Category Archives for Saving Money & Frugal Living

Invest Money to Further Your Education

In yesterday’s post about “play money” (My Money Blog – Play Money), I talked about the monetary allocation system that T. Harv Eker suggested in his book (see link below for book at Amazon), “Secrets of the Millionaire Mind.”

As we saw in the Play Money post, T. Harv recommends that an individual invest 10% of her take-home pay towards furthering her education or that of her family. But, what exactly does this mean? What types of educational outlets could you invest your money in? These questions will be the subject of today’s post.

Why to invest in your family’s education?
The reason to this is simple. Most financial texts say that your income/earning potential is your greatest asset. However, I would disagree and extend that statement to read that your mind is the single most important asset you have. This is due to the fact that it drives your earning potential; teach yourself or your family new skills, and your earning potential will increase.

How much to invest in your education?
Now, let’s get a more concrete idea (in lay person terms) of how much we are talking about when we say 10% of your take-home income.

For example, if your gross salary is $5,000 per month and we assume you pay 28% taxes and contribute 15% of your income to your 401k pre-tax, this would give you a take-home pay of $3060 ($5000 – $750 to 401k = $4250 – 28% taxes = $3060 take home pay).

This translates in to $306 of money to invest in your education (10% of your take home pay). OK, great! Now we have a number we can grasp a little bit better.

So, I’ve got $306. How should I spend it?

Ways to Invest in Your Family’s Education

• Pay for your child’s college education (if they are at that time in their lives)
• If your children are younger, open up and/or fund a tax-sheltered educational savings account (529 savings account described in this post: My Money Blog – Give Your Children a Financial Head Start in Life).
• If you are disciplined enough, use the money to buy and sell individual stocks with the specific goal of teaching yourself investing in the process. This should not be done to MAKE money, but only to learn. If you make money, great! But, don’t expect it.
• Pay to take a seminar/workshop with a professional organization in your field of work. For example, in my field of pharmaceutical engineering, ISPE is a powerhouse of knowledge and professional development. ISPE.org – Education and Training has many details on the professional training classes they offer.
• Take a seminar/workshop on developing “soft” business skills – how to work with people, how to sell your ideas better, etc.
• Buy the foreign language version of a movie you know by heart, and try to learn a new language. Or, just sign up to a take a night class in a foreign language.
• Take speed-reading classes to enhance your reading effectiveness
• Since I don’t have children, my favorite way to invest in my education is to buy finance/real-estate, business methodology, Spanish language, and biotechnology related books used from Amazon. See link below for special offers.

Naturally, this list is not all-encompassing, and it should be adapted to best suit each individuals’ needs. The key takeaway that I would like to drive home for you all is to always be thinking about actively developing your skills in your daily lives.

As always, please let me know if you have any questions.

Keep on learning!

Jacob

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Cost of Living Comparison and Calculator

As you may or may not know, I am currently in a 2 year rotational program with the manufacturing division of the company for which I work. Essentially, the program consists of three 8-month rotations in different functional areas of the company, with the idea of giving you a well-rounded view of how things work. It is truly a great thing! And one that I am a big fan of!

After the 2 years of rotating is over, the members of the program will then find full-time, permanent positions within the division. These permanent positions can be anywhere within the company. However, most of the time, it is at one of the New Jersey, Philadelphia, Durham, North Carolina, or Virginia locations.

Given the options available, I thought it might be interesting to look at how the cost of living compared between the different locations. Additionally, it gives me the opportunity to share a very useful tool with everyone: cost of living financial calculators.

The cost of living calculator that I enjoy using can be accessed using the link below from BankRate.com

BankRate.com Cost of Living Calculator

Plugging in my current income and the possible work locations, I found the following results:

• You would need a 23.52% increase in salary to maintain the same standard of living moving from Virginia to Philadelphia.
• New Jersey and Philadelphia have approximately the same cost of living.
• You would need a 22.21% increase in salary to maintain the same standard of living if you moved from the Durham, NC area to the Philadelphia/New Jersey area.
• You would only need a 1.07% increase in salary if you moved from Virginia to the Durham, NC area.

This is very interesting information, and it is definitely something to keep in mind when you have options of where you can work. Naturally, there may be jobs that are only available in certain locations, so it won’t apply all of the time.

Please let me know if you have any questions!
Keep on learning!

Jacob

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How Much Does A Kid Cost and Can I Afford One?

This post comes as a result of a recent request from a co-worker of mine, and being the finance nerd I am, I couldn’t resist investigating it!

The question is, “How much does a kid cost to raise and how do you determine if you can afford one?”

Ok, so turns out, it really is two questions. Let’s tackle each one individually:

How Much Does Raising a Child Cost?

After studying several estimations of the cost of a child from different resources, I found that the cost of raising a child from age 0 to age 22 can range anywhere from $250,000 to $500,000.

Since this was such a wide range, I then began looking for a tool that would allow me to calculate the cost of raising a child, given an individual’s specific conditions/goals. The best thing I found was the financial calculator at the link below.

Cost of Raising a Child Calculator

By assuming that a child is born this year (2010) in the northeastern USA to a two parent home with a annual income of >$64,000 and plans to go to a public college, the tool calculates a total cost to raise the child of $348,418.

Out of curiousity, let’s just see what happens when we leave all of the variables the same, except that we’ll change the location from the northeast to the southern USA. The resulting cost then comes out to be $340,552.

Note: the topic of cost of living differences between locations will be the topic of another post. However, to wet everyone’s appetite for now, let’s look in to this specific case a little further.

At first glance, the financial difference between where you decide to raise your child doesn’t appear to be that great. However, in the interest of fun and looking out over the long-term, let’s apply the miracle of the Time Value of Money to the equation. Completing the subtraction, the difference comes out to be $7,866.

Now, let’s assume assume that a couple has a child at age 26 in the South, raises the child for 22 years, at which time they are 48 years old. They then place the $7,866 that they saved by living in the South in to their IRA, and invest it at 12.4% return until retirement at age 65. By applying the equation of compound interest, this one lump sum of approximately 8K grows to $57,382.73 by retirement. Quite a big sum! This is just food for thought for deciding on your relocation options for having a child.

Can I Afford A Child with My/Our Current Income?

According to the MSN article below, it appears that the total yearly cost of raising a child only fluctuates by around $1000 from year to year. So, for the sake of analysis, we are just going to assume that the total cost of $348,418 (using total child cost for the Northeast) is distributed equally to each of the 22 years to raise the child.

Yearly Cost Breakdown of Raising a Child – MsnMoney.com

Performing the division, this results in an annual cost of  $15,837, or $1,320 per month, or $329 per week.

Now that this has been broken down in to terms that humans can grasp, the reality begins to sink in. Do you have an extra $1,320 per month?

So, as you begin to think about this possibility given your personal financial situation, I will do the same thinking out loud below.

Currently, the income that my bank account sees each month after my fixed housing expenses are taken out is $1700. Normally, I spend approximately $700-$1000 per month on living expenses (food, entertainment, transportation, etc). This only leaves $700 for a child. Big surprise right? In my situation, I would have to do some serious rearranging of my financials to be able to support a child.

So, I’ll leave you with the question…Can you afford a child?…..

Keep on learning!

Jacob

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Buying a New Car vs. a Used Car

Two well known car buying tips are that 1) they are indeed not investments, but expenditures and 2) their value depreciates greatly the minute they are driven off of the lot.

But, the question remains, if you can afford either a new or used car, which should you buy?

To help us figure out this questions, let run through a couple quick examples cases – Bob and Larry (both 30 years old).

According to the article below, in the first year of ownership, a new car can lose up to 20 percent of its value, and by the fifth year, your car will depreciated by over 65 percent. On average, the life expectancy of a new car is 7 or 8 years.
Depreciation of a Car, Years 1-5

Bob’s Situation
Bob only buys new cars. So, let’s assume that he buys a $20,000 fully stocked Honda Accord every 7 years, as the website states.

Larry’s Situation
Larry only buys used cars. In fact, he is so particular, that he only buys 1 year old fully stocked Honda Accords. Applying the 20% depreciation rate during this first year and assuming for simplicity that his Honda Accords were originally worth the same $20,000 price that Bob’s are, Larry will buy a $16,000 Accord every 6 years (still assuming the 7 year life of the car).

Let’s now assume that this pattern continues until the guys retire at age 66. At the end of this period, Bob has bought 6 new Accords, and Larry has bought 7 used Accords. Suming up the totals for each person, it can be seen that Bob has spent 120K on new cars, and Larry has spent 112K on used Hondas.

This is a difference of $8,000, or an average of $222 per year that Larry saves. This amount is not overly impressive, especially when you take in to account that Larry will have slightly increased maintenance costs with the car being used.

However, if we look back in our example, we are assuming that Larry actually can afford a new or used car, but just opts to purchase used. So, let’s assume that each year he buys a car, he takes the $4000 that he saves by buying a used car, and invests it in his retirement account at an interest rate of 12.4% until retirement at age 66.

What does the total come out to now? The result is much more impressive. Larry will have $471,588.79 in his account due to the miracle of the Time Value of Money!

What’s the morale of this story? Well, if you can find a good used car, and don’t mind the extra headaches of getting it repaired a little more often, your pocketbook will sure benefit!
Keep on learning!

Jacob

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Build Your Credit Score From Nothing – Part 4

How to Review Your Credit Report
The key here is to look for anything that is inaccurate or that might indicate identity fraud.

• Ensure that all of your accounts are in “Satisfactory Account” status. If they are not, review those and make sure you agree and can remember the reason stated for the account not being satisfactory.
• Review the past due amounts on loans and credit cards you have to make sure they are accurate.
• Review the inquiries that were made to your credit report and ensure that no unauthorized access occurred.
• Monitor the “closed accounts” section of your report. Frequent closing of accounts can negatively impact your credit score.

Well, that’s all! You did it! You built your credit score and are on the road to maintaining it for life! Congrats!

If any one has any questions about any of these credit building methods, feel free to post them to get some conversation going. It has been a pleasure delivering these techniques to you.

Review of Amazon Prime Program

Saturday Greetings to Everyone!

I have received several requests recently to investigate and discuss Amazon.com Amazon Prime Program. To tell you the truth, before doing a detailed investigation in to what this program offers, I didn’t think too much of it. I thought it was just another way for me to pay Amazon $80 all at once for a new program.

However, after looking over my current shopping pattern at Amazon and what the program offers, I immediately realized that I needed to sign up for this. There are two ways that I wanted to explain this program to everyone, so I’ll detail those one at a time in a moment.

First, let’s take a look at what the Amazon Prime Membership gives you.

• Unlimited FREE 2-day shipping
• The ability to upgrade to one-day shipping for only $3.99 for domestic US purchase destinations
• No minimum order size.
• You can even share your membership with someone else in your household (they just have to know your birthday).

Start Your FREE Three Month Amazon Prime Trial

How Many Purchases Would I have to Make to Recover My Investment of $79?
2) As you all might have guessed, I am an avid Amazon user/buyer. You simply cannot beat the prices and the ease of finding things on the site.

So, here’s the approach I took at determining if this program is right for me. I went on the Amazon website, and in my buying history, I found that I bought 20 items in the past year on Amazon.

The total I paid for shipping for all of these items was $101. Wow!! That’s a lot more than I would have thought!

So, for me, the next thing I proceeded to do was start my free trial. I’m going to evaluate if I like it or not, and then decide to keep it after the 3 month period.

How should you proceed? I would do the following: 1) Sign up for the trial – there’s nothing to lose 2) After that, go through your Amazon account, evaluate how many items you bought over a year’s time, add up the total shipping, and see if that comes in over $79 per year.

Click Here to Start Your FREE Trial of Amazon Prime

Keep on learning!

Jacob

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Aldi vs. Wal-Mart vs. All the Rest

As you all might know, the Northeast isn’t too fond of Wal-Mart. Furthermore, they are less fond of putting Wal-Mart Supercenters every 4 miles around the neighborhoods. As a result, the nearest Wal-Mart Supercenter is 10 miles south (so about 30 min in the Northeast traffic) as opposed to in Virginia and Arkansas where I last lived, where there were two Supercenters within 3 mi of my house. Irregardless of your opinion of Wal-Mart, the store, because of its influence, can be the source of some interesting comparisons.

So, with the Wal-Mart Supercenter 30 minutes away from my house, I have been going to the local grocery stores (Genuardis, Giant, Weigmans, etc) to get my food, and just going to the local regular Wal-Mart for household items.

However, tonight, I decided to give Aldi a try. They have a store that is only 2 minutes from my house, and I hadn’t been to one since sophomore year of college.

When I arrived, I quickly realized that I was totally unprepared because everything about the store translates to savings for the consumer.

First, when you park in the parking lot, you notice that there are no stray shopping baskets taking up spaces. Why is this? Because you have to place a quarter deposit in to the shopping basket in order to get a shopping cart. You get the quarter back when you return the cart, but this very act eliminates numerous jobs that are occupied at all other grocery stores and Wal-Marts across the country. Genius!

Second, at the entrance, it says in big bold print that they don’t accept credit cards or checks!!! haha Amazing! However, they do accept debit cards or cash. This just further decreases their expenses.

Third, there are no shelves in the store. The goods/products are merely stacked in the boxes they arrive on. What does this mean? You got it. You don’t need a Wal-Mart representative whose sole job is dedicated to negotiating where the Pringles can will sit on the shelf. Genius!

Fourth, Aldi almost absolutely (with only a few minor exceptions) sells their private label that they themselves distribute. This would be the same if you could imagine Wal-Mart only selling their Great Value label. Genius!

Fifth – the number of employees. The entire time I was there, I only saw one Aldi employee, and that was the one guy checking people out.

Sixth, Aldi doesn’t refrigerate items that don’t need to be refrigerated (This includes certain lettuce and other vegetables that don’t need to be kept cool).

Seventh – the check out process. Like I said before, you can’t use a credit card, which further cuts down Aldi’s costs. Next, you have to purchase your own bags or bring your own. Finally, the cashier does not bag or containerize your items. You have to do that yourself.

So, with all these potential areas for savings, how does Aldi stack up? Well, according to the article at the link below, they are 29% cheaper than Wal-Mart and 86% cheaper than the local grocery stores. I now believe this, having taken a trip there.


Grocery Price Comparison Article

The following is an excerpt from the article – “Here is where Aldi really shines, with rock bottom prices even cheaper than Walmart’s store brands. Nearly 29% cheaper than Walmart and 32.5% less than Target. The two supermarkets were 86% and 76.3% more expensive on these private label products than Aldi.” 

Looking over my receipt today, here are several of the purchases that amazed me the most:

• 10 lbs of potatoes – $2.50
• Tropical Fruit Salad – $0.79 – I know this is $1.00 or more at Wal-Mart
• 5 lbs of lasagna – $2.69 – wow!
• 4 lbs of fuji apples for $3.12

Given the evidence, what’s the bottom line?


Aldi definitely saves you money if you are willing to work a little extra for your groceries and pass up getting “name brand” items. However, in a tough economy, it just might be the thing to do!


Keep on learning!


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Find and Eliminate Your Latte Factor – Save Big Money

In this addition of My Money Blog (Yes – That’s right, I’ve been watching too many episodes of MythBusters lately on my instant Netflix cue), we’ll discuss a topic that I learned in the very first book I ever read about personal finance and frugal living, David Bach’s “Automatic Millionaire.” I would definitely recommend you order a copy of this book used from Amazon. I’ve provided the link below if anyone is interested! You can’t beat Amazon – $0.94 for a great book! I love it.

One of the best topics David introduces in this book is the idea of a “Latte Factor.” The idea behind this is that for people that buy a latte from Starbucks everyday for $3, this compounds to a lot of money over time. The same can be said for all sorts of luxury purchases made everyday. The article from MSN below summarizes some of these additional purchases to think about.
10 Expenses that Add Up Fast – MSN Money Central

So what’s the big deal? Why is spending such a little amount of money every day a bad thing? Doesn’t it enhance my life? Well, the bad news is that if this money was instead saved and invested for the long-term, the miracle of compound interest will kick in, and you will have a lot of money by the time retirement comes.

The website from MSN gives 10 examples, but let’s take my two favorite ones because, well, I’m writing this blog, and get to do what I want to do. 🙂 Just kidding.

Finding Your Latte Factor – Buying Coffee and Lunch Every Workday

According to the MSN website, the average cup of brewed coffee costs $1.38 (this seems a little low, but OK). This would translate to $360 per year to buy a cup of coffee every workday. The average lunch during the workweek costs $9 (this seems a little high, but I just spent $11 on lunch today for a sandwich and salad at my company’s cafeteria because I forgot to pack my lunch). This would translate to $2,340 per year to buy lunch every workday.

Adding these two numbers together results in a sum of $2,700 per year for lunch and a cup of coffee. This is getting to be a lot of money!

Applying the miracle of compound interest, let’s assume you start work when you are 23 y.o, work until you are 65 y.o, and take the $2,700 you save by NOT buying coffee and lunch each day at work and invest it in a small cap value index mutual fund with a historical return of 12.4%.

Doing the math, this translates to a nest-egg of $2,930,299.20 when you retire at age 65. Wow!

What’s the take-home message here? Well, first, probably you should try to bring your lunch more and brew your own coffee at home! But, honestly, it’s not that you should eliminate all purchases in your life, but just to be mindful about recurring ones that you may not think are costing you that much each day.

Keep on learning!

Jacob
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Build Your Credit Score From Nothing – Part 2

In Part 1 of this series, I walked everyone through how they can give their high-school age child a financial headstart in life by getting them their own student credit card at an early age and begin accumulating a credit history. See the link below to that post if you missed it.

Part 1 – Build Your Credit Score From Nothing

In Part 2, I’ll discuss another very important and easy way to build your credit history – simply paying your for you housing in your name. It seems simple, but many things can get in the way of you doing this correctly.

So, let’s take me as an example because I am someone who missed this opportunity while I was in college.

For the first year of college, I lived in the dorms on campus. Because everything is paid directly to the univerisity and included in one lump sum, there were no utility, phone, or internet bills in my name to build credit history. During the 2nd – 4th years of college, I lived in a house that one of my friend’s family owned. To make things easier, I paid his family a lump payment each month that included utilities. You guessed it! No bills were in my name, and therefore, no credit history.

So, as sad as it is, I made it through college without ever paying one bill in my name. Amazing! This exact same situation can also happen to people who have their own apartment if the bills are placed in their parents name and mailed to an address half way across the state so that the college student never even sees it!

What’s the moral of the story here?

Rent an apartment or house in college, get the bills placed in your name (not your roomates, not your parents, YOURS!), and accumulate a generous amount of credit history before you are even out in to the real world!

Keep an eye out for Part 3 of this series – coming soon. Click on the link below to subscribe to my blog and have it sent to you when it is posted.

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Keep on learning!

Jacob

Go To Build Your Credit Score From Nothing – Part 3 – “Take Out a Small Personal Loan”

Stop Using Cash or Your Debit Card, Make Money