April 29, 2011
Due to the state of the economy, more and more people are living from paycheck to paycheck. A large majority of the population is only one paycheck away from being homeless. There are ways to break free from this stressful situation.
Figures Don’t Lie
Gather your bank statements and credit card statements from the past month. You’ll also need a notebook, a pen and a calculator. Label each page with a different title to include House Payments, Utilities, Food, Cars, Clothing and Personal Expenses, Credit Card Payments, Medical and Entertainment.
Starting with the bank statement, go over each and every entry. Put the dollar amount that was spent into the correct category. Add as many categories that you need but be sure to group the expenses. For example, all money spent at the grocery store, restaurants and fast food establishments should be under the food category. Utilities should include electric, heating oil or gas, water, sewer, trash pickup and cable bills. The Car category should include any car payments, auto insurance costs, repairs and fuel expenses. Clothing purchases, haircuts, manicures and the like should be placed in the Clothing and Personal Expenses category. Credit Card Payments and Medical are self-explanatory as is Entertainment.
Go over all of your charges on each of your credit card statements. Add those purchases to the lists. If you made any purchases with cash, try to include those as well. Total each of the categories and you will see exactly how much you have spent in the previous month.
The Truth Hurt
Seriously look at the figures in each category. Are they all necessary purchases? It’s a rarity to find a household that doesn’t have unnecessary expenditures so don’t feel bad. This can be rectified with diligence and will-power over time.
Can’t Touch That
Unfortunately, there are certain areas that cannot be pared down. Your house payments will not change unless you refinance or pay off the mortgage. Utilities rarely change unless you cut down on your usage or get rid of cable service. Medical and dental costs are just something that cannot be avoided.
Cutting The Fat Out Of Your Food Bill
Scrutinize the Food category. This is where most people spend unnecessarily. The quick stops at the fast food restaurant are usually the biggest budget killer. Do a quick analysis of how much money was spent on lunches and eating away from home. Most people are quite shocked to see how much they have spent.
All of that money could have been in your bank account. Changing your habits can be difficult but certainly worth the effort. Consider bringing your lunch with you to work. Most people spend about eight dollars a day on lunches while at work. Figuring on a five day work week, this totals up to a whopping $160.00 monthly. That’s a lot of money that could have been put toward your bills or paying down your debt.
You can also save a ton of money by using coupons while shopping. Many people don’t bother using coupons but that is silly. Manufacturers and grocery stores put the coupons out there to entice you to buy their products or patronize their stores. Personally, I would never shop without coupons and can purchase hundreds of dollars of groceries and pay less than $5.00 out of my pocket. This isn’t hard to do and takes only about an hour or two of your time. If you save two hundred dollars, you are actually earning about one hundred dollars per hour! That money can be put toward other debt, in a savings account for emergencies, college funds or to pay down the principal on your mortgage.
Drive Your Way To Savings
In this day and age, personal transportation is a must. However, it doesn’t have to be a top of the line car. If you have a vehicle that is financed, you might want to consider selling it to pay off the loan. You can then purchase a good, used car with any leftover proceeds. This will not only eliminate the monthly payments but cut down on your insurance costs. Financed vehicles must have collision insurance on them which is costly. Used cars can be insured with liability insurance only. This could save you around one thousand dollars each year.
Be sure to do all of your errands at once or do some while on your lunch break. This will cut down on your fuel costs which at this time are astronomical. You should also check out local news station websites that have gas price comparisons to find the closest station with the cheapest fuel price.
Evaluating Your Personal Expenditures
Trimming your expenses in the Clothing and Personal Expenses category is tough for some people to do. Many people feel that they have to have designer suits and expensive shoes. You need to seriously think about making such purchases before you actually buy an item. It is best to ask yourself which is more important, paying down your debt or having that item. It really should be a no brainer.
You can save a significant amount of money by eliminating manicures and pedicures. Many people feel that this is a necessity but truly, these are luxuries. Pretty hands aren’t as important as being financially stable.
Hide Those Cards
Not only is it essential to start paying down all of your credit card debt but you must also stop using the cards as well. It doesn’t make sense to continue using cards when you need to get out of debt. Never keep the credit cards in your wallet. Hide them in the freezer or under the mattress. Hide them anywhere that you think is safe but never, ever carry them. Once you have made the decision to pay down your debt and become financially stable, using your credit cards should be for emergencies only.
Budget Your Money
Too many people wind up living paycheck to paycheck because they don’t start out with a simple budget. A budget is simply a plan detailing exactly where every penny of your income will be spent or saved for later. You must learn to stick to the plan and diligently pay down all of your debt. Only then, can you truly begin to be financially stable.
April 27, 2011
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
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|
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
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, 1 infant||$46,368|
|1 worker, 1 preschooler, 1 schoolchild||$57,756|
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 :
|Persons in family||Poverty guideline|
|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
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
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
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.
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
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?|
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.|
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.
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
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.|
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|
Photos by JacobEnos, Markusram and mariordo59
April 19, 2011
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
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 :
|Engineering and engineering technologies||5.5%|
|Social sciences and history||3.0%|
|Biological and biomedical sciences||10.8%|
|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%|
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%|
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:
|Engineering and engineering technologies||12.8%|
|Social sciences and history||6.4%|
|Biological and biomedical sciences||26.4%|
|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%|
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%|
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
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|
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|
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.|
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 15, 2011
Can being frugal keep you broke?Frugality and wealth have always been closely associated. We know that spending money like there’s no tomorrow will leave you begging for lunch down the road. But can depriving yourself end up costing you more? Is there such a thing as saving too much?
Several finance bloggers seem to agree. Some think that cutting restaurants out of the budget is too much of a sacrifice, while others will go so far as to pocket napkins and ketchup at fast food joints. We set our limits at different points, since we have different incomes and needs. But “frugality traps” do exist. Here are some of them and how they can be avoided.
Spending less, not earning moreAs entrepreneur Steve Chou (author of mywifequitherjob.com) says, being frugal can only take you so far. The way to wealth is not to spend less, but to earn more. They’re not the same thing. There is only so much you can cut from your budget and still enjoy a certain quality of life. But there’s no limit to what you can earn, except your own effort and creativity.
Of course, not all frugal living advocates realize this. They think that if they just give up a few luxuries, they won’t necessarily work harder. But they’re putting a cap on their potential to earn. If your monthly budget is $2,500, you can only theoretically save that much—and in reality, it’s even less than that since you need to spend on food, rent, and utilities. But if you make only a few cuts and instead work twice as much, you can more than double your savings.
Rewarding yourselfJust as a dieter feels entitled to a slice of cheesecake after meeting her target weight, a penny-pincher may want to reward himself for reaching certain savings goals. We’ve all been through it: we spend months counting every dime and nickel, and when our stash reaches a nice fat number, we head to the shops for some well-deserved indulgence. Problem is, we tend to do that a little too often.
Frugality makes us feel deprived, so at the slightest opportunity, we more than make up for it. But if you spend just a bit more and allow yourself the little luxuries—whether it’s good cheese or the occasional weekend getaway—you’ll be less likely to overcompensate.
Putting off necessary expensesIf it ain’t broke, don’t fix it. That’s how most frugalists think. But sometimes it makes sense to fix it before it’s broke, otherwise the damage gets worse and more expensive. Think about replacing a leaky pipe. To save money, one might buy a tub of sealer, which is less expensive than a new pipe. But after patching up for months on end—and buying even more sealer—the pipe finally gives in, and you end up having to replace it anyway. And since the problem has had time to spread, the water damage may cost you even more.
Learn to gauge whether spending now will save you more money than spending later. This can apply to anything from plumbing to travel (take that trip before the tourist rush pushes up prices) and health (get that knee fixed before it requires major surgery). Think not just about how much you have now, but how much you can have if you break your own rules once in a while.
Working too hardBeing frugal is hard work. The most serious “savers” spend hours cutting out coupons from newspapers, searching the web for bargains, and shopping at three different grocery stores chasing after discounts. But as we’ve said before, there’s only so much you can make from saving. Sit down and do the math: how much are you really saving by going through all that trouble? Often, it’s little more than a few hundred dollars a year. That’s commendable, but is it worth all the extra effort? If chasing specials saves you $500 a year for about two hours of work a week, that’s a measly $4.80 per hour. You’re better off clocking in overtime at your job, or using the time to make your own business grow.
The underlying principle in all these examples is due diligence. Basically, you should know what you’re getting into. Before embarking on a money-saving journey, sit down with a calculator and make sure it’s worth your time and money. Figure out the returns versus the “start-up costs” (e.g. buying a bike so you can spend less on gas), and gauge how much time it will take to reap the rewards. Sometimes, it may turn out, a little luxury isn’t so bad.
April 14, 2011
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.
Suze'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
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
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.
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
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
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
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
Credit scores are not used today as they had been in the past. Essentially, only lenders and credit card providers mattered when it came to credit score reviews. Less than perfect credit scores could still merit lines of credit and loans. But all that has changed in recent years. In fact, there are more businesses and industries that rely on credit checks that a consumer’s potential financial loss can be devastating.
April 7, 2011
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.
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.
If you add it all up the information is as follows :
|# over 65 in labor force||population over 65||% in labor|
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.