Tuesday, April 29, 2014

Margin for Error: Be prepared when things DON'T go your way!

Many of us have experienced something along these lines: we take up a project and plan out all the details.  We'll do task A first, then B, then C, etc. all the way to task Z.  Somewhere in the middle of our execution, say task T, we screw up and the project is a complete failure despite all the effort we put in from tasks A to S.  Sometimes, we may fail at task T but we can still finish the project satisfactorily.  I think of this phenomenon as Margin for Error.

It's hard to define Margin for Error precisely but it's pretty easy to give a sense in plain English.  Picture any project or task you're doing that involves multiple steps or decision points.  If at any step you perform poorly and there's a good chance the project or task will fail, then there's a high margin for error.  Think of 5 pounds of a special bread: if the amount of any of your minor ingredients like salt, sugar, cinnamon, etc. are off by 1/16 of a teaspoon and the bread will not taste right, then there's a high Margin for Error.

In other words, any one mistake will derail all the effort you've put into a task implies a low margin for error.

Driving is an example of a task that doesn't have a high margin for error despite the possibility that a single bad move can end up killing you.  Assuming you've received the proper training to drive a car, you'd need to make a pretty drastic or utterly careless move to get yourself killed in most cases.  On the other hand, performing brain surgery has a high margin for error since it'll involve hundreds of steps and any slightly imperfect move in any of those steps may cause the surgery to fail.  Fortunately, most brain surgeons will receive years if not decades of training for this delicate procedure.

Day trading stocks is another activity with a high margin for error.  You're likely to risk a lot of capital making many trades each day.  Most traders know well enough to cut their losses on a bad trade but with so many trades happening, decision fatigue may set in on your 106,478th trade.  It only takes forgetting 1 stop loss  to incur a huge loss despite all the effort you put towards your last 106,477 trades.  This is a major reason why I stick with passive investing over active trading.

If you're unfamiliar with the financial markets, let's use an example with gambling.  Suppose you go to a casino and you play a game where you can bet double or nothing.  If you start by betting $1 and wager your entire winnings from one game to the next, you'll have $1 million after about 20 games.  Suppose you've devised a system that has a 90% chance of winning, what's the probability that you'll win 20 consecutive games?  About only 12%.  If your winning probability goes down to 80%, each game, you only have a 1% chance of winning 20 games in a row.  And I've never heard of anyone who consistently wins anywhere close to 80% of the time in a casino!

It's still important to work hard and plan ahead to minimize the possibility of failure in any important project or task you pursue.  But you're likely setting yourself up for disappointment if you do not have a realistic sense of the margin for failure accompanying the task.  (Chris Guillebeau used the metaphor of dominoes falling to describe this same concept which inspired my post.)

Friday, April 25, 2014

How to Pay Rent with your Credit Card (and earn LOTS of points in doing so.)

(Note: these tactics can be applied to any major recurring payments in your life such as mortgages, insurance payments, car payments, child support, etc.)


In addition to the credit card you want to earn points on, you'll need a Bluebird Account.   This is basically a checking account that can be loaded using credit cards although the process has become more convoluted recently as Vanilla Reload cards can no longer be purchased using gift cards.  Then you can write a check from your Bluebird Account (make sure you follow their instructions for registering the check, writing the authorization code, etc!)

Note that when you open an account with Bluebird, you can order 100 free checks from them, at least until mid 2014.  If you run out or if the offer expires, you can buy 100 for something like $26.95 (can't remember the exact amount.)  Bluebird will also give you their Bluebird AMEX card which can be used to transfer funds to the Bluebird (as well as spend them.)

How to Earn Points by Loading your Bluebird Account

First, you'll need to locate a few stores in your area:

1) A drugstore (i.e. CVS, Riteaid, etc) or a grocery store that sells gift cards.
2) A Walmart with a Moneycenter (I think most do as of 2014.)

Go to the drugstore or grocery store and search for VISA or Mastercard gift cards, preferably ones that can be loaded with up to $500.  (According to Million Mile Secrets, you may want to avoid AMEX gift cards even if they can be purchased with credit.)  There's usually a $4 - $7 charge for buying the card regardless of how much you load so I'll usually go with the maximum amount.  Check the back and make sure there's a mention of a PIN or a process for setting up the pin.  If you're unsure, Google the card on your smartphone and see what the process for setting up the PIN is like.  Most of the time, the card will offer one of the 2 following options for the PIN:

1) You need to call them to manually set it up.
2) (Preferred) You set it to whatever you want upon your first purchase with the card.

Then go buy the card at the register.  If the cashier won't allow it to be loaded using your credit card, then try buying another gift card or go to a different store.

Here's an example of a card you can purchase:

Once you've purchased your gift card (and activated it if needed), head over to your local Walmart and hit up the Money Center!  Go to one of the kiosks and select the Bluebird option.  It'll ask you to swipe your Bluebird debit card.  After that, it'll ask you to input the amount you'd like to transfer to your Bluebird. Enter the amount loaded on your gift card.  After a few prompts, you'll be asked if you're loading with a Credit or Debit card.  Enter Debit, swipe the card, and enter your PIN (if you didn't need to set one up, just enter 1234 or any 4 digits.)

If everything goes right, you'll now have effectively loaded your Bluebird account with money from your credit card (which is earning rewards.)  Now you can pay your bills that don't take credit (like rent) and still earn points!

Tuesday, April 22, 2014

The 80/20 of credit card rewards: sign-in offers

You ask your favorite airline (or any airline for the practical purposes) how many points you'll need to accrue to receive a free ticket.  They may tell you something along the lines of 40,000 miles for a domestic ticket and 60,000 miles for an international flight (all round-trip.)  You realize that you might earn an average of 4,000 miles per flight that you book normally and receive 1 mile per $1 you spend with their reward credit card.  Needless to say, you'd need to spend a TON of money and/or take numerous flight before you receive your well-deserved reward ticket.

There has to be a better way, right?

If you have reasonably good credit (700+) and don't mind the paperwork in opening and tracking some new credit card accounts, you're in luck!  There are a plethora of credit cards out there that will award you around 20,000 to 50,000 points or miles if you spent $500 to $5000 in the first 3 months!  This is usually referred to as a sign-in offer or minimum-spend offer.

Pop quiz!  If you sign up for a card that awards 1 point per $1 spent AND has a sign-in offer of 50,000 points for spending $5000 in the first 3 months, what's the effective number of points you received per dollar spent if you spend exactly $5000 in the first 3 months?

A. 1 point per dollar
B. 10 points per dollar
C. 11 points per dollar

If you picked C, bingo!  By spending $5000 in the first 3 months, you receive the sign-in bonus of 50,000 points AND another 5000 points from the standard rate of 1 point per dollar.  So that brings your total to 55,000 points.  55000 points / $5000 = 11 points per dollar which is 11 times the standard rate!

Sometimes, the sign-in bonus isn't enough for 1 round-trip ticket What to do now?

You will want to go for multiple sign-in offers by signing up for multiple credit cards.  Also, get some cards from Chase that offer Ultimate Reward points.  These points can be transferred to multiple airlines such as:

  • United Airlines
  • Southwest
  • British Airways
  • Korean Airways.
For example, there's a way to amass 184,000 United Airlines miles (as of April 2014).  You'll need the following 4 cards:

Card 1: Chase Sapphire Preferred: 40,000 Ultimate Reward Points for spending $3000 in the first 3 months.

Card 2: Chase Ink Bold Business: 50,000 Ultimate Reward Points for spending $5000 in the first 3 months.

Card 3: Chase Ink Plus Business: Another 50,000 Ultimate Reward for spending $5000 in the first 3 months.

Card 4: United Airlines Explorer: 30,000 United Miles for spending $1000 in the first 3 months.  (Alternatively, if you stop by a Chase branch, you can also get another version that awards 50,000 United Miles for spending $2000 in the first 3 months.)

Note the Ultimate Rewards above can be transferred to United Airlines.  So if you meet the above minimum spending requirements, you can potentially amass 170,000 + 14000 = 184,000 United miles, enough for 2 international round trip tickets for two!

Ending Remarks

Hopefully, I've given you an overview of the low-hanging fruit in earning points for travel or simply to get more rewards on your dollar.  In later posts, I'll explore how to deal with common roadblocks in the process such as prolonging your points (so they don't expire), what to do if you're denied (and how to minimize the chances), what your options are if you don't have a business and want a business card, etc.

Friday, April 18, 2014

So you want to start investing? Look before you leap to picking stocks!

I see posts like these on investing forums like these all the time:

"I'm a [20-something] just getting started at investing.  Here are the stocks I'd like to buy."

or "I'm a [20-something] starting investing.  What stocks should I buy?"

The reply is usually something along the lines of "the stocks you've picked clearly show you know nothing.  You have no business investing right now."  Then that individual tragically gives up when they could have made a head start at getting slow but steady returns using index funds and let compound interest do its work over the decades.  Like I mentioned earlier, it doesn't take much to be an average investor, but if you pick stocks incorrectly, you CAN end up losing a ton of money.

Good news, if you don't know how to pick stocks, you can still invest (and probably should)!  You need to use diversified index funds!  Start with something simple and stable like Rick Ferri's 2-fund portfolio or the Permanent Portfolio on the Boggleheads Lazy Portfolio page.

A monkey can probably pick stocks better than you

When I was in business school, my professors would openly proclaim that a monkey can probably pick stocks better than we can.  Not just novices but monkeys seemed to even beat many seasoned stock pickers as well!  (Now I know a few stock pickers in the industry who have a great track record at picking stocks but I can attest that most probably don't beat the S&P500 in the long run.)

I'll go into more detail on this later but studies show that you only need about 10-20 stocks to achieve most of the benefits of diversification.  So let's say I have 100 readers here pick 20 random stocks and invest 5% in each.  Then I have another 100 learn the basics of stock picking and pick 20 stocks of their choice and even decide on their own weighting scheme (doesn't have to be 5% each.)  5 years later, it is likely that the 1st group will have outperformed the 2nd group as a whole!

Does this mean you should randomly pick 10-20 stocks and be done with it?  The idea of randomly picking stocks and investing your hard earned money in them is a bit disconcerting.  I'd personally stick with Index Funds despite how research shows that random picking and equal-weighting stocks even beats indices like the S&P500.  (For a detailed mathematical explanation, you can check out this article.)

So what should I do?

If you're getting started investing, go with indexing rather than stock picking despite what your friends or the media tells you.  You can get a 2nd opinion from a Financial Advisor if you'd like confirmation that indexing is a wiser choice.  If you're brave and you've read my disclaimer, you can randomly pick 10-20 stocks and equal weight them (for the equities portion of your asset allocation.)  And only play with money you can afford to lose in either case!

Tuesday, April 15, 2014

Active vs. Passive Investing

When you invest, do you prefer to check on your portfolio and make buy/sell decisions on a regular basis?  That's Active Investing.  Or do you prefer to buy and hold a few index funds?  That's Passive Investing.

The average Active Investor does not beat the average Passive Investor.

It may be difficult to prove this exhaustively but consider the S&P 500 index which contains the vast majority of the market cap of all publicly traded US stocks.  If the S&P500 returned X% last year, it is likely the average stock investor returned something around X% last year as well.  In fact, because roughly 80-90% of the participants in the financial markets are institutions, it is likely that the average mutual and hedge fund also returned around X% last year as well.

Active investing involves more frequent trading than passive investing (which is essentially buy-and-hold.)  When the average active investor receives the same return as the average passive investor BEFORE he/she pays trading commissions, the average active investor ends up making LESS than the average passive investor AFTER fees!

You can be an average investor with very little work!

Funny thing about investing, as opposed to many other disciplines, is that you can be nearly average with very little experience.  The same cannot be said of medicine, sports, law, engineering, pretty much every respectable profession.  Simply buy an S&P500 index fund like the SPDR S&P500 Fund, SPY, or a total stock market index fund like Vanguard's VTI and you're on your way to being an "average" investor.  You don't need to know a thing about investing or finance, just a few thousand dollars to open a brokerage account and you can be average!

But wait, before you make the leap.

Being average means you accept the average returns of the market (which are around 7-10% per year over the LONG term) but you also accept the average losses and risks.  In 2008, the S&P500 lost 38% which means the average investor lost a similar percentage of his investments.  How much risk you want to accept depends on a thorough analysis of your present and projected (future) financial situation.  You will also likely need to consider an asset allocation that includes not just stock but also bonds and maybe commodities and real estate.

Investing isn't as simple as blindly buying a few popular index funds but it isn't as complex as picking the right stocks and trading in and out of the market every few days or weeks.  In future posts, I'll go over the principles in investing sensibly.

Friday, April 11, 2014

My take on budgeting

Most personal finance experts recommend creating a detailed budget as the first step.  Ramit Sethi in his book (and blog) I Will Teach You To Be Rich takes a radically different approach of ditching budgets because they cause undue anxiety and guilt.  I recommend a middle ground: start organizing your personal finances by creating a rough budget.

My approach is outlined as follows:
  • Use the 80/20 rule in your budgeting.
  • Have a goal of how much you want to save each month.
  • Create a budget only for your most expensive recurring items (usually car and housing).  Subtract the sum of those and your saving goal from your monthly take home pay and you get your "Misc" category.  "Misc" is the amount of money available to spend on your smaller-ticket items as well as discretionary expenses.
  • Review your budget each month:
    • Are you meeting your saving goals?  If not, either make it more realistic, cut your spending, or look for ways to make more money.
    • If you are easily meeting your saving goals, set it higher!
    • Consider signing up for Mint.com and use it to guide your budgeting.
Step 1: Assess your cash flows and decide how much you want to save.

From now on, I'll refer to your monthly take home pay as X.  It's the amount you receive from your monthly paycheck if you're salaried.  If your income varies (i.e. you're an entrepreneur, you're paid by commission, you're hourly, you frequently work and get paid overtime, etc), then make a conservative estimate of your monthly take home pay (after taxes, Social Security, etc.)  Decide how much money you want to save each month.  If you have no idea, try starting with 20% of your take home pay.  Let your monthly saving goal = S.

Step 2: Housing Expenses.

If you rent, this number is simple, it's your rent.  If you rent with roommates or split it with your spouse or partner, it's simply your share of the rent.

If you have a mortgage, the process is a little more complicated.  Add up the following expenses first:
  • Monthly mortgage payment (estimate it if you have a variable interest loan.  Omit it if your house is paid off.)
  • Property taxes.
  • HOA fees (if any.)
  • Property insurance (if paid yearly, take the pro-rated monthly share.)
  • Maintenance.
    • Please note you need to set aside some money each month in case something goes wrong and you need to fix it.
    • If unsure, go with 50% of your monthly property taxes.
    • If you didn't perform any maintenance this month, save this money instead of spending it on your "wants".
Step 3: Transportation Expenses.

If you're lucky enough to have reliable public transportation and don't have a car, purchase a monthly transit pass if it's offered.  This will be your monthly transportation expense.

If you have a car, add up the following:
  • Car Payment (0 if your car is paid off.)
  • Insurance (calculate the pro-rated monthly expense if you pay your premium annually or semiannually.
  • Gas: Estimate based on your average monthly driving and your car's MPG.
    • If you work 5 days a week, estimate your weekly miles driven by multiplying your round trip commute distance by 6 (not 5 since you need to also run errands.)  Then multiply this figure by 4.  Let D = your answer, your monthly miles driven.  Of course, if you can estimate it more accurately, do it!
    • Get the MPG of your car.  If you don't track your MPG, look it up on Fueleconomy.gov.
    • Get the average price of gas from Gasbuddy.com.
    • Divide D by your car's MPG then multiply the average price of gas.  This is a rough estimate of your monthly gas expenses.
  • Registration Fees: They're usually paid yearly, so divide it by 12.
  • Car Maintenance:  You need to set aside some money in case your car breaks down.  It's difficult to gauge how much but I use a rule of thumb of $0.05 per mile driven (which you calculated in the step above.)  Like with housing maintenance, if you didn't perform any maintenance this month, save this money in a reserve account.
Step 4: The 10% Rule: other significant expenses.

Any single recurring expense that's not covered above and is over 10% of your take home pay should go into your budget.  I pick 10% since it's easy to calculate and you can have up to 10 of them anyways.  Examples may include:
  • Medical payments
  • Debt payments (credit cards, student loans, etc.)
  • Child support or alimony
  • Health Insurance
  • Tuition and college expenses (if you have adult children who need this support.)
  • etc.
Step 5: What's Left Over?

Add up the numbers from steps 2 - 4 and subtract them from X.  Subtract your saving goal S from that result.  This is what you have left for all your miscellaneous expenses (i.e. food, clothing, cell phone bills, entertainment, fitness, etc.)  These expenses, individually, may be small compared to your housing or car expenses but they surely add up!

Let M = "Miscellaneous Expenses", the amount you calculated above that's left for everything else.  If you got a negative number here, you've clearly done something wrong or created an unrealistic budget - go back and adjust your savings goal or look to downsize your car or housing!

Step 6: Test Your Budget

Your budget should only have the following items:
  • Housing
  • Transportation
  • Other Big Expenses
  • Misc
  • Savings
 You want to test if the budget you created above works.  There's no single way to test but if you don't have any ideas, you can try my suggestion:
  • Create or set aside 2 bank accounts.
  • Take your next paycheck and split it into 2.
    • Put your savings goal S into one account.  Call this Account A.
    • Put what's left over from your paycheck into the other account.  Call this Account B.
  • For 1 month, try only spending money from Account B and only if you run out do you try spending from Account A.  Pay cash only for this month.
  • Transfer the money for Housing and Car maintenance to a 3rd account.  If you performed maintenance this month, pay it from your savings instead of A or B.
  • If you pay off your credit cards every month and need money to pay them off this time, pay them off from your savings, not Account A or B.
There are 3 possible end results after a month if you've followed the steps above correctly:
  • 1. You still have money left in Account B: Congrats, you are not going over your budget!  You can consider increasing your savings goal and running through the process again for the next month.
  • 2. You spent all the money in Account B and tapped into Account A: Either your savings goal is unrealistically high or your budget is too high.  You may want to downsize your larger expenses like housing or transportation if it's realistic or managing your Misc category of expenses in greater detail.  Consider cutting back on things you don't care too much for (i.e. If you don't use your cell phone a lot, consider downgrading the plan.  If you eat out frequently but know how to cook, try cooking at home more.)
  • 3. You ran out of money in both Account A and B: This is not a good sign as you're spending more than you are taking in.  Your spending is not sustainable and you need to seriously look into cutting aggressively or earning more money.  As per #2, start by cutting your biggest expenses before micromanaging your finances by creating a detailed plan for your Misc category.
 My Budget

I'll walk you through the process above for creating my own budget:

Step 1:

Take Home Pay = $2900.
Saving Goal = $1000.

Step 2:

Housing expense: $850.

Step 3:

Car Payment: $0
Miles driven per month: ~1500
Average gas mileage: 33 mpg (I drive a 1999 Honda Civic and have been tracking the gas mileage over the last 3-4 years, and that's the average figure I've gotten as opposed to the EPA estimates.)
Average gas price: $4/gal
Gas Expense = 1500*4/33 = $182
Insurance = 700/6 = $116.67
Maintenance = 1500*0.05 = $75
Registration fees = $82/6 =  $13.67
Total Car Expenses: $387.34/mo.

Step 4:

(Nothing here.)

Step 5:

Money left over for everything else = 2900 - 850 - 387.34  - 1000 = $662.66.

Realistically, about half of that goes to food and another $100 goes to utilities and cell phone bills.  So this leaves about $200 for discretionary spending and the small ticket items each month.

This pie chart summarizes where my take home pay goes each month:

 How do you approach budgeting?  Please share it in the comments below!

Tuesday, April 8, 2014

80/20 Rule: Before you can work smart, you must work hard.

If you've read my blog for a while, you may realize that The Four Hour Work Week is one of my favorite books.  There seems to be quite a bit of misconception floating around that the core message of the book is that you can be successful without hard work if you do the right things.  Sadly, many people embark on a strawman line of thinking and reject this book as snake oil because they don't agree with this misinformed opinion.  Tim Ferriss seems to downplay the importance of hard work because it's not a message that will sell a book easily.  But it's pretty evident even in his anecdote in the book that he worked harder AND smarter than the vast majority of people in starting his sports supplement company, figuring out how to delegate customer service, optimizing his advertising, etc. so he can get to the point where he only needs to work 4 hours a week to maintain his business (which he later sold in 2009.)

I've not met anyone who is highly successful and does not work hard or hasn't worked hard to get to where he/she is now.  This includes people born with wealth and connections!  Even if they only need to work 15, 10, or even 4 hours a week, they worked very hard and made great sacrifices in the past to get to where they are now.  But if you've even skimmed through The Four Hour Work Week, you probably have already gotten this message (if you didn't learn in the hard way in life): blindly working hard isn't gonna get you anywhere.  This is where using and exploiting the 80/20 rule comes into play.

The 80/20 Rule (Pareto's Principle)

Again, I won't reinvent the wheel and write an entire article on this concept.  Please read it on Wikipedia, or preferably, in Tim Ferriss's Four Hour Work Week for a detailed explanation.  It basically states that 80% of your desired outcomes from your goals comes from 20% of your efforts, or to put in more general terms, a majority of your outcomes come from a minority of your actions.  So if you only focus on the 20% of actions that produce your results, you can get tremendous results with relatively little effort, right?  Unfortunately, it's not that easy to identify which 20% produce the most results.  It takes a lot of testing (and brainstorming things to test) to figure out which actions will produce the most results.

The Only 2 Things you should work hard at

If you've applied the 80/20 rule and identified the actions that contribute the most to achieving your goals, then it's pretty obvious what you need to work hard at.  Stay focused on that task.  If you haven't identified them yet, then you should be directing your hard work to identifying the minority of actions that produce the majority of your results.  Systematically track and analyze the results you've gotten.  By not wasting your energy on meaningless tasks and working hard at everything by default, you will have the energy to effectively execute the tasks that bring you closer to your most important goals.

Friday, April 4, 2014

CVS no longer allows Vanilla Reload purchases using Credit Cards

Just a heads up for those of you collecting frequent flyer and other credit card rewards:

CVS no longer lets you buy Vanilla Reload cards using credit cards!

There still are other alternatives to loading your Bluebird account (so you can pay your mortgage, tuition, etc. and still collect points.)  One popular way is loading various VISA gift cards from any store that accepts credit cards for them and then going to Walmart to transfer their balance to a Bluebird Account.  Instead of reinventing the wheel, I'll point you to this blog for details.

Tuesday, April 1, 2014

Evernote: Your brain's right hand man

OK, I have a confession to make.  My brain has a tendency to be cluttered and running with many thoughts and ideas almost 24/7.  Thanks to Evernote, I've managed to mitigate this problem by organizing my thoughts into a user-friendly database (as well as reducing paper clutter around the house.)

In 2005, I bought a file cabinet as I started grad school, hoping to stay organized.  2 years later, I ended up ditching the file cabinet as it had only accumulated about 5 folders and a handful of documents.  Evernote was first launched in 2005, and had I discovered it back then, I would have gotten a much needed head start to supercharging my organization.  I did first try it out in 2010 but gave up shortly after finding it too burdensome for a beginner.  Only since 2012, after reading Tim Ferriss's recommendations and tips regarding Evernote in his best seller The 4 Hour Work Week, did Evernote become a regular part of my repertoire.

What Evernote Does

I like to think of it as a simple word processor that stores notes into an organized database.  You can add pictures, create tables, change fonts, etc. as you like.  The most powerful features is being able to search your notes as well as having access to your notes in the cloud, no matter if you're at your computer, on your mobile device, or logged in at an airport web terminal.

Find an interesting news article that you might want to refer to years later?  File it in Evernote.  Find some recipe you'd like to try out when you have the chance?  Use the web clipper and file it in Evernote.  See an interesting billboard while riding the bus?  Take a picture with your phone, file it in Evernote, and it'll recognize the text so you can search for it later!  This latter feature is known as OCR (optical character recognition) and it allows you to snap photos of documents and be able to search for them later - very convenient for a messy person like me!

Over time as you amass hundreds or even thousands of notes, you'll notice a dialog at the bottom of each note called "Similar Notes".  Evernote uses artificial intelligence algorithms to search and find notes that have similar keywords and contents to your current note.  Maybe that news article you clipped 2 years ago discussed something relevant to the article you just clipped.

Getting Started

Evernote is fairly easy to start using but has a ton of features that are nonessential but make life easier.  While folders and tags are used without second thought by seasoned veterans, I suggest you ignore them in the beginning.  Evernote is still fully functional if you don't tag any of your notes or use multiple folders.  Don't make my mistake back when I first tried using Evernote - start with the simplest implementation first and try out new features as you go along!

When you first install Evernote and sign up for an account, you'll have 1 folder.  Rename it to "001 Inbox" or something with 0's in the beginning (and without quotes) so it'll always stay at the top.  For now, put all of your notes into this folder.  You can later add new folders once you have a large assortment of notes here (say 50+).  This also makes it easier to name your folders as you discover common themes among your notes.  From now on, I'll refer to this "001 Inbox" folder as simply Inbox.

3 Modes of Using Evernote: Collecting, Organizing, and Searching.

When I'm using Evernote, I find it too cumbersome to immediately file and/or tag my notes.  I could be brainstorming, searching the web for articles, or snapping pictures of documents, and organizing my notes while doing that really distracts me from the task at hand.  Just snap that picture, clip that article, or put your thoughts to paper (I mean note) and it goes into your Inbox by default.   If you're pretty sure what tags you want to assign to the note or what folder it should go into, just make a note of it in the body of the note (no pun intended.)  I call this "Collecting".  So when you're Collecting, do not even think about how you're gonna Organize your notes (yet)!

At least once a week (or maybe once a day if you have a TON of notes), go through your Inbox and categorize your notes.  Put them in your relevant folders and/or add tags.  Although I'm guilty of it from time to time, resist the temptation of putting off this step for more than week as it'll sometimes be difficult to remember the background information relevant to a note in order to best tag and file it for the future.  (I find the Pomodoro Technique very helpful for staying focused at this step.) I call this "Organizing".

Searching is pretty straight forward..  when you need information, you use the Search function in Evernote to find it.  It's much easier to search when you've done all the work upfront by Collecting and Organizing.  If you use folders and tags, you can perform more targeted searches.  If you can't find it with your targeted search, you can try a more general search (no tags and all folders) and see if something pops up; chances are, you did not categorize it or miscategorized it, and this is a great opportunity to correct it.

If a great idea pops into your head, get it into Evernote ASAP

This happens to us every once in a while: a great idea pops into your head when you're minding your business.  Getting the idea into Evernote is your top priority, not minding all the red tape of tags and folders (like I said earlier.)  You should also create a shortcut to Evernote on your mobile device's home screen for situations like this so you can bring up Evernote immediately.  Any minor distraction is often enough for you to "lose" your genius idea in your moment of inspiration.  Record it in audio form (and later transcribe it to make it searchable) if you need to.

What to Use Evernote For

You can start by looking at these lists for inspiration:

100 Different Evernote Uses
101 Evernote Uses

The more I use Evernote, the more I discover new ways it can improve and simplify my life.  I'm still discovering new ways every month even after using it for 1.5 years.  I actually have a separate folder called "Evernote Tips" that contain articles about different ways other people use Evernote.

Here are some of my day-to-day uses of Evernote:

  • Shopping Lists: This is probably one of the most common uses of Evernote.
  • This Blog: If I have a great idea for this blog, I'll quickly make a note of it in Evernote instead of letting it fade away as I go and tend to the other aspects of my life.
  • Researching Investments: A lot of times, I will run into a stock or fund I'd like to buy but chose not to pull the trigger.  Later, I find out the investment really took off and I missed out on a bunch of profit.  If I had taken notes at the time I was considering buying the investment, I can go back and review them to hopefully not make the same mistake again in the future.
  • Travel Itinerary: When I take a trip somewhere, I'll create a new folder for it with my hotel reservations, maps, attractions, etc. all clipped into one place.
  • Networking: When I meet someone new at networking events that I find interesting, I'll take notes on them after the event (i.e. including what we talked about as well as details like what they were wearing or eating.)  There's an extension called Evernote Hello that supposedly simplifies this process but I personally find it awkward pulling out your phone and asking to exchange information at the end of a conversation.  Maybe if enough people do that with me, I'll start using it as well...
  • Home Organization: I tend to misplace things a lot so I've come up with this idea in recent weeks.  I took pictures of all the drawers, shelves, cupboards, containers, etc. and labeled them with a number starting from 1 by annotating in Evernote.  Then I created a separate note for each container with the number in the title and listing the contents of that container (i.e. clothes, medicines, old books, spices, utensils, documents, etc.)  No more excuses for misplacing things around the house anymore!
  • CFA Exam: I'm preparing for the CFA exam (a certification in Finance) and there's a TON of information to remember.  Fortunately, the curriculum is organized by LOS's (Learning Outcome Statements.)  So I created a separate note for each LOS to better organize the information overload.  Even better, the "Similar Notes" feature helps tremendously when it finds LOS's with overlapping topics.
  • Recepits: I rent out my car and need to keep track of expenses that I incurred as a result to deduct during tax time.  I also photograph receipts of big ticket items (generally $100+) in case I need to return them or use the warranty.

I will elaborate some of the ideas above in future posts.  Do you have any new ideas for using Evernote?  Please share them in the comments below!