Free Money Finance

A Wealth of Satisfaction

The following is a guest post from Marotta Wealth Management.

True life planning begins when you realize you are unique. There will never be another you in the history of the universe. Your calling is yours alone. Understanding yourself is the first step in managing your financial affairs to support your life plan.

Studies show that people think about money as a pyramid similar to psychologist Abraham Maslow's hierarchy of needs. Our first priority at the base of the pyramid is hand to mouth, meeting our physiological needs. Next we seek safety and security with enough money to support our health and well-being against accidents or illness and to save for infirmity in our old age.

Having the money to meet these basic needs really does bring a certain degree of happiness. It is almost impossible to experience contentment if your basic requirements for human survival are not being met or your personal or financial security is in jeopardy.

A new study from Angus Deaton and Daniel Kahneman of Princeton University's Woodrow Wilson School puts a price tag on such happiness at $75,000 a year. Their study concludes that high income buys life satisfaction but not happiness. Rather happiness is measured by emotional well-being and the frequency and intensity of the joy, fascination, and affection or anxiety, sadness, and anger that make our lives pleasant or unpleasant. Happiness increases with income to about $75,000 a year, and then it plateaus.

Life satisfaction, in contrast to happiness, refers to our beliefs about our lives. The two are very different. In reference to Maslow's hierarchy of needs we might achieve greater life satisfaction by succeeding in the third level of his pyramid: love and belonging.

Economists David G. Blanchflower and Andrew J. Oswald have even measured the economic value of marriage. They claim it takes about $90,000 more annually to equal the happiness associated with a good marriage. Getting divorced can be equated with losing $23,000 annually. And becoming widowed hits even harder. It is like losing $41,000 a year.

The financial blow of being married and then being divorced or widowed equates to a loss of $113,000 to $131,000 of annual income. That means a little money spent taking care of our spouse or our marriage is well worth it.

Having financial resources beyond survival frees you to use money as a way to express care and concern for those you love. And while this may not increase your happiness, it does increase your life satisfaction.

Life satisfaction also increases as money is available for the final two stages of Maslow's hierarchy of needs: esteem and self-actualization. Esteem is the need we have to respect ourselves and for others to find us worthy. We have a desire not just to achieve financial success but also significance in the world. We want to make our mark, and money well spent can have a major impact on the lives of others.

This month at MarottaOnMoney.com we have invited several money mavens to answer this simple question: "What is one of your favorite things that you've been able to do with your money?" Their answers are just a small part of the significant things that money can accomplish. We offer them as inspirational examples of financial life planning. You will discover how money can be used to express love, help others or realize dreams.

Studies of life planning show that these goals often fall into one of three areas. Family is by far the most common life goal. For many, the ideals of family extend to communities that have had an impact on our lives or even humanity as a whole. A second realm where people find significance is authentic spirituality. This is more than simply being religious; it involves the totality of our life in which we seek a power greater than ourselves to help us renew and shape our very identity. Third is the arena of beauty such as music, the visual arts or creative writing. For others, a sense of awe is found in a reverence for nature.

The examples are as unique as the individuals, but they are offered in the hope that they will remind you that money is more than dollars and cents. It can be an extension of you and your values.

Maslow's peak need is self-actualization, another way of saying you know who you are and understand your place in the universe. You appreciate your unique role and area of genius and are able to be who you were meant to be. What you have dreamt for yourself has come true.

People who live their lives this way will have no regrets. Structuring your finances around your self-understanding is what life planning is all about.

Good Advice from FMF Readers

There have been several insightful comments lately here at FMF on a variety of topics. Since I know that everyone doesn't read all the comments in every post, I wanted to call these to your attention so you didn't miss them.

The first is from Apex and was left on my post titled Six Steps to Making a Successful Low-Ball House Offer. His thoughts:

The first thing to understand is what a lowball is. Lowballs are only possible if the listing price is too high. You can rarely buy a property for considerably less than market value, only for less than the irrational price the seller wants. If comparable properties are selling for 200k and you think you can convince someone to sell you theirs at 160K or even 180K pray tell what amazing powers of persuasion and hypnotization you have that would convince any sane person to sell to you for that price? Most sellers think their property is worth more than market, not less. Along those lines a better strategy is to try to find properties that are priced closer to market than to try to lowball properties that are considerably overpriced. Paying sticker is a good deal if the sticker is right.

The second thing to understand is that you can't reason with irrational sellers. Very few of the things on this list will do you any good with an irrational seller. Someone asked about tips for dealing with an irrational seller. Here it is, find another seller.

The things on this list are decent but if your goal is to purchase for less than ask then there is really one item that is most important and it's not on this list. That item is time on the market.

Sellers pick a price for a reason. The reason is often entirely invalid but they don't believe that. Only time will show them that their price is wrong. The longer a property has been on the market the more likely it is that the seller will realize it is mis-priced and be willing to accept lower offers. This is of course no guarantee with an irrational seller but it is the number one indicator to determine how much below ask you can offer.

If it is a bank owned foreclosure property time on market is almost the only thing that matters. Banks are basically computerized in this respect. You can watch them drop the price on a schedule until they find the price at which the market will bring in buyers.

There is one other thing that can get a lower priced offer accepted, perhaps even below market. That is if you find a seller who is desperate. Perhaps someone going through divorce, or who needs cash to save a business that is squeezed or some other personal problems that require cash. If someone is desperate they are going to sell quickly because they need to. This is the only situation where someone is going to sell to you drastically below market. Why else should someone sell to you considerably below what other houses are selling for. If you think you can purchase a property far below market value you better be willing to offer on 100 houses to find the one seller who is desperate or get prepared to be regularly disappointed.

Drastically below market deals only happen on late night real estate shark commercials. And none of those are real.

As many here know, Apex knows real estate quite well. His advice is to be especially listened to in this area and I think the above is GREAT counsel for those looking to get a "deal" on real estate.

The next comment was left by Alex on my post titled Another Plug for the Thank-You Note. His comments:

As a hiring manager, I agree with mdb's comment. Thank you notes typically come well after I've made a decision.

The biggest mistakes I see candidates make in an interview?

1. Show up late for the interview (about 50% of all candidates make this mistake).
2. Criticize a previous employer.
3. Fail to bring a "leave behind" such as a resume to share.
4. Appearing disinterested. They either don't listen to/answer the question being asked, talk too long, or speak over the interviewer.
5. Appearing underprepared or on the interview circuit. They don't research the company.
6. Overly nervous or body language that lacks confidence.

If you can avoid these mistakes, you'll have a good shot at the job. After all, to make it to the interview, you've already passed the paper cut for qualifications -- the interview is essentially a manners test.

A couple thoughts:

• He and I disagree on the usefulness of the thank-you note. I think this is highly dependent on the type of job you're looking for. If it's very entry-level, then the hiring decision most likely will be made before a note can get through the mail, so perhaps an email is called for. But at higher levels, the hiring process often drags on a looooong time (believe me, I know) and there's plenty of time to mail a note. In addition, a thank-you at a higher level demonstrates a level of care and follow-through that you'd expect of a manager or executive.


• Everyone should note and avoid the mistakes he lists. Really, this stuff is a lay-up. Be on time, be prepared, and present yourself well and you'll have a great shot at the job.

The next two comments came from my post titled Four Reasons Resumes are Rejected.

The first is from Walden:

I am a recruiter and I review hundreds of resumes each week. I would absolutely agree with all of the above points. If I had to boil it down even further, I would say the top 2 reasons I reject a resume is 1) not telling me right away why you are right for this job, and 2) grammatical/spelling errors.

I'm busy. The hiring managers I work with are busy. If I have to comb through your resume looking for related experience or qualification ABC, forget it. I don't need a long cover letter, but putting a one or two sentence "Professional Summary" at the top of your resume detailing what skills/background you have that are a fit for my job is priceless. Then, spend a little time highlighting applicable experience from your recent positions, do a spelling/grammar check, then do ANOTHER spelling/grammar check, and send it off!

My comments:

• I don't like the cover letter or summary on a resume because it's fluff IMO. I'd prefer that more time and space is spent on work experience. I can tell if you're right for the job based on what you've done and accomplished, I don't need you summarizing your career. Then again, Walden is a recruiter and I am not, so maybe it's better to listen to him. ;-)


• Got to agree that everyone looking at a resume is BUSY. That's why the resume needs to sell, sell, sell (with good accomplishments all over it) from the get-go.


• 100% agree on the spelling. Have a few friends look over your resume before you send it off.

The next is from texashaze -- and it reinforces much of what we've already covered:

We're always interviewing and hiring. Cover letters are never looked at and in fact they aren't even given to us by our screeners/HR. Walden provided a good tip to put 1 or 2 sentences on top of your resume. I always read those and rate them high. Also anything over 2 pages is too much. Finally write your resume to the job. Some resumes I get don't even relate to the position.

I know there have great comments before and since these were made, but I wanted to at least select a few to show you what great and knowledgeable readers we have here at FMF. And why you should always read the comments -- they are often better than the posts! ;-)

Carnivals for the Week of Dec 26

Here are some of the carnivals Free Money Finance was in this week:

• 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.

What If I Lost My Career? Envision, then Act, Part 2

The following is an excerpt from the book When Life Strikes: Weathering Financial Storms by Cal Brown, CFP, MST. The excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy. Copyright © 2011 Cal Brown, CFP, MST, author of When Life Strikes: Weathering Financial Storms (Brown Book Publishing Group).

This is a continuation from part 1.

The Six-Step Career Makeover

You now realize that lifelong employment at your present company is tenuous at best, delusional at worst. You also recognize that there are better opportunities waiting for you. The following are six steps designed to create lasting and fulfilling career change:

1. Envision your dream job, and then act on it.
2. Consider self-employment.
3. Consider a career in sales.
4. Obtain essential education and training.
5. Develop networking skills.
6. Create a cash reserve and get out of debt.

Envision Your Dream Job, and Then Act on It

What Color is Your Parachute? will guide you through a process of determining your ideal career. Once you've completed this step, you'll need to conduct "informational interviews" with people who may be able to assist you in making your goal a reality. An informational interview is very different from a job interview. It's more akin to networking because you're asking people in related fields to assist and give you ideas and feedback. You'll be pleasantly surprised by how the simple question, "Can you help me figure out my future?" will be greeted with helpful assistance.

Consider Self-Employment

If you're looking for job security and financial success, I encourage you to consider starting your own business. While working independently may seem like a risky proposition, I'm convinced that the highest degree of job security is available to those who own their own companies. Why? Because business owners have much more control than their employees. After all, their customers are the only ones who can fire them.

You may have heard discouraging statistics that claim that 90 percent of small businesses fail. There is research, however, that counters this high-failure-rate figure. A Small Business Administration study, for example, found that 70 percent of small businesses survive for two years and roughly half for five years. Furthermore, the National Federation of Independent Business conducted a study in conjunction with Wells Fargo Bank and found a similar five-year survival rate. The NFIB estimated that over the lifetime of a business, 39 percent were profitable, 30 percent broke even, and the rest either lost money or fell into the category of "undetermined."

If you're going to start your own business, be very analytical and develop a written plan. Carefully calculate your anticipated expenses -- and then double them. Determine your projected revenue -- and then cut it in half. This is because things rarely go as expected with a new business; costs are usually higher than anticipated and revenue is often less than expected.

Consider a Career in Sales

My father once told me that if you're a good salesperson, you'll always have a job. He wasn't even in sales -- he was a corporate attorney -- but my dad came to this conclusion after decades of observing others in the working world. Commission-based sales is a career that may seem very risky. I'll be the first to acknowledge that success in sales is tough because you're compensated only for the amount of deals you close, so a dip in performance will directly affect your earnings. However, the law of supply and demand will work in your favor if you have the natural gifts or the desire to learn how to become an effective salesperson, and you're willing to work very hard.

Neither self-employment nor sales is easy. If you've got the "right stuff," however, you can find these careers immensely rewarding, both emotionally and financially. In my case, I went from being an employee in a large corporation to taking a sales position in financial services. Then I became self-employed. The transitions from one role to another were extremely difficult. I experienced a long, steep learning curve to gain and master sales and self-employment skills. The hard work paid off, however. As Confucius said, "Do something you love and you'll never work a day in your life. "While that's a bit misleading -- self-employment is very hard work -- the truth is that the investment of time and money can be immensely rewarding if you're engaged in a business that you truly enjoy.

Obtain Essential Education and Training

In the late seventies, factories throughout the northeast and upper midwest regions of the United States were closing their doors. The result was massive unemployment. These economically depressed regions eventually were referred to as the Rust Belt. Sadly many of the Rust Belt factories never reopened. The situation was so tragic and widespread that singer Billy Joel recorded a song titled "Allentown" that captured the hardships that millions of former industrial workers endured. The unemployed individuals ended up following two broad paths:

• One group went on welfare and continued living off the tax revenues of productive American workers.
• The other group enrolled in educational and training programs that prepared them for different careers.

The demise of industries that comprised the Rust Belt points to the harsh reality that everyone in this country must acknowledge: with jaw-dropping speed, new technologies make obsolete what was once the latest and greatest. One just needs to look at the evolution of the Dow Jones Industrial Average for proof The Dow, a widely quoted stock market index, contains thirty companies. Charles Dow established it in 1896 with twelve companies. More than one hundred years later, there is only one company from the original list still in the Dow¬ -- General Electric. All the others went bankrupt, were broken up by the government, or were merged into other companies. Consider how word processors put typewriter manufacturers out of business, Napster and iTunes forever altered the recording industry, and the automobile destroyed buggy whip makers. On the other hand, constant change also creates new opportunities for those who are open to what the future holds.

I remember a television program that interviewed those who had formerly worked in steel mills and other factories in the Rust Belt. These folks had gone back to school or received training in entirely new careers. Through hard work and adjusting to change, they found jobs in software and other high-tech industries. Not only were they making more money than they had in their former jobs, but also their working conditions were vastly improved. Gone were the dirty and dangerous factories and mines where they had clocked in every day. The television documentary pointed out that these workers didn't get their new jobs by sitting at home, watching TV, and waiting for someone to come knocking on their doors. Instead, they recognized the challenge and the potential opportunity that would only be possible through education and training.

Just as some kind of educational degree is necessary for most adults to get their first so-called grown-up job, additional education will most likely be necessary if you're making a career switch. When you take care of this while you're still at your current job, you've got the cash flow to cover retraining expenses. Once you've completed the necessary coursework, training, or both, you're ready to move into a new field right away. This points to the importance of being proactive. There is no downside to being more educated. Yes, it may cost money -- in some cases lots of it. I got a master's degree in taxation at the age of fifty-four, and it was expensive. Obtaining any degree is an investment in your future earning power, which means that the payoff can be huge. Will it guarantee you a high-paying job that you'll love? No. It substantially improves the odds, though. You'll be a much stronger candidate for whatever job you seek because you'll rise to the top of the hiring list. Remember, when you're competing for a job, coming in second usually means that you won't get hired.

Develop Networking Skills

You've probably heard the saying, "It's not what you know, it's who you know." Actually, I think it's both. It is what you know (education and credentials)and who you know (personal and professional connections). Meeting and getting to know as many people as you can are essential steps to advancing your career. Those who aren't particularly sociable often shudder at the thought of schmoozing and reaching out, but networking can fit nearly any personality type. If you're an introvert, it helps if you join an organization where you'll meet like-minded individuals. That way you'll increase the chances of creating an immediate connection.

In addition, consider joining community, civic, and faith¬-based organizations that align with your interests. Your networking community can potentially help you in ways that you can't even imagine. Don't just join and attend meetings; get involved in committees and volunteer to take on leadership positions. This points to one important characteristic of a successful networker: always give first. When your priority is to contribute your time and talents for the good of the organization itself, the rewards will come naturally.

Create a Cash Reserve and Get Out of Debt

In 234 BC, the Roman statesman Cato the Elder said, "Cessation of work is not accompanied by cessation of expenses." In addition to the psychological and educational preparation required for career change, there are two critical financial planning measures to take care of as well.

First, you must create a cash reserve, which is also called an emergency fund. Career switch or not, every working person should have one. The emergency fund should cover a minimum of three months of your living expenses. In order to determine a cash reserve amount, you need to figure out your monthly living expenses. Your emergency fund should be invested in something safe and liquid. In other words, it should be in a place where you can access the cash quickly and without penalty or delay. I recommend that my clients place theirs in bank savings accounts or money market funds. No, they won't earn a high interest rate, but that's not the objective. In the event that my clients experience job loss, they can withdraw money right away to pay living expenses. A six-month emergency fund would give you even more leeway to find a new position -- all the better if you can do this.

Second, get out of debt. Dave Ramsey's excellent book Total Money Makeover provides readers a great strategy for eliminating debt and building an emergency fund. You may think that slashing debt should come before saving for a rainy day. Instead, Ramsey suggests that you first put $1,000 into an emergency fund. Only then should you begin paying off your debts, except your mortgage. I agree with his approach because it ensures that you have something in reserve ($1,000 minimum) while implementing a debt reduction plan right away.

To do away with debt, you first list all of your liabilities¬ -- with the exceptions of your home mortgage and home equity line of credit. Then you place your debts in order from smallest to largest. Examples include car and personal loans and outstanding credit card balances. Next to each item, determine the minimum payment and the interest rate. The following is an example:

• MasterCard -- Owed: $1,000; Min. Payment: $25.00; Months to pay: 61; Interest: 18%
• Visa -- Owed: $2,000; Min. Payment: $50.00; Months to pay: 78; Interest: 24% 
• Car Loan -- Owed: $15,000; Min. Payment: $375.00; Months to pay: 44; Interest: 5%
• Total -- Owed: $18,000; Min. Payment: $450.00

Notice that the total monthly debt amount is $450. At this point, you start each month by tackling the smallest debt first, while making the minimum payment on all the other debts. Using the example I provided, you'd start with the MasterCard. Let's say that you decided to increase your total debt payment to $600 instead of your current $450, which is $150 more per month. Add that $150 to the $25 monthly MasterCard payment. In other words, you're now paying $175 per month toward the credit card balance. Following this formula, this item would be free and clear in just seven months. Once the MasterCard is paid off, take the $175 per month you were paying for it and apply it to the $50 Visa payment, so the total monthly Visa payment will now be $225. At this monthly amount, within nine months you'd payoff the Visa. Once the Visa balance is zero, apply that $225 to the car loan, which will mean that your monthly car payment is now $600 per month. The good news is, instead of waiting four years, the car will be paid off in twenty-three months. Ramsey refers to this as the "debt snowball" because you pay more and more against each successive liability. As a result, your debts get paid off remarkably quickly. In most cases, it's an eighteen-month to two-year process.

Once all debts are gone, then you take that snowball amount and start building up your emergency fund. Read Total Money Makeover for more details. Ramsey not only provides solid advice but also adds real-world stories that illustrate the power of his money management system. The best part is that Ramsey's tools are straightforward and free of financial jargon. The bottom line is to do whatever it takes to plug the hole that's hemorrhaging your savings. If you need to get a second job delivering pizzas to generate extra cash, so be it.

How to Avoid Career Change Panic

Remember this formula: debt + joblessness = pressure. The opposite is true as well. If your overhead (monthly expenses and liabilities) is low and your cash position (assets including an emergency fund) is high, you'll be in much better shape to weather a job search that may take months. If you're laid off, you may be fortunate enough to receive a severance package that will help you stay afloat despite a prolonged period of unemployment. Do not be complacent during that severance pay period. Attack the new job hunt with vigor instead so you don't have to tap into your emergency fund or amass more debt than you may already have.

Planning ahead for a job loss will help you avoid financial ruin, maintain dignity, and remain solvent during a period of career transition. As a result, you'll be equipped to dive into your job search with confidence and peace of mind.

In the next chapter, I'll address what to do when unemployment is your current reality.

Time Becomes Even More Important

I've had a category here at FMF called "More Important than Money" for quite some time (though I haven't posted to it for a while.) But when I was posting regularly on the subject one of the things I had listed as more important than money was time (in fact, I even started a "time" category).

The rest of the world has varying opinions on the value of time versus money, but it appears that more and more people are considering the two at least equals. This piece from US News basically is an article on how people are seeing that the rat race is for rats and that they are willing to trade some of the "things" in life for more time (and enjoyment.)

I think that the financial crisis has somehow disillusioned many people from the "make-more-money-to-buy-more-things" attitude that many Americans held just a few years ago. They are seeing that finances can be fleeting and are re-looking at their priorities. And they are finding that they actually would prefer to have a bit more free time than a few extra dollars.

If you're in the same boat, these posts may be helpful as you sort out what the time/money trade-off is in your own life:

• Creating A Richer Life While Living On A Tight Budget


• Taking Control of Your Time


• How to Maintain Balance in Your Life While Making Major Financial Change


• Aligning Your Money and Your Values

The Cost of Bad Credit

The October issue of Money Magazine had a chart in it (I can't find it online) that compared the cost of various loans for people with excellent credit and those with below-average credit. Their findings:

• Car loan of $25k -- Excellent credit rate: 4.2%; Below-average credit rate: 11.3%; Difference in monthly payments: $81


• 15-year $50k home-equity loan -- Excellent credit rate: 7.1%; Below-average credit rate: 11.4%; Difference in monthly payments: $130


• Credit card with $10k balance -- Excellent credit rate: 7.9%; Below-average credit rate: 29%; Difference in monthly payments: $176


• 30-year fixed $200k mortgage -- Excellent credit rate: 3.8%; Below-average credit rate: 5.4%; Difference in monthly payments: $190

You can see how a poor credit rating can cost you a fortune if you're a borrower. Then again, why are you borrowing so much? If you pay cash for a car, pay off your credit cards every month, and don't need a home-equity loan, then you only have your mortgage (and it's likely that you have good credit.) But if you are pushing your debt to the max and have poor credit, all of these combined will cost you an extra $577 a month. Ouch!

The (Often Understated) Cost of Inflation During Retirement

Here's a comment a reader emailed me in response to my post titled Five Retirement Surprises:

The most stark retirement (surprise) reality that I've had, and I was warned about it by a good friend, is "the inflation factor" which prominently figures into the retirement mix. It's definitely highly understated and has played largely in my mid-course retirement adjustment.

Several thoughts on this from me:

• I rate these comments as especially valuable since this person is retired. Compared to most of us who are only planning on retirement, this commenter is living through it, and can thus speak to the issue from personal experience, not theory (note: I like to read thoughts and comments from people who have actually done what I'm trying to do since they have insights others don't.)


• The impact of inflation is so meaningful that it caused this reader to make a mid-course retirement adjustment. Interesting.


• Inflation can certainly add up. At only 3% a year and a 20-year retirement, something that would cost you $1.00 at retirement's beginning would cost $1.81 at the end. Now this might not seem like much, but let's say you have annual expenses of $50,000 when your retirement begins. At the end of retirement these same costs would be over $90,000. And your total retirement expenses for those 20 years wouldn't be $1,000,000 ($50k times 20 years) but $1.4 million (3% cost increases per year.)


• Just imagine the implications of 5% or 7% inflation! Yikes!


• This is one reason I'm being way conservative in my retirement planning. I'm doing this by: 1) not counting on one penny from Social Security (I think I will get some, but it probably won't be much), 2) saving enough that I can live of the earnings of my savings alone -- not having to spend a cent of my nest egg to survive, 3) saving much more than I need to save for the income I need to live, and 4) estimating lower-than-I-can-probably-get return rates before and after retirement (with the differences between these and reality helping to take the bite out of inflation.)

How about you? Anyone out there have some thoughts on inflation during retirement or some tips on how you're planning for it?

What If I Lost My Career? Envision, then Act, Part 1

The following is an excerpt from the book When Life Strikes: Weathering Financial Storms by Cal Brown, CFP, MST. The excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy. Copyright © 2011 Cal Brown, CFP, MST, author of When Life Strikes: Weathering Financial Storms (Brown Book Publishing Group).

It's a recession when your neighbor loses his job; it's a depression when you lose your own. -- Harry S. Truman

Planning Ahead

Whenever I hear reports about bleak job prospects for recent college grads, I can certainly relate to how it feels. When I graduated from college in 1975, the nation had been hammered by a three-pronged economic assault: we were entrenched in a seemingly endless recession, the Arab oil embargo resulted in long lines at gas stations (that is, if your local filling station even had any fuel), and unemployment numbers were through the roof. I remember reading a story inNew York Magazine's September 1975 issue about a cab driver with a doctorate -- despite his advanced degree, he couldn't find any other line of work. If all that didn't seem bad enough, the recently ended Vietnam War and the fallout from Watergate both called into question our collective trust in government. It was under these unfavorable circumstances that I earned my bachelor's degree in transportation from the University of Arkansas. Given all the possible setbacks, I felt very fortunate to get a job upon graduation.

At twenty-two years of age, I accepted a position with an oil company, Conoco (now ConocoPhillips), to work in its distribution department. A few years later, I took another step up the job ladder and joined Cities Service Company, part of which was the gas station chain Citgo. My career in transportation motivated me to study for an Interstate Commerce Commission certification. The ICC was a federal government entity that regulated transportation in the US. I passed the comprehensive exam and earned the title of ICC Practitioner-Class B, which was essentially a law degree for transportation matters. My certification was nationally recognized and would advance my career, result in a salary spike, and ensure job security . . . or so I thought.

In the early 1980s, President Jimmy Carter initiated the deregulation of transportation and began the process of eliminating the ICC. His successor, President Ronald Reagan, hammered the final nails in both coffins. Then the division of Cities Service Company that I worked for was sold off to a venture capital group. Shortly after the acquisition, I discovered my new employer was hemorrhaging red ink. In summary, federal deregulation of my industry and the demise of the ICC made my certification and specialized knowledge obsolete, and the new company I was working for was in trouble. As a result, I found myself hating going to work, and I felt trapped in a dead-end situation.

I shared my frustration with a friend, and he suggested that I read the book What Color Is Your Parachute? by Richard Bolles. I immediately bought it and began to work my way through it. When I say "work," I mean it. This book isn't casual reading. To get the most out of it, you've got to put pen to paper and complete exercises that help you determine what you're good at, what you like to do, where you want to live, and much more. I wasn't the only one reading this book. It was originally self¬-published in 1970 and commercially published in 1972. To date, more than ten million copies have been sold worldwide. I still have the copy I purchased in 1983. Bolles's book leads to my first recommendation: if you want to make a career switch, read What Color Is Your Parachute? In this chapter, I'll explain why it's important to look for your new job while you're still working in your current position, and then I'll provide six steps to creating lasting and fulfilling career change.

The Pitfalls of Procrastination

I've noticed a disconcerting trend. These days, young people seem too eager to quit their jobs before they have another one lined up, and once they're unemployed, they take their sweet time looking for new work. Yes, it's a broad generalization, and I know that there are plenty of exceptions. For those who feel no urgency to find employment, however, there are clear consequences to not moving quickly. If you lose your job, have a high amount of debt, and have very little cash to cover expenses, then you're in serious danger of financial disaster. In fact, you've increased your probability of being forced to declare bankruptcy. You may even have to resort to imposing on friends or family for a place to sleep and eat. Postponing getting a new job will create a work gap in your resume that may make it difficult for you to get hired because potential employers may question the long lapse between positions. Most of all, prolonged unemployment is emotionally stressful, and being desperate to find a job is no fun at all.

So why wait for the layoff notice before beginning your career search? Instead, take action while you're still earning money. In my case, after working through What Color Is Your Parachute? I knew that I needed to make a complete career change and begin the process of looking while I was still working full-time. My search led me to financial planning, which was a relatively new profession with an incredible upward trajectory. Lynn Hopewell, the founder of my current firm, The Monitor Group, once shared with me the advice that his Harvard Business School professor told him: "May you find a job in the right industry at the right time." I was fortunate to have attained that, as the financial planning profession was just beginning to take off, along with the stock market rally that began in August 1982.

The Truth about Job Security (or the Lack of It)

A 2010 study by the US Bureau of Labor Statistics found that "the average person born in the latter years of the baby boom held 11 jobs from age 18 to age 44." No doubt, the days of working for forty years for one company are numbered. The reasons are many. Sometimes career switches are due to corporate downsizing, but frequently they take place because people are frustrated with their jobs and seek change.

I remember a not-so-funny get well card for a coworker that read, "Here are four words that will motivate you to get well soon: You can be replaced!" If you're convinced that you have the kind of job that will last you to retirement, think again. In a capitalistic system, a company's primary loyalty is to its shareholders, who are the owners. Business leaders may give lip service to cliches such as "Our employees come first," or "Our most important asset is people," but don't be fooled, because it's all about the stockholders. The company must make profits to stay in business, while those who have risked their capital to invest in the company (the stockholders) want to maximize profits and decrease expenses. For most businesses, the largest expense category is wages and benefits, which means that if an organization's bottom line nosedives and you aren't an owner, then you are expendable.

Despite these harsh capitalistic truths, the system works. You just have to understand the role you play and how to position yourself to succeed. For example, I previously owned my own business, and currently I'm part owner of The Monitor Group. I've put a significant amount of personal savings on the line investing in this business, and I want to realize a return that compensates me for that risk. Because I've played the role of employee in my previous career and shareholder in my current role, I understand that unless you're an owner, your job is at the mercy of those who run the business that you work for.

In addition, it was commonplace decades ago for companies to fire workers just before they became eligible for pension benefits -- talk about dirty tricks! This practice has become less common due to anti-age-discrimination laws and the Employee Retirement Income Security Act (ERISA) of 1974, which regulates company retirement plans-but it still happens. It's tempting for companies to replace highly paid folks in their fifties and sixties with young people who command lower salaries.

"It's for these reasons that I avoided the cutthroat world of corporate America and opted to become a public servant instead," you may say. After all, law enforcement and public safety professionals, teachers, and government employees may not always earn the best salaries, but the trade-off for lower wages is a solid pension and job security -- or so people think. But even these jobs are expendable. An employee's so-called permanent or tenured status can quickly be replaced with a pink slip when the government can't pay the bills. The bottom line is that whatever your job situation, you can't bury your head in the sand and think that your employer will always take care of you.

Click here to read part 2 of this piece.

Do You Regift?

Now that we all have been barraged with the annual trading of presents, including some we probably don't like, I think it's the perfect time to talk about regifting. Smart Money has an interview with Daniel Post-Senning, great-great grandson of etiquette maven Emily Post. They ask him about regifting -- and if it's appropriate. Here's his response:

Within the Post family there were absolute battles over this. Not on handmade or personal items.

I found it interesting that there were strong opinions on both sides of the issue within the Post family.

Personally, I'm fine with regifting -- on both presents I get as well as items I give. I agree that handmade or personal items won't usually work (though they may in some cases.) The key to me is whether or not the recipient would want the gift. If so, it's ok to give it. If not, find something else.

That said, we don't do a lot of regifting because we get few presents these days that we don't like. But we would regift if the conditions were right -- we have nothing against the practice.

How about you? Do you regift or not?

Help a Reader: Getting Out of Debt

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

I divorced about two years ago and am now about $20,000 in debt.  This is $10,000 for a car loan and a little under $10,000 for credit cards. I know, I got myself into this mess, and I am trying very hard to get out of it.  But right now, I am at the point where there is really no money left to help reduce my debt.  I am looking for a bit of advice.

Here is my financial information:

I bring home about $3300 (net) a month.  My spouse brings home about $500 (net) per month - child support obligations take the remainder (actually, his ex-wife gets more per month than he brings home).  He is looking for a better paying job, but cannot find anyone willing to hire a 50 year old.  The new age discrimination is "3-5 years experience preferred".  So he took a position that at least pays him something. 

I own three cars (one of my kids' cars is in my name and I pay insurance on it; ex pays other child's; they both pay their own gas).  Two are completely paid for.  The one that is unpaid has less than 45K on it.  We intend to drive all of them until they drop.

Our bills are as follows:

• I pay child support of $675 a month (two kids - I always outearned my ex and they stayed with him - 2 more years - my spouse has about three more years to pay his)
• Rent of $700 - very reasonable for a 3 br, 2ba place in the school district my kids attend
• Car payment of $325 with 33 more payments to go
• Utilities of $210 (gas, water, electric, sewer)
• Cell phone of $130 per month (we pay for all kids' phones; no web service, 5 lines on 1000 minutes with unlimited texting - a necessity with teens)
• Internet bill of $50 per month
• Insurance of $230 per month (cars and renters)
• Food bill is about $500 per month (this includes cleaning supplies, personal toiletries, pet food, everything you can get at a Supercenter)
• Total credit card payments of about $500 per month - mostly at the minimum, I try to make small ($10 or $20)
• Gas expenses - $250 per month
• The remainder (about $430) is for clothing, prescriptions, car maintenance, doctor office copays, entry fees to 5Ks (my one indulgence - I run for health and sanity and it allows me to give something to charitable organizations - about $25 per month) or school activities for my kids, and my husband to get a cup of coffee or drink at work (they don't supply anything)

We take lunch to work, go out to eat maybe once every five weeks, usually someplace that's under $20 for two (lunch).  No movies, no trips. We walk or run, go to the library a lot.  So no real entertainment expenses (except internet, which is our entertainment by playing bridge online and watching shows through Hulu etc.)

Note that we have no cable or land line so those are not expenses.

I have enough money in an IRA to pay off all of my credit cards and everything.  This would free up at least $800 per month.  I would then be able to turn around and put at least $400 per month back into my retirement savings and $200 into emergency funds.  That would also give us enough of a cushion to pay cash for everything that now winds up on the credit card (my daughter's car needed new ball joints - $500 - but a safety issue and cheaper than a new car).  Once I am done paying child support, I would like to route at least 2/3 of that amount into my retirement.

My husband is looking for something that pays more.  I am at the top of my field (paralegal in a college town) so not much more earning capacity for me.  I have a very stressful job, but looking for something else is out of the question as I am not sure I could match, much less exceed, my current earnings.  I have thought about a second job, but can't find one that will match my available hours.

So should I do it?

What's your advice for her?

Thanks for Your Support!!!

Just wanted to say a BIG THANK YOU to those who gave to the FMF $20k Red Kettle Challenge over the last month and a half. The challenge is now over and I made the last matching gift this morning as promised. We raised $13,636 from 53 people to help the less fortunate be fed, clothed, and cared for.

Thank you so much for your kindness and generosity!!!

Win a Copy of You Need a Budget!

Here's a chance for you to win a copy of You Need a Budget budgeting software!

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!

What's the ROI on Your Career Investment?

CNN Money has an interesting piece on the ROI (return on investment) of changing careers. They add up the costs and benefits in investing in yourself so that you can make a career change into a better-paying field and then apply investing calculations to the effort to see what the return is. It's an interesting take on a standard career decision people ask: is it worth it for me to change careers?

But I'd like to look at the ROI on your career in a different way. Suppose you already have a career you like and that you just want to make more of it. Consider the following returns on these efforts to grow your career:

• Networking efforts (including lunches, gas costs, time volunteering on boards, etc.)


• Additional education


• Extra training and seminars


• Time spent on driving that key project to success


• Money spent on nice clothes, make-up, health clubs, etc. to make you attractive


• Extracurricular activities (especially work-related ones) that make you more well-rounded and likeable

Given that your career is your most valuable financial asset and that taking specific actions to grow it can mean millions of extra dollars over the course of your career, it's easy to see how a couple thousand dollars a year can have a HUGE return to your lifetime earnings. Of course you'll need to spend strategically and with specific purposes in mind (you can't simply justify wasteful spending by saying it will somehow help your career), but given the huge upside and the relatively small cost of the "investments", it's reasonable to say that the ROI will be high indeed.

So, given that, what are you doing to invest in your career?

Reader Profile: JT

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am a 30 year-old banker living in Houston, TX.  I have been happily married for 6.5 years.  She worked until we had our first child 2.5 years ago.  She is now a stay at home mom, and we have another little one on the way, due in April.  We both have Bachelor's Degrees from large state schools.  I've been in banking since graduating in 2003.

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

At this time I am the sole income-earner, but fortunately my income has increased significantly over the last 3 years.  In 2008 we brought home a combined $150k ($105k me, $45k her).  Today my base salary is $140k, and my annual bonus potential ranges between 50% and 100% of my salary.  If 2012 is a great year, I might approach $300k.  Our benefits are decent - my company provides a 4% match on 401k, and we can also participate in an ESPP.

Historically we have always contributed into my 401k up to the match, then we fully-fund both of our Roth IRA's, then we go back to the 401k.  Depending on a certain pending bonus, we may not be able to contribute to our Roth IRA's this year (although we've already contributed $2,500 each).  We will max out my 401k contribution at $16.5k in 2011.  We also currently put $5k per year into a 529 for my son, and will do the same when Baby #2 is born.  We will likely increase our annual contributions by some amount.  We utilize a high-deductible health plan, and save the max into an HSA each year. 

Aside from this, we set aside excess funds in a high-yield savings account (if you can call 1.1% high-yield!).  We also do targeted saving when we have a big purchase coming up.  We will purchase cars brand new and drive them until it's time to move on.  Our two previous cars lasted 9 and 10 years.  We now have two new 2012 models, both of which we paid for in cash.

We have no debt outside of a mortgage.  We recently refinanced for a second time.  In 2009, we took our 80/15 at 6.0% blended to a 15-year at 4.375%.  In October 2011, we converted that loan to a 10-year at 3.25%.  We currently owe $134k, and our home would probably sell for around $190k if marketed today (2,000 s.f).

My increased bonus potential of 50-100% of salary really starts in 2012.  In 2011, our gross income will be $175k and our take-home income (after 401k, HDHP premiums, and HSA contributions) will be around $120k.  In 2011 we will save approximately $25k into retirement accounts, $5k into 529, $6k into HSA, and another $20k into general cash savings.

Our net worth today is $310k, comprised primarily of $55k of home equity, $75k in cash savings, $20k in 529 savings, $130k in retirement accounts. $30k in automobiles.

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

We'd like to buy a new home approximately 1-year after our new baby is born (i.e. spring, summer of 2013).  We live in a suburb of Houston, so it's not out of the realm of possibility to buy a 3,500 s.f. home for $350,000.  In mid-2013, assuming our home can still sell for $190k, we would have around $65k in home equity to apply to a new home.  In April 2013 I will also receive my 2012 bonus, which I anticipate will be between $70k and $150k. It could make sense to put some of this towards a house as well. 

I am also talking with several agents about permanent life insurance.  I currently have a $1,000,000 term policy, and my wife has a $250,000 term policy.  At minimum, I will soon be upping my term to $1,500,000, and hers to $500,000.  The tax benefits of whole life insurance are intriguing, especially when we will lose the ability to continue funding a Roth IRA most likely in 2012.  Yes, a whole life policy (with NW Mutual for example) may only earn 6% over the long-run, but the tax benefits and the low risk profile are attractive to me, given that we already have a lot of market risk in our 401k, Roth IRA's, and small brokerage account.  I'm curious to know other places people place excess cash once they exceed the Roth IRA limits.   

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

I recently moved to another bank, one which affords me more opportunities both professionally and monetarily.  I am excited about this move and hope it works out for the long-term.  I have never really sat down and thought significantly about retirement, but I admire both my father and my father-in-law, who each worked for one Company for 35+ years before retiring.  I could see the same for me at this new bank. 

We have always said we want to be able to pay for our children's college, wherever they decide to go.  One agent says a 4-year degree at a large in-state institution will cost $250k all-in for our first child, and $300k for our second.  And if one or both decide to attend mom's out-of-state alma mater, you can double that number!  Yikes!  We will continue to save via 529s, but I anticipate that some portion of our income in those years will be diverted accordingly (i.e. we may not save enough in 529s but will have enough income to cover any shortfall).

10-15 years down the road I could see us purchasing a second home in upstate New York, perhaps splitting it with my wife's siblings.  The area is special to our family, and we vacation there for several weeks in August.  It is a beautiful area, and fortunately not as costly as you might think.  But that is a long way off.     

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

Don't worry about the Joneses.  It took a few years for my wife to grasp this concept.  We are very fortunate to have a high income, but we are not spend-thrifts by any means.  We don't purchase fancy clothes and when we do spend money, like buying a car, we will buy new, mid-priced dependable cars with cash and drive them forever.  Also, it's important to save for retirement before saving for college.  You can always take out a student loan, but you can't take out a loan for retirement!  In 2006 we made a concerted effort to track our spending and our net worth.  I find that tracking Net Worth on a monthly basis is very beneficial, and sort of becomes a one-stop shop where you can go to assess your financial situation over the long and short-term.  For example, if I see that our liquidity falls month-to-month, I can focus my attention on identifying why that happened (was it a large one-time purchase, did we eat out more this month, etc.).  We then adapt our spending the next month in an effort to regain any lost liquidity. 

Eight Signs You May Want to Quit Your Job

Fortune lists eight signs you may want to quit your job as follows:

1. Your values don't match those of your coworkers or higher-ups.
2. Your boss doesn't like you.
3. Your peers don't like you.
4. You don't get assignments that make the best use of your abilities.
5. You always get stuck with the "grunt work" no one else wants.
6. You are excluded from meetings that your peers are invited to.
7. Everyone else at your level has an office, while you have a cubicle in the hallway.
8. You dread going to work.

To me, the killers are #1, 2, and 8. These are the ones that have made me move most often throughout my career.

I'd also list the following as reasons you may want to quit:

1. You're poorly compensated.

2. There are no opportunities for advancement.

3. You don't feel challenged/excited by the work/company.

These said, I'd also advise anyone thinking of quitting not to do so until they have another job. I know it may be tough to grind it out while you find something better (I've been there before myself) but believe me, dealing with a job you hate is MUCH better than not eating.

Merry Christmas

Just wanted to wish all FMF readers a very Merry Christmas!!!! Hope you all have a great day celebrating!!

Cold-Weather Cities Top Retirement List

When most people think of moving during retirement they think of going to Florida, Arizona, Texas or some other warm-weather climate. And who can blame them? After over a decade living in Michigan, I'm ready for a bit of heat myself!

Not so fast says US News. They list the top 10 US cities (based on research from Sperling's Best Places) with the highest quality of life for seniors based on health, economic, and other quality-of-life measures. In other words, the cities that are best at taking care of seniors. And guess what? Most of them are cold-weather towns. The list:

1. Minneapolis
2. Boston
3. Pittsburgh
4. Cleveland
5. Denver
6. Milwaukee
7. San Francisco
8. Portland, Ore.
9. Kansas City, Mo.
10. Newark, N.J.

I see a lot of cold-weather cites there. ;-)

I've been to every one of these places but haven't spent much time in most of them. Anyway, here's my take on the list:

1. Minneapolis -- I'm cold just thinking about this place, though I did almost move here once and my cousin lived there for years (and she loved it!)

2. Boston -- Very historical but too pricey for me.

3. Pittsburgh -- I lived here for five years and have family in the 'burgh. I'd move back with no problem, but I think I'd prefer a warmer (or at least sunnier) city.

4. Cleveland -- Do you know what people who live or have lived in Pittsburgh think of Cleveland? ;-) Seriously, we have friends and some family in Cleveland and they like it there.

5. Denver -- I haven't spent much time in Denver but have always heard good things about it.

6. Milwaukee -- I get to Milwaukee quite often on business. Looks like a decent place to be from and outsider's perspective.

7. San Francisco -- Great city, great weather, too expensive.

8. Portland, Ore. -- I have only been to Portland briefly, but again have heard great things about it.

9. Kansas City, Mo. -- I grew up in the Midwest, so moving back wouldn't be a problem for me. KC was a "big city" where I came from. ;-)

10. Newark, N.J. -- I've only been to the Newark airport, so I can't really comment on it.

I have no idea where we'll end up in retirement. We could remain living in Michigan, move to a place closer to our kids (depending on where they end up), or pick and entirely different location (Caribbean anyone?)

How about you? Does anyone like any of the places above? Or do you plan on moving at all when you retire?

Help a Reader: Traveling Abroad

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

I'm traveling abroad next month and I'm curious how people handle cash when traveling.  My Chase Sapphire Preferred card excludes me from foreign transaction fees on credit purchases, but I'm not sure what to expect on cash.  Travelers checks seem antiquated. What's the best (and cheapest) way to get foreign currency without being chewed up by fees?

• Should I get cash from my bank in advance?
• Should I just use my ATM card when I land on foreign soil?
• Something else?
• What do I do when I want to change my unused money back?

What's your advice for him?

Star Money Articles and Carnivals for the Week of Dec 19

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

• Cavalcade of Risk
• Carnival of Personal Finance
• Festival of Frugality
• Lazy Man and Money covers HARP refinancing.
• FrugalDad tells how to go to college debt free.
• BripBlap talks about being healthy.
• My Dollar Plan offers some inexpensive gift ideas.
• Money Smart Life lists year-end money moves.
• The Digerati Life highlights personal finance e-books.
• The Sun’s Financial Diary offers some free gifts.
• Car Negotiation Coach tells when the best time is to buy a car.

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.

Investing Mostly in Bonds Means a Lower Lifestyle in Retirement

The following is a guest post from Marotta Wealth Management.

Everyone worries about running out of money in retirement. Few people feel secure about government spending and Social Security. Even fewer retirees are confident about the future returns of the stock market.

In the midst of this turmoil, especially after this past summer's sharp drop, many investors wonder if they should put all of their investments into something safe and avoid the markets altogether. What people perceive as secure varies and includes bonds, cash, gold bullion or immediate annuities.

Recent history has proven that safe investments generally don't produce decent returns. For example, bonds get downgraded, and even entire countries default. Cash is currently paying close to zero. Gold bullion lost 69% of its value over a 21-year slide for a consistent annualized loss of 5.5% ending in 2001.

Safe withdrawal rates in retirement are mathematical attempts to determine what percentage of your portfolio you can spend in a given year. That amount is increased by inflation each year. In other words, what is the maximum standard of living you can maintain for the rest of your life and not run out of money before you die?

In financial planning, a good chance means at least an 80% likelihood of staying solvent. Any failure rate less than 20% is considered acceptable. If you aimed for a 100% success rate, your spending rate would approach zero. Financial systems are not well behaved statistically. They are often subject to events that are multiple standard deviations away from the norm. That's why I always describe the markets as inherently volatile. In mathematical terms, market events are not Gaussian; they are subject to power laws. That is, rather than a predictable bell curve of results, they have lumpy tails or more wild returns than you would normally expect.

Government pensions could fail. The markets could drop precipitously. The Treasury could default. Tax rates could double. We could experience hyperinflation. These unexpected occurrences, often called "black swan" events, mean it is nearly impossible to achieve a 100% success rate in retirement.

Multiple studies have tried to compute the safe withdrawal rate at age 65. The original studies suggested 4% was overly safe and 5% was too much. Planners later argued these conclusions were either too aggressive or too conservative. The original allocation was 50% stocks and 50% bonds. Subsequent studies show a better success rate with 75% stocks and 25% bonds. Most studies rebalanced back to a constant asset allocation. But some research suggests that adjusting the asset allocation to gradually grow more conservative provides a higher success rate. Others set the safe withdrawal rate and then blindly increase it by inflation. In the real world, however, people adjust their spending depending on good or bad years in the markets.

Our safe withdrawal rate assumes an age-appropriate asset allocation, starting at age 65 with about 75% stocks and 25% bonds. Normally such a portfolio would average 5.6% over inflation. But the stock market can have wild returns for a decade. We can only count on getting returns that average 3% over inflation, close to the average return of a bond portfolio. The glide path for our top-level asset allocation starts with 75% stocks, but by age 96 the portfolio is completely in bonds. We also recommend making annual adjustments to your safe spending rate rather than blindly increasing your withdrawal rate by inflation regardless of what happened the previous year in the markets.

Given this methodology and investments strategy, our safe withdrawal rate at age 65 is 4.36%. Thus for a $1 million portfolio, the annual safe withdrawal rate is $43,600.

We use projections for average portfolio returns to last until age 100 to ensure an 80% success rate at the average life expectancy. Then we run a Monte Carlo simulation to ensure that 80% success rate. Sometimes clients ask us not to use age 100 so they can safely spend more money. We do not oblige. A 50-50 chance of having money through age 100 provides only an 80% success rate through the end of your life. Our analysis gives you the freedom to spend as much money as you safely can in retirement.

But our safe withdrawal rate is only appropriate if your asset allocation strategy was also designed to maximize success. It should not be used with other investment strategies.

For example, if you put most of your money in more stable fixed-income investments, the odds of averaging 3% over inflation are much less likely. With a bond portfolio, you only have an 80% chance of keeping up with inflation. And simply keeping up with inflation means a much lower withdrawal rate.

A portfolio with an 80% chance of keeping up with inflation has a safe withdrawal rate at age 65 of only 2.78%. At age 65 you have 36 years through your 100th year. With this withdrawal rate you have a 50-50 chance of making it through age 100 and an 80% chance of not running out of money before you die.

Keeping all of your investments in stable bonds might look like an attractive option during volatile markets. But spending only 2.78% of your portfolio at age 65 certainly is not. With 75% of your investments in equities, you can spend $43,600 of a $1 million portfolio. If you keep everything in bonds, you can spend $27,800, less than 64% of your budget otherwise.

A bond portfolio at least keeps up with inflation. Other investments will not. Cash, gold bullion and real estate with no income may not. Keeping your money in cash is probably one of the riskiest strategies. The biggest concern in retirement normally is inflation. And the biggest danger is a black swan event for inflation.

In recent years inflation has averaged 5%, partly because of the double-digit inflation of the 1970s. Official inflation numbers were recently skewed downward because in 1997 the government changed the way it calculates inflation. Assuming an average 5% inflation, safe withdrawal rates for a portfolio invested in cash-like investments is only 1.04% at age 65.

So instead of being able to spend $43,600 of a $1 million portfolio, you would only be able to spend $10,400 at age 65. Spending less than a quarter of your lifestyle is not worth running to cash every time the markets drop. In fact, given market volatility, turning to cash when the markets drop will likely lock in losses at the lowest point.

The markets are inherently volatile. What you must give up in your lifestyle to avoid market volatility is not worth it for most retirees. Make sure your portfolio asset allocation is set appropriately and well diversified across all six asset categories. And then moderate your spending each year in accordance with the safe percentages for your age. Having an appropriate asset allocation matters for what you can safely spend in retirement.

Another Reason to Hate Best Buy

I just saw this and had to share it:

Talk about dropping the ball. Best Buy waited until as late as this week — mere days before Christmas — to admit that it’s not going to be able to fulfill the online orders placed by some customers. These are customers, by the way, who had made their purchases around Thanksgiving weekend, more than three weeks ago.

Yikes! It's gonna be a sad Christmas for someone. Thanks, Best Buy.

As if I needed another reason to dislike them...

Ideas for Staying Busy in Retirement

One of the key questions we all need to answer about retirement is "what will we do with the extra time?" I've offered some thoughts on what I think I'll do when I retire but this list from US News helped me add a few options. From their original list of 20 things to do in retirement, here are some that I think could work for me:

• Plant a garden – flowers or vegetables -- I already have a rose garden, but I'd like to make it bigger. If we ever had enough room I'd plant a HUGE garden and then rent it out for weddings. ;-)


• Learn a new language -- Spanish would be the logical choice for this since it would come in handy at some of the soccer games I referee. My daughter is learning it now and is enjoying it a lot.


• Write a book – not necessarily to sell, but to share your thoughts -- Listen, if I'm going to write a book, I'm going to want to sell it. ;-)


• Donate your time -- This isn't a new thought for me, but I thought I'd list it again since it's on their list/ This one is almost a sure-thing for me.


• Fine tune your landscaping to show off your abode -- Yep. Can you tell I have the gardening bug? ;-)


• Travel to a location where you can test your newly-learned language -- Like somewhere warm? ;-)


• Try coin collecting -- I used to "collect" coins as a kid and have always liked them. Making it a real hobby would be a fun way to spend some time IMO.


• Learn bridge or other social games -- I like to play chess, which isn't really a social game. But I would like to try my hand at a few tournaments, something I really don't have time to do at this point in my life.


• Travel near or far -- But of course.

How about you -- what do you plan to do (or are you doing) in retirement?

Be Nice to Make and Save Money

Smart Money has an interview with Daniel Post-Senning, great-great grandson of etiquette maven Emily Post. He says that by simply being nice you can both make more money and save money. A couple examples:

• People will want to work with you if you treat them with dignity, honesty and respect.


• I cultivate relationships with the sales people at Brooks Brothers. They let me know of upcoming sales.

My thoughts on this:

• The reason you get ahead in your career (and thus earn more money) by being nice is that in doing so, you'll be more likeable. And as we've seen, likeability is a key factor in career success -- it's just as important as performance.


• I like the tip on being nice to sales people. Not only does it make the shopping experience a better one, but it can save you money and help make them money if they work on commission -- a bonus for you both.

So, anyone feeling like being nicer now? ;-)

Are You Giving Gift Cards This Year?

Smart Money has some interesting facts on gift cards being given as holiday presents. Here's the piece I found especially compelling:

Nearly 80% of consumers plan to buy at least one gift card this year, reports the National Retail Federation.

Wow! 80%! I would have guessed 50% tops!!!

We certainly use gift cards as gifts (and earn 6% cash back when we buy them) as a major part of our gift-giving. We give cards that we KNOW people will use (since we know them well and where they shop) or cards that everyone can use (like for superstores where you can buy either general merchandise or food). Here's who gets gift cards on our list (and where they get it):

• My dad -- He loves Menard's.


• In-laws -- Walmart. (BTW, I heard a funny joke the other day at church. What's the difference between in-laws and outlaws? Outlaws are wanted.) ;-)


• Postman -- Meijer.


• Paperboy -- Meijer.


• Head of non-profit I work with -- Meijer.


• Kids -- Can't say, they read this blog sometimes. ;-)


• Me -- Logan's (get $10 extra with purchase of $25 gift card).

In the past we've also given gift cards to Costco or a gas station, but not this year.

How about you? Are you part of the 80% giving gift cards this year or part of the 20% refusing to do so?

Dress Nicely When You Fly if You Want Extra Perks

A few years ago I suggested that you dress down when you go to negotiate for a purchase with the thought being if you didn't look like you had a million dollars you would pay less for the item. Then a few years after that I posted that maybe dressing up is a better option (since people tend to judge a book by its cover.) On each of those posts we had commenters suggesting dressing up or down was the better idea, so I'm not the only one who can't make up my mind on this issue. ;-)

What brought the topic back to mind was this piece that says you should dress up when you fly if you want to receive preferred treatment. Their thoughts:

Everything else being equal (same frequent flyer status, etc.) when a flight is oversold in economy and the airline needs to upgrade someone, are they going to choose the passenger in the tank top or the one wearing the nice dress or suit? You know the answer. (Of course, it doesn't hurt to be extra nice to any staff you should encounter.)

The author goes on to cite all sorts of examples that seems to make the above an accurate statement -- that if you dress nicely you'll get better treatment when traveling.

I HATE to dress up when I travel since it's not as comfortable as wearing something casual. That said, because I often am traveling for work, I'm often dressed fairly nicely. I don't really notice a difference in how I'm treated from one outfit to another. However, I do think there is some credence to what the author is saying. If all else is equal (which it hardly ever is), I think BOTH being nice and dressing nicely can help you get preferred treatment when flying. In fact, being nice alone can often get you preferred treatment in many different situations.

What do you think -- is there something to this -- or is the author way off base?

The Difference Good Performance Can Make

Yahoo includes the following information in a recent post on how to earn more without giving up your whole life:

There are real rewards for a company's best workers. Top performers received average base-pay increases of 4.4% this year, compared with 2.8% for average performers, and 0.4% for the lowest performers, according to Mercer, a human-resources-services provider. Further, with most employers seeking to increase performance-based pay differentiation, even greater rewards could be in store for top performers.

Let's take this information and look at the life-long impact of being a good, average, or poor performer. Not that these numbers will be exact throughout a working career (in a good economy, for instance, they'd all probably be higher), but they are likely relative to each other and provide a good comparison for the difference in earnings based on performance.

We'll start with three guys, "Good", "Average", and "Poor" starting their working careers at 22-years-old just out of college. They all make $25,000 as a starting salary. They all work until they are 65. And they all get annual raises as described above: 4.4%, 2.8%, and 0.4% respectively.

Here's where they end up at age 65:

• Good: Career earnings: $2.6 million; Final year salary: $134,048


• Average: Career earnings: $1.8 million; Final year salary: $73,396


• Poor: Career earnings: $1.1 million; Final year salary: $29,212

Big difference, huh? These are exactly the points I was making in How to Maximize Your Lifetime Earnings and Making the Most of Your Most Valuable Financial Asset.

The numbers above show why it's so important that you work at growing your career. No other asset you have is as valuable, and if you consistently strive to grow it (by excelling at your work), you will be handsomely rewarded financially (and, by the way, it's more likely that you'll enjoy what you do if you are doing it well.)

So, do you have a plan to grow your most valuable financial asset?

I Need Some Quick Feedback

I'm in the process of picking the best post of 2011 from the winners of the Best of Money Carnival. I've narrowed it down to these five, but I need your comments on them. (I'll still pick the winner, but a well-thought-out comment could sway me one way or the other.)

Here they are in alphabetical order and without comment from me:

• 21 Ways To Make Extra Money From Home


• The Complete Guide To Building Wealth In Two Sentences


• Do a financial self appraisal


• Retirement Portfolios for Those Drawing an Income


• Should you Buy or Rent? Calculator + Inforgraphics

Which do you like best? Why?

Now's the Time to Give

Just a note for those of you who are looking to make an end of year charitable contribution and want to help families who are less fortunate: the FMF $20k Challenge is still on until December 26. Up until that time I will match, dollar for dollar, contributions to the Salvation Army, up to a grand total of all contributions of $20,000. For details, go to this link.

Thanks for your consideration and here's wishing you all the best of holiday seasons.

Tips for a Top Resume

Forbes has an interview with a top job recruiter and lists his top tips for a great resume. They are:

• Avoid the fancy-schmancy layout, font, and other special effects. Stick to traditional font of Times New Roman, 9 to 12 point size, and black type against a white paper.


• Prepare it in a simple Word format that can easily be viewed on most computers.


• Use a reverse chronological order.


• Get rid of objectives and summary and all that silly stuff.


• Skip personal information such as married with three kids.


• Stories sell. Numbers, statistics, percentages get attention if you put in bold type. Increased profit by this 28%. Came under budget by 30%. If you were born and raised on chicken farm, note it on your résumé.


• Fuzzy key words and phrases should be avoided.


• Get the photos off your résumé. You are looking for a job, not a date.

In other words, you want your resume to be the standard, formal, middle-of-the-road document. No bells or whistles, simply information that tells what you did and how well you did it (which hopefully is "very well").

A few extra thoughts from me:

• I like and recommend the black ink on white paper look best. I've tried grey and beige paper, but neither looks as good IMO.


• Focus on action words. After I list the title of each position and the dates I held it, I have bullet points listed with accomplishment after accomplishment. Each of these bullet points begins with an action word like "led", "created", "developed" and so on. These snippets demonstrate that I'm a person of action who can accomplish a wide range of tasks (and do them well.) This is exactly the point you want to make.


• I don't like objectives, summaries, or anything similar on resumes either. IMO no one reads them anyway so they simply take up space you could use to sell yourself.


• Personal info is a clear no-no -- unless it's something truly amazing and neutral. Example: you won the Olympic gold medal or raised $10 million to fight cancer. Other personal info (spouse, kids, etc.) can only hurt you (in most situations), so why include it?


• I'm not so sure about the "stories" he lists above, unless it's a story about how you made the company $1 million last year. Yes, stories are interesting, but do I really care that you were raised on a chicken farm? Not really. And maybe I hate chickens and everyone associated with them. Plus, how do you really tell a story in the short, bullet point format of a resume? Hard to do well.


• Make every word work. That's why you need to eliminate fuzzy words -- because they take up space that could be used on words that advance your cause/employment.


• Photos? Really? Do people really submit photos with their resumes these days? I guess if you were very attractive it COULD help. But even if Miss America or Mr. Universe included a photo, wouldn't it bring into question their professionalism (which is never a good thing to raise doubts about in a hiring process)?

To note, these are tips for "standard" jobs. Of course you may want more flair if you're a designer or include photos of you're a model. But for 99% of the jobs out there, I think these tips are solid and won't steer you wrong.

Reader Profile: BG

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am a 27 year old male from the South Central US. My wife of 3.5 years is 26 years old. We both graduated from a state school about an hour's drive from the city in which we now reside. We both grow up in the same hometown which is in the opposite corner of the state that we still live in. We met in high school and dated for about 6 years (all through college) prior to getting married. I graduated college one year ahead of my wife, and we got married about a month after she graduated from college.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

Presently, my wife and I both work full time jobs. I am a commercial lending officer for a locally owned bank and my wife is a team supervisor for the local housing authority (section 8 housing). Our average monthly take home pay is about $7,000 per month. This does not include bonus income, which can vary from a few thousand to tens of thousands of dollars per year (bonus income is from my job).

Take home pay is after we contribute 10% of my gross pay (my employer matches 3%, so total for my 401k is 13%) and my wife contributes 6% of her gross pay (with an 8% match, 14% total). We also contribute a full $10k per year to ROTH IRA's.

Monthly living expenses are about $4,500 per month (not including ROTH contributions or cash savings/investments). Total monthly budget looks like this:

$7,000 - take home pay

• $1,300 - mortgage payment (PITI)
• $300 - utilities
• $400 - food/groceries
• $85 - cell phones
• $115 - cable
• $500 - auto expenses (fuel/maintenance)
• $580 - auto loan payments (most funds used for investments)
• $250 - giving
• $40 - gym membership for me
• $500 - golf club membership (includes golf & dining)
• $400 discretionary spending
• $832 - ROTH IRA Contributions
• $1,700 cash savings/various investments

A few notes on my monthly expenses:

• I am a golf nut and pay a premium to belong to a very nice local club. As a banker, this is a tool I use frequently to help grow my career by entertaining clients.
• We have to 2 auto loans of which most of the funds were used for various investment opportunities. The rates on each of these are 3.49%. You can see below that we could fully pay these off if we wanted to, but decide not to since investments earn much more than 3.49%.

Our household net worth is approximately $210,000. This includes the following (this is all net of debts):

• $60,000 in cash
• $50,000 real estate partnerships equity
• $50,000 retirement assets
• $30,000 stock/options in the bank I work for
• $20,000 - other private investments, home equity, vehicle equity, etc.

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

The main financial goals that we have right now are growing our overall investment portfolio, focusing more on investments outside of retirement assets. We put a good chunk of money into retirement accounts each month, but I don't think too much about these accounts. I do spend a good deal of time each month focusing on our other investments, which are focused in real estate investments and a few other private company investments (insurance company, etc.).

Working as a banker, I have the opportunity to see all different types of businesses and work with the most wealthy and successful business people in my city. This allows me insight on and access to investments that many people would not.

I own 7 rental properties (some personally and some with a partner). These are all condos so they are fairly easy to manage, and me and my partner handle all management ourselves.

I also just recently had the opportunity to buy a chunk of stock in the bank I work for. I've worked here for about 1.5 years and have moved up quickly, which is beginning to open up solid equity opportunities (both in buying shares and getting options).

I am not too concerned about paying off debts at this point, as they are all at low rates. Debts consist of the following:

•  $190,000 home mortgage @ 4.50%
•  $30,000 in auto loans @ 3.49% (all but about $10k used for investing purposes)
•  credit card balances usually are around $1,000 and are paid in full monthly

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

My wife and I plan to have children in the next 2-3 years at which point we plan for her to become a stay at home mom. She is not as career focused as I am, and we both believe it will be worth the sacrifice for her to be able to stay home. Her take home pay represents about $2,000 of our total $7,000 monthly income. I believe that my income growth from my job over the next 3 years combined with growth in investment income should come pretty close to covering this gap by the time my wife quite her job. Thankfully, we spend much less than we currently earn so this should be easily doable.

My goal is to be "retired" from having an 8-5 job by the time I am 45 years old. I plan to focus very heavily on investing over the next 15-20 years. My investments to this point have been heavily focused on real estate. My goal for 2012 is to make a sizable direct investment into the oil and gas industry by either acquiring some royalties or some working interests in various wells. I am heavily involved in lending to the oil and gas industry and have developed a good working knowledge of the industry. My mother is also employed in a small oil and gas firm and will help to provide me access to some investment opportunities.

I've been heavily focused on my non-retirement investments for about 2 years now, and I've built an income stream of about $600 per month (net of associated debt service - not included in take home pay described above). I realistically believe I can build this to about $15,000 per month by the time I am 45 years old. I typically amortize any debt on investments very rapidly, so once debts are paid off, my income stream will increase quite a bit. Still, I'll have to acquire a lot more assets in order to eventually reach my investment income goals.

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

My general philosophy on personal finances is generally one of being aggressive (focus more on offense than defense). I work very hard to grow my income and to create new income streams. I also don't shy away from debt when it provides me the ability to own an asset that will increase my wealth and income over time.

Keeping spending under control is important, however, to me its not fun to spend your whole life preventing yourself from spending money on things you want to spend money on (see country club membership above). Money is only a tool that can be used to acquire things, or to invest to earn more money.

I'm not shy about wanting big things out of life, but I also try to be smart about creating a plan and working extremely hard to execute in order to reach my goals.

My main piece of financial advice (more like "life advice") - don't let anyone tell you that you can't do something you want to do, or have something that you want to have. People achieve big things every day, and the people that achieve big things are the ones that believe in themselves. Some people think having money or nice things is evil, which is fine. But I don't believe that, and I am not afraid to strive hard for success.

Naughty and Nice Companies

Consumer Reports has looked at the shopping policies, fees charged, etc. for various companies and come out with a naughty and nice list. Here's who's naughty (mostly based on fees they try to tack on to the "regular" price or poor return policies):

• AirTran
• Southwest Airlines
• SiriusXM Radio
• Liberty Travel
• The Swiss Colony
• GameStop
• American Apparel
• RadioShack
• Verizon Wireless

Now for the nice list:

• REI
• Bi-Lo Supermarket
• Live Nation
• Costco
• Orvis
• American Express
• Microsoft
• Cablevision
• Amazon

The only one I deal with on the naughty list is Verizon and then only because that's where my company-paid phone is from. On the nice list I frequently do business with the following:

• Costco -- I am at Costco quite often. In addition to food we've purchased a cruise, TV, computer, tires (a few times), and glasses (a few times) at Costco. It's a great place to shop with great customer service!


• American Express -- I use two Amex credit cards: the American Express Blue Cash Preferred card and Costco TrueEarnings card. Both are on my list of the best cash back credit cards.


• Microsoft -- I use Microsoft products every day, but don't have much interaction with them as a company.


• Amazon -- My go-to place for web shopping. More and more of my Christmas shopping every year is done at Amazon.

How about you? Do you do business with any of these naughty or nice companies?

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, 3 Powerful Ways To Decrease Your Financial Stress.

Enjoy!

Are You a Financial Doer or Dreamer?

Moneyland details a TD Ameritrade survey that separates financial doers from financial dreamers. The survey identified eight sound money practices with "doers" engaging in at least five of the behaviors while "dreamers" engage in just four or fewer. Their list:

• Act more like a saver than a spender
• Live within your means
• Automatically deposit money into savings each month
• Stick to a budget
• Track household expenses
• Pay off credit card debt in a timely way
• Regularly contribute to a 401(k)
• Have contributed to an IRA

I'll comment on these in a minute, but for now let's look at how they came to their conclusions:

In the survey, those who engaged in at least five of these practices – the doers – expressed far greater confidence in their financial future; 80% said they expect to reach their retirement goals vs. just 59% of dreamers with similar expectations. The starkest dividing line: 78% of doers identified themselves as savers vs. just 33% of dreamers who did the same.

Here's how I stack up on the eight:

• Saver over spender: What do you think after looking at my finances?


• Live within means: Yep, been doing this forever.


• Automatically deposit money into savings: My paycheck automatically goes into my checking account, then to Vanguard where it is invested.


• Having a budget: We had budgets for many years, but don't have an "official" one now. Our spending is so under control (and we're fairly frugal) that we don't really need one. That said, I do track spending via Quicken to make sure we stay within historical limits. ;-)


• Track household expenses: Yes. See above.


• Pay off credit card debt in a timely way: Better than that -- I have never had credit card debt. In fact, I haven't had any debt for about 15 years now.


• Regularly contribute to a 401(k): Each month part of my paycheck has gone into my 401k. I've contributed the maximum to it for almost 20 years now.


• Have contributed to an IRA: I have in the past, but now invest in either my 401k or a taxable account at Vanguard.

So if you don't count the budget item (which you could if you wanted), I score seven of eight.

How about you? I'm guessing many FMF readers do pretty well on these measures. Where do you stack up on this list?

Reader Profile: TVO

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am 25, male, single. I graduated from college with a BS in Biochemistry in 2008. Presently, I am working for an international oil service company. I have been with the company since I graduated so I consider myself blessed in today’s environment.

I, like a majority of Americans, did not have a clue about personal finance growing up. My parents are both penny pinchers, so rather than calling them ‘frugal’ I think the better term is to describe them as ‘cheap’. I still have problems now as I sometimes look at the ‘sticker’ price instead of the ‘overall cost of use’ price when buying large ticket items. My interest in personal finance started after I stumble upon personal finance blogs right after I started working. These personal finance blogs, including FMF, gave me a lot of knowledge and help me formulate my views on what I should do with my money.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

I pretty much have a desired situation by most standards. I make roughly 50k/year pre-tax in a low cost of living area. The company that I work for provides housing for their employees on campus so I do not pay rent. I have used that money instead to max out my 401K and my Roth IRA for the last two years.

Take home pay (post-tax): ~$2000/month

My monthly expenses are described below:

• Groceries: $250
• Shopping (clothes, office supplies, etc.): $150
• Gas/Car Maintenance/Insurance: $200
• Eating Out (personal): $100
• Health Insurance (domestic): $100
• Misc: $100
• Utilities (cell phone, internet): $100

My current investments:

• 401K: 48K
• Roth IRA: 17K
• Taxable Account: 12K
• Emergency Fund: 8K

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

Financially, I do not have any major financial issues at the moment. I have no student loans as I had a full scholarship when I was in school and I am currently debt free. The only caveat is that my emergency fund is not as large as I would like it to be but, I am putting what I don’t spend into it monthly.
 
What are your plans for the future (retire early, build your career, etc.)?

My current job is very stable as there are probably only a handful of people in the world that do what I do. I love the profession I am in and I can see myself working here for a very long time. For the time being, I will continue what I am doing currently and gain as much experience as I can. I do travel a lot for my work as I have to be on site for my job. Last year alone, I had extended stays in Japan, Australia, Russia, France, Sweden and Norway just to name a few.

In the long term, I would like to do what my current boss is doing. He has been in semi-retirement mode for the past couple of years as in he isn’t travelling anymore (I am, he telecommutes if needed) and is training someone new (me). The best way to describe his position is that he is a technical advisor in my profession. He is currently in his mid-70s and the company, under his request, has been transitioning for me to succeed him when he finally does put it up.

Another long term goal of mine is to eventually buy a house. However, I do not plan to look for a house anytime within the next 5 to 10 years as I love to travel for my work.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

My best advice that I can give to someone my age is networking/promoting yourself and building relationships based on trust. When I entered the company, I did not know what I was getting into and the company likewise, did not know what I have to offer. I quickly got along with my co-workers who had been in the company for a while and showed me the in and outs of the oil industry. Over time, I got along with a technical mentor who took a liking to me and soon after, I started (and still am) working under him.

Since I travel, I have also networked and promoted myself externally with people and clients all around the world. Once you gain the knowledge and the experience within your profession and you meet clients and offer solutions to their problems, you are building a relationship based on trust. I have people in the industry asking me for guidance when they are reluctant to ask someone else and that makes me feel like I have gain their trust and that they trust my judgment. Sometimes you might get a surprise reward. For instance, two weeks ago, someone I met in Malaysia surprised me with luxury suite and field pass tickets to an NFL game; you just never know what may happen.

The Poor: A Cornerstone of Christian Generosity, Part 3

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

The following is an excerpt from The Secret of Generosity, an excellent book on what the Bible says about the power of generosity. The author has kindly allowed me to publish excerpts of his chapter on "the poor" in support of my Red Kettle Challenge to help the needy. Today's excerpt is a continuation of last week's part 3.

The social justice gospel

In response to the previous portions of this chapter, we are in danger of making a critical mistake.  Excited and inspired to change teams and use our resources to rebuild lives, we are tempted to leave God behind.  There is a growing movement in modern Christianity that minimizes (or eliminates) the spiritual elements of biblical generosity.  This ideology focuses only on the physical effects of generosity such as food, water, or medical treatment, and neglects to offer the Bread of Life (John 6:35), Living Water (John 4:10), or the Great Physician (Matt. 9:12-13).  In a matter of speaking, this viewpoint worships giving itself rather than the God who calls us to live generously—turning faith into social idealism.

We have to take the gospel with us; otherwise, we make ourselves to be humanitarians or philanthropists rather than  Christians.  I believe this is one reason why Peter, immediately after challenging his readers to be eager to do good, reminds them:  “Always be prepared to give an answer to everyone who asks you to give the reason for the hope that you have.” (1 Pet. 3:15, NIV)

The church must certainly focus on the physical needs of the poor but not in a way that neglects their spiritual needs.  After all, Christ did not come to make this world a better place.  He told us plainly that His kingdom was not of this world (John 18:36).  Instead, He died and rose again so that the dead (in sin) may rise with Him (Rom. 5).  This must be our aim as well:  To bring the redemptive, restorative power of the gospel to the broken, needy, and afflicted—not to fix society.  When we focus only on the physical effects of generosity, we begin to trust in the power of our resources rather than our Redeemer—our money rather than our Maker.  The gospel, and the God of it, must go with our generosity.

Should the poor give?

Because of how frequently I get asked this question, I felt it would be beneficial to include it in this chapter.  Before diving in, I would like to start with a little aside:  Study after study has shown time and time again that the poor tend to be more generous (proportionally) with their money than their higher-earning counterparts.  While we often can be a little melodramatic when debating this question, the poor themselves have apparently already answered it!

Should the poor give?  First, the Bible teaches that giving:  “is acceptable according to what one has, not according to what he does not have.” (2 Cor. 8:12)  Therefore, if someone literally has nothing, then they have nothing to give.  This is permissible by scripture.  Secondly, several passages in the New Testament instruct grace-based giving to be proportional (Acts 11:29), meaning that a person with less means is free to give less.  However, the poor widow in the gospel accounts was unwilling to follow this principle and gave “all she had to live on” (Mark 12:44).  When Jesus observes her doing this, He does not correct her.  He commends her—pointing out her generosity to His disciples.

I think this is an issue where Christians are free to disagree, but personally I believe the poor should give for several reasons.  First and foremost, biblical generosity revolves around the heart.  If giving finds its anchor in the heart not the amount, why is our call to give dependent on our tax bracket?  When we distinguish subgroups as exempt, we unintentionally make giving about numbers.  Focusing on the heart would lead us to believe that the poor should give (even if it is a very small amount).

In addition, biblical giving is about spiritual principles not physical assets.  There are countless lessons in generosity that have nothing to do with money.  We reduce the spiritual aspects of generosity to economics when we instruct the poor to withhold their contributions (not to mention completely neglect God's promise to provide for those who are generous, Luke 12:22-34, Phil. 4:15-19).

Finally, if we say that only a certain income level is called to give, we get into the ugly mess of trying to decide what exactly “poor” means.  It's easy to see how quickly this would get complicated.  For all of these reasons, I would encourage the poor to give what they are able with a cheerful heart and faith in the Father's provision.

Final thought:  Eat your vegetables!

I am not casting the stone.  I have said the same thing to my own children on more than one occasion.  We all know the scene:  Children who won't eat their vegetables are urged on by their parents to do so because “there are starving kids in Africa who would be thankful to have food to eat.”  As I have heard this phrase fall from my own lips, I have begun to wonder just how cramming broccoli down my son or daughter's throat in the name of African children does anything to help the hungry mouths in Africa...or any of the other continents for that matter!  In fact, it gets me thinking that from a very young age we make our children aware of the less fortunate in a context that has nothing to do with helping them.  How powerful would it be if we began to teach our children how to help the starving children of the world rather than keeping that soundbite in our back pocket to help get the vegetables down?

I remember having a meeting in the middle school room at my church and seeing hand-written posters hanging all over the walls.  Curious, and having time to kill, I began to take a closer look.  Each poster was titled:  “How will I be a part of a generous generation?”  Below the question were hand-written answers, signed by their authors, explaining how they were going to try to be a generous Christian in a self-centered, consumption-driven society.  I was inspired.  It gave me hope for tomorrow.  How remarkable of a legacy could we leave if we not only challenged our children with this type of thinking, but also lived out an example to follow?

The Poor, Part 4

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

For the rest of the year I'm going to be highlighting verses relating to the poor on Sundays as a reminder of why I'm doing my $20k Red Kettle Challenge. Here are two for today:

• Proverbs 31:10, 20: Who can find a virtuous and capable wife? She is more precious than rubies. She extends a helping hand to the poor and opens her arms to the needy.


• Proverbs 29:7 (NIV): The righteous care about justice for the poor, but the wicked have no such concern.

Hope you're having a blessed holiday season.

College Towns Can Be Great for Retirement

Moneyland likes the idea of retiring in a college town saying the following:

A lot of retirees find what they want in a college town. That means value, first and foremost. But it also means high energy, good healthcare facilities, continuing education opportunities, and a rich cultural environment.

So, their thoughts are that you can downsize, buying a nice home for a fraction of what you'd sell your current one for, and move to a nice place that has a lot going on.

But there's something I think they are missing -- another reason why I might consider moving to a college town (if I wasn't already in one): a job.

I've always thought that I would work part-time in semi-retirement/retirement and one option for working would be to teach at a college. I could either stay where I am and do this (we have several colleges in my city) or potentially move to a different (nicer?) location in a better climate. There's still time to think this over, but to me this is another great reason to consider a college town for retirement.

But I have one question: are there any downsides I'm missing? Like drunk students driving at all hours of the night? Becoming a ghost town in the summer? Having 60k fans wanting to park in your yard for a football game? I guess the answers probably depend on which college town you live in, where you live there (close to the campus or not), and so on.

Anyone live in a college town? Do you like it? Why or why not?

Reader Profile: Jetgirl

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am 32, married, and we have no children. My husband and I both work as engineers in the aerospace industry, and we are currently very happy to be living in central California. We went through several job changes and relocations to end up here, and we are very happy with our current employer. We also have a wonderful circle of friends and although desert life is not for everyone, we really love the area we live in.

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

Currently, we both work for the same employer. Because our areas of expertise are different, we have always been fortunate to be able to be employed together. At the moment we sit feet away from each other and work on the same project. For us this is an ideal situation, and it allows us to only own and maintain one vehicle.

Our only debt at this time is our mortgage (~$1,450/month with escrow), which we have been aggressively paying down. We expect to pay it off in the next 3-4 years. We use our credit card (Southwest VISA) heavily to accrue flights so that we can visit family (we are fortunate that we and our immediate families are all located near major Southwest hubs), and we pay off the credit card in full each month. We purchased our vehicle with cash in 2009.

Recently we took a hard look at whether or not I could afford to stop working, and although that is not currently something I plan on doing, it was a good exercise for us. If we really had to tighten our belts and cut back on all frivolous spending, we have enough savings for us to live off of for a 9 months to a year.

Our current net worth is ~$390k (excluding our home value – even though we are not underwater, housing prices have been fluctuating in our area so much that I’ve stopped including it in my net worth calculations). We both fully fund our 401(k)s to the maximum yearly limit and our employer matches with 6% of our salary (including bonuses).

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

Although I know that I am biased, my husband has developed his photography hobby and has become a wonderful nature, landscape, and wildlife photographer. We kept talking about taking vacations to locations that would be interesting to us personally and would help develop his skills as a photographer, but it was mentally difficult to take money out of our savings to fund these vacations. So two years ago, I started a separate savings account for us to use to fund travel. We just emptied the account to fund a trip to the Serengeti (Tanzania), and we are really excited about the upcoming trip. We have already started refunding this account so that in another 2-3 years we can go on another milestone trip.

Our yearly salary has fluctuated a lot in the past 3 years. While our base salary has continued to grow based on great performance reviews, profit sharing bonuses have been a large percentage of our income. This year we are going to recognize a 10% income decrease because of the drop in the profit sharing bonus for this year. However, I am happy to see the reduction in my income knowing that my company took money from profit sharing funds to alleviate the need for lay-offs during a lull in our business. Working for a company with ethics like that is really inspiring.

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

As I mentioned earlier, my husband and I went through the exercise of looking at our finances in a single income situation earlier this year. We are still undecided about whether or not we will have children. We both feel strongly that one of us would stay home if we ever do. We both have really enjoyed developing our careers and although we are young, we are already starting to be recognized as experts in our specialties, so we have always considered starting a family to be something we would do in 5 years (we’ve been together for 10 years…). Being a bit more honest, I see my husband as being very happy and fulfilled in his career, and I still question what I want to be when I grow up.

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

Hard work pays off. My husband and I are in great financial shape because we both took our finances seriously from a very early age. I used scholarships and co-operative engineering money to get through college debt free. My experience as an engineering co-op also gave me invaluable experience and knowledge about what kind of engineering career I wanted to pursue.

Pay yourself first. Even though I set up automatic transfers each month, it really helped me mentally when I created separate buckets for different types of savings (i.e. we did not even consider planning vacations until I set up the vacation savings account).

Communication is king. I think that one of the cornerstones in any healthy relationship is communication, but I have found this to be especially true with regard to finances. I take care of our finances, and even though I was giving monthly updates on our financial situation, I found that we need to have frequent conversations about long term goals and spending patterns to alleviate a lot of worries.

Carnivals for the Week of Dec 12

Here are some of the carnivals Free Money Finance was in this week:

• Totally Money Blog Carnival
• Carnival of Personal Finance
• 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.

Box of Books #20

The box of books giveaways through my giveaway newsletter have been very popular, so below I'm detailing another set of them that will be up for grabs this month (if you want a chance to win, be sure to sign up for my newsletter here.) For now, here are the books I've received from publishers and a bit about them (from Amazon):

• The Sound Mind Investing Handbook - A Step-By-Step Guide To Managing Your Money From A Biblical Perspective 5th Ed - Investment adviser Austin Pryor has carefully created the "next step" guide that helps you put Godly principles of finance into motion. Whether you're a beginner or an experienced investor, you'll benefit from stepping across this bridge between "theory" and "action". Each user-friendly lesson is written in everday English and filled with helpful visual aids.


• What Would Ben Stein Do: Applying the Wisdom of a Modern-Day Prophet to Tackle the Challenges of Work and Life - Delivered with the dry, honest wit that millions of people have come to know and love, Ben Stein’s next work What Would Ben Stein Do? will provide advice on any question imaginable – from the man who has all the answers.


• What Color Is Your Parachute? Guide to Job-Hunting Online, Sixth Edition: Blogging, Career Sites, Gateways, Getting Interviews, Job Boards, Job Search ... Resumes, Research Sites, Social Networking - Shows you how to quickly find the data that will be most helpful to you, how to identify and research the places where you will most enjoy working, how to leverage the power of social networking sites, and how to use your Internet time most effectively, avoiding the common pitfalls and setting you up for success.


• The Questions and Answers on Life Insurance Workbook: A Step-by-Step Guide to Simple Answers for Your Complex Questions - Need help facing the constant barrage of information from competing life insurance companies? With twenty years of experience in the life insurance business, Tony Steuer delivers a practical, one-of-a-kind resource for choosing the best life insurance policy for you or your family, whether you currently have a policy or not. Step-by-step, he leads you through the process of making key life insurance decisions.


• Congratulations You're Hired! The must read Career Guide to land the job of your dreams, College Edition - This book provides useful, practical, and easy to apply advice from a Human Resources Director.


• A Simple Book of Financial Wisdom: Teach Yourself (and Your Kids) How to Live Wealthy with Little Money - This easy-to-understand book gives specific steps you can take right now to become more financially secure.


• 21 Days to a Thrifty Lifestyle - In 21 days you can turn your spending habits in a brand new direction—one that can have a profound, positive impact on your personal finances.

FYI, a few of these have my handwritten notes in them, so if you eventually win the set, don't expect completely new books.

Reader Profile: MJD

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am a 22 year old recent college graduate. I graduated in May of this year, 2011, and was lucky enough to have a job lined up for me upon graduation. I have a position in the finance industry and have always been very interested in finance. I know people frown on working in the "finance industry" however I love my job and love what I do. I do not work for a big bank so please refrain from any criticism here and respect the fact that I am following my dreams and doing something that I want to do. I use spreadsheets galore to track everything from the money going out, money coming in, interest on accounts, you name it, I track it. I use charts and comparison figures to see where I overspend, where I can invest more, my asset allocation, my monthly budget breakdown, and my monthly expenditures. I find myself always looking for a way to add another chart or tab that will allow me to analyze my finances more in depth and get a more robust foundation for my financial well-being.

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

I was lucky enough to have very gracious parents that paid for my undergraduate degree (on my own for any post-grad unfortunately!) and can never thank my parents enough for this. My parents struggled with their finances when I was younger and I believe that is why I am so conscientious of my own because I witnessed how finances can be a such detriment and cause so much pain to a family. I have 0 debt and have a car that I have completely paid off. I live with 2 roommates in an apartment with all of my monthly expenses including rent, utilities, phone, cable, internet, and car insurance totaling around $800/month, while bringing home around $3500/month after taxes. I am lucky enough to work for a company with a 50% 401k match which I have maxed out to this point since beginning work. I contribute monthly to a roth, emergency fund, and other investments. I have built my 401k to $4,000 in a few months, maxed out my roth this year, built emergency fund of just less than $5,000 and have other investments totaling $7,000. I currently have 1 credit card that I never use, however, after reading articles on here I am looking into getting one that offers rewards.

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

Currently my concern if my credit score. Unfortunately while in school, I had an outstanding doctors bill that somehow slipped through the cracks and got sent to a collection agency. Although I finally paid it off, it still negatively affected my credit score. I am still unsure of how the credit score works, and quite frankly find the whole system very flawed and silly. I am worried about this for the future when I go to buy a home. I want to get a credit card to start using more often to boost my credit, however, I have been denied cards in the past and worry this could happen again (I have also heard that the more cards you apply for this lowers you credit score more). My dream would be able to save up enough cash in the next few years to simply pay cash for a house so I can can stick it to the man in charge of these erroneous "credit scores" but this could be a bit optimistic on my part. I have no intention on buying a large house, and intend on living well below my means for the time being. Any thoughts on easy short term ways to boost ones credit score?
 
What are your plans for the future (retire early, build your career, etc.)?

I would love to retire early, however, I have many goals that I would like to accomplish before retiring. I would love to start and run my own business one day. This has been one of my goals since childhood and one that I plan on achieving. After this though, I would love to be able to live on coupon payments, dividends, and savings. Through one of my many spreadsheets I have ran the numbers and at my current savings rate I will be in fine shape come retirement time. Now I know I will have a family one day and my current savings rate will not be sustainable, however, I believe with a shared income it will be able to remain fairly sustainable. I love traveling and that is one thing that I plan on doing throughout my life including retirement. Traveling and doing what makes you happy is an investment in yourself which I believe always results in a positive ROI!
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

My best piece of advice is to start as soon and as early as possible! I am only 22 but wish that I had started 10 years ago. Every little bit helps and I have tried explaining this concept to friends and some just do not get it. Save as much as possible but at the same time, live a little. It kills me reading some of these blogs and articles about people eating ramen every night in order to retire early and save every single penny. Yes I love the idea of retiring early and I love saving, but I also draw the line sometimes and realize life is too short to eat ramen every night and pass up a night out with your friends because it may cost you a few bucks. Yes money is always nice and it will be nice to retire early knowing your family and kin will be financially sound, however, it is your life to live and at some point you have to reward yourself!

The New Parents' Guide to Managing Money

The following is a guest post from Elle at Couple Money. 

My husband and I recently became parents for the first time this summer. We have a healthy baby girl and are absolutely loving it. When we first found out we were expecting, like many parents to be, we wanted to get an idea of what we're getting into. One of the first things that struck me was how many people mentioned how expensive kids could be. The good news is that it probably won't cost you as much as the USDA estimates, but raising kids does affect your finances. If you're a first time parent it can be hard to know what you need to do to handle the changes. I wanted to share what has worked for us and what I wish we knew earlier.

Set Your Family's Financial Priorities

Many well meaning family, friends, and strangers will have plenty of advice to give you for your family. I've found some helpful information among the comments, but the truth is only we know what will probably work for our family. While our baby girl is loved by many, we're responsible for taking care of her and no one loves her like we do. The two of you have to sit down and discuss what's important for you as a couple and what's important for you as a family. What goals (financial and other) do you have? When do you want to achieve them? For us, having me being able to work from home was important. That meant, though, that I would cut back on taking on new work for a bit as I adjusted with having a baby at home with me. I also had to save up some to take care of my 'maternity leave'. For the months leading up to the birth, I made sure that money was being allocated to savings so there wouldn't be a huge change to our cash flow.

Hold Off on That College Fund

I've had several people tell me that we should get started with saving for our kid's college fund. They don't want their kids to go into debt for a college education. My husband and I want to set aside a bit of money for college, but we also realized that there are a few financial milestones we need to have in place before we start socking away money for her. The first thing we wanted to do before she arrived was increase our emergency fund. Not knowing how much the first year of baby expenses will cost us made us realize we wanted a bigger buffer. For estimates on a ballpark figure I checked and asked friends who have kids how it went from them. We also took into account our health insurance deductible. While my husband's job offered a partial reimbursement, we planned into the budget that the reimbursement may be delayed. (Happy to say that the company paid it promptly.) We also want to make sure that our retirement contributions weren't going to be sacrificed for the college fund. Some parents may question putting our retirement ahead of our kid's college savings. However we'd rather our kid working for scholarships and grants instead of her going to college for free, but having to financially support us when we get older.

Accept Help and Gifts

I will tell you right now that the best gift we received was the 3 weeks of help we received from our family when we brought the baby home. Our mothers took turns and helped us make the transition. We prepared a few meals, but hardly had to use them the first month because our family and friends took care of it. I will admit I was nervous about having family live with us for an extended time, but it was a blessing. We got to bond with our daughter without stressing out about day to day stuff. We saved a bit of money as well since we didn't have to grab a quick dinner. So if your friends and family offer to help you, please talk it over and consider if it's a good move. It can be a huge stress relief. Accepting help also means that you're open to finding deals by shopping around and being frugal. We've had several friends of ours share some of their favorite places to pick up baby gear and supplies. We have a consignment shop nearby that has fantastic deals on baby items. I've also learned from other personal finance bloggers about the good deals I can for baby items like diapers with Amazon Mom. I've saved 20% compared to local stores and I get it delivered to our place.

Start Planning Ahead

Being a parent means making long term decisions and tough choices, that includes preparing a will, living trust, and life insurance. We want to have enough money in the policies to cover paying off the mortgage and have some money to cover living expenses for a period of time. We've also talked about the possibility of who we would like to be guardian of our daughter should something happen to the both of us. We haven't made a decision on who to ask to cover this precious responsibility, but we're not going to make this decision lightly. Planning ahead for the baby also meant having health insurance for her. My husband checked with his company's Human Resources Department to see what we needed to do to get our daughter covered under his health insurance policy. It meant an increase in premiums, so we had to budget accordingly. I didn't realize how quickly it jumps when you add a child.

Lead By Example

My baby has no idea of our financial circumstance and won't for awhile since she's just an infant, but we still want to lead by example.

• Budgets: We've had a family budget since we were married. Our plan has basically been to keep all our necessary expenses under 1 income and use the second to pay off debt, save, achieve family goals. We'll continue to adjust the budget as our circumstances changes. We will include our daughter in discussion when's she old enough so she can be comfortable dealing with money.
• Giving: We feel that money shouldn't be hoarded; it's merely a tool to use. If the opportunity presents itself to help someone we believe that we should help. We hope our daughter feels the same way and we'll work on being transparent with our giving so she can see the benefits of sharing.
• Saving: Before we make big purchases we save up the cash for it. Yeah, we missed a few great deals, but I don't want our daughter to get into a “buy now, pay later” mentality with her spending. I'd rather she see the effort involved in saving up so she can appreciate yje value of money and her purchases more.

Will we get this right on the first try? No; we understand that we'll make mistakes and have to change up how we teach our daughter based on her own personality and needs.

Thoughts on Becoming Parents

Are we perfect parents? Most definitely not, but we're willing to do our best. One of our goals is that our daughter will be able to be a financially responsible and independent person. I hope some of these tips can help other new parents. This is definitely a topic that needs more input - too many things to mention. I'd love to hear your perspectives on what new parents need to know. What were some of the biggest surprises and lessons you had as a parent? What advice would you pass on to other parents? For me, I'm so excited at how much FUN it can be hanging around our daughter. I also have learned to be more productive with my free time; putting things off is less of an option now.

A Great Way to Save on Weddings that You're Bound to Hate

Here's a piece from US News that gives five ways to be a bridesmaid without going broke. The first one is an idea that I LOVE but that most people (especially women) will hate. It is:

Just say no. It may sound harsh, but sometimes it's the best solution. Ask yourself if you'll still be friends with this person in 10 years. If the answer is no, consider responding with a polite decline.

Ha! How many times has this happened? Probably none.

But think about it. How many people do you still keep in contact with from high school? 2? 3? How many from college? 2? 3?

In other words, friends change over time. So the "10-year rule" is actually a good one. If you really can't afford to be a bridesmaid and/or would rather skip it anyway, why not simply decline? Odds are you probably won't be friends in 10 years anyway.

And, if you say no you'll likely speed along the breakup of your friendship. ;-)

Seriously, I'm sure it's relatively rare that people decline such an "honor", but doing so is something more people should at least consider. Many don't have a few hundred dollars to spend on a wedding (or several thousand dollars to spend on several weddings) but feel trapped that they have to accept a bridesmaid offer. But you don't HAVE to -- you can just say no!

Anyone ever done this (decline being in a wedding due to cost)? How did it work out for you?

Reader Profile: MS

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.
 
I'm a 36-year old married male.  My wife is 33 years old.  We have a daughter, age 4, and a son due in a matter of days (He's probably arrived by the time this is published, as my wife is scheduled for a c-section on 11/21).  We live in the high-cost of living Northeast and recently bought our permanent home after living in a condo for about 5 1/2 years. I graduated from a public university with a bachelors degree and I double-majored Actuarial Science and Risk Management.  I graduated with no student loans (although I did have some credit card debt unrelated to school).  I was fortunate when it came to paying for school.  Both of my parents had employers that offered merit scholarships to children of employees.  I was a pretty good high school student and managed to receive a scholarship from each company.  With the 2 scholarships, I was able to cover the roughly $5K a year tuition plus was provided money for books.  I did not have any room and board expenses as I lived at home and commuted to school.  My wife went to a private school away from home and left school with roughly $20K of student loans.
 
When I graduated, I accepted a position with a property-casualty insurance company in their actuarial training program.  I spent the next 3 years working and studying for the actuarial exams.  It was at that time that I realized that I no longer wanted to take the exams, but did still enjoy the insurance world.  I spent a couple years (all while working) trying to figure out what I wanted to do and eventually decided to become an insurance agent.  I then spent 4 years trying that before I realized I wasn’t that good at sales and the economy tanked.  I then moved to my current company through the use of my network and couldn’t be happier.  I have been with the company for about 3 years and feel that I’m in a very stable position.  I recently changed positions and now work in the finance side of the company.

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

My income ($91K salary, plus annual bonus of $14 or $15K) is the only income for our household as my wife is a SAHM. 

My gross pay per month is $7,583 which is broken down as follows:

• Federal Taxes - $108
• State Taxes - $270
• Social Security - $300
• Medicare - $104
• Company benefits (Health, Disability, Dental and Flexible Spending Account) - $450
• 401K (6% of gross) - $455
• Roth 401K (3% of gross) - $227
• Allowances for wife and I - $240  This is money deposited directly into our individual accounts and can be spent however the person wants.
• Remaining Take Home - $5,428

My monthly budget for my take home pay ($5,428) is broken down as follows:

• Car Payment - $329 (Interest rate is 6%)
• Student Loan Payment - $138 (Interest rate is 3.125%)
• Mortgage (Includes property taxes, insurance, PMI, and principle and interest) - $2,521  (Mortgage is 30-year fixed at 4.75%)

• P&I portion - $1702.40
• PMI portion - $240.64
• Insurance - $90.33
• Property Taxes - $2,033.37

• Utilities (Electric and Oil) - $400  I’m not sure yet whether this is high or low as we’ve only been in the house for 6 months
• Insurance (Life, disability and auto insurance) - $335
• Cable/Telephone/Internet - $139  All packaged together and locked in for a year.
• Cell Phones - $57 for both my wife and I
• Food - $420
• Gas - $290
• Dry Cleaning - $90  I wear a suit every day and don’t like to iron my shirts
• Miscellaneous - $150 This is for any spending that doesn’t have a specific category
• Gifts - $150 We use this for any birthday or holiday presents bought throughout the year
• Entertainment - $50
• Savings - $335 broken down in the following way:

• Property taxes on cars - $35
• Vanguard - $45
• Emergency Fund - $50
• Car - $150
• Daughter - $25 Going forward we’ll be needing to buy clothes as we’re running out of hand-me downs
• House - $50

Our savings are broken down as follows:

ING - $4,386

• Emergency Fund - $1,080
• Auto Insurance - $526
• Property Taxes - $200
• Upcoming Expenses - $1,914  (mainly for the c-section bill that will be coming)
• Present Club - $666
• Car - $0
• Utilities - $0 (whatever isn’t spent of the $400 each month goes here, just drained this recently to fill up the oil tank)
• Entertainment - $0

Vanguard - $300 currently invested in the Vanguard FTSE All World Ex US ETF (VEU).  My plan is to build this up to $1,000 then begin buying the Vanguard Total Stock Market ETF (VTI).

401K and Roth 401K - $12,000 (40% S&P 500 Index, 12% MidCap, 13% SmallCap, 25% International, 10% Stable Value)

Pension - $10,000

The company matches 4.5% on the 401K and provides a 4% of salary defined contribution to the pension.

Liabilities are the following:

• Mortgage - $324,000
• Student Loans - $11,800
• Car Loan - $8,800

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

Since I did not become enlightened about managing my finances until recently (within the last 3 years, thanks FMF!!!!), we’re not in as strong a position as I would like.  The most immediate issue is to replace my wife's car.  She drives a smaller 4-door and with the newest edition coming, the car is likely to be too small.  That car is the one with the loan on it.  It is worth more than the loan currently, so we will likely sell it and buy something slightly larger.  Given our current savings, this car will be financed, but my hope is that it's the last car I ever finance.  My general goals are to have a fully funded (6 months of expenses) dedicated emergency fund within the next 5 years.  Have all debts paid of within 15 years.  I have no set date for retirement at this point.  I plan on increasing my retirement contributions 1% every year.

We do plan on saving money for college for our children.  Our current plan is for my wife to start working again once both kids are school age (roughly 6 years from now).  Our plan for her income is 25% for retirement, 50% college savings and 25% taxes.  I’ve made some rough calculations which show us having about $250K available for my daughter for school.  Once she finishes school, my son would be starting and we’d be able to provide the same level of support for him through normal cash flow (debt payments would be gone and could be used for college).

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

I would like to continue to build my career some, though I do not think I want to climb too high up the corporate ladder.  I am seen the time dedication needed for positions a couple notches up on the ladder and I am not willing to sacrifice my personal time.  I am relatively happy about my salary progression over time.  I have averaged about a 5% annual increase since I entered the professional world 13 years ago.  I don’t mind going to work every day, so early retirement isn’t a concern right now.  Beyond that, I think it is just to enjoy life.  My wife helps to keep me in check to make sure I don’t over-save.  She helps me to enjoy the fruits of our labor.  As such we’re planning a nice trip in a couple years to celebrate our 10-year wedding anniversary.

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

If you don’t keep track of your finances, no one else will.  You also need to keep score.  That can be done by setting goals or targets or some other measure like net worth.  When I began getting serious about my finances, I had a net worth of -$19K, today it’s about $35K.  Not where I want it to be, but I'm working on it.  You need to figure out where you want your money to go (i.e. goals), otherwise you will spend it all and wonder where it all went.

Working for a Non-Profit Not All It's Cracked Up to Be

The Wall Street Journal says that working for a nonprofit organization isn't all sunshine and rainbows. Their thoughts:

Lured by the opportunity to serve a social purpose—and to improve their work-life balance—corporate workers are increasingly seeking jobs with nonprofits.

The desire to do good or work more family-friendly and flexible hours may be driving the switch for many. Still others may be broadening their job search to increase their chances of finding employment in a difficult market.

But nonprofit managers and experts caution that perceptions don't always match reality, and business-world veterans frequently undergo a bumpy transition.

They go on to cite the specific problems people making the business-to-nonprofit switch encounter as follows:

• Salaries are often lower (roughly 1/3 of the private sector on average).


• The work is harder (fewer people doing more work).


• Decision-making is often haphazard.

I've worked on boards and committees of nonprofits for some time now and here's what I have to add to the conversation:

• Yes, the salaries are often lower.


• Yes, the work is demanding. I don't know if it's any worse than anyplace else though. However there are a lot of post-work requirements like fundraising dinners and the like.


• Decision-making is a nightmare. You have the nonprofit, the board, key donors, and on and on. You can be mired in bureaucracy.


• The people at nonprofits often aren't as sharp as their business counterparts. I hate to say it, but it's true. they aren't as smart, aren't as driven, aren't as experienced, and on and on. This is on average, of course. I have met some very bright and talented people at nonprofits.


• Everyone is in fundraising. Don't think that because you're in IT for a nonprofit that you aren't in fundraising for the organization. EVERYONE is in fundraising either directly or indirectly. Think I'm kidding? See what happens when you accidently offend a big donor at a special event...

These things said, there are great benefits to working at a nonprofit including:

• Doing something you believe in. Many people in "regular" jobs don't believe in/like what they are doing for a living.


• Slower pace (most of the time.) This can be a joy for some even though it's frustrating for others.


• Great people. Some of the nicest people you'll ever meet work for nonprofits.

I've always thought that I might work part-time at a nonprofit in "retirement", but I'm not sure I'd do it for pay. As a volunteer you have a lot more freedom than an employee (sure, you don't get paid for it then, but you also have "walk away power" if things get too strange.) :-)

Anyone else have experience working with (or for) nonprofits? Do you agree or disagree with my thoughts above?

Reader Profile: SB

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

We are a couple that have been together over 17 years now (one 50 and the other 45 years old), have a house, 4 dogs and a live-in step parent. We both have stable jobs working for a major university (non-profit) and while we don’t make a great income, we have incredible benefits. Between the 2 of us, we gross around $99k/year. We work together making financial decisions and both have similar goals in that respect, which helps a lot. We’re also both savers, which helps, too. Even though we don’t make that much money, we have managed to grow our wealth considerably over the years, despite having been unemployed for almost 2 years. We managed to keep up with our bills, 3 mortgage payments, and even managed to contribute to savings during that time. I guess we were well positioned to face the recession and are very thankful for that.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

Currently, our financial situation is as follows:

• Our current house has a mortgage of $1181/mo, which we round up to $1300, not including taxes and insurance, which add about another $250/mo to this.


• A rental house with a mortgage of around $850/mo, which we round up to $900, including taxes and insurance adds another $250/mo to this. We receive $1000/mo in rent for this property.


• We have no credit card debt, but do use our cards as much as possible as they’re reward cards and we earn anywhere from $400-500/year using them correctly. These are paid in full every month.


• I currently contribute 27% of my salary to my 401k and my partner contributes 20%, both of these are matched with 9% from the school.


• We contribute $420/month to 7 DRIP plans that we’ve been a part of, along with $25/mo to a straight savings account.


• We max out our Roth’s at $11000/year ($5000 and $6000/yr).


• We also collect another $775/mo in rent from a basement apartment that we keep rented out to college students.


• We have 2 vehicles, one a 2000 and the other a ’98, both paid for. These will need to be replaced at some time, but we could probably pay cash for these items.


• Current value of taxable investments is roughly $110k


• Current value of 401k’s is about $139k


• Current value of Roth’s is about $77k


• Current value of rollover IRA is about $136k


• Current balance of liquid savings is $9400


• I don’t include any home equity as that’s evaporated with the housing collapse.

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

Currently our only financial issue is saving more for retirement. We figure we’ll need to amass roughly $2M to comfortably retire, but have another 15+ years to do so. We’re also looking at trying to purchase a retirement home in Florida and use it as rental property until we’re actually ready to retire at which point most of the mortgage should be paid off. We’re not looking at anything grand down there, something below $100k would be more than adequate and comfortable, especially as depressed as prices are currently.

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

While we have no real plans to retire before me reaching 65, it’s nice to think about spending our golden years being  beach bums. I’ve already got a Master’s degree, so additional education isn’t in the picture. The possibility of starting some small business appeals to us, but we are unsure at this point, especially with the economy in the state it’s in.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Definitely, the best advice for anyone to live by is to spend less than you make and pay yourself first. Another important piece of advice is to take advantage of dollar cost averaging your investments and understand the time value of money.

Tipping for the Holidays

Consumer Reports lists a chart on how people tip, who they tip, and how much they tip during the holidays. Their findings:

Cleaning Person

• 39% tip nothing
• 49% give cash, check or gift card
• 12% give a gift
• Median value of gift: $50

Child's Teacher

• 51% tip nothing
• 11% give cash, check or gift card
• 38% give a gift
• Median value of gift: $20

Hairdresser

• 56% tip nothing
• 36% give cash, check or gift card
• 8% give a gift
• Median value of gift: $15

Manicurist

• 62% tip nothing
• 35% give cash, check or gift card
• 3% give a gift
• Median value of gift: $10

Barber

• 63% tip nothing
• 32% give cash, check or gift card
• 6% give a gift
• Median value of gift: $10

Newspaper Carrier

• 65% tip nothing
• 29% give cash, check or gift card
• 4% give a gift
• Median value of gift: $20

Pet-care provider

• 65% tip nothing
• 25% give cash, check or gift card
• 10% give a gift
• Median value of gift: $10

Gardener

• 68% tip nothing
• 22% give cash, check or gift card
• 8% give a gift
• Median value of gift: $25

Mail Carrier

• 78% tip nothing
• 13% give cash, check or gift card
• 8% give a gift
• Median value of gift: $20

Garbage Collector

• 88% tip nothing
• 7% give cash, check or gift card
• 5% give a gift
• Median value of gift: $20

What's interesting to me is that I've done this list for several years now (2010, 2009, and 2008) and in almost every case, either the percentage giving nothing has gone up, the amount given has gone down, or both. Either people are getting tired of tipping (perhaps the service is not there to warrant a tip) or the economy is hitting tippers where it counts.

Anyway, here's where we stand on each of these:

• Cleaning Person -- We don't have one.


• Child's Teacher -- Our kids are homeschooled.


• Hairdresser -- My wife goes to a friend of ours who we cover with a gift.


• Manicurist -- As you might imagine, we don't have one. ;-)


• Barber -- My wife is my barber.


• Newspaper Carrier -- We give a $20 gift card to a local superstore.


• Pet-care provider -- No pets, no added expenses. BTW, it was interesting to me that the percentage giving a gift to their pet-care provider bucked the trend and went UP.


• Gardener -- My son does not get a tip for this -- though he does get paid for mowing the lawn. ;-)


• Mail Carrier -- We give a $20 gift card to a local superstore.


• Garbage Collector -- Nope. Service isn't good enough to receive a tip.

A few other thoughts:

• I get a gift (usually a nice tin of cookies) for the workers at my pool.


• Cleaning people are the only ones that get either cash or a gift from 50% or more of the people.


• Cleaning people are by far the best off concerning the amount of the gift ($50 versus $25 being the next highest). Is this because this person usually performs a higher-costing service? Or maybe because the cleaner is more trusted/considered more a part of the family?

How about you? Do you give a holiday tip to these people (or any others) who provide services to you during the year?

The Value of a College Degree is $1 Million -- Can Be Much More if You Work At It

MSN says that the value of a college degree is $1 million. The details:

The Census Bureau has taken a new stab at answering the age-old question: Just how much is a college degree worth? The answer: $1 million.

That is a rough average, of course, but data collected in an extensive Bureau study suggests that a college degree is worth about $1 million in additional lifetime earnings compared with a comparable worker with only a high school diploma.

This is for a bachelor’s degree. Advanced degrees earn more:

A master’s degree typically adds about $500,000 to lifetime earnings, according to the report, while a professional degree in medicine or law can easily add another $1 million on top of that.

For those interested, here's the entire study. Their summary:

The results of this analysis demonstrate that there is a clear and well-defined relationship between education and earnings, and that this relationship perseveres, even after considering a collection of other personal and geographic characteristics.

Note that this is an analysis of income differences only. One thing it appears they DON'T factor in is the cost of the degree (it appears they do factor in the time lost in school where the non-college grad can continue to work/earn, but I could be mistaken), so college expenses need to be subtracted out. Still, this gives a pretty compelling case for the value of a degree.

That said, these are AVERAGE results. Who wants AVERAGE results? Not me. I'd prefer well above average results, thank you very much. How do you get them? I'm glad you asked. ;-) Here's what I would suggest:

• Go to a good school (not a "great" one, whatever that is anyway) that offers a history of strong post-graduate salaries in your field. In other words, a good payback given the cost.


• Try to minimize costs/debts while in school by getting scholarships, working, graduating early, etc. If you want specific suggestions, see Examples of How to Pay for College Without Borrowing.


• Get a degree in a field that pays well (or at least has decent salaries). Doing what you "love" is over-rated. I contend that very few people actually "love" what they do anyway -- otherwise they would do it for free (this, by the way, is called a "hobby".) I suggest you instead get a career that you like -- one that's a good fit for you AND lets you earn a decent income. Now if doing what you "love" can make you some good money, then go for it. But my experience is that things people "love" doing don't pay very well.


• Once you graduate, you then work at growing your career to maximize your lifetime earnings. Doing this will make the difference between earning the average lifetime income and one that is millions of dollars more than that.

That's how you make way more than the average for a college graduate. Then, if you want to become wealthy, add these steps:

• Control your spending. As your income goes up, your spending should go up at a much slower rate. Doing this allows your gap -- the difference between income and spending -- to grow.


• Use this gap to save and invest. Save as much as you can for as long as you can. Invest the money so it grows. Low-cost index funds are my investment of choice.


• Throughout your life, avoid the money mistakes that can kill your finances.

If you do all of these things, the odds are dramatically in your favor that you'll end up quite wealthy.

Feel free to pass this article on to a high school or college student you know. ;-)

Reader Profile: RJ

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I'm a 21 year old British student studying languages, I'm currently on a teaching assistantship placement in Germany, I'm due to go back in September next year to finish my degree but I'm considering delaying this by a year.

I'm single with no pets and share a flat with someone who was already living here when I arrived. My parents and grandparents talked about money a lot to me when I was growing up and if I have any general questions I go to them first usually.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

As I live alone (from my family) I support myself, my income is a stipend meant to cover my living expenses, it's €800 a month, but I don't have to pay tax and with a bit of maths I've been able to live within my means and even save some money. My job is only part time, but unfortunately I could only work another few hours a week without getting all my income taken away in tax. I was also the recipient of the ERASMUS grant (meant to encourage students to travel in the EU and study abroad) which I put straight into my savings account. I currently have around £8,000 in savings but also a largish student loan, I can't pay the loans back until I'm earning over £15k a year, but I hope to be able to do that after graduating. I have a single credit card with a £500 limit and use that for most purchases but pay it off every month.

My rent is currently €266 a month (all utilities included) and next year it will go up to €276, I pay about €10-€20 a month for my phone, depending on how much I use it, and cook food with my flatmate to keep the costs down, per month, I probably spend about €50 on food.

(By the way, sorry for the currency switches folks, living in 2 countries is hard!)

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

My current financial issues are my student loans, I can't yet pay them off but I'm saving as much as I can so I can aggressively pay them when I start. Thankfully the interest rate is very low (1%) so when I didn't need most of the loans in the first year I took it and put it all in savings. Unfortunately we had that thing called the financial crisis, but thanks to compound interest I'm not in the red on what I took.

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

My plans for the future include probably taking another year out of University, I won't be affected by the tripling of tuition fees at my institution and I don't know what I want to do after. I'm really enjoying my job right now and think I might like to go into teaching, but I'd like to try it for a second year to be really sure before I spend more time studying. I've also applied for a second job writing articles for a magazine aimed at teens learning English, it relates to my current job and degree program, and while it doesn't pay much I think the experience would be awesome.

I also recently started a website which I would like to turn into a side income stream, it's not going very well yet, but it's also only been running for about 2 weeks (patience is a virtue, but I want it right now!), my hope is that I will be able to use the income from this to replace my laptop when I graduate and perhaps buy some chocolate.

I think I would like to retire early, but I really have no idea. I know that my current aim is to find a job that I enjoy, and preferably one that pays the bills. I've got a lot of options right now so I'm doing my best to explore them before I make any choices. The last thing I want to do right now is a post-grad program only to realise it's in the wrong field and not what I want!

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

Spend less than you earn. My mother taught me this when my best friend who lived next door had 'everything' and I had 'nothing'. My best friend's mother was deeply in credit card debt and ended up divorced and having to move house.

My only other philosophy is be happy. While this isn't directly related to finance you shouldn't completely deprive yourself of things that do make you happy - in my case it's books. I buy a few from time to time (~1-2 a month) to read, but have made a point of looking for free books too. Saving money is all very well and good, but don't be miserly!

What People Think About Rewards Credit Cards

Capital One recently sent me a copy of their 4th quarter "Rewards Barometer", an on-going research study among people with rewards credit cards. I looked over the data and wanted to share some findings I found interesting. Their results are in red below, followed by my comments.

92.5% are satisfied, very satisfied, or completely satisfied with their current rewards card(s).

I'd probably put myself into this category, so I can see why the number is so high.

44.6% have cash back rewards, 42.1% go for points, and 26.8% have miles cards.

Note that the percentages are over 100% because people have multiple types of cards.

Looks like cash is the winner, though points are close. Then again, many points-based cards can be redeemed for cash, so I would guess that cash was over 50% of the rewards redeemed. But I'd be wrong (at least for this quarter)...

Rewards users recently redeemed include: 43.8% cash, 42.1% airline tickets, 31.1% gift cards.

Then again, there's really not much difference between cash and gift cards, right? Aren't they in effect the same thing?

The survey asked people what could be done to improve their card. 56.6% said "more special deals with retailers to earn more rewards", 46.7% wanted "making earning rewards simpler", and 24.1% wanted "removing caps that limit the amount of rewards that I can earn."

I would take any of these, but my top one would be removing the amount of rewards I can earn. Especially with the Chase Freedom card. It's a great card but the $1,500 per quarter limit is too low in some quarters (like the one we're currently in).

People were then asked why they have a rewards credit card. The responses: 60.9% said "it’s free money", 35.3% said it "allows me to earn trips", and 26.7% said it "allows me to earn merchandise."

FREE MONEY!!!! Oh yeah, baby!!!! ;-)

Any of these results surprise you? Any of them different than what you would have answered?