Archive for the 'Frugal Living' Category
The tickets are booked and hotel reservations are made for our trip to Spain. Of course, all this economic turmoil makes me a bit nervous, but the fact that we finally finished saving up for our 6-month Emergency Fund makes me much more comfortable. Not that we feel our jobs are in trouble, but you never know.
We did try several things to minimize costs for our 7-night stay in Spain:
Airfare: Save 50% By Combining Trips
We already committed going to a friend’s wedding on the East Coast, and so as is our habit we looked to see we could “add on” a trip somewhere interesting in that direction. For example, the ticket from West Coast to East Coast was around $350, while tacking on the trip to Spain made the flight cost $750. Effectively, we only had to pay $400 each to fly to Spain - not a bad deal! (Other European countries were $200-$400 more for some reason.)
In addition, we managed to book an open-jaw trip into Madrid and out of Barcelona for the same price. This allows us to spend more time in both cities, and we don’t have to pay to travel back to Madrid for the return flight.
We still have to decide whether to take train or plane from Madrid to Barcelona. The train is more expensive, but might be more fun? Airplane looks to be both slightly faster and cheaper, though.
Hotels: Cashing in Rewards Points
A hostel in Madrid would starts at about $25 per bed per night, for a total of $50 per couple. But after getting married, I had to put the hosteling days behind me. 
It’s okay, I get a better night’s sleep in a hotel. A basic hotel in a decent location with a double/queen bed starts at around €80 = $120 per night. It goes up really quickly from there.
However, I have collected a fair number of the ever-useful Starpoints, mostly from my Starwood American Express card, so I decided to look at what was available. I found the Westin Palace Hotel, first built in 1912 by King Alfonso XIII as a place for his wedding guests to stay (naturally). Rated Spain’s #1 Hotel by Condé Naste magazine, it runs €305 = $450 per night!
However, I could book a room for only 12,000 Starpoints. On top of that, if I booked 4 nights, I got the 5th free. So now I had 5 nights for only 48,000 points total. At the $450 rate, that made each Starpoint worth 4.7 cents. Put another way, my Starwood card was earning me 4.7% cash back. Even at the budget hotel rate of $120 a night, I still was getting 1.25%. Except now I’m sleeping on a Heavenly Bed and staying in a palace!
Barcelona was even more expensive, but we found a simple hotel for €85 = $125 per night.
Pre-Planning
We both hate guided tours, so we usually just plan things out by ourselves with guidebooks and the internet. We like Rick Steves, Rough Guides, and Lonely Planet the best. We usually buy one guidebook that we can highlight and mark up, and also bring along three other ones + a language phrasebook from the library. Of course, we risk losing the books in which case we’d have to replace them, but I think it is worthwhile. This time around, I even checked out some Spanish language CDs. Dos cerveza por fa vor!
Food
Standard procedure is to try and find a grocery store, and stock up on water and local snacks. A few picnics for lunch with regional junk food is always fun and tasty. Ethnic foods can also be a great value. The best tasting falafel I have ever eaten was in Paris and cost €5.
Of course, I don’t want to skimp to much on food. I will be looking forward to consuming large amounts of tapas and house wine at every hole-in-the-wall I can find. I can’t wait to try chocolate con churros! If I generously estimate about $40 a day per person for food, and given that we would pay about $10 a day for food at home, that’s an added cost of about $30 per day.
We briefly considering eating at El Bulli with Ferran Adria, but it only opens from April to September each year. Besides, I don’t think I’d be willing to drop $400 on a single meal, even if it was voted the best restaurant in the world.
Adding this all up - airfare, hotel, and food should cost an estimated $400 + $125 + $210 = $735 per person. Add in remaining transportation and sightseeing, and I think we will still come in under $900 easily. A lot of money still, but hopefully resulting in some lasting memories.
Posted in Frugal Living, Travel | 26 Comments »
CNN Money has recently put up a new profile in their series on Millionaires in the Making. This one about the caught my eye because of they share similarities to us. They are married and under 30, with no kids. A relatively high combined income. Lives in an area with a high cost of living. Saves half of their income. But they have a net worth of over $500,000 already? Maybe I could learn a few things.
Jobs. He is a software engineer. She used to process mortgage loans. But now she bought a retail store selling fancy soaps. Combined income is $174k, but they don’t break it down. Their balance sheet lists the store being worth $125,000 with a $72,000 business loan. It is also unknown what this store value is based on - a multiple of net annual earnings?
From what I know about such shops, they are really hard to make successful, but can be very lucrative if you are. With the current economic downturn, I don’t know if I’d be selling $10 soap. All in all, too risky for me.
Housing. They rent a house from his parents for $650. I know for a fact this is at least 50% below market rent, probably much more. Smart move for them, but hard to replicate for the average person.
Real Estate Invesments. They made $110,000 from buying and selling a condo during the boom years. I cannot necessarily attribute this to skill, and I certainly can’t duplicate it. They then went out and bought three rental properties in Arizona and Texas, which have current negative cashflow of $750/month. Their balance sheet says they have $40k in home equity, but you have to wonder how realistic those values are. Previously, one rental sat empty for 9 months. Not mentioned is their mortgage situation; are these adjustable-rate or fixed?
Overall, I’d say they have only broke even in this department. I wouldn’t want those properties.
Stock Investments. $88,000 (37% of portfolio) is in Microsoft stock. Even if purchased at a discount as a fringe benefit, many ESPP participants sell as soon as possible to grab the profit. Rest of portfolio is 99% stocks, though not much other detail. Lots of risk here, much of which is connected with his job as well. MSFT performance has not been impressive. Hmm, not much learned here either.
Spending and Priorities. According to the graphic, their non-housing expenses are about $17,500 per year. This is right at about our spending levels, which is $18,000 per year.
The article then goes into how they never travel and rarely eat out (and split meals when they do). However, she also wears a $20,000 engagement ring, and they own 4 cars including a $30,000 Subaru WRX. Although not what I would do, who cares if that’s what truly makes them happiest. I wouldn’t call them misers. They tithe to their church and still control spending, which is respectable.
Recap
This couple is doing the “big stuff” very well. They make a lot of money, and only spend about half of it. Multiply this by many years and you get a fat net worth. But other than that, I can’t really say I want to emulate them. They have a lot of risk in a boutique shop, cashflow-negative rental properties, single-stock investments. None of these created their high net worth, in fact they might have even detracted from it.
But we do share the same goals of early retirement, so I wish them luck. They might need it!
Posted in Career, Frugal Living, Investing, Real Estate | 39 Comments »
Now that we have a home that we plan to stay in for a while, we are considering buying a chest freezer to place in the garage. Growing up, a lot of my friends with larger families had either a chest freezer or a second refrigerator in the house, and I’d rather not have another appliance inside the house. Also, I love the convenience of frozen foods and our current freezer is always packed. Is the worth the investment? Here is a quick cost/benefit analysis:
Costs
There is the obvious upfront cost of the freezer, monthly electricity costs to run it, hopefully minimal maintenance costs, and I suppose we’ll lose the space in the garage. Here is the rough breakdown for various sizes of chest freezers (Energy Star rated, name brand):
7 ft3: $210 + $25/year in electricity. Assuming 10-year life, that’s $3.83/month. For a 20-year life, that’s $2.96/month.
15 ft3: $410 + ~$38/year in electricity. 10-year life: $6.58/month. 20-year life: $4.88/month.
25 ft3: $710 + ~$52/year in electricity. 10-year life: $10.25/month. 20-year life: $7.29/month.
Potential Benefits
Less Eating Out
To be honest, I really just want to stock up on a large variety of frozen foods so that there is less of the daily question… “What am I going to cook for dinner?”. Too often, the answer ends up as “let’s get take-out”. I want staples like frozen chicken breasts and veggies, as well as having a few Trader Joe’s pizzas and burritos tucked away.
Ability To Stock Up During Sales
If there is a sale on something like frozen vegetables, now I can buy in bulk instead of waiting around for the next sales cycle. You can also freeze everything from bread to milk.
Storing Fresh Fruit
You can do some fun (and cheap) U-Pick at local farms during the summer and not have to eat it all at once. Blueberries, strawberries, peaches, yum. Home gardeners can do the same.
Less Shopping = Less Driving = Less Gas
I try to grocery shop in conjunction with commuting or other errands, but living in suburbia has still definitely increased my fuel usage.
Buying Half A Cow
Although I’ve never done so, it might be cool to buy a whole cow. I guess I’d need one of the bigger freezers for such an undertaking.
Cooking In Bulk
I have tried a few times to cook an entire week’s food ahead of time, but I’d often run out of freezer space. Also, this way one can make their own soups or stocks in large batches. My mom always used to freeze her homemade chicken stock into “pucks” using old margarine tubs.
In addition, there are also the make-your-own-takeout places like Dream Dinners and Super Suppers, which I have never tried before because I never had that kind of freezer space.
I would imagine that I should be able to make up the $5-$10 a month in costs, especially if I can cut down on the dining out. Everyone I know with a chest freezer likes it. Anyone out there disagree?
Posted in Frugal Living | 60 Comments »
As a successful early retiree points out, sometimes it may not be simply money keeping you from accomplishing your dreams:
Retirement forces you to stop thinking that it is your job that holds you back. For most people the depressing truth is that they aren’t that organized, disciplined, or motivated.
Many people have a list of 101 Things To Do Before I Die, also more recently known as a Bucket List. Much of my list includes travel, but I wanted to narrow it down to things that I could work on over weekends and cost less than $500. I should be able to accomplish these things without achieving financial independence.
Get Certified to Scuba Dive: $300
My sister recently got certified to scuba dive. The cost was between $300 and $400. This includes classroom materials (book/DVD), equipment rental, two pool sessions, and two ocean dives. You must supply your mask, snorkel, fins, and boots. Now, the trip to the Great Barrier Reef is gonna cost me…
Skydiving: $200
There is usually a skydiving place near most metro areas, although for obvious reasons it tends to be a drive. It costs around $200 for a single tandem-jump, and an additional $100 for a video of the jump (another person has to jump and film you). You pretty much just show up, watch a short video, and go for it. I’ve actually done this one already (photo credit, not me). I must say, if you are so inclined, it is quite a memorable experience. Remembering the feeling makes me want to do the rest of these items!
Fly an Airplane: $75+
Chances are you have a non-commercial airfield near you as well. Just look up “flying lessons + your city”, and many places will offer an introductory lesson for $50 to $100. During the lesson, the pilot will let you “fly” the airplane for a bit. Of course, if you have a pilot friend, they could take you up as well for free. My wife got to do this recently, it sounded awesome.
Learn a Foreign Language: Free to $$$
I would imagine the cheapest way to learn a language would probably be to check out some language books and tapes from your local library. After that, you’ll need to find some native speakers to practice conversing with and correct your pronunciation. I remember while in college you could setup lunches with international students. You have lunch together, and might spend 30 minutes speaking Spanish only, and then 30 minutes speaking English with them. For more money, you can always get a more refined computer-based course or go to an official language school.
Finish a Marathon: Free to $$$
The idea of running a marathon has always been appealing to me due to the sheer simplicity and purity of the accomplishment. There are many free online resources on how to train for your first marathon. I have tried none of them. 
The time needed to train would vary widely based on your current abilities. I bet I’d need at least 6 months. As for costs, I’ve been told to eventually buy a proper pair of running shoes, which you only use for running.
Posted in Frugal Living, Retirement | 29 Comments »
There was some interest how to keep food costs down, so here’s another brown bag lunch idea that I use. Previously I did my Simple Custom Sandwich Edition, which probably could have been cheaper but I tried to price things at retail.
This time it’s Simple Chinese Chicken Salad, a recipe stolen from my sister. Prices are still from retail grocery store, frugal shoppers should be able to beat these prices easily. Salads from lunch joints are really expensive for some reason, at least $6.
Ingredients and Costs
$0.53 for 1/3 head of romaine at $1.60/head
$0.83 for 1/3 lb of frozen chicken breast at $2.50/lb
$0.40 for 1/3 can of mandarin oranges at $1.19/can
$0.10 for handful of crunchy noodles at $1.29/can
$0.35 for sesame ginger salad dressing at $3.50/bottle
———————-
$2.11 total for each salad
* Optional: Chopped green onion, or bit of slivered almonds. Minimal additional cost, I chop up an entire green onion and keep it in the freezer to sprinkle on stuff.
** You could probably save more money by making your own salad dressing (sample recipe).
Recipe (if you can even call it that)
- Rinse and cut up lettuce. One head usually makes 3 lunches.
- Cook the chicken however you like (boil, grill, saute) and season with salt and pepper. Rip or chop chicken into small bite-size pieces.
- Drain can or mandarin orange wedges (or unhealthily drink the syrup like I do), separating into 3 portions as well.
- Put all these dry ingredients into reusable plastic container. Keep chow mein noodles separate to preserve crunchiness. Keep salad dressing into smaller container, or keep in fridge at work.
In one session, you have made 3 Chinese chicken salads that cost ~$2 each, ready to eat and bring for lunch or eat as any other meal. You can either spread it across Mon-Wed-Fri, or if you live with a spouse/partner, it’ll be gone in no time. I put a lot of chicken in there, it prevents me from getting hungry too soon. If you need more calories, use larger portions or add some carbs with bread or toasted bagel.
I forgot to add my crunchy noodles when taking pictures this time, but here it is:
Posted in Frugal Living, Recipes | 22 Comments »
I understand that revealing our net worth is not enough to fully explain our entire financial picture. That is by design; I like keeping the picture fuzzy. Blogs are very hard to keep anonymous, and I’ve been doing this since 2004. This is why I continue not to share our respective salaries, occupations, employers, and geographical location. Besides, I am not here to be better than you, or the next dude. Anyone out there could earn more than me, save more than me, or spend less than me. I’m only trying to track our progress, and to consistently try to make our situation a little bit better each day.
But I’ll give in a little bit. I think tracking expenditures is a good idea for everyone, so I might as well share what I have discovered. Besides, I’ve already revealed that our goal for an Emergency Fund is 6 months of expenses, or $30,000. That means my wife and I spend $5,000 a month? How? Here’s the lovely pie chart:
Housing: We spend $3,500 a month housing, 70% of our total monthly expenses. (Note that this is not the same as 70% of income!) This includes principal, interest, taxes, and insurance (PITI). Yes, it is obscenely high. The median price of a home in our area is over $500,000, so don’t go thinking we live in a multi-acre 5,000 square foot estate. At the same time, incomes here are also a lot higher, especially in certain fields. So there is a give and take.
Given that this one area skews the graph so much, I made another graph of all non-housing expenses:
Food: $450/month includes both groceries and dining out. This is where the “fat” is in our spending, and we know it. We love food and do our best to “consciously spend” and enjoy every dollar put into this pleasure. I’m okay with making many simple foods at home, but I still go out when I want to eat freshly baked naan, perfectly seasoned pad thai, authentic pizza, or hand-wrapped tamales.
Insurance: $200/month includes two cars and umbrella liability insurance policies. Our deductibles are $1,000 to keep costs low, but our liability limits are high ($250,000/$500,000) due to the requirements of the umbrella policy.
Utilities: $200/month includes electric, gas, sewer, and water. Gasoline: $200/month. Cable TV + Internet: $80/month. Cell Phones: $75/month for two lines.
Gifts: $100/month. This might be somewhat unique to us, but given our big family events like birthdays, weddings, graduations, usually end up costing us $100 per month.
Other: $200/month usually covers the other smaller categories including clothing, entertainment, and pet expenses.
That ends up with the total being $5,005 per month. $3,500 to housing, $1,505 to everything else. Health insurance is provided by our employers. Non-monthly expenses like home improvement projects, travel, charity, car purchases/depreciation, or medical procedures are not included. Now, if you take this information, combine it with our net worth updates, a motivated person should be able to reverse engineer an approximate income and savings rate. Hopefully that satisfied some curiosity. Now you can proceed to compare with yourself and then judge me accordingly.
Posted in Budgeting, Frugal Living | 69 Comments »
Another more conventional definition of financial freedom is when you have “passive” income that covers your expenses so that you no longer have to work. Usually, this comes from paper investments like stocks, bonds, or annuities. In the book Your Money or Your Life, the authors outline a somewhat unique way to track your progress towards financial independence (FI).
First, you should go out and buy a huge wall-sized piece of graph paper and put it up somewhere you’ll see every day. Create a chart with the horizontal axis being time, and the vertical axis being money. Each month, you should record the following items:
- Your monthly income
- Your total monthly expenses
- Estimated investment income
Here is a sample of what it might look like:
Line 1 - Graphing Your Income Each Month
While many personal finance articles focus on spending less, the book does a good job of reminding us that income matters and we can always do something to increase it. It also tells us that the path towards a happier life and a career you enjoy of also tends to increase your income. The book summarizes this with the following:
“Increase your income by valuing the life energy you invest in your job, exchanging it for the highest pay consistent with your health and integrity.”
Line 2 - Graphing Your Expenses Each Month
Note that we are not making a budget here. A budget often seems to suggest a goal of “I will spend this much”. Instead, here you are first making an assessment of your situation from last month. You then attempt a few (or several) changes, and re-assess again a month later. This continual feedback should ideally help you see what is working and what’s not.
For those dealing with debt, the Expenses line might even be higher than your Income line at first. This should provide a nice incentive to get to the first “crossover point” where you at least earn what you spend. Gradually, we can shave off those lower priority expenditures as we keep seeing that gap between income and expenses grow wider and wider.
Line 3 - Graphing Your Expected Income From Investments
Here, the simple formula given for finding the income you can derive from your investments is this:
savings x interest rate / 12 = monthly investment income
The suggested investment here is to use is that of the 30-year U.S. Treasury Bond, currently yielding somewhere around 4.5%. This means if you bought $100,000 of these bonds with your savings, you would earn $375 reliably every month for 30 years without risking your principal. Other people might use dividend payments from stocks, or use a historically-safe withdrawal rate.
Either way, the big goal is to make this third line meet up with the expenses line. As time goes on this line will hopefully curve up exponentially, providing inspiration to reach this “crossover point”. The idea of working for only a finite period of time can be very motivating.
Given that this book was written in 1992, I am going to guess that doing this using a spreadsheet program like Excel is also acceptable. While a physical chart may work better for some people and provide a more constant and tangible reminder, I think perhaps making the chart your Desktop wallpaper might serve a similar purpose. (Or you could create blog about it…)
This is a pretty cool idea. Perhaps I should stop tracking net worth and simply do this? For us, as mentioned before, once our mortgage is paid off the expense line should drop dramatically. Separating out the non-housing expenses into a separate line might help me focus better.
Posted in Frugal Living, Goals, Retirement | 33 Comments »
If you’re looking to reduce expenses, why not start with your most expensive category - usually housing. While it can be a lifestyle change, one of the most effective ways to save money is to share a household with others, as it also can reduce your costs in other areas like utilities. In this article The “N” Factor and Retirement Planning, columnist Scott Burns focuses on the financial impact of having kids but also shares a interesting way to estimate how the size of a household affects how much it spends overall:
Here’s the algorithm: The cost of living for a household is the square root of the number of people in the household. So if you are single, your cost of living is the square root of 1 or… 1.
But if you are recently married, your cost of living is the square root of 2, or 1.414. Yes, two can’t live for the price of one. But they can live for only 42 percent more than the price of one. Economists call this “economies of shared living.”
Expanding on this, if you have 3 people then the √3 is 1.73 (73% increase over a single person). But if we are talking about adults and not kids, then it is probably more helpful to simply focus on the effect of each person’s share.
Example
If you’re single and live by yourself, your total cost of living may be $2,000 per month. This includes things like food, transportation, and utilities.
- Get one roommate, and your cost of living is now 1.414/2 = 71% of living alone, or $1,420 per month.
- Get two roommates, and your cost of living is now 1.73/3 = 58% of living alone, or $1,160 per month.
- Get three roommates, and your cost of living is now 2/4 = 50% of living alone, or $1,000 per month.
Quick Check
Using Rentometer, I found the median rent levels for a one, two, and three bedroom rental in my area. (Yes, they are really high overall for the US.) This should provide a quick check for this rule, even though we are just looking at housing. It turns out to be pretty close:
One bedrooms: $1050/month - $1050 per person
Two bedrooms: $1600/month - $800 per person, or 76% of living alone
Three bedrooms: $2175/month - $725, or 69% of living alone
According to the √N Rule, the biggest relative benefit comes when you stop living alone, at a savings of nearly 30%. While it is easy to dismiss communal living, I think it is important to realize that is an option, even if you choose not to go that way. In many cultures even having multiple families living under one roof is common.
Burns also extended this concept a bit in showing us how a retiree can survive on $15,000 a year. Of course, the same idea can also apply to non-retirees. “Cooperation is a wonderful but generally overlooked substitute for money.”
Posted in Family, Frugal Living | 22 Comments »
I’m happy to say that our hardwood floors are fully installed! The bulk of the credit has to go to my father-in-law, who while he has never installed any hardwood flooring before, provided the peripheral knowledge and common sense that is need in doing such home projects. My wife and I basically served as unskilled day laborers. If you’re looking to install your own wood flooring, you might want check out my previous post on picking out what type of flooring to buy and how to install it. We had a concrete subfloor, and we chose to float an engineered hardwood flooring over it. This might not be the best choice for everyone.
Prepping the Concrete Floors
The first part of installation is to make sure you have a relatively level subfloor. A rough rule of thumb is that you want to see no gaps thicker than 1/8″ of space if you lay down a 5 ft-long straight piece of wood like a 2×4 flat on the ground. (Or 1/4″ every 10 feet.) This part is important in order to avoid squeaks and squishy spots, and lazy installers (both hired and DIY) will simply lay over anything remotely flat. If you do demand proper prep and your floor isn’t flat, this can add to installation costs when contracting it out (and therefore savings if you do it yourself).
We were hoping preparation would just mean scraping excess carpet glue or drywall mud off of the subfloor. But we found that we actually had a good-sized area which was not flat at all. We tried using a hand grinder at first, but in the end we rented what they called a concrete planer in order to grind it down flat. It is a beast and we ended up with over 30 pounds of concrete dust everywhere. We had put up tarps, but it still got everywhere. This would have been horrible if we were already living in the house, luckily we weren’t. I think it cost about $250 to rent for a day.
Laying Underlayment
Next step was to lay down a thin blue foam underlayment on top of the concrete. The underlayment is designed as a moisture barrier between the wood and the concrete, reduces sound, and also adjust for the remaining minor irregularities in the subfloor. We just taped it down with duct tape. Some newer flooring products actually have this already on the bottom of the flooring.
Connecting The Pieces Together
Our flooring was tongue-in-groove, with glue applied in the grooves. Some other types allow you to simply click together, but we found this was mainly for laminate flooring. We put in spacers at the walls, as the floating floor has to be allowed to contract and expand with the seasons. Trim is added later to hide the gaps. You’ll need some sort of table or chop saw to cut the pieces to fit when you reach the other wall and at corners.
Trim and Moldings
Finally to make everything look nice, you’ll need to install moldings at walls, doorways, and transitions to other floor types. You’ll also have to cover up all the nail holes with putty so they don’t show. This all takes a lot of patience to do well, which can be tough when you’re tired of installing wood and you just want to be done already.
Final Verdict and Parting Advice…
We are very happy with the final product. I think anybody who is reasonably comfortable with tools and has the proper patience can perform this activity, the only question is if you actually want to. Either using up a week of vacation or giving up all your weekends for a month isn’t always fun, although I did learn a lot and lost some weight in the process. Oh, and there’s always the several thousand dollars in installation costs that we saved.
We do have some squishiness in the floor when walking on it, but it is not very prominent and we don’t mind. Of course it wouldn’t be there at all if we decided to do a glue-down floor, but I think it was still worth it to float given the time saved and the ability to easily fix any mistakes as we went.
As for parting advice… buy good knee pads! My father-in-law is old school and tough, and didn’t ever wear knee pads the entire time, so I figured I didn’t need them either. On the second day of installation, I started seeing red spots all over the underlayment. Did someone spill ketchup? Nope, my knees had blistered and were bleeding all over the place… Good knee pads are worth every penny. In general, it is worth it to buy the proper, quality tools for the job. If you’re doing this is as a weekend warrior type of activity, it takes a lot of determination to finish everything, so there’s no need to make things harder on yourself.
Posted in Frugal Living, Home Improvement | 17 Comments »
In my post on hedging gas prices, reader J.P. introduced a concept that I had never heard of before - hypermiling. Essentially, there are a group of people out there so serious about improving their fuel economy that they are swapping data and tricks in order to wring every last MPG out of their cars. Users proudly post pictures taken of their fuel economy meters. Imagine, treating high fuel economy as a competitive sport!
Although many hypermilers manage to wring out over 100 miles per gallon out of their hybrid cars, many of these concepts can be applied to non-hybrids as well. It is very intriguing to see the many different behaviors that they describe. The following are taken from this thorough article on CleanMPG.com as well as the Wikipedia entry on hypermiling.
Basic Tips
First up, here are some of the more conventional tips that you might have read about elsewhere. Most of them follow common sense; if you make your engine work harder, it burns more gas.
- Do not use quick accelerations or brake heavily.
- Do not drive at higher speeds.
- Combine trips to reduce driving with a cold engine and on frequent short trips.
- Remove excess weight and/or cargo racks. Do not tow unless absolutely necessary.
- Minimize running mechanical and electrical accessories (e.g. air conditioning).
- Avoid driving on hilly or mountainous terrain if possible.
- Do not use 4-wheel drive if it is not needed.
In practice, this means driving very differently that you might now. You want to accelerate your emptied car as slowly as possible, and continue to drive as slowly as possible once you go past about 30 mph, especially on freeways. You want to be aware so that the second you may need to stop or can coast, you can take your foot off the gas pedal immediately. Don’t use air conditioning, do use cruise control. Track your mpg with a mileage log to measure any improvements. (Most people do not ever achieve the given EPA fuel economy ratings for their vehicle.)
Advanced Tactics
Here we get into some more extreme behavior. Note that not all hypermilers engage in these activities, these are simply the ones that push the envelope. Some may be considered dangerous, or even illegal in certain areas.
- Use an real-time fuel economy meter. If you don’t have a hybrid with a built-in meter, get yourself something like the ScanGuage II.
- Inflate tires to much higher pressures. Higher tire pressures -> Lower rolling resistance -> better fuel economy. They recommend not just inflating to the psi recommended by your car, but the maximum sidewall rating allowed by your tire manufacturer. Some members even take advantage of the “factor of safety” that engineers use and pump it up to 25% over the max rating. 50+ psi is not unheard of.
- Switch to a special motor oil. Using low kinematic viscosity oil helps improve mpg.
- Forced Autostop: Turn off engine whenever possible. If you’re slowly stopping to a red light or just coasting, turn off your combustion engine completely (”force” it to “stop”). Keep the engine off while idle, and only start it up when you’re ready to go again. This reduces losses due to running the engine at idle.
- Pulse and Glide. This consists of driving using alternating periods of accelerating (”pulse”) and coasting (”glide”), and then repeating the process. It is most efficient if you turn off the engine and coast in neutral while coasting.
- Draft behind big rigs or large vehicles. Take advantage of the turbulent air behind a big rig on the freeway by driving as close as you feel comfortable behind it. The resulting lower air drag means you need less gas.
The Financial Payoff
Although many hypermilers have other motivations like less fuel-dependence, better environment, or simply competitiveness - another obvious benefit is in fuel cost savings. Reports indicate that improving your fuel economy by 30-40% is definitely possible without using all of the advanced tactics. If you went from say a combined city/highway 22 mpg based on your previous habits to 30 mpg (a 36% increase), and you drove 12,000 miles per year with gas at $3.70/gallon, this would save you $538 over a year. Worth it? Your decision.
Personally, I like learning about people who take anything to the extreme, that way I can just pick and choose what I want to implement in my own life. I think I’ll go check my tire pressure tomorrow…
Posted in Frugal Living | 62 Comments »
Everybody’s talking about gas prices… they’ve reached another high, everybody wants a hybrid… so why not explore how an individual can try to limit their exposure to gas prices?
How much more are you really paying?
Yes, $50 for a fill-up hits some sort of mental trigger, but sometimes I wonder if people really have calculated exactly how much more they are paying. According to AAA, the current national average is $3.70/gal, while a year ago it was $3.05. If your car gets 20 miles per gallon, you drive 12,000 miles per year, paying 65 cents more per gallon equates to an extra $390 per year. (If you got a stimulus check, this means a lot of it might have already been spent…)
Now, for many families who are walking a financial tightrope, such a hard-to-avoid increase is just a another step closer to the edge. But for the Wii-playing, Starbucks-drinking crowd, is an extra $32/month really worth making a fuss over? I mean, some of these folks are the same ones whose eyes glaze over when I describe some of the extra things I do for money outside of a regular workday.
Hedging Against Future Increases
Now, someone could always play with oil futures contracts like the airlines do, but that’s a bit complicated for the average person. However, if we are afraid that gas prices will rise even further but are comfortable paying the current price, it would make sense to try and buy a bunch of gas at today’s prices and lock-in that rate. A while ago there was a company called the FuelBank that tried to make this a reality, but it appears to have gone nowhere.
Buying the Oil ETF USO
Another way that you can effectively buy at today’s prices is to buy shares of the United States Oil ETF, symbol USO, from your favorite online stock broker. This idea was initially explored in this SeekingAlpha article back when it debuted in 2006. Unlike other commodities ETFs or investing in an energy company like Chevron or Exxon, the objective of this ETF is specifically to keep it’s net asset value (NAV) at the price of crude oil. (Specifically, the spot price of West Texas Intermediate light, sweet crude oil delivered to Cushing, Okla., minus expenses.)
Now, USO hasn’t done the best job of tracking crude oil prices exactly on a day-to-day basis, but it seems to get the general trend right if you hold an extended period of time. From 5/7/07 to 5/6/08, crude oil went from $61.48 to $121.82 a barrel, an increase of 98%. (source) For the same date range, USO went from $48.06 to $93.38 a share, up 94%. (source)
In order to counteract the theoretical $390 from the example above back, you could have bought 9 shares of USO for a total upfront cost of $390 a year ago, which would be worth $408 more today. So in theory, the average driver could put aside something like $1,000 and buy 10 shares of USO to hedge against rising gas prices. Even just one share would dampen the effects somewhat.
The Catches
Unleaded gas prices only went up 21% in the same time period that crude oil went up nearly 100%. So the ratio between crude oil price and unleaded gasoline doesn’t seem to be a constant. Also, if gas prices fall then your savings at the pump will likely also be negated by a drop in USO’s share price. Also, you could account for the lost potential of any money put aside for this if you had invested it elsewhere.
I don’t personally plan on doing this, but it is an idea that could work if you were really sensitive to higher gas prices and/or buy a lot of gas. Another alternative is a site like HedgeStreet, though I haven’t looked too deeply into it.
Posted in Frugal Living, Investing | 25 Comments »
I am trying to gain more control over my diet, while also compiling more easy (preferably really easy) yet tasty recipes. First up is making my own lunch. I think it’s important when brown-bagging to make it tasty and attractive, so you don’t actually feel like your depriving yourself. Don’t just slap a sliver of cheap meat on some Wonderbread. Instead, you should take advantage that you are making the meal yourself. Put anchovies on the thing if you want.
In order to minimize the overall prep time, I bought all the ingredients at our usual grocery store (Safeway) during our usual shopping trip. Prices are actual prices, I bought regardless of if it was on sale or not. I also took into account the inevitable bit of extra waste from perishable ingredients like wilted lettuce or moldy bread, by including total package costs.
Shopping List
Sandwich
$2.50 for 1 loaf of 12-grain Oroweat bread (18 slices)
$5.25 for 3/4 lb of Black Forest Ham, thinly shaved from deli*
$1.75 for 1/4 pound of pepper jack cheese, thinly sliced
$1.75 for 1 large tomato, cut into 10 thin slices
$1.49 for 1 head of iceberg lettuce
$0.25 (est.) for pantry item Honey Mustard (1 bottle is $2.25)
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$12.99 total, $2.60 per day
* You could buy smaller amounts of different meats like turkey breast, if you wanted to mix it up. When I feel like eating vegetarian, I buy a tub of hummus instead of meat.
** If you bought things on sale, or actually shopped around, you can probably reduce these prices by 20-40%.
Snack
This is estimated at $.30 cents per day. You could make it less by buying in bulk and packaging yourself, but the savings started getting small so I just went for simplicity. Examples:
$0.27 for single-serving assorted potato/tortilla chips ($6.49/24 bags)
$0.30 for baby carrots (split a 1 pound bag 5 ways, $1.50/lb)
$0.42 for a 100-calorie-pack of crackers. ($2.50/6 bag box)
Drink
Tap water is free, but I like drinking a Diet Coke for both leaving a sweet aftertaste and the extra bit of caffeine. If I didn’t already buy it previously on sale, this would have cost $.50 per can.
Preparation and Time Spent
Not much prep for the sandwiches. I just had to cut the tomato, peel off the lettuce, and then portion everything out into 10 reusable plastic containers (2 per weekday). I have one container for the bread, and one container for all the wet ingredients. I put a dab of mustard in between the ham and cheese. The separation keeps the bread from being soggy before eating. If I’m not lazy I toast the bread.
Packing all the materials for the entire week took less than half an hour. Actual photo of final product at the top of this post. Doesn’t it look like something worth eating for lunch?
Total Cost
The sandwich and snack combo costs a little under $3. This is actually more than I thought it would cost, although I think it’s relatively healthy when I eat it with carrot sticks (which I usually do with a dab of fat-free salad dressing). If eating out for lunch would have cost $6 per day, then that half hour on Sunday saved me $3 x 5 days = $15. $30 an hour post-tax is like earning $60 an hour pre-tax, so that’s pretty good. On top of that, I have the power to eat healthier and control what I consume.
Sure, if I consciously chose to work an extra 2 hours a month to “pay” for eating out, I could use my time that way instead. But if I’m honest with myself, lunch-making just takes a half hour that would have been spent goofing around on the internet before bed.
Clever Dudette has more frugal lunch ideas. Do you have your own tasty buy convenient lunch routines? For next week, I am thinking of making it the Fried Rice edition.
Posted in Frugal Living | 63 Comments »
Sound a bit bleak, but this lecture by Professor Elizabeth Warren explores how a middle class family in 1970 differs financially from one in 2005. The full title is The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net. The actual talk starts at 4:45 in, and lasts about 45 minutes. Via Economist’s View and gbs at Diehards. My notes below.
Earning More
Starting around 1970, more and more mothers started working full-time. How did this affect finances? Household income indeed went up from 1970-2000 from ~$40,000 to ~$65,000. However, the inflation-adjusted income for employed males actually went down slightly. So the increase was entirely due to the additional women working.
But hey, households are still earning more. Good, right? Next, she crunched some data on what a dual-income, 2-kid family spent their money on in 1970 vs. 2000.
Spending Less
We actually spend less on an inflation-adjusted basis on many things nowadays:
- 32% less on clothing
- 18% less on food - including groceries, eating out, and yes, even Starbucks
- 52% less on appliances
- 24% less on car expenses, per car
Spending More
Not so fast, we also spend more in many areas:
- 76% increase in home mortgage payments . Surprising, the actual house size didn’t grow that much based on number of rooms (5.8 vs. 6.1). I wonder if this would hold true if it was based on square footage, however, as my research on that indicates a big increase in size.
- 74% more for health insurance, even adjusted for healthy family with employer-sponsored health plans.
- 52% more for cars, since now we have more cars per household. We gotta get to work, right?
- Infinite% more for childcare
- 25% more in effective tax rates, due to higher income
In 1970, credit card debt was 1.4% of annual income for the median household. In 2005, it is 15%.
Education
Finally, we spend a lot more on education. In 1970, you needed a high school diploma to get a good job, which took 12 years of government-provided schooling. Nowadays, the average family pays for 2 more years of pre-school, plus 4 more years of college, all out of pocket.
Net Result: Not Good
Note that the cheaper things are the smaller, more flexible expenses… while the more expensive things are the larger, more fixed expenses. So a family now earns a bit more, but also spends a much, much larger percentage of their income. So much, in fact, that now we need both of those incomes to afford everything we buy. If either spouse loses a job, the family falls behind. Studies show that a family with children has between double and triple the bankruptcy rate of childless households.
I was kind of hoping for some solutions at the end… but none came!
Posted in Family, Frugal Living | 63 Comments »
I am now the proud owner of over $7,000 in hardwood flooring. It cost as much as my car! We charged it to our Citi Cashreturns card in order to grab the extra cashback at the time, which saved us another $350 on top of the $400 we got back last month for paying our taxes owed with it.
Types of Flooring Available
If you’ve ever thought about installing your own flooring, here is a quick review of our thought process. There are three major choices these days:
- Laminate Flooring. Also called “Pergo”, after a popular manufacturer. This is essentially a picture of what hardwood looks like, glued on top of wood chip composite. Think Ikea furniture. It the cheapest type, you can easily install it yourself, but it can’t be refinished.
- Traditional Hardwood Flooring. This is a entire piece of solid hardwood. More expensive, hard to install yourself, can be refinished multiple times, will probably outlive you.
- Engineering Hardwood Flooring. This is 1/16″ to 3/16″ of real hardwood glued on top of a plywood base (see picture). It costs about as much as traditional hardwood (or even more if comparing to unfinished hardwood), but you can install it yourself which can result in a net savings. With a quality floor, you can still refinish 1-2 times if desired.
Our Decision
Unless you’re really experienced and have lots of time, most DIY people either choose laminate flooring or engineered hardwoods. We first looked at laminate, aka “Pergo”. Laminate flooring is really affordable, starting at about $1.50 per square foot (sf). It can also be more scratch-resistant. However, if a scratch or a moisture bubble does occur, you can’t really do much about it. I think laminate is a perfectly fine flooring choice, but we personally did not like the look of it. I’ve been to nearly 100 open houses, and I can spot laminate flooring instantly; it simply does not look like real hardwood.
I’m probably biased though, because our last two houses both had some beat-up hardwood floors that were over 50 years old, and we loved the the look. Scratches, dents, and age simply added character to us. With a good engineered hardwood, you can get a wear layer that is nearly as thick as solid hardwood, and can also last indefinitely. In the long run, we felt that paying more for the look and durability of real hardwood was worth it to us. After installation, you can’t tell the difference between solid hardwood floors. A high quality engineering hardwood can cost $5/sf or more, but they start at around $3/sf.
Resale value wasn’t really a huge concern for us, but is something to consider. I’m sure real hardwood flooring adds more value to a house, but I don’t know if all of the cost differential between hardwood vs. laminate is recovered.
Installation
The easiest type of installation for a weekend warrior is the floating floor setup. First, you need a flat subfloor. This could be an old floor like vinyl, ceramic, or even an old hardwood floor. Second, you place a thin foam underlayment on that subfloor, which smooths out minor imperfections and also serves as a noise and moisture barrier. Third, you either click or glue together the hardwood pieces so that you have one huge piece of flooring that “floats” on top. Nothing is nailed or glued directly to the house.
Easier said than done, of course, but that’s the basic idea. Here are some tips by a professional installer, as well as some pictures from a DIY amateur. Wish me luck!
Posted in Frugal Living, Real Estate | 29 Comments »
You may be expecting a review of the new online service SmartyPig. Well, that review is in-progress, but while doing my research I was reminded of an alternate way to create your own online “piggy bank”. Remember how you’d actually have to save your quarters to buy what you wanted? Oh, the good old days…
Let’s say you want to set up multiple “baskets” or “piggy banks” of money for specific goals. Maybe you have
- an ongoing pet medical fund to which you add to regularly instead of paying for insurance ($50 per month?)
- an ongoing car maintenance/repair fund (I need one of these)
- a summer vacation fund (goal: $1,000?)
- a Christmas fund
- …or that all-purpose emergency fund!
You want separate balances and accounting for each account to keep things neat, but you don’t want to open up 3 new accounts at 3 different banks. The good news is that this can all be done with ING Direct - they let you easily and instantly create multiple savings accounts that have their own balance and nickname. No credit checks, no applications, and it earns interest. Here’s how:
1) First, you’ll need an ING Direct account. If you have one already, you’re all set. If you opened one before and it got closed to due low balance or inactivity, you can have them re-open it by calling 1-888-ING-0727 (or you can login and do it). If you are a new customer, you can earn a $25 sign-up bonus here by opening with at least $250.
2) Open up an additional savings account (or several!). It’s not all that complicated, but it still confused me initially so I broke down the steps below with screen-by-screen walkthrough. Click on the thumbnail images for a full size screenshots.
a)Log in first, and then click on “Open an account” in the top left corner.
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b) Click on “Orange Savings Account”
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c) Scroll down and click on “Open Now”
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d) Pick the correct ownership title
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e) Pick a nickname, funding source, and initial deposit amount. I chose “Pet Insurance Fund”
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f) Read T&C’s and confirm
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g) Print out confirmation page
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h) Go back to main page and bask in the glow of your newly created account
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3) Set up an automatic savings plan
Although you can schedule manual transfers, why not make it easy on yourself and set up an automated transfer schedule? You can set a fixed amount of automatic withdrawals if you have a specific goal ($100/month x 1 year = $1,200 = HDTV), or you can make it repeat indefinitely (great for our often-used pet fund).
a) Click on the “Automatic Saving Plan” icon
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b) Choose your funding source, recurring deposit amount, frequency, and number of recurrences
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c) Confirm the details and setup
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And you’re done! You can make as many of these sub-account as you like. The cool thing is you can make withdrawals at any time (max 6 per month), and there are no minimum balances or fees. The interest rate at 3.0% APY isn’t the absolute highest, but comparatively it’s no longer that far behind other similar banks.
(FYI - I was talking with my sister about this and she told me she didn’t use her ING Direct account anymore. When I asked why, she said it was not because the interest rate wasn’t high enough, it was simply because they made you log in with your customer number, and she would never remember it! I just wanted to point out that now you can pick your own username (like “janedoe444″). Use it carefully though, as your password is still just a 4-digit PIN.)
Posted in Banking, Budgeting, Frugal Living | 41 Comments »
