The envelope system is a method recommended my many financial professionals (including Dave Ramsey) for making a quick and easy budget. The above video is a short, straight-forward introduction to using this system.
Filed in budgeting, savings, thrift, video No Responses yet
Stefan Sagmeister recommends a powerfully different way of thinking about retirement. For most people, retirement looks like this:
Grow up and learn for 25 years, work for 45 years and at the end take 15 years of retirement.
Sagmeister arranges his life differently:
Instead of taking the 15 years of retirement at the end, he chops off 5 retirement years and intersperses them throughout his working life.
Impractical, you say? What if you saved enough money to cover all your expenses for a year in advance?. Would you do it then?
The mini-retirement is a powerful idea, and one that I’m trying at the moment. As I type this I’m in the middle of a mini-retirement in Hawaii, taking time off from my career and planning the next move in my life.
It’s one of the best decisions I’ve made. But more to come on that in a future blog post.
For now, watch this TED talk and think about a mini-retirement for your own life. What would you do with it?
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What if you could feed yourself for a year with only $845? How much money could you save? A company called Shelf Reliance will let you do just that.
With your $845 purchase, they’ll deliver to your door, for free, #10 cans (3.44 liter, 110 US fluid ounces) of the following:
Two cans of spaghetti, four cans of white rice, four cans of quick oats, two cans of cornmeal, three cans of white flour, sixteen cans of whole wheat flour, one can of carrot dices, three cans of potato chunks, three cans of potato pearls, one can of banana chips, one can of apple slices, one can of chocolate drink mix, one can of cheese blend, eight cans of instant milk, one can of small white navy beans, one can of pinto beans, one can of small red beans, one can of lentils, one can of lima beans, one can of tomato powder, one can of chicken bouillon, one can of butter powder, one can of baking powder, one can of baking soda, one can of iodized salt, five cans of white sugar, one can of freeze dried sweet corn, one can of freeze dried mushroom pieces, one can of freeze dried chopped onions, one can of freeze dried raspberries, one can of freeze dried strawberries.
The average American spends almost $200 a month on food, but for you that would be only $70 a month. That’s a total savings of $1,500 a year. It’s probably impossible to spend less on food unless you want to go the monkey chow route.
If CoinByCoin was still a single man, he’d try this method in a heartbeat. But, as it is, his wife is not so keen on the idea. Has anyone tried Shelf Reliance’s food or is willing to try it? Please leave a comment below.
Click here to buy Shelf Reliance’s year supply of food while it’s on sale for $845.
Also, see the previous CoinByCoin article discussing the economic value of buying in bulk.
Filed in thrift 4 Comments so far
You just discovered you won the lottery. Congratulations! Even better, you’ve done the smart thing and googled for what to do if you win the lottery, hopefully before doing anything rash.
Now is the time to be very careful — the number of stupid things you can do greatly outnumbers the smart things. For example, did you know that you can accidentally lose all of the winnings depending on how you try to claim them? Luckily, this is the resource you need to follow to keep those lottery winnings.
You can tell people that you’ve won, but only do it after you’ve set yourself up legally to protect yourself and your winnings
If you don’t protect yourself first, you may be surprised to find people filing frivolous lawsuits against you. People might intentionally trip on your property just to sue you.
I know it’s hard, but you need to be silent. Listen to wise Ben Franklin: Three can keep a secret, if two are dead
.
Keep the original ticket in a double layer of ziplock bags in an opaque envelope. No need for prying eyes to see what you have, or for a spilled coffee to destroy your fortune.
Before you do anything you need to make copies of that ticket. If you have a scanner at home, scan the ticket and keep it in a encrypted folder on your computer or on a remote backup site.
After you’ve done this, go to your local photocopy place, (assuming you don’t have a copier at home) and make several duplicates.
For the love of God, double check the photocopier before you leave. You don’t want to have discarded copies in the waste basket or the original ticket in the photocopier.
Now comes the hard part: don’t do anything stupid. Take this to mean don’t do anything you wouldn’t have done before winning.
Don’t quit your job before you get the money. Don’t buy a flashy car or take a trip to Las Vegas. People will ask questions. People asking questions is not what you want.
Remember: your anonymity is your greatest asset. Guard it.
Even with copies of the ticket in hand and an encrypted copy on the net, you will find that you are suddenly paranoid. Keeping the ticket on your physical person or in your house is not only a bad idea, but it will make you become obsessive-compulsive about checking and re-checking the ticket.
What you need is a safe deposit box. There are about two million burglaries each year in the United States each year but only 25 thefts from safe-deposit boxes each year. If you think your winning lottery ticket is safer in your house, you are potentially making a million-dollar mistake.
Gather several papers to act as decoys and bring them, with the ticket to your bank to open a safe deposit box. If the bank teller ask what you want the box for, don’t say “For my lottery ticket”. Say your want to storing important, original documents.
Most lotteries in the United States have a deadline of 180 days — but some are sooner. Find out what the deadline is and put a big, red circle on your calendar.
You might think it unlikely that someone would take too long to turn in their ticket, but it happens regularly. In November, someone in Texas failed to claim their ticket for seven million dollars.
Don’t be the guy who shows up one day too late for his millions.
What you need to protect your anonymity is a blind trust. Hire a tax attorney to set one up for you. Once you’ve paid the attorney, he is legally bound to maintain your anonymity. It is through the attorney, and the blind trust that he sets up, that you will contact the lottery board in your state and collect the money.
By collecting the winnings through a blind trust, the lottery board will never know who you are and thus can’t splash your name on the news. The lottery commission wants to put you on the news because it sells them more tickets, not because it does you any good.
Opening a blind trust is vital if you are a minor who won the lottery. In some states, if a minor is given a winning ticket as a gift, and they walk into the state lottery office to collect the money, the ticket is instantly invalidated.
There is a lot of argument on the Internet about whether to take the lump-sum payment or the annual payments. Don’t listen to any of it: just take the lump-sum payment. You’ll be better of financially and psychologically.
If you don’t believe this is the better option, take a listen to this This American Life story on lottery winners.
It may sound ridiculous, but a million dollars isn’t a lot if you’re thinking about not working for the rest of your life.
Income tax will take away 30% to 50% of your earnings depending on the jurisdiction. If you just won a million dollars, you’re not a millionaire. You’re a hundred thousandaire.
So, do you have enough money to quit your job? The answer is ‘yes’ if you can live on 4% or less of the post-tax money annually.
If you won $600,000 in the lottery after taxes, you’re looking at an annual, pre-tax income of $24,000. If you won a million dollars you’re annual income will be $40,000.
Don’t hire someone who will ‘manage your money for you’. Your winnings, and maintaining them, are now the biggest responsibility of your life. If you don’t directly manage your money, don’t be surprised when your financial planner makes off with most of it.
A good place to start looking for someone to trust is Dave Ramesy’s recommended financial planners.
Once you’ve collected the money, pay off all your debts, any tickets or legal problems you may have. Set aside a year or two’s worth of expenses in a safe bank account to act as emergency fund.
Once you’ve collected the lottery winnings, people are going to wonder why you’ve quit your job. Have a simple story that doesn’t relate suddenly getting a windfall of cash. Tell people that you work ‘in computers on the Internet’ or ‘as a corporate consultant’ and leave it at that. If your story is boring enough most people won’t ask followup questions.
Now go out and enjoy the good life, you lucky bastard.
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Header photograph by Robert S. Donovan
Filed in enjoy your money No Responses yet
It might be boring, but one of the best, most consistent ‘investments’ is buying in bulk.
Take a big trip to Costco and go on a $1,000 spending spree and buy everything in bulk that you will need over the next year. Compared to what it would cost to buy those items individually, you will normally save at least 20%. That $1,000 of stuff would have cost you $1,250 without the bulk discount.
A $250 savings is a good start, but it gets better: the money you saved is tax free. You now have an extra $250 to spend or save as you like that you otherwise wouldn’t have had.
If, instead of saving $250 you had asked for a raise or worked extra, you would have to pay 25% to 30% income tax on that money. That cuts your $250 down to only $175. To actually get $250 extra dollars you have to earn $313 before taxes.
There’s also inflation. The average annual inflation rate in the United States is about 4% per year. If you buy a year’s worth of products at a 20% discount, you’re really saving 20% + 4% = 24%, because you’re buying next year’s products at today’s prices.
Adding in the savings from taxes mentioned above, you get a total of 20% + 4% + 30% = 54% return on the investment of buying in bulk.
The lesson? Get thyself to Costco.
Buying in bulk also saves you time – which is better than money. Getting your home and office supplies in big batches saves on the number of shopping trips each year and cuts down on switching costs.
Also, you never know, but having an emergency supply of food just might save your life one day.
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Header photograph by David McKelvey
Filed in savings, thrift No Responses yet
John Gerzema gave an interesting TEDx talk on how customers are dealing with the current economy and how communications technology is making capitalism better.
Some of the highlights:
A graph the personal savings rate of Americans from 1929 through the present day:
Also the total debt of the United States since 1918:
How people are dealing with the stress of the current economy:
And to answer the question presented in the title of this post:
Filed in savings, video One Response so far
If you didn’t know already, babies are money-eating monsters. As discussed in the previous article, the cost of raising a single child from birth through high school is a quarter million dollars.
But that’s just the direct costs.
Let’s look not only at those direct costs, but also the opportunity cost of child rearing.
A United States government survey listed the annual costs of raising a child as such:
| Age | Cost |
| 1 | $13,430.00 |
| 2 | $13,430.00 |
| 3 | $13,720.00 |
| 4 | $13,720.00 |
| 5 | $13,720.00 |
| 6 | $13,570.00 |
| 7 | $13,570.00 |
| 8 | $13,570.00 |
| 9 | $13,410.00 |
| 10 | $13,410.00 |
| 11 | $13,410.00 |
| 12 | $13,170.00 |
| 13 | $13,170.00 |
| 14 | $13,170.00 |
| 15 | $14,670.00 |
| 16 | $14,670.00 |
| 17 | $14,670.00 |
| 18 | $14,670.00 |
The total cost is $247,150. If instead you had invested that money into a Roth IRA mutual fund with an average return of 10%, at the end of 18 years you would have $683,000. The real cost of raising a child is nearly seven tenths of a million dollars.
For two kids, the total cost is $494,000, and the lost opportunity cost is 1.3 million dollars. Three children cost $741,000 with a lost opportunity of 2 million dollars at the end of 18 years.
While children can bring joy into your life, you need to seriously consider the financial implications of having one before you do.
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(If you are interested in the details of these calculations, you can click here to see the spreadsheet.)
Filed in money-eating monsters, total cost of ownership 3 Comments so far
Would you pay $1,000 for something that you could get — of equal quality — for $1? If you use disposable batteries, that’s exactly what you’re doing.
The electricity you get from a disposable battery, according to Eric Giler, is thousands of times more expensive per kilowatt-hour than the electricity you get from the wall. Rechargeable batteries make an enormous amount of economic sense — the cost of electricity from your house to charge them is so small, it might as well be free.
When I bought my first digital camera, I learned just how expensive disposable batteries can be. After discovering, with horror, that my new camera chewed through four AA batteries in a day of active photographing, I knew I couldn’t justify $8.00 a pop for a new clip of batteries anymore.
After researching on the web, I settled on the eneloop brand of rechargeable batteries. Since then, I’ve added many more battery-hungry devices to my life and I became curious as to how much money the rechargeables were saving me.
Here are the main devices I use that require batteries:
According to Amazon.com, the average price for a single AA battery is $0.97 and a AAA battery is $0.86.
I estimated the number of times per year that I change the batteries on each device and multiplied that by the number of batteries per device and the cost per battery. You can see the results in the spreadsheet below:
The total yearly savings is $317.49. According to the everything I own project I bought 14 AA’s, 8 AAA’s and two chargers for a total cost of $90.65.
While $90.65 sounds like a lot, it isn’t when you do the cost saving calculation and see that it pays for itself in three and a half months. Assuming I live for fifty more years, I’m looking at a lifetime saving of $15,000.
If you haven’t switched to using rechargeable batteries already, you should. Your wallet will thank you.
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Header photograph by pasukaru76
Filed in thrift, total cost of ownership 5 Comments so far
The best financial decision I ever made wasn’t a financial decision: I got married. Much to my surprise, my financial life turned around once I found my beautiful bride. Mine is not an unusual situation — according to Barbara Dafoe Whitehead and David Popenoe from Rutgers University. people who marry are, on average, four times richer than those who never marry. Here are some of the reasons why:
Marriage makes you pay attention. You are no longer that idle bachelor, you’re in a partnership. Stupid decisions that you make now don’t just affect you, they affect someone else.
Marriage encourages long-term thinking. It’s not until you start planing ten, twenty, or thirty years ahead with someone that you understand what long-term savings really means.
Marriage cuts many bills in half. The moment you move into an apartment or buy a house together, every communal expense such as rent, heating, and property taxes has just been divided. Many other bills such as food and electricity are much cheaper for two people than for one. Just watch out for lifestyle inflation and, for heaven’s sake, don’t have a baby.
Marriage lowers taxes. Most countries, like the United States and the United Kingdom, give tax benefits to married people.
Marriage Makes Men Work Harder. According to Avner Ahituv of the University of Haifa and Robert Lerman of the Urban Institute, married men drink less, take fewer drugs and work harder, and earn 10% and 40% more than single men with similar backgrounds. (From The Economist, May 24th, 2007 The Frayed knot)
Marriage clarifies your thoughts. The big advantage of getting married is that you now have to say out loud your financial plans to another human being.
The first time you try and plan your finances with your spouse, you’ll probably realize that you don’t have a plan. You thought you had one, but when you try to articulate it, you discover that the details are missing — like trying to recall a dream hours after waking.
Working with someone else forces you to clearly articulate your goals. When you make a budget together you have to decide what your priorities really are, and it helps to talk them over with your partner. Do you really want to eat out that much, or would you rather put that money into the ‘early retirement’ and ‘vacation’ funds?
Marriage makes millionaires. In both The Millionaire Next Door and The Millionaire Mind, the author Thomas Stanley, states many times that one of the factors Millionaires credit as the source of their wealth is their spouse.
I don’t recommend you go out trying to find a fiancée so that you get wealthy, but if and when you do get married, don’t forget about the financial benefits.
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Header photograph by cedarjunction
Filed in budgeting, couple finances, savings, security One Response so far
Not all dollars are created equal.
According to research performed by Priya Raghubir, people are more likely to spend small-value bills than large-value bills. She terms the brain’s preference to hold onto bigger bills the “Denomination Effect”
Dr Raghubir tested this effect by paying visitors to an Omaha gas station $5 to fill in a fake survey. The visitors were paid either with five one-dollar coins, five one-dollar bills, or one five-dollar bill.
Even though all visitors were paid the same amount, those given the five-dollar bill were more likely to save their money. The people given one-dollar bills or coins were much more likely to spend their cash immediately.
Dr Raghubir performed similar tests in China where she gave housewives payments that equaled their week’s salary. Housewives given the money in large denominations spent less than those given small denominations.
So, if you want to trick yourself into saving more money, keep the small bills out of your wallet.
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Header photograph by AMagill
Story via Planet Money Podcast
Filed in savings, thrift One Response so far
