Friday, March 21, 2014

Is Any Amount Of Money Too Small To Be Worth Saving?

I don't think there is any such thing as an amount of money too small to be worth saving.

The only criteria is that it must truly be "saved". When I was an associate dean, a recent immigrant from Poland worked as my student assistant. Her family was on a very tight budget and she often complained that her dad drove to three grocery stores each week to get the lowest prices, but that they spent more in gas and time than they saved.

I didn't realize it at the time, but if that young woman had such a clear grasp on the value of money at age 18, she is likely well set now, ten years later. Kudos to her!

And her complaint about her dad's actions is valid. You really need to take the time to know your numbers. According to AAA, driving a mile costs over 50 cents as of 2007.

In coming up with the estimates below, AAA figures in average fuel, routine maintenance, tires, insurance, license and registration, loan finance charges and depreciation costs. Fuel prices are based on late-2006 national averages.

Composite national average cost per-mile for 2007: 52.2 cents

So if five items are each $1 cheaper at another store, but you have to drive four miles each way to get there, you are spending four to save five and clearing only a dollar.

Likewise, there is a dollar value to time. If you could spend an hour and earn $20 mowing a neighbor's lawn, the extra half hour at the shopping center to save $5 is clearly not going to put you ahead. But if you would otherwise be watching television, then it might.

Another benefit to saving even the smallest amount is that it makes you much more conscious of the bigger amounts. If you worked hard for 15 minutes to create a grocery list, stuck to the list and dropped $25 off your usual weekly amount, you are far less likely to blow it on over priced popcorn at the movie theater. You're more likely to stay in the savings mode, pop some at home and feel great about saving another $5.00.

Isaac Newton taught us that a body in motion tends to stay in motion and I think the same holds true for the happy tightwad. If you know the exact cost of your Chamomile tea bag (10 cents) and choose to reuse it at least once, you're more apt to pass by McDonalds despite the kids' clamoring and eat at home, saving another $12.00 or so.

So don't let anyone bully you into thinking some amount is TOO penny pinching. As long as you're still enjoying life and accumulating assets, only you can determine what your cut-off is. And of course, in time, those pennies become dollars, which become thousands, which become a retirement fund.

Best wishes! Eileen
P.S. Just for fun for you garage sale addicts out there - the popcorn popper was $1 and works great.

Tuesday, March 18, 2014

Are you the average American tossing $230,000 in food over the years??

The following is the result of a big refrigerator cleanout. The total came to $5.20, broken down as follows.

.77 = 1/5 of a container of Stonyfield yogert
2.80 = full container of salsa
.50 1/5 container of picante sauce
.13 1/3 of an apple
1.00 1/2 bag of carrots (these were estimates but should be pretty close to costs)
Total tossed $5.20. This is added to an earlier cleanout of $6.69. So the total for the month is $11.89.

According to the 2009 Department of Labor's consumer expenditures reports, the average American spends $6133 on food each year. And according to several reports, the average American wastes 14 percent of their food purchases.

Broken down, this means the average American is tossing $858.62 each year. That's $71.55 per month. If that same amount was invested at 6.5% from age 20 to 65, that's $230,000 being tossed in the trash.

Hoping the next refrigerator cleanout is under $3.00. Baby steps, baby steps. Best wishes. Eileen

Monday, March 17, 2014

Why it's harder to spend "your" money

If you have kids, you've probably seen them in tears demanding life can't go on if they can't get Captain Ken's Blaster thingy.  But when you said, "Fine, use your money." Suddenly, the life or death need seemed to disappear.

I've had a similar experience when I've earned money outside my teaching pay.  When I went on a mission to earn some extra money each day, carefully tracking each penny, I found that gave me a different perspective.

I had a garage sale about a week ago and was delighted to earn about $300. But to make that much and have cash in hand, made me realize how much stuff I'd had to sell to earn it. This was somehow different than my regular paycheck. It made me take a pass on those frequent trips with the kids to McDonalds where $3.29 or so for three ice cream cones equaled three shirts sold (I sold all clothing for $1 each). I didn't really think an ice cream cone was worth a shirt anymore;-).

I had such a fun time making this extra money that I started to ask myself if I could do some other things that would bring in a small bit of extra cash and started setting a few perennial divisions out in my driveway with an "honesty jar". I would often come home to a few dollars just tucked in there while I'd been busy at the store. Again, this money seemed much harder to part with, as did money in general when I would think, "Would I trade one of my hostas for this $3 box of sugar cereal?" Or, should we just use up the food we already have at home?

Last night, the day was about to end when I realized I had made no attempt to "earn" any extra so I took five minutes and found a book to list on Amazon. So best wishes to each of you as you try each day to earn just a wee bit more. I think you will find the benefits twofold: First, if you are successful, you will have an extra $150 a month or $1800 a year. Second, you will find yourself doing a very specific analysis in terms of spending almost in line with a "trade" and I suspect you'll find it much easier to save than spend.

Knowledge + Action = Financial Independence

Now You!

For fun, take a piece of paper and come up with ten ideas to earn extra cash. Be as creative as you can, you're not held to the list. Maybe you could dog sit for a neighbor's dog you otherwise listen to bark half the day. Maybe you could mow lawns, babysit, tutor math, have a garage sale, or sell perennials from your driveway. All of these ideas have low or no start-up costs and can quickly be shut down if they don't work out. In the meantime, the extra cash/work equation will become strong in your mind.

Sunday, March 16, 2014

Our $9,417.50 sofa!

After law school, my husband and I got our first apartment in Chicago. Our living room furniture consisted of a truly horrid green couch that had followed my husband through his undergraduate years and law school years; its earlier years remain shrouded in mystery.

My protestations of "this really has GOT to go!" were met with defenses such as "comfort", "cost to replace" and some personal affection on his part I believe.

But I was on a mission. I saw a white sofa gracing that room and upping our style quotient, and started looking at little for sale by owner ads.

Looking back, I'm surprised we were as frugal as we were. At that point, we were fresh out of law school and both working for a big law firm. Our combined income for a very short while until I jumped ship to teach, was about $140,000.

Still, in those days, I wouldn't have dreamed of paying $800 for a Crate and Barrel sofa and waited until I saw the ad reading, "White sleeper sofa (we agreed we needed a sleeper sofa for guests since we had a one bedroom apartment) Excellent condition. "$150".

I went to look at it and quickly saw why it was so was sitting out in the hallway of her new apartment. It was indeed in perfect condition, but the owner had just moved in and the sofa couldn't make the corner of the old building into the door. She had moved it up three floors and now was literally and figuratively stuck.

I've never seen myself as an expert negotiator, but this one cried out for some wiggle room. I offered her $75 and she responded "sold!" within about four seconds.

With the help of a wonderful friend, we moved that sleeper sofa (do you have any idea what those things weigh?) all the way down the three floors, and then walked it (none of us had a truck) about seven city blocks to our building, then up to the third floor again. We still owe you Mike!

And many thanks to my then newly wed husband who graciously went along with my decorating mandates and swapped his old green couch without too much regret. I knew you were a catch on that very first date!!

Some of you might think "ewww" at the thought of a used sofa. And if I'd followed up the ad and walked in to find some gold chain wearing macho guy with personalized plates reading "SWINGER" and blasting "Love Shack" on his surround sound stereo set, carving yet another mysterious looking notch on the doorframe, I would too. But if a sofa is in new condition, it can't have been through too much....or at least so I prefer to believe.

Later we moved to Wisconsin and made an offer on our current house. We also fished around for a price on the furniture as lo and behold, another white sofa set for the living room. And our white sofa sleeper would go in the family room.

There was an island in the kitchen with five cream bar stools and a large kitchen table and six chairs all of which we would have to replace.

It turns out the living room set had been custom made and it along with the bar stools, kitchen table and six chairs had originally cost around $5000.

Everything was in pristine condition as the previous owner was and is the best housekeeper I've ever met (we have been to their new home several times and I still can't believe how perfect she keeps everything.)

We agreed to $800 for all. And ten years later, we still use all these pieces every single day. The family room sofa has had the hardest wear (picture two boys and a dog) and now is covered with a green throw and some pillows when guests come.

So let's look at some numbers. Imagine we'd paid full price for the furniture ten years ago. That would have been $800 for a cream sofa sleeper and another $5000 for new custom living room and kitchen furnishings. Today we'd have the same furniture, but not be the same place financially.

Rather than spending $5,800 (which we could have afforded), we spent $875 and invested the difference, which was $4925.

Assuming a 6.5% return over the past 10 years, that money has now grown to $9417.50.

So before you head out to buy a new room of furniture, get out your calculator, and give at least some thought to the bargains to be found on Craigslist. An aside, personally I would buy only from the original owner, only in pristine condition, and only from someone with no pets (you don't want a distinct cat odor showing up in three months).

By doing some bargain hunting, you'll have more time to actually sit on those sofas and contemplate the view rather than working a lot of extra hours to pay for them!

Friday, March 14, 2014

Could you live on a dollar a day? She did!

I thoroughly enjoyed a book titled, "How I Lived a Year on Just a Pound a Day" by Kath Kelly. The author decided to live on a pound a day for a year (excluding only her rent) to save for a special wedding gift for her brother.

As you might imagine, she has to get mighty creative to do so. But she is in fact so successful, at one point she wonders if she could even reduce costs to 50p a day. And what she finds she has a lot of is time so she spends it taking a free art class at a university and going on LOTS of picnic lunches and dinners (with cheap eats) with friends.

It is fun to see how she manages a trip to France (hitchhiking, camping at free places, and eating sandwiches). Or how she finds there's a lot of free food along roadsides with old apple orchards and berry bushes. She learns about Freegans, Freecycle, and dumpster diving. And she says not a day goes by that she doesn't find yet another way to reduce costs. And for anyone who truly gets a kick out of tighwadding in general (whether to save for a special item or retire early or for environmental or other reasons) you can't but take your hat off to her.

And it makes me want to recommit to my four no spend days a week. But also, in doing so, to figure out why I'm so drawn to spend as it is. Because at some level, though I like to tease my friend who spent $20,000 on clothes via a personal shopper last year, I'm kind of doing the same thing in the sense that though I will have spent a tiny, tiny fraction of that, I'm still getting a huge kick out of getting something new (used) for a bargain. Both of us could get by a year easily without buying new clothes, so it's not a "need". For me, it's not just the thrill of the new item, but the thrill of getting it on the cheap. And this, according to Kath Kelly, is a problem.

Going back to post WWII, we were able to ramp up production of goods to never before seen levels. And there was an actual government program that addressed the problem that to feed this economic machine, we needed to convince Americans to buy more stuff than they needed. We simply produce far too much. And if everyone just bought what they needed, our economy would come to a halt. So then came the idea of a consumer society, consuming or getting rid of this year's model for next year's or risk being out of date. (This part isn't talked about in Kelly's book, but is talked a lot of in the book Affluenza.)

And that did quite well. But now Kelly points to the dollar stores, where people get the biggest kick out of seeing how much they can get for their money, even items they didn't need, and if an item doesn't work, no one feels bad as it was just a buck and it's easier to buy another than try to fix it. We've had this experience with a few dollar store plastic water guns for Kirk that worked maybe twice, then we tossed them.

I know for a fact, while I generally eschew the dollar stores because I try not to buy new, that I get that same high from the bargains I get at my local thrift store. And if I come home with a big bag stuffed full of books, toys, clothes, and a new juice pitcher for $8.00, I feel great! At least for awhile, then I've used the new (used) stuff, and feel drawn back to get another haul.

I often bag up things that didn't work out for our family and then donate them to a thrift store or another family.  The environment gets a break, but what exactly keeps me wanting the new stuff? I'm not sure.

I have too many clothes now, but if I see a lovely cashmere sweater, I get a thrill both in buying it and wearing it. But after I've worn it lets say ten times, that thrill is much dimmed and I want a new one. I will continue to wear the other one, but I don't get that, "here I am in my new, bargain cashmere sweater and feeling great!" 

I'm not seeking an austere lifestyle. I frankly like my flowered cushions on the sofa, my 20 various white planters, my collection of vases, my silver framed family photos and other items. I like our Christmas, Easter, and Halloween decorations. But what I want now that I already have so much is to enjoy more, to savor more, to get more of a kick out of using what I have, than in the gathering of yet more new (used) stuff.

Would love to hear your thoughts on any of this. Today I recommit to four days a week no spending.  Best wishes. Eileen

Wednesday, March 12, 2014

When 5 Million Isn't Enough Money To Retire On.

I have a good friend who met with her financial advisor recently to see if she was on track for her dream - retire at age 50. She's 44 now, an 80 plus hour a week professional who's been burned out for the past ten years. Her advisor told her that her if she wanted to retire at 50, she'd need approximately 6.8 million.

When she told me this, my jaw dropped. Who has that kind of money? And did he know she wasn't planning to eat gold bars for breakfast?

The answer comes from the shocking ability of everyday expenses to erode retirement dreams. The advisor's basic look at it was a six percent return, her living to a ripe old age of 104 (which she has long said she plans to do), a 2 percent withdrawal rate and no worries of ever running out of money.

So why would she need 6.8 million? Her current lifestyle takes about nine thousand a month to support and the advisor bumped it up to 12 taking into account inflation and unexpected expenses.

Does that sound insane? She would say her lifestyle is not luxurious at nine thousand a month. They live in a 2400 square foot home in California, have two cars, and take one nice trip each year.

The nine thousand, very roughly is as follows:

$1600 mortgage/real estate taxes $1400 health insurance $1200 one major vacation a year - usually 3 weeks of foreign travel $1600 food - most meals eaten out $ 600 house maintenance $ 200 car maintenance/gas $ 400 clothes (very well dressed professional;-) $ 200 gifts $ 300 medical costs $ 400 entertainment $ 500 electric, heat, computer, phones, television, etc. $ 300 haircuts, hair color, acupuncture, massage, non-comped work expenses, etc. $ 200 pet expenses (including kenneling for long vacations)

The take away for me was how enormous is the cost of a dollar spent in retirement. For every dollar you want to spend, you need many, many multiples of that dollar working hard for you. And the fact is, sometimes those other dollars (your capital) go on strike or get sick - i.e. stock market crashes.

With no more in-flow, all the numbers change. Looked at this way, every dollar of expenses not used in daily living can do double duty on the road to retirement. Saving a couple hundred a month not eating out really does matter. First, those saved dollars can be added to your workforce (the final capital sum you need to retire). Second, your workforce has more breathing space as it doesn't have to support those lazy two hundred dollars that ate out.

So the next dollar bill you hold in your hand, ask is this gal going to enter my workforce or loll around living off the earnings of the other working dollars;-)

Tuesday, March 11, 2014

What you pay EACH DAY to live in your house? Housing costs reality check.

A man builds a fine house; and now he has a master, and a task for life is to furnish, watch, show it, and keep it in repair the rest of his life.
- Ralph Waldo Emerson

I get antsy to get out of my house...often. I have a lovely home, a large garden, and televisions in each room, but still wanderlust hits me most days.

And yet, I like most people pay or did pay, close to $77 a day for the privilege of living here. And with rent rates like that, I really feel I ought to be here more.

At the most basic, to live here, I pay electric, gas, taxes, insurance, maintenance, and until recently, a mortgage. In order of costs, it breaks down like this.

Our mortgage, when we had one, cost roughly $1200 per month. That breaks down to about $40.00 per day.

Our real estate taxes are $6000 a year, or a bit over $16.00 per day (you better believe our kids are going to public school;-).

Our electric bill averages $162 per month or $5.42 a day.

Our gas bill, averaged over the year is $4.50 per day.

Our house insurance is about $1.83 per day. .

Add to that, maintenance costs, which are suggested at 1% per year.
That means with inflation, your maintenance costs will continue to go up.  Our house is valued at $250,000 so according to that estimate, we will pay $2500 per year maintaining it - that includes roof, windows, furnace, hot water heater, etc.  And that would be minimum.  My guess is ours is higher.  But at that figure, we spend another $208 a month or $6.94 per day on maintenance.

As I mentioned, we are lucky to have paid off our mortgage, but still, that leaves almost $37 a day to be here. So what are the options?

We love our home and neighborhood so have no intention of moving, certainly not "buying up".  At the same time, it does leave me pondering how to reduce the cost per day.  At $37 a day, divided into six main rooms, we spend $6 per day, per room to live here.

Without a mortgage, we still pay $1110 a month or $13,320 a year for housing costs. 

Tomorrow, before I hit the open road for some coffee house to settle into for a few hours of work, I will see if my own home may suit me as well. :-)

Knowledge + Action = Financial Independence!

Now You

Take fifteen minutes and add up the costs of your monthly mortgage, real estate taxes, electric, gas, and insurance and divide by 30. Now you know what your digs cost you each day. Maybe it's time to downsize, or simply stay in a bit more and enjoy those accommodations