April 27, 2011

12 Useful References and Calculators

When writing articles for this blog I often do research on data for economics and finances.   I've compiled a number of reference links in my bookmarks.   Below are a dozen sites that have useful financial statistics or provide handy calculators. 

Social Security Benefits - This is the 'quick calculator' which will give you a very rough estimate of your social security benefits.  It just uses your age and current income then tells you the general benefit level.   The estimate assumes some things about your previous pay levels so its not accurate to your situation but its good enough if all you want is a 'ball park' figure.

BLS- The BLS or Bureau of Labor Statistics is a wealth of labor related information.   They have figures on unemployment, employment, wages, occupations etc.    
Occupational Outlook Handbook from BLS - This subsection on the BLS site is all about occupations.  Its a great reference to find out what typical earnings are for occupations and what the future outlook for employment is.  
Inflation Calculator - BLS is also responsible for tracking the CPI.   They offer this handy calculator so you can determine what inflation compares between specific years.

Census Statistical Abstract - The Census site compiles the Statistical Abstract.   They have tons of information on various statistics about the U.S.   

American Housing Survey.  - Another one from the Census.   This is all about housing. They have data on housing finances and stats on the structures.

Tax Calculator and Tax brackets- These two pages from MoneyChimp are nice quick references to income tax information.    The calculator will give you a quick figure on the tax liability for standard deduction and you can also manually put in itemized deduction amounts and multiple exemptions.  

California Tax Calculator - If you happen to live in the state of California then you can get a quick estimate of your income tax bill with this page.

IRS Tax Statistics - This is a subpage on the IRS site with their stat data.   They have a bunch of Excel sheets with data on tax collections and details of tax filings going back a few years.

Budget of the USA - You can find out specifics on federal government spending.

Student Loan Calculator.   - Finaid.org gives us this handy calculator to determine what your student loan monthly payments will be.

April 26, 2011

Real Student Loan Borrowing Rates Flat for A Decade

I get the impression that people think there is some sort of crisis in student loan indebtedness lately.  Stories of students with religious studies degrees and $150,000 in student loan debt are not unusual.   But the reality of student loan borrowing is far different.  Very few people have very large loans.   

But are more people taking out more and more loans?    Yes and no.   Yes the total loans are bigger now than in the past.   But you have to consider inflation.   If you look at student loan borrowing in public four year universities and adjust the amounts to inflation then the amounts borrowed has not changed much at all over the past 10 years.

The CollegeBoard has data for trends in student financial aid.   There is an Excel sheet on their site with a bunch of tables with lots of data on financial aid.   Figure 10a in their sheet shows the Average Debt levels of Bachelor's Degree Recipients, Public Four-year Colleges and Universities in Constant 2009 Dollars, 1999-2000 to 2008-09.

Here's the data :

  Per Borrower Per Bachelor's Degree Recipient Percentage who borrowed
Public Four-Year      
1999-00 $19,500 $10,500 54%
2000-01 $19,100 $10,000 52%
2001-02 $19,300 $10,000 52%
2002-03 $19,600 $10,300 53%
2003-04 $19,700 $10,700 54%
2004-05 $20,200 $11,100 55%
2005-06 $20,500 $11,300 55%
2006-07 $20,200 $11,400 55%
2007-08 $20,300 $11,200 55%
2008-09 $19,800 $11,000 55%

Graphically that looks like this:

Looks pretty flat when you take inflation into account.

Now keep in mind that these numbers are adjusted for inflation, so they are citing the figures from earlier years after adjusting them to the value of a dollar in 2008-2009.

April 25, 2011

What is Poverty?

This article called The Real Poverty Line in America  discusses a study about what income is required for a decent standard of living.    You can find the actual study at The Basic Economic Security Tables™ Index (BEST)

They used the term 'poverty line' in the Main St. article title.   I don't know if they really think that 'poverty line' and 'economic security' are the same thing or not.   They might just be trying to be controversial or something.  

The BEST economic security income levels

The income levels that he BEST study come up with to give that 'economic security' level are :

1 worker $30,012
1 worker, 1 infant $46,368
1 worker, 1 preschooler, 1 schoolchild $57,756
2 workers $42,504

The BEST figures include things like monthly spending of $490 for transportation, $291 for personal and household items and saving $75 a month towards emergency fund.   That is NOT poverty level living for certain.   Its not even particularly frugal living in my opinion.   But defining a poverty rate is not the intent of the BEST study.  BEST is the "Basic Economic Security Tables" so they are looking at an "economic security" level and not "poverty" level.   Economic security is a higher standard than poverty.

The federal poverty line 

The federal poverty lines are :

The 2009 Poverty Guidelines for the 48 Contiguous States and the District of Columbia
Persons in family Poverty guideline
1 $10,830
2 14,570
3 18,310
4 22,050
5 25,790
6 29,530
7 33,270
8 37,010
For families with more than 8 persons, add $3,740 for each additional person.

They have higher figures for Alaska and Hawaii

The BEST numbers are roughly triple the federal poverty level amounts.

The federal poverty line is apparently not really a direct measure of what it really costs people to subsist.   Apparently the poverty line was developed in 1963-1964 by taking the cost of food for a family of 3-4 and then multiplying by 3.  They multiplied food costs by 3 because at the time people spent about 33% of their money on food.    Since then the poverty line has been updated by using the CPI inflation index.   The current federal government poverty line has very little to do with hat it costs to provide the basic necessities in 2011.
The social security administration site has more on the history of the poverty lines used by the federal government. 

It seems that the federal poverty line is more accurately an inflation adjusted measure of what it cost to feed three families in the 1960's.

What is Poverty?

I'm not going to pretend that I know a lot about poverty.   My family may have been 'low income' at some points when I was growing up but we were never what I'd consider poor.    However I did qualify for free lunches at school at one point so it seems that we could have been considered poor by some government standard at the time.   When I think of poverty I think of not being able to afford basic necessities like food and shelter.  If you don't have enough money to feed or shelter yourself then you are definitely poor.   I don't mean that you ran out of money at the end of the month because you blew all your cash on iPhone apps or at the casino.   I mean that you don't have enough money coming in to afford life's necessities.

As a single person I could pretty easily rent a room with utilities included and feed myself for about $450 a month.   Thats only $5,400 a year.    Throw in another $100 for clothing.  By one measure then I could say that the poverty line for an individual is around $5,500 a year.

Are transportation, health care, and a phone basic necessities of life?    You could look at it that way.   Personally I think health care is more fundamental to basic subsistence than transportation.   For another $1,000 I could get an annual bus and train pass.

 The cost of healthcare is a killer for anyones budget if they're paying it out of pocket without any government aid.     Health insurance would run up to $400 a month for another $4,800 a year.   You could get a lower cost health insurance plan and risk that you don't have high bills, but in the end you may pay as much or more than the higher premium plan with lower deductible.   I could get a plan with a $175 monthly premium and a $2,500 annual deductible which on average would cost list.  This might run you $250 monthly on average over multiple year periods.   That is still $3,000 a year for health care.

Is a phone a necessity?   I think there is a reasonable argument that says that you do need a phone.   You have to have some way to keep in touch with the rest of the world and get help in emergencies.   Today however a basic cheap cell phone can be had for as little as $5 or $10 a month.  

Looking at it 4 different ways we come up with 4 different thresholds.   For a single person those levels would be : 

Food, shelter and clothing = $5,500
Food, shelter, healthcare, transportation, clothing and a phone = $9,500
Federal poverty guideline = $10,830
BEST minimum = $30,012

April 24, 2011

My Favorite Personal Finance Blogs

I read personal finance blogs quite a bit.   Reading other blogs is how I got started with the idea of writing my own blog.   There are a lot of great individual blogs out there which offer various views on personal finance.

Free Money Finance -I read this one a lot.   FMF has a lot of posts on a variety of personal finance topics. The author is pretty successful with his own finances with a good job and good savings.   He offers a lot of great career related advice.

- Jim Wang writes Bargaineering.   He's been writing for over 5 years now and the blog covers a wide scope of personal finance topics.   Jim also some regular writers that help contribute content.  He has a feature called Bargaineering Bucks where you can earn bucks for commenting and then spend your bucks on auctions for books or ING referrals.

The Simple Dollar- This is another one of the most popular PF blogs with over 80k followers.   TSD is written by Trent Hamm. Trent started in a big debt whole and dug himself out.   One of Trents specialties is frugality and stuff like making your own laundry detergent. He does reader QA's twice a week which I find interesting.   Trent has also written a book titled The Simple Dollar.

Get Rich Slowly- Written by JD Roth.  GRS is one of the most popular PF blogs with over 80k subscribers.  GRS started as the story of JD's struggle to get out of debt.   GRS has expanded in later years to add additional authors.   JD has a book out titled Your Money: The Missing Manual

The Dough Roller - Dough Roller is written by "DR".   They have a lot of good articles.   I particularly like their regular feature that explains various tax forms.   I often link to those in my weekly blog roundup.   DR is joined by staff writer Michal.

Consumerism Commentary - Started way back in 2003 by Flexo, Consumerism Commentary is one of the older personal finance blogs around.

fivecentnickel.com - Written by 'nickel' the fivecentnickel blog has been around since 2005.  

My Money Blog

April 22, 2011

Best of blog posts for week of April 22nd

Neal Frankle of Wealth Pilgrim lists  5 Ways to Torpedo Your Retirement

My Money Blog shares the Infographic: Where Did Your Tax Dollars Go?

FreeMoneyFinance asks Is $250,000 Really Not Enough to Live On?  (spoiler alert: the answer is no)

Bargaineering discusses Fuel Taxes: Why Gas Prices Vary So Much

Adventures in Couponing Week 1-2

Lately we've been getting the local newspaper for free for a limited time deal.   I decided to take the opportunity to try out using coupons a little bit.   My history with coupon use for grocery shopping has been pretty unsuccessful.   I've tried it once or twice before but given up after not saving much money for the effort.   But I've always known that it is possible to save a good amount on groceries by using coupons.  So I decided to give it another shot and see if I could make it work.

The experiment

To say it quickly, I'm just going to try out clipping coupons for a while and see what kind of savings I can get from a relatively small amount of effort.   If you want to do couponing right then I think you'd  really have to watch all the sales for several grocery stores to maximize your returns.   But I am not going to shop around at every grocery store in town.   I don't want to spend a lot of extra time on my shopping and I don't have several extra hours a week to dedicate to an experiment.  So I'm just going to mainly shop at our regular grocery store and maybe add in side trips if theres a really good deal elsewhere.    I'll try it for a few weeks and see how much I save and figure out if its worth the effort and the cost of the newspaper.

Results of First Two Weeks

First I took a few minutes at work one day to log into the website for our primary grocery store.   From their website I could "load" several coupons onto my loyalty card.   This way I automatically get the coupon savings at the checkout just by swiping my loyalty card.   This is the modern high tech version of couponing.  I found a few good coupons there. 

For the first two weeks I looked through all the coupons in the Sunday paper and  cut out anything that we might use.   I got a good 1-2 dozen coupons that were possible purchases.    Some of them are brands that I know we routinely use so those should give me some good guaranteed savings.   Other coupons were for products that we might buy but nothing  we have an immediate need for.

The local Albertsons ran a deal with 3 double coupons.  The double coupons would match the savings of a manufacturer coupon.   I could use these to get even more savings on the other coupons I'd clipped.   However here were some restrictions on the double coupons.  They will only double up to $1 per coupon and they did not give cash back.

We normally do grocery shopping on the weekends, usually on Saturday.   I only used 2 coupons for our normal grocery run this week.

At our regular grocery store I used a couple coupons to save on coffee:
Folgers coffee $7.99 -$1.00 store coupon - $1 manuf coupon = $5.99
Soup for $1 off purchase of 2
Coupon savings = $3.00

When I found the 3 double coupons I decided to make a separate trip to Albertsons to cash in on those.

Here is what I got at Albertsons with the double coupons:
Cat food 16 oz box $2.49 - $2.00 coupon doubled = free
ACT mouth wash $4.29 - $1.00 coupon x 2 = $2.29
Silk soy milk $3.89 - $1.00 coupon x 2 = $1.89
When I was there I also picked up a couple sales items:
Pepsi 12 pack on sale $4.34
Cheerios on sale $2.99

Total cost $11.60
Total Savings $11.35

Coupon Savings $6.49

In two weeks I've spent about one hour of effort total between some coupon clipping and a separate trip to Albertsons.

Total coupon savings $9.49

I still have the following coupons that we might use in the future:
Tea $0.50 off
Dog food $2.00 off
Two boxes of Rice Krispies $1.00 off
Soy milk $1.00 off
Two Paper plates $1.50 off
Cosmetics $1-3 off

$9.49 in savings isn't bad for my first effort.   I'll continue to clip coupons as we get the paper and monitor the progress moving forward.

April 21, 2011

The Hazardous Road of Following Your Passion

Do you know anyone who would like to pay me a six figure salary to sit in a La-z Boy, play video games and watch sci-fi television?     No?  Bummer.   I guess that following my passion isn't going to be very lucrative.

One of the common mantras in the personal finance realm nowadays is that you should "follow your passion" when it comes to selecting a career path.  That sounds great.  The logic is that if you do what you love then you'll naturally be good at it and therefore it will be successful for you.   Well the reality isn't always that pretty.   I think that following your passion into a lucrative career is a fabulous idea if it works.   I'm a pretty practical person myself and I think we should all at least have a realistic plan and ideally a 'plan B' in case our passion doesn't work out.

I actually know several people who have tried to follow passions as careers.   It has usually not worked out all that well.   In each of these cases I think we can learn something.

My friends and their passions...

I know someone who's passion was music.   She started a degree in college that was in music. She dropped out of college and now has loans to pay and no degree to show for it.   She has never made any money by performing music.   Following your passion can backfire if you're not really sure about your passion in the first place.

Don't they look rich and famous?
My cousins' husband always wanted to be a rock star.   He pursued that dream well into his 40's.  As far as I know he may still have aspirations at finally hitting it big.  He never gave up on the dream and never settled down with a real job.   Sometimes you have to face reality and know when to call it quits.

A friend of mine followed his passion for history.  He got himself a degree in history at a local well regarded private school.   Then after graduation he got himself a job as a motel night clerk and a large student loan debt.  He had assumed that if he got a degree from a 'good' private school that the jobs in his chosen field would just follow.   He assumed wrong.   He also didn't realize that the local private school wasn't well known outside our region.    A poor plan and heavy student loans can make following your passion a mistake.

One of my friends got a degree in drama in college.   I think he's actually made some money in the theatre or performance arts.  He has not made anywhere enough to live on however.  His day job is in computer support fields which he self taught himself.   Its a job he could have obtained without that drama degree.  My friend in this example did a fair job by having a decent paying day job and continuing to follow his passion on the side.  If he continues this then at minimum he'll enjoy his acting part time and at best he may finally break through and hit the big time.

Not my nephew.
My nephew really loves basketball.  He is pretty talented athlete.   I love him but he has no shot whatsoever making a living at professional basketball.   There are probably at least 100,000 kids aged 8 to 18 today who think they can make a living as a professional athlete who will never have successful careers in sports.   Most kids grow out of this phase in their lives.   But if you have a real shot at a sports career then at minimum you should ride your athletic ability to a free college degree.   Make sure that degree is in something useful that you'd like to do for the rest of your life.

A relative of mine got a bachelors and masters degree in psychology.  She makes below average wages as a counselor.   At least she has a job in her field that pays the bills which is not the case for many of her psychology classmates.  Getting a graduate degree can help you stand out in a very competitive field.  

Ok thats enough of my examples of when following your passion isn't a good plan financially.   I think I've beaten it into the ground so you should get the point.

So what to do?     I certainly don't want people to abandon their dreams and pick their careers and jobs based on pay rates alone.   On the other hand I don't think people should be unrealistic while they pursue their passions.  You need to find a good balance between happiness in your work and career and financial stability.

At least find a job you enjoy, if not love.  I certainly agree that it is ideal if you can find a career that you love.  But if you can't make that work then at least pick a career that you enjoy.   There is definitely something to the idea that you will be more successful if you are interested in your work and enjoy it. 

Follow your passion part time, on weekends.  

There is no reason that you *have* to follow your passion as your day job.  If you have a passion that doesn't pay the bills then there is nothing wrong at all with following your passion on the side and doing a job that pays money during the day.   This tactic worked out pretty well for my friend the actor.

Double major.
One way to pursue your passion and get a job that pays the bills at the same time is to get a double major in college.   One major is your passion and the other major is a acceptable day job field that will pay the bills.  This way you have a job to fall back on if the passion doesn't work out so well.  My acting friend who does computer work by day would have benefited from this tactic.   He's doing OK in his computer related job but he would be doing better if he had a degree in the field.

Try it with a deadline
Another way to go about following your passion is to give it a try for a few years.   Say you absolutely want to be a rock star when you grow up.   If you really have a passion for music and have the ability to succeed then delay college for a few years to try it.  This way you will give yourself a chance to follow that passion but limit it so that at some point if you don't succeed you will instead follow a more practical day job.   This tactic would have greatly benefited my aging cousin.

Photo of musicians by eschipul and kid with basketball by kitykity

April 20, 2011

Summary of Gas Savings Tips

Gas prices are up again lately.    I've written a few articles about saving on gasoline over the years, seems like an opportune time to look back at them.  First of all, if you're concerned about gasoline prices then please don't run out and trade in your car for a moped.  A while ago I explained  Why You Shouldn't Buy a Moped to Save Gas

Gas prices go up and down and up

Gas was more 2 years ago.
Gas prices go up and down and I think high gas costs is something we're going to have to live with rather than panic over.   If you look at the History of Gasoline Prices there have been a lot of wild ups and downs.  I do think that $5 Gas is Coming... Eventually  It might happen within a year or it might happen within a decade. 

Practical and free gasoline saving tips

Saving on gas is of course a good frugal strategy.   First you need to use some common sense strategies for cutting your gasoline usage.   Most people can save money on gas with some simple strategies like driving slower and shopping around for cheaper gas. 
I had a 4 part series on the topic of saving money on gas:

How to Save Money on Gas #1,
How to save money on gas #2 - efficient cars,
How to save on gas #3 - Dont drive to far out of your way to save a nickel on gas and
How to save on gas #4 - using GasBuddy  
You can also find 17 gas saving articles from FreeMoneyFinance

Additional tips for gas savings by efficiency: 
Avoid idling your car because  idling your car costs about 2c per minute
Avoid devices that are supposed to save gasoline because they're all rip offs
Avoid over Priced Gasoline Stations which is really just common sense that we sometimes fail to use.
Prices are much worse in Europe
1.66 Euros / liter = $9 /gallon

Fuel efficient cars are a good long term bet
I don't think people should run out and buy a different car anytime that gas prices go up a bit.   But driving a fuel efficient car is a generally good long term strategy to cut your gasoline costs.

Gasoline savings alone are just one factor in car shopping.   Make sure you Figuring your real automotive spending and cost per mile  Look for used fuel efficient car because Buying a used efficient car can save typical Americans thousands a year   As an aid in shopping you can look for a list like this one Fuel efficient used cars  You probably don't 'need' a big fat V8 or V6 engine.  I bought a V4 engine in my Toyota and it has all the power I've ever needed.   Look for a 4 cylinder engine instead of a V6 to save $ long term

Hybrids and electrics are the future

Plug in Hybrids are coming soon
If you want to go to the extreme then an all electric or hybrid would give you the lowest gasoline costs.   A hybrid like a Prius can get you 50MPG and cut typical gas costs in half.   Fully electric cars use 0 gasoline but they are currently pretty expensive.   If you are interested in such cars then check out my look at them  Nissan Leaf versus a Toyota Prius   as well as my later 2nd look   If you're shopping in this category of car you may hear about the Chevy Volt.   You should also take a look at the Chevy Volt Efficiency

Photos by JacobEnosMarkusram and mariordo59

April 19, 2011

My Personal Construction Cost Estimator Rule : Multiply By 2

It seems anytime I figure out how much I think home repair or construction should cost the actual costs end up double my estimate.

One of our rental properties had a plumbing problem a while back.    It seemed like a minor problem to me that a plumber should be able to fix for $200 or so.   Cost estimates were: $400 to $800 depending on if we want the 'minor' fix or the 'replace with new' fix.       When we had our home air sealed and insulation added I had guesstimated it 'should' cost something like $2000 to $3000 and the final cost was closer to $6000 (before government and utility rebates).  This is pretty typical of how my estimates on home repair or construction costs compare to the figures that contractors will cite. 

This has lead me to create my own rule of thumb:

Home repair costs = what I think it will cost X 2

Maybe I'm just a cheapskate who routinely underestimates what it costs to fix stuff.   I'm not saying that contractors are regularly over charging me or ripping me off or anything.   When we get quotes for major work we try and get 2-3 quotes from various contractors.  I think some prices are higher than others of course.   But I think I underestimate the costs because I just routinely underestimate how much materials and labor will add up. 

This 'rule' may or may not work for you.    Maybe your better at estimating home repair costs or maybe you're not a cheapskate like I am. 

April 18, 2011

What Fields do People get Graduate Degrees In?

I previously discussed What Majors Graduates Get Bachelors Degrees in where I looked at what bachelors degrees people are getting out of college. 

Today I decided to look at what fields graduate students get their degrees in.    The data is on the Census site at the 2011 Statistical Abstract page for Education. Specifically I'm referring to "299 - Master's and Doctorate's Degrees Earned by Field" [Excel 42k] | [PDF 69k]  The numbers there are for the year 2008 which I assume is the latest data they have compiled.  The Census data breaks down the degrees earned by Masters and PhD's.   First look at Masters degrees earned.

In 2008 there were a total of 625,023 masters degrees earned.

Masters degrees earned in 2008 :

Business  24.9%
Education  28.1%
Engineering and engineering technologies 5.5%
Social sciences and history  3.0%
Biological and biomedical sciences  10.8%
Psychology  3.4%
Visual and performing arts  2.3%
Communication, journalism, and related programs \2 1.2%
Computer and information sciences  2.7%
Liberal arts and sciences, general studies, and humanities  0.6%
Public administration and social services  5.3%
OTHER 12.1%

A lot of those degrees are in professional fields that are generally well paid.  

Lumping the master degrees into some wider categories it looks like this :

business, engineer, computer, scientist, management 49.3%
arts, social 10.5%
education 28.1%
other 12.1%

Now you can see that almost 50% of the degrees are in technical, business and management areas.   The next largest group is in education at 28.1% which is due to teachers pursuing higher education.

There were a total of 63,712 doctorate degrees earned in 2008.

For Doctorates earned the percentages in 2008 are as follows:

Business  3.3%
Education  13.3%
Engineering and engineering technologies 12.8%
Social sciences and history  6.4%
Biological and biomedical sciences  26.4%
Psychology  8.3%
Visual and performing arts  2.3%
Communication, journalism, and related programs \2 0.8%
Computer and information sciences  2.7%
Liberal arts and sciences, general studies, and humanities  0.1%
Public administration and social services  1.2%
OTHER 22.5%

You can see that theres some differences there from Masters.

There are a lot fewer people getting PhD's than Masters degrees in business.   The MBA is the standard for business so most people stop there.    There is a larger percent of people getting psychology degrees at the PhD level.

If we break the Ph'D's earned into the larger groups like I did for Masters degrees then the percentages look like this:

business, engineer, computer, scientist, management 46.3%
arts, social 17.9%
education 13.3%
other 22.5%

Nearly half the Phd's earned are in technical, health and business areas.   At the PhD level there are fewer people getting degrees in the education area.  We also have more people getting various 'other' degrees.

Graphically the degrees charted looks like this :

There are about 10 times as many Masters degrees earned as PhD's so the PhD's don't show up so well in the chart.

Its clear that business and education are a large portion of the fields people get graduate degrees in.  Almost half of all the graduate degrees are in those two areas.

April 17, 2011

But Bill Gates and Warren Buffet Did It!

Is going to Harvard a good idea?   Of course it is.  A Harvard degree is almost a free ticket to a good job that pays well.   Is going to Harvard a good investment?  Definitely. 

Not a typical drop out
It seems that when you have this discussion that eventually some wise guy asks "What about Bill Gates?   He didn't finish college.  He dropped out of Harvard and look at him, now he's a mega billionaire!"   I'm paraphrasing there but something to that effect is the usual argument.   The idea here seems to be that going to college like Harvard isn't necessarily a good idea cause someone like Bill Gates became a wealthy billionaire without a college degree.   If Bill Gates can be so successful without college then why do other people need to go to college?

Point: College is useful.
Response: Bill Gates doesn't have a degree.

Can you make 20% or more a year every year over the long term on your stock investments?   No you can't expect to do that.   Individuals shouldn't expect to get stock returns that are significantly different than the overall market performance over the long term.   Of course theres variations you may be a bit lucky or unlucky and do better or worse. 

Not a typical investor
Point: Don't count on higher than average investment returns.
Response: Warren Buffet gets higher than average returns.

Compare the Bill Gates versus college and Warren Buffet versus investing discussions with the following :

Point: Making a 3 point basket from across half court with 0.5 seconds on the shot clock is very hard.  Don't expect to be able to do it.
Response: LeBron James could do it!  

So?   Who cares if LeBron James can make a half court shot.   He's a basketball super star.  Just because a star athlete can do something doesn't mean that a normal person like you or me can do it.

Not typical at all.
Just because Bill Gates or Warren Buffet achieve unparalleled financial success doesn't mean that anyone else should plan their lives or make decisions using them as an example.    Just because one guy can drop out of Harvard and become a billionaire doesn't mean everyone can.  Other Harvard Dropouts  like the ones in this article "Dropouts" from Harvard Magazine are just as likely to have ended up becoming homeless hippies for a decade and eventually settle into 'normal' jobs with 'normal' levels of success.    For every Warren Buffet there are about 307,006,549 million Americans (and counting) who have had less success with their investments.

For every LeBron James in the world theres millions of normal people like myself who are not particularly good at basketball.
There are exceptions the norm in everything.   Rare extremely talented or gifted individuals can do that which most of us can only dream.    These peoples individual experiences should not be considered relevant to our own individual financial planning.

Gates photo by Domain Barnyard, Buffett photo by Medill DC , James photo by Keith Allison

April 14, 2011

Suze Orman Smacks Down Dave Ramsey

The Money Class: Learn to Create Your New American DreamI recently watched the March 26th episode of the Suze Orman show titled "Don't be Debt Dumb".    You can find the episode online as a free podcast in iTunesI'm late watching it because we record them on our DVR then watch them if/when I have time and get around to doing so.    This episode was notable because Suze opened the program with a little bit of a rant about another popular personal finance guru's debt payment advice.   Suze did not name names but it was pretty clear that she was talking about Dave Ramsey.

Suze refers to having caught a "so called financial pundit" on television.   She then says that their debt repayment strategy was the "dumbest strategy I've ever heard in my life".   Suze declares that there is "one way and one way only to pay down credit card debt".    Which is of course her way.

She said that the "so called financial pundit's" advice was to pay the lowest balance first and forget about the interest rates and that will allow you to pay off a card.  This plans strategy of paying off small debt quickly is meant to "psychologically make you feel good" but Suze scoffed at that idea.   She points out that his strategy means that you'd be paying off a $200 debt at 0% before a $300 debt at 29%.   Suze declares that is "just plain wrong".    The plan that Suze describes is definitely Dave Ramsey's strategy.  While Suze went out of her way not to name him, I think its clear that Ramsey is who she was talking about.

The Total Money Makeover: A Proven Plan for Financial FitnessSuze's strategy is to do the following :Line up cards by interest rate highest to lowest, call card companies to ask them to drop rates (they probably wont), maybe do a balance transfer to a low rate credit union card if your FICO score is good, again look at the cards highest interest to lowest.  Pay the minimum on all cards and put extra money into the highest interest rate card.

I think there are pro's and con's to each method.   Suze is correct that Ramsey's method is not the best mathematically and you'll generally end up paying more interest with his plan.    On the other hand I really do think that there is something to Ramsey's strategy to give people psychological boost by knocking off debts one at a time.   If the psychological boost of having some small successes initially would be beneficial enough to keep you on target towards your goal then it can be worth paying a little extra interest.   As often as not the high balance credit cards will not be lower interest and if they are then it may not be much difference.  Except for promotional offers, people usually have similar interest rates on their credit cards rather than wide differences in the rates.  

I find it a little amusing that Suze would ridicule the psychological benefit of Ramsey's strategy.  It seems that a lot of Suzes advice is based on psycho babble and she seems to enjoy playing amateur psychologist on her show.  Suze and Dave both have pretty arrogant "I'm right and people with contrary views are stupid" attitudes and they can both be abrasive with criticism.   Maybe Dave will fire back by referring to Suze as a "so called" financial expert too?  Childish petty drama is probably good for the ratings.
Dave's debt snowball system is not mathematically optimal.  But Suze's disdain for the system is not warranted and the psychological benefits shouldn't be written off.

April 13, 2011

Cheaper Out of State College Tuition in Western States

If you are one of the 70+ million people who live in the Western U.S. then you may qualify for reduced out of state tuition under the Western Undergraduate Exchange program.   This is a system by which students in 15 Western states can get tuition at 150% of the in state price.   Thats often a much better bargain than the out of state tuition rates.   In many states thats about half off the cost of out of state tuition.

Participating States : Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming.

About 143 universities in the Western states are in the program.   Not all public schools in the 15 participate in the program. For a full list see the colleges that participate. 

Some of the bigger schools on the list include : U. of Arizona, Arizona State, U. of Utah, Colorado State, U. of Colorado, U. of Oregon, Boise State, Washington State and the California State schools (not U. of California).

You have to apply and get accepted.  It isn't automatic based on residency.   Some schools have higher criteria for grades and SAT scores.  States set limits on the number of students they accept. 

April 12, 2011

History of Gasoline Prices

Gasoline prices have been going up again.  The station that I pass on the way to work was over $3.70 last time I noticed.   We can blame the price increases on the oil industry generic excuse #1  which is 'conflict in the Middle East'.   Whatever the reason we're paying more at the pumps.   How does the cost of gas compare to years past?    I remember not long ago when gas was under $1 a gallon.  It almost seems like yesterday even though it was more like twelve years ago.  

The Dept. of Energy tracks gasoline prices over history.   The US Energy Information Administration has the prices for oil and gas going back decades.   They also show the prices in real (inflation adjusted) terms.

Here is a graphic showing the monthly gasoline prices both nominal and real going all the way back to 1919.   The inflation adjusted prices in red and the actual prices are in blue.
Source: EIA

Note that these are annual averages so it doesn't reflect the daily or monthly highs and lows.

They also have the monthly prices going back to 1976.  
Source : EIA

There you can see that the peak in both real and nominal terms was the summer of 2008.   Back in '08 the price of gasoline hit $4.06 a gallon which is equivalent to about $4.10 in todays dollars.   Note the grey bit on the far right is just 'forecast' of the future.

If you want to see more of the data then you can go to the EIA website.   They have a gizmo there that lets you look at a chart of prices for specific dates.  Plus they have a full Excel sheet with all the data and the charts that I've included above.

Gas pump photo by Candie_N

April 11, 2011

Living in a Closet

Check out this story about a woman who lives in a 90 square foot "apartment":  Simple life in Manhattan: A 90-square-foot home  She pays $700 a month for it.   It is however just a block from Central Park and it even includes a full bathroom.    If you check out the article they have a Youtube video too where she shows the apartment.

My first thought was that I could never live in such a small place.   I mean 90 sq foot is the size of a walk in closet or a medium to size bathroom.   But once you see it its  really not that bad.   For one she seems to have 12' ceilings and she has organized the space to take advantage of that extra height.   There is a full bathroom which is small but not unlivable.   After seeing the video I think I could live fairly comfortably in such a small space.

I'm actually reminded of my college dorm room.   For a couple years in college I lived in a small single room in the dorms.  My room was about 9' x 9' in size.   It did not have its own bathroom but it wasn't very well organized and they had a closet that was too big relative to the room size which took up about 25% of the rooms space.  I was quite comfortable in that dorm room as a single person.

April 10, 2011

Personal Finance Truths I've Learned In Recent Years

A while ago I didn't know everything and I was mistaken about somethings.   OK so i still don't know everything and I'm undoubtedly also mistaken about some things.

You need an Emergency Fund

I probably first heard of the term Emergency Fund around 4 years ago.   Before that I wasn't even aware of the concept.   I know that having some money in the bank is good.   However I didn't really have the idea of keeping that money specifically for an emergency or having a fixed amount equal to several months worth of expenses.

401k loans are a bad idea

I remember many years ago one of my co-workers mentioned they were using a 401k loan to help finance the purchase of their home.   I had never heard of the 401k loan before then and it sounded like a good idea to me at the time.   Since then I've changed my mind on them.   A few years ago I found out that 401k loans can be called and made payable if you lose your job.   That fact makes the 401k loan a bad idea in most cases.   If you take such a loan you're taking the risk of a double whammy of being laid off and owing a large sum of money to repay the 401k loan.   401k loans also erode the growth of your retirement plan assuming you wanted your money to grow faster than 4-6% interest rate that you're paying yourself.

The top Tax Brackets Don't apply to All of Your Income

Long ago I held the common mistaken belief that if you are in the 25% tax bracket then you pay 25% of your income in taxes.    That is certainly not how our taxes work.   I don't know exactly when I used to think that but at some point I learned the truth of how progressive tax brackets really operate.  The top tax bracket only applies to additional dollars earned.   The tax paid on the first dollars earned is the same no matter how high the income is.

Social Security is Pay-As-You-Go

I used to think that our Social Security tax dollars were dutifully invested by the government and accumulating in some sort of giant government ran piggy bank.   Social Security is however a "pay as you go" system.   The existing benefits are paid directly by taxes from the current tax payers.   There is no giant piggy bank.   Well not exactly.  One really confusing part of it is that SS has a surplus trust fund.  So there is a piggy bank, but its just a surplus amount between the current taxes and current benefits.   That trust fund does not come anywhere near covering the total amount of taxes paid in and eventual benefit liability.

April 8, 2011

Best of blog posts for week of April 8th

Free Money Finance lists Seven Ways Not to Buy Physical Gold
Also this week FMF celebrates his 6th year of blogging Happy Birthday to FMF!!!! so go wish him a happy blog birthday.

DoughRoller shares his story of  How We Paid Off $237,428.13 in Debt in 5 Years

April 7, 2011

Historical Labor Force Participation for People 65 years or Older

My wife mentioned reading something about how people are 'rethinking retirement' which means that they are not retiring and are instead working.   More people are hitting retirement age without enough saved to retire and stop working so more people are working past 65.   I figured in the 'olden day's when people people would have also hit 65 without enough money but would just end up destitute more often as employers wouldn't have wanted to hire older people.  I have this impression that employers would not employ people over 65 in decades past.  Are people working past age 65 a lot more nowadays than in the past?    This lead me to investigate the labor force participation rates for people age 65 and older.  

The data
I had to pull data from a few sources to get the picture long term as well as to look at it a couple ways.
The table from the Census Statistical Abstract titled Civilian Labor Force - Percent Distribution by Sex and Age: 1980 to 2009 tells us what % of the labor force is in each age group.  Another table from the Census gives us the Resident Population by Sex and Age : 1980 to 2009.

For older data I also looked at the Census Population by age back to 1900. and the treasure trove of old stuff in the Historical Statistics of the United States Colonial Times to 1970 which has older labor force info in Series D 29-41.  Labor Force, by Age and Sex : 1890 to 1970.   The best data for 1890 to 1970 was in that document.

The results

If you add it all up the information is as follows :

# over 65 in labor force population over 65 % in labor
1950 3037 12397 24%
1960 3194 16675 19%
1970 3220 20106 16%
1980 3101 25550 12%
1990 3398 31084 11%
2000 4277 34992 12%
2005 5226 36704 14%
2009 6474 39571 16%

Here is the labor force participation rate for the population 65 years or older over the past 60 years :

Now this is for both men and women.    Interestingly the labor force participation rates dropped dropped significantly for men over 65 from 1940 to 1970.   However when you look at the long term trend for women over 65 there has not been as much change in the labor participation rate.

If you look at it split by gender then the difference is considerable.  Here's the summary chart that best shows all the data in one picture:

Men over age 65 used to work a lot more than they do nowadays.  
From 1890 to 1990 the percent of men over age 65 who participated in the labor force dropped drastically.   In 1890 the labor force participation rate for men over 65 was over 68% and by 1990 it had dropped to just 16%.   In the 20 years since 1990 the labor force participation for men over 65 has started to inch back up and grew from 16% in 1990 to above 21% in 2009.    I would assume that a significant reason for the decline in labor force participation for men has been from the advent of pension plans and Social Security.   But that is just an assumption on my part.

Women over age 65 have not worked much over 10% historically
Historically from 1890 to 1940 the labor participation rate for women was under 10%.   Then in the 50's through 70's there was a bit of an increase up a little over 10%.   The current 13% participation rate for women over 65 is the highest its been in the history that I looked at.

Turns out I was wrong.  In the 'olden day's men over 65 used to work a LOT more than they do nowadays and older women didn't work much.  

Bottom line : The past 20 years has seen an increase in the labor force participation of people older than 65 years.  However in previous decades from 1890 to 1990 the labor force participation rates had been steadily decreasing for men and generally flat for women.

April 6, 2011

Example $5 / day Grocery Budget for One

Lets say you're single and on a budget.   How much is a reasonable basic budget to spend on groceries? 
My example shopping budget would be based on a menu for a week.    Basically I'd eat dry cereal for breakfast, make a sandwich for lunch then have something different for dinner each day.   I'd drink milk or water for meals.   This is very similar to what I would do back when I was single myself. 

The basic menu for the week would be :

Breakfast = cereal and milk every day
Lunch = piece of fruit, 1 oz bag of chips, sandwich of lunch meat & cheese
Dinners = Monday : spaghetti & salad, Tues: TV dinner, Wed : tuna sandwich & can veggies, Thurs : soup & salad, Friday : pork chops & potato, Sat: chili, Sunday : grilled chicken, salad & can veg

This isn't necessarily the most healthy eating possible but I have some fruits and veggies as well as meats and grains.  I think its fairly well balanced.

I found prices at Safeway for the items and figured rough costs per week as follows.    Prices will vary from store to store and week to week.  This is just a snapshot of example prices.  

Here is the shopping list for weekly items :

item cost
Gallon of Milk $2.79
Loaf of bread $1.69
7x fruit $3.50
lunch meat $3.50
cheese slices $2.80
2x can veggies $1.60
head lettuce $2.19
can chili $1.20
can soup $1.67
TV dinner $2.50
can tuna $0.50
TOTAL =  $23.94

You would also need to buy some items every few weeks.  

cost / week weekly
cereal $2.49 2 $1.25
22x 1oz chips $7.70 3 $2.57
condiment $1.88 7 $0.27
spaghetti noodles $1.69 8 $0.21
pasta sauce $1.89 6 $0.32
3 lb pork $6.57 3 $2.19
3lb chicken $4.47 3 $1.49
5 lb potatoes $2.59 10 $0.26
salad dressing $3.99 3 $1.33
butter $2.99 5 $0.60


So between the $23.94 on weekly items and the $10.47 per week for items you buy less regularly you'd have a total weekly cost of about $34.41.   That comes out to $4.92 per day.  Lets round it up to $5 a day.

If you shop around for bargains you should be able to do better. If you shop around a little that would give you extra money to spend on extra stuff like some ice cream or maybe a nice steak once in a while.

April 5, 2011

Ebates 4% or more Cash back at Major Stores

The current Deals of the Week at Ebates have several major online stores with cash back of 4% or more :

Sears 4%
JcPenney 6%
Nordstrom 5%
Dell 4%
HP 5-7%
Home Depot 5%
Lowe's 4%

Many many other online stores have discounts on Ebates too.   

To get the cash back you need to be signed up with Ebates.  Then simply go to Ebates to get the referral to the merchant before you do your shopping.

Is Petroleum Engineering The BEST Career?

If high pay, relatively low training requirements and good demand alone dictated what made for a good career then I would put Petroleum Engineer towards the top of the list.  Some people may look at the high pay alone and decide this is a great job.   But if the job consists of traveling to remote areas and working long hours overseas and routinely being soaked in oil then it might not be that great.   I don't know if Petroleum Engineering is the 'BEST' career out there, but I figured I'd take a closer look and find out more about it.  It certainly looks like it has the potential to be a great option.

Note:  I am not a Petroleum Engineer and I do not have first hand knowledge of the field.   

What do they do?

The BLS occupational outlook handbook site's entry for Engineers says that "Petroleum engineers design methods for extracting oil and gas from deposits below the earth."  You can also read about the career in the Careers in Petroleum Engineering from the Energy4me site.    The University of Texas at Austin website has another good description of the field.

Great Pay 

Starting wages with just a Bachelors degree are $83,000.    That places it at the top of the list for entry level pay.   Median earnings for experienced Petroleum Engineers are the highest among the engineering fields at $108,000.   But their pay on average may be quite a lot higher.   The Society of Petroleum Engineers did a survey in 2010 and they found that the median salary plus bonuses in the U.S. was $158,557 and the mean was $199,248.   Of course that includes many experienced engineers and engineers with advanced degrees.

Excellent Demand

The future job availability looks good.   According to the BLS : "Excellent opportunities are expected for petroleum engineers because the number of job openings is likely to exceed the relatively small number of graduates."    But it isn't necessarily all peachy on the job availability front.   The Wikipedia page on Petroleum Engineers notes "Petroleum engineering has historically been one of the highest paid engineering disciplines; this is offset by a tendency for mass layoffs when oil prices decline."

Can start with a 4 Year Degree

If you want a fat salary then becoming a surgeon or a patent lawyer are probably good options.  But those jobs require many additional years of schooling.    Petroleum Engineer is one field that you can get a very high salary with just a four year degree.

Limited Universities offer Training

I searched the College Board website for universities with Petroleum Engineering programs.    Only about 25 universities came up.   Most of the programs are in Texas and the midwest or in Western states.

This article lists the top 10 programs as ranked by US News back in 2007 :

1 Texas A&M University–College Station
2 University of Texas–Austin
3 Stanford University (CA)
4 Colorado School of Mines
4 Univ of Oklahoma
6 Louisiana State Univ–Baton Rouge
7 Univ of Tulsa (OK)
8 Texas Tech Univ
9 Penn State Univ–University Park
10 New Mexico Institute of Mining and Technology

I believe those are grad. engineering programs but the schools with the best grad. programs probably also have very good undergrad programs as well.  Thats making a generalization based on assumption, but it is a fairly safe assumption.

If you don't have a university in your state with Petroleum engineering then you'll have to go out of state.   That will mean higher tuition at public schools.  One reasonably priced and well ranked option is New Mexico Institute of Mining and Tech. with out of state tuition of $14,620 a year as well as fairly reasonable room & board costs of $5,874.

Don't Assume Its Easy

If succeeding as a Petroleum Engineer was easy then everyone would do it.    I can speak from experience that coursework in engineering is demanding and very heavy on the math and sciences.   If you aren't interested in math and science or don't excel in those subjects then engineering is probably not a good choice for you in general.  

Working Conditions

When I imagine the working conditions of a Petroleum Engineer I conjure up scenes of people soaked in oil and fighting to put out a fire at an oil rig.   That is probably completely inaccurate.   I'm not a Petroleum Engineer and I live very far away from any oil production centers. 

The StateUniversity website career pages say this about the working conditions:
"Petroleum engineers work in the United States, on offshore rigs, and in foreign countries. Engineers involved in production can expect to work irregular hours, because most wells run day and night. Many jobs in oil production require engineers to move every few years."

I can't speak first hand as I don't have any direct experience with the field.   I would assume the working conditions will vary and usually be somewhere between 'soaked in oil' and 'sitting at a desk'.   You might have to work on an oil rig.   You might have to travel.   Hours might be long.   You might end up working in an office behind a desk.

Jobs Limited to certain States (Wanna Live in Texas?)

There are only about 25,500 Petroleum Engineers nationally.   Around half of the petroleum engineers in the nation work in Texas.  Within Texas most of the engineers work in the Houston area.   Outside of Texas about a quarter of the jobs are in four other states : Alaska, Wyoming, Oklahoma, Louisiana.

I dug into the details of employment and wage data per state from the BLS site

Here's a graphic showing the jobs by location :

The table below gives the number of jobs and median pay per state :

State Jobs Median Pay
Texas       13,380  $  117,910
Louisiana        2,300  $   92,540
Oklahoma        2,180  $   96,000
Colorado        1,170  $  131,880
Alaska        1,100  $  142,020
California        1,060  $  116,140
Wyoming           750  $   67,190
Ohio           380  $   95,090
New Mexico           320  $  102,910
Mississippi           290  $   63,620
New Jersey           260  $   94,220
Virginia           210  $  112,990
Arkansas           180  166400* 
West Virginia           170  $   92,610
Utah           150  $  109,200
Pennsylvania           120  $   86,430
Kansas           120  $   76,540
North Dakota             80  $  154,710
Illinois             80  $   72,660
Nebraska             50  ? 
Missouri             40  $   77,390
Montana  ?   $   92,810
Alabama  ?   $   83,290
Kentucky  ?   $   82,870
Michigan  ?   $   81,860

Some of the data is not available as indicated by ? in the table. * The wages in Arkansas are over the $166,400 level.

I wouldn't focus too much on the salary figures.   The employment numbers are relatively low so it is a small sample and a few high or low paying jobs could throw the average wages off.   You should also keep in mind that the cost of living in different states is a factor.   The fairly high wages in Alaska don't go as far up North due to their higher cost of living.

Bottom Line:   Petroleum Engineering pays well and could be a very lucrative career.   The universities offering training and the job locations may be limited.  If the field interests you and you have an aptitude for math and science then majoring in Petroleum Engineering be a good choice.

Photo by frostedburn

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