Tuesday, September 18, 2012

I'm Alive

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I'm sure a lot of you have been worried about my well-being. I am, in fact, alive and well...and I guess being too. This week is going to be a mental health vacation week. Just to give me time to catch up on things. By next week the health of my ment should be back in order. See why I needed this week off? Until next week, cheers!

Friday, September 14, 2012

Financial Fact Friday #2

Well, it's finally Friday and you know what that means, it's time for the second weekual Financial Fact Friday. Or for those of you that like saying part deux, Financial Fact Friday Part Deux. I found today's financial fact while checking into SaveUp to see if I could get a bonus free play for the day. I'm still winless by the way.

Anyway, now to the fact. Ireland has the highest savings rate by its citizens with 19.3% of income saved. The SaveUp article looks at a comparison by 24/7wallstreet of the top ten countries with the highest savings rate by its citizens. Here's the top ten...


Where does the U.S. fit in? Well, the article didn't specify the ranking, but we save 5.8%. I'm guessing that's quite a ways down the list.

Which country does your savings rate line up with?

Thursday, September 13, 2012

What To Know Before Buying A Small Business

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Strawberry Ice Cream ConePhoto by TheCulinaryGeek
No, seriously, what should I know?

Today I'm going to be meeting with a realtor to get information about the local ice cream shop that is for sale. Why? Because it's an ice cream shop, duh, and who wouldn't want to own an ice cream shop? Well, maybe someone in a town of only 1,000 people. Or maybe someone who already has a full-time job and can't run the day-to-day operation themselves. Or maybe someone who knows nothing about the ice cream business, at least from the selling side. Anyone else beginning to think this might be a bad idea?

To see how bad exactly, I compiled just a few of the questions I thought I should be asking myself.

1. Is now the right time to start a business?
   - Um, sure, why not? Although Mrs. K and I both have full-time jobs that we aren't planning on leaving anytime soon. So probably more towards the not side of things, but is there ever really a right time? Hm, ending a question with a question probably isn't good.

2. Do you know anything about running your own business?
   - No, but I would say that having one would make me very motivated to learn quickly.

3. Who is going to run the business?
   - We're eyeing up a family member as our source of cheap, yet awesome management.

4. Why is the seller selling and do the numbers add up?
   - Hopefully going to find this out later today. I'm guessing that one of these is probably going to answer the other.

5. Who buys ice cream in the winter?
   - Probably only the crazies, but that's why we're already thinking we should expand into the coffee arena.

It appears that I have no business buying a business, see what I did there? However, I can't help but be curious as to what potential is there. Hopefully, after the meeting I will have some real numbers to determine just how unrealistic this purchase would be.

Any thoughts on other questions to ask the realtor? Anyone out there purchased a small business before?

Wednesday, September 12, 2012

Free Money...For A Limited Time Only

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I know I've covered how to use credit cards to make money in the form of cash rewards. Now I'd like to cover how to use credit cards to assist in eliminating credit card debt. Fighting fire with fire, if you will.

The way to do this is with a balance transfer credit card, essentially just a new credit card account to which all existing balances could be transferred. One immediate gain is getting all your debt in to one easily managed place, assuming it fits within the credit limit of that new card. Lately, there have been some even greater benefits to these balance transfer cards like 0% APR for a promotional period and no balance transfer fees.

The Chase Slate is one such card. Right now there is no balance transfer fee for any transfers made within the first 60 days and 0% APR for the first 15 billing cycles which works out to be Novemberish 2013. Meaning you could consolidate your debt into one card and owe no interest for a little over a year. Giving you lots of time to combine the interest savings with other savings to pay off the balance transfer card before the promotional period ends.

Which makes you wonder, why do so many people still have credit card debt at such high interest rates? Well, turns out it's not all ponies and sunshine. To qualify for a balance transfer credit card you need to have a decent credit rating. According to Credit Karma, the average approved credit rating for the Chase Slate is 714 with the lowest approved rating at 674. Also, you have to be careful not to miss a payment. With most balance transfer cards, once you miss a payment you can kiss the 0% APR goodbye. Last, but not least, you should be sure you can pay off the balance by the end of the promotional period. If not, odds are you'll be paying a much higher APR than what you currently have.

Having said all that, I think that a 0% APR with no balance transfer fee is a great way to start getting out of credit card debt. I would transfer whatever debt possible and not put any additional purchases on the card. Then start saving at whatever rate is required to pay off that card by the end of the promotional period. If that means Ramen and no cable, then you eat Ramen and stare at the wall. Easy for me to say. In the end, once you are done with credit card debt, it will all have been worth it.

What has your experience been with balance transfer credit cards?

Tuesday, September 11, 2012

Budgeting And Dieting

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When you think about it there really are a lot of ways that budgeting and dieting are similar. To start with, you can only make so much money in a day just like you can only burn so many calories in a day. Then on the other end you have the amount of money you spend and the amount of calories you consume. There are some items that you have to spend money on, taxes, insurance, the wife and some things you buy just for fun. The same goes with eating, breakfast, lunch, dinner versus Oreos, chips, and ice cream. In the end, eat way more calories than you burn and you get fat, spend more money than you earn and you get poor. Pretty simple stuff.

Back in the day when weight was becoming an issue, the first thing we did (after vowing not to let it happen again) was start tracking our calorie consumption. Thanks to the LoseIt app, we were able to see what areas were having the biggest impact on our...personal inflation (fat finance humor, is anything funnier?). After making some adjustments, we're now leaner and meaner (at least I'm meaner, probably shouldn't say that about the Mrs.). It isn't really dieting anymore, it's just being a frugal eater.

I figure if something so simple was so effective with eating why not try it with spending. Determine what we are "snacking" on that is costing us the most and do a little cutting. Turns out there's this thing called budgeting. Who knew?

Well, we did actually. We tried recording purchases for awhile, but I guess we must spend more than we eat because we always would forget to enter things in.

Now I'm trying a new approach of breaking things down by the month. As you can see by the image above, it's a work in progress. I'm pretty sure that most proper budgets don't have a randomness category. Or at least they don't have a randomness category the same size as the mortgage. Groceries and gas, among other things, are buried in there. Hopefully, I'll have an updated version to share with this divvied up a bit more. Stay tuned!

How does your monthly spending compare? Does any of our spending stand out as being too high? Any categories that I overlooked?

Monday, September 10, 2012


Swag LosAngeles Graffiti ArtPhoto by anarchosyn
In the interest of bringing you all things easy in savings, or in this case earnings, I present Swagbucks. What is Swagbucks? It's an online rewards program that gives you virtual credits for things like searching, surveys, shopping, watching videos/ads and more that can be redeemed for gift cards to a variety of businesses.

Now, if you're anything like me, you're thinking this must be some kind of gimmick. Which is exactly what I thought when Mrs. K told me about it. I've signed up for survey sites in the past only to end up wasting a few hours for a handful of pennies that I couldn't get out of my account. I can tell you from experience that Swagbucks is not like that.

I signed up for an account a little over two weeks ago and I already have $25 in Amazon gift cards. Pretty sweet for just doing my normal Internet searching, watching a couple ads, and maybe filling out a survey or two every day. I earn my swagbucks while watching TV. Instead of watching commercials, I use that time to grab a couple easy swagbucks.

You can be as active or passive in earning swagbucks as you want. The simplest thing is to just use the search engine and you will randomly get swagbucks when you search. If that's not enough for you then you can start watching some of the short videos. If you're looking for even more then you'll want to get into the survey taking. There is also a daily goal, say 50 swagbucks, that changes each day. If you reach the goal you get some bonus swagbucks. The best part about the goal is consecutive streak bonuses.  So if you continue to reach the daily goal for a week you get 25 swagbucks, two weeks 100 swag bucks, etc, etc.

I basically do what needs to be done in order to meet the daily goal and keep my consecutive streak going. Then I plan to use my earnings to fund the awesomeness of freshly ground whole bean coffee via Amazon. A nice, easy way to lower my monthly grocery bill.

If you feel like showing me some love, feel free to sign-up using one of the above links. I would then get a few swagbucks when you do for a little while. If you're having a bad day and don't feel in the love showing mood, that's fine too, we all have those days. Just google Swagbucks and sign up from there.

Are you already getting swagbucks? Are there any other good rewards programs that you're using?

Don't forget to vote on the weekly poll question.

Friday, September 7, 2012

Financial Fact Friday

Congratulations. Today you are witnessing the birth of a new series of posts. Like any birth there's probably going to be pain, screaming and someone might even pass out.

I actually just learned this first fact yesterday. Employee matching 401(k) contributions do not count towards your annual 401(k) contribution limits. Which is super fun because you can stuff even more money into your 401(k)! I feel like I probably should have known it before, since I have a personal finance blog and all. So if you already knew that, well done, well done indeed.

Here's another. I just read in Forbes magazine that Mark Zuckerberg, Dustin Moskovitz and Eduardo Saverin (three of Facebook's founders) lost $11 billion since the Facebook IPO, as of August 16th. If you don't know why they lost that money, or even if you do, watch the video below. Caution: there is a little salty language in a few spots.

Speaking of Forbes, one final fact. You know you're reading something out of your league when you come across an advertisement for chartered personal jet service and you drive a car without working air-conditioning, only one side-view mirror and a driver-side window that doesn't roll down. FACT!

What financial facts do you have to share this Friday?

Thursday, September 6, 2012

Property Tax Assessment Day

Yesterday there was a strange man wandering through our home and, for once, it wasn't me. The real estate assessor had finally arrived. I say finally because we had received a letter in the mail three weeks ago that stated someone in a red car would be stopping by in a week to reassess our property for tax purposes. So we made the house look presentable and decided I would stop working in my pajamas until he arrived. After waiting patiently by the window for a week (after working from home for awhile people stopping by excites us, sort of like a dog), nobody showed. Another week went by, and I was ready to start working in my underpants, I mean pajamas, again. Good thing I held off one more day.

Once he finished I decided to go back and see how much the property taxes on our...property have changed over the years. Over the past five years, our fair market value has dropped 11% and our assessed value has increased 6.5%. That seems a little fishy. This year our assessment ratio, the ratio between the assessed versus market value, is 1.0217. Meaning we are paying property taxes on 2% more than our home is worth. Our mill rate, the amount taxed per dollar of assessed value, is .02159. So for every dollar our property is worth we are paying just over two pennies in property tax. This year our property taxes were about 2.17% of the market value of our property.

So do we want the assessed amount to go up or down? No, really, what do we want it to do? I kind of want it to go up so when it comes time to selling I can point at that number and say give me more money because it says so. However, then the property taxes will be higher for me and for a prospective buyer. Then the other part of me wants it to go down so that we have lower taxes to pay. But realist K knows that isn't going to happen. If our assessed value goes down I'm sure the mill rate will go up to make sure that the man gets his money.

How do your property tax figures compare?

Wednesday, September 5, 2012

Man With A (Meal) Plan

How many times a week do you look at your wife, husband, kid, dog and ask, "What should we make for supper?" Only to be asked in return, "I don't know, what do you want?" or in the dog's case "woof?". Then after going back and forth a few times you decide, screw it let's go get take out. Well, if this happens to you a lot, I have a potential solution. If it doesn't, you're a better man/woman/dog than I am.

Meal Planning

I'm sure there are a lot of different methods out there for planning meals for the family. The family, heh, sounds like the mafia, mmmmm italian food... Anyway, so yeah, lots of different methods available, here's what we do.

First we wrote down a list of all the meals that we make. Then after a week or so of meal planning we lost the list. It's still MIA. So now we have an electronic version. It's still a work in progress, but it shouldn't get lost anytime soon.

Now that we have a list we sit down on a Saturday or Sunday with the kitchen calendar (that's a calendar in the kitchen, not a calendar with pictures of kitchens because that's disturbing) and place meals we want to eat for each day over the next week. We usually plan on supper being enough for a leftovers lunch. Since we work from home, it makes a quick, easy lunch.

Once we have the week filled up, we make our grocery list based of what is needed from the meals on the calendar and BAM, all the supper questions are answered for the week, plus you have a grocery list made.

To further motivate you to join the meal planning club, I give you a list of benefits you will or should receive from doing so.

Save Money

  • You will go out to eat less often, assuming you aren't including fast food restaurants on your list of meals you make and then adding them to the meal plan calendar. Hint: don't do that.
  • You will save money on groceries by knowing what you need to get for the coming week and not just randomly throwing things in the cart.
  • You will save money on extra trips to the grocery store for missing ingredients.
  • You will save money by making your own meals from scratch and not buying prepackaged items.

Save Time

  • No more staring blankly at the wife/husband/kid/dog trying to decide what to make for supper.
  • No more staring blankly in the fridge searching for what to make after the wife/husband/kid/dog was less than helpful.
  • Less time spent grocery shopping because of your super awesome focused list of items.
  • Less time spent making extra trips to the grocery for missing ingredients from unplanned meals.

Save You

  • Cooking your own meals more frequently because of a meal plan should result in healthier food intake because you are eating out less and eating less prepackaged grossness.
  • It's a lot less stressful coming home from work (or upstairs from work, in my case) and already knowing what needs to be done to make supper happen.
I'm sure there are many other reasons that I'm not smart or awake enough to think of right now, but do you really need anymore?

What's your go-to meal? We've been on a garden-fresh veggie pizza kick lately.

Tuesday, September 4, 2012

Apple Butter Recipe

Apple ButterI can't believe it's not...oh wait it is.
We used Labor Day weekend to get caught up on some of our canning. You'll be hearing more about it in the next week or so whether you like it or not. So let's make it easy on everyone and just like it.

Last night we wrapped up the canning weekend by making some apple butter. I wasn't aware that this deliciousness even existed until last year when Mrs. K's sister gave us some that they made. We ran out of it pretty quickly, so this year we decided to make a little for ourselves.

First step is to get some apples. You'd think this would have been the easy part, and it should have been. We were planning to pick apples from Mrs. K's grandmother's apple tree. Simple enough, right? Well, we were so busy canning that before we knew it, it was dark out. You've heard of midnight golf or midnight bowling? We did some midnight apple picking. It's actually pretty fun. I'd like to tell you what kind of apples we have, but I have no idea.

Once you have your apples you have to peel and core them. One of those fancy torture-looking handle things is probably good for this, but we used the old-fashioned peeler and knife. After coring and peeling just throw them in the crock pot on high. Mix your sugars and spices in a bowl and add them to the pot. Then after an hour turn the crock pot down to low and let it sit for nine hours. We stirred it occasionally. I took a hand mixer to it at the end of the nine hours and, after splattering myself and 1/4 of the kitchen, decided to switch to a whisk.

Then it's just your basic canning that's left. They only need to be processed for five minutes and BAM you have a semi-healthy suit (or dress) to put on your toast.

Here's the recipe...

1/2 teaspoon ground cloves
4 teaspoons ground cinnamon
1 cup brown sugar
1 cup white sugar

30 small-medium apples - I'm going to say it was one full standard issue sized crock pot

Note: We haven't sampled our apple butter so until I give you the go-ahead, proceed at your own risk. It does smell fantastic though.

What did you do on your Labor Day weekend?

Friday, August 31, 2012

WTF are ETFs?

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Pardon my French, but when I'm reading financial magazines and sites, it seems that ETFs are coming up more and more often. Which begs the question, WTF are ETFs? I've wondered it for a while, but never looked into it much. Well, today (or last night I guess) that changes. Here's what I found:

ETFs stands for Exchange-Traded Funds. What are they? Well, when a daddy stock and a mommy mutual fund love each other very much... Bet you didn't think things were going to get all rated-R up in here. That is a good way of thinking about it though, or at least one way of thinking about it.

Basically, an ETF is a collection of individual stocks, bonds, or other securities like a traditional mutual fund. Except it is priced and traded throughout the day like a stock. So, why would you want an ETF instead of a mutual fund?

1) You can buy and sell them at any point during the day, including shorting, limit orders, etc.
2) The annual expenses are generally much lower than mutual funds.
3) Because of the underlying structure, they are typically more tax efficient.

There are also a few things to watch out for, like commissions, which can eat away at the gains from lower annual expenses. However, depending on your broker, there could be no commissions at all.

Having learned the information listed above and doing some additional reading at my brokerage (Vanguard), I'm thinking that we will convert our mutual fund holdings into ETFs. I like the idea of being able to buy into an index fund during the day and knowing what price I am paying.  The tax and expense efficiencies don't hurt either.

Do you invest in mutual funds or ETFs?

Thursday, August 30, 2012

Off The Hook

PhonePhoto by HeatedGround

Finally after years of trying, I have an announcement to make...

We're canceling our landline.

I know that some of you have been waiting to hear this news and others may have thought it might not ever happen. In our defense, we've been trying since we graduated from college. We've tried it in numerous different houses, including Mrs. K's parents' when we were between houses. To make it even worse, it seemed like everywhere we went people had canceled their landlines. It made me want to so bad. Well today, finally, the day has come.

Seriously though, I'm pretty excited to be canceling our landline today. It's something we use maybe once a week, but pay almost $40 a month to have. It may just be me, but $10 per phone call is a bit much. I could take a taxi to a pay phone in town, buy some lunch and taxi home for less money per call. $500/year in my, I mean our, pocket. That's right we have one pocket. Sharing is caring after all.

I realize (Mrs. K told me) that I've been on a bit of a cancelation binge lately. I'm not trying to make anyone feel guilty for indulging in the extravagances of more than four TV channels and a home telephone. I'm just putting things out there that we are doing that will hopefully allow us to 1) have the option to live on a single income in the future, 2) retire early and 3) see the world (and by world I mean anywhere that I don't have to fly to get to). That being said, I think we're done with the cancelations for awhile. Although, I'm watching you second car, be afraid, be very afraid.

How much do you pay for your landline? Or are you off the hook like us?

Wednesday, August 29, 2012

Quick Money Saving Tip

curlsPhoto by JodyDigger
Here's a quick money saving tip that I learned in college and used last weekend. Don't pay someone to cut your hair when you have someone nearby who will willing (or begrudgingly) do it for free. Although, if you're reading this while in college, be careful who is volunteering to cut your hair for free. Maybe a breathalyzer screening would be in order before anyone plays with the scissors.

Obviously this advice is probably tilted a bit toward the male reader. After all the times I've let Mrs. K trim my manly mane, she has yet to let me cut a single strand of her hair. Sure she says she'll let me have a stab at it, but when I break out the scissors she all of a sudden has the desire to weed the garden. Go figure.

Fair warning, if you're having a spouse cut your hair it can put a little stress on the relationship. The first few times there will be tears, tempers and maybe a little blood. But I'm here to tell you that it gets easier. Thankfully it also gets quicker too. I remember one of our first home hair cutting sessions back in college. We were watching TV as I was getting a trim and there was a tornado warning off to the west about two hours away. Well, I'll be damned if we didn't have to interrupt the haircut still in progress and head for shelter.

The best part for me, other than saving money, is that I get to avoid the standard haircut conversations. Not that I blame them, it's sort of part of the job I guess. However, I'm a bit socially awkward. I'd rather sit in a chair and get a cavity filled than sit in a chair while being asked questions by a stranger who couldn't care less about the answer. Which means unless I've done something to really tick Mrs. K off, it's much more enjoyable getting my hair cut at home.

There you have it. A quick way to save a few bucks a month, without too much work. Although I'm not sure Mrs. K feels the same way.

Tuesday, August 28, 2012

Fairs Are Fun Part Deux

Minnesota State FairSo Many People, So Little Patience

Who would have thought after not going to a fair in the past several years I would hit up two within a month's time. Not me, that's for damn sure. See, I'm so shocked I introduced some sailor talk into the blog.

Anyway, yesterday Mrs. K and I took a day of vacation to go to the Great Minnesota Get-Together (aka the Minnesota State Fair). I guess calling it a "Get-Together" is supposed to make you feel better when you're touching more people than a sob story on Oprah. This would be my second time going to said fair, and I'm not really sure how she convinced me to give it another go. A few years back we went and I remember it being about as fun as breaking my arm in three places combined with my sister dressing me up like a girl complete with makeup. I don't do well in crowds of people and it was not a good time had by me. But being the loving, caring husband I am, I thought I'd give it another go this year.

Unlike our county fair visit a month ago, this time I was prepared for the entry fee. This way the sticker shock happened at home instead of at the gate. It was $12 per person to get in, plus $12 for parking. We saved $2 on parking by getting a spot just outside the fairgrounds (it was jacked up to $15 by the time we left, good thing we made it in early).

What did we get for our $34? Well, parking and entry, weren't you paying attention just now? There was actually a ton of stuff to see. We looked at old tractors, cars, snowmobiles, motorcycles, atvs and lots and lots of people. I could sit and watch people all day. Not in a creepy stalker way mind you. We had some fun sitting and watching people at the giant sing-a-long. It was sort of a group karaoke. There's 40 or so microphones in front of a giant screen and everyone just let's it rip. It's hard not to have a good time watching a guy in his forties and another in his sixties belting out some Taylor Swift. Good times!

Then there's the food. What's better than twinkies? Deep fried-twinkies on a stick. Like bacon? They have it on a stick too. Basically anything you want they have deep-fried on a stick. Including fruits, candy bars, pizza, and even alligator. Although I'm not sure how fresh the alligator is since I haven't seen any around Minnesota in awhile and by awhile I mean ever. Unfortunately I can't give you much of a food review because Fat K has to be kept in-check, so there was no deep-fried stick sampling. I did however have some watermelon lemonade. Since I'm not a real big watermelon fan, surprise surprise, I'm also not a fan of watermelon lemonade. The soft pretzel we had was amazing though and the frozen yogurt wasn't bad either.

The highlight of the day was the Stihl Timbersports lumberjack show. We just happened to walk by it on the way towards the exit and noticed people starting to sit down. If you've ever seen the Timbersports series on ESPN, it was a mini entertainment version of that. Lumberjacks and lumberjills log rolling, chainsawing, 40-foot speed climbing, etc. It was a pretty entertaining hour or so. It kind of made me want to take my shirt off and split some wood, you know, man stuff.

Without the lumberjack show, I wouldn't have felt very good about our $34 spending spree plus food costs. With it I'd say it was a fairly enjoyable time. We probably could have gotten a little more for our money with some additional planning up front. Next time, we'll probably look at the schedule of events and plan out the day a little better so that we can enjoy more of the free performances that are available. Also, I think we'll stick to weekdays for our state fairing. Any more people and my day (and Mrs.K's by association) would have gone downhill in a hurry. Wait, did I just say next time? Pretend you didn't read that part.

When was the last time you went to an event with a high concentration of people? Was it worth the price of admission?

Monday, August 27, 2012


Today I'd like to make you aware of a rewards program. This isn't your run-of-the-mill credit card rewards program either. This rewards program has nothing to do with credit cards, at least not spending money on them. This rewards program is about saving money. Even better, it's free.

What is it?

The program I'm talking about is called SaveUp. Basically, it's a free program that rewards you for being financially responsible. Instead of rewarding you for spending, SaveUp rewards you for things like depositing money into your savings account or making a mortgage payment.

How does it work?

I'm still pretty new to it, but I'll sum it up the best I can. After you sign up you start to earn credits. You get 200 credits for adding financial accounts, 1 credit for each $1 you add to savings, 1 credit for each $1 deduction to your mortgage balance, you get the idea. As you get credits you redeem them for plays. Plays are what you use to play for rewards. You get 3 plays per day. Plus, you can redeem credits to get up to 5 more per day. So each day you can play 8 times.

What do you play?

There are three different ways to use your plays on a bunch of different rewards. The three ways are instant win, drawings, and jackpot. Instant win has three different little "games" that you can choose from. Sort of like scratch and win lottery tickets, only instead of scratching you're clicking, which sounds much more appropriate. The drawing plays just give you a number and then you are emailed if you win after the drawing ends. For the jackpot you pick six numbers and pray, lots and lots of praying.

What can you win?

There are many different rewards that are changing all the time. You actually can vote and/or suggest what you would like to see as a reward. Current gift cards include $100 for Whole Foods (best grocer ever), $5,000 Best Buy, and $100 Southwest, just to name a few. Some of the other rewards are cruises, cars, vacations, and my personal favorite, straight cash homey.

How do I get started?

It's easy to get started. All you do is sign-up for a new account and then start adding your financial accounts, using your normal online access logins. SaveUp will then automatically update your accounts and award you credits. Then start playing.


There will also be occasional financial videos that show up on the SaveUp home page. You can watch them, learn a little about whatever the topic is, and then get 30 credits for acing the quiz at the end. It's a quick way to grab a few credits and maybe learn a little something at the same time.

Another thing that sometimes shows up on the SaveUp home page are challenges. These are cool little goals that you can accept for credits when you complete them. Things like two days of no spending for a certain account or depositing $50 into your savings within the next seven days are a couple of examples.

There you have it. A free program that rewards you for being financially responsible and doing things that you should already be doing. So why not keep doing what you're and maybe win a little something on the side. I haven't won anything yet, but I'll make sure to let you know when I do.

I'd like to thank Greg @ Club Thrifty for making me aware of this website.

Note: If you sign up using one of the links in this post, I'd get a few credits and eventually maybe a play or two. So no big deal, but it's awfully convenient that the link is right there.

Friday, August 24, 2012

Prioritizing Investments

Priorities Changed Ahead Photo by reidrac
While I was researching yesterday's post, I realized that although I've been investing with good reason, I may have been using the wrong account. Allow me to explain.

Let's start with the general rule for prioritizing investment accounts in order to be the most tax efficient. Granted this could differ according to your specific circumstances but generally speaking, this is how things should go down or I guess I should say up since this is investing.

  1. Employer sponsored plan (401(k) (Roth or Traditional), 403(b), etc) up to the employer match.
  2. IRA (Roth or Traditional) up to the maximum allowed contributions, as your situation allows.
  3. Employer sponsored plan up to the maximum allowed contributions.
  4. Taxable accounts

Here's a quick explanation for why that list is what it is.

First of all, taxable accounts is last because, in case you didn't know, taxes are not your friend. Investing in taxable accounts basically gets you taxed twice. The money you invest is already taxed before you get your paycheck and then any gains that your investment makes are taxed as well. Whereas 401(k) and IRAs are tax-advantaged, meaning you only pay taxes on the front end or back end (Roth or Traditional), not on both.

If both are tax-advantaged why does the order of 1-3 matter? The main reason is because a lot of 401(k) plans offer investment funds that have high fees or are undesirable for other reasons. However, the 401(k) plan stays on top if your company provides contribution matching. That's basically free money so your top priority should be to put in enough to get it. If the 401(k) plan offers solid funds, feel free to max out the account (step 3 before 2), if not, open up an IRA.

The niceness of the IRA is you can invest with whatever company you want and pick whatever investments you want. Also, with Roth IRAs you can take out your contributions at any time without incurring any taxes or penalties from the IRS. So it adds some flexibility, but don't go treating it like a piggy bank. That money should be left in plece to make baby monies so that you have enough to retire some day. After your IRA is maxed out for the year, go back to the employee plan. Once that's maxed out, congratulations. Your reward for saving so diligently? Now you get taxed more on investments, yay you!

Given all that, here's how our investing went down.

When Mrs. K and I started working the first thing we did was opt-in to the company's 401(k) plan. We get a .25% match on each 1% we contribute up to 4%. So we immediately started putting 4% in to get the full match. In case you didn't know, I love free money. Plus with 401(k) contributions you never miss the money because it's deducted from your paycheck before you see it. Alright, 401(k) funded to get the full match, check.

Next up was opening Roth IRAs and funding them to the max. So that's what we did. We use an automatic weekly deduction. Even though we technically can see the money in our paychecks, it's only for a short time before it disappears.

Then we strayed a little from the rules. First we started funding an emergency account. We built that account up to last us six months or so. Then I thought we'd start investing a little in a non-retirement account just so we could have a little money growing that we could access whenever we wanted.  Our 401(k) plan originally didn't have many funds that tickled my fancy, if you know what I mean. I mean I didn't care for them, what were you thinking?

Fast forward to today.

That non-retirement account is making our 401(k)s look very sad. Plus, our 401(k) plan now has a new option that let's us invest in whatever we want just like our IRAs. So there really is no longer a reason to hold back on maxing that bad boy out.

In order to correct our jumping of priority 4 over 3, it's time for 100% 401(k) contributions, aren't you excited? I know I am. Over pretty much the rest of the year, our entire paychecks will be going towards maxing out our 401(k)s (assuming they let me do that). No paychecks for the rest of the year, woo-hoo. If only we had followed the rules from the beginning.

Are you following these tax efficient account investing rules? Do you have any other items in your list?

Thursday, August 23, 2012

Paying Off Mortgage vs Investing

savings and mortgageDecisions, decisions
Photo by 401(K) 2012
Have you ever wondered whether it would be better to pay off your mortgage early or invest in the stock market? Well, this is the type of burning question that keeps me up at night.

Personally, I have always been a fan of the stock market so investing my extra money seemed like the obvious thing to do. However, the more personal finance blogs and forums I read, the more I see people paying off their mortgage first. So now I'm questioning myself. Should I really be investing in the stock market? Should I switch to paying off my mortgage? Is male pattern baldness setting in? Hm...maybe a little too much sharing there.

How do I decide whether I should put my extra money in the stock market instead of paying more on my mortgage? Well, it's pretty simple. Just look at which of the two is more likely to give a higher after tax rate of return on my money.

Right now, my mortgage is at 5%. After taking the tax deduction, that ends up being 3.42%. Investing gets a little bit more complicated. Historically, the stock market has averaged a little under 10%. However, you have the whole past returns are not a guarantee of future returns business. So instead of that overall average, I'll use 8.5% which is the worst 30-year period in the S&P 500's history. After taxes, that 8.5% return becomes 5.82%. So even with a 5% mortgage and using the worst 30-year period for investing, I should be gaining 2.4% per year by investing instead of paying off my mortgage. If I refinance to a lower rate and/or the stock market does better than the worst, I should be gaining even more.

That's all the convincing I really need, but I'm comfortable with the risks of the stock market. Does that mean it's the best thing to do? Not really.

Maybe you're not comfortable with the risks of the stock market and would rather have the guaranteed returns lower mortgage interest. Or maybe you having a goal of eliminating your mortgage, and being able to watch as you slowly chip away at it is a better motivator than watching the stock market go up and down. Or maybe you just like the idea of owning your own home (even though you still need to pay rent in property taxes).

Then maybe you're better off paying down the mortgage and leaving investing for down the road. As long as you're not spending all that extra money, you have my blessing. If you are spending it, have you really been paying attention to what we're trying to do here? No blessing for you.

Have you made a decision between paying off your mortgage and investing? What was the deciding factor for you?

Wednesday, August 22, 2012

Crazy Kicks

My five year old shoes only tell me that I'm getting old.
Yesterday I came across a headline for LeBron James' new shoes. Which are, wait for it...$315. I mean, I haven't bought a pair of basketball shoes in awhile, but I'm pretty sure this is a little on the high side.

After reading the article it turns out there is a reason these shoes are so expensive. They have some fancy motion sensing electronics that can tell you different things like how high you jump or how far you run. Great, now if I just had a $300 pair of pants that would tell me how long I've been sitting on my rear, I'd be all set.

Turns out you can get the base model, that's right shoes now have base models, for $180. This still seems a little on the high side. Back in high school, I remember buying (by buying I mean my parents buying) a pair of basketball shoes for around $100 and another pair for $100 and maybe one other pair for $100. I may have been a little spoiled. When you're a kid you don't know any better, or at least I didn't. Looking back I can't believe I (my parents) paid that much for shoes. Sorry Mom and Dad.

What's something you (or your parents) bought when you were younger that you would think twice about buying now because of the price?

Tuesday, August 21, 2012

Money Rules

RulerPhoto by Sterlic
Watching the mortgage mess movies this past weekend made me think back to when we bought our first home. We lucked out by not buying at the peak, but things still went a long way down. One of the things I think helped us come out of it in a not horrible place is that we followed the 28% housing rule. That of course got me wondering what other money rules are out there. Without further ado, I give you some generally accepted random money rules...

28% Housing Rule

This rule states that your monthly housing expenses should not exceed 28% of your gross income. Note expenses, not expense. This includes property taxes and insurance. Some people even include utilities in their expenses. If you can add that high, then more power to you. The more you add in, the better off you'll be. Using the median household income of $51,413, that would be about $1,200 to spend on housing a month.

36% Debt Rule

Same idea as above except this includes all of your debt obligations. Student loans, credit card bills, car payments, mortgage (yes it counts here too, you don't get off that easily). This would be about $1,542/month in the median income household.

10% Vehicle Rule

I'm guessing by now you get the pattern here. This is the same thing, only applied to your car loan. Median household would be $428/month. I'm to the point where I would drive something old rather than take out a loan for something new. I wasn't always this way. I did take out a loan on a new car once when I was young and foolish. Now that I'm a little older and foolish, I've learned not to do that again. That's why the car that I took out the loan on is still in my garage. However, I love cars and understand how much you want a new one. Just keep it under 10% of your income if you need a loan on it.

10% Retirement Rule

This is sort of the minimum number for a full retirement age retirement, if that makes sense. I believe right now that age is 66 and by the time I retire it will be 106 or so. Now if you want to retire early, you're looking at something closer to 15%. Minimum here for the median household is $428/month.

25x Retirement Rule

This was an interesting rule I just came across the other day. Apparently having 25x your annual income in retirement savings is a good guesstimate of how much you'll need to retire comfortably. I've also seen 20x, but it's best to aim high. On second thought, after looking at my number, this seems a little crazy. I think I'd be more keen to a number based on my expenses instead of on my income. Median household income would have a retirement goal of around 1.3 million dollars.

These are all general rules to get an idea of what you should strive for, or against, depending on which one you're looking at. Granted everyone has a different situation and there are many different factors that go into it. However, if you're looking for something to compare to or just for a general idea of where to start, this list should get you started on that path.

What do you think about these money rules? Do you have any others that you follow? Where do you fit in on the poll question?

Refrigerator Update: IT'S ALIVE. Finally, a week and one day after it suffered a heat stroke my fridge is back. Why did it take so long? Well, there was a "technical issue" with the parts website which led me to believe they had same-day shipping. Turns out it wasn't even same week shipping. So after discussing my lack of enthusiasm for not having a fridge for a week with customer service, I got free shipping. Long story short, or short story long, we got the forty dollar part, hooked it up and we were back in business. +1 appliance repair skill. For now...

Monday, August 20, 2012

Mortgage Mess Movies

On Saturday Mrs. K and I decided to watch a movie with little brother K. We looked through all of the new releases available on Dish Network (it's not mine, I swear! I feel like a high schooler whose mom found weed in the sock drawer). In the end we streamed with Netflix because we would have had to pay with Dish Network. After looking through them all, one had my attention. Margin Call. It sounded like a movie about investing and who doesn't look forward to a good investing movie? Well as it turns out Mrs. K and little bro K, to name two people. Luckily for me, one of the leading roles was played by Zachary Quinto, former star of Heroes which you'll see is included on our Netflix List. Between him and Kevin Spacey, I had enough firepower to convince Mrs. K and bro K that we should give it a shot.

I'm sure glad we did. Turns out Margin Call was about the '07-'08 financial crisis. Specifically, it is a high suspense reenactment of the 24-hour period when a financial company (loosely based on Lehman Brothers) discovers that the party is about to end. Having never read much about the '07-'08 financial crisis (I was busy buying and enjoying my first house), I found this movie to be a very interesting watch. If you're looking for someone to hate, or at least really really dislike, for the meltdown that ensued it gives you that. At the same time, it makes you sympathize with some of the other characters that seemed to be caught in the middle. Multiple times Mrs. K expressed feeling sorry for them and I have to admit I did a little bit too. However, when you hear some of the salaries, that sorrow quickly leaves. In the end, it's a very thought provoking movie that we give two thumbs up. Those thumbs are mine and Mrs. K's. Little brother K's thumb was playing games on his laptop the whole time so he does not get to judge. The movie also left us wanting to learn more about the entire mess.

So that's what we did. Mrs. K and I scoured Netflix on Sunday for streaming documentaries about the mortgage meltdown and came across The Flaw. Definitely another film I highly recommend watching. It looks back over history to attempt to determine what was the cause of the collapse. It's filled with crazy smart people (that's "really smart", not "smart but I wear underpants on my head"), as well as average homeowners that are facing foreclosure. While Margin Call makes you feel a little more sympathetic, this will bring a little more of the fury. It looks at things like predatory lending, the overuse of credit and the ever increasing income gap between the highest of the high and everyone else. If you are interested in knowing what set up the housing bubble and its burst, this film is for you. If you aren't, watch it anyway because there are plenty of other financial lessons throughout it.

Have you watched or read anything about the '07-'08 crisis that you would recommend?

Friday, August 17, 2012

We Month'd It!

Puppy PictureThis was Rylee. Still very much alive, just going by a different name.
Kind of like Puff Daddy.
Well, it's official, this blog has lasted longer than our first and only pet dog. What? Wait, that sounds kind of wrong. The dog is still alive. We just realized early on that we weren't ready for a pet and returned her to her previous owner. There, now that that's cleaned up, happy one month anniversary!

That's right, I'm wishing you a happy one month anniversary because, as I've said before, we're in this together. Without you I'm just a finance nerd that keeps a diary on the Internet. Which is kind of strange when you think about it. However, since you guys read this, that makes it a blog and, thankfully, socially acceptable.

I just thought I'd take this post to thank you for reading.

What was your favorite part of the first month of Get Worth?

I'll go first. A friend pointed out that hippie is very different than hippy. So after saying "Mrs. K's hippy transformation" I'm lucky to still have blogging privileges.

Thursday, August 16, 2012

What's In Your Wallet?

No I'm not trying to pitch you a credit card.

While I was working diligently today, I came across this news article. Apparently some loser had stolen a number of items from the late Steve Jobs' home last month, including his wallet. The police caught the criminal mastermind when he decided to log on to his iTunes account while using not one but two of the stolen Apple devices.

The interesting part to me was what Steve Jobs' had in his wallet. A driver's license, some credit cards and a one dollar bill. A single dollar, that's it.

Of course my first response after reading this article was to look in my wallet and see what I had for cash. Since I have an increasingly large man crush on Mr. Jobs, I was hoping I would only find a dollar. Turns out there was $68. Oh well, something to aspire to.

Even though my man crush is reason enough for me to trim my wallet's cash reserve to a single dollar, I thought I'd look up some other reasons to not carry cash.

  • You will be more like Steve Jobs, wait these were OTHER benefits, sorry.
  • If you lose your wallet or if it is stolen by some loser, or even if it is stolen by a winner, your cash is as good as gone.
  • It's harder to keep track of your spending habits because you can't hook cash purchases up to Mint or Adaptu. Yes, I know you say that you'll write them down, but you won't, I know you.
  • You're more dependent on bank and/or ATM visits. This could cost you in the form of ATM fees. It will cost you in the form of time.
  • If a robber tells you to give him or her (it could be a her, we believe in gender equality here at Get Worth), all of your money, you can politely hand over your one dollar bill. Although this may come across as sass and get you pistol-whipped, so be careful in this situation.
Pretty convincing? Now time for some unconvincing.
  • There are always some places that only accept straight cash homey. Plus, you'll be more like Randy Moss.
  • It could help you spend less. You may find it more difficult to hand over little cute president after little cute president. Somehow paying cash makes it seem more real than just swiping a card.
  • It can stop you from spending more than you have.
Personally, I usually have a pretty good handle on my spending and as much as I enjoy Randy Moss, I don't think I want to be more like him. Which means I am comfortable with carrying as little cash as possible.

So I find the article, have this mini-revelation on how I can be just a little tiny bit like my hero, come up with this list of justifications and what happens next?

Mrs. K and I go to Subway for lunch and I'm greeted by a sign that reads, "Servers are down, no credit cards, cash only." Great, just great...

How much cash do you have in your wallet/purse/murse?

Wednesday, August 15, 2012

Investing 101 Part 3

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Photo by Tax Credits
Alright, so far we have looked at why you should be investing and some of the things you can invest in. Now it's time to look at actually building a portfolio.

Maybe we should back up a step and define "portfolio" . A portfolio is the term used to refer to all of your investments. Think of it sort of like a grocery cart. You fill it full of a variety of different items in order to satisfy your need for food. Some people like to play it conservative, milk, eggs, juice, bread, etc. While others like being a little more risky and throw in a bag of black bean BBQ chips every now and then. It's the same thing with a portfolio. You fill it up with whatever fits your style, in order to satisfy your need to increase your wealth.

Risk Tolerance

That's a good place to start, what is your style? Do you enjoy taking a little more risk if there is the potential for more rewards? Or are you more of a slow and steady wins the race kind of person? This is one of the main factors in determining the makeup of your portfolio.

Another main factor is your timeframe. How soon will the money being invested need to be accessed? The portfolio of someone who is investing money that isn't needed for 30 or more years down the road is going to be a lot different than someone who may need their money in the next 5 years.

The reason those portfolios should be different has to do with volatility, the potential for large changes in an investments value, and the stock market has plenty of that. See, if you're investing in the stock market for the short-term, then a market crash like 2000 or 2008 could quickly cut your portfolio's value in half. With only a few years to recover, you could have to sell your investments before they have the chance to recuperate. However, with a 30 year timeframe, you may hit a few crashes but over the long haul those are mere bumps in the road. The investments have time to recover from market crashes or lulls before you are pressured to sell them.

By combining these two factors, timeframe and style, you can get an idea of how comfortable you are with risk. Since this is Investing 101, I'll keep it pretty basic. The more risk you want, the higher the percentage of stocks you should have in your portfolio. If you want less risk, then increase your percentage of bonds. Fair enough.

Now let's say that you like risk and you're investing for a long time frame. You'd reason that you want most if not all of your portfolio in stocks. So since you're a car guy (fist bump) you think you'll put all your portfolio in Ford, GM, and VW. Well, not so fast.


There's one more thing to consider when building a portfolio and that's diversification. Let's say you put all that money in those three car companies. Then tomorrow teleportation is invented and now cars have become much less important. Now your awesome motorhead portfolio is worthless. Basically, don't count your chickens...wait wrong farm phrase, oh yeah, don't put all your eggs in one basket.

The easiest way to get diversification? Buy a total market index mutual fund. This gives you a little piece of many different companies. You can also throw in a total international index fund and a bond index fund too. Then you're diversified across countries and asset classes as well. Diversification can also be achieved by purchasing a large number of different individual stocks and bonds. However, that can be a pretty time-consuming task. These three mutual fund selections make it a lot easier to achieve a simple diversified portfolio.

Asset Allocation

Now it's time to put all that together and create your ideal portfolio. To do that you need to figure out what your asset allocation will be. Asset allocation is just a fancy way of saying what percentage of your money is in stocks, bonds, etc.

This is where risk tolerance comes in to play. If you're investing money that is needed within five years, stick with bonds. For anything greater than that, the stock market is an option. It's a good rule of thumb to keep your percentage of bonds equal to your age if investing for the long haul. Since I'm 27, I'd have 73% stocks and 27% bonds. That makes it nice and easy. Although I actually have a lot more in stocks because I'm comfortable with the risk.

What's your risk tolerance? Are you the slow and steady type or do you prefer high risk/high reward?

Tuesday, August 14, 2012

The Reel Benefits of Push Mowing

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Push Reel MowerSaving green by cutting greens with something green.
As I briefly mentioned yesterday, I am a proud push reel lawn mower. Hmm, that doesn't sound right. Makes it seem like you're reading the blog of a lawn tool which would make you a crazy person. How about I am a proud user of a push reel lawnmower. That's better.

I'm not sure what got me interested in getting (permanently borrowing) one. Maybe it was an episode of Mad Men or maybe it was me trying to keep up with Mrs. K's hippie transformation. Whatever the case, we're over halfway through the mowing season and still going strong.

The main reason I'm still into it is that it's a time saver. Stay with me here. It does take about twice as long to mow the lawn BUT at the same time that I'm mowing the lawn I'm also getting my exercise, enjoying the outdoors, catching up on my favorite podcasts, and saving money. That's some awesome multitasking. Now it's gotten to the point where I actually look forward to going out and push mowing the lawn. Crazy, right?

As far as money saving, I figure I'm saving about $3 in gas per mowing which works out to maybe $60 per mowing season. Not that much by itself, but when you factor in that I'm keeping fat K at bay, it's definitely worth it. Plus, once I've convinced myself that I can keep up with it, I may even sell the rider, then we'd be talking serious savings.

After doing a bit of research for this post, that's right I don't pull all of this out of my keester (most, but not all), I found out there are some other benefits to push mowing that I didn't even realize.

No Air Pollution - I guess this is kind of obvious, I just never thought about it. Apparently I'm not as far along in my hippie transformation as Mrs. K. Yay environment.

No Noise Pollution - Now when I mow I don't have to look like I'm landing planes on a runway with my big ear protection head thing. I'm not sure if my neighbors appreciate the quietness of it, but in my mind I see them standing up and politely clapping whenever I break out the push mower.

Better Cut Grass - Supposedly the way a reel mower cuts is better for the grass because it is snipping it like a scissors instead of chopping or tearing it like rotary blade would. Pretend the grass is your hair or is it your hair is the grass...either way I think you'd rather have a scissors than a helicopter blade.

Lower Cost - I touched on my gas savings, but there's also savings on maintenance. Plus, if you are looking to purchase a new mower, a reel push mower is obviously much much cheaper.

It's not all rainbows and unicorns though. There's no skipping a mowing. Long grass + push reel mower = sad face. Keep that in mind. Also, you can't bag your lawn clippings. However, you shouldn't be doing that anyway because those clippings are free fertilizer.

Is a push mower for you? Well, according to people who know these things, if your lawn is less than 8,000 square feet which is 1/5 of an acre, then it just might be. I'm not so good with acres and square feet, but I can say that if it takes you less than 45 minutes to mow with a rider, you could do it with a push mower. If you fall within one of those categories, you might want to join me in the lawn mower devolution.

What do you use to mow your lawn? Do you have a lawn? Do you wish you had a lawn?

Monday, August 13, 2012

Is Your Refrigerator Running?

Running refrigerator caught by the tail.
...then you better go CLEAN it. Seriously, this is no laughing matter, go clean your refrigerator coils before it stops running. Maybe we need a little background.

Yesterday I was out push mowing the lawn (we're talking actual push mowing, not the wimpy gas engine push mowing) when out came Mrs. K with a glass of water. What a wife. Unfortunately, she was also bringing out some bad news. When she was getting ice for the water, she noticed that the freezer was going all wicked witch of the west. That's melting for those of you non-Wizard of Oz people.

So I finish mowing, come inside and open the fridge. Sure enough, I was not met with any coolness whatsoever. The first thing I did was call my father who has fixed a myriad of things over the years (probably broken even more, but I never hear those stories for some reason). Unfortunately refrigerator breakdowns were not something he had tackled.

Being the financially responsible (cheap) individual that I am, I immediately started taking things apart. When I took off the front bottom plastic piece, I was a little surprised at what I found. It looked like my fridge was wearing a giant wool slipper. No wonder it stopped working. We just finished the hottest July ever and my fridge is decked out in a winter fur coat. At this point I'm just glad the whole thing didn't start on fire and burn the house down.

So let this be a lesson to you people who still have working fridges, don't forget to clean the coils every now and then. Personally, I'm putting a six month reoccurring reminder on my to-do list, so that this doesn't happen again. Clean yours more frequently if you have pets. Apparently the previous owners of our house were pasturing sheep in the kitchen. Not only will cleaning the coils help prevent your fridge from expensive breakdowns, it will also increase its cooling efficiency and decrease your electric bill. I've read anywhere from $5 to $10 per month. I can't wait to see how much lower mine will be after removing the fur coat.
This was all that was left of the sheep after our fridge ate it. Some wool and a treat.
Here's another cost saving tip just in case your fridge is closing in on breaking down from neglect like mine. Don't be afraid to do a little googling and tear things apart to see if it is an easy fix. You could save hundreds of dollars by not needing a service call from an appliance repairman. Just make sure to unplug things before you play too much. Mrs. K did about three minutes of googling while I was tearing things apart. She told me to shake a certain part and if it rattled we needed a new one. I shook, it rattled, now we are trying to find a new one. Hopefully, we can turn this from a couple hundred dollar professional job to a $40 part replacement. Fingers crossed.
Well there's your problem.
When was the last time you cleaned your refrigerator coils? 

Friday, August 10, 2012

Investing 101 Part 2

Photo by Tax Credits
Here it is, as promised, Investing 101 Part Deux, I mean 2. In Investing 101 Part 1, we looked at what investing is and why you would want to do it. If you haven't read that yet and aren't sure whether you want to start investing, check it out. Then hopefully you'll want to continue on in the series and come back here. Otherwise, I'm horrible at blogging and should Command + Q (Alt+F4 for my non-Mac readers) right now.

So you're ready to put your money to work and start investing? Alright, before you jump in, it's probably time to go over what options are out there. There are two main types of investments, bonds and stocks, with millions of little baby choices underneath.

Bonds are basically a loan that you give to a company or even a government. By purchasing the bond, you are loaning the company/government money and they pay you interest and hopefully the full amount of the loan in return. Fingers crossed.

Of the two main investment types, bonds are usually the safer choice. Assuming you are purchasing bonds from a stable company or government (if there is such a thing), your money should be relatively safe. However, you pay a price for that safety. The returns are going to be lower for bonds than with a higher risk investment like stocks. The historical average annual return for bonds is somewhere around 5%.

Stocks allow you to buy a little piece (share) of an actual company. If the company decides to pay out some of its profits to shareholders you get a dividend, which is usually a certain dollar amount for each share you own. If the company doesn't pay a dividend, then you are relying solely on the stocks value to increase. Stocks are much riskier than bonds. With stocks you are guaranteed to get nothing, except crazy excitement every day. Because of the increased risk there is also potential for increased returns. The historical average annual return for stocks is somewhere around 10%.

There are your options. So now what, just start picking some? Thankfully, there's an easier answer than researching and selecting individual stocks and bonds. That answer is the mutual fund.

Mutual Funds
A mutual fund is a grouping of stocks and bonds. You buy into a mutual fund along with many, many other people. A professional mutual fund manager then takes all of that money and buys the individual stocks and bonds for everyone that owns the mutual fund. Of course he takes a little percentage of the money for himself which is called the expense ratio.

While there are thousands of mutual funds to choose from, there are two main types. Actively managed and index. Actively managed funds have an advisor that is constantly trying to beat the returns of the overall stock market or whatever specific area of the market his fund is targeting. Guess what, since he's actively trying to do that, he's also going to take a bigger percentage expense ratio out of your investment for his hard work. Index funds are the opposite. The manager just tries to mimic the market. This results in a lower percentage expense ratio used to pay the fund manager.

The more I read about mutual funds, the more I find that actively managed funds rarely outperform index funds. So as a rule, lower expense ratio index funds are going to perform better than higher expense ratio actively managed funds.

Now What?

Now that you know what is out there to invest in, what should you do? Well, come back for part 3 and we'll look at what goes into creating a portfolio that fits your specific needs.

I know, I know you're so excited to learn more. Let me tide you over by sharing what I do, just to give you some ideas. We basically use a three mutual fund approach with Vanguard as our brokerage firm. Why Vanguard? They have the lowest expense ratios around and are pretty much awesome.

So, our three fund approach. We have our emergency money in the Vanguard GNMA fund. Basically like a bond mutual fund, only it's made of mortgages instead of bonds. The rest is split with 80% in the Total Stock Market fund (U.S. stocks index) and 20% in the Total International Stock Market fund (global index). In part 3 we'll look at why I created this portfolio and how it can be tweaked to accomodate your own personality and financial situation.

Where is your money currently invested? Do you have a portfolio strategy or do you just throw money at the market and hope it grows?

Thursday, August 9, 2012

Coffee Beans or Bust

Whole Foods coffee beansWhole Foods Coffee Beans

Warning this post may cause you to spend more money.

The other morning I woke up and went to the kitchen to prepare my morning pot of coffee. After getting the water ready, the unexpected happened. I WAS OUT OF COFFEE BEANS. I'm sure my fellow coffee drinkers know just how shocking this moment of realization can be. I checked the pantry and all I could find was a bag of ground coffee. Problem solved, right? Well, little did I know that over the past few months I had turned into a coffee snob. Pre-ground coffee was no longer good enough. I had tasted greatness after living through years and years of mediocrity. Coffee had become more than just a morning wake-up call. It was now part of a ritual that brought an inner peace and...can you tell I miss my coffee beans. Once I finished struggling through a pot of pre-ground coffee (shiver) that morning, I realized that I never wanted to go back to that sad, dark, bitter place.

This kind of brought me to a bit of a conundrum (fancy coffee snob talk for problem). I'm all about  being frugal, but coffee beans are, at least from what I've seen, more expensive than ground coffee. It probably has something to do with them not tasting like garbage water. However, now that I've had a taste of the good life, I can't go back. I guess coffee has made the jump from an everyday-buy-what's-cheap item like bread, toilet paper or juice to something I'm willing to pay a premium for. So congratulations coffee, you have now joined the likes of Apple (the company, not the fruit), Bosch power tools and raspberries. Seriously blueberries, are you even trying? Some things are just so awesome that it's worth paying more for them.

Since this blog is about things of value, let me throw this out there, if you are a coffee drinker and haven't tried freshly ground coffee, find a friend, relative or neighbor who doesn't lock their doors, that has a coffee grinder and brew up a batch. If you do it right, I'd bet you too will never want to go back.

Also, it seems like everyday there are more and more studies being released about the health benefits of coffee. Here is a good one from the P90X newsletter. BRING IT! (P90X humor) Worth a quick read, especially if you drink little to no coffee. See what you're missing out on.

What is coffee to you? Just your morning pick-me-up or is it more? What products are you willing to pay a premium for?

Wednesday, August 8, 2012

Netflix - Best Shows to Watch Instantly

We've been using Netflix online streaming as our main source of TV-related entertainment since canceling our satellite dish. I'm always looking for ideas on what good television series are available for streaming. With that in mind, I thought it would be useful to create a post and static page about what shows on Netflix we and our circle think are worth watching. Is your favorite show missing? Add a comment, we're in this together.

Completed Series

  • Lost - So much mystery you will never know anything ever again. We started this late and were able to watch the first two seasons straight through, 20+ hours one weekend in college. It's that good.
  • Arrested Development - Pretty hilarious dysfunctional family. Word on the street is that it's coming back. That's right, I'm street literate.
  • Friday Night Lights - Don't think that you shouldn't watch this just because it's about high school football. That's what I thought and almost missed out on this awesome series.
  • Battlestar Galactica - Don't think that you shouldn't watch this ...hmm this is sounding familiar...just because it's about spaceships. It's not as nerdy as you think.
  • 24 - THIS IS JACK BAUER!!! Watch and you'll know why that's funny.
  • Buffy the Vampire Slayer - I thought this would be a little too teenage girlish for me. Either I was wrong or I'm not as masculine as I thought. I guess I'm ok with either.
  • Nip/Tuck - This is a little more adult. We watched the first scene of the first episode a few years ago and stopped. After canceling the dish this year, we came back and made it through the first scene, then watched the entire series in short order.  It started to slide after a few seasons, but still worth checking out.
  • Heroes  - Yatta! Enough said. Well, maybe not enough said since you haven't seen it. Super powers, I mean lots of super powers. Enough said?
  • Prison Break - Oh yeah, Wentworth Miller. Mrs. K hijacked the MacBook for that one. Although he is pretty dreamy. It's a solid show with some pretty memorable characters.
  • Firefly - Only 14 episodes long, which is hard to believe because it was pretty good. If you have a weekend that you're looking to just lay around and watch something, this is it.  Then get a little extra fix with the movie, Serenity.

In-Progress Series

  • Burn Notice - Now that House is over, Michael Westen is my undisputed favorite character on TV. I want to have his babies...when science catches up.
  • Mad Men - This one took a few episodes to get into, but once you get there it's pretty awesome. It's fun looking at the way things were back in the day.
  • Archer - Do not discount this because it is a cartoon. You will never forgive yourself and I will never forgive you either. Archer is the cartoon version of Michael Westen, but...are you sitting down...EVEN MORE AWESOME. With that said, it is a highly inappropriate show, but hilariously funny.
  • Weeds - Well, it isn't about gardening. So, somewhat questionable subject matter. This is one of my favorites though. Lots of humor, some drama, more humor. Good times!
  • Parenthood - This one is kind of the warm and fuzzy family drama/comedy. I'm not sure why, but I really like it.

Tuesday, August 7, 2012

Vacation Exercise

Our local tennis court has seen better days.

Mrs. K and I had a vacation day yesterday, so we took a bike ride down to the tennis courts for a little exercise. Actually, the original plan was to just bike to the ice cream shoppe, but I thought we should play a little tennis to help justify our ice cream treats.

I had never really thought about it before, but tennis is a pretty inexpensive hobby to take up. A couple of $20 or $30 tennis rackets, a few dollars worth of tennis balls and you're all set. Almost every city has a free tennis court that you can go to and most have several. Also, unlike basketball or baseball or other balls, you only need two people to play. Some courts even have a wall so you can play with yourself, err by yourself.

After your initial investment you can basically play free for years. You might occasionally need new tennis balls or another racket if you go all John McEnroe on it. If you're frugal like me, a set of tennis balls can last a very long time. Compare this to something like golf where you're paying $20 or more every time you go out. After skipping two rounds of golf you could purchase what you need to play tennis for the rest of your life. Ok maybe not the rest of your life, but for a very long time. Plus, with tennis you can get a lot more exercise, especially when you first start and are chasing the balls across multiple courts.

What are your favorite cheap hobbies?

Monday, August 6, 2012

Investing 101 Part 1

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Stock MarketPhoto by Tax Credits
Hmm, lots of "ones" going on there. Since it is or just was the start of a new month, I went through our financial accounts and recorded the balances. Why? Because you have no satellite tv and that is all you do for fun now? No, well maybe there's a little truth to that, but the main reason is because now that I have a personal finance blog, it seems like it would be wrong not to. One thing that stood out to me is that over 70% of our net worth is invested in the stock market. Add bonds in and it accounts for 80%. Since I'm such a believer in investing (Mrs. K could take it or leave it), I thought it would be a good idea to have a post explaining why. Plus, it will also keep me from freaking out because 80% of my net worth is invested!

What is investing?

Since this is a 100-level post we'll start out pretty basic. What is investing? Well, for our purposes it is purchasing some type of asset (stocks, bonds, rental properties, etc) with the hope/belief/expectation that it will increase in value. Essentially, it is turning your money into an employee that works to make you more money. Each investment can be your own little employee. Some have high potential and get a lot done, but they also could be unstable and end up burning the place to the ground. Think Milton from Office Space. These are the high risk/high reward investments like hedge funds. Others go at their own pace and are pretty stable like bonds. Finding the right mix of employees will help you build your financial business.

Why invest?

Well, the simple answer is to make more money. You're probably thinking that your savings account is already making you more money, especially since you opened an online savings account after reading WINN-ING. While that is true, there is an evil force out there limiting its effect. My spouse? I'll pretend I didn't hear (or think) that. The evil force is actually inflation.

Inflation is defined as a sustained increase in the price of goods or services. It's why Oreos went from $4.29 for 18oz in 2004 to $4.59 for 15.5oz in 2012. That's 7% more for 14% less which is a 24% increase per ounce in 8 years. It's also why I no longer buy Oreos. Well, that and they made me fat in college. Let's look at how inflation affects the buying power of $100 over the course of one year.

Starting AmountReturnInflation
(Historical Avg.)
Buying Power
$100 under mattress0%3.43%$96.57
$100 online savings (Current Rate).8%3.43%$97.37
$100 online savings (Est. Historical Avg.)3%3.43%$99.57
$100 stock market (Historical Avg.)9.6%3.43%$106.17

Before you start yelling at me, let me say, past returns are no guarantee of future returns (or whatever every brokerage tells you before you invest). Having said that, $100 under your mattress is guaranteed a 0% of return and I don't think that is going to change anytime soon. If it does, I'll write a post about it, so make sure to subscribe to email notification of new posts. If your mattress money doesn't generate positive returns, which it won't, you will continue to lose buying power every year there is positive inflation. Which was 87 out of the last 98 years. Yikes!

As you can see by the above table, even the awesomeness of an online savings accounts is barely a match for the evilness of inflation. A lot of people are afraid of losing money in the stock market, well now they can also be afraid of losing money out of the stock market. Without investing, it would appear that it is only a matter of time before inflation eats away at your wealth. However, combatting inflation isn't the only reason to invest.

Albert Einstein may or may not have said, "the most powerful force in the universe is compound interest." Well, we'll say he did say it, because it gives me more credibility to the importance of compound interest. So listen or read up. Compound interest is when the interest that you gain on your investment also starts gaining interest. Which means, not only is your money making you money, but the money your money is making you is making you money. And anything that results in the word money being in a single sentence that many times must be good.

As an example, if you invest $1000 and get 5% interest, after one year you would have $1050. The next year instead of having $1100, another $50 increase, you would have $1155 instead. Compound interest allowed you to gain an additional $5 the second year because of the interest on your interest. Then the next year you earn interest on that interest and so on and so on and richness ensues. That alone may not be impressive, but check out what can happen to $1,000 over the years depending on your interest rate.


There are a couple things to take note of from the above table. Obviously, when you have a higher rate of return you are going to see a jump in value, but when you combine that higher rate of return with a longer time period, you start to see the exponential earning potential of compound interest.

Hopefully now you have some idea of how investing with the power of compound interest can keep you ahead of inflation and on the path to increased wealth. Or if you already knew all that, now you know that I was fat in college. Either way you learned something.

Has the power of investing got you excited? Part 2 about investment types and risks will be coming in near future.