How I’m Avoiding Lifestyle Inflation to Get out of Debt

The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

Graduating college and earning my degree was monumental for me. As a first generation college student, passing up the opportunity for higher education was always out of the question for me. I knew I was going to attend college and I knew I was going to graduate with flying colors.

When I did graduate, I enjoyed the day with all my friends and family and cherished the moment in my success. After that passed however, reality started to settle in and I realized the important milestone I reached came with a price to the tune of $31,000. That’s how much debt I was in after college. Just under $21,000 of that debt was student loans.

When I landed my first job out of college, I decided that I wanted my debt gone ASAP. I wanted to live a life that didn’t involve me paying for the things I did or the choices I made years ago.

 

I Decided to Avoid Lifestyle Inflation

Lots of recent college grads are introduced to lifestyle inflation and temped to spend more. Lifestyle inflation is basically increasing your spending as your income increases or your financial situation improves.

For example, if you get a raise, a higher paying job, or graduate college and land your first job, you may have thoughts about all the things you can do with you money that you couldn’t do before. It can be very tempting to run out and treat yourself one too many times, buy a new car, upgrade your living situation, etc.

If you value things and temporary, instant gratification, you may not have a problem with lifestyle inflation. Waiting to treat yourself to certain things isn’t always fun, but I decided to avoid lifestyle inflation for the time being in order to get rid of my debt quicker.

My debt always seems like it’s holding me back and I know I can’t get to the place in life that I truly want to be at with it dragging behind me.

I’m currently avoiding lifestyle inflation to pay off my debt in several ways.

 

Cheap Housing

When I landed my first professional job out of college, I stayed in my current apartment in my college town for as long as I could and enjoyed the cheap rent. Moving back with my parents wasn’t an option for me, but if I could’ve done it comfortably, I probably would have.

After about a year of working at my job, I ended up getting an apartment closer to where I work to reduce my commute. Yet and still, I found something reasonable and only about $200 more than what I was paying at my college-town apartment.

Sure, I could get a townhouse, condo, or larger living space with walk-in closets, extra amenities and other features, but I can also put the money I save on housing by staying in my current apartment directly toward my debt.

 

Used Clothes

I’ve always loved fashion, and purchasing clothes has always been a guilty pleasure of mine. When I started avoiding lifestyle inflation to free up more money to pay off my debt, I went cold turkey on shopping for clothes and started making due with what I had.

This wasn’t a huge sacrifice since I had a decent amount of clothes to wear all year-round, but when something became unwearable, it ended up being a bit of a struggle. Nevertheless, I lasted about 9 months without buying any new clothing.

As a mom, I’m also responsible for clothing my young son but I stuck to second-hand clothes and hand-me-downs when he needed anything new and young kids certainly don’t mind what they wear.

 

Less Paid Entertainment

As a young person, I found it hard to cut back on my entertainment spending at first and tell my friends ‘no’ when they wanted to do something that was out of my budget. I knew that by saying no to certain opportunities, I would be saying yes to myself and my goal of becoming debt free.

I also believe that life is too short and should be enjoyed, so I didn’t want to have an absolutely dull social life either. Then, I discovered how wonderful free entertainment could be. I started looking online for free events and festivals in my neighborhood and inviting friends over for game nights.

I am always on-the-go with my son during the weekends and I never spend much money at all. We visit the library, go to the park, check out free museums and zoos and visit with friends. For date night with my fiancé, I found a historical theatre that plays classic movies for $1 each week. I still utilize paid entertainment and dine out occasionally, but I stick to my budget and use sites like Group and Living Social to lower the costs of activities.

I’ve secured raises at my job, but I’ve never made a ton of money overall (less than $40k). This means avoiding lifestyle inflation has been a crucial factor when it comes to paying down large amounts of my debt.

How about you all? How do you cope with lifestyle inflation?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/86530412@N02/8231671430

Oil vs. Gold – Which Commodity Should You Trade?

The following is a post by Luis Aureliano. Enjoy! 

Understanding Oil and Gold

Oil, which is the most traded commodity in the world, affects the lives of almost every person on a daily basis in many different ways. The most important of these is to provide the fuel and lubrication for every mode of transport, be it land, sea or air, which you can think of. The wheels of industry are kept turning thanks to oil and the agricultural and other machinery used to grow or produce most of the other commodities we use, are almost totally dependent on oil for production to be maintained.

Gold, on the other hand, is the fourth most traded global commodity, and while its role has changed, gold also had a daily impact on our lives in days gone by. Most of the global currencies were linked to gold reserves for many years, making it a sought after commodity in that respect, while its uses in jewellery manufacture are legend. Today, many governments still maintain gold reserves, and while we also utilize gold leaf and gold foil for decorating, new uses for gold in the electronics and medical world are being discovered daily.

Oil versus Gold

Oil, once it has been used, is no longer around, while gold, in most of its uses, remains with us as an investment in some form or another, or it is present in electrodes, but it generally does not disappear with use. Oil is thus a diminishing commodity where the price and subsequent profit taking, is largely driven by supply and demand while the return on an investment in gold is derived from price fluctuations.

Because oil is a commodity that we use on a daily basis, the price of oil or fuel has a direct impact on inflation, which means that the rate of inflation follows the oil price trend. The gold price tends to move in tandem with the rate of inflation which means that when oil goes up, inflation will probably increase and the gold price will follow suit.

The inverse relationship the U.S. dollar has with all USD quoted commodities, such as gold and oil, means that the price of these two commodities is also subject to fluctuation in line with the greenback. Calculations on the respective prices on the 2^nd of December 2015 showed the following:-

• Gold traded at $1067.30 an ounce at 01:08, a price increase of 0.20 or +0.02%, while the price actually decreased by $1.70 or -0.16%, taking the strengthening of the USD into account;

• Crude oil traded at $41.63 a barrel at 01:08, falling by 0.17 or -0.40%, while the price actually decreased by 0.05 or -0.13% with the USD strengthening factored in.

The percentage decline in the price for gold and oil was almost the same with the currency fluctuation factored into the equation, illustrating the inverse relationship to the USD as well as how the prices track each other.

Oil and Socio Political Events

The oil price is currently very much a victim of global socio political events, which are largely centered on the major Arab oil producing states. OPEC (Organization of the Petroleum Exporting Countries), led by Saudi Arabia, has been steadily increasing productivity rates which has the supply side of world oil markets. The realities of a slowing in economic growth in China, which is the second largest global consumer of oil and oil based products, and the subsequent slowing of the economies in most of the commodity producing states, has had a negative effect on the demand side for oil. The increased production in the face of a falloff in demand has disturbed the supply and demand equation which has resulted in the current depressed oil price.

Gold and Socio Political Events

The uncertainties of the socio political scenario have the opposite effect on gold as many investors view the precious metal as a safe haven in uncertain times. This has created some demand for the precious yellow metal, more than compensating for the drop in consumption in China, which alternates with India as the world’s largest gold consumer.

According to World Gold Council data, the demand for gold in the third quarter of 2015 increased by 8% year on year, while the production of the precious metal declined by 1% in the same quarter.

The supply and demand scenario for oil is thus almost diametrically opposite to that of gold. Despite this difference, however, the gold price has fallen by 44% since it peaked at $1916.25 an ounce in August 2011, dropping to $1061.90 an ounce in November 2015. Oil, which was quoted at $93.35 a barrel in August 2011, has fallen by 55% when it was priced at $41.68 a barrel in November.

These figures show that the gold price actually does track the oil price as is generally asserted. The only reason the gold price has not declined to the same degree as the oil price is the fact that the supply and demand ratio has not been disturbed in the same way. Gold demand has increased by 8% while supply has dropped 1% while the opposite situation with oil has seen supply up by 5.30% over the past three years while the demand has only grown by around 1% annually over the same period.

Trading Oil and Gold

In terms of which commodity to trade, you need to establish the type of trader you are as well as your trading style and risk appetite. Both commodities offer a wealth of trading opportunities and by taking into account the impact of the current socio political events around the world, you will be able to more accurately predict the direction that the price of oil and gold are likely to move in the future.

Smart Vacation Planning in 2016

The following post is by MPFJ staff writer,Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

The New Year is here, and it’s tough to think about the coming year without having an itch to plan a vacation getaway. The great thing about vacations is that they allow you to escape from the day-to-day mundane things in life. Although most of us love routine to a certain extent, we all love a break from the norm occasionally.

We took our first big family vacation last summer. The drive from Minnesota to Seattle – with a stop at Yellowstone National Park – was crazy-busy-packed, but doing something fun and different was, as they say, priceless. We still talk on a weekly basis about how fun that first big family vacation was, and we eagerly dream of when we’ll take our next big getaway.

A great vacation, however, begins with a smart vacation plan. Here are some tips that will help you plan wisely for your 2016 getaway.

How to Take a Great Vacation in 2016

 

Pick Your Vacation Destination

Where is it that you dream of going on vacation this year? A trip cross-country to spend time with family and/or friends? A winter getaway to a warm and sunny destination? Consider your options and think about what type of vacation destination would best suit the entire family. Be sure to consider cost and location options as you choose a vacation destination. For instance, a month-long trip to Europe might not be a great idea if funds are tight and paid vacation time is limited.

 

Estimate Your Vacation Expenses

It’s a good idea to put together a realistic estimate of your potential vacation costs before you plan your getaway. Ask yourself the following questions as you work to put together a vacation expense estimate:

• Where will we stay and how much will it cost?
• How will we get there and what mode of transportation will we use once we arrive?
• What will our meal plan be? Will we get an AirBNB locale and cook in-house? Eat out? What will our estimated meal costs be?
• How much money do we plan to spend on “extras” such as theme parks, museums and souvenirs?

By putting together a realistic estimate of how much you’ll spend on your vacation, you can work to budget in the costs before you go on your trip.

 

Put Together a Payment Plan

Don’t allow yourself to be tempted to put your vacation expenses on credit unless you’ve got the cash to pay them off right away. Instead, put together a payment plan that will help ensure you’ve got the vacation paid for before you go. Here are some tips for creating a successful vacation payment plan:

1. Using the steps listed above, create a realistic estimate of your planned vacation costs.
2. Divide the estimated cost of the vacation by the number of paychecks you will receive until you go on vacation. For instance, if your vacation will cost an estimated $2,000, and you’ve got 14 paychecks until you go on vacation, you can allot $142.86 per paycheck to go into a vacation fund or other separate savings account toward vacation expenses.
3. If you use travel points, work to accrue points that will help you offset some of the costs of the vacation. Just be sure you don’t accumulate credit card debt in the process.
4. To bring in additional monies to help pay for your trip, consider selling items you no longer need on Craigslist or EBay, or consider getting a temporary second job or side hustle in order to bring more cash in to pay for vacation expenses.

Planning how you’re going to pay for your vacation ahead of time can help ensure you won’t be stuck with a vacation that costs twice as much as you’d estimated thanks to credit card interest payments.

By using the above tips to plan wisely for your upcoming vacation, you can maximize your fun and minimize the effort so that you can better enjoy your getaway destination. Happy vacationing!

***Photo courtesy of https://static.pexels.com/photos/6934/beach-vacation-water-summer.jpg

Exotic Investments: The Best Soccer Trades In History

The following is a post by Pauline. Enjoy! 

My grandpa always told me that it takes just two opinions to make a market. The simplicity of his words made what would become a life long challenge seem very simple at the time. All I had to do was form smart opinions. Simple, right?

Of course, at the time I could not know the psychological challenges that lied ahead. Nor could I account for the role played by discipline or luck, or indeed the costs of expressing my opinions at a frequency that would filter out the latter (or lack of), and scale the former.

Such ignorance could not be more prevalent in the world of football, where the financials involved are only outdone by the emotional tidal wave that follows them. Wenger, Ferguson, Levy… These are the traders on the touchline, where liquidity comes only a twice a year, and where the assets themselves depreciate by the day.
So with a tip of the hat, I give you the top 5 trades in football:

1. Gareth Bale (Tottenham Hotspur to Real Madrid): Estimated £80m return.Originally bought for £7 million as a left back from Southampton, Bales game transformed into a more attacking style while at Spurs. He caught the eye of European football during the UEFA Championships and was eventually transferred for an undisclosed fee (rumours: £77m – £85m).

2. Christiano Ronaldo (Manchester United to Real Madrid): Estimated £70m return.

Sir Alex signed Cristiano from Sporting CP for £12m, his impact on United was almost immediate.

Together with Bale, Ronaldo has helped give the Premier League the largest war chest in Europe.

3. Kaka (AC Milan to Real Madrid): Estimated £51m return.

Kaka joined Milan for an £8.5m fee later to join Real Madrid for €65 Million! The attacking midfielder spends the twilight of his career as an attacking midfielder for Orlando City.

4. Zinedine Zidane (Juventus to Real Madrid): Estimated £43m return.

Zidane’s transfer from Juventus was a world record setting fee €75 millions. Stomach churning to think Marseille let him leave for Turn for just £3 million.

5. Edison Cavani (Napoli to PSG): Estimated £40m return.

PSG’s new spending power puts Cavani fifth on the list, joining the Parisians from Napoli for £54 million.

A final note: Yield.

Of course, it wouldn’t be fair on Real Madrid, the buying party in 80% of these top trades, if we didn’t at least acknowledge the earnings yield of these assets. That couldn’t be more true for Christiano Ronaldo, but with number one the list, that remains to be seen 🙂

Financial Planning for Seasonal Workers

The following is a post by MPFJ staff writer, CJ, who blogs at thesingledollar.com about personal finance, budgeting, frugality, and debt repayment.

How often do you get a paycheck? If you’re like most American workers, you get paid on a regular schedule year-round. If you’re a freelancer, your pay is more irregular, and could arrive at any time. But there’s a third and more mysterious category: seasonal work.

Seasonal workers include professionals like teachers (who often receive a paycheck for only nine months out of the year); workers doing manual labor outdoors, who often can’t work much, if at all, during the winter (think farmhands, construction workers, or baseball players); and, conversely, workers who are regularly hired by retail stores for a few months during the holiday rush and then laid off in January. These workers have widely varying annual income, but they all have one thing in common: they are only paid during one, two, or three of the four seasons, yet they all have year-round bills. This can make regular budgeting really difficult.

Seasonal workers can take steps to stabilize their financial situation, however, by planning ahead. Here are several steps you can choose to take if you fall into this category.

 

Save for the Offseason

Although seasonal workers don’t get paid year-round, they can often accurately predict their yearly income and expenses. Teachers, for example, know they will get nine monthly paychecks but will need to cover twelve months of bills. They can set aside 25% of each incoming paycheck in a savings account and then pay themselves a “salary” over the summer.

 

Have a Big Emergency Fund

Seasonal work is more stable than full-on freelancing…but there’s always a risk. For example, if you’re a construction worker who often works substantial overtime during the summer, what are you going to do if it’s a particularly rainy year and there are many days on which you can’t work? Having a bigger emergency fund than a salaried year-round employee can help cushion these kinds of blows.

 

Check Your Insurance Options

When I did seasonal work, I received health and life insurance through a union (my employers paid into a centralized fund) so that I could be covered year-round even though there was typically very little work during the winter. Every seasonal worker’s situation will be different, but be sure you’re fully covered year round no matter what.

 

Pick Up Freelance (or Seasonal!) Work During the Offseason

If you have a seasonal job, you might be able to supplement your income by picking up other seasonal work. A teacher might teach summer school or, like one of my teachers did, spend the summer hawking beer at a sports stadium (bonus: he saw all the games for free!) A construction worker might get an indoor holiday retail job when the building trades go into their annual deep freeze. This kind of strategy can stabilize your yearly income, especially if you have a major emergency and can’t set aside enough during the year.

One way or another, seasonal workers know they’ll have at least a few months to cover sometime during each year. Planning ahead for this normal part of your career can make this less stressful, and allow you to enjoy some downtime rather than worrying about your bills.

How about you all? Would you consider yourself a seasonal worker? If so, how do you find is best to plan financial to live a balanced life throughout the whole year?

Share your experiences by commenting below! 

***Photo courtesy of https://upload.wikimedia.org/wikipedia/commons/e/e2/Financial_Planning_-_Expanding_the_Body_of_Knowledge.png

5 Real Ways To Increase Your Savings Rate This Year

The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy! 

What will you do in the event of a true emergency or financial hardship?

Do you feel like your savings account is a scary joke? It’s likely that you’re not alone. According to CNN Money, more than half of Americans save next to nothing each month.

I used to be one of them. I was the person who thought things would be peachy keen until they weren’t and it was too late to prepare for the unexpected. Having enough funds saved up is important because sometimes, it will be all you’ll have to start from.

I did a great job meeting my goal to pay off a ton of debt last year, but the sad part is, after it was all said and done, I looked around and realized I still felt extremely trapped. Sure, I had less debt, but I had hardly anything saved up leaving me with even less control over my life. In my mind, I couldn’t really afford to save. But in reality, I couldn’t afford not to.

It’s important to manage your savings goals with your other financial goals and even prioritize them if you need to build up a suitable emergency fund. Most experts recommend saving up three to six months’ worth of expenses but how much you set aside is totally up to you and your specific needs.

If you’re looking to save more this year, but you’re wondering where the extra money will come from, here are five realistic ways to increase your savings rate.

 

1. Sell Items From Your Home

Have you ever wondered how much money is lying around your home in the form of unwanted things? With minimalism really trending lately, most people are eager to declutter and get rid of things that are just taking up space.

If you have old dishes, clothes, game consoles, furniture children’s toys, tools, bikes etc. that you no longer want or need, try selling them online or to others in person or through a garage sale and putting the money you receive directly into a savings account.

 

2. Create Rotating $0 Budget Categories

One of the best ways to save more money is to stop spending it period. To reduce your spending, try to cut a budget category out completely for a few weeks, then pocket the cash you save by not spending.

Creating and implementing $0 budget categories can sound intimidating at first, but it’s a liberating challenge that you can take your time with. Start by cutting out a non-necessity like entertainment or dining out. If your entertainment budget is usually $100 per month and you make it $0, that doesn’t mean you have to sit at home during your free time for the entire month and sleep or read books.

There are tons of free and fun activities you can do that won’t cost you a dime. These include: visiting  a museum, inviting friend over to watch a movie, attending a free festival or community event or hiking at a national park just to name a few. When the month is over, you can switch another non-necessity budget category to $0 and save the money you would have spent instead.

 

3. Lower Your Family’s Expectations

Lifestyle inflation can really put a damper on your savings rate. If you and your family are used to living above your means, you’ll need to lower your expectations in order to become more content with what you have and free up enough money to save.

For example, I think iPhones are wonderful, but I’ve never owned one and I have no desire to. Instead of paying over $100 each month to have a phone, I’d rather stick with my more practical smartphone with a lower monthly bill so I can save more money.

Sit down with your spouse and kids (if you have any) and find out what they really value and what they are willing to give up for the sake of financial stability.

 

4. Plan Your Meals

Food is reportedly the fourth biggest expense for American families and falls right behind, housing, transportation, and insurance. If you can manage you cut your food spending, you will be able to save quite a bit for hard times.

You can cut your food spending simply by creating detailed meal plans. Instead of just going to the grocery store with a rough idea of what you’d like to buy, try creating a detailed list of the meals you will eat each day and bring cash with you to ensure you stick to the budget. This will cut out impulse purchases and slash your food budget.

You can also cut back on work lunches by bringing your lunch to work each day and planning ahead to make sure you have enough items to pack for lunch. Bringing my lunch to work has easily saved me at least $1,000 during this past year.

 

5. Get a Second Job or Side Hustle

If you want to save more, you can always earn more. You can get a temporary second job to maintain until you earn enough money to fully stock your emergency fund.

You can always turn one of your hobbies or talents into a money making side hustle. Whether you love to write, draw, design, create crafts, work on computers or play instruments, you can market your  talents to others in order to create a profitable side hustle that will generate enough income to significantly boost your savings rate.

If you know that you need to step up your savings this year, these are all strategies that you can implement immediately to obtain measureable results.

How about you all? What specific steps will you take to increase your savings rate over the next few months?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/76657755@N04/6881508144

How One Couple Got to $3.7 Million in Net Worth

The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy! 

This is the saga of a Boomer couple (in their mid-sixties) who started married life with next to nothing and achieved several million in net worth.  If accumulating wealth is your goal, perhaps parts of this story will inspire or instruct you on your journey to millions.

First however, lets remember that net worth is all your assets minus all your liabilities.  Our Boomer couple keeps track of net worth on a monthly basis using Quicken and does so not only to know where they stand but also to anticipate the potential need for estate planning changes (might their estate grow enough to trigger those hefty taxes at the second’s death).

So, to track their net worth, the Boomers keep track not only of cash, bank account assets, stock and bond market investments, real estate and autos, but also of any death benefit amounts for life insurance they own, artwork and collections as well as an estimate of the market value of their aggregate household possessions (which at 60+ years there are many).

 

Lets begin at the beginning.

The couple married in 1972 and had assets of some savings bonds the wife’s parents gave her for college graduation (around $2000) and liabilities of a car loan for a car the husband bought prior to the marriage ($2000) and an obligation to pay premiums on a whole life policy purchased in college.  Neither had college (thanks to parents and scholarships ) or credit card debt.  Now, this isn’t as dire as it sounds because that $2000 in 1972 dollars is about $12,000 in 2015 dollars.  That is a lot more than many Millennials have what with their college loans and the Great Recession.

Mr. & Mrs. Boomer entered the job market while the US economy was headed for decline.  Having no trade (their college majors were Business and Liberal Arts), the couple had a hard time finding work that paid much.  Both took temporary jobs in retail sales to tide them over, making minimum wage ($1.60 per hour or so at the time). Almost immediately after the marriage, the spouse joined the US Army as a private making around $2000 annually).

In the Army now.

After basic, the husband was stationed in the US Midwest in an administrative job (for which the wife was very thankful as the Vietnam War was still in progress at the time).  The wife moved to join the husband and they lived in a rural area close to base, paying about $60 a month for rent for a tiny duplex.

Using the wife’s graduation bonds (most of them) as a down payment, the couple located and purchased (with a loan) 40 acres of raw land for $4000.  As it turned out, this was a good move and a bad move.  The good part was that it forced the couple to save to pay the loan and thus they eventually ended up with a 40 acres asset.  The bad part is that raw land is a pretty risky investment, with little guarantee of any income.  The couple kept this 40 acres for many years, eventually selling it for around $40,000.

Also during the Army years, the young couple (then in their early 20’s) decided to have a baby.  After all, the birth would be free at the Army hospital so no problem – right? OK, all you parents, stop snickering – the Boomers obviously didn’t think about the many thousands of dollars that child would cost over the next 20 years! The Boomers later counseled their offspring to WAIT before having kids, wait until you are established in a career and have some stability.

Because they lived in a rural area, opportunities for the wife to earn a salary were scarce, so the couple was primarily living on $2000 a year (she did work at Pizza Hut as a waitress until the baby came).

Each month, the husband would use a credit card to buy gasoline to drive to his job at the fort and at the end of each month when the credit card bill came, it ate up much of that months Army salary.  This was a huge lesson to the Boomers.  They learned that they didn’t like paying for something long after that something was used up.  Ever after, they used credit only when they already had the money to pay the bill.  This kept them safely out of credit card debt for a lifetime.  Lesson learned.

Feeling the pinch (rent, loan for land, gasoline, food, insurance, heat, telephone and etc) the two decided that the husband should not re-up when his initial enlistment was over, even though he was now earning about $4000 a year.

 

The jobless period.

In late 1973, the economy took a turn to the downside.  Looking for work after the Army in 1974 was even more difficult than finding work out of college.  But both studied hard to take the exam to get on with the US Government.  Hubby studied more, because wife was busy taking care of new baby.

Out of the Army with no income, the couple moved back in with the wife’s parents for several months.  That had to be fun for the recent empty nesters – not only did your kid come back, but she brought a man and a baby too!  Family comes first, but the Boomers didn’t want to impose any longer than needed.

Thankfully, the Federal Government soon offered the husband (who scored better on the test than the wife due to all that extra study) a job.  The two checked out of hotel Mom&Dad and moved across the state.  The $8000 a year salary was a gold mine to them after living on the Army salary for 2+ years.  They found a unit in a quadraplex for $125 a month – two bedrooms, a tiny, tiny kitchen, one bath and a living room.  After a few months the landlord decided they were hard workers and diligent rent payers and offered them a chance to work off some of the rent by tending to the building and trash.  The couple was grateful for the chance and very glad that they had taken great pains to be good renters and responsible adults – otherwise they might not have gotten the opportunity to reduce their rent payment.

The wife took a low paying job delivering neighborhood newspapers with a baby strapped to her back in a pack to help with expenses.

 

Four years passed.

The urge to procreate was strong, the couple was nearing 30.  In 1977 the couple decided to go for a second kid.  They felt a bit more secure financially, the wife had taken a better paying job as a supervisor at a retail store (but they still weren’t really able to save).

Now, though, that small unit in the quadraplex seemed even smaller.  The new baby shared the Boomers bedroom and the 4 year old was growing like mad.  Time for a house of their own.

 

The housing mistakes.

By this time, the couple had sort of discovered that they had different tolerances for risk.  Hubby hated financial obligations (like a mortgage) but the wife saw the opportunity to build equity instead of paying rent.  To keep the loan as low as possible, the couple saved for a down payment instead of using a down payment free VA loan (mistake #1), and narrowed their search to a cheaper but declining neighborhood (mistake #2).

Luckily, it was a slow decline.  The couple stayed put for 10 years, during which time they were able to put aside small savings each month only to have to spend out at the end of the year.

Hubby got more and more stressed as his Federal Government job was not as lucrative as a private company job might have been and his aversion to risk kept him from looking for a better one.  Instead he took advantage of many many overtime hours.

Wife stayed home raising kids and working on the run down home – stripping old paint, painting, scrubbing and maintaining, but not enhancing.

 

The turning point.

Eventually, the couple imploded.  Tensions were high, finances were tight what with kids growing more expense and college funds and added life insurance, taxes and etc.  Neither one of the couple talked about the issues.  The Boomers didn’t talk money.  Years later they realized what a huge mistake this was and  began those discussions. 

Mrs. Boomer decided it was time to go back to work to try to alleviate the situation.  Besides, if a divorce was in the future, she would need a way to support the kids.

But, instead of going after a low paying easily obtained job, Mrs Boomer researched the job market at the time to see what jobs she could train for that would pay big bucks.  She found that computer programmers were in high demand.  She researched classes to learn programming and decided she could do this.  Instead of putting further strain on the marriage to pay for the classes, she opted to open a licensed day care home and save the money earned to go back to school.  She started her own at home business.

After two years she had enough money, quit the day care business and went to school full time.  On graduation, she started a job paying $18,000 a year (about $42 K in 2015 dollars).  In just a few years, hopping jobs for more and bigger opportunities, she was making more than hubby.

With more income, they decided to get out of the declining neighborhood.  Their timing was fortuitous and they were able to sell their $25,000 home for $45,000.  They had learned their real estate lesson and choose a home in a growing and desirable neighborhood this time.  Unfortunately, interest rates were near all time highs when they decided to leave that first home.

 

The march upward in networth.

The Boomers continued to live off of Mr. Boomers salary and saved every penny Mrs. Boomer earned.  They didn’t increase their lifestyle, and so they were able to greatly increase their savings. Mrs. Boomers career took off, offering opportunities for stock options, bonuses, employee stock into a retirement fund and ever increasing responsibility and income.  Mr. Boomer finally advance in his long held Federal Government job, paying in each payday to an actual for-real pension fund.

Soon their college funds were full, their offspring graduated and out in the world on their own and their net worth grew.  Mrs. Boomer played catch up with retirement savings in a 401K.  They paid off their mortgage early,saving years of interest payments.

It seemed that the money just kept rolling in.  Once they had enough saved for yearly expenses and emergency reserves, they began to invest in stocks, bonds and mutual funds.  They reinvested all dividends and capital gains and put new money into the market using dollar cost averaging.  All the while, they worked on getting to their target asset allocation – typically using new money instead of selling and buying.

 

Fast forward to now.

The Boomers are retired, living off Mr. Boomers Federal Government pension (and feeling pretty lucky to have one of the few pensions still around).  Their assets continue to grow (and sometimes shrink) with the market, and their net worth has continued to grow even without salaries to pump into it.

 

So, what did they do right?

• They gratefully accepted help from their parents to get an education (and scholarships) so they had no college debt.
• They learned not to load up with expensive credit card debt early in life.
• They were forced to learn to save (and yes their parents did drill it in as well) just to meet expenses and it became a lifelong habit.
• They (eventually) looked for career opportunities that not only were interesting but also paid well.
• They did not raise their standard of living when new money came into the household.
• They worked hard and smart at their careers to advance and earn more.
• They (eventually) made good decisions about retirement savings.
• They bought real property to build equity.
• They didn’t continually upgrade their real property, but did maintain it.
• They saved and saved and save.
• They didn’t risk current finances to fund new schooling.
• They found a way to maximize income for the wife at home with a business.
• They learned how to invest in the markets and did so with a plan and regularity.

And what did they do wrong?

• They didn’t pick college majors (initially) that would provide good income.
• They were impulsive in life choices (such as joining the Army and having babies early), instead of laying down goals and agreeing to them together.
• They didn’t do their research when embarking on their first home buying experience.
• They waited too long to buy their first home.
• They didn’t take advantage of home buying financing on their first home.
• They stayed in a less than desirable neighborhood too long and bought in a better neighborhood when interest rates were double digit.
• They saved for college for kids before retirement for themselves.

And how did they get lucky?

Any one may be beset by unfortunate circumstances outside of their immediate control.  The Boomers were lucky in that:

• Their parents provided college funding and some financial assistance.
• Their parents taught them the value of saving and hard work.
• They were both healthy.
• Their children were born healthy and had no serious health issues.
• Neither lost their jobs.
• Technological advances provided a lucrative career opportunity for the wife with minimal need for retraining.
• The stock market rallied after they started investing in it.

How about you all? What did (or would) you do differently than the Boomers?

Share your experiences by commenting below! 

***Photo courtesy of https://www.google.com/search?site=imghp&tbm=isch&q=net%20worth&tbs=sur:fmc#tbs=sur:fmc&tbm=isch&q=money&imgrc=vN2V0qwbyYhNnM%3A

Should You Use A Short-Term or Regular Inflation Protected (TIPS) Bond Fund For Your Portfolio?

For several years now, one of the topics on my list of research topics has been to evaluate the potential of several “new” Vanguard index mutual funds for inclusion to my investing portfolio.

Of course, these funds are not necessarily new (several have been around for multiple years now), but they are NEW to me. Listed below are the current Vanguard mutual funds I use to make up my investing strategy:

1. Cash – Various online high yield savings accounts
2. Vanguard Short Term Bond Index (MUTF:VBISX)
3. Vanguard Inflation-Protected Secs (MUTF:VIPSX)
4. Vanguard Total Intl Stock Index (MUTF:VGTSX)
5. Vanguard Emerging Mkts Stock Idx (MUTF:VEIEX)
6. Vanguard Total Stock Mkt Idx (MUTF:VTSMX)
7. Vanguard Small Cap Index (MUTF:NAESX)
8. Vanguard Small Cap Value Index (MUTF:VISVX)
9. Vanguard Value Index (MUTF:VIVAX)
10.Vanguard REIT Index (MUTF:VGSIX)

Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIPX) Features

The first Vanguard fund on my list to evaluate is a shorter maturity version of the regular-maturity TIPS fund I currently invest in (Vanguard Inflation-Protected Secs (MUTF:VIPSX)). Mike from Oblivious Investor gives a good description of the short-term fund and the differences between the regular TIPS option.

Listed below are a few key features/details of the Short-Term Fund:

Maturity/Risk

This fund, the Vanguard Short-Term Inflation-Protected Securities Fund, has been around since October of 2012. It features an average maturity of around 2.4 years, much shorter than the regular TIPS fund, which features ~ 9 year average maturity.  As you would expect, the short-term TIPS fund carries much lower risk, and also lower return, than the regular TIPS fund.

Cost/Fees

With a low 0.20% expense ratio and no purchase or redemption fee, the expenses of this fund can be considered approximately equivalent to the regular TIPS fund (which also has a 0.20% expense ratio).

Inflation Protection

According to a Vanguard white paper and also several commenting threads in the Bogleheads forums, the consensus is that the Short-Term TIPS fund provides better tracking/protection against inflation. This is due to the fact that the shorter-term TIPS have less interest rate fluctuations.

 

Should The Short-Term TIPS Fund Be Incorporated in To Your Portfolio?

Overall, in researching this question, the answers have been quite mixed.

The general consensus is that this is a “small potatoes” decision, meaning that you will likely be just fine in either a regular maturity or short-term TIPS fund. Accordingly, I have come across good reasons to utilize the short-term TIPS fund, and good reasons to stay put in the regular TIPS fund.

Convincing Reasons to Switch to the Short-Term TIPS Fund

• If your primary goal of holding TIPS is to protect against pure inflation risk, than as mentioned above, the Short-Term TIPS fund will do this better for you.
• If you are older and don’t want to take on very much risk.
  • For example, if you’re close to retirement, and you want to hold TIPS as part of your fixed income holdings, but prefer to have less fluctuation.

Non-Convincing Reasons to Switch to the Short-Term TIPS Fund

• Shortly after the short-term TIPS fund came out, Vanguard replaced its regular TIPS holdings in Target Retirement Funds with the short-term equivalent. “And if Vanguard does it, you should do it too!” 🙂
  • To me, Vanguard making this switch is definitely a good reason to consider its inclusion in to a portfolio, but it’s not a good enough reason to blindly make the switch.
• You are trying to “time” and/or predict interest rates and inflation levels in the future.
  • To me, many studies have shown that even highly trained economists are not very good at all at predicting the future.
• You invest in short-term bonds for the other portion of your fixed income allocation. And therefore, you should match the short-term duration accordingly with TIPS.
  • This might make sense if you were closer to retirement. However, as mentioned in this Bogleheads thread, regular TIPS may actually have less overall risk than equivalent-maturity (~9 years) government bonds.
    • Because of this, it seems logical for folks further from retirement to use regular TIPS, even if they use short-term bonds for the rest of their portfolio.
    • For example, Rick Ferri recommends that folks saving for retirement use regular TIPS.

 

What is The Purpose of TIPS In Your Portfolio, Specifically?

So, having heard the reasons for and against the use of short-term TIPS, it seems like the most efficient path forward to determine what is right for you is to ask yourself, “Why did you add TIPS to your portfolio in the first place, and what is their specific purpose?”

As described in a previous post where I performed a historical backtest (using a regular-maturity TIPS price data set) to help determine the most efficient asset allocation to TIPS, I invest 25% of my fixed income asset allocation in TIPS. The rest is in short-term bond index funds and cash accounts. This 25% level was determined because it gave me the most diversification benefit, and highest return/risk ratio.

Sure, having protection against inflation is great, but it was almost a secondary purpose. Since I am ~35 years from retirement, I am able to take on a significant amount of risk, as shown by my overall asset allocation of 70% equity / 30% fixed income.

Typically, when asked what the purpose of my fixed income allocation is, I say that it’s primary purpose is to provide stability/security. That is why 75% of this fixed income allocation is made up of very low yield/low risk short-term bonds and cash accounts. Because of this, it doesn’t make me as concerned about the remaining 25% fixed income allocation being invested in a regular TIPS fund, with slightly higher risk, vs. a short-term TIPS fund, with lower risk.

Further, I also make it a policy to have my investing decisions made by life changes and/or data. Since short-term TIPS are a newer phenomena, I haven’t been able to find a long-term historical backtesting data set (similar to this one by Bogleheads) in order to get a quantitative feel for the differences in risk and return between short and regular term TIPS.

Therefore, with all of the unknowns, mixed opinions, and lack of strong current evidence for a change, I am planning to stay put being invested in the Vanguard Inflation-Protected Secs (MUTF:VIPSX). 

How about you all? Do you currently invest in a TIPS mutual fund? Is it a regular maturity fund, or shorter-term?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/lendingmemo/11697736305/in/

Combining Your Personal Finances For Marriage

I remember once reading a book describing marriage and the joining of two people’s finances, and they summarized the process as “1+1 = 1.”

Personally, I took this description as having two meanings, one figurative and one literal.

• On the figurative side, I took it to mean that there might not be a set and/or mathematical approach to combining personal finances for marriage (i.e. it’s likely to be a little different for every specific situation).
• On the literal side, I took it to mean that there really is no way to maintain two completely separate finances during marriage, no matter how hard you try.

So, having established this, I wanted to share with you all how my wife and I (got married in Sep 2014) have, in my opinion, successfully combined our finances over the past ~ 1.25 years. My hope is that a couple of the lessons learned and strategies can potentially help you in your current or future marital finances. Enjoy!

 

Step 1 – Put a Legal Agreement In Place (Pre- or Post-Nuptial, often called a “Pre-Nup”) If There Is Significant Financial Inequality Coming In To The Marriage

For young folks looking to get married right out of college or graduate school, it is often the case that both individuals are living paycheck to paycheck, have debts, and don’t have any significant savings to report. If this is the case, and both individuals are on approximately equal financial terms coming in to a marriage, a pre-nup is nice to have, but not crucial.

However, if one person has significantly more savings than the other, or even if one person has large amounts of debt whereas the other is debt free, it’s a good idea to put some sort of agreement in place.

For my wife and I, a pre-nup made a lot of sense, so we proceeded to obtain one.

Online Free Template or Lawyer?

Being the cheapskate I am, I first looked online for free template documents for pre-nups so that I could save on lawyer fees. However, once I read that agreements drawn up individually (without the help of legal counsel) often don’t hold up in court, I decided it wasn’t worth the risk, and proceeded to engage legal counsel for my wife and I.

One thing we learned, which we didn’t know at first, was that each party going in to the agreement has to have their own separate legal counsel in order to maintain objectivity. Of course, this also increases the cost, but is a move that makes sense. In the end, I obtained a family lawyer referred to me by my accountant, and my wife obtained a lawyer that we knew through a local social group and other friends.

With all the back and forth between lawyers, my wife, and myself, it took longer than we expected to get the agreement finalized. When everything was signed, it was actually a POST-nuptial agreement, meaning that we signed it after our wedding and honeymoon. However, according to my lawyer, he said that a post-nuptial agreement is still perfectly legal and enforceable. 

What does the post-nuptial agreement provide?

In a nutshell, our post-nuptial agreement makes it so that all debts and assets are SEPARATE, unless we make a conscious decision to make it a joint account and put both our names on it. What this means is that all IRAs, 401ks, savings accounts, checking accounts are separate, except for the ones that we created to be joint accounts.

How much did this whole process cost my wife and I? 

In the end, the cost was a little more significant than I expected, but that was only because I didn’t realize all of the complexities and considerations that go in to this type of document. My family lawyer charged the majority of the total cost (around $2,200), since he drafted the document. My wife’s lawyer gave us an awesome “family and friends” rate, which took the cost up to around $2,500 total.

 

Step 2 – Pay Off Any High-Interest (Credit Card) Debts

Remember that marriage finance equation I mentioned before, where 1 + 1 = 1? It very much applied in our case, as our marital agreement made it so that I wasn’t legally responsible for my wife’s existing credit card debt. However, let’s get real here! No matter how much you want to deny it, YOU are marrying that credit card debt too!

In actuality during marriage, our paychecks each month will be combined, and the joint money will either go to 1) savings/spending or 2) paying the monthly credit card balance, which is a terrible use of money since a lot of the money goes to pay interest, not principal.

So, if one party of the marriage has a some cash sitting an account, it’s only logical to use this cash to pay off the other person’s credit card debt. This is exacting what was hard for me to eventually come to terms with during the joining of our finances. However, it was definitely the best financial decision.

 

Step 3 – Set Up Joint Accounts Needed

For my wife and I, it made a lot of sense to have at least a couple joint accounts. We decided to have 1 – joint checking account, and 2 – joint savings accounts. We placed both of these accounts with Ally Bank online, since they offer some of the best interest rates around and other favorable terms.

For us, the way we operate is that we each receive our income in to separate Paypal and Bank of America checking accounts at first, and then transfer our remaining money to the joint checking account for paying bills, savings, etc.

 

Step 4 – Setting Up Your Investment Strategy

Per our post-nuptial agreement, my wife and I maintain separate accounts for the ones which are not specifically “joint” and have both our names on them. Because of this, we maintain and track two sets of 70% equity / 30% fixed income asset allocations, separately.

• For my wife, she does not have any desire to be actively involved in managing her asset allocation. As such, we use a low-cost lifecycle Vanguard index fund, called the Vanguard Target Retirement Date 2025 fund. It maintains a 30% fixed income, 70% equity asset allocation for her, so she doesn’t have to worry about rebalancing.
• For me, I love tracking my asset allocation and rebalancing when needed, so I take a more active approach to passive index fund investing and invest in individual Vanguard index fund for the various share classes, bonds, and international markets. You can read more about my investing strategy here.

From there, we then try to invest an equal amount of contributions to each of our separate IRAs, 401ks, etc accounts throughout the year.

Next Steps

So there you have it, the 4 “initial” steps my wife and I took over the past year or so in order to get our finances combined.

For next steps, I do need to start doing a better job of reviewing my Value Based Financial Planning and goals, as we have been so busy over the past year with the wedding, graduating, new job, baby, and moving to Colorado that I haven’t been able to do that as much as I’d like. Of course now, I will need to involve my wife in that process. Should be fun!

How about you all? What were the main steps / barriers / hurdles / challenges you faced when combining your finances for marriage? 

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/kumon/43128198/

5 Money Saving Tips That Might Actually Cost You More (And 3 That Don’t)

The following is a guest post. Enjoy!

Who doesn’t love to save money? It’s not only nice to keep extra cash in your pocket, but there is always something thrilling about getting a great deal.

In fact, the thrill of the deal is what drives many shoppers to go to extremes, spending hours clipping and sorting coupons, researching bargains, and driving all over town to get the best prices. Do the extremes really pay off, though? Do these drastic measures actually save money?

The truth is, not always. In fact, many of the money saving “tips” that get repeated over and over again don’t save the average shopper all that much. In fact, if you follow these ideas, you might actually end up spending more in the long run.

1. Only Using Coupons on Items You Need or Use Regularly

On the one hand, this advice makes perfect sense: There’s no value in buying an item that costs more than your usual brand just because you have a coupon, or buying something you wouldn’t otherwise, just to use the coupon. However, if you score a high value coupon on an item that happens to be on sale, that’s a good opportunity to try something new without wasting money.

2. Buying in Bulk

Again, there are times when this makes sense. However, all too often shoppers score an incredible bargain, only to find that they have to toss some (or even most) of their purchase because it’s past the expiration date or no longer fresh. It might seem wasteful not to take advantage of a great deal, but it will be even more wasteful when you have to throw away the stuff you bought.

3. Only Shopping Where You Can Double and Triple Coupons

If you’ve got a high-value coupon, getting it doubled or even tripled at the checkout is a great deal. However, just because a store doesn’t increase the value of coupons doesn’t mean you can’t get a great deal. Using the same coupon at a store that has lower prices or sales on that item can save you just as much, if not more. So if you avoid certain stores because they don’t double coupons, take another look.

4. Only Paying Cash

Consumers are often told to avoid using credit cards, but using a credit card and then paying it off right away can actually be an effective savings technique. Many cards offer rewards, including cash back, points, or airline miles, that can save money on later purchases. Not to mention, the purchase protection offered by many cards is usually superior to store protection plans, meaning you don’t have to pay extra to cover a big purchase. So don’t discount credit cards entirely, but use them intelligently and save money.

5. Shopping Only at Discount or Dollar Stores

Discount and dollar stores are great if you are looking for trinkets to keep the kids busy, party supplies, or gift wrap. They aren’t so great for deals on groceries or health and beauty items. Not only is the quality often questionable, but most discount stores don’t have the same deals as other stores or allow customers to use coupons or take advantage of rebates. In many cases, you’ll end up paying just as much or more as you would anywhere else.

Three Tips That Will Save You Money

For all of the bad advice out there, some common money saving tips will actually keep your cash in your wallet. Remember these pointers when you’re shopping:

1. Look for coupon codes when shopping online. If there is a place to enter a code at checkout, there is probably a code somewhere online that can save you money. Search for “store name coupon code” online or visit a website that lists codes and deals to find money-saving offers.
2. Borrow or barter when you can. Need an expensive tool to complete a project or a particular type of pot to cook Christmas dinner? Ask your friends and family if they have one you can borrow. Don’t buy items you won’t use more than once if you don’t have to. Also, try bartering for things you need. For example, try offering your contractor your expertise in Web design in exchange for some work on your home. You might not get the whole bill covered, but you can save some money.
3. Monitor sales. Certain items traditionally go on sale during certain times of the year. Do your research, and time your purchases so you can score the lowest possible prices.

Saving money does require some legwork, but you don’t have to be an “extreme couponer.” Pay attention to prices, use coupons intelligently, and look for alternatives, and you’ll still enjoy the thrill of the deal.