Your Money: The Missing Manual.

by J.D. Roth.

Acknowledgements

You know, I've always skipped over the acknowledgement sections in books because they look so darn boring. What are they there for, anyhow? Now I know. After having devoted 4 months of more than full-time work to this project, I have a better appreciation for how much effort goes into producing a book.

First, I'd like to thank my editor, Dawn Frausto, without whom this book would be a dense, rambling mess. Dawn helped polish this rock into a shining gem. Along the way, Dawn and I were a.s.sisted by many folks, including tech reviewers Dylan Ross and Charlie Park, whose eagle eyes caught many stupid errors.

Many Get Rich Slowly readers contributed their stories and ideas to this book, including Courtney Cronk, Sabino Arredondo, Jason Corbett, Trent Hamm, Jessie Smith, Donna Freedman, Jim w.a.n.g, Mike Iannantuano, Matt Jabs, Jacob Laha, John Little, Sierra Black, Matt Haughey, Tim Ferriss, April Dykman, Adam Baker, and Ramit Sethi.

Thanks, too, to all the people who read chapters here and there and gave me feedback, including Jeremy Gingerich, Dave Carlson, Andrew Cronk, Paul Hosom, Josh Bennett, Tim Kutscha, Liz Weston, Bonnie Biafore, Adam Jusko, Curtis Arnold, and Chris Guillebeau.

Special thanks to Michael Hampton, without whom I never would have started my journey from debt to wealth. Without Michael's gentle prodding, I wouldn't have changed my profligate ways, destroyed my debt, started Get Rich Slowly, or written this book. Speaking of Get Rich Slowly, I'd be remiss if I didn't thank my blog's readers for the support and education they've given me over the years. You guys are awesome!

Finally, this book wouldn't have been possible without the support of my wife, Kris Gates, who has not only tolerated my long hours in front of the computer, but read every word in these pages many times, and provided much-needed moral support. This project has proved what I already knew: Kris Gates is always right.

This book is dedicated to Sparky: http://tinyurl.com/GRS-sparky.

Introduction.

"What we get from this adventure is just sheer joy. And joy is, after all, the end of life And joy is, after all, the end of life. We do not live to eat and make money We do not live to eat and make money. We eat and make money to be able to live We eat and make money to be able to live. That is what life means and what life is for That is what life means and what life is for."-George Mallory For years, I lived paycheck to paycheck on an average American salary. Every month I struggled to pay my bills and make ends meet. I spent everything I had, and sometimes more. In the decade after I graduated from college, I racked up over $35,000 in debt. I knew how to spend money, but I didn't know how to save it.

2004 was a turning point for me. My wife and I bought a 100-year-old farmhouse that needed a lot of work. My budget was already stretched to the limit, and I didn't see how I'd be able to afford the plumber, electrician, and carpenter we needed. I felt like I was drowning.

With the help of some friends, I was able to keep my head above water: They loaned me some books about money. I read them, and then went to the public library and borrowed more books on the topic. I started picking up personal-finance magazines and browsing financial websites. All of the advice made sense, but there were so many numbers and terms involved that I couldn't keep them straight.

To make sense of it all for myself-and maybe to help some others along the way-I started writing about the things I learned and posting them at GetRichSlowly.org. I reviewed the books I read, shared the websites I found, and wrote down my thoughts about my relationship with money. I never expected anyone other than my family and friends to read the site, but to my surprise, others wanted to learn about this stuff, too.

Get Rich Slowly has grown into an amazing community of everyday folks who help each other tackle financial problems. (The site gets half a million visitors every month!) Want to learn how to cut your cable bill by 33%, where to find the best online savings account, or find out what a bond is? Get Rich Slowly readers have the answers.

Over the years, I've continued to use the site to share what I learn about managing money. I also share my own story, both the successes and the failures. I know a lot more about money than I did 5 years ago, but I still do dumb things from time to time. (We all make mistakes, right?) The key is to learn from them and move on.

This book is the culmination of everything I've learned while turning my financial life around. I've included the most important things I've discovered during 5 years of reading and writing about money every day. I've done my best to pack Your Money: The Missing Manual with tons of useful info while keeping it easy to understand and (I hope) fun to read. Above all, this book aims to give you the information you need to change your financial situation for the better.

About This Book

Based on my research-and my experiences with what does and doesn't work-I've developed a list of 14 guidelines that form the basis of my financial philosophy. These ideas lurk behind every page of this book: 1. Financial success is more about mastering the mental mental game of money than about understanding the numbers. The math is simple; it's controlling your habits and emotions that's hard. game of money than about understanding the numbers. The math is simple; it's controlling your habits and emotions that's hard.

2. The road to wealth is paved with goals. Without financial goals, you have no direction, so it's easy to spend money on things you'll regret later. But if you're saving for a house, your daughter's college education, or a new car, your goal will keep you focused.

3. To build wealth, you've got to spend less than you earn. Successful personal finance is all about building positive cash flow (which you'll learn about in Chapter4 Chapter4). That's easy to say, but not always easy to do.

4. Saving must must be a priority. Before you pay your bills, buy groceries, or do anything else, you should set aside some part of your income. Start small if you have to (even $25 a month is good), and then increase your saving rate with time. be a priority. Before you pay your bills, buy groceries, or do anything else, you should set aside some part of your income. Start small if you have to (even $25 a month is good), and then increase your saving rate with time.

5. Small amounts matter. Your everyday habits have a huge impact on your financial success, so don't be frustrated if you can only save $25 a month for now; I started small, too. Small changes help build good habits, and they can make a real difference over time.

6. Large amounts matter, too. It's good to clip coupons and to save money on groceries, but it's even better to save money on the big stuff like buying a car or house. By making smart choices on big-ticket items, you can save thousands of dollars in one blow.

7. Financial balance lets you enjoy tomorrow and today. Being smart with money isn't about giving up your plasma TV or your daily latte. It's about setting priorities and managing expectations: choosing to spend only on the things that matter to you, while cutting costs on the things that don't.

8. Slow and steady wins the race. The most successful folks are those who work longest and hardest at things they love to do. So try to find ways to make frugality fun, and recognize you're in this for the long haul. Remember that you're making a lifestyle change, not looking for a quick fix.

9. The perfect is the enemy of the good. Too many people are afraid to start getting their finances in order because they don't know what the "best" first step is. Don't worry about getting things exactly right-just choose a good option and do something to get started.

10. Failure is okay. Even billionaires like Warren Buffett make mistakes, so don't let one slip-up drag you down. Use failures to learn how to do better next time.

11. n.o.body cares more about your money than you do. The advice that others give you is almost always in their best interest-which may or may not be the same as your best interest. Don't do what others tell you just because they're compelling. Get advice from various folks (and books like this one), but in the end, make your own decisions.

12. Each person is different. There's no one right way to save, invest, pay off debt, or buy a house, so don't believe anyone who says there is. Experiment until you find methods that work for you.

13. Action beats inaction. It's easy to put things off, but the sooner you start moving toward your goals, the easier they'll be to reach.

14. It's more important to be happy than to be rich. Don't be obsessed with money-it won't buy you happiness. It'll give you more options, sure, but happiness is what makes life worth living. If you can stay happy and in control of your life, money will be easier to manage.

Your Money: The Missing Manual will show you how to kick debt to the curb, save for the future, and pursue your financial dreams. I've done my best to write the book that I wish I'd read 20 years ago-before I got deep in debt. My hope is that I can help you avoid the same fate and build a brighter financial future. will show you how to kick debt to the curb, save for the future, and pursue your financial dreams. I've done my best to write the book that I wish I'd read 20 years ago-before I got deep in debt. My hope is that I can help you avoid the same fate and build a brighter financial future.

About the Outline

This book is divided into three parts, each containing several chapters: - In Part One: Blueprint for Financial Prosperity, you'll learn how to lay the groundwork for success; a little advance planning will pay off big in the long run. Chapter1 Chapter1 explores the relationship between money and happiness, and suggests some ways of finding balance. explores the relationship between money and happiness, and suggests some ways of finding balance. Chapter2 Chapter2 helps you set financial goals. In helps you set financial goals. In Chapter3 Chapter3, you'll learn that budgeting isn't necessarily evil; in fact, it can be a great way to help you defeat debt, which is the subject of Chapter4 Chapter4.

- Part Two: Laying the Foundation teaches you the importance of cash flow-the difference between what you earn and what you spend. In Chapter5 Chapter5, you'll learn frugal tactics to help you save money on everyday spending. Chapter6 Chapter6 looks at the other side of the equation: How to boost your income. looks at the other side of the equation: How to boost your income.Chapter7 helps you find the best bank accounts for storing your money, and helps you find the best bank accounts for storing your money, and Chapter8 Chapter8 will help you get your credit cards under control. will help you get your credit cards under control. Chapter9 Chapter9 discusses how to be smart when buying big items, and discusses how to be smart when buying big items, and Chapter10 Chapter10 covers the biggest expense of all: housing. Finally, covers the biggest expense of all: housing. Finally, Chapter11 Chapter11 provides the basic info you need to deal with taxes and insurance effectively. provides the basic info you need to deal with taxes and insurance effectively.

- Part Three: Building a Rich Life shows you how to use your financial foundation to build a rich life-both today and in the future. Chapter12 Chapter12 gives you a brief intro to investing, and gives you a brief intro to investing, and Chapter13 Chapter13 explains how and why to save for retirement. explains how and why to save for retirement. Chapter14 Chapter14 wraps things up with a look at the relationship between love and money. wraps things up with a look at the relationship between love and money.

There's no way for one book to cover everything there is to know about personal finance. I've covered the essentials and included pointers to where you can learn more about any given topic by doing further reading in other books, on various websites, and in magazines. Along the way, I also share real-life stories from people like you.

Frequently Asked Question: What Are Tiny URLs?This book mentions lots of great websites where you can learn more ways to be smart with your money. But sometimes that info is on a very specific part of a site, and the Web address that takes you to that spot can be awfully long. That's where Tiny URLs come in.URL (short for Uniform Resource Locator) is the geeky name for a Web address. For example, http://www.google.com is the URL that tells your Web browser how to get to the Google home page. But not all URLs are that short. To read a great Get Rich Slowly article about bonds, for instance, you have to go to is the URL that tells your Web browser how to get to the Google home page. But not all URLs are that short. To read a great Get Rich Slowly article about bonds, for instance, you have to go to http://www.getrichslowly.org/blog/2009/04/21/investing-101-how-bonds-work/. That's a lot of gobbledygook to type in, and you have better things to do with your time.In 2002, a guy named Kevin Gilbertson started the website TinyURL.com. The site's mission is simple: to shorten ungainly Web addresses. All you do is copy the address you want to shrink, head over to http://tinyurl.com, and then paste the address in the box. Click the Make TinyURL b.u.t.ton and voila-the site gives you a much shorter address (which starts with http://tinyurl.com) that takes you to the same exact spot as the long one.Throughout this book, you'll see TinyURLs used in place of giant, clunky ones. To get to the GRS page mentioned above, for example, you can use http://tinyurl.com/GRS-bonds instead. Just type that address into your browser and your computer will get you to the right place. Better yet, head to this book's Missing CD page at instead. Just type that address into your browser and your computer will get you to the right place. Better yet, head to this book's Missing CD page at www.missingmanuals.com, where you'll find clickable links to all the sites referenced in this book.

About MissingManuals.com At www.missingmanuals.com, you'll find articles, tips, and updates to Your Money: The Missing Manual. In fact, we invite and encourage you to submit such corrections and updates yourself. In an effort to keep this book as up-to-date and accurate as possible, each time we print more copies of it, we'll make any confirmed corrections you've suggested. We'll also note such changes on the website, so that you can mark important corrections into your own copy of the book, if you like. (Go to www.missingmanuals.com/feedback, choose the book's name from the pop-up menu, and then click Go to see the changes.) Also, on our Feedback page, you can get expert answers to questions that come to you while reading this book, write a book review, and find groups for folks who share your interest in smart money management.

We'd love to hear your suggestions for new books in the Missing Manual line. There's a place for that on missingmanuals.com, too. And while you're online, you can also register this book at www.oreilly.com (you can jump directly to the registration page by going here: (you can jump directly to the registration page by going here: http://tinyurl.com/yo82k3). Registering means we can send you updates about this book, and you'll be eligible for special offers like discounts on future editions of Your Money: The Missing Manual.

PartI.

Blueprint for Financial Prosperity

Chapter1.

It's More Important to Be Happy Than to Be Rich

"Happiness, not gold or prestige, is the ultimate currency."-Tal Ben-Shahar You don't want to be rich-you want to be happy. Although the ma.s.s media has convinced many Americans that wealth leads to happiness, that's not always the case. Money can certainly help you achieve your goals, provide for your future, and make life more enjoyable, but merely having the stuff doesn't guarantee fulfillment.

This book will show you how to make the most of your money, but before we dive into the details, it's important to explore why you should care. It doesn't do much good to learn about compound interest or high-yield savings accounts if you don't know how money affects your well-being.

If personal finance were as simple as understanding math, this book wouldn't be necessary; people would never overspend, get into debt, or make foolish financial decisions. But research shows that our choices are based on more than just arithmetic-they're also influenced by a complex web of psychological and emotional factors.

This chapter gives you a quick overview of the relationship between money and happiness. You'll also learn techniques for escaping the mental traps that make it hard to be content with what you have. As you'll see, you don't need a million bucks to be happy.

How Money Affects Happiness The big question is, "Can money buy happiness?" There's no simple answer.

"It seems natural to a.s.sume that rich people will be happier than others," write psychologists Ed Diener and Robert Biswas-Diener in Happiness Happiness (Blackwell Publishing, 2008). "But money is only one part of psychological wealth, so the picture is complicated." (Blackwell Publishing, 2008). "But money is only one part of psychological wealth, so the picture is complicated."

There is a strong correlation between wealth and happiness, the authors say: "Rich people and nations are happier than their poor counterparts; don't let anyone tell you differently." But they note that money's impact on happiness isn't as large as you might think. If you have clothes to wear, food to eat, and a roof over your head, increased disposable income has just a small influence on your sense of well-being.

To put it another way, if you're living below the poverty line ($22,050 annual income for a family of four in 2009), an extra $5,000 a year can make a huge difference in your happiness. On the other hand, if your family earns $70,000 a year, $5,000 may be a welcome bonus, but it won't radically change your life.

So, yes, money can buy some happiness, but as you'll see, it's just one piece of the puzzle. And there's a real danger that increased income can actually make you miserable-if your desire to spend grows with it. But that's not to say you have to live like a monk. The key is finding a balance between having too little and having too much-and that's no easy task.

NoteA recent article in the Journal of Consumer Research Journal of Consumer Research showed that, in general, our feelings for material purchases fade more quickly than they do for experiential purchases. Material goods depreciate: The day after you buy something, it's usually worth less than you paid for it. Experiences, on the other hand, appreciate: Your memories of the things you do-vacations you take, concerts you go to-become fonder with time because you tend to recall the positives and forget the negatives. showed that, in general, our feelings for material purchases fade more quickly than they do for experiential purchases. Material goods depreciate: The day after you buy something, it's usually worth less than you paid for it. Experiences, on the other hand, appreciate: Your memories of the things you do-vacations you take, concerts you go to-become fonder with time because you tend to recall the positives and forget the negatives.

The Fulfillment Curve American culture is consumption-driven. The media teaches you to want the clothes and cars you see on TV and the watches and jewelry you see in magazine ads. Yet studies show that people who are materialistic tend to be less happy than those who aren't. In other words, if you want to be content, you should own-and want-less Stuff.

NoteBecause Stuff has such an important role in your happiness (and unhappiness), it deserves a capital S. You'll read more about Stuff throughout this book, especially in Chapter5 Chapter5.

In their personal-finance cla.s.sic Your Money or Your Life Your Money or Your Life (Penguin, 2008), Joe Dominguez and Vicki Robin argue that the relationship between spending and happiness is non-linear, meaning every dollar you spend brings you a little less happiness than the one before it. (Penguin, 2008), Joe Dominguez and Vicki Robin argue that the relationship between spending and happiness is non-linear, meaning every dollar you spend brings you a little less happiness than the one before it.

More spending does lead to more fulfillment-up to a point. But spending too much can actually have a negative impact on your quality of life. The authors suggest that personal fulfillment-that is, being content with your life-can be graphed on a curve that looks like this: [image]Figure1-1.The Fulfillment Curve This Fulfillment Curve has four sections: - Survival. In this part of the curve, a little money brings a large gain in happiness. If you have nothing, buying things really does contribute to your well-being. You're much happier when your basic needs-food, clothing, and shelter-are provided for than when they're not.

- Comforts. After the basics are taken care of, you begin to spend on comforts: a chair to sit in, a pillow to sleep on, a second pair of pants. These purchases, too, bring increased fulfillment. They make you happy, but not as happy as the items that satisfied your survival needs. This part of the curve is still positive, but not as steep as the first section.

- Luxuries. Eventually your spending extends from comforts to outright luxuries. You move from a small apartment to a home in the suburbs, say, and you have an entire wardrobe of clothing. You drink hot chocolate on winter evenings, sit on a new sofa, and have a library of DVDs. These things are more than comforts-they're luxuries, and they make you happy. They push you to the peak of the Fulfillment Curve.

- Overconsumption. Beyond the peak, Stuff starts to take control of your life. Buying a sofa made you happy, so you buy recliners to match. Your DVD collection grows from 20 t.i.tles to 200, and you drink expensive hot chocolate made from Peruvian cocoa beans. Soon your house is so full of Stuff that you have to buy a bigger home-and rent a storage unit. But none of this makes you any happier. In fact, all of your things become a burden. Rather than adding to your fulfillment, buying new Stuff actually detracts from it.

The sweet spot on the Fulfillment Curve is in the Luxuries section, where money gives you the most happiness: You've provided for your survival needs, you have some creature comforts, and you even have a few luxuries. Life is grand. Your spending and your happiness are perfectly balanced. You have Enough.

NoteYup, Enough gets a capital E, too. You'll learn more about deciding how much is Enough later in this chapter. (And don't worry: There aren't any more words with goofy capitals ahead.) Unfortunately, in real life you don't have handy visual aids to show the relationship between your spending and your happiness; you have to figure out what Enough is on your own. But as you'll see in the next section, because we've been conditioned to believe that more money brings more happiness, most people reach the peak of the Fulfillment Curve and then keep on spending.

Caught Up in the Rat Race Typically, as your income increases, your lifestyle grows with it. When your boss gives you a raise, you want to reward yourself (you deserve it!), so you spend more. All that new Stuff costs money to buy, store, and maintain. Gradually, your lifestyle becomes more expensive so you have to work harder to earn more. You think that if only you got another raise, then you'd have Enough. But in all likelihood, you'd just repeat the process by spending even more.

Psychologists call this vicious cycle the hedonic treadmill, though you probably know it as the "rat race." People on the hedonic treadmill think they'd be happy if they just had a little more money. But when they get more money, they discover something else they want. Because they're never content with what they have, they can never have Enough.

Most Americans are stuck on this treadmill. According to the U.S. Census Bureau (http://tinyurl.com/census-inc), in 1967 the median American household income was $38,771 (adjusted for inflation). Back then, less than one-fifth of U.S. families had color TVs and only one in 25 had cable. Compare that with 2007, when the median household income was $50,233 and nearly everyone had a widescreen color TV and cable. Americans now own twice as many cars as they did in 1967, and we have computers, iPods, and cellphones. Life is good, right? But despite our increased incomes and material wealth, we're no happier than were in the '60s.

NoteIn case it's been a while since your last math cla.s.s, here's a quick refresher: If you have a set of numbers, half of them will be greater than the median, and half will be less. The median is usually different from the average. For example, in the group of numbers 2, 3, 4, 5, and 101, the average is 23, but the median is only 4. (If economists talked about average incomes instead of median incomes, their numbers would be skewed by billionaires like Warren Buffett.) Since 1972, the National Opinion Research Center has been polling Americans about their happiness (http://tinyurl.com/norc-gss). As you can see in the following graph, the numbers haven't changed much over the past 35 years. About one-third of Americans consistently say they're "very happy" with their lives (http://tinyurl.com/gss-happy), while a little less than one-third say they're "pretty well satisfied" with their financial situations (http://tinyurl.com/gss-satfin).

[image]Figure1-2.Info from the National Opinion Research Center's General Social Survey If Americans are earning more, why aren't they happier? We've been led to believe that prosperity brings peace of mind, but it turns out your grandfather was right: Money isn't everything.

The bottom line: Money can't make you happy if your increased wealth brings increased expectations Money can't make you happy if your increased wealth brings increased expectations. In other words, if you want more as you earn more, you'll never be content; there will always be something else you crave, so you'll need to work even harder to get the money to buy it. You'll be stuck on the hedonic treadmill, running like a hamster on a wheel.

The hedonic treadmill leads to lifestyle inflation, which is just as dangerous to your money as economic inflation; both destroy the value of your dollars. Fortunately, you can control lifestyle inflation. You can opt out, step off the treadmill, and escape from the rat race. To do that, you have to set priorities and decide how much is Enough. The next section shows you how.

How Much Is Enough?

Kurt Vonnegut used to recount a conversation he had with fellow author Joseph h.e.l.ler (Vonnegut published this anecdote as a poem in the New Yorker). The two writers were at a party thrown by a billionaire when Vonnegut joked, "How does it feel to know that our host makes more in one day than Catch-22 [h.e.l.ler's best-known work] has made in its entire history?" h.e.l.ler responded, "I've got something he can never have. I've got Enough."

Your Money And Your Life: Sudden RichesSome folks believe their worries would vanish if only they had a six-figure salary. Others play the lottery because they think winning would solve their problems. But it's not how much you earn that determines how happy you are-it's how much you spend in relation to your income.Take pro athletes: The average NFL player earns $1.1 million per year, and the average NBA player makes $4 million per year. Yet even these vast incomes sometimes aren't enough to cover what players spend. In a recent issue of Sports Ill.u.s.trated, Pablo S. Torre described how and why athletes go broke (you can read his article at http://tinyurl.com/brokeathletes). He writes that after 2 years of retirement, "78% of former NFL players have gone bankrupt or are under financial stress. "Within 5 years of retirement, roughly 60% of former NBA players are in similar positions.Lottery winners have the same kinds of problems. A 2001 article in The American Economic Review The American Economic Review found that after receiving half their jackpots, the typical lotto winner had only put about 16% of that money into savings. It's estimated that over a quarter of lottery winners go bankrupt. Take Bud Post: He won $16.2 million in 1988. Within weeks of receiving his first annual payment of nearly half a million dollars, he'd spent $300,000. During the next few years, Post bought boats, mansions, and airplanes, but trouble followed him everywhere. "I was much happier when I was broke," he's reported to have said. When he died in 2006, Post was living on a $450 monthly disability check. You can read more about him here: found that after receiving half their jackpots, the typical lotto winner had only put about 16% of that money into savings. It's estimated that over a quarter of lottery winners go bankrupt. Take Bud Post: He won $16.2 million in 1988. Within weeks of receiving his first annual payment of nearly half a million dollars, he'd spent $300,000. During the next few years, Post bought boats, mansions, and airplanes, but trouble followed him everywhere. "I was much happier when I was broke," he's reported to have said. When he died in 2006, Post was living on a $450 monthly disability check. You can read more about him here: http://tinyurl.com/budpost.Of course, not every wealthy person is so profligate. In fact, according to Thomas Stanley and William Danko, most millionaires are careful with their money. In their cla.s.sic book The Millionaire Next Door The Millionaire Next Door (Pocket, 1998), Stanley and Danko catalog the characteristics of the quiet millionaires-those who live in average neighborhoods, drive average cars, and work average jobs. These folks are able to build and maintain wealth because they keep their spending in check-even as their incomes rise. The authors say the three words that best describe the affluent are "frugal frugal frugal." (Pocket, 1998), Stanley and Danko catalog the characteristics of the quiet millionaires-those who live in average neighborhoods, drive average cars, and work average jobs. These folks are able to build and maintain wealth because they keep their spending in check-even as their incomes rise. The authors say the three words that best describe the affluent are "frugal frugal frugal."So even if you come into a windfall like an inheritance or a bonus-or even a lottery jackpot-take your cue from the frugal millionaires: Don't spend it all in one place. (Church, Charity, and Community has more about how to handle a windfall.) has more about how to handle a windfall.) Knowing that you have Enough can be better than having billions of dollars. If you're obscenely rich but aren't happy, what good is your money? Contentment comes from having Enough-not too little and not too much. But how much is Enough?

There's no simple answer. What's Enough for you may not be Enough for your best friend. And what you need to remain at the peak of the Fulfillment Curve (The Fulfillment Curve) will change with time, so Enough is a bit of a moving target. It's tough to define Enough, but there are some steps you can take to figure out what it means to you.

Understand your goals and values If you don't know why you're earning and spending money, then you can't say when you have Enough. So take time to really think about what having Enough means to you. Discuss it with your family, and explore the idea with your best friend. Is being debt-free Enough? Being able to pay cash for a new boat? Having a million dollars saved for retirement? Decide what Enough means to you, and then write it down. If you don't have an end in sight, you're at greater risk of getting stuck in the rat race.

NotePersonal goals are so critical to financial success that you'll spend all of Chapter2 Chapter2 learning how to set them. learning how to set them.

Practice conscious spending Because the notion of Enough is so vague, the best way to approach it is to be mindful of your financial habits. The act of consciously choosing how you spend can help you make purchases that are in line with your goals and values.

Ramit Sethi popularized the concept of conscious spending in his book I Will Teach You to Be Rich I Will Teach You to Be Rich (Workman Publishing, 2009). The idea is to spend with intent, deliberately deciding where to direct your money instead of spending impulsively. Sethi argues that it's okay to spend $5,000 a year on shoes-if that spending is aligned with your goals and values and you've made a conscious choice to spend this way (as opposed to spending compulsively-see (Workman Publishing, 2009). The idea is to spend with intent, deliberately deciding where to direct your money instead of spending impulsively. Sethi argues that it's okay to spend $5,000 a year on shoes-if that spending is aligned with your goals and values and you've made a conscious choice to spend this way (as opposed to spending compulsively-see Curbing Compulsive Spending Curbing Compulsive Spending).

If you're new to conscious spending, try asking yourself the following questions: - Did I receive value from this equal to the amount I spent? In other words, did you get your money's worth? You already know that $100 spent on one thing isn't always as good as $100 spent on another. Conscious spending is about striving to get the most bang for your buck.

- Is this spending aligned with my goals and values? Conscious spending means prioritizing: putting your money toward the things you love-and cutting costs mercilessly on the things you don't. If you're happy with the coffee at the office, then don't waste your money at Starbucks. But if your extra-hot nonfat caramel latte is the highlight of your day, then buy the latte! Spend only on the things that matter to you.

The box below tells the story of Chris Guillebeau, who has made a lot of unorthodox choices to be sure his spending matches his priorities.