A reader recently asked whether or not they should stop contributing to their 401(k) plan to get out of debt faster. This is a question anyone eager to become debt free has asked themselves, and there is really no right or wrong answer. I do have a couple guiding principles that may help you decide, but in the end it is a personal finance decision between you and your family. Similar to other unconventional financial advice, the best plan is not always the smartest one, mathematically. Mathematically, it makes sense to continue retirement contributions to take full advantage of compounding interest. However, laser intensity can sometimes make up for math and by focusing all your resources on becoming debt free can immeasurably improve your life.

photo by: Thiru Murugan

Dave Ramsey is Right: Intensity Changes Everything

I don’t agree with everything Dave Ramsey says, but he is right on this one. Ramsey advocates suspending retirement contributions while working to become debt free. However, he also offers a couple stipulations that I also agree with. First, do not suspend retirement contributions if it will take longer than eighteen months to become debt free. Giving up eighteen months to two years worth of compounding growth may prove too costly for those hoping for an early retirement. So if you have thousands of dollars in debt, and don’t have enough cash flow, even after suspending retirement contributions, to clear this debt in less than a year and a half then do not suspend your retirement contributions. Consider continuing contributions to your 401(k) and as quickly as possible continue paying off your debts.

If you do suspend retirement contributions make getting out of debt your number one priority. The longer you do not contribute to your 401(k), the more you are sacrificing in potential growth. In a down market like the one we are currently in, it is tempting to want to buy mutual funds at a deep discount. However, contributing a couple hundred dollars towards retirement each month can significantly slow your debt elimination progress, possibly costing you much more than you could earn in growth.

Reminder, it is a Personal Decision

Many people will provide a host of reasons why this idea is flawed, and I suspect a few will do so in the comments here. That’s fine. Like I mentioned in the opening paragraph, the decision to suspend retirement contributions to attack debt is a personal one. You could run some elaborate formulas to determine the money paid in interest on debt versus the money earned by contributing to a retirement plan and come up with many different conclusions based on different factors. Two points for paying off debt:

• Eliminating a 14% credit card is a sure 14% net gain, but investing in a stock or mutual fund averaging 14% is not a sure thing. As the prospectus states, “past performance is not a predictor of future gains.”
• Removing debt from your life reduces risk, something most mathematical formulas fail to include in their calculations. Living debt free gives you options, and frees up earnings for future investments.

Ask the Readers: Have any of your temporarily suspended retirement contributions to become debt free?

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One of my favorite movies about work is the DVD classic, Office Space. The movie basically pokes fun at everything “corporate,” from cubicles to consultants. In one scene the main character, Peter, is lamenting to friends about his plight as an office worker:

Human beings were not meant to sit in little cubicles staring at computer screens all day, filling out useless forms and listening to eight different bosses drone on about about mission statements.

It is a valid point, and one that has me thinking – exactly why do people go to work every day?

Money

Money is probably the number one reason most people get up every Monday morning and head off to work. And for good reason. Unless you are independently wealthy, or have already reached financial independence, you have to go work for someone else to earn money and pay for necessities (and a few wants, too). Sadly, for many people this is the only reason they work. This group works extreme hours to earn as much money as possible, often to the detriment of their personal relationships. In school, many college students elect majors based on the promise of high starting salaries, not because they love what they intend to do, but because they believe it is a path to riches.  To them I say follow your heart and the money will come.

Intrinsic Motivation

It is hard to believe, but there are some people out there who actually enjoy what they do. For them, getting up in the morning and heading off to their job is actually exciting. When you look forward to going to work the next day on Sunday evening you know you have found the work you love. For the rest of us the weekend pattern usually goes something like this, “Thank God it’s Friday! Is it already Saturday night? Oh well, at least we have tomorrow. I can’t believe it is Sunday night – where did the weekend go? I sure dread going in tomorrow.” Sound familiar?

Socializing

Working mothers often tell my wife (a full-time Mom) and I that there is no way they could stay home all day with kids. They need “social interaction” with other adults. They do have a point in that I think it is good for everyone to have a circle of friends to share experiences with, other than diaper changes and potty training. However, I do not believe the only place to find that is in the office. In fact, most offices tend to frown on socializing in the workplace. If these women really wanted to stay home with their kids and socialize they could plug into one of the many moms groups such as Mothers of Preschoolers (MOPS).

Societal Norm

Society has yet to embrace the idea of someone making money from non-traditional methods (such as blogging, or freelancing). We are expected to go to school, get a degree, get a job and stay there for as long as the employer will have us. If we so much as even look at a job board we are being disloyal. Well, times are changing. There is no longer such a thing as a totally secure job. Companies have proven that they can hire and fire at will (in most places) and frequently announce layoffs to improve the bottom line. A good way to hedge against this growing trend is to find something you can do on a part time basis that will help diversify your income. You never know, one day you could bring in more at your PT job than your full time job, and then you can claim financial independence from corporate America.

Why Do I Go to Work?

Probably a combination of the four reasons above, but at this point in my life it is mostly for money. Yes, I get up every day and come to the office to earn money for my family – simple as that. I don’t get much internal satisfaction from what I do, but it isn’t unpleasant. I do not socialize much with coworkers because for the most part we don’t have much in common. I would much rather be spending time with my family than working, but work is required to pay bills, feed my family, etc. I do hope to one day exit the rat race as several of my blogging friends have done. Until then, I’ll continue to dread Monday mornings.

I don’t do many product reviews here at Frugal Dad, in fact this may be my first one outside of books. However, I felt so strongly about this product that I wanted to share it with my readers, especially those with children. A couple weeks ago I had the pleasure of exchanging emails with Money Mammals creator, John Lanza. We exchanged ideas on the subject of kids and money, and John shared with me a link to his creation. He suggested my kids give it a whirl and let him know their feedback. Well, I did just that and what I found was an incredibly fun, insipirational way to reinforce solid principles of money management for children. I was blown away with the creativity and quality of their production. John was nice enough to send us a copy of the award winning Money Mammals DVD, which was equally entertaining and held my kid’s attention for the duration of the DVD. It even sparked some good questions from my daughter about the concept of sharing.

Money Mammals, the Baby Einstein of Financial Entertainment for Kids

Very few companies have tapped into the children’s financial education market, which is a bit surprising considering how desperately our children need a proper financial education. Perhaps it is because many still consider financial education a bit boring. I remember suffering through my share of borning finance classes in college, and can imagine the subject of money is even less interesting to a child. However, Money Mammals present their message in such an entertaining way that I suspect kids don’t even realize they are learning. The music, artwork and puppetry is masterfully done in a quality comparable to the popular Baby Einstein DVD series. I even found myself singing the theme song the day after…”We Share and Save and Spend Smart Too. We Share and Save and Spend Smart Too.” Trust me, it’s an addictive little tune!

The Money Mammals Website

The Money Mammals website offers a wealth of resources for both kids and their parents, including links to their online store, Club Money Mammals (which features several games for kids, all centered around the concept of money management), and video presentations. If you have kids of your own, or are a grandparent, aunt or uncle, I strongly recommend you check out Money Mammals today. This is just the kind of thing young kids need today. It would also make a great birthday present to help a little one become a frugal “money mammal!”

Additional Resources:

• Purchase the Money Mammals DVD at Amazon.com
• Club Money Mammals (customized for Rogue Federal Credit Union)
• Sarah Harden, financial consultant for Money Mammals, reviews the concept of sharing
• Product Reviews and Testimonials

The other day I read an excellent article that provides some ideas for things to do with a tax refund. I enjoyed the list because it was outside of the normal, “pay off debt, start an emergency fund” standard listing of things to do with the upcoming tax rebate checks. One item in particular really caught my eye – “add it to your sunny day fund.” What a refreshing concept. I think way back in the annals of personal finance journalism someone first wrote that we should all save for a “rainy day.” It is one of those timeless axioms that we hear repeated over and over from anyone identifying themselves as a financial expert. But what about saving for sunny days, too?

photo by: NZ Alex

Starting a “Sunny” Day Fund

If rainy day funds are for negative life experiences, it only makes sense that sunny day funds are for the good times. Maybe you save in a sunny day fund for some tickets to a place you have always wanted to visit, or for that cruise you have been promising to take your family on for years. Maybe it is something small, like saving up to take your kids to the zoo, or to take a pottery class. Whatever it is, the sunny day fund doesn’t have to be limited to just material items.

I’ve been reading The 4-Hour Workweek by Tim Ferriss and in it he advocates taking planned sabbaticals at regular intervals. A sabbatical basically involves walking away from your career for an extended period of time, usually six weeks to three months. At one time it was a growing perk, particularly in highly competitive industries with high burnout rates. The thought was that offering employees a chance to take a break made them less likely to take a permanent one.

It is hard to imagine taking an extended break from work on purpose! Most people who receive a pink slip desperately need to be re-employed because they typically have a stack of bills, and very little in savings. Imagine that same scenario if you had very few bills, and a large amount saved in a sunny day fund. No worries, right? You could live off the severance package, take an extended break to do some traveling, or whatever your heart desires, and take your time finding a new job. It is an exciting concept, but one that most people find unattainable because they continue to live paycheck to paycheck. If this is you, start thinking about ways to reduce your expenses and/or increase your income to fund a “sunny day” account.

So What’s in Our Sunny Day Fund?

I recently wrote about how much I was enjoying my new savings accounts at ING Direct. One of the best features is the ability to create “subaccounts” and give them a nickname. Our current list of subaccounts includes Emergency Fund, Christmas Shopping, Orthodontics, etc, all based on some upcoming expenses that we need to be saving towards. In addition to those accounts we also created a “Sunny Day Fund” where we are currently saving towards a vacation destination that we would like to take the kids next year. I think I’ll take Nickel’s advice, and use some of our upcoming economic stimulus payment to get a head start on the sunny day fund balance.

Ask the Readers: What kinds of things would be in your “sunny day” fund?

If you liked this article, please consider subscribing to Frugal Dad for free via RSS feed or email delivery.  Subscribers also receive my free eBook, The 7-Day Turnaround!

In my last series post I discussed various techniques for curing writer’s block (or “blogger’s block,” as some call it). Each of those methods will generate some interesting ideas, but what happens when inspiration comes out of nowhere? Unfortunately, inspiration usually hits at a most inconvenient time. When an idea for a new post strikes I am usually away from a computer and I never seem to have a pad and pen handy to record the idea. When I get back to a computer I usually struggle to recall the idea, or the key points I planned to discuss. I have discovered a quick way to utilize modern technology to help in this regard, without spending a few hundred dollars on a PDA or Blackberry.

Your Cell Phone is Your Friend

One of the best, and most underutilized, features of today’s cell phones is the voice recorder. A quick search of the “Tools” menu on my phone reveals a “Recorder” option where I can speak a quick message into the phone’s microphone. Other models have a shortcut button on the outside of the phone similar to a camera phone’s camera-enabling button. If I am out and about and inspiration for an article pops into my head I’ll open my camera’s voice recording feature and give a quick summary of the idea.

Last week my mind was on the Nintendo Wii after reading an article about the new Wii Fit application coming out soon. “I want a Nintendo Wii. Delayed gratification, sleep on it, start a targeted savings account.” In less than 20 seconds I now had a topic idea recorded and three major discussion points. The next time I am around the computer I’ll add the article idea to my article bank in a fashion similar to the blog posting workflow Darren describes at ProBlogger.

Low-tech Options

There are obviously some low-tech options to consider. Some bloggers carry an idea notebook which could be as simple as a pad and pen tucked away in a back pocket. Others simply keep a folded sheet of paper with them at all times to record ideas and then transfer over to an electronic medium in the evenings. I personally find the cell phone voice recorder works best for me for the following reasons:

• I am less likely to lose my cell phone than a sheet of paper
• I can talk faster than I can write (and the faster I write, the sloppier my handwriting)
• It is not always convenient to write down a note, but talking on the phone is pretty well accepted as a socially acceptable activity

Ready to start your own blog?  I host my blogs with HostGator–a great host with awesome support!

Beginning Monday, April 28th, American taxpayers will begin to receive their economic stimulus rebate checks, a full week earlier than scheduled. My guess is that there is a growing concern that increased recessionary spending may be the only thing to pull us out of this slump. Hence, the need to get cash in consumers’ hands even faster. 

Not sure what to do with your stimulus payment?  Here are five ideas:

• Start a Sunny Day Fund
• Build an Emergency Fund
• Start the “Scared Straight” Debt Snowball Plan
• Build a Personal Financial Library
• Save for Your Children’s Education

Before I move on to the roundup, I’d like to ask readers to keep a fellow blogger’s family in your thoughts and prayers. Pete, over at Bible Money Matters, is caring for his wife who was admitted this week for a dangerous blood clot in her leg. We certainly hope to hear soon that she is doing better and you both are back home resting up.

Now, on to the Roundup

Speaking of tax rebates, this is a great resource for economic stimulus rebate questions. @Cash Money Life

The Things Money Can’t Buy. Wonderful reminder to focus on doing three things each day – laughing, crying and thinking. Get in all three of these and you have had “a heck of a day!” Bonus: This post includes one of the most inspiring speeches ever by the late Jim Valvano. @The Simple Dollar

Consumer Reports 10 Ways to Be Ripped Off. Beware of these rip-offs. @Frugal for Life

How Long Does Litter Take to Disintegrate. An eye-opening look at how long it takes household items to disintegrate. @The Good Human

Save Money When Grocery Shopping. As food prices continue to climb these tips will become more and more relevant. Excellent resource! @Gather Little By Little

The Outrageous Cost of Storing Stuff.  We used to have a storage unit because after getting married there wasn’t enough room for mine, hers and ours.  It didn’t take long to realize what a waste of money that was.  We paid something like $40 a month to store a bunch of junk we never used!  @Get Rich Slowly

7 Solid Tips for Living Debt Free. Great tips for living a debt-free lifestyle. @The Wisdom Journal

Improve Your Computer’s Performance Without Spending a Lot of Money. Technology items used to take a huge chunk out of my budget, until I started practicing these kinds of tips to make the gadgets last longer. @Cash Money Life

The Joy of Camping. Maybe it’s the warm weather, but I’m getting an itch to do some camping. This is a great resource for the frugal camper. @Being Frugal

Tips to Reduce Air Conditioner Usage. With temperatures rising, so are energy bills. This article has some great tips for reducing energy use by the number one power hog in the summer – your air conditioning system. @Remodeling this Life

Men It is Time to Revive Chivalry and Become Knights! Is chivalry dead? Maybe not, but it is dying. As Jeff states, “Men need to stand up and lead their families, businesses, and communities with passion!” Amen.@My Super-Charged Life

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There is a predator on the loose at college campuses around the country. While many parents and administrator struggle to tackle issues such as fraternity hazing and binge drinking a silent killer is stalking college students. They are frequently spotted hanging out around student unions, football games and other large student gatherings. There weapon of choice? Credit cards.

photo by p200eric

Sign Your Financial Life Away for a Free T-Shirt

I remember attending football games as a student at a large state university and noticing the line for souvenir cups and popcorn was nothing compared to the one for the MBNA table. After all, they were giving away free t-shirts, as if us college students didn’t have enough of them. Later, credit card companies made an even more attractive pitch to the broke college student by offering free pizzas in exchange for a completed application. I am ashamed to admit that I signed up for a Discover Card from one of these bozos and used it to rack up a few hundred dollars in textbooks, groceries and other college-life expenses.

Brand Loyalties Run Deep

After I left school I went to work for a 3rd-party credit card processor and I began to see the “behind the scenes” view of the way certain demographics were targeted for credit card marketing campaigns. It was eye opening. I was upset that I had fallen for the hype, but at the time it was hard not to. Free t-shirts, pizzas, and promises of cash back and rewards for groceries was music to a college student’s ears. They made it sound as if you were really missing out if you passed up that table of applications. In hindsight I should have not only passed it, I should have run from it like the plague!

I eventually cut up that first credit card, but found it to be much more difficult than cutting up ones I have received since. Credit card companies are smart; they knew I would be loyal to that first card because I received it at my alma matter, and I used to purchase things for my little college apartment, and my girlfriend (now my wife).

Kickbacks During Kickoffs

Do colleges let credit card companies set up shop out of the goodness of their hearts? Of course not. There are financial incentives for colleges to promote credit cards. Co-branded cards often feature a picture of the school, or their logo, and those licensed images are bought by the credit card companies for use on the plastic. Many cards now offer to make donations to the school’s scholarship fund if you carry their card in your wallet. How nice. As if the next time someone is purchasing a 52″ plasma television they will think to themselves, “This sure is expensive, but at least I am sending three dollars to ACME University!” If you really want to be a good alumni and support your alma matter, write them a check and skip the co-branded credit card. It will probably cost you less in the long run.

If you are a college student, or the parent of a college student, I strongly encourage you to avoid the temptation to sign up for cards marketed on campus. Parents should also voice their displeasure to college administrators when credit card marketers set up shop on campus. I’m not anti-credit cards. In fact, I think they are a useful financial tool when used wisely. However, it does not make sense to allow credit card companies to peddle their product on campuses with 18-22 year-old young people, who for the most part do not have an income, nor a credit history.

As an additional resource for college students, I highly recommend reading a post over at The Wisdom Journal, 12 Things I Learned by 42 that I Wish I Knew at 22. I wish I had read this one when I was 22.