A Pirate's Cents and a Pirate's Sense

Extra Payments against your Mortgage

February 8, 2014

Saw a debate starting on twitter this morning over the impact of making extra payments against your mortgage, inspired by http://www.modestmoney.com/making-extra-payment-mortgage-will-get-nowhere/. It was a well written article, but it was missing the “guts” of the reasoning because, honestly, most people’s eyes glaze over at the thought of looking at huge amortization tables.

A quick summary: A bunch of years ago while mortgage interests rates were higher than they are today, it became a commonly held belief that paying extra against your mortgage would save you a significant amount of time on repayment. This is no longer the case.

I am going to try and help end the debate by generating some simple spreadsheets showing two different mortgages for effect: a 30-year mortgage, same principle, same insurance, same taxes, different interest rates: 9% and 3%. We don’t need to look at the entire amortization tables to know what the big difference is going to be: The interest. For simplicity sake, I’ve assumed that it’s a $400,000 house, no down payment, no PMI (this is for illustrative purposes only), 1% annual taxes (similar to my area), homeowner’s insurance costing about 1%. So what does that make the composition of the first payment look like on each scenario:

9% Scenario, First payment
3% Scenario, First Payment
$333.33Tax Escrow$333.33Tax Escrow
$333.33Insurance Escrow$333.33Insurance Escrow
$4,778.00Total Payment$2,778.00Total Payment

So what we see is that less than ¼ of your payment in the 9% scenario is going against principle and it’s almost half of the 3% scenario.

In the postulated “extra payment each year,” you make one extra payment each year of the same total payment amount and you do not reduce the value of the other 12 payments each year. So right off the bat, you can see that under the 9% scenario, you’re paying off almost DOUBLE the amount of principle ($4,778 vs $2778) each year with the extra payment. More than that, the impact of that extra principle is 3 times as much, due to saving 3 times as much interest on that principle. These values are multiplicative, giving you functionally 6 times the impact.

For simplicity, I assumed you made one extra payment in the middle of your term year every year for the life of the mortgage. Under this scenario, you would pay off the 9% mortgage loan in 266 months for a total cost of $1,376,064 (vs $1,720,080 over 360 months of the base scenario).

Under the 3% mortgage scenario, the story is different: 298 months for a total cost of $897,294 (vs $1,000,080 over 360 months of the base scenario).

I don’t know how Modest Money calculated his scenarios, but under my calculations, you’d save roughly 5 years by paying an extra payment each year (for the first 25 years), but would only save about 10% of the total mortgage cost. Under the old scenarios, you’d save roughly 25% of the cost of the mortgage and almost eight years.

There’s another portion of the calculation to consider, as well: Your tax deductions. If you’re in the 25% tax bracket, then the effect interest you’re paying under the two scenarios is 6.75% vs. 2.25%. This is the number I’m usually weighing against when I’m trying to decide how to invest my ‘extra’ money: Do I want to invest it in a stock which pays 3% in dividends (taxed at 15% if it’s qualified) and has a chance for capital appreciation or do I want to pay it against my mortgage which is costing me an effective 2.25%? When interest rates were high, it was a safer bet to pay against the mortgage because stocks can go down, but you’re always expected to pay the same against your mortgage. Today, for me, it’s hard to argue that paying against the mortgage early makes a lot of competitive sense. Especially if you’ve locked in at a low rate and as interest rates rise. It could be soon that you can find CD’s and 30-year government bonds (the same term as your mortgage, incidentally), paying higher interest than you’re paying on the mortgage!

Are there any other details of the tables you’d like to see? I’d like to avoid posting the hundreds of lines of table amortization (mostly because it would be boring and not a lot of value).

January Budget Round-up! $56!!

February 4, 2014

This is about all we have to show for the month

Thank all that’s good that January is over. It was a brutal month: We were reeling from Christmas 2013 still, we had some of the coldest days of the year hit us and stay around longer than usual for this far in the deep south. We had our income for 2014 come in less than we expected and we began to witness the huge stock market rally of 2013 begin unwinding.

The Good:

We were able to stick to budget, mostly.

  • Our Gasoline bills came in, again, at $471, a full $129 below budget. This is largely the benefit of the cheaper gasoline prices we’re seeing right now and my efforts to try and drive more slowly (which isn’t buying much, about 1-2 MPG).
  • Our Entertainment budget came in at $77 for the month, leaving $23 leftover. This was good, especially since I goofed on my understanding of Mint.com. I had the overall category, “Entertainment” acting as a catch-all of our entertainment activities (redbox, going to the movies, etc) and I had a subcategory capturing the satellite radio. That did not work! It counted the Satellite radio against BOTH budgets! So now I am forced to make a hard decision:
  1. Create a new sub-category for entertainment (called Misc Entertainment) and change all the old “Entertainment” expenses to “Misc Entertainment” (thus giving clarity to the Satellite Radio, which will no longer be counted in both categories) or
  2. Create a Satellite radio under a different category I’m not already using and keep it out of Entertainment completely to maintain integrity of the “Entertainment” as a catch-all.
  • Normally, I’ve done the first, but this time, to avoid losing the clarity on the old budget for Entertainment (if I re-categorize all of the old items to maintain the ability to trend, I lose the ability to look at those budgets in the past because Mint does not allow you to create or alter budget line items in the past!), I’m going to do the second.
  • Thus, the Entertainment budget turned into $27 for the month, leaving $73 leftover. Because I am unable to created a budget category for January that has the correct selection for the Satellite radio, it looks like we didn’t spend that money against the budget, but it DOES show up at the bottom under “Everything Else”. Just another pain on the way to getting everything accounted for.
  • The Restaurant budget was looking great through the month, but toward the end we got burned out and ate out some. Came in just $17 under budget.

The Bad:

  • We had a few surprises, like the gas bill came in higher than I was hoping, exceeding last year’s worst month by more than 10% at $124.16. This is, by way of perspective; triple our bills through the summer months.  To add insult to injury, this was the bill for December and January was even colder, so I expect our bill for February will be worse.
  • Our electric bill, which normally runs in the inverse direction of our Gas bill was also higher than I’d expected. It typically runs around $90/month in the cold months (and the sky is the limit during the hot months), and this month came in at over $116. Those two bills (Gas and Electric) combined busted our Utilities budget. Wasn’t by much, just $3, but it’s a portent of things to come.
  • The Incidentals budget got smacked hard this month. I needed an eye exam at a time when we have no eye coverage, so that was $91 at the same time we had a birthday party for a niece and some other small expenses. Busted that budget by $53. Worse, with the cold weather, we ended up spending February’s entire budget on an outdoor pet house to prevent the outside animals from starving without having to bring them in again (the cats did arguably that much in damage in the three days they were inside earlier in the month).
  • The Household/Groceries budget got blown up this month. I’ve been reading how thefrugalfarmer.com can feed their family on $400 a month and our budget was north of $1,100 for this month. We’ve been making a dedicated effort to eat more locally and more organically, but holy crap! Keep in mind, we don’t buy any sodas, no snacks for the adults, no cookies, no cakes and starting at the beginning of the month, no alcohol. We don’t smoke. We don’t eat ice cream (except rare treats, but that goes against the restaurant budget). I’d expected the opening of the Trader Joe’s relatively near us would help save us money, but I’m not seeing that yet. Worse, the locally owned grocery store, Alexander’s, which opened not far away has been really pounding our budget. My wife and I have discussed going without beef in February (seeing as how beef is the most expensive meat choice in the universe) and replacing those meals with meatless dinners. My wife dutifully reminded me that my toddler son pretty much only eats meat and rice and that we’ll need to carefully find a solution.

The Ugly:

  • New bug in Mint, I think. I can’t figure out, for the life of me, what this (insert picture here) $82 is. When I click on it (which will usually bring up the expenses in that category), it shows zero expenses. Even if I remove the filtering for time, it still shows no home expenses, EVER. I guess this is another help request to Mint.com for clarification. Every month, one new bug report.
  • We had to put down our deposit for a vacation we’re planning to take in September. We’ve only saved $424 towards it and spent $761 for the deposit, driving us into having to spend $337 from savings. It was disappointing, to say the least.
  • My wife’s excesses in December resulted in some squeeze. As part of our sustainability plan for our budget, we have a small amount of cash allowance for things like gifts (for each-other or for ourselves) and for lunches out of the office. Well, because my wife missed on her budgeting for December and overspent by $416, she was forced to close her personal checking account and devote all of her mad money in January to getting that (mostly) knocked out. We were both disappointed with this turn of events and I think it only resulted in resentment as opposed to an opportunity to learn.
  • Our Recycling service is officially bankrupt and gone. On their last service of our house, they took the bins back; Even the bin we’d supposedly “bought” so they’d collect two cans. Now we have to find a new service, pay new deposits and wait to get that started. Really, it’s the deposit that stinks since the old company took that with them, as well as the last few months we’d pre-paid.
  • The February budget is already looking rough. We had the vacation expenses carry over from January; we made a trip to see my in-laws the first weekend of the month and that cost us in gasoline and eating out; we also got hit with Daycare costs on day one. Plus we already know the natural gas bill is going to be really high this month.
  • The stock market is really dragging on our enthusiasm. Of this writing, all of the efforts we made to get in our Roth IRA contributions the first week has backfired and we’ve already lost the equivalent of everything we’ve put in this year between 401(k)s and Roth IRAs. It’s all just paper losses, but when you work so hard to save up, it really deflates your sails to watch it evaporate like snap that while Investment bankers take their profits. So far, we’re only back to November’s net worth, but if this correction continues, it’ll be depressing to watch the market gains AND our cash contributions going away.
  • Our Dependent Care FSA reimbursement was denied because our son’s daycare prints us a statement for the entire year, while our FSA requires that the receipt only covers the time that my wife was an employee. Never mind that the simplest logic shows that we should receive the money, even corrected for tenure at the job; no, this is one of the government approved bankster bullshit deals we have to deal with every year. Three years, two different companies, 3 migraines. Series of appeals while the daycare prints out their receipts 10 different ways to meet the FSA administrator’s needs. This money is supposed to form a core of our home improvement budget since we’ve got an A/C and air handler that’s on the way out. Thankfully it’s cold outside, but I suspect that after we make it through all the layers of appeals, it’ll be hot out again and our window for discounted service will be long past.
  • Similar story with the gym membership reimbursement. Our gym bills my wife and I together, and my name appears no where. So… yeah, the receipts can’t be used for my gym reimbursement. I’m playing round robin with my gym trying to get that money to help plug my budget gaps to get me to the summer.


$56. We came out $56 ahead on our budget for January, despite all of our hard efforts, it seems a very hollow victory.


How did you make out in January? Are you ready to get things turned around in February?

Why budget at all?

January 31, 2014

Why do I budget?


This is one of those fundamental questions that really should be addressed on my blog. After all, most of my time is talking about budgeting. While it’s not an end in and of itself, it’s just a tool, it’s a difficult to use tool; it’s a tool that takes effort; it’s not something fun; it’s got a bad wrap as that thing that removes joy from people’s lives (this is my wife’s opinion).

Delete my budget??

So why on earth would anyone budget? Life is short, after all! Should we not scream “Carpe Diem!” and light fire to our paper budgets and press DELETE to our spreadsheets and close our Mint.com and PersonalCapital accounts? Wouldn’t it be more freeing?

What brought you here?

Yes, it would be, for a while. Many of us are living right now without budgets. If you found this website, perhaps by searching for “Why should I budget?” you’re most likely free of the burden of updating and tracking your spending. However, you may have also found this website by searching for, “Where did all my money go?” “How do I get my (or my husband’s/wife’s) spending under control?” “How do I save for retirement?” “How do I save for my kid’s college?” “How do I save for buying a home down payment?” “How do I afford a new car?” “How do I take my family on a vacation?”

How does it answer those questions?

Do you see a pattern? If you want to live with dignity, responsibility and experiences, you need to have a plan on how to spend your money. I call it a budget, but many call it a “Spending plan.” You have income (presumably), and how you spend it determines how you live. So if you plan how it is spent, you have control of your life. If you don’t plan, then life will control how you spend it. It’s sort of the question, “Will you control your life and live how you want, or will your life be controlled and you will live how others want?”

You need a Spending Plan! You need a budget!

Growing up is about becoming more mature, taking on more responsibilities and doing the right things. A budget is a core component of all of these. For example, it’s easy to not have a budget and just spend money until it’s gone (or going further, to wrack up piles of debt). It’s harder, it’s more mature a behavior, to know where your money is going and where you WANT it to be going, without running out, without going into debt, and without asking for a bailout from the banks of Mommy and Daddy (if they are even willing to do that).

As part of growing up, it’s natural to take on more responsibilities, such as providing stability and support for a spouse and a family. After all, these people are the core of your life and taking care of them is no one else’s responsibility. They provide their love and their support and their hopes and dreams to you, and only you can keep them safe and warm and on the path to fulfillment. None of that is reliably possible without knowing where your money is. It’s not enough if you just show up; you need to be a cog in their life that adds value. It’s your responsibility.

The last, the hardest component of growing up is doing the right thing. Pay your taxes (in theory, it’s your ‘fair share,’ of keeping society running); save for retirement (so you’re not a burden on your friends, neighbors and children); to provide support for your children’s education (so that they can enter adulthood better prepared and as lightly financially burdened as possible); to have insurance in case the unforeseeable happens, so that you’re always prepared. All of these should have large, flashing dollar signs, because they do. None of these things are free; none of these things are fun; these are what it means to be an adult.

What about the fun? What about living?

In theory, after these above things have been addressed, you should know what you have left over to find fulfillment in your life. That money that is left over is yours. You have fulfilled all of the demands of life and your choices and there can be no denying that you’ve earned the right to live. To spend, to travel, to buy. Isn’t this really what we want to do?

But what if I don’t have anything left after meeting my responsibilities?

After meeting all of your responsibilities, even if you’re short on dollars afterwards, you should be rich. You’re rich in success. You’re rich in accomplishment. You’re rich in freedom. For some, myself included, just meeting milestones of responsibilities is enough to be happy. For folks like my wife, once she sees how little we have left, her focus, the challenge she gives herself, is to make the most of it. Maybe we can’t travel to Europe, but maybe we can go camping. Maybe we can’t see the glaciers falling off the coast of Alaska, but have we explored every museum in our area?

Life is really what you make of it. The trick is to get the needs out of the way (food, shelter, clothing) first, your responsibilities next (retirement, insurance, education, etc) and to then embrace whatever’s left as your opportunity to live fully.

Where do I start?

To me, the first thing that everyone should do when setting about a budget or spending plan is to do three things: First, track where every single penny, nickel and dime goes in a month (or three months, if it varies a lot. I’d recommend using a budgeting app or website, like mint.com, to help simplify the effort). And second, write down what you need, what you think you should be doing with your money and what you want in this life. These two tasks are difficult and time consuming, but despite being ‘short,’ life is a long journey and doing a true budget/spending plan is more of a marathon than a sprint.

Finally, the third task is to read. Read other’s success stories. Read personal finance blogs on budgeting. Read personal finance blogs on investing. Read blogs on family finances. Read books on the above topics (there are lots at the library!).

What should you NOT do at the start:

  1. Do not start building crazy, intricate budgets. That’s like trying a marathon without training first: You’ll either hurt yourself or you’ll burn yourself out before completing anything.
  2. Do not expect things to change quickly. There are reasons why your spending is out of whack, and these will need to be addressed over time. If you do too much, too quickly, it is likely to not be sustainable.
  3. Do not get discouraged! Looking at your lists of needs, shoulds and wants will be intimidating. But you have an entire life to meet these! Do not get too upset about where your money is going: It’s your life and it’s wonderful.

Why do I budget?

I personally budget so that I do not worry as much anymore. I used to worry about being unemployed and homeless. I used to be worried about being so buried under debt that bankruptcy was the only answer, and that’s just from LIVING, not from any disaster. I used to worry about getting sick and being unable to afford treatment. I used to fear any small disaster, like my car breaking down, would spell a downward financial spiral that I’d be unable to pull out of. I used to worry I’d never be able to sleep at night from worrying how I would make it through another day without disappointing someone in my life.

I’m still on this journey and I have a long way to go. I still disappoint some of my loved ones and I still worry that I’ve missed something, forgotten something and an unforeseen disaster will lay me/us low. But I am determined to keep working on it, to keep putting one foot in front of the other, to keep learning from my mistakes, and I invite you to come with me and answer this question:
Why do you budget? What is the goal of your spending plan?

Follow-up on Irritations with Mint.com

January 29, 2014
Trends showing error in december, sent to Mint.com on 1/29

Trends showing error in december, sent to Mint.com on 1/29

I mentioned in an earlier post about minor irritations with Mint.com, my trends over time window suffered some snafu in December that functionally eliminated my mortgage debt for a month, giving me a net worth shift that promptly went away in January. Over the following three weeks, I tried to ignore it and just relate everything as if it did show properly and ignore the “greatest increase in net worth in account history: December 2013,” which is of course B.S. and highlights a system error, as opposed to an actual accomplishment.

Had to scratch the itch: 1/22/14

On 1/22/14, at about 5 pm, I gave up the ghost and requested support. Just after 9 pm, I received an email requesting additional clarification. It had unfortunate grammatical errors as though the support agent (Ivy) was not a native English speaker (no big deal, who in I.T. support IS a native English speaker anymore?).

The first clarification is something I should have noted in my first request: “Was the account in question marked as “closed” for the month of December?” Good question, because when an account is marked as “Closed,” it doesn’t count toward your account as either a debt or a credit, and all transactions from that account are ignored. That was not, however, the problem, as I have found that closing accounts needs to be done with great care because of the way it affects data and I am sure I didn’t not touch that option in December.

It was noted that if I deleted the account, they couldn’t help me. Why they couldn’t help me, I don’t know. Basically, it seems like if I make a mistake, it’s permanent. That seems harsh to me, but oh well.

The next questions seemed odd:

What browser are you using? Mint.com recommends Chrome 29, Firefox 23, IE10 or Safari 6.0.4. I don’t think my browser would result in a database error, but I suppose I don’t know how it is programmed. (Can anyone comment on this?)

I was asked what operating system I was using. The same thing as above: If I’m using Windows 95 or XP or Leopard, does it affect how Mint.com interfaces with Chase.com or CapitalOne.com?

I suspect the above two questions are probably just auto-populated in all support emails. Still, it cluttered up the support email with details that (I expect), the I.T. support agent would ignore. It also made the email quite long.

Next Step: Getting Elevated, 1/23

My response at lunch the next day explained that no, I had not set the account to closed due to issues I’d experienced in the past with missing data with that feature. I then requested clarification of why they could not fix/alter the data if I had done it accidently, hoping to get some insight either into their support team’s capabilities or policies.

The response from Ivy was again prompt, around 6 pm. She insisted that she still needed the Operating system and browser information (I’d excluded that information in my response, figuring it was extraneous, as I noted above). Ivy was nice and responded that my suggestions were passed onto the Product Team for consideration and that once I answered the questions, I’d be elevated to an Engineer.

At this point, I became busy (work and stuff), and didn’t respond quickly. It’s important to note that Mint.com support emails say that you need to respond within 24 hours or the case will be closed. So imagine my surprise when I received another email on 1/28/14 as follow-up, this time from “Starsky.” Cue Starsky & Hutch jokes (“The Detective is really on the case now!”). It was a probing follow-up, looking again for the information noted above.

1/29/14, today

I received ANOTHER follow-up today, at 4:29 am. Just a quick little, “hey, how’s it going? We haven’t heard from you.” This was extremely welcome and I was resolved to respond today, to which I did (at roughly 5 pm). I went through, answered all of the questions in complete detail and attached a screenshot (as shown at the top of this blog post).

Opinions so far:

Starsky and Ivy may not be native English speakers, but the grammatical errors were minor and easy to get past. The two follow-up emails were very welcome and were both polite. Response times were excellent. This has been, quite possibly, my best customer experience so far with Mint.com (and I’ve had several). I hope this is a portent of things to come.

Budget Update January 26th, 2014

January 26, 2014

And we need several of those pennies

Another Week, another update

It’s been a stressful week since I realized that the PirateCents family has unexpectedly found itself upside down on the budget front. It also doesn’t help that January is shaping up to be a particularly expensive month with many of our home products that we normally buy in bulk running low/out and having to be replenished all at once. Add in the fact that it’s been bloody cold here in the deep south in a home designed to keep the heat out, not in, and I’m expecting our natural gas bill to be unusually high, even with the thermostat turned down.

Goal: Make More Money

Looking down the road, things should improve by the summer. Mrs. PirateCents should be up for a raise (albeit a small once since she started there last summer). That’ll help. Further, she’ll be able to reduce her 401k contributions by 1% in May as she crosses the point where she’ll max out at the lower rate. It’s possible Mr. PirateCents will see a small raise too, but I doubt that since I literally just went direct with the new company in December.

I began the process of monetizing www.piratecents.com, but as you can see all around the website, the AdSense adds are not active yet and I’m unclear when they will be so. Further, I don’t anticipate any income from this website for months, so that’s a longer range plan, not helping to get to summer.

Prospects for making additional money at work are nil. I’m going to be putting in a lot of overtime starting early next month (roughly 72 extra hours in February and 40 extra hours in March), but that’s all unpaid overtime. It does destroy any hope of side gigs or recreation or even working out. I’ll miss two weeks of working out in February and one week in March, which sucks bad since I still have to pay for the gym. In general, I’m more upset that I won’t be able to work out than I am about the waste of money, but what can you do when you work 30 minutes away, are doing more than 12 hours of work in a day and have a family to take care of?

Goal: Locate “Found” Monies

Mrs. PirateCents and I found that we are eligible for some reimbursement for our Gym Memberships. All together, it could be as much as $300, which would help us cover some of our gaps, even for a few months. We wouldn’t see any of the money until March, but we have some gap coverage in savings that can get us there. The goal, as much as anything, is to mitigate the impact and catch up as quickly as possible.

I saw this article this morning:  http://www.usatoday.com/story/money/columnist/tompor/2014/01/26/did-you-cash-those-savings-bonds-you-got-as-a-kid/4824631/?utm_source=dlvr.it&utm_medium=twitter&dlvrit=110940 A quick search of http://www.treasuryhunt.gov/ turned up nothing, however.

Tax time is coming up too, and while we didn’t make any large tax moves this year, I’m concerned we’ll be into the marriage penalty regime of the tax code and we’ll end up owing as opposed to getting anything back, even filing single and zero deductions. It’s another one of those facets of a progressive tax system that fosters traditional marital roles of a stay at home parent and a single earner. I certainly can’t count on a windfall here.

Goals I’m trying to avoid: Robbing Peter to pay Paul

I’ve been tempted to raid my www.scottrade.com brokerage account for some extra money. That said, with the market going down, the market may be opening for a buying opportunity for the couple hundred dollars I have in there (thanks to Berkshire Hathaway buying up my power company stock; screw you Warren Buffet). That said, my next acquisition target was Microsoft and when the rest of the market was falling Friday, they were rallying. Further, I’m hesitant to take money out of my portfolio. It’s so hard to get it INTO my portfolio. Further, in the 14 years that account has been open, I haven’t taken money out of it. I’ve lost A LOT of money chasing fads and timing the market wrong, but I haven’t raided it for cash.

I am counting the months to being able to cut the cord. That money would fill most of our budget gap, even with replacing it with Hulu. Mrs. PirateCents isn’t whole-heartedly on board; she’d prefer we just got a better service at a slightly lower price, like through DirectTV. We’re still in discussion on this and have 5 more month before we can make the decision.

Foreseeable new challenges:

Our recycling company just went bankrupt (not something that happens up north, but in the deep south, recycling doesn’t receive the same kind of priority). We’re going to have to apply to be reimbursed for the money we pre-paid for a year of service and put down a new deposit for a new (non-locally owned and operated) recycling service. That’s not showing up in January’s budget, thankfully, but it’ll have a detrimental effect in February.

Down into the details for January:

With regards to a quick snapshot on the budget, we’re not doing too bad. Our Incidentals (‘catch all’) budget was exceeded this month between birthday gifts for a cousin of my wife’s, haircuts and an eye exam that I needed for work. We opted for no vision insurance this year to save money (no one was due for new glasses), and it turns out I need prescription inserts for my respirator in order to do my job. The company will provide the inserts, but they needed an up to date prescription, so off to the eye doctor I went.

Sirius Satellite radio went up in price again. That’s twice in the last 12 months, from $47.73 to $48.90 and finally $50.59. Not a huge increase, but definitely irritating since it busts that budget, ever so slightly. In mint.com, a busted budget shows up as a red line.

The household/grocery budget, as noted earlier, is heavily stressed. We haven’t exceeded the budget today, but we’re trending way over budget. I’ve asked Mrs. PirateCents to be cognizant when she does the shopping today, but she’s going to shop for feeding the family healthy, and I know that’s where her focus is. There is extremely little competition in our area for healthy food, so price comparing is going to be minimal. Due to the inclement weather over Friday night, there was no point even trying to go to the farmer’s market Saturday morning (not that we usually save any money going there).

I have tried shopping around to improve my food consumption costs somewhat. After a hard work-out, I was doing premade shakes for my recovery drinks. After consulting with the dietician at my place of employment, I selected a powder to make my own. It’ll cut that cost in about half, saving $20/month. We already buy greek yogurt in bulk to try and save there, but we are still buying single servings with fruit on the bottom. We may have to move to either making our own (has anyone tried that) or getting tubs and doing single serving. I’m really dependent upon the convenience factor of what we’re doing right now, but I’m just unable to comprehend how the food budget just ‘goes.’

On the good side, we didn’t eat out much this month (although we just did one family dinner at a steak and fish place, and despite no alcohol and just drinking water, the tab was over $100), we appear to be coming in under budget on entertainment (no date nights in January, but we did take PirateCents Junior to his first movie).

We put down our deposit for the Cruise in September this month. That had a detrimental effect on the budget, as we had just over $400 set aside so far, and the deposit was over $700. I’m still trying to convince Mrs. PirateCents that driving there makes more sense because flying there will SIGNIFICANTLY increase the cost that I’m already struggling with. It’s not as easy as it was when we were kids though, because PirateCents junior has to sleep sitting up in the back seat car-seat, as opposed to when I was a kid and just slept across the back seats laying down.

2014, a year of challenges

All in All, 2014 is turning out to be a struggle to close the gaps, and we’re always talking about additional expenses that are coming up that I’m struggling with figuring out how to pay for. Here’s hoping that they hold off until 2015!

Any new ideas of places I can find “found monies” or budget savings or ways to make money on the side? Looking for fast ideas, since time will be an extreme premium in February and March.

Budget Update January 17th, 2014

January 17, 2014

The slow drip of money going down the train from an unbalanced budget is both annoying and critically important to address.

It’s my Friday off and like all Friday’s off, the first thing I do is sit down and track to see where the PirateCents family is with our budget(s).

The big news of the week was we received our first paychecks of 2014. It’s also my first real paycheck at a new job and my wife’s first paycheck with the new HSA.

The good, the bad and the ugly of Mr. PirateCent’s paycheck:

The Good: I got paid! Hurray. It is a new high watermark for me for salaried income. That part is very exciting. This last job change was transitioning from a qualified salary plan (where I received straight time overtime pay, with a few exceptions) to a true salary plan (no overtime pay). It’s a move I have been resistant towards for many years because, let’s be honest: How often does an American worker who’s trying to move up in a company, in an industry or in a career ever only work 40 hours/week? Never. Exactly. Still, it was a move I had to make for my career, so here we are.

Also good was that I am immediately able to contribute to the new company’s 401(k) plan! No waiting period. This is huge for me since 401(k) plans form the foundation of the PirateCent’s Family saving plan.

Finally, the amount deposited in our joint checking account for expenses was correct so it fits our budget well.

The Bad: No Roth 401(k) option. This is meaning that yet again, for another year at least, Mr. PirateCents is only going to be able to save with his 401(k) on a pretax basis. While this saves on taxes now, it limits the total amount of gross savings being achieved.

The Ugly: New higher pay means new, higher taxes. With both Mr. and Mrs. PirateCents being professionals and no side business expenses to speak of, both of us set our withholding to single and zero and as often as not owe money at tax time.

The good, the bad and the ugly of Mrs. PirateCents paycheck:

The Good: She got paid! Woot.

The Bad: Taxes have been ravaging her paycheck for the last several months and it’s always painful to watch. Especially since she does have a Roth 401(k) option and maxes it out. Uncle Sam loves my wife.

The Ugly: I did not take into account two things on my wife’s paycheck:

  1. Her company ‘strongly encourages’ her employees to donate to the United Way. When I say “strongly encourages,” it’s a lot better than her last company where it was a factor in her performance review if she donated less than a couple percentage points of her gross income, but it’s still perceived as the ‘should do,’ by the company and it’s still a few percent of her income I did not calculate as coming out of her paycheck.
  2. Her company’s 401(k) provider does not offer fractional contribution amounts, only whole percentages. (clearly they can’t handle 3 significant figures with their powerful computers, despite managing $1.7 trillion dollars. (yes, that’s $1,700,000,000,000 and can’t handle half a percent contribution amounts). Anyway, so my wife was required to round up to the next whole percentage point, which brought the total amount I was off on her paycheck up another 0.5%.

These oversights were further compounded by the fact that the percentages of her gross income withheld were in after tax dollars, so factoring in those taxes, it was even more that I didn’t anticipate missing. And while being off a few percent of your income should not be a really huge deal, that gross was extracted out of our Net, which after taxes, health insurance and 401(k) savings, is significantly less than ½ of our gross to begin with. So it felt like I’d missed by a lot more than it looks like on first blush.

So total hit:

We’re going to be short $151/month. I have a few options to make this up:

  1. We can make more money. It can’t be at our jobs because we’re both salary.
  2. Survive off our savings until we (hopefully) get some raises this year (I may not see one, but I expect Mrs. PirateCents will get at least a small raise) and then hope that money coming in is enough to close the gap. Hoping and praying will not close our gap in the next few months, however.
  3. I can save less toward our miscellaneous expenses like our Charitable donation and car maintenance, but I think this is a bad idea since I’ve already raided this money for a potential company stock purchase program and we’re committed to our charitable causes.
  4. We could get part time side jobs. I don’t see this likely working since we’re already putting in way too many hours at work and the gym and if we spend one second less with PirateCents Junior, I may have to quit my job in disgust.
  5. We could sell stuff around the house. Trick is, we have been living fairly frugally for the last few years and there’s very little accumulated ‘stuff,’ to sell. I have a few DVDs I could part with and there’s an end table we’re trying to sell (best offer so far has been $10), but no where near enough to make up the $151/month downfall. I was already sort of planning on doing this to raise money for fun things.
  6. We can cut budgets. This was my first instinct. The first step was easy: Mrs. PirateCents agreed that we should change our Gym contract from month to month to a 1 year contract for each to get the discount. We’ve been going now for six months (I had to take some time off because of surgery, but haven’t missed any time beyond that), so making the commitment for the next year was a pretty easy choice. Our goals are not short-term health improvement, but long term lifestyle improvement. This freed up $59/month! That brings our shortfall to a slightly more manageable $92/month.
    Cutting any of the other budgets is a work in progress and requires more and longer discussions with Mrs. PirateCents. We’re under contract with the cable company, so that’s not changing right now, and even when we finish the contract, Mrs. PirateCents is unconvinced we can do without it. The other budget line items could be an even bigger struggle.
  7. Monetize this website. I haven’t tried yet, and while I have thought about it, I’ve planned on it either becoming a source of ultra-risky investment capital or maybe the fun money I’m always desperately short on.

What would you do?

I don’t know what to do. What do you think we ought to do? How would you close a stubborn whole in your monthly family budget? The goals are to not allow my wife to get “budget fatigue” which invariably induces spending. It needs to be as painless as possible.


How to plan for Social Security in the Future

January 12, 2014

All those dollars….

Social Security is not bringing in enough money to remain solvent in the long term. Worse, with the job picture not improving significantly the last few years (despite job ‘growth’ the last few years, there have been several months, December 2013 included, where job ‘growth’ didn’t even keep up with the rate of population turning 18, so there’s a growing job ‘gap.’ The only reasons why the job picture appears to be improving are people giving up looking for work, reflected in labor participation rates for sub-60 year olds plummeting, and individuals retiring and taking social security, which means fewer people paying into social security while more people receiving benefits). You need to be prepared for the future!

Let’s take a quick look at their proposals to help fix it: http://www.ssa.gov/oact/solvency/provisions/index.html

  1. A.   Cost of Living Adjustment formula changes. (COLA changes)

This one features prominently in my own retirement calculator. I assume that COLA -1% will go in because it’s really a very minor change and “kicks the can” down the road about 10 years, which let’s be honest, is about all the political climate allows.

The chained COLA receives a lot of press, but it doesn’t really save enough money to be considered a significant change and I’d not make any assumptions about it. If you prepare for the COLA -1%, you’ll be covered for this and will be better off financially if this option is taken (at least until SS trust fund runs out).

  1. B.   PIA changes: None of these options make a significant impact upon SS’s Long Term solvency so I’m going to ignore how these impact your retirement planning.
  2. C.    Retirement Age:

There are two interesting changes here that could affect how you plan. The first one, the scary one, is c2.1, increasing the minimum age of benefits. I read somewhere recently that upwards of half of all individuals take social security benefits as soon as they can, so increasing this age could affect upwards of half of all Americans. Further, with companies being more and more likely to eliminate older workers from their workforce, and long term unemployment being a fact that the 60+ crowd is having to deal with, this change may mean you’ll need a much more robust emergency fund as you approach your 60’s.

Emergency funds function two ways for those in or approaching retirement: They shelter you from unemployment (most adults plan to work at least part time in retirement) and also shelter you from having to withdraw money from your retirement portfolio when the markets are down. I’ve seen a few different places that retirees or near retirees will want to have a year or more of expenses in cash (or near cash equivalents) to ride out these bumps.

If the change to minimum retirement age were to go through, which provided people currently aged 62, 63 and 64 with a fall back if they lost a job, now you may need 2 years equivalent of retirement savings to make it through the long term retirement that many near retirees face. The would probably not require you to make too many changes to your retirement savings plan right now as I believe most readers are planning on working into their 60’s already. As you approached retirement, you’d more actively move a portion of your savings to cash early.

The second one is c2.5, which adds to the mix that normal retirement age (NRA) could be pushed back to 70. For our youngest readers, this is pointed squarely at you. I imagine that many individuals count social security payments at NRA because those are the values that Social Security makes available to you for planning purposes. Finding out you wouldn’t receive that level of payout until 70 instead of 67 could force you to either delay retirement until 70 where you would be receiving your Social security, or force you to save the difference. Adjusting to either of these changes could be difficult, because do you WANT to work 3 more years? I doubt it. However, those 3 years worth of social security are nothing to sneeze at, arguably worth another entire year’s worth of salary being saved. If you’re under age 40, that might mean saving an extra 1 – 2%/year to prepare for it.

  1. D.   Benefits to family members: It doesn’t significantly impact long term viability of the social security trust fund and I doubt anyone’s planning on being in the situation it describes, so we’ll skip it.
  2. E.    Payroll Tax Changes:

This is a scary one for many folks, myself included. An extra 3% tax, even if it’s ostensibly ‘shared’ between my employer, and me is still 3% compensation I’m not going to see. With average American’s not seeing a 3% payroll adjustment in any of the last few years, this could put a significant crimp in your pay for a few years. That said, new taxes give politicians a severe case of “never getting elected again” blues, so I doubt it’ll change in 2014. Even with a lame duck president, it’ll still be difficult for career congressmen to survive the “you raised taxes on middle class Americans” chant during the following election cycle.

The step change is interesting, but again, saying you’re going to raises taxes on all Americans by 6%, even if it’s 40 years down the road, will be a tough sell. That said, it does kick the can down the road a fair ways and that way means it’s conceivable to be passed. That said, how do you prepare for it? What adjustments do you make? None that I can tell, other than to assume social security will still be around.

The most conceivable one I see happening is E2.3, which eliminates the limits on income for social security, where social security goes from being a sort of insurance against old age to becoming an income redistribution scheme where individuals of high income explicitly pay for lower income individual’s benefits. This will be a fairly easy sell to voters because the vast majority of cost will fall on high income individuals. Right now, Bill Gates pays in as much to social security as his engineers, despite earning many millions of dollars/year just in dividends. That would change to where he’d pay millions of dollars into social security. The upper middle class would feel the hit as well, but it would still be a much easier sell than actually raising the nominal value of the taxes. E2.5 would let the politicians save face by saying they didn’t raise taxes on middle class Americans and would still plug the hole almost as effectively. Adjusting your retirement strategy to this scenario is just to assume social security will be there, paying its benefit in full. Not much else you can do.

  1. F.    Coverage of Employment/Earnings:

This is a clever move. It basically allows the government to say they are “closing loopholes” in the system to squeeze more money out. For example, right now, employer supplied health insurance costs are exempt from Social Security taxation, and these can provide (easily) 20% or more of the compensation of middle class American families. With these costs added to the way compensation is calculated, then many more middle income Americans would count as upper-middle class in compensation. Say a family of 4 receives $12,000 in Employer health insurance compensation, while earning $40,000/yr in salary. Under the current system, that $12,000 is exempt from SS taxes. In this revision, the employer (or the employer and employee together) would need to cough up an extra $1,488/yr. This is quite literally a tax on the middle class (with no impact on high income individuals), so I see no chance of it passing.

None of the other plans benefit social security, so we’re just going to ignore them.

  1. G.   Investment in Marketable Securities:

This is a difficult topic to really feel what impact it’ll have. Right now, all of your social security dollars are invested in treasury bonds which pay crap in interest. That said, it provides a significant portion of the demand for treasury bonds, keeps their prices high and treasury bond rates relatively low, thus also helping to keep mortgage rates low, car note rates low, etc. Changing this so that they’re shifting $1,000,000,000,000 (1 trillion dollars, or around 40% of the social security trust fund) to equity markets could have a destabilizing effect on treasury rates.

Further, 1 trillion dollars flooding into equities could have a disruptive impact on equities. Norway’s sovereign wealth fund invests in marketable securities, bonds and (to a lesser extent) real estate, and it’s been speculated that that huge pool of cash has disruptive effects when it comes to town looking for investments. Imagine the announcement that Social Security was going to buy a trillion dollars of S&P 500 index fund: Everyone and his cousin would buy up as much stock as they could, wait until social security bought up its amount at exaggerated prices, just to have everyone else sell a portion, take profits and let social security functionally ‘pay’ for wall street traders getting rich.

In theory, after that initial loss of value (I’d venture to say 20% or more of the invested money would be lost within a few months), the markets would probably work normally again and the return on capital would be much better than what treasuries are now paying. That said, even the Social Security Trustees don’t believe the markets will return much more than 6% at best and it won’t really help the the long term financial situation of the trust fund.

So, how would I recommend preparing for this option? Do nothing right now, but if you hear that this does happen, leverage up, buy as much stock as you possibly can, and then sell half of your positions after the trust fund is fully invested, taking your profits. Those gains ought to help cover you for the social security shortfall after the trust fund is depleted.

  1. H.   Taxation of Benefits

This looks believable that social security benefits are treated like ordinary income. It would function as a tax on people with lots of savings or who continue to work in retirement. I’d assume it happens, but it shouldn’t significantly impact your retirement picture if social security represents less than half of your retirement picture. It may be worth revisiting if they do make this change to calculate out what the impact is on you personally; it may mean you need to save more, or move more of your retirement savings into categories that are not taxed as ordinary income (Roth accounts or Municipal bonds).

  1. I.     Individual accounts:

The social security trust fund is largely sustained as an insurance plan against old age by redistributing money from folks who die young to folks who do not die young. Having individual accounts would potentially eliminate that. Also, if the individual accounts allow investment in the equity markets, you end up with the downsides captured above in G again.

  1. J.     Do nothing:

If our government spends the next 20 years doing nothing (not precedent setting after the last few years and their inability to deal with social security or deficit spending or the debt ceiling), then you can expect social security to pay out ¾ of the benefit it does now. That said, if the trust fund did go belly up, I can’t imagine congress allowing the spending cuts to happen. I believe they’d have the general fund make up the difference to avoid having 50 million angry retirees voting for other congressmen who promised to restore their benefits.

In conclusion:

Do you see any of the above scenarios directing you to save more because social security won’t be there? No. I honestly believe Social Security will be there in some form for all Americans because the largest voting block in the USA are retirees and politicians will cater to that group at all times.

The most likely changes are removing income caps on taxation (suggestion E, above) and changing the way cost of living increases are calculated (A, above). The first one would leave you anticipating 100% of your currently predicted social security benefit and the second would leave you most of it.

Medicare, on the other hand, is a wickedly complicated beast that I don’t know what they’re going to do about it or how you can best prepare for that can of worms to be fixed.


Disclaimer: I do not have a crystal ball and may not be able to guess the future of this cornerstone government program. That said, these make sense in my own mind.

Beginning of the year (2014) investment moves

January 8, 2014

Screen Shot 2014-01-08 at 8.19.28 PM

Catch-up on the last two years:

The last two years, my wife and I have been on a crusade to get ‘caught up,’ on our retirement investments. As we were already maxing out our 401(k)s, that meant that we’d have to maximize our Roth IRA contributions. (Previously, I was funding our Roth IRA’s at the last minute, if at all)


To this end, starting in 2012, we would make as many contributions as we were legally allowed. In March 2012, we made a 2011 IRA contribution. In December 2012, we made the 2012 Contribution. In July 2013, we made the 2013 contribution, and this last Friday, January 2014, we made our 2014 contribution.

That meant that we contributed to four separate years in the span of less than two calendar years!

In addition to this, I rolled over an old 401(k) into my Roth IRA in 2012. I do not recommend this to anyone who’s not prepared for the repercussions on their taxes. The $48,000 rollover put us deeply in the red come tax time (spring 2013). The nice thing was, I was able to elect to pay the taxes at tax time on the rollover and maintain the nominal value of the 401(k), functionally increasing the actual value by never having to pay taxes on the nominal value again!

How on earth did we afford that?

Between the condensed contributions and the rollover, we were able to make our goal to catch up on our retirement savings. For those wondering how we could finance it, we sold the home we were living in and moved into a new home and made a (much) smaller down payment on a new home. The difference was set aside for the retirement accounts. Some may not think it was a good risk to take, but it worked out for us. The money we’re having to pay in interest on the extra mortgage principle plus the private mortgage insurance is less than 4% per year, where as the market returned over 20% last year. Add in the fact that most of that interest is tax deductible and the Roth IRA value will grow untaxed until retirement and then be withdrawn without owing any taxes, it was the most efficient use of that money we could have made.

The boring part of my portfolio:

As to the investments, the portfolio was previously all Vanguard’s S&P 500 index fund (VFINX) and Fidelity’s Select Medical Equipment and Systems Portfolio (FSMEX). With relatively little money, the index fund was the bulk and the medical equipment was supposed to be my ‘aggressive’ investment with high (0.83%) expense ratio but also really high returns.

Dividend Aristocrats

As I’ve detailed previously, I’ve since changed my investing strategy here to Dividend Aristocrats. I couldn’t force myself to do away with the old trusty investments, so I kept those mutual funds and loaded up on AT&T ($T), Ford ($F), Proctor & Gamble ($PG), Stanley Black & Decker ($SWK), Johnson & Johnson ($JNJ), Dover ($DOV), Exxon Mobil ($XOM) and Air Products ($APD).

Each of these companies represent a different sector. I do not hold financials because I have a bit of a moral problem with holding financial stocks. I also don’t hold any tech because I haven’t been able to afford picking up Sysco ($SYY) yet. Other sectors will be diversified into as money allows.

Yes, I know Ford isn’t a Dividend Aristocrat, but I’m a big Ford guy and their 2.57% dividend yield is sufficient to make it. Further, when I was buying in July 2012, Ford was less than $9/share and anyone who’d been to a dealership lot in a while could tell which way it was going to go.

Short Term Investment Strategy

In the short term, I’ve been buying 100 shares at a time of each of these stocks (with the exception of Ford, which I’ve purchased 300 shares of).

As I’ve detailed before, I’ve been taking advantage of the Flexible Reinvestment offered through @Scottrade, which has allowed me to direct new dividends for the last few months to AT&T, the lowest value of my holdings. The goal is to allow that to continue until the value of my AT&T holdings eclipses the value of the next dividend aristocrat, at which point I’ll drive the money into that one, balancing exposure to certain industries.

Long Term Plan

The next step, once I get substantially more money in, will be to begin playing the options game. Essentially, it would be great to have multiple hundred units of each stock so that as one stock goes on a crazy good tear, the covered option would call, and that money would become available to sink into one or more of my laggards, balancing the value across sectors. While I wait for those calls to happen, I’d be earning value off of having those Options out there, increasing the overall income earned from these dividend payers. Not a bad deal, huh?

An Example:

Air Products Performance over the last 12 months has been 'good'

Air Products Performance over the last 12 months has been ‘good’

How I envision it would work would be, say, I had 500 shares of APD, who had a good year, and increased from the mid $80s to over $110/share in the last few months. Assuming I had an option on 100 shares, that would have exercised, and my holdings with Air products would have gone from $42,500 (500 shares @ $85) to $55,000 (500 shares @ $110), to $44,000 (400 shares @ $110). The difference, roughly $12,500, would have been invested in laggards, like AT&T and/or JNJ, which over the same period of time performed, shall we say, ‘not so well.’

JNJ's performance leaves a little something to be desired in 2013.

JNJ’s performance leaves a little something to be desired in 2013.

I don’t have anything like that kind of money in my portfolio yet, but it’s what I’m working toward. I have one more old 401(k) to roll over to this Roth IRA, but won’t be able to afford the tax hit for a while, so it will sit where it is while I make my big plans.

Are you a fan of Dividend Investing? How do you balance your portfolio?

Budgeting through Diet & Exercise

January 5, 2014

Tighten your belt in more than one way

More New Year’s Resolutions

It’s the beginning of the year and the importance of weight loss is on everyone’s mind. There’s another whole group of people (with some overlap, no doubt) who are focused on getting their financial houses in order. I’m going to argue that these two groups are the same in the long run: Good financial health requires good physical health.

My Family

I have had several wake-up calls on my health of late. My father has a few cardiac events (thankfully minor) in the last few months which has underlined a fact in my family for two generations: The men of my family die young. Like mid-50’s young. Both sides of my family too (although on my mother’s side, he made it 62. Whoopdy do). What have they died of? Alcohol, food, cigarettes, and not getting enough exercise. They’ve died of lifestyle choices.

For a big retirement planning/financial buff like myself, it’s particularly disheartening because of their situations: One grandfather was well on his way to having an extremely comfortable retirement with a fat retirement account, paid off home and his retirement hobby already lined out: 3 sailboats and a work-shop to maintain them. He died before he got to enjoy a dime of his retirement accounts and never even put his newest sailboat in the water.

My other grandfather had just retired from General Electric with a pension which guaranteed a comfortable lifestyle for the rest of his days. A pension which neither my wife or I can even dream of finding today. He was briefly retired, but I don’t think he’d drawn a single check from Social Security yet, meaning he’d paid in all those years to see not a dime of benefit.

My father doesn’t have a red cent saved for retirement, and his plan is to work until he dies. With the condition his health is in, that seems like a prescient or perhaps just a self-fulfilling prophecy. That said, it sort of eliminates any chance to spend time with his grand kids, or enjoy his ‘golden years,’ or to have time to explore his hobbies he always says “when I have more time for…”

How it hit home tonight

Tonight I tried to put on some fire-resistant clothing as is required for my job. The 34” waist was too small. My wife assures me that the size must be running small, but that got me thinking: Jeans (which I know I’m a 34” waist in. I checked again tonight, thinking I’d gone mad) shrink when washed. They don’t necessarily shrink a whole lot. Who wants to speculate that jeans manufacturers ‘fudge’ the material on the jeans to give them some room to shrink? What’s to stop the manufacturers from fudging a little bit ‘more’ to make their jeans be just a bit more comfortable than the competitors? The FRC I was trying on doesn’t shrink. It is what size it is. I haven’t measured the jeans to see what the actual waist is, but I’m guessing it’ll be pretty darn close to 34”. And it’s too small. I’m a 36” waist in this clothing. The same size my father was at my age.

What am I going to do about it?

I’m working right now, tomorrow, the next day and for the rest of this year to try and get my health where it’s never been: Thoroughly fit. I’ve been working at it half-heartedly for years, but I think I’m really in a position to do it right, to know how to do it and I absolutely have the motivation to do it.

The great thing about this plan is, it should help me save money and help me improve my budget situation both in the short term (with the diet) and in the long term (with the exercise and diet together).

How can a diet help me save money?

When talking about diets, people are usually talking about cutting out the things that are unnecessary to survival that we all eat every day: The free donuts/brownies/other junk in the kitchen at work that people bring to give away; Candy which is offered basically everywhere, including the little bowl at the dentist’s office; beer and other alcohol; snacks* and treats; carbonated and/or sweetened beverages; deserts; etc. For many folks, myself included, just cutting out these unnecessary items will be enough to lose weight, (albeit very slowly). Equally important is the money saved on the grocery shopping. While most junk snacks are cheap, they still cost money that don’t improve your health at all.

How about Exercise?

Exercise is a beast of a different color. Proper exercise can require some moderate spending (proper shorts so you don’t chafe yourself to death, proper running shoes to save your joints, etc) to do properly, and can also increase your appetite, and thus your spending on food.  Exercise is all about discipline, and limiting your increased food intake to a minimum will help you lose weight (albeit slowly, again, but additive with cutting out junk). Finall, getting the motivation to exercise is a colossal problem for most folks (myself included). One thing I’ve found is that working out with a group helps immensely, but that means a gym membership and again, most cost.

Exercise will give you some benefits that dieting won’t, however. Exercise can improve your health more thoroughly than dieting alone. You can be skinny but still have clogged arteries, which will clog suddenly for a heart attack or stroke. You could have pain from your joints and bones having to hold up your weight each day, as opposed to your muscles (think of the difference between sitting up straight, where your muscles are supporting your weight, vs. slouching, where your bones and joints are doing all the work).

Exercise alone will not do the trick. For the long haul, the more weight you carry, the harder your body has to work to take care of it, to move it. While young, you can get away with carrying extra weight, whether it’s muscle or fat (think athletes), but eventually, it becomes a lot to maintain and it’s easier and more sustainable to reach ‘healthy’ weight. How often have we seen former sports players who will be happy to regale you with their glory days while they pop blood pressure pills and lug around their 260 lb bodies?

And in the long term

As we age, our bodies will invariably break down. We’ll be injured; our organs will function less well; our joints will wear out. Most will end up on medicines which relieve our discomforts and/or help regulate or make-up for what our body no longer does well.

That said, how quickly and how many of these medicines we end up having to take is partly in our control. The lifestyle illnesses I’ve alluded to above include, but are not limited to: high blood pressure, diabetes, emphysema, amongst others. This is not to say that there are not folks who have these unavoidably, no matter their diet and exercise routines, but the huge swelling of the numbers of people with these conditions seems to imply that most people have them as a result of poor choices and not poor genetics.

Go into an older person’s house, especially an individual who’s been retired a few years, and ask to watch them do their morning pill routine. Then ask them how much those cost. If they know, how much do those cost without insurance. The costs will blow your mind. In addition, a number of those are proscribed by specialists, which require visiting those specialists regularly (read also: additional cost). Even without seeing specialists, on average, a doctor is hesitant to proscribe one new medication to you with each visit, due to risks of side effects (with multiple new prescriptions, how can you tell which one is causing you to break out in hives?), thus each prescription represents at least one visit to the doctor (again, think of the cost).

If an individual misses a dose or takes a double dose, the effects upon the body can be severe. Severe to the point of hospitalization. With a dozen different pills each morning, is it any surprise that I know individuals who’ve put themselves in the hospital with one careless mistake? And it is so terribly expensive any time you step foot in a hospital.

Take care of yourself

If you don’t take care of yourself physically, saving for retirement could very easily become a fool’s errand, as you’ll have lots of money which either gets wasted just keeping you alive, or which you’ll be too unhealthy to utilize doing the things you want to do (like travel) or shoot, you may not even get a chance to spend any of it.

December 2013 Budget Wrap-Up

January 3, 2014

Shining a blinding light on the budget

I’ve hesitated to use numbers because I’m all about anonymity on the internet, but that’s going to be difficult and make these month end reviews mean a bloody thing, so here goes:


Within our budget, we have certain line items we can, in theory, influence:

Gasoline for our vehicles:                                  $600/month

Utilities (Gas, electric, Water/Sewer):                   $300/month

Entertainment (movie rentals, events):                 $100/month

Household Supplies/Groceries (catch-all):             $1,000/month

Restaurants (eating out, fast food, etc):                 $250/month

Incidentals (gifts, clothes, stuff not in above)         $150/month

(wordpress isn’t real strong on tab/alignment, so forgive the formatting above while I’m learning)

What!? Those numbers are insane/too generic/absurd!

These numbers are not arbitrary. The Gasoline was the average we were spending/month in 2011. It was high like that because of our long commutes and road trips to visit family. The household budget, because I use Mint.com, is the 2011 average for all purchases from big box stores, grocery stores and pharmacies. You can imagine the good run from diapers to toiletries to make-up to food. We tried breaking this one up and track the individual items, but it lead to budget fatigue and many of the expenses were irregular in their interval because of buying in bulk to save money.

Incidentally, I honestly believe that the random crap that goes into Incidentals & Household/Groceries are the reasons why most people fail at budgeting. They don’t take into account the absurdly expensive cost of periodic make-up replenishment and fail to prepare for clothing needs or the fact that every single month, SOMEONE in your life has a birthday (and it’s usually more like 2 or 10 in the fall months). Or when starting up a budget, they vow to brown-bag it more, which saves money, it really does, but it also means you need to make more for dinner (or have lunch fixings beyond leftovers) which can quickly bust your grocery budget. It can then lead to leftover-burnout and suddenly you’re eating out at lunch AND throwing away leftovers, doing a double-whammy on your budget.

Ok, So what?

My wife and I have committed to doing better this year on these items. All of them. Some are easier than others, such as the gasoline budget: My wife’s commute was reduced significantly and mine was increased slightly, giving us a net positive, in theory. My wife’s car is more fuel efficient, so it becomes a challenge of me hyper-miling, being more conscious of road conditions and remaining calm.

Some budget line items are particularly stubborn, like the Restaurant budget: This item is the bucket we pull from when we grab something fast for dinner on the way home, or grabbing a bite to eat before a road trip at a fast food joint (the only time we eat there). We also use this budget for dinner on date nights. Dinners out with friends goes against this too, and while thankfully our friends are price conscious like we are, feeding 2 adults and one toddler at any sit down restaurant is going to be a significant chunk of this budget.

How I’m going to beat my budget:

I can’t speak for my wife’s concessions right now, but I’m aiming to drive slower (to save on gasoline); keep the temperature lower in the winter and higher in the summer (to the point where the wife changes the thermostat); Get discount tickets to movies or try and watch a Netflix available B-Movie instead of a first release from RedBox; Quit drinking all alcohol and don’t let any leftovers go to waste (I don’t drink much already and few leftovers go to waste, but this line item is hard from the changes I’ve already made in the previous two years); Avoid suggesting we eat out to save time/energy and instead plan ahead with cheaper alternatives like a prepared meal from the grocery store (still more expensive than making ourselves, but we have to save time in order for the action item to meet the intent of the problem); Shop for clothes strategically (Maybe hit the thrift stores?).

December’s Result:

This last month was December, the bane of all budgets everywhere. We were able to make our goal of beating the above budgets, but just barely: $52 left over. We busted the incidentals (Christmas tree, clothes, Christmas decorations and a company expense). We also busted our grocery budget and restaurants budgets.

The fine print:

There was also some funky accounting which was disappointing that we executed: In order to buy Christmas presents, we vowed to use our cash-back on our credit cards to fund those, which we were able to do, although it made for a much smaller Christmas than we have had in years past. My wife also had some clothing expenses for parties which we decided wouldn’t go against Incidentals because I’d give her one set of boots for Christmas and she’s pay for her dresses out of her allowance/”mad money.”

Still, the sacrifices were made: Smaller Christmas, mad money going toward incidentals (instead of splurging on ourselves), no champagne for New Years, and several other small things. The effort was there and no matter how you slice it, the family budget was net positive.

The point of this blog post:

That was not what I’d expected. I’d expected to write about how December is a hard month for most American Families. You can’t let a month destroy your goal to make budgeting work. If anything, you need to learn from it. Double down your effort. If you had a cash cushion to make up for busting your budget, then put 2013 behind you and focus on doing a better budgeting job in 2014. If you finished Christmas with debt, NOW, today, is the time to budget for getting back into the black.

Welcome New Years Resolutioners!

If your New Year’s resolution is to get your finances under control, congratulations! It’s a great time to do it. Do you know why? Holidays are relatively fewer and further between in the early months (you’ve got Valentine’s day in February) and most of your expenses should be predictable.

That said, don’t throw away your receipts from December. You’ll want to have an idea for this coming year how much the holidays cost your family and plan accordingly. That can mean saving with the goal of having as much (or more, to account for growing families and/or inflation) or it can help spark serious conversations with your loved ones about how you love them more than just how much you gift them material possessions. Either way, you’ll want a plan.