Virtual Coupon Clipping

The holidays are coming up, which means you can expect another season of frenzied shoppers trying to find the best deals, both in person and online.  You’re familiar with the concept of coupons, but you just can’t be bothered to browse through those coupon magazines, finding and clipping the ones that apply to you.  Maybe you’ll take advantage of a Black Friday sale, but that doesn’t require any extra effort (besides physically getting your hands on the product on that busy day).

For these reasons, I prefer to do a lot of my holiday shopping online.  Today I’d like to share a tip with you that is easy to implement and will save you plenty of money on online purchases and shipping.  Use RetailMeNot!

http://www.retailmenot.com/

Whatever website you are about to purchase something from, you should search on this website first.  It is a catalog of coupon codes that you can enter during “checkout” to get discounts and often free shipping.  No leafing through pages and pages of advertisements, and no storing them in your wallet until it is about to burst.  Just simple strings of letters and numbers that you can copy and paste to keep some savings on each and every online purchase.  After you do this for the first time, you’ll wonder how much money you could have saved if you knew about this before.

So take advantage of it!  Happy bargain hunting, as you think of creative and thoughtful gifts to give your loved ones for the holidays!

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Dividend round-up

A little less than a year ago, in November 2012, I had just paid off all of my student and car loans and had accumulated just enough money to begin investing seriously.  I researched different types of accounts and brokerage services before opening a Roth IRA with E*Trade.  I contributed the maximum allowed amount ($5k) in 2012 and 2013.  Most of this I chose to invest in VTSMX, a Vanguard mutual fund, but I also invested smaller amounts in other dividend-producing stocks.  Today, after reviewing a dividend notification on E*Trade, I thought “Wouldn’t it be fun to see just how much money I’ve made over the past year from dividends alone?” which inspired me to create this post.

For investing newbies out there (20-somethings like me):  A dividend is a payment made by a company to its shareholders, as a way to distribute its profits.  Many people reinvest these dividend amounts, and others use the cash elsewhere.  Money made from dividends is to be thought of separately from money made by a stock price going up.  For example:  If you buy 100 shares of FakeCo Inc at $50 a share, that will cost you $5000.  Let’s say that they pay a dividend of 25 cents per share per quarter.  Three years later the stock price is exactly the same ($50/share) so you sell your stock and get your $5000 back.  So what was the point?  Well, over those three years you would have made (25 cents) * (100 shares) * (12 quarters of a year) = $300.  Hopefully the market value of your investments goes up also, but dividends are a nice bonus.  I heard somebody once compare trading stocks without dividends to trading baseball cards.

Anyway, after thinking to myself how interesting it would be to know exactly how much money I’ve made from dividends over the past year, I looked it up:  $287.94

This is wonderful!  To borrow an analogy from MMM, every dollar I have invested is one of my little employees, and these dividends are the bacon that they bring home.  This essentially free money that I spent no effort earning through my own labor represents an additional gain of roughly 2% of my Roth IRA savings.

And that is the power of dividends, produced by stocks and/or mutual funds that you plan on owning long-term.  As I invest more and more in the coming years I look forward to seeing this number grow.  Just because you’re young, don’t be daunted by beginning and investing your retirement savings; see what can be accomplished in just a year!

Artwork Time!

Over the past three weeks I’ve been secretly working with an artist I discovered on reddit to commission a series of images to present to my future wife as a wedding gift.  They are done in the style of a cartoon we both enjoy, and depict us doing many of the activities that we enjoy together.  The process was smooth and simple: I described what I wanted, approved some concept sketches, evaluated previews of the final work, and paid for the high-res image files.  The entire time I was very excited to see the project to completion, and was not disappointed by my fiance’s reaction.

johncommission1_web

Although I didn’t create the artwork myself, the images are very personal.  Art is a personal thing, and different pieces speak to different people.  It is the kind of thing that is hard to put a price on.  Perhaps this explains why some are willing to spend millions on a Picasso.  My position is that when you’ve cut out all of your frivolous expenditures it is very easy to justify spending hundreds of dollars on art, if it makes you happy and if you are not spending more than you are making.

johncommission2_web

I talk about accumulating wealth; after all, that is the subject of this blog.  But wealth is more than money.  Money is merely a tool, a means to an end, an end which to me is ensured security and happiness.  It is important not to lose sight of that.  Maybe I could have had a higher savings rate this month (it will still be high), or retire a year or two earlier than I am planning (which is still early), but only at the cost of forfeiting experiences that I would not give up for the world.  You can recognize the rich man by the smile on his face.

johncommission3_web

Then again, if I had any artistic ability of my own, that would be even better.  My fiance and I are of the same mind on these topics, although she is often better in the execution, having recently completed two oil canvases of her own (and the discounts she finds on her supplies amazes me).

PS.  The artist is Amy Liu.  If you like the pieces I commissioned then please check out her other work on her website or on her blog.  It was a pleasure working with her.

Investment Strategy

When I began to save up significant monies (after paying off all my debt), I also began wanting to invest that money.  The advantage of investing is obvious; your money has the potential to make you even more money while you do nothing.  But as I made my initial discoveries on the topic I also learned about the disadvantages of not investing.  If you have a lot of money doing nothing but sitting in a savings account, then the interest you receive is negligible, and the value of that account will depreciate due to inflation.  In this situation, time works against you.  I was in that situation, and wanted my savings to work for me instead of idly depreciating.  Here are the steps that I took, and the steps that I recommend to others who are just beginning to accumulate the foundation of their retirement, in order to best take advantage of the time left between now and retirement.

Step 1:  RESEARCH

So keeping a lot of money in a savings account is bad.  What are our other options?  I would argue that the first thing a novice investor should do is research the different types of accounts you can open, how each is taxed, when (and how much) you can deposit or withdraw, and other advantages/disadvantages of each account type.  I understand that this sounds boring as hell, but YOU WILL NEED TO KNOW THESE THINGS EVENTUALLY and the sooner you sit your ass down and read about it, the more time you have ahead of you for your assets to grow.  I guarantee that no matter when you learn about these things, you will regret not having learned about them sooner, because taking advantage of this knowledge = free money.

You already know about checking accounts and savings accounts.  Your investment research homework assignment is to look up these other common account types:

  • Traditional 401(k)
  • Roth 401(k)
  • Traditional IRA
  • Roth IRA
  • Brokerage

And answer these questions for each account type as you do your research:

  • How would I open one?  Through an employer?  A bank?
  • How do I make deposits?  Are my contributions pre-tax or post-tax?  Is there an employer match?  Is there an annual limit on how much I can contribute?
  • How do I make withdrawals?  Are they taxed or penalized depending on timing?  Are there other fees?
  • How do I choose how the money in this account is invested?  What are my investment options?  (More on this below)

Part of the reason I’m encouraging you to do this research on your own is that I’m not an expert, just an enthusiast.  Your situation, your employer, and your goals may all be different than mine and by doing this research yourself you can put together a plan suited specifically for you.

Step 2:  INVEST

Open up one or more of the above account types and choose how the contents of that account are invested.  I especially recommend opening up a Roth IRA and contributing the max of $5k a year, then using that to buy VTSMX.  I like mutual funds managed by Vanguard because Vanguard is owned by the funds themselves (and consequently owned by each and every investor in these funds).  VTSMX is a stock market index fund which means that it is already diversified (so you’re not putting all of your eggs in one basket).  The stock market always goes up in the long term (look at any ten-year period, even those containing depressions/recessions, and you’ll find that this is true) so an index fund like this is a safe, solid way for your money to do better than it would in a savings account.

But hey, maybe you like a little more risk.  Do the research and have fun investing.  Have a long-term mentality and watch your assets grow.  Use the time you have; the more the better.  And don’t panic 🙂

EOM July 2013

My savings rate for July was 73%.

Instead of diving into different spending categories this month I just want to reflect for a moment on what it really means to save three quarters of your after-tax earnings.  I wish I could have done just a little better because a 75% savings rate is really wonderful when you think of it this way:

I saved enough money in this one month to sustain my current lifestyle for three additional months, with no need to change my spending habits or behavior.  If I were able to maintain this savings rate for an entire year, I could afford to “retire” for three years.

As it stands now, my YTD (year-to-date) savings rate for 2013 is more or less exactly where my 2012 savings rate ended up: 67%.  Still, two years of retirement for one year of work ain’t bad.

But because I continue to work and save, I don’t spend that money on retirement (yet).  I invest it.  Although it doesn’t enter into my savings rate calculations at all, I also keep track of how much I earn on my different investments.  If I take the value change of my investments over a time period, and divide by my total expenses for that same time period, I get the percentage of my spending that is covered by my passive income.

Last year (2012) that number was 7.4% for the whole year.

This year so far (2013 YTD) 41.5% of my spending is covered by the passive income that my investments generate.

Now, to be fair, not all of this money is at my fingertips.  Much of it is tied up in investment vehicles with penalties for early withdrawal.  But I don’t want to withdraw it just yet anyway.  This encouraging percentage is a reason for me to continue adding to my savings and my investments even as they grow themselves, under their own momentum, so to speak.  And when it gets to 100% it will be one indication that I am prepared to retire!

Another caveat is that this 41.5% is also very much a function of how well the market is doing.  If this number doesn’t average out to be 100% over my lifetime then whoops, time to get a job again.  Doing well one year doesn’t mean it won’t be halved the next.  But even if it does, it always comes back.  I’ll leave my investment strategy as a topic for another post, but I guarantee that you’ve heard it before, and that it is safe and boring.

Even when you take these caveats into consideration, these numbers are so encouraging.  They make me really glad that I’ve made a habit of taking 15 minutes a week to collect all of this data, and put time and thought into analyzing it and using it to inform my financial decisions.  And I don’t plan on stopping anytime soon, so stay tuned, and happy saving!

Riding the Technology Curve

The future is here, it’s just not evenly distributed yet.” – William Gibson

Many people are excited by gadgets, myself included.  Whether it’s Apple’s iPod or Google Glass, these futuristic tech toys are fun and exciting.  When a new model comes out, people queue up, sometimes for days, in front of the store to be one of the first to own it.  The early adopters pay the most for it.  After some time, there is usually a price drop, then another, until eventually sometimes people simply discard the item in favor of the cutting-edge replacement.

Obviously gadget collecting is an expensive hobby, and the farther you lag behind the technology curve, the cheaper everything is.  As exciting as these things are, I try to practice restraint and avoid being an early adopter of anything.  As cool as they are, I’ve actually never owned an Apple product.  I’m not sharing this with you to make a statement about this one particular company; their products are incredible, like something out of an old science fiction magazine.  Rather, I want to point out that over my lifetime I’ve spent a total of $0 on Apple products.  I’ve never really felt that I NEEDED any of them.

Earlier this month, I discovered Project64.  This program emulates the Nintendo-64 video game console, and is available for FREE!  Pretty much any N64 game has a “ROM” available on the internet somewhere.  This means that anybody with a laptop can play and appreciate the entire library of N64 games today for free.  I never had an N64 as a kid, and I’m glad I never bought one for the original retail price of over $150, or any of the games for $50 or more.  Because now, I can enjoy them all for free!

Project64 isn’t even that new, it’s just that I only just discovered it.  There are plenty of other emulation programs for other systems out there too.  By just waiting a couple of years, you can eliminate nearly 100% of your video gaming costs!  And this same concept applies equally to other non-necessities like carrying your music around with you as well.  It’s totally cool, but do you really want it right now, at that price?  Try waiting, and saving that money instead.

We live in an age where the rapid advancement of technology makes these waits trifling.  Don’t want to pay hundreds of dollars for a flat-screen TV?  I bet somebody, somewhere is trying to give away a perfectly good tube TV.  Let the early adopters have their fun, and let their business ensure that companies like Apple will continue to create and innovate, with the pleasant knowledge that you will have access to all of the same things without needing to pay for the privilege.

Rules and Risks

There is an old board game called LIFE where players move along a track from start (getting a job) to finish (retirement), and are subjected to random events along the way.  Win $5,000 in a karaoke contest!  Pay $100,000 for plastic surgery!  You also have the option to purchase auto insurance and home insurance to mitigate risk later on.  Flood!  Fire!  Good thing you picked those certificates up, right?  Of course, in real life not every event can be insured against.  And there will never be any shortage of life events, random or not.  Every action has its risks, and (real) life has its rules.  Break them at your peril.

life-car-pegs

One of life’s little rules are speed limits.  Breaking them is a common risk that many people take.  The benefit of speeding is reaching your destination sooner.  The risk is of getting caught, being issued a citation, and needing to pay hundreds of dollars to the state.  I was speeding recently, and a police officer was waiting for me on the other side of a hill.  He issued me a ticket for about $300.  On top of that, I was driving a car that belonged to my passenger, and her registration was not up-to-date, so she got a citation too.  That was a risk that she took to save the $75 registration fee.  I think in both cases the risks did not outweigh the benefits.

This and other recent events have definitely influenced me towards being much more risk-adverse.  Stop speeding; slow down.  Think critically about risks and potential gains.  Always ensure you are insured.  Be prepared for the worst case scenario.  This attitude will save you money (and peace of mind) in the long run.

Here is a list of actionable items that may help you practice this attitude:

  1. Do not speed.  Speeding tickets are expensive, and you may not be shaving off as much time from your trip as you think.
  2. Keep licenses, registrations, and insurance policies up to date.  You will avoid fines by renewing the former and mitigate risk by owning the latter.
  3. Keep an emergency fund.  You will have more options for when you encounter negative life events.
  4. Follow the rules, and pay attention to authority.  Be reasonable, but keep your head down.

Most of this is common sense, but it never hurts to refine ideas by giving voice to them.  You may only be between jobs for a month without health insurance, but if you couldn’t pay a hospital fee in case of an accident (worst case scenario) you should get an individual insurance plan, even if it is just for one month.  When all is said and done, avoiding the risk will almost always be the smarter choice.

In the case of my speeding ticket, the only thing I did right was number 3 on my list: having an emergency fund to cover it.  Here is to getting the rest right also, and not letting little speed-bumps (so to speak) prevent me from reaching financial independence by 35!  Because life, unlike LIFE, does not end when you retire.