Retirement Advice from an Expert (NOT Me)

I read an article today that rocked my world and I want to share it with my vast audience of literally TENS of readers. 

If you’re like me, you want to retire as early as possible.  It doesn’t matter how much I enjoy my job; there will always be a long list of other things I’d rather be doing.  Planning for retirement is intimidating, and I always feel like I’m not as far along as I should be.  My goal, and it’s a bit of a stretch, is to semi-retire at 55.  By “semi-retire”, I mean I would be perfectly content to work for, say, ten years in a low paying, low stress, part time job that helps supplement my income.  Then, at around age 65, I’d like to embrace full retirement, devoting 100% of my time to my worthy hobbies, which include traveling, drinking wine, and napping, among other things. 

*Side note:  In a perfect world, I would embrace full retirement at age 55 and earn supplemental income from passive sources like rental properties.  We’ll see how that plays out.  Thinking about how to create passive income streams is an intimidating and confusing topic for another day.

Retirement planning seems a bit simpler today after reading an interview with investment advisor William Bernstein on the CNNMoney blog.  Mr. Bernstein has managed to make retirement planning seem a lot less like rocket science and a lot more like common sense.  I’m not even going to try to summarize the main points here because I don’t think I could possibly be as clear and concise as Mr. Bernstein is in his own words.  Just click through and read the interview.

Viva la frugal!

I Am the 1%

Don’t worry; this isn’t a political article. 

I recently discovered a thought-provoking website called the Global Rich List.  This website allows you to enter your income to see where it falls in relation to others globally.  As it turns out, if you are an American earning at least $47,500 per year, you are among the top 1% of the world’s earners.  

There is a link at the bottom of the site explaining how the calculations are made.  The data is derived from the World Bank Development Research Group, so I believe the information to be reasonably accurate.

The site’s creators state that their goal is to help people recognize that they are richer than they think and to feel more wealthy.  In turn, they hope that people will contribute more to charitable causes once they gain perspective about their place among the world’s earners. 

I love it.  One point that the Global Rich List site drives home with subtlety is that those of us who are “rich” but feeling poor are likely living beyond our means.  Yes, the United States has a much, much higher cost of living than most parts of the world.  We also have many more product choices and shopping opportunities that tempt us to spend.  If we can avoid being sucked into the consumer lifestyle, it is very possible to build wealth on a salary that is considered modest by American standards (and rich by the world’s standards).  We will even have some money left over to help those who are less fortunate.

How lucky I am to have been born in a prosperous country and to parents who had the resources to provide me with a healthy and stable childhood and educational opportunities.  Sometimes it’s so easy to forget how good I have it.

Viva la frugal!

P.S.  The currency default on the homepage for the Global Rich List is the British Pound, so be sure to change it to U.S. Dollars (unless of course, you’re British).

You Say Tomato, I Say F-You Fund

Source: Federal Reserve
Credit: Lam Thuy Vo / NPR

The NPR Planet Money Blog had a recent post about Americans’ “rainy day” funds.  The post references research conducted by the Federal Reserve to determine why Americans save and how much they think they should be saving. 

At first, I was shocked by the research findings.  The research found that on average, Americans think they need only one month of salary in savings for a rainy day.  Remember, this is how much they think they should have, not how much they actually have.  I wouldn’t be at all shocked to find that most Americans have very little in their savings accounts, but I am shocked to know that they think they need so little.

As a homeowner, I always have a nagging fear in the back of my brain that I could be hit with a major, unexpected repair bill.  One month of my salary is far too little for a proper safety net if something like that happens.  I have friends who suddenly had to replace their HVAC system at a cost of nearly $10,000.  Unfortunately, one month’s salary for me isn’t anywhere near $10,000. 

I took a gander at the comments people made on the NPR post to see if I was the only one who found the research so surprising.  Interestingly, many of the comments centered around the definition of the term “rainy day fund.”  One commenter noted that he has both a rainy day fund and an emergency fund.  His emergency fund is for major unexpected expenses or liquidity if he loses his job, while his rainy day fund is just a cushion in case his regular spending ticks up one month.  Another commenter said that her rainy day fund is some cash in a jar that is literally used for rainy days, i.e. ordering pizza delivery while she stays dry watching TV or reading a book (she sounds like my kinda gal).

The comments have made me hopeful that many people responding to the Federal Reserve’s study simply misunderstood what the researchers meant when they asked about rainy day funds.  Or perhaps more likely, the researchers misunderstood how people think about and classify their savings.  After all, how likely is that the Federal Reserve asked about F-You funds? 

Does anyone else have a pet name for their emergency savings accounts?

Why Do You Work?

I saw this car today and had to snap a photo.  Do you see the license plate? 

 

CYIWORK = See Why I Work

It’s a pretty amusing vanity tag. 

Myself, I work because I like food and air conditioning.  Why do you work?

To the Class of 2012…

Graduation season is winding down, and I’ve been thinking a lot about the college graduates who are now entering the “real” world.  The transition from college student to independent adult is mostly awesome, though it does entail some new challenges.  All you new graduates out there now have the freedom (and responsibility) to manage many more areas of your own lives, including your finances.  Even if you are still searching for that first job that will launch your career, you can and should begin to develop a relationship with money that is healthy and positive.

In the ten years since my own college graduation, I’ve learned a few things about money.  I continue to be a student of personal finance, but I hope you will allow me to share with you the most important things I’ve learned so far:

The way you spend your money is a direct reflection of your values and priorities in life.  It’s very easy to mistake success for “stuff.”  Wearing a tee shirt with a designer logo does not mean that you are successful; it means you are susceptible to marketing.  If you looked at your spending as a snapshot of who you are, would you like what you see?

Experiences make you much happier than “stuff.”  Experiencing something is truly living.  You and your college friends will be separated in the future by time and distance.  Spend less of your money on “stuff” so that you can afford to meet old friends for dinner, or even vacation.  Remain connected with people you care about by experiencing things together.

You will never, ever regret starting to save sooner rather than later.  Albert Einstein said, “Compound interest is the eighth wonder of the world.  He who understands it, earns it.  He who doesn’t, pays it.”  Personal finance can seem complicated, but the most important principal is easy enough for a child to understand: Save as much as you can as early as you can, and you will build wealth.  It really is that simple.

If you want to live a free and independent life, avoid debt.  You must give up your time and energy to earn money, so having debt means that someone else owns a piece of your life.  Sometimes debt is necessary, but be honest with yourself about the significance and gravity of obligating your time and energy to someone else.

You don’t need to have personal finance figured out all at once.  Slow and steady wins the race.  Small successes in managing your finances will make you feel incredibly proud.  Congratulate yourself on every small victory.  Use that positive momentum to learn more and to create new goals for yourself.  In a very short time, you will feel confident and in control of your finances and your future.

We all have our own definitions of success and our own ideas about what makes for a happy life.  Regardless of what your ambitions are, always remember that the lead role in your life should be played by YOU.  Money should never play anything other than a supporting role. 

Congratulations, 2012 Graduates, and best of luck.  Viva la frugal!

HotFrugal Goals: Where Are They Now?

Until recently, it had been a year since I had written a HotFrugal post.  I’d say it’s time to take stock of my current financial situation and goals.  This is the type of post that is interesting if you’re nosy (I certainly am, so don’t feel bad), but it’s definitely long and detailed.  So dig in and join me, won’t you?

Savings Accounts

F@!# You Fund:  This is what I like to call my Emergency Savings Fund.  I censored it a bit since my mother reads this blog.  Basically, I want to have enough money saved so that I can say a big “F@!# You!” to any major unexpected expenses that crop up (major home repair disasters, car maintenance fiascos, etc.).  I also want to be in a solid financial position if I lose my job, and I’d even like to have the option to quit my job if it ever becomes really, unbearably horrible.  Goal:  $25,000.  Current balance:  $12,313.

Mad Money Fund:  This is a phrase I’ve borrowed from my mother.  Mad Money is fun money that can be spent on any kind of Want.  Typically, I use this fund for vacations, though more recently, I tapped it for a tattoo (!!).  There is no specific amount I try to keep in this fund; it just depends on the timing and types of vacations I have planned.  Current balance: $995.

Triumph Motorcycle Fund:  No, I don’t know how to ride yet.  But I know I want to!  I’m saving as though I’d buy a new bike and all necessary accessories (helmet, saddlebags, etc.).  Goal:  $11,000.  Current balance:  $568.

Roth IRA Starter Fund (formerly known as iPad Fund):  It’s time to kick this one into high gear.  Once I have enough saved, I will open an account with Vanguard and then track future contributions and growth in the Retirement section (see below).  Goal:  $3,500.  Current balance:  $40.

Retirement Accounts (Vested Balances)

Old 401(k) from Former Job:  (At some point I need to roll this over to an IRA.)  $43,750

401(k) from Current Job:  $9,003

TOTAL:  $52,753

Debt

Mortgage:  My house is worth $165,000.  I’m not working to pay down my mortgage more quickly because I’m not sure how long I’ll live in this house.  Remaining balance:  $128,096.

Car:  Yup, I bought a new car at the beginning of the year.  The old one needed more costly repairs, and I was able to get 0% financing.  I won’t make any effort to pay this off early since I’m not being charged any interest.  Remaining balance:  $13,964.

Net Worth

A rough calculation based on the above info puts me at $104,609.

So there you have it.  My number one priorities are the F@!# You Fund and the Roth IRA Starter Fund.  It’s going to take a long, long time before I’m able to buy a motorcycle, but I’ll get there eventually. 

Viva la frugal!

The iPad: Meh…

Obviously, it’s been a looooong time since I last posted here.  There’s no real reason why I stopped writing on HotFrugal…  Life just kinda happened and I got busy with a new house, new job, new involvement with several local organizations, etc.  Things have calmed down a bit, and I really miss writing, so I’m going to start up again.  I’ll just go ahead and dive right in…

 

Used with permission from Debbie Ridpath Ohi at Inkygirl.com

For a long time, I have been absolutely green with iPad envy.  Two of my coworkers have iPads with fancy keyboard cases, and they (my coworkers) always make me jealous by showing off all the fun things they can do.  Even my mother has an iPad, and she’s not exactly someone I would consider to be an early adopter of new technologies.

So, a few months ago, I started an iPad savings account in true HotFrugal fashion.  I have an online checking account with ING Direct, and I also have several targeted savings accounts with ING.  My emergency fund is kept totally separate with another online bank.  I love ING because it literally takes about 30 seconds to open a new savings account, and you can have dozens of accounts at any one time.  With a few clicks, I had a savings account named “iPad” with the goal to save $800 for the mid-range model and the keyboard case.

But then a funny thing happened… Over the past five months since I opened the account, I’ve only put $40 in it.  Whenever I have extra money to save, I never seem to want to put it in the iPad account.  Instead, I find myself wanting to put the money toward my general savings fund or toward one of my other “just for fun” funds.  Today, it finally occurred to me that maybe I don’t really want an iPad all that badly, or rather, there are other things that I want more. 

There’s a good lesson in this experience that I hope I will remember in the future.  If I had just gone ahead and bought an iPad without deliberately saving for it, I never would have realized that I didn’t even want it that much in the first place.  Fortunately, ING makes it easy to change the nicknames for savings accounts, so the iPad account is now called “Roth IRA Starter Fund.” 

Viva la frugal!

Extreme Couponing: A Big Ol’ Hot Mess

The dumpster diving Extreme Couponers. Photo from press.discovery.com

A lot of folks on the interwebs have been writing about TLC’s new show, Extreme Couponing, so I’ll keep this short…  If you haven’t seen the show already and you have a fondness for watching train wrecks, it’s a must see.  These people are nuts. 

The extreme couponers featured on the show spend up to 40 hours per week clipping coupons and planning their shopping trips.  Many of them order coupons from special clipping services.  Others wander all over town rounding up unwanted newspapers in order to amass their coupon collections.  One woman even goes dumpster diving (along with her children), to recover coupons discarded by others.

These nutjobs achieve pretty spectacular savings of 90% or more for their efforts.  They shop at grocery stores that will double or triple the value of the coupons, and they take advantage of items that are already on sale.  Often, they end up getting items for free.  This all sounds good, right?  Why am I calling them nutjobs?

If you’ve seen the show, you get it.  If not, trust me… They are NUTJOBS!  First of all, this little hobby of theirs consumes their lives.  Virtually all of their free time is spent figuring out how to get 600 toothbrushes for a penny a piece or how to get 90 cans of lima beans for free.  Secondly, extreme couponers have ridiculous stockpiles of crap that they keep in their houses.  Basically, these people are highly organized hoarders.  Their garages are filled with row after row of shelves stocked with lifetime supplies of canned food and toiletries.

The strangest part of the whole thing is how protective these nutjobs are of their “stockpiles.”  One would think that a person in possession of 2,000 sticks of deodorant might be willing to donate some to a local homeless shelter, but not so.  Instead, they pay for supplemental insurance to protect their stockpiles.  If they move across country, they spend thousands to relocate everything.  When they take the cameraman through their stockpiles, the extreme couponers always have a weird look in their eyes… I’m just waiting for one of them to start running through their rows of shelving yelling “my precious!” in a super-creepy Gollum sort of way.

On the bright side, this show has made me feel slightly less bad about being lazy when it comes to couponing.  It’s nice not to feel associated with these people in any way.  Viva la sanity!

Payin’ My Automobills (Yeah, that’s a Destiny’s Child Reference. Don’t mock me.)

There are certain types of spending that just plain suck.  Sometimes you have to spend money on things even though you don’t really feel like you’re getting anything for it.  Utilities would be one example.  Of course I realize on an intellectual level that paying my electric bill is keeping me comfy in my home.  But when I write that check to Delmarva Power each month, I feel like I’m spending money and have nothing to show for it.  Utilities just aren’t sexy, and I gain very little satisfaction from paying for electricity.

Car maintenance and repair often falls into the “sucky spending that isn’t the least bit satisfying” category.  Driving isn’t any more enjoyable after getting an oil change.  Replacing worn-out brake pads is certainly important, but new brake pads don’t make your car look newer or sportier.  So when I learned that I was going to have to spend $500 on car repairs as mentioned in my last post, I was quite grumpy about it.

The biggest chunk of the $500 repair was for two new tires, an expenditure providing very little gratification.  But the second biggest chunk of the bill was for the replacement of two belts (A/C & alternator and power steering).  Sounds decidedly unsexy, no?  How much satisfaction could one expect to get from $135 worth of belts (especially the non-accessory kind)?

A lot, it turns out.  I can actually feel a huge improvement in how my car drives now.  I guess this is the kind of thing that sneaks up on you, but I didn’t realize how much my car had started vibrating at higher speeds.  And since I feel that speed limits are just suggestions (and usually not very good ones), my car was vibrating a LOT.  Now it’s a smooth ride all the time.  Also, the car no longer shakes violently when the AC or heat are turned up all the way.  Okay, that one didn’t sneak up on me, but I kinda just ignored it and kept the climate control on a lower setting. 

Prior to the belt replacements, I had become so dissatisfied with my vibrating, shaking car that I planned to buy a new one at the end of next year.  I planned on getting a Mini Cooper, which would run around $18,000.  While I would still love to have a Mini in the future, I no longer feel that I need one in the near future.  I think I’ll be quite satisfied to continue driving my Honda Accord indefinitely.

The point of this post is that I now view my $500 car repair as an expenditure that saved me $18,000.  Also, now that my current car is perfectly tolerable, I can continue driving it long enough to save enough to (hopefully) pay for a new car with cash.  I haven’t had a car payment in years, and it’s certainly not something I look forward to.  It’s nice that I can now reclassify my maintenance expenditure as “sucky spending that is at least somewhat satisfying.”

Viva la frugal!

P.S.  I like to support small, local businesses when I can, so I want to give a shout-out to Mid-Atlantic Tire in Easton, MD.  I have been taking my car to them for years and they are everything you look for in an auto maintenance shop but have trouble actually finding: They are courteous, knowledgeable, reasonably priced, and honest! 

Holy unplanned spending, Batman!

The last few weeks have been brutal.  First, it was an unexpected $500 car repair.  Then disaster struck.  Ok, that might be slightly overdramatic.  My Kindle stopped working.  But I consider the Kindle to be the best invention ever, better even than the wheel, and one of the essentials of life, more important even than oxygen.  So I had to immediately spend $250 for a replacement Kindle and case.  (My old Kindle was the original model, so its case would not fit the latest version.)  And now, I have plumbing issues at my house that are probably going to run a couple hundred bucks.

Sigh.

This is why emergency funds exist.  Normally, I would pay for these things out of my emergency fund and then replenish it over the next few months.  But my emergency fund is currently a meager $3,000, which is well below what it should be.  So instead, I’m going to pay for these things partially from my vacation fund, which means my plan for a long weekend in St. Louis to visit my cousins next month is not going to happen.  That is super disappointing, but it’s the right call.  To make that trip, I would definitely have to dip into my emergency fund, and that just isn’t an option.

I also plan to cover these unexpected costs by dramatically reducing my spending on food for the next couple of months.  This means cutting back on dining out, of course, but I also want to cut back on groceries.  I have a lot of non-perishables on hand that will keep me fed for weeks.  I also have a freezer full of venison.  It will be like a little challenge to see how long I can go without buying groceries. 

The past few weeks have really helped remind me just how important it is to keep a REAL emergency fund.  Beefing mine up must become a top priority for the rest of the year.  I’ll keep you posted on my progress.

Viva la Frugal!