OK Book : How to Pinch a Penny Till It Screams

This is a review of the book How to Pinch a Penny Till It Screams by Rochelle LaMotte McDonald. The copy I read was published in 1994.

The book presents a variety of cost cutting tips. There are probably a few hundred tips overall. There are a number of chapters organizing the information into a few broad categories: grocery bills, housing, energy, car costs, leisure time and others.

Most of the the tips in How to Pinch a Penny Till It Screams are pretty basic in nature and covered in a variety of other resources. There are few suggestions that were new to me personally. There were also a couple tips that I strongly disagreed with. At one point the author suggested leasing a car and in another section they said renting furniture. Neither of these are generally going to be a frugal route and I don't think they belong in a book that is about penny pinching.

How to Pinch a Penny Till It Screams wouldn't be a bad read. It presents the tips in easily digestible way so you can easily skim through the book and capture any new information and make sure you're not missing anything. But the book is really geared towards the beginner audience. If you're already pretty frugal and consider yourself familiar with cost saving measures then this book isn't for you.

So, overall I'd recommend the book marginally for someone who is a beginner to penny pinching. How to Pinch a Penny Till It Screams isn't bad for a quick skim. But I don't give it a strong recommendation since it doesn't cover advanced topics much and virtually everything in it is pretty common cost savings practices. I'm sure there are better books out there on this topic. I give it an 'ok' recommendation only for beginners. Check to see if your library has a copy.

Lazy portfolios easily beating S&P 500

A while ago I mentioned Lazy Investing. The idea is discussed at the Marketwatch article on lazy portfolios. Simply put the concept of lazy investing is to place your investments into a simple mix of mutual funds. For example the Margaritaville portfolio is made up of 33% each of Vanguard Inflation-Protected Securities (VIPSX), Vanguard Total International Stock Index (VGTSX), and Vanguard Total Stock Market Index (VTSMX).

Lazy portfolios are nice because you are well diversified across different types of investments. They include such things as emerging markets, US large caps, bonds, fixed income, energy, REITs, etc. Plus they are very simple to implement and generally using low expense Vanguard funds.

But how well do lazy portfolios do versus simply throwing all your money into the S&P 500?

The S&P 500 has not done very well in the past few months (thats an understatement). The index is off over 33% from its high earlier this year over 1500. The S&P is even down about 10% for the past 5 year period.

Lets compare the performance of the S&P to a few of the Lazy portfolios over the past 10 year period. Below I look at a few of the lazy portfolios and figure how they've performed for the past 10 years. The performance numbers I'm using here are the 10 year return figures quoted on the Vanguard site as of Oct. 31st.

S&P 500 alone:

Fund	Allocation	Return
VFINX	15%	3%

Return = 3%

Margaritaville portfolio:

Fund	Allocation	Return
VIPSX	33%	7.44%
VGTSX	33%	6.16%
VTSMX	33%	3.94%

Combined return has been = 5.8%


Yale University Unconventional Portfolio

Fund	Allocation	Return
VIPSX	15%	7.44%
VGSIX	20%	12.18%
VUSTX	15%	5.99%
VEIEX	5%	14.40%
VDMIX	15%	1.80%
VTSMX	30%	3.94%

Combined return of = 6.6%

Aronson Family Portfolio

Fund	Allocation	Return
VFINX	15%	3%
VEIEX	20%	14.40%
VEURX	5%	5.01%
VEXMX	10%	6.93%
VWEHX	5%	3.72%
VIPSX	10%	7.44%
VUSTX	5%	5.99%
VPACX	15%	5.96%
VISGX	5%	8.68%
VISVX	5%	9.77%
VTSMX	5%	3.94%

Combined return of = 7.5%

So while the S&P 500 fund had a 3% return for the given 10 year period, these three lazy portfolios have had returns of 5.8%, 6.6% and 7.5%.

Each of these lazy portfolios is doing far better than the S&P 500 alone. Even a little bit of easy diversification with the Margaritaville portfolio gives you nearly double the return. Now this might be simply due to the S&P performing horribly in the specific time period. But in general thats a good example of yow if you diversify your investments you stand to have a more reliable return. Rather than run the risk of having all your eggs in the one basket that has very bad returns, spread the money around a few places and average out the return. Lazy portfolios are a very simple way to diversify and give you decent return with low volatility.

6 things that have a big impact on my savings

Below are 6 things I've done in the past or continue to do that have had a large impact on my personal savings. The first is the biggest life choice I've made which has had the largest impact on my personal finances. The other items are all choices I've made that have all made a significant difference in my spending and savings.


- Getting a college degree

I previously discussed the value of a college degree in the article : What is a college degree worth? Median income between high school and college is : high school = $33,609 and college = $59,365. After taxes the take home is going to be around $28k for high school and $46k for college (assuming single filer). So you are looking at an extra $18,000 annual income for the college degree holder.

- Buying used cars and driving them for years

My last car cost around $7500 and I drove it for 10 years. By comparison if I had bought 2 new cars and driven them 5 years each I would have spent much more. If I had bought a relatively cheap new car 10 years ago for $10k, driven it 5 years and then traded it in for another fairly cheap new car for $12k I would have paid $189 monthly payments for 5 years and then $151 payments for another 5 years. $20,400 total for 2 new cars with about $4k in value at the end. I instead paid about $8300 in payments and had $1000 value at the end. Thats a difference of about $9100 over 10 years. So I'm saving about $910 a year on car payments.

- Driving a fuel efficient car
&
- Driving less

These are two separate choices I make that multiply for extra savings. First I drive cars that get decent fuel economy. My cars have gotten over 20 MPG in the city. If I had an inefficient vehicle with 10-15 MPG in the city I'd be paying about twice as much for gasoline. Second I drive less than most people. I purposefully live close to work and I try to be smart about not driving more than necessary. I only drive around 8000 miles a year. The average American drives more like 12000 miles a year. If I drove 12000 a year and got 10 MPG I'd be spending $3000 a year on gas. By driving 8000 miles and having a car that gets 25MPG I spend $800. Combined I'm saving up to $2200 a year.

- Quit smoking

I used to smoke a pack a day. Cigarettes around here cost around $4 a pack or more. So by quitting smoking I've saved about $1460 a year.

- Avoiding Starbucks

I've never bought a daily coffee at a Starbucks or similar coffee stand. By avoiding this habit I'm saving $3 or so daily. This saves me $750 to $1095 a year.

- Packing my lunch

I used to spend about $10 a day on lunches a few years back. I was eating out at restaurants daily with a coworker that I am friends with. Then I cut back to eating in the cafe here at work which ran about $5 a day. Now I've switched to packing my lunch 4 days and eating out 1 day a week. This costs me about $2 for the packed lunches and $5 to eat out. Originally I was spending about $10 a day or $2500 a year. Now I'm spending about $650. So by packing a lunch I'm saving $1850 over eating out at restaurants daily.


All of these things add up to make a large impact on my personal finances. If I had instead never gone to college, bought a new low MPG vehicle every year, drove as much as an average American, continued to smoke cigarettes, picked up a Starbucks habit and still ate lunch out daily then I'd be $25,000 behind total annually. Of course going to college has had the biggest impact for me. Each of these the last 5 items might individually seem like small things but they add up to over $7,000 annually.

These are just some examples from my own life. We each have lifestyle choices that add up to significant financial differences. Do you subscribe to cable TV? Do you have a high end cell phone plan with high minutes, unlimited texting, web etc.? Do you pay someone to mow your lawn instead of doing it yourself? Do you have a gym membership you rarely or never use? Some of our lifestyle choices are worth while to us and some we could live without. So look at your own life and consider what you spend money on and then figure each item as an annual expense. Then consider if its really worth while to spend an extra $2000 a year to eat out lunch or an extra $1000 a year to have a new car instead of used.

Best of Blog posts for the week of November 7th

All Financial Matters discusses what happened after the 50 worst months in S&P 500 history: The 50 Worst Months in S&P History and What Followed This post was from last Friday but I missed it then. Looking at the worst 5 months where the index dropped 20% or more, the following 5 year periods all showed 13% annual growth rates.

Free Money Finance discusses Three Reasons to Invest in Gold the discussion is actually about a Kiplinger article discussing reasons people buy gold and it generally lays out why they are NOT good reasons.

Jim at BluePrint for Financial Prosperity weighs in against payday loans and credit card advances with : Avoid These Three “Short-Term” Loans

The Digerati Life points out a deal Discover Credit Card Rewards, Sign Up Bonuses and Holiday Promotions where you can get a $20 gift card for charging $200 at certain participating shopping malls around the country. So check to see if your local shopping mall is on the list.

My Money Blog examines a stable value fund with : Should I Invest In My 401(k)’s Stable Value Fund?