Wow. Thanks for all the curious/concerned emails lately asking, Where are you? All okay? It feels awesome to be missed :>) I’m fine; just took a blogging break. Actually, I’ve been writing a quite a bit lately, just not here… forums, media inquiry replies and interviews, a book proposal and outline, coaching followups, storybooks with my kiddo… Frankly, my backside couldn’t bear another minute sitting in front of the keyboard! It hasn’t been all writing though — I’ve been having tons of fun too: several house guests, Chinese New Year parties, homeschooling with my voracious little learner, raising and training ten baby parakeets (my hubby calls it our 4-H-in-the-condo project). But I have missed my blogging friends! So without further ado, I will pull some interesting questions from my inbox and respond to them here. Identifying details have been changed or removed. Feel free to add your suggestions in the comments as I’m sure these folks would appreciate alternate viewpoints.

Q: Carolyn asks, “For the past two years I have enjoyed your emails. My savings has grown from an average $1,500 to $35,000. I have committed to saving a set amount but also some unexpected money has come my way which I have saved all of it. I think changing your mindset along with action and education has contributed to my money growth. My next step is to pay my mortgage off early. Any suggestions?”

A: Awesome progress, Carolyn. Congratulations! While I don’t know all of the pertinent details about your financial situation, I feel compelled to share this: In my opinion, paying a mortgage off early is one of the very last steps most should take in their financial life. Why? Because there are many other money matters that take a higher priority. As a general rule of thumb, here’s the order of financial steps I typically recommend:

First: Pay off “toxic debt”: start with credit cards and loans that charge the highest interest rates (because you’ll save money), and those with account balances that hover closest to maximum credit limits (because it’ll improve your credit score). Raise quick cash immediately by selling stuff you no longer need, want or use.

Second: After you’ve paid off all debt balances with interest rates over 8-10%, start saving at least 15% of every dollar earned to build an emergency fund equal to 6-12 months of take-home income.

Third: Once your emergency fund is complete, start investing AT LEAST 10% of your monthly gross income in a diversified portfolio of no-load mutual funds, ETF’s, stocks, bonds. Start with your tax-advantaged retirement account(s).

Fourth: Get cracking on any remaining lower-interest rate (below 8-10%) debt balances.

Finally: Paying off the mortgage would be the last financial task on my list, especially if the mortgage rate is reasonable. Better yet, if I had a home with a mortgage and I was seriously in debt, I’d sell my home to pay off my debt with the equity. Besides, renting is often cheaper than buying!

Q: These days, simply being a (one) millionaire is not enough to be financially free, depending on ones age. Unless universal healthcare is achieved and unless I learn to cut back on expenditures, I think I would need 2.5 million to be financially free. At least. I don’t see that happening unless 1) we inherit a bunch of money or 2) my husband works another 15 years (minimum) AND the stock market behaves. He has a good job, we have a nice, recently remodeled home plus a small vacation cabin, and we have an emergency cash stash. I don’t want to have to buy a new car for a few years because we pay cash for cars and I don’t want to see the emergency fund take a nosedive. Good thing I love my 10 yr. old minivan! Anyway, how much do you think it takes to be financially free? ~K

A: You’re concerned about how many digits sit in front of your six $0′s and how the stock market behaves. Your husband is employed, you have two homes, a car and an emergency fund in place. In many people’s eyes, you already have financial freedom!

There is no one-fits-all magic financial freedom number. To some $50,000 sounds like a dream come true and to others 50 million wouldn’t be enough. To lots of people I’ve come across, simply breaking free from their paycheck to paycheck existence, or the shackles of debt repayment, or sleeping well at night because they have an emergency fund and a contingency plan in place is enough to make them feel financially free. Personal finance is called personal because it is so, well, personal.

Traditionally, many define financial freedom as having enough passive income that you no longer need to work; your passive income covers your living expenses. Funny thing with this definition is that there are so many variables contained within: What do you consider passive? Is it investing in CD’s, stocks, or a business? How about getting paid for “work” that you love so much that you would do it even if you didn’t get paid? What are your living expenses? Can they be reduced substantially? Can some be eliminated entirely? What if you sold your home(s), invested the equity, and moved to Mexico or Thailand or somewhere else where living expenses are dramatically less than in the US? Again, so much of this is personally defined.

My husband and I consider ourselves financially free because our family hasn’t set an alarm clock in years. Whether it be work, parenting or play, we wake with the sun, eager to spend each new day doing whatever we choose. This definition affords us the flexibility we value, therefore, regardless of the exact numbers on our net worth statement, we have “enough”.

Q: CarA writes, “I love your entire story! You’ve made some great moves throughout your life. I’m curious, how hard (or was it all hard) to talk your husband into selling your home? Did he just have complete faith in you? Or was it a joint effort? Just curious because you said so many around you were skeptical of selling your home to rent.”

A: Ha! It was INCREDIBLY difficult for my husband to jump on board with my plan. I’d crunch the numbers, craft reams of brilliant spreadsheets and grinning from ear to ear, I’d enthusiastically share my financial freedom plan. He’d remark (skeptically), “If it’s really that easy, why isn’t EVERYONE doing it, Jen?” I think the biggest obstacle for him was getting over what everyone else would think about our choice to rent. We sold when the market was hot and everyone thought real estate was THE best place to invest. Remember the days when the mantra was “real estate prices may flatten but they never go down”? Our friends and family questioned my logic. Fortunately I’m not easily deterred and my husband trusts me. But it took a lot of effort on my part to show him the numbers in such a way that he got it, too. And he had to get over his concern about what others thought about it. I gave him the time and space to deal with those issues and I reminded him that renting didn’t need to be a permanent choice.

Today he recommends renting to all his friends. I think he loves looking so smart for getting out before the market crashed :>)

Q: I follow your blog and love all the insight you share with us. Lately, there has been a lot of talk about inflation and hyperinflation heading our way in 2010. Can you offer us some insight, tips to prepare for this? Angeli

A: I wrote about this topic in June 2009 here: Hyperinflation or Prolonged Deflation? Coping and Investing Strategies For Either Scenario. The market is being so manipulated that it’s anyone’s guess what will happen, but I still think that inflation is a ways off; deflation is our first concern. Also, check my Resources page for links to web sites that focus on the economy. I follow many of these debates and only one thing is clear to me — no one really knows how to get us out of this mess. My primary goal at this point is my personal capital preservation.

Q: This spring, I will be a new college graduate. Like thousands of others, I’ll be facing a brutal job market. Any tips? Lisa

A: Get your foot in the door, Lisa. Work to get noticed rather than to get paid. Ideally you do this while pursuing your degree — if not, start now:

• Shadow those who are doing what you want to do so that you see first hand what is involved in your chosen field.
• Hook up with a mentor who can show you the ropes and introduce you to others who can hook you up with a job.
• Get noticed by those in your field: volunteer
• Negotiate an unpaid apprenticeship: offer your services in exchange for hands-on learning experiences. This is how I learned how to train dogs, teach classes, and became a professional dog training instructor and business owner.
• Get creative: find a problem, see it as an opportunity, and present the solution. Create your own job or business!
• Take the time to brainstorm, journal, and bounce ideas off of supportive “can-do” people.
• Take an honest look at your lifestyle and eliminate or cut back on anything that is superfluous. Create some financial breathing room.

Readers, I welcome your viewpoints and advice in the comments. Please send me your questions, too, and I’ll respond to more. Thanks!

~Jen

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This is a guest post written by Matthew Papa, PhD.

The current economic state worldwide has led to an increase in the number of people living in high-income countries who can be considered over-indebted — owing more money than they can repay. While there are many negative factors associated with indebtedness, a new study by Eva Munster and colleagues of Germany, published online in the journal BMC Public Health, found that over-indebtedness is associated with obesity – in fact, people who are over-indebted are more than twice as likely to be obese and almost twice as likely to be overweight as their more financially successful counterparts.

The Study

Traditionally, socioeconomic factors such as education and income, as well as other factors like sex, age, depression, and smoking habits, have been found to have a relationship with weight. This new study was unique in that it specifically examined the relationship between weight and indebtedness, a characteristic rarely used to describe socioeconomic status. Over-indebtedness is defined by the study’s authors as “lack of possible debt redemption in due time due to the relation of income and cost of living after a remarkable cutback in standard of living.”

To conduct the study, Dr. Munster and her colleagues compared the results of two surveys: a study designed to measure the health of 949 over-indebted individuals, and a previous telephone health survey of 8318 individuals representative of the German adult population. Both surveys asked questions about age, sex, income, education, Body Mass Index (BMI – a measure of obesity calculated based on height and weight), smoking, and depression.

The study found a number of interesting relationships with indebtedness. When compared to the general population, the average over-indebted study participant was younger, had less education and income, and a higher incidence of depression, smoking, overweight (BMI ≥ 25), and obesity (BMI ≥ 30). Both men and women were equally likely to be over-indebted.

Aspects other than indebtedness that were found to be related to an increased likelihood of being overweight or obese include being male, being over 40 years old, and suffering from depression. Smokers and those with higher education and income were found to have a decreased likelihood of overweight or obesity.

Over-indebtedness and Obesity

The study found that indebtedness was associated with an increased likelihood of overweight and obesity, even when examined independently of other factors. This means that people who are over-indebted are more likely to be overweight or obese regardless of factors such as income, education, sex, or age – suggesting that over-indebtedness alone can cause obesity.

Why might this be the case? The study’s authors present several possibilities for this relationship between over-indebtedness and obesity. One potential reason is that over-indebted people may be less able to afford healthy food. It is known that, internationally, food that is energy-dense (meaning high in fat, sugar, and calories), is less expensive and more filling than less energy-dense (and healthier) food. For example, for the amount you would spend on a bag of carrots, you can buy a more filling and higher-calorie snack like a Snickers bar.

Another possible reason is the psychological distress faced by those who are over-indebted. Being unable to afford all one’s debts can be stressful and depressing, things that can lead to increased eating for compensation and enjoyment. A number of studies have shown that the majority of people change feeding behaviors when facing stress. Around 40% or more increase and 40% or less decrease their caloric intake during stressful periods, while 20% do not change feeding behavior. Stress also induces secretion of glucocorticoids, which increase motivation for food, and insulin, which promotes food intake and obesity, as mentioned in a recent study by Dr Dellman MF.

Is this a German phenomenon?

Since this study was conducted on a German population, there has been some discussion in the United States’ medical community about whether the results can be generalized to other countries. It is possible that this relationship between over-indebtedness and BMI is a uniquely German phenomenon, but there are also excellent reasons to believe that the study has relevance to other countries such as the United States.

Dr. Emanuela Taioli, a physician at SUNY Downstate Medical Center in Brooklyn, New York, said of the study: “This result is even more applicable to the U.S., where unhealthy food is currently much cheaper and more affordable than healthy food, and so is water in comparison to sugary drinks. This will have a large impact on the current U.S. obesity problem, now that the proportion of people with debts is increasing.”

On the other hand, Dr. Lewis Kuller of the University of Pittsburgh noted that the findings would be more impressive had the data been collected over time, rather than all at once, asking “Did the individuals gain weight when they lost [their] income [or] job over indebtedness? Or were they already obese, overweight before their economic problems?”

One thing is certain: this carefully conducted scientific study uncovered a significant association between indebtedness and overweight and obesity. The startling finding – that being over-indebted increases a person’s risk of being overweight by almost 100%, and increases their risk of being obese by more than 150% – definitely suggests that over-indebtedness should be considered when looking at risk factors for overweight and obesity.

About the Author: Matt Papa is a postdoctoral fellow and medical researcher at Washington University School of Medicine, St. Louis, MO. Concerned about the increasing rate of obesity in the United States and other countries, Matt is interested in sharing the latest relevant scientific information. He is the owner of a WeightLossTriumph, where he provides information on best weight loss programs and offers a Medifast coupon.

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Money flows like water. It can gush like a raging river or drip like an annoying leaky faucet at midnight. If we use this precious resource mindlessly, we face drought. However, if we first observe the ebbs and flows, effective management becomes a simple matter of design. In other words, you NEED to know where your money goes in order to manage the flow. Once you know where your money flows, you can design a realistic budget plan and start making conscious spending choices for your hard-earned dollars.

Create an expense tracking system and establish a routine. January is the perfect month to start. I’ve tracked my expenses for over 15 years. It really doesn’t require a lot of time (~5 to 15 minutes a week). I pay my bookkeeper to do this task for me now and at about $1.25 to $3.75 a week, it’s worth it. If you have kids, this can be an educational task to delegate to them.

Expense tracking options include:

• save all receipts and file them into large envelopes labeled by expense category
• write each expenditure under a category column in a ledger book
• write each expenditure in a pocket-sized spiral-bound notebook (carry it with you when you leave home)
• use a software spreadsheet like Microsoft Excel or Open Office Calc
• use a personal finance software program such as Microsoft Money Plus Premium or Quicken.
• sign up for an online application such as Mint.

While all of the above methods work, I use personal finance software (specifically Microsoft Money Plus Premium because I like their Lifetime Planner tool). Both Microsoft Money and Quicken include a wide range of helpful tools to make personal money management tasks easy. Specific to this particular task of tracking expenses, Microsoft Money Plus Premium and Quicken personal finance software:

• connect to thousands of banks and update your expense transactions automatically
• automatically categorize your transactions and compare them to your budget
• show you exactly where your money is flowing using charts, graphs and reports
• let you see the big picture or drill down to the details

Four Tips:

1. Make the most of on-line banking. To make tracking your expenses easy and accurate, pay for everything with a check, debit, or credit card. Check your account often and set up as many automated transactions as possible. (Important Note: If you pay routine expenses by credit card, pay off your account balance in full each month!)
2. If you must use cash, keep your receipts and enter each transaction into your expense tracking system.
3. Make it a habit to track your expense transactions regularly. Designate a time weekly for this task and at the end of each month, total the amounts spent by category. In my case, it only takes about 10-20 minutes per week to confirm my automatically downloaded expense transactions and to reconcile my downloaded bank account statements.

4. Here is a comprehensive list of expense category suggestions. Modify my list to fit your own needs and lifestyle:

   Auto -repairs, gas, insurance, registration, tolls…
   Auto Payments
   Bank Account Fees
   Beauty -hair cuts, manicures, makeup…
   Child Care
   Clothes
   Debt/Loan Payments -create a different account/category for each loan
   Dining Out
   Finance Fees
   Gifts
   Groceries
   Home Improvements/Maintenance/Repairs
   Household Furnishings
   Insurance (Disability)
   Insurance (Health)
   Insurance (Homeowner/Renter)
   Insurance (Life)
   Insurance (Medical)
   Insurance (Personal Liability)
   Liquor/Tobacco -if applicable
   Mass Transportation -bus, train, light rail…
   Medical -everything except health insurance premiums
   Misc -avoid this category as much as possible!
   Mortgage Payments/Rent
   Pets
   Recreation/Entertainment
   Savings (Education)
   Savings (Emergency Fund)
   Savings (Retirement)
   Savings (Specify Purpose)
   Storage Unit
   Subscriptions, Books, Software
   Taxes (Federal, State, Local)
   Tax Preparation Fees
   Toys (purchase, repair, insure) -includes boats, electronics, bikes, jewelry…
   Travel
   Utilities (Electric)
   Utilities (Gas)
   Utilities (Internet)
   Utilities (Misc)
   Utilities (Telephone)
   Utilities (Trash)
   Utilities (TV Programing)
   Utilities (Water)

Questions for readers: Where does most of your money go? If you currently track your expenditures, what method do you use?

Don't miss anything: Subscribe to receive free email or RSS notifications every time I publish a new blog post. (No spam, no risk, and it is easy to unsubscribe should you ever change your mind.) Follow me on Twitter (@MillionMommyND) where I share interesting articles, opinions, quotes, tips and other bite-sized tidbits relevant to success, happiness and financial freedom almost daily.

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