Free Money Finance

Reader Profile: MM

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email.

Next in the series is FMF reader MM. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 27 years old and reside in Boston.  I am an active duty military officer, at a fairly standard rank for this point in my career.  I am married with no children.  Currently I am deployed to a combat zone.  I went to Penn State University and had a full ROTC Scholarship, worked part time, had internships, and was able to study in the UK my junior year, with an intensive focus on the UK/Eurozone financial system and included a short internship in the City of London (financial district).  I double majored in Supply Chain Management and Economics with a few minors.  I also have a Master's degree in Finance with a Quantitative Emphasis from University of Colorado.  This is my second deployment in the past 2.5 years or so.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

One of the "benefits" of being deployed is that your income is not subject to Federal or State Income Tax, though you do still pay Medicare and Medicaid.  There are various additional incentive pays that are associated with being in a dangerous area and away from your family. 

That said my gross salary is right around $100K, and I contribute 15% plus all special pays to my 401K equivalent, the TSP.  Contributions made while in a combat zone are completely tax exempt, and are allowed to exceed the traditional $16,500 limit on standard 401Ks, up to the annual cap of $47,500 that most other programs have when matches are considered (no match is given in the military).  However, when I return to the United States all contributions go back to "normal" 401K rules. According to the TSP website, tax-exempt contributions are "Contributions of money that will never be taxed. Such contributions can be made to the TSP by members of the uniformed services from pay that is covered by the combat zone tax exclusion." , which means I won't ever have to pay tax on this money, even when I withdraw it.  However, monies contributed at home are subject to standard tax-deferred plan laws. 

When I return from deployment, I will drop my contributions back down to 7% where they were before I left.  I will explain the rationale on this below. 

My net annualized salary while deployed is approximately $85K after all TSP contributions.  I currently put 97% of contributions to the S Class fund, which is a Dow Jones U.S. Completion Total Stock Market Index masquerading as a Midcap fund, and 3% to the F Class fund, which is indexed to the Barclays Capital U.S. Aggregate Bond Index.  I place that small amount into F class to smooth a little bit of volatility using some optimization and back testing as well as using the Modern Portfolio Theory thesis that you can actually maximize total adjusted returns while reducing risk with just a touch of bonds on top of any long equity exposure.  Due to some moves I made back in 2008, my current portfolio allocation is 87% S Fund, 10% F Fund, and 3% G Fund, which is US Treasuries.  This has served me well.

I max out both my and my wife's Roth IRA.  I have been contributing since I was 18, but she only started in 2010 (we are the same age), so I have some serious catching up to do with her.  My portfolio allocation is extremely aggressive, with 26% in Vanguard 500 Index, 20% in Dodge and Cox International, 15% in US Funds Natural Resources, 11% in Perritt Emerging Opportunities Fund,  10% in the Bruce Fund, 9% in TRowe Price Africa and Middle East, 8% in Matthews Asian Growth and Income Investor Class.  My dollar allocation to each is 91.67, 100, 75, 50, None to Bruce Fund, 50, and 50 per month respectively, which is autoplanned for $5,000 annually.  Right now I plow the $416.67 to wife's IRA in the Schwab S&P 500 Index fund, both for low overall cost, and low entry.  Once she is up to $10K, I will probably try to roll it into Vanguard 500 Admiral Class.

My wife works in the greater Boston area as a communications officer for an NGO that is focused on medical care in Haiti.  Her currently salary is right around $40K, and I deduct 10% for 403b purposes.  Right now those funds are sitting in cash as I am waiting for a retest of 2009 market lows before jumping in with her.  She is a journalist by trade, having worked for the Associated Press and having worked in several international capacities.  This career path was afforded to her by her attending Northwestern's Medill School of Journalism after graduating from Penn State.  While clearly one of the top schools in the world for her trade, it was not cheap, even with scholarships.  She currently has a boatload of student debt, like many recent college graduates.  Unfortunately, even though J-School is considered a professional school, in the same vein as MBA and Law School, salaries coming out of it pale in comparison.  I am legitimately talking about $18,000 offers for entry level jobs after paying tuition and costs of about $120K (Columbia is the other elite J-School).  If you ask me, this is a major reason "news" is so skewed these days.  The  only people who actually attend are the extremely wealthy to whom any graduate school cost wouldn't cause any hardship, or those who truly, truly do not care about money at all,  and are willing to be debt slaves for most of their adult lives.

She is an exceptionally talented writer and we have had some very interesting adventures, so she blogs about them at length and eventually wants to write a book about them.  In the meantime I am trying to gently suggest that we find a way to monetize the blog, or maybe she freelance some of her writing to a magazine (especially a travel one).

One caveat before I get into expenses, and some of my other asset considerations.  I take a contrarian viewpoint to most traditional financial "insight" and often employ these viewpoints.  So far it has not burned me.  We have a mortgage on a Condo in a very up and coming area of Boston.  It is in the city proper but it is not a traditional well heeled area like the Back Bay.  The neighborhood development, amenities and exposure to incoming capital are truly amazing considering a city as old and space limited as Boston.  We could honestly only afford the entry into this property via the VA Loan process.  That said, the monthly payments are very manageable, but would probably cause many people to scream considering the space we get.  It is just shy of 800 square feet and cost around $360K.  The monthly mortgage is approximately $2200 + a $345 HOA fee.  This includes all taxes.  Right now we are in a 5.0% 30 year fixed and I contribute an extra $50 per month to principal.  Sometimes if I have "mad" money I will throw it at principal, ranging from $500 - a few thousand at a time.  I am currently working on refinancing my house to a 3.875% 30 year fixed and expect to close in the next month and a half.  This will knock down monthly payments by about $300, and at that point I will start putting an extra $150 to the principal per month. 

With all of these considerations, we did over 8 months of market research before deciding to buy in this neighborhood.  We bought just before the flurry of new capital flowed to the area, and expect that in 10-15 years time the house could be worth double its current value (which would put it on the same level as Charlestown and Fenway neighborhood prices).  I know that we are in a nationwide housing crisis, and am completely locked into the Case-Shiller index and all sorts of real estate indicators, but case in point, property values in our neighborhood were up on average 20% last year.  There are pockets of growth throughout the nation.  Boston also led the recession and to a certain degree has "led" out of the recession, though if you ask me recession is unfortunately here to stick around a while for many parts of the United States.  Additionally, though we know we will be moving, I have no reservations about having purchased this place and only living in it for a temporary time.  Rent demand in Boston, especially in our neighborhood is insatiable.  I have property managers posting fliers and a few that I know calling me to ask if I am planning on renting out my place any time soon.  I feel that after the refi I can be CLOSE to, if not completely mortgage covered by potential rent; at this point am unsure about the HOA being covered.  That said, I know conventional wisdom is, "Never have negative cash flow real estate."  I look at this kind of like a growth stock that pays no dividend.  I'm willing to trade off a bit of cash flow for long term capital appreciation.  I will also address how I cover that negative cash flow without dipping into my current salaried income below.

We have two cars, because we both reverse commute out of Boston in the morning and return at night.  Surprisingly, parking is not too horrible in our neighborhood so we do not have to pay for dedicated parking spots so far.  One thing that irks me is that when we bought our property, it did not come with a deeded parking spot.  This is rather unfortunate because the going street rate (if you can even find a parking spot for sale) is about $25,000 cash for one.  In other neighborhoods it can be as high as $250,000!  My car is paid off and we bought hers on the cheap.  There is about $6500 left on it and it is at a 2% rate.  Originally when we moved to the area my wife took the T downtown to get around, but after getting this new job we had no choice.

There are other "debt" expenses, which I will articulate in the next category.

As for assets, that's where things take a serious turn for the better.  Due to my intense financial market interest since middle school, I have studied and traded the market (stocks and options) almost continuously since college.  I have a very unique strategy which I will now outline. 

As I am in my 20s, I take a few shots at what I call "outright speculation" which is maybe in some way accurate, but I'd like to think at least the speculation is educated.  At my age I have to try for a few grand slams.  As far as portfolio theory, I have a heavily structured liquid portfolio, which is about 45% biased toward very high current income (the reasoning behind this is I want to be able to afford a mortgage in my desired living location in the absence of a job, as well as to cover down on the potential minor negative cash flow issue indicated above), using things like Agency REITs, Preferreds, high yield closed end funds, and to some degree Canroys and MLPs.  I continue to explore Preferreds and Business Development companies.  As of now my weighted average yield on cost pays me 11.6% annualized on a monthly basis.  It alone could afford a mortgage in probably 80% of the country, and after refinancing my place will cover close to 75% of the monthly mortgage cost in Boston.  Another 40% of my portfolio I dedicate to mid cap and blue chip equities that pay high yield dividends, have a history of dividend increases (for examples look at David Fish's list of Champions and Contenders) and ALSO have high liquidity options.  I sell covered calls against them if I have a sizable enough position and roll them at least quarterly, usually looking 3-4 months out w/ a 20% upside strike.  I also trade strangles, straddles and spreads around my basis to manage risk and if I think the equity is significantly beaten down I will sell naked puts if I would be willing to buy at that lower price. Additionally I work on macro theses that I see 3-5 years out and try to use bottom up fundamental analysis per security sector, and then wait for the techincals to line up- I use RSI, MACD, and slow and fast stochastics to determine entry points... Still need to learn better risk management on the downside but have enough conviction to generally believe my thesis will see it through, and have generally been proven right.  5-10% of my portfolio is the "outright speculation" and I have had several microcap oil plays like GTE, BPZ (when they were in their infancy), EGAS, junior miners, and a few true "hope" companies like INTK and PWVI.  I have approximately a 5% allocation of my portfolio in physical silver, but it vacillates with the prices of my income oriented investments.  So it's really 45% Income, 40% Optionable mid/large caps, 5-10% speculation, 5% Physical Metal.

If I sold out the entire portfolio and physicals right now except for the income instruments, and put all toward principal of my property, with current income portion of portfolio and salary I could probably have the place paid off in 5 years or less.

I use margin but try to be prudent about it, and the monthly income more than offsets the cost of it, by a factor of 4.  The income allocation may not be very tax efficient but my AGI situation is unique at the moment and I find myself in a fairly low tax bracket.  I don't mind paying taxes on income as long as the mortgage interest tax benefit still exists. 

As indicated above I also max out my Roth and contribute as much as I can on a monthly basis to my TSP. 

My next foray is in investment real estate.  I am in the process of purchasing my first investment property with a partner; we've formed an LLC and are just about ready to make an offer.  He happens to be a CFA and is very conservative about his investments and we have strict metrics about cashflow considerations. For example, the current property we are evaluating, at current sticker price and after all tax, repair, vacancy discounts, and property management cost considerations, has a Debt Service Coverage Ratio of 2.5.  I hope over time that the positive cashflow generated from our properties will more than offset the negative cashflow from my current primary residence.  Goal would be to eventually own 5-10 properties.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

As I eluded to above, student loan debt is pretty much the PRIMARY issue.  Her loans cost close to $1K per month and I still have a few sitting around at about $200 per month.  We also had a wedding that was somewhat more expensive than I'd planned and have a small balance remaining at 0% on a credit card.  We also have a few items on a 36 month 0% Best Buy card that were for "moving into first house" costs.  This is manageable but I'd prefer to just knock it out.  As I indicated above, I use margin, but in the past I also did a few Credit Card App-O-Ramas.  I have some outstanding balances at 0% for life or for several remaining months and have thrown those funds into very conservative investments.  Regardless all these little costs impact our cashflow as I pay well above minimum required payments so that I can have these balances paid off by the time the promotion periods end.  The primary difference is that I am happy to live austerely in the pursuit of long term benefit.  We both enjoy traveling, but my wife, god bless her, knows she is not great with money.  She very much enjoys high fashion and also planning out trips that are pricey.  She is excellent at finding deals, but I always jokingly accuse her of "dealing us into bankruptcy."   From time to time I make some comments that she takes personally, but I would really just like to see if there is anything we can do to take out her student debt.  We already have it on autodebit to reduce the overall interest rate by 0.5%. 

I do contribute a LOT of money to our liquid monthly portfolio and also into some DRIP plans with companies that offer discounts on reinvested shares.  I realize that I could take some of these funds to pay down her loans but I'm convinced I can outperform her interest rate.  I'm just in a conundrum about how to increase our monthly cashflow.  As I tell her, its never a situation where we don't have wealth, its often a case of liquidity, especially around mortgage time.  I keep very little in savings (about $1000 in primary account and approximately $500 in two other external savings accounts in case of extreme emergency).  I manage the checking account with the veracity of a CFO.  If I absolutely had to spend large money on something, I have plenty of credit cards with high limits, could borrow from my margin, and if necessary could sell stock.

We do have a few monthly recurring bills, Comcast and Verizon each at about $100 per month for Cable, Internet, and Phones.  We also have netflix at the 7.99 streaming plan rate.  Beyond that, car and property insurance, electricity, and some margin service are the only other expenses.

If I had it my way we would find a way to live on $800 per month in terms of discretionary expenditure plus gas for cars plus groceries.  My wife thinks I am crazy and that this is a completely unrealistic scenario in Boston.  I am not sure what a happy medium is but I do know that if we didn't have her student loans to deal with we would have double the discretionary funds.  Of course, to her credit if I reigned in some of the investing dollars we would have more to spend as well.

I break down my spending allocation like so (based off of Gross Income):

• Debt: 35.04%
• Bills:  8.20%
• Investing: 48% (This includes reinvestment of all dividends received, a substantial sum)
• Remainder: 8.76%

Based off of Net Income (subtract wife's taxes, TSP/403b, Dental & Health Insurance, Social Security, Medicare/Medicaid, and Servicemen's Group Life Insurance) and ACTUAL Expenditure (mostly plussing up above minimum debt service:

• Debt: 41.99%
• Bills: 6.8%
• Invest: 44.61%
• Remainder (Spending Money): 6.61%

Net Income allocation if only paid minimum on debt:

• Debt: 34.78%
• Bills: 6.8%
• Invest: 44.61%
• Remainder:13.82%

For both Net Income Scenarios, the reinvest portion is approximately 11.03% of Net, so could plus up "Remainder" with that, but as explained trying to eventually offset mortgage so reinvest every month to buy more shares and create higher dividend for future.

What are your plans for the future. (retire early, build your career, etc.)?

I'd like to be at $1M Net Worth by age 30.  I would like to run my own hedge fund or at least day trade a professionally sized portfolio.  Goal would be to generate enough income with portfolio so that I could pay for a permanent residence wherever i wanted (London, NY, wherever), and use that location as a platform for global travel with my wife.  Would really like to record music and write but don't have any desire to be a starving artist.  Probably 20% of the way there so far, and markets will make a huge difference as I do not currently the have time to run a short biased portfolio.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Be diligent in your efforts, realize that one month's austerity can give you a few months' worth of prosperity.  Go travel, read as much as you can.  Do not listen to anything talking heads on television say, I believe most media is manufactured narrative.  Be contrary by nature.  Don't stand on a silent platform, verbalize your intentions, write down your goals [short, intermediate, and long term], and be flexible (something that I could use more work on in real life).  Figure out how to create multiple streams of cashflow, especially passive forms of it.

Star Money Articles and Carnivals for the Week of Sept 26

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week:

• The Family CEO wonders where their debt came from.
• Smart Family Finance asks if you're ready to be a financial advisor.
• Stock Market Basics tells how to make some wise investments.
• FrugalDad wonders if Bank of America is in trouble.
• BripBlap says to just start.
• My Dollar Plan asks about rewards checking.
• Money Smart Life discusses the American Dream.
• The Digerati Life leverages a weak stock market.
• The Sun’s Financial Diary discusses drug savings solutions for seniors.
• Lazy Man and Money asks if Social Security is a Ponzi scheme.
• The Economist is having an online Fine Properties Fair on October 18th and 19th.
• Totally Money Blog Carnival
• Carnival of Wealth
• Festival of Frugality

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Five Ways Your Job Costs You Money

MSN Money lists five ways your job costs you money as follows:

1. Commuting costs
2. Child care
3. Clothes
4. Food
5. Charity pleas

Of course there are costs associated with working. But in most cases, you end up making way more than you spend. Then again, there are times when there's not that big of a gap between what a person makes and what it costs for them to work (this is especially the case when the worker doesn't earn much and has high work-related expenses like child care.) This is why it's often not as hard as people think for a family to go from two incomes to one.

Here's my take on the list above:

1. Commuting does cost a bundle, especially if it means the difference between needing a second car or not needing one. And then there are all the associated expenses -- insurance, gas, maintenance, etc. This is one area where people in major cities have a cost advantage since there's often cost effective, good public transportation available.

2. Child care costs are often the killers for a family where both parents work. In these cases, it's quite common that these costs alone suck most of the income from the lower-paid parent. If you do the math, many times the second person can quit work and reduce enough work-related costs to make it a wash financially for the family. This is especially true if one parent earns substantially more than the other.

3. Yes, most people have clothes that they only wear to work. But you don't have to go overboard and buy new stuff every season from top-name designers. Then again, these expenses may actually help you earn more money, so you could view them as an "investment" if you were looking to justify a specific purchase. :-)

4. If you eat out every day at work, I guarantee you're spending a boatload of money. Now this spending may be a good investment if you're networking or drumming up new business, but this isn't the case for most people. That's why taking your lunch to work is a great way to save a bundle of money throughout your career.

5. Really? Working makes you more likely to get hit up by charities? I guess it does a little, but is it really that significant? Not in any place where I've ever worked.

What's your take on these? Are there any that they missed?

Help a Reader: Dealing with Two Homes

Here's an email I recently received from a reader:

My wife and I got married last fall and we both were fortunate/unfortunate to be homeowners.  I'm 32 and my wife is 28 and while we both bought homes before we met which were perfect for our situations, obviously things have changed.  Like so many, our homes are both valued at less than our mortgages.  We've since moved into my home which is a 3 BR, 2 BA split level in a first ring suburb of a metropolitan area.  With the mortgages upside down, we couldn't really sell the other home (a condo) without paying quite a bit out of pocket.  We owe ~150k and Zillow says its worth $120k (for whatever that's worth). Frankly, financially speaking, a strategic default on that mortgage makes a lot of sense, but we aren't the type to do that and as long as we have rental income we're paying down the debt and acquiring an asset.  We have rented out her 1 BR, 1 BA condo to a young couple and that has worked out very well for us.  The mortgage payment with tax and insurance plus association fees exceeds our rental income by a significant amount, but we both have good jobs and were doing just fine paying the bills and stashing money away before we were married and now we've improved that efficiency by moving in together.  Obviously, we'd like to refinance this condo to make a better effort of generating a positive cash flow or at least minimize the negative cash flow, but we have a ways to go before we're in a place to do a re-fi. 

My home is serving our purposes fine for now, but we would like to move to something a little bigger and a little more quiet.  It's a city neighborhood with a bit of turnover since I've moved in and has become increasingly a rental neighborhood.  Many of the long-term homeowners cashed out when the market was high and speculators are stuck with a lot of homes in the neighborhood and are renting.  This makes the neighborhood not nearly as nice and while we've had no real problems with crime, neighbors have had break-ins and more and more we're seeing police cars breaking up domestic disputes at all hours of the night.  As a guy, I don't feel unsafe, but my wife doesn't like it and we both agree that we'd like something quieter.  We're looking to start a family soon and the extra space and security would help.  My mortgage has a very low payment and rentals in the neighborhood lead me to believe I could generate a positive cash flow on this property.  I paid $205k and put $30k down.  I owe ~170k and Zillow also says its worth $120k (for whatever that's worth).  Furthermore, the home's location relative the city makes it a very affordable and accessible area (It's an area that should come back quicker than the cookie-cutter suburban homes pricing higher) and a new shopping center is scheduled for completion in a few years cleaning up an area that had been dragging property values down. 

So, our goal is to be moving in about 3 years.  We make a combined $135k/yr and I'm finishing up an MBA with a finance emphasis and anticipate a fairly significant raise in the next year.  We're saving all we can and hope to have about $75k on the sideline when it comes to time to buy.  Assuming the market doesn't come back in that time, we may be sitting on 2 homes with upside down loan-to-value ratios.  If selling one of them ends up being the way to go, so be it, but we'd especially like to rent the current home given the low payment and interest rate.  You don't become rich by buying high and selling low.  We think that holding it could be a good investment for us.  We haven't discussed our situation with a professional to see what having two mortgages does to our prospects of getting a third, but I have to think it's not going to help us.  Presumably, the ~$75k will help to alleviate some concerns, but I'm looking for creative ways to make this work.  I thought starting a real estate holding company might be an option.  Basically, selling one or both of the homes to another entity to get the debt off my credit report.  My thinking was that although I can deduct costs associated with upkeep and repairs on the rental places now, this might be an easier way of expensing those costs and basically running the two rental properties like a company. 

So, my question is this?  Can this even be done?  My little research has suggested that I'd need to have more equity in the property to obtain the financing.  In the same way that I can't refinance our condo now, I'd be even less likely to get financing for my holding company because the company would have limited liability.  Who would I talk to get these answers?  Is this a legal question or am I better off bouncing this off a mortgage broker?  If this is completely asinine and not viable in any way, what's the best strategy to get put us in a position to meet our goals.

NOTE: We realize there's a risk to renting as we could have any number of problems from evictions to vacancy to repairs, so you can certainly mention that as a justification for your thoughts, but our question is not whether to be landlords or not, but how to buy the home we're going to live in until we retire.

What's your advice for him?

Financial Strategy #5: Maintain Your Own Personal Bailout Fund

The book Your Stronger Financial Future: The Eight Essential Strategies for Making Profitable Investments lists eight misconceptions, truths, and strategies to help readers deal with a variety of major financial issues. I'll be highlighting these in several posts and giving you my thoughts on them.

Today we'll look at strategy #5 which deals with the necessity of having an emergency fund. The book says the following on this subject:

• The misconception: Government bailouts are for the insiders, not the people.


• The truth: The insiders saved us from a total collapse.


• The strategy: Maintain your own personal bailout fund.

They go on to say that we all should have six months of spending money in our emergency funds during "normal" times and nine months of expenses during a recession.

Not a whole lot to comment on this time. I do agree that we all need emergency funds and that the savings needs to be larger during times of economic uncertainty. In fact your actual emergency fund probably needs to be different depending on the overall stability and situation of your largest financial asset -- your career.

We have an emergency fund much higher than six months of expenses and probably need to actually pare it back a bit. But given the current economic climate I'm not ready to do that at this point -- until it at least appears that we've turned the corner.

How the Typical Family Pays for College

The Wall Street Journal gives a three-year countdown for college saving as follows:

Three Years Out: While you've hopefully been setting money aside since your teen was a baby, this is the time to get your college savings on the fast track.

Two Years Out: Continue funding your 529 and other savings accounts, upping the amount if possible. This also is the time to start taking a serious look at potential schools -- and estimating the cost of each.

One Year Out: By this point, you should have the bulk of your money in less-risky investments, such as money-market funds, CDs and Treasurys, since you won't have much time to recoup any losses. Mr. Kantrowitz says no more than 20% of college savings should be in at-risk investments when your child is this close to college.

Really? A three-year plan? What about a ten-year plan? Wouldn't that make life a whole lot easier? Ugh.

What really interested me in this article though (since the three-year stuff was mostly a waste) was the pie chart detailing how the typical family generally pays for college. It is as follows:

• 33% Grants and scholarships
• 30% Parent income and savings
• 15% Student borrowing
• 11% Student income and savings
• 7% Parent borrowing
• 4% Friends and relatives

Our plan is to get 100% from friends and relatives. Anyone want to donate as a "friend"? ;-)

Seriously, here's what we are planning on doing:

• Grants and scholarships -- If our kids get one/some, this would be great, but we're not counting on them.


• Parent income and savings -- This is where we'll get the vast majority of the college funds for our kids.


• Student borrowing -- Not going to do this unless it's an extreme case (like they insist on going to a school that's $50k per year.)


• Student income and savings -- Yes, we'll expect our kids to work and help pay for their own educations.


• Parent borrowing -- Nope, not gonna happen.


• Friends and relatives -- Again, not gonna happen.

Here are some additional thoughts:

• We've talked to our kids about what we will provide and won't provide for their college costs (for details, see Determine a College Budget), and they see the vision: if they can help pay for their college themselves through work, scholarships, etc., they'll get a good amount of money from us that can be used for a car, house downpayment, etc.


• One of our kids (an over-achiever) is already working to pass the CLEP test for Spanish (even though she's in 8th grade.) She has a tutor and is planning/hoping to pass the test sometime next spring/summer/fall. The motivation? I promised I'd buy her an iPad if she did. :-) Throughout the course of high school, we're hopeful that she can get 15-20 college credits through a combination of CLEP and AP/college classes.


• Our kids' course through college should leave them graduating with little debt, especially if they keep costs low and work to supplement what we've saved. I can see the situation playing out in something similar to this.

How about you? Anyone else working on college savings/plans for your kids?

Would You Do Your Job for Free?

Lifehacker likes the saying "If you wouldn't do you job for free, then quit." Personally, I think it's unrealistic and a load of hogwash.

I would argue that very few people actually could find any job that they would do for free that would pay any sort of living wage.

For instance, here are things I see American's being willing to do for free:

• Sleep
• Eat
• Watch football
• Visit with friends
• Take a walk on the beach
• Play games

The list could go on and on, but you get the idea. Things people want to do for free are things they LOVE to do -- and it's very rare that these ideas combine with work (FYI, that's why they call it "work" and not "fun.")

Here are things that are generally associated with work that makes it something that most people wouldn't do for free:

• Getting up early
• Commuting
• Playing politics
• Having others tell you what to do
• Stress
• Being away from family/friends

Again, the list could go on.

So, is there really any sort of work that people would do for free? Maybe. But those jobs are few and far between.

Now that said, this doesn't mean that all people hate their jobs. In fact, you can like your job or even love it when you consider the fact that people/companies pay you for it. For instance, I like my job a lot. I enjoy the people, the company, and the work. Would I do it for free? No way. Am I happy with the effort/reward system that's inherent in it? Of course. Otherwise, I'd be looking for something else, right?

Another example: would most people like being trash collectors? Probably not. Now let's say that cities paid trash collectors $250,000 a year. Would more people be happy as trash collectors? I'm guessing they would.

Here are my points:

• Trying to evaluate a person's happiness in a job without the associated compensation is crazy. It doesn't make much practical sense IMO.


• So to say that you should be willing to do your job for free or you should quit is nonsense.


• This whole line of thinking is similar to the "do what you love and the money will follow" philosophy. I disagree with it as well.


• What I do agree with is to find something you LIKE doing that pays you a salary you like (or even love). For more details on this line of thinking, see Doing What You Love Versus Doing What Pays.

Then again, perhaps I'm way off base and there are tons of you out there who would do your job for free. Any volunteers? ;-)

Financial Strategy #4: Getting Professional Help

The book Your Stronger Financial Future: The Eight Essential Strategies for Making Profitable Investments lists eight misconceptions, truths, and strategies to help readers deal with a variety of major financial issues. I'll be highlighting these in several posts and giving you my thoughts on them.

Today we'll look at strategy #4 which deals with getting professional help with your finances. The book says the following on this subject:

• The misconception: Wall Street is corrupt, so you should avoid it.


• The truth: Wall Street plays hardball, with no legal obligation to the little guy.


• The strategy: Retain a licensed financial professional who deals with Wall Street.

The rest of the chapter is a case for why you need to have a financial advisor and should not handle your money on your own.

Here's my take on this:

• I'm not anti-finance professional. I use finance professionals myself -- a CPA (taxes), a lawyer, and an insurance agent.


• That said, I do NOT think that you HAVE to have a personal finance professional advising you on how to manage your money. I think the basic principles that are part of good money management can be learned by anyone. They're quite simple after all. And if you just know that basics, that about 90% of the way there to a great net worth (the other 10% can be filled in by a CPA, etc.)


• I do not agree with the book's take that you're a poor individual and without help you have almost no chance of managing your money well. Specifically in the area of investing, the book seems to think that if you don't have help then you're crazy.

I'm not sure I've ever asked this question, so now's a great time to: do you use finance professionals to help you as you manage your money? If so, what kind (CFPs, lawyers, CPAs, etc.)

Still Great Customer Service from Costco

A couple months ago I went in for an eye exam. My doctor said my prescription needed to be adjusted slightly (I should have told her the old one was fine in retrospect -- I could see completely well with it) and gave me a new one.

Over the next month I shopped all around looking for the style of glasses that I liked (and, more importantly, ones my wife and daughter liked/approved.) We finally found a set at Costco. I would have purchased the glasses there anyway since I was tired of looking for the right pair, but it turns out that the Costco glasses were the best price we could get (my wife had bought glasses recently and done the comparison.) Even though other places got more insurance money from our provider, Costco glasses were still the best net price. So it was a win-win to find great glasses at a good price.

We ordered the glasses and Costco called us when they were done. We picked them up a few days later and as I put them on, I noticed that something was "off". I attributed that to changing from one prescription to another. But as I wore the glasses the next two weeks, it wasn't getting any better. Then I got to the root of the problem: I could see marginally better far away, but my vision up close was worse. In fact, I couldn't even read my watch any longer.

So I went back to my doctor. They noted that the change in my new glasses was just in one eye compared to my old prescription and that the change was the smallest increment possible (the why change it, anyway?) But they did say that my sight should be better far away (which it was) but worse up close (which it was.) I told them I'd prefer to go back to my old prescription and they agreed that this was acceptable. I asked what I should do with the glasses (which, by the way, they had confirmed were made to their new prescription specifications) and they said that I should take them back to Costco for a new lense -- that it was common for Costco to make changes like this if needed.

I was skeptical. After all, Costco had done nothing wrong. They gave me the glasses I selected with the prescription as written. Would they really change my glasses for free? I didn't think so. I wouldn't have if it was my business.

So I went back to Costco, fully prepared to pay at least some sort of adjustment fee. I told them what had happened and there were no questions at all. The lady took my glasses and the new prescription and told me they'd call when the new glasses were in. They called us a few days later and we picked them up. Easy as pie!

Since I often complain when I get poor service, I also try and note when I've received good service from companies -- and this was an example of great customer service IMO. Perhaps it is common for eye providers to do what Costco did for me and perhaps it's not. But I was certainly impressed with how they handled the situation and it made me more likely to make other major purchases there.

Financial Strategy #3: Setting Your Retirement Number

The book Your Stronger Financial Future: The Eight Essential Strategies for Making Profitable Investments lists eight misconceptions, truths, and strategies to help readers deal with a variety of major financial issues. I'll be highlighting these in several posts and giving you my thoughts on them.

Today we'll look at strategy #3 which deals with planning for inflation's impact on retirement savings. Then, it helps you estimate your retirement number. The book says the following on this subject:

• The misconception: The Fed skims 5 percent from our currency, causing inflation, which ruins our savings.


• The truth: A central bank has positives and negatives.


• The strategy: Identify the inflation-adjusted amount you need at retirement.

These three aren't really the meat of this section. IMO, the interesting stuff is when they help you determine your retirement number as follows:

What specific amount of money do you need to reach in order to retire successfully? How do you determine that number?

Twenty. Your number is 20 times the amount of money you are spending this year. If you are living on $50,000 this year, then your retirement number is $1 million. If you are living on $200,000, your retirement number is $4 million.

They then give three guidelines that add specifics to this formula:

1. Do not multiply 20 by your gross income. For example, if you make $100,000 a year but $40,000 goes to taxes and you save $10,000, then you are spending $50,000. Your number is $1 million ($50,000 after taxes and savings x 20).

2. Your number, the pile of money you need to retire, does not include Social Security and also does not consider the effects of inflation on your non-Social Security assets. When added together, these two at worst will cancel each other out.

3. Your savings should be held in liquid assets -- not in your business, not in the value of your home, not in the peat moss in the backyard.

And finally, these qualifiers:

The formulation of your number assumes you have no other debt and the mortgage on your house is paid in full.

Here's my take on this:

• I'm not sure why they take out taxes. Are they assuming you won't pay taxes in retirement?


• We don't have any debt, so we're ok on that front.


• As most of you know, I updated the estimate of my retirement number earlier this year.


• Using their simple formula above actually nets me a number that's well below what I had estimated in my plan.


• Using their simple formula above, I'm ready to retire now. ;-)


• They suggest a withdrawal rate of 5%. It seems a bit high to me, but they justify it well enough in the book.

What's your take on the formula? And if you used it, how close would you be to hitting your number?

Bank of America Already Hard to Deal With

Here's an update on my new credit card strategy I posted a couple weeks ago:

• I received all the notices from Bank of America saying my FIA Services card was being converted to a Bank of America card. I have until the end of October to use my 2% cash back card. After that it converts to the 3% gas/2% groceries/1% everything else Bank of America card. (FYI, I get 6% back on gas and groceries -- plus other things -- by using my Amex Blue card and gift cards purchased at my local grocery store.)


• So trying to be proactive, I called BoA and told them I wanted to use the FIA card until October 31, but to cancel the BoA card so it was never sent to me. Their response? They couldn't do that -- I would have to call back again and cancel it. I told them I was trying to save them time and money (so they wouldn't have to go to the expense of sending me a new card) and myself time (so I wouldn't have to call back) by calling now and setting up the process. They couldn't do that. The set-up was "automatic" and "in the system" and there was no way to set up a cancelation in advance. I asked when the new cards would be mailed out so I could call before that happened. They didn't know. In other words, they were about as helpful as Comcast.


• I did go ahead and apply for the Citi card I mentioned. My wife was pre-approved, but I wasn't, so I still need to wait and see if we both made it. I'd be surprised if we didn't.

Anyway, here's a shout out to Bank of America: if you'd like people to do business with you, you need to have something called CUSTOMER SERVICE. I don't even have an account with you and you're already making it hard to do business. So why would I actually want to enter into any association with you?

Carnival of Passive Investing

Welcome to the Carnival of Passive Investing. As you might imagine, this carnival is a weekly collection of money-related stories around the idea of passive investing. And this week, I'm the host!

If you're new to Free Money Finance, you may want to check out a few posts to get a feel of the site. Here's a list of my best posts from last year. I write on all sorts of topics -- from making money with credit cards to maximizing your lifetime earnings to avoiding bad money moves. If you like what you see, you can subscribe to FMF. 

I'm also a big fan of passive investing. ;-)

There were tons of submissions this month, but unfortunately few of them had to do with passive investing. There were many that were spam, many that focused on various aspects of investing that were not passive investing, and many that dealt with earning a passive income (which is also different than passive investing.) So what I give you are those that met the criteria and actually sent something associated with this carnival's topic.

I was supposed to pick three editor's choice posts, but since there are so few this month I'll simply list them all and allow you to select your favorites:

• Best Index Funds for IRA - Index funds are the best form of passive investing and have the lowest cost. These should really form the core of your IRA Investing.


• Is the Buy and Hold Investment Strategy Right for You? - Probably one of the best known investment strategies is buy and hold. Buy and hold is a long term investment strategy where one buys an investment and is not frightened by temporary fluctuations in the investment's value. Buy and hold is frequently touted by the legendary investor Warren Buffett, and many mom and pop investors subscribe to this investment style because it's a passive investment style. However, despite Warren Buffett consistently preaching about buying and holding, there is a secret that he didn't tell you, because he doesn't realize it. Buy and holding doesn't work for everyone. It only works for the right people under the right circumstances.


• Should You Automatically Reinvest Your Dividends? - One of the easiest ways to passively invest is to pick stocks that pay great dividends and automatically reinvest them. There are 5 great reasons to automatically reinvest, but 7 reasons to avoid it.


• Are Actively Managed Funds a Fool’s Game Compared to Index Funds? - We don't always get what we pay for, and this concept comes into play when making a general comparison between actively managed funds and index funds. Are investors getting punished for seeking above-average returns?


• How to Change Your Stock Allocation for Value Informed Indexing in Response to Valuation Shifts - Value informed indexing provides a way to invest in stocks only when they are priced right. See how to change your stock allocation for value informed indexing and find out how the market is valued.

Thanks for stopping by the carnival!!!

10 Ways to Grow Professionally

US News lists 10 ways to grow professionally as follows:

1. Take a class.
2. Teach yourself a skill.
3. Volunteer.
4. Master an online tool.
5. Seek out people who are on the career path you aspire to.
6. Shadow a colleague.
7. Find a mentor.
8. Read.
9. Attend a conference.
10. Don't neglect your "soft skills."

I'll be writing more on this subject in the future, but my general feeling is that people don't spend a whole lot of time consciously managing their careers -- thinking strategically how they can grow their careers, writing down goals to improve their skills and abilities, and tracking results to see how well they are doing. (Complete honesty: I don't even do this to the extent I should, so I'm probably leaving money on the table too.) Failing to do these things is a HUGE mistake and can potentially cost you millions of dollars in income over a working lifetime. In addition, not taking action can also make your job less enjoyable because you may be stuck at a level below what you could be working at (and enjoying more) because of your lack of effort in this area.

Your career is your #1 financial asset and you can take steps to make it worth much more than if you do nothing. IMO the list above is a good starting point of tasks we all should consider as we think about how best to grow our careers.

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Rising Tuition Fees – The Next Bubble?

Enjoy!

Financial Strategy #2: Social Security

The book Your Stronger Financial Future: The Eight Essential Strategies for Making Profitable Investments lists eight misconceptions, truths, and strategies to help readers deal with a variety of major financial issues. I'll be highlighting these in several posts and giving you my thoughts on them.

Today we'll look at strategy #2 which deals with Social Security. The book says the following on this subject:

• The misconception: Social Security is on the brink of collapse.


• The truth: Social Security is as secure as the dollar -- even more so.


• The strategy: Develop an overall financial plan with Social Security as just one part.

Personally, I don't think Social Security is on the brink of collapse -- at least the type of collapse where it simply "goes under" and takes the economy with it. But I do think that changes are inevitable. Something has to give -- either older ages before benefits kick in, reduced benefits, some combination of the two, or something else -- but it's clear to me that there's no way Social Security will stay unchanged forever (and probably not even for the next decade.)

That said, I'm still not counting on Social Security as part of my retirement plans. No one knows how much they'll cut/change it, so I'm saving for retirement as if I'll get nothing. That way, I'll be fine if they cut benefits to the bare bones and be pleasantly surprised if they don't and I get a good amount back. Either way, I have a secure retirement.

By the way, sometime in January I'll give you an update on how my retirement plan is going. Much of it depends on how the stock market performs and as we all know, that's been a rollercoaster this year. At least it keeps things "interesting", huh? ;-)

Generosity as the Antidote to Envy

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

Sound Mind Investing says that generosity is the antidote to envy. In the post, the author tells the story of how he and his wife gave up an inherited set of appliances to someone they felt needed them more. As a result of giving, the couple felt like they experienced a bit less of the envy many of us feel when we see our friends and family with newer/bigger/better things (cars, homes, vacations, etc.)

It's a constant battle against keeping up with the Joneses, isn't it? We see, we envy, we want. And the next step for most people is "we buy." It's the cycle that not only keeps our focus on accumulating more stuff, but that also gets us mired in debt, not saving like we should, and the like.

Giving tends to take the focus of "stuff" and put it on "people." When you are helping to heal, feed, clothe, etc. people by giving of your money and time, all those extra things seem much less important. In this way, I agree with SMI that giving is an antidote for envy.

Whenever I consider this issue, I'm always reminded of the scene in Schindler's List where he notes that things he accumulated could have actually been used to save more people's lives (even though he had already saved many people from death.) Here it is (it's a bit hard to hear, but it's the best version I could find):

This isn't to say that we shouldn't accumulate anything at all or that we shouldn't have "nice" things. I know that this line of thinking can be taken to an extreme as well -- and thus conclude that we should give EVERYTHING away. What I'm saying is that there's a need for both balance and perspective. To me it seems as if much of America has crossed the line of reason into an almost fanatical desire for more stuff, much of it spurred on by envy of what others own. All I'm suggesting is that we step back a bit, look at the world around us, and consider giving a bit to help those in need. Doing so will help fight those demons of envy.

Financial Strategy #1: Planning for Retirement

The book Your Stronger Financial Future: The Eight Essential Strategies for Making Profitable Investments lists eight misconceptions, truths, and strategies to help readers deal with a variety of major financial issues. I'll be highlighting these in several posts and giving you my thoughts on them.

Today we'll look at strategy #1 which deals with planning for retirement. The book says the following on this subject:

• The misconception: You're already prepared to retire.


• The truth: Recent trends make it much more difficult to retire.


• The strategy: Overcome the misconceptions and chart your course.

I have to agree with the misconception here. Many people think that they have Social Security and that's all they will need to retire. These people are sorely mistaken (and by a long-shot.) If you are counting on Social Security as your sole source of retirement income, you are NOT prepared to retire (and you won't be until you change a few things.) I'd go so far as to say if you count on Social Security for a large portion of your retirement income, you're probably not prepared to retire.

Unfortunately, it's not easy to save enough for retirement, as they point out in the "truth" statement. They note that Social Security will likely be decreasing benefits, traditional pensions have gone away, 401ks are not working as planned, and a whole host of other issues that point to the fact that it's tough to retire. I have to agree here as well.

Their strategy is listed in six steps as follows:

1. Develop an overall financial plan.
2. Identify the inflation-adjusted amount of money you will need at retirement.
3. Retain a licensed financial professional.
4. Develop a personal emergency fund.
5. Instead of accruing debt, store up savings.
6. Consider annuities to overcome longer life expectancy.

I'm not so sure about steps #3 and #6. #3 could be something like "learn about personal finances so you can manage your own money," though you'd then probably want to make this step #1. And #6 is "ok" as long as the emphasis is on the word "consider." It's fine to consider all your options IMO, but I can't tell if this is what they truly mean or if they are endorsing annuities for everyone.

What's your take? Did they get it right or is something off/missing?

FMF Oct Newsletter

Welcome to the Oct 2011 issue of the Free Money Finance e-newsletter!!!!!!

I have two newsletter exclusive giveaways this month. Below there are links to each of the giveaways (made
known only to readers of this newsletter). Click on the link(s) of the giveaway(s) you want to enter and follow the directions there. Prizes include:

1. Box of Books

2. $50 SmartyPig gift card 

Good luck!

Win a Box of Books!

Welcome FMF newsletter readers! Here's a chance for you to win a box of personal finance books (the books included are here).

Here's how it will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. In a week or so, I'll select the winner at random and announce the winner on this post.

3. I will email the winner, get their contact information, and arrange for them to receive their prize.

As always, the standard rules apply.

Good luck! Post a comment below for your chance to win!

Win $50 from SmartyPig!

Welcome FMF newsletter readers! Here's a chance for you to win a $50 gift card from SmartyPig -- given either as a credit to a current account you have with them or as credit to a new account that you'll set up.

Here's how it will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. In a week or so, I'll select the winner at random and announce the winner on this post.

3. I will email the winner, get their contact information, and arrange for them to receive their prize.

As always, the standard rules apply.

Good luck! Post a comment below for your chance to win!

Reader Profile: Rose

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. I'd love to have you tell your story here.

Next in the series is FMF reader Rose. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 33 year old single female. I live in the Midwest and work as an attorney for a company. I started out working for a law firm earning $125k and then moved around a bit and have been in my current job for over 4 years.  However, now almost 10 years out of law school I am still earning not much more than I started out with in my career due to my job hopping, which totally defeats the purpose of job hoping but my first job was in NYC so anything after that was definitely going to be a decrease. My move from a law firm to a corporate job was the wake up call that made me look at my finances as I had been living paycheck to paycheck and I realized I earn way too much to be living paycheck to paycheck plus I needed to determine if could I afford to live on a little less. Turns out I could once I actually focused on expenses. I took a close look at my finances and started living on a budget and I have now reached the point where I can save a lot and spend on luxuries if I want to but I tend to be frugal so my idea of spending on luxuries is mainly limited to traveling.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

I take care of myself and generally do ok. My committed expenses are approximately 25% or my income.  I like to think that number is low as I have worked to cut down as many unnecessary expenses as possible and every year, I focus on my budget to see what else I can decrease.  I have a mortgage-an 80/20 loan with the 20% balloon coming due in about 10 years and at 7%, and the 80 being an ARM which has adjusted annually over the last three years to a much lower rate than I could ever hope for. I am paying about 3% and every year I look at refinancing but I live in a condo so am a bit underwater plus I have been intending to move for the last two years so I don’t think the costs of refinancing would be worth it. I am comfortable I would be able to deal with any rate increases (they are capped at increasing to no more than 2% each year) for at least 2 years once rates start to rise. My other big expense was a car. I saved and had enough to pay for my new car last fall. I ended up financing at 0.9% but then paid it all off earlier this summer. I preferred the cash flow and my savings were not earning much at ING.  I also have student loans of about $50k at 1% so I am paying those off very slowly.

Monthly, I invest and save about 45% of my income, investing mainly in index funds.  I travel a lot for work and for personal since my family and friends live all over the world so that’s probably my biggest expense. As I moved to my current job 4 years ago, I took a really close look at my finances and for almost 2 years, tracked every penny.  I have since managed to save up a 1 year emergency fund plus extra and even though I no longer track each penny, I still have a budget so the majority of my dollars are accounted for. 

For retirement, I save 6% in my company 401K and I get the max 6% match.  I also have a rollover IRA from previous jobs and I funded a regular IRA for the last two years.

That leaves me with about 30% of my paycheck which I further save or spend as necessary.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

The fact that my mortgage has a huge ARM component weighs on me since I like security but I check the rates every few months and since the Fed has announced that they do not plan to raise rates for another 2 years, I am hoping I will be out of this mortgage by then.  I am underpaid in my current job and this has been confirmed by peers or subordinates who have taken similar jobs at other companies and has also been confirmed by headhunters. I really enjoy what I do but I am sure I can do similar work at a different company with less stress and feel more valuable. I am hoping to move to Texas once the economy picks up. I have been underpaid for about 2 years and it’s frustrating but I also know with the uncertainty in the economy, now is not the time to jump ship without knowing what’s next.  Being able to get rid of my mortgage and my current job and my current city would be wonderful once I have something even better to fall into.

I always feel I can be doing more to save for retirement but my investment vehicles are pretty limited to the IRA and 401K, the latter of which is limited to 6% under the highly compensated employee rules since my company is bottom heavy—lots of plants and employees who don’t participate in the 401K so everyone else is limited as to contributions. And this has been going on for years so well before the recession started.  All other retirement savings is in taxable accounts.

What are your plans for the future. (retire early, build your career, etc.)?

I plan to get married and have kids within the next 2 years. I plan on continuing to work until retirement although I do not have a set date yet. I would love to retire in a lower cost of living country but I have at least 25 more years before seriously contemplating those options. I absolutely believe in taking a year off  to raise kids instead of the standard 6 week maternity policy in the US which I think is atrocious and sucks for women, but that’s for another post. I don’t know how that will work out with a job but I will do what I have to.

My motivation to keep saving, even though I have reached my major goals of an emergency fund and travel funds are that I can use the money if I need to move  or for a wedding. Writing this profile actually helps me think about why I keep saving but I have most everything I need that money can buy so I am quite happy to save the rest for the future and continue charitable donations as often as possible. I actually have an account named ‘charitable contributions’ in my online savings account so whenever it gets to a certain amount, every few months I can donate to my favorite charities instead of waiting till December like I usually would. 

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

I started reading personal finance blogs with the last job change and they have really made all the difference so thank you FMF!

There are a few key phrases I have picked up and everyone knows the basics:

• Know where every dollar goes


• Spend less than you earn


• Balanced budget plan- determine what percentage of your income falls in the following brackets for [needs- (committed expenses e.g mortgage)] [wants- not committed expenses but other expenses] and [save/spend]

My committed expenses (needs) are about 25% of my take homes so I get to save 45% and spend the rest. This relieves me from feeling guilty when spending my hard earned money and lets me sleep at night knowing a rainy day won’t ruin me.

My main philosophy is determine what your “Enough” point is. It’s so easy to keep buying stuff, but once you decide you don’t need anymore stuff, your money can really go far. This is also helped by not really caring about the Joneses and not trying to impress everyone around you.  It has made such a difference in my outlook.

I plan to teach my kids as much as possible about personal finance. I can’t say my parents deliberately taught me but my mom and dad are polar opposites. My mom would go shopping and hide the results in the trunk till my dad was asleep or out. My dad preferred to save save save although spending on the kids was fine. I come out somewhere between though more on my dads side as my mom’s propensity to shop without purpose helped me to now as an adult, avoid shopping malls or other temptations unless I have a purpose.

Star Money Articles and Carnivals for the Week of Sept 19

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week:

• Money is the Root covers the importance of cash management.


• Krant Cents lists 20 interview questions to ask employers.


• One Cent at a Time says spending money on self improvement is an investment.


• The Penny Hoarder lists five weird ways to make money recycling.


• Squirrelers asks if you'll give to your kids equally or not.


• My Journey to Millions wonders who runs your financial household.


• Money for College Project gives an insider's guide to dominating your financial aid.


• Money Crush wonders about refinancing a mortgage.


• Festival of Frugality


• Cavalcade of Risk


• Carnival of Personal Finance

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Taking a Private Boat Vacation

A few weeks ago my kids and I were watching House Hunters on Vacation when the family had the normal choice of which of three places to stay in for a week. Only one of the choices was non-traditional. Instead of a house it was a large yacht -- complete with its own crew (two people, I believe). We all immediately said how cool the ship was and that we would pick it if the choice was ours. So we were happy when the family selected it as well.

Given that experience, I was interested to read Smart Money's take on private boat vacations. The basic idea is that people rent boats -- either with or without a crew -- and spend their vacations on them instead of in a hotel.

I actually considered this option as I've looked at our Caribbean vacation. It might be something we do one day, but I think the cruise will work better for now. Why? Because the "renting a ship" idea is:

• More expensive


• Limits what you can do (you have fewer choices of non-boating activities)


• Won't get to as many of the islands we'd like to see

That said, there are a lot of pros to renting your own boat (and crew -- I wouldn't rent just the boat since I know little about boating) such as flexibility to go where you want when you want, a week on the water (CLOSE to the water -- not like on a cruise liner), and so forth. In addition, with the poor economy Smart Money says that boat operators are more willing to negotiate, making this a more reasonable option price-wise.

Has anyone ever taken a boat vacation (or looked at doing so)? What did/didn't you like about it? Any tips for the rest of us?

Winning My Battle with Debt with Contests

The following is a guest post from Matthew Fletcher, author at Contests for a Year.

I have a thing for hummus. I can go through an entire container in one sitting, though I try to leave just enough at the bottom so I don’t feel like too much of an addict. And there’s one particular brand that I’m absolutely in love with: Sabra. One afternoon while inhaling enjoying Sabra and pita chips, I noticed that the container was advertising a contest. Make a commercial for them and you could win a trip to the Mediterranean as well a year’s supply of their chic-pea ambrosia. Amazing! So I decided to take a dip into the world of contests. I shot the commercial, submitted it, and won. Here’s the video:

(PS- That’s me playing the Borat-type hummus lover in the Greek dancing costume. Opa!)

After the trip and my year’s supply of deliciousness, I had developed a new appetite…for contests. I entered a few more, and won those too! Now I was winning cash. It got me thinking that maybe I could get serious about this and use contests to develop an additional source of income. I mean, it worked for Julianne Moore in “The Prize Winner of Defiance, Ohio” (It’s a B-minus movie, but a total A-plus true story about a woman who kept her family afloat by winning competitions in the 1950’s).

So, I started a blog where I enter an online contest every day for a year to see if I can win money in order to get out of debt.

So far, in 2011, I have won exactly $12,338 in cash and prizes. I have been able to put a lot of that towards my debt and have paid it down by about a third.

I’ve won for shooting commercials, creative writing, random sweepstakes and submitting crazy photos.

The world of contesting is vast. Companies host all kinds, ranging from the very straightforward to the totally bizarre-o. I’ve entered ones where I’ve wrapped myself in gold foil while playing tennis, guessed the cost of shipping a stuffed tiger (it’s $310,FYI) and designed a horse themed birthday party for girls who are horse mane-iacs. Some of the prizes are big, like the 10 grand I won for a Barbie commercial. And some of them are small, like the musical download I won of the Hot Pockets jingle. (Yup, that jingle. It was in my head for days…I nearly had a Hot Pocket melt down).

One of my best sources of winnings has been from the website Tongal. They are a commercial creation website. Through them, I’ve won over $11,000 by submitting concepts and commercials for Benjamin Moore, Lipton Iced Tea, Mattel, and Robert Half.

Do I always win? No. Do I think I should? Hello!!

Do I think that contesting is a smart and viable way to get out of debt? Well, somehow in my magical Hogwarts mentality, I actually think it might work. I’m showing up every single day and doing something towards getting out of debt. I’m not hiding my debt in a dark corner and pretending that it’s going away. I’m taking an active role in trying to reduce it.

Now maybe my debt solution approach might be a little fantasy-like, sort of like hoping that the doorbell will ring and it will be Publisher’s Clearing House outside (although I did enter that one, and do kind of think that that might happen. I should probably get an outfit ready for the photo op). But rather than living in fear and shame of my debt, I’m accepting and addressing it. I mean, first off, I’ve admitted to the world on-line that I am actually in debt, which is an important first step into getting debt free. I think that looking at it straight on, on a daily basis, has helped me to put it in perspective. The stigma is gone. A lot of my friends are in debt. They feel suffocated by it and ashamed. In talking about it with them, (and blogging about it) the pressure is released, and I find that I can begin to deal with it in a less hysterical way.

Do I recommend that other people enter contests to get out of debt? Absolutely not! That would totally decrease my own odds of winning (I’m just kidding…well, kinda). I’m good about sharing the wealth. I always post links to the contests on my blog.

If you are going to enter contests here are a few suggestions:

• Do your contest research and find what suits you best. There are LOTS of different contests to enter, listed on of various websites and blogs (photo contests, video contests, recipe contests, guessing games). You can do a search for these websites, or even do a search for exactly what you want to win (win money, win a free sofa, win a trip to Spain).


• Pay attention to the different rules for contests. Some of these contests ask you to get votes for your submission from your friends. This is a way for the companies to get more people’s information. This could either launch you into financial success (if you win) or ostracize you from all your friends and family for continually badgering them about voting (speaking from experience here).


• If you enter a sweepstakes, enter as often as possible. There are people out there who are professional ‘contesters’ who do this practically as their day job and are submitting on a daily basis. Get in as many entries as you can.


• Beware the evil contest taxes. You can’t claim your prize and just say “Thanks guys!” That Macbook Air you won?…there will be a prize tax on it come April 15th.

Contesting and blogging offers me a number of things. It gives me hope. Hope that I’ll be able to wipe out my debt once and for all. And although hope isn’t an action plan, it definitely helps me keep a healthy perspective. The blogging gives me a sense of purpose and direction in relation to my debt; I am actually doing something towards knocking down that beast of a number. And if I do it right, I get some cash. Then I can continue to pay off my debt in large (or Hot Pocket sized) chunks and maybe, just maybe, start to buy some nice things again: like the party sized tub of Sabra. Have you tried the stuff? I mean, I don’t even know where to begin. It’s hummus heaven.

Over 50% of Americans in Bad Financial Shape

The book Your Stronger Financial Future: The Eight Essential Strategies for Making Profitable Investments highlights the following findings from a Center for Retirement Research study:

• 24% of Americans believe they are in good financial shape and are correct


• 28% of Americans believe they are in good financial shape and are wrong


• 33% of Americans believe they are in bad financial shape and are correct


• 16% of Americans believe they are in bad financial shape and are wrong

What I found most interesting was the fact that 61% are in bad financial shape (whether they know it or not.) The book doesn't define "bad financial shape" and how severe it is, so we're left wondering. But given the finances of the average American, is it hard to believe that over 60% of Americans are in very rough financial shape? Not for me.

I was encouraged to see that 40% were in decent shape. I think many in the first group are readers here at FMF (you all seem so smart!) And we just need to get the word to the last group that they are doing fine -- and to keep up the good work. Then they can join the rest of us in the first group. ;-)

What's your take on this information? Surprised or not?

Reader Profile: GB

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. We've had a good number of these lately, but I'm always interested in more.

Next in the series is FMF reader GB. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 47-year old, former D-1 basketball player who now works as a teacher, coach and administrator in south Georgia.  I am married and have a son in kindergarten. My greatest joys in life are being a husband and a father.  I also enjoy working with my students and athletes; I sometimes feel like I am an uncle to about 500 nephews and nieces.

While I was not always the greatest student, I did manage to will myself through four degrees:  B.A. in History, M.B.A., M.A.T.L. in Spanish / TESOL and an Ed.S. in Administration and Supervision.  I also completed an online Certificate in Financial Planning from FSU.  My wife only has three degrees, so naturally I lord this over her every waking moment.

Away from school, I enjoy long distance running, weight-lifting and Pilates.  I especially enjoy trail running during the cooler months; there are so many awesome timber / farm roads here.  As of January, I have been on the Slow Carb diet, and I have lost 35 pounds without counting a single calorie!  This dietary change has greatly helped my running and improved my overall health.  This year I plan on running my first marathon.   Depending on how I progress, I might also try to run an ultra marathon event.

At home, we watch a lot of cartoons, TV shows, movies and documentaries on Netflix; we have not had cable TV in almost three years.  I do not miss cable's high prices and commercials!  When I tell people that we do not have cable, I see a combination of disbelief and pity on their faces as if we lived in a cave.  Don't worry about us folks; we have more than enough entertainment options.  We also use the public library to the max.  For example, I currently have 45 books checked out.  We pay very little for entertainment ($10 for Netflix), phone ($60 a year for an unlimited Skype plan with “regular” number) and internet ($45).  We eat out about once or twice a week.

At home, my wife and I split the cooking duties.  Fortunately, we are both decent cooks, so we eat very well at home.  My specialties include:  jerk pork steaks, curried lentils, and curried chicken.  We always have lots of good things to eat at home.   (People should learn to cook the dishes they like the most.  It’s much cheaper than eating out and it’s awesome to see your fridge loaded with leftovers that you actually want to eat!)

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

My wife and I make about $133,000 together.  Our current district does not participate in the Social Security plan, so we got a 6.2% raise by taking this job.  Our district kicks in another 5.24% into a 403b pension plan in place of Social Security.  In our eyes, that nets an 11.44% raise from our previous school district, so we are very pleased with these financial aspects of our jobs.  (We changed jobs in August of 2009.)

In addition to the district's retirement plan, we also contribute to Teacher Retirement System of Georgia.  Our monthly contributions are 5.25% our salaries.   The GA TRS starts paying out pensions at age 60.  Our district also provides us access to optional 403b and 457 retirement plans.  The last two years we have both fully funded our 403b and 457 accounts to the amount of $66,000 ($16.5K x 4).  We also fully fund our Vanguard traditional IRAs ($5K x 2 = $10K); we both use the 2025 Target Retirement fund.  In 2010 we saved over $82K in our retirement accounts, and we are doing the same in 2011.

Overall, we have retirement savings of about $415,000 invested in IRAs at Vanguard and 403b accounts at Vanguard and Valic.  We also have $110,000 in Valic 457 accounts which we view as our emergency account since these accounts do not have early-withdrawal penalties like other retirement plans.  All investments at Valic are invested in the short-term fixed account earning about 2%.  I realize that we are losing money to inflation, but we prefer that option to being subject to stock market volatility AND Valic’s excessive fees.  (I used to blog about the issue of 403b fee pillaging, but it was changing my naturally gregarious personality for the worse.  Suffice it to say that I think the vast majority of 403b annuity products SUCK due to excessive fees.)

We have a 2,200 sq. ft. home in our previous hometown valued at $160,000.  We owe $75K on the mortgage (@ 5.875%) and we owe almost $45K on a HELOC on the home.  (More on the HELOC later)  We also have $11K in credit card debt that we transferred to a 0% interest credit card (0% until 9/2012).  Both of our cars are paid off, so we have no auto loans.  We paid off our student loans for graduate school within two years of graduation ($40K).  Good riddance to those loans!

In 2009 we took new jobs and began renting our home to a teacher friend.  We feel fortunate to have a great renter in our home.  The rent pays most of the mortgage, so we have not explored the idea of selling it.  We presently live in a farm house that we rent for $750 a month. We are not sure if we will look to buy another home near our current job.

For our son we have contributed $2K in a Coverdale ESA every year since he was born.  We also have a GA 529 account with Tiaa-Cref; we contribute $25 a month.  Overall, we contribute $2,300 a year to his college accounts.  Currently, they are worth $13K.  I plan on discouraging him from taking on any student loan debt…what a racket that has become!
 
What are the current financial issues you're facing (saving, paying off debt, etc.)?

Our first financial concern is to pay off our credit card debt before September of 2012.  I am sure that I could get another favorable balance transfer if we still havs a balance, but we are both ready to slay this beast.  Next, we want to work on our HELOC balance.  Our HELOC and credit card balances got so big when we used them to cover living expenses when moved from our previous jobs in 2009.  Basically, we fattened our retirement accounts ($60K in 2009) via debt.  I realize that most financial planner would recommend against doing what we did, but we will take care of this problem over the next three years.  Currently, the HELOC has a 2.9% interest rate, and we are only paying the interest on the balance (about $110 a month).  Eventually, we will use the HELOC and its lower interest rate to accelerate the payment of our mortgage.

For the remainder of 2011, we still need to plow $23K in our accounts to max our retirement savings.  At the same time we will pay off at least $6K of credit card debt.  Slowly but surely we are making progress towards our goal of having a $1,000,000 net worth.

What are your plans for the future. (retire early, build your career, etc.)?

At some point we would like to take a sabbatical in South America for at least a year. We want our son to learn Spanish and Portuguese, so we would like to get him there while he is still young enough to absorb the languages.  As for career development, we plan to continue teaching and coaching but with more frequent “sabbaticals.”  I do not see us teaching beyond age 60.  Eventually, I hope to write a book about our alternative financial planning ideas.  (I keep saying “we” and “our” because if my wife were not financially on board, few of our financial goals would have ever been achieved.  Thanks Honey!)  
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Like most people, my financial worldview was shaped a number of influences.  The first tidbit that springs to mind is something that Andrew Tobias wrote.  Basically, if you do not save money regularly, your income level and investment prowess are both moot points.  Saving money is the first step; in our consumer society that step is often overlooked.  In some ways, a commitment to saving money is more important than increasing your income or investment return.

From John Bogle, I learned how investing fees can consume your return; consequently, I try to be a cost-efficient investor.  Since Bogle also helped me understand how difficult it is to "beat the market," I use index funds (or funds made up of index funds) to "buy the entire market."  My favorite financial writers are Scott Burns, Jane Bryant Quinn and Mary Beth Franklin.  Finally, I think everyone should read Paul Terhorst’s “Cashing in on the American Dream:  How to Retire at 35.”  While I did not retire at 35, Terhorst’s book changed the way I thought about money.  It really made me focus on gaining my economic freedom through saving and investing.  (Thanks Paul!)

Simply stated, my financial philosophy for success is:   1) to under consume, 2) to over save and to over invest, and 3) to almost pathologically avoid taxes and investment expenses (the 15% tax bracket is too much for us and any investment fee beyond 20 bips is ridiculous!).  At the same time, I try to keep in mind that money’s value is that it can free up your time and allow you to enjoy life.  So far this formula has worked for us.

Is Your Wallet Too Fat?

Smart Money laments the size of Americans' wallets with the following comments:

Here, on the posterior of many an American professional, lies one of the more unexpected twists in the evolution of personal finance. At a time when people seem increasingly reliant on their smartphones for all manner of interactions with the world, that oldest of handheld devices -- the wallet -- has remained a surprisingly enduring accessory. Indeed, for some people, the wallet is not only not disappearing, it's getting fatter -- with many Americans now hauling around so much stuff in their pockets that their billfolds have become, in the apt phrasing of one longtime lugger, "roving file cabinets." Even wallet makers, who have been pushing slimmer models for years, seem flummoxed by the trend: That plump bifold behemoth "is still our best seller," says a spokesperson for Wilsons Leather, one of the nation's oldest wallet specialists.

They offer some ideas on what to carry and not carry -- so you don't have to worry about carrying around a file cabinet the rest of your life. :-)

I last told what I carry in my wallet when I detailed my credit card strategy. Since then, things have changed a bit. Here's an update on my wallet status:

• I got a new "money clip" from Walmart. It's a small, fake leather, bi-fold card holder with a money clip on the outside.


• In the clip I carry cash (on the outside), my driver's license (in a see-through slot), my debit card (part of the high-yield account plan at my credit union -- I'll give you an update on how that's going in the next month or so.)


• Four credit cards fit in as well. These are all the slots I need to easily manage my new credit card strategy.


• My money clip is small enough that I can carry it in my left, front pants pocket.

No filing cabinet for me, though what I currently carry is a bit bigger than what I used to carry because I now have two extra cards -- a debit card and a new credit card.

So, as they say, what's in your wallet?

Merit Alone May Not Get You that Promotion

Here's a piece from Fortune that says merit alone may not get you that job promotion. The details:

So you've worked hard, produced great results, and have all the right qualifications. Nevertheless, that bigger job you had your eye on went to your boss's golf buddy, or old college roommate, or brother-in-law instead.

Scant consolation though it may be, but you've got plenty of company. A whopping 92% of senior executives say they have seen favoritism -- defined as the use of criteria other than performance -- determine who gets promoted, says a new study conducted by consultants Penn Schoen Berland on behalf of Georgetown University's McDonough School of Business.

For those of you who think that performance alone will get you promoted, it won't. At least in many cases it won't.

And I wouldn't say that "favoritism" is the problem/issue/reason. I think what they're really describing above is likeability. And as I've noted many times previously, being likeable is just as important to your career growth as is performance. A few samples of what I've said:

• Some "experts" think that being likeable matters more than being competent.


• The characteristics that make someone "likeable".


• You might not be getting hired because you're not likeable.


• There's no such thing as being too likeable.


• The more pleasant you are, the more job opportunities you have.

So, in addition to your three-point plan to deliver great results this year, it is probably worthwhile to spend a bit of time becoming more likeable as well. I'm not saying to fake it or to create some sort of character that you despise simply to get promoted, but we all can be a bit more pleasant if we tried, can't we? And given the fact that the smallest advantage between job candidates may mean the difference between promotion or no promotion, being hired or being turned down, isn't it worth a little effort to be slightly more likeable? I think so...

One Fee It May be Worth Paying

MSN Money lists 10 fees you shouldn't be paying including this one at #5:

Rewards card annual fees. An increasing number of rewards cards charge annual fees. However, there are cards with great perks and no fees.

Yes, it's true that IN GENERAL you do not need to pay annual fees to get a good rewards credit card.

And yes, it's true that an increasing number of rewards cards charge annual fees.

And yes, it's true that there are cards with great perks and no fees.

But that doesn't mean that there aren't cards worth paying an annual fee on.

For example, in How to Get 6% Cash Back on Grocery Purchases (Or $500 Cash Back) I highlighted one. Since I wrote that post I've gotten the card and have been using it very frequently. In fact, it's the #1 card in my current cash back strategy. IMO it's a SURE THING that this card has more than made up the $75 annual fee (and for new card holders, the $100 application bonus offsets the first year's fee anyway.)

Like with most things personal finance-related, there is a general rule and then exceptions. The general rule is that you shouldn't pay for a cash back rewards card. The exception is that there are some cards worth the money. Do the math based on how much you charge and where you charge, then decide if any specific card does or doesn't work for you accordingly.

Help a Reader: What to Do Next

Here's an email I recently received from a reader:

A year and a half ago, I read Dave Ramsey's book and starting making financial changes.  My wife and I have spent the past 16 months working hard to pay off our consumer debts which included $18,000 in credit cards and $21,000 in car loans.  Now that the cars are paid, I'm a little confused on what the next step should be.  We have several financial goals still ahead of us.
 
Stats:

• Age: we are both 28, no kids yet
• Take Home Pay: $7500/month (my wife is finishing a part-time MBA program next year, so hopefully income will dramatically increase)
• 401k: my wife puts in $660/month (10% salary with 4% match, I have no work plan
• IRAs: Both maxed out
• Mortgage PITI/PMI: $1050/month, $145,000 balance (4.5%)
• My student loans: $68,000 @ $500/month (4.2%)
• My wife's student loans: not in repayment until 2013, we anticipate $40,000 total when she graduates

After expenses and retirement savings, we have roughly $2500 left over.  My question is where do I put this money.  Our emergency fund is around $1000 due to the Dave Ramsey snowball plan, so I know that needs addressed.  But how much do I put towards the emergency fund vs. paying down student loans vs. saving for the next down payment (we'd like to move when we have kids which will be in a couple years).  Thanks.

What's your advice for him?

My On-Going Battle with Comcast

It all started with a letter from Comcast in July:

Dear Valued Comcast Customer:

Effective August 16, 2011, a subscription to Digital Starter of a higher digital tier of video service will be required to receive the Sports Entertainment Package. Our records indicate that you do not currently subscribe to at least Digital Starter.

It went on from there, but the basic idea was that I either needed to increase my service package or my access to the Fox Soccer Channel (one of the main reasons we have cable anyway) would be cut off. Since my annual contract was up in a couple weeks, I needed to negotiate the entire package anyway.

But before we get to that, here's what I've gone through with Comcast the past two years:

• We Got Cable TV


• Why I LOVE Comcast!!!


• Comcast Blows It and then Saves It


• Comcast Blows It, then Recovers, Again


• Comcast, Round #3


• My Comcast Saga Continues

If you don't want to read all of those, here's the summary:

• I got Comcast cable on a one-year promotion.


• They messed up, they made it right, they messed up again, they made it right again.


• As a result, I ended up with the equivalent of the Digital Starter package though I was paying Digital Economy rates (and technically was a Digital Economy customer).

Through all this I had been paying $30 to $35 per month for a good number of channels, HD/DVR, and the Sports Entertainment Package (which we buy for the Fox Soccer Channel but has the pleasant side effect of giving us the NFL Channel and Red Zone too.)

So I began the painful process by contacting Comcast online via Twitter -- telling them I wasn't pleased with the change that was making my Sports Entertainment Package go away. They told me they would have someone contact me the next day. No one did. And they didn't the next day either. So I contacted them. They said someone would call me the next day. They didn't. Then, finally, they called -- several days after our original contact. Ugh.

I talked to the guy on the other end of the line, told him my position (I wanted the soccer channel and wanted to see what offers they had available.) He immediately went into sales mode, telling me how they had GREAT deals when you combined TV, internet, and phone services with them. I told him I wasn't really interested -- that I simply wanted cable from them. He gave me the following choices:

• Stick with Digital Economy (technically my current service). This would cost $55 per month, I would lose many channels (since the free ones they had been giving me because they messed up would be going away), and I wouldn't get the Sports Entertainment Package (no soccer.) I would get the HD/DVR though.


• Move up to Digital Starter. This tier would replace what I currently had entirely. That's the good news. The bad news was that the cost was $85 per month. Really? Yep, that's the going, "regular" rate.


• Move up even higher to Digital Preferred. This would get me everything I had PLUS more channels (and more in HD.) The cost was $64 per month for six months (on promotion.)

As you might imagine, I was not pleased with these options. The first choice didn't even get me what I wanted (while increasing my costs $20 per month nonetheless!). The second was way too expensive -- I was prepared to pay a bit more (like $50 per month for what I currently had), but not $85. The final one was the best price/features deal, but it put me on promotion and I knew I'd have to fight it out again in six months. There was no good answer.

He and I had a "discussion" at that point and it got a bit heated. During the conversation he kept bringing up the great savings they had if I would add my internet and phone to the package. I was not about to do that. Why would I want to put my two other services into the get-you-in-with-a-good-price-then-jack-it-way-up-in-a-year game? No way.

I told him I'd call him back with my decision. After considering my various options over the next week -- and the costs, time and hassle factors associated with each -- I took a page out of Congress' playbook and kicked the can down the road. I took the Digital Preferred package. We LOVE it BTW, but I'm afraid it will cost $200 a month when it comes up for renewal in February.

Since then, I asked all of you what you pay for entertainment services to see if what I was paying (and potentially could pay) was out of line. It wasn't. Many of you pay much more, though some pay much less. What I got out of that post was that there are various needs/wants in entertainment and various ways to satisfy those needs. In addition, options are changing quickly so what may be true now may not be true in a year -- and options that don't exist now may exist in a year.

Anyway, here are some thoughts from me on this issue:

• Is it any wonder that the cable industry is losing record numbers of customers? If their model is to get someone used to paying $35 per month to now pay $85 per month when the deal expires, that's a bad model IMO. Then again, it seems to be working on enough customers. Check this out:

Pay-TV providers offer those great deals upfront because most people will continue to pay the bill as it rises, said Bob Sullivan, MSNBC's Red Tape columnist. "They count on our laziness," Sullivan said. "They know we hate little things about change, what economists call switching costs, like losing track of where our favorite programs are on the dial. Is ESPN 206 or 35? . . . Even the most vigilant among us let it go for a few months before we complain. All this is baked into their business model."

• I would love to see a pay-per-channel model since we don't use 98% of the channels we have, but I don't think that will happen until the cable companies have their backs up against the wall.


• My plan is to watch the Comcast offers and try to get another TV-only one when/if it appears. Once they get off the Triple Play offer (which goes through September, I believe), I hope they will get a bit more aggressive on the single-service offers. We'll see.


• Another option I've considered is simply turning off the TV completely and "going dark." Many of you do this and if my options are limited in February, I might too.


• Comcast's day is coming where they're going to reap what they've sown. Options for entertainment viewership are growing by leaps and bounds and there's going to come a day when most people can get most of what they want in other ways. And when they can, they will leave the cable companies in droves. Now if those companies hadn't had poor service and hadn't tried to charge an arm and a leg for their products (with little to no competition), then perhaps more customers would stay. But they won't hang around given how Comcast has dealt with its customers.


• Is it any wonder that Comcast was voted the Worst Company in America for 2010? And if you think they must have improved since they didn't win in 2011, let me put it this way: it took BP flooding the entire Gulf of Mexico with oil to knock Comcast off its "worst company" perch (BP defeated Comcast in the Final Four). That speaks pretty poorly of Comcast IMO.


• Then again, this could sound like whining (which it is, in part.) Comcast is allowed to charge whatever prices it wants and deal with customers however it wants, right? Then I have the right as a consumer to decide whether or not I want to pay their rates and deal with them. The mere fact that I'm currently with them says that they are offering more value to me than the cost I'm paying. Otherwise, why would I be a subscriber? So maybe I should just shut up, huh? I could/should, but that wouldn't be nearly as much fun. ;-)

That's where I currently stand. I'll let you know when things change and the success (or lack of it) I have when the time comes around.

P.S. I found this post after I wrote this piece. The advice on how to save on cable costs won't work for me based on what I want to watch, but it may help some readers.

Another Warning for Using Social Media

Hot off my piece on how posting online can harm your job prospects is this article which says it can also mess up your chances of getting an insurance claim filled. The details:

Your friends aren't the only ones interested in what you're saying on Facebook and Twitter. Insurance companies are exploring how to use social media to learn more about you.

Does that mean your car insurance rates will go up if you post about your interest in drag racing? Will your home insurance premium rise if you tweet about your vacation and let everyone know that no one's home? No -- not yet, anyway.

But insurance companies already check social media sites to investigate suspicious or expensive claims. And technology companies are building tools that will help insurers mine social media data to improve marketing and perhaps one day help price policies.

There's not much cause for worry now (the insurance companies are trying to figure out how to find the information), but it could be in the future:

With millions of such car insurance and home insurance claims filed each year, "insurers can't check everybody's Facebook page," says Peter Foley, vice president for claims administration for the American Insurance Association. "It's not a very effective tool."

But they may check social media sites if there are signs of fraud, he says.

"It's now common practice to use social media for investigating suspect claims," says Craig Beattie, a London-based insurance analyst for Celent, a research and consulting firm.

So, the lesson here is that if you're trying to rip off your insurance company, don't post it on Facebook.

No, wait, that's not the lesson. The lesson is actually the same as the previous conclusion when we discussed careers: BE CAREFUL WHAT YOU POST ONLINE. Assume everyone can see (or find) what you post and consider this before you comment, submit photos, and the like.

Again, you've been warned. ;-)

Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, The Wealthy Really Are Better Than You.

Enjoy!

Have You Ever Worked More than One Job at a Time?

Here's a startling statistic from the Wall Street Journal:

7.3 million Americans hold more than one job simultaneously according to the U.S. Bureau of Labor Statistics.

I have never held more than one job at a time since I graduated college. I did have two for some time while I was in high school, but that was only in the summer. I think holding down more than one job would be pretty brutal to manage -- assuming at least one of them was full-time. Then again, this isn't that much different than developing a side business while you're working a job too, is it?

Of course if it meant the difference between my family eating or not eating, I'd do what was needed. But I couldn't imagine a long-term situation where I held more than one job. I think my sanity would quickly leave me.

Any of you ever held more than one job at a time? How did you manage/cope?

Great, Free Christian Financial Ebooks

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

Not as much of a post today as a point to some great (and free!) Christian financial ebooks. Sound Mind Investing is offering four free ebooks as follows:

• Seven Key Principles for Christian Investing - This report explains how to develop a biblically informed investing blue print that will make your investing more purposeful - and profitable.


• IRAs, 401(k)s and Social Security: A Retirement Primer - Worried that you won't have enough money for retirement? Then it's time to take action. This free report will help you get a clear picture of where you stand - and help you take steps to build your retirement nest egg.


• Gold as an Investment: Will Precious Metals Continue To Shine? - This report will provide you with an understanding of our current fiscal crisis and how gold can help stabilize your portfolio in a rising inflationary environment. You'll learn about different gold investing strategies and practical examples of how to take ownership of gold.


• Inflation History: The Rise and Fall of the U.S. Dollar - This report will provide you with an understanding of what money is, how it works, and how too much money has lead to inflation in the past. And you'll see why many people are concerned that conditions are ripe for a future inflationary spiral.

I am a fan of Sound Mind Investing. Their investing book is what I used in my early days of investing and I recommend it to anyone who asks me for a good investment book recommendation. I've reviewed both their book and their website and like them both.

And for those cynical people out there (yes, there are always some), this is not a paid endorsement. I honestly like what they offer and thought my readers might want a few free financial ebooks. If you do, you can see them at this link.

Enjoy!

How to Buy Long-term Care Insurance: What Every Policy Should Include

The following is a guest post from Genworth Financial and is a follow-up to their post titled Long-term Care: What are the Options?

I recently wrote about the options available when considering long-term care, and four general ways it can be paid for. Now I’d like to do a deeper dive into some of the basics you should look for when you’re thinking of purchasing a long-term care insurance plan (LTCI). There are standards that every policy should uphold as well as additional, more personal considerations to take into account.

A long-term care insurance policy is a contract, and it would be a mistake to consider marketing materials in place of actual documents. It’s a good idea to talk to an agent or producer so that you can explore your options. The session should be free and without obligation. Be prepared to discuss your family, your assets and your health. Look to work with someone who’s willing to personalize your policy, who will listen to your concerns and help you get where you want to be.

Consider both the policy under discussion as well as a “shopper’s guide to policies” so that you can see the bigger picture. Ask to see the company's financial rating and a summary of each policy's benefits or an outline of coverage. And know that every state has an insurance regulatory department to aid the consumer.

Here are the key points that your policy should include:

• One year of care coverage at the very least (nursing home or home health care should not be limited to skilled care – give yourself options). This should also include intermediate and custodial care.


• Coverage for Alzheimer's disease (if developed after purchase of plan). Consider this startling statistic from the Alzheimer’s Association: about 5.4 million Americans have Alzheimer’s disease; this translates to one in every eight Americans age 65+, and nearly half of Americans aged 85+. This is an important clause in any policy.


• An inflation protection option to either 1) automatically increase the initial benefit level on an annual basis or 2) guarantee the right to increase benefit levels periodically without providing evidence of insurability.


• “Outline of coverage" describing all benefits, limitations, and exclusions.


• A comprehensive guide of all plans available provided by the company so that you can compare policies and determine what meets your needs best.


• Guarantees that the LTCI plan will be there for you when you need it most; the policy should not be permitted to be canceled, non-renewed, or terminated by the company just because you are getting old and are experiencing mental or physical problems.


• Ability to return the policy and receive a premium refund; you should have 30 days to be able to reconsider in what is called a “free look” period.


• Policy purchasers should not have to fulfill preexisting conditions before being able to opt for a plan (preconditions to look out for include hospitalizations or care of any kind).

As you venture into the long-term care insurance policy marketplace, it’s useful to educate yourself about the costs of care in your state. Know the breakdown by type of care and facility. It’s good to know whether the kind of care you’ll need is going to be both available and financially feasible.

Reader Profile: Dee

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email.

Next in the series is FMF reader Dee. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I'm a 25-year-old woman, single, no children. I have a BA and live in a high-cost-of-living area on the West Coast. I work in publishing, meaning I don't have any job security and my budget reflects that.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

I only have my income to live off of and make about $40k a year. I made <$30k at my last job and have been in this job for about a year or so. I worked a side job in addition to my my last (full-time) job, and am happy to not be doing that, however I put in a lot of hours now so that can be draining, too. I've paid off about $9k in school and car repair debt since graduating college, and still have more to go.

My monthly budget:

• Rent and utilities $500 (downsized from a one-bedroom apartment several months ago which had been costing me about $1k; now rent a room in a house)
• Insurance (renters, car, health): $140
• Student loans: $106
• Cell phone: $36
• Subscriptions (Netflix, etc.): $45
• Incidentals (shampoo, lotion, makeup, paper towels, etc.): $57
• Food: $200-$250 (eat out a lot)
• Free spending: $150
• Taxes: $678
• 401k: $200 (company match for another $100)
• Savings: ~$1,200

Debt

• Student loan 1 at 2.3%: $3,500
• Student loan 2 at 0%: $5,600

Savings

• Regular: $10k
• 401k: $2k

Not included:

• Gas (company subsidized)

Let me explain the student loan at 0%. My parents took out a parent loan for me for college, and had refused to let me pay it since graduating, even though I offered. A few months ago, I found out they were having trouble with monthly cashflow thanks to recession-induced hour reductions at their jobs. The loan was at about $7,600 at 8.6% (I believe) so I immediately paid off $1,600 of it, then took out an 18-month 0% balance transfer on one of my credit cards to pay off the rest of the loan. There was a 4% transfer fee so in all it was $6,240. I just make the minimum payment ($56) and then have a weekly $10 payment automatically paid that I don't even notice. I accidentally made two large payments to the loan one month when I was paying off the transfer fee, so that's why it's a bit lower now. I'm saving the rest to pay it off in lump sum.

Other than that, I don't carry any credit card debt. I use my credit card almost exclusively and just pay it off at the end of the month.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

I want to pay for my next car in cash, but I don't want to deplete my savings to do that. I like having a cash cushion (instead of the Dave Ramsey $1,000 emergency fund). $10k was my target so that it covers a little more than 8 months of expenses. I asked a question recently about car safety features. My car has about 200k miles and is running OK, but I know it will die at some point.

I'm working on my career by pursuing extra training, professional opportunities, etc. so that I can make more money. I'm not too worried about my student loan at 2.3% because it's at low interest, but I intend to pay off the 0% loan before the end of the 18 months, which is in Nov. 2012.

What are your plans for the future. (retire early, build your career, etc.)?

I'm a little direction-challenged when it comes to the future. I'd like to grow my career and make more money, but publishing is changing and it's not clear what direction that will be. I need to fit more extracurricular activity and less work into my life (reduce stress).

Financially, I need to learn more about investing. I always thought of it as something for rich people (a category that does not include me), but over the past few years of reading PF sites I've learned that it's part of the life of average people, too. I've got lots of books that I've read, but am admittedly fiscally shy about getting out there.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

I used to be in the super frugal category—never spending money, agonizing over pennies—and it drove me crazy. So I've loosened up a bit. As you can see, there are many areas in my budget that could be reduced (eating out; subscriptions, free spending), but I feel comfortable with the way things are. I like shoes, so I buy shoes (very stereotypical for a woman, I know). My focus is building up savings and limiting recurring costs so that if I do lose my job, or my car finally says goodbye, I can handle it. I'm in the camp of buying what you want, and cutting costs mercilessly on everything else (Ramit Sethi).

Star Money Articles and Carnivals for the Week of Sept 12

Let's start off with a reminder: FMF is on Facebook and Twitter. You can find me there if you are so inclined.

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week:

• Carnival of Wealth
• Totally Money Blog Carnival
• Lazy Man and Money says to plan ahead.
• FrugalDad suggests protecting your cashflow.
• BripBlap thinks about making ends meet.
• My Dollar Plan wonders about going to grad school.
• Money Smart Life interviews Laura Adams.
• The Digerati Life covers big money mistakes.
• The Sun’s Financial Diary cuts medication costs.

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Developing a Side Gig

I love stories of people who develop side businesses in addition to their regular jobs. The story of how they did it is usually fascinating and I always end up admiring their determination to build something in their "spare time." So I had to share this piece from US News that details a police officer's story of how he developed his business while serving as one of America's finest. And it served him well too. Check this out:

His side gig, as well as his pension, gave him the freedom to retire in 2004. “This side gig made the decision a no-brainer for me,” says Cain, who lives in a suburb of New York City. He and his wife saved money in advance to get through a couple of lean years as he built his business, which eventually replaced his former salary.

Developing a side business could be a key part of an early retirement plan as follows:

• Grow your career


• Keep spending low


• Save/invest a boatload for retirement


• Develop your side business -- reinvesting when need be but also saving


• As the business grows, you can "retire" with your income made up by a combination of savings (or even earnings on savings) and your side business

This strategy could eventually work for me with FMF.

I know some of you are planning something similar with real estate as your side gig. Anyone else working on a similar set up?

Reader Profile: JP

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. I need more people to sign up! If you're enjoying this series, you need to contribute to keep it going. Ok, enough begging from me. :-)

Next in the series is FMF reader JP. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I'm male, 24, with a B.S. in Computer Science. My parents purchased the Michigan Educational Trust when I was young, so my tuition was paid for when I went to college. They also picked up a majority of my living expenses during college. I graduated with no debt and a few thousand in the bank from summer jobs and a yearlong internship.

I've worked as a software engineer at four different companies over the last three years, from a Fortune 200 to nonprofit to a small 200 person company. In that time I have over doubled my salary, and expect it to increase another 20% in the next 2-3 years.

I live with my girlfriend, no children, and our dog in a two bedroom townhouse.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

My girlfriend and I keep our finances separate but transparent to each other. Since I make a significant amount more than her, we each pay the same percentage of our income towards the shared bills, although I often pick up more than my fair share.

I take home about $3750 per month. $1500 (about 40%) gets put directly into various savings accounts. Our total shared expenses + my private expenses total just over $2000 per month, breaking down (roughly) as follows:

• Rent - $1000
• Groceries - $400 (we coupon with the Sunday paper + store savings card)
• Gas - $150
• Utilities - $175
• Dog expenses - $100
• Cell Phone - $80
• Insurance - $70
• Entertainment - $45 (internet + netflix)

I have a net worth of about $50k, not including physical assets like my car, clothes, etc.

The $1500 that goes to savings breaks down into three categories:

• $700 to emergency savings
• $300 to auto savings
• $500 to house savings

I keep my emergency savings account at a minimum of $10k - about 5 months of expenses. Money that gets deposited into that account currently gets used for Roth IRA contributions, vacations, and other unexpected expenses.

The auto savings account has enough for a decent used car. Auto repairs are also financed through this account.

The house savings gets rolled into a CD every year or so until I'm ready to seriously pursue home buying.

I have no debt. Credit cards get paid in full every month, and my credit score is in the mid 700s.

I am a spreadsheet guy, and have a large spreadsheet that includes my budget, savings goals, and net worth divided out by account for the next 10 years or so. I also have a sheet that tracks my actual performance monthly and whether I am hitting those goals or not.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

I would like to purchase a house in about four years. For purchasing the house, my plan is to take out a loan twice my annual salary or less, and then pay double payments (about $1500, same as current rent + house savings payment) on the mortgage. I am currently saving for a 20% down payment and may liquidate some stock that was given as a gift about 10 years ago to help - it has done fairly well and is currently worth about $11k.

My current car is getting close to 150k miles, and I have begun shopping around for a replacement. I am considering both used and new cars. If I can't pay cash in full when my current car dies, I may consider taking out a 3 year loan with monthly payments no higher than the current $300 I am putting into my auto savings account.

Building retirement savings is also on my radar. I have fully funded a Roth IRA for the last two years and am working on funding it this year as well. I enjoy picking individual stocks, but keep about 40% in market-mirroring ETFs. I also have a 401k, but am not currently contributing because my current employer (contracting company) does not offer the option. In early 2012 I should be hiring into the client company where I plan to contribute 8% (3% match). Until earlier this year I was contributing 6% to get the company match.

My girlfriend's financial situation may become a future challenge. She has significant student loans, but her career choice doesn't pay much money. I anticipate having to help pay down her debts should we get married.

What are your plans for the future. (retire early, build your career, etc.)?

My immediate plans for the future are to focus on purchasing a house and continue to build my career. The last few times I have looked for a new job I have had an offer within a week; as of now I have no qualms about changing companies if I don't see the salary gains and work environment that I expect. Within the next 5-10 years I will have to decide where in IT I'm going to end up - team manager, project manager, or technical lead. Becoming a PM or manager would likely include going back to school for a MBA.

Eventually I would like to max out my 401k contributions and also begin investing using a regular brokerage account.

Depending on how my investments do I would like to retire early. I have always been a "work to live" instead of "live to work" guy.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

I share a lot of personal finance philosophy with my father. Although he's never shared my parents' net worth, I can tell that they have always been doing okay - they paid off their mortgage in about 15 years, had enough to pay out of pocket for their kids' educations, and don't spend money on big-ticket toys. They tend to spend money on upgrading their home these days, which has appreciated significantly on its own since they bought it in 1992.

To me, achieving financial independence is less about the money and more about the ability to have more free time to do the things I want to do.

The biggest piece of advice I have is to pick a high earning career if you spend a lot of money on education. I am now seeing that I am financially ahead of a lot of my peers who didn't pick lucrative majors, many of whom also went to more expensive schools.

Paying Cash for Gas May be a Worse Deal than Paying on a Credit Card

When we were taking our kids to see their grandparents recently, a gas station on the interstate offered both cash and credit prices as follows:

• Cash: $3.71 per gallon
• Credit: $3.77 per gallon

It looks like you'll save six cents per gallon by paying cash, but paying with a credit card is actually a much better deal. Why? Because my Chase Freedom card (the top card in my list of the best cash back credit cards) is currently rebating me back 5% on all gasoline purchases. This effectively makes the prices as follows:

• Cash: $3.71 per gallon
• Credit: $3.58 per gallon

In fact, even if you only get 2% cash back on your credit card (I get 3% at worst with my Costco Amex) you still end up with an advantage as follows:

• Cash: $3.71 per gallon
• Credit: $3.69 per gallon

So I guess this post is simply a reminder to "do the math" when it comes to the cash versus credit question at many gas stations. If the spread is only a few cents and you have a decent card, odds are that you'll be better off charging the purchase.

Financial Experts Often Aren't Expert

Here's a real shocker: Moneyland says that financial "experts" don’t always have expertise. Wow, what a revelation!!!! And a surprise!!! Next they'll be telling me that forex trading isn't the path to extreme wealth!

Seriously, here's what they say about the situation:

There are many people positioning themselves as experts who are anything but, not to mention legitimate experts who are nonetheless compromised by their own biases (a problem we’re only beginning to understand). Even worse? We tend to follow the most sure-minded among us, regardless of how reliable we know their views to be.

There you have it. Consider yourself informed now.

Ok, back to being serious again. Here's my take on this issue:

1. I've found that more often than not, financial "experts" are not really experts at all. A couple examples:

• Financial writers are often expert at something, but it's WRITING they are proficient at, not money management. In fact this characterizes much of the press -- they know how to write but really don't understand the details of what they are writing about much of the time. I've worked with the press for over 20 years and am constantly amazed how you can explain the most basic principle to them three times and it still comes out wrong.


• Financial "planners" (I know, a very broad definition) often have an expertise, but it's in SALES, not in making you wealthier. If it was the latter, they'd spend more time on getting you to spend less, save more, and pay down debt instead of working to have you turn your portfolio over to them so they can put it in funds with 2% annual expenses or sell you insurance you don't need at a very high commission.

2. I have never held myself out as an expert. I simply tell what has worked for me, what hasn't, and what I'm doing/recommend with my finances. Then I let people decide for themselves whether or not my suggestions will work for them.

3. That said, I am different than many other personal finance writers. Most others are writing about how they want to become wealthy and what they are doing to try and get there. I write about how I became wealthy (compared to median net worths in the US I'm well ahead of the pack) and what I'm doing to grow my wealth even more. I don't say this to brag (it's nothing to be proud of really since the principles are quite easy to understand and follow), but to let you know the distinction. There certainly is a difference between someone trying something and hoping it works and someone sharing information that has proven to work. And, by the way, both perspectives are worthwhile and can be learned from -- assuming you recognize the position of who you are following.

4. One caveat though, you can't really take what you consider the "good" parts of my suggestions and toss out the "bad" ones. For instance, I have some commenters who say they've cut expenses as far as they can and they still can't make ends meet. So I ask what they are doing to grow their careers/income. The answer is always a version of "nothing." Sorry, it doesn't work that way. My advice is all-inclusive. You need to apply it as a group. Sure, you can ignore some minor tips and you can always adjust anything to fit your circumstances and preferences, but you can't simply ignore key parts of what I say and expect to get similar results.

5. The piece above suggests asking friends for recommendations if you need financial help. I'd alter that a bit and say you need to ask financially successful friends (not just any friends) who they recommend and follow their advice. And even after that, I'd interview any expert in detail before I hired him. So how do you identify "financially successful" friends? I admit, it's hard to do. But talk to them a bit, ask them for financial advice, and see what they say. If they discuss keeping your income high, your expenses low, saving, investing, little debt, etc., then it's likely they have their act together. And as you open up about your finances you can ask them for a bit about theirs. Doing these things will give you a good idea whether or not they are "financially successful".

6. I do use financial "experts." Specifically I have a CPA, lawyer, and insurance rep that I know/trust/work with when I need extra help. And, of course, I have you all. The readers here at FMF are quite helpful. When I have a question, I simply post it as a "help a reader" post from me, and you all give me tons of great advice.) ;-)

Do you use any financial "experts"? Which ones?

The Pros and Cons of Car Dealership Service Departments

Moneyland has an interesting piece detailing just how much people get ripped off on maintenance expenses at their car dealerships. Some highlights:

A car dealership service manager confesses that maintenance bills are routinely inflated with unnecessary fluid flushes and replacements, nickel-and-dime charges for regularly used “shop supplies” like rags and lubricants, and parts that the car owner could buy for 30% less at a store like AutoZone.

The piece is a summary of a Popular Mechanics interview with a car dealership service manager. The PM post is actually more positive regarding car dealerships and even details why you should go to a dealership as follows:

Let's use Ford as an example. If you own a Ford vehicle, the Ford dealership will have Ford-trained technicians who work on Ford vehicles 95 to 100 percent of the time. During that time they will use Ford resources and Ford training to repair your vehicle correctly, and (ideally) they take Ford classes and attend Ford schools to keep up on their knowledge. With the other guy, it's a tossup—he may work on two Fords one week and not see another for a month. Also, on regular maintenance it can sometimes be cheaper, not more expensive. To get an oil change and tire rotation where I live, the Ford dealer is $38.95 plus tax, and Sears wants $75.

A dealer won't come right out and say it, but if you have your regular service work done at the dealer... (because warranty work pays the dealer a lot less than service work), your value to the dealership increases. Here's an example: Suppose your vehicle goes out of warranty and a week later you have a catastrophic failure. If you have shown loyalty to the dealership by using them for regular service work, they will be more inclined to help you—as opposed to the person who buys a car there and takes it somewhere else for regular service, and only brings it in for warranty work.

So the reasons for going to a dealership are that they are experts in your car (versus a car repair place that works on all sorts of cars) and that if you ever need help, they're more likely to go to bat for you if you're a regular customer. I'll buy the first reason partially if it's a huge repair -- they should be able to fix it better/faster/with fewer problems. That said, you never know. I think the second reason is a bit lame. Simply buy a good-quality, highly-rated car and odds are that you won't need anyone to go to bat for you with a major problem.

And here are a few additional thoughts on this subject from me:

• I recently received a coupon from my car dealership. It was for an oil change and tire rotation for "only" $59.95. What are they doing, filling my car with liquid gold and serving free filets in the waiting room? Ugh! (Besides, I get my first two years of services free!)


• My wife had a noisy belt in her car and was quoted $220 from the Toyota dealership to get it fixed. We went to a local repair shop (which was highly recommended by a few friends) instead and had it done for $75.


• When I bought my car, the dealer told me that the automobile business model is built on the service department covering all overhead for the entire dealership. Then the dealer's profits are obtained by new car sales. Now you know why dealership service prices are so high -- there's a lot of overhead to cover!!!

Do you use a dealership for your car repairs and maintenance? Why or why not?

Five Things You Buy and Never Use

Yahoo lists five things you buy and never use as follows:

• Exercise Equipment
• Swimming Pools
• Wine Cellars
• Outdoor Kitchens
• Espresso Makers

Here's where I net out on these:

• Exercise equipment -- I have some small things like pull-up bars, a medicine ball, etc. that I use sparingly. We also have a treadmill that we used diligently for five or six years but use rarely now (I swim instead.) My biggest bust in this area was buying a custom-fit bicycle several years ago, hurting my back a year later, and am now unable to ride it (too much bending over).


• Swimming pools -- A few years ago we almost bought a house with a swimming pool. I'm glad we didn't. Think about it -- we live in MICHIGAN. Do you know how many months in the year you use a pool in Michigan? Not many. Besides, we can go to our local high school pool which is huge. I swim there several times a week. An annual membership, because I live in the community, is $130 per year. Not bad.


• Wine cellars -- We don't drink and even if we did I think this would be overkill for us. When we bought our house over a decade ago they had a wine rack (not a wine cellar) in the kitchen. I pulled out the rack and converted it into shelves.


• Outdoor kitchens -- I must be missing the boat on this trend. I have never wanted an outdoor kitchen. Neither has my wife.


• Espresso makers -- I prefer my caffeine two ways -- cold and free. So I drink the complimentary sodas at work instead of making my own coffee.

Do you have any of these? Do you use them? Do you agree with Yahoo's assessment that they are generally things people buy and don't use?

Help a Reader: Where to Get an Energy Audit

FMF here again, asking for some wise counsel from the Free Money Finance community. You all have been so helpful to me in the past and now I have another issue I want to present for your feedback.

As most of you know, I live in Michigan. Other than Antarctica, the Arctic Circle, Siberia, and Canada, Michigan is the coldest place on earth. Ok, so I exaggerate a bit. But it is cold and the winters are long.

I would like to have an energy audit performed on my house to see how efficient it is. My guess is that it's not that efficient. I'm basing this on the gusts of wind and snow that blow through my living room every January. No, it's not that bad, but I do know we'll have opportunities to improve our energy efficiency.

But where do you go to get an energy audit? It's not like there are "energy audit" companies all over the place. Should I contact my gas utility? Or perhaps the company that installed our furnace? Or maybe someone else?

I'd also like to find a firm that would not only do the audit but also take care of any issues they identify (like caulking, adding insulation, and the like) -- you know, all the little stuff that would be a pain in the rear for me to handle myself. If the price was reasonable, I'd be more than willing to pay someone else to do it.

So, there you have it. Any advice for me on this issue?

The Best Spending Decision Ever Made

Sound Mind Investing author Matthew Pryor talks about the best spending decision he and his wife ever made. He begins with this story about how banks were dealing with them when they were looking to buy a house:

Lenders were asking, "How much house can you afford?" with the implication being, however much you can afford is what you should buy. This was and still is the WRONG question to ask.

But they didn't borrow the maximum amount lenders were willing to give them. Instead, here's what they did:

We asked not what could we afford, but what could we spend and still be in line with accomplishing our goals. So we turned down bigger and nicer houses in bigger and nicer neighborhoods. Instead, we found a great little house in a great little neighborhood that allowed us to work toward our stated goals. We bought a house that we could afford on just my income because that was the single biggest factor in allowing us to work towards ALL of our stated goals.

This is absolutely the right way to think about buying something so large (and really, buying anything at all.) More on that in a moment..

He then details why this was such a great move for them:

And why was that the best spending decision we've ever made? Because literally two hours before the closing on our house, I lost my job. Two hours and totally out of the blue! Just like that, our income was cut by about 40%. And it would stay that way for the next nine months, until I came back to work for Sound Mind Investing in 2004. But we would be okay on just my wife's salary because we bought the right amount of house.

Why else was it good that we bought what we did? Because it allowed Kim to become a full-time stay at home mom in the summer of 2006.

Why else was it good? Because we were able to get Jordan into the school we wanted.

Why else was it good? Because we eliminated all of our debt (minus the house itself) while in that home.

I'm not sure if it's the case today or not (perhaps the economic meltdown have buyers and lenders thinking more clearly these days), but "back in the day" (aka five years ago or more) it was quite common for buyers to stretch themselves to the point of breaking to borrow as much as they could -- so they could get the "best" house they could -- and lenders were willing to give them the money for it. Then, if everything went perfectly right financially (which it never does) for the next 30 years, they would be able to pay off the home. Guess what happened to those people when they became unemployed, as so many have? Yep, it's not pretty.

Instead, the better way to buy a home is the way Matthew describes above. It's not to have the bank tell you what you can afford to borrow, it's for you to sit down, do a budget, and determine what you can borrow based on what you want to do with your life/money. It's a key part of my formula for buying a house and was a vital part of us being able to pay off our mortgage many, many years ago.

The alternative, especially these days, is borrowing to the max and being on the edge of the financial knife -- not a good way to live IMO.

How to Retire Early from a Couple That's Done It

In 1991 Billy and Akaisha Kaderli retired at the age of 38. Yep, at 38. They have been enjoying their unusual lifestyle for the past 21 years, traveling the world and enjoying their free time in a manner most people simply dream about. The good news for you? They say most people can retire early -- and they have an ebook available that teaches people how do it.

I contacted them a month ago and they were kind enough to send me a copy of that ebook, The Adventurer's Guide to Early Retirement, for review. It's HUGE by ebook standards (247 pages) and chock full of pictures from their world travels. Overall, I found it to be an interesting, fun, and easy read.

Here are a few of the things from the book that I found especially interesting:

1. Their method for retiring early -- they even give examples of how people can retire in 10 years. The keys are pretty simple:

• Earn as much as you can
• Spend a fraction of that amount to live
• Invest the difference
• Retire in 10 years

Hmmmm. Where have we heard this advice before? ;-)

Here's an example of how this might work:

• Say you earn $75,000 a year and can live on $30,000 a year.
• This means you can save/invest $45k per year.
• $45K per year at 7% (which is what they use in their examples) gives you $621,740
• At a 4% withdrawal rate (or if you can earn 4% on your money), you have $24,870 available per year.
• At this point, you're close to your $30k annual living costs. You can now either work part-time or lower your living costs even further and you have enough to retire!

It's a simplistic example and there's more to it, but this gives you the idea of what they teach and how they retired early themselves doing the same thing.

2. They recommend AGAINST buying a "dream home" overseas and recommend renting instead. They make pretty compelling arguments for not buying (it can be risky, you're tied to one spot, it can be more expensive, etc.) and convinced me to eliminate this option from my future planning unless a once-in-a-lifetime opportunity arises.

3. They discuss how to deal with one of the most important early retirement issues: health care. They have/use high-deductible insurance and utilize medical tourism to handle most of their needs.

4. They have a very interesting section on how to bargain with foreign vendors. Most people in the US are loath to bargain, but if you don't when buying something overseas (or bargain badly) you lose both the respect of the locals as well as a lot of money.

The rest of the ebook is full of their tips -- both financial and non-financial -- on how to retire early and travel abroad on the cheap. Seasoned FMF readers will already be quite familiar with the financial part of the book, but the "how to travel abroad" section will still be a worthwhile read. Plus I found it interesting simply to look at their pictures. :-)

Anyone out there on a course for early retirement? If so, at what age do you plan to stop (or reduce time spent on) working?

Reader Profile: LL

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. I still need more people to sign up! Keep volunteering and the series will continue. ;-)

Next in the series is FMF reader LL. She answered my questions in paragraph form as follows:

Financial situation: I'm married with no children - I'm 31, husband is 33.  I work from home as a software engineer, he takes care of the house, dinner, and everything else, and he is working on building a career in comedy/entertainment. 

I earn just under 90K, take home about 5k monthly.  Our monthly expenses are around $2400 monthly, as follows: 1400 rent, 350 student loans, 250 for utilities (electric, cable, internet, 2 cell phones), around 400 for groceries and gas.  We also budget around 300 for spending, and 500 for irregular expenses: car insurance/repairs/registration (200), pet food/flea meds/vet(75), haircuts/toiletries(50), gifts, including Christmas(125), clothing(50).

My contribution (7%) plus employer match(4%) adds about $10k to my 401K annually.

The rest of our budget goes to savings, split into 4 equal categories:

1. big purchases (motorcycle, car replacement, a new bed)

2. student loan paydown

3. short term goals (travel, education)

4. long term goals (Roth IRA, a house, a bigger emergency fund) 

Each category gets $375, in theory.  This is our first year with this kind of budget, and we haven't been as diligent as we could be.  We do save money every month, but it is not usually as much as we've budgeted.  Our irregular expenses have been coming in faster than we have saved for them, and we also tend to go over in the spending category.  This is probably where we need to do the most work: cutting spending, and staying on target with our savings goals.

Debts: my student loan: 29K (5.4%), his student loan: 7K (2.47%), and a small amount of credit card debt that we pay in full every month (but also keep charging our budget overages on the card each month).

Assets: 44K in 401K, 3k in IRA, 2K in Roth IRA.  We have a 5K emergency fund, 9K in an HSA, and another 2K in other savings goals.  We also own a car (value ~8K) and a scooter (value ~2K), no loans on those.  We just loaned a close family member 2K for a vehicle purchase.  We don't usually make loans, but this was a special case, and we could afford to lose the money in a worst case scenario.

I would really like to build & grow my career, as software development is a growing field; but doing so could require significant investment of my personal time.  I'm not sure that the extra time investment is worth the trade off in happiness and health.  Sitting at a computer all day is not great for me; sitting at it for longer would be less great.  I mostly enjoy my work, but do not look forward to an 8-5 life for the next 25-35 years.  I would love to retire early, and live off passive or hobby income, but we are a long way from that.  It seems our first concern is getting rid of our student loans, and saving more.

It seems there are so many decisions that affect a person's long term financial plans.  I recently started work from home, as my employer shut down our local office but decided to keep me on, but I don't know that the work from home arrangement will continue indefinitely.  I've also just switched from developing in Microsoft languages (widely used) to open source languages (less widely used, but growing quickly).  I fear that the change might hurt my long term career prospects.

We live in San Diego, so housing is a bit expensive, but other costs are lower (electricity, groceries), and there are lots of free or low cost entertainment options.  SD housing is also less expensive than many large cities like DC or NY.  However, all of our travel budget is spent visiting our families back east.  I would like to travel to faraway places, but don't have enough vacation time / money to do both.  But having lived here for most of my professional career, I have many contacts in the industry that would be very helpful if I ever needed a new job.  The choice to live here is something I occasionally second-guess; although I love the area and have many friends, I have no family here other than my husband, and lower costs of living in other cities is so tempting.  Someday we would like to buy land and build our own efficient housing; but cheap land is practically non-existent here, unless you go out into the desert; which is hot, and a far commute from most businesses.  On the other hand, SD is a good fit for us for many non-financial reasons.

I also struggle with the best allocation of funds.  Should I put more into the HSA (subject to CA income taxes), or 401K, or Roth, or cash savings, or pay more on the student loans?  Or should I start some regular investments, like DRIPs or government bonds?  Cash savings always seems to be spent on something, so I'm thinking long term money should be somewhere that's more difficult to access.

My general philosophy on finance right now is to keep learning, keep looking for the right balance that fits us.  Money management is not something that was talked about much in our families.  I'm really in no position to give anyone financial advice, but I would recommend to young people choosing a career to look into technical careers, if they value the things that money can buy, a pleasant working environment, and flexibility from their employers.  I worked in low-paying jobs from ages 14 to 24, and I found it awful.  I occasionally have nightmares about being in one of those jobs again.  One of my goals is never having to work as a waitress or cleaning person ever again!

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, How to Get a Deal on Group Hotel Reservations.

Enjoy!

How to Deal with Market Turbulence

Sound Mind Investing gives suggestions for handling stock market turbulence as follows:

• Remember that market down turns, while unpleasant, are a normal part of investing in stocks.
• Understand that even severe bear markets aren't insurmountable obstacles for long-term investors.
• Imitate the styles of the successful — avoid a trading mentality.
• Accept the reality of today's financial environment — expect market turbulence.
• Think of your monthly cash flow needs and keep sufficient liquidity.
• Focus on where you want to be financially in five to 10 years.

Here's what I'm getting out of this:

Don't panic. Remember that you're investing for the long term (assuming that you are) and realize that day-to-day ups and downs all smooth out over the span of 10, 20 or 30 years. Ignore the news if need be and simply keep doing what you're doing -- saving as much as you can on a regular basis (which will help you buy more shares when the market drops.)

I'll admit that this is easier said than done. It's especially difficult when you have someone calling your attention to all the bad news. I have a co-worker who relishes in the market drops (he's a bear currently) and will let me know with a "the market's down 300 points!" or "there's another 200-point drop" comment from his nearby desk. So I have to remind myself regularly that I don't need my investment money anytime soon and that it will all be worth much more in 15 years. And even if it's not, I have a decent enough savings rate that I'll still be ok in 15 years -- even if the market holds flat. ;-)

How about you? Are you holding steady with all the ups and downs in the stock market?