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!

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Filed under Savings & Retirement, Value of Time

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).

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Filed under Frugal, Money Philosophy

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?

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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?

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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!

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Filed under Money Philosophy, Motivation, Personal Finance

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!

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Filed under Monthly Updates, Savings & Retirement

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!

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Filed under Frugal, Savings & Retirement, Shopping