Free Money Finance

Posts of the Week -- September 26

Here are my picks for the best of Free Money Finance this week:

• MND: Great Offense and Great Defense -- Millionaires play both well.
• The Value of an Education -- Go for the expensive Ivy-League school or the cheaper state school? Which one will pay off better?
• Seven Ideas for Maximizing Retirement Savings, Part 1 -- We offer seven approaches to amassing a big bundle, several of which should be new to you. Now that you know what they are, use them to secure your own future.
• College Majors that Boost Your Paycheck -- Tells us which majors offers the highest starting salaries for the class of 2006.
• Tough Financial Choices, Part 1: Investing versus Paying Off Debt -- It can be hard to make a financial decision when you're faced with two options that each look good. We take five common dilemmas and show you how to choose the most financially sound path.
• FMF Speaks: What to Do If You Can't Read All My Posts -- Some suggestions on how to keep up with all the posts here at Free Money Finance.
• The Value of an MBA -- Forbes has an MBA calculator where you select the school you are going to attend/you attend/you have attended, and you get a report on how much more you'll earn (on average) with an MBA, how much the MBA will cost, the payout time of the MBA, etc.
• MND: Why do Millionaires have Budgets? -- Why would someone who is a millionaire need to budget? The answer is always the same.

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Tough Financial Choices, Part 5: Which Job to Take

Here's the last post from a Kiplinger's series about making tough financial choices:

Here's the question this time:

Should I take job A or job B?

This isn't going to be an easy answer. Here's what Kiplinger's came up with:

When choosing a career path, your first instinct may be to go with the one that pays the highest salary. After all, you've got bills to pay. While certainly important, your paycheck isn't everything. To evaluate two viable job offers, you need to look at the entire picture.

Areas you should evaluate include benefits packages, commute times, opportunities for advancement, the work environments, levels of responsibility and job security. And it sounds cliché, but envision where you want to be in ten years. Would one job take you down a different career path than the other?

The same evaluation process works for deciding whether to stay at your current job or try something new. The idea of stepping outside your comfort zone can be daunting, especially if you're leaving your first real job out of college. Breaking the decision down into objective categories helps take some of the emotion out of the process. Take an honest look at the criteria above, and include job satisfaction, stress level and office politics into your equation.

Not bad advice given the broadness of the question, but I'm guessing some of you out there would add a thing or two. What do you think?

Money Saving Tip: Library Special Projects

Here's a money saving tip to round out "money savings tips for kids' week" here at Free Money Finance:

Find books at the library outlining fun activities like making kites, cooking or puppet shows and do them together as a family.

We did this recently with paper airplanes and had a blast. Very cheap entertainment -- and we didn't even break anything flying the planes around the house.

One extra library-related tip: Get combination books/cassette taps for the kids to listen to on long trips in the car. We always check out about 15 of them before a big trip and the kids read/listen for hours. (They each have their own walkmen -- the ones my wife and I use when we work out -- so they can listen to their book without disrupting the other child or, more importantly, the parents.) :-)

MND: Four Questions

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from pages 40-46:

Do you wish to become affluent and stay affluent? Can you answer "yes" candidly to four simple questions?:

1. Does your household operate on an annual budget?

2. Do you know how much your family spends each year for food, clothing, and shelter?

3. Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?

4. Do you spend a lot of time planning your financial future?

Here are my answers to these:

1. Yes. We plan out our budget for the next year at the end of each year. We keep it on an Excel spreadsheet. (Quicken's budgeting features leave something to be desired for me.) We then update it mid-year to check our progress and make adjustments.

2. Yes. We track all spending on Quicken and have for 8 years or so.

3. "Clearly defined" are the key words here. I have written annual goals that translate into daily, weekly, and monthly to-dos. In addition, I have a series of statements about who I want to be and what I want to do in my lifetime. I'd say they are fairly defined, so I'm giving myself a "yes" here too.

4. I write a financial blog with 30-40 posts per week -- what do you think the answer to this is? ;-)

As a result, we have a high net worth compared to others in our age group. You can too if you simply follow the principles we discuss here.

Seven Ideas for Maximizing Retirement Savings, Part 5

Here's our next tip from a Kiplinger's article giving seven ideas for maximizing retirement savings:

Tip #5: Slash your expenses

For years, management consultant Rick Ackerman, 61, paid a financial adviser to manage his investments. Then he decided he could do just as well himself with a well-diversified portfolio of low-cost mutual funds. The $7,500 a year he is saving on investment fees will more than pay for his increased health-insurance costs when he and his wife, Rory, 54, retire next spring. They'll begin their new phase of life with a three-month trip to Australia.

Rick and Rory rolled over all their taxable accounts and retirement savings to Fidelity Investments, and Rick monitors their portfolio regularly. "The corporation of Rick and Rory is doing fine," says Rick. "Our investments have been growing at about 8% annually over the past 18 months."

Rick, who also tracks the Ackermans' spending, planned their future budget in detail using Fidelity's Retirement Income Planner software. Rick figures that with a traditional pension from IBM, his former employer, partially subsidized retiree health benefits, and social security benefits beginning next year when he turns 62, he and Rory won't have to withdraw more than 3% per year from their $1.2-million portfolio, virtually ensuring that they will never outlive their money. (Financial experts generally recommend withdrawing no more than 4% to 5% of your nest egg each year.)

You can guess what I think of this idea, right? Yes, it's right up my alley! My only question is "what took him so long?" If he used to spend $7,500 a year on investment fees, he spent a TON of money over the years on this expense -- and he didn't need to. (Just think what he spent if he paid $7,500 per year for 10, 15, 20 years or more!)

I mostly invest in mutual funds for this same reason. Better yet, I invest in low-cost mutual funds from Vanguard since costs can impact return dramatically.

Click here to read part six of this series.

Star Money Articles: A Whole Lot of Great Stuff

Usually I just post on one Star Money Article at a time, but I've found so many recently that I have to lump all of them together or I'd have nothing but Star Money Article posts for a couple days!

Here are the posts I've found over the past week that I give a Star and the reason they deserve such an award:

• Money Saving Tip: Computer Related Items and Money Saving Tip: Preventing Data Loss: These are really unique money saving tips -- no one ever thinks of saving money on computer stuff or that protecting data will save money.
• Experts explain better, they don't forecast better: Covers one of my favorite topics -- why "experts" aren't all that "expert".
• 10 Tips To Make Sure Your Financial Budget Will Succeed: Nice, simple, effective post on budgeting.
• Contribute Early, Contribute Often: We've all seen/heard this example used when it comes to retirement, yet this is a timeless thought that we need to remember every now and then.
• 25 Signs That Show You Know How to Handle Money: Another simple but useful money post.

Check these out if you're looking for some great personal finance reading!

Best of Free Money Finance: Saving Money, Part 3

Here's part 3 of our best posts from the "saving money" category here at Free Money Finance.

This time all the posts are from August:

• Brown Bag It to Half a Million Dollars
• Is Cable TV Worth the Cost?
• Low Cost Entertainment
• It's Not What You Make, It's What You Spend, Part 3
• Turn $1 a Day into $67,815
• 15 Simple Ways to Squeeze Your Budget
• Good, Better, Best Money-Saving Ideas
• Ten Things You Should Buy to Save Money
• Save on Non-Food Items
• Save on Babysitting
• Save on Eating Out

Click here to read part 4 of this series.

Investing Made Easy, Part 3

Here's part 3 of Kiplinger's article titled "Investing Made Easy":

Strategy #3: I want some control over the risk level of my portfolio, but I don't have the time to monitor it regularly.

EASY SOLUTION: Lifestyle funds

With a bit of research, you can assemble a diversified portfolio on your own. But over time, as some investments inevitably outperform others, your careful allocation will get thrown out of whack.

Say, for example, you want a division of 90% stocks and 10% bonds. But then your stock funds perform better than your bond funds, meaning 95% of your portfolio's value is in stocks and only 5% in bonds. You have to sell some of the stocks and put the proceeds back into bonds to maintain your desired balance. It's a good idea to do this rebalancing act every quarter or so.

No time for that sort of thing? Get a mutual fund that will do it for you. So-called lifestyle funds come in a variety of flavors ranging from ultra-conservative to aggressive, so you're bound to find one that fits your individual style. However, these funds don't automatically tone down your risk over time like target funds do, so you maintain the control to switch from one level to the next when you're ready -- not when a cookie-cutter formula says you are. (Bear in mind that you'll have to pay taxes when you sell funds outside a retirement account.)

A good option is one of the three T. Rowe Price Personal Strategy funds. If you've got a long time horizon, consider the most aggressive offering, the Personal Strategy Growth fund (TRSGX). It aims to allocate 80% of its portfolio to stocks and 20% to bonds, and it invests directly in stocks and bonds chosen by the firm's other managers.

Over the past three years, Personal Strategy Growth has returned an annualized 17%. Returns are 5% over the past five years and 10% over the past ten years. And T. Rowe Price makes it easy to get started for those of us who are young and short on cash. You can open an account with as little as $50 a month if you enroll in the automatic investment program. Otherwise, you'll need $2,500 ($1,000 for an IRA).

Another fine choice is one of the four Vanguard LifeStrategy Funds. The LifeStrategy Growth fund (VASGX) also divvies up its holdings 80% to stocks and 20% to bonds. The fund is invested in four other Vanguard funds -- three index funds and one actively-managed fund that invests directly in stocks and bonds -- so it's well diversified. LifeStrategy Growth has returned an annualized 17% over the past three years, 2% over the past five years and 9% over the past decade. You'll need $3,000 ($1,000 for an IRA) to open an account.

My thoughts:

1. Sounds good. It's hard to argue with a 17% return.

2. I may need to look closer at this strategy.

Tough Financial Choices, Part 4: Where to Save Emergency Cash

Here's the next post from a Kiplinger's series about making tough financial choices:

Here's the question this time:

Should I save my emergency cash in a bank account, CD, money-market fund or under my mattress?

I know one of the choices is not a great option. They mention it right away:

Nix the mattress. The rule of thumb is to save three to six months' worth of living expenses in case of a financial emergency, such as job loss or unexpected medical bills. You'll want to put the money someplace safe and accessible, but you don't want it to sit in a standard bank account earning next to nothing. Go with a high-yielding money-market account, such as Emigrant Direct (currently yielding 3.5%) or ING Direct (3.3%). These FDIC-insured offerings link to your checking account at your bank, and you simply transfer the money online. Transfers take between two to four business days to clear.

You can probably do without a traditional money-market mutual fund. Some of the highest-yielding money market funds currently yield less than 2%. And although they are generally considered safe investments, your money is not insured. However, a money-market fund with check-writing privileges allows you to write a draft any time without waiting for an online money transfer to go through.

CDs are safe, and they earn good yields, but they don't satisfy the accessibility requirement. Your money is tied up for the term of the CD, and you'll have to pay a penalty to cash out early. By definition, an emergency is something you do not anticipate, so it's best to keep your money unshackled.

This is on my financial to-do list. I currently have my money in a money market, but need to look at moving some of it to ING or Emigrant. Some will need to stay in the money market for easy shifting in case I need to make some investment purchases quickly (though I can probably do what I want by linking ING to the account).

Click here to read part 5 of this series.

Seven Ideas for Maximizing Retirement Savings, Part 4

Here's our next tip from a Kiplinger's article giving seven ideas for maximizing retirement savings:

Tip #4: Launch a second career

Six years ago, David Marshall was CEO of a publicly traded real estate investment trust in Boston. When the company was sold to private investors, he walked away with a substantial lump sum. But with no job and no urge to retire, David sought guidance on what to do next -- something that would allow him to work fewer hours and give back to his community. He signed up with New Directions, an outplacement firm that caters to executives. New Directions helps clients clarify their goals, assess their strengths and develop a plan for the next chapter of their lives.

"I thought I wanted to teach at the college level, but I wasn't willing to go to school for a PhD," says David, 57. "And I considered working for a nonprofit, but I'm not comfortable asking for money. So I decided to buy a small business that could create and retain jobs for my employees and provide them with health insurance. I thought that would be a worthy thing to do."

Using part of his buy-out settlement, he purchased three independent hardware stores in downtown Boston, which he describes as "the 7-Elevens of hardware stores" compared with such big-box giants as Home Depot. He hired managers and staff to run the day-to-day operations, but pays all the bills himself. His bookkeeping chores keep him busy ten to 15 hours per week.

David is in good company. An AARP survey found that eight out of ten baby-boomers expect to work beyond normal retirement age, at least part-time. Some expect to need the money; others will do it to remain active. Many hope to launch new careers.

David says owning his own business offers several advantages. It provides health insurance for him and his employees. It creates a steady income, which is important because he will have no pension to rely on. And it allows him and Tricia to leave a cash-generating asset to their two grown daughters.

I absolutely LOVE this idea. Let's face it, many people currently are in jobs that they don't like because they have to pay the bills, yet their retirement savings are so small that they will need to work at least part-time even after they "retire". Both of these problems can be addressed by shifting careers when you retire, and work part-time at something you love to do.

I'm 20 years or so away from retirement, but I'm certainly going to consider this option.

Click here to read part 5 of this series.

Money Saving Tip: Make Old Stuff Fun

Since we're stuck on money saving tips for kids this week, I thought I'd add another one:

Gather old sheets, towels and blankets and watch your kids transform them into a giant tent or fort. Give them old mattresses to jump and bounce on.

My daughter loves to make the piano bench and a couple of chairs into a "tent city." She could play for hours in there. Both our kids love to jump on the three old mattresses we have in the basement. My son uses them so he can get high enough to slam the basketball in our indoor hoop. :-)

Investing Made Easy, Part 2

Here's part 2 of Kiplinger's article titled "Investing Made Easy":

Strategy #2: I want to pick good investments but I'm paralyzed by all the choices.

EASY SOLUTION: Index funds

Over the long-term, few mutual funds perform better than the overall market, so if you don't have the time to decipher different managers' investing philosophies, adopt your own philosophy: If you can't beat 'em join 'em. Invest in index funds that aim to match market results instead.

Index funds are designed to track a market benchmark -- say, Standard & Poor's 500-stock index, a yardstick of large-company performance, or the Russell 2000, a small-company index. With an index fund, you should do as well as the benchmark over time, minus the expenses of running the fund -- which are famously low.

Fidelity's index funds, for example, charge investors between 0.10% and 0.33% of assets each year. By comparison, most actively-managed funds levy more than 1%. What you save on expenses puts more money in your pocket. And because the fund's performance is tied to the market and not to an individual manager's stock picks, you don't have to worry about a successful manager leaving or losing his touch.

So, which index funds? Because you're young and probably have a long time before your goal, you'll want to put most of your money -- if not all of it -- in stock funds, because they'll net you the highest returns over time. Start with the Vanguard Total Stock Market fund (VTSMX), which tracks the entire U.S. stock market. (How's that for diversification?) Then, add Vanguard Total International (VGTSX), which covers the remainder of the globe.

Eventually, your goal is to allocate about 75% of your portfolio to the U.S. index and 25% to the international index. You'll need at least $3,000 to get started with Vanguard -- $1,000 if you're opening an IRA.

If investing entirely in stocks makes you a little queasy, tone down your risk with a good tax-exempt bond fund, such as Fidelity Spartan Intermediate Municipal Income (FLTMX). But if you have more than ten years to your goal, try to limit your bond exposure to no more than 10% of your portfolio.

My thoughts:

1. The key thought of the information above: "Over the long-term, few mutual funds perform better than the overall market, so if you don't have the time to decipher different managers' investing philosophies, adopt your own philosophy: If you can't beat 'em join 'em. Invest in index funds that aim to match market results instead."

2. I believe in the philosophy started above. Hence, of the three strategies presented in this series, this is the one that most closely matches my strategy.

3. I have a significant portion of my portfolio in stock index funds. I use Vanguard primarily for these.

Click here to read part 3 of this series.

MND: Why do Millionaires have Budgets?

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from pages 39-40:

When we tell our audiences about the budgeting and planning habits of the affluent, someone always asks a predictible question: Why would someone who is a millionaire need to budget? Our answer is always the same:

They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.

Yes, you can make all the money in the world, but if you spend all the money in the world plus $1, you have a negative net worth. Budgeting and controlling expenses hold the key to wealth.

Best of Free Money Finance: Saving Money, Part 2

Here's part 2 of our best posts from the "saving money" category here at Free Money Finance.

This time all the posts are from July:

• Use Only Cash
• Bring Your Lunch
• When to Buy a Car
• Skip Dessert When Eating Out
• The Two-Day Rule
• Maintain Your Stuff
• Save Money on Kids' Clothes

Click here to read part 3 of this series.

Free Money Finance in Bonfire of the Vanities

Free Money Finance is in this week's Bonfire of the Vanities with my post on "Eight Lottery Winners Who Lost Their Millions."

A comment and a warning:

• Comment: The Bonfire of the Vanities is a carnival where bloggers submit what they view as a sub-par post and the host then roasts them and the post. I'm assuming that the post is symbolically put "in the fire to be burned" and hence the name.
• Warning: The current host took his duties seriously and REALLY roasted us. Some people may be offended at some of the language. Please proceed with caution if visiting the site.

Tough Financial Choices, Part 3: Renting versus Buying a House

Here's the next post from a Kiplinger's series about making tough financial choices:

Here's the question this time:

Should I rent or buy a house?

I knew the answer would be "it depends" but at least they give us some guidance:

There's no one-size-fits-all answer to this quandary. To come to an answer that fits your situation, ask yourself these four questions:

• Can I afford the monthly payment?
• Do I have enough savings for a sizable down payment? You generally need at least 20% of the purchase price to avoid paying private mortgage insurance. Low-down and no-down financing can help, but you'll still need enough for closing costs, origination fees, and other expenses -- and you'll probably pay a higher interest rate.
• Can I afford the extra costs that come with owning a home, such as insurance, taxes, maintenance, repairs and furniture?
• Do I plan to stay put for at least five to seven years in order to recoup my initial costs?

Many younger people find that renting is quite a bargain. In fact, the national gap between the costs of renting and buying is the widest it's been in more than a decade, according to Torto Wheaton Research. That means you may actually save money by renting, at least in the short-term. But that doesn't mean you should resign yourself to a lifetime of renting. Rather than overextend your budget to buy -- especially in today's overheated market -- you can rent comfortably within your means and save your money for the perfect opportunity when it comes along.

Yes, you have to do your homework here. I would add that generally home ownership (if done correctly: buying a house you can afford, one that's not overpriced relative to the market, etc.) is a good financial move and something you want to do as soon as you can. But don't push it and over-extend yourself before you're ready.

Click here to read part 4 of this series.

Net Worth News: Disparities Revealed in Black and White

Here's an article from the New York Daily News. It's about the financial differences between blacks and whites in the U.S. I found the facts to be both enlightening and disturbing.

They are:

• Nationally, the median income of a black household is about $30,000, compared with $48,000 for white households, according to the Census Bureau.
• Across the affected areas of Louisiana, Mississippi and Alabama, for every dollar in income earned by a white worker, an African-American worker earns just 63 cents, according to data from the Center for American Progress.
• Nationally, three out of four whites own their homes while less than half of African-Americans do, according to census figures.
• In median net worth, black households hold less than 10 cents for every dollar held by white households, the Pew Hispanic Center reports. This is the case even with individuals with the same level of education.
• "Social Inequality," edited by Kathryn Neckerman, states that the net worth of black college graduates is close to the net worth of white high school graduates. The net worth of black high school graduates is close to the net worth of white high school dropouts.

I'm not a politician or an advocate, so I'm just going to let the figures speak for themselves and allow you readers to comment as you feel appropriate.

MND: Being Financially Fit

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 40:

Most people want to be physically fit. And the majority know what is required to achieve this. But despite than knowledge, most people never become well conditioned physically. Why not? Because they don't have the discipline to just do it. They don't budget their time to just do it. It is like becoming wealthy in America. Oh, you want to all right, but you play lousy financial defense. You don't have the discipline to control your spending. You don't take the time to budget or plan. Note that under accumulators of wealth spend three times as much exercising per month as they do planning their investment strategies.

The road to wealth is not all downhill -- there is some effort required. While you don't have to spend 40 hours a week working on your finances, you do have to commit the minimal time needed to set goals, track your spending, and take action to make your money work as hard as possible for you. I know you've taken at least one step since you're reading this blog. I hope you find something here every day that helps you improve your finances.

Free Money Finance Carnival of Debt Reduction Reminder

Just a reminder that Free Money Finance will host the Carnival of Debt Reduction next week. For readers, that means you'll want to stop by early Monday morning and check out all of the great posts. For financial bloggers, it means you'll want to email me the following:

• Name of Your Blog
• Title of Post
• Post Permalink URL
• Post Trackback URL
• A Brief Summary of the Post

A couple of notes on this:

• As usual, I'll be listing the posts in the order that I receive them.
• 7 pm Eastern time Sunday Night is the cut-off for guaranteed inclusion in the carnival. After that, I'll try my best to include you, but I can't promise anything.

Thanks for participating! I'm looking forward to some great stuff!

Seven Ideas for Maximizing Retirement Savings, Part 3

Here's our next tip from a Kiplinger's article giving seven ideas for maximizing retirement savings:

Tip #3: Delay social security

More than half of retirees choose to take reduced social security benefits as soon as they are eligible at age 62. But for some that may be a $100,000 mistake, says Steven Silbiger, author of Retire Early? Make the Smart Choices. He notes that people who take early-retirement benefits -- which can be reduced by as much as 30% compared with full benefits at the normal retirement age -- and who continue to work could lose $1 in benefits for every $2 they earn over $12,000 this year. Plus, they may end up paying higher taxes because up to 85% of social security benefits are subject to federal and sometimes state taxes once income exceeds $34,000 for individuals and $44,000 for married couples filing jointly.

Women are particularly vulnerable to the long-term impact of reduced benefits. Silbiger estimates that a woman with a projected full benefit of $955 per month in 2005 who took social security at 62 and continued to work could lose $100,000 over her lifetime if she lived to 83, the average life expectancy. If she lived an additional ten years, she could lose $200,000. (Once you reach your full retirement age, however, social security will recalculate your monthly payment upward to take into account the benefits you forfeit to the earnings cap.)

This is a good point. It's a complicated issue but one where you certainly have to run the numbers to decide which direction to take.

Click here to read part 4 of this series.

Money Saving Tip: Fun in the Water

Ok, this one may be a little late in the summer season, but it's still warm somewhere in America, isn't it? Anyway, here's a money saving tip for entertaining your kids during hot weather:

Let your kids run through the sprinkler on a hot day instead of investing in an expensive pool membership for the summer.

We do this all the time and the kids love it. I set up two sprinklers so they get hit from a couple directions, plus I shoot them with the garden hose! (It's fun for all of us.) We've done this for several years. We did expand a bit this year and bought a $6 Slip 'n Slide which we used about 10 times. It was a great investment – especially when compared to a $100 pool membership!

Investing Made Easy, Part 1

Tired of complicated investing strategies? If so, then this article from Kiplinger's titled "Investing Made Easy" is perfect for you. Here's what it promises:

Think you don't have the time or expertise to handle your investments? Relax. With one of our three no-fuss strategies, you can start investing today and get on your way to reaching your goals.

Fortunately, you don't need an MBA or ridiculous amounts of time to research and monitor your investments. You can simply choose a mutual fund that will do the heavy lifting for you. Some funds come with ready-made, diversified portfolios designed to give you a broad, one-stop investment mix. Some rejigger their holdings periodically to manage your exposure to risk, keeping it right where you're comfortable. And others automatically tone down your risk as you near retirement. All this without you having to lift a finger.

These three no-fuss strategies are designed for slightly different temperaments. We offer specific fund suggestions along with them so you can start putting your money toward your goals now.

And since I'm a glutton for punishment, I thought I'd break this piece into three posts so we can focus on each strategy individually (as well as have three multi-part topics going at one time). :-)

So let's get started with option #1:

Strategy #1: I want a single investment that I can set and forget.

EASY SOLUTION: Target funds

For the ultimate in hands-off investing, consider a target fund. Also known as "life-cycle" funds, managers of these investments assemble a diversified portfolio for you, and automatically tone down your risk as you approach your target date, whether it be for retirement, Junior's education or another goal. This means you can pick one fund and let it ride. There's no stressing over whether you're properly diversified, and you don't have to rebalance your portfolio or trade in your stocks for bonds at the appropriate time of your life. It's all handled for you.

With benefits like these, it's easy to see why the concept is popular. Assets in life-cycle funds have more than doubled since 2000, according to a recent study by Lipper, a fund data-tracking firm, and rose 65% in 2004 alone. And more employers are offering target funds in their workplace retirement plans.

Basically, it's like having your own money manager, except that you can't tweak the investments to cater to your personal circumstances. These are cookie cutter portfolios and, in reality, your retirement plans may differ greatly from the next guy's. But for the most part, life-cycle funds can be a practical -- and simple -- place to start laying the investing groundwork.

Fidelity, Vanguard and T. Rowe Price are among the biggest purveyors of target funds. The Fidelity Freedom funds are a good standard, medium-risk investment, and the 2040 target fund (meaning you're aiming for retirement 35 years from now) has been around long enough to earn the top, five-star rating from Morningstar.

Vanguard's Target Retirement funds make a good choice for the risk-averse because they become more conservative faster than their peers. And the T. Rowe Price Retirement funds run more aggressive, making them a good choice for those who can handle some risk in hopes of generating higher returns over the long haul. The Vanguard and T. Rowe Price funds with the furthest target dates haven't been around long enough to have a meaningful record, but they have outpaced the Standard & Poor's 500-stock index (which measures the performance of the 500 largest companies' stocks) each year since inception.

My thoughts:

1. I have accounts with both Vanguard and Fidelity and both are good companies. I usually prefer Vanguard because their fund costs are lower, but given the information above (great performance by Fidelity, not an established record for Vanguard's fund, and Vanguard getting conservative early), I personally would opt for Fidelity in this case.

2. That said, I would only do this if I was forced into this strategy. I'm more hands-on and aggressive in my investing, so overall this strategy is not for me.

Click here to read part 2 of this series.

Update: Linking to the Beltway Traffic Jam.

Best of Free Money Finance: Saving Money, Part 1

As many of you know, I've started adding posts of the week each Friday because many people have commented that they can't catch all the posts here at Free Money Finance within a given day. In addition, I will start highlighting a few good posts from each of my categories to make sure you don't miss any of the really good posts. Not that any of them are bad, of course. ;-)

We're starting off with a category that has a ton of posts, "saving money". In fact, it has so many good tips that I'm going to divide this category into a couple (or a few) posts by itself. That said, here are the best money saving posts for May and June:

• Save Hundreds on Your Cooling Bill This Summer, Part 1
• Save on Your Wedding
• Stop Smoking: It's Killing Your Finances
• Cut Your Own Hair and Save a Bundle
• Save Money with Energy Star
• You Can Save a Bundle Without Having a Large Income

Click here to read part 2 of this series.

Money Saving Tip: Have a Picnic

Here's a way to save on both eating out and entertainment costs:

Picnic with your kids in your own backyard. Pack food in their school lunchboxes, spread out a blanket and enjoy your time together.

My wife did this the other day with our kids. They had a picnic on our deck (right outside the kitchen) and when I got home that night you would have thought they went to Disney World! The kids had a blast, we saved some money (versus eating out or entertaining them another way), and it wasn't really any extra work (the food was eaten literally 10 feet from our kitchen table -- it was just outside instead of inside).

Tough Financial Choices, Part 2: 401k versus Roth IRA

Here's the next post from a Kiplinger's series about making tough financial choices:

Here's the question this time:

Should I invest in a 401(k) or Roth IRA?

And this time we get a straight-forward answer:

Generally, it's best to invest in a 401(k) up to the employer's match -- otherwise you'd be passing up free money. But if your employer doesn't offer a matching contribution, go with a Roth IRA first.

You can invest up to $4,000 in a Roth IRA this year. If you want to save more, you can contribute to your 401(k) after you fully fund your Roth. You contribute after-tax dollars to a Roth, so it won't reduce your taxable income like 401(k) contributions will, but you can withdraw the earnings tax-free once you turn 59½.

This is important if you expect to be in a higher tax bracket when you retire. And there are other benefits with a Roth that you won't get in your 401(k), such as no mandatory withdrawals and no penalties if you need to withdraw your principal early.

If you make too much money to qualify for Roth contributions ($110,000 for singles or $160,000 for joint filers), max out your 401(k) first, then invest in a traditional IRA.

But before you invest in any retirement plan, make sure you have three to six months worth of living expenses saved in an emergency fund, and you've paid off your high-interest debt.

I think this is good advice. I have been maxing out my 401k for several years now and it's really starting to add up. I'd suggest you do the same and sock away as much as possible for retirement.

Click here to read part 3 of this series.

The Value of an MBA

As we've discussed before, it's the ability to save, not to earn, that can make you wealthy. However, we also know that if you do both -- earn a high income and save a lot -- you can really grow your net worth quickly. That's why we talk so much about the value of an education and the significant difference it can make to your net worth over your lifetime.

This leads us to today's topic -- the value of an MBA. Forbes has an MBA calculator where you select the school you are going to attend/you attend/you have attended, and you get a report on how much more you'll earn (on average) with an MBA, how much the MBA will cost, the payout time of the MBA, etc.

I put in my school's information and ended up with the following:

• 5-year income gain: $70,000
• Years to break even: 3.1
• Class of '96 salary pre- MBA: $33,000
• Class of '96 salary in 2002: $106,000
• Tuition for class of 2002: $17,992

Does this look like a good deal to you? It looks like a GREAT deal to me. Very, very compelling information.

In my case, the numbers are a bit different (after all, the numbers above are averages and they are for recent years -- I graduated in 1988). Here's an approximation of my figures:

• Income before grad school: $18,000
• Income after grad school: $40,000
• Cost of grad school: $5,000 (This is the debt I had left over when I graduated. I had an assistantship that paid all other costs.)
• Income five years after grad school: $74,000 (remember, this was 1993)

Again, this seems like a pretty good deal to me.

What are your thoughts?

Update: Linking to the Beltway Traffic Jam.

MND: Why aren't You Wealthy? (More on Great Offense and Great Defense)

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 38:

Why aren't you wealthy, you ask? Well, Let's examine your lifestyle. Is it one of great offense (earning a lot)? Are you in the $70,000, $100,000, $200,000 income category? Congratulations, you play wonderful offense. But how is it that you keep losing the game called wealth accumulation?

Be honest with yourself. Could it be that you play terrible defense? Most high-income earners are in the same situation, but not most millionaires. Millionaires play both quality offense and quality defense. And quite often their great defense helps them outscore/outaccumulate those who outearn/have superior offenses. The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.

What more can I add? Here's another example of "it's the ability to save, not to earn, that makes you wealthy."

Free Money Finance in Carnival of the Capitalists

Free Money Finance is in the Carnival of the Capitalists today with my post on Can I Afford to be a Stay-at-Home Mom?

Stop by to see some great articles at the Carnival!

FMF Speaks: What to Do If You Can't Read All My Posts

Yesterday, I posted on "Why I Post So Often" and promised to post today on a related topic, "what to do if you like most of what I post and can't seem to read it all". As a review, this topic was brought up by a commenter who asked why I posted so often and said he had troubled reading everything I posted(because it was just too much). For more background, see yesterday's post.

Today I'm going to offer some suggestions on how to keep up with all the posts. Here are my ideas:

Idea #1: Subscribe to Free Money Finance. The best way to keep up with all my posts is to subscribe to this blog. You can then review all the new stuff and click through to only what interests you. I've made subscribing easy by including a "Subscribe to FMF" section on the left hand column (at the bottom) of every page. I've set it up so you can subscribe easily using Bloglines, Yahoo, News Gator, or MSN. Or you can just click my feed and subscribe using your preferred method of reading blogs.

Idea #2: Review the weekly "Best of FMF" posts. I've started listing what I think are the best posts of the week. This "Best of" post will happen weekly and will be the last post on Friday. Look for it to see what I think are the "must read" posts of the week.

Idea #3: Read the "Popular Posts" list. On the left side of the blog, I have a section titled "Popular Posts" that lists a wide variety of posts that I consider to be my very best (and ones that apply to the most people). I update this once a month or so, but there are so many listed, you can spend some time there getting some real good stuff.

Idea #4: Read my "Best" series. I've had seven "Best" series so far (can you believe it's that many?!!!) and there's lots of good stuff there. You can find all the "Best" posts on the right side of the blog or you can see this post.

Idea #5: Check out the categories. This is a great option if you're interested in only certain topics. Interested in "investing", click the "investing" link to see what I've written on that topic. Interested in "retirement", "millionaires" or "creating cash"? There's a category for each of these as well. There are 51 categories as of now, so there's something for everyone. You can find the category section on the right hand side of the blog.

So how are those options? Pick as many (or as few) as you like and they will certainly help you keep up with all the posts here!

Comments: The Cost of a Pet is $48,000!

I am so, so, so, so far behind in posting some great comments that I don't know what to do (FYI -- I currently have 407 unposted comments that I at least want to consider posting!). It's not really my fault, of course, it's yours. All of you. You keep leaving such great thoughts and suggestions and so many of them that I just can't keep up!!!! ;-)

Seriously, there are a lot of wonderful comments and I want you to keep them coming. Maybe I'll have "all comments" week one week to catch up (ooooh, now that I say that, I just may do it!). Anyway, if you're not reading the comments here at Free Money Finance, you're missing a lot.

One of the most unusual, controversial, and interesting posts I've ever written was titled "The Cost of a Pet is $48,000!!" I wrote it when I saw that a website estimated that the average pet owner spent $400 per month over the lifetime of a pet. I then calculated the months in a pet's life and got to a total cost of $48,000.

As you might imagine, I got a lot of poo-poo comments like "there's no way my dog/cat costs that much". However, I also received several "you can't believe what I spent on my pet" comments and from these I wrote a follow-up article titled "Financial Horror Stories from Pet Owners". From there, the topic just grew.

I wrote about the fact that "The Cost of a Pet is Now More than $48,000" since people are now paying tons of money for designer dogs. I then ran into posts that other people had written about the wild costs associated with their pets and I wrote "Costs of Pets Posts". I posted on "10 Things Your Veterinarian Won't Tell You" too. Finally, I felt like I'd written so much about a topic that wasn't in the mainstream of most personal finance discussions that I wrote "Costs of Owning a Pet, Part 165".

As you can imagine, I received a few good comments along the way and I want to share a few of them with you. We'll start with a friend of mine who posted the following:

With my dog it comes far less than $400 per month. Heck, I don't spend that much on my two kids! My golden retriever was from the humane society for $100 and that including the "fix". You don’t need to spend big bucks on pure breed champion dogs to get a good one. We bought two dog dishes and got an old quit from the Salvation Army for $5. Her fetch toy costs less than $5 and I got a free doghouse from a friend. The most expense is the once a year vet visit with heartworm pills and shots. That's about $200. Then add in dog food and treats and it's that’s about $25 per month. The amount of pleasure my children get from the dog far exceeds the $500 per year we pay. If you decide do not take the family out for dinner once per month you have covered the cost of the pet with ease. Seeing the kids playing and loving the dog is a greater overall benefit than one meal at a restaurant. Your kids will always remember the dog but they will never remember that missed restaurant meal. This is fiscal responsibility.

Well, I guess he told me! And just in case I wasn't pummeled into submission, someone jumped on the bandwagon to agree with him:

I concur with Bruce, with the exception that I paid more for my dog but even counting that spent far, far less than $400 per month (even for the first six months). I'd had a dog before, so I already had all of the "durable goods" I needed (and much of that from friends, Goodwill, or purchased on sale); the breeder supplied all but one of the shots etc., and I get heartworm preventative at a huge discount from Australia. $5 rabies shots from the county. I have a big dog so I buy a lot of food, but I buy it in bulk so it's cheaper per pound. If I spend much more than $400/year on average I'd be astonished.

Here's the same sort of comment, but a little more balanced:

I have a dalmation and two cats. For my wife and I, the most expensive part is the food. I do buy good food, and on that I spend about 30$/mo. Once a year they all get shots at the discount mobile vet ( www.pet-vax.com). I buy hairball remedy-treats in bulk, but I've heard a little bit of petroleum jelly on their nose will do just as well. The dog won't behave without a little bit of treats, so we buy those in bulk too. Boarding is really expensive, so we have a neighbor who has a pet-sitting business take care of them. She's not cheap either. No doubt, pets are definitely an extra expense and the cost should be thoroughly considered before purchase. I agree that I do enjoy them and I feel that they're worth every penny. My wife and I have made agreements that if anyone became ill, the most we would spend on attempting to return them to health would be a set amount before deciding to have them put to rest. She had the dalmatian and I had the cats before we were wed.

Here's someone who's done the math (which I recommend) and it's not pretty (though they are below $400 per month):

I tracked my dog's costs over the years, she's a Black Lab mix we got from a pound, and is the sweetest doggie in town. Costs for everything average $200 a month, and she's 15 years old. Her meds are quite expensive in her old age, and she had surgery when she was younger. We also incur kennel costs a couple of times a year when we travel. She's the best doggie in the world, and we gladly take care of her. But it occurred to us last year that the amount we spend on her annually amounts to a mortgage payment. Yikes!

And didn't ya just KNOW that someone was going to start the whole "which is better -- a cat or a dog -- argument"? This person also makes a good point -- pets are cheaper than kids:

I'm going to argue that cats don't cost as much as dogs do, but, that said, I probably spend about $100/month on my two cats. They are both young, though, so I so far have not had to deal with too many health problems. But that said... kids are so much more effin' expensive then that. Since I never plan to have kids, nor do I have to send my cats off to college, consider how much money I'm actually saving! ;)

Then, they turn on me again, this time criticizing my logic when I talked about the cost of pets going up due to designer dogs being the rage:

Flawed logic... Just because some people spend exorbitant amounts of money on pets doesn't mean owning a pet is getting more expensive. It's similar to the wedding expense posts. Ms. Princess spends $250,000 on her wedding and raises the average, but that doesn't affect the cost of my wedding. Yes, there is potential to spend more, but the true cost doesn't change.

No matter how much someone spends on their labradoodle, you can still buy a dog for $80 at the humane society. Wait a year, and you will likely be able to pick up a designer dog if you really want one. Throw in $30/month for food, and about $50/month for medical expenses, and you have a cheap exercise buddy and companion.

This then led to a continued "flawed logic" comment and a short analysis of supply and demand as related to new dog breeds (are we over-doing this a bit, people?):

Setting aside for the moment the cost-benefit analysis of owning a pet, I don't see how the content of the post even supports the thesis. How does the existence of a new variety of overpriced designer dogs make owning a pet in general more expensive? It seems like the introduction of more suppliers, even expensive suppliers, should shift the supply curve, and therefore the average market price one would expect, downward.

I also got the philosophical argument which, by the way, I was starting to go for:

As important as it is to control expenses, I'd argue that it is a mistake to ignore that true wealth in life comes not only from saving and accumulating, but also from the act of giving. Our dog cost only $10 from the pound, but her unconditional, unlimited love combined with the knowledge that we've given an unwanted animal a good home has a value beyond simple quantification.

I was starting to go for it, that is, until the philosophical argument took a dramatic turn:

I don't know how realistic the animal cops are on the Animal Planet Channel but I am concerned about owning a pet. I have never treated an animal as badly as the people on the show but still, people are being arrested. These animal cops are also telling people it is against the law to butcher rabbits, own your own animal rescue shelter, fight dogs or roasters. I have wondered where they draw the line. Sure I am against intentinally harming another animal but when will the day come when I will be arrested for stepping on ants or killing bacteria. Aren't these animal life also?

Finally, here's my latest, and most favorite, comment of them all:

I agree that $400 is high, until I factor in what I spend over the lifetime of one of my cats. I look at it this way - much cheaper than therapy. They make me smile, keep me grounded (it's hard, for example, to get too carried away with your importance when you scoop litter on a daily basis.)

Seven Ideas for Maximizing Retirement Savings, Part 2

Here's our next tip from a Kiplinger's article giving seven ideas for maximizing retirement savings:

Tip #2: Invest creatively

Erratic stock-market returns and persistently low interest rates have left a lot of investors worried about the performance of their retirement portfolios. A small but growing number are turning to self-directed IRAs -- accounts with third-party custodians that allow them to diversify their retirement savings beyond the typical mutual fund menu into investments such as real estate and community bank stocks.

We're not suggesting that you bet your retirement...on a single investment. But there is room in retirement savings for investing in a good idea outside the usual realm of mutual funds.

That good idea may be the stock of a community bank or a new young company whose product you use and like -- for example, Google when it went public in 2004 (its stock has more than tripled in value since the IPO). Whatever it is, investigate the company thoroughly. Read everything about it you can get your hands on. Find out about its leaders, its customers, its competitors and its balance sheet. Imagine what could go wrong. If you still see a winner, consider investing a portion of your retirement nest egg. If the stock prospers, so will your savings.

I don't know about this one -- I think they are grasping at straws here. Sounds like to me that the risks associated with this idea far outweigh the potential benefits. I prefer a less risky, but still aggressive, stock diversification plan.

Click here to read part 3 of this series.

The Super Retirement Saver

Here's a piece from Money that starts with a question you don't hear every day:

I contribute the max to my 401(k) and my IRA, but want to invest more for retirement. What should I do?

Hold on, I'm feeling faint. Is there a person out there who's actually in this situation? I guess there is hope!!! Money has a similar reaction:

You, sir, are a bright and shining example for retirement savers everywhere. The fact that you're taking full advantage of government tax breaks by maxing out your 401(k) and IRA shows you already have good basic instincts when it comes to accumulating retirement wealth. And now you're ready to do even more. I salute you.

So, now that we've heaped accolades on this guy, what's the advice for him? Money suggests the following:

There are a couple of things people in your position typically consider. One is to contribute after-tax dollars to a 401(k) plan (assuming your plan allows it) or a non-deductible IRA (or both). Neither of these moves would give you an immediate tax break for the contribution itself. But the earnings on your contributions would enjoy tax-deferred growth.

Another route many people go is investing in a variable annuity, which is basically a mutual fund with some tax advantages. Again, you wouldn't get an immediate tax break in the form of a tax-deduction for the money you invest. But your money would grow free of the drag of taxes until you withdraw it.

I don't know. None of these sound too great to me. Luckily, Money agrees:

But, to tell you the truth, I'm not crazy about any of these options. What bothers me about the 401(k) and IRA options I mentioned is that the earnings you withdraw are taxed at ordinary income tax rates (the after-tax dollars you contributed aren't taxed again, of course).

So this means if you invest primarily in, say, stock mutual funds that deliver a good portion of their gains in the form of long-term capital gains, you end up paying ordinary income tax rates (which can be as high as 35 percent) on your profits instead of the maximum 15 percent long-term capital gains rate such profits would normally face. That's a big disadvantage.

As for variable annuities, well, you have the same tax drawback -- that is, effectively converting long-term gains to short-term gains taxed at a higher rate-plus you can face some stiff ongoing investment fees that can seriously erode their returns.

All I know about variable annuities is that they seem overly complicated in an attempt to mask very high fees. I try to avoid this type of investment at all costs.

So, what's this guy to do? Here's Money's suggestion:

Basically, I recommend that you now turn your attention to investing in regular old taxable accounts, but in a way that mitigates the tax bite. Fortunately, this is fairly easy to do become of some investor-friendly changes in the tax laws in recent years.

If you're a stock investor, for example, you'll face a maximum rate of 15 percent on appreciation in the value of the shares you sell as long as you hold them more than a year. Even stock dividends are now taxed no higher than 15 percent. (Technically, they've got to be "qualified" dividends to get that advantageous rate, but most stock dividends fall into this category.)

Either way, that's a pretty good deal compared with the top tax rate of 35 percent you'll eventually pay on gains from after-tax 401(k) and non-deductible IRA contributions.

Not a stock investor? No problemo. Many mutual funds also offer some significant tax benefits as well. The key is to find "tax efficient" funds -- that is, ones that minimize taxable distributions and instead deliver their gains in share-price appreciation, which means you pay tax only when you sell (and then at lower long-term capital gains rates provided you hold the fund more than 12 months).

Many index funds are inherently tax efficient because they don't do a lot of trading that generates short-term gains taxable at higher rates. Many exchange-traded funds are also tax efficient because of the unique way they create and redeem shares.

And, finally, there's a breed of funds known as tax-managed funds, whose managers use a variety of techniques, such as offsetting gains in some shares by taking losses in others, to keep the tax bite to a minimum.

To sum up, you should have no problem expanding your already admirable saving and investment efforts beyond 401(k)s and IRAs -- and doing so in a way that allows you to share as little of your gains as possible with the IRS.

I'm putting this on my to-do list to talk to my tax advisor about. I'm maxing out my 401k and then going to taxable accounts -- but I'm leaving out the IRA. I may be missing something here and I want to remedy this asap.

Tough Financial Choices, Part 1: Investing versus Paying Off Debt

Here's a series from Kiplinger's that is very imaginative. Here's their summary of what's to come:

It can be hard to make a financial decision when you're faced with two options that each look good. We take five common dilemmas and show you how to choose the most financially sound path.

Here's their first challenge:

Should I save/invest or pay off debt?

And the (not-so-amazing) answer:

Evaluate which option will give you a bigger return on your money.

Wow! That was enlightening! Ok, enough sarcasm for now. At least they give us an example:

If you have credit card debt charging 18% interest, paying it off is like receiving an 18% return on your investment. It's pretty hard to find that kind of payoff in the stock market. On average, stocks have historically returned about 10% annually. On the other hand, if you have student loans charging 3% interest, paying ahead on that debt doesn't make much sense. You can generally get a higher return elsewhere. In that case, make your regular monthly payments and set aside any extra money in higher yielding savings or investment accounts.

However, they hedge their answer:

Of course, despite all the number crunching, there's something to be said for the feeling of being debt-free. If investing makes more sense on paper for your situation, but paying off your obligations will bring you greater peace of mind, go for it. A good financial decision is one that helps you feel in control of your money, not the other way around.

I agree with the last sentence. As such, the answer for me to this question is to pay off the debt first. It's a guaranteed return (which 10% is not guaranteed, especially in the short-term) plus I simply don't like to owe anyone anything.

Of course, I've taken heat for this stance before, but I have my reasons beyond the above (see the comments section here).

Click here to read part 2 of this series.

College Majors that Boost Your Paycheck

Here at Free Money Finance, we've learned that it's your ability to save, not your ability to earn that can make you wealthy. However, we also know that if you do both -- earn a high income and save a lot -- you can really grow your net worth quickly. That's why we talk so much about the value of an education and the significant difference it can make to your net worth over your lifetime.

Here's a piece from Money Magazine that complements this line of thinking. It tells us which majors offers the highest starting salaries for the class of 2006.

Here's the short version:

Nothing will lock down a starting salary like these three majors: Engineering, engineering and engineering.

Actually, make that seven engineerings.

So, engineering is where it's at. My alma matter (Purdue) should be happy with these results. :-)

Better yet, there's good news for 2006 graduates:

Looking ahead to 2006, one career center employee said job prospects look even better for next year's graduates.

"We're already starting to see more activity and I think it's a national trend," said Sharon Masaniello, assistant director of New York University's Office of Career Services. "The economy is getting better, so it makes sense."

Masaniello said engineering, technology and financial services will continue to be hot fields, but also said they are seeing a pick up in the advertising profession and in companies hiring across departments, not just in the growth divisions.

Finally, here's a summary of the top 10 professions for the class of 2004-2005 and the starting salaries:

1. Management Trainee (Entry-Level Mgmt.) -- $36,491

2. Sales -- $37,269

3. Consulting -- $48,098

4. Teaching -- $30,793

5. Accounting (Private) -- $43,003, Accounting (Public) -- $42,366

6. Financial/Treasury Analysis -- $44,501

7. Design/Construction Engineering -- $45,734

8. Software Design & Development -- $52,471

9. Project Engineering -- $47,827

10. Registered Nurse -- $41,156

Ok, let me put a plug in for business. Yes, the engineering people start out strong, but they also hit a ceiling rather quickly while the sky's the limit on a good business person. That's why when I went to grad school at Purdue so many engineers were coming back to get a business degree -- they had gone as far up as their engineering degrees would let them. They needed some business education to give their careers a boost.

Plus, business is MUCH more fun. And requires lots less math. ;-)

Seven Ideas for Maximizing Retirement Savings, Part 1

There are several financial topics that deserve extensive coverage. Planning for retirement is one of these. So we'll be taking the next several days and taking about retirement and this article from Kiplinger's that gives us seven ideas for maximizing retirement savings.

To start, Kiplinger's sets the scene:

America is on the verge of a retirement revolution. The oldest of the baby-boomers -- the 76 million Americans born between 1946 and 1964 -- are turning 59½, the magic milestone when they can start tapping their retirement accounts penalty-free. In just three more years, the same advance team will be eligible to take early benefits from social security.

But just because they can pack it in doesn't mean that they should. In case you've missed the great national debate, social security alone can't guarantee you a smooth transition to living without a salary.

The stark reality is that to live comfortably in retirement -- whatever that means to you -- you must have your own resources. And given longer life expectancies, your savings may have to last 20 years or more. If you're years away from your retirement party, start planning now. But even if you're nearly ready to give up your parking space, it's not too late to catch up. To get you going, we offer seven approaches to amassing a big bundle, several of which should be new to you. Now that you know what they are, use them to secure your own future.

Then, they get to tip #1:

Tip #1: Save tax-free

Beginning in January, employers may offer a new retirement-savings account, the Roth 401(k). Like the more-familiar Roth IRA, it provides no up-front tax deduction, so your contributions won't reduce your current taxable income. But all the money you withdraw in retirement -- both contributions and earnings -- is tax-free as long as the funds have been in the account for at least five years and the account owner is at least 59½ years old. That means every dime will be yours to spend at a time when you may need the money most, unhampered by taxes that whittle away at most other retirement savings.

The Roth 401(k) offers two big pluses over the Roth IRA: higher contribution ceilings and no income limits. "The Roth IRA is the holy grail of retirement accounts, but we never started one because our income was right on the edge," says Trip Leonard, 34, a stay-at-home dad and self-described personal-finance geek who hosts his own Internet blog on the subject (visit www.musingmoney.com). "I don't mind paying taxes now if it means tax-free income in retirement."

Workers are barred from contributing to a Roth IRA once their income tops $110,000 for individuals and $160,000 for married couples. But, for the first time, high earners will be able to take advantage of tax-free retirement savings because the Roth 401(k) has no income limits -- although anti-discrimination rules that sometimes limit contributions to 401(k) accounts by highly compensated employees (those who earn $95,000 a year or more) will apply.

It will be interesting to see where the 401k split between Roth 401ks and standard 401ks will finally settle out. I'm guessing that a lot of it will depend on employers' willingness to change/add to their current plan.

Click here to read part 2 of this series.

The Five Mistakes Married Women Make

I wanted to write this post to warn women not to make the financial mistakes noted in this article from Smart Money. I hope to do just that, but I'll also add in a bit of commentary that some of you may or may not appreciate.

The piece starts off with a story:

Anne Borden, mother of two, wasn't particularly concerned in 1999 when her husband suggested she become the family's sole breadwinner. As a corporate executive, she earned a salary of $200,000-plus — more than enough for the Seattle-based family to live on comfortably. There was more money: Her husband of four years had just cashed in several million dollars worth of Microsoft stock options. That windfall would go into savings, they decided, and the family would live off of Borden's paychecks.

Soon thereafter, a red flag appeared: Borden discovered that her husband had deposited the options proceeds into four bank accounts, only one of which shared her name. When she questioned him about it, he said he would change the single accounts to joint ones when he had the chance. He never did.

In 2002, the couple separated. It was only then that Borden (who asked that we not use her real name for privacy concerns) took a good look at the finances and realized she had very little money of her own. Turns out she didn't even have a claim on the proceeds from the stock options. According to the divorce settlement, 80% of the stock options were considered her husband's individual assets rather than joint property because he had received the grant from Microsoft one month before their wedding.

The couple's divorce was finalized in 2004. Borden left her job in October 2002. Now, she worries about her relatively small retirement account and lack of other savings. "Had I known that money wasn't community property, I would have never let him stay home with the kids and live entirely off of my income," she says. Borden blames herself for not understanding the family finances and letting her ex-husband call the financial shots.

Here are my thoughts:

1. She got ripped off. No two ways about it. her husband was a sleaze and seems to have planned this from the time the options were issued.

2. That said, what's she griping about? She makes $200k per year for goodness sake -- she can't live on this? How many people in America would trade positions with her? (I'd guess about 99.6%.) Sheeesh! Can't Smart Money come up with a better example than this?

3. Someone's paying her $200k per year and she doesn't understand finances and turns it all over to her husband? Does this not compute for anyone other than me?

Ok, before I get a bunch of hate comments -- re-read #1 again. Even though she makes a ton and was a financial moran, the fact is that her husband still ripped her off.

Unfortunately, this problem confronts many women:

It's a common theme among many women. "The single biggest mistake I see women make is that they acquiesce [the financial decision making] to their spouses," says Stewart Welch, author of "The Ten Minute Guide to Personal Finance for Newlyweds" and a certified financial planner based in Birmingham, Ala. "Once they're out of the loop, they remain uninvolved forever." When one spouse controls the purse strings, the other spouse can be left in a vulnerable position when the marriage ends.

This isn't purely a women's issue, of course. Men can just as easily fall into the same traps. But women are more likely to give up careers to raise children, and are more likely to outlive their husbands, says Steven Kaye, a certified financial planner (CFP) based in Watchung, N.J.

Given this state of things, Smart Money offers five common financial mistakes married women make and gives some advice on how to avoid them:

1. Mistake: Handing Over the Purse Strings -- Solution: Pay Attention to the Household Finances

2. Mistake: Losing Your (Financial) Identity -- Solution: Maintain Some Individual Accounts

3. Mistake: Walking Away From Your Career -- Solution: Keep Your Skills Fresh

4. Mistake: Not Saving for Retirement -- Solution: Penny-Pinch Now for Your Future

5. Mistake: Asking for the House During a Divorce -- Solution: Get Financial Guidance

Good advice overall. And this has meaning even for happily married people. Both partners need to know what's going on in the family finances and be ready to go it on their own in case something other than a divorce (like death) should separate them.

Free Money Finance in Carnival of Debt Reduction; Hosts Next Week

Free Money Finance is part of this week's Carnival of Debt Reduction with my post on Yes, You Can Erase 15 Years of Debt in 14 Months. Stop by to see some of the best personal finance articles on the web.

Next week, Free Money Finance will host the carnival. For readers, that means you'll want to stop by early Monday morning and check out all of the great posts. For financial bloggers, it means you'll want to email me the following:

• Name of Your Blog
• Title of Post
• Post Permalink URL
• Post Trackback URL
• A Brief Summary of the Post

A few notes on this:

• I want to state up front that I'll be listing the posts in the order that I receive them.
• 7 pm Eastern time Sunday Night is the cut-off for guaranteed inclusion in the carnival. After that, I'll try my best to include you, but I can't promise anything.
• If you submit, you can submit two articles if you like. It's a new carnival and participation is low now, so you may get two "in" if it stays that way. (Just let me know which is your first choice in case I only have room for one.)
• I won't be adding articles from non-submitting sites, so if you want something in, please submit it.

Thanks for participating! I'm looking forward to some great stuff!

FMF Speaks: Why I Post So Often

I had an interesting comment to one of my recent posts and I thought you all would like to hear my answer to it. Here's the question:

FMF -- No harm meant by this comment...but what is your rationale for blogging so much? It is way more than any other pf blogger. Or, wait, is that the point?

Because you blog so much (and their is only so much I can read), I appreciate the "posts of the week" category. (FYI, see here for an example).

Basically (and this is not a criticism, too each their own), why do you blog so much (wait, is that a bad thing?)? As you can see, I am completely without answer and awaiting your response!!! :)

I have had a few other comments like this, so I guess it's on more than one person's mind. So here are the (many) reasons I blog so much:

Reason #1: It all starts with the reason I blog in the first place. It's to educate myself and others on ways we can increase our net worths. To my way of thinking, the more ideas presented, the more options people have to grow their net worth. To have more ideas, I need more posts. Hence, that's why I post as I do.

Reason #2: Not everyone will be interested in every topic I write about. As such, if I only have one post a day and a person isn't interested in that topic, I haven't offered them anything that day. They're disappointed and I haven't helped them out. So I post on a wide range of topics each day, hoping that everyone will find at least one thing (if not more) that will help them.

Reason #3: Not everyone will be interested in every idea I write about. This is similar to #2, bit a bit different. For example, I might write a money saving post on why you should consider canceling your cable. Someone might read this since they like money saving tips (so I've posted on a topic that they like -- reason #2 covered), but they have decided that buying cable is something that they do want to do. This is a reasonable decision, of course, as everyone is different and they do what's right for them and their families. (I'm just presenting ideas.) However, in this case, I've presented a topic/post that the person is interested in, but the idea itself is not one they can apply to their finances. Hence, I really don't have anything for them that day if this is my only post for the day. So I try to post on different ideas (as well as different topics) every day to make sure everyone gets something that can really help them.

Reason #4: Posting drives traffic. It's a simple blogging principle -- the more you blog, the more traffic you generate. For many bloggers, this means more revenue. But because I have few ads and what I do earn is donated to charity, for me this translates to "the more people I can truly help."

Reason #5: I want to strive for excellence. I view this blog as more of a magazine (with personal insights) than a journal. And I want it to be very well done. To me, part of being good is overachieving expectations on how often someone should post.

Reason #6: To be the best. Slightly different than #5, I want to be the "best" personal finance blog available. To me this means two things: traffic and links.

I rely on the Truth Laid Bear to help me track both of these. I honestly value traffic more than links, but because not everyone has open traffic stats, links are the best way (so far) that you can compare one blog to another (you can get a link number for every blog out there). As of this writing, I'm #2,705 in the blog universe. This is not bad considering there are 15-20 million blogs in the world, but there's still plenty of room for improvement.

So where will I be satisfied? When I started, I thought if I got 100 people per day to this blog, I'd be estatic. Now that I've blown by that, my short-term goal is to move up one notch on the Truth Laid Bear ladder (to "Large Mammal"). To do this, I need to get up to 132 links and I currently have 98, so I have some work to do (I'd appreciate it if everyone reading this who has a blog would link to me from a post). :-) In the medium term, I want to get into the top 1,000 blogs (211 links) and ultimately into the top 100 (789 links). Whether this can happen or not is obviously to be determined.

That said, I'd prefer to have many less links but much higher traffic.

Reason #7: It's not that hard for me. Yeah, I have a lot of stuff, but 1) much of it is a "link and summary" format that doesn't take that much time and 2) I've been a freelance writer for seven years now, so I can belt out a lot of personal finance stuff without much effort.

So, are you sorry you asked -- now that you had to read such a long post? :-)

I was going to include a section in this post on "what to do if you like most of what I post and can't seem to read it all", but I'll save that for tomorrow. Stop back again if you're interested. And, as always, thanks for reading FMF. I appreciate you stopping by and I never take your time or visits for granted.

The Value of an Education

I've posted a few times before on the value of an education (see here, here, and here), so I had to post on this Money Magazine piece titled "The Value of an Education" when I saw it.

This article is a bit different that the others in that it asks a unique question:

Go for the expensive Ivy-League school or the cheaper state school? Which one will pay off better?

Here's the "answer" from a couple of scientific studies (really a non-answer):

So the question becomes this: after adjusting for the difference in tuition, would a bright student attending an Ivy League-caliber school earn more over his lifetime than he would have earned by going to a less prestigious and less costly school? In other words, the issue comes down to whether the superior earnings stem more from the institution or reflect the more qualified student's higher abilities.

After comparing their later earnings, Kreuger and Dale concluded in a research paper that the bright students who attended the costlier school did no better than similarly qualified students who attended less expensive schools. In other words, the students' intelligence and skills were more responsible for the higher earnings than the school.

A study on the same topic by Cornell economist Ronald Ehrenberg and two Rand Corporation researchers came to the opposite conclusion, finding that "even after controlling for selection effects, there is strong evidence of significant economic return to attending an elite private institution." What's more, this group even found some evidence that "this premium has increased over time."

So the experts disagree. Surely Money will take a stance, right? Don't bet on it:

So as much as I prefer giving definite answers, I don't think I can give one here. But, then again, I wouldn't get too worried about that. I mean, the mere fact that your girlfriend is going to grad school suggests the chances are pretty good she's going to have a nice life, financially and otherwise. I'm not sure it's worth getting overwrought about whether she's squeezing the absolute highest return out of her education dollars. Besides, the studies I mentioned didn't account for other types of returns: the people you meet in school, the activities you participate in, the whole experience.

I must admit, I'm biased. For graduate school, I opted for the (much) cheaper state school and got the same job that people from Duke, Wharton, Harvard, etc. got upon graduation. But I only had a few thousand dollars in debt -- they had tens of thousands, and several had debt approaching a hundred thousand. After getting the first job, no one cares much where you went to school -- experience and performance trump it by a long margin.

My income started at twice the amount that I would have received with only a BS degree and has increased about 9% per year since then. (That's 9% compounded growth over 17 years.) You do the math. I think I did ok. :-)

Update: Linking to the Beltway Traffic Jam.

Carnival of Personal Finance

Welcome to the 15th edition of the Carnival of Personal Finance. For those of you who are new to the carnival, it's simply a sampling of some of the best articles from top personal finance bloggers over the past week.  If you want to see more of the carnivals, last week's edition was hosted by Optimized Living and next week's will be hosted by the Canadian Capitalist. But for now, this week's version is here at Free Money Finance.

Brace yourself for a ton of ideas to help your finances! Here they are:

De-Bunking an Expert

We start with one of my favorite posts of the week. It's from Financial Fruition and is titled "Crappy TV -- Jim Cramer's Mad Money -- Let's Turn It OFF!" In the post, Financial Fruition advocates turning off the TV and delves into why Jim Cramer's Mad Money is a show not worth watching.  If you read till the end, you will see Financial Fruition's very own simple investing tips. If you're a reader of Free Money Finance, you know that I'm no "expert" lover either. That's why I love this post! (That and the fact that FF was organized enough to get his submission in first.) ;-)

Don't Over-pay Your Taxes

Our next post is from Young Miser who writes "Over Paying Taxes". This article is about paying too much per paycheck in federal income tax payroll deductions and receiving a large check at the end of the year, rather than taking that money each month and investing it yourself. It's a basic financial principle but one that often goes ignored (if I remember correctly, the average return from the IRS is somewhere around $2,000). Everyone should read (and practice) the ideas presented here.

Foreign Credit

From taxes, we move to credit. And not just any credit, but credit in Malaysia. Messy Christian writes in "Malaysia's Credit Lovin' Generation" that "a) the debt situation in America is alarming and
b) Malaysia is getting there". (This seems to be a trend in several countries. I recently wrote about the same thing happening in Russia.) This isn't a personal finance blog, so don't expect a lot of money information, but it is a financial aspect of what's going on in a country as well as her personal fight with debt. Also check out the comments as they add a lot of value to this post.

Car Buying Mistakes

Nickel of FiveCentNickel (one of my favorite personal finance blogs, BTW) writes on "Car Buying Mistakes". This entry provides a list of ten common car buying mistakes, and comes complete with a bit of additional commentary on each one. Good comments here too (there's one from me!), so be sure to check them out.

Get Rich or Prevent Poorness

Jon at Smart Money Daily offers us a very interesting post. His "Getting Rich and Not Being Poor" is about having two financial plans. One to get rich and the other to prevent you from being poor. It is similar to a sports team that has to balance offense and defense. This is a concept discussed in The Millionaire Next Door (my favorite personal finance book) and is certainly worth your time to stop and check it out. If you want to be wealthy, you need to play both great offense and great defense.

Grow Your Money Over Time

This next post is from the latest addition to my Bloglines feeds, Financial Baby Steps. In a post titled "Why Compound Interest Loves Time", he writes that "when it comes to compound interest, time is your best friend." So true. Be sure to check out his story on the American Indians who sold Manhattan for a few beads. Turns out they were pretty sharp negotiators!

A Great Song -- Plus Insurance!

Here's a post from InsureBlog titled "Like a Bridge Over Troubled Waters..." that talks about Employee Assistance Programs. Don't know what an Employee Assistance Program is? Then check out this post and learn something!

More Insurance

And just in case you don't get enough insurance talk from the previous post, here's one from The Capitalist Blogger titled "Customize Your Insurance." This 4-part article briefly covers the do's and do not's of insurance.  Home, health, life and auto insurance are all covered and should be read by anyone who has any type of insurance.

Get Some Money

The Fiscal Times offers a post titled "Get Started". It's a quick guide on raising capital for young investors. Hey, I could use some capital -- couldn't you? If so, you'll want to read this.

Tax Lien Investing

Frugal Underground submits "New (to me) Investment", which is a thorough overview of tax lien certificate investing for the uninitiated. I have flirted with this kind of investing in the past, but never gone ahead with it. Maybe I will after reading this.

Save Money while Staying Fresh

Frugal for Life, who's always good for some great money saving tips, gives us "Air Freshener Matchsticks for the Bathroom". She advises us: "Don't waste money on the unnecessary when there are alternatives out there to save a few dollars." This wins the "most fun" post of the week award. A couple choice quotes: "When the odor in the bathroom gets to be too much it is best to use something to freshen the air, so as not to stink out the next user. Flushing in mid-plop gets to be costly over time" and "The downside is that having matches around children can lead to more than the match burning." Ya think?

Lemony or Midas?

The next piece is from Political Calculations who writes "Lemony Snicket vs King Midas". The author asks: "When it comes to investing, are you more prone to suffer Lemony Snicket's Series of Unfortunate Events than you are to have the Midas Touch? Political Calculations offers a fun tool showing what your investing future might look like either way!" Let's hope that you're more Midas than Lemony after reading this post!

Save Money Using Competitive Offers

Personal Finance Advice has a great (and unique!) money saving tip in "Use Competing Offers To Save Money". The summary of the tip is as follows: "One of the easiest ways to save money is to simply call the company and ask for a better price. This is especially easy when it comes to services that are offering deep discounts to try and lure you away from  their competitors. One of the best ways to do this is to use your junk mail to relate competing offers." Now, read the rest to get how to put this into practice and see how the author saved quite a bit using it.

Pre-Paying Mortgages

Searchlight Crusade brings us "Pre-payment Penalties and Alternate Payment Schemes". I'm certainly in favor of pre-paying mortgages, but you need to know all the in's and out's before you do. This post gives you those details.

Medical Billing Errors

Flexo at Consumerism Commentary offers up "Medical Billing Errors". In this piece Flexo shares a quick story on being overbilled by a hospital and offers suggestions for those who have had the same happen. A hospital overbill? Why do they need to do this anyway? Aren't their outrageously expensive "regular" fees enough to keep them well off? :-)

Grocery Shopping versus Eating Out

Wealthy Web posts on "Grocery Shopping Versus Dining Out" and says, "Dining in may not save much money over going out today, but it's saving tons in future health costs." I saw this post earlier and almost commented but I had to go to a meeting -- I'm not sure how eating in COULDN'T save a ton of money over eating out, unless you're using a McDonald's Happy Meal as the "eating out" cost. What do you all think? Stop by, read this post, and let Wealthy Web (and me) know your opinion.

Who's the Big Dog?

The Happy Capitalist gives a post titled "Top Dogs' Top Firms" which is a rundown, by brand awareness, of investment firms to America's wealthiest. Take a guess who #1 is, then go to the site to see if you were correct.

Overcoming Investment Fear

Financial Reference brings us "The Bull Case for Stocks". In this post, he advocates overcoming the fear of investing during recent market conditions, arguing that the current market risks are overblown. What do you think?

Chinatown Black Market

Blueprint for Financial Prosperity shares "Buying Counterfeit Merchandise". This post describes how the Chinatown black market works. Key question: "So would you buy a fake purse if it meant chopping 80-90% off the price?" Also be sure to check out the heated discussion that appears in the comments. Yikes!!

Credit Cards Galore

MightyBargainHunter offers us "Vexed by a couple of MSN credit card articles". The author says, "A couple of credit card articles -- one on how paying old debts affects your credit score, and the other on credit limit increases -- had statements that just didn't make sense." Go check out the post and see what he means.

The In's and Out's of PMI

Financial Freedom 4 All submits "PMI Options". This post is a discussion about private mortgage insurance (PMI), what it is, and options to minimize its financial impact. Good, basic stuff!!!

Save $10 at Emigrant Direct

MyMoneyBlog gives us "Potential $10 Emigrant Direct Savings Opening Bonus" where he offers a way for people looking for a high-interest 4.0% APY savings account at Emigrant Direct to get a bonus for opening the account, since Emigrant Direct itself is not offering one. If you're interested in such an account, you may be able to save $10 by reading this.

Energy Hedging

2million brings us "An Improved Energy Hedging Strategy?". This is the third post in a series that details an energy hedging strategy that uses a modified dollar cost averaging investment technique to hedge against rising energy prices. It's a bit complicated for a simple country boy like me, but it may be just what you're looking for. Check it out.

Buy Low and Sell High

The Real Returns talks about "Balanced Funds" and says, "Balanced funds are very good for the instant diversification of assets in different asset classes. The most important thing I believe they help an investor to do is 'buy low and sell high'."

Taxes and Finance from Hurricane Rita

I was going to select a post from AllThingsFinancial myself as I assumed JLP would be a bit pre-occupied this week since he was out-running Hurricane Rita. Then I got an email from him a bit after the submission deadline and he said he'd forgotten about the carnival and wanted to submit a piece if it wasn't too late. Let's see, can I make an exception for a guy who just spent several painful days in a hurricane-induced nightmare? I think I can. ;-)

JLP gives us "Projected Tax Brackets for 2006" which, as you might imagine, details what tax rates are projected to be for next year. In addition, I think you'll appreciate his post "Whew!". If you want a first-hand account of what it's like to flee a hurricane, you'll love this.

Glad you're ok, JLP.

Tour of Free Money Finance

I don't have an entry per se this week -- I'm just basking in the glow of all these other great posts. However, if you'd like to know more about Free Money Finance, you can take a mini-tour or check out my "Best" series posts to see what this blog is about.

Thanks for dropping in to this week's carnival -- I really do appreciate you stopping by! And as a reminder, next week's Carnival of Personal Finance is at the Canadian Capitalist. So mark your calendars and be sure to stop by there next Monday. Have a GREAT week!

Update

I'll be putting the late entries here -- not sure how many there will be.

First one is "Savings Account Paying 4.0%", which can be found at Fat Pitch Financials

Second is Clutter2Cash who gives us "My Missing Money." Here she posts about her recent (and ongoing) experience with finding and retrieving an old bank account balance using an online national abandoned property database.

MND: You Need a Frugal Spouse

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 37:

Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple can not accumulate wealth if one if its members is a hyperconsumer. This is especially true when one or both are trying to build a successful business. Few people can sustain profligate spending habits and simultaneously build wealth.

This goes back to the leaky bucket analogy. No matter how much water you pour into a leaky bucket, if it's leaky enough, you'll soon be out of water.

MND: Great Offense and Great Defense

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 37:

Consider the typical affluent household. Most of these men play great offense in the game called income generation. Great offense in economic terms means that a household generates an income significantly higher than the norm. Most of the households also play great defense; that is, they are frugal when it comes to spending for consumer goods and services.

As we've discussed, you don't have to have a high income to become wealthy, you just need to be a saver. But if you do have a high income and are frugal, you can save a lot more a lot faster and become wealthy much faster.

Posts of the Week -- September 19

Many people have commented that they can't catch all the posts here at Free Money Finance within a given day, so each week I post what I think are the best posts from the preceeding seven days. Hopefully this gives everyone the chance to read any "great" posts missed during the week. Here are my picks for this week:

• MND: Millionaires are Frugal
• An Easy, 3-Step Wealth Score
• How You Can Become Wealthy
• Comments: FMF Speaks: My Thoughts on Using Financial Planners (Or "Why I Don't Go to a Fat Doctor")
• 10 Easy Ways to Stash Away Thousands
• Best of FMF: Best Series
• 20 Ways to Save on a Shoestring, Introduction
• Can You Retire by 50?
• Save Money by Haggling
• Help! I Need a Money Adviser, not a Salesperson
• Can't Give Money? There are Other Ways to Support Charities

20 Ways to Save on a Shoestring, Part 6

Here's post #6 (the last one on this article) on an article I found at Money Central titled "20 Ways to Save on a Shoestring":

There are a thousand ways to live on less. But you don’t want to make your life a misery. Here are some of the most painless ways you can economize without losing out on quality of life:

Bank your raise. You may find that measly 3% to 5% boost in the paycheck irritatingly tiny. So add that to your direct deposit and live on your previous salary.

Pay less for long-distance. Evaluate your phone bill and see how much you're paying per minute. Some dial-around codes or cheap calling cards (one without a surcharge per call) may give you a better rate. Not only do you save, but you may find you won’t need to speak to Al in Schenectady so often.

No pet pampering. Does your dog need those pricey snacks? Does your cat need acupuncture? We didn’t think so.

Never pay full price. If you must shop, for pete's sake, discover the online world of discount Web sites. Ebay is still OK, but half.com and craigslist.org are excellent sources of "lightly used" goods -- everything from books to jewelry to office furniture -- to the entire first season of Star Trek on video.

Here's my take on these:

• Bank your raise. Great tip. If you're not maxing out your 401k, that's a great place to put it.
• Long-distance. Something to add: use all your cell phone minutes each month before you spend any money on long-distance. Plus, take advantage of free calling times (evenings after 9 pm and weekends are when we do much of our calling which is free on our cell plan.)
• Pets. As you may have guessed by now, we don't have any. I had cats and dogs when I was growing up and I loved them. But the cost and (even more) the time associated with pets just isn't worth it to us. Plus, my son's allergic to cats and dogs, so that makes the decision easy. For some interesting pet/money posts, see:
• Cost of a Pet is $48,000!!!
• Financial Horror Stories from Pet Owners
• The Cost of a Pet is Now More than $48,000 
• 10 Things Your Veterinarian Won't Tell You
• Costs of Pets Posts
• Costs of Owning a Pet, Part 165

• Full price. "Shopping around" is my wife's middle name. Once she's decided she's going to buy something, she'll shop for a couple weeks (if it's a pricey item) to get the best deal.

Star Money Articles: Understanding Total Cost of Ownership

I recently found two great posts on the total costs of owning an item (in one case, it focused on cars). The first is titled "Understanding Total Cost of Ownership" and is summarized in its first paragraph:

The concept of Total Cost of Ownership is not a new one but it’s one that some people don’t consider when they’re making a new purchase. Total Cost of Ownership is the purchase price plus the additional costs of operation. The easiest TCO calculations are for cars, so we’ll take a look at those for now, but they can be performed on anything you purchase. When comparing cars, usually the only financial aspect of them folks compare is fuel efficiency because it’s easily quantifiable given the cost of fuel. But when it comes to cars, maintenance is a much bigger issue and knowing how often your car will be in the shop, the cost of the work and similar things is more important.

The second piece is titled "Real Cost of Car Ownership" and details all the costs associated with buying and maintaining a car:

• Purchase cost, taxes, fees, and financing charges.  The dealer tells you: you can drive out with a car for $200 a month, but that is just the beginning.
• Gas - $100 a month is not unreasonable these days!
• Scheduled Maintenance - Starts at $30 but some of it reaching $600 for some cars (at the 60,000 milestone).  $50 a month?
• Unscheduled Maintenance - Normally worn tires, batteries, brakes, hoses are usually not covered by the manufacturer's warranty as they are expected to wear and tear.  You have to pay them out of pocket.  New tires for me are around $400 and brake service averages around $300 (a lot more if discs are replaced, less if it is only pads).  $50 a month?
• Insurance - It is around $1,000 a year for me.  Lets say it is $100 a month.
• Taxes and Registration Fees - The government always find ways to get their share.  Lets say it is $2 a month.
• Parking, Tolls - Everyone gets a few cents.  $50 a month?
• Accidents - Deductibles exist.  Sometimes the insurance just doesn't cover it because it is lower than the agreed deductible.  And even if it covers it you have an out of pocket expense of around $500.  It doesn't happen every year.  To some people it doesn't happen at all.  But chances are every few years someone will bend you a fender.  $10 a month?

These two posts are great because they highlight a fact we all know but rarely think about -- there are on-going costs associated with (especially) major purchases and these need to be taken into account when we make the purchase. Because of their forward-thinking posts on this subject, I give these two posts a Star.

Psychopaths Could be Best Financial Traders

Here's something from Reuters that I've suspected for some time:

Research [has] revealed the best wheeler-dealers could well be "functional psychopaths".

A team of U.S. scientists has found the emotionally impaired are more willing to gamble for high stakes and that people with brain damage may make good financial decisions, The Times reported on Monday.

In a study of investors' behaviour 41 people with normal IQs were asked to play a simple investment game. Fifteen of the group had suffered lesions on the areas of the brain that affect emotions. The result was those with brain damage outperformed those without.

The scientists found emotions led some of the group to avoid risks even when the potential benefits far outweighed the losses, a phenomenon known as myopic loss aversion.

This may explain why the "monkey" and "dart-throwing" techniques often outperform seasoned stock investors. ;-)

MND: Why are so Few Americans Affluent?

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 36:

Why are so few people in America affluent? Even most households with six-figure annual incomes are not affluent. these people have a different orientation than [most millionaires]. They believe in spending tomorrow's cash today. They are debt-prone and are on earn-and-consume treadmills. To many of them, those who do not display abundant material possessions are not successful. To them, nondisplay oriented people are their inferiors.

If my choice is to look like I have a million bucks and really be broke or look "average" and really have a million bucks, I'll certainly take the latter. That's the choice many millionaires have made.

Update: Linking to the Beltway Traffic Jam.

Back-Stabbing from the Grave

Here's an interesting article from Money Magazine. Not only was the question a surprise to me, but the answer was as well. Here's the question:

When my mother, an elderly widow, died recently, she left nothing to my sister Susan. Instead, shocking us all, Mom divided her estate evenly between my brother and me. I'm sure she had her reasons for excluding Sue, with whom she had often locked horns.

But I also feel Mom exploited my sister, relying on Sue -- not my brother or me -- for considerable care, while never revealing she'd left Sue out of her will. I want to respect my mother's wishes, and I'd prefer to keep my entire inheritance. But doesn't my sister deserve something?

I expected an answer like "Your mother wanted the inheritance to go to you. You should respect her wishes and leave it at that." Instead, Money heads in a different direction:

Your mother's final wishes have been respected: Her estate went to you and your brother. Now it's up to you to remedy the injustice created as a result.

Your letter implies that you and your brother left the responsibility of caring for your mother to your sister, assuming, as Sue did, that she was included in the will. If you and he now fail to share your inheritance with your sister, you'll be stiffing her, just as your mother did.

This is not to say that every child is automatically entitled to an equal portion of a parent's estate. Far from it. But equality is not the issue here; fairness is.

While it no doubt was love, not money, that prompted Susan to care for your mom, surely more of the heavy lifting would have fallen to you and your brother had Susan understood that your mother planned to return her devotion with a stab in the back from the grave.

I think the reader was writing in hoping to have justification for keeping all the inheritance, but it backfired on her. Still, I'm not sure Money's answer is right.

Plus, it's vague: "But equality is not the issue here; fairness is." What does that mean? The inheritance shouldn't be split equally but fairly? What's the difference? What do the exact amounts (percentages)look like in a "fair" division?

What do you think about this?

Save Money and Simplify Your Life

Here's a story from Money Central that has some decent savings tips (though they are a bit common and general). Unfortunately, they're buried within the rest of the (mostly useless) article. Fortunately, you're reading this blog and I'll dig them out for you. ;-)

Here are the money saving tips:

• Find cheaper alternatives to household staples. For example:

Cleaners: A spray bottle of Clorox brand multi-cleaner is $4.99, according to the one under my sink. Not only is all the chemical garbage in those cleansers unnecessary, a homemade clone can be made for pennies. Beth made a faux Windex out of vinegar, ammonia, rubbing alcohol, water and blue food dye for about 35 cents. “If you use a lot of Windex like we do, you can save a lot this way,” Beth says. (Never mix your own cleaners without a tried-and-true "recipe," though. Mixing chlorine bleach and ammonia, for example, can produce deadly chlorine gas.)

Mixes: Most pre-packaged mixes (for rice, pastas, cakes, pancakes or beverages) are heinously marked up. “Because I drink a lot of cocoa in the winter,” Beth says, “I decided to make my own.” Dry milk, the primary ingredient in most store cocoas, is only $1 a pound. Beth estimates that her homemade mix will cut her cocoa bill in half.

Buying in bulk: In doing their 60% Solution budget, Beth and her husband realized they could spend way less on groceries -- if they shopped at a cheaper store! Now, thanks to TWG, they are also buying staples in bulk. “It’s amazing how much cheaper things are when you don’t pay for all that packaging and advertising.”

• Don’t pay for anything if you can make or fix it yourself.
• Prolong the life of whatever you own.
• Use less.
• Think creatively. The answer doesn’t have to be “buy a new one.”
• Don’t toss anything if it can be reused or recycled somehow.

In addition to the money saving tips, they offer four ways to simplify your life:

• Slow down: “Spend 30 minutes a day in silence and solitude,” says Pierce. "It will help your mind to relax, so you can shift from the “work-and-spend treadmill,” she says, “and focus on what’s most important to you.”
• Clean up your act: Pierce recommends spending 15 minutes every day going through a closet, a shelf, a drawer, and getting rid of anything you don’t need or cherish. “What’s exciting is that once you start on these surface areas, weeding that out, the skills and mindset carry over to more complex areas like your work and relationships.”
• Learn what is "enough": Many of us are turned off by ideas like simplifying or frugalizing our lives, Wampler says, “but it’s really about transforming your life in a conscious and deliberate manner . . . determining what is enough in your life, so you can do more with less.”
  And finally, both Pierce and Wampler say, get some support -- whether you’re trying to save money or simplify or both. And I couldn’t agree more.
• Don’t try this alone. With Americans $2 trillion deep in debt, you’re far from alone in your desire to save money. Find a friend who can help you convert your toaster into a new car muffler and mock the infomercials that torture us all.

The article also includes one short paragraph that I found quite enlightening:

What Beth and I are both discovering is that your spending really begins to change when you rearrange your priorities to live a less expansive and expensive consumer lifestyle. “I just got grossed out by all the stuff we own but never use,” she wrote to me in an e-mail, “as well as the size and amount of things we as Americans view as necessary.”

Isn't that the truth?!

Free Money Finance Hosts Carnival of Personal Finance Next Week

Just a reminder that Free Money Finance hosting the Carnival of Personal Finance next week.

For readers, that means you'll want to stop by early Monday morning and check out all of the great posts. For financial bloggers, it means you'll want to email me the following:

• Name of Your Blog
• Title of Post
• Post Permalink URL
• Post Trackback URL
• A Brief Summary of the Post

Again, here's how I'm doing it:

• I'll be listing the posts in the order that I receive them.
• 7 pm Eastern time Sunday Night is the cut-off for guaranteed inclusion in the carnival. After that, I'll try my best to include you, but I can't promise anything.

Thanks for participating!