Tuesday, May 12, 2015

Retire Early 4 - Financial Weeding

Everyone hates weeding.

When we were young, Mom always had a garden. Mom let the ducks wander through her rows of vegetables, though she didn't allow four young boys unfettered access. "Ducks will eat the bugs," she said, "and leave the plants alone." You never know. Four young boys might have eaten bugs, too.

When we were old enough to know the difference between the plants and the weeds, Mom sent us out into the garden. You have to exercise good judgement when weeding so you do not pull up the good plants with the weeds.

In our garden this spring I was willing to let the weeds grow for a while, so I could more easily distinguish them from the plants that will bear tomatoes, squash, cucumbers and melons. I let them grow too long, because weeds, when left unchecked, will take over a garden.

It looks bad.
 When I finally did weed, it took a few days, and some of the weeds were so intertwined with the plants that I had to pull good plants up to remove the weeds

Some people say you can let the weeds grow, that they don't affect your plants. That's wrong. The weeds in your garden will suck up the nutrients and the water that the good plants need.

What does this have to do with Finances?

You should remove the weeds from your spending habits, too. Take a hard look.

Do you simply go to the gym to use the treadmill? Walk in your neighborhood instead, and save yourself the cost. Do you have all the premium stations on your cable? Pick one and cancel the others. Do you have too many minutes on your phone plan? Analyze those and see if you can go to a plan with less cost - or change phone services completely!

Those obvious weeds are sucking the life from your savings, a little bit at a time.

Sure, some weeds look like beautiful flowers. Do you need the latest phone on the market? Do you really need a faster, newer computer? Please think more than twice about a new car. A car is a functional device that gets you to and from places. If you use it as a status symbol, you are pushing your own retirement down the road for a few more years. Is it worth it? You have to make that decision. (Darling sold my old car at a garage sale, she was so sick of seeing it, but that's another story.)

In Retired Early #3, I gave guidelines and standard categories for making a budget. If your expenses seem out of line in any one of the categories, look for ways to save money. Here are some ideas.

Housing deserves its own post. Buying a house is the single biggest expense facing most families, but the monthly cost should still be affordable. Most of the people I know who work into their late sixties or early seventies bought a house that was more than they could comfortably afford - and they worked extra decades to pay for it.

Housing expenses fit into the same budget category (sorry, folks). Small faucet leaks and running toilets can bump up your water bill. Think about putting a brick (or some other volume item) into the water reservoir for your toilet. Turn off lights and computers (and printers) when you are not using them. Think about investing in a programmable or smart thermostat for your house. Just a few degrees of air conditioning can make a big difference in your monthly bill.

There are many ways to save money on food. Coupons, of course, are a great money-saver. Some big name stores match the lowest price, so just having the advertisements when you go to the store can save you money. Buy sale items. You should shop at a dollar store for basic items; at least drop by and see what they have. You hear it all the time, because it's true - don't shop when you are hungry!

Your second biggest expense is your car. I mentioned that above, but car buying deserves its own post as well. There are two rules about buying a car that worked well for me for decades: 1. Buy a used car, not new and 2. Keep your car as long as you can. Almost everyone needs to finance a first car. When you are finished paying the monthly bill for that, keep putting the same amount into a special savings account just for your car. Buy all the rest of your cars with cash.

Everyone should shop around for less expensive insurance, and do it yearly. Students can often get discounts, as can senior citizens. Some companies offer discount percentages on insurance (and lots of other things). It's your money. Keep as much as you can.

Debts are your enemy. Again, that deserves its own post, but as far as debt goes - just don't do it.

Entertainment and eating out are an integral part of our society. We feel we need the relaxation of a night on the town. Look for and use restaurant coupons. Go to museums and zoos during free days during the week (fun and educational!) or buy half-day tickets at theme parks instead of a full day. Have you checked into the movie theaters near your home? We buy tickets at a local cinema for $4.50 instead of the bigger theaters for $8.50. (Yes, they are first-run movies.) Look in your own neighborhood for a less expensive theater option.
RB40 has a great list of frugal hobbies in one of his posts.

Clothes are not a big expense item for me, but I'm not concerned with sartorial elegance. I have bought designer suits at Salvation Army and Goodwill, with nobody wiser. They have half-price days, too and that's when I shop. Houston has an amazing Charity Guild that has fabulous prices for designer clothes.

Investments are another story, and I'll cover them in a future chapter, but they need to be weeded also. That's a lifetime job, actually, retired or not. Simply put, the buy high and sell low method isn't effective for building savings. Drop the ones that lose you money, and your personal tolerance determines the sale point.

Darling informed me that there are a lot of savings tips for young parents, so I'll save that for a later post as well.

For now, this should be enough to think about.

Check your budget for weeds and pull them so your savings have a better chance to thrive. That's the path to retiring early.

Look! Plants!

Wednesday, May 6, 2015

Social Security isn't secure

There's a fascinating article on the Yahoo finance page about social security with a bit about the Simpson-Bowles Plan. As we mentioned in our book Preparing for the Fiscal Cliff (published at the end of 2012), we can't count on the government for support as we age. This concerns me a lot now that I am nearing my age for withdrawing social security.

Have you noticed all the advice on the financial sites in the last few years? I've yet to see one that doesn't tell you to wait to withdraw your social security benefits. Sure you'll get a few hundred a month more if you wait (they specifically tell you it is 8% more per year), and the math is correct. Figures don't lie, but liars can certainly figure. Yes, it's true that waiting will give you a larger monthly paycheck, and if you can wait - like you are still working - then maybe go ahead and wait. But Social Security payouts were designed to give you the same total by the time you die, so you don't get  a net gain until you are in your eighties, and that doesn't take into account the investments you might make.

I don't want to sound like I believe in conspiracies, but the government is the one who benefits most if you delay taking your Social Security. For one thing, our government representatives can kick the unpopular decision of how to fix the system down the road a bit. They don't need to worry about their retirement, after all. I'm pretty sure they don't have the same system citizens do.

I plan to get my social security the minute I qualify for it. I'll spend it while I can, invest it if I'm able - but I'll get it back in my own pocket as soon as possible. I don't want the government to handle my money any more.

I don't mind the Yahoo article. Social Security has long needed reform. It's a Ponzi scheme of the highest order - and if it wasn't the government, the people who ran it would be jailed for the rest of their lives. What I object to is a little sentence in the fourth paragraph: "Graham wants to address the problem now and get entitlement funding in place for generations..."

Do you see it? I put the key word in bold and italics. Government officials - and our government of the people, by the people and for the people - is starting to spin the tale that social security money is entitlement.

That's my money. I paid into the Social Security system for over thirty-five years. I wasn't given an option. I had no say how the money was used. They took it directly from my paycheck and charged my employers for the privilege of doing so. Then they managed the money poorly, just to add insult to injury.

Yes, Social Security needs to be modified - the simple mathematics is obvious to anyone. But don't go telling me it is an entitlement. Don't forget where the money came from - my pocket - and it wasn't a donation. It was supposed to be an investment in my future.

We need to keep watching our government, keep watching the people who represent us, keep watching the people who stand apart from us and delegate financial rules they don't have to follow themselves. Now we need to watch carefully the words they use when talking about our money. If we don't, they'll rob us of what is ours.

And we'll have none to blame but ourselves.