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You may remember reading my post a couple of weeks ago about the church who declined to accept an offering from a guy who won the lottery.
Well, here is another story that came across the news wires today. This guy won $3 MILLION! What’s even more incredible is that he gave it ALL to his church. And they actually ACCEPTED it. The church, True North Community Church in New York, will receive $102,000 each year until the year 2028. The church has promised to give the first years donation away to charity, and then give at least 20% each additional year to various charities. According to the story, some of the money will be used to build a new building for the church.
The church has 650 members and was founded 3 years ago. I guess it sounds like they’ve got a good idea of what they will do with the money. I still think that if I was in this situation I would accept this gift, but I think you have to be extremely careful in order to keep the money from changing or diverting the church from its original purpose.
Last night, Luda preached from one of my favorite passages of scripture ever. It’s Phillipians 4:10-13. Here’s verses 11-13:
I am not saying this because I am in need, for I have learned to be content whatever the circumstances. I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do everything through him who gives me strength.
This verse speaks to me on multiple levels. Of course we’ve all heard Phillipians 4:13 for as long as we’ve been in church. Even those that grew up outside of the church circle have probably heard it at some point. “I can do all things through Christ who gives me strength.” I think sometimes we hear that verse so much that we lose sight of what it really means. If Christ lives in us, we will know the secret to being content in any and every circumstance. We have the strength through Christ that lives in us.
Contentment is what I strive for in life. It’s one of my top goals. I’ve got more than I need. God’s always provided for me. I’ve rarely been in “need.” I am a professional “wanter” though. I can “want” from the time the sun rises until the sun sets. It’s always something different. Sometimes it’s guitars, sometimes TV’s, sometimes a fancy car, sometimes just plain junk, and almost all the time I wish I made more money. More than anything though, I want to be satisified with what God has given me. This doesn’t happen overnight. Somedays, I feel 100% content, and some days I just want more.
On the other side, I think that God is glorified when we work hard using the gifts He has given us to achieve more and be succesful in life. I want to excel in my career - that means getting promoted and earning pay increases. But there is such a fine line between being an ambitious hard worker and someone who always wants more.
True contentment can be a hard place to find in life. There’s no doubt in my mind that God’s given me everything that I need and MORE! I too often forget, but that’s why I’m constantly learning what it means to live a life of contentment.
Make It Automatic
This is the best piece of advice that I feel I can give. Make it automatic. Choose what you want to invest in and then automatically contribute the same amount to it every month. Have it set up to automatically come out of your checking account the SAME DAY you get paid. In the book “Automatic Millionaire,” David Bach calls this “paying yourself first.” It’s a good book to read, or at least skim through. I don’t agree with everything, but it’s a good place to start with some very valid points. However, you just have to remember, that whatever money you put into an IRA is hard to get back out until you are 59 1/2. Unfortunately, many people in today’s economy of spend first and pay later are having to borrow money from their 401(k) plan at work. Not a good idea. I would hate to spend my career saving money only to have to borrow that money back before retirement.
One reason to make it automatic is called dollar cost averaging. It’s a very simple strategy that is easy to understand. Dollar cost averaging is basically investing a fixed amount of money at regular intervals over a very long period of time. The amount of money contributed each time is the same, but the number of shares you are able to purchase will be different each time based on the current market value of the shares at the time of purchase. If the market is up, you buy more shares, and if the market is low like it is now, you are able to buy more shares. Therefore, you aren’t trying to time the market. The cost of all of the shares you have bought over the life of the investment is averaged out. This is a great strategy for investing in mutual funds, whether it be through an IRA, 401(k), or other tax sheltered or non-tax sheltered plans. Just remember that this is a long term strategy, and is not to be used for quick short term gains.
Another reason to make it automatic is because of Compounding. According to our friends at Wikipedia who are always 100% correct in my opinion, “compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on.”
Kiplingers, a trusted financial publication had this to say in a recent article:
-”Compound interest has been called the eighth wonder of the world. And with good reason. It magically turns a little bit of money, invested wisely, into a whole lot of cash. Even Albert Einstein — a bit of a smarty pants — is said to have called it one of the greatest mathematical concepts of our time.”
-”Here’s the gist: When you save or invest, your money earns interest or appreciates. The next year, you earn interest on your original money and the interest from the first year. In the third year, you earn interest on your original money and the interest from the first two years. And so on. It’s like a snowball — roll it down a snowy hill and it’ll build on itself to get bigger and bigger. Before you know it … avalanche!”
*I’d strongly advise you to go and read this whole article. It’s very easy to understand and probably says it a lot clearer than I’ve tried to in these last 4 posts*
We have one advantage right now that we will not have forever. We are young. I have 40 years until I retire. I want to do as much as I can. Right now, what I contribute does not seem to be a lot, but I am at least doing something.
Series Wrap-Up
This is the final post in the investment series. I hope that some of this has been helpful to you in your financial journey. I am not an expert, but this is something that I am passionate about. I want to see people that I care about be wise with their finances and really take an interest in planning for their retirement. I hope that you are encouraged to start investing now. I hope that you don’t think you don’t have enough money to invest, because you do. I hope that you don’t think you are too young to invest, because when you are young, that’s the best time to star. Whatever you do, just start now.
Do something!
*leave some comments and let me know if this has been helpful to you, and if you’d like to see more of this in the future*
So now what do I do? Hopefully you aren’t too confused about the difference between Roth IRA’s, Traditional IRA’s, 401(k)’s, tax sheltered plans, non-tax sheltered plans, mutual funds, and stocks. Knowing the difference is not enough. You have to know which company to invest with, which funds to invest in, and how to go about doing that. Here’s my best attempt at helping. My goal is to help a first time investor find an investment that they feel comfortable with while they start building for their future retirement.
The Big Ones
There are a few big companies that you see commercials for on a regular basis - Vanguard, T. Rowe Price, Fidelity, Charles Schwab, TD Ameritrade, and more. I will focus on what I feel are the best 2 options for beginning investors. The 2 that I have chosen are Vanguard and T. Rowe Price(TRP). I did not choose Fidelity, because they require an initial $10,000 investment to invest in their funds.
T. Rowe Price
Advantages of TRP
-TRP has a great selection of target date retirement funds. Basically, you take the year that you are planning to retire, and find a fund that is dated for that time period. For me, it will be between 2040-2045. So the TRP Retirement 2045 would be the best choice for me. Within this fund, I am invested in many different TRP funds, 14 to be exact. 91.50% is invested in stocks while 8.50% is in bonds. In my opinion this is a good aggressive mix for people in the mid to early twenties. You are invested in some international markets, emerging markets, small cap stocks, different types of large-cap stocks, mid-cap stocks, domestic bonds, and high-yield bonds. If that sounds like French to you, all it means is that you are diversified.
-TRP has incredibly low requirements when starting up your fund. Most investments with other companies require an initial investment anywhere from $1,000-$10,000. With the automatic asset builder from TRP, you can start with as little as $50, but you have to contribute at least $50 each month through an automatic withdrawal from your checking account. If you choose not to do this, you can start with the intial $1,000 investment which still is not bad at all.
-TRP has a great website. It’s very user-friendly and easy to understand.
- It’s free to trade among other TRP mutual funds (but you don’t want to do this very often)
- TRP has plenty of No-Load funds to choose from.
Disadvantages of TRP
- TRP has a stupid $10 fee for those of us who have balances less than $5,000. At least for this year, this will be me. Once you get over $5,000, there are no additional fees.
- TRP’s expense ratio is a tad bit higher than Vanguards. For the 2045 Retirement fund, the expense ratio is .74%
Vanguard
Advantages of Vanguard
- Vanguard is the low cost leader in mutual funds. They will almost always have the lowest expense ratio. For their 2045 Retirement fund, the expense ratio is .20%.
- They have a better reputation than TRP. Not that TRP is bad, Vanguard is probably just more well-known.
- Vanguard also has a tremendous selection of mutual funds as well as index funds. (In a nutshell, an index fund “aims to replicate the movements of an index of a specific financial market” such as the S&P 500.) Vanguard also has a target date retirement fund for just about anybody. Looking at the Vanguard Target Retirement 2045, you’ll see it is very similar to TRP’s 2045 Retirement fund. This fund invests in 89.73% stocks, 10.01% in bonds, and .26% in short term reserves. I honestly don’t know the point of that .26%. Within this fund you are invested in the following: Vanguard Total Stock Market Index Fund, Total Bond Market Index Fund, European Stock Index Fund, Pacific Stock Index Fund, and the Emerging Markets Stock Index Fund.
- Vanguard normally charges a $20 feeif balances are less than $10,000. However, they just recently eliminated this feeif you receive electronic statements. Not too bad! This is a nice advantage over TRP’s $10 fee even if you have electronic statements.
- It’s free to trade between Vanguard funds.
Disadvantages of Vanguard
- Vanguard requires an initial investment of $3,000. This is hard for most new/young investors. They offer a fund called the Star Fund that you can start with $1,000, but I do not like the way the funds are allocated (63% stock, 25% bonds, 12% cash). It’s a little too conservative for me.
My Opinion
I feel that TRP is very accessible and beneficial for young investorswho don’t have a lot of money to start with. The main drawback of TRP is the fees. They are a little bit higher than Vanguard. The Target Date Retirement funds are very comparable though. TRP has outperformed Vanguard this year, but just barely, and in the long run, who knows what could happen.
Because I opened a Roth IRA for my wife and I, to go with Vanguard I would need to have $6,000. And once you put money in any type of IRA, that’s money that’s hard to get back without penalties. I personally didn’t have $6,000 to start with. Therefore, I went with TRP and the 2045 Retirement Fund. I haven’t been hit with the $10 fee yet, but I will be before the year ends. I contribute the same amount each month to each of our accounts, and I will add any extra money that we have been able to save at the end of the year. My emergency fund has been my main focus up until this point, but now that the balance is close to our goal, all extra money will start going to the IRA’s.
Once I reach the $3,000 balance in each of the TRP funds, I will most likely switch to Vanguard for the long haul. The expense ratio is lower, and that will play a big role as time goes on. Also, once my balances get high enough, I may create my own allocation for the funds instead of letting Vanguard do it for me. I’ve yet to determine this though, and it will be awhile before I have to cross this bridge.
Why post this?
So the question is why did I post this. The main reason is that I want to see people save and not spend. I don’t want to see my friends retire with no money (or not enough money). I want to see people save more than they earn. Most importantly, I wanted people in their 20’s to see that it’s easy to start now. It doesn’t take a lot of money. Investing is not just for the rich, it’s for everyone. And remember, I’m no expert, it’s just my opinion. Also, remember that anytime you’re in the stock market, you will always have a chance of losing money. Hopefully you’ll always gain more than you lose though.
Mutual Funds, IRA’s, and Roth IRA’s
As promised, today I’ll be taking a look at the different options available for 1st time young investors. Let’s start with explaining what a mutual fund has to offer.
Mutual Fund
A mutual fund is a type of investment that allows you to invest in multiple types of funds. In a single mutual fund, you can be invested in stocks, bonds, short term money markets, or other securities. Instead of having to buy a handful of individual stocks or bonds, you get multiple stocks and bonds in one package. Mutual funds are managed by a fund manager who decides which individual stocks and bonds that fund will invest in. At the end of 2007, more than $26 trillion was invested in mutual funds worldwide.
A mutual fund is not a place to make a quick dollar(although I’m sure some have found a way). It’s a long-term investment. It’s not one that you trade on a regular basis for a different fund, although it is good to re-balance your fund choices periodically. A good mutual fund will average somewhere between 7%-12% over a 5 year period. It’s possible to have a year with a -10% return, but it’s also possible to have a year where you can have a 15%-20% gain. 2008 is shaping up to be on the losing side, but you can rest assured that there will be a good year ahead in the future.
As mentioned before, each mutual fund is managed by a fund manager. And you know that the fund manager has got to be paid right? This is where mutual funds can get a little complicated. There are 2 types of ways that fees are charged - Load or No-Load. Load funds charge a commission while no-load are commission free. Within Load funds, there are Front-End load funds, and Back-End. It’s exactly what it sounds like - with front-load, you pay a percentage of the investment as a commission up front. With Back-end, you pay when you sell. Check out this chart from YahooFinance. It starts with a $10,000 balance assuming a 9% rate of return. Assuming the market reflects the assumptions made in this chart, a no-load fund is the way to go.
| Start | Year 1 | Year 2 | Year 3 | |
| 100% No-Load | $10,000 | $10,900 | $11,881 | $12,950 |
| 5% Front-End Load | $ 9,500 | $10,303 | $11,174 | $12,119 |
| 3% Back-End Load | $10,000 | $10,845 | $11,762 | $12,374 |
IRA’s - Roth and Traditional (plus 401k’s)
What is an IRA? It is an Individual Retirement Arrangement (most think its Individual Retirement Account, but it’s not - but that really doesn’t matter!) It is also a tax-sheltered account. To contribute to an IRA, an individual has to have earned income during the year. To withdraw from an IRA, the individual has to be over 59 1/2, however a few exceptions do apply.
The main difference between a Roth IRA and Traditional IRA has to do with the wonderful world of TAXES!
With a traditional IRA, you do not pay taxes on the money that you contribute. Your taxable income at the end of the year is reduced by whatever money is contributed to the IRA. This means that you pay less taxes the year that you contribute. However, when you start withdrawing the money during retirement you pay taxes on everything.
Roth IRA’s are the exact opposite. Every dollar contributed to a Roth has already been taxed. But when the time comes to start taking distributions, you do not pay any taxes.
So what’s better? I think that a Roth IRA is best, but like I said - I am no expert. There are experts though who are on both sides of the fence. In a traditional IRA, you are able to contribute more money than you could to a Roth because the money is tax free. The maximum amount you can contribute is $5,000 to a Roth, but $5,000 after tax is a lot less than $5,000 before tax. I prefer a Roth IRA because I think it is a wonderful investment tool. I also think that I am in a lower tax bracket now than I will be in 40 years. This means I pay a smaller percentage of tax. Plus, not many people see taxes being reduced in the future. You can almost bet that taxes will be raised on a consistent basis (unless someone like Mike Huckabee is president and initiates a flat-tax policy.)
A 401(k) is very similar to a traditional IRA. It is also a tax sheltered plan and all contributions are pre-tax. The difference is that a 401(k) is an employer sponsored plan. I have one of these where I work, and most larger companies will have some type of plan that you can enroll in. I contribute a certain percentage of my salary and a part of each paycheck goes straight into the 401(k). It is invested in different mutual funds. Unfortunately, sometimes companies do not give you good funds to choose from, but fortunately, I have a lot of funds to chose from through Fidelity.
So what’s best?
Although I like the Roth IRA for a variety of reasons, the best answer is to be diversified. You don’t want to have all of your eggs in 1 basket. For example, I contribute to a 401(k) through work, individual company stock of my employer, and a Roth IRA on my own. Finally, I also have a Mutual Fund that is not a tax-sheltered investment. So, I have 2 tax sheltered investments - one is pre-tax dollars and the other is after-tax. I have 2 investments that aren’t tax sheltered - stock in 1 individual company plus 1 mutual fund that is heavily invested in multiple stocks. With all of that said, diversity is the key. My strategy isn’t brain science, but it’s also not a get rich quick scheme. I have got 40 years to reach my goals. There could be better ways to go about it than I am now, but I feel confident in the path that I have chosen. At least I’m investing in something right?
Up next: detailed advice on which funds and companies are best.
Over the next week, I will have a few posts on some different investment ideas. Yes, I work at a bank, but I am no expert in the area of investments, but I enjoy learning and researching the many different types of investments that are available. My hope is to share with you some of what I’ve learned.
This first post will deal strictly with the mindset that you need before you start investing in the market. I have been “in the market” now for almost 2 years. I wish I would have started about 4 years a go on the day that I got out of college. I would not have been able to invest a lot since I hardly made enough that first year to cover the bills, but I could have invested something.
Here is a brief overview of my current investments. The next post will go into more detail on these different types of investments and the benefits and downfalls of each.
Overview
I started contributing to a 401k through my employment at the bank as soon as I was hired. Not knowing what I was doing or how much to save, I contributed the “default” amount to my plan. This was only 3%. At this rate, I could retire at 165 instead of 65. Once I realized that 3% was not much, I made a significant change in this percentage. After I had been there for almost a year I was eligible to contribute to our company stock. Here is where it gets a lot sweeter. Our company does not match any contributions to the 401k, but they will match $.50 for each $1.00 I contribute. However, I can only contribute 5% of my yearly salary to this stock option plan. I also opened a mutual fund account with another company during this time. This was not a tax sheltered plan (meaning that I have to pay taxes on whatever I earn), and I contributed to it monthly after an initial lump-sum investment. Finally, I recently started contributing to 2 Roth IRA’s for my wife and I.
The mindset needed to invest
When I first started contributing to my 401k, I did not pay much attention to what was going on. I chose my investments and left it alone. Mainly because I did not know how to check anything or monitor the progress. I just knew that money was coming out of my check each month and that was enough. Once I opened the mutual fund, I became completely obsessed. I went to the website and checked it almost every day. I was focused on my rate of return and how much money I had earned. Well, from day 1, I lost money. It seems that since I’ve been “in the market,” I have done nothing but lose money. It’s not because my investment choices aren’t wise or smart, it’s just because the market in general has performed very poorly. Becuase I was losing money, I didn’t want to contribute more money. I did continue to contribute, but it was driving me crazy. It was always on my mind. Obviously, this is not the mindset needed to be a succesful investor.
To make matters worse, between February and July, our company stock has dropped over 35%. This is pretty typical for bank stocks. Obviously this is only a small part of my investment portfolio, but it still hits hard. However, it finally seems to be coming back up (it’s up 5% just today.
Let’s fast-forward to my current mindset. In a nutshell, I don’t worry about it anymore. Yes, it really sucks that the market has been so bad, but there is nothing I can do about it. I feel confident that I am invested in the right funds. I’m not extremely aggresive, but I’m not conservative at all either. For my age and the length of time until I retire, I feel that I am in the right place. I have 30-40 more years to be invested in the market and based upon the history of the stock market, I can be 100% sure that I will earn back everything that I have lost in the past year. Even more important is the fact that I am able to buy many more shares with the same amount of money than I was before. I still check my balances, and the rate of return on my accounts, but not nearly as often. I only check the rate of return every couple of months. It doesn’t do me any good to be obsessed with each individual account each and every day. Don’t freak out when the market is going down. It’s going to come back up. But don’t get greedy when it’s on the way back up. Find a plan and stick with it for the long run. Invest wisely, and trust yourself. Find something that works for you. If you are a conservative person by nature and can’t handle the risks of the stock market, then invest accordingly. Finally, remember this: It’s a marathon, not a 100-yard dash to retirement. You don’t get rich overnight. It’s a very slow process and it requires a lot of patience.
Simply put, the most important thing is to START NOW. Don’t wait another day.
Next up: What’s a Roth IRA and where do I get one from?
As you may know, the midwest has been getting soaked with rain lately and the rivers and lakes have had about all they can take, creating some huge floods. One small town in Wisconsin was just about wiped out completely. I couldn’t imagine losing everything I own due to a flood, fire, tornado, or anything else, but hundreds of people have.
Check this out from msbnc.
The 267-acre lake emptied into the nearby Wisconsin River on Monday, washing out part of a highway, sweeping away three homes and tearing apart two others.
Don Kubenik, 68, burst into tears after seeing the 2,800-square-foot home he built in 2003 snapped into pieces when the lake’s embankment burst. The businessman from the Milwaukee suburb of West Allis said he spent every weekend there.
“That house had everything you can imagine and now it’s all gone,” said Kubenik, who was in West Allis when the lake overflowed. “My boat’s gone. The pier’s gone. Everything is gone.”
All I could say after reading this is WOW! I had a lot of different thoughts come through my mind (my first thought was, “well, at least you still have a house where you stay the other 5 days of the week and that’s better than the rest of your neighbors), but the main thought was this: When you die, you die! You don’t take anything with you. You leave EVERYTHING behind.
You leave the balance of your 401k, your cars and trucks, your bank accounts, your boat, your guitars, your house (even your weekend house!), etc…etc…etc…
I have to admit I have a hard time finding a healthy balance in some areas of life and this is one. I am a natural saver (maybe even a hoarder). I do believe that my habits of saving are a Godly practice. But God has also called us to be cheerful givers. He doesn’t want money or posessions to be the god of our life. You can only serve ONE master. I seem to always try to serve two.
Most importantly, I always strive to be a good steward of what God has given me. I don’t want to waste the resources He’s provided. I believe that everything I have comes from God - even the clothes on my body. It’s not mine - it’s His. One of my biggest goals is to have an eternal focus, and not a earthly focus.
This is not my home. Heaven is where I belong and I can’t take anything with me - not even my weekend house (which is the same as my monday through friday house)! Plus, there is more to life than just accumulating stuff! But that’s for another day.
It’s been one of those months. You know, when you seem to have to spend money on everything? We’ve been tremendously blessed, so don’t think that I’m complaining - I’m just sharing it with you. If you’ve been reading my blog so far, you’ll notice that I’m big on saving money and not spending money. My motto is “Always spend way less than you earn!” It may be next to impossible for us to do that this month.
Here’s why:
1 - Our garage door quit for the second time in as many years. It seems that when lightning strikes even 10 miles away, it fries the circuit board. Last time it happened, we replaced just the circuit board. We also plugged it in to a surge protector. Well, it happened again. This repair guy (from a different company) said that we should have replaced the whole unit last time. So now we’ve got a brand new unit. Total cost - $250. This is a worthwhile luxury in my book. I lived in an apartment for 2 years and hiked up 3 flights of stairs with tons of groceries in the rain, or with 2 guitars and an amp. Because of this, I appreciate every time I punch that button and watch the door open.
2 - Car taxes. We were planning on this, but it still is no fun. $250 for a 2004 Saturn Vue? Seriously?
3 - Did I mention that I had a run in with a piece of plywood on the interstate a few weeks ago? It came from nowhere and was literally flying through the air. At 70mph, it hit me head on. One foot higher and I may have never started a blog, unless you can blog from Heaven, which I haven’t seen any of those. Total cost - $500 deductible. (probably won’t get this fixed until July)
4 - Speeding Ticket - $150. Enough said.
That’s a total of $1150 for unexpected/abnormal monthly expenses. You just can’t budget for that kind of stuff. Sure, we could pass on fixing the garage door. I could bypass getting my car fixed, but I’m not. The car is less than 2 years old. I plan on driving into the ground. I don’t want to drive a beat up car for the next 5 years. I’ve got insurance, I’ve never filed a claim, and I pay them too much every month to not use it when I need it right?
As a 26 year old married homeowner, these types of things are inevitable. There will be months where it’s hard to stay ahead. One thing we have really focused on in the past year is building up an emergency fund. The first thing we did was to build up a small $1,000 fund. After this, we paid off 2 loans way ahead of time ( the previously mentioned vue and a student loan). Now that those are paid off, our goal is to save up 3 months worth of expenses. At this point we are about 90% finished with that.
With that being said, having these unexpected expenses really stinks, but it will not hurt us. It won’t have to go on a credit card, and we won’t have to put off fixing the things that have broken. And of course we’ve got no choice on the taxes or ticket. So, plan for the unexpected and start an emergency fund. Hopefully we won’t have to even take money out of the emergency fund to cover these expenses, but we probably won’t be able to contribute anything to it this month either. And, we’ll have to cut back in some other areas for the month. Most imporantly though, it’s there if we need it.
In the future, I’ll have some more stuff about emergency funds and other things, so stay tuned.
I ran across an interesting article this morning on the internet, which reminded me of another article that I read a few weeks ago. Both are extremely interesting to me because they each show an example of extreme living. One is extremely frugal (cheap, thrifty, or whatever you want to call it) and the other spends way more than he has. Here are the links:
Here’s a quick overview if you don’t want to go to the links:
1. Basically, this guy in California buys 9 houses as investment properties in “hot markets” across the west in California, Nevada, and Arizona. He put a small percentage down payment on “negative amortization loans — in which payments do not cover the interest so that a borrower’s balance grows over time.” With these types of loans, if the value of the house doesn’t increase significantly, the balance on the mortgage is more than the property is worth. It’s never wise to put all your eggs in the same basket like this guy did, but he made it even worse by gambling that each market would keep growing at a very fast rate. He could have very easily made a ton of money, but now he stands to lose 9 houses and have his credit ruined for years to come after he files for bankruptcy. Let’s just say he’ll be using cash for everything for a long time, which isn’t such a bad thing by the way.
2. Honestly, I had never heard of dumpster divers before. These are people who live normal lives, and have normal, good paying jobs. They get furniture, appliances, art, clothes, and EVEN FOOD out of dumpsters. One lady gets 99% of her food from the dumpster. Some people treat it like a treasure hunt and find a lot of joy in it. This is a lifestlye that they have chosen to live in order to be frugal. The article goes beyond just dumpster divers and has examples of other extreme frugality. One lady will get extra napkins at a resturant and bring them home. She’s also been using the same roll of paper towels since 2006.
Frugal living has been a big buzzword lately with prices rapdily increasing on things that we use and need on a regular basis. Groceries and gas prices have gone off the charts and salaries aren’t keeping up with it (at least mine isn’t). There a tons of blogs out there that deal with how to live a frugal life.
I strive to live a “frugal life,” but not to this extreme. I like to take both ends of the spectrum and try to settle somewhere in between. I try to take some risks in investing, but I don’t put all of my eggs in the same basket. Stay diversified. Without taking some risks, you will not experience the traditional gains of the market, but don’t risk it all. Be wise about it. As far as living a frugal life, if I were to take it to the extreme, I’d lose my mind. I hate to cut coupons. It seems to take forever and it doesn’t seem to make a huge difference. I’m sure it does for some people, but they probably enjoy the whole process. I don’t enjoy it, so I don’t do it. It’s not rewarding for me. I’ve read some stories of people who reuse ziploc bags. I’m sorry, but I would NEVER do this. Yes, I could probably save $100 per year, but that’s not worth it for me, because I would lose my mind in the process. I try to make a difference in other areas.
For example, I always get water when we eat out. I used to drink about 6 cokes a day, now, it’s zero. It costs about $2 for a coke these days when you eat out, and that can add up if you eat out a lot. I also don’t eat out a lot. My wife and I go to about 1 nice resturant each month and I bring my lunch every day at work. This saves a ton of money. Yes, eating a sandwhich every day isn’t thrilling, but I don’t mind doing that (my one weakness is a weekly craving for frostys from wendy’s). Eating out for lunch will run you about $5 a day. I can eat a sandwich every day for less than $10 for the whole week.
If you know me very well, I HATE to spend money on clothes. I will wear something for as long as I can which normally means I’m way behind on the latest fashions. I also love to watch movies, but for us to go on a date to the movies will cost over $20 just for the movie and popcorn, not counting dinner before. So we don’t go to the movie theatre unless it’s a special occasion. I do subscribe to Blockbuster online though and for $12 each month we can watch as many movies as we want to. Yes this is a luxury, but I love to watch movies, and this also keeps me from buying DVD’s at the store. I have probably bought 2 or 3 DVD’s in the 3 years we’ve been married, compared to hundreds in college (not very wise back then).
Here’s the point - someone of you will disagree with what I do, and that’s fine. I will disagree with what some of you do and that’s fine. For me, I think Starbucks is the BIGGEST waste of money ever. I mean, $4 for a cup of coffee - AND you get it EVERY DAY? Seriously? But for others of you, you cut back in other places, because you love that coffee and to fix it at home would not be the same.
I want to be frugal and wise with my money. I want to save and find ways to be creative to save money, but everyone has to find what works for them. Set goals and reach them. Most importantly, ALWAYS spend less than you earn and make sure that your net worth is always growing! Could we save more than we do now? YES! We save a lot already, but we could cut out cable, internet, cell phones, and any entertainment expenses. However, we have found a happy medium and learned what works best for us.
Leave some comments on how you or your family is able to save money!
Vacations are one of my favorite things in life. Even if it is for only 2 or 3 days, a vacation can make a difference in my life for months at a time. I love to take cheap vacations - like a simple camping trip to Brevard. The only thing we pay for is food - and we normally eat well - and gas, which isn’t so cheap anymore these days. Sometimes cheap vacations just aren’t enough though. You’ve got to go high-dollar sometime - and if you don’t know by now, we’re not rich. So how can we do this then?
Colorado wasn’t exactly a high-dollar vacation, but it wasn’t a cheap one either. We knew from the start that it would require a significant amount of money, so guess what? We started saving for it. For me, it’s hard to imagine putting a vacation on a credit card and then paying for it for the whole next year. (This is why we went to Asheville for our honeymoon and not Jamacia or Mexico - it would’ve put us in debt - and that’s close to the worst way to start a marriage.)
When I’m on vacation, I don’t want to worry about how much money I’m going to spend. I want to live it up and go all out (within reason of course). On vacation, I want to do things that we normally wouldn’t do. I want to do things that I can’t do at home. I didn’t go to Colorado to experience the same thing I can experience at home.
While we were in Colorado we got a guide for a fly-fishing trip, we went on an awesome train ride and upgraded to the nice compartment which was 100% worth it, ate out at nice resturants we wouldn’t normally eat at, grilled out a nice steak which we normally don’t do at home very often, stayed in a nice cabin by the river (had 3 free nights in a hotel at the beginning of the trip), visited Royal Gorge Park, and rented bikes for a day. Don’t forget about the cost of plane tickets either.
While we were there, we enjoyed every minute of it. We didn’t feel bad spending the money because we had saved. Once we were close to the end, Ashley and I spent about 15 minutes going through everything we spent to get an idea of how we had done. We realized that we had used up most of what we had saved, and then we didn’t really do anything else. I would have never enjoyed this vacation if we had not saved for it. Also, please understand that this isn’t the type of vacation we normally take. Last year we spent a week at the beach with friends and didn’t spend much at all. This was just as fun, but it’s fun to splurge sometime and do something different.
Vacation is important for your mind, heart, and body. It relaxes you and refreshes you. It relieves your stress. It strengthens your marriage. It gives you lifelong memories. It adds 10 pounds to your weight (the only negative about vacation). We all need vacation, so save for it. Don’t take a vacation and then pay for it later. I set up a special account just for vacations and I take money out of each check I get and put it into this account. I also make the money hard to access. If I want the money, it will take 3 days before I can access it, and I am limited in the amount of transactions I make. Keep it separate from everything else. Also, even if you don’t have a vacation planned, start putting money aside for a special trip anyway. You’ll be thankful you did.
Our next trip is to Charleston in July for 3 days. Lodging is free (Thanks Kelly, you are the man!) and it should be relatively inexpensive. Time to start saving now so we can eat GOOD and of course take our hosts along with us for a good meal!
