are closing a credit card account, congratulations. Hopefully this is a step toward more financial responsibility and a brighter future. Once you pay off debt and become debt-free, you'll find that your opportunities improve. The best loan terms and interest rates are offered to people who "don't need the money". So just as getting into debt can spiral into a pit of increasing indebtedness, higher interest rates that are increasingly hard to recover from, once you are out of debt, your financial options improve accordingly - you are offered better terms and better deals.

And that, in a nutshell is what this blog is all about. Once you get out of the debt lifestyle, you can live a life that is twice as rich - or work half as hard, if you want to. How you spend your money makes a huge difference in how your life is lead. Unfortunately, for many Americans, life is one long continual string of debt that ends only when they die.

We don't have to live that way, if we choose not to.

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Understanding Capital Gains Tax

Most folks have little or no understanding of our tax system. As I have mentioned before, no one really makes it easy to understand, and many folks would prefer you didn't understand it. They show you huge volumes of the tax code and TELL you it is "too complicated" to understand.

But it really isn't all that difficult. Most of those huge volumes don't even apply to you. Basic tax code is not all that hard to understand - at least at the level where it applies to your finances.

Ordinary income is taxed on a progressive basis. So the more you make, the more you pay in taxes - on the increased amount. The table below illustrates the actual rates for 2010.

But the main thing to understand is that if you are in the highest bracket, the last dollars you make are taxed at about 35%.

Ordinary income includes wage income and dividend and interest income. But wage income is also subject to another tax - or taxes - for social security and medicate. This amounts to about another 8% in taxes, and your employer matches this. If you are self-employed, you end up paying about 16% which represents what you would have paid in social security and medicare taxes, plus the matching amounts from your employer. So a dollar made at a wage job is worth more than a dollar made when self-employed.

Capital Gains are considered to be money made on the appreciation of an asset, such as stocks, houses, and the like. If you buy $100 of stock and a year later you sell it for $200, you have a Capital Gain of $100. At the time of this writing, Capital Gains are taxed at a flat 15% rate.

What constitutes a Capital Gain is often an artificial construct and one reason many folks argue the tax should be eliminated. To begin with, we tax only "realization events" - usually where you buy or sell an investment. So if your stock goes up $100, that is not a "Realized Capital Gain" until you actually sell it at that price.

If you buy a stock for $200 and then sell it for $100, you have a loss of $100, which can be used to offset other gains or income and thus reduce your taxes.

If you buy a rare Ferrari as an investment and sell it for double the money, that is a Capital Gain and you have to pay taxes. However, if you buy a Ford Taurus for your personal use for $25,000 and sell it five years later for $12,500, that is not considered a "loss" you can write off. Go Figure.

Similarly, if you buy a stock 20 years ago for $100 and today sell it for $200, you owe taxes on the $100 "Gain". However, over 20 years, that is not much of a rate of return, considering inflation, and arguably you actually lost money.

Some have proposed amending Capital Gains taxes to account for inflation, but others have argued that it would be a nightmare of accounting. Yet others say "get rid of it entirely".

One argument against the "get rid of it entirely" crowd is that it is possible to take dividends in a company and pay them out as stock (as in a split) and thus avoid taxation as dividend income (and people do this already). If there were no Capital Gains tax, there would be no taxation on most income from stocks (and some argue this is fair as well!).

As noted above, Capital Gains are calculated based on what you PAID for the investment, subtracted from what you SOLD it for. We call the amount you sell it for "Amount Realized" or AR, and the Amount you Paid for it your "Basis" or "Adjusted Basis" or AB. So the formula for Capital Gain is very simple:

GAIN = AR - AB

But why do we call it "Adjusted Basis"? Well, sometimes, other parts of the tax code allow you to change the Basis value along the way - usually to lower it. This is called Depreciation. And that is the subject of our next post!


Year 2010 income brackets and tax rates

Marginal Tax Rate	Single	Married Filing Jointly or Qualified Widow(er)	Married Filing Separately	Head of Household
10%	$0 – $8,375	$0 – $16,750	$0 – $8,375	$0 – $11,000
15%	$8,376 – $34,000	$16,751 – $68,000	$8,376 – $34,000	$11,951 – $45,550
25%	$34,001 – $82,400	$68,001 – $137,300	$34,001 – $68,650	$45,551 – $117,650
28%	$82,401 – $171,850	$137,301 – $209,250	$68,651 – $104,625	$117,651 – $190,550
33%	$171,851 – $373,650	$209,251 – $373,650	$104,626 – $186,825	$190,551 - $373,650
35%	$373,651+	$373,650+	$186,826+	$373,651+

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Converting Ordinary Income to Capital Gains

In our previous post, we illustrated the differences (on a very simplified level) between taxes on wage income and on capital gains.

If you are earning money at the 35% rate, and then paying another 16% on top of that (total 51%!) it would seem to be a lot more attractive to pay taxes at the capital gains rate of 15%, wouldn't it?

Well, it can be done, and how it is done is one reason our Real Estate market went haywire over the last decade. You see, you can convert ordinary income into a capital gain, simply by investing in Real Estate. It all works through the magic of Depreciation as we started to discuss in our last posting.

Depreciation confuses a lot of people as they tend to think it means something is depreciating, when in fact, usually it is appreciating. It is just a word that identifies a tax concept, and once you get over that, it is easier to understand. If it helps you, just call it "D" and forget about trying to figure out what is Depreciating, because nothing is.

It is like trying to understand Entropy and Enthalpy in Thermodynamics. You'll drive yourself nuts trying to visualize these terms as physical entities, and probably flunk the course in the process. Once you accept them as labels for mathematical ideas (and memorize the equations for the exam!) you'll pass the class.

Our tax laws allow people to use Depreciation as a deduction on their income taxes. If you own an investment property, you can (but are not forced to) Depreciate it every year, say by 10% of the Basis. So you can deduct that amount from your income.

So for example, say you have an investment home that you paid $100,000 for. You rent it out at a break-even point and it pays for itself. The rent covers the mortgage, taxes, insurance, and upkeep.

The tax law permits you to deduct 10% of the value (I am using a round number here, not the actual code numbers) of the property every year as a Depreciation Deduction. So you and deduct $10,000 from your income taxes.

If you make $100,000 a year, this lowers your taxable income to $90,000, which means you save the 35% in income tax and the 16% in self-employment taxes, or about $5100. Not a bad way to save money!

But of course, Uncle Sam will get his taxes in the end. When you go to sell the property, you pay taxes on the Capital Gain. As we discussed before, the Gain is calculated as "Amount Realized" (sales price) minus the Adjusted Basis".

Here, the "Basis" is "adjusted" by the amount you "Depreciated" over the years. Say you keep this property for 5 years. You depreciate it by $10,000 a year, so your "Basis" (what you paid for it) is now "adjusted" downward by $50,000. You sell the property for $200,000.

So your "Gain" is not $100,000 (the amount of profit you made) but actually $150,000, the Sales price minus your ADJUSTED basis. You will have to pay a 15% capital gains tax on $150,000 of Gain.

At first this may not seem fair, but bear in mind that over the last five years, these depreciation deductions have knocked over $25,000 off your taxes. And the additional taxes from the phantom "gain" is only $7,500.

So you've taken $50,000 in income and legally converted it into a Capital gain, and paid the tax, deferred by five years, of less than a third of what you would have paid as ordinary income tax.

Sounds outrageous? Well, to some extent it is. But there is a legitimate reason for it. If you own a rental property that is mortgaged, you pay money into a mortgage every month. Some of this is deductible as an interest expense. But some of it goes to paying down the balance on the note, which is not deductible.

In our example, the property was self-sufficient - it took in as much in rent as it paid out in taxes, mortgage, insurance, and repairs. So there is no taxable "income" on any "profit" from the rental, right? You did not receive a penny in cash out of the deal that year.

But you'd be wrong about that. The amount you paid down the mortgage is indeed a profit, as it represents a decrease in money you owe on the property (and thus more equity in your pocket). In such a situation, you could end up owing taxes on a "profit" that you do not immediately realize. You have to pay taxes, but you have no income to show for it.

The Depreciation deduction tries to offset this effect, but perhaps does it a bit too well. For most investment properties held only a few years, the amount of mortgage paid down is minimal compared to the depreciation deduction. The use of Depreciation ends up being a neat vehicle for high-income-earners and the self-employed to legally offset their income and thus pay fewer taxes.

And of course, in a rising Real Estate market, they make money on the equity side as well. The rich get richer, right?

Well, that was the idea, anyway. Unfortunately, in the 2000's too many people jumped on this bandwagon, thinking they could buy Condos in Vegas and rent them out and depreciate them and knock thousands off their tax bills.

And so long as the Condos held their value or increased over time, it was not a bad plan. And so long as they could be rented out to cover the overhead, it was not a bad plan. But once the market was flooded with units, the rentals market was flooded, and no one was covering costs. Worse yet, this forced prices down, and people lost real money.

Yea, I know, you feel very sorry for all these rich folks who got their weenies caught in the wringer, trying to avoid paying income taxes.

But that is basically what happened in many markets. Aided by funny-money financing, a little mortgage fraud here and there, and of course more than one homeowner who thought he could "have it all" with a no-doc toxic arm loan.

I learned this technique from my Tax law professor in law school. Again, it is perfectly legal. And when the market was going up, and rents were high, it worked well for me. I cashed out of the market before the major crash, and managed to do OK.

However, one downside to this scenario is that the capital gains taxes can actually exceed the amount realized. For example, if you "fully depreciate" a property, the gain will be equal to the sales price. Your taxes will be 15% of the sales price (plus State taxes, don't forget those!). As a result, you could find yourself making a lot of money, but owing a lot of taxes. If the property is mortgaged, the amount cashed out could be about equal to the taxes, or even less.

When I sold one property, I had to scramble to come up with the cash to pay the Feds and the State the Capital Gains Taxes due. It worked out in the end, but I ended up borrowing some money to pay the taxes, which is how I ended up starting this blog.

So, there are pitfalls to this technique. But overall it has worked for me. For others.... well..... not so good!


But that's how you can convert ordinary income into Capital Gains.

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Nothing Succeeds Like Success!

Marge Simpson's Pretzel Wagon

In my Finding a Good Dentist Post, I mentioned briefly the habit or psychological effect that occurs with many people, in assuming that a business or person who appears successful, is often the best place to do business. People shun businesses and services that are not slick, smooth, and marketed, and are drawn to people and businesses that "look professional":

"And yet, many people assume that the Dentist with the flashy office is "successful" and therefor must be "good". For the same reason, people will drive by a locally owned diner that makes excellent gourmet food at cheap prices, and eat instead at McDonald's - because the McDonald's is shiny and new and flashy, and obviously successful. So it must be "better", right? (This effect is prevalent in any industry, and probably the subject for another article)."

OK, well, here is that article.

The impulse to be attracted to businesses that appear successful is probably natural. And to some extent, it may be a survival skill. If you are shopping for a mechanic, the shop that is clean and well organized may be a better place to take your car, than the shop that is cluttered with junk and dirt, and surrounded by abandoned and wrecked cars.

And similarly, a restaurant that appears to be dirty, unclean, or unsanitary, is not a good place to eat. We are naturally drawn toward a restaurant that appears to be clean, sanitary, and busy.

These are, perhaps, well-ingrained survival skills dating back centuries. And yet, we should not let "flash" blind us when making economic decisions. Oftentimes, a business or person who appears to be successful and prosperous is not exactly what they seem. And often, shady businesses and persons hide behind a false front of prosperity.

This phenomenon was neatly illustrated in an episode of The Simpson's, when Marge's "Pretzel Wagon" franchise is upstaged by the slick-looking Fleet-a-Pita truck:

Lenny: Wow, check out that van! It looks like it doesn't even need our business!

Carl: Hey, let's go!

The writers of that episode (where have they all gone?) nailed this human instinct down in two lines - that we are attracted to businesses that look successful or act like they don't need (or want) our business. In recent years, some businesses have adopted this as a wholesale model. For example, Starbucks thrives by insulting and belittling its customers - and by convincing them that some pimply-faced teenager working for minimum wage is a skilled "barrista" worthy of worship. Psychology sells! And idiots buy.

Con Men play upon this basic urge of ours. You are more likely to find a con men dressed in a sharp suit than anyone else. The average working Joe has to roll up his sleeves and work for a living. His suit will be creased and worn. But the crook rarely dirties his fingers, and his shoes will be the shiniest ones in the room. When someone appears to be too slick, too well dressed, too perfect, your suspicions should rise.

For example, an acquaintance of mine wanted to partner in a business venture. He always wore expensive suits and Italian loafers and was as slick-looking as an Italian model. He visited me in my office and complained that our gravel parking lot was ruining his expensive shoes. I realized right then that it was not going to work out. While he had a great facade of slickness, he did no real work, which is why he was looking for a job in the first place. I told him to take his Italian loafers and take a hike.

But similarly, many businesses use (sometimes literally) a "false front" to make the business appear to be larger or more successful than it is. And in many instances, people are drawn to what they perceive to be a "successful business" thinking it will provide the best bargains, than to some alternatives which are far better.

Nowhere is this more true than in the car business. As I (and many others) have noted, the best bargains in automobiles are to be found from an individual owner, selling a personally used car, that is 1-3 years old with relatively low mileage. An individual, such as yourself, selling their own car, is at a horrible disadvantage to the car dealer, as they cannot offer financing or other services (temp tags, registration, etc.) and moreover their negotiating skills are more likely to be on a par with your own.

And this disadvantage is reflected in the NADA, KBB, and Edmunds "book" prices for used cars. A car sold by an individual will generally sell for 20%-30% less than the same USED car sold by the dealer.

20-30%. That's a LOT of money. Add in the fact that if you are buying from the owner of the car, you can better find out how well it was cared for, are more likely to have service records, and can judge how well the car was treated. At a car lot, the cars are all generic and there are no "back stories" to them. The abused clunker and the creampuff sit side by side, and you have little or no way of distinguishing between the two.

And yet, the majority of people buy their used cars from used car dealers. Why is this? I think the answer is multifaceted, but it has largely to do with the image of success.

When I ask people why they go to a used car dealer, the answer I receive most often is the most puzzling: Trust. Used car dealers are routinely rated near the bottom of the barrel (sometimes below lawyers!) in terms of trustworthiness. They have been reviled in stories and jokes since time began. And yet, people cite it as one main reason for going to a dealer. Why is this?

I think the answer is that people are enthralled by the trappings of success. The dealer has shiny signs, bright lights, rows of clean cars, salesmen in suits, impressive buildings. All of these taken together project the image of a profitable and successful business. People are drawn to that like a moth. Of course, they rarely think as to who is paying for all these trappings of success. And the answer is, of course, the customer, which is why dealers have to charge 20-30% more for their product than the individual with no overhead.

A person selling their own car, from their home, has no "flash" to sell. They are just like you and me. They cannot hype the product as well as a salesman. They may tell you the truth about the car, which is not bad per se, but not as open-ended as the mystery of the used car on the salesman's lot.

Of course, the individual seller cannot offer financing, slap temp tags on the car, and take your old car in trade. So those factors are highly important as well. But the "hassle" of going to your credit union and the DMV, as well as selling your own car, are well worth 20-30% off the purchase price. And yet so few bother to go this route (which is all the better for you and me).

This is, of course, not to say that all car dealers are crooks and all individual sellers are saints. There are "curbstoners" out there who sell cars for a living, posing as individual sellers (often to skirt dealer laws). And there are individual sellers who think they are just too clever and will ask more for a car than it is worth. But it is not hard to spot such folks (usually by their over-inflated asking prices and egos) and just walk away.

The same effect, as I noted above, occurs with restaurants. People will drive by very good restaurants, often local institutions, to dine at some chain restaurant, such as McDonald's or Bennigan's. When asked why they do this, they often reply that they like the certainty of the chain restaurant - knowing what will be on the menu and at what price. They live in fear of getting a bad meal.

And yet. the food at many chain restaurants can be wildly inconsistent, as can be the service. And since the food is often prepared by teenagers working for minimum wages, the idea that such places are cleaner or more sanitary than a family-run restaurant can be flat-out wrong (search on YouTube if you don't believe me).

But more important that that, the local restaurant is more likely to offer good food, regional food, and often at better or more competitive prices. But to go to such establishments often takes a modicum of courage. When traveling, one is naturally reluctant to stop at a local diner. In the back of your mind, you expect to walk in, have the screen door creak shut, and have everyone in the place stop talking and slowly turn to look at you. At the counter, an overweight local Sheriff slowly drawls, "You-all ain't from around here, arya, boy?" Suddenly the hamburger at McDonald's sounds a lot more attractive, even if some high school teen behind the counter has spit in it.

But the reality is, many of the local, family-owned businesses are not that way at all. You are served with grace and speed, and the food is often better, healthier, and cheaper than the chain restaurant down the way.

And in addition, you are supporting a real business run by real people - not some mindless chain that is run from a corporate headquarters, that pre-cooks the entrees and then hires the least-skilled and least-paid labor possible to thaw and serve it for you. These chain restaurant survive and thrive because people patronize them. The really great restaurants of the world struggle as a result.

Again, this is not to say that every chain restaurant sucks, and that each Mom-and-Pop "dive" is a gem in the rough. There are some locally owned restaurants that should not be in business, and there are some chains that are quite good, when the entrees are thawed properly.

In order to find the good local spots, though, you have to be willing to take risks. Risk-takers reap the rewards in life. Is there risk? Well, some, but not much. At the very worst, you may have a bad meal. Yet even that trivial risk is too much for most Americans to take. They live in ragged fear of the bad meal. And so they settle for a known quantity - endless mediocre meals at chain restaurants. I'll take risk, thanks.

This effect can also be inverted. For example, as I noted in my Wal-Mart blog, many people are surprised to find that the quality and prices of food at Wal-Mart (yes, Wal-Mart) are on a par with, or better than the "upscale" grocery chains. And yet, many folks turn up their noses or refuse to shop there, because they have preconceived notions as to what the store is all about. So they go with the "safe" choice, pay 2-3 times as much for their groceries, and come home with wilted lettuce.

In finding real bargains in the world, you have to strike a balance, I think. There are successful businesses out there that provide real bargains, or at least reasonable deals (all that anyone should hope for, really). But there are also lesser known channels of commerce that can provide a real gem of a deal, in terms of quality or pricing. It is worthwhile to seek out such bargains and not be blinded by a flashy office, a nice suite, or a neatly printed business card.

But this takes judgment, and by that I mean judging the product or service offered, not the packaging it comes in.

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Finding a Good Dentist

Finding a Good Dentist

- OR -

The Death of Professionalism.


Finding a good Dentist these days is a daunting task, and not because there is a shortage of them. On the contrary, we are awash in a sea of Dentists in this country and have many to choose from.

So, one would think, with the law of supply and demand and all, that with a surplus of Dentists to choose from, we would have competition forcing down prices and also providing top notch service. And yet, the opposite is true.

What do I mean by this? And why has this happened? Well let me explain the first part, and they we will examine how this has happened to the Dentistry business as well as a lot of other professions.

Despite the paranoid claims of the John Birch Society, fluoride, in our drinking water and toothpaste, has done wonders for American teeth. The incidence of cavities has dropped significantly. If you were exposed to fluoride as a youngster, chances are, you have pretty good teeth. So the need for a lot of traditional dental work (filling cavities, the bread and butter of the business) has dropped off markedly in the last few decades.

At the same time, enrollment in dental schools has climbed. Why this is so, I am not sure. Perhaps Dentistry is viewed as a less risky (from a malpractice standpoint) and more lucrative profession. We are also seeing a lot of recent immigrants getting into the business. Many thought that this increase in the number of Dentists would result in better service for undeserved rural areas, where there is indeed, a shortage of dentists (which explains teeth problems in West Virginia). But as one blog notes, the resultant increase in Dentists meant only an increase in the number of Dentists in highly profitable urban and suburban areas.

So we have a surplus of Dentists in urban and suburban areas, and still a shortage in rural areas. Why hasn't the "free market" fixed this problem?

The short answer is that the free market IS at work here. Newly minted Dentists are going where the money is - to urban and suburban areas, where people are more likely to spend money on their teeth, are more likely to have money, and better yet, are more likely to have Dental insurance. You'd go broke opening a practice in a rural area, where people have horrible teeth, can't afford to have them fixed, and moreover don't care.

So the young professionals move to the urban and suburban areas. And increasingly, the practice of Dentistry is becoming a money game, where the name of the game is to sell as many services as possible to the customer. The old days of doing X-rays, filling cavities, and bi-annual cleanings are old hat. Today, we need to sell cosmetic services, such as tooth whitening and repair, and even teeth straightening (braces for adults). We are sold "mouth guards" to prevent us from "grinding our teeth". We are told, with regularity, that we need to have our jaws broken and re-set, to repair "manibular dysfunction" or "TMD" or some other major surgery. And even if you have healthy gums, you are plopped down in the chair for a half hour with each visit to have a computerized "gum recession check", regardless of your real risk for periodontal disease.

Now, don't get me wrong, there are people with real Dental problems, who need root canal or periodontal treatments. And there are some people whose jaws are so badly formed they need corrective surgery. But most people have perfectly healthy mouths - and yet are still told these things. The practice of Dentistry has become, in many quarters, an utter sham - where the name of the game is to "sell" as many services as possible to the client.

The problem with this model, is that many people have an undue respect for professionals, and will take whatever the Dentist says as the word of God. So if the Dentist says you need your jaw broken, it is very easy to convince yourself that he is right.

I went through this with one Dentist, who suggested jaw surgery. After explaining all the benefits of this painful, protracted process, she mentioned that it would cost $10,000 or more, but that "my Dental Insurance would cover it". When I explained that I did not have Dental Insurance (and didn't have $10,000 laying around), she said. "Oh, well, then you really don't need the surgery."

Huh? Did I miss something here? The need for surgical procedures is based on your ability to pay? This, in a nutshell, illustrates what is wrong with insurance-based health care. If someone has insurance (or medicare), procedures are recommended that are not recommended for the uninsured or under-insured.

For example, my neighbor and I both have Diverticulosis, which can flare up into a painful and dangerous condition known as Diverticulitis. Since she is on Medicare, when she has an attack, they put her in the hospital for eight days. When I have an attack, I am sent home with antibiotics. The 80% medicare reimbursement for an otherwise empty hospital bed is just too lucrative for the hospital to pass up. But my private insurance wouldn't cover it, so, I don't get it.

Funny how that works, eh? And maybe you understand better why medical care in this country costs 2-3 times that in other industrialized countries.

But getting back to Dentistry, the same effect occurs, which is why Dentists want to locate where the money is. Trying to sell TMJ surgery to someone in rural West Virginia with no money and no insurance is a sure way to go broke. But in the Suburban New York City area, there is money to be made.

This trend has been commercialized in the form of chain Dental Offices. Overnight, it seems, a new chain of Dentist Offices has sprung up. This chain promises to examine your teeth and do an x-ray, for free! It sounds too good to be true, and of course, it is.

People going to the chain stores report a typical scenario thusly: You go in for your "free" exam, and they tell you that you have periodontal disease, or need four teeth extracted, or need 8 fillings, or need complete dentures. The "patient" is then lead from the examining room to the business office, where they are harangued for money. Do you have insurance? A credit card? Money in the bank? Home Equity Loan? Parents you can borrow from? If you don't have the money, the price of some of the services changes. They claim they can "cure" periodontal problems with one "deep gum cleaning", which of course is costly.

Disturbingly, some report that, after getting a second opinion, they discovered that the chain Dentist was proposing drilling or extracting perfectly good teeth. If these reports are true, it is certainly beyond disturbing. Remember the Hippocratic Oath, "First, Do No Harm"? Apparently these folks have forgotten.

These chain Dental stores have completely commercialized the practice of Dentistry. The patient is viewed as a cow going to the slaughterhouse, and they are picked clean and sold whatever services they can pile on. If you are foolish enough to go along with the program, shame on you.

(Whenever I see an adult wearing braces - and adult with perfectly good and straight teeth, I always get a chuckle. That Dentist was a good salesman!).

So what has happened to Dentistry - and the professions in general? We also live in a glut of lawyers today, but good luck finding one that is reasonably priced and honest.

The problem, I believe, is what I call the "death of professionalism", which has occurred in the last two decades. At one time, being a professional - Doctor, Lawyer, Dentist, etc. was a position of status. You made good money, true, but not a killing. Doctors drove Buicks, not Mercedes (Buick's tag line used to be "The Doctor's Car"). You were comfortable enough in your profession that you could afford to make judgment calls based on actual client needs, and not whether you could make a mortgage payment that month.

And that to me, is the definition of professionalism: The ability to discern the difference between your own self-interests and the interests of your client, and advising your client what is in their own best interests, not yours.

Today, that definition is lost on an entire generation of professionals. The name of the game now is billing, billing, billing. In order to keep a practice afloat these days, you have to bill each and every person who comes in the door. Why? Because there is so much competition, that there are fewer customers for each practitioner. The "free market", instead of providing better services and lower prices has done just the opposite. We now have higher prices and worse services. Funny how that works.

So, how can you find a good Dentist? It ain't easy. Word of mouth (if you'll pardon the pun) is probably the best way. But beware - a friend who is serially addicted to medical procedures is probably the worse referral there is. And there are such people - who enjoy the attention they get from doctors and professionals and will seek them out repeatedly (adding to the cost of medical care for all of us). If your friend recommends Doctor X, and then recites a litany of treatments they have received over the last year, well, chances are, Doctor X is going to recommend the same treatments for you, too. Get a referral from a different friend - 0ne with healthy teeth.

And once you find a good Dentist, hang onto them. A good Dentist is one who is in the business because they enjoy their work, and oh-by-the-way, they make a living at it. So the Dentist with the flashy, expensive office is least likely to be the one you want.

And yet, many people assume that the Dentist with the flashy office is "successful" and therefor must be "good". For the same reason, people will drive by a locally owned diner that makes excellent gourmet food at cheap prices, and eat instead at McDonald's - because the McDonald's is shiny and new and flashy, and obviously successful. So it must be "better", right? (This effect is prevalent in any industry, and probably the subject for another article).

I have had two good Dentists, and both were ex-Navy men with small practices. They do the usual cleanings and X-rays and generally don't try to suggest jaw-breaking on a regular basis. One of them started to go down that road once, after taking a seminar on the profitability of offering these sorts of services. He also said I needed to wear a "night guard" to prevent me from "grinding my teeth". I asked him, point blank, if my teeth would last another 30 years.

"Of course," he said, "you have really good, strong teeth! They should easily last another 30 years!"

"Oh, good," I replied, "because that's about as long as I plan on using them."

You see, once I put that into focus - whether the teeth would last my expected lifespan - the speciousness of the ancillary services became clear.

Re-drilling cavities is another area that Dentists like to visit. My Dentist of 20 years told me once that I needed to have my cavities re-done, as "whoever did these, did a hack job". I thought about it briefly, and said, "Didn't you do these 20 years ago when we first met?"

After consulting his chart, he turned beet red and said, "Well, what I mean by 'hack job' is....."

I eventually got them re-done, and sometimes that is necessary, as amalgam fillings do expand and contract and tend to crack teeth (don't chew ice!). And I eventually had them re-filled with this new fiberglass stuff that doesn't show as a filling. But I am not sure that was not just a cosmetic cure (My latest Dentists claims that the amalgam scares are much over-hyped. People are having perfectly good fillings removed for no reason).

My latest Dentist is an older man with a modest practice. He enjoys his work and makes a living - not a killing - at it. He has some of the best advice I've ever gotten from a Dentist: Floss More, Brush Less.

You see, periodontal disease is one of the more common problems people have with teeth, or more specifically, gums. And one reason is that most people do not floss enough. We are bombarded with advertisements on the television for toothpastes and toothbrushes, as these are wildly profitable items which can be continually re-worked with gimmicks and gimcrackery.

But Dental Floss? There is no money in that. There are no Patents to enforce. No special formulas or designs. There is no brand name loyalty, even. So we tend to think about Dental Floss as an accessory to brushing, which is the main event. But brushing without flossing is really a bad idea, as all you are doing with the toothbrush is forcing things further down your gums.

It seems like simple advice, and sometimes the best advice is simple, and free. If you take care of your teeth, you'll have fewer Dental problems. But of course, there is no money in that, is there? So most Dentists prefer you come to them for expensive procedures.

Lest you think I am picking on Dentists, the thrust of this article can be applied to ANY profession. I am using Dentists only as a simplified example. The problems in our health insurance system and in our legal system are caused by the same root problem: The Death of Professionalism.

I am not sure how we can re-instate what are essentially moral values, into the professions again. However, as a consumer, you can take note and not fall into the trap of treating professionals like the Gods they once were. We no longer deserve such treatment. Be skeptical, shop around, get a second opinion.

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Why I Sold My Boat.....

The sale of the Riparian Day III, January 2010.


"When you start calculating the cost per trip, it is time to sell the boat..."

--comment from the Bayliner Owner's Club website.

I sold my boat recently, or should I say, one of my boats. Yes, I have two, so hate me.

I enjoyed the boat, but after many years of owning boats, I learned a lot about boating and how to go about it in a cost-effective manner and how not to. See my article on Motor Boating on a Budget for more information.

Boating can be a lot of fun, and it can be fairly inexpensive. It can also be the proverbial "hole in the water to throw money into".

And like any hobby, perhaps I took mine one boat too far. The problem was, while owning a boat is a lot of fun, you have to use it a certain amount to make it cost-effective. Since I live seasonally in two homes, neither boat gets used much. Both were "paid for", but one required storage fees and a pretty hefty insurance bill, totaling $3000 a year.

That's all well and fine, if boating is your only hobby, and you spend nearly every weekend on the water. but for the six month season here, I was spending maybe one day a month. Many of the boats in my marina were used in a similar manner - and as a result, sat around literally gathering dust and accumulating storage fees.

And unfortunately, when something is stored off-site like that, you tend to forget about it. Storage lockers suffer from the same problem. You put something in a storage locker, and forget about. Pretty soon, you don't realize you own the stuff there, particularly if you don't check your monthly credit card statements.

I could have kept the boat there for years like that, and it would have depreciated rapidly and also mechanically degraded. Many folks on enthusiast websites encouraged me "not to sell" and "take a loss" on the boat in this market. But at $3,000 a year, the storage fees would exceed the cost of the boat within a decade.

I also "did the math" on this boat, and realized that at $500 a tankful, after 120 tanks of gas, the cost of fuel exceeded the cost of the boat when new. The purchase price of the boat is really only a small chunk of the overall costs. Every trip to the boat dealer for repairs results in a bill with a comma in it. Throw in storage for a decade or more, and the actual cost of the boat could be the smallest part.

In fact, while I "lost" about $35,000 in depreciation on the boat, I spent close to $9600 on storage, $10,000 on repairs, $3750 on insurance, and at least $7,000 on fuel. If I had kept the boat longer, these carrying costs would have continued to rise.

Thus, when buying a boat, bear in mind that you are not really buying a boat, per se, but rather the refueling and repair rights. If you have to store the boat at a marina, the cost of storage, insurance, gasoline, and repairs will probably outstrip the cost of the boat within a few years.

Many folks tend to look at the purchase price as the "main event" and then at the maintenance and storage costs as the "trivial details" when in fact, it is the other way around.

So what about the fellow who bought my boat? Well, for starters, since he paid less than half what I did for it, he has a lot less depreciation to worry about. He can keep this boat another 5-10 years and maybe lose $15,000 in the deal. Plus, since he is storing it on a trailer, he will avoid all those storage fees (the cost of the trailer is equal to about one year's storage fees). And since he is insuring it "up north" he is paying a lot less for insurance. As a retiree, he also plans on using the boat more often. Boating for him will be a more enjoyable and cost-effective experience.

I am keeping my old 26-footer, which we keep on a lake in New York. There are no storage fees, as we own the barn we store it in, and there are no docking fees, as we own the dock. Insurance is cheap ($220 a year) and the cost of fuel and maintenance is less as well. Since we live on the lake up there, we tend to USE that boat more as well, making the cost of each trip far less.

Identifying the problem here, though, took us nearly two years, and some pretty serious and soul-searching "discussions". No one wants to "give up" on something or be perceived as giving up. We worry about what others might think, which is foolish. Oftentimes we keep things like boats and cars for their perceived status, not thinking what the overall cost is to us.

But $3000 a year is a lot of money. I can charter a local boat for trips for a lot less than that. I can go on a cruise for a lot less than that. As I noted before, one of my goals is to DO things, not OWN things. And selling the boat will allow me to do just that.

I'll miss the old boat. But I think "leave, wanting more" is the best way to go. I'll always have fond memories of that boat, and not think of it as some albatross around my neck, which is the way many folks end up remembering their boats, when they hang on to them for too long....

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Results After About A Year...

I started this blog about a year ago in an effort to get my own financial house in order, and also to explore unconventional ways to save on money and live better, with less effort.

It has been a year, and I think a good time to look back on what I have learned and accomplished - and what I need to do to succeed in the future.

In my original posting, I mentioned two things, habits and planning. The first is taking hold, but bad habits can re-emerge if you let them. As our financial situation has improved, we find ourselves becoming more lax about spending and saving. It does take eternal vigilance to keep things on track.

I try, when money comes in, to pay off all bills, taxes, and other debts immediately. I then try to put money aside into tax-deferred savings. In this manner, we don't have a large amount of money "sitting around" and the temptation to spend is less. If you are always "broke", the temptation to spend is a lot less.

On the planning side, our plans continue to evolve. Our main goal is to own less "things", particularly depreciating things, and DO more things. For example, I had a boat that cost me $3000 a year in storage and insurance fees, and I hardly used it five times, or about $600 an outing. A local boat owner offers day-long charters for far less than $500. It makes more sense to hire his boat than to own one of my own. With the savings we have garnered, we plan on traveling more and doing interesting things, rather than spending time maintaining equipment for the sake of owning it.

So what has changed since November 2008 when I started this blog? Let me summarize:

1. Insurance: I converted some adjustable and variable life policies to paid up whole life policies, and cancelled my disability policy, saving $500 a month in cash flow. I cashed out one small whole life policy, saving another $65. I shopped my homeowner's insurance policies saving about $1000 a year overall (four policies). I dropped collision and comp and uninsured motorist insurance from my cars, cutting my car insurance by more than $1500. Total annual savings, about $9200 a year. I was horribly over-insured!

2. Vehicles: I sold my 1948 Willys Jeep for $2000 on eBay, which is what I paid for it. It was a fun vehicle, but we did not use it that much, and tinkering on it, while fun, took up a lot of time and money. Since we have five other vehicles, we really didn't need it. I also re-evaluated our service practices, and realized that with synthetic oils, we could go to 7,500 or even 10,000 miles between changes in our cars. I also made a study of gas mileage on our cars and discovered that driving a little slower would save at least 20% on our fuel bill, and avoid the risk of insurance-wrecking tickets. As I noted above, we sold one boat (at a horrible loss, but that's the market) and used the money to pay down debt. We plan on letting half our five-acre lawn grow out, and then sell our antique tractor on eBay, which will realize cash and save expenses. Cash realized: $35,500. Money saved annually, at least $5000.

3. Debt: When I started this blog, I had a huge credit card debt load, mostly from paying a capital gains tax bill at the last minute, when my accountant fell ill and died (death and taxes, as they say). Worse yet, the credit card company jacked my rate when I paid one month's payment too early, crediting it to a previous month. I rolled over this debt to zero-interest rate credit cards, and started aggressively paying them off. I have knocked this debt down to about half of where it was, and hope to eliminate it, permanently, in the next two years. Our goal is to be debt-free, entirely (even mortgage debt) by the time we retire. No payments, no hassles, no worries. I set up my credit cards to auto-pay the minimum payment every month, so there will be no more surprise rate jackings. The new credit card law, set to take effect in February, should provide additional protections as well. I log on nearly every day, or at least once a week, and check. I also check my credit activities, and use income to pay down this debt first. I also use the freeannualcreditreport.com site to check my credit report every year and make corrections where needed.

4. Tracking Expenses: In the last six months in particular, we have been more aggressive about entering EVERY FINANCIAL TRANSACTION, no matter how trivial, into Quickbooks, to see where the money goes. This will help us plan retirement and also help find areas for savings. It is not easy to do, but using the debit card helps. This type of tracking also makes spending a more contemplative action. Impulse-buying is now a thing of the past, as we tend to think more about purchases, rather than just go "shopping".

5. Income: I have also tried to track my work and try to increase my income. When you are self-employed, the temptation is to goof off. By setting an income goal, I have been able to boost my income by 15% over last year, which is quite a raise considering the economy. I fell short of my desired goal, but still saw an improvement. My partner took on a part-time job which added some money to the pile, but more importantly increased our disposable income. We hope to do the same next year as well.

The net result? Well, last year, we had a negative cash-flow. Credit card debt was accumulating, and that is the "miner's canary" that your personal finances are in trouble. Initially, I thought that there was little I could do to correct the situation, other than to take drastic measures (sell a house, for example). But after analyzing the situation, I realized that a lot of the "must have" expenses in my life were really "not worth having" and moreover that keeping appreciating assets, like Real Estate, was more important than keeping depreciating assets, like cars.

This year, we have a positive cash-flow. While this sounds great, the net effect has yet to be felt on our lifestyle, as we are still paying down debt, and will continue to do so for the next year or so. Once that debt is paid off, the monthly cash-flow requirements will drop even further, allowing us to either (a) work less, (b) save more, (c) have more disposable income, or (d) a little bit of all three.

And that's the point of this exercise - living better while spending less.

Most Americans are programmed by the television to believe that having debt is the way to live better - and they spend the rest of their lives chasing their tails, making payments, and spending more and more of their income on interest.

It's better to be the guy collecting the interest than the guy paying it.

2010 promises to be a better year than 2009, and 2011 better than 2010.

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Consider the BICYCLE

I took my bicycle to the Post Office today. As I don't commute, my daily outing is usually to the Post Office or store, about a 5-mile round trip. Usually, I go by car. This is, of course, ridiculous.

I live on an island laced with bicycle paths. There really is no reason NOT to go by bicycle, if the weather permits. Unfortunately, in America, bicycles are viewed as children's toys, or worse - adult toys. As a mode of transportation, they are frowned upon.

If you go out to buy a sturdy bicycle as transportation, you will be frustrated. The reasonably priced bicycles at the big box stores are often little more than children's toys - poorly made and built more for styling than for practical daily use.

The "serious" bicycle stores are even worse - encouraging you to spend thousands of dollars on a carbon-fiber nightmare that is more suitable for the Tour de France than for going to the grocery to buy a loaf of bread.

We see these latter bicycles on the island all the time. Folks from neighboring Snooty Island drive their luxury SUVs to our island (a State Park), pull out their $4,000 carbon-fiber bicycles, don their matching jerseys and then pedal around our island in circles to "get their heart rate up". It is merely a more expensive version of the child's toy bicycle, scaled up in size and price for adults. These bicycles are not serious transportation.

In foreign countries where bicycles are used as transportation (Japan or China, for example) you'll notice their bikes are no-nonsense deals. Basic, inexpensive designs, with lots of storage and simple gearing and accessories. Styling (off road or racing) is totally non-existent.

But of course in those countries, you can at least ride to work - it is considered normal. In America, bicyclists are viewed as a nuisance on the road - blocking car traffic - and riding one in many areas is dangerous to your health. I have more than one friend who has been seriously injured in a bicycle/car collision, and by "seriously injured" I mean put in a coma. Others are not so fortunate - they end up dead.

If you live in an area where it is possible to use your bicycle as a real mode of transportation (as opposed to some designer toy) then do so, if you can. If not, think about moving to such an area when the opportunity arises.

Granted, there are places in this country where you should not consider riding a bicycle at all - busy streets and suburban highways are ill-suited to the bicycle (by design). You'll be honked at or worse - run over. If this describes where you live, ask yourself why you chose to live there - and why you choose to stay there. Living in a "community" that requires you to start your car to do ANYTHING is a really bad idea.

I am ashamed to admit that I lived in an area where I could have ridden my bicycle to the store (less than a half mile) or to my office (about 10 miles) on unused streets or on dedicated bicycle paths - but rarely did so. And on the island I live on, where we have bike paths everywhere, I do not do so as much as I should. I need to change this.

Using your bicycle as transportation has a number of advantages:

1. It is a forced exercise program, in that you need not make bicycling a separate part of the day for exercise alone. It is part of the daily commute or shopping experience. Taaking a half hour to drive to a place to bicycle is not only awkward, it is ridiculous.

2. It saves a lot of money. The average cost of running a car, per mile, can run from as little as 50 cents a mile to a dollar. If you are riding 10 miles a day, that's saving you $5 a day - enough to pay for lunch. Over a year, that could be as much as $1500 or more in savings.

3. It saves wear and tear on your car - the fewer miles you put on your car, the fewer repairs you will need, and the longer it will last. It also will enhance the resale value.

4. It is good for your health - my bicycling friends all have bodies of iron. If you bike on a regular basis, you will lose weight, improve your circulation, improve your hearth health, and generally be better off. Better health means fewer health expenses. You save more money here as well.

5. It's fun. Bicycling on an empty road or bike path is enjoyable exercise. You get the wind in your face and experience the real world first-hand. It is like being in a convertible, times 10.

It is hard, in America, to use the bicycle as transportation. Our car-based culture encourages us to drive, even just to cross the road (I kid you not). Breaking the car habit and getting on the bike takes some discipline and planning.

But if you can realistically ride your bike where you live, there is no excuse not to. My goal for 2010 is to increase my biking by at least 50%. I hope to use the bicycle as primary means of transportation at least once a week, if not more.

NOTE: Don't fall in to the all-too-common trap of spending money to save money, here. Many folks will read this and say "Gee, what a good idea. I'll go spend $1000 on a bicycle and save money!" In reality, you can buy a very serviceable bicycle for street use for a couple hundred dollars, tops. There may already be one in your garage. Used bicycles can be a bargain, but shop carefully - many folks are convinced that their 10-year-old clapped-out piece of junk is worth more than a new bike. Craigslist, in particular, seems to be full of such dreamers.

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Should You Give Money to Panhandlers?

 Is this man really in financial distress, or will he just spend the money on booze and drugs?  You have no way of knowing.  Donate money to a homeless shelter if you want to help him.  Handing out money to strangers might make you feel like you are better than the rest of us, but that's just sick thinking.

Prior to 1980, it was unusual to see someone begging for money on the streets in America. We had "bums" back then, but they were a relatively invisible and small minority. Most wandered from town to town, looking for a few dollars in exchange for odd jobs, or the occasional free meal. They were not visible to most Americans.

Then, almost overnight, something weird happened in America. We suddenly had a "homeless problem". It was as though someone turned on a switch, and suddenly every street corner had a beggar with a cup, asking for money.

What happened? And Why? And should you give money to people begging on the streets? The answers to the first two questions are complicated and various. The answer to the third is more simple and direct - if you really want to help such people, contribute your money and/or your time to an organization that helps the "homeless". Such contributions are far more effective and useful than handing out a dollar or two (or more) to an individual on the street.

Prior to 1980, in America, we had mental institutions in nearly every major city and even town. People who were unable to care for themselves or had drug or alcohol problems could commit themselves, or be involuntarily committed, to such institutions, where they would be cared for and treated. If you were found muttering to yourself on the street and screaming obscenities at passers-by, chances are you would end up being involuntarily committed to a mental institution.

Many on the Left felt that such institutions were merely "warehouses" and moreover that the patients at such institutions were mistreated or over-medicated. Books and movies, such as "One Flew Over the Cuckoos Nest" illustrated the abuses that could take place in such institutional settings.

Many on the Right felt that such institutions were a drag on the economy, as they had to be paid for with tax dollars. If only those institutions could be closed, we could cut taxes!

America's pharmaceutical companies had the ready answer - outpatient treatment with heavy meds. We could close or reduce the size of mental institutions by sending patients back out into the community, where they could be treated with medications on an outpatient basis. Those on the Left signed on to this scheme as a "humanitarian" gesture. Those on the Right felt it was a good way to cut taxes. It was a rare show of bipartisanship!

The problem was, and is, that there were few places for these folks to go, once they were released. And since many of the medications that help make the mentally ill functional also have nasty side effects, many mentally ill people stop taking their medications, which in turn can cause problems for them and others.

It becomes a vicious cycle, as the patient stops taking the medications (and initially feels better) and then slowly starts to lose his grip - becoming paranoid and delusional. The patient is briefly institutionalized, where is he is medicated and gets back to "normal" and is then released - only to repeat the process again and again. It is somewhat cruel, really.

It is estimated that of the nearly million or so people who are homeless on any given night, maybe 40-45% are mentally ill. Thus, a large portion of our homeless population comprise people who need real help in the form of treatment for mental illness.

But what about the rest? Well according to some studies, as much as 75% of the homeless population may have drug or alcohol problems. Clearly, if this statistic is true, there is an overlap between the mentally ill population and the drug addicted population among the homeless.

The spike in drug abuse in the United States occurred at about the same time as our homeless problem manifested itself. We all like to think of the 1960's as the era of free love, pot and LSD. But it was the disco-era of the 1970's that lead to more widespread use of marijuana among the general population, as well as the increased use (and glamorization) of cocaine. The introduction of "rock cocaine" (crack) occurred in the late 1970's and early 1980's, at about the same time our homeless epidemic started. There is a causal connection between the two.

If these numbers are to be believed, however, it means that a relative minority of people who are homeless are actually there because of simple financial difficulties - losing a job, being evicted, health crises, and the like. Few of the homeless are homeless as the result of a financial setback alone.

So what does this mean to you? Well, for starters, the person panhandling at the street corner or traffic light is probably not "just evicted" or "just lost my job" as his cardboard sign indicates. More likely than not, he has an alcohol and/or drug problem, and the money you give to him will not help feed his alleged four children or pay for a room for the night, but in fact buy more crack cocaine for his habit.

Those who have really lost their job or suffered a simple economic setback are the least likely to be begging on the streets - they are more likely to be looking for jobs or working with aid agencies to get back on their feet. Begging for money is not the solution to such personal economic problems. People without drug, alcohol, and/or mental health issues are not likely to be the ones with the cardboard signs and beggar's cups.

You've probably seen the faux homeless beggars in your neighborhood - the person holding the sign that says "just evicted" standing on the street corner for years at a time (how can you be "just evicted" when your sign is clearly several months old?). In some instances, people who are not homeless at all, have played upon the sympathy of tourists and the like in popular tourist areas to garner additional money simply by asking for it. On a popular street corner or busy traffic intersection, you can literally make hundreds of dollars a day in begging, and there are those who have taken it up as a profession.

We had a lady at the Patent Office like that - she panhandled for years, with a cardboard sign saying "Just evicted, 4 children, please help!" and tourists visiting Washington DC from Iowa would giver her $5, $10, or even $20, saying to themselves, "Imagine that, here in the Nation's Capitol!  What has the world come to!" and then regale their friends in Ottumwa when they got back home about "how bad things are in DC, now that (fill in the blank) is President!"  Of course, you can't be "just evicted" for four years.  And when not panhandling, she did searches at the Patent Office, so she was employed.  But on a busy corner near the tourist hotels, she could clear $100 a hour sometimes.  So why not do it?

Giving money to people on the street only encourages such behavior. Giving money to a crack addict is not a sign of kindness, but is akin to giving him a loaded handgun with one ceremonial bullet in it. Are you really "helping" a crack addict by buying them more crack?

And yet people do just this, for various psychological reasons. For one, it makes them feel better about themselves "I helped out someone less fortunate than me!" they can say. It also helps alleviate their underlying guilt. Many folks in this country have amazing wealth and really don't understand why they have it. Giving a pittance away assuages this guilt. I guess also that it is a way of making themselves feel superior to other human beings -the homeless person they give money to, as well as those who don't give to that person.

Handing out money to homeless people is just another way of saying "I'm better that YOU, because I CARE about the homless!"  I saw a woman in a fur coat doing this once, while seated in her Jaguar.  She wins two ways here.  She's better than us (she thinks) because she drives a Jag and has a fur coat and is "rich".  And she's also better than us because she's socially conscious by giving money to a drug addict at a stop light.  Or so she thinks.  Most of us think she's a shallow bitch who caused us to sit through an extra cycle of the left turn lane light and cause a backup during rush hour.

Whatever the reason, the motivation rarely is a sound one, and is often a very sick one, from a psychological standpoint. Altruism can be very evil, indeed.

And in many cases, the homeless don't want to be helped.  It can be a lifestyle they like.  I've had friends who have homeless relatives, usually drug addicts or alcoholics, who say they prefer the lifestyle they are in.  They might be living under a bridge in the Florida Keys, but they get drunk and stoned nearly every day - without ever having to work or worry about anything.  Granted, their life expectency is short - but they say they really don't care.  When they try to "clean up" and go to a shelter, get a job, live in a halfway house, they are miserable (and let's face it, working a minimum wage job so you can live in a flophouse really does have to suck, compared to being messed up on drugs and booze all day long).

These sort of folks are the ones who panhandle - they want the money to continue their lifestyle.  Truly needy homeless folks are trying to get out of homelessness, and you can't do that by begging on the street.

So what can you really do to help the "homeless"? Well, a far better approach than handing out money to strangers on the street is to donate money and/or time to your local homeless shelter, food bank, or other charity. A cash donation to a charity is tax deductible. This means that for every dollar you give to a charity, the real cost to you is only about 65 cents. So you can give more to a legitimate charity than you could to people on the street, for the same amount of money.

For example, if you dole out $100 in handouts to people on the street, it will cost you $100, and it is not tax-deductible. On the other hand, you could donate $135 to a homeless shelter and the net cost would be about $100 to you, after your tax deduction. Which is a better way of helping the homeless, giving them $100 or giving them $135? It seems like a very simple answer.

In addition, money handed out to individuals on the street will likely not go to buying food, shelter, or clothing, but instead be used to buy drugs and alcohol. So long as a drug addict can get drugs and live in that lifestyle, there is little incentive to seek rehabilitation. Not only are you not helping this person, you are enabling their self-destruction.

A homeless shelter, food bank, or other charity, on the other hand, will use your money to provide a warm place to sleep, food, clothing, job training, drug treatment, or other services which will actually help the people involved. From that perspective, a dollar given to a legitimate charity will be equivalent to $10 or even $100 given to a panhandler on the street.

Donating time to such charities is also a good idea as well, as the cost to you is minimal. But again, examine your real motives for doing so. And such volunteer work may be more educational than you think. One friend, working for a food bank, was chagrined to see that people were driving to the food bank and demanding that food be loaded into their brand new SUVs. Not only that, they would drive around the block and then demand more food, this time in the name of a neighbor, family member, or friend. Granted, such abuse of charities is the exception, not the norm, but it does illustrate the problems that can occur when you give things away for free - without determining need first.

And of course, it goes without saying that before you go around helping others, that you take care of yourself, first. Charity is a fine and wonderful thing to do for society. But your overarching obligation is to take care of yourself, so that you yourself do not become a burden to society. Before you give away your money, make sure you have set aside enough for your present needs and future needs as well - lets you add to the problem of homelessness yourself.

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