Tuesday, December 22, 2009

Holiday Giveaway!

Thanks for reading my blog!

In the spirit of the season, as well as the intent of my blog, I am hosting a holiday giveaway.

The requirements for the giveaway are easy...

1.  Leave a comment on this post on why you like/dislike the blog with a valid email address.
2.  If you don't want to leave your email on your comment, email me at futurethinkdollars@gmail.com with your email address, and make sure to reference your comment.

There will only be one winner picked by a random number generator, and the deadline for comments is noon on New Years Day.

In short, you can only win if you leave a comment!

The giveaway is a finance related item (less than $50), in the spirit of the blog.

Winner will be notified by their email address with which they enter, and will be mailed their prize.
(Future Think Dollars is an anti-spam entity, and will never distribute your email address for any unauthorized reason. That bugs the crap out of me too when sites do that!)

Have a safe and happy holiday season and Merry Christmas! (Future Think Dollars will return soon!)

Friday, December 11, 2009

Seek explanation

Another perfect example of why you should always consider the source of any information given/told/shown to you when it comes to your investing choices.

Just because someone is showing you pretty graphs, pictures, or reports, should not sway your natural instinct which should be caution.

Just like someone who walks into a car dealership without any information on invoice pricing will lose, so will you. There is easy to obtain knowledge about negotiating that will prevent you from getting taken advantage of, and the use of information prevents these types of financial matters.

While it sure would be nice if everyone just took good care of their neighbors, it's just not realistic.

Do your own follow up research on anything financial related before making a decision. If anyone has a problem with that, or tries to pressure you, walk away.

There are always more opportunities out there, and if the person in front of you is not willing to explain things so that you can understand them, you should be looking for something else.

Wednesday, December 9, 2009

Delayed Gratification, in marshmallows!

I talk about how important it is to delay gratification, or in plain terms, save more and spend less! The idea is the more you save now, the more you will be able to spend later, and the power of compound interest is what really makes the whole process incredibly valuable.

This video sums it up in a hilarious way, and I think it's a fantastic and quick video!

Check it out!

Monday, December 7, 2009

Index funds win again

It is my belief, and many others, that a low cost index fund portfolio will beat an actively managed one. This is what I base my portfolio on.

I consider myself a pretty lucky person, but I do not think I am lucky enough to win against a stacked deck. The stacked deck in this case are the lower returns you will get from a higher cost fund. It's just not worth it!

"They found that outside the top 3% of funds, active management lags results that would be delivered due simply to chance."

 Image: © 2009 TNT Fireworks, Inc.

"Investors who continue to send money to actively managed mutual funds in the hope that managers will be able to beat less-costly index funds are going to lose out almost all of the time, a new study finds."

Another great example of why it makes a whole lot of sense to have a foundation of index funds, instead of relying on a lucky strike against a stacked deck.

Saturday, December 5, 2009

Sometimes a buddy of mine will respond to a conversation with, "You're just trying to get rich!"

This is probably due to my zealous approach to explaining the power of compound interest.

My reply is: "I'm just trying to be financially independent!"

The first goal should just be saving to make sure you can retire when you want and still do the things you want without stressing out about money. Once you start looking at it this way, it makes a lot of sense when you start changing some of your behaviors. The power of compound interest is just too ridiculous to not take advantage of.

In previous posts, I have tried to highlight this, in the interest of bringing more attention to the concept, and ease, of saving for life after your career.

My personal aim is to be financially secure for my spouse and I's benefit. There are some who choose to "hate" on this concept, with an accusation of "trying to be rich."

To that, I reply, "Is financial independence such a horrible goal"?

I leave that to my readers to decide, but I hope to spread the knowledge that this goal is attainable for anyone. All that is required is a desire to learn the basics, and apply them!

Thursday, December 3, 2009

$5 albums

Amazon is offering 100 DRM free albums for $5 each during December.

I started buying music on Amazon for their specials they have on new albums. They often offer brand new albums for MP3 download at the price of $3.99. This price is usually only good for a day or so, but when I see something I like, I try to take advantage.

Hopefully you can save some money on some albums you wanted to buy!

Wednesday, December 2, 2009

Waiting to buy something

Is there something you want to buy the next chance you get? Do you have your eye on a new couch, a new mp3 player, or a new car?

You may find that the longer you defer, or delay, a purchase, the less necessary it will seem.

A prime example for this could be a new car. As you continue to drive an older car, you are avoiding a new payment. This is an easy concept, but the other savings you are keeping may not be as easy to identify.

By waiting, you give yourself time to think about the necessity of the purchase. You may decide to buy something cheaper, or decide on not buying it at all. You could also end up getting a new model by waiting a little while before you buy.

A habit of mine is to check online prices for nearly everything. Even things you wouldn't normally buy online are available. Even if you don't buy the item online, this gives you a good frame of reference for what is available.

If you give yourself extra time on a purchase, you give yourself time to try to save money on it.

Tuesday, December 1, 2009

Investment choices

There are times when there seem to be no good places to put your money. These are the times where everyone is talking about how the stock market has been slamming them, and the banks aren't paying great interest rates anymore. During times like these, don't let frustration move you to decisions you would not have made otherwise. During one of these periods, you get impatient, and you may want to make big changes to your savings strategy. Don't let your emotions get in the way of making sound investment decisions.

Give your decision some time and if it still makes sense to you, especially after hearing counter points of view, it may be wise to take action.

I have made bad investement decisions, and I have made good ones. My mistakes most often were made when I acted without fully thinking through the options!

Monday, November 30, 2009

Christmas shopping

Of course everyone is talking about Christmas shopping, and I am no different.

Looking back several years, I spent a ton of time in stores that I didn't really want to be in. For example, I spent an hour in line just to check out at a Best Buy a few years ago, for some random Black Friday deal. Bleh. Looking back, I can't believe I wasted that time.

Seeing as how today is "Cyber Monday," maybe it is fair to talk about the difference between standing in line, and having your items shipped right to your place.

My preference, overwhelmingly, is to get whatever the heck it is I want to buy shipped straight to my place, rather than drive to the store. I save the commute, the hassle of standing in line, and the stress.

The cost of said simplicity? Usually it results in a savings, as opposed to an increased cost.

When shopping online, I use Amazon.com quite a bit. They offer free shipping over $25 on a bunch of items, and their variety makes it easy to get what I need, at a good price. I also peruse the forums at Fatwallet and Slickdeals, as they enable me to find the best deals. Fatwallet is a favorite of mine as well, because they offer a bunch of cash back offers through their "Fatcash" which rewards you for using their shopping portal. Many times, I have combined Fatcash with a coupon or other offer and saved a ton of money compared to MSRP. True to form, many of the longtime members of the sites call anyone paying MSRP "suckers," as there is always a deal somewhere!

I also use Google's portal for comparison shopping, and often compare prices (with shipping and fees) to Ebay as well.

With all of the online resources, why pay retail anymore? With coupon codes, and free shipping offers, it makes more sense to have everything delivered while you have a cup of coffee!

I hope this helps you with your holiday shopping!

Free online finance book

Rick Ferri is CEO of Portfolio Solutions, a low cost investment management firm.

He has a free book online that is completely readable, and very timeless advice.

I highly encourage anyone interested to check out the book!

Serious Money

If you like this material, head to your local library and grab some more!

Saturday, November 28, 2009

Dilbert Guide to Personal Finance

The cartoonist Scott Adams, famous for creating the Dilbert comic strip about office humor, also created something about personal finance.

In a quick, concise, and simple guide, he breaks down the basics in less than 150 words.


Dilbert Guide

Monday, November 23, 2009

Micro Transactions

When I started getting more serious about saving a few years ago, I had trouble thinking about getting started. It seemed like the big numbers I wanted to try to save were just too big. Then I started to look at it from a different perspective. When you "chunk" away at saving by breaking it into smaller pieces, it decreases the pain from saving. For example, if you are trying to put $2,000 into your Roth IRA, it really sucks to write that entire check for a lot of people. An easier route may be to set aside (with automatic deductions) $80 per paycheck.

Another tactic I used was looking at so called micro transactions. These are those small purchases that tend to add up quickly, and really hurt your savings potential.

Let's take a look at a few easy ways to spend a lot of money without really thinking about it.
 You have work early this morning, but you have a second after your shower to load up your iPod with some new tunes. You grab that new single that you can't get out of your head, and play it as you finish getting ready. You realize you are not going to have enough time to make coffee. It's early, you had a late night, and you want some coffee for work. You decide to stop at Starbucks on your way, and grab a large specialty drink for $4. It's only $4 + tip, and you're making money today at work, so why not treat yourself? After that quick stop, you grab gas at the station next door, even though the station charges you extra for using your card. After a twelve gallon fill up, you notice they charge an extra ten cents per gallon when you use your card. Oh well, it was very convenient, and you needed gas to get to work.

The morning goes well, but you forgot your lunch as you rushed out the door, so you go out for lunch and spend a few dollars more than you really meant to. Again, you remind yourself that you are working today, so it's OK to spend a few extra bucks. It's food, and you're hungry, so you grab a $7 value meal with chips and a drink. Back at work, the afternoon is dragging after your lunch, so you decide to grab an energy drink. Because they are on sale price when you buy two, you grab an extra because you know you will need it for Wednesday. Finally work is done, and you head home. Once you get home you order pizza because it was a long day, and you don't feel like eating your lunch you forgot to take with you this morning. You click on your cable and call it a night!


By the end of this story, I think it's very apparent there are some places that would be easy to adjust to that would save you lots of money.

1.29 (music) +5 (coffee drink  w/tip) +1.20 (gas surcharge) +7 (lunch) +5 (energy drinks) + 25 (pizza w/tip) = $45.49

Let's half that amount, and use that for some quick math. ~$22 per day/4 days a week.

So four days a week, you spend quite a bit more than you really mean to on stuff you probably don't really need. While spending money on stuff we don't really need is part of why America is such a great nation to live in, it does not help your savings goals.

$88/week X 50 weeks (let's say you take a few extra days to save in there) will leave you with $4400 missing from your savings account, and nothing to really show for it.

I used to make many of these choices quite often, and I still do...but I am definitely more aware when I do! It's even easier to avoid spending on extra things that don't meet your savings goals when you set your account to automatically set money aside in a different account.

Remember that $80/paycheck I mentioned at the beginning? Yea, we just doubled that, and if you give it a shot you may not even miss it after a few weeks.

Tuesday, November 17, 2009

Extended Warranties

My laptop was recently giving me some issues.

I purchased it at the end of 2007, and I'm hoping to use it until it melts.

That, or until I start getting looks similar to those still using Betamax instead of Bluray.

With that in mind, when I bought the laptop I managed to find a better deal with the purchase of an extended warrranty.

This was a little odd, as extended warranties usually add cost without neccesarily adding the same amount of value.

I managed to combine a work discount, coupon, rebate, and the warranty purchase for less than I would have paid at Best Buy. That was intended to be somewhat of a joke, as Best Buy is usually anything but on big purchases.

Usually Best Buy also hounds you to buy their extended warranty too, which I've always found overpriced.

In fact, I am usually against buying extended warranties, unless I know there is a part that tends to die after so many uses/hours.

I purchased a Mack Cam warranty for my TV for example, because I knew the bulbs tended to go out within two years. I learned this after intensive research on Avsforum.com.

Sometimes it does make sense to purchase an extended warranty, and my laptop warranty paid off, with the motherboard, fan, and heatsink being replaced free of charge.

This also let me watch the technician do it so I can potentially do it again after the warranty is up!

Saturday, November 14, 2009

Update on Overdrafting

In an interesting and timely update to a previous post concerning bank overdraft fees, the Federal Reserve has announced that overdraft fees will no longer be allowed for most purchases. There is still an opportunity for banks to charge fees for some transactions, including those that are recurring, like monthly auto pays for cell phone bills as an example.

The rules go into effect July 1st, leaving the banking industry time to respond with creative changes. The industry has responded to the new credit card rules by increasing fees and charges before those new rules take place, and it will be interesting to see what changes they make in response to this threat on a huge revenue stream for them.

Yahoo News Article

One of the interesting parts of this article to me is that it seems like a direct response to Senator Dodd's proposal to strip the Federal Reserve of most of it's current authority. This also comes at a time when the public is looking for more action/magic bullet on the current economic situation, and if anything is a good image move for the Fed.

Fed Press Release

To those that want overdraft protection, it will now be most likely a "pay to play" set up. This opens the door for a consumer friendly/good PR bank to announce they will offer free overdraft protection, even if they already do.

Friday, November 13, 2009

Steam Cleaners

Today's post is a little different.

The wife and I are looking into buying a steam cleaner to help keep our apartment cleaner. We vacuum quite a bit, but are considering adding this item to keep our carpet in better shape.

Here are the models that we are looking at currently:

Hoover F7411-900

Hoover F5914-900

Both of these are lower cost cleaners, and we are not expecting ridiculous results. We would just like to reduce the amount of dirt/dust that we have inside. My wife says our carpet looks pretty darn good, and I have  to agree based on a completely professional and scientific cross section quick and dirty review of carpets we have been witness to.

Why would we want a steam cleaner if we rent?

My argument is we will have a house someday, and I have been wanting to get the carpet professionally cleaned anyways, so why not buy our own. The cost will be less than even one professional job, and while the results may not be, I am relatively confident we will be happy. In addition, we will be able to utilize the steam cleaner for many years, "saving" additional money with each use. We should also be able to recover more of our security deposit for our apartment.

What  do you think of the idea?

Wednesday, November 11, 2009

Rate of return

My examples that I use on this blog are meant to encourage real world examples of savings opportunities to become real world investment opportunities. I try to keep it relatively simple, and that is what I try to do personally as well.

I feel that a good rate of return (or investment return) that should be factored into "how much do I need to save" calculations is 5-6% before taxes/inflation. This differs quite a bit from what some companies want you to believe their products will do for you. I figure, if you "low ball" your expected return, you are more likely to try to save more. This is of incredible benefit because it puts more compound interest at your service, which is really my end game anyways.

I don't just want to make 5-6% and take it off the top every year, I want that 5-6% to add into my investments and continue compounding until I retire. This magnifies your savings in a ridiculous manner, which I like to highlight on this blog.

If someone is trying to sell you a product and is telling you that you will make ridiculous returns per year, you have to ask yourself some questions.

Why are they selling this product to me, instead of investing in this amazing opportunity themselves?
What do they invest in personally?
Will they share their personal asset allocation with you?
What does the product cost, including all fees?
Do I really need this product?
Is this product better than what is available to me as an individual investor?
Is this a "combo" product, that does not really do as well as individual products in their respective area?

After you work through these questions, many financial products do not hold their salt. Keep it simple with low fees, make it automatic, and start your plan as soon as possible. This will enable you to save for what you want, and you won't need to stress about it.

Monday, November 9, 2009

Rent Negotiation.

As a renter, I am subject to potential rent increases. This year was no different, but I was successful in getting the increase reduced significantly by writing a letter to the manager and management company.

This could potentially save you some money, as long as you have been a good renter (paid on time, haven't had 20,000 noise complaints, don't use the apartment for science experiments, etc.)

To: Manager Name - Manager                                9/4/2009
Apartment Complex Name
Dear (Manager name),
    Thank you for your letter offering us lease renewal options. This letter is in response to that previous letter sent to my household concerning our rental lease renewal options for our lease ending on 10/19/2009 and the subsequent conversations we have had since then in person and by phone.
    My household is unable to sign a new twelve-month lease agreement with (Property Management Company) with the current terms, however we understand the interest in your company maintaining a positive cash flow and  occupancy of my unit with a 12 month lease in these economic times and thus respectfully offer the following modified terms.
    My household is willing to sign, immediately, a 12 month lease for our current unit with the following modified provisions:
A monthly rent amount of #########, which represents no increase in rent from our previous lease agreement.
    My household has been an (Property Management Company) customer for two years now, but after our lease renewal options were presented we looked at available and comparable units in the (your county area), both (the neighborhood you are in) and in other areas. Simply put, there are many units available that are not with (Property Management Company) that are much more economical in their pricing structure. Many start at a lower monthly price, and also offer rent credits that range from two weeks to a month of free rent with a new lease being signed. We have a good history with your company and would like to continue our relationship if possible.
    We recognize the economic situation, and believe this represents an equitable compromise. (Property Management Company) is facing many revenue challenges, as is our own household. By accepting these modified terms, (Property Management Company) maintains the following advantages.
    My household represents that of a "model tenant." My household presents rent checks on time, and in the majority of cases, early rent checks are presented. This represents an uninterrupted revenue stream. The  savings from keeping your current tenants in place with a new lease at our modified terms instead of having an empty apartment represent a cost savings. Even a two week vacant period would result in a 35% loss of revenue as compared to keeping your current tenants at the same rental rate for the proposed 12 month lease. When the extra costs associated with prepping our current unit for new tenants are added onto this, the option seems less than ideal than our modified terms.
    By meeting our household at an equitable compromise, this arrangement would benefit both parties. (Property Management Company) and my household can mutually meet our respective individual and corporate needs.
    Immediately, the proposed terms enable our unit to continue generating income for your company for an additional 12 months. Your company maintains it's revenue stream, but eliminates cleaning fees, advertising fees, carpeting and painting fees, and income loss.  This is very positive and you are also maintaining a quality tenant who pays consistently on time and keeps the unit in very clean and quality condition.
    Please call me upon receipt of this letter so that we can complete the necessary documentation. I look forward to a mutually beneficial outcome.
Unit #
Phone ###-###-####
cc: propertymanager@yourpropertymanagementcompany.com

This letter could have been better I'm sure, but the end result was a much smaller increase than originally proposed.

Friday, November 6, 2009

Laptop on the fritz

I am working on getting my laptop fixed today. Another lesson on why it's not really any better to spend more on a laptop!

In the meantime, check out Bankrate.com for great banking interest rate availability. They also compare credit cards, and mortgage rates.

Another awesome site is Dinkytown. Funny name, awesome financial calculators.

Have a good day!

Wednesday, November 4, 2009

Avoiding overdraft fees

When I got my first bank account and started depositing my own paychecks and using an ATM/Debit card, I made some mistakes. I overdrafted twice, and realized I never wanted to do it again. I had a few fees taken out of my account, and I realized I didn't like that either.

The cure for overdrafting for me was a simple rule my wise grandmother helped me out with, always have at least $500 in your checking account. This was a tough rule when my paychecks from my first job were miniscule, but I have stuck with it since and it has served me well. I have bumped up the amount and currently try to keep right around $1000 in our checking account. This is a good amount for us, and let's us maintain our automatic deductions into our savings/investing accounts as well. These do not need to be huge automatic deductions, but making them automatic means we don't think about them on a day to day basis and then BAM! a few months later we see that we are making progress. That bam was for effect =D

If you have overdrafted, don't be afraid to ask the bank to waive the fee. Feel free to throw in that you have been a great customer/1st time you've made the mistake/anything that will help your case. Avoiding the overdraft fee for me was easy the first time, and took a little more effort the second time. I felt embarrased after I got hit with the fees, but after I put my pride aside I was sucessful in avoiding $70 worth of fees. In this case, the fees were a huge portion of my small take home pay at the time. Granted, I was a bit younger, and that may have been why the manager took pity on me, but it never hurts to ask your bank to waive a fee. If you find you are getting hit with fees all the time, maybe it's time to shop for a new bank.

Tuesday, November 3, 2009

MSN Article with good advice

MSN Money has a fantastic article on very basic wealth building concepts.

While the entire article has great material, my favorite is the "Part-time millionaire" mentioned at the bottom.

This is a concept my wife and I try to take seriously by actively pursuing new ways to add to our income without over working ourselves.

The article also mentions the years from 18-30 being some of the most important years as far as wealth building is concerned. It doesn't really hit on the fact that this is the age range where many people are the least concerned about saving, until they are shown how important a few extra years of compound interest is!

Monday, November 2, 2009

No dessert with this post.

Everyday I try to highlight easy, relatively painless ways to save money on Future Think Dollars.

This post is not going to sugar coat it.

Trying to save money sucks!

It is incredibly hard to not think about everything you would rather be spending your money on than trying to set up that Roth IRA, or start your 401k, or get yourself out of debt. It is also incredibly hard when it seems all your friends/family/acquaintances want to help you spend your money. It is simply not the "coolest" thing to hang out and watch movies, play some old school board games, or catch a cheap sports event. Now it seems that anytime people get together, the goal is to go spend money. Spending money has been incredibly well marketed as buying happiness by everyone that stands to profit.

The goal of this post is not to stop spending all money. Although that would be fantastic for your savings, it would be horrible for your life.

Instead, this is meant to encourage some reflection upon whether those nights out on the town, or shopping trips, or major purchases are indeed making you happy.

Don't spend money just to spend money, because you are only delaying the start of your financial life. This is your life, and you should be thinking about where you want to be in 5, 10, 20, 30 years. I don't think you will really wish to be back at the age you are now buying all of the things that are literally costing you a fortune over that time frame.

Some of the best days of my life have included days where I spent a decent amount of money.

Many of the best days of my life have been days where I only realized afterwards that we'd spent a pittance compared to the good times we had with a great group of people.

Cut your own hair.

This post may be a lot easier for my male readers to take action on, but could be useful to anyone willing to give it a shot.

How much do you spend on a haircut?

These clippers probably cost a couple haircuts or less...and you can use them until they melt. I have had no issues with this set of clippers.

Take that figure (15-50 x 12) and this is how much you could potentially save in the first year alone. This assumes once per month plus tips

I used to get my hair cut at Supercuts for around 15 bucks plus a few dollars tip. Then one day the nice lady cutting my hair mentioned "Really? You could just do that yourself..." when I asked for my normal short haircut. Talk about killing your market lady! But she had a great point, and she was right.

I didn't realize for some time that my haircut is incredibly easy and I was shooting myself in the savings foot, and this was when I was younger and just saving up for the Friday night movies. Now I have much different savings goals for the wife and I, and we find ourselves stretching to meet those goals.

This method alone can easily save the average guy $200 a year. That's a lot of cash for taking the fifteen minutes to do it yourself! As long as you don't make to bad a hack job of it, at most you are just going to need to try again a bit shorter, and more carefully. After a cut or two, you will be pretty decent at it!

Did I mention you also saved all the time you used to spend just driving to, waiting for, and driving back from a haircut? That's wear and tear and gas for your vehicle, and the "cost" for your time too!

Wednesday, October 28, 2009

Consider Subscribing!

If you enjoy Future Think Dollars consider clicking on the subscribe button. This let's you know everytime there is a new post.

I use Google Reader to keep track of sites/blogs I like to read. There are many other options out there as well, and you may find you like not having to type/click on seventeen different links to check the websites you like to check.

Give it a shot, it will probably save you time and sanity!

Thanks to reader Alix for educating me on Google Reader, I've been using it ever since!

Rent vs Buy Housing Calculator

Which is a better idea for your situation? Are you in a spot to take advantage of the lower home prices we have been seeing for some time now? Perhaps you are wondering if your cheap rent would be beaten by a home purchase in terms of long term costs.

The short answer is "yes" but how many years will it take to break even?

There are many things that factor into that calculation, and there are indeed sometimes when it makes less sense to buy a home. This calculator is very useful in doing some calculations of your own, with your situation. Try playing with the advanced settings for buying, renting, and general. Keep in mind that first time home buyers tend to underestimate maintenance and upkeep, as well as furnishings and increased utility bills.

The common sense knowledge passed on by nearly everyone is "buy a home as soon as you can." This is based on the housing market pre 2007-now. Buying a home for your family is a fantastic idea as long as you do not see it as an investment, but a place to raise a family. Unfortunately, too many saw their homes as ATM's (and took out Home Equity Line Of Credit loans, or HELOC) and many people are facing tough decisions right now. Many very intelligent people did not see anything wrong with home values, and had the mind that if they did not get in NOW they would never be able to buy.

My philosophy on this is a bit different. I rent a small apartment, in not the greatest area, but I am within walking distance to a lot of fun stuff. We could never afford to live in this area and still be able to take care of our priorities. My wife and I agree that we are in no rush to buy a home, and that we see our "need" for a home coinciding with having a child. We're just not there yet, and we figure, why rush it? Another reason that is not pointed out often is that there is no opportunity for compound interest in real estate. Compound interest is exactly what we are trying to go after at a younger age as opposed to later on in life because it is so much more powerful with even a few extra years to work. Contrarians, but it works pretty well for us, and that is the bottom line.

What's your view?

Tuesday, October 27, 2009

Energy Savings

There are some simple ways to save energy, without too much extra effort.

Powering off power strips, seldom used appliances, and turning off computers when not in use are all easy savings. When I was a teenager, I liked to leave my computer on at night while it was downloading stuff. I justified this by turning off the monitor, which was a CRT (old big one) and used a bunch of power! I no longer leave my computer on at night, and I have gotten in the habit of using the shut down function that entirely powers down the computer. I did a little research, and the sleep function (the one that lets your computer boot up quickly from where you left off) continues to drain power the entire time it is in that mode.

I have our entertainment center stuff wired into power strips. This makes it very easy to take an extra second when we are done using it to flip the power button to off. This prevents the constant drain that many electronic devices exert on your electricity. This was a painless change to make, and now is very easy to remember to do. It saves money, and is good for the environment too!

The wife and I picked up two packs of CFLs (compact flourescent lightbulbs) for two dollars and replaced some of the bulbs with those. They really do draw quite a bit less power than regular light bulbs.

We try to limit the use of air conditioning on those days when you could just open windows and be comfortable. We don't hesitate to use it when we want either. In San Diego's mild winter, we try to refrain from using the heater when we could put on more clothes and be just as comfortable, which is easy in this climate compared to others.

We have some gadgets around the house that use batteries, and decided to purchase rechargables. We now have a small collection of Eneloop batteries by Sanyo and we have had great success with them so far. The start up cost is definitely more than buying non rechargeables, but we no longer buy batteries. We bought our initial package at Costco, which comes with a charger, and have added to the collection as we see the need. I no longer pile my way through a pack of batteries when playing Xbox, and our remotes no longer eat batteries for three meals a day!

The wife enjoys candles around the house, and she mentioned she we save energy from using candles instead of Febreze/Renuzit/Etc. plug ins that would constantly drain power.

Through the use of these power saving/money saving ideas, we have reduced our monthly energy bill by almost thirty three percent! Try some of these, and see how much you save.

Monday, October 26, 2009

My asset allocation

Here is my asset allocation for both my Roth IRA, and for my 401k.


Total Return Bond 7.98%
Treasury Inflat Protected 13.24%
S&P 500 Index 34.30%
Small & Mid Cap Index 30.76%
Intl Index 13.72%


Individual Stocks 40.7%
Mutual Funds (non index) 21%
Money Market 38.3%

Today I am rebalancing (which means sticking to your set investment goals in percentages of what you invest in) and adding to my bond holdings in my Roth.

I intend to use the money market cash to invest in a bond index fund.

I plan on reducing my individual stock exposure incrementally, as many of those are stocks I experimented with when I started my first Roth a few years back. As I shift out of the individual stocks, I intend to add to my Treasury Inflation Protected Securities, which are intended to return more if inflation increases.

I also intend to rebalance some of the small and mid cap index, as that has grown to be a larger part of my allocation than originally intended.

My goals for allocation are:

Individual stocks <5%
Bonds/TIPS 35%
S&P Index 40%
Intl Index 10%
Small/Mid Index 10%

Ultimately, my goals is to be entirely invested in low cost index funds.

Saturday, October 24, 2009

Time of savings is important!

When thinking about investing, many people think that returns are the most important number involved. The thought process goes that if you save a little, but get a huge return on that money, you will be set. Unfortunately, while it is popular to expect a huge return, this unfounded optimism can lead you down a road with a less favorable result. The solution to this, while a simple one, may not be the most popular.

If you dedicate more of your income to savings, over a long period of time you will have a good outcome even with a lower return. This should be apparent with any compound interest calculator, as the amount put in as time goes on usually goes up. Many individuals are of the mindset that "I will start saving in ten years, when I have a family." "Ten years won't even make a difference, I've got more important things to do with my money." Obviously these statements vary from person to person, as does the time period, but the point of this is clear. If you start saving earlier, you will come out ahead. I have illustrated this in previous posts, but the concept of "lost opportunity cost" is a good one to mention again.

If you started a Roth IRA when you got your first job at sixteen (I wish!) and contributed $5,000 per year until you retired at age 65, you would end up with around 1.5 million dollars, at a rate of return of 6%. This example is meant to highlight the importance of starting early, but would hard to start at that amount, especially at sixteen. Here's an idea if you ever have the chance to pass this on, I offered to match my wife's little brother's Roth contributions when he gets his first job. He's not old enough yet, but his eyes still lit up!

Now if we bump the start age up to 26 and use the same numbers, minus the extra 10 years of compounding, we get a much different number. The power is in the extra years to compound, as you end up with $817,000 or so without the extra 10 years.

If you started earlier, even though it would have been difficult to do, you would have ended up with almost double the money.

This is obviously not what most people want to hear, and also where many people (including myself before I started learning more) go wrong! It is far easier to save a bit more money and get the market return through index funds instead of chasing returns in individual stocks or actively managed mutual funds. In fact, if you stop chasing returns and just stick to a basic plan for your investments, you will be much less stressed out too!

Thursday, October 22, 2009

Disposable Razors

Like many people in America, I use a disposable razor of some sort. I used to buy packs of cartridges for my Mach 3 Gillette razor at Costco without even a thought. Then I added up how much those were costing me per year. I used to change my blade more or less once a week, which was when the blade starting feeling dull. At Costco, I remember the 16 pack of blades being around $30, which works out to around $1.88/blade. Like everything, I'm sure these have gone up in price, but I have not purchased any in some time. Let's say I could not make it to Costco, so I decided to grab some at the drug store/grocery store while I was there. At CVS.com the price for an eight pack of refill cartridges is $19.29 which is a little more than 50 cents per blade. No big deal with everything else going on in life, but I figured it was worth another look.

I started reading some anecdotal posts on answers.yahoo.com about a way to make your blades last longer. I also learned a bit more about how much shaving cost have increased since the introduction of cartridge based razors like Mach 3, Fusion, Quattro, etc. I started realizing I could save some cash, and also not have to go to the store as much. I figured this was worth a shot, as some individuals were reporting using one blade for 6 months!

I was very, very skeptical, but figured I could save some money if it actually did work.

The basic idea is changing a few habits when you shave. When I used to shave, I would finish shaving and then put the razor pack in the swanky little Mach 3 tray without a second thought. This new idea involved tapping the razor a few times to get excess water off, and then taking another second to dry it off with a towel.

Many of you probably already do this, but I never got the memo.

There was one more part of this "new" method to try, and that was to put a drop of mineral oil (plain ol' baby oil) on the blade, and gently spread it over the blade surfaces. The thought behind both of these seems like common sense now that I have been doing it for a while. Another method is taking a tube of lip balm and using it only for this purpose (put it somewhere you won't try to use it, and/or label it or something) and this works pretty well, and is a quicker way. The baby oil, and the oils in the lip balm protect the blade from corrosion. The oils rinse off under hot or warm water, and are no different than the moisturizers in the indicator strip/shaving cream in that respect. It sounds funky, and does take a bit to get used to, but you may find you don't mind the extra ten seconds of effort.

Companies that sell razors make more money the more you change your blade. They even put indicator strips on them to remind you that your blade is "going bad". Well after using the methods above, I have not had to change my blade nearly as much. The indicator strip practically screams "change me!" but the razor still works like a charm! It turns out that a razor blades enemy is corrosion, the type of corrosion caused by leaving it wet. A razor blade does not become dull after a week of shaving human hair, as the razor companies would probably like you to believe by their marketing.

Armed with this new method, I did some quick math and realized I'm saving right around $100 this year just from taking an extra ten seconds to take care of my razor blades. I did the math, and ten seconds/day for an entire year is around sixty minutes, or an hour. With this method, you could make yourself $100 for an hour of "work". That's a pretty sweet rate of pay, even if it's not a huge amount, but I'd pick $100 up off the ground if I saw it in front of me!

More information on the evolution and commercialization of shaving from wikipedia.


At the advice of a friend of mine, I purchased the internet address for Futurethinkdollars.com

You can now access the site in either fashion, by http://futurethinkdollars.blogspot.com/ or the shorter address.

Hopefully this will be easier to remember, and that way more people will check out the blog!

Tuesday, October 20, 2009

Save big $$$ on Audio/Visual/Computer cables

If you walk into any retail electronics store to buy any type of cable, I can almost guarantee you are paying too much.

If you go to bestbuy.com, and search for any cable needs, and then compare the price to monoprice.com or eforcity.com, Best Buy loses the overwhelming percentage of the time.

I have personally used monoprice.com many times, and even recommend it by word of mouth to everyone I know when they mention needing any cable type item.

I have saved quite a bit of money by using these sites since 2006 for my personal use, and for friends and family. The difference has been quite dramatic in my experience $80 vs $5 even w/ shipping has been a common comparison.

I'm sure some of you are already aware of the huge retail markup on many cables, chargers, and adaptors. For those of you who habitually walked into Best Buy and bought your items, maybe you will like the other options.

Spending an extra $75 dollars on a brand name cable for a digital signal (like HDMI) is a big waste of money.

Put that in your Roth IRA instead!

Sunday, October 18, 2009

Risk profile.

A term you may or may not be familiar with is risk profile. This is based on a term called risk tolerance, which is a "more specific measure of the degree of uncertainty that an investor is willing to accept in respect of negative changes to its business or assets".

In short, this term means "how much money am I willing to lose before it really freaking bothers me!", and it should be considered before embarking on any investment.

Amassing any sort of "war chest" or savings is a very difficult goal, but one that is incredibly necessary for your financial health. If you are already saving, how much are you willing to lose? The answer I usually respond with is, "I don't want to lose anything! Duh!"

Oh, if it were that easy, then this blog post would not need to exist.

But it's not that easy, and people lose gobs of money everyday in the stock market. If you abhor/hate the idea of losing money on your investments, which by common wisdom are supposed to make you money, then stay with me for another minute.

Perhaps you are taking too much risk in your investments. If you had anything in stocks last year that was not "short", or betting against the market, then you probably had a relatively horrible year compared with some recent years of investing. If this bothered you in the least, I have an easy solution.

Take less risk. These three powerful words are unpopular ones to people who are chasing returns, but there is an easier way than chasing returns. It is easy to tout your respective stocks/mutual fund returns when the times are good, but it takes a lot to admit when you did not do so swell on your investments. I have no qualms about others learning from my mistakes, and I "lost" quite a percentage last year on my investments. This is in large part due to my love for stocks, and general disdain for bonds.

Let's just say this has changed. I was neglecting bonds previously, as I figured I had been doing pretty well with stocks the last five years.

What about you? Do you have any holdings besides stocks/mutual funds? If you do not, why? It may be worth it to you to check out this free "risk profile" from Finametrica. The only required information is an email address, I just used my initials for my first and last name.

My score was 70, what is yours?

What's your interest rate?

What to do with your savings? Set up an automatic 50/month into an account at Ally.com which pays 1.7 percent right now. This is definitely not as great as a few go-go-go years ago when I was getting 3-5 percent on money market funds, but it will still help you start saving with interest on YOUR side!

I wish I had learned about these type of accounts earlier, as most bank accounts barely compensate you for the use of your money. Think of it in that manner, and you will be on the right track. The banks should pay you a premium for the privilege of using your money for their business.

That's right, the money sitting in your checking account (what's your balance?) is making your bank money and not you. What's the interest rate on that money? If you don't know, you may be annoyed to find out it is a paltry 0.25% or perhaps even less. Even the savings account interest rate may not be at all friendly to your savings.

Find a bank that respects your money enough to pay a decent rate. Otherwise, punch out, because there are much greener pastures out there. Minimum deposit rates may vary for the higher interest rates, but you can find a better rate no matter your situation!

Bankrate.com is a wealth of information on this subject, and more!

Friday, October 16, 2009

Health Insurance Rewards

Do you have health insurance?

If you do, when is the last time you took a look at your insurer's website?

I checked out mine last year and found out they offered a rewards type program for participating in an online educational program. I completed a "wellness" questionnaire, and then starting getting weekly reminders to log in to read about health topics. It does not take much time at all, as it is only once per week.

Here's the kicker, they give you a debit card for participating, and continue to load money onto the card as your participation continues.

My health insurance is through Blue Shield of California, but other insurers have similar programs.

I just used some of my "credits" that I earned through my participation, and used the card to buy $50 worth of groceries!

Maybe your insurer offers a similar program, and all you need to do is check the website!
A few years ago I picked up a book in the library by David Bach called The Automatic Millionaire. I picked it up because it sounded like a simple book. It was an enjoyable read for me, and didn't require a bunch of knowledge about financial stuff. The book tries to get you formulate a plan for yourself that requires very little thought after it is put into place. It made a lot of sense to me then, and still makes a lot of sense to me now, so I figured it could help others as well.

The basic premise is to pay yourself first. You prioritize your savings, making automatic deductions from your checking account into your savings. Preferably, you set it up so the other account is at a different place than your primary account so that you don't see the money every time you log in to your main account.

Even $50/month will add up! Once you get a bit saved up, you will be even more motivated to continue.

The numbers that get thrown around for emergency savings are 3-6 months worth of expenses. That's a pretty decent amount of cash to keep liquid, or available in your bank account, but it makes a lot of sense. If you had that much set aside, you could deal with most things life throws your way, without affecting your day to day finances.

Thursday, October 8, 2009

Simple Savings

Looking for ways to save a few extra bucks? Let's look at your household expenses. Do you have cable tv? The question you could ask yourself is, why? With a few resources you could entirely replace cable tv, and save money in the process.

Netflix lets you rent DVD's for a monthly fee. The plan I currently subscribe to is 1 DVD at a time for $8.99/month. We usually cycle through quite a few DVD's during a 30 day period, and we supplement our Netflix DVD's with Redbox ($1.09 per DVD/Day) when we don't get our next DVD soon enough. Between the two, we spend less than $15/month.

Hulu.com/NBC.com/Fox.com/ABC.com/Comedycentral.com/ etc.... Free television shows you can watch whenever you want. No DVR required, which means no evil extra monthly fee. The only thing you have to deal with is random commercials, which is actually...just like real TV. So no loss there. Did I mention it's free?

Remember that Netflix thing I mentioned?

If you have an XBOX360 or other Netflix enabled media player and a Netflix subscription, you have access to over 17,000 titles that can be instantly streamed to your TV. All that crazy TV action is included in your Netflix subscription, and you can watch as much streaming stuff per month as you want with that $8.99/month plan that I mentioned before.

Buy video games? I've got an answer for that too. Gamefly.com offers a 1 game out at a time plan for 15.95/month. Yes, that's some cash, but considering that games cost $60/month, it's a deal if you like buying games. I've personally saved cash on games that I would have bought otherwise. I've realized there are not really that many games that I actually want to own, but there are quite a few I'm willing to rent.

Use your cell phone? Let's take a look at that one. Is there a cheaper plan you could use? Maybe you don't actually need 3,000,000,000 minutes per month plan. Do you even use unlimited internet on your phone? If you do, would it be that much of a change to downgrade? Maybe there is an employee discount/corporate discount/loyalty discount that you could get applied to your account. I did some research and got a 22% discount on my wireless bill through my occupation. Google it, and see what pops up!

Do you have a home phone? Why? If you cancelled that and your cable, and just kept your internet, would you really notice after a few weeks? Give it a shot, and add up the money you will save. The wife and I just have our cell phones, and it works pretty well for us.

While we are on the subject of internet service, do you need the whizbang fastest? We downgraded to the lower speed and have not really noticed, even with some online gaming. Try it, and see if you can save some money there too.

Remember that $75/month I threw out as a savings amount last post? If you add up some of the things just mentioned, you are there!

Or... you could build your own HDTV antenna. I couldn't resist.

Two important ideas to help you save.

How many people have a daily coffee, energy drink, or some other beverage "fix"? I know at work I drink my fair share of coffee, and I'm sure many others do the same on a daily basis. How many people put the same amount of money into a savings plan for retirement? The number of hands probably just plummeted. The line I hear a lot is "I don't make enough to save!"

The thought you have to get into your head is "I have to make myself save."

If you added up the cost of a daily coffee habit, or energy drink habit, or tobacco habit...you might quickly realize where your money is going. Check out this calculator and play with the numbers a bit. You may be surprised to see how much you spend on your daily fix.

Imagine if you instead put that toward a savings plan...

If you saved that $2.50 a day by drinking office/home brewed coffee, you could end up with $75,000 after 30 years.

This is based on a starting savings of $0 with the $2.50/day for 30 days in a month which is $75/month and at a rate of return of 6%, and never increasing your contributions. (You could increase your savings significantly if you rachet up your amount as you get raises/bonuses/part time jobs etc.)

At the end of the 30 years you would have "spent" $27,000 on your "coffee" to end up with 75,000. With this example, by just drinking the coffee and not saving, your opportunity cost (which means what you lost by not saving it instead) is $48,000.

That's an expensive $27,000 coffee!

Hopefully this sounds good to you so far...let's add one more level to it.

What if you made that savings automatic? What if you had your bank account setup to automatically withdraw $75 every month and put it into savings? It's much less likely you would even notice the money if you set it up this way. This is why credit card companies allow you to put stuff on "auto-pay", and now you can use the same concept for your own savings plan.

Even a small amount per month can add up to huge $$$ after 30 years! The keys are to start early, save more, and make sure you prioritize your savings before your spending!

Saturday, October 3, 2009

Why isn't personal finance taught in public schools?

This is a question I have asked myself many times since learning more about my own finances. I don't have the answer, but I do have some ideas.

If all young people started life much more knowledgeable about their own finances, what would the credit card companies do? Talk about a market loss! I look at all the mistakes I have made financially (and still do make!) as well as my peers and it baffles me. Many times credit cards were mentioned to me in an offhand way, without stressing responsible usage. Why couldn't there be some actual coverage in the education system? It seems it would be a perfectly good spot to make math "relevant" which I personally found myself struggling with when I was younger. Heck, I still don't like math that much, but I understand the power of compound interest now! The earlier someone can learn that lesson, the better.

Think about the thousands in interest payments that could be saved by just encouraging people to "live within their means." As a concept, that just means don't spend more than you earn. I definitely struggle with this concept, and I know many of my friends do as well. There is a pervasive "keep up with the Joneses" mentality in much of our culture in America, and this attitude should be questioned. Who really wants you to spend more money than you earn and keep yourself in debt? This is what the financial industry is fantastic at! The problem (as we have seen recently) is when people become so indebted that they can't even make their payments.

Is this what America is about?

Wouldn't the other side of it be a more productive road? What if more people took their own finances seriously, and made it a priority instead of an afterthought?

The bankers might not like that very much, but I think you would!

Alcohol and your wallet

Beer, I love beer.

The wife likes wine, and we both enjoy mixed drinks from time to time.

Groups of friends usually go out to bars/clubs and spend gobs of money on alcohol without really thinking about it. I'm guilty, but I've tried to grow more aware of how much money I'm actually spending on these "vice" items.

I found this calculator that I found enlightening on how much your alcohol consumption actually costs you. Try playing with the different numbers and see what numbers you come up with.

I realized sometime ago the benefit of "pre-partying" (having a beverage or two before going out) but this calculator really shows the benefit if you take a drink or two out of your weekly/biweekly/monthly social night.

Maybe you go out more than you realize and are literally drinking your dollars away!

Don't worry, this post is not meant to mean that you can't go out and have a good time...it's just meant to bring up the cost of a night on the town, and also what those nights costs you over the year. It's up to you to decide if you have better things to spend your money on!

Wednesday, September 23, 2009

A simple plan.

Today we will look at two investing companies and two nearly identical investment plans that only involve four funds. Yes, that's right, four funds. Investing does not have to be complicated! Let's sample each companies low cost funds.

Fidelity is a company you may have heard of. They are a privately held investment firm. They have an excellent website for the new investor that allows you to try many options and retirement type calculators.

Here is a sample portfolio using four of their low cost mutual funds.

Spartan Total Market Index (STM)
Fidelity Total Bond Fund (TBF)
International Enhanced Index (TINT)
Inflation-Protected Bond Fund (INFL)

The first row is the weighting, or the percentage of the fund in this sample portfolio.
The second row is the abbreviation for the fund.
The third row is the expense ratio, or cost as a percentage, for the fund.

40% 25% 20% 15%
0.10% 0.45% 0.63% 0.45

I really like looking at Vanguard's site. If you are not familiar with Vanguard, they have been around for a long time, and are famous for forcing mutual fund and investing costs down overall.

Let's take a look at a sample portfolio using Vanguard's low cost funds.

Total Stock Market Index (TSM)
Total Bond Market Index (TBM)
Total International Stock Index (TINT)
Inflation-Protected Fund (VIPSX) -- actual "ticker" symbol (for the NASDAQ)

The first row is the weighting, or the percentage of the fund in this sample portfolio.
The second row is the abbreviation for the fund.
The third row is the expense ratio, or cost as a percentage, for the fund.

40% 25% 20% 15%
0.18% 0.22% 0.34% 0.25%

Now with these two examples, you can see some differences in costs. The Spartan fund family from Fidelity has a high minimum investment amount compared to Vanguard's funds. The minimum for the Spartan funds is $10,000 while the Vanguard funds require $3,000. That is a lot of money. But up next time, we will look at short term solutions for saving enough money to put into a fund, and other options that will allow you to "chunk" your money into investments.

Disclosure: The author does not own any of the funds listed, but someday hopes to.

Tuesday, September 22, 2009

Saying "yes" to learning about your finances...

Ok, this post is a bit different than the normal fare, but stay with me.

The wife and I just watched "Yes Man" with Jim Carrey. Excellent comedy, with a good point.

Perhaps you have said "no" to learning about your finances. Maybe you didn't actually utter the word, but you have never thought it would benefit you to learn. Maybe you just didn't want to. Maybe it is always painted as too complicated for you. Maybe, like my personal situation a few years ago, you just had never bothered.

It took a pretty significant event in my life to really kickstart my interest, though I had been starting down the road for less than a year before that. I realized that personal finance is important. I realized no one was going to take care of it for me, and if they were...they would charge me a bunch of money to do it. That kinda pissed me off, and I decided to use that energy to do something constructive. So I decided to start learning. I went to the public library and checked out anything that looked interesting. So books were trying to sell certain things, or certain ideas on investing. I kept reading, trying to get a broad reference of many sources. Internet, TV, radio, books, magazines, and personal converstations. I even read the obvious marketing material from a number of investment firms and companies, keeping in mind that I was reading advertising.

I encourage you to take a second out of your day today to read something finance related. Anything. Think about your lifetime goals, and how a new idea or direction in your personal finance could help you achieve that. Personally, I want the Ducati from the movie! What is your goal?

Saturday, September 19, 2009

Weighing Risk

Don't be afraid of learning about your money/investments. This will make you powerful, and less likely to get taken advantage of in your financial affairs.

Ever notice that phrase at the bottom of every mutual fund advertisement? Something along the lines of "Past performance does not guarantee future results"

What does this mean in English? We hope we will do as well or better in the future but we really have no idea. Now as a potential investor, you have probably heard often that there are "safe" investments, and "risky" investments. Stocks over time have had a good rate of return, but always have the risk of going down. As evidenced in the financial markets last year, stocks do not always go up. As an investor, you should be ready for the type of drop we saw last year. I understand this is a tough thing to think about, and I respect your fear of losing money. I too have that fear.

Thinking of the big picture, long term investment time lines of 5 or more years should see better returns with stock exposure. But imagine, (or maybe you are) someone who was ready to retire and then saw the stock market start falling last year. Hopefully you had a diversified, age appropriate mix of assets. Hopefully you had enough time left in your accumulation phase (or buildup) to weather the storm. At or near retirement age, most financial plans call for the increase in cash/bonds/money market accounts (MMA's), and the decrease in stocks as far as asset allocation goes. Many had these types of plans, but let the huge returns that had been seen for some time lure them into going astray of their plans.

The unfortunate scenario many investors found out last year is that stocks can go down just prior to your retirement and wipe out years of portfolio gains. This is why I am a big advocate of rebalancing, and increasing your amount in cash/Certificate of Deposits/bonds/MMA's as retirement age nears. If you stay too invested in stocks, you may not have enough time to see those "gains" materialize again.

Personally, I have chosen an asset allocation plan or in plain English, a "what the heck am I going to invest in" plan of a higher amount of bonds/cash equivalents than most financial magazines and media recommend. It is ultimately a personal decision, and one that can be an easy one. If you are less risk tolerant (Example: you never want to see your account balance drop like many with a high proportion of stocks did last year) then you may find it much easier to sleep at night with more of an allocation of bonds/cash equivalents.

If you are worried about long term returns, keep in mind that although accepting less risk is usually associated with lower returns, a healthy dose of bonds and the like can actually greatly reduce the risk of holding too much in equities (stocks.) The reduced risk of these assets can help "smooth" out the sharp ups and downs, or volatility, that can be seen in the equity markets on a daily basis.

Ultimately it is a personal decision, and one that should be an educated one. I encourage you to do your own research and soul searching and start thinking about your investment choices more instead of blindly following the advice of anyone, including the author of this blog!

Next time we will sample a "what the heck should I invest in" plan and look at the benefits/risks associated with it.

Thursday, September 17, 2009

The importance of investment costs

The simplest portfolio choices with the lowest costs can equal better long term gains than a high cost investment. Do you own any mutual funds? Do you know what the expense ratio is for your fund(s)? If the answer is no, read the most recent prospectus (the pamphlet with all the financial jargon in it you get annually). You may be surprised to know there are most likely lower cost funds that have matched or beaten your mutual fund(s).

Over time, an investment that had an expense ratio, or cost, of 0.2% annually vs an investment with an expense ratio of 1% will illustrate the importance of looking at costs. A higher expense ratio will eat into your compound interest year after year.

A $20000 dollar investment, at a rate of return of 6% and expense (or cost) of 0.2%, over a period of 35 years will yield around $144,000. This is a one time investment, with no regular contributions, which even with small additions would result in a much higher amount.

The same investment, with the same numbers except with a higher expense ratio of 1% would yield around $108,015.

With this example you can see that a higher cost investment will yield a much lower result. In reality, it is a hidden but direct reduction to your rate of return. A small percentage change in expenses adds up to 25% less money at the end of your savings window in this example. Pay attention to your expense ratios!

Saturday, September 12, 2009

Take the Free Money!

Some companies offer as part of their benefit package a 401k contribution matching up to a certain amount. This is usually a percentage. It could be a dollar for dollar match, or they could match fifty cents for every dollar you put in up to a max percentage of salary. In this example, let's say your company matches up to 3% of your pay. If they offer a dollar for dollar match for up to 3%, you have to take the opportunity.

This will be the best return you will ever get on your investment...a 100% gain instantly!

If you saw 3% of your annual salary on the ground would you pick it up? Free money!

As an example, your annual salary is $40,000. Your total for taking full advantage of your employer's matching would be $1200 for the year. In a year that has the normal 26 pay periods, this would break down to $46.16 per pay period. If you can contribute this much, which could be the result of making coffee at home instead of grabbing a $5 "fufu" coffee at the local coffehouse, you will be well on your way to starting your retirement savings.

Because of the power of the employer match, if you do this until you retire at 65, you could end up with around $250,000 in your account. These numbers reflect the following:

Age at start of savings: 32
Current retirement savings: $0
Rate of investment return: 5%
Annual salary increase: 2% -> which at your first raise would ratchet up your contribution per year by the small amount of $24

A 3% match is a pretty decent benefit to the employee. If your employer does not offer as much of a much, it is still worth it to contribute enough to obtain the full matching amount.

With this example you can see that the power of compound interest is amazing long term.

To highlight how powerful starting your savings earlier really is...

Take the same numbers, and start the savings at 22 instead of 32. This increases the amount put into your 401k by a comparatively small amount when you look at the gains possible.

You would end up with a whopping $477,000 if you started just 10 years earlier. That's almost double the amount!

What would happen if you waited until age 32 to start saving, but contributed double the amount? You would end up with $380,000 if all of the other numbers stayed the same.

As I hope I made clear, changing one piece of your savings behavior can have a huge long term impact. Above all, the benefit gained by starting your savings early cannot be overstated.

Simply, habitual contributions with compound interest will secure your retirement.

Not so simply, and up next time, a question from a reader "What the heck do I invest in?"

(I do not sell any investments, or any investment products. My hope is I can help some of my friends and family with advice that I have gained from lots of personal time spent reading and learning about my own personal finances.)

Thursday, September 10, 2009

Paying off Debt

Everyone always talks about how important it is to get out of debt. Let me highlight how it will effect your pocketbook.

Let's make some assumptions:

$1000 on credit card A with an interest rate of 7.9%

$2500 on credit card B with an interest rate of 11.9%

$10000 on an auto loan for your car at 4.99%

Your situation may be different, with varying interest rates or amounts. If you are not in debt, I applaud you! Try to stay that way!

Going back to the example..

What is your first inclination on how to approach paying the debt off? Do you want to pay off the highest amount first or the highest interest rate?

Well you can't go wrong either way, because you will still be paying down debt, but the best choice would be to pay down the highest interest rate first. It will take you longer to pay off the higher interest rate card in this example, rather than starting with the lower balance, but you will be paying less interest overall.

Interest saved = money back in your pocket!

If you do nothing but pay the minimum on the above example, you will end up paying for the tanks of gas, new clothes, and cell phone bill you put on your credit card for a ridiculous period of time. This will keep you from achieving your financial goals and should be avoided.

Your credit card debt alone in this example will take over 8 years to pay off if you only pay the minimum (used a 4% minimum payment). That's a long time to pay for a slurpee/starbucks habit.

If you can add $100 dollars to your total debt paydown each month, and apply it to your highest rate card, you can reduce the amount of interest you pay significantly. Here are the steps to pay down debt faster.

1. Apply your extra $100 to your highest rate card (along with your usual minimum payment) ; continue to pay your other minimum payments.

Using the above example it would be highest rate 11.9% minimum payment = $100 so increase your monthly payment to $200.

2. Once you pay off your highest balance card, apply both the $100 dollars and the old minimum payment to your next highest balance card. Keep paying all of your minimum payments.

This would mean now we are paying the next highest which would be 7.9% minimum payment around $40. Add your old minimum from the old card plus the extra hundred you are using to pay debt down early.

$40 + $100 +(old minimum which would have gone down with a lower balance.)

3. Move on down your debts and continue with your plan.

By doing this, you could pay off your debt in around two years instead of eight.

Now what to do once you've paid off the debt? That's next! Until then, think about what you will do when you are debt free!

PS: Bonus, you will save over $1000 dollars in interest by paying it off early :D

Wednesday, September 9, 2009


A brief conversation on laptops.

When I bought the laptop I am typing this post on nearly two years ago, it was to be my first laptop. I know, I know, I am behind the times. Since my purchase of nearly $1500, the computing environment has changed a bit, as it usually does. I have come to realize that it is neither cost effective nor intelligent to buy an expensive laptop unless you are a specialized user. Here is my list of reasons why a user should buy a cheap laptop compared to a specialized laptop:

Most laptop users are casual computer users who use their laptop for little more than word processing/spreadsheets, internet, online games. Most users simply do not need a specialized (read: expensive) laptop with 1 TB of ram and a 900 GB solid state hard drive.

Most users will want a new laptop before their old one breaks or is otherwise completely unusable. Simply put, people like new stuff.

The cost of a new specialized laptop like the Alienware from Dell starts at $2199. The cost of the new laptop in the newspaper circular that I advised a friend to purchase instead, $400. Take the difference, $1799, and add it into your savings account. More on this later.

You won't use all the features you pay extra for. Really.

So four reasons may not be enough to dissuade you from buying a more expensive one for yourself or your loved ones. Let's look at the financial benefits, both immediate, and potential long term.

Take the difference of $1799 and save it for a rainy day.

Take the difference of $1799 and put it into a Money Market Account at 1-2% (MMA) and save for your next laptop or computing purchase.

Put the difference in a CD at 1-3% your bank.

Put the difference in a mixture of stock and bond index funds in your Roth IRA. Warren Buffet says the stock market will return 7% annually over time. Obviously last year that didn't work out, but keep the faith. Let's say you get 5% returns annually. That $1799 could turn into 76,084.82 if you add another $500 annually to it for 40 years. For a younger person, this could be a huge starter conversation for the benefits of compound interest and why the laptop may not be the most important thing in the world.

Welcome to Future Think Dollars!

Good Morning!

Thanks for stopping by my new blog.

My blog will cover the following topics and more:

Personal Finance
Mutual Funds
Index Funds
Investing Theory
Money Saving Tips
Budget Tips
Thought Provoking

I hope you enjoy it!