One Trillion Dollars!

Check out this entertaining look at exactly what a trillion dollars would look like if you had it in your (ware)house.

Think about this the next time you hear the talking heads on the news talk about our economy in trillions!

Enjoy!

Firecalc

Today I want to pass on a web site that I have used for some time now. It's called Firecalc, and it is a retirement calculator. While there are many, many calculators out there, this one is very interesting. It back tests your investments and retirement year for over the last two hundred years of the stock markets ups and downs.

Would your portfolio get through the Great Depression, Great Recession, or a similar financial calamity?

Firecalc can help steer you in the right direction as to what you may want to change about your finances. Whether that means saving more, starting earlier, or investing in different asset classes (like bonds), Firecalc gives you a huge amount of data.

Firecalc is a very powerful retirement calculator, but it takes a few minutes to get set up. The amount of data it gives you is amazing, but the way it gives it to you is understandable. The website has instructions, answers, and info for most questions. In addition to letting you set up a set amount of withdrawal starting in 2050 (for example), Firecalc lets you include Social Security income as well. Whether Social Security will be around in forty years is another post entirely, but it includes other options for income as well.

Overall, this tool can help you spot weaknesses in your financial plan and empower you with a sense of security even during years like 2007. If you structure a plan and stick to it, with low cost investments, you will definitely be happy when you retire. This calculator is a great tool, if you have a few minutes to work with the different settings, and will help you evaluate your finances!

1 minute drill

Take one minute to review these ideas for saving money and living better.

Make more money. (Get a part time job? Sell stuff on Ebay?)

Debt is your enemy, make a plan to get out of it and stick to it even when it's tough

Spend less. Easy to say, hard to do, but buy what you need not what you want. Eat out less, cook more, and drink less.

Cut monthly expenses. Reduce your cell phone bill, cut your cable, get a better rate on your car insurance (if you have not gotten quotes from multiple companies in a year, you are probably missing a better rate.

Start the habit of saving.

Paradise Falls Fund

The wife and I watched "Up" a little while back and enjoyed it. We thought it was a well made movie with a good plot, and we especially liked one of the ideas in the movie.

In the movie, a married couple had a jar on their shelf for their dream vacation. They wrote on it "Paradise Falls" named after the amazing place they wanted to go. Over time, the movie shows them breaking the fund many times for various expenses. The movie has a good message in that regard, life happens, and it usually costs more money than you thought it would.

One day I took a pasta sauce jar and made our own "Paradise Falls" jar. We've already had to "break" it a few times, but it works well as a memory device for saving change and extra one dollar bills. We try to make a habit of throwing some random cash in there every week. While we have some automatic deductions set up for bank accounts and such, this is an easy way for us to save some extra cash for unseen stuff. If we use the money for something, we replace it, and add more money on top of that the next chance we get. If nothing else, it works as a visual way to remind us to save. As an added bonus, we actually do intend to use the fund someday (when it's bigger) for a random awesome vacation.

As you can tell, I put a lot of effort into the label. Not.

Do you have a way you try to save some cash around the house?

Tax Prep

This year, I returned to an old favorite web site.

For the past two years, I paid a tax prep firm to prepare my tax returns. The biggest reason for this was because I had been shoveling money into my 401k at an old job in 2007, and then wanted to convert it to a Roth IRA. I had absolutely no idea how to treat that for tax purposes as it was the first year you could do a conversion, so I was forced inclined to get some professional help. The next year, I decided to go back to the same firm because I was pretty busy with work. Easy to justify at the time, but in hindsight, very expensive.

These two years were an aberration for me, after doing my own taxes for a few years. Before that, my Mom was awesome enough to help me out because while I had my first job at 16, I had no clue didn't care how to do taxes at the time.

This year, as I was reviewing my prior tax returns, I realized that I could return to my old ways and save money at the same time. If you havn't filed your own taxes, it can definitely take a while to get used to. Fortunately, there are some easy programs out there that will help you in your tax prep. The comment I have heard (and subscribed to last year), is "why not let a professional do it for you?" The answer to this is actually a question. What does your tax preparer do differently than  you can do yourself?

The answer is a bit of homework, but beyond that, not much! You can use a program that will ask you the questions that may apply to your tax treatment and easily save yourself a good bit of cash. Any parts of the tax code you are unsure of can be remedied by a trip to the IRS website (no fun to read, but think about the money you are saving.)

In most programs, you can easily reference any questions you may have as they directly show which IRS document to use to clarify your concerns.

Taxact is the website that I have used in the past, and decided to use again this year. I saved the tax prep fee that I was paying, and only spend a few hours doing the work. Your tax return may only take an hour, or just a few to prepare, but consider it as paying yourself for doing the work.

In all, I paid $14.95 to electronically file my California tax return. Taxact offers free Federal tax return preparation and electronic filing. That's a pretty decent deal. FREE.

TAXACT is awesome.

Justifying a video game console purchase.

Enjoy video games? Well don't buy them because they cost money. Just kidding, but if you don't have a system, which one should you buy? I don't know, but maybe some of my commentary can help you decide for yourself.

There are three choices in a video game console purchase, and each have their strengths and weaknesses.

The Xbox 360 is a great choice for a system, but it lacks a Blu Ray player. Sony makes Blu Ray, so no surprise there, although Microsoft did release an add on HD DVD player before the format died. For online play the Xbox Live service will cost you around $40 for a 12 month subscribtion. This is a definite weakness, as the PSN (Playstation 3's online gaming) is free, but Xbox Live has a better experience in my opinion. Another great feature that was added around a year ago is Netflix streaming. With this fantastic feature you can stream (with very little to no buffering if you have high speed internet) a ton of older movies and tv anytime you want. There are newer movies as well, but the selection is limited. That being so, this is still a great way to revisit some old classics and find some new favorites you may have missed all along. One thing I do not dig about the Xbox is that  Microsoft seems to enjoy making you pay a premium for their accessories and add ons. Unless you buy the Elite bundle, then you pay extra for a hard drive and the headset (so you can talk trash peaceful words of encouragement online). If you want wireless internet you have to buy their adaptor (or come up with a creative solution like sharing your laptop's connection). Bad form Microsoft, and I don't think you will get away with this on the Xbox 72 Billion or whatever it's gonna be called. Since the Xbox 360 was out long before the Playstation 3, many people bought it first, and that's how Microsoft seems to have gotten away with some of it's practices.

The Playstation 3 is another great choice, and may work out better for someone looking for a more complete out of the box system. It has built in Blu Ray, uses any bluetooth headset for online gaming (including the one you use in your car), and has a built in hard drive. Sony definitely seems to have the more complete package, but it just wasn't available when the Xbox 360 was. People buy what is available, and the result is a lot of people that bought a system earlier just bought a 360 instead of waiting for the PS3 (Hint Sony: don't wait so long!). Netflix recently enabled the software on the PS3 as well, but the weakness is you have to put a special software disc in. This isn't a big deal, but the Xbox version is silky smooth software that downloads, so you never have to mess with a disc. The DVD player for Playstation 3 upconverts your DVD's so your older movies will look a little better than you remember, and this is a strength that Xbox does not have.

The Wii is an interesting system that is targeting a different audience than the other two. The main draw is the interesting controls, where you actually move the controller to see movement on screen. Very cool, but can feel a bit gimmicky after a bit, unless you find a game you really love. Nintendo seems to have taken a page from Microsoft's book in that you will pay extra for the Nunchuk (required for some cool boxing type games) and the Wii Motion Plus (required for some really cool new games). Not that big of a deal, but if you are expecting to have everything out of the box you may be miffed to find out you have to go spend more money. The price point for the Wii is definitely a strength, as it is the cheapest system, but you may be disappointed with the graphics. The graphics do not hold a candle to some of the lifelike visuals you will see on the Xbox or the PS3, but Nintendo is banking on their controls and immersive gameplay to make you not care.

All three of these systems are a great choice, but if you are buying one for a teenager, I would probably not buy the Wii unless specifically requested. The Wii just doesn't have the best variety of titles, and the controls can be funky, especially for first person shooters.

Buying a video game console is a big expenditure, but can be a good entertainment purchase if you will actually enjoy and use it. As long as you do not go crazy buying all the new games, you can probably keep your entertainment budget down. Most games have a ton of hours of gameplay in them before you will be done with them. This can bring the "per hour" price much lower than other entertainment choices. Read reviews on sites like IGN.com and Gamespot.com and only buy games you really want, or use Gamefly.com (here's a link to an older post talking about Gamefly and other ways to save money) to reduce the money you spend for games.

And you thought this was gonna be a "never buy video games because they cost money" hatefest!

An alternative view on home buying.

I very much doubt this article would have been written a few years ago during the go-go times, when everyone was convinced buying a home was the best thing since sliced bread.

A few points for discussion:

A big reason that individuals and families are encouraged to buy a home is the idea that it "forces" you to save. If you rent a place, you are told you are "throwing your money away." This statement really does not tell the whole story.

If you save the difference between what you might spend to rent a small place and what you might spend to buy a larger house, you are doing yourself a lot of good by saving. If there is a big differential, it could be wise to save the money you may be spending on a (larger) mortgage payment for a few years. This will also get you in the habit of saving and investing in the first place. This tends to dispel the "advantage" of buying a big house because it forces you to "save" more money by making you pay the mortgage. Just rent a smaller (cheaper) place, and invest the difference. Do you have the discipline to stick to your plan?

Not every American has to own a home. This is the American dream argument, that it is somehow the birthright of every American to be indebted to a house. The term "own your own home" gets thrown around quite a bit, but many Americans do not truly own their homes. The bank does! A mortgage is debt, albeit a tax advantaged debt.

Do you need a home? One of our longer term goals is to buy a home. We think it makes sense for us to move into a house when we have kids, but not really before. We don't need that much space (to buy and store more stuff...the usual result of more space), maintenance (one of the most underestimated costs of a home), or decreased cash flow (we pay a much lower amount for rent than a mortgage...this lets us adjust our budget as needed).

Many people just don't care understand that there are other options, and that just because you havn't put yourself in the most debt of your life for a non liquid asset with high frictional costs...doesn't mean you aren't cool! (In plain ol' English..."buying" a home is expensive, ties up a huge amount of your current and future earnings, and is always going to cost you to "get in" (buy) and to "get out" (sell) due to real estate agents/mortgage brokers/banks/fees/loan costs/increased maintenance/increased utilities/property taxes etc.)

If any of this makes you think twice about jumping in to a big monthly payment...good!

Find your own best answer!

If you're still thinking...read this interesting piece from before the "Great Recession" hit!

Being a long term investor, either in a house, or in index funds, will likely lead you to more financial freedom.

Limited on $? Prioritize on what matters to you...

I like planning to have money to retire on. For some, it's not their priority, so they choose not to do it yet. But at some point you have to formulate a plan and act on it. The simple truth is the sooner you start, the easier it will be to save.

With that said, I had a tough time getting started with my own savings. I started my first Roth IRA in 2004, and it was definitely a sacrifice at the time. Looking back on it now though, I'm glad I did not squander every cent I made when I was younger. I spent money on a lot of stuff I didn't need, and learned a lot of lessons about money. I owe much of my knowledge to my family letting me make my own mistakes. I especially thank my grandmother for not strangling me as I learned these lessons, sometimes at great expense. I learned through my mistakes and began to realize that I could never improve my situation by spending more than I earned. For a long time, I felt lost when it came to my personal finances.

If you are working on your finances but don't know where to start...try prioritizing what is important to you.

What was the spark that led you to start looking at your finances?

Some common ones that have helped me stay on track:

1. The never ending treadmill of debt. This one can be so frustrating as many small purchases do add up, and compound interest never treats you well when it's working against you. Turn it around by paying off your debt, and then make it work for you by saving and investing.

2. The ease of spending. The simple truth is it is easy to spend money. Whether it is cash, credit, layaway, or other...it's way too easy for companies to make you part with your money. Think of the one goal of all advertising, and what you get is someone who wants your money. If it helps to motivate you to stop spending, think about how all the CEO's get their own airplanes/houses/cars. While we may not ever have any of that, you can use that as "ammunition" to keep you fired up about saving. At least if you try to reign in your spending you can progress onto other financial goals.

3. The suck of saving. While talking to some friends about saving, the subject of the amount needed to provide cash flow in retirement comes up quite a bit. Don't focus on how much you think you will need in the beginning. If you look at a big number, you are probably discouraged from starting in the first place. Try thinking instead of how you can start saving $20 per paycheck any way you can. Move on from there, and continue snowballing your efforts so they continue to improve. Small changes can bring about great things.

4. The amount of your income limiting you from doing what you want. This is a huge one. I have heard friends say "I don't make enough to save anything!" or "Maybe next year when I get a raise." There are a few things to think about when you are thinking your income limits you from saving. There is always a sacrifice to get the things we want in life. If we don't go to work, we don't get a paycheck. Think of your job, and then think of your goals. One should be to provide solid plans for you and your families future. If that means you need to grab a part time job to help out for a while until things "get better" then so be it. Just be sure to keep your eye on your goals when you do bring that extra cash in. It is much too easy to be "tricked" into spending more just because you have a little extra income.

These are a few examples of what may have gotten you to the point of reading a blog on this subject matter. Take a look at what bothers you about your situation and try to fix it. It usually won't be a quick fix, but it will pay off!

Financial Mistakes

Have you been feeling guilty about your financial mistakes?

Get over it.

The sooner you can accept that those mistakes were your past, the sooner you can start to plan your future.

I made a purchase a few years ago that I beat myself up about for quite some time. It was very much a "want" and not a need. It was more than I should have spent, and it bothered me for a while. Then I got over it. The change came when I put that purchase in perspective with what I was doing in other areas to help my wife and I's future. I realized you can't make the right decision all the time. People make mistakes, it's in our nature. If we were all perfect, life would be pretty dang boring!

If you've been putting off your savings, spending too much money, feeling guilty...stop!

Instead, take a negative and turn it into a positive. Let that negative be what turns your attitude around!

You will soon be finding better things to focus on than your mistakes! You will soon have positives to reflect on, and after you start this process, you will want to continue on that path!

A great example.

This short piece from the New York Times is an interesting and humorous look at what you could end up with from stock picks/individual stock investing.


Quoted below is a great excerpt:

"This seems to confirm Burton Malkiel’s famous prediction that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

This is a great piece, and should remind the average investor that there is something very empowering about taking the time to put effort into your own finances. The net benefit to you could be equated to paying yourself the difference (compounded!) of using low cost investment products instead of (over)paying a "chimp" to do it for you!

Online shopping and price checks

As requested by a frequent reader, here are some sites that I frequent that help me out when shopping.

Amazon.com - The link is a shameless plug for the Bogleheads' Guide to Investing (I had to sneak in something related to investing for this post!) but the site should be familiar to anyone on planet Earth. What may not be too familiar to you is the selection and prices on nearly everything. I have been using Amazon.com for over a decade now, and have had a great experience. The few times there have been issues, they were resolved with a quick online customer service email. I purchase most of my music through their MP3 downloads section, as it is DRM (Digital Rights Management) free, and offers very good prices. Many times, they offer full albums for just five dollars. I have purchased way too much from Amazon, and much of the time it is because the price is very good, and they offer free shipping over $25 on a lot of their items. I also love their "Subscribe and Save" feature which offers a significant discount (15% on many items) if you sign up to get an item on a regular basis. I use this feature for several items around the house, and I love not having to worry about remembering to order a frequently used item. If you are getting close to your next shipment, you can choose to skip one, or stop the entire subscription with no penalties. It's a pretty sweet feature.

Monoprice.com is a fantastic site for a huge number of digital products that usually cost much more in big box retailers. A perfect example is HDMI cables that go for upwards of fifty bucks in stores, but are available for less than five bucks on Monoprice. Shipping is very reasonable and lightning fast in my experience. I've been using this site since I stumbled upon it a few years ago, and I recommend it to anyone who wants quality stuff at incredible prices. I've had great experience with this site, and I've saved a lot of money too!

Bing.com is Microsoft's updated search engine effort. To lure users away from other search engines, Bing has a cashback program that rewards individuals who are willing to go through a few minutes of extra effort. If you search for specific terms in Bing, you can get an icon to pop up next to some of the search results with "Bing Cashback." This is a great opportunity to save some cash, as some of the cashback amounts are very lucrative. I have seen some at 20%! If you find a site that offers a competitive price on an item already, and then add in the cashback, you can really get a deal. The site requires a quick sign up, and it's got Microsoft behind it, although some would joke that's not necessarily a good thing. I've had a great personal experience with this, but you have to be careful to not violate the terms of the program. This means you may not be able to add a coupon at checkout or you risk forfeiting the cashback for that transaction, but if you do comparison shopping you can still come out way ahead.

Google Shopping I've had a good experience over the years with what used to be termed "Froogle" and is still a fantastic and quick way to check prices on an item. There are options for calculating and adding in shipping costs, and using that as a way to filter out results. As shipping can kill an otherwise competitive price, this is a great way to comparison shop.

These are just a few sites I like to use, and I will definitely expand soon. Enjoy!

Financial Freedom Fund

 Retirement savings can tend to have a certain stigma attached to it.

When you first hear it, it sounds pretty boring. It also sounds pretty painful.

You may be used to spending all or most of your paycheck on fun.

Retirement sounds like something that is so far off, that you may not even be thinking about it at all.

Because of this, if I term my own savings a bit different, it can help keep me on track when I feel like veering off course.

I like to think of my retirement savings as my Financial Freedom Fund.

You may be thinking "Hey, I got enough financial freedom right now! I spend whatever I earn!" and I definitely see that point of view. But I think of every dollar I can put away as getting me that much closer to financial freedom, or the idea that if the unforeseen happened, I would still be able to take care of my wife and my family.

Life happens, and life tends to cost money. I only see my costs rising over time. Helping to take care of family, raising kids, college costs, it will all add up very quickly. These things are going to be very powerful deterrents to our own savings. It's with that in mind that we put our plans in place. We may not be able to save much, if anything later, but right now we can make some sacrifices to ensure that we are not behind our own financial needs later. The power of compound interest makes the time your money is invested so much more powerful than just saving more later.

If you can only save 5% of my income now, well over time that 5% will mean more actual money going in. Your salary will go up over time, and you bump up your percentage as it does. Eventually you are saving 15% of your income for your fund. Then life gets in the way, and you have to use some of that money for another cost, so now you have only 12% going in.

You will still have all of that money "locked in" and earning you compound interest! Think about that stack of money...

This is a much better scenario than never even starting to save!

Do you see yourself as helping care for your grandparents/parents at some point? Do you want to send your kids to college? Do you want to go on vacation without feeling like you are shooting yourself in the financial foot? Do you want to be less stressed about money?

Find what motivates you, and use that energy to get yourself to start saving for your own FFF!

Use frequent flier miles for free stuff

I am not a frequent flier.

But when I fly I look for the best prices, and then buy my tickets. I always join the frequent flier program at the airline I by my ticket through, since it is painless and quick.

I've never gotten a free flight from my actual flight points, because I don't fly enough.

But I do use the miles for free stuff!

Why not just save them up until I have enough for a flight? Well, the airlines are onto people like me, and they have instituted some expiration date policies. Most require a certain amount of flight activity to keep your points, or you will forfeit them within about a year.  But there are other options besides flights!

At the beginning of December I got an offer for redeeming my soon to expire points for magazine subscriptions. I had received the offers before, but my miles were getting dangerously close to the expiration, so I took another look at it.

The website gave me a limited, though decent, selection of magazines and newspapers.

I took a look around and "spent" our miles.

I scored some magazines for the wife, and the Wall Street Journal for myself. The WSJ is not something I would have paid cash for, as it is expensive. It's around $120 for a years worth, which is out of my price range for sure. The value of our miles was less than $100 and for that I got several magazine subscriptions and the newspaper delivered.

It was a bit of an early Christmas present for myself and my wife last month!

Next time you take a flight, consider signing up, even if you don't fly that much. You can still walk away with some cool stuff for little effort!

Start the New Year with a New Personal Goal

Tax yourself. Pay yourself first. Take care of your own financial house before you spend money on other things.

The power of compound interest means you are literally leaving 10's of thousands of dollars on the ground.

Start something today!

This shows the power of less than a dollar a day saved and invested for the future.

A good friend of mine mentioned that New Year's resolutions start on Monday, so today is the day!

Open a Roth IRA, start contributing to your 401k, start saving an emergency fund.

Small steps can bring about enormous change, the key is to actually begin.

Your tipping point is today.

Holiday Giveaway Winner

Welcome to the new year, and congratulations to the winner of the holiday giveaway!

The winner is Jennifer!

Thanks for all the feedback, it will be used to improve the blog!