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April 26, 2011


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I love your advice on housing costs, car costs, and not keeping up with the Jones's. I also share your concerns about our debt and the sustainability of our current economic model. And I completely agree that money problems are almost always symptomatic of other problems in managing long-term issues in life, whether that be relationships, family, career, etc. In your case, your sound philosophy on money has not made you extremely wealthy but it has allowed you to live pretty well in a high cost of living area on a modest income. Kudos to you for that.

I know what you mean about near homelessness being a real lesson. I came out of college with a Psych degree and an awesome GPA, but realized that this plus 2 dollars would get me a cup of coffee (unless I was at Starbucks, in which case it would cost 4 dollars but I digress). I took a job making $7 per hour and was barely able to pay my rent and eat. I did this for two years until I found a better track. I always remember those days any time I am ready to stress out about my future. I am so much better off than I was then because I have taken ownership of my career and finances.

Thanks for your nice comments, Bad_Brad. I hsve a similar degree as you--Sociology. If I could do it all over again, I'd definitely get something more marketable. Living the financial reoller coaster from ages 18-24 really made me focused on saving so that I'd never struggle to pay rent or be on the brink of homelessness ever again. I can't tell you how much I hated the instability of living that way :-(

This was a really good reader profile. Lots of good advice!

The roommate part was a bit surprising (in a good way). I recently decided to move from my one bedroom apartment into a roommate situation (even though I don't really want roommates) because of how much money it will save me. The room will cost me 14 percent of my gross, compared to the 29 percent I'm currently spending.

@ Dee. I didn't love the thought of roommates either. It's definitely easier to do when you're younger, I think. And for it to pay off, you and the potential roommmate(s) have to be very upfront about your lifestyle, expectations, etc. Here in the San Francisco Bay Area where housing is expensive, there is a pretty large market for shared housing, so it's very possible to get roommates who have their lives together. That may be less true in less expensive real estate markets. But 29% of your gross toward rent is too high, in my opinion. I think any rent or mortgage payment above 25% of gross income should set off a red flag, even if you don't have other debts. Way too many people live too close to the financial edge, in my opinion.

Good advice, Mark!

I also live in San Francisco (The Castro) and am able to get my housing expenses down to 16% by sharing an apartment. I could probably cut it in half by living in the suburbs, but then commuting costs would eat into the savings.

Regarding the car, that is a HUGE way for people to save money. My car expenses have averaged $50-$100 a month for the last 4 years. I do this by buying cars at about $1000 - $1500 (after they have finished depreciating) and driving them into the ground. They can last years, they have proven themselves not to be lemons, and if the car happens to break down right away you haven't risked much money. Besides being cheap to buy, older cars have lower insurance and registration costs. I sold the car I was driving when I moved back to California for about the same I bought it for, 18 months prior. So, I essentially rented a car for free.


You're right about it being too expensive. I live in an expensive area (SF levels) and so my one bedroom was actually CHEAP for where I live. But you have to make tough choices, sometimes.

Thanks for sharing your story!

Wonderful profile - actually my favorite so far. Hey Mark! Question for you: are you putting the $12,700 this year into 401k, IRA or ROTH IRAs (or a combination)? Also what is an example of a "balanced" fund as you mentioned (like one that you have invested in - in the past)?

I had roomates when for the first year when I bought my house - it was AWESOME how much I was able to save during that time - you have some solid advice here. Actually I think I liked it so much because you have an average income and yet are doing well above average financially. Well done. Thanks!

We actually share the same financial profile when you were 26! I just recently started getting serious about money and am turning 26 this year, and am around 13+k in debt. So I'm hoping by the time I turn 40 I'll be in the same financial situation as you if not better. Very motivating and great advice!

@Tim. The $12700 is going into my 457 deferred compensation plan (public sector version of the 401K). If I get some extra money or the market takes a major dip, I will put some money (probably just a few hundred dollars) into one of my IRAs (probably the regular IRA).

Examples of good balanced funds that I (wish I had) invested in in the past: (The fund with the * have been the absolute top notch performers over the last decade)

T. Rowe Price Capital Appreciation*
Vanguard Wellington
Fidelity Balanced
Dodge and Cox Balanced
FPA Crescent*
Mairs and Power Balanced
Oakmark Equity and Income*

The funds below charge a load/sales charge to get into them but the load is normally waived if you have them in your 401K plan. I would only consider these funds if you can get into them without paying the load/sales charge:

American Funds Capital Income Builder (A, R4, R5, or R6 share class only)

American Funds American Balanced (A, R4, R5, or R6 share class only)

American Funds Income Fund of America (A, R4, R5, or R6 share class only)

Invesco Van Kampen Equity Income

This is by no means an exhaustive list but many of the funds I listed above are mainstays in 401K plans.

@ Tim...PS. Yes, I've never been a great earner, but have always enjoyed saving money. Even when I was a kid, I enjoyed saving more than I enjoyed spending.

It also helps that I have great benefits at my job (vacation, sick time, low health insurance premiums) that other people don't have. The job stability up to this point is something most other people can't count on, either, and that has been a major advantage. But as I mentioned, the benefits will almost certainly become much less generous and the job stability in the public sector really isn't there any more, either.

@ Hannah. It's all about making the tough choices. It's possible to enjoy life and still save a good amount...but I won't lie...being frugal on a modest income does mean that there are certain people you won't be friends with because you won't be able to do the expensive lifestyle stuff they're doing. You have to be ok with that or you'll be frustrated.

I didn't mention this in my post...but I am not the type to blow a lot of money on weekend entertainment. Hanging out with friends watching DVDs is fine with me. Going out to moderately priced lunches/dinners is fun, too. The one thing I splurge on is travel. I've been to South America 4 times in the last 14 years, and visit family on the opposite coast every year or two. Last year, I spend a week in Germany & Austria (although my boyfriend subsidized the trip) So, I've been conservative but I haven't exactly lived the life of an ascetic.

As I said, I think my biggest failing has been my investment returns. I bought individual stocks from 2007-2009 and lost about $11,000 in the bear market. That, plus not investing somewhat more conservatively in my mutual funds has cost me at least 50K. So, provided you make better choices than I did, and we don't have economic Armageddon, you could very well be better off than me by the time you hit 40.


I would look a little more deeply at your 457 deferred compensation plan. It is not a public version of a 401(k), you are thinking of the 403(b). A deferred compensation plan is actually a little bit dangerous. A 457 is a promise from your employer to pay you. A 403(b) is different in that they actually put money aside in an account you control. Here is the problem, if your public agency (say you work for a city or something) goes bankrupt, they can legally refuse to give you your money. It is unlikely this will happen, but when Orange County, California went bankrupt in the 1990s, a lot of public servants (particularly firefighters) actually DID lose money. I'm not 100% sure but I think they only got like 90 cent on the dollar back. With all the debt issues in government right now, this is not a risk I would like to take. I suggest you read the plan documents for yourself.

I'm just telling you because I think you are taking a risk that you are not aware of. The risk may be small but it is real.

For what it's worth, I'm a public servant too, and I choose to save in a 403(b) plan, not a 457.

@ Carl. Thanks for the warning. Unfortunately, we only have a 457 plan at my work, so the choice would be either to save in the plan or not to save in it. Since I can only save up to $5000 a year in an IRA, not saving in the plan doesn't seem like a good option, so I guess I'll have to take my chances. However, maybe I could consider maxing out the IRA ever year first, and then putting the remaining $7700 savings in the 457 plan...Hmmmmm.

The one possible advantage with 457 plans is that there is no penalty for taking the money out before retirement age. However, you have to separate from your employer before you can take the money. I wouldn't want to do it, but as the tax law stands now, I could take money out of the plan without penalty if I quit or lost my job.

@Mark: Taking your chances with the 457 is probably the right call, given that you don't have a 403b, but I wanted to make sure you were aware of the risk. Hope you don't work for the city of Vallejo... One other good thing about a 457 plan is you can withdraw the money without penalty (at least your contributions) to make a down payment on a house.

If you have a Roth IRA it also has a feature where you can take your contributions out before retirement age if you want. Only the contributions, though, not the earnings. Knowing what little I do about your situation, I would max out a Roth IRA, *then* save money in the 457.

Mark – thank you so much for the transparency in your dialog with us! Fun stuff!

@ Carl...BTW, you did an amazing job with the used car buying! You've motivated me to get the best used car possible for the least amount of money on my next purchase. I was thinking I need to spend 10K to get a decent used car, but maybe that's more than I need to spend. Thanks for the inspiration.

I don't care about withrawing money from a retirement fund to make a down payment on a house. Quite frankly, I don't get all the obsession over home ownership, especially for someone like me who is never going to have kids. To me, home ownership is a big pain in the butt and the only way buying a house would be for me would be if I lived in a really cheap real estate market (eg--most parts of Indiana). Even then, I'm not sure I'd want to own. I absolutely HATE maintenance of ANY kind. In any case, I'm not going to find cheap housing in the Bay Area, or any part of California for that matter. As far as I know I can take the money out of the 457 for a home or anything else, as long as I've separated from my employer. This is what I learned in retirement classes I've taken with my employer.

And no, I don't work for the City of Vallejo (thank goodness!). My employer has the top AAA bond rating, but it does has a negative outlook. I don't want to put too much stock in ratings, as those agencies have been dead wrong so many times, buy my employer has traditionally been more conservative with it's spending than other public employers in CA.

Everyone says to max out the Roth...but I admit I love getting that tax break that keeps me in the 15% bracket. I do have just over 18K in a Roth, though. I also have some concern that they will eventually find a way to tax Roths. I plan on touching my Roth money last, so it should be able to grow for a long time before I need to touch's really as broad as it is long, IMO.

@'re welcome for the transparency. I think it's best :-)


I may be giving up my secrets... but look at Saturns when you get ready for a used car. They are almost as good as a Toyota or a Honda but much, much cheaper. In my opinion, they are by far the best value. This only is valid to American Saturns (SL/SC) manufactured before about 2002/3 or so. I've had incredible luck with 1995 - 2000 Saturns, and never paid more than $1800 for one.

I hear you about the home ownership. I live in a nice apartment, have a good landlord, and got the world at my feet. Why would I want to bend over backwards to afford a suburban tract home?


I was going to ask about your car secrets, too! My car has 200k+ miles so I will need to replace it soon, but I don't want to spend a lot (or end up buying something I will need to replace soon).

@ Carl. Thanks for the tip about Saturns. I will look into them when the time comes...although I hope to drive my 15 year old car for another 5 years, if it doesn't give me too trouble (one can hope!). It helps that I live a block away from my job, so I'm not too dependent on the car...although my work location could change, ruining my ideal setup.

It sounds like we're on the same page as far as housing goes...I also LOVE my apartment and have a nice landlord who hasn't raised the rent in the 3 years I've lived here (knock on wood!). It's an old building and has its quirks and it lacks amenities (like a dishwasher...which I'd never use anyway), but it's also better built than the abundant number of cookie cutter complexes in my area and it has a lot more charm, too.

At my income level, I would have to bend over backwards just to afford a 1BR condo. I could probably deal with just the mortgage, but then there are the condo fees and taxes that go up every I still can't afford it. Condo boards are also often poorly run, so sometimes a condo is just a different set of headaches from owning a house. I also like the flexibility of being able to pick up and move at any time. At some point, I do think I'll leave the state.

Hi Mark,

Nice post. You have a very good savings rate, keep it up. It is great to see someone in the Bay Area doing so well, I always thought it was very difficult to save anything living there. Most of the people I know living there are either making huge incomes (>$400k) or have been there a while with no savings to show.



What are your thoughts of the index funds mentioned on this webpage vs the balanced mutual funds? I saw that one of the mutual funds you mentioned had an expense ratio of 1.1 or so-- I think it was for the FPA crescent.

I use to do index funds then switched to the allure of mutual funds and now back to the the idea of ETF's-- I bought some of each of Schwab's ETF's with no transaction cost and very low expense ratio. I figure this was a good market exposure with very low costs.

@MikeHunt. The problem people in the Bay Area have is they try to live in the standard single family suburban house and it just doesn't work. Plus, this is a trendy area with lots of stuff to do, and a lot of that stuff costs money (money for parking, money for gas, money to go to the event). Since the fun things to do are often scattered around the region, you can still end up spending a lot driving around to do the cheap/free stuff.

Never in a million years would I try to raise kids in this area unless I had a really solid income (say, 200K or more per year). If your income is less than that, you end up stuck sending your kids to crappy public schools or you end up being house poor trying to send your kids to decent schools. In the decent school districts, we also have the problem of materialism and hyper-competetiveness. I know these are problems in affluent school districts across the country, but I believe it's more acute here. Thank God I'm gay so I don't have to deal with that dilemma.

That said, people making 400K with nothing to show for it have major ego/status problems. Trendy areas tend to attract this type of person, I think.

@Brian. It's hard to argue too hard against index funds. And you are right, FPA Crescent has an annoyingly high expense ratio over 1%, but it has superior long term returns going back more than 15 years. That said, if I was going to pick one of the funds I listed, I think it would be T. Rowe Price Capital Appreciation (.70% expense ratio).

When you say you switched from index funds to mutual funds, that's really not enough info. The question becomes....which funds?

Personally, I like the idea of picking one fund and holding onto it for life (or at least getting as close to that ideal as possible). Balanced funds can be appropriate for you for most of your lifespan, in my opinion.

Morningstar just did a study where they found people actually get better returns in balanced funds than they do in pure stock funds because the stock funds are too volatile...and people tend to buy and sell volatile funds at the wrong times over and over again!

However, if you were to pair a broad stock market ETF with a broad bond market ETF, you cold get the effect of a balanced fund.

Also, as I mentioned, Vanguard also has a decent balanced index fund called Vanguard Balanced Index. It's 60% Total Stock Market Index & 40% investment grade bond market index.

You can read/watch info about the Morningstar study here:

Wow, I would consider what you make and where you live on the edge of 'poverty' and yet you still are able save quite a bit. I think the key is your very reduced housing and transportation costs. Jacob of Early Retirement Extreme is similar to you in that he lives in the Bay area and yet makes it on very little (lives in an RV). What I find most inspiring is that you are very aware of your situation (economically and socially) and make excellent choices with the situation at hand - you are maximizing all of of your opportunities. I agree with your dismal outlook on the US economy....and I fear Roths may be raided as well someday.

Bottom line - thanks for sharing and I believe you are an excellent example to show to people who say they can't do it. It reminds me of the story of the washer-woman who made less than $25K a year (much less at times) her whole life and yet when she retired she was able to donate $250K to her favorite cause - it can be done at even very low income levels if you start early, are consistent and educate yourself about investing.

@Deserat. I don't get how 50K is poverty for a single person with no kids, even in a high cost area like mine. I've had my share of ups and downs like anyone else...but for the most part I think I've lived a charmed life! I have a reasonably low stress job that I like that pays decently & has great benefits. I have savings. I've traveled somewhat extensively. I get lots of vacation time. I have a boyfriend and some nice friends and live in a decent area with great weather and nice natural scenery. What more could I want????

If I were made king, I'd like to send Americans to South America (where I've visited). I am not idealizing poverty, but the people there are happy on soooooooo much less than what Americans think they have to have. Of couse, it helps that in the cities, they have decent bus transportation, so a car is not a necessity. But the general attitude of the people there is much more sane when it comes to consumerism. They understand that happiness comes from family, friends, and community ties, not from competing with each other over who can buy the most stuff!

Even in Europe, it seems to me that they are willing to live in smaller houses/apartments and drive smaller cars (or do without them) to have more financial security. Americans are just clueless about security. They want to be secure but do so little to get it for themselves. It just doesn't compute for me.

BTW, I love Jacob at Although I admit I don't think I'd be happy living in an RV....but I do admire him a great deal.

BTW, I think FMF also shared a story on this blog about a man from Baltimore who was a parking lot attendant who raised 5 kids and had soemthing like a 500K net worth. It's a function of mindset and attitude more than anything else.

nice post mark..that's good that you have a high savings rate..I really admire you..

Good job Mark!
I feel I can relate to you in many ways. I like your thoughts on being frugal. I make about the same as you and yet I am able to do pretty much anything that I want to do. I like to travel too. I've been all over Europe and I've gone on several cruises. I do all these things without spending a lot of money. In Europe I mostly stayed at youth hostals. This saved a lot of money and allowed me to meet some very interesting people that I roomed with. On cruises I go for the cheap inside cabin. I figure I'm not planning on spending my vacation in my room anyway. I also enjoy camping,(in a camper) which has allowed me to see much of America in a cheap way.

@billyjoob...I've done the youth hostel thing when I was in South America. I think it can be a very good way to go, especially if you are travelling alone. Staying in hotels with your own room when travelling alone can be lonely/boring/expensive...although somteimes it's nice to go on a trip where you alternate between the two.

The Bay Area really isn't so bad. I think the cost of living stuff you hear all the time is mostly hype. True, BUYING here is ridiculous. But renting isn't too bad. I lived for 4 years in Raleigh, NC, and while it was cheaper there, the rent difference was only about $6000 a year. And as long as you don't live in San Francisco, Berkeley, or Palo Alto, it really isn't that expensive. The close in suburbs are pretty cheap. Other costs are more or less the same. I spend a lot less on utilities here since I don't need air conditioning and rarely need heat. I spend less on food from the grocery store but a little more on restaurants. I also save a ton on gas since I use public transit mostly. So, overall, it does cost more to live here than North Carolina but it is more than made up by my increased salary. So, for me, I'm saving more money each month here. If I had been a fool and bought a condo it would be a different story...

I think those "cost of living" calculators are a crock, since they are completely dominated by house prices. I make a bit more than Mark, but a lot less than 200k and I can save quite a bit. BTW, Mark is a ninja at saving money and gives some great advice. I would go for lower cost funds, but he is ahead of 90% of people in my opinion.

Just to chime in with what Carl is saying...I mostly agree. You can come out ahead living in the Bay long as kids are not in the picture and as long as you are willing to sacrifice in the housing department. Since I like apartment living, that aspect of it suits me just fine. However, if I lost my job, I'd be outta here in a heartbeat.

@ Carl...As far as low cost funds go, on my list I did include Vanguard Wellington, which has quite a low expense ratio. Dodge & Cox Balanced also has a low expense ratio of .52%.

I really don't see myself as a "ninja" at saving money. I'd say Jacob at Early Retirement Extreme is the true "ninja". He's my idol, LOL! I still feel like I blow a fair amount of money, to be honest...mostly on expensive haircuts, soda from vending machines, eating out, junk food, etc...although I have cut back on the expensive haircuts... I don't like the way my hair looks, but I'll get over it.

PS....On the mutual fund issue, there's one more worth considering. It has a nice low minimum of $1000 and is very well balanced with an expense ratio of .34%....Vanguard STAR. This is a fund of other Vanguard funds so it does a good job of getting a good mix of small & large company stocks, as well as bonds. It's performance has beaten the S&P 500 Index over the last 15 years by more than a percentage point. I don't think it's a staple in 401k plans, but it would be a good choice for an IRA or a taxable account. It also beats the Vanguard Balanced Index over longer periods by a significant margin.

Very nice reader profile.

I'm 26, gay, and trying to go along the same route.

As a teacher, I have a 403(b) available to me. I place $16,500 into that annually. It helps!

If you're able to combine households with your partner, you may want to do so. My partner and I moved in together, and both of our rent amounts are now considerably reduced.

If you like balanced funds but also the low cost of index funds, I use Fidelity Four-in-One Index Fund. It is a blend of equity, bond, and international index funds.

@KT...Thanks, I didn't know about Fidelity Four-in-One. It looks like a great fund for indexing die hards. Personally, I like Vanguard Star better. It is the same concept, except with Vanguard Funds. Star has better short and long term performance than the Fidelity offering. I also checked Four-in-One against Vanguard Balanced Index and Balanced Index also beat the Fidelity offering over short & long periods. That said, it's hard to argue too hard against the Fidelity option. It has low expenses and above average peroformance for its category.

@ Fearless. Sounds like you're doing great! I wish my BF thought like you. Unfortunately, I think my BF and I are going to end it (for financial and other reasons). With the exception of not caring about cars, he wants bigger and "more" of everything (especially a bigger house). I'm happy living in s studio apartment. He expects me to increase my income substantially and put the extra money toward a major lifestyle upgrade and I'm really not I think it's over :-(

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