Free Money Finance

You Must Over-Perform in Your Job If You Want to Maximize Your Pay

U.S. News lists several reasons you are not earning the salary you want, but the one that stuck out to me was reason #4. It reads:

You think doing your job adequately is enough. Doing a merely adequate job isn't enough to merit a significant salary increase. Big raises go to people who go well beyond the minimum expected.

Exactly. You get big raises, big promotions, big bonuses, and so on by doing MORE than your job requires.

Look at it this way. Let's say your company pays you $50,000 a year to do "A, B, and C". You do A, B, and C. You get paid $50,000. Seems fair, right?

But what if you want to earn more than $50k? Well, then you need to do more than A, B, and C.

This is what I said almost four years ago when I wrote How to Demonstrate that You Deserve a Raise. If you want more money, you need to do more. If you don't do more, you won't get more money.

So how do you know that you're doing more than what your job requires? You sit down with your boss and detail (in writing) what is required in your job. Then you over-perform against those expectations. If you are expected to deliver 5% sales increases, deliver 7% (or more!) instead. If you are supposed to identify $75,000 in cost savings, find $100k (or more!) instead. If you are supposed to increase production capacity by 3%, increase it by 5% (or more!) Then when time comes for promotions, salary increases, or bonuses, you will be identified as an over-performer. And over-performers get the promotions, salary increases, and bonuses!

Of course over-performing isn't the only thing you need to do (as I noted in How to 80-20 Your Career), but it's the first on the list. Get it right and (assuming you're not a complete jerk) you'll be well on your way to maximizing your earnings. And believe me, it's worth the effort. People who take these steps and apply them regularly to their careers end up making significantly more than those who don't -- sometimes MILLIONS more.

Inexpensive Ways to Keep Kids Entertained this Summer

US News lists five cheap ways to keep your kids entertained this summer as follows:

1. Afternoon Matinee
2. Local Parks
3. Public Swimming Pools
4. Backyard Game Day
5. Indoor Fun

I like this list, especially the local parks (we have one that has a splash pad, basketball courts, soccer field, tennis courts, and playground equipment about four blocks from our house) and swimming pools (we have an Olympic-sized pool at the high school near our house that costs less than $2 per person to get in to) ideas. We use those quite frequently.

I'd add these to the list:

1. Play with friends. Whatever happened to just getting together with friends to ride bikes, shoot baskets, listen to music, play video games, and the like?

2. Go to church. Our church has all sorts of fun activities for kids (slip and slide night, movie night, sleepover at the church, etc.)

3. Volunteer. Our kids helped run Vacation Bible School for a church near our neighborhood (not our church.) They had a blast helping younger kids have a blast.

4. Attend free (or inexpensive) camps. My son has been to two free three-hour basketball "mini camps" as well as basketball nights where the cost is only $3 for three hours of games.

5. Get a job. My daughter has been pet sitting as the entire neighborhood has been going on vacation. We generally take vacations when others are not, thus saving ourselves both money and hassle.

6. Take a class. Our kids are homeschooled and we keep going during the summers. It's a nice time to have a relaxed schedule but still get a credit or two in. This way we can have a lighter load during the "official" school year. (FYI, our "school" this summer has included a trip to Gettysburg and an upcoming trip to D.C., so we try and keep it both educational AND fun!)

What suggestions do you have for entertaining kids inexpensively this summer?

Diligent and Lazy Hands

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

Today I'm posting Proverbs 10:4, a short verse that gets to the point about the fruits of hard work (and what you get when you don't apply yourself.) From the NIV:

Lazy hands make a man poor, but diligent hands bring wealth.

Next is the Contemporary English Version -- which is much more blunt:

Laziness leads to poverty; hard work makes you rich.

And finally, words from the Message:

Sloth makes you poor; diligence brings wealth.

Notice that the verse does not say that all people in poverty are there because they are lazy. Instead it says that if you are lazy, you will likely end up poor.

As for hard work, does working hard always lead to wealth? Nope. This is where you need to apply this verse to the rest of Proverbs (and the Bible). We all need to work hard in the proper way while applying the right principles. What are those principles? They are the seven pillars of financial success I've previously detailed here at FMF:

• Pillar 1: Spend Less than You Earn


• Pillar 2: Grow Your Career


• Pillar 3: Beware of Debt


• Pillar 4: Saving for the Future


• Pillar 5: Invest to Make Your Money Grow


• Pillar 6: Get Insured


• Pillar 7: Give

If you need more details on these, see my 30 Steps to Great Finances series.

Thoughts and comments?

How to Get Your Resume Read

Business Insider details a recent study that used "eye tracking" technology to see where recruiters look at resumes (during the estimated six seconds they look at each one.) The results:

In the short time that they spend with your resume, the study showed recruiters will look at your name, current title and company, current position start and end dates, previous title and company, previous position start and end dates, and education.

In other words, they just look at the basic facts. Perhaps a few of your highest-level accomplishments (the ones at the top near your title, company, etc.) But that's it.

Then the piece highlights two different resumes -- one with basic formatting and in big blocks of text and one that is formatted to make reading easier (clear headings, bullet-point accomplishments, good use of bold to emphasize specific text.) It will come as no surprise that the latter resume got looked at longer as well as more completely (for instance, the recruiters looked at EVERY job section as well as the education detail.)

Here is Business Insider's summary of these results:

With such critical time constraints, you should make it easier for recruiters to find pertinent information by creating a resume with a clear visual hierarchy and don't include distracting visuals since "such visual elements reduced recruiters’ analytical capability and hampered decision-making" and kept them from "locating the most relevant information, like skills and experience."

A few thoughts on these results:

• I thought my resume was nicely formatted, but the "good" example they show is very, very nice. If/when I need a resume again (I haven't had one in eight years or so) I think I will use that one as my model.


• One thing the good resume does that I have always done is feature bullet-point accomplishments (versus paragraph-length sections). Getting powerful accomplishments across quickly is VITAL for resume success. If you need help in this area, see Making a Great Resume, Writing Powerful Accomplishments, The Importance of Accomplishments, and How to Track Your Accomplishments.


• It's interesting how it seems like the recruiters jumped from one spot on the resume to another -- like they weren't reading it but skimming it.


• Of course, just because recruiters looked at one resume more than the other doesn't mean more of the good resume people will get interviews, but that's the implication. After all, assuming the same information and that the information presented is attractive to the reader, then more time would likely lead to more interview offers, wouldn't it?

Anyone have anything else to add?

Reader Profile: KR

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 KR. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 38 and in my second marriage; my husband is 46. We've been married for 7 years. I have one child from my first marriage, and my husband has 5 children from his first marriage. We have one child together, so altogether we have 7 children. My two children live with us, and my 3 younger stepkids live with their mom and stay with us on the weekends. My older 2 stepkids are grown... one has graduated from college and is now serving in Afghanistan, the other is a junior in college. Our youngest is 2. We live in a suburb of a large midwestern city.

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

We started our financial planning journey late in the game... only 3 years ago or so. Prior to that we were spending everything we made. We're fortunate in that we each have a good gross income to work with. I have a semi-government position and an ~$80k salary with incredibly good benefits, although I work/commute 60 hours a week. My husband is a self-employed defense attorney who works about 25 hours a week by our choice so he's able to spend more time with the kids and take care of the home front. He now makes ~$100k a year, down from a few years ago before the baby was born when he took more cases. So we're grossing ~$180 right now.

Debts:

• Mortgage - $130k still owed on a $250k mortgage, 6.5%
• HELOC - $30k, 3.5%

We have paid off all our other debts over the last 2 years including DH's remaining law school loans, 2 car loans and several credit cards, plus we've been throwing extra at that mortgage.

Assets:

• House - would maybe sell for $190k today
• My 401k - $83k
• My Roth IRA - $35k
• DH's Roth IRA - $30k
• My HSA - $4k (started this year... the plan is to max this out but not touch it)
• Emergency/DH's income fluctuation account - $20k
• Total assets: $362k

PLUS

• My pension - from my current employer, at present worth ~$12k/year for life at age 65, and will be worth ~$30k/year for life at age 51 if I stay with my employer 13 more years. This is fully funded and not dependent on tax dollars, so pretty solid, although I give it a 50/50 chance of being either closed to new entrants or frozen in the next 5 years as others in our industry are going this route... hoping for the former. Or neither!
• DH's pension - $3k a year or so at age 65.

Also, I will likely inherit ~$1m from my parents' estate (family trust) somewhere around age 70. DH will not inherit anything.

Monthly Expenses:

We currently max out my 401k, both Roth IRAs and the HSA. So we're throwing ~$33k into tax advantaged accounts per year.

Net monthly income MINUS all retirement savings, health insurance, and replacement/sinking funds for things like cars and home repairs, PLUS $700/month in child support I receive from my ex: $8,500

• Child support:    $1,485
• Mortgage:         $1,267
• DH's practice:    $1,200
• Tithe:            $1,020
• Child care:        $  566 (in-home care for our youngest when dad's at the office)
• Food:            $  400
• Car gas:        $  315
• Electricity:    $  154
• Life insurance: $  150
• Entertainment:    $  100
• HELOC:          $   90
• Bus pass:        $   90 (this cut my monthly commuting costs in half)
• Car insurance:  $   80
• Gifts:          $   80
• Water:            $   50
• Incidentals:    $  100
• Remainder:        $1,353 (extra for the mortgage, clothing as it wears out, paying kids for certain "above and beyond" chores, etc.)

DH will pay child support for 7 more years. I will receive child support for 6 more years.

We run a lean household. Entertainment is usually Redbox, bicycles or the park, and pizza in our house means a $5 Little Caesar's special. We don't eat out a lot. The gifts fund is for birthdays and Christmas for the kids... DH and I don't buy gifts for ourselves or for anyone other than the kids. We buy good used cars and drive them until they die, and we shop for clothing at consignment stores. We don't have cable TV. DH pays for our cell phones and Internet as part of his law practice budget above... that also covers his office space rent and utilities.

College planning is a big deal for us at present. DH's older two got through entirely on academic scholarships. My 3 younger stepkids and my son from my first marriage are 15, 14, 12 and 11. Because they were all born within a 5 year span, we could conceivably have 4 children in college at the same time... soon! As opposed to saving up for college at this late stage in the game, we decided to buckle down and pay off our mortgage in the next 3 years instead. We reasoned that financial aid - which we would eventually qualify for despite our income based on the sheer number of children we'd have in school at once - would be reduced by the amount we saved, but colleges don't consider debt (or the lack thereof) in their calculations. If we could free up our mortgage money instead, that would give us the cash to help pay for school as we go, and we wouldn't take the financial aid hit by having a big pile of money sitting around. (The youngest, the only child who is both of ours, is two years old so we have more leeway in saving for her.)

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

Retire early! Our goal is to get out of the rat race as soon as we have $500k saved outside of our retirement accounts. We haven't started saving for that yet, but want to do it as soon as the mortgage and HELOC are gone, and with every non-college dollar we can. At that point, DH wants to travel. I'd also like to build a modest dream home if we're financially able. This should be feasible if we can keep ourselves - and the kids! - from lifestyle creep.

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

Save early and often. I wish we'd paid more attention to our cash flow when we were younger, we'd be SO much better off. Once you're above the poverty level it really doesn't matter how fantastic your income is or isn't. Everything depends on how much of it stays with you. DH has friends, other attorneys, who make $500k a year but are mortgaged to the hilt in their million dollar homes and never see their kids or enjoy all the expensive toys they've bought. Umm... no thank you.

Star Money Articles and Carnivals for the Week of July 23

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

• Couple Money says to get your rewards from Wells Fargo before they run out.


• One Cent at a Time advises to pick a college or a major with your future career in mind.


• Frugal Portland reframes the issue.


• Festival of Frugality


• Cavalcade of Risk


• Carnival of Personal Finance


• Carnival of Wealth


• Lazy Man and Money revisits a Safeway program.


• My Dollar Plan says to use gallons per year.

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.

Which Is Better: Getting More or Paying Less?

Here's an interesting question posed by Moneyland:

When offered the possibility of 33% off a product or the same product with 33% more quantity, which would you choose?

If you answered that there's not much difference between the two options (or something similar), you would find yourself smack dab in the same boat as most Americans. That's the main finding from a recent University of Minnesota study detailed in the Economist -- that "most consumers view these options as essentially the same proposition."

But they are not equal. One of them is a better deal. Moneyland goes on:

The discount is by far the better deal. As the Economist puts it, because most shoppers are “useless at fractions,” they don’t realize that, for instance, a “50% increase in quantity is the same as a 33% discount in price.”

The piece highlights a part of the study where students were asked to evaluate two offers on coffee beans. One offer had with 33% more beans for free while the other simply took 33% off the price. The students viewed the offers as essentially equal. But Moneyland shows how they are not equal:

But let’s do the math, using some easy round numbers for the sake of simplicity. Say the initial price is $10 for 10 oz. of coffee beans. Hopefully, it’s obvious that the unit price is therefore $1 per oz. An extra 33% more “free” beans would bring the total up to 13.3 oz. for $10. That $10 divided by 13.3 oz. give us a unit price of $0.75 per oz. With a 33% discount off the initial offer, though, the proposition becomes $6.67 for 10 oz., for a unit price of $0.67 per oz.

So why do consumers make this sort of mistake? Moneyland attributes it to the following:

• Shoppers do the math incorrectly.


• They are infatuated with the idea of getting something extra for free.

For those of you who aren't aware of it, "free" is the most powerful marketing word ever invented. Shoppers will do all sorts of things they might not otherwise do (including spending more money) simply to get something "free." Take it from someone who has been in marketing for over 20 years, giving away stuff for "free" can be quite profitable. :)

But the math part is strange. It seems to be an easy calculation. But for some reason, people aren't making it. Perhaps it's just the "lazy math" that says 33% more is the same as 33% off. Or maybe it's the fact that people assume that a larger-sized item is a better value. I know they often make this assumption when shopping at club stores. But if you do the math, you'll find that the larger sizes are sometimes a good deal and sometimes not.

We almost always break things down into a per-size equivalent (ounces, for example) to compare one item to another. And since we usually have our phones with us (which have calculators) this is quite easy. Why don't others do it?

How about you? Do you do these sorts of calculations or do you think the savings are so small that they aren't worth the effort?

Squirrel Away Money While You Can

The following is a guest post from Marotta Asset Management.

In 1985, Franco Modigliani, an economics professor at MIT, won the Nobel Prize for a simple technique that squirrels know intuitively from birth. You have to squirrel away some nuts during times of plenty so you can survive during times of scarcity.

Modigliani looked at the income and expenses of typical people over the life span. He found that household income was sometimes more than sufficient to meet expenses and that at other times money was tight. Preparation during these times of surplus help families avoid going into debt when they must increase their spending.

Modigliani divided the life cycle into four distinct phases:

• Before having children there is often a surplus of income.


• While raising and educating children, there is often a deficit when the family is spending more than they are earning.


• When children go out on their own, families often have a surplus again.


• In retirement the surplus is small if it is there at all.

Saving during the two surplus periods is crucial to financial well-being later in life. Before the children arrive, squirrel away some money. When the children leave home, you get one last chance to save for retirement.

Here are seven financial life lessons from Modigliani's analysis:

When you are starting out, don't try to duplicate your parent's lifestyle.

Most of today’s college graduates are ill prepared for the real world of financial responsibility. They never saw how their parents lived when they were first married and struggling. Consequently, they may base their after-school expectations on an upper-middle-class lifestyle.

If you are a young adult, you can't afford more house than your budget will allow. If you spend 50% of your lifestyle expenses on housing, you will not be able to live proportionally on the rest of your income. Too much house is one of the most common mistakes young people make.

It is as though we can't feel successful without immediately enjoying the lifestyle of our parents at the height of their careers. To decide how much house is enough, calculate what you can buy for 30% of your standard of living.

Save as much money as you can in your 20s

Early in your career, when the cost of basic needs is small, income often easily covers expenses, allowing the surplus to be used for savings, investment or added consumption. Many young people assume they are doing so well financially that they can simply spend their extra money on more stuff. They do not realize these years of plenty won't last.

During this period, save and invest up to 50% of your disposable income for future expenses. Fully fund Roth accounts, and fund 401(k) plans to take advantage of any employer match. Save 10% of your take-home pay for future large expenses. Put an additional 5 to 10% into long-term taxable savings.

This advice is especially important for those who delay marriage until they are in their 30s. Don't waste a decade of prime saving and investing. You owe it to yourself and your future family to store up nuts now.

Don't just save: invest

You can't afford to keep your money in cash or in a bank account earning very little interest because of inflation. If you had saved $100 in 1970, it would only have the buying power of $16.88 today. You need to earn a return that exceeds inflation. Fortunately, you can.

At 10% market returns, whatever you save and invest doubles every seven years. So $1 saved and invested at age 21 doubles eight times before age 70. At that rate of return $1 saved and invested grows to $128 in retirement. If you wait until age 49 to start, $1 saved and invested will double three times, growing to $8.

Although annual volatility is high, it decreases with a longer time horizon. Given a 50-year time horizon, the odds of your money experiencing a positive average market return are very good.

Put another way, for every seven years you delay starting to save and invest, you risk cutting in half your net worth in retirement.

Avoid debt while raising a family

Expenses multiply once children arrive. The one-bedroom apartment is replaced by a four-bedroom home with a mortgage. If expenses for food, clothing, medical, dental, clubs, camps and lessons aren't enough, children have their own set of endless desires. The average cost of raising a child to age 18 in 2012 dollars totals about $300,000. After a third of a million dollars in payments, the balloon payment comes at the end when college expenses are often financed through student loans and additional mortgages. During these years, many couples wish they had not spent their pre-child surplus.

Families find it challenging to live within their means during this phase of life. But you can live more simply in order to live debt free. The difference between middle income and multi-millionaire is a few hundred dollars a month in saving and investing.

Stop telling yourself you will get your finances in order later

The average American family runs their financial affairs in such a way that if they were a publicly traded company, their stock price would plummet, the business would go bankrupt and the people in the accounting department would be taken away in handcuffs.

You can’t postpone financial faithfulness any more than you can postpone marital faithfulness. Your habits set your financial DNA, and habits are simply habit forming.

Many people mistakenly believe that life comes in three stages: learning, working and recreation. They think that until they are toward the middle or end of the working stage of life, they don't need to worry about finances.

Everyone in America can save something. Whatever you save, the magic of compound interest produces incredible results. It is far preferable to know what you need to save than to arrive at retirement unprepared.

Get a retirement checkup before you turn 50

For most families, expenses drop significantly after children leave home. Although starting younger is ideal, these are the years when many families realize time is running out to prepare for their retirement and they seek professional financial advice. This period provides a second chance to save and secure a financially comfortable retirement.

If you are in this stage of life, you need to know exactly how much you must save to achieve a comfortable retirement. You don't have the luxury of guessing at the appropriate savings rate.

Know your safe withdrawal rate in retirement

Retirement ideally finds the family with income adequate to continue their usual lifestyle. With sufficient assets and good asset management, income from savings and investments, pensions and benefits should cover retirement expenses.

During retirement it is crucial to know what rate of withdrawal is safe. Spend too much and you will run out of money. Be too frugal and you needlessly put a damper on the years you might be traveling and gifting. You must have the right asset allocation to provide enough growth for a long and prosperous retirement but enough stability to weather market upheavals. This is another juncture that does not allow for guesswork.

The lessons to learn from Modigliani's work are simple: "Before the children arrive, squirrel away some money. When the children go out on their own you get one last chance to save for retirement!"

Use Someone Else's Frequent Buyer Card for Savings and Rewards

I have recently run into a few cases of needing/using frequent buyer cards in a creative way to save money for the users as well as earn points for the owner. Oh, do you think the user and the owner are always the same? Well in these cases, they are not. That's what made these situations so interesting to me.

Have you ever needed a frequent buyer/member card in order to save on purchases but you don't have (or want) a card? We found ourselves facing this predicament recently.

Every year we visit my brother-in-law and his family in Pennsylvania. And every year we end up at the same Giant Eagle grocery store stocking up on supplies (so he doesn't have the burden of having to feed us.) Giant Eagle is one of those grocers who has two sets of pricing -- one (lower) price for those with member cards and one (higher) for those who don't.

Now we could sign up for a member card (they're free) but we really don't want to be part of a club (and carry around a card) that we only use once a year. Besides, in the past we have asked the register clerk if she would simply swipe her card, and she's helped us out -- enabling us to get the lower price. So why do we need a card?

But this year as we approached the register, my wife tried a different strategy. She called her sister (who shops at Giant Eagle and has a card), got her number, and we used it. So we got the savings (almost $20) and my sister-in-law got the points -- it was a win-win proposition!

A similar situation happened to my boss while his family was on vacation in New Orleans. They were at a restaurant and his daughter was texting with a friend. The friend happened to have a coupon for free desserts from the restaurant because she was a frequent customer there. She emailed the coupon to my boss's daughter and they family enjoyed free desserts from the restaurant.

Finally, I ALWAYS use my wife's frequent buyer card when I go into Panera Bread (I occasionally meet a business contact there for breakfast.) I don't get any savings out of the effort, but she gets points, and has so far received a free smoothie, a free danish, and a coupon off a salad (which is what she usually gets there.)

So, I've seen lots of creative ways to use frequent buyer cards recently. I'm sure you all have additional suggestions or stories of your own. Please add them in the comments below.

Help a Reader: Caribbean Trip

Me again. FMF. I need more vacation planning help for those of you who are more well-travelled.

As you probably know, we took a Caribbean cruise last January and had a blast. This winter we would like to return, but have some questions. This is where you can help.

The first question is whether we take a cruise or simply go to one island. Cruising is (generally) more expensive, but you get to see and experience several islands. However, those experiences are only for a few hours each day. Cruises also have a lot of activities going on so even while you are traveling from place to place you can relax and have fun -- there's always something to do.

If you go to one island, you can really get to know it, the people, the food, etc. You can get there, relax for a week, and not have to worry about where you are on any given day. That said, you are in the same place every day -- that could be boring. How many times can you spend all day at the same beach and still be having fun?

If we pick the cruise, we don't need a lot of extra advice because we've been there/done that and know what we would and wouldn't like. But if we decide on a single island, we have a new question: which island?

The ones we liked best on our cruise were St. Maarten, Barbados, and Antigua. Do we go to one of these or another island? Anyone been to one of these islands or another Caribbean island they can completely recommend? I'd especially like hearing from those of you who were on the same island for several days (what you did, etc.)

Finally, if we pick an island, we have to decide on accommodations. Do we go with an all-inclusive resort or do we rent a beach condo on our own and find our own way? Both have pros and cons, and I'd love to hear from people on both sides of the issue.

To recap, the questions are:

• Cruise or one island?


• If one island, which one?


• If one island, what sort of accommodations?

Leave your suggestions below. Thanks for your help!  

Shopping for Insurance

Since "regularly shopping for insurance" was #31 on my list of the 52 best money saving tips, I thought I'd follow my own advice and compare our current insurance costs to those offered by other companies. Given the savings some people have seen ($1,400 here and $1,300 there), it seemed like the effort could well be worth it.

It's been a while since we quoted out our insurance. Too long in fact. We haven't shopped for insurance for years. We love the service at AAA (our current provider) and over the years they haven't raised our rates -- they have LOWERED them. So I felt like we were getting a good deal. Then in a discussion at work I mentioned that I had AAA insurance. Someone said, "Really, I always thought they were so expensive." So we decided to find out. If AAA was close to the others (even if they were a bit higher), we would stick with them. But if we found big savings elsewhere, we were ready to move.

My wife did all the hard work -- getting the quotes. I provided her with our current statements from AAA for car, homeowner's, and umbrella insurance to make sure we were quoting the exact same coverage we had now. In addition to asking for a quote given our current status, we also asked for quotes assuming my son was a driver -- which he will be in less than a month.

Next we had to decide what companies we should get quotes from. I prefer to have an agent I can go see if needed. Therefore the GEICOs of the world were out. They may be fine (I'd be interested in hearing from those of you who do/have had experience with them), but if anything happens, I want to have a dedicated person on the task. I've only needed insurance a few times, but when I have, it's been very nice to have an agent to rely on (and stop by their office if need be.)

From there, we asked our neighbors and friends what insurance companies they used and liked. We eliminated the ones we had never heard of and ultimately ended up with State Farm and Allstate as contenders. In addition, we decided we'd try Costco's insurance program just to see what they had to offer.

Over the course of a couple weeks, my wife got the bids. Here are the annual premiums given our current status:

• AAA - $2,253
• Allstate - $2,447
• State Farm - $2,794
• Costco - $3,230

Then with my son as a driver:

• AAA - $2,853
• Allstate - $3,391
• State Farm - $3,284
• Costco - $4,784

A few thoughts on these results:

• Looks like we are getting a good deal with AAA!


• Though I haven't broken out the numbers above, AAA was the cheapest option on each individual type of insurance (car, homeowner's, and umbrella) as well as the total.


• Allstate wasn't out of the realm of reason, but the other two seem high.


• For some reason, State Farm gave us a quote for umbrella insurance that was lower than what we wanted. Since they were already higher, we didn't get a re-quote, but their actual numbers would probably be $50 to $100 higher than what's above.


• My son adds $600 a year to the bill with AAA. This is less than I had expected. He adds only $500 with State Farm, but almost $1,000 with Allstate and $1,500 with Costco. Yikes!


• Looks like Costco is far from the cheapest alternative. I wonder how many people go with them simply because they assume everything at Costco is cheaper.

Of course, these numbers are particular to our vehicles, house, deductibles (which we keep high), area of the country, and so on. So the answers could be different for others based on their specific criteria. To be clear, I am NOT saying that what is cheaper for me will be the best deal for anyone else. I am saying you need to quote out your insurance to find out for yourself.

So we're sticking with AAA, which I am happy to do. They have always treated us quite well and it's good to know they are giving us a good price too.

How about you? Do you shop around for insurance? If so, what have you found? If not, do you feel you're leaving money on the table?

The Power of Likability Demonstrated Again

We've talked several times about how being likable is a powerful career asset. In fact, some experts say that being likable is as important as -- or even more important than -- doing a great job.

Whether or not likability is as important as how you perform isn't an issue we can probably ever resolve. But what we all likely can agree to is the fact that being likable does have significant, positive career implications.

CNN Money agrees with this line of thinking.  In fact, they say that if you want a promotion then you should make friends at work. Their thoughts:

Are you too busy to stop by your colleague's office to chat or go to lunch? Or are you someone who keeps work relationships strictly business? Be warned: If you're not reaching out to make and nurture friendships at work, you're probably hurting your career.

Recent research finds that people who initiate office friendships, pick up slack for their co-workers, and organize workplace social activities are 40% more likely to get a promotion in the subsequent two years. "How much you give at work directly affects how much you get at work," says Shawn Achor, author of The Happiness Advantage: The Seven Principles of Positive Psychology That Fuel Success and Performance at Work.

So why are these friendly people so much more likely to get a promotion? Because people like them! And in a world where there are so many decent workers, managers and executives would rather promote good workers they like than good workers (or even great workers) they don't like.

And while being likable can advance your career, being unlikable can kill it.

I was having lunch with a friend a couple weeks ago and he told me he had just fired one of his top performers. She did an excellent job, but there was just one problem -- everyone hated her. Her personality was toxic and had turned an otherwise great work environment sour (this is a small office of 15 people or so.) Eventually my friend had to let her go. Even though she did such a great job, her personality and actions were dragging down everyone else's results, and that was something his business just couldn't take.

Of course there are exceptions to the rule, like the guy people hate but who gets promoted because he can sell like a fiend. Or the person who gets fired even though he's the greatest guy in the world -- because he's a poor performer (I actually had to fire a guy like this once because he wasn't pulling his weight and my staff was suffering.) So I am NOT saying that being likable is all you need to do to get ahead in your career. But I am saying that it's an important factor in your career success, so you should strive to be as likable as possible.

Besides, it's a much better way to go through life IMO.

Kudos for Panera Bread

It's a joke in our house that whenever I ask my wife where she wants to go out to eat she always says Panera Bread. Not once in a while. Not most of the time. But EVERY time I ask her, she wants to go to Panera.

I have been there a few times without my wife as well. The closest Panera to us is a great spot (centrally located) for an early morning meeting.

We were at Panera recently, just sitting in our booth and chatting. We had finished dinner and were going over schedules, schooling choices, and so on -- drinking their (free) water and killing time before we had to pick up my son after basketball practice.

Suddenly a Panera employee (I'm not sure if it was the manager or not), pops out of nowhere and lays two double chocolate fudge cookies on the table. She then walked away.

We were stunned, not sure what to say. We didn't get the chance to ask why we were given the cookies or even offer our thanks. So we did what comes naturally, we unwrapped (they were in plastic sleeves) one of the cookies and split it (these were over-sized cookies -- not small in any way.) For the record, we took the other cookie home for our kids to split.

Boy was that cookie good! Soft, full of chocolate and fudge, and fresh. They weren't simply unloading stale cookies on us -- this was the good stuff.

A few minutes later the employee that dropped off the cookies walked by to deliver an order for someone else. As she finished with them, we thanked her for the cookies and she responded kindly.

I'm still not sure why we got the free cookies. Was it because my wife has a frequent customer card with Panera and they always seem to be handing out bonuses (a free smoothie, free treat, etc.) on it? If so, we are usually notified of an award in writing. Was it because it was a couple hours before closing and they had extra cookies they were going to toss anyway? Or was it simply because they wanted to be nice?

We weren't the only ones to get the cookies. At least one other couple did (we didn't notice if anyone else received them or not.) Perhaps they simply wanted to say "thanks for being a customer" to those who were there. Whatever the reason, it was a nice touch and I wanted to give them a shout out for their kindness.

Sure, it was "only a cookie", but little acts of love can have big impressions on customers, especially these days when stores and restaurants seem to be cutting back on these sorts of touches. It makes me want to do more business with them (which may have been their intent) and I will certainly be visiting again.

Saving and Hard Work

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

Today I'm posting Proverbs 6:6-11, a series of verses that talks about two main topics: 1) the need to save some of your excess now for future use and 2) the value of hard work (which, if not followed, can lead to financial ruin).

Our example in these verses is the lowly ant, who, despite having no leader (in the traditional sense), works hard to gather at a time of plenty so that he may be fed in a time of need.

The verses start singing the praises of the ant, then go on to warn about what will happen if you are not diligent like he is (a theme that recurs again and again in Proverbs.)

As usual, I'll share from three different translations. Let's start with the NIV version:

Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.

How long will you lie there, you sluggard? When will you get up from your sleep? A little sleep, a little slumber, a little folding of the hands to rest — and poverty will come on you like a bandit and scarcity like an armed man.

Next is the Contemporary English Version:

You lazy people can learn by watching an anthill. Ants don’t have leaders, but they store up food during harvest season.

How long will you lie there doing nothing at all? When are you going to get up and stop sleeping? Sleep a little. Doze a little. Fold your hands and twiddle your thumbs. Suddenly, everything is gone, as though it had been taken by an armed robber.

And finally, words from the Message:

You lazy fool, look at an ant. Watch it closely; let it teach you a thing or two. Nobody has to tell it what to do. All summer it stores up food; at harvest it stockpiles provisions.

So how long are you going to laze around doing nothing? How long before you get out of bed? A nap here, a nap there, a day off here, a day off there, sit back, take it easy—do you know what comes next? Just this: You can look forward to a dirt-poor life, poverty your permanent houseguest!

As you know, I’m a fan of saving today for future needs as well as putting a full effort into your work. As such, I LOVE these verses.

Thoughts and comments?

Are Investment Management Fees Tax Deductible?

The following is a guest post from Marotta Wealth Management.

I often get asked, "Are investment management fees tax deductible?" The answer is not a simple "yes" or "no." Like many tax questions, the answer is "It depends."

Investment management fees are a tax-deductible expense. They can be listed on Schedule A under the section "Job Expenses and Certain Miscellaneous Deductions." Line 23 includes investment expenses. These expenses get added into unreimbursed employee expenses, tax preparation fees, safe deposit boxes and other qualifying expenses.

Unreimbursed employee expenses can include professional dues, required uniforms, subscriptions to professional journals, safety equipment, tools and supplies. They may also include the business use of part of your home and certain educational expenses.

All of these miscellaneous deductions are totaled. You only receive a tax deduction for the amount that exceeds 2% of your adjusted gross income (AGI) from line 38 of your Form 1040. If your cumulative expenses are under 2% of AGI, you will not get a deduction.

For most of our working clients, their miscellaneous deductions fall far short of the 2% AGI threshold. But when clients retire, they are much more likely to qualify.

If your expenses are close, you gain from lumping most of your expenses every other year. For example, if your AGI is $100,000 and your miscellaneous expenses average $2,500 a year, in most years you will only get a $500 deduction. But if you can pay the same bills in January and December of one year, you might be able to have $5,000 in deductions one year and zero the next. That means you could have a $3,000 deduction every other year. In next year's 28% tax bracket, this would save you $560 more in taxes.

Even if you can't deduct investment management fees directly, you can still pay a portion of the fee with pretax dollars. Investment management fees can be deducted directly from the accounts for which they were charged.

Many fee-only advisors charge a percentage of assets under management. But they can also prorate those fees back to the accounts they are managing. For traditional IRA accounts, the fee is not considered a withdrawal and therefore is not a taxable account. The fee is considered an investment expense. Thus this fee is being paid with pretax dollars. And the cost is discounted to clients by their marginal tax rate.

I've seen advisors take their entire management fee from IRA accounts. I don't think that is warranted by the letter or the spirit of the tax code. Any fee taken from an IRA account should be justified as a fee for the management of a pretax account. You can't simply start paying your bills from an IRA as a nontaxable withdrawal.

Similarly, any management fees paid directly from an IRA account should not be listed as a miscellaneous expense on Schedule A trying to qualify for an additional tax deduction. Only expenses paid from a taxable account should be listed as a miscellaneous expense.

There is no advantage in trying to pay the entire fee from a taxable account in an attempt to boost your deductions. If you pay $2,500 in management fees, it is better to pay $1,000 from an IRA with pretax dollars than to pay for it separately to get a $500 tax deduction. Any amount paid from an IRA is equivalent to getting that same amount as a tax deduction.

Although getting money out of a traditional IRA tax fee is an advantage, taking management fees out of a Roth IRA is not. There are limits on getting money into a Roth account where it will never be taxed again. We recommend paying the portion of management fees prorated to a Roth account out of your taxable account. This allows as much money as possible to stay in your Roth.

One of the advantages of working with a fee-only financial planner is that fees can be taken from the accounts under management or paid separately, depending on which is more advantageous. If fees are stuck on commission-based products, you can't choose to pay the fees for a Roth account separately from a taxable account in order to allow the Roth to grow unimpeded.

This is another advantage to having fees based on assets under management rather than a separate fee or an hourly charge. Management fees are easily justified taken directly from accounts including IRA accounts where you can pay with pretax dollars.

Many advisors charge a percentage of assets under management and then offer comprehensive wealth management advice without an hourly charge. This is ideal. If these charges were separated, less of the fee could be paid with pretax dollars.

No one likes to pay fees. Hidden fees in many ways are easier psychologically. We recommend that when you need unbiased financial advice, seeking a fee-only financial planner makes sense. And it helps knowing there are tax-efficient ways to pay management fees.

Reader Profile: NM

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 NM. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I’m a 30 year old Asian Indian male. I have been married for over a year and my wife is 26 years old. I came from India to the United States in 2007 and have been here  ever since, except for a one year stay in the United Kingdom.

My profile is a bit different from the other reader profiles that appear on FMF. I’m a temporary visa worker, ( H1B), and not a permanent resident or citizen like the others that are usually featured in the reader profiles. I work for a large software services company that is head quartered in the US, but runs most of its operations from locations in India. I graduated with a 4 year engineering degree from India and graduated with zero student debt , as I studied on a merit seat and the marginal expenses of food and living were met by my parents. My wife is a home maker, even though she has a Master’s Degree in Business Administration , as she is on a dependent visa and not allowed to work. She plans to take up a second Master’s so that she can work in the States.

I live in a very low cost of living area in the Southwest United States. I do not own a home here , and rent a one bedroom apartment. As I’m undecided on whether to settle in my home country or here, I have not decided on home ownership yet.

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

My income is 71k , and my wife does not currently earn any income.I receive a bonus of 2-3k per year depending on performance.

Income

• Salary – $71,000
• Bonus – $2000-3000
• Take-Home Pay comes to $4400-$4500 per month after Federal and State taxes, Medicare,Social Security and 401(k) contribution of 6% of my gross pay(with 50% of Company Match)

Expenses

• Rent – S638
• Utilities Bill - $75 -100
• Groceries – S400(approx)
• Dining Out - $500-600 per month
• Gas/Insurance - $300 per month
• Cell phones( for me and my wife) – S90-100 per month
• Internet - $24 per month
• My biggest expense is Travel and Eating Out .I love travelling and food , so don’t hesitate to spend on these 2 areas. :)

My networth details

1) 2 separate plots of land - $  117,500
2) Equities – Stocks and MFs - $ 40,000
3) Debt (Corporate and Government Bonds) – $20,000
4) Physical Gold – $24,000
5) 401k – $1000

One point to note, is that except for the 401(k), all the rest of the portfolio is held in Indian Rupees and is physically present in India. The total networth comes to about $202,500. To put things in perspective, an upper middle class income in India would be $20,000-$30,000 per year.

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

I’m satisfied with the current state of my current portfolio and my networth. But I am not satisfied with my current income , which I intend to increase by switching to a different company. However, a lot of companies, do not provide sponsorship for my current technical niche, which makes it much more harder to switch. So I either have to wait for my permanent visa to change jobs or keep on plugging at job opportunities, from companies who can sponsor my visa. Meanwhile Im trying to improve myself by taking more leadership roles, learning new skills and  will wait patiently for the opportunity that comes. :)

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

I see my career going in 2 different ways, either get my permanent working visa here and then move one to a much better paying job in Corporate IT. Currently very few companies are willing to sponsor a H1B candidate , so the interminable wait for the Green Card seems my only choice if I want to continue in the US.  The other way is to go to my home country, if my parents face health issues in the near future (My father will be 70 and my mother will be 60, respectively, by end of 2013). Then I will take up a job in India.I don’t have an early retirement plan, as I wish to work as long as I’m mentally and physically able and not depend on anybody. Of course, if I’m burnt out by work, then I might retire :), hence the constant focus on portfolio building.

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

I concentrate on 2 things, a high income and a very high networth.I want to enjoy the finer things in life and don’t concentrate on excessive frugality, hence the emphasis on high income so that we can spend on what we like for the most part without giving up our savings.

The best piece of advice I could give anybody is educate yourself very well on investments and pick out the suitable investments for you. Do your research and not follow anybody, be it parents or friends, in your investing plans blindly. Also, concentrate on increasing your income, as it allows you to enjoy life without having to cut back on either spending or savings.

Star Money Articles and Carnivals for the Week of July 16

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

• Modest Money says you shouldn't buy cheap pet food.


• Gajizmo says to forget tuition and go to the best college you can.


• Tie the Money Knot discusses generosity.


• My Money Counselor covers the big LIBOR lie.


• Money Beagle tells how to have a green lawn in warm, dry weather.


• Fabulously Broke in the City says you only change when it stings.


• Carnival of Wealth

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.

Highest Paid Careers in America

In my post listing the highest paid jobs that don't require an advanced degree. I asked what the list would look like if graduate degrees were included. Well wouldn't you know it -- a couple days later and I found this list of the highest paid careers in America. Here’s the list of jobs as well as their average annual salaries (in countdown order):

15. Pharmacist: $112,160
14. Air traffic controller: $114,460
13. Sales manager: $116,860
12. Airline pilots, co-pilots and flight engineers: $118,070
11. Financial manager: $120,450
10. Industrial-organizational psychologist: $124,160
9. Computer and information systems manager: $125,660
8. Marketing manager: $126,190
7. Natural science manager: $128,230
6. Architectural and engineering managers: $129,350
5. Lawyer: $130,490
4. Petroleum engineer: $138,980
3. Chief executive officer: $176,550
2. Orthodontists and dentists: $161,750 - $204,670
1. Doctors and surgeons: $168,650-$234,950

Several thoughts here:

1. For the record, this list and the one I published previously are not only different because the first one only considered bachelor's degrees. They also differ in that the first list was based on lifetime earnings and this one is based on average annual salary.

2. See how much difference a graduate degree makes? (or at least the right graduate degree) Most of these require education above and beyond a bachelor's degree.

3. It's hard to tell how many from the first list made this group -- the titles are somewhat different and the order looks scrambled. Petroleum engineer, the highest on the other list, is clearly listed as #4 here. Others that may or may not be the same as the other list include marketing manager at #8 and financial manager at #11. The reason it's not clear is that the titles are a bit different and the orders are reversed on the two lists.

4. My job comes in at #8. :)

5. There must be some really lowly paid CEOs out there for the average salary to "only" be $177k. Just think of all the people making millions in that job. I would think they would bring the average waaaaaaay up.

6. I knew dentists were high, but wasn't aware they were that high up.

7. Interesting to see lawyers still so high on the list. I thought that the glut of them over the past decade or so may have hit average salaries hard. Apparently not.

Anyone else have thoughts on this list?

Questions on "Showrooming"

"Showrooming" is the practice of looking at/checking out a product at a store, then leaving and buying it cheaper online. How it works and what retailers are doing about it was highlighted in this piece from MSNBC if you'd like more details.

Showrooming is becoming more and more popular with the growth of smart phones and even apps designed to showroom (Amazon's app was the first I remember causing controversy in this way.) It's very easy to be in a store and at the same time check prices online on your phone.

But physical-location retailers hate it, saying it's unfair. Why? Because they provide everything for the customer -- the chance to see the product (try it out, touch it, etc.), a nice shopping environment, knowledgeable employees to answer questions, and so on. But then don't get the sale because the customer finds somewhere else to buy it at a lower price.

Of course price is not the only factor people consider when buying a product (selection, time, other charges/fees, etc. play roles as well), but it's a major one for sure.

Given these points, I have a couple questions for you about showrooming:

• Do you think showrooming is fair to physical-location retailers?


• Do you showroom yourself?

Personally, I think all is fair (within the law, of course) in the competition for sales. And in fact, showrooming can have benefits for everyone -- not only consumers, but physical-location stores.

The article linked above tells how showrooming has been impacting Best Buy's sales. As a result, Best Buy is making changes that will make it a better retailer. Becoming a better retailer will earn them more sales, more loyal customers, and so on. So the practice of showrooming (AKA "competition") has challenged them to do better. Retailers that respond positively to showrooming will be stronger and thrive. Those that sit back and complain will fall by the wayside.

I have showroomed in the past, but I do it more to make sure buying in person is not a total rip off. For instance, I was in Best Buy the other day to buy a belt clip for my phone. It was something like $25 at Best Buy. I looked at Amazon and it was $22 (or something like that.) I needed it right away and the price was close, so I bought it at Best Buy.

Now if the Amazon price had been $10, I would have felt that Best Buy was trying to rip me off. Even if I had needed it right away, I may or may not have purchased it there. Perhaps I would have dealt with the inconvenience of not having it immediately because I felt taken advantage of (and to save $15).

Furthermore, I rarely buy something after looking in just one place for it. For instance, I'm in the process of buying a computer for my son. I've looked in-store at Costco, Best Buy, and Staples so far. I've also looked online and in numerous ads. So if I ultimately buy at Staples will Costco complain that they provided the store for me to shop, the products to look at, and the employees to talk to just for me to buy it somewhere else? Of course not. Everyone considers this process fair competition for retail sales. So what's the difference if I look at a physical store and then buy it online?

I know, I know -- the physical retailer is providing some value (and thus has some costs) that the online store does not. But as I said, price is not the only factor people consider when buying -- just one of the factors. If the retailer "wins" on enough of those other factors and the price is close enough to what the online options are offering, the physical-location retailer will still get the sale. But oftentimes retailers want to offer sub-par service, selection, convenience, and then charge a big premium for their products. And they complain when they don't get the sale. They feel entitled to the sale when they simply should be earning the sale.

So yes, I do showroom, but not often and not as a standard practice. In many cases I simply forget to check online. But if I think of it, I will consult online prices before making a purchase.

So, what are your answers to the questions above? I'm interested in hearing what I assume will be a variety of comments.

One Reason You May Want to Wait to Retire

As many readers know, I have entertained thoughts of early retirement now and then. I still have almost 20 years before I hit the "normal" retirement age and my savings is well above where it needs to be, so the chances of me stopping work early is a real possibility.

But if I do, I could be hurting the amount of Social Security I receive when it comes to that time. Here's what MSN Money says about retiring early and the impact on SS benefits:

Don't retire too early. Your Social Security payment is based on the average of your best 35 years of work, adjusted for inflation, so if you retire too soon some of those 35 years will be computed as zeros. Let's say, for example, that you started work after college, at age 22. That means you won't have 35 years of earnings on the books until you're 57, and those zeros can put a big drag on your average income.

So if you earned an annual average of $60,000 over your best 35 years, your benefit will be computed on that $60,000. If you worked only 30 years and then went to lie on a beach somewhere, your Social Security benefit will be computed as the average of those 30 years at $60,000 plus another five years at a whopping $0. That brings your best-35-years' average down to just over $51,000, which, depending on the age you retire, could cut significantly into your benefit.

A few thoughts on this:

• I'll start by saying that I'm not counting on Social Security to fund any of my retirement. That said, I want to get the maximum benefit I can if it's available for me. (I certainly paid enough into it -- I want to get as much out as possible.)


• That's a 15% hit if you "only" work 30 years. If you work 25 years, you get 10 years’ worth of $0 in earnings added in and thus lose 29% in earnings (your average ends up at $42,857 in the example above.) That's a pretty big hit.


• This is just another good argument for working at least part-time when you "retire." Add an extra point for early semi-retirement.


• For those who can work longer, the above suggests that doing so can have a big impact on what you might earn in Social Security benefits. Because the dollars you receive are calculated on your BEST 35 years, if you replace those early years of your career (when you presumably didn't earn as much) with some peak-earning years, the results could be massively different.


• At some point I'm sure benefits are capped anyway. I assume that because payments are capped based on income, so it makes sense that benefits would be too.


• Does it really make that much difference? Perhaps the loss between averaging $60k a year and averaging $51k is $3 per month. Anyone know for sure?


• Is it really worth what you're giving up? At some point, if you have enough saved up otherwise, why even worry about Social Security? Just retire and live it up!

Anyone have any comments on the above? Anyone had to deal with/consider this issue as you planned for early retirement?

Comcast Fails to Deliver

After I wrote My Discussion with Comcast, I received an email from a Comcast national customer service representative. She said that they would like to speak with me regarding my service issues. (FYI, I think this was the same day I wrote the post. If not, it was the day after it went live. The response was very quick.)

I was impressed. They must closely monitor what's said about them on the web AND they must care. Maybe they had changed and cared a bit about the customer's feelings. I felt that perhaps I had misjudged them.

I sent the rep my phone number and she said someone would be contacting me soon. I was traveling and away from home, but over the next several days we received many messages from Comcast, trying to get in touch with us. For one reason or another I didn't have time to call them back. Then I received a letter saying they had been trying to contact me and if I didn't call by a certain day, they would assume I was satisfied. Give them an A+ for persistence.

I finally called them on July 5 and talked to the same gentleman I had talked to about a year or so ago. I knew this wasn't going to end well.

We basically went over the same things I did with the online chat detailed in my previous post (FYI, the below is paraphrased with liberty by me):

Me: I am paying too much when others (Direct TV, Charter, etc.) are charging the same price for three services.

Him: You (meaning me) are receiving a much higher level of service than what those companies are offering (because I need a higher level to be able to get the soccer channels.)

Me: I understand that and am willing to pay more for them, but the current price just seems unreasonable.

Him: You could always cut service if you want. (BTW, I have considered and am considering this option.)

Me: I know, but I'd prefer not to.

Him: We could offer you a better deal if you bundle services (add either internet or phone to the cable bill.)

Me: I know this game. It's a great deal to start, then you up it to unreasonable levels.

Him: It's a great deal to start and then a good deal after that.

Me: I'm not excited about giving MORE business to a company I feel is already ripping me off.

Him: I understand and you're certainly entitled to your opinion. But you are getting a lot of value for what you're paying.

Me: Can I just buy the 7 channels I watch/want, give you the 500 others (exaggeration on number) back, and you can save me some money?

Him: No response.

Me (thinking): I hate Comcast. I hate Comcast. I hate Comcast. I hate Comcast. I hate Comcast. I hate Comcast.

Him (thinking, probably): I hate this guy. I hate this guy. I hate this guy. I hate this guy. I hate this guy. I hate this guy.

I finally saw that this was getting us nowhere and said that if he didn't have anything new to say/offer, then we were just wasting each other's time. He agreed (in customer service lingo, of course) and we ended the conversation.

So what I thought might be a great response from a company looking to work with a customer simply turned out to be more of the same. I not only had to hear the same pitch AGAIN and cover the same issues AGAIN, but there was absolutely nothing new they offered. Why even contact me in the first place? (They obviously saw my discussion with the online rep). The follow up contact was a complete waste of time and HURT my opinion of Comcast rather than helped it.

At least I'm in the same boat with many others. Comcast "won" Consumerist's 2010 competition for worst company of the year (and they are in contention every year), they regularly rank low on customer service surveys, and were recently ranked #4 of the most disliked companies in America. So if misery loves company, I have plenty to love. :)

BTW, with the list of "accolades" they've accumulated above, as well as how they have treated me so far, do they really think I want to ADD services with them?

Ok, time to REALLY consider viewing alternatives -- or cutting the cord completely. Stay tuned.

Reader Profile: AS

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 AS. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 27/m and single living in Portland, Oregon. I graduated from school in 2007 and have been working for a large industrial manufacturing company for the last five years in a procurement role.

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

Currently I’m trying to maximize my savings and follow through with the plan that I have developed.  I currently make $67k in base salary, with bonus potential up to 120% of my total salary.  My company pays for my phone and does a good job taking care of me.  I currently contribute 19% of my base salary to my employers 401k and receive a match up to 6%.  I went to a small private school ($38k/year tuition) and managed to graduate with a pretty small debt load ($15k).  I started a small business that is focused on rental properties and other such ventures.  Currently I have one rental property that nets $1k/month in profit.  The house is owned by the LLC I have established and should provide greater protection for me.  I have also setup a SEP IRA through my LLC and contribute $300/month to that and the balance of $700 goes to paying down the balance of the loan ($145k balance).  I max my Roth IRA and contribute another $1k/month to my taxable brokerage account, which is in an automated investment plan plugging money into a handful of Vanguard index funds.  I am pretty aggressive within my ROTH and pretty conservative within my brokerage accounts.  The residual balance each month is a constant ebb and flow within my checking and savings which I consider my emergency fund.

My current monthly expenses are as follows:

• Rent: $695
• Utilities: $75
• Gas: $200
• Food: $275
• Student Loan: $275
• Discretionary Spending (Golf, etc): $150
• Savings: $1416 – split between ROTH and taxable brokerage

My current assets are:

• Checking: $6750
• Savings: $3500
• 401k: $36,000
• Roth IRA: $27,900
• Taxable Brokerage: $24,000
• SEP IRA: $2000
• Home Equity: $55k

My current liabilities are:

• Student Loan – $9000
• Balance of home Loan - $145k

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

My current financial issues are whether to keep plugging money into my investment plan or beef up my cash reserves so I can purchase additional rental properties/land.  I am banking on my bonus providing an injection of capital that will bump up my cash reserves so I can keep on track.  I want to have the rental house paid off in the next 7-8 years so I can either sell it or have my monthly income increase to $2200/month.  I think I have developed a decent plan, that for the most part, requires very little action on my part. 

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

I want to continue to save at my current rate and progress professionally.  I log quite a few hours and travel a fair amount, but hopefully this is a stepping stone to a brighter future.  Hopefully I will be in a position in 10-15 years where I can walk away from the corporate life if I choose and pursue something I derive more enjoyment from.  I don’t have a clear idea as to what that is, but I know I don’t want to be living month to month and worrying about my financial health.  I don’t think that I will ever “retire” in the traditional sense as I have a hard time not having anything in front of me.  Who knows, maybe I will accumulate enough rental properties that I will be able to supplement all of my income.  In any event, I plan to continue to plug away and take risks where I deem there are appropriate.  Sometimes you have to be willing to push the chips out on the table.

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

Outline your goals and then build a plan to achieve them.  Additionally, the more you can automate, the more likely you are to stick to the plan.  It’s relatively easy to look at what’s left over as all you get to use as discretionary money.  If you have to manually manage, transfer and trade, odds are you’re going to piss money down the drain.  Bottom line is, you have to get comfortable with being uncomfortable.  If it doesn’t hurt a little bit, it means there more fat to be cut.

Two Great Books on Making Money, Part 2

This is the follow-up to this morning's post.

The second book I liked so much is more limited/targeted and not directly related to making money, but it will help you make money if you can benefit from being "well known". It's Platform: Get Noticed in a Noisy World.

Now when most people hear the word "platform", they think of a stage (which is an appropriate meaning in a way for this book). But really the "platform" talked about here is a synonym for "influence" and could even be a measure of how famous/popular someone is. The term comes mostly from the publishing world where it's used regularly to determine whether or not an author is "big enough" to take a risk on. Book publishers want authors with a platform (influence) because having a large platform makes it more likely a new book will sell.

Still not with me? Perhaps an example will make the definition of platform a bit clearer.

Let's say Joe Smith wants to write a personal finance book. He's just an "average guy" who doesn't really know many people and has no way to get the word out about his product. How interested will a publisher be in his work? Unless it's the next "millionaire Next Door" they probably won't be too interested because he's starting from ground zero.

Then let's say I decided to write the same book as Joe. Publishers would look at the fact that I have a sizeable blog, have some decent business contacts, and have a network of people and groups that can help me publicize my book as a plus. I would look more attractive to them because I have a larger platform than Joe.

Now let's say Dave Ramsey decides to write the same book. He reaches millions on radio and TV, speaks in front of tens of thousands of people each year, and has sold millions of books. His platform is HUGE. Publishing a book is not much of a risk with him since he has a large, built-in audience (platform).

As the book notes, a strong platform is not only useful for authors, but can have positive benefits for business people, pastors, speakers, and on and on -- anyone who will benefit from being noticed.

In the "old days" (like when I was a kid), building a platform was very difficult and could only be achieved by a few. But with the potential of social media today, the author says it can be done by almost anyone. And he tells us how.

Here's a summary of the book from Amazon:

Michael Hyatt, one of the top business bloggers in the world, provides down-to-earth guidance for building and expanding a powerful platform.

To be successful in the market today, you must possess two strategic assets: a compelling product and a meaningful platform. In this step-by-step guide, Michael Hyatt, former CEO and current Chairman of Thomas Nelson Publishers, takes readers behind the scenes, into the new world of social media success. He shows you what best-selling authors, public speakers, entrepreneurs, musicians, and other creatives are doing differently to win customers in today's crowded marketplace. Hyatt speaks from experience. He writes one of the top 800 blogs in the world and has more than 100,000 followers on Twitter. His large and growing platform serves as the foundation for his successful writing, speaking, and consulting practice.

In Platform, Hyatt will teach readers not only how to extend their influence, but also how to monetize it and build a sustainable career. The key? By building a platform. It has never been easier, less expensive, or more possible than right now.

Social media technologies have changed everything. Now, for the first time in history, non-celebrities can get noticed -- and win big! -- in an increasingly noisy world.

Finally, here's a video summary of the book:

It's a very interesting read. Hyatt offers great suggestions that will help you expand your influence through blogging, Facebook, Twitter, speaking, writing, and so on. So if that's a goal you want to achieve, this is a perfect fit for you.

For me, it was a great book because much of it is about blogging. And while I knew many of the tips he offered, many more were great suggestions that I either hadn't thought of or had neglected to do. So even for an "experienced" blogger the book was quite valuable.

The thing that made this book even more special for me is that I know Mike Hyatt personally. In fact, he once offered me a job when he was the president of Thomas Nelson. During that process I got to know him quite well (I ultimately didn't take the job for several reasons) and found him to be a very impressive individual. He's been successful in quite a few endeavors -- entrepreneur, executive, author (even before this book), speaker, blogger, and on and on. He knows what he's talking about and is worth paying attention to. And I can say this not only because I found the book to be informative but because I know the man and what he's made of.

Wrapping up my thoughts on both this book as well as the one I covered this morning, I'm going to pay them both two of the biggest compliments I can think of (other than the fact that I actually bought and took the time to read each one):

• I took several pages of notes on each one.


• I will read each of them again.

Yes, they were that good. :)

Two Great Books on Making Money, Part 1

There are two things regarding books that I very rarely do these days: 1) purchase one (most books I either get from the library or have publishers send me for free) and 2) read a hard-copy version (I either skim the book for highlights -- which I can do in about 30 minutes -- or get an audiobook version from the library that I listen to in my car.) But over the past couple of months I broke with tradition and actually purchased and read (completely -- and took notes!) TWO hard-copy books. They were both about making money and both were AWESOME.

My original plan was to tell you about both books in one post. But as I began putting it together the post kept growing and eventually became too big IMO. So I'll tell you about the first book in this post, then highlight the second book in today's afternoon post.

The first book is The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future. Here's a summary of the book from Amazon:

In The $100 Startup, Chris Guillebeau shows you how to lead of life of adventure, meaning and purpose – and earn a good living.
 
In preparing to write this book, Chris identified 1,500 individuals who have built businesses earning $50,000 or more from a modest investment (in many cases, $100 or less), and from that group he’s chosen to focus on the 50 most intriguing case studies.  In nearly all cases, people with no special skills discovered aspects of their personal passions that could be monetized, and were able to restructure their lives in ways that gave them greater freedom and fulfillment.
 
Here, finally, distilled into one easy-to-use guide, are the most valuable lessons from those who’ve learned how to turn what they do into a gateway to self-fulfillment.  It’s all about finding the intersection between your “expertise” – even if you don’t consider it such -- and what other people will pay for.  You don’t need an MBA, a business plan or even employees.  All you need is a product or service that springs from what you love to do anyway, people willing to pay, and a way to get paid.
 
Not content to talk in generalities, Chris tells you exactly how many dollars his group of unexpected entrepreneurs required to get their projects up and running; what these individuals did in the first weeks and months to generate significant cash; some of the key mistakes they made along the way, and the crucial insights that made the business stick.  Among Chris’s key principles: if you’re good at one thing, you’re probably good at something else; never teach a man to fish – sell him the fish instead; and in the battle between planning and action, action wins.

And here's a trailer for the book:

My personal summary of the book is much shorter than the above:

There are thousands of people who started with little money invested and used skills they already had to create unique businesses that allow them to live as they want while making very good incomes.

Sounds interesting, right? It is.

The best part IMO is that the author uses TONS of real-life examples to highlight the various ways people have come up with their own businesses. He then distills the vital factors that made these efforts successful and suggests ways we all can use them to create our own businesses. It's a very nice back-and-forth (examples and then practical tips) that makes the book an enjoyable learning experience.

The examples both inspire and challenge the reader as well as really get the potential money-making ideas flowing (at least they did for me.) And it's written in a very digestible style and layout -- very, very easy to read. I read the book in short increments here and there while traveling on a couple business trips.

If you've ever thought about starting your own business, you have to get this book and check out the concepts in it. You won't be sorry.
 
Click here to read part 2 of this series.

Free Yourself from the Debts of Another

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

Today I'm posting Proverbs 6:1-5, a series of verses that talks about what we would call today co-signing a loan (the Bible calls it different things depending on the translation). Let's start with the NIV version:

My son, if you have put up security for your neighbor, if you have struck hands in pledge for another, if you have been trapped by what you said, ensnared by the words of your mouth, then do this, my son, to free yourself, since you have fallen into your neighbor’s hands:

Go and humble yourself; press your plea with your neighbor! Allow no sleep to your eyes, no slumber to your eyelids. Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler.

As I did on an earlier post, I want to share the (clearer) Contemporary English Version (CEV) translation. Their take:

My child, suppose you agree to pay the debt of someone, who cannot repay a loan. Then you are trapped by your own words, and you are now in the power of someone else. Here is what you should do:

Go and beg for permission to call off the agreement. Do this before you fall asleep or even get sleepy. Save yourself, just as a deer or a bird tries to escape from a hunter.

And just because it's always an interesting interpretation, here's what the Message says in these verses:

Dear friend, if you've gone into hock with your neighbor or locked yourself into a deal with a stranger, If you've impulsively promised the shirt off your back and now find yourself shivering out in the cold, Friend, don't waste a minute, get yourself out of that mess. You're in that man's clutches!

Go, put on a long face; act desperate. Don't procrastinate—there's no time to lose. Run like a deer from the hunter, fly like a bird from the trapper!

Not a glowing endorsement for co-signing, huh?

Thoughts and comments?

Why You Don’t Need Long Term Care Insurance

The following is a guest post from Neal Frankle.  He is a CFP in Los Angeles and the owner of Wealth Pilgrim. Since much of the discussion we've had recently about long-term care insurance has been rather positive (as in "we all need it at least in part" -- see Good Advice on Long-Term Care Insurance), I thought it was good to hear from a different perspective.

There is so much discussion (and hype) about long term care insurance these days. It makes sense to take a hard look at this and see if you really need such a policy or not.

Most financial professionals tout this coverage even if they don’t sell it. That’s because it can be dangerous (for them) if you need it and they don’t suggest it.

But the reality is you may in fact not need this expensive insurance. Let’s take a look to determine if this insurance is a good fit for you or not. To do that, let’s first let’s define our terms.

What is Long Term Care insurance?

If you become ill or disabled (in a very defined manner) the insurance company will make payments to you. The amount they pay has nothing to do with what it costs you for your care as I’ll explain in a moment.

How do you qualify?

Each policy is different but they all spell out what “qualifying events” are when you ask for an LTC insurance quote. Typically you must be unable to perform a certain number of “activities of daily life” such as walking, getting out of bed, bathing etc. If a doctor notifies the company that you are unable to perform 1, 2 or 3 of those activities of daily life, the insurance company will start paying you.

How much will they pay and for how long?

When you purchase a long term care policy, you tell the insurance company how much coverage you want in terms of daily benefits. The greater the daily benefit you want (and the longer you want that benefits to continue) the greater the annual premium you’ll pay.

As I said, once you qualify for benefits, they will send you monthly checks regardless of what your out of pocket expense turns out to be. Once you no longer qualify (because you either recover or pass away) the payments stop.

Can your premiums rise?

Yes and no. The insurance company can’t raise rates just because you get older or sicker. But they can raise rates for everyone in a certain age group – and this happens more and more often. I have clients who bought this coverage years ago. While the benefits have not increased, the premiums have gone up by a factor of 4.

The good news is they can’t raise rates whenever they want to. Depending on the State they operate in, the State Insurance Commission usually has to approve these increases.

Who shouldn’t buy long term care insurance?

A recent article I read in Investment News Magazine quoted the American Association for Long-Term Care Insurance. They reported that 32.5% of the people who make claims are men and 67.5% are women. So if you are a man it’s a long-shot that you’ll ever make a claim. But if you are a woman, coverage might make sense. If you are a couple and you only have enough money to insure one of you, it’s probably best to cover the woman.

But the analysis doesn’t stop there.

According to those same people at the American Association for Long-Term Care Insurance, the coverage doesn’t pay off too well. They reported that over 8 million people own this insurance, but only 180,000 people receive benefits. According to my calculations, that means a bit over 2% of the people who pay for policies make claims.

The industry goes on to tell us that one in four people age 65 or over are going to need long-term care at some point before they die. I don’t know if that’s true or not. But just because you might need long-term care assistance doesn’t mean you need long term care insurance.

Many people who need care get it from family or friends. Others die quickly after they become ill. That could explain why so few people actually make claims.

Other Reasons Not to Buy Long Term Care

If you have a sizeable estate and don’t care that much about leaving a pile of money to your heirs, this coverage may not be a wise choice. Likewise, if you are have enough retirement income that would pay for the care you need, why not self insure?

If you have very limited income and assets, Medicaid will likely cover you. Anyway, it will be difficult for you to hold on to the policy if the company raises rates in the future.

Forbes recently reported that only 5% of those 65 and older will spend more than $250,000 on long-term care costs. Maybe that’s why the Society of Actuaries concluded that people with less than $250,000 or more than $2 million probably don’t need it.

If you do decide to buy this insurance, it’s important to buy quality. It’s easy to find inexpensive term life insurance from high quality companies. With long term care, the field is much narrower. You’re going to have to pay significantly more for this coverage if you work with a top rated company but it’s worth it.

What is your position on long-term care insurance?

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 am married with no children.  My wife and I are both 29.  We live in the Midwest, in a suburb of a capital city.  We have been married five years and plan on starting a family soon. 

I’ve been diligent regarding personal finance for about 18 months.  It started with reading some Dave Ramsey and Millionaire Next Door and finding blogs like FMF.  Before that we were spenders, not savers, and were digging ourselves a hole.  Now I’m a daily finance blog reader and monthly tracker of our savings, expenses and net worth. 

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

I have a doctoral degree and have worked as a health care practitioner for the past 4 years.  I’m in a very stable health care field and enjoy my work.  My wife is in commercial RE management and is months away from completing an MBA in marketing.   Combined we make a shade over $130k with my salary accounting for 55% of our total, and 45% for my wife.  We’re anticipating that once my wife completes her degree, she will see a salary increase.  My salary is pretty steady and will only see marginal increases in the foreseeable future.  Our take home is $7550.

Debts: 

• Mortgage - $141k (just refinanced to a 15 year @ 3.25%) - Home value - $155k
• My Student Loans - $60k @ 0-5% ($600/month for 12 more years)
• Wife’s Student Loans - we’re anticipating ~ $500/month for 10 years starting next summer

Monthly Expenses:

• PITI & PMI    $1223 [paying $1500 total to get rid of PMI ($60/mo) in approx 18 months]
• Student loan    $600
• Sat Dish        $83
• Gas        $74
• Electric        $90
• Cell Phone    $63
• Car Ins        $59
• Home Alarm    $37
• Gym        $111
• Internet    $50
• Trash        $8
• Sewer        $23
• Netflix        $8
• Other    $2000 (we give ourselves $1000 each for food, clothes, pet care, hobbies, grooming, household needs, travel, gifts, entertainment, etc.  We played with the number for a while and found that $1000 each was enough to take care of wants but not overspend in regards to our income. When we used a smaller allowance, we were dipping into savings for household expenses.  If one of us has an expense month, we save surplus the next month.  And we do keep it relatively separate to avoid arguments when I golf a lot much or she goes shopping.)

Savings:

For retirement funds, we each max out a Roth IRA.  I’m invested in the S&P 500 index, Fidelity FFNOX and target date funds. We contribute 12% of my wife’s salary to her 401k and receive a flat $2500 match annually.  No 401k available for me but I have a profit sharing program which should put 2-4k in my account annually.  This is my first year being eligible for this program so I’m still learning the details.  In total, $22k annually is put into retirement accounts.

$400/week goes into an ING account to act as our emergency fund.  Between retirement accts and emergency fund, we save 45% of our take home pay, 49% if you include extra mortgage principal.  Our net worth has increased $70k in the past 18 months due to my new love for personal finance, however we are still in the red due to low home equity and student loan debt.

Savings totals:

• IRAs        $21,500
• 401k        $23,000
• E-Fund        $9,000

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

Personally, we are planning on starting a family soon. 

Professionally, my wife may switch career paths and hopefully that will lead to greater financial gains as well as her career happiness. 

Financially, there are many options for us.  We plan to use the majority of my wife’s salary increase towards student loans to help pay them off in less than 10 years.   Once our emergency fund exceeds $20-25k, I’d like to explore the world of rental property.  I’ve enjoyed the idea of real estate ownership since we bought our first home, and I like that idea better than taxable investment accounts personally.  We’ve talked about renting out our current home and buying new in hopes of getting one the many great deals around us with a great interest rate.  With our current home’s interest rate, I know our home would be cash flow positive.   Also, we live near a couple large universities where student housing can prove to be profitable with a relatively low initial investment.  If we decide against a rental in the near future, I will most likely split excess income between paying off student loans, 401k contributions and increasing our emergency fund.  I’d like to have the independence to pursue the investment properties in the future. 

And yes, I realize that with babies come daycare, food, clothes and 529 plans.  As long as I can keep saving north of 40% of our take home pay, I’ll be very satisfied. 

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

What has helped me the most over the past year from going to loads of consumer and car debt with minimal retirement to where I am now is tracking my net worth month.  Like I said earlier, we’re still in the red but it’s so encouraging to see the progress and project where we’ll be in 5-10 years.

Star Money Articles and Carnivals for the Week of July 9

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

• EDITOR'S CHOICE! Festival of Frugality
• Tax Carnival
• Careful Cents tells how she became debt free.
• More Money Blog lists free credit report sites.
• The Financial Blogger wonders about a mini-retirement.
• Call Me What You Want Even Cheap lists nine ways to save on car insurance.
• Carnival of Personal Finance last week and this week.
• Carnival of Wealth last week and this week.
• Totally Money Blog Carnival
• Lazy Man and Money says you shouldn't trust the Better Business Bureau.

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.

You'll Need 11 Times Your Salary for Retirement

Here's a piece from the Bucks Blog that says we need eleven times our final working salaries to retire with the same standard of living. This is in addition to what we may (or may not) get from Social Security. In other words, it's what we need to save on our own if we want to retire at 65.

A few other details:

• The estimate takes into account inflation and post-retirement medical costs.


• Delaying retirement to age 67 reduces the amount to 9.4 times pay, while retiring earlier, at age 62, increases it to 13.5 times pay.


• Most “full-career” employees are on track to save 8.8 times their final pay, leaving a shortfall of 2.2 times pay. Full-career employees are those who have a potential career of 30 years or more with their current employer before retirement, and who are currently saving in their defined-contribution retirement plan, like a 401(k).

As you might imagine, I have several comments on this info. Here goes:

• Just to be clear, if you end your working career making $50,000 a year, they are saying you'll need to have savings of $550,000 at 65.


• Most people spend what they make, so I'm guessing that's why they used "final working salary" as the main number -- because it best estimates what people will need each year. But I'm guessing "annual cost-of-living" works too since it's what you actually spend each year. This can make a big difference if you make $80,000 a year but live on $50,000 a year.


• Obviously it makes a ton of sense that if you retire earlier, then your multiplier is larger.


• I'm not surprised that most employees will fall short of the 11 times. Given how bad the finances are for the average American, I'm surprised it's only a 2.2 times shortfall.


• BTW, 2.2 times is a HUGE amount. It's a 20% miss.


• I wonder what the mid-40's multiplier is. I'm thinking I could be close to retirement right now if it's not too large. I have 11 times already covered, but I'm not planning on waiting until I'm 65 to retire. If it's an extra 2.5 times for every three years (the difference between the 11 at 65 and the 13.5 at 62), then the number at 50 would be 23.5, which is a very big number. That said, I should be there by the time I get to 50 (sooner if the market would ever take off!).

How about you? What's your take on the formula? And how do you stack up against it?

Taming the Stock Market

The following is a guest post from Mark Biller, the Executive Editor at Sound Mind Investing. I'm a big fan of SMI and have written about the company several times (see Review: Sound Mind Investing and Review: Sound Mind Investing Website). I asked them to cover this topic because I think it's especially appropriate for what many investors are dealing with in today's rollercoaster stock market.

SMI added to this post by creating an offer for those of you who may want to check out their service (for free). Be sure to read all the way to the bottom for details.

When it comes to investing, there’s a lot that you can’t control – the economy, the price of oil, your cousin Bobby’s constant flow of “can’t-miss” investment advice.

However, there’s also a lot that you can control, and that’s where to focus when navigating the often-wild world of investing.

Before you start investing, you should be using a budget (which helps you find the money to invest), be completely out of debt except a reasonable mortgage, and have an adequate emergency fund (typically six months’ worth of essential living expenses). Assuming those steps have been taken, here are three core controllable factors for successful investing.

1. Develop a Written Long-Term Plan

Many people think they have an investing plan. And they do. Sort of. At least until the market drops 10% in two weeks. Then they realize what they really have is a collection of investing tips and vague ideas, all of which tend to ebb and flow based on what’s happening in the stock market.

In contrast, we encourage you to create a personalized, long-term investing plan and put it in writing.

A good place to start is with some of your most important financial goals. When do you want to retire and how much income are you likely to need? Would you like to help your kids pay for college? How much would you like to be able to provide and when?

2. Make Your Most Important Investing Decision

Of all the factors that impact the performance of your investment portfolio, there is one that is far more important than all the rest: how much of your portfolio is allocated to stock-type investments and how much to fixed-income securities such as bonds. This is known as asset allocation.

The allocation of a portfolio is the primary driver of its expected returns and volatility. Knowing that you have the right allocation should give you confidence that you can keep growing your money at a reasonable rate and with a reasonable amount of risk given your age and investing time frame.

3. Choose the Right Investment Strategy

It’s important that you believe in whatever strategy you choose enough to stick with it during the inevitable downturns. Every strategy will falter occasionally. Bailing out at those times in search of a better-performing approach is the equivalent of buying high and selling low — not a good formula for building long-term wealth.

Whether your strategy involves choosing your own investments or relying on professional advice, here are some important points to keep in mind:

• Instead of hoping for the best, know how you will handle the worst. Nobody really knows what is going to happen next year, next month, or even next week. Your plan must allow for the fact that the markets will experience rough sledding every now and then. That's where diversification comes in. The idea is to pick investments that are affected differently by economic events.


• Your investing plan must be clear and easy-to-understand. This means reducing your decision-making to numerical guidelines as much as possible. A strategy that calls for a "significant investment" in small company stock funds is not as helpful as one that calls for 30% of your portfolio to be invested that way.


• Your investing plan should reflect a balance between your emotional comfort zone and your need for capital growth. You shouldn't embrace a strategy that keeps you from sleeping at night. If you do, you will tend to bail out at the worst possible time. On the other hand, you can't set your risk level so low that you have no chance of meeting your long-term goals.

The primary obstacle for most people as they pursue financial freedom is not the lack of a "perfect" plan; it’s inertia. By moving forward with these principles in practice, you'll be headed in the right direction.

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Reader Profile: BU

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 BU. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 45 and my wife is 41.  We have two daughters--9 and 12--and have been married for 18 years.

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

We are both public school educators and make about $135,000 per year.  I am midway through my career and my wife stayed home for ten years while our children were smaller.  I am full time, and my wife works part time.  As public sector employees, our positions are fairly secure, though, with the economic slide over the past several years, our employer has reduced positions.  Fortunately, all the reductions have been made through attrition and we have avoided any layoffs.

Our monthly budget is as follows:

• House    $1,640
• Church/Charity    $1000
• Retirement      $800
• Miscellaneous    $800
• Groceries    $500
• Medical Spending Account      $375
• Entertainment    $300
• Lunches    $300
• Gasoline    $275
• Children’s College Fund    $236
• Girls Lessons    $150
• Car Insurance    $135
• Electricity    $116
• Water    $90
• Phone/Internet    $90
• Cell Phone    $85
• RV rental    $60
• Natural Gas    $60
• Allowance    $60
• Cable    $30

*Above is net income and does not reflect taxes or deductions except retirement savings which is listed above.  Other pretax deductions include life, health and disability insurance.

Our overall financial situation is good and looks like this:

Assets

• Home                $190k
• Private retirement accounts    $181k
• Employer pension account    $126k
• Cash-emergency fund        $  38k
• Childrens college account    $  30k
• Cars                $  26k
• Personal property        $  25k

Liabilities

• House                $90k
• Short term credit            $  2k

Net Worth

• Assets                $616k
• Liabilities                $  92k
• Net worth                $524k

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

We are fortunate and have no debt except for the mortgage on our house.  We have about $2000 per month that is not directly budgeted which we save for expenses associated with our home, vacations, etc. and general savings.   

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

Our short term financial plans are as follows:

• Car fund.  Both cars have right at 50k miles so we are in great shape here.


• Self-fund graduate education. Not certain on this one.  Would likely help take next couple of steps in career and pay for itself in a year or two. Would self-fund so committing is an opportunity cost equation.  Most immediate opportunity cost would be time commitment and delayed pay off of mortgage. 


• Pay off mortgage early.  Mortgage is at 4.25%

Long term financial plans are as follows:

• Fund girls college education.  Currently have a tuition plan budgeted above that will fund all tuition and fees so we will assist with books and living expenses.  They will also work to self fund to have accountability and grow work ethic.


• Home improvements


• Increase retirement savings


• Increase charitable giving to 15% or 20%


• Grow net worth

I hope to build my career over the next 12 to 15 years to increase salary.  The additional graduate degree would assist in that.  

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

Our general philosophy of finance has been to:

• Live within our means and be frugal.  We do not try to keep up with the Jones.


• Tithe 10%.  Right now we do 10%+ of net earnings but want to get to 10% of gross.


• Save 10% for retirement. Right now we do right at 10% of net earnings.  My employers’ withhold 6,5% and match 6% to fund pension.  Pension will pay 2.3% of top 5 year’s salary average times the number of years served.  Assuming steady pay and retirement at 57, the pension will equal approximately $100k per annum if the guidelines are not changed.  To generate $100k privately would require $2.5m assuming 4% distribution. 


• Avoid debt like the plague.  Paying our cars off really helped ramp up savings/discretionary income.

That is our financial situation in a nutshell. I see many on FMF who have done quite well and would appreciate any suggestions they have.

The Boy Scouts Know Personal Finance

A month or so ago I was traveling on business with a friend who has been a Boy Scouts scoutmaster for 20 years or so. (He started when his son was in Scouts and kept on with it.) I asked him if the Scouts had anything that taught personal finance issues and he said they did -- that it was the "Personal Management" merit badge.

That exact day, as I was traveling, I saw a comment on FMF where a reader mentioned the Personal Management Merit Badge. Since I was hearing about the subject from two different sources, I figured it was a "sign" that I needed to check it out a bit more.

This page gives the details of what's involved in the Personal Management Merit Badge. It requires the following (my summary of just the personal finance requirements -- there are a few that are time management related):

• Choose a major purchase for your family. Determine how you should save for it as well as a shopping strategy.


• Create a personal budget. Compare expected income with expected expenses.


• Discuss general concepts related to money (giving, money and emotions, spending habits, etc.)


• Explain several financial concepts (like risk/return).


• Select stocks and follow/track/explain them.


• Pretend you have $1,000 to invest -- what would you do?


• Understand terms around debt, loans, credit, etc.


• Choose a potential career and research it.

This seems like a pretty good list of items to me. If kids ended up knowing and being able to apply these concepts, I think they would be ahead of about 99% of their peers.

Now mind you that it's not exactly how I would present the material, but I still think it's good. And to facilitate the process, they have a workbook as well.

Here are my questions after looking this over:

• What do you think of the material?


• Is there anything missing?


• Do you think this is something you could use to teach your kids about money?


• Anyone actually had a son in the Scouts (or been through yourself) who got this merit badge? What did he/you think of it?

I'm thinking of taking this info, modifying it, then teaching it to my kids. I'll use your comments to help direct my modifications. :)

Reader Profile: BB

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 BB. He answered my questions (in red below) as follows:
 
Please tell us a bit about yourself.
 
First off, big thanks to FMF for generating and aggregating some amazing content over the past few years! Also, thanks to readers Megan, JM, Apex, and Mike Hunt. Great reader profiles that I have bookmarked! Everyone should check those out if you haven't already.

I'm a 24 year old guy with no kids, wife, or girlfriend. I'm the middle child and only son. I have a B.S. in Computer Engineering and work (as a Software Engineer) at a fortune 500 in a large southern city, let us call it Big City. I've been out of school for 1.5 years and at my current job (first one out of college) for just over one year. I cooped as a Software Engineer at a different company during college.

The 1/2 year between college and work was mostly spent living at home and being lazy; I was ready for a little break and not in a rush to get into a job without doing an adequate investigation of what was out there (my mom though I was nuts!). I really enjoyed hanging out with my dad (bike rides and such) multiple times per week and eating regular dinners at each of my parent's house. After a couple months I ramped up my job search first by figuring out why I wanted a job and then narrowing down the most important aspects of any potential job. I then took to "networking" over the internet and phone; over the course of a month I was able to have some really insightful conversations with some amazing senior engineers and VCs across the country about work and life; the conversations were very organic and could be either general and philosophic or would lead to specifics (especially if that person was at a company or in an industry I was super interested in). Also, my creative juices were really flowing during this 6 month period. Recorded a lot of project/business ideas (but didn't take any action, lame) and was doing a lot of good philosophizing. I've noticed a dramatic decrease now that I am working.

I owe so much to my parents and sisters. They are awesome. My father, especially, has taught me so much about what it means to be a good human being, man, and father. The only real financial lessons I remember from my parents were my dad espousing the benefits of investing early and how interest works. I also loved hearing about exactly how he has grown his career and also used our homes (we moved a lot before I got into middle school) as investments (getting a good deal in a good school zone, doing some diy repairs). My parents were generally open on topics of money, though they never shared their salaries with my siblings or me. They forced me to take on jobs in middle/high school like cutting yards during the summer and working at a pizza shop. I think the best thing they gave me in as it related to personal finance was consistent positive feedback on my habit of saving money.

I am very laid back and almost never get stressed. Unfortunately, though, sometimes I feel as if I am not taking my life by the reins enough; I let things in my life unfold and take action when the inflection point arrives. This especially applies to my young career, investing, relationships, and social life.

I hope that wasn't too boring and narcissistic. Now to some meat.

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

My base income is $70k but it is around $80k after bonus, stock purchase plan, and retirement matching. No other income.

Cash Flow:

The following expenses are all amortized (* denotes not amortized, but rather a number grabbed from my annual financial planning spreadsheet) over the past 12 months. No significant changes to regular monthly expenses in the past 12 months except for reducing my 401k contribution:

• ($1,450)* income taxes
• ($1,500)* retirement contributions w/ match. maxing out Roth IRA and HSA
• ($   480)* charity donation
• ($     30)* health/dental/life insurance (HDHP, 1 year of salary life and some dismemberment insurance)
• ($        0) car insurance (my mom has still been paying this.. i feel bad, will be getting my own plan next month)
• ($   380) rent
• ($     45) utilities
• ($     50) cell/data plan (paid to father)
• ($   100) car (gas, routine service)
• ($   130) groceries
• ($   170) restaurants
• ($     60) alcohol/bars
• ($     30) coffee shops
• ($   250) travel (predominately airfare to see family)
• ($     70) shopping (clothes, hobbies, books, electronics, software)
• ($     55) entertainment (concert, sporting event, movie theaters)
• total: (IN) $6,667 + (OUT) $4,800 = $1,867

In the past year I splurged on:

• $3300 corrective vision surgery (I have better than 20/20 vision now!)
• $1000 bicycle

Significant Assets (rounded off):

• $22,000 Roth IRA (was at $14k one year ago thanks to my coop)
• $12,000 Roth 401k
• $  4,250 HSA (treating it as a retirement account, not dipping for medical costs)
• $16,500 online savings
• $  1,500 online checking
• $  6,000 online savings (emergency fund)
• $  2,000 car (same car I bought when I turned 16 for $500)
• total: $64,250

Liabilities (rounded off):

• $1750 student loans (had basically a full scholarship)
• $1700 on my credit card currently (it's near the end of the month.. $900 per month sounds about right)

Net Worth: $60,800

Allow me to comment on some of my expenses above:

(1) I am proud of the rent I pay! It's a 2BR/2BA apartment about 2.5 miles from work in a major city that I share with a co-worker. The complex has pretty good management and is gated. Nearby complexes are not so nice... My neighbors are mostly of the lower income variety, seemingly. Friends my age with similar salaries pay upwards of $1,200 to live in a cooler part of town (and an 8 mile commute in thick traffic). The only down side (but not really) is that I rarely think about buying a home; my city seems like a pretty good buyer's market right now and has been growing healthily at least the past 10 years.

(2) I recently reduced my retirement contribution to the 401k to 10%

(3) The "charity donation" amount gets direct deposited into another online banking account which I do not include in any of my financial tracking. I never really even know how much money is in that account until I make the donations.

(4) I should have shopped around for my vision surgery

(5) I need to legitimately ride my bike more (if I think of the per use cost of that bike right now I feel bad).

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

Basically I am just enjoying where I am at right now. No real debt to speak of and I would like to keep it that way unless as an investment. Just finished funding my emergency fund!

I have all my retirement accounts automated to make index fund purchases 6 different dates per month. The retirement accounts are definitely buy and hold. The only interaction would be re-balancing or skipping a buy or two if I think we are in a particular boom/bubble, thus giving me some cash reserve to make a purchase during a bad bust cycle.  Here is how my funds are allocated currently in all of my retirement accounts:

• 29% 2050 TARGET
• 21% cash
• 16% SMALL CAP
• 9% INTERNATIONAL
• 7% EMERGING ASIA
• 6% CHINA
• 5% INDIA
• 3% SOUTH KOREA
• 2% JAPAN
• 2% Company Stock

I definitely need to be looking at ways to put more of this cash (both in retirement accounts above and the 16.5k in savings) to use. Maybe a taxable investment account?

Also, I am new to charitable giving and not really sure of where I should be giving. I think it was FMF who shared a link to for researching non-profits. I don't feel comfortable giving the majority of this amount my church (but perhaps to some Catholic charities). Advice welcome.

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

I think building a technical career makes a lot of sense. But at the same time seeing what quality engineers are capable of is daunting (come on BB, they have 20+ years more experience than you! if you are going to compare yourself to others, compare to those your own age! oh wait... mark zuckerberg) and makes me question my skills and true passions. I have thought about getting an MBA because I really like financial/economic/measuring/optimizing stuff but I am hesitant because there seems to be a glut of MBAs and there contribution to society is not really admired by the engineering community at large from what have gathered. Also, not being a wage slave is very attractive and I think I could succeed at my own ventures.

So yeah, in short I don't have any clear vision on this topic!

I would really love to start a family. But I think that is the most "in the future" than other plans. Plus finding that certain somebody is pretty tough! I dated a great girl for 3 years in college and thought she was the one but, alas. I suppose that IS one  benefit of being male: no huge time pressure to starting a biological family.

I would like to build my own dream home once I am "settled down."

I do plan on semi-retiring early. But have reduced my contributions to my retirements account somewhat because I would like to have access to a lot of these funds before I turn 65. My parents are still 10 years away from 65. Perspective. I don't really care to be "forced/stuck" working after my kids are already moved out from home.

I am wondering if Big City (and the median Big City person I may meet) really meshes with my personality. There are indeed some awesome perks of living in Big City but I don't really enjoy them as much as I should since I have a limited social circle. I think I would really, really enjoy a town like Nashville or Boulder/Denver. Or even abroad. I think I will give Big City another year but be more open to recruiters etc. (have already had some "renowned" companies' recruiters offering interviews over the past year). So far in life I would say the really great parts of a city would be: the outdoors/weather, along the same lines an athletically healthy city, a good music scene (I love blues, blues-influenced rock, blues-influenced country, some indie, and music good for dancing), would be nice to have an option of a good Engineering school or MBA program, and perhaps close to family.

And of course, as I said earlier, "I let things in my life unfold and take action when the inflection point arrives." So I am a little worried that I am just talking the talk in this section.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
 
I gave some advice to my siblings recently after a slightly awkward encounter during Christmas which involved my older sister basically thinking my saving habits were strange and then realizing that she might actually be the strange one after all my cousins affirmed my actions. So i'll share that advice in a condensed form below (note: it was probably all inspired from various blogs or books over the last few years, sorry for no linkies as I don't keep good records like that). For the record, my older sister is one of the most amazing persons I know and she will be just fine:

Actionable:

• Automate your Money - you want to go ahead and plan out what you will be spending money on in the future, and make savings/retirement/investment accounts for those things. Then setup automatic transfers each month into those accounts for what you can afford after bills and necessary costs. Thus when you see your "general checking/spending" account balance, it reflects what you can actually spend AFTER saving.


• Track your Net Worth - Every decision you make, ask yourself what it does to your ability to grow your net worth.  Don't make the choices that make it harder to grow.  Once you see it growing you will find it easier to grow it more and more.  If you don't think about net worth, you will likely fall into the mindset of whether or not you can afford something.  If that is the only question you are asking, it will ensure you can never afford much, because you will always be spending all you can afford to spend.

General:

• You choose to trade your life energy for money. When you spend money, you’re actually spending time at work. Talk yourself out of purchases by asking yourself if you really get enough enjoyment out of this item to be worth the time and energy you had to invest to actually earn enough take-home money to pay for the item. This tends to move you quickly toward focusing on low-cost items and you’ll find that you can eventually spend your time without having to exchange it for money.


• Is this expenditure of life energy in alignment with my values and life purpose? (somewhat related link) The more you reflect on these things, the easier it is to use them as a filter for the choices you make in life.


• Possessions own you. Look at the real reason you want to buy more expensive crap and realize that it all comes down to validation from others in one way or another. The need to buy new crap dictates your life - it fixes you in one location with that house and furniture, and it governs how much money you need to earn. And it almost never actually enriches your life in any way. The less you own the better.


• Take the 3 above with a grain of salt, deferring your happiness to the future is a terrible idea. All you have is the present; enjoy the show, don't wait for the finale. (Just remember what will truly make you happy) Don't become cash rich but time poor.


• Memories are better than material objects


• Avoid debt at all costs


• The earlier you begin to invest, the longer compound interest has to work. A small amount now will be a large amount in 35 years. A medium amount in 30 years will be a medium amount in 35 years

Thanks! Advice and questions welcome!

Should You Purchase Long-Term-Care Insurance?

Ever notice how once you begin thinking of a topic you seem to run into it everywhere? I have recently written posts titled Thoughts on Long-Term Care Insurance and Good Advice on Long-Term Care Insurance and now can't seem to get away from the topic. I have literally seen one article after another on the subject for a couple months now.

Many of the pieces re-hash the same issues -- ones that we've discussed on other posts. But this piece from the Wall Street Journal is a good one in my opinion. It features two "experts" on long-term care insurance (LTCI) arguing whether it should or shouldn't be something that we all use as part of our overall financial plans.

The "yes you need to have it" guy basically says that the poor and the rich don't need LTCI because the poor have Medicaid and the rich can cover costs on their own. (BTW, he doesn't define the poor or the rich, but later in the piece it notes that the "rich" are people with incomes of over $250k per year. I'm guessing the "poor" are those that qualify for government assistance.)

But he argues that the middle group -- which is most people -- do need LTCI. Here's what I think is the most valuable part of his thinking:

The important thing to understand is that there are a wide range of policies offering different degrees of security, but all preferable to taking the chance of being financially decimated. According to estimates done by the American Association for Long-Term Care Insurance, a typical couple buying a shared policy providing immediate benefits worth $328,500 at age 55 pays an annual premium averaging $2,700. By age 80 their joint benefit has grown to $708,000 with the built-in inflation protection. Alternatively, a typical couple buying a shared policy with $219,000 of coverage could reduce their premium by about 20% to 25%. That's a viable option for those who are worried about this risk. If more coverage is affordable, buy more coverage. But some is better than none.

Reading down the piece a bit, the "no you don't need it" guy gets his say. After he argues that LTCI is too expensive and the odds are low that you'll ever use it, he goes on to say that it's certainly not suitable for the poor or the rich, but may be for the middle group -- exactly what the first guy said (for the most part)!!! But he does differ in one major way. Instead of actually buying LTCI, he suggests this solution:

But instead of buying a policy and paying premiums, the consumer could set aside savings for long-term care. At $3,500 a year, in 20 years he or she could have $70,000 plus interest. In the statistical unlikelihood they end up in a nursing home, they could use these savings to pay the bills.

The "yes" guy counters this with:

In theory, it's true, if a person invested $3,500 a year instead of using it to pay insurance premiums, the investment might grow enough to cover any eventual long-term-care bill. But as nice as it sounds, most people simply won't set aside additional savings for long-term-care needs. Moreover, savings of $3,500—should the need for care come sooner than expected—will pay for only $3,500 of care.

Ha! Tell me about it. Most Americans can't be counted on to even fully fund their emergency savings much less save $3,500 a year in addition to it!

That said, if you are disciplined enough, it looks like saving the premiums instead of actually buying a policy is a better way to go. If you need long-term care, you can then use the money to pay for it. But if not, you can use the money for something else. If you buy a LTCI policy, you only have once choice -- use it or lose it.

The piece is interesting reading for anyone considering LTCI and I'd suggest you check it out if you are so inclined.

So to summarize this topic, I'll offer the following:

• If you are poor or wealthy, you probably don't need LTCI.


• If you are in the middle of those two extremes, you have two choices: either save for long-term care costs or buy LTCI.

I know it's not that simple and that everyone has a different situation, but do those two points present a workable "general rule" for most people?

So that settles the issue (for the most part) for us as individuals. But I ran into this piece discussing long-term care issues for our parents -- something we all need to consider as well. Ugh.

Sacrificial Giving

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

On my recent post titled More Thoughts on Tithing there was quite a discussion on the concept of tithing. Most of it was about whether or not a "poor" person should try and give away 10% of their income. Looking at tithing (and giving) from a different perspective, one reader made the following comment:

What I really would like to discuss is what are people's convictions regarding the practice of sacrificial giving. To focus on the rich for once, how should one feel about tithing 10% when that amount is not a true sacrifice?

Before we get into my thoughts, I thought I'd set the stage for what "sacrificial giving" even is -- and why anyone would feel compelled to give to this level. The best explanation I found was in the following question and answer on the Generous Giving website. Their thoughts:

What is sacrificial giving, and why is it important?

Sacrificial giving is the kind that is done at great personal cost to the giver. It is possible to give without suffering any loss. Indeed, we do this all the time. When a family donates a bag of old clothes to the Salvation Army, or when a multibillionaire gives an impressive-sounding six-figure contribution, they feel no loss because it is in their best interest to discard those things anyway. Strictly speaking, in the words of author Randy Alcorn, this is not giving at all but “selective disposal”. This kind of giving is fine (it is certainly better than throwing old clothes or money away), but there is nothing distinctively Christian about it. Even in the Old Testament, King David recognized this difference when he insisted, “I will not sacrifice to the Lord my God burnt offerings that cost me nothing” (2 Samuel 24:24). The one great biblical example of generosity is Jesus’ gift of himself to make atonement for sins, which was done at unimaginable cost to the giver (1 John 3:16). Obviously, our greatest sacrifices are not even in the same league with Jesus’ unique sacrifice. But we Christians are imitators of our Lord, and for that reason we give our very best, that which it pains us to lose.

The same page goes on (in the next question and answer) to address the reader's comment above:

How can wealthy people give sacrificially?

With great difficulty. Sacrificial giving is the kind that is done at great personal cost to the giver. But a wealthy person, by definition, is someone who has so much money that he can weather losses with ease. The very function of wealth is to shield its owner so that it is hard for him to do anything at great personal cost. Indeed, for this very reason Jesus says, “How hard it is for the rich to enter the kingdom of God” (Luke 18:24). It is not that the poor are more righteous in God’s sight than the rich; no, we are all equally hopeless (Romans 3:10). It is just that the rich are more likely to try to get along without God’s help. The upshot is that a wealthy person, in order to reach the point of sacrifice, must give a much larger amount than a poor person would. Christian generosity is certainly more complex than any particular dollar amount or percentage rate. But practically speaking, if a wealthy Christian wants to begin giving sacrificially, he must sit down and calculate a number large enough that it will cut noticeably (even painfully) into his standard of living, and start giving at that level. For those who need help determining that number, missiologist Ralph Winter offers this suggestion: “Deliberately and decisively adopt a missionary support level as [your] standard of living and [your] basis of lifestyle regardless of income.” If this “wartime lifestyle” seems hopelessly out of reach, consider what Jesus says to the rich: “What is impossible with men is possible with God” (Luke 18:27).

I will share some thoughts on this issue and then turn it over to you all in the comments:

1. IMO it's very difficult for the wealthy (which is most people reading this post) to really give sacrificially. To be honest, it's difficult to get the wealthy to give at all in most cases.

2. That said, the suggestion of living on a missionary's salary seems like it would do the trick. I'm guessing that's in the $25k-$35k range, but perhaps some of you have a more solid number.

3. Regarding the "live on a missionary's salary" idea, I have a few thoughts. First, I think we could do it as a family, but it would completely change our lifestyle. It would certainly "hurt." Second, I'm not sure everyone is called to live on a missionary's salary. There are plenty of promises in the Bible that are contrary to living on such a limited amount and there are many wealthy people in the Bible. David, for instance, was extremely wealthy and yet was "a man after God's own heart" (Acts 13:22) because even though he was rich, his heart was still fully devoted to God. Finally, the book Money, Possessions, and Eternity argues quite effectively against the two extremes of biblical financial thought -- that God will always bless everyone until they are fabulously wealthy and that every Christian should give away almost everything they have and live in poverty. For everyone to live on a missionary's salary seems to support the latter thinking.

4. To me the whole issue of "how much to give" depends on a person's heart/attitude. One millionaire can give away his entire fortune and not be "right" with God simply because of his attitude while a multi-millionaire can give away "only" half his fortune and be completely in God's will.

5. The issue of sacrificial giving is one my wife and I have discussed over and over and over again. She wants to give away everything while I want to both give and save (which we are also commanded to do -- see Proverbs 6:6.) It's a very fine balance to be sure and we're far from reaching any level of "perfection."

6. About a year or so ago when my wife and I were discussing the issue of how much is the "right" amount to give, I had the opportunity to ask my pastor about it. I asked him what the guidelines were for giving over and above the tithe (10%). His answer: "Whatever the Lord puts on your heart." I hated that answer because it's so ambiguous. But he said to pray about it and see what we felt the Lord saying regarding giving, then being obedient to that.

7. As for what we do: we are roughly at a 33/33/33 split -- 33% of income to live on, 33% of income saved, and 33% of income given. It varies from year to year but that's a solid estimate of what has happened over the past five years or so.

8. Have we given sacrificially? I would say "no." We have certainly given away a substantial amount and a decent percentage of our income. But it's not really sacrificial IMO. We still have a very comfortable lifestyle and don't really want for anything. That said, if I had the money now that I have given away over the past 20 years, I would easily be retired. So in that way it's been a bit of a sacrifice.

Ok, that's more than I really wanted to cover. Now it's your turn. What's your take on this issue?

Reader Profile: MB

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 MB. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.
 
I’m 40 years old, married 18 years with 3 sons living in one of the largest metro areas in the US.  The wife and I grew up in stable, supportive, blue collar families. I’m the grandson of Ukrainian immigrants.  We all lived on the same street with our aunts, uncles and cousins.  My grandparents lived with us in a small modest home until they died.  Although we didn’t know it, we would have been considered poor by today’s standards. My parents strong work ethic were a big part of my upbringing.  The wife’s story is similar but they were Irish coal miners.
 
One big source of pride for our parents is that we were the first ones in our families to ever go to college. Both of us have Bachelor and Master degrees – mine in engineering and hers in education.  She is an elementary school teacher and I’m a regional engineering manager with a very large, very stable corporation.  I’ve been working for 18 years while she took 10 years off to raise the kids.  She now teaches where the kids go to school.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
 
From a debt and income perspective I believe we are on the right path.  From a saving and spending perspective I’m very worried we are behind.  We were good savers in the past but costs for the kids have gone through the roof since they hit the teen years.  We also bought a new house last year and have spent a lot getting it fixed and furnished.  Time has also been tight for us as my side biz went off the charts and I got promoted in my day job.  This has resulted in me going from a dictator on spending to having no time to budget.  It’s evident as our spending increased and saving shrunk.
 
Here is a summary of our financials:
 
Assets
--------

• House - $450,000
• Rental - $160,000
• 401ks - $150,000
• Pension #1 - $50,000
• Pension #2 - $60,000
• Savings - $10,000

Liabilities
-----------

• House (15 yr 3.0%) - $300,000
• Rental (30 yr 5.25%) - $105,000

Income (Monthly)
--------------------

• Me - $11,000
• Her - $3,000
• Rental - $900
• Side Biz - $2,000

I don’t count the side biz in budgeting as it’s very unpredictable since it’s related to construction & engineering in the oil industry.  Last year it made about $200k profiting $75k but this year profits will be about $12k.  The side business cash flow is not included in my financial breakdown.
 
Expenses (Monthly)
------------------------

• Mortgage P&I - $2,200
• Rental Mortgage P&I - $750
• Taxes: House Property - $800
• Taxes: Rental Property - $250
• Taxes: Fed, SSI, Med - $2000 (I still pay another $10k+ year end)
• Insurance: Medical - $250
• Insurance: Dental - $150
• Insurance: Life/LTD - $125 ($2MM for me, $100K for her, both term)
• Insurance: House - $100
• Insurance: Rental - $35
• Insurance: Auto - $100
• Health Savings - $333
• Auto: Tolls - $100
• Auto: Gas - $500
• Food: Groceries - $1000
• Food: Dining - $300
• Utilities: Mobiles/DSL - $300 (5 mobiles plus house WiFi)
• Utilities: Water - $125
• Utilities: Gas - $100
• Utilities: Electric - $250
• Utilities: Satellite - $110
• Utilities: Security - $40
• Housekeeper - $200
• Misc Monster - $500+
• 401ks - $1200
• Health Club - $20
• Charity - $2,000
• Tuition - $1,400

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

Saving and cutting costs are the biggest challenges.  The kids expenses are going through the roof as they are all active in school, scouts, sports and music.  It seems all I do in life is drive people places and pay.  We used to have about $50k saved for a rainy day but that was spent on our new house and buying a vehicle.  I don’t mind though as my job is very safe and I’ll be able to catch back up soon. The kids will all be gone in 10 years.  My main goal this year is to get spending reined back in as well as saving on track.
 
One item of concern is the rate of return on my 401k.  It’s awful and seems to only grow based on contributions.  Our company doesn’t match since we get a traditional pension.  I wish Old Limey was my dad so he could take over and grow our 401ks! FMF should hold an investing seminar with Old Limey as the teacher so we could all learn how to do this using his methods.  That is a serious request. :)

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

I’d like to retire around 60 (or a few years earlier) which is in 20 years.  Until then I’ll stick with my current firm as the pension is fantastic.  It should be worth at least $1MM when I retire, or on an annuity basis it will be about $60k to $80k per year.  I’m also optimistic on opportunity as there should be a lot of executives retire in the next 5 to 10 years.  This is where good performance pays off… hopefully I can get one of those spots.  That would open up things significantly on base, bonus, and stock options/grants.  Meanwhile, I’ll continue with the side business.  If it ever gets big enough to go on my own I’ll do it. 

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
 
The best teacher for me was Dave Ramsey when I read his first book “Financial Peace” in the mid-nineties.  He taught me a lot about budgeting and debt plus he makes money management interesting yet practical in his sessions.  Buying a home on a 15 year note is a good piece of advice we’ve used.  Also, I’d recommend rental properties.  On a cash flow basis they are neutral but from a tax perspective they’re great since you get the mortgage interest and depreciation as tax deductions. 
 
I also liked Michael Masterson’s “Automatic Wealth”.  That motivated me to get into real estate as well as start my side business.  His concept of MSI (multiple sources of income) really opens your eyes.  Getting more than one source of income from your day job can blow the doors off maximizing earnings.  All it takes is the courage to "just do it"... you'd be shocked at the outcome.
 
Finally, FMF and it’s readers have been an inspiration.  Thank you!

If anyone has advice on improving my situation I’m all ears.

How Do Financial Advisors Earn Their Fee?

The following is a guest post from Marotta Wealth Management.

Most of our clients are frugal supersavers. Often they have accumulated their wealth not by earning more but by simply spending less. They are the millionaires next door living well below their means, which is why they have means.

Few investors even ask how commission-based annuity salespeople earn their fee, but with fee-only advisors the question often arises. Investment fees are generally about 1% of assets under management and drop as assets rise above $1 million. The critical question to ask is "Where do financial advisors add value that might exceed the 1% fee they charge?"

Here are five ways an investment manager might bring value to a portfolio.

1. "No, that's a bad idea."

We use eight principles to safeguard your investments. Many poor investment choices violate more than one of these safeguards. Clients ask regularly about putting their money in various investment options. The first time we say, "No, that's a bad idea," we might have just earned our fee for life. Given the greed and deceit in the world of financial services, this should not surprise you.

2. Lowered expense ratios

We build portfolios with expense ratios of about 0.38%. The average equity mutual fund charges an expense ratio closer to 1.38%. Specialty and international funds have higher averages.

Mutual fund expense ratios pay for the administration and active management talent that do not actually boost your returns. High expense ratios often include12b-1 advertising fees. These may even cover the commissions of agents who are selling those funds to you and posing as objective financial advisors. Fees matter, and the higher the fees the greater the hurdle of beating the index to justify those fees.

Even if the expense ratios of your funds are well below average, there may still be savings that can help pay the lion's share of what a fee-only advisor charges. With an investment advisor you get more than a collection of funds. You get the offer of comprehensive wealth management advice.

3. Regular rebalancing

Rebalancing your portfolio provides a rebalancing bonus. The exact amount is proportional to the lack of correlation between the asset classes and the volatility of the markets. Rebalancing can both reduce risk and boost returns. But you can't rebalance your portfolio if you don't have a target asset allocation to rebalance back to.

Crestmont Research studied the difference in returns between rebalancing every year versus every two years in varying types of markets. In secular bull markets, rebalancing less frequently had a slight 0.3% annualized advantage. But in secular bear markets, rebalancing more frequently had a more significant 1.3% advantage. Another study verified smaller gains for even more frequent quarterly and monthly rebalancing. And research on the Yale endowment attributed 1.6% of its annual portfolio returns to rebalancing.

Even an investment advisor who helps you set an appropriate target asset allocation and presses the rebalance button once a year might earn an additional 1.6% for your portfolio.

4. Staying the course

Even with a brilliant investment plan, it takes diligence to overcome our emotional biases and avoid making investing mistakes. A wise investment advisor can help clients overlook their natural loss aversion and stay the course.

Markets are always volatile. The more frequently you look at the markets, such as daily or weekly, the more discouraged you get. And even if you have a well-crafted investment strategy, you may be tempted to make changes to alleviate your suffering. Every study shows that loss aversion actually causes greater than average losses.

A Morningstar study found that investors experienced 1.5% less return than the average of the funds they were invested in, specifically because they moved out of the funds after they went down and back into them after they went up. In other words, there is a 1.5% bonus for not getting out after a drop and an additional 1.6% for rebalancing your portfolio and buying after drops.

5. Asset allocation strategy

Rebalancing assumes you have a target asset allocation in the first place, which is where an advisor's investment philosophy matters. Portfolio construction begins with the most basic allocation between investments that offers a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). Decisions at this level are the most important in determining how the behavior of your portfolio returns.

We use six different asset classes and a score of subsectors and categories. In each case we search for the optimum mix for long-term investing. Three asset classes are for stability: short money, U.S. bonds and foreign bonds. The other three asset classes are for appreciation: U.S. stocks, foreign stocks and hard asset stocks.

For U.S. stocks we set an optimum mix based on style and sector of the economy. On average, small cap outperforms large, and value outperforms growth. Returns between different styles can vary as much as 0.61% a month or 8.33% annually. Blending a portfolio allocation can make it even more efficient by either boosting returns or lowering volatility. And dynamically changing allocations based on forward-looking price-to-earning (P/E) ratios can boost returns by an additional 1.89%. There may also be times to overweight or underweight specific industries such as technology or health care.

In foreign stocks we overweight countries with economic freedom. We seek to underweight countries with high debt and deficit. These choices should outperform the MSCI EAFE index of foreign stocks, historically as high as 5.56% annually. We also include emerging market equities. We also tilt value and include small cap stocks.

The appreciating third asset class is hard asset stocks. These hard asset investments include companies that own and produce an underlying natural resource. Examples of these resources include oil, natural gas, precious metals (particularly gold and silver), base metals such as copper and nickel, and other resources such as diamonds, coal, lumber and even water.

We segment these hard asset stocks into their own asset class because they have a unique set of characteristics. First, the movement of hard asset stocks is generally less correlated with the movement of other asset classes such as bonds. Second, hard assets have a unique (and positive) reaction to inflationary pressures. And third, at certain periods in the longer term economic cycle, including hard assets helps boost returns.

Gains on specific asset classes affect only a portion of total investment returns. And in each case the possible boost in returns has to be high enough to justify the added expense of crafting a portfolio to overweight that investment choice.

None of these methods of boosting returns are secrets. I write about them every week in this column. But they do take time and effort to plan, implement and monitor. You can take the time yourself, or you can find a competent wealth manager who will act in your best interest and do what you would do if you had the time and expertise.

Investment management is at the core of wealth management. These are some of the ways in which a fee-only financial advisor might earn their fee on investment management alone. If they did, all of the other wealth management services they offer are at no additional expense.

Help a Reader: Money Advice

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

I am a stay at home mother of two children (3 years, 8 months) in charge of the finances brought in from my husband's income as well as a side gig of online sales.  I feel as if I have hit a brick wall in my financial quest. With so much information readily available for the seasoned investor, I feel lost on where to go next.

Currently, my husband contributes his 401k match, with intentions to go from the 4.5% to an additional 6% (we have heard time and time again the golden rule is 15%) once we are out of debt. On paper, that should be reached in less than 12 months.  We have a modest emergency fund that will cover 3 almost 4 months of expenses. We stopped saving to now throw all extra money at debt, with the plan to save more once our highest interest rate debt is killed off.

I have made calls to hit dead ends- I have nowhere near the minimums required or I am told blanket statements such as "I wish I was thinking about retirement at your age. (23)"  Not once have I been given a suggestion on what to aim for or how to get there. Maybe I am asking the wrong things? When I do return to work, I would like to make the most of the two incomes.

Where is someone like me to go for that advice when friends, neighbors and most of our family don't have ahold of their own finances?  Where can I go to learn more about investing, aside from 'the difference between a traditional/roth ira' and other basics, and what would make the most sense for a younger investor? I love the reader profiles, and often want to ask how each one got their start outside of an employer sponsored account, but with two small children even this email is hard.

Is there a company out there to help the little guy like me, who isn’t financially ready for additional investing but wants to know more and not rush in blind? Or is it all up to me to find the answers, while I nurse the baby, for 15 minutes at a time?

What's your advice for her?

Happy Fourth of July

Just want to say a big happy Fourth of July to all of you out there -- and Happy Birthday to America! I hope you're having a great day (like I am) celebrating the freedom we enjoy in the U.S.

Jobs with High Lifetime Earnings

Monster lists 10 jobs with high lifetime earnings. These aren't the ten jobs that earn the most (they exclude advanced degrees) but are simply occupations that do not require graduate degrees, where workers commonly move into management, and where the work stays relatively the same over a career. In other words, they are (supposedly) easy to get into and easier than many jobs to advance in -- thus they are great for making a ton of money over a 45-yer career.

The article gives career earnings, starting pay, and average pay at 20 years, but I'm simply going to list the jobs and the 45-year (a complete career) earnings. They are:

1. Petroleum Engineer: $6,290,000
2. Landman/Senior Landman: $5,380,000
3. Software Engineer/Senior Software Engineer: $4,360,000
4. Electrical Engineer/Senior Electrical Engineer: $4,170,000
5. Mechanical Engineer/Senior Mechanical Engineer: $3,900,000
6. Software Developer/Senior Software Developer: $3,830,000
7. Financial Analyst/Senior Financial Analyst: $3,440,000
8. Communications Coordinator/Communications Manager: $3,320,000
9. Marketing Coordinator/Marketing Manager: $3,310,000
10. Certified Public Accountant (CPA): $3,200,000

A few thoughts on this information:

1. Those are some big numbers, huh? $6 million over a lifetime is not too shabby at all.

2. The fact that the piece suggests these are "easy" fields to get into is rather comical IMO. Not just anyone can be an engineer. That said, #2, #7, #8, and #9 seem relatively accessible careers for the masses.

3. Again, this list does not include doctors, lawyers, MBAs, and so on who, I'm guessing, would all be on this list if they were included.

4. These are the AVERAGE pay levels. Just think what would happen if one of these workers would take steps to maximize his lifetime earnings. He could earn millions more on top of these numbers. In addition, if they took steps to make even more money (on the side) -- WOW!!!!

5. Not only are engineers high earners, but as a group they are also great at turning those earnings into net worth. Conversely, high-earners like physicians, attorneys, and managers of public corporations make a boatload, but spend much of it at a rapid rate and thus have lower-than-expected net worths. (For details, see What Professions are Likely to Have High and Low Net Worths?)

6. I haven't calculated my lifetime earnings exactly, but a rough estimate confirms what I wrote several years ago -- I made a great $5,000 investment when I got my MBA.

I'm guessing there are some of you reading this who hold these jobs (any landmen out there?) Are these numbers reasonable? Too high? Too low?

The Best of Money Carnival

The Best of Money Carnival is now up! 

Enjoy!

Reader Profile: AF

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 AF. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 24/m and single living in the Northern Virginia suburbs just outside of DC. I graduated from school in 2010 and have been working for a large financial firm for the last two years.

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

Since I am single, I’m obviously the only provider for myself. I make $65k/year, which is ~$3500/month net income after 401k deductions and health insurance, and do my best to save as much as possible. Thanks to my generous parents, I am fortunate to have a debt free life with no car or school loans with my phone and auto insurance (for the time being) paid for by my parents so that I can continue to save. While my friends are off buying new cars and toys, I’m driving my ’02 Accord into the ground.

My current monthly expenses are as follows:

• Rent: $720
• Utilities: $80
• Gas: $100
• Food: $250
• Gym, Protein, Supplements: $50
• Discretionary Spending, ie: bars, sports tickets, random expenses, minimal shopping when I absolutely need something: $400
• Savings: Split between maxing my Roth, slowly adding a bit into my emergency fund to grow it beyond 6 months, and the rest into my Scottrade account for investing in stocks and index funds

My current assets are:

• Checking: $1500
• ING E-Fund: $11,000
• 401k: $9,100
• Roth IRA: $10,200
• Scottrade: ~$7000
• Car: ~$4000

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

The main thing that I’m worried about now is grad school. I will probably be paying my own way to grad school when I go back to get my MBA in a year or two. I’m not worried about buying a house now because I want to go away full-time to somewhere like UTexas, UF, Michigan, or UCLA to get my MBA. I’m trying to save like crazy and have been looking around at a few side jobs such as bartending to make extra money on nights and weekends so that I’ll have to take out less in loans. I figure the program will cost around $120,000 before any grants or scholarships that I might get and hopefully I’ll have to take out less than $50k in loans. I’m expecting a salary of $90-100k out of school and living extremely below my means I’ll have my debts paid off within 2 years if all goes according to plan.

My main issue now is what to do with my money. I could increase my 401k contributions, but then I would have less cash to pay for grad school. I know the earlier you invest, the more time it has to snowball, but I don’t know where to draw the line. I currently put the max that I’m matched (6%) into my 401k, max my Roth and have the rest in equities. I should probably be putting less money in equities now since I’ll need it in the short term except I’m definitely a risk taker. I’ve heard I should be putting a higher percentage into my ING savings and keep it liquid but to me, I’d rather gamble and take a chance at higher profits. Am I crazy? What should I do? If I save about $1800 a month, the current breakdown is $416.67 Roth, $383.33 ING, and $1000 into Scottrade where 80% of that goes to Vanguard’s Total Stock Market Fund and the rest I use to trade. Should I change this? I’d love to hear people’s opinions.

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

My plans for the future are very family oriented. Even though I’m single, I’m the rare breed of guy that although I love being single and having fun with my friends, I can’t wait to be a dad and a husband. My long-term goals are to find a job that I love so that I can work for a long time since I love working and give as much to my family as my father did for his. I don’t want my kids to ever have to worry about money and for them to be able to do anything that they can dream of like I was given the chance to do.

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

I know everyone says it all the time but living below your means in so important. Can I go out and buy a brand new BMW like people I work with and have $800 monthly payments? Sure I can. These guys not only did that but also have the same amount in monthly student loans, live in a more expensive place, yet complain that they haven’t started putting money in their 401k yet because they need every extra penny they can in their paychecks. I would fight with my ex everyday because she would be constantly be buying starbucks everyday and have no problem spending $50 a night at the bars or even $100 on a new dress just because it was payday. She couldn’t understand why I didn’t buy anything when we got bonuses (besides taking her to a nice dinner) except filling my Roth with it. Everyone has different priorities, but the only way to reach your goals is to live below your means.

The Value of Wisdom

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

Today I'm posting Proverbs 3:13-16, a series of verses that talks about the value of wisdom, knowledge, understanding, etc. Let's start with the NIV version:

Blessed is the man who finds wisdom, the man who gains understanding, for she is more profitable than silver and yields better returns than gold. She is more precious than rubies; nothing you desire can compare with her. Long life is in her right hand; in her left hand are riches and honor.

I also like the Contemporary English Version (CEV) because, well, it puts the words into how we might say them today. Their take:

God blesses everyone who has wisdom and common sense. Wisdom is worth more than silver; it makes you much richer than gold. Wisdom is more valuable than precious jewels; nothing you want compares with her. In her right hand Wisdom holds a long life, and in her left hand are wealth and honor. Wisdom makes life pleasant and leads us safely along. Wisdom is a life-giving tree, the source of happiness for all who hold on to her.

And just to round out this post, I wanted to include how the Message expresses these verses:

You're blessed when you meet Lady Wisdom, when you make friends with Madame Insight. She's worth far more than money in the bank; her friendship is better than a big salary. Her value exceeds all the trappings of wealth; nothing you could wish for holds a candle to her. With one hand she gives long life, with the other she confers recognition. Her manner is beautiful, her life wonderfully complete. She's the very Tree of Life to those who embrace her. Hold her tight—and be blessed!

Thoughts?