25 Ways I Save Money

Dawn over at Frugal for Life started a great discussion on 25 Ways I Save Money. Here's my list (including a few that I could do a better job at):

1. Pay myself first (have my savings direct deposited from my paycheck into a bank other where my checking account is located).


2. Invest through low-cost index funds.


3. Live close to work to reduce my commute.


4. Use a Health Savings Account combined with a high deductible health insurance policy.


5. Use Peerflix for DVD's instead of Netflix or going out to the movies. (I just posted about Peerflix the other day). Edit: Lately, I've been finding that Peerflix hasn't been that useful.


6. Eat a homemade lunch instead of eating out during the work week.


7. Drink the free office coffee instead of Starbucks. Check here for a post on how much this could save you over 10 years.


8. Buy in bulk at Costco. Retraction: read this post for why I don't really save by shopping at Costco.


9. Use the dishwasher instead of washing dishes under running water.


10. Review my insurance policies periodically.


11. Buy sodas from the supermarket when they're on sale instead of from the office vending machine (I need to do better on this one).


12. Check bankrate.com for good CD rates (although I don't like to open up accounts all over the place, so won't automatically open a new account for a slightly better rate).


13. Get rid of extra features (like Caller ID and Call Waiting) from phone service.


14. Ask for a better rate (I recently wrote about my experience with this when I contacted my cable company about my broadband service earlier this week).


15. Read books and magazines from the library rather than buy them.


16. Shop very carefully when getting a mortgage and refinancing. I plan on writing more about this soon since I think it's very common to pay a lot more than is necessary. Check out mtgprofessor.com for some great precautions.


17. Keep cars for a long time (we usually keep them 8-9 years, I know I could do better on this one).


18. Buy used toys and books from consignment sales (like ones run by MOPS or sponsored by local churches).


19. Contribute to IRA's.


20. Use 529 Savings Accounts for my children's college savings.


21. Carefully review medical bills and compare to my medical insurance's statements of benefits. I've found that errors are quite common.


22. Pay bills online.


23. Avoid carrying a balance on credit cards.


24. Buy generic or store brand products instead of brand name.


25. Establish long-term savings goals, but break it down into goals that be achieved more often/readily in order to stay motivated. In terms of long-term savings goals, take a look at my post on Googling Your Retirement Number for a quick start at establishing a long-term goal.

Peerflix For Savings Over Netflix

I used to be (twice, in fact) a member of Netflix. I really liked it and I thought the service level was very good. My main problem was that I didn't really watch DVD's often enough to justify it. I'd end up getting a DVD and keeping it for weeks before finally giving up and sending it back unwatched.

About six months ago, I tried a relatively new offering called Peerflix. Basically, you create a list of DVD's that you have (just type in the UPC codes) and create a list of DVD's that you want. When someone wants one of your DVD's, you just print out their PeerMailer (basically two sheets of paper into which you insert your DVD, fold over, and tape to create your own envelope--it even has postage pre-printed on it) and drop it in the mail. It gets mailed straight to the "peer" who requested it, rather than to a central distribution center. Then you'll get PeerBucks (which vary depending on the popularity of your DVD) which you can use to get DVD's off of your want list. In addition to the PeerBucks, you pay $0.99 + postage for each DVD that you receive.

What I like about it is that there's no monthly fee and the disks that you receive are yours to keep for as long as you like. So, I can have a few unwatched DVD's on hand for when I finally get a moment to watch one.

Compared to Netflix, the biggest downside is the availability of DVD's. It can vary a lot and newer, more popular DVD's will likely have a long wait. The way they describe the availability status is also pretty confusing to me. However, in my case, I don't get to watch often enough to be "caught up" anyway, so it's less of a problem.

Edit 9-24-07:  I find that the utility of Peerflix has really gone down and don't recommend it anymore.

It's Worth Asking

I recently was reminded that sometimes you can get a better rate just by asking. On Get Rich Slowly, a recent post on that tip prompted me to give it a try today.
I currently pay $42.95 for broadband internet access through my cable company. Recently, Verizon installed fiber (they call their service FiOS) throughout the neighborhood and has been offering comparable service for $34.99. I've thought about switching but I'm a little hesitant because it also converts my phone to a digital service that I'm not sure is as reliable as my good old analog phone service. I called my cable company and they agreed to match that price for the next 6 months. I may switch later, but at least in the meantime, I'll be saving a little.

E-Loan Offers 5.5% APY Online Savings Account

E-Loan started offering high-yield online savings accounts today. They're offering 5.5% APY on savings ($5,000 minimum) and 5.7% on 1 year CD's ($10,000 minimum). In comparison, today Emigrant Direct is offering 5.15% APY on savings (no minimum) and ING Direct is offering only 4.4% with no minimum.

I've had an ING Direct account for years, but for a 1.1% difference, it looks like it might finally be time to leave. By the way, Nick over at Punny Money has a nice writeup on opening an account at E-Loan.

Archives

Carnivals This Week

Getting To Enough participated in the Carnival of Investing this week, hosted by Free Money Finance. Take a look at the post No Guts, No Glory as well as a lot of other great posts.

Also check out this week's Carnival of Personal Finance, hosted by Canadian Capitalist, where I've submitted Would you lose 10 pounds if someone paid you $2,000, based on my recent life insurance shopping experience.

Starbucks Raising Prices, Time to Kick the Habit?

Starbucks announced that they're raising prices for the first time in two years, by 5 cents a drink. Doesn't really sound like too much, but maybe it's a good time to evaluate how much your Starbucks habit is really costing you.

The average price of a Starbucks Tall Latte is now $2.80, going to be $2.85. Plugging those numbers into the "Benefit of Spending Less" calculator at dinkytown.net (assuming you buy one every work day each month, you'll spend about $63/month), the real cost of that habit is $11,725.00 over 10 years, assuming you had saved and invested the amount instead. Here's the output cut-and-pasted from dinkytown.net:

You could save $11,725 in 10 years.

By spending $63 less per month and investing that amount at 8.50% you could save $11,725 before taxes in 10 years. If you pay taxes on your savings, this amount would be reduced to $9,997 with a combined state and federal marginal tax rate of 35.0%.

Results Summary Monthly savings (from spending less) $63 Total savings before taxes (or tax deferred) $11,725 Total savings after taxes $9,997

Your input values

Input Summary
Monthly savings	$63	Years to save	10
Rate of return	8.50%	Total contributions over 10 years	$7,560
Federal tax rate	25.0%	State tax rate	10.0%

Making the Most of Your Charitable Donations

You probably already know that you usually get a tax deduction for most charitable donations if you itemize your deductions. What you may not have considered is the additional advantage of donating appreciated securities (like a stock that you've had for years but haven't sold because of the capital gains taxes) to charity through a donor advised fund (DAF).

By donating appreciated securities (that you've held for longer than one year), you can avoid the capital gains taxes that you would have paid if you had instead sold the stock and donated the cash proceeds. For example, say you have $10,000 of Google stock that you originally bought for $5,000. Based on this example from the Fidelity Charitable Gift Fund's Calculator, if you donate the stock, your designated charities will end up receiving the full $10,000 and you'll get a tax savings of $2,500 ($10,000 x 25%). If you had instead sold the stock and donated the proceeds, you'd pay capital gains tax of $750 ($5,000 capital gains x 15% (the long term capital gains rate for those in the 25% tax bracket)), so your charities would only get $9,250 and your net tax savings would only be $1,562.50. By donating the stock, you reduce your taxes by an extra $937.50 and the charity receives an additional $750.00.

	Contribute Securities to the Gift Fund	Sell Securities and Donate Proceeds
Fair Market Value of Securities	$10,000.00	$10,000.00
Capital Gains Tax Paid*	$0	$750.00
Charitable Contribution/ Your Charitable Deduction	$10,000.00	$9,250.00
Total Donor Tax Savings†	$2,500.00	$1,562.50

The above would apply even if you're not donating through a DAF but instead donated your stock directly to a charity. So why would you bother going through a DAF rather than give to the charity directly? One reason is the ease with which you can donate appreciated securities. Sure, you could give your stock to your church or other charity directly, but many smaller organizations may not be very well setup to receive such stock and may not have the guidelines in place to be able to properly manage the stock. Do you really want your church or local charity to have to decide when is the best time to sell your Google stock?

A DAF is classified as a charity so you get the tax deduction when you make the donation, but it is really just a holding place or a conduit. Their function is to distribute your donations to "real charities" that you "recommend." Technically, you only "advise" them on whom to ultimately receive your largesse, but in practice, they'll honor your wishes to practically any charity that the IRS would have given you a deduction if you had donated to the charity directly. In the meantime, they usually have several investment options so that your donations will hopefully grow in the meantime.
Since most of the major online brokerages (like Schwab, Vanguard, and Fidelity) have affiliated DAF's, you can usually just donate your stock with a few clicks. You get the deduction for this year and have the luxury of being able to take a little time to decide how to distribute it and can divide it up among different recipients or break it up and distribute it over time.

I'm not a tax advisor so double check with yours before going through with it, but consider this route the next time before you sell a stock with a large long-term gain.

New Website for this Blog

I've moved Getting To Enough to www.gettingtoenough.com. Please visit me there. I'll only be publishing there from now on.

Would you lose 10 pounds if someone paid you $2,000?

In a way, that's the situation I face. I was recently shopping for term life insurance. For me, on a 20-year term life insurance policy the difference between the Preferred1 (cheapest rate) and Preferred2 rates was $100 a year. When I clicked on the underwriting guidelines for the policy, it spelled out their criteria for the different rating groups. Among things like cholesterol, family health history, and smoking, it listed the weight guidelines. It turns out if I lose about 10 pounds I would move from Preferred2 to Preferred1 and save $100/year over the 20 years. Hopefully that will be the extra incentive needed to do what I know I should be doing anyway.

By the way, if you have term insurance and haven't checked rates in the past couple of years, it's worth checking again. Even though you're older than when you first got your policy, it still might be cheaper to get a new one since rates have dropped significantly lately. Sites like insure.com can give you an idea of the rates, though you'll actually need to go through the full application process to get exact rates.

Amaranth Fades or How to Lose $5 Billion in a Week

While hedge funds have been in the news a lot lately as one of the "hot" investment choices, Amaranth hedge funds' recent meltdown serves as a reminder that there's no such thing as a sure bet--even among the "smart money" which had invested over $9 billion as of the beginning of September. It seems that Amaranth placed bad bets on natural gas futures, which dropped sharply in early September.

According to the Wall Street Journal,

At the end of August, trading natural gas, he was up approximately $2 billion for the year. Then [energy trader] Mr. Hunter lost roughly $5 billion, in about a week. His losses savaged returns for Amaranth, dragging its assets under management down to $4.5 billion from $9 billion at the start of September.

Ouch! In checking out their website, I found it more than a little ironic that they had a page on "Our Name" (which in the last day or so is no longer linkable from their home page but is still viewable here). Amaranth apparently comes from the Greek word amarantos, which means "unfading." Hmmm. Looks like a name change might be in order.

Carnival of Personal Finance

Check out this week's Carnival of Personal Finance at FreeMoneyFinance.com.  I especially enjoyed the posts on:

• How to Get Paid to Go to College - A free college education. Sounds great, right? Not if you compare it to the college education I received. You see, I got paid to go to college. I mean, a lot of money. Like, five figures over four years.

• Teaching a Six Year Old to Save - We’ve developed a fairly effective allowance system for our kids. Not only has this system been good math practice for them, but it also gives them a bit of pocket change, and it’s worked wonders when it comes to keeping them form begging for stuff when we’re at the store.

No Guts, No Glory

That's the title of the first chapter in William Bernstein's great book, The Four Pillars of Investing. Here, he begins with establishing the relationship between risk and reward based on a historical review beginning as early as the establishment of the first credit markets more than 5,000 years ago. The relationship between risk and reward, of course, still holds true today. In his chapter summary, Bernstein writes:

1. The history of the stock and bond markets shows that risk and reward are inextricably intertwined. Do not expect high returns without high risk. Do not expect safety without correspondingly low returns. Further, when the political and economic outlook is the brightest, returns are the lowest. And it is when things look the darkest that returns are the highest.

Sounds logical, but a lot of times we don't invest that way. We look for the investment that promises high return without much risk. In fact, Bernstein writes, "the best way to spot investment fraud is the promise of safety and very high returns. If someone offers you this, turn 180 degrees and do not walk--run."

2. The longer a risky asset is held, the less the chance of a loss.

This is one reason why it is recommended that stocks are best viewed as a long term investment. Over time, their return has been above that of bonds (they are riskier, after all), but in the short-term, the risk is even higher than over the long term. I cringe when people ask what stock they should buy with money they don't need for a couple of years (say if they're saving up for a down payment on a home). There's a big risk that even the "safest" stock (even if it's a good long-term investment) could be down over the next couple of years so a money market account, CD, or short-term bond is really the safest bet for such an investment.

3. Be especially wary of data demonstrating the superior long-term performance of U.S. stocks. For most of its history, the U.S. was a very risky place to invest, and its high investment returns reflect that. Now that the U.S. seems to be more of a "sure thing," prices have risen, and future investment returns will necessarily be lower.

Don't forget that 100 years ago the U.S. was considered an emerging market. As our economy continues to mature and become a relatively more stable place to invest, its investment returns should reflect that. Also, as much as we'd like to think that the U.S. economy will continue to lead the world forever, history tells us to expect otherwise. A great place to start with international investing is a broadly diversified foreign fund, like Vanguard's Total International Stock Index Fund (VGTSX). This fund invests in Vanguard's European, Pacific, and Emerging Markets Indexes in rough proportion to their overall contribution to international markets and will change weights over time. A good starting point for many people is to have 20-30% of their stock allocation invested in a diversified international index.

Warren Buffet's Advice

Warren Buffet is one of the most successful investors of our time. So, what is his advice to us non-billionaires? In one of his famous annual letters to investors, he wrote:

Most investors, both institutional and invidividual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

Who's to argue with Warren? For a look at his other letters to investors from other years, click here.

About

This personal finance blog is about what it means to have enough money and the best way to get there.

Although having “enough money” means something different to each person, there are really only two ways of Getting To Enough faster:
1. Decreasing what “enough” means to you.
2. Increasing what you have through saving and smart investing.

Most effort is usually expended on the second item, but the first item can have an even bigger impact on your ability to Get To Enough. This blog will explore traditional areas such as retirement planning, saving, and investing, but will also comment on topics such as behavioral finance and “happiness” research.

What's Enough?

There's definitely more than one way to define what it means to have enough money. One basic way is to define it as "having enough money so that you can maintain your current standard of living without having to work for money."

So how much is that? There are a number of calculators on the web that let you put in a number of different assumptions and come up with some number that represents enough. It's worth trying a few to see how much the answer varies. Just Google "retirement calculator" to try a few.

Here's another quick and dirty way to come up with an approximation in one line using Google. The simplest way to illustrate it is with an example. We'll assume the following for our example:

1. Your household income is $60,000/year.
2. You'll want to retire in 20 years.
   
3. You'll be able to maintain your current standard of living on 85% of your current salary (it's assumed that once you retire, you'll save on things like commuting costs, work clothes, etc.).
4. Your savings will be invested in a typical allocation of approximately 60% stocks/40% bonds.
5. You'll be able to withdraw 4% of your savings the first year of retirement and increase that by the rate of inflation each year thereafter.
   

Using Google's built-in calculator, just type the following in to a Google search box and hit enter:
(1.035^20)*60000*.85/.04

The answer: $2,536,980.80

This represents how much you would need to have saved up 20 years from now in order to be able to "live off your savings." If you're already there, great! If not, having a goal in mind can help with Getting to Enough.

So what did the gibberish that you typed into Google mean? Let's break it down:

(1.035^20) This represents the compounding effect of inflation of 3.5% inflation over the next 20 years before retirement
*60000 This represents our assumed current salary (and assumes that this represents our current standard of living)
*.85 This is assuming we will be able to live off the equivalent of 85% of our current standard of living at retirement
/.04 This represents being able to take out 4% your savings for the first retirement year's expenses

Replace the numbers in our assumption with your own numbers (especially your salary and the number of years to retirement) to come up with your personal approximation of "enough." A warning, though: Don't be too optimistic about how much you can take out that first year (don't go much above 4%) and don't be too optimistic about inflation (don't go much below 3.5%) in an effort to lower the amount you feel you need.

Of course, one line in a calculator or Google can't give you a definitive answer as to how much money is "enough," but at least it will give you a starting point. The answer will also vary according to the assumptions we made and I'll explore how I came up with these assumptions and how they might change in your own case in future posts.

Googling Your Retirement Number

There's definitely more than one way to define what it means to have enough money. One basic way is to define it as "having enough money so that you can maintain your current standard of living without having to work for money."

So how much is that? Here's a quick and dirty way to come up with an approximation in one line using Google. The simplest way to illustrate it is with an example. We'll assume the following for our example:

1. Your household income is $60,000/year.


2. You'll want to retire in 20 years.


3. You'll be able to maintain your current standard of living on 85% of your current salary (it's assumed that once you retire, you'll save on things like commuting costs, work clothes, etc.).


4. Your savings will be invested in a typical allocation of approximately 60% stocks/40% bonds.


5. You'll be able to withdraw 4% of your savings the first year of retirement and increase that by the rate of inflation each year thereafter.


6. Inflation is 3.5%/year.

Using Google's built-in calculator, just type the following in to a Google search box and hit enter:
(1.035^20)*60000*85%/4%

The answer: $2,536,980.80

This represents how much you would need to have saved up 20 years from now in order to be able to "live off your savings." If you're already there, great! If not, having a goal in mind can help with Getting to Enough.

So what did the gibberish that you typed into Google mean? Let's break it down:

(1.035^20) This represents the compounding effect of inflation of 3.5% inflation over the next 20 years before retirement
*60000 This represents our assumed current salary (and assumes that this represents our current standard of living)
85% This is assuming we will be able to live off the equivalent of 85% of our current standard of living at retirement
4% This represents being able to take out 4% your savings for the first retirement year's expenses

Replace the numbers in our assumption with your own numbers (especially your salary and the number of years to retirement) to come up with your personal approximation of "enough." A warning, though: Don't be too optimistic about how much you can take out that first year (don't go much above 4%) and don't be too optimistic about inflation (don't go much below 3.5%) in an effort to lower the amount you feel you need.

Of course, one line in a calculator or Google can't give you a definitive answer as to how much money is "enough," but at least it will give you a starting point. The answer will also vary according to the assumptions we made and I'll explore how I came up with these assumptions and how they might change in your own case in future posts.

Income Irony

One thing I'm struck by is that making more doesn't necessarily mean you're Getting To Enough more quickly. The problem is that as we make more, we spend more and quickly get used to that new level of spending. This increasingly raises the amount that we "need" in order to support our lifestyle, which raises the amount that we need to have saved up in order to support that lifestyle when we no longer have our main source of income (usually our salary). In this case, compounding works against us.

Jean Chatzky comments on this in her Money Tip of the Day. Her suggestions on how to keep spending in check are to monitor it (by using something like Quicken) and to have goals. As she puts it, "the easiest way to say no to that new pair of shoes is to know that you need the money for next month's vacation in Florida or next year's tuition bills."

Income Irony

One thing I'm struck by is that making more doesn't necessarily mean you're Getting To Enough more quickly. The problem is that as we make more, we spend more and quickly get used to that new level of spending. This increasingly raises the amount that we "need" in order to support our lifestyle, which raises the amount that we need to have saved up in order to support that lifestyle when we no longer have our main source of income (usually our salary). In this case, compounding works against us.

Jean Chatzky comments on this in her Money Tip of the Day. Her suggestions on how to keep spending in check are to monitor it (by using something like Quicken) and to have goals. As she puts it, "the easiest way to say no to that new pair of shoes is to know that you need the money for next month's vacation in Florida or next year's tuition bills."

Getting To Enough

This personal finance blog is about what it means to have enough money and the best way to get there.

Although having "enough money" means something different to each person, there are really only two ways of Getting To Enough faster:
1. Decreasing what "enough" means to you.
2. Increasing what you have through saving and smart investing.

Most effort is usually expended on the second item, but the first item can have an even bigger impact on your ability to Get To Enough. This blog will explore traditional areas such as retirement planning, saving, and investing, but will also comment on topics such as behavioral finance and "happiness" research.

Getting To Enough

This personal finance blog is about what it means to have enough money and the best way to get there.

Although having "enough money" means something different to each person, there are really only two ways of Getting To Enough faster:
1. Decreasing what "enough" means to you.
2. Increasing what you have through saving and smart investing.

Most effort is usually expended on the second item, but the first item can have an even bigger impact on your ability to get to enough. This blog will explore traditional areas such as retirement planning, saving, and investing, but will also comment on topics such as behavioral finance and "happiness" research.