The Power of Being Open-Minded About Cutting Your Household Expenses

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Here’s the short version of this depressing WSJ article Families Go Deep in Debt to Stay in the Middle Class (paywall?). Household incomes have gone nowhere. Meanwhile, housing prices are up, healthcare costs are up, and college tuition has skyrocketed. Ouch. However, you can’t control that things are worse for you than if you lived in another time period. You can only control your response, and that is why I try to focus on actionable ideas instead of dwelling on “the way it should be”.

“Make more money” advice is hard to pin down. Of course I want everyone to have a high income. I like the idea of spending money on improving your marketable skills, “investing in your yourself”. However, everyone has a different combination of what they are good at, what they enjoy, and what others will pay them to do:

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Meanwhile, I find that spending advice applies much more broadly. My most general spending advice is that you need to expand what you think is an option. Most people hang out with people around their own income level, look around, and then spend the same money on the same things. The trick is that net worth shoots up when you earn a good income, but spend like someone who earns about 1/2 or 2/3rds of what you make. It may not feel natural, but you have to trick yourself into picking from a wider menu of options. Here are some quick examples.

  • Housing. You could buy a 4,000 sf house with a 3-car garage. A family of four could live in a 1,000 sf apartment (mine did). You could share an apartment with roommates. You could rent a room inside a large house. You could buy a duplex and live in one side, rent the other. You could buy a 4-plex and live in one unit and rent out the rest.
  • Transportation. You could lease a $60,000 SUV and pay about $8,000 year in lease payments – after 3 years and $24,000, you’d have to start all over again. Alternatively, you could buy an entire car for $8,000 and own it for another 10 years. You could downsize from a 2-car to a 1-car household. Many urban residents don’t own a car at all.
  • Food. A single person could eat out at every meal, never touch their stove, and easily spend $1,000 or more per month on food and alcohol. A family of four can cook all meals at home and spend under $600 a month. These days, food has become the ultimate convenience item, but it’ll cost you.

I can be hard to stay open-minded about your expenses. In fact, many quickly become defensive. You’ll often hear a straw-man argument like “I don’t want to sit around sorting coupons, eating lentils every meal, or living in poverty”. I wonder if they have seriously considered all of the options above.

You don’t have to pick the cheapest option in every category. You probably know someone in an expensive house but drives a 20-year-old Toyota. I know someone who makes over $250,000 a year but rents a cheap, single room in a large house (while eating out every night). I know someone who owns a beautiful beachfront house, but AirBNBs the majority of it.

I’ve been looking for over 15 years, and there is no single path to financial independence or early retirement. Even if you don’t want to embrace frugality as the cure for everything, the cold reality is that it’s hard to live at life true to yourself unless you first reach at least $10,000 in savings to ride out the bumps.

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The Status Spending Test: Two Simple Questions About Your Car and Home

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I feel like I’ve been reading a lot of backlash against the “latte factor”. I agree buying a Starbucks latte every day will not directly lead to poverty, and forgoing it will not make you independently wealthy. However, sometimes a concrete example is more powerful than a vague position like “just prioritize your spending” (which I believe, but sort of like “spend less than you earn”).

Instead of the small stuff, I prefer to start with the biggest expenses and work down from there. You may consider your mortgage and car payments to be a “fixed” expense, but that doesn’t mean they can’t be reduced. Tom Welsh of Humble Dollar has a post Pay to Play which includes a very simple test to see if you are spending an excessive amount on your social status, possibly at the expense of your future basic needs. No calculator required. No budgets.

How can we tell if we’re engaging in heavy social spending? Two simple tests can help you analyze your own degree of social spending.

Test No. 1: Did you pay $57,000 or more for your car – a 50%-plus premium to the average $38,000 new car price?

Test No. 2: How many rooms in your home are used by people every single day? Divide that number by the total number of rooms in your home. Is it 50% or less?

My current vehicle is a 2015 Toyota Sienna, bought used for well under even the average number. It creates zero excitement and is little more than a reliable appliance, but I have come to love it (and its sweet sliding doors) for what it is. We are a family of 5 inside a 2,000 sf house, and every single room is definitely used every single day, often by multiple people at the same time. We prioritized room, safety, and reliability in the car. We prioritized location with the house, with minimal commute time, while also trying to make it smaller (and cheaper) but still allowing for a home office.

Now, a luxury car and a big house may be your prioritized expenses and well within your means. Which is great. But if it isn’t, you may have found something to cut back on that is much more powerful than skipping the Starbucks. Moving is a huge pain, but it’s a one-time change to which you quickly adjust, while potentially improving your overall financial picture for the rest of your life.

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Mint Mobile B3G3 Promo: 6 Months of Unlimited Talk, Text, 8 GB Data For $60 Total ($10 Per Month)

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Mint Mobile is how I keep my cell phone costs low. They use the T-Mobile network, which means if you have a compatible phone switching just involves swapping in a new SIM card. It works just fine in my iPhone X. I am nearing the end of my first full year (I bought a full year upfront) and I plan on renewing since it is only $15 a month at my lower tier.

They just started a limited-time “B3G3” promo where if you buy 3 months of service, you get another 3 months free. It’s valid on their $20/month tier with Unlimited Talk, Text, 8 GB of LTE Data per month. That means you’ll pay $60 upfront and get 6 full months of service to try them out at $10 per month.

New activation required. Must be activated within 45 days. Taxes and fees apply. 3 months equals 90 days.

They also offer a 7-Day Money Back Guarantee (starts upon SIM activation) so you can test them out before making any commitment at all. Here is my Mint Mobile SIM Activation and Number Port Transfer Review. As long as the transfer works, you have 6 months at only $10 a month to see if you want to keep them. Be sure to use their phone compatibility checker first to see if you can bring your current phone over and just put in the Mint Mobile SIM card.

In my opinion, the two best cell phone deals right now are this one and the ending-soon Sprint Kickstart $25/month for Barebones Unlimited Data.

Also see:

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Sprint Unlimited Kickstart: Unlimited Talk, Text, Data For $25/Month – Offer Expires September 5th

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Update late July 2019: Sprint/T-Mobile Merger approved. T-Mobile and Sprint have been doing the merger dance since April 2018, which meant Sprint was still highly incentivized to make their subscriber numbers as high as possible. Around July 26th, the U.S. Justice Department finally gave official approval the merger between Sprint and T-Mobile. In my opinion, that means that this Sprint promo will not last much longer.

Sprint ended their “Free Year” promo earlier this year, most likely never to be seen again. Sprint has now set a new expiration date of September 5th on their Unlimited Kickstart promotion that includes unlimited talk/text/data for $25 per month, per line. I don’t think that is a coincidence. If you are interested in securing what I call “barebones unlimited data” for $25 a month, time is running out.

Pros of Kickstart Unlimited:

  • Unlimited talk, text, and data for $25 a month, per line.
  • You can bring over any compatible phone, or buy one from Sprint. Use their phone IMEI/MEID checker.
  • You can come over from ANY outside provider, Verizon/AT&T/T-Mobile or even another cheap MVNO.
  • No expiration date. Price will not go up after a year.
  • No annual contracts.
  • No family plan or minimum number of lines required.

Cons of Kickstart Unlimited:

  • New customers only.
  • Online orders only. You won’t see this offer in stores.
  • No mobile hotspot.
  • Unlimited video in standard definition. Video streams up to 480p, music up to 500 Kbps, gaming up to 2 Mbps.
  • Data deprioritization during congestion.
  • Autopay required.

Sprint Unlimited Kickstart is best for those that want to lock in unlimited data direct from a major provider at a low $25/month price. Verizon, AT&T, and T-Mobile Unlimited may have slightly better networks but they are also significantly more expensive.

I am not a huge data user, but it was still nice when I was on Sprint Unlimited. I could stream videos without worry and switched all my settings to “use cellular data whenever the heck you want!” instead of having to wait to sync or download things like podcasts over WiFi.

Mint Mobile is another low-cost competitor with data caps. They are an MVNO that runs on the T-Mobile GSM network. You can get:

The thing about Mint Mobile is that you have to “buy in bulk”. Initially you have to buy at least 3 months upfront, and then after that you have to buy 12 months at a time to get their lowest price. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets. They do offer a 7-Day Money Back Guarantee (starts upon SIM activation) so you can test them out before making any commitment.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Which Households Spend More, Less, or Exactly What They Earn? Breakdown by Income Level

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In the post How Well Do Americans Balance Income and Spending? by the St. Louis Fed, they examine the breakdown of household spending as compared to income.

In terms of the big picture, 55% of US households were net savers (earned more than they spent), 30% broke even, and 15% ran an income deficit (earned less than they spent). However, that’s everyone across all income levels, and thanksfully they looked deeper in the 2016 Survey of Consumer Finances and broke it down further by income quartile.

It is not surprising that lower income households overall have a harder time spending less than they earn. Instead, I would consider these two observations:

Out of the households in the bottom income quartile earning less than $27,000 per year, roughly 75% of them manage to break even and/or save money each year. This is not to say that households that are earning close to the poverty line ($26k for a family of four) are not struggling. However, I think a family that is “just getting by” on a $100,000 income would appreciate their situation more if they know that so many $26k income families are breaking even at this level, with a third of them even managing a surplus.

Out of the households in the top income quartile earning over $98,000 per year, roughly 25% manage to save nothing or go into debt at the end of each year. Yes, most households with a six-figure income are saving some money. But a quarter of them aren’t saving anything!

I have always been struck by the huge variation in spending by the same number of humans in the same city. The family earning $50,000 finds a way to spend $50,000. The family earning $250,000 finds a way to spend $250,000. If you have a relatively high income, that is a huge opportunity. Don’t waste it. If you create a budget surplus and invest it in productive assets, one day those assets will do the “work” to make money instead of you.

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Lesser-Known Cheap Talk & Text Only Cell Phone Plans on Every Network – From $1 a Month

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phones7Updated 2019. Cell phone bills are getting cheaper than ever. Have you checked prices recently? All of the major networks sell wholesale minutes to MVNOs (Mobile Network Virtual Operators), which they in turn sell at a significant discount to individuals. If you choose to Bring Your Own Device (BYOD), every MVNO will have a form where you can check compatibility via identification number (IMEI or MEID).

This post includes light and unlimited talk & text only plans – no data (although some plans include some anyway). Here are the cheapest plans with unlimited talk & text and 2+ GB LTE data. A minimalist plan is good for people who only want to make short calls, while unlimited talk and text plans allow you drop that landline completely for under $18 a month. After looking through what must have been over 100 MVNOs, here are the cheapest options by network below (Verizon, AT&T, T-Mobile, Sprint).

T-Mobile NetworkT-Mobile Network Color: Hot Pink

  • Light Barebones Usage. Lycamobile has a barebones Pay As You Go plan where you just buy a SIM and there is a minimum top-up of $10. The rate is a flat 5 cents a minute for talk, and 12 cents per text. You must have some sort of activity every 90 days to maintain your service (make a phone call, send a text). If you only used 200 minutes a year, that would be under $1 per month ($10 a year).
  • Unlimited Talk & Text. Mint Mobile has a $15 a month plan with unlimited talk, text, and 3 GB of LTE data. You even get slower 2G data speeds if you exceed your LTE allotment. Their intro offer is 3 months at $15 per month. After that, you’ll have to buy 12 months of airtime upfront to get the $15 per month price. They offer a 7-Day Money Back Guarantee (starts upon SIM activation) so you can test them out before making the multi-month commitment. If you don’t want that 3 GB of data, you can go with Republic Wireless and get unlimited talk and text with zero data for $15 a month with no bulk requirement.

I recently switched to Mint Mobile myself – see my Mint Mobile SIM Activation and Number Port Transfer Review for tips based on my experiences.

Sprint NetworkSprint Network Color: Yellow

  • Light Barebones Usage. Tello Mobile has a Pay As You Go plan where there is a minimum top-up of $10. The rate is a flat 3 cents a minute for talk, and 1 cent per text. You must have some sort of activity every 90 days to maintain your service (make a phone call, send a text). If you used 400 minutes a year, that would be $1 per month ($12 a year).
  • Unlimited Talk & Text. Tello Mobile also has an unlimited talk, text, and no data for $11 a month. You need to choose a custom plan to find this option. You can get the same plan with 1 GB of data for $14 per month. I will also mention that Republic Wireless has $15 a month plan for unlimited talk and text on the Sprint Network, but you can’t bring any used Sprint device over – you must buy a specially-modified phone.

Sprint “Secret” Offer: Sprint offers a “barebones” but still unlimited talk, text, and unlimited data for $25/month via their Sprint Kickstart plan that they don’t really promote. You can bring your own compatible phone (check with them) or buy one.

AT&T NetworkAT&T Network Color: Blue

  • Light Barebones Usage. H2O Wireless has a Pay As You Go plan where you can buy a $10 card that lasts 90 days. The rate is a flat 5 cents a minute for talk, and 5 cents per text. You must buy another card after it expires in 90 days. This means you could use 800 minutes a year for $3.33 per month ($40 per year).
  • Unlimited Talk & Text. Red Pocket Mobile via eBay offers unlimited talk, text, and 1 GB data for $17.08 a month when you pay for 12 months upfront ($205 for one year) with a free SIM included in the kit. You can choose the AT&T network when you sign up.

Verizon NetworkVerizon Network Color: Red

  • Light Barebones Usage. PagePlus Cellular has a Pay As You Go plan where you can buy a $10 card that lasts 120 days. The rate is a flat 6 cents a minute for talk, and 5 cents per text. You must buy another card after it expires in 120 days. This means you could use 500 minutes a year for $2.50 per month ($30 per year). PagePlus now accepts 4G smartphones.
  • Unlimited Talk & Text. Red Pocket Mobile via eBay offers unlimited talk, text, and 1 GB data for $17.08 a month when you pay for 12 months upfront ($205 for one year) with a free SIM included in the kit. You can choose the Verizon network when you sign up.

Here are the cheapest plans with unlimited talk & text and 2+ GB LTE data.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Lesser-Known Cheap Data Cell Phone Plans on Every Network (3 GB from $15/Month, 5 GB from $20/Month)

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phones7Updated 2019. Cell phone bills are getting cheaper than ever. Have you checked prices recently? All of the major networks sell wholesale minutes to MVNOs (Mobile Network Virtual Operators), which they in turn sell at a significant discount to individuals. If you choose to Bring Your Own Device (BYOD), every MVNO will have a form where you can check compatibility via identification number (IMEI or MEID).

This list includes unlimited talk and text plans with at least 2 GB and 5 GB of 4G LTE data. The average data user used 3 GB of data per month in 2017. If you don’t need data, here are the lesser-known cheapest talk and text only cell plans. Many of these advertise “unlimited data”, which means they throttle speeds down the 128 kbps (2G) after your LTE allotment runs out. After looking through what must have been over 100 MVNOs, here are the cheapest options by network below (Verizon, AT&T, T-Mobile, Sprint).

T-Mobile NetworkT-Mobile Network Color: Hot Pink

  • Unlimited Talk & Text + 3 GB LTE Data. Mint Mobile has an unlimited talk, text, and 3 GB LTE data plan from $15 per month. Their intro offer is 3 months at $15 per month. After that, you’ll have to buy 12 months of airtime upfront to get the $15 per month price. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets. They offer a 7-Day Money Back Guarantee (starts upon SIM activation) so you can test them out before making any commitment.
  • Unlimited Talk & Text + 8 GB LTE Data. Mint Mobile also has a $20 a month plan with unlimited talk, text, and 8 GB of LTE data. Their intro offer is 3 months at $20 per month. After that, you’ll have to buy 12 months of airtime upfront to get the $20 per month price. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets. They offer a 7-Day Money Back Guarantee (starts upon SIM activation) so you can test them out before making any commitment.

Note: I recently switched to Mint Mobile in my own phone. Please see my Mint Mobile SIM Activation and Number Port Transfer Review for tips based on my experiences.

Sprint NetworkSprint Network Color: Yellow

  • Unlimited Talk & Text + 2 GB LTE Data. Tello Mobile has an unlimited talk, text, and 2 GB data plan for $14 a month. You don’t need to buy a year upfront. You need to choose a custom plan to find this option. Their 1 GB plan is only $14 per month. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets.
  • Unlimited Talk & Text + 5 GB LTE Data. Red Pocket Mobile via eBay offers unlimited talk, text, and 5 GB data for $20 a month when you pay for 12 months upfront ($240 for one year) with a free SIM included in the kit. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets. You can choose the Sprint network when you sign up.

Sprint “Secret” Offer: Sprint offers a “barebones” but still unlimited talk, text, and unlimited data for $25/month via their Sprint Kickstart plan that they don’t really promote. You can bring your own compatible phone (check with them) or buy one.

AT&T NetworkAT&T Network Color: Blue

  • Unlimited Talk & Text + 5 GB LTE Data. Red Pocket Mobile via eBay offers unlimited talk, text, and 5 GB data for $20 a month when you pay for 12 months upfront ($240 for one year) with a free SIM included in the kit. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets. You can choose the AT&T network when you sign up.
  • Unlimited Talk & Text + 3 GB LTE Data. If you prefer a month-to-month plan (no full year commitment), Straight Talk Wireless has an unlimited talk and text plan with 3 GB data for $34 per month with auto-refill (every 30 days). $35 per 30 days without auto-refill.

Verizon NetworkVerizon Network Color: Red

  • Unlimited Talk & Text + 5 GB LTE Data. Red Pocket Mobile via eBay offers unlimited talk, text, and 5 GB data for $20 a month when you pay for 12 months upfront ($240 for one year) with a free SIM included in the kit. After your LTE data runs out, you still get data included at slower 2G data speeds until your month resets. You can choose the Verizon network when you sign up.
  • Unlimited Talk & Text + 5 GB LTE Data. If you prefer a month-to-month plan (no full year commitment), Total Wireless has an unlimited talk and text plan with 5 GB data for $33.20 per month with auto-refill (every 30 days). $35 per 30 days without auto-refill.

If you don’t need data, here are the lesser-known cheapest talk and text only cell plans.

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My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Which Airline Miles Are Easiest To Redeem For Economy Awards? 2019

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Cashing in your frequent flier miles for a free flight can be hit or miss, especially around a holiday. Which airlines are the most generous with making seats available? Each year, consulting firm IdeaWorks tries to run a fair comparison of all the major airlines to keep them honest. This WSJ article (paywall?) discusses their process:

In March, IdeaWorks searched for two award seats together on various travel dates between June and October on each airline’s busiest routes. Seats have to be available at the airline’s lowest everyday price—typically 25,000 miles round trip for a domestic coach ticket. The company made nearly 4,000 queries.

Below are the rankings of the 6 major US airlines. It is important to remember that this ranking focuses on domestic economy tickets only (no business class or international flights). The article does also rank international airlines on availability from a related metric.

For 2019, the most improved airline is United Airlines, while the worst decline goes to Delta. Not surprisingly, United claims this was totally on purpose because that’s what customers want and they are all about that… Meanwhile Delta suggested that the change was simply a result of more demand because their program is so popular. Shrug.

If you fly a lot on United, you can get significantly expanded award availability with the Chase United Explorer card. Add in the free checked bag for you and a companion, and the perks can easily offset the annual fee.

Southwest and JetBlue remain on top at close to 100% availability, but that is a bit misleading since both of their points are revenue-linked with no blackout dates. For example, 25,000 Southwest points will buy you basically any “Wanna Get Away” ticket that costs up to about $375. So the results are really just saying that Southwest’s busiest routes almost always have a flight that costs under ~$375. JetBlue is only 98% because some of their flights are just over the price threshold. I wonder if they included flights to Hawaii, now that Southwest flies there?

I have come to appreciate the simplicity of Southwest’s structure, especially now that I primarily shop for multiple economy tickets. For example, you can reliably value their credit card bonuses of 40,000 points = $600 in Wanna Get Away airfare, and 80,000 points = $1,200 of Wanna Get Away airfare. I can buy five seats on the same flight, no problem. Others prefer the traditional, more complex structure because it offered the skilled person the chance to get outsized value, like a $3,000 ticket for 50,000 points.

Airlines make a huge percentage of their revenue from selling these airline miles, which they create out of thin air both for actual flying and specifically for credit card users. This also means they have an incentive to create “miles inflation” such that each mile is worth less and less over time. I like this annual WSJ survey because it shows that someone is paying attention and calling them out publicly, at least on seat availability.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Keep Your Hilton Honors Points From Expiring with a $1 Amazon Purchase

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hiltonhonors0Updated with alternative method. My relative lack of travel these days means that I am constantly keeping miles and points from expiring. Here’s the official policy of Hilton Honors point expiration:

Hilton Honors Points do not expire as long as Members remain active in the program. To keep an account active, Members can stay at one of Hilton’s hotels, or earn or redeem Hilton Honors Points within 12 months. [For Hilton Honors credit card holders, Hilton Honors Points will not expire as long as the Member is a cardholder in good standing.]

You need to earn or spend Hilton points every 12 months, which is on the short side. My usual strategy is to use Hilton Honors Dining to earn a few points at my neighborhood burger joint, but I was running short on time. I found that you can redeem Hilton points at Amazon through their Shop with Points program. The redemption ratio is 500 Hilton Honors points = $1 on Amazon.

First, link your Hilton Honors account to Amazon.

az_hilton

Next simply use as little as 5 Hilton Honors points to offset $0.01 of any purchase. If you were planing on buying something for $25, just pay for $0.01 with Hilton points, and $24.99 on your credit card. You used to be able to simply buy a $1 Amazon gift code for 500 points and call it a day, but that is no longer an option. If you have Amazon Prime and no other needs, you can still buy one of the following items that cost only $1 or less:

Checkout and choose to pay with Hilton Points, where you can specify to only use as little as 5 points ($0.01). You would want to make sure that it is in stock, so they charge you immediately.

Check for the activity to show up in your Hilton.com account the same day as it is shipped:

az_hilton2

Bottom line. If you have Hilton points expiring soon, you can redeem as little as 5 Hilton points for $0.01 off any Amazon purchase and create qualifying activity that posts the same day. If you have Amazon Prime, I share some $1 ideas. Hilton points are more valuable when redeemed for a free hotel night, but in this case it can be worth sacrificing a few to keep the rest alive and active.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Nomadland Book: What Really Happens When You Don’t Save Enough For Retirement?

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I’m reading Nomadland: Surviving America in the Twenty-First Century by Jessica Bruder. Essentially, it’s the story what happens to a group of people when their plans for retirement fall apart. Here’s the book blurb:

From the beet fields of North Dakota to the campgrounds of California to Amazon’s CamperForce program in Texas, employers have discovered a new, low-cost labor pool, made up largely of transient older adults. These invisible casualties of the Great Recession have taken to the road by the tens of thousands in RVs and modified vans, forming a growing community of nomads.

You’ll probably retire earlier than you expect. Consider this EBRI chart showing the big difference between when workers expect they will retire (dark blue) and when people actually retired (light blue). One-third (34%) of all workers ended up “retired” by the time they reached 60, but the majority didn’t see it coming (which I assume means it was mostly involuntary).

Going through the book, here is a rough breakdown of the stages that the people went through:

Plan A: Ideal retirement. You have plenty of savings and income in retirement. I’m all set with a rock-solid pension, Social Security, and a big pile of investments.

Plan B: Make everything more modest. I don’t have as much as I’d hoped. Maybe I don’t need that beach condo? Maybe I’ll move into a smaller primary house. It’ll be easier to clean. I’ll just have to take less vacations. No problem.

Plan C: Work longer. Hmm, not still enough. That’s okay, I’ll just keep my job a little longer. I have lots of valuable work experience. I’m still healthy.

Plan D: Find any job. I’ve been laid off, and now I’ll have to find something that is full-time and offers benefits. The easiest targets are retail: Walmart, Home Depot, McDonald’s.

Plan E: REALLY cut expenses. My house is going into foreclosure. I have to sell all my other assets, including whatever life insurance policies, 401k plans, jewelry, and anything else of value that I have accumulated.

Plan F: Ask for assistance from extended family or friends. I can’t find any steady work that pays the bills (or may no longer be healthy enough to do so). I need to find cheaper living arrangements, immediately. I might crash with my children or other family/friend.

This corresponds well with this EBRI survey that I found afterward:

What happens if none of this works? That’s the common thread through many of the people profiled in this book. Not only did Plan A fail, but their backup plans also failed. Many had a late divorce. Many lost their high-paying jobs in their 50s, when they were planning to work until 70. Others had medical issues that racked up huge bills. They worked retail for a while, but it never added up to a decent full-time income. There just aren’t as many jobs for someone in their 60s and 70s. They lived with their children for while, but their kids are struggling as well.

One solution that some came up with in this book with is to change “homeless” to simply “houseless”. You buy a big van or small RV for well under $10,000 and you live in it. As long as you can find a place to park it, you’ve just cut your housing cost down drastically. People figure out to live on $500 a month. You can also now travel for temporary work – Amazon warehouse picker, campground manager, agricultural farm worker. As more and more people do this, they have formed communities and annual gatherings to support each other.

The book has me switching between two feelings: empathy for what brought them to this place, and curiosity about the mechanics of their day-to-day life as modern-day nomads. For now, one big takeaway is that people can and do fall through the cracks. The folks in this book are still taking action and working to survive and hopefully once again thrive.

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Charlie Munger: Financially Independent at Age 38 in 1962

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Despite the fresh packaging, we should remember that the “FIRE” concept (Financially Independent, Retire Early) is anything but a new concept. Even I can’t help being a little intrigued by the clickbait title “This Secret Trick Let This Couple Retire at 38”. Such an article could have been written about the 95-year-old Charlie Munger before he started investing alongside Warren Buffett:

The first 13 years I practiced law, my income [from practicing law] was $300,000 total. At the end of that 13 years, what did I have? A house. Two cars. And $300,000 of liquid assets. Everyone else’d have spent that slender income, not invested it shrewdly, and so forth.

I just think it was, to me, it was as natural as breathing, and of course I knew how compound interest worked! I knew when I saved $10 I was really saving $100 or $1,000 [because of the future growth of the $10], and it just took a little wait. And when I quit law practice it was because I wanted to work for myself instead of my clients, because I knew I could do better than they did.

Net worth analysis. According to his Wikipedia bio, the 95-year-old Munger graduated from law school in 1948. Let’s say he practiced law from 1949 to 1962. At the end of those 13 years, he states that he had $300,000 in liquid assets, a house, and two cars. The median value for a Los Angeles area house in 1962 was about $15,000. The median cost of a new car in 1962 was about $3,000. Adding this all up means his net worth in 1962 was about $321,000.

That was a significant amount of money in 1962. According this CPI inflation calculator, that is the equivalent of $2.7 million in 2019 dollars. In other words, the Munger household was financially independent when he was 38 years old.

Income analysis. He also states that in those 13 years as a lawyer, he made $300,000 total. For the sake of simplicity, let’s just say he earned the same income every year. That works out to $23,000 per year. This was a relatively high income – $193,000 per year in 2019 dollars. According to this source, the median family income in 1962 was $6,000 per year. That means he was earning about four times the median average household income.

Super-saver, super-investor, or a little of both? Maybe he shared this somewhere else, but I don’t know his saving rate or his investment return. He does boast of both not spending all that “slender” income and also about investing it “shrewdly”. We have his annual income and his final ending net worth, so you can set one and figure out the other using a compound return formula. I’m assuming everything is after-tax for simplicity again.

  • Let’s say he was a super-saver with a 50% saving rate. That means he saved $11,500 every year and invested it for 13 years. That would work out to an 10.5% annual compounded rate of return.
  • Let’s say he was a super-investor with a 20% annual compounded rate of return. That would work out to an annual savings of $5,500 per year, or a 24% savings rate.

I found that the annualized return of the S&P 500 index from January 1949 to January 1962 was about 18% when you include dividends (source). Thus, my guess is that he was somewhere between these two markers: 50% savings rate/10.5% annual investment return and 24% savings rate/20% annual investment return. These stats are definitely admirable and impressive, but also show that he didn’t hit the lottery or anything crazy.

Munger’s example reaffirms that if you have a relatively high income, save a high percentage of that income, AND invest that money into productive assets, your net worth will grow quite quickly.

A criticism of financial independence seekers is that it is pitched to “everyone” but only works for the rich. It is absolutely true that it is the easiest for high-income earners. How could it be any other way? At the same time, there are many households that earn high incomes that spend 95%+ of it every year. If these folks realize they have financial independence within their grasp, and then change their behavior to achieve it, I still view that as a positive thing. It’s always hard to spend less than the people you hang around with.

In our case, we both eventually earned six-figures, but not the entire time. When we earned a combined $60,000 a year, we lived on $30,000. When we earned a combined $100,000, we lived on $50,000 per year. When we earned $200,000, we lived on under $100,000. Would we have been able to maintain the 50% savings rate on a $60,000 income for 15 years? I’ll never know. I know it would have been much more difficult, and I’m glad we didn’t have to try. I’m also glad we started when we were young and without kids.

Managing expenses (frugality) alone will not get you there, but I still believe it is an important factor once you get your income to a certain level. I would argue that a household earning $100,000 and spending $50,000 per year is much better off in the long run than a household earning $150,000 and spending $125,000 or even $100,000 per year. Now, if someone is making minimum wage, it will be hard to have a lot left over to invest. Your efforts would be best focused on the income side of the equation.

Bottom line. Charlie Munger was born in 1924 and reached financial independence at age 38 from his earnings as a lawyer (before he became partners with Warren Buffet). While he is now best known as a billionaire investor, he took a familiar path to financial independence: solid 9-5 income, consistently high saving rate, and prudent investment of the difference. The same formula he started using in 1949 remains available 70 years later to someone starting in 2019.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Spending Diary: The Most Commonly Ignored Personal Finance Advice?

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After finishing The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helaine Olen and Harold Pollack, I found it to be a solid all-around personal finance book that joins others like If You Can by William Bernstein and The Richest Man in Babylon by George Clason in the category of “recommended books about money that are short and easily digestible”. All good ideas for gifts for recent graduates.

They don’t shy away from what I think is the most commonly-ignored financial advice: TRACK YOUR SPENDING FOR THREE MONTHS. Even if you don’t track your budget closely after that, this initial spending diary can be eye-opening. Yes, it takes a bit of effort and can be rather uncomfortable psychologically. Here are some book highlights:

Track ALL of your spending…

For three months, keep track of everything you spend money on, no matter how small. That $1.50 bag of Cape Cod Waffle Cut Sea Salt potato chips? It counts, just as much as your four-figure mortgage or health insurance payment.

… for THREE MONTHS.

If you monitor only one month of spending, you won’t gain a full picture of where your money goes. Routine but sporadic expenses such as car repairs, doctor bills, and the emergency trip to the cat’s vet are more likely to occur over a several-month period.

Now, you can pick your “must keep or I’ll wither away” purchases and the things what won’t hurt as much to cut.

You need to determine what day-to-day spending is necessary and unavoidable, what is a luxury but helps you get through the day, and, finally, what is excess. Only then can you avoid falling prey to spending traps.

This allows you to make trade-offs: I’ll take advantage of the office coffee machine, but I’ll use the money I saved to travel to Italy next summer to attend my best friend’s wedding. I’ll drop my landline phone to pay for my gym membership or boost my child’s college savings.

Final tips. You can put everything on a single credit card or debit card, and then go through your purchases line-by-line. If you use cash, take a picture of your receipts and/or purchases on your phone. If you feel comfortable with it, link your account to Mint.com (or similar) and they will help you categorize things automatically. You’ll need to spend a few weeks teaching it (check in every few days), but it gets better over time.

If you can manage to track everything for three months to get an honest (if uncomfortable and scary!) view of your finances, you may find a big gap between what you think you spend vs. what you really spend. Where does your money go every month?

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.