Freakonomics, by Steven Levitt and Stephen Dubner

Levitt and Dubner repeatedly say that this book does not have a "theme". And in the sense that Blink or The Tipping Point have themes, they are right. But it does have a fundamental focus: on "conventional wisdom".

Levitt, as an economist, has made his name by asking different questions - like "do teachers cheat?" - and by finding ways to sort data to get the answers he is looking for. Dubner interviewed Levitt for a NYT article a while back and soon a collaboration was born - the collaboration that yielded this book. Both Levitt and Dubner appear to be good writers, as evidenced by the Freakonomics blog at http://freakonomics.blogs.nytimes.com/, where both post individual as well as joint articles. I sense that the overall style of the book is more Dubner than Levitt, based on my seeing Dubner speak at Prosper Days (see my articles on Prosper Days at http://fightdebt.blogspot.com/search/label/Prosper%20Days).

In this book we find answers to a wide range of questions that few people would think to ask, about topics from sumo wrestlers to parenting. What does it have to do with economics? Simply that it has to do with how people get what they want - and how people can be encouraged to do the right thing and avoid doing the wrong thing. The outline of the entire book can be found in Dubner's original article, which is included as part of the additional material in this book, along with selected blog posts and heavy-duty footnotes.

I for one really did want a bit more of a theme than this non-theme, but I do think the basic premise is sound and a good reason for people to read the book - it is important to question conventional wisdom. For example, at one point another economist read Levitt's original article on the relationship between abortion and the drop in crime, and he said (I'm paraphrasing), "I have read this over and over and I can't find anything wrong with it, but I still don't believe it.". This is how most of us are: we can be faced with incontrovertible evidence but we find it difficult to let go of what we have believed for so long.

Sunk Costs and Regret

The book, The Paradox of Choice: Why More Is Less, has invaded my brain. In a good way. The discussion of regret and of "sunk costs" in particular are concepts that are well worth thinking about.

"Sunk costs" are those costs you have already paid for an item or service. People in this country have a tendency to pay too much attention to sunk costs as a determinant for future actions. For example, if you bought a ticket to a concert you will likely feel compelled to go to the concert because you paid for it. The better way is to make the decision to go or not go based on what you actually want to do. The money is gone either way.

Yesterday I paid for new lenses for my current eyeglass frames. I paid a lot for these lenses and as soon as I left the store I started to regret it. But it is done. Regret serves no purpose, unless it is to use it to decide how I will approach such purchases in the future.

I have a rule about not buying an item from someone over the phone or at the door the first time that person calls or comes by. That rule has served me well. It gets me out of having to make a decision until I have given it more thought. I simply tell the person, "I have a rule...". That person usually says, "Yes, but if you buy now you'll get this deal. If you put it off you lose the deal." I shrug and say, "Well, that's too bad but that's my rule."

I can now make a rule about such things as these glasses that when the purchase is some amount over what I expect that I will delay the purchase. I may still buy them, but I'll feel better about it. As for this time, I refuse to dwell now on the negative aspects. I have simply created a new rule that will help me in the future and I will enjoy those new lenses.

Credit card work

Well, here's the deal. I have been paying more than the minimum on all of my credit cards. But Pay It Down! (see book list, right side of this page) says put all that extra money on the card with the highest interest. It makes sense if you think about it.

The first step in reducing credit card debt is to see if you can get the card company to lower the interest. The book includes a script I can use when talking to the representative. It says, though, to have another card offer in front of me (because the script starts by saying X company is offering me Y interest...). If I get an offer for a card in the mail I check out the terms and if they are favorable (in comparison to the high-interest card) I can use that as the alternative card. If not, I can go to BankRate.com (one of my fave places) to hunt down another card that's good for balance transfers.

I don't have an offer in front of me. I've been too quick to shred those. So I went to BankRate.com and used their program for finding the best card for a balance transfer. I got three results. My next step is to apply for one of these three. That's today's goal, folks.

Not very organized

What did I do today to further my goal to be debt-free? That is, to be free of credit card debt. Not a lot. I paid an overdue car insurance premium plus made a couple of credit card payments. One of which is my highest-interest card.

I already developed a list of all of my credit cards with their balances, monthly payments, and interest rates, so I know which card has the highest rate of interest. I have, in fact, been working to cut that baby back, over several months. What this program says to do, though, is to take the ten bucks a day that I find by cutting expenses here and there (the book - see Pay It Down! - on the right - offers many ways to go at this) and put it right into that one credit card account, on top of the minimum payment. I recklessly did just that, before I have sifted through and found the cuts I need to make to pay for it.

Below my list of credit cards, on the same Excel sheet, I listed other regular payments. Yesterday I also went back to Quicken, downloaded transactions from my primary bank account, and started in categorizing each transaction. I've got a way to go, but it feels good because I know that if I stick to this, and go back to writing down every cash expenditure and entering those as well, I will really know where it is ALL going. There's just no substitute for knowing.

A Way Out?

Like most of the middle class in the U.S., I am in debt. I have a credit card debt of over $11,000, and a car loan that is about the same. And yet I am in the midst of trying to get a loan to replace my mobile home (with another one on the same space), and when I get that loan (I feel fairly sure I will) I will have a huge new payment to make each month. Can I do it? I am sure the lender wonders the same thing, and is perusing how I spend my money and pay my bills.

I created this blog to track my progress, and offer suggestions to others in the same boat, in getting off that debt horse. My first plan is to follow Jean Chatzky's Pay it Down! program (see link at right). It is likely that this little book is really all I will need to get on track, because it not only offers a detailed program for getting out of debt but also offers a lot of help for those times when we face really bad financial times. But I expect to draw upon a ton of other resources along the way. Many of these are in the book. Others I will no doubt discover.