As most longtime readers know, I’m a very happy customer of ING Direct for both my primary checking account and my primary savings account.

Before I joined ING Direct, though, my primary bank was one of the largest banks in the United States, one that had a branch in the town where I attended college (I won’t name them because of libel concerns, but I’m pretty sure you’ve heard of them). I stuck with them for a long time simply out of habit - the status quo bias at work - but when I started to get my financial life in order, I began to seriously look at the ways that my bank was costing me money:
+ My checking account didn’t earn any interest at all. Just before I moved, they made a big deal about rolling out a 0.25% APY interest rate for the account.
+ The account also had a rather high minimum balance - $300, according to my notes. If you went below that minimum balance at any point during the month, you were dinged with a fee - $2.95 a month, if I recall correctly.
+ They also charged a monthly maintenance fee for a pretty standard online banking service. This fee was $7.95 a month.
+ The savings account offered only a 0.50% APY.
+ While there were a lot of ATMs in town that were fee-free, if you were in a town that didn’t happen to have a bank branch, you got dinged hard with an ATM fee.

These “features” added up to a pretty major money leak, so I went hunting for a new bank. I identified some features I found important (a decent interest rate, free online banking, no fee nightmares) and eventually wound up with ING Direct as my primary bank. Later, I found other features that would be useful (good customer service, a local teller window, etc.) that ING did well in some respects and not so well in others, but they’re still strong enough (and have treated me well enough) that I’m very happy as a customer.

In short, here are the factors I would look for when choosing a primary bank for my personal business, ranked in their order of personal importance. Please, in the comments, if you disagree with the ordering here, let me know why. Quite often, the importance of certain features varies depending on your life situation and experiences.

No (or very low) fees Before I switched to a bank, I’d want to know every fee that I’m going to incur during normal usage of the account. Maintenance fees are an absolute no-no, as they’ll eat all interest I might earn. I also demand a huge network of ATMs that are fee-free, especially in my local area, but also availability nationwide. This is make or break for me - if I get dinged with a fee or two a month, it eats up any interest I might earn and likely also costs me, too.

Some common fees to look for (and avoid) include minimum balance fees, ATM fees, regular maintenance fees, fees for online banking, and excessive overdraft policies. Make sure you know about these fees before you commit to any bank with your account.

Free online banking and bill pay Online banking and bill pay are essential, and the services should be free, too. The ability to pay my bills just by typing in the amount and hitting “submit” not only saves on the cost of stamps, but makes money management easier, too.

Customer service and ease of use Some people tend to pooh-pooh the value of good customer service at a bank. Those who do are ones who have never had a crisis where funds were misdirected by another agency or a similar mess. In those situations, good customer service is worth its weight in gold. For me, I must be able to talk to someone during normal, reasonable business hours. 24 hour customer support is a definite perk, as is the availability of a local teller window.

For day to day use, a bank that’s easy to access at all times without a bunch of hoops to jump through and a clear and easy to use interface makes all the difference. If you use your bank twice a week and a well-designed online banking interface saves you two minutes per session, that’s a savings of three and a half hours over the course of a year.

Generally, this is fairly hard to research when it comes to a bank, as most people generally just complain when service is bad but don’t say much when it’s good. Do some Google searching about the bank’s customer service (like “ING Direct customer service”) and see what you find out.

FDIC insurance This is almost a gimme for any bank in the United States, but it’s still important, and it can be vital if your bank fails, as with the recent trouble with IndyMac. Just make sure that your account is FDIC insured before putting your money in.

Interest rates Almost every article I read online seems to greatly overvalue interest rates, even claiming that one bank is better than another one because of a 0.5% APY difference. In my view, that’s nonsense. Look at it this way: 0.5% of $2,000 is $10. You can easily lose that much to fees in a month. Not having online bill pay can cost you that much in stamps. Poor customer service can cause all sorts of penalties and delays. In my view, all of those are far more valuable than a slight difference in interest rates. A competitive interest rate is required, but once you have that, the minor rate differences are trivial, especially when you consider how often banks alter their interest rates for promotions and in response to Federal Reserve moves. What’s competitive? As of this writing, you should be receiving at least 1% on your checking and at least 3% on your savings. If you’re not clearing that much, then interest is a problem.

A paper checkbook This is actually less important than you might think. I was very hesitant to switch to a bank that didn’t offer paper checkbooks and, for a long time, I held onto my old checking account just to keep paper checks around. What I eventually found was that I simply didn’t use them very much in the presence of online bill pay. I paid most local bills with cash or with credit cards and used online bill pay for everything else. In fact, after going for several months without writing a check at all, I’m about to close that account.

Putting This to Use
The choice of a bank can seem trivial to some, but it’s a surprisingly important choice. From my own personal experience, switching to a better bank saved me about $40 a month in improved interest and reduced fees - that’s $480 a year. Spending an hour or two now to find a better bank - especially if any of the factors above set off warning bells for you about your current bank - will definitely pay off over the long run.

Use the above checklist of features as a starting point. Decide for yourself which features matter the most to you and focus on them. Use Google to find information about the banks you might be interested in - and stick with reputable banks.

My Personal Experiences
I use ING Direct as my primary bank, but I dabbled with other banks for a period of time in order to try them out. Here are notes on my other experiences.

HSBC Direct I signed up with HSBC Direct simply because their interest rate was higher than ING Direct (it usually runs about 0.3% higher than ING) and I was looking for a savings account to sock away my emergency fund. While it worked well as a place to simply drop cash and leave it, the interface was too clunky to serve as my regular online bank. I had repeated difficulties logging on (their system requires you to use a keyboard-like interface with your mouse that has some compatibility issues) and also had a very difficult time initiating and stopping regular balance transfers. It’s a solid place to set up an emergency fund or a savings account for a specific goal, but it’s frustrating to use as a regular bank.

Washington Mutual had the best competition for ING Direct in my experience, offering a consistently higher interest rate on the savings accounts (as much as 0.75% higher than ING), strong customer service, and free paper checks for life. However, their checking account offered no interest rate at all. If I were to carefully manage the account, I could juggle my way around that, but for me, it wasn’t worth the effort, so I’ve just left the account idle. I have considered using it as an emergency fund, however, but as of yet I’ve stuck with the convenience of multiple savings accounts at ING.

My local bank blows away the others on customer service. I can talk to a teller during normal business hours and get services like cashing in change for free, free and immediate check cashing, and immediate resolution on banking issues (I don’t use this bank personally, but am involved with community organizations that do). Unfortunately, their rates are simply not competitive with some of the online offerings. I have considered opening a checking account there anyway just for the convenience of check cashing and change redemption.

Whatever you choose, choose wisely and carefully and do your own research. A poor banking choice can be a constant small drain on your personal finances, while a good bank can not only patch the leaky holes, but provide good service and drop some additional money in your pocket as well.

A few days ago, I was inspecting the whole chickens that were on sale at the local grocery store. The price was quite nice - $0.88 a pound - and although it was a different brand of chicken than what I usually buy, I was considering making the purchase (we tend to buy free range chickens, which cost more).

Just then, I overheard a person behind me talking about how buying a whole chicken was a “waste of money” because you’re paying for parts you don’t use. This lady immediately bought a two pack of chicken breasts which - lo and behold - cost about as much as the whole four pound chicken I was looking at.

As she walked away, I couldn’t help but smile. A whole chicken is an incredibly frugal deal that provides the materials for several meals if you’re sensible about it. Here’s the game plan for turning a whole chicken purchase into several delicious meals.

Meal #1: The Chicken Itself
Cooking a whole chicken is really easy. All you have to do is unwrap it, remove the neck and gizzards (usually already separated for you - but save them for later), rinse it down well, rub the skin with salt (two tablespoons or so) and pepper (a few dashes) and a bit of vegetable oil (two tablespoons or so), then cook it.

“How do you cook it?” is the next obvious question. If you have an oven or a grill, one very simple way to do it is with a can of beer. Just open one up, drink about half of it, then insert the can into the chicken’s cavity, open end inside the chicken. Then, you can literally sit the chicken on the can. Toss it on the grill over indirect heat (off to the side) or in the oven at a low temperature and cook it until you get a temperature reading of about 165 degrees Fahrenheit from the breast. That’s it.

Then, just cut off the tastiest parts - most people enjoy the breasts, legs, wings, and thighs. Don’t worry about knowing how to cut it - just get the pieces off that you want. Serve it with a side vegetable, and you have cheap meal #1.

Meal #2: Leftover Pieces
When you’re done eating the chicken, you’ll have a carcass with quite a bit of meat still on it. Spend some time carefully extracting these little pieces of cooked meat and save them in a baggie in the freezer.

Why? This stuff is the perfect basis for any dish with chicken in it. Use it on a homemade chicken pizza, in a casserole, or in soup. Any recipe that uses diced chicken can use this stuff. Usually, you’ll have more than enough left to satisfy any recipe you might have.

Meal #3: Even the Waste Parts
Now, what about those leftover “junk” pieces you don’t want to eat? Even those are useful. Throw all of the leftover pieces (bones, skin, neck, gizzards, all of it!) into a big pot, add enough cold water so that the pieces are thoroughly covered, add a dash of salt and a dash of pepper, toss in a few vegetables (I like a small amount of onion, celery, and carrots - maybe 1/2 cup each), then crank it up to a boil. Once it’s boiling, drop it down to a low simmer and just let it cook all day - four hours, minimum.

When it’s done, remove the bones and strain what’s left, removing the chunks. The remaining liquid is chicken stock, and it’s infinitely useful in all sorts of dishes. It can be the basis of a soup, the liquid ingredient in a savory casserole, stir fry, curries, or anything else. Any recipe that uses bouillon or broth can use this liquid instead and will taste substantially better for it. You can freeze this stuff in freezer bags if you’d like.

One good way to do this is to have the whole chicken on Friday or Saturday evening, remove the extra meat after dinner, then boil the remnants the next day while you’re doing other household tasks.

A Look at the Costs
Let’s say, hypothetically, that you can get a whole four pound chicken for $7.50. You’ll also need perhaps $3 worth of vegetables to go with it, $0.50 in cooking materials, and you might burn $0.50 worth of energy in the cooking process. That’s a total of $11.50.

From that, you can produce a meal of chicken and vegetables to feed a family of four, a meal worth of leftovers, a bag full of chicken pieces in the freezer for a future meal for a family of four, and a bag of chicken stock for another meal or two. That’s five complete meals and the key ingredients for eight more meals.

What’s the Lesson Here?
For the most part, being frugal with food is just like being frugal with anything else: the more stuff you can reuse, the less expensive day to day life becomes. An ordinary whole chicken seems like a ho-hum purchase, but when you look at the possibilities that it provides, it becomes a much stronger purchase.

Here’s another example. Let’s say that you often buy vegetables, but only intend to eat part of it. I know, for example, that my family tends to eat about one and a half sliced zucchinis as a side dish, leaving that other half of a zucchini as a waste. Just go ahead and slice it and throw it with other miscellaneous vegetables into a freezer bag - whenever you have a leftover vegetable, just toss it in there. Then, once every few weeks (when the bag gets full), toss a bit of olive oil and a bit of garlic in a pan and make a stir fry out of the leftover vegetables. It’s an incredibly cheap meal (plus you can toss in some of those leftover chicken pieces).

If you spend a few minutes thinking about what you can do with the left over elements of any meal you prepare, you can usually come up with a tasty use. And when that tasty use keeps you from tossing those pieces in the trash, then it’s as good as found money.

Last week, I spent seven days in northern Wisconsin at a cabin on Shell Lake, owned by a friend of a friend. It was truly wonderful - so rural that we were out of cell phone range, but with plenty of outdoor stuff to do. My wife and I went on a long canoe trip around part of the lake, we toured a nearby small(er) brewery, I got a lot of reading in, did a lot of swimming, and did absolutely no writing at all for a week. It was a refreshing and relaxing change of pace.

On our way home on Saturday, after a wonderful week at the lake, we loaded the kids in the back and headed back home to Iowa, a roughly seven hour car trip. We stopped in the first sizable town we came to (Cumberland, Wisconsin) and filled up with gas. I got back in the truck, turned the key, and….

Nothing.

I checked the batteries by turning on the headlights and radio and honking the horn. The battery was fine. That meant it was likely the starter, and thus it had quickly gone beyond my car problem diagnosis skills.

I wound up asking several people at the gas station for recommendations (including one helpful guy who tried to help me get my starter going by tapping on it), but I finally had to have the car towed to get the starter replaced.

Given that I was in a small town I was unfamiliar with, on a Saturday morning, with a truck full of luggage, I figured the bill would be well over $500 for a new starter, the cost of the tow, and the labor cost on my model of truck (I know from past experience that changing the starter in my truck model is a significant job). It turned out to be right around $400 in all.

Still, it was not a happy end to our family vacation. Our kids weathered it well - we merely walked to a park while the truck was repaired, which made my son really happy (he later said the two hours at the park was the best part of the trip).

It gets worse, though. When the truck was returned, the repairman showed me several things wrong with it that weren’t immediate disasters, but would have to be replaced soon: a worn-out flywheel, a transmission with leaky seals, and three or four other little things. He suggested that when I got back home, I look into replacing the truck, because, as he said, “you’re reaching that point where the repair bills are going to start really adding up.”

After arriving home and taking a few days to reflect on these events, the costs for our family in obtaining a new vehicle, and our family’s present and future needs, I’ve come to several discussion-worthy conclusions.

AAA may be worth it. In the past, I’ve hedged my bets and not joined AAA because I wasn’t convinced that the annual membership fee was worth it (it varies from $30-70 annually depending on location and other factors, apparently). In one shot on this trip, I would have paid for two years’ worth of membership. Given that I now have two young kids in the car (meaning it’s a lot harder to just shrug my shoulders and just grab a hotel room for the night), I’m now leaning strongly towards a membership. Here’s Jim’s (from Blueprint for Financial Prosperity) thoughts on AAA, which confirm my perspective. What do you all think of AAA?

How long can I put off replacing my truck? That’s really the key question, isn’t it? Since I work from home, I don’t use it that much - mostly for trips to the library in adjacent towns and grocery trips. My gut instinct is to keep it until early next summer, then replace it, simply because this gives me ample opportunity to save for the next vehicle purchase.

Do we really need two vehicles? While I have my truck, my wife currently drives a small, fuel-efficient car to work, one that’s also getting up there in miles (though it hasn’t started having the “nickel-and-dime” problems my truck is developing). Since she’s the only commuter, is it reasonable for us to switch to one vehicle for the time being? We’ve largely decided against it because of redundancy - having two vehicles makes things a lot more flexible, especially with children to tote around.

What are the actual needs for my family? Clearly, one automobile ought to be a fuel-efficient and reliable car for my wife’s commute. That’s one that’s out of the way. But what about that second vehicle? We currently have two young children and anticipate having at least one more in the next few years. That means that a reasonable car purchase for my family would require seating for five (including at least two car seats) - otherwise, we’ll be driving two vehicles while traveling. That, in turn, means either a minivan or a SUV is in my future.

Late model used or new? I addressed this question last week, but now it really hits home. The comments on that post pretty much nail it - consider both, including the benefits (warranties, cash allowances, etc.) of a new purchase. In a down car market, the new one may end up being the best deal, especially since we’re leaning towards Honda or Toyota because of their reliability numbers - they’re hard to find late model used for much less than they are new.

How will I pay for it? Time to start saving. Instead of tossing money into current debt repayments, I’m going to build up a nice hefty savings account for this car purchase, so that I can easily go for the best deal when the time comes around without taking out a loan.

In short, I have a lot to think about. Thankfully, the issue isn’t entirely in my face quite yet - I still have some time to consider what move to make. But as I sat there watching my truck get towed away in the middle of rural Wisconsin, I realized it was time to start taking these questions seriously.

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently.
I don’t sell my content, ever
Jim Cramer’s only really worthwhile book
A solution for when you’re too tired to cook that doesn’t empty your wallet

And now for some great reader questions!

What do you think of the concept that, to be able not to work and live off your funds, you should calculate how much money you spend a month, and then multiply it by 200? So, say, if you spend 2,000 a month, you should have 400,000 invested, and that would allow you to get the interest each month, and the money wouldn’t finish? Does any of this sound reasonable?
- Lola

That’s a reasonable formula, I suppose. For me, that cuts it a bit too close to the bone - for that to work, you have to bank on low inflation, and we’re certainly not seeing low inflation right now. You also have to believe in a very solid investment return.

What you actually need is enough of a bankroll so that each year, after you take out your living expenses, your investment earns enough return so that you’re not only back to where you started, but you’re back to where you started plus inflation.

So let’s look at your example. If you spend $2,000 a month, that means you spend $24,000 a year. That means your $400,000 investment would need to return at 6% to stay where it’s at. Then there’s inflation. Even if you buy that inflation is only at 5.1% (what the government claims as of June 2008, but I believe is much higher since it doesn’t account for gas), that means your investment has to return 11.1% over the year just for you to stay even. Add on top of that that you’ll likely be taxed for at least some of the gains, and that’s far too much to realistically expect.

Instead, you should shoot for using something like 1-2% of your amount annually. This means that your actual balance, to give you a living expense of $24,000 a year right now, should be somewhere between $1.2 million and $2.4 million. You’ll almost assuredly be fine in perpetuity with that amount.

I love the reader mailbag. I am always surprised at how many questions you manage to get (and answer) many are often relevant to my situation. I run an entrepreneur blog and I was wondering how you get people to ask so many questions?
- Ryan

One big reason is reader volume - there are so many readers and so many discussion threads around here for people to comment on that there are just simply a lot of comments and questions. Another piece is that I give out my email address and my IM name for people to contact me with their questions and comments.

The end result is that I get far more questions than I can use in the reader mailbag. Some of the other questions inspire posts - still others just result in interesting conversations with readers.

If you want questions from readers, give them as many routes as possible to contact you. Have an email account where they can send stuff. Be available on IM. Allow comments, and invite questions. Be on Twitter and Facebook and other services. Make it as easy as possible for readers to ask.

How do you get a spouse to recognize the amount of money they spend on a ‘hobby’ is a huge expense? I have suggested tracking how much is spent, but the response was - “No way, I’d be scared to see the real number, I know it’s huge.”
- Karen

For one month, do a very careful accounting of all of the money your family spends. Sort it into categories - food, household, etc. - and let one of the categories be all expenses related to that hobby. Don’t forget the transportation costs to participate.

Then just simply make a bar graph of this information, showing that you spend more on this hobby than you do on food for the entire family for the month (if it really is that much) or on the mortgage. That is usually a real shocker - comparing it to the amount you spend on basic living needs is usually a wake-up call.

Follow it up with a talk about goals. Discuss how much nicer of a home you could have if the expenses for the hobby were just cut in half.

That’s the route I’d take, anyway.

Do you think America fares well on the parameter of Happy Families?
- WhirlMind

I think the material comfort level in America is very high. I think part of the cost of that material comfort level is less family involvement, as people have to devote themselves strongly to work in order to keep that material comfort level.

That being said, I think it’s hard to judge a nation in terms of the happy families in it. I know tons and tons of well-rounded happy American families, and I know there are tons of well-rounded happy families in every nation. I think it’s very hard to fairly judge family happiness from nation to nation, particularly when living standards and ways of life are quite a bit different.

Have any advice to get extra money for a student with no time, not even for a half-time job? I know it sounds maybe even ridiculous but the situation here its pretty hard since… ever and things will not get any easier when the time for me to move on comes.
- Luis

Without time commitment, you’re not going to earn much money at all. Your best bet is to look for opportunities that fold neatly around your spare time - things like filling out surveys and the like that can earn you a bit of money but not a great wage.

If you’re a student, though, your chief focus should be on maximizing your grades, period. A high GPA is your ticket to a nice job or to graduate school - worrying too much about earning a few extra bucks now won’t get you anywhere.

You mentioned you’re reading some philosophy lately. I’ve always wanted to know more about philosophy but don’t know where to start. Any suggestions?
- Pete

I’d start off with Bertrand Russell’s book History of Western Philosophy. It’s a fun read and it touches on tons of different areas of philosophy. Just read it slowly, absorb the ideas, and when you’re done, ask yourself what ideas intrigued you the most. Then follow that train of thought - Russell’s book will point you towards more philosophical works in that direction.

One thing to note: Russell is pretty blunt in his opinions of different philosophers and their ideas. If he disagrees, he says so, and he also doesn’t hesitate to severely critique ideas and philosophers he disagrees with. Take it lightly and don’t let Russell’s opinions make up your mind for you - if you find the ideas interesting, read other works by that philosopher, anyway.

How do you feel pets factor into a frugal/simple lifestyle? In particular, dogs.
- Carol

Never own a pet unless you sincerely care for pets. Don’t let someone else talk you into having a pet if you’re going to be the one responsible for it. Pets deserve care and love from their owners and to give one anything less is unfair.

On the flip side of that, if you dream of having a pet, by all means get one. What a pet needs more than anything is attention and love, and if you have that, then everything else will fall into place. The actual truth is that most pet expenses, such as expensive foods and equipment, is often a substitute for time, love, and attention. Instead of buying expensive dog food at the store, figure out what it’s made of and make it yourself, for example - it’s more nutritious and healthy for the dog and likely cheaper for you, with the only drawback being that it’ll take more time.

If you have the time to invest in a pet, it’s well worth it.

What’s your favorite board game?
- Emily

My wife and I love board games, and conveniently enough, so does my closest friend. Many evenings are spent at our house playing board games late into the night.

That being said, our favorites over the last ten years, in no particular order, have been Settlers of Catan, Ticket to Ride, Puerto Rico, Cartagena, Princes of Florence, and Carcassonne. I’d suspect that each game has seen more than a hundred hours of play time at our kitchen table, with Settlers probably coming out on top (because it’s the one we’ve owned the longest). Ever seen a board game wear out from overuse? Our copy of Settlers of Catan is pretty much there.

In order of complexity, with the simplest going first, I’d rank them Cartagena, Carcassonne, Ticket to Ride, Settlers of Catan, Princes of Florence, and Puerto Rico. The middle two - Ticket to Ride and Settlers of Catan - would be the ones I’d probably use to introduce new people to the types of interesting board games we like to play.

I just stumbled upon a website called rudder.com. They help keep track of your money after you enter information about your debt, income, etc. Is this a safe site?
- Erma

My general rule of thumb when it comes to websites wanting my personal information is this: am I getting something truly compelling out of the deal? Since I can already do all of the money tracking I need to do in Excel, I don’t find such websites worth the potential risk of identity theft.

Yes, I know many of these sites have a flawless privacy record and a great policy. But you’re still sending your data through a third party, one that you’re trusting to keep safe. All it takes is one person flipping a switch and your data is being stored by someone else.

I prefer to minimize the number of places where I share sensitive information about myself. That way, there’s much less risk of identity theft.

What is the most frustrating aspect of your current day-to-day life?
- Lee

Amazingly enough, interruptions. Right now, I have my days pretty clearly scheduled - I have segments where I focus on writing, for example, and when I write, I intend to write. I try to focus in tightly on the task at hand and get the task done. Doing it this way gives me the flexibility I want in the other parts of my day.

Well, because I work at home, many people interpret that as full permission to interrupt that writing. It’s reached the point where I actually go into something of a “silent mode” when I need to write, where I actually unplug the phone, turn off email and other services, turn off my cell phone, and close the door. This gives me at least some buffer against the interruptions that come - but they still do come, more often than I’d like.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

Each Sunday, The Simple Dollar reviews a personal productivity, personal development, or business/entrepreneurship book of interest.

One of the most interesting aspects of writing a great deal is that I’ve found that writing works much better if you break it down into littler pieces. First comes the brainstorming: what basic idea is behind this piece? What basic elements do I need to convey? Then, organization: what order should these pieces go in? How can I make an orderly progression from the basic understanding at the start to a new understanding at the end? Then, application: how can I make it seem real and tangible? Then, criticism: what’s wrong with the ideas, and how can I improve them? Then, finally, I write the whole thing, taking all of those little pieces and combining them together into something (hopefully) smooth, readable, and thought provoking.

Discovering this process on my own over time was exciting. Sure, it’s an extension of the writing process I learned from my high school English teacher, but then it was just a process to follow, not really something that I understood as an aid to make my thinking and writing better. It was exciting because, by breaking it down in this fashion, it made me think in a certain way about each stage of the writing, almost as if I were using a completely different part of my brain.

This is almost exactly the premise of Edward de Bono’s book Six Thinking Hats. The entire premise of the book is that problems are best solved by thinking about them in an orderly fashion, by intentionally looking at the problem and the solution with intentionally different angles, then switching to new angles. He refers to these “angles” as thinking hats - each one tied to a certain way of thinking about a situation.

Using the Hats
Obviously, the “six hats” metaphor is intended to indicate six different ways of looking at a problem. De Bono suggests a bunch of different ways to use the hats: individually or in groups, singly or in sequence, and in varying sequence. The real key is to realize that when you run into a roadblock in solving a problem, putting on a different “hat” might help - in other words, step back and make a tangible effort to look at the problem in a specific way. In other words, when you’re stuck, try one of the following six approaches (or have someone else apply that approach) to tackle the problem.

Each of the sections below offers a ton of examples and supporting information for each way of thinking about a problem, well worth reading through if you’re intrigued.

The White Hat
The white hat refers to the simple gathering of facts. It’s neutral and objective. All you’re trying to do with the white hat is just gather information.

I put on the white hat when I’m researching something. If I come to a spot where I realize I’m out of my realm of expertise, it’s time to step back and just gather facts and look at them to see that I understand what they’re saying, then perhaps go back and gather more facts. If I’m at the library, the white hat is on. If I’m doing intense reading, the white hat is usually on.

The Red Hat
Red hat thinking is geared toward the emotional side of things. How does this particular fact make you feel? What is your emotional response to the situation?

I use the red hat when I’m thinking of real-life examples of how something’s going to work, particularly when it affects my family or myself. When I’m writing a heartfelt anecdote about my children or my grandfather, relating those facts to their lives, the red hat is firmly in place.

The Black Hat
The black hat comes around when you’re playing the devil’s advocate, trying hard to find flaws in thinking and being very careful about absorbing new ideas. The critic wears the black hat constantly, making what he or she is reviewing win them over by overcoming the negatives.

My black hat comes out of the closet when I’ve collected the facts I need for an article and have already decided on how it will progress. At that point, I try hard to pick some holes in it. What’s wrong with this article? Will it be any good? Does this idea make sense? Is it actually supported? Does this piece actually fit with everything else? I’m trying to poke holes in things, in order to make the end solution better.

The Yellow Hat
The yellow hat is the “positive thinking” hat, looking at the best possible outcome of the situation. Yellow is almost the opposite of the black, because while black looks for the problems, yellow looks for the best case scenario, the reason why all of this will pull together and work, and the big rewards when it does click.

I use the yellow hat when I see the message getting lost in negativity. In the end, personal finance is a positive thing, but there are many negative pieces to the puzzle. When something feels overly negative, I put on the yellow hat and see where it fits in a broader context of positive personal finances.

The Green Hat
The green hat is the brainstorming hat, where you just pull out ideas and throw them on the table. It doesn’t matter whether they’re good or not (black hat will work on that) or whether they’re supported (white hat, please!). The purpose is simply to get some fresh ideas out there.

Most of my posts start off with the green hat - they begin as jottings in my notebook. I try to wear the green hat as much as possible, looking everywhere for ideas and recording them when they come up. In fact, my green hat is usually on whenever I’m not actively engaged in the process of writing - I’m just brainstorming along the path of life.

The Blue Hat
The blue hat is all about organizing and planning. Are things in a sensible order? What sort of structure needs to be here to complete the project? Does the first step go before the second step?

I use the blue hat when I pick out brainstormed ideas (from my green hat thinking) and combine them with facts that I’ve researched (white hat thinking). These need to come together in some sensible order - how do the facts line up to present a case? I also use my blue hat when actually planning my daily schedule.

Some Thoughts On Six Thinking Hats
More than anything else I’ve ever read, the “six thinking hats” metaphor really clicked with how I think. I had never considered it in the sense of discrete ways of thinking before, but nearly the entire book made sense to me. Prior to it, I had focused mostly on creative thought - green hat stuff - but I hadn’t considered how important the other hats were and how I had to use them all to really pull things together.

The author needs to get his ego in check a bit. While there is a lot of compelling information here, the preface is almost insufferable. “The Six Thinking Hats method may well be the most important change in human thinking for the past twenty three hundred years.” Come on, that’s a bit over the top. It almost made me close the book right then and there.

While conceptually good, the metaphor goes a little far. Some of the examples of how to use the hats in meetings go a little far. Literally mentioning the hats is a bit over the top, and I can’t conceive of people actually doing that. While it makes for a great metaphor within the book, I’m not sure it stretches into the real world.

Is Six Thinking Hats Worth Reading?
Six Thinking Hats is a very compelling book, broken down into perfect little bite sized pieces for contemplation. The overall concept that de Bono lays down, about how to separate out the pieces of your thought process and put effort into using different aspects or varying up the order, is a very strong one, indeed, and matches the way I think better than any other book I’ve read.

Because of that, I’d say Six Thinking Hats is worthwhile reading for anyone in a career that utilizes thinking skills.

That doesn’t mean I think that everything in it is right on. The book takes using the metaphor a bit far. While the tools can be very useful within your own head - and can be very useful when used in conjunction with others - sitting in a meeting talking about “putting on your red hat” doesn’t really help anyone at all. In short, utilize what the book says in between your own ears more than anywhere else. Make an effort to understand how you’re thinking and try hard to slip on a different hat on occasion - it can really help.

This one’s well worth a peek.

I hear from a lot of readers who avidly follow Dave Ramsey. Many of them have taken his Financial Peace course, some got on board with his Total Money Makeover, and others avidly follow his radio show. Virtually all of them are strongly committed to complete debt freedom as a goal and they’re throwing everything but the kitchen sink at that goal.

And I think that’s awesome. Here’s why.

First, it’s a goal-oriented personal finance strategy. People following Dave’s plan have a very clear goal in mind - debt freedom. That’s the big goal they’re moving towards and it’s always in sight. Not only that, it automatically comes with short-term goals embedded inside in the form of the debt snowball - each month, you’re making it your goal to come up with a nice big extra debt payment.

Second, it’s very psychologically powerful. The entire plan has you paying off debts in a pretty regular order, and each one of those debts provides a great positive psychological boost. “The car? It’s paid off.” “My student loan? It’s gone.” It feels good to be able to say these things.

Third, complete freedom from debt is a very healthy personal finance state to be in. Debt freedom gives you the maximum possible freedom to do whatever you want with your income. You’re no longer beholden to mortgages or loans - your choices with your income (once you’ve paid basic bills and bought food) are entirely up to you. You have the freedom to make radical career changes, start investing rapidly for a big dream you’ve always had, or take advantage anything else that might come along.

But there’s a problem with this flowery picture. Whenever you start talking about absolute debt freedom, though, you introduce some more difficult questions along the way. When does this goal take priority over saving for retirement? When does it take priority over investing for other goals? Sometimes, debt freedom isn’t the most financially lucrative choice.

Right now, my wife and I are trying to make some difficult choices about where our financial path should lead. After our recent success in eliminating debt, we have just a single student loan and our mortgage to contend with, with the student loan locked in at a higher rate (but with a much smaller balance). Our shared goal is to eliminate that student loan, but after that, we’re not sure.

Our goal is not debt freedom, though there is appeal to it. Our goal is to eventually buy a piece of land in a very rural area, build a nice house on it, and basically have a very small-scale farm. We want a very large garden and have discussed raising chickens and possibly a few other animals on that land.

Our home mortgage is locked in at just below 6%. Following the strict debt freedom path, we should pay off our home mortgage as quickly as possible, then start saving for the “farm.” This effectively means that we’d be earning a guaranteed 5.875% return on our investment in our mortgage.

Alternately, as soon as we’re debt free besides our mortgage, we could begin investing. Investing gives us the possibility of a return much higher than 5.875% on our money, but there are no guarantees and we’d also have to pay taxes on the gains, meaning we’d have to earn 7.5% (at least) on our investments to match the value of putting the money into our home mortgage (which is essentially a tax-free “investment”). It also gives us the flexibility to do other things along the way.

So, which is it? Both paths have powerful arguments, but for us it mostly comes down to risk: are we willing to tolerate some risk along the way on our path towards this dream home of ours? This is something we’re still piecing through.

The real point here is that while debt freedom is an admirable and powerful goal, make sure that it doesn’t actually work against other goals you might have. When you start to see some real success in eliminating your debts, spend some time asking yourself what you really want. You may simply want the psychic feeling of debt freedom, in which case continuing to rail against your debt is clearly the best idea. On the other hand, you may want other things, such as a new house, an new career, or a well-cushioned retirement, in which case investing once you’ve got the debt under control may be the best idea for you.

No matter what, though, debt repayment is never a mistake. It will always improve your financial situation and it will always reduce your personal risk. The real underlying principle here is spending less than you earn - the one thing that you can do to ensure long-term financial success - and debt repayment basically forces you into that philosophy.

If you’re deeply involved in a debt repayment plan, spend some time figuring out your big goals besides being free of debt. It may turn out that at a certain point it’s more sensible for you to do something different with your money, but always remember that the fact that you’ve reached this point and are making this decision is a great success. You’re already moving away from the traps of debt and overspending.

As a rule of thumb, I think it’s a good idea to try generic versions of products you already use, or, at the very least, try out lower end versions.

But there’s a problem with that philosophy, one that’s explained very well by Allie, who recently emailed me on this topic:

The reason I don’t buy generics is because I’ve usually already found a brand I like, so why should I risk buying something I don’t like?

It’s a good argument, so let’s walk through the logic a bit and see where it leads us.

The Generic Argument
Let’s say you’re in a grocery store and you’re looking at your various options for tomato sauce. You can either buy a name brand you’re familiar with - like Hunt’s - or you can buy the store’s generic brand. Which do you choose?

If you flip the cans over and compare the ingredients, you’ll usually find that they’re identical. The contents of the can you’re buying are the one and the same for many items.

The only significant differences, in many cases, are the labeling and the price. The name brand usually has a prettier label from a brand you recognize, but the other one is usually substantially cheaper.

If the item inside the package is the same, take the cheaper one. Is it really a value to spend extra for that nice label and that name that you may have heard of before? Likely, it’s not.

But Not All Items Are The Same
Obviously, though, there are differences in quality between brands with many items. You might not be able to distinguish between tomato sauces, for example, but you certainly can distinguish between brands of toilet paper.

Because of this varying quality, most people tend to find a brand that they know they like and stick with it (lo and behold, the status quo bias strikes again!). It actually makes sense - it makes shopping easier and you know you’ll wind up with a product that works for you.

This is the thought process that leads people to fill up their cart with name brand items. They are familiar with those items and know that they meet their basic needs, and because this is the “norm,” they fill up their cart with those items, quietly paying the premium cost for a perceived insurance of basic quality.

The “Generic” Experiment
Instead of following that route, try this one on for size. The next time you go to the grocery store, actively replace all of your regular purchases with the low-end generics. Buy the cheap dish soap, the cheap deodorant, and the cheap wheat bread. Then just use them like normal and see if you actually notice any difference.

Likely, you will notice that some items are lower in quality. Some might even find that some aren’t acceptable for your use. However, many of the items will just automatically replace the more expensive versions without you even noticing.

Keep track of the ones that work for you and the ones that don’t. You may find that generic spaghetti is a good buy for your family, but your family hates the generic toilet paper. Lesson learned - go back to the name brand toilet paper, but stick with the generic spaghetti.

Make Up For The Losses
All of this sounds great in theory, but it doesn’t really help if you’re standing in your kitchen one night holding a jar of really foul generic peanut butter that you don’t want to consume. If you’re just throwing that jar of peanut butter away, isn’t that a waste of money?

Of course it’s a waste of money, but if you discover a handful of generic items that work for you and your family, it more than balances out over the long haul. Let’s say you try twenty five generic items on your next shopping trip and, on average, they cost $2 and save you $0.50 off the name brand. At the end of that week, you find that ten of the generics are up to snuff and become regular parts of your grocery list, while ten more aren’t up to snuff and five more were bad enough that you had to chuck them.

On that first grocery bill, you saved $12.50 overall. At home, though, you had to chuck five items, which at $2 each ate up $10 of that savings, leaving you only $2.50 ahead and with ten generics you really don’t like. Not the best deal, right?

But look at the long haul. If you buy the ten generics you do like twice a month, your newfound use of generics saves you $10 a month in perpetuity. Every month, you’re spending $10 less than you would have spent and your family is just as happy as they were before.

Give “The Generic Experiment” a Try!
This week, buy generic versions of everything on your shopping list. Keep a list of all of the generics you bought and put it on the fridge. If you discover one of the generic items isn’t up to snuff, just cross it off that list on the fridge.

The items that remain on that list are the “safe generics” - ones that are okay for you to buy. If you find yourself with even a few items on your “safe generic” list, this experiment will pay for itself and far more over the long haul. Likely, you’ll be surprised how many of the generics are as good as the name brands for your own use, and that fact will save you a lot of money on your food and household expenses.

This week, The Simple Dollar is taking a deeper look at five common personal finance debates.

A while back, I posted an article entitled How to Choose a Career - The Simple Dollar Way, where I advocated strongly for allowing your passions and talents to lead you to a career, not the money.

This led to a lengthy discussion, where many people argued rather strongly on behalf of simply chasing the money. In the words of Carlos:

I’m not suggesting that you do something you hate, but, one’s income is the single largest ‘asset’ they have. Earn some bling, pile it up to the sun, walk away when you tire of it.

Which avenue is the right one to take?

What Are The Options?
On one hand, you have the option to do what you love. The careers that many people are most passionate about are not high paying - they usually revolve around chasing an artistic dream or taking on a social work-oriented career. Others might thrive on starting their own business, even though the odds of success are long and the income can be very dodgy, especially at first.

On the other hand, you have the option to do whatever makes the most money. For many people, this means doing something they’re not as happy doing as they might otherwise be.

Paul, another commenter, summed it up well:

I agree with some of the others here. I would have loved to continue to follow my passion, but I also have to feed my family. I loved being an Emergency Medical Technician but $10/hr doesn’t quite cover it.

So I switched to dispatch and make $15/hr, a 50% increase. Still in the same line of work, but I’d rather be back on the ambulance.

If Paul did what he loved, he’d be making $10 an hour as an EMT in the back of an ambulance. Instead, he chose to follow a path he didn’t like as much, but it earns him $15 an hour.

So What Should I Do?
The real answer to this dilemma comes down to this: what do you want out of life? What do you see when you close your eyes and imagine yourself in five years, the way (in your heart of hearts) you want things to be?

Do you see yourself working at a job that you’re truly passionate about, doing work that you feel is important? Do you see a career that flows so perfectly with your personal activities that the border between “work” and “fun” doesn’t even exist? If that’s the case, then chase the dream - it will lead you to that life. Find your passions, match those passions with your talents, and run with it.

On the other hand, maybe you see yourself enjoying the fruits of your labor. Do you see travel? Do you see a nice, big home with kids playing in the yard? If your visions show you the trappings of a life separate from work, then it might be wise to chase the money, as this will allow you to fill that life with as much value as you wish.

There is no right answer here. At different points in my life, I chose each path. Earlier on, I chose the money. I followed the training and a career path that I thought would pay well and that I enjoyed quite a bit, but I knew that it was not the thing that my heart cried out to do. Eventually, I jumped the rails and moved onto a path where my work days are often so enjoyable that they just naturally flow with my personal activities - chasing the dream.

The answer only comes with a lot of introspection, and just because you choose one answer right now doesn’t mean that later on you might not choose another. Perhaps you’ll work for the money for a while and spend your time really figuring out your dream and then one day you close your eyes and imagine yourself doing something completely different. Or maybe you follow your passions for a while, then eventually settle down with a spouse, two kids, a dog, and a house in the suburbs.

The only thing you must do is this: close your eyes, right now, and imagine where you’d like to be in five years. Don’t let anything else interfere with it - what do you want, in your heart of hearts? Then open your eyes and start moving in that direction.