Beyond Paycheck to Paycheck

at August 28, 2008 in Uncategorized. 0 Comments

Yesterday, I was provided the opportunity to post at the ever-popular Gen X Finance blog. Timed for the political conventions, I asked Who Pays More Taxes? Rich or Poor? Of course, there is no one simple answer to the question, which therefore, leads the topic wide open for some intelligent debate. What do you think? Now, take a minute to review the posting and the comments that follow it. Change your mind? More convinced? Thoroughly confused?

"financial education"

Five ways to be (or not to be) fiscally responsible

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at August 27, 2008 in Balance, Cash Flow and Saving Strategies. 2 Comments

While it’s important to be fiscally responsible, it’s also critical to not be cheap. Life is too short to feel like you’re constantly depriving yourself. Instead, live in balance. By following the top 10 saving strategies, you won’t need to budget for everyday expenses (Strategy # 10) and you can spend with comfort on the items you truly enjoy (Strategy # 8). As I approach my 250th post on this blog, I thought it was an appropriate time to share 10 examples of how I, personally, am fiscally responsible without being cheap.

This list is a little different from most top 10 lists in that it’s really two top-five lists: The top 5 ways I am fiscally responsible (and perhaps, to others cheap) and the top five ways I am cheap (and to others, perhaps, completely reckless with my spending). You can be the judge.

To me, it’s all about balance.

Top Five Ways I’m Fiscally Responsible

1. I reuse sandwich bags.

We recycle practically everything possible in this house, including sandwich bags. Sure, it’s mostly for the envionment, but we spend a lot less on sandwich bags (not to mention freezer bags and printer paper) than we otherwise would.

2. We have just one car.

My wife and I now have more kids (two) and, therefore, car seats (also two) than cars (one). While this wouldn’t work for everyone, it could for many people who currently think otherwise. Do I have to rent a car every so often to make it work? Indeed. Does the occasional rental car expense come close to the cost of owning a second car? No way. We have no payment, no insurance, no maintenance, and no gas on a second car.

3. The car we do have has been around a while.

The one car we do own, a Saturn, is 7 years old. That’s as old as our first car was before it died. So in 14 years we’ve had just two cars. Leasing can make sense if you’re going to acquire a new car every three years, but if you can allow yourself to keep a car longer, a funny thing happens: you’ll have extended periods of time where you have a car but don’t have a car payment. When that occurs, you can easily and automatically begin to save more. A lot more.

4. We genuinely enjoy cheap thrills.

There are many weekend days when we spend virtually no money. Just this past weekend, we went to the public pool (a huge thrill for my girls) and brought a picnic lunch. Cost: $2 total admission plus some small amount for the groceries. Later on in the weekend, we went to the beach and took a zillion pictures of the girls. It was sunset and the results (and the emotions) were spectacular. Total cost: $0, although I’ll confess it will be 12-cents or so a picture to print them later. Spending time with friends (their homes or ours) is another minimal cost and usually winds up being among the highlights of any weekend.

5. We drink store-brand soda.

When it comes to soda (or, as my midwestern friends say, “pop”), I don’t care if it’s a Pepsi product, a Coke product, or a store-brand. I refuse to pay more than $0.99 for a 2-liter bottle of soda. I just can’t do it. So, when the store brand ginger ale is 77 cents, I buy that, not the $1.33 7-Up. I wouldn’t call store-brand soda a thrill and it doesn’t make a big dent in the grocery bill, but when you’re buying 45 cent strawberries, you’ve got to do something to balance out.

Now, the flip slide.

Five Ways I’m Not Cheap

1. I spend a lot on experiences that others wouldn’t want to do even if they were paid to do them.

Like paying airfare for a trip to Detroit and the expense of a rental car for the drive to Ann Arbor just to see a 3.5-hr long University of Michigan football game. Since I moved from Michigan in 1996, I’ve done this every year except two (and some years (read: pre-kids) up to five times a season). The cost varies for the weekend, but $500 is a reasonable average - and the only reason it’s not a lot higher is because I can usually crash with friends who still live in the area. The weekend is an absolute thrill so, to me, it’s worth every penny. However, this would be an absolute waste of money for most other people to spend just 48 hours in Ann Arbor - especially, for example, to Penn State fans.

2. I don’t camp.

On vacation, you can save a lot of money by camping instead of staying at a hotel. That’s a non-starter in my family. I’ve gone camping once in my life (with a bunch of b-schoolers in Utah during a week of non-stop rain). I came home and announced that the experience was the most fun I ever had that I never wanted to do again. It costs more to stay in a hotel but, for us, doing so dramatically increases the value and the effectiveness of the “re-charge,” making the additional expense totally worth it.

3. I drink Tropicana orange juice.

Yup, that’s what the guy who wrote Beyond Paycheck to Paycheck drinks nearly every morning. “Liquid gold!” a friend of mine once called it. I realize that the OJ flies in the face of the 77-cent soda decision, but it works for me. I don’t drink coffee (I’m allergic to caffeine) and this is my in-the-home splurge. (But if we’re out at a restaurant for breakfast, it’s water, thank you).

4. Outerwear matters in New Hampshire (and Michigan, Boston, Chicago, and New Jersey).

Although my monthly clothing spending approaches zero, I own one pair of Timberland boots, an L.L. Bean raincoat, and a phenomenal winter coat. None of them were cheap. The boots I purchased before the aforementioned trek to Utah in 1998, the raincoat in 2001, and the winter coat way back in 1996. The boots still make hiking (the ultimate cheap thrill) even more enjoyable and the raincoat has saved me at many a rainy Saturday in Ann Arbor. When I went shopping for the winter coat at Filene’s in Boston, I told the clerk that I walked to work and that I wasn’t into style. Rather, I simply wanted the warmest coat they sold. She showed me the coat. I put it on. Within seconds, I started to sweat the coat was so warm. It cost what it cost. Twelve years later and it still keeps me toasty. Worth every penny, especially when you amortize it over many very cold winters.

5. A diamond really is forever.

I knew that diamonds lacked intrinsic value even before I handed over a sum of money that exceeded the value of my car. But the engagement ring for my wife wasn’t a financial decision. I wasn’t talked up by the jeweler either. I didn’t buy it at TIffany’s, I bought it in Boston’s diamond district. I figured I was only going to purchase a ring once in my life and, more importantly, I knew my girlfriend (soon to be wife of 10 years and mother of my two children) would wear it everyday. Every single day. For the rest of her life. So I splurged. Call me crazy. But I still smile when I see it on her finger. It was (and still is) totally worth it.

# # #

So what do you think? Cheap? Fiscally responsible? Care to share an example of each from your life (or that of someone you know?)

"financial education"

Olympic volleyball is not indebted

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at August 25, 2008 in Carnivals and Ranting. 1 Comment

This week’s Carnival of Personal Finance, hosted by Broke Grad Student, features many wonderful articles about money, plus several memorable pictures from the Olympics. As a big volleyball fan, my personal Olympic highlight was the the U.S. beating the Russians in the men’s semi-finals.

You: Dude, I think that was the 1980 Olympics and the sport was hockey.

The similarities were eerie, excepting Mike Eruzione being played by Clay Stanley. Like 1980, not only was it the more entertaining match (compared to the finals which were a thrill but not as the semi-finals), the volleyball match was televised at a ridiculously inconvenient time (although live) for most American viewers.

You: When was it on?

From about midnight to 3AM a few nights ago, eastern time.

You: You stayed up?

Nope. I taped it.

You: You mean Tivo’d it.

No, I mean taped it.

You: VCRs are still out there?

Yup - and they work too. Plus, at 2 in the morning there aren’t too many commercials, so you don’t have to fast-forward through them all the next day. Also, I paid about $50 for a VCR several years ago and there isn’t a monthly fee. But enough about that saving opportunity.

In addition to a link to my article about Making intelligent 401(k) investment decisions, I’m going to recommend as the one required reading of the week a short and sweet piece titled 10 Ways to Bury Yourself In Debt.

Not sure I need to explain it any further. Enjoy,have a great week, and GO USA!

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What’s the best way to get to work, financially?

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at August 22, 2008 in Saving Strategies. 0 Comments

Like it or not, your commute is one of the most important parts of your day. A really bad one in the morning can set your whole day off in the wrong direction the same way an otherwise good, productive day at the office can still be sabotaged (and ruin your evening) by an accident in the left-hand lane that causes your commute time to double. While now my commute is typically less than half a mile (except when I’m on the road), I’ve had my share of different commuting methods during my career:

Train
Subway
Car
Foot
Bike
Boat
Airplane

You: You commuted by airplane?

Indeed. For nearly two years I lived in Chicago and worked in New Jersey.

You: How do you have any credibility to talk about saving strategies? Doing that seems moronic.

From a lifestyle standpoint or a monetary one?

You: Honestly? Kind of both.

I can’t totally argue with the lifestyle impact, but I had to live in Chicago because my wife was still a student there and then my company agreed to pay the expenses of getting me back and forth to NJ.

You: Gotcha.

Although most people don’t have 800+ mile trips to work, many of our commutes do provide us choices. Our decisions impact how quickly we get to work, how much it costs to get there, how tired we are when we arrive, and, quite often, our mood. In yesterday’s Wall Street Journal, Neal Templin discusses his decision (as well as that of thousands of NJ residents) to take the PATH train (a subway) instead of a ferry across the Hudson River into New York City.

Although the name of his column is “Cheapskate,” I’m not sure this decision alone renders him a cheapskate. After all, he might (although I doubt it) spend frivorously on his lunches, which would make his commuting decision relatively unimportant.

Rather than cheap, I’d prefer to think of Mr. Templin as simply prioritizing his spending.

You: How do you know he just doesn’t like boats? Maybe he had a bad sea-sickness experience?

It’s a river, not an ocean.

The ferry costs $5 to ride one-way, whereas the PATH charges $1.75. Needless to say, choosing one over the other makes a big financial difference at the end of the year. If you’re looking to be frugal, the PATH is the choice to make.

You: Is that what you would do?

Yes, I’d probably take the train most days. But certainly not everyday. On some of the really nice weather days I’d ride the ferry, both for the change of pace and as an occasional reward. But that’s only because I love being outside and the thought of being on a boat after a day in Manhattan would seem quite liberating.

But, to be clear, I have no problem with those who choose to ride the more expensive ferry everyday either.

You: Why not?

It’s a choice. It’s the same reason Your Problem Isn’t Starbucks. In the grand scheme of things, a $5 ferry ride is a minor expense. Sure, it’s a recurring minor expense which is why it deserves much more analysis and thought than buying salt at the supermarket, but this isn’t a house or car purchase decision either. No one finances their ferry fare.

If it gives you much greater satisfaction to ride the ferry, than do so. Just recognize that it’s a choice. That money (the difference in fare) is coming from somewhere. On the other hand, if you don’t so much mind riding the PATH (or taking a comparatively less expensive but realistic commuting option in your life), then go that way.

Ultimately, if you choose to spend only on the things you value highly, it’s amazing what you can afford – even if it might be something that folks who ride the ferry everyday - wouldn’t (or couldn’t) — spend money on.

# # #

What kind of commuting decisions do you make, implicitly, everyday. What are the financial implications? Happy with your choices? Your decision?

"financial education"

Making intelligent 401(k) investment decisions

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at August 20, 2008 in Benefits, Investing and Retirement. 3 Comments

You: Which funds should I pick?

What?

You: In my 401(k) account. . .I have like a dozen funds to choose from. Which ones should I pick?

I can’t give you specific investment advice.

You: Right. I knew that. Well, then, how can I pick the right funds?

There aren’t any “right” funds.

You: Okay, I think you’ve got this financial education blog all wrong. You’re supposed to be helpful.

I’m trying to be.

You: Excuse me for saying so, but I’m not quite seeing it yet today.

Fair point, but I’m just answering exactly the questions you’ve asked.

You: Where’s the issue then?

You said “right” funds. There’s no such thing. If there were, taken to its logical conclusion, there would be no “wrong” funds and then, paradoxically, there would be no funds that were especially “right.”

You: What is this, Waiting for Godot?

Love the 8th grade English reference. Classic. But unlike that play, we’re going to get somewhere today.

You: When, today?

Now.

You: Okay, good.

While there is no “right” fund, there are funds that are more likely to be “right for you.”

You: Why?

Because you have specific investment needs and a specific risk profile. In the case of a 401(k) plan, your specific investment need is (or, at least, should be) to provide for a comfortable retirement. If you’re more than, say, 20 years from retirement, you have a very long-term horizon for retirement.

You: Rubbing it in?

Not at all. Rather, I’m emphasizing that you ought to consider a long-term philosophy when you select your investments. Someone looking that far out (20 years) can afford the normal gyrations of the stock market and therefore should be invested primarily in stocks. For my best guess as to how you should invest your 401(k) account (by asset type, not fund type), visit my unbelievably simple asset allocation tool.

You: Unbelievably simple?

There’s only one question.

You: That’s true of some blue books.

True enough, but the one questions in this case is demographic in nature.

You: Oh.

Yeah.

You: I can do that.

Indeed you can. There are other asset allocation calculators out there which are more robust (google: asset allocators), but I prefer simplicity.

You: Okay, but how do I convert this asset allocation information into fund selections, especially if I don’t know how to pick the “right funds for me.”

Now that’s a good question.

You: Don’t tell me it’s my first one.

It’s definitely not. There was an excellent article a few days ago called “Five Ways to Pick Mutual-Fund Winners” which provides a great summary of what you should consider. Check it out. Not enough time?

You: Maybe.

Here are the top 5 methods, according to writer Jonathan Burton, along with my italicized comments.

1. Expenses - the lower your expenses, the easier the job the fund manager has to do to in order for you to end the year with more money.

2. Risk-adjusted return - Check out the fund’s volatility. In any one year, a manager can get a higher return (as well as a lower one the following year) by taking additional risk.

3. Results vs. peers - Classic apples and oranges analysis. Make sure your gala isn’t next to your naval.

You: That’s what she said.

Wow.

4. Portfolio Yield - Yield is the current rate of income (think dividends) divided by the value of the holdings. (think stock price). The point here is that yield can increase for two reasons: a) because income paid out by the underlying stocks has increased, or b) because the value of the stock holdings has decreased. Only one of those is a “good” reason, so you can’t get too excited about a higher portfolio yield.

5. Manager Tenure - When you’re looking at the records of funds over the last 3, 5, or 10 years, make sure that the current manager has been there at least that long. Otherwise, it’s like saying that Joe Girardi is a great manager because of all the World Series the Yankees have won.

You: Those happened before Girardi become the manager. He just started this year.

Exactly. Irrelevant. He may be a great manager, he might not be, but the evaluation period is mostly in front of him, not behind him.

# # #

What other factors do you consider when selecting a mutual fund from your 401(k) plan?

"financial education"

What will it take to get you in this big screen TV today?

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at August 18, 2008 in Carnivals, Debt management, General Financial Planning and Saving Strategies. 0 Comments

This week’s Carnival of Personal Finance by Everyday Finance once again features the best blog postings of the week. (Well, at least those related to personal finance anyway.) In addition to my article about how to Spend less eating healthy food, I once again am thrilled to make my one article per carnival recommendation.

Written by Not Made of Money, Stop Buying Stuff with the Payments Mentality is a must-read for anyone who has ever negotiated a new car purchase by focusing exclusively on the amount of the monthly payment or has thought to himself, “Yeah, $75 a month for that TV . . .I can manage that” without in either case knowing what the true total cost of the car/TV was. While Not Made of Money doesn’t go into the detailed perils of financing concerns (like a discussion of interest rates charged), it’s still a critical read because it challenges a common misconception that if you can afford the monthly payment you can afford the purchase.

Not so.

"financial education"

Going to school? Save on textbooks

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at August 15, 2008 in Saving Strategies. 2 Comments

The Wall Street Journal recently published a story about saving on college textbooks that should be required reading for -

You: Pun intended?

Got me, but if you or someone you know are heading back to school this fall and are sick of paying a ton of money for often boring, yet required, reading be sure take a look at the story. Highlighted strategies include:

Electronic textbooks
Price comparison sites
Textbook rentals (who would have thought?)
Open source textbooks (can’t wait until these becomes the standard!)

When I was in college, textbooks were really expensive. Seems to me the Internet should have evened the playing field somewhat, giving new life to used and reusable books. Yet, many professors (who write these books) and their publishers have bundled software or notes packages. In fact, the premise of the WSJ article discussed a bill that all but (finally!) prohibits the behavior. So there is hope for the little folks!

What strategies have you used or seen used to cut down on the expense of required reading?

"financial education"

Spend less eating healthy food

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at August 13, 2008 in Saving Strategies. 2 Comments

Food prices are up. That’s no myth. I, too, experience it personally whenever I go grocery shopping. But I’m less convinced by the argument that eating healthy foods is more expensive. Sure, organic strawberries are more expensive than the alternative.

You: Wouldn’t those be inorganic strawberries?

I don’t think so. But my Chem 101 memory is kind of fuzzy. Although organic fruit can be pricey, we each make food decision throughout the day that are potentially even more costly than a 45-cent strawberry. So I became immediately interested in Cheap eats: How to find healthy food, which effectively describes strategies for eating healthy foods for less.

Like the rest of financial planning, thinking ahead of a food purchase decision drives savings as much as anything. One of the most important examples provided is to buy fruits and vegetables that are in season. Such produce will nearly always be more affordable in-season than the exact same type (and often lower quality) of fruit or vegetable will be six months later. (Asparagus being an example I am most familiar with.)

Beverages are another example discussed. Although I’ve insisted before that Your problem isn’t Starbucks, there is an indisputable financial savings from making your coffee at home. If you don’t get the same emotional “high” from visiting the coffee shop that you once did, it’s an idea worth considering.

Other tips from Cheap Eats include (with my comments in green):

Look for the generic or store brand. I agree 99%. For me, brand still matters for spaghetti sauce and orange juice. But I drink generic soda. You?

Look for bigger containers and boxes to save some money. To see if you are really getting a better deal, compare the unit prices of the bigger and smaller containers on the store’s shelf. Remember the one about the English Muffins?

Use coupons, but only for things that you normally would buy—not a lot of high-fat, high-sugar foods. Indeed, make sure you don’t become a serial coupon user.

If you’re feeling really frugal, grow your own fruits and vegetables. Most of the people I know don’t have the time, interest, or acerage to accomplish this in its entirety, but a) my wife does love to garden and b) I love pesto. Basil (a primary ingredient in the making of fresh pesto) is expensive at the store. But she grows the basil outside our back door and we’ve got another bumper crop this year (I suspect basil is pretty easy to grow compared to, say, green peppers). Her little farming habit has saved us a pretty penny at the grocery store plus we get to enjoy very fresh, healthy food.

What strategies have you used to keep your food bills down while still eating healthy food?

"financial education"

Before you quit your day job

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at August 11, 2008 in Carnivals and General Financial Planning. 0 Comments

Those who know me best are aware that I’m a huge University of Michigan football fan.

You: Even after last year’s –

I don’t want to talk about it. Besides, - oh just forget it. This week’s carnival of personal finance, hosted by No Debt Plan, adopts a college football theme that, despite somewhat excessive pictures from the SEC, is both fun and informative to read. In addition to my post Financial strategies during a downturn, the carnival has dozens of useful articles.

My personal favorite (again my lengthy list of “one”) and a true must-read is Lazy Man and Money’s discussion of Ways Not Having a Job Impacts Our Personal Finances.

Obviously, there’s more to the post than the simple loss of salary. And, while the list isn’t all inclusive of what you’d potentially lose, it’s a great starting point. He also presents a similar list of what he’s gained. Either way, if you’re thinking about making the leap to self-employment (be it in a year, 10 years, or 30 minutes from now when the boss finally gets in), this reading will be invaluable in your preparation, financially and otherwise, for the dramatic changes in your life. Welcome and good luck!

"financial education"

Friday Q & A: Financial strategies during a downturn

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at August 8, 2008 in Debt management, General Financial Planning, Investing, Q & A and Saving Strategies. 0 Comments

It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

With all that’s going on in the economy, I feel like I should be doing something differently. Should I?

–Mike N., Tacoma, WA

STRAIGHTFORWARD ANSWER
You probably shouldn’t alter your investing strategy, but other financial changes could be appropriate.

More detailed explanation:

Investing During Uncertain Times

During periods of economic turbulence, much of the media’s attention is on the investment implications. Not surprisingly, one of the most common and immediate reactions by most people is one of increased stress, since surely the “smarter” people have changed their investments in the new “climate.”

Relax. Deep breaths.

Provided you did your homework when you began to invest (specifically, that you chose an appropriate asset allocation) and that you periodically rebalance (review your investments annually to ensure that your original percentages still hold), there is no need to take immediate action simply because the word “recesssion,” the phrase “bear market,” or the oxymoron “repayments on sub-prime loans” are suddenly being uttered with greater frequency than a few months earlier.

Markets go up and markets go down. If you began investing just a few years ago, it may have seemed that markets only went up. But you knew (or at least certainly suspected) that they wouldn’t go up forever. Still, a down market isn’t necessarily a bad thing for long-term investors, for it is during such periods that, by continuing to dollar cost average into your retirement plan, you purchase more shares at lower prices. It is the shares purchased now, during down markets, that should have appreciated the most when you one day sell them during retirement.

Living During Uncertain Times

Although investing receives most of the media attention, other areas of personal finance are arguably more critical to re-evaluate given the changed economic environment. (Heck, that’s a key reason why investing is near the end of the process of learning how to live Beyond Paycheck to Paycheck.)

Here are some questions for you to consider in 2008:

Is your emergency fund big enough?

It makes sense to revisit this question now since the comfort level of keeping your job may have changed if, for example, you work in automotive or mortgage lending. If you are let go, you won’t be too upset that you had recently increased your emergency fund.

Are you living within your means?

Of course this a question that’s good to ask at anytime, but especially today. Getting your debt under control (and ideally eliminating the bad debt) is of immense importance if you were to suffer an economic hardship (such as loss of job, have a spouse who loses a job, have benefits reduced, suddenly receive less hours, etc.) Note: these things don’t only happen to “someone else” in another field or with less education than you.

Are you negotiating?

Much has been made about how we’re in a buyer’s market for real estate. It’s hard to argue that point, no matter where you live or the price of home you’re considering buying or selling. But it’s a buyer’s market for most everything else as well - whether or not connected to a home purchase. When the economy is down, less “stuff” is being sold. But there’s still people who want and in many cases need to sell it. Whether it’s a new car or servicing your old one, whether jewelry or furniture or just a plain old cell phone plan, don’t be afraid to haggle. You could wind up saving big money.

Nervous? Don’t be. Unless you’re trying to get the McDonald’s french fries for less than is posted on the menu board, you won’t be the first person trying to get a discount or free add-on for the product or service in question. Your worst case scenario (paying “sticker”) is no worse than what you’d owe if you didn’t even try in the first place. Besides, do you really care about your reputation at the furniture store?

In a down economy, recession, uncertain time, or whatever you care to call 2008, it’s as important to stay the course when investing as it is to be opportunistic in the other areas of your financial life.

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Financially speaking, what have you changed or specifically not changed recently?