My SHINY Nickels

Live Smart. Save Money. Retire Early.

Guest Post by Mr. Nickels: If Only Marty McFly Had a 401k

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back-to-the-future

[Every once in a while, Mr. Nickels likes to take over the keyboard. Enjoy!]

— Mrs. Nickels

 

When I first began what would become a 20-year career in the photofinishing industry, I remember looking at compounding interest charts.  The charts came with the literature about contributing to the company retirement plan. I specifically remember looking at a chart very similar to the one below.  The concept of compounding interest was intriguing. “Ben” only invests a total of $16,000 between the ages of 19 and 26. He ends his career with $2.3 Million. Arthur doesn’t start investing until he is 27, and invests a total of $78,000 until his retirement at age 65. He ends his career with $1.5 Million.

Recap?  Ben invests $62,000 less, but ends his career with $756,830 more than Arthur.  All because Ben started early.  Amazing.

benarthur

 

I did end up contributing to my 401k, but it was more out of obligation, than desire. I didn’t act on this new information with passion. Why not? I’m not really sure.  Looking back, I’m fairly sure that if I had made a similar chart using my own numbers…what I could have saved, what interest rates I could have realistically expected, what I needed to retire…I may have acted. Would my life be different? I don’t know.

Me at the beginning of my career, circa 1986

Do I have regrets? Not at all!  I am where I need to be. I’m a sci-fi nerd and have seen enough time travel episodes to know that a small change in my past can drastically change my future (sorry, off topic).

I admit I have made some HUGE financial mistakes in my past. I have also made some very smart moves. It all led to where I am right now. This post is about finding the motivation to change your future. But, just like history class, we can often look to our past for clues. So, what motivates me? What is it in me that makes me give up so much now to invest for a better future? I began to think of some goals I accomplished in the past. What motivated me to reach these goals?

 

The Marathon

It’s a Sunday afternoon in early December, 2011. The family and I are at my favorite Mexican restaurant, enjoying a few tacos. Out the window, we watch as the back-of-the-pack stragglers running the California International Marathon start to pass by.  The wheels in my head started spinning…I want to do that!  Back in high school, I hated running.  So why did I want to run a marathon? I think it was just the fact that not many people can run 26.2 miles.

When I first started running, I couldn’t run half a mile without stopping. I kept at it. Within a week or so, I finally ran a full mile non-stop. Pure joy! My first goal was accomplished. Soon, I was running three miles, three days a week. By that summer I was ready to start training for the marathon coming in December. I went online and found a conservative training plan and started the 18 weeks of progressively longer runs in preparation to run 26 miles + 385 yards.

That December morning in 2012 finally came, and in the middle of one of the worst storms of the year.  The rain was blowing sideways as I exited the shuttle bus. What am I thinking? The gun went off and I crossed the starting line. In the pouring rain, my emotions got the best of me at the half mile marker.

I was actually running a marathon.

Me, the one that hated running, was running with 8,000 other people toward the finish line 26 miles away. It was a once-in-a-lifetime feeling. At the halfway point, I was feeling really good. My legs felt great, I was breathing steady, and I was confident I would finish strong. Then the bolt of pain hit me. I had pulled a quad muscle at mile 17. But I was still going to finish! I limped, walked and jogged my way to the finish line. It took everything in me to get there, but I reached my goal. The rain was gone and the sun was shining by the time I finished 5 1/2 hours later.

What was my motivation?

marathon

 

 

Climbing Half Dome

I’ve been to the top of Half Dome in Yosemite three times, but I will never forget that first trip. It’s about 7 1/4 miles of uphill hiking to the base of the dreaded cables that lead to the summit. There were people standing at the base, refusing to climb those cables. I admit, they are a little overwhelming and daunting to look at. From the bottom it looks like a vertical death trap. But after all the energy it took to get that far, there was no way I wasn’t going to finish.

ry=400

The dreaded cables at Half Dome in Yosemite

I put on my gloves, grabbed the cables and started the climb. About every four feet there are two-by-fours across the path so you can rest. As it got steeper, I remember thinking, “just one step at a time…stay safe for my kids…I can’t die here.” So with each vertical step, I said the names of my daughters….. Kelly…… Lindsay……Kelly…….Lindsay, all the way to the top. It seemed like hours to get there. Fifty to seventy-five people caterpillaring their way up, stopping every four feet to rest for a few minutes. Finally, I was there and the views were spectacular. Worth all the effort and fear to get there.

What was my motivation?

halfdome

My first trip to the top of Half Dome. This is one of my favorite pictures.

Side note: I would love to climb Mt. Everest, but my wife assures me I will be a single man upon my return.  [Mrs. Nickels’ Editorial Comment:  For the record, he wouldn’t be a single man when he came home.  My fear is that I’d be a single woman when he DIDN’T come home. So there.]

 

So why am I only now, at this stage of my life, using my money wisely? What changed in my mind?

The only difference between then and now is a GOAL, a PLAN, and a DEEP DESIRE to reach that goal. The biggest motivator for me was seeing on paper a plan to save with an end date just seven years from now. I believe if I’d had that information in my early 20’s I would have had the motivation to retire that much sooner. But I’ll never really know. However, now I know what we want and what it’s going to take to get us there. Everyone is motivated in different ways. Look at other parts of your life where you have succeeded in completing a goal. What was your motivation? In the two stories above, I had a goal in my head, a desire to accomplish that goal, and a clear, no questions asked, plan to get there.

So what motivates you?  Find your motivation and use it to change your life for the better.

Reader Stories: RELIEF is spelled E-M-E-R-G-E-N-C-Y F-U-N-D

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emerfundI got a text from a friend the other day.  Her and I have bonded over all matters financial, and she is recently back from vacation.  Her text said “I love our emergency fund”

Hmmmm….[interest has officially been peaked at this point]

She went on to tell me that her husband had an “oops” with the garage door, and another “oops” in the rental car while they were on vacation. Poor guy, these two things were practically back-to-back.  She said her husband was feeling really guilty about the money it was going to cost to fix those things.  But what she said next is what really struck me.  “I wasn’t mad at him at all for either one.  What a relief.  Resentment avoided because of a simple emergency fund.”

It got me thinking.  How many times do people argue with their spouse/significant other because of an unexpected expense?  You hear about it all the time.  Money is by and large the #1 issue couples fight about.  When something unexpected happens, is the argument really about the expense itself, or does it really stem from the stress over not having money to pay for it?

Mr Nickels and I have very few arguments, but when I think back to the few that we had prior to our financial awakening, most were indeed about unexpected expenses.  Several years ago we had an issue that caused our auto insurance to increase by nearly $100 per month.  We (thought) we didn’t have a dime to spare at the time (in reality we were just spending all our dimes on housing and cars), and now we had to come up with another $100 in our monthly budget.  I got upset, my husband became irritable, and next thing we knew we were in a heated argument over…the auto insurance.  Our precarious financial situation was causing discord in our relationship.  It wasn’t about why the auto insurance increased, it was that we didn’t have the money to pay for it. Eventually we calmed down enough to look at the situation logically, and without emotion.  But the whole argument could have been avoided.

If that same scenario were to occur today, sure it would be irritating, but it wouldn’t throw us into an emotional tailspin like it did a few years ago.

Going back again to my friend who sent me the text, she’s still in her early 20’s, but financially mature beyond her years.  She seems to understand my “Live Smart, Save Money, Retire Early” philosophy.  I’ll call her my Nickel from another Pickle.  (Ok…here’s where I thought I would be clever and come up with a rhyme.  That was the first thing that came out, but as I started typing, it became apparent how awkward that sounds.)  *crickets*

Getting to my point, she’s figured things out that some people can take a lifetime, if ever, to understand.  Things happen.  People make mistakes.  But knowing they could cover those expenses (and without going into debt!) kept her from feeling resentful or frustrated at her husband.  In fact, what she described was RELIEF.

An emergency fund is more than just unused cash sitting in an account, taunting you.  It’s a safety net.  A psychological security blanket.  For those of us that have them, it helps us sleep better at night and keeps financial harmony in our relationships.  Emergency Fund = Less Fighting Over Money

Do you have an emergency fund?  If you don’t, that’s the first thing you should do when you finish reading this.  Sit down and figure out how you can get one started.  You may have to get ninja-like on your finances to do it, but $1,000 should be the absolute minimum.  Then, if you’ve got debt (yes, that includes auto loans), pay that off next.  Then aim for a fully funded emergency account.  I suggest $5,000, which should cover most major catastrophes that come your way.

It’s hard to save money.  I know that.  But by saving even just a little bit, consistently, you’ll soon have a sweet little pile of cash.  And unexpected expenses really aren’t unexpected at all.  It’s not IF something will happen, but WHEN.  That little emergency fund could save you some tears, some stress and possibly even…your relationship.

How to Feed 5 People for $5…and It’s Delicious!

By:

Dear chain-sandwich-shop-named-after-a-mass-transit-system,

I sit here laughing pitifully at your poser of a deal.  $5 foot long? Ha! I fed our family of 5 for just 5 bucks…and that’s WITH leftovers that everyone fights over later.  Top that.

Sincerely,

Mrs. Nickels

 

Last night I fed my entire family for $5.  Less than that technically, if you consider we had leftovers.  And it didn’t taste like cr@p.  In fact, it was deliciousness on a plate. What is this wonderfood?

PIZZA.

Oh that glorious concoction of crispy yet soft dough, slathered in slightly spicy sauce, with an ungodly amount of cheese and fresh toppings.  Aye aye aye.

It’s definitely a staple here at the Nickels house. It’s cheap, it’s fast and it’s finger lickin’ delicious.  And yes, the recipe is at the bottom of this post.  I wouldn’t leave you hanging, would I?

 

CHEAP

I buy my bread flour,  yeast, olive oil, mozzarella and sauce in bulk at Costco.  This saves us a ton of dough money. (Wow, that was a bad pun. Sorry.)  The toppings I usually purchase at my local grocery store.  I’ve approximated my cost per pizza in parentheses.

Bread flour $9.00 for a 25-lb bag  ($0.36)

Yeast $4.64 for a 2-lb bag  ($0.02)

Olive Oil $15.00 for a 2-liter bottle  ($0.50)

Shredded Mozzarella Cheese $15.00 for a 5-lb bag  ($2.00)

Prego Sauce $8.48 for 134 ounces ($0.25)

Sliced olives  $0.99 for 4 ounce can ($0.50)

Mini Pepperoni  $2.99 for 5 ounce package ($1.50)

My GRAND TOTAL per pizza?     $5.13

Do you understand how cool that is?  If you can get even half of your weekly dinners made for $5 or less, your grocery bill will start looking more like your phone bill and less like your mortgage payment.

 

FAST

First, if you haven’t invested in a bread machine, you should.  There’s no reason you need to pay full price either.  There are plenty on Craigslist, eBay or even on Amazon (used) for a fraction of the price of a new one.  I love mine.  Can you tell?

This is my magically-makes-pizza-dough-in-45-minutes machine

It takes me about 10 minutes to pull the ingredients together, toss them in the bread machine, and press “Start”.  Seriously.  The machine takes it from there…mixing, kneading and rising for another 45 minutes.  This is easy stuff, folks.

Once the dough is done, it’s another 5 minutes of pressing out the dough in the pan, spreading sauce, sprinkling cheese and toppings.  Stick it in the oven for about 14 minutes and that sucker is DONE.

The pepperoni and olive creation is ready to enter the oven…I’m already salivating.

 

FINGER-LICKIN’ DELICIOUS

It’s so stinkin’ good.  Seriously.  The dough is soft on the inside, crispy on the outside.  In fact, after it came out of the oven, it was sliced up and gobbled so quickly I forgot to take a final ‘finished’ photo.  So this post-dinner snapshot will have to do.

This doesn’t do it justice. But here’s a glimpse of what we enjoy here at the Nickels house on a regular basis.

 

If you’ve already started cooking more at home, then here’s a virtual high-five *SMACK*.  But if you want to get hard-core, buy in bulk and make your own pizza dough, and for $5 you can feed a small army.

 

 

 

~~~   The Nickels’ Basic Pizza Recipe   ~~~

Ingredients:

4 Cups Flour (preferably bread flour, it has a better gluten ratio)

1 tsp salt

1/3 cup extra-virgin olive oil, plus a little extra to brush on the crust

1 tsp active dry yeast

1-1/2 cups warm water

1 cup of your favorite pasta/pizza sauce (we use Prego)

3 – 4 cups shredded mozzarella

Toppings of your Choice

Directions:

In a small bowl, pour the 1-1/2 cups of warm water (warm, NOT hot or it will kill the yeast instead of activating it) and add the yeast.  Don’t stir, just let the yeast sit on the surface of the water; it will slowly dissolve.  Set it aside.  In a medium mixing bowl, stir the flour and salt together.  Drizzle the olive oil into the flour mixture, stirring as you pour.   Now we put the ingredients into the bread machine.  (If you don’t have a bread machine, you can google ‘pizza dough recipe’ and follow the directions for mixing/kneading/rising by hand.)

IMPORTANT!  Pour the yeast/water mixture into the bread machine FIRST, THEN add the flour mixture on top.  No need to stir, the machine will take care of everything.  Set the bread machine to the dough setting, and press “START”.  It should take about 45 minutes.  At this point, if you need to prep any of your toppings, this would be the time to do that.  If not,  then go enjoy your 45 minutes!

Once the dough is complete, set your oven to 475 degrees.

Remove the dough from the bread machine and plop (yes, that’s a verb if you ask me) it out on to a heavily floured surface, stretching it a bit to fit into the pan you’re using.  Turn the dough over to get both sides floured, and then place the stretched dough into your pan.  I use a large cookie sheet with raised sides.

Once the dough is stretched out to the edges of the pan, I take a fork and poke the pizza dough just on the inside area where I don’t want the dough to rise.  So in other words, avoid the outer edges, because you want a nice soft doughy crust.  Don’t you?  Then brush olive oil on the outer crust.

Take the cup of sauce (or more if you like things “saucy”) and spread it evenly over the inner area of the crust.  Sprinkle salt lightly over the entire thing, and then add the mozzarella cheese.  Lastly, add whatever toppings you like.  (If it were just me, I’d have something along the lines of goat cheese-caramelized onions-bacon-mozzarella, but this was a family-friendly pizza, so I went with mini pepperonis and olives.  We also like switching out the pasta sauce for BBQ sauce, and topping it with barbecued chopped chicken and thinly sliced red onions. Mmmmm. Maybe next time.)

The time will vary from one oven to the next, but our pizza cooks in about 14 minutes at 475 degrees.  Don’t be afraid to let the crust get golden brown and the cheese to get that nice caramel color, it makes it so flavorful!

 ~~~

 

I Hate “SUBMIT Button” Remorse

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My fingertip hovered over the “SUBMIT” button for much longer than what would be considered normal. I fretted. I worried. I walked away and came back. I knew that once I hit the button, there was no going back. No changing our minds.

We’ve decided to give up our unlimited data plans on AT&T.

I know you just shuddered too, right? (Not.)   It may sound crazy and overly dramatic, but my husband and I have been back and forth over and over, trying to decide what to do.  I guess the finality of it just bothers me. You can’t even get unlimited data plans on AT&T anymore. Only those that had them originally were ‘grandfathered in’ and allowed to keep them. We are heavy data users, but the undeniable truth is that we were paying WAY TOO MUCH STINKIN’ MONEY each month on our cell phone bill. For four iPhones, we were paying $226 per month. Aye, aye, aye. (I know.  That’s outrageous. We may be budget-minded, but we’re Apple people, okay? So shoot us.)

I kept getting these annoying little messages from AT&T to join their new “Mobile Share Value Plan”.   There must be something in it for them.  So every time I read one, my stubborn alter-ego emerged……

“I WON’T BUY INTO YOUR EVIL PLAN AT&T!!! I WILL DIE BEFORE I LET GO OF MY UNLIMITED DATA PLAN!  I AM NOT YOUR PUPPET, AND I WILL NOT BE MANIPULATED!!!”

antipuppet

I beamed with pride (at myself).  I will NOT be a drone.   I will NOT give in to slick advertising.   I will stand valiantly atop the unlimited data plan hillside, with my “I WILL NOT SURRENDER!” flag staked firmly in the soil.

Before I go any further, let me declare that I’ve officially revealed a part of my personality I’m not proud of.  That is, if I detect that I’m being manipulated somehow, I will do everything I can to NOT do whatever “they” want me to do.  And by this point, AT&T was causing my manipulation-radar to go bananas.  But after a few weeks of these annoying messages,  I decided to step back and analyze it rationally; the way you should always approach financial decisions.   I needed to think about this expense with my head, and not my manipulation-radar.

AT&T estimated that with the new “slick” plan, our bill would be about $130 + taxes/fees, including my 23% corporate discount.   And if you remember from a few paragraphs back, we’re currently paying $226 a month.  The key to the new mobile share plan, is that instead of unlimited data, our 4 devices would share 10GB per month.  The next obvious question is…is 10GB enough?  Would we go over?  Would we be in a constant state of possible-data-overage-induced stress?  I had no sense of current usage, so I went on the AT&T website and reviewed our data usage for the last 12 months.  On average, we used a little less than 5GB monthly.  So even if we doubled our data usage, we still wouldn’t reach our maximum.  (And I do realize that there is something in it for AT&T; data usage will only increase over the years, so the fewer number of customers on unlimited data plans, the better it is for them.)

At this point, I knew what we needed to do.  It only makes sense for us to give up our unlimited data plans.  So we did.  We put up our imaginary white flag of surrender, and clicked “SUBMIT”.

Am I still a little uncomfortable with the idea that I can no longer be a wasteful glutton at the AT&T data buffet?  Yes.  Am I a little worried that my bill will not be as AT&T “estimated”?  Yes.  Am I afraid I’ll have a case of “SUBMIT button” remorse?  Absolutely.

Only time will tell…I’ll be sure to give you an update when I get my first ‘normal’ bill…

Guest Post by Mr. Nickels: Don’t Forget to Be Happy on the Way to Happiness

By:

unhappy-smiley

I’m not the talented writer of the family, but what the heck. I’ll give this a shot. Just know, if this flows and makes sense, Mrs. Nickels did some editing.

 

The Information “Sponge”

Gaining control of your finances as a couple is hard. Having to do it on your own without support is even more difficult. It has already been an adventure, and over time, our plan has continued to evolve. At first, it felt like a daily struggle. Obviously getting rid of the debt was the number one priority, then we started putting big chunks of our salary into retirement accounts.

Mrs. Nickels’ first wake up call was the catalyst that initially sent us on this wild ride, and being that she, by profession, analyzes statistics/finances, it was obvious to me that she should be in control of our retirement plan. And, it turns out, Mrs. Nickels is an information sponge. When she gets an idea in her head, she will read, read, and read more, in a never ending cycle. Then the Googling begins and she reads even more. I do have to say, when she wants something, she’s all in. (I’m lucky she wanted me).

Going Overboard

Then it happened. What I like to call the “Suze Orman” effect. We had a basic plan of what we wanted to do and we were diligently putting away money for our future. Then Mrs. Nickels read one of Suze Orman’s books. (Not a good idea.) It scared the crap out of her.  All of a sudden, so much money was going into our savings, that we were basically broke.

I probed to find out her thought process behind this move. She was scared. She was under the impression that if we didn’t feel the pain of saving, we weren’t saving enough. With no goal, we didn’t have a clue as to how much we should be saving, or how long it would take us to be financially independent. After some discussion and research, we arrived at a goal. Mrs. Nickels did some Excel magic and we had a timeframe to meet a goal that we were both happy with. And, we didn’t have to cut back to eating only three days a week to reach it.

Your goals and priorities need to be clearly defined. They may change, but not having a goal can lead to those “What the heck are we doing?” moments. Sure, we could live an extremely frugal lifestyle and reach our goal that much faster, but at what cost? What would our lives be like? Is it worth it to reach our goal but have no happiness along the way? It’s not worth it to us. We decided that we need to have a life while saving for a financially free life down the road.

Going Overboard (the other direction)

There are bad ideas that come out of thinking this way also. Soon after starting my new job, I got it in my head that we could afford to get me a new car. I always liked the BMW Z4. I started looking and saw the new body style for the first time. What a SWEET ride! I wanted that. We talked about it and came to the conclusion that we would make a large down payment and could afford the monthly payments while reaching our goals.

It would mean that our goals would be reached a year or so later, but we were already planning to retire early, what’s another year? Then I took a hard look at the numbers. Mrs. Nickels had put together a detailed spreadsheet of our retirement plan. After the realization of what this car would really cost, I quickly moved past my selfishness and made the right decision for us.

A Balancing Act

For our situation, it’s all about balance. There are things we could cut out to save even more money, but we aren’t willing to give up those things to shave just one more year off of our working lives. At the same time, most material possessions aren’t worth extending that working life either. We are constantly having discussions about our plans and where we want to be. Right now, the majority of our investments are in stocks, but we are considering moving into peer to peer lending and/or real estate. Are we willing to be landlords? Is the risk too high for peer to peer lending? These are questions we ask ourselves and discuss almost daily.

Communication is key to our success. It would suck to reach our goals and hate each other when we arrive. Our plan is to start our new financially free life the same way we started our married life. Happy and wanting nothing more than to be together. Being best friends and enjoying life.

5 of the Biggest Budget “Leaks”…Do You Have One?

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As you probably know, we try to get our own plumbing done around here.  Just the other day, our shower drain was stopping up.  We pulled out our drain snake attachment (it attaches to a standard drill, very handy) and roto-rootered the heck out of that thing.   About three and a half hairballs later, it was once more draining like it should.  Ahhhh…that’s better.  Showering while standing in 3 inches of grey water ain’t nobody’s idea of a picnic.

And while this post isn’t actually about plumbing, it IS about fixing leaks…in your finances.  It’s easy to identify the big items that put a major drain on our bank account…homes, cars, dining out…but it’s the small and quiet leaks in our spending that, when combined, add up.  Whether it’s fees we could be avoiding, unused subscriptions or little pockets of extra money we’re not tapping into, they are all small-scale wastes.  What are these slow leaks, you ask?  Here’s just a few…

 

1.  Unused Memberships / Subscriptions

Look through your last few months of bank statements.  Are you subscribing to anything that you no longer use?  Be honest with yourself, and cancel them, people!  If you get sincere joy from them, then by all means, carry on.  But just be honest.  (Do you actually read those issues of Popular Science, or have they stacked up over time to the point that they have become an extension of your coffee table?)

  • Gym memberships
  • Netflix, Xbox Live or other streaming media membership
  • Magazine / Newspaper Subscriptions
  • Weight-loss memberships (Weight Watchers, Jenny Craig, etc)
  • Food-delivery subscriptions (Nutrisystem, food co-ops, etc)
  • Birchbox, Glossybox, other monthly subscription services…

2.  Floating Debt

Are you continuing to pay the minimum payment on a credit card every month, while letting a chunk of money sit in your savings account?  You figure that you need an emergency fund, right?  Sure.  But if you have anything more than $5,000 sitting in a low-interest savings account, while you sit on credit card debt, you need to wake up.  The money you have sitting in a low-interest savings account is likely earning less than 1%, while your debt is probably costing you anywhere from 10-30% in interest on your balance every month.  Quit floating your high-interest credit card debt; take your extra savings that’s making you next to nothing, and put it towards your debt. Ta-freakin-da.

3. Not Taking Advantage of the Company Match for your Retirement Plan

If you have an employer-sponsored retirement plan at work, but are not putting in enough to get the full match, you are THROWING MONEY AWAY.   Many companies, if not most, offer a partial match for contributions you make to your retirement plan at work.  At my company, for example, they match 50 cents for every dollar, up to 6%.   So over the course of a year, if I made $100,000, and contributed at least 6%, which is $6,000, the company will contribute an additional $3,000 into my account. If I’m contributing anything less than 6% of my salary to my retirement plan, then I’m giving up free money. Plain and simple.

4.  Overpaying on Insurance

If you have an excellent driving record, and you own your vehicle free and clear, consider increasing your insurance deductible to $1,000 and dropping collision and comprehensive coverage.  Your monthly premiums should drop substantially.  Also, check with your insurance company if they offer discounts for bundling; often if you combine your auto and homeowners insurance with one company, you can save.

5.  Wasted Utilities

Leaving the A/C or heat running while no one is home is a complete waste…of energy and money.  We have a “smart” thermostat, The Nest, which detects if we’re home, and has decreased our monthly utilities by 40%.  Even if you don’t have a “smart” thermostat, chances are you have at least a programmable thermostat, so take a few minutes to program it!  Aye, aye, aye.

 

At our house, we try to do an annual “leak check” every year about this time.   I thought for sure I wouldn’t find anything, but low and behold, I checked our transactions from the past month, and ACK!…I found a couple of things.

  • Last year we subscribed to an online tutoring service, IXL.com, for $10/month.  This was at a time when my daughter was having trouble focusing on math, so I found a tutoring site that was fun and interactive for her, and it truly did help.  (Yes, even a mother like me who has taken 4th-year calculus on differential equations and number theory is no help to a child who is determined to listen to anyone but me. Sigh.)  But once she improved her math grade, I forgot about it, and continued to pay the $10 monthly fee for several months after. Ugh.
  • Two years ago we bought an Apple iPad, and subscribed to the data plan through AT&T for $15/month.  I had cancelled the data plan a long time ago, but then reinstated it a few months ago while we were traveling. But we’ve been back for 2 months, and yup…still paying $15/month.
  • We were subscribing to a video game rental service, GameFly.com, for my son.  It was $17/month.  Eventually we reached a point where there were no games that he wanted to play (or could play due to mature ratings), so he slowly worked through the games in his queue, until there were NO games in his queue.  We continued paying $17/month for months until I did this check.  Yikes.

Just canceling those three above saves us $42 a month…over $500 a year.

So…I’m as guilty as the next guy (or girl).  Even when I think I’ve tightened things up everywhere I can, there are still places where I find a slow leak here and there.  So take a hard look at your own expenses…do YOU have a leak?

Plug it.

So You Want to Retire Early? It’s All About the Numbers

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numbersA comment from a reader on my last post, Would You Rather Have Money…or Look Like You Do?, asked for some ‘nuts and bolts’ information on our ‘retire early’ strategy.  I was planning on writing this in the near future anyway, but moved it to the front of the pack. So “Paul V”, this one’s for you. My motto “Live Smart. Save Money. Retire Early.” pretty much sums up our strategy. We’ll go through them one-by-one.

1.   Live Smart.

This means cutting back on at least the ‘big ones’…housing, car expenses, food…and, when possible (it often is), increase income.  We made most of these changes as soon as we decided to turn our financial life around.

Efforts we made to LIVE SMART:

  • Downsized our home.  (This may mean renting out your current home and renting something smaller and less expensive, or selling your freakishly-large McMansion with the equally-large property taxes.  Don’t be afraid to make a big change, especially if it means big monthly savings.)  Even a $500 monthly savings = $6,000 a year.  We saved thousands per month when we downsized.
  • No car payments.  If your current vehicle is worth more than $10,000…sell it and buy something less expensive and practical.  There are plenty of used cars that are economical and would pass the coolness test.  Once you sell, invest the cash difference, if any.
  • Cook more, eat out less (when you do eat out, go somewhere that gives you high pleasure-per-dollar.  If you’re going to pay someone else to cook and bring you food, it should be WORTH IT.)
  • Buy groceries in bulk – we shop almost exclusively at Costco.
  • Make sure you’re getting paid what you’re worth.  If not, seek out a higher-paying job.  (My husband found a new job making 30% more, even in a depressed job market. It’s worth the effort.)
  • Increased our auto insurance deductibles to $1,000, and because our vehicles are paid off, dropped comprehensive coverage completely.  These two changes cut our monthly premiums by 50%.  We comparison shop every year, and the best value the last 3 years in a row has been esurance.com.
  • Lowered our heating/cooling bill by 30-40% after installing The “Nest” Smart Thermostat. Paid for itself in 3-4 months.
  • Learned some DIY tricks.  Treat every repair/maintenance issue as an opportunity to do it yourself.  This won’t always be possible, but it’s always worth looking into.  Start with small projects, and work your way up to bigger things.
  • Once we made the changes above, the monthly cash we freed up skyrocketed.  We eliminated our debt, and then started Step 2…Save Money.

2.    Save Money.

  • Before you can know your own savings strategy, you need to play around with the numbers and see what different savings models do to your timeline. Go to Networthify.com and use their early-retirement calculator.  I suggest using 9% as your rate of return, and 4% as a safe annual withdrawal rate.   We plugged in our numbers, with a 60% savings rate, and it gives us an estimate of about 7.5 years until retirement.
  • For those with a net annual income of $100k or more, you should be aiming for a 50% savings rate…if you want to get hard-core, and really shorten your timeline, aim even higher.
  • Our first savings efforts went towards our employer-sponsored retirement plans (401k).  Next we each opened a Roth IRA at Charles Schwab.  Then the rest of our savings is invested in a regular taxable brokerage account, also at Schwab.  I like Schwab; their website is intuitive and simple to use, and opening a new account is as easy as it comes.  They process deposits and purchases quickly as well.
  • Invest in low-cost index funds
    • The mutual funds you invest in should never have expense ratios of more than 1.0%.  (Take a look at the ‘fact sheet’ for each mutual fund, and search for ‘expense ratio’ or ‘net expense ratio’.  This is how much the fund manager will charge you to manage your investments.)  That’s why index funds are so great.  Their expense ratios are usually 0.25% or less, which means they take a much smaller cut of your money to manage it.
      • Example:  If you have $250,000 invested in “Mutual Fund A” with a 2.0% expense ratio, they will take $5,000 out of your fund in fees each year.  If you have that same $250,000 invested in an index fund, “Mutual Fund B” with a 0.25% expense ratio, they will only take $650 each year.  Invest in index funds and keep more of your money.
    • The majority of our money is invested in four (4) index funds.  50% is in an index of the S&P 500, 20% in a medium-cap index, 20% in a small-cap index, and the last 10% is invested in an international index.  We’ll eventually move some of our balance to a bond fund (less risk) as we get closer to our retirement date.

3.    Retire Early.

  • If you used the handy calculator I suggested in Step 2, you should have a good idea of what your savings strategy will be and the timeline until retirement.
  • When your investments reach the point that a 4% annual withdrawal rate will cover your desired expenses, you are financially independent.
  • When you retire, you’ll continue to live smart, spending money on things that mean the most…for us this will be travel and eating good food.  In every other category, we’re going to live as economically as possible.
  • Check out one of the best posts I’ve seen on the math behind early retirement, by a blogger known as Mr. Money Mustache.  Both he and his wife retired at 30 years old.  He does a much better job explaining the early retirement strategy than I ever could.

 

Once you understand the power behind extreme savings rates and compound interest, the goals you can reach will blow your mind. Someone starting with a $0 balance, who begins saving 50% of their 100k net income can retire in 13.7 years with nearly $1.4 million dollars.

After my husband and I started living smarter, we were able to quickly pay off our debts.  Then the extreme saving/investing started.  We couldn’t believe how much we were able to put away.  Many times we’ve said to eachother, “Why did we wait so long to wake up?” 

Would You Rather Have Money in the Bank…or Look Like You Do?

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A few weeks ago, while sifting through an old memory box, I came across one of my childhood diaries.  It looked so aged; the bright pink and blue pattern on the cover had faded over time to dull pastels.  But the sight of it brought me right back to that time. 1987.  I was 9 years old.

I couldn’t help myself.  I cracked it open.  I began to read the excited, innocent and often dramatic musings that I wrote as a young girl.  One entry struck me.  It read:

“Dear Diary,

Yesterday was the best day ever.  We’re so rich.  My parents bought a new Camry, and my brother and I got a bunch of new toys. I also got a new pink sweater from Mervyn’s.  It’s SO CUTE! [entry continues…]”

Logic as a 9-year-old was that if we’re buying these new things, then we must have a lot of money.  But, we really didn’t.  My parents were financially responsible, so the fact that a new car coincided with a couple of new toys and a sweater was purely coincidental. It provides an interesting peek, however, into how I perceived wealth and money at that age.  A new car, toys and clothes were indicators that we were financially set.   But the reality was that while we were not living in poverty, we were not wealthy either.  We were a typical middle-class family with my dad as the wage-earner and my mom who was the stay-at-home parent.  We always managed to have enough, but we were far from rich.

The day I wrote that diary entry, I remember well.  I recall the excitement I felt.  But my feelings were connected to something greater than the thrill of newly-acquired material possessions.  I couldn’t have really known, or even described the greater sense of relief I felt, but looking back now, buried under the excitement was a calm peace that comes with financial security.  It may have been an illusion, but I felt it nonetheless.

Has Anything Changed?

This retrospective look back at my view of prosperity at 9-years-old got me thinking.  26 years later…what are my perceptions of wealth now?  What does it mean to be successful/prosperous/wealthy?  I can already say for certain that I’ve passed through several “stages” during these last 26 years.

In my late teens, being well-off meant your parents bought you a brand new car for your 16th birthday, and at anytime you could request a small lump sum of cash for a trip to the mall. You would not be questioned as to whether your household chores had been completed, as you had none.  Then came the “house-poor” 20’s.  I had a well-paying job; it was a race to see how much I could acquire, and I figured that the bigger the house, the more successful I must be.   Cars, a larger home, TVs,  nice furniture…check. Going into my 30’s, I began outsourcing various tasks I found unpleasant.  A weekly cleaning service was hired, a gardener began to take care of the yards, a trip to the nail salon every week or so, an expensive hair stylist, and a monthly restaurant expenditure of $1,500 a month.

What those years represent is the chasing of a feeling.  The constant, relentless pursuit of that moment when you feel that you’ve arrived and you’re finally living in abundance.  But despite the fact that I was surrounded in nice things, in a spacious suburban home, with hired help taking care of less-desirable tasks, that moment didn’t come.  I was still viewing prosperity through the glasses of a 9-year-old girl; if I just acquire enough, it will mean I must have lots of money.  It will mean I’m financially secure.  But, I wasn’t.  I had cars, but no money.  I had nice furniture, but no money.  My kids were in private preschool, but I…had…no…money.  While my gardener mowed my lawn, he probably had more in his checking account than I did.

Do You Feel Successful Now?……How About Now?……Or, Now?

But what I find interesting, is that during all of the mad, crazy spending I never felt “prosperous”.   It was just my life.  Even though our bank statements showed some nice deposits, it showed withdrawals at the same rate or faster.   Every month was just another run on the hamster wheel.  Money comes in, money goes out, without anything meaningful to show for it.  Annual pay increases would come, and…nope, still didn’t feel financially secure; and they were often spent before they were earned.

When my spending finally caught up with me a few years ago, I had my first financial wake-up call.  I had reached the bottom of a giant chasm, and there was nowhere left to go but up.  We turned our finances around with a fierce intensity. Soon the $40,000 in debt was paid off, and then we had our second financial wake-up call.  It wasn’t long before money was being saved…at a very fast rate.  The chronic stress I didn’t realize I had, was falling away.  With every deposit into our investment account, I had a feeling of exhilaration.  And the “high” wasn’t temporary.  At any time, I could check our account, and see the progress we were making.   I was no longer chasing the high that comes with the consumption of “stuff”.   I moved from the “law of diminishing returns” to a place of increasing returns.  Returns on investments that were growing on a daily basis.

For me, feeling financially at peace didn’t lie in what we spent, but in what we kept.  For so long, we spent all of our money and energy chasing the ILLUSION of prosperity, instead of prosperity itself.

And while we spend less and save more than we ever have before, we’ve managed to simultaneously increase our satisfaction with life.   I find happiness in things where money isn’t necessary; playing board games with my children, making s’mores in the backyard, a bike ride and picnic with my husband.

The Milestone

I’ll never forget the excitement when we reached that first $100,000 milestone.  In 2 years, we had gone from $40,000 in debt to $100,000 saved and invested.  I stared at the number, took a screen shot on my laptop to capture the moment, and smiled.

100kMilestone

Sitting there on the sofa in my living room, the smile soon turned to a release of tears.  Not a flood, but just a few.  I could barely grasp what we’d accomplished, yet I could see our future in my mind; imagining where we’d be in a month, a year, 5 years.

The excitement was familiar to me; but this time it wasn’t connected to the thrill of newly-acquired material possessions.  This time it wasn’t an illusion of financial security as seen by a 9-year-old girl.  I was excited and at peace, and this time…it was real.

 

Life Stories: A Second Wake-Up Call…the Tragedy that Changed Our Lives

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If you know me well, or have at least read my “ABOUT ME” page, you know that our goal is to retire early.  Not to come squealing into the 65-years-of-age retirement finish line at the last second, but to beat that mark by a wide margin.   I’m often asked by people, “Why?”…to which I reply…”Why not?”   There is nothing that says I have to wait until Social Security kicks in to enjoy a life of financial independence.  I want to sleep in ’til noon if I like, take a bike ride with my husband in the middle of the afternoon or even travel for months at a time to far-away places.

But it takes dedication and commitment.  We all know that anything you truly want, way deep down, is worth some sacrifice.  We currently put away just over 60% of our net income into investments.  Between our extreme savings rate, and the true magic of compound interest, the balance will grow quickly.  Our target is $1.25 million dollars, and according to several calculators, we’ll get there in less than 8 years.

Now that I’ve answered the “Why do you want to retire early?”, I’ll answer those that ask, “What gave you that crazy idea in the first place?”

It was the second wake-up call.

Near the end of 2012, the day after Christmas in fact, my husband started a new job.  A few months later, he came home to tell me he’d found out something rather morbid that day.  He was told that Sam*, the guy formerly in his position, had died…at work.  Sam was in his early 60’s and was only months away from retirement.  7 months, to be exact.  Other employees recalled him coming into work each morning with a cheery announcement of how many working days he had left…he could see the day coming  where he would finally walk out the door to start the next chapter of his life.  He didn’t know that day would never come.

Naturally, I asked my husband what happened.

It’s November 20th, two days before Thanksgiving.  Sam stands up from his desk, grabs his coffee cup and begins walking down the main hallway.  Without warning…he collapses.  Coworkers rush to him, and immediately begin CPR.  He was having a heart attack.  While the efforts to resuscitate continue, the paramedics arrive.  But it was too late.  He died right there on the floor. 

Days after hearing that story, I couldn’t get it out of my mind. I started asking myself things like…”Am I going to work and save for 40 years just to end up dying before I can enjoy it?”…”Am I doing all I can to reach my financial goals?”…”Can I reach them any faster?”

What was once a plan to put in 40 years with a respectable savings effort,  has become a determination to save/invest our way to retirement in less than 8 years from now.  You only have one life to live.  Are you going to (a) make changes to live life on your terms as soon as possible, (b) come squealing into the retirement finish line at 65…or (c) never have enough to retire at all?

——————————

A few days into his new job, my husband is sitting at his desk, in Sam’s old office.  He rolls over to the computer,  and opens a spreadsheet that is sitting on the desktop.

He calls out to his manager, “What are these numbers on the right-hand side?”

“That’s Sam’s countdown. To retirement.”

 

 

* Name has been changed to respect privacy

How to Avoid “Lifestyle Creep” (and Start Saving!)

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Let’s paint a mental picture together…you’re at work, and you get a phone call.  It’s your boss…telling you…you’re GETTING A RAISE!

You calmly set the phone down…acting very cool and collected as you let the good news sink in for a moment…then suddenly…you valiantly rise up from your tiny cubicle in your ill-fitting khakis and begin performing acrobatic leaps through the office, whistling “Eye of the Tiger”, while fleeting images of all the amazing things you can buy begin filling the lobes of your brain…and……….“POW!”  

Hi…it’s me again, giving you a solid punch in the nose, in an effort to interrupt this ridiculous daydream you’re having.  So snap out of it.  (Yeah, I realize I kinda led you right into that one. Sorry, I can be cruel at times.)

Here’s an ice pack, now let’s move on.

We get a raise, and what’s the first thing we all do?  Start figuring out how much more our paycheck will be and visualizing what we’ll do with it; how we can “live a little higher on the hog” with this increase in extra cash.  Now, I’m not a complete killjoy; no doubt getting a raise is something to celebrate (heck, pop open some cheap champagne if you like), but let’s be smart about it…what you do with it, is where you can separate yourself from everybody else.

When you think about it…pay raises are sneaky little buggers…they result in a slow and steady rise in income, which nearly always leads to what has been called…(insert drum-roll here)…“lifestyle creep”.   For your convenience, I’ve provided a lovely definition here:

Definition: “Lifestyle Creep”

“A situation where people’s lifestyle or standard of living improves as their income rises.  As “lifestyle creep” occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.”

— courtesy of Investopedia.com

In other words, when you make more money, you spend more money.  If you’re anything like I was, no matter how much I made over the years, I managed to spend it…all.   I never had “extra” money; I was yet another victim of “lifestyle creep.”  My pay would go up, and the spending would follow soon after, without even trying.   The thing about small incremental pay raises is that, individually, they’re not enough to be life-changing.  But my point is that while it may not seem like enough to bother saving it, it’s also not enough that you should really miss it, either.

The days of just letting your money and your finances happen TO you, are OVER.  You need to be in the driver seat, in control of your finances, fully conscious and acting with intention.

So where do we go from here?  It’s time to be strategic about our pay raises.  These are bright, shiny opportunities for us to make a difference in our financial situation, for the better.  Trust me, you won’t even miss these little increases to your paycheck.  JUST. TRUST. ME.  To do this, we’ll let the good ‘ol Direct Deposit* system work to our advantage.

* I realize not everyone has direct deposit at their disposal, but this was written with the assumption that you do.  If you don’t have direct deposit available at your employer, you’ll just need to be all the more diligent about tucking your money away with the same method I describe, but manually.  

Let’s get started…

1.   Determine what your monthly net (take-home) pay is.  For this example, let’s use $4,000.

2.   Determine what your monthly expenses are.  Add up your bills, groceries, gas and a modest (but satisfying) amount of spending money, and set that number aside.  For this example, I’m going to use $3,000 as the monthly expenses.

3.   Next, divide your monthly expenses amount by the number of paychecks you receive in a month.  I get paid twice a month, so I will divide $3,000 monthly expenses by 2, to get…$1,500 of expenses per paycheck.

4.   Now I have the FIXED AMOUNT that I will have sent to my CHECKING ACCOUNT……$1,500.   Perform the calculation yourself, and enter that amount on your direct deposit form with your checking account information.

5.   Next, direct the REMAINDER of your paycheck into your SAVINGS ACCOUNT.   Once you’ve entered your savings account information, there should be a checkbox that says “Remainder”, or something similar, where you indicate that you want the rest of your paycheck sent to your savings account.  Now turn in the form to your HR department. 

6.   One last step.  Please now engage in the acrobatic leaps I described in our daydream earlier (ill-fitting khakis are optional), because you just made a huge step forward in managing your finances.  You have made a conscious decision to make your spending and expenses a fixed amount, and allow your savings account to grow right along with your future raises.  Here’s a virtual high-five in the air, because you have managed to do what a majority of working people don’t.  (And yet they wonder…year after year, raise after raise, why they still feel broke).

You will be amazed how quickly the balance in your savings account grows.  Then, year after year, with every pay raise, you’ll smile with glee as you see that beautiful little pile of extra cash deposited into your savings account without you lifting a finger.  The fact is, humans are emotional creatures; the more we put our finances on auto-pilot, the less damage we can do.

So I’ll leave you with this…get up out of your cubicle (I know you’re reading this at work…you naughty little thing) and contact your HR department.  Start the process…avoid “lifestyle creep” by fixing your expenses and allowing your pay increases to be escorted straight to your savings account.  This LITTLE change will reap you HUGE rewards.