Monday, August 29, 2011

Cut your spending, then boost your income

Managing your spending, the money that goes out of your accounts each month, is a crucial first step in controlling your financial situation.  If you're in debt or not meeting your financial goals you can either cut your spending, boost your income or do both to find the extra money you need to improve.  I believe that cutting spending is the most important step you can take to improve your financial situation because if you cannot control your spending it doesn't matter how much your investments return, how high your income goes, or if you have the best insurance, you will still be living basically paycheck to paycheck each month or going into debt.  Realistically, there is no level of income you can achieve that an out of control desire to buy cannot spend.

Your net worth and money management is definitely a two-way street though.  There's the money you spend going out and the money you earn or passive income streams coming in.  If the outflow, spending, is bigger you drain your savings or go into debt.  If the inflow is bigger you have money to save and invest.  So really, to maximize your financial situation you want to minimize spending and maximize income.

So once your spending is under control, your expenses are stable and sustainable and you're not adding to your debt, then you can start looking at increasing your income.  Extra income can give you a huge boost in flexibility in your budget and your savings and the sky's the limit on how much extra you can earn.  But, the comparison between increased income and cut expenses isn't dollar for dollar because taxes take a huge bite out of the money coming in.  So a dollar in cut expenses might actually have the same effect on your budget as $1.50 in extra income if you pay about 33% in taxes.

Friday, August 26, 2011

Stay thin to pad your bank account

Now that swim suit season is almost over, I thought I'd bring you some fresh motivation to keep eating healthy and exercising over the winter. So when you're thinking about having a dinner of chocolate chip cookies or another serving of some heavy comfort food in cold, dark December keep these stats in mind:
  • The typical female baby boomer earned $313.70 less annually for every one-point increase in her B.M.I., while the typical male earned $161.30 less for every point. NY Times
  • The annual cost of being obese is $4,879 for a woman and $2,646 for a man. US News
  • When you add in the value of lost life the cost rises to $8,365 for women and $6,518 for men. US News
  • Just being overweight costs $524 for women and $432 for men. US News
  • Researchers have found that weight bias is as strong as or stronger than racial bias. NY Times
  • Two-thirds of Americans are either overweight or obese, and childhood obesity has tripled in the past three decades. Nearly 18% of adolescents now are obese, facing a future of diabetes, heart disease and other ailments. USA Today
  •  Medical spending averages $1,400 more a year for the obese than normal-weight people. USA Today 
  • Studies suggest larger women earn less than skinnier women, while wages don't differ when men pack on the pounds.  MSNBC
  • Overweight people spend more on food, gas, and health care, but earn less and take more sick days. US News
  • Nearly 1 billion additional gallons of gasoline (3.8 billion liters) are used every year because of increases in car passengers' weight since 1960. MSNBC
  • For a very thin woman, putting on 30 more pounds can mean a loss of $15,574 a year in salary.  NY Post
So keep up all that healthy eating and exercise you've been doing this summer (or start).  Keeping in shape is not only good for your health, but also your wallet.

Thursday, August 25, 2011

Conflict of interest in Congress

Ethics reform has been shunted to the bottom of the priority list with the debate about the debt crisis raging, but the New York Times recently profiled the finances and activities of Congressman Issa who is from San Diego. 

One might say that there's inevitably a conflict of interest when it comes to holding a political office or any other since we're all people with individual interests and needs. I could also see how a Congressman could rationalize allowing his personal needs and benefits to dominate his political decision making since, after all, he is a constituent of the district too and has been elected to make these decisions.  However, the particular example of Issa examined in the New York Times article seems, safe to say, excessive.  I'll summarize some highlights, but read the article to get the full effect which includes earmarks, real estate development, money with Merril Lynch and Goldman Sachs.

Congressman Issa doesn't have a history of the highest ethical standards.  Unlike many other politicians who place their assets in blind trusts, such as Rockefeller and Kerry, Issa actively manages his investments.  He's also made liberal use of earmarks over the years, like many others in Congress.
More than two dozen of Mr. Issa’s properties are within five miles of projects he has personally earmarked for road work, sanitation and other improvements, an analysis by The Times shows.  NY Times
At least someone in the government is taking notice:
House ethics committee officials quietly inquired into Mr. Issa’s business interests last year because of possible conflicts in his electronics connections. NY Times
Do you think these practices (I'm sure others have similar habits to Mr. Issa) affect our tax burden in a significant way?  I'm thinking no, but it irks me that any portion of my tax dollars is spent promoting the interests of a particular.  I have an individual right here that I'd like to promote if the money is going to be spent in that manner.

Do you agree with this guy?
“I don’t really blame the guy,” said John Aguilera, a Vista city councilman. “As a politician, that’s his job to bring a slice of the pie back home, and as a businessman, he’s going to invest in the areas that he champions.” NY Times

Wednesday, August 24, 2011

How to save on... moving

We moved several times in the last few years.  Moving can be incredibly expensive and often coincides with a period of no income if you're moving to switch jobs. So we've found that it can be really worth it to put some extra effort in and try to move on the cheap.  Here are some of the ways we've saved:
  •  DIY - The first, and biggest, way to save some money is to roll up your sleeves and do the work yourself.  This is an obvious way to save some cash and many people do it.  I've never hired professional movers so I'm always shocked at the cost.  However, even if you do hire movers there are other areas to save in, you can pack all of your own boxes, for example.
  • Get rid of stuff - The less you have to move the better.  It'll cost less and it will be significantly less hassle.  Consider the cost of moving the item versus replacing it when you get to your final destination.  Particularly consider selling furniture since it's the bulkiest type of item you own, most expensive to move and can usually be sold used easily through Craigslist or other means.  Books are another good candidate for the "it's not coming with us" pile since they're heavy, often not regularly used, and usually available from the library wherever you're going.  Plus if you can bear to part with a lot of your junk then your new place will be easier to clean, less cluttered and will feel more spacious.  Do you really need it?  Do you actually use it?  By getting rid of stuff you'll save on:
    • Boxes
    • Packing materials
    • Gas
    • Time spent packing it, moving it (including repeatedly lifting), unpacking it, organizing it and cleaning it
    • Backaches
    • .... and more
  • Ask friends or family for help - Pizza, beer, and plentiful thank yous are a lot cheaper than hiring professional movers.  Just make sure you're willing to return the favor.  Fair is fair after all.
  • Plan ahead - Don't wait until the last minute to start packing, asking friends to help, or looking for boxes.  It will be a lot more stressful and you'll have less success.  Start planning your move gradually as soon as you know about it.  Scope out what you might be able to get rid of before you pack over a month in advance (if you're like us and can't be decisive about it) and it will give you the opportunity to sell or donate the item or call bulk trash instead of sneaking it into the dumpster or abandoning it on the curb.  We start packing about two weeks in advance and fill boxes as we get them.  You'll also need advance notice to reserve a spot on busy family or friends' schedules if you want help.
  • Find free boxes and packing materials - Many stores will let you take their no longer needed boxes.  Liquor stores and copy shops are particularly good for this since their boxes are designed to hold heavy loads.  Newspaper, used copy paper, crumpled paper bags from the grocery store all make great packing material.  You may also be able to salvage boxes and paper for moving from your office if it hasn't gone paperless.  Ours seems to always have a few copy paper boxes around.  If you start a couple weeks early you may be able to snag enough to make a dent in what you need.
  • Wrap with what you have - Why get something additional to fill boxes or protect fragile objects when you have plenty of stuff already that needs to go into a box anyway? In our last few moves we've packed all of our dishes in out of season clothes to keep them from breaking.  If you're still worried about them breaking and getting glass in your clothes you can wrap them in a plastic grocery bag before further protecting them.The down side is that you'll end up with a box that's half clothes, half dishes so you'll need to unpack the dishes in the kitchen then take the clothes to the bedroom, but we haven't found it to be a big obstacle. 
  • Grocery shop appropriately - A lot of money can go into eating out when you're in the middle of a move (I know from experience).  You can trim this often forgotten cost by intelligently grocery shopping and prepping beforehand.  Plus, having easy, healthy food on hand can help everyone avoid the grumps.  Before our last move we whipped up an extra large batch of hummus and some quesadillas along with baby carrots, crackers, and plenty of apples to get us through a long day of moving.  Other options might include sandwiches, home made trail mix, bananas, or other finger foods.  If you have a cooler, think about using it (and packing it somewhere accessible).
Have you moved recently?  Do you have any sure-fire tips for making the process smoother or cheaper?

    Tuesday, August 23, 2011

    Paying cash for my MBA makes financial sense

    I wanted to take a post to get back to the basics of my goal of graduating debt free.  I feel like the core message of financial benefit has been lost amid all of the lifestyle issues and deviation from the norm.  I figured doing a straight financial discussion of foregoing student loans to pay for my MBA would be a good follow up to the post about debt in general.  To some extent the analysis presented in that post is the analysis I went through when deciding to try to pay for my MBA in cash, on top of non financial issues.

    When deciding to avoid student loans when getting my MBA I wanted to minimize the negative impact that paying for an MBA would have on my finances.  Sure there's a big potential upside to an MBA but it comes at a cost and I wanted to minimize that cost.   I had a fair amount of cash in hand earning piddly rates and after financial aid and some personal budget cuts I could project a chance at needing no debt at all.  In general, paying cash is always cheaper than paying with some sort of financing with the only caveat being interest and fee-free loans and opportunitiy cost.

    Fundamentally, what I’m saying by paying cash is that the cost of debt for business school is higher than the risk-adjusted rate of return I expect on my investments/cash over the next few years.  The risk-free rate is historically low right now while student loan rates are not.  Even subsidized Stafford loans still have a 1% disbursement fee and they’re going the way of the dodo for grad students next year.  I might be able to take that money and generate around $150 at best in profits through a CD but then that return is taxed and there is a risk of a paperwork snafu or fee that would eat a lot of the return.  The gain from a CD seemed minimal enough to be foregone and potential downside from losing money in the stock market or other investments too high.

    The interest rates on non-subsidized loans right now are 6.9% or 7.8% for Federal loans and the lowest I’ve seen for private loans is 6.25%.  All of these have disbursement fees, typically 1-4%. I can’t guarantee that my investments can beat that, particularly after taxes and fees for both the loans and the trades, and my personal preference is to discount returns heavily with risk so the off chance of beating the market and returning 30% on my investments isn’t appealing to me.  Therefore, the best financial decision I can make is to pay for my MBA in cash.  After I potentially run out of cash it still doesn’t make sense to take out student loans at 6%+ APR, instead I’d liquidate some of my investments in my Roth IRA since I can access without penalty and, again, can’t find a risk-adjusted rate of return that turns an after taxes and fees profit that beats the cost of the student loans.

    Drawing down a traditional IRA over taking out student loans would also make sense since these funds can be used penalty-free for educational expenses.  Plus, while in school you won’t be earning a full-time income so your tax rate on the IRA funds is likely to be fairly low.  You have to pay taxes on it as some point so the question becomes if you think your tax rate will be substantially enough lower in retirement that the cost of cashing your IRA is higher than the cost of student loans.  This is highly unlikely.   The only scenario where debt would be cheaper would be in comparison to 401k money.   However, most students will leave their employers when coming to business school leaving them free to roll the balance of the 401k into a rollover IRA which then allows distributions for education expenses without penalty.  I don't anticipate needing to do this (at this point I have hope of not even touching the Roth IRA), but do know that it would be my next step if my Roth IRA is exhausted. 

    Bottom line is that by using cash to pay for my MBA I’m minimizing my cost of capital and opportunity cost, making the overall cost of paying for my degree cheaper, and increasing my potential return on investment. Minimizing debt just makes good financial sense.

    Monday, August 22, 2011

    Cook ahead to save on food

    On top of our $25 grocery budget we also tend to prep food in advance to keep things cheap and going smoothly.  We often will make a big pot of brown rice on Sunday night which will provide the carb for dinners and lunches for the next couple days, leaving us to only add veggies and protein and heat on a week night.  When we grill, we prep enough veggies to cover the entire surface.  Sometimes I'll make a big batch of lasagna or beans and rice or banana bread and pop it in the freezer.  Why do we do this when we're only two people? Because batch cooking can be a great advantage when you're battling a busy schedule or temptation to eat out and want to keep your eating at home and in budget.  Cooking ahead allows you to:
    • Prevent food spoilage - We got a great deal on tomatoes last week but they were very ripe and I knew they wouldn't last.  So I turned them into a big batch of pasta sauce with other veggies we had on hand.  We ate a portion for dinner tonight, some will go in lunches tomorrow and I froze the rest.  We'll have some easy pasta topping two nights this week or next and I effectively extended the life of our tomatoes; they won't go bad or unused now.
    • Buy in bulk - If I know I'll be prepping a big batch of something for the week, I don't hesitate to buy in bulk when I'm at the market where sometimes I can be a bit leery about things getting used.  Normally I'm more aware of the detriments of buying in bulk than the advantages since there's only two of us but cooking ahead gives me a chance to use it as a savings tool.
    • Spend less time cooking  - Cooking one cup of brown rice takes practically the same time as cooking three.  Cooking ahead can allow you to be more efficient with your time in the kitchen and if cooking takes less time then you're more likely to actually do it.
    • Stick to your budget - You can use this technique to concentrate when you need to have grocery will power.  Prepping several meals at once can reduce trips to the store for forgotten ingredients and can make executing a meal plan easier. 
    • Avoid take out temptation - With at least part of a meal already prepped and ready to go at home, especially since it will often be the time consuming half, the temptation to eat out or grab some take out will be a lot less. Plus it will also be a lot harder to justify the slip. 
    • Cook when you have time - By cooking ahead you can choose when you have to get down and dirty in the kitchen.  You don't have to feel pressed to turn out a meal on a super busy or stressful night.  Instead, you can cook on, say, a Sunday afternoon when you don't have to rush. When my SO and I have both pulled 10hr+ days at work plus commute time, the last thing we want is to cook or argue about which restaurant or take out place we want to patronize.  Instead, we dig around in the freezer and can have a simple, nutritious meal ready in ten minutes.
    Each of these areas of success enables you to feel better about cooking and eat more home cooked meals with less stress.  Eating your own cooking is great for your budget and waistline and cooking ahead of time can enable those benefits.

    Do you cook meals ahead of time or in large batches?  What are your tricks to make home cooked meals easier?

    Friday, August 19, 2011

    Frugal summer activities

    It's Friday, thank goodness, and I've already checked out for the weekend so here's some lovely fluff for you.  I bring you a list of 25 excellent summer activities that are highly affordable if you do it right ;).  Summer is winding down so it's time to make sure you get out and enjoy it!  I love summer, but I'm on a budget, shocker I know, so here are some cheap ideas I brainstormed for our weekend.  It is my goal to indulge in at least five of these this weekend for some lazy and easy summer fun:
    1. Go fishing 
    2. Take a walk
    3. Read a book in the shade - from the library
    4. Go to the dog park
    5. Play some frisbee, catch, kickball, or soccer
    6. Look for free events near you like concerts, out door movies, Shakespeare outdoors etc
    7. Grill
    8. Take pictures of all the fun you're having
    9. Go for a bike ride
    10. Take a trip to a you-pick farm
    11. Tackle some house projects that have been on the wish list
    12. Plant a garden
    13. Do some yoga
    14. Cook some new recipes
    15. Hang out by the pool
    16. Go hiking 
    17. Take the dog for a walk
    18. Visit a new state or local park
    19. Make a corn hole or horseshoes game for your back yard
    20. Have you tried bocce?
    21. Watch the sunset
    22. Visit the beach
    23. Enjoy summer's in season produce
    24. Eat some ice cream (we recently made ice cream sandwiches mmmm....)
    25. Nap in the sun

    Thursday, August 18, 2011

    Debt for most makes no sense

    Debt only makes financial sense in one instance – when you’re consciously using it for financial leverage and expected, risk-adjusted, rate of return of the investment is higher than the cost of financing the debt plus all of your capital is employed in higher yielding investments.  So, assuming all of your money is invested in very high-yield investments, it makes financial sense to buy a house with a mortgage when it’s cheaper than renting, all costs accounted for, or when the combined housing savings and expected appreciation (adjusted for risk) of the house is higher than the interest you’ll pay on the mortgage.

    If you’re looking at putting some clothes on a credit card at 20% because you think they’ll increase your chances of landing a higher paying job, you need to get specific.  Let’s say the clothes will increase your odds of landing a job with a $5000 pay bump from 20% to 25% and you want a one year break-even on the clothes.  That pay increase would become something like $3750 after taxes and your clothes give you around a 5% shot at it.  Their yield is $187.50.  Your break-even budget for the clothes is $156.25 (including sales tax) if you plan on paying off the balance within a year.  Putting a $500 suit on the credit card for your interview would not make sense in this case.

    Taking on interest-bearing debt doesn't makes sense if you have cash sitting idle in a checking account earning .05% interest.  (Assuming your credit line is always available – it’s more complicated than this in reality but for most it’s a good rule of thumb)  That money is significantly cheaper for you to use than any just about kind of financing available.  The exception is 0% financing or subsidized loans, assuming you pay them off just before they start to accrue interest and don’t rack up any fees.  Remember that you should also be accounting for risk in your returns.  That credit card, mortgage, or student loan interest rate is a guaranteed cost.  Is your return guaranteed?  Almost always the answer is no, so is the return high enough to account for its risk?

    Let’s look at this another way.  Financing purchases that are fun, clothes, eating out, and what not reduces the fun you can have until you pay the debt off and overall during your lifetime.  Basically you have less fun if you have debt because your discretionary income is split between paying for fun you could currently have and paying interest and principal on fun you’ve already have.  Because this problem compounds, the longer you accrue debt, finance your fun, the more rapidly your potential future fun diminishes. You have to pay your balance eventually (assuming you don’t go bankrupt).

    So there are significant financial and emotional benefits to avoiding debt and if you’re someone who wants to maximize their fun in life but has trouble with the plastic you should absolutely cut up all of your cards right now because all you’re doing is reducing the fun you can have later. Breaking the cycle of living above your means will be the least costly and painful the sooner you start it.

    Wednesday, August 17, 2011

    A support system can be key to financial success

    When J Money at Budgets are Sexy posted one of his reader comments about being so strapped for cash while paying for school that practically all he ate for three months was "50 lbs of pinto beans and 40 lbs of rice and some soy sauce" and that "When the loose change I would find would be enough to buy a packet of Ramen it was a day of pure heaven."  I just wondered where is his family?  What about his friends?  He says he came from a working poor family with two teachers, but even $5 a month would have made a huge difference in his diet.  My parents have always been able and willing to provide that kind of assistance and much, much more.  Similarly, if I were working as hard and eating as little as Tim describes my extended family would happily chip in the $20 a month that would get me to work or class and bring some veggies into my diet and I would do the same for them. 

    When my car broke down on my way back to college my senior year my parents came and picked me up so I wouldn't have to find, get to, and pay for a hotel until my car was fixed.  It was especially good since my car didn't end up leaving the shop until five days later at which point my father drove me back to pick it up and continue my drive to school.

    My SO and I have, very fortunately, never been unemployed and a steady stream of paychecks has been a big help in our financial success.  Our support systems through family and friends have been very key in landing many of our jobs.  My previous job I discovered through the advice of a friend.  He suggested a niche field I had never heard of, but my experience qualified me for and sent my resume to the manager of hiring at a company he'd worked with.  That landed me a fascinating new job that paid me 30% more than my previous one.

    When my SO went looking for a job a year ago another friend pulled through with a reference to a person at a sought-after company whose HR department was known to be a resume black hole.  My SO landed the job but that friend was key in getting the interview.  When my SO traveled to the city of the new job on short notice for an interview we looked to friends for free housing for the night before and after. We've returned the same favors for different friends and try to help out in other areas. 

    I wouldn't hesitate to help out a friend who was in that student's situation.  I might not give them money, but I would certainly visit them potluck-style and leave the leftovers or have them over frequently if transportation wasn't an issue.  Carpooling where I pick up the tab would also be something I'd offer if appropriate.  That being said, I never have done anything like this either because none of my friends or family have been in such dire straits or I haven't been aware of their situation.  Now I'm wondering if any of my friends are in this situation but have too much pride to let anyone know, just like the original commenter.

    Do you have a support network?  Who's in it and when has it helped you out?  Have you come to a friend or family member's aid?

    Tuesday, August 16, 2011

    An "arrangement" to pay the bills

    Huffington Post recently posted an article about women working with sugar daddies to pay tuition or other bills.  It's a follow up look at the business Seeking Arrangement which the New York Times profiled in 2009

    It seems that the most common demographics on the site are young women trying to pay tuition and older, financially secure men looking for companionship.  Women in the article reported being given between $300-$500 or as much as $2,500 per night for their services.  The New York Times article states that sugar babies out number daddies 10 to 1, not the best odds for a student looking to negotiate a favorable deal, but also quotes monthly retainers of $1,000 to up to $10,000.  Around 30% of relationships through the site have a monthly "allowance" and they average $1-2,000 per month.
    Roberts asked 315 college students at a university in London about their participation in sex work. The findings were stark. Nearly 17 percent said they would be willing to participate in the sex trade in order to pay for their education, while 11 percent indicated a willingness to work directly as escorts. A decade ago, only 3 percent answered in the affirmative. Today's respondents are far more likely to have peers who are working in the industry. HuffPo
     In other European cities the findings were even more stark:
    In Berlin, a city where prostitution is legal, they found that one in three university students would consider sex work as a viable means of financing their studies. Nearly 30 percent of students in Paris similarly responded in the affirmative. Finally, of the 3,200 Berlin students sampled, 30 percent of students working in the sex industry reported being in some amount of education-related debt.  HuffPo
    My guess would be that the correlation between debt and sex work of the Berlin students would also be found in American students.  I'm doubtful that women register for the site purely out of greed for money or fancy presents and that most of them have significant financial hardship they're trying to deal with. 
    In fact, Seeking Arrangement pays to have its ads pop up on search engines whenever someone types in “student loan,” “tuition help,” “college support” or “help with rent.” Lola was one of many to stumble on the site that way, when — behind on her rent and tuition and down to one meal a day — she Googled “student loan.” What popped up was hardly what she expected, but she was willing to try almost anything to stay in school. NYTimes

    That seems an effective but shady marketing tactic, targeting those who are most likely to be in difficult financial situations.  Some of the women interviewed for the Huffington Post and New York Times articles seem financially savvy and conscious of the risks they're taking.  Others seem less responsible and their quotes seem to focus more on getting the finer things in life and less on making tuition payments or paying off debt.  Both articles emphasize the ambiguity of these relationships and that participants have varying opinions on whether their actions constitute prostitution. But it seems to me that, no matter if the process is legally prostitution, being a "sugar baby" has to be hard on the woman's self worth.  Just the title seems a little bit demeaning.

    Plus, as one article notes, it must be hard to go back to traditional work with the significant pay per hour discrepancy especially if you have become accustomed to living significantly beyond your means via gifts, dinners, clothing or other areas paid by the sugar daddy.  It makes me think that the whole process likely significantly hampers instead of improving a young woman's odds of success financially and in the work place.  The significant bias against these relationships would probably blacklist women from numerous companies or industries were her "side income" to come to light publicly.  There are also significant health risks if the women are not insisting on protection.

    What do you think?  Does the opportunity to make an extra $1-10,000 per month (tax free) out weigh the psychological, health, moral or career consequences?   Do you think these women are putting the money against educational expenses or new clothes?

    Monday, August 15, 2011

    Start walking or biking to work now!

    Though it's not possible for everyone (50 mile commutes I'm looking at you, move closer to work! ;) ) I'm taking a stand today and advocating that you ditch the car, skip the train, and walk to work.  Okay, biking to work would be just as good.  But no matter your human powered form of transportation (Razor scooter anyone?), try it!  
    According to the Nationwide Personal Transportation Survey, 25 percent of all trips are made within a mile of the home, 40 percent of all trips are within two miles of the home, and 50 percent of the working population commutes five miles or less to work. Yet more than 82 percent of trips five miles or less are made by personal motor vehicle.  League of American Bicyclists
    Those statistics are pretty sad.  It means that there are plenty of people out there who could bike or walk more than they currently do.  I know you think in your area it'll be tough because of traffic, weather, you name it, but everyone thinks that.  At least look into it.  It may be easier than you think.

    Google Maps now provides biking directions in addition to directions for public transit, walking and good ol' driving.  There are also a ton of resources out there for people looking to start bike commuting.  Try googling "bike route" and your city's name or other quick searches.  In my area you can find resources that detail bike lines, bike paths and identify roads with safer and slower traffic.  I wouldn't have thought of Atlanta as a bike friendly city, for example, but the resources at the Atlanta Bicycle Coalition tell a different story.  What's available in your town?

    Here are four big reasons you should human power your way to work instead of your normal commute (for those of you who already walk, bike, scooter, etc nicely done!):
    1. Walking is cheap.  No gas money, paying for parking passes, train tickets, tolls, car maintenance or subway fare.  My guess is that practical shoes come in at pennies per mile. Biking has a higher set up cost if you don't already own a bike, but you can usually find a decent bike used for about $100 and buy lights, fenders, a lock and a rack for another $100 or so.  Don't forget a helmet!  Then, aside from new tubes for flats, you're set for years.  If you start walking or biking to work you might also be able to ditch your gym membership.  How much do you actually use it anyway?  Plus on my walk to work I typically pick up more in change than my blog makes in Adsense revenue.  (Okay that isn't big money, but neither is blogging...)
    2. Walking or biking is good for you.  Given that our nation has an obesity epidemic, I'm fairly confident that a little extra exercise would help most of you out.  Call it multi-tasking since everyone loves that - you're commuting and exercising. The CDC recommends 2.5 hours of moderate exercise like brisk walking per week.  Sounds like your 15 minute bike ride to work would hit that each week with only a little sweat.  For those of you with potentially longer walking/biking commutes just remember that the 2.5 hours is the minimum.  The CDC recommends increasing your exercise to five hours per week for greater health benefits and says: "If you go beyond 300 minutes a week of moderate-intensity activity, or 150 minutes a week of vigorous-intensity activity, you'll gain even more health benefits." Personally, I've found that when exercise is built into my routine I get way more of it so walking to work has been an easy way for me to stay active and keep my weight just fine. 
    3. Biking to work is good for the environment.  Halting your daily drive to work and swapping it for a pedal-powered work out or a leisurely, relaxing walk is going to make a much bigger difference in your carbon footprint than using reusable bags.  PS - It's even better than driving a Prius to work.  Lord that over the Jonses of the holier than thou environmental group near you.
    4. Your human powered commute will make you feel good.   You'll feel good about saving money.  You'll feel even better about your health.  Plus the environmental benefits are a nice cherry on top.  I've also found that there's just something fundamentally good about taking a walk.  Maybe it's the endorphins, but even if I leave work stressed or angry, by the time I'm halfway through my walk home I'm feeling much better and by the time I get home I'm practically chipper.  It's guaranteed me time during my day or a chance to call family while I walk.
     So, tell me, how many of you walk or bike to work?  How many of you are going to try?  Work at home folks.... we're all jealous, but do you walk or bike for errands?

    Wednesday, August 10, 2011

    I love the library

    How can anyone argue that the public library system isn't one of the best benefits freely available to everyone?  Even in the dinky small town we used to live in where our county only had one fairly small library building and a book mobile I still could consistently find something there that was interesting to read.  I always love going into the library and knowing that I could have just about any book in there and read it without regard to my budget or having to worry if it was exactly the right book.  If it wasn't what I needed I could just return it and try another one.

    I'm currently career shopping, looking for a potential career path out of business school.  I have a couple options in mind that I might be a good fit for and would be interested in pursuing but I'm trying to learn about the array of options that are typically available to students graduating from my school.  Internet has been sketchy off and on recently at our place so I decided to go for some good old fashioned books.

    I went online to our library system's website.  Found about half a dozen books that seemed relevant and marked them to be transferred and held for me at our local branch.  Three days later I get an email to tell me half of them have already shown up.  I walk over to the library with my SO after work and pick the books up.  In and out in about two minutes! One of the three books was really useful but the other books were only so-so.  I'm satisfied since I can renew the useful one to reread sections of and return the other two.  In a few more days I'll have found more relevant books that I'll again check out for free.

    Right now I'm using our library for career research, but here are some other areas where I've used library resources to save money or gain knowledge in the past:
    • Learning about investing
    • Standardized test prep
    • Cooking ideas
    • Free entertainment through fiction books or movie rentals
    • How-to references for various projects
    • Information on starting a small business
    • Tax advice for the self employed
    • Free internet access when ours was out
    • Hiking guides and trip research
    My favorite part?  If I just need a resource about a particular topic or something entertaining to watch or read, I can often have a book that meets my needs in hand faster from the library than from Amazon.  Really, I can have it in as little as half an hour if I have the time and the library is open. 
      Do you patronize your local library?  What resources do you use?

      Tuesday, August 9, 2011

      Monthly expenses' impact on financial independence or retirement

      So let's say you'd like to be financially independent or retire.  You've become accustomed to a certain standard of living and a level of monthly expense.  How much are those expenses holding you back or helping you on your way to retirement?

      My SO and I are both interested in becoming financially independent.  It's not that I don't want to work, it's more that I like having the option to not work or to choose or switch work situations without regard to money.  Once I've got a goal though I tend to be a little hell-bent on achieving it.  So I've been campaigning to slash our expenses for two reasons:
      1. Work (and my income) is ending soon and won't start up again for a while unless I find a really good part time job.
      2. The less we spend the more likely I am to meet my goal of paying for my MBA in cash and the sooner we can get to financial independence
      So I decided to do a little math.  I made a spreadsheet that did a rough estimate of how monthly living expenses affected our years until financial independence.  Hitting financial independence was defined as having a savings nest egg that could cover expenses with a 3% withdrawal rate.  It ignores Social Security since we're not planning on it.  Check out the results graph:


      The algorithm assumes you have no money now, expenses are always constant and ignores investment return.  Basically, if you spend exactly what you earn or more retirement is impossible since you will never get ahead and the closer you get to spending all your take home pay the faster your number of years to retirement increases.  The scale on this isn't very meaningful though since there's no way in hell we're spending more that $5,000 a month continuously.  So here's the graph zoomed in on a more realistic range of living expenses:

      With monthly expenses of $4,500 we're about 80 years from retirement, but with monthly expenses of $1,500 we're about 10 years away.  Realistically we're somewhere between 15 and 35 years depending on what level of living expenses we'd like to maintain from $2,000 to $3,250.  What a big difference!  What you can see is that years to financial independence and monthly expenses are somewhat linearly related in this section of the curve.  For us this means that for roughly every $50 we cut from our monthly budget (permanently) we reach financial independence one year earlier.

      It's solid ammo to take to my SO to cut our expenses a little bit, but it's not at all robust.  I'll get hammered since it doesn't include investment return, our current savings, changes in income or a multitude of other detailed nuances I just over simplified.  So expect to see beefier versions of this coming soon. Realistically, including investment return or income growth over time would reduce the benefit you'd see from cutting your budget.

      Want to see how you stack up now? I've uploaded my speadsheet to Google Docs where you can download it and try it with your own data. Fields that you should edit are highlighted in yellow.  Click here to get a copy of my years to financial independence or retirement spreadsheet.  To input your numbers either save a copy or download the spreadsheet into Excel.

      To get the cut $X get 1 year closer to retirement number pull the spreadsheet into Excel (unless you know how to do a trend line in Google Docs, in which case let me know!). Use File->Download As -> Excel in Google Docs.    Once you've opened the spreadsheet in Excel, right click on the data points in the second graph and select "add trendline".  Select linear and check the box for display equation on chart.  Once you have your equation it'll be in the form y=###x - ###.  Divide 1 by the first number (the one that is multiplied by x, in the graph above it's .021) to get the amount you'd have to cut per month to get one year closer to retirement.

        Monday, August 8, 2011

        A new trend: Financial advice for college students

        Maybe it's just me or the magic of Google News tailoring results to the user, but I've been seeing a new trend in back to school reporting articles for college kids.  Instead of the usual dorm decorating or shopping advice I've seen five articles in the last week which provide financial advice and warnings to incoming college students.
        • The Boston Globe has checking account tips for college students.   It's some solid advice on setting up your new money management system to avoid fees.  Boston is chock full of college students so hopefully this advice gets some good use.
        • Daily Finance has changed another old trend to new with their article title: The New Freshman 15: Financial Tips for College Students.  It could easily be titled "how to avoid debt and get ahead financially while in college" but that wouldn't be nearly as catchy.
        • The Consumerist (I guess this shouldn't be a surprise) gives advice on Setting And Staying On A Budget In College.
        • The Street also got in on the action, but it read an awful lot like a paid guest post for LowCards.  Not the best advice. 
        • Salisbury Post advises parents on how to advise their kids to keep their budgets under control. It hits all the big expense areas from textbooks to entertainment.
        Extra bonus: I saw a report that Dave Ramsey is working with Rochester College to offer an online personal finance management course.  Don't know if he's the best role model or his message most relevant, but it's probably better than nothing.

        If you're a student headed to college (or a parent of one), you're welcome for all the information.  For everyone else, is this a sign that college students' debt has gotten to a crisis point or just that it's been a buzz topic in the news lately?

        Sunday, August 7, 2011

        Yakezie Carnival - Newbie Edition

        Welcome to the August 7, 2011 edition of the Yakezie Carnival.  This is the first time I've hosted a carnival so let's hope I don't mess anything up!  I recently broke the 200,000 Alexa rank barrier in the Yakezie Challenge and I couldn't have done it without this great network of bloggers.  There are a ton of great articles this week; let's get to it!

        Proud Member of the Yakezie Challenge

        My Personal Finance Journey: Tour de Personal Finance 2011 Post-Race Show - Awards Ceremony, Race Recap, and Goals for Next Year's Tour - This past month, I organized a personal finance blogging competition on my blog called the Tour de Personal Finance. This post details the outcome of the event, awards given, and goals for next year.

        Our Journey To Zero: Me vs. The County Fair - In the past, my family and I have dropped hundreds of dollars at the county fair. This year, I was determined to have a great family outing on a budget. How'd we do?

        Wealth Informatics: Comparing myself with the Joneses - Comparing myself with the joneses and feeling bad/stressed about it... what does that get me?

        Retire by 40: Live On One Paycheck - Living on one paycheck is a great way to turbo boost your saving.

        Stock Market Basics: Best Android Stock Market App - Use your latest iphone or android phone for being financially savvy and get the best stock market app for trading and investing. This will help keep track of yoiur investments on the go.

        The University Of Money: Jim Cramer dividend stock picks - For those who do dividend investing it is a must to know the Jim Cramer ( host of Mad Money show) dividend stock picks. He has been right on the money almost every time he has made predictions about the stocks that will appreciate and give dividends.

        Good Financial Cents: Best 529 College Savings Plans - Interested in savings for your kids college education? Here's a look at some of the best 529 options offered by different states.

        Investorz' Blog: Investment Mistakes - Do you want to suceed at investing? Then read about these 7 common investment mistakes made by investors, and avoid them!

        Financially Consumed: Online Education Advantage - The online learning experience mirrors and reinforces the connected way live today. Success is largely determined by how well students collaborate given the modern tools at their disposal. The same is true of the modern, connected work environment.

        One Cent At A time: Do you need store Credit card? I dont - Why regular credit card from your bank or card issuing companies like AMEX, Discover are better than store cards that offer high discount at that store.

        Money Reasons: Roth IRA Benefits for Kids - This article is about the benefits of helping your kids start a Roth IRA and why it's a good idea to do so! It's also what I'm planning on doing with my kids once they are old enough to have earned income.

        The College Investor: 5 Easy Steps To Get The Cheapest Vacation - Five easy steps to follow to get the best deal on a vacation.

        My Multiple Incomes: How To Generate a Passive Investment Income - My strategy for developing a passive investment income.

        Budgeting in the Fun Stuff: My New Insurance Costs - OUCH - I just found out that I'll be paying almost $6000 a year on health insurance through my husband's plan! Ow!

        Frugal Confessions: It's Not What You Earn, It's What You Keep - Imagine how different the dating world would become if the financial metric of interest changed from how much money people make to how much money people put into savings. Suddenly Mr. $150, who only banked $1,000 in the whole of 2010 would be picked over for Mr. $30,000-per-year-Nonprofit man who manages to bank $400 of his income per month.

        My Journey to Millions: August 2011 Net Worth Update: Look Where I Came From Edition - From July 1, 2011 to August 1, 2011 my net worth has increased 3.38%. From January 18, 2011 to August 1,2011 my net worth has increased 46.84%

        Invest It Wisely: Why Spending Money on Life Insurance Trumped Building Up the Emergency Fund - For my family, the emergency fund has taken a back seat to life insurance.

        Prairie Eco Thrifter: Kindergarten to College--Back to School - Parents already know that back to school time is the second most expensive time of the year (right after the holidays). Here are a few money tips to help you plan your back to school activities and maybe reduce that $600 per child amount.

        Money Cone: Cash a Check Through Your Smart Phone Even If Your Bank Doesn't Provide This Service - For those who have a smartphone and a PayPal account but don’t have an eCheck deposit service with their bank, the Pay Pal free app is a clever alternative to physically depositing a check.

        The year of shopping detox: Instead of cash, use your chicken! - Bartering: not just for medieval peasants. Although they could teach us a thing or two!

        Everything finance: How Interest Rates Work? - Mortgage lenders show their interest rates prominently, but they hardly ever illustrate exactly how these rates work. If you have a $200,000 mortgage for 30 years at, say, 7.5 percent interest, your monthly payment would be about $1,400. But the question is why the rate of interest if 7.5 percent? The suitable answer is that the annual rate is divided into the monthly interest rates and this monthly interest rate is applied to the monthly balance.

        Living in Financial Excellence: Are You Managing Your Money or Is It Managing You? - Everyone must realize the need to manage their money wisely. When you actively take control of your money,you will find it goes further,especially when you are trying to pay expenses.

        Live Real, Now: How Much Is Your Pet Worth? - How much is too much to spend on an animal?

        Not Made of Money: Which Is Better – A Fixed Rate Or Variable Rate Mortgage? - Anybody in the market for a real estate loan knows that there a lot of loan products out there to choose from. Finding the best loan product for your needs can be really difficult.

        The Penny Hoarder: How to Rent Your Car Out for $10/Hour - Move over Avis! You might have heard about a new trend that has been popping up over the last few years – renting out your personal car for extra cash. We wanted to give you a quick rundown on how it works and what the risks are.

        Control Your Cash: Don't Reach for the Middle - A guest post from fellow Yakezie member Financial Uproar exploring why people think they’re doing well because they’ll compare themselves to the masses instead of comparing themselves to the wealthy.

        Darwin's Money: Debt Ceiling Vote Explained – What Media ISN’T Telling You - The debt ceiling vote got all the press this week. But after seeing this chart, you'll see what the real issue is - and wonder why the mainstream media isn't talking about it.

        Money Talks: Are Ivy League Schools Worth the Extra Cost - Is it worth spending the extra to go to a prestigious school, or will a less selective university be just as good? This article talks about a study that followed those who attended Ivy League schools and those who were accepted to Ivy League schools but didn't attend.

        Friday, August 5, 2011

        Weekend Reading

        This week I was included in the Festival of Frugality and Totally Money Blog Carnival for my post How I cut the cost of college. The Carnival of Financial Planning featured Handling money as a couple.  I was also included in the Carnival of Personal Finance for my post on The full cost of attending a wedding.  Finally, I was included in the Yakezie Carnival for my post When buying in bulk doesn’t make sense.

        I also had a guest post up at Get Rich Slowly:  Budgeting Dilemma: How Do You Decide What You Can Afford? If you're a reader from GRS who has stuck around, thanks!  Feel free to drop me a line with feedback.  The email address is on the About and How you can help pages.

        For more interesting reads check out:

        Thursday, August 4, 2011

        What I'm excited for

        Frugality can seem so down and dour.  How can I cut expenses? Do I really need that?  What else can I penny pinch?  So let me fill you in on some things I'm excited about and their relative frugality:
        • Having my bike all fixed up and kitted out for commuting this fall - I'm very excited to have this done a little bit before classes start so I have some time to do some fun riding too.  Biking is so much faster than walking and I'm excited to explore our area in a new way.  Yeah, my bike's been out of commission for a while.
          • Frugal? - Commuting by bike yes.  The $100 I've spent on gear in the last several weeks, maybe, maybe not.  Cheap as I could make it while still buying stuff that will last and it should pay for itself through transportation savings within one to two months of commuting by bike.
        • One week of vacation - I have one blissful week of unscheduled vacation that I'm taking off before school starts. My SO and I arranged to take the same week off so we'll get some quality time in relaxing before business school busyness sets in.
          • Frugal? - We're staying relatively local and definitely cheap so the vacation won't be expensive, but I won't be getting paid during that week either.  So as frugal as this vacation could be and still serve its purpose.
        •  Picking out a few fiction books for vacation - I recently rediscovered our local library (it's been a busy summer!) and am looking forward to picking out some books to read that don't have to serve any purpose and having time to read them or at least use them to shield my face from the sun while I nap.
          • Frugal? - Definitely!
        • Starting business school - I'm really excited to start classes and dig in and learn something new.  Does that make me a total dork?  I'm also looking forward to meeting all the really sweet people who are going to be my peers and network for the next two years and beyond.
          • Frugal? - Is spending six-figures on a degree frugal?  The first semester is a sunk cost so I might as well make the most of it ;)
        • Enjoying the remainder of summer - We have a picnic, outdoor theater, outdoor movie and a museum visit on our agenda in the coming weeks plus some long walks to enjoy the weather and the time we have now. I'm also trying to plan a fun outing by bike to celebrate being done with the bike work!
          • Frugal? - Super! It's all free!  Now I just have to make time for all of it...
        What are you looking forward to right now?  Is it frugal?