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Myth: No One Ever Got Rich by [X]

February 23, 2022 by Lazy Man 6 Comments

I’ve read many personal finance bloggers repeat some from of “No One Ever Got Rich by [X].” It may not be a complete lie, but it’s dishonest nonetheless.

Usually [X] is “saving money on coffee.” Sometimes it’s saving money on other things. Recently, I read a new twist, “You’re not going to get rich on credit card points.”

If you take each claim by itself, it is probably true. However, coffee could cost you a 1/3 of a million dollars. (That example includes a lot about compound interest. However, that’s simply what is possible when you save money and invest it over a lifetime.)

The problem is that these are singular claims. It ignores that your total money mindset is made up of many beliefs and actions. It’s unlikely that you are going to be frugal in just one area. Usually, if you are saving money on coffee by making it at home, you are also the kind of person who brings their lunch to work. It doesn’t have to be every day, but it’s probably going to happen more often than not.

Credit card points add up over time. I probably get $750 back a year or more. My grocery card gives me 6% (American Express Blue Cash Preferred) on at least $6,000 in groceries a year. That’s more than $350. I’ve been getting cashback for probably at least 20 years now, so that’s about $15,000. My car, Subaru Forester, was around $20,000, so it’s kind of close to getting a free car. I probably made up the other $5,000 with the bonuses when signing up for credit cards. It’s fairly easy to get $500 if you are spending a certain minimum anyway.

Let’s sum up this whole idea in one sentence:

“Success is the sum of small efforts – repeated day in and day out.” – Robert Collier

The quote wasn’t necessary about personal finance. It works in many areas and personal finance is just one of them.

It’s very important to get the big things right too. You definitely don’t want to make a huge mistake buying a house or skipping health insurance. It’s not great if your car payment eats up half your paycheck. Keeping all your money under your mattress instead of investing isn’t smart either.

The big things are important. The small things that happen a lot are important.

Everyone’s heard the stories of a janitor who died with millions and millions dollars. He is the guy who “Got Rich by [X].”

Filed Under: Frugal, Investing Tagged With: coffee, rich, saving

How Much Do I Need to Save for College?

February 6, 2019 by Lazy Man 15 Comments

A little over 6 years ago, I became a dad. Less than a month later, I wrote an article about saving for college.

Yes, I’m weird.

I thought I’d do something I call “Then and Now.” The idea is to look at an old blog post, review it, and update it for now. I feel that the value of a blog is the journey. Otherwise, you might as well just create a website. Here we’ll see how things have changed in the first trimester of our college financial planning. I think we’ll find that not only has our family has changed, the world has changed, and my knowledge of the saving for college has changed.

Life would be boring if nothing changed over six years, right?

Let’s get started with my 2012 view. Then we’ll get to my 2019 view.

Then: How Much Do I Need to Save For College (2012)

College Advantage Savings Growth

That’s a question that my friend Kevin asked me probably around 3 years ago. It was a simple question. He had recently had a son and he wanted to put aside money to cover his education. Kudos to him for starting early. The question lead me to write this article: Saving for College – An Exercise in Depression. In hindsight, it was a total cop-out as I never did answer his question.

Today, I think I’m going to do better… hopefully a lot better.

I have a vested interest this time around. My own son is four weeks old today and I’m in Kevin’s shoes (not entirely, but I’ll get to that the end). I got in reminder about all this from CollegeAdvantage, the place I determined had the best 529 plan for my niece and nephew. Specifically their newsletter had this image on the right (click for a larger view). The part that caught my attention is the bottom that assumed annual deposits of $2,400. For all practical purposes (minus some interest compounding) that’s $200 a month.

This didn’t answer Kevin’s question, but goes down the right track, giving me a good estimate of how much I’d have if I saved roughly $200 a month. However, it didn’t tell me how much college was going to be when Little Man is 18. Without this information I really can’t know how much to save.

When in doubt, I fire up Excel and get nerdy with some math. Here’s what my Excel spreadsheet looks like (click for larger) and I’ll explain what I did here:

College Costs

On the right you’ll see three headings with numbers below them, “Monthly, Interest, and College Increase.” These are the main variables that I’m playing with here. If I save $674 a month (more on that seemingly random number later) and earn 6% interest I’ll have the amount at the bottom of the “Interest” column under the Savings heading. The Interest column represents how much money I’d have at the end of year assuming deposits and interest. I could have titled this column better, but that’s the beauty of Excel, I’m getting to the numbers quickly. For fun I’ve totaled up the amount of actually cash I’d be putting aside by saving $674 a month. So putting $145,584 over time yields me $350,957 when Little Man is 21. I didn’t factor in taking the deductions out of this to actually pay for college, so there’s room for improvement here. It is important to remember that this is an estimate and there’s no guarantee of earning 6%.

Now let’s turn our attention to the right column of College Costs. Using the “College Increase” value, I can estimate how much college might cost Little Man at age 18. The 4% is just a best guess. Ideally, I would know how much college costs are expected to go up over the next years. Perhaps some research group has a good answer there. I settled on 4% because quite honestly, if you put a 8% number in there the last year of private college is $212,000. I don’t see that happening. Even at 4% the last year being $96,000 looks pretty daunting. However, in 18 years it might not be. I’ve totaled up the last four years of the college costs and you can see that public college is likely to cost around $184,500 with private school costing $363,000. Now it becomes a little clear where that $674 a month came from… that amount gives me the $350,000 range that covers 4 years of private college.

The last piece to the puzzle is where did I get the information for the public and private school costs to start with right now? The answer is Collegeboard’s annual estimates. They did all the heavy lifting give me a number for how much an average public or private college would cost with most of the typical fees rolled in.

So now that I’ve gone through all this math, let me make things easy for you. Saving for College has a College Cost and Savings Calculator, which is dead simple. You just put in a child’s age and it tells you a number that you need to save. I put in $0 just now and it came up with a $602 number that I have to save each month. From there, you can adjust the scenarios just like I could with my Excel spreadsheet. If I had seen this calculator first, I would have skipped the spreadsheet, but the spreadsheet does give me helpful checkpoints. When I did it a couple of weeks ago, I believe that number was $674. When I plugged that $674 number into my Excel spreadsheet things started to fall into place.

The calculator from Savings for College also has a lot of other valuable information. For example, it assumes a 6% cost of college increase using historical information. The 4% assumption in my spreadsheet looks to have been an underestimation. If that stands true, the last year of private school for Little Man is going to cost $143,543. Zoinks!

There are still a few different factors at play here. Going back to the CollegeAdvantage chart, there are taxes to consider, but 529 plans can help with that. If you are saving in a regular brokerage account, who knows what long-term capital gains are going to be at that time? Again, you just take your best guess and adjust as you get closer.

Now for the fun part… I get to throw most of this research in the trash. It turns out that Little Man appears to be eligible to get free public education thanks to my wife’s GI Bill with the military. I knew that it was a tremendous benefit, but this exercise has put it in a whole new light.

Now: How Much Do I Need to Save For College? (2019)

Kevin’s simple question about 9 years ago as his son was born is still an important one: How Much Do I Need to Save For College? Did he need to put aside $50, $100, $200, or even $500 a month to cover his new son’s college expenses. At the time I got depressed doing math of saving for college, as college costs were going up as fast as the average stock investment was projected to. The end result: Expecting compound interest to help your college investment seemed doomed to failure.

It’s important to note that he viewed paying for his son’s college as a strong financial goal. Living in Silicon Valley at the time, I believe he had the income flexibility to put significant money towards that goal.

Then (2010 and 2012), I took the question on face value. It’s an interesting mathematical question. My thought was, “Let’s do some objective number crunching! Yum!”

Now (2019), I feel it is more necessary to talk our feelings about college costs. For this article, I’m going to put aside the question of whether you should or shouldn’t pay for your kids’ college. Kevin felt strongly about paying 100% of the costs. I feel strongly about helping, but also that the kids have to have some skin in the game. Other people may not be in a position to help at all. We all come from different backgrounds and have different philosophies on this topic.

Instead, I’m going to do my best to work with the objective math of paying for 100% for college costs. You can always adjust it to suit your parenting style/philosophy.

Then (2012), we had my wife’s GI Bill that would cover Little Man’s public college schooling for 4 years. It even covers some living expenses. Now (2019), we have two kids. We have to split the benefit between them. That means there’s a gap that we have to save for. The original question was for one kid… and that easy answer was the GI bill. Now things are different.

In 2015, when the boys were age 2 and 3, I put together a spreadsheet to estimate their education costs in high school and college. We send them to a private prep school due to a large discount we are eligible for. We plan to continue to do that through the 8th grade. At that point, we’ll have to navigate the high school waters. Many of children in the class will go to some of the best private high schools in the country which cost as much as some of the best colleges. I decided to include that into the numbers, but I don’t think that’s feasible without some kind of scholarship. For the purposes of this article, you can pretend the high school component doesn’t exist. (Again, it’s best to customize to your specific situation and goals.)

Here’s what the numbers look like for kid 1 (the oldest):

Education-Kid1-2015

Remember these numbers were from 2015. I used the average cost of public and private college that year and assumed a 3% increase each year. Years ago, I thought it would increase at 7%, but those numbers just got really, really crazy.

Here’s kid 2. Since they are almost the same age the numbers are pretty close:

Education-Kid2-2015

Here’s the summary that’s going to be the glue that makes the first two tables make some sense:

Education-Summary

I’m going to start with the summary first and work backwards. The summary adds up the high school costs (the four years in bold in the high school column) and the college costs (the four years in bold in the average college column). Because I don’t know if if the kids will go to public or private school, I averaged the costs of the two. The college cost is divided in half which is an estimate of using my wife’s GI Bill. I then added up those numbers coming to around $300,000 for each kid (one a little more and one a little less).

Once I knew that my goal was to save $300,000 each, I could play with the monthly savings number and projected investment gains (estimated at 7%). It turns out that I needed to put $625 for kid 1 and $600 for kid 2 to come up with those kind of numbers. That’s a lot of money, but remember that the high school would be the expensive part, and I don’t see it happening (my wife doesn’t necessarily agree with me on this).

If we were only concerned with college, we’d have a much more manageable amount of around $220 for each kid to cover the estimated gap not covered by the GI Bill.

Of course 2015 numbers aren’t relevant. I’ve updated the same three charts above for 2019.

Kid 1:

Education-Kid1-2019

Kid 2:

Education-Kid2-2019

Education Summary

Education-Summary-2019

One thing that stood out to me is that the costs of college didn’t go up 3% every year as I expected. Overall, they went up 7% in the three years total. I had expected it to go up more than 9%.

This math assumes that one were to start saving from scratch now.

How Much Do You Need to Save for College?

This is a lot of math that is very specific to our family and our financial situation. I don’t expect the numbers to mean much to you.

What I’d like for you to take away from this is the process. It isn’t perfect. It makes a lot of assumptions that will eventually be shown to be wrong. However, there’s value in doing this exercise at least every few years. I learn something new every time I do it. Finally, I continue to get more data and that helps my planning over time.

Have you planned how much you need to save for college? Has the plan changed over time? Let me know in the comments.

Filed Under: College Tagged With: 529 plan, saving, tuition

Text Digit to Boost Your Savings

May 5, 2017 by Lazy Man 6 Comments

Editor’s Note: This article was originally written about Digit, but they charge a monthly fee now. I suggest you use Dobot which works almost the exact same way, but without the fees. You can read my Dobot review here).

I’m a big fan of Lifehacker and last week one article caught my attention: Boost Your Savings Account by Adding the Money You Save on Every Deal. The article brings up a great point by Eric Nisall of DollarVersity in an article posted on The Simple Dollar about saving money:

“If you’re constantly scouring the Internet for deals or whipping out your coupon binder, you could be saving boatloads of money on everything from groceries to office supplies. But, what if you actually transferred those savings into an actual savings account?

Eric Nisall from DollarVersity once tricked himself into saving money by doing exactly that. Each time he used a coupon or earned significant savings somehow, he would move that money into a special account. Over time, this helped him build a stash of cash that practically came out of nowhere, he says.

‘So, if I went to the grocery store, or any shopping really, I took the ‘total savings’ from the bottom of the receipt and transferred it,’ says Eric. “I transferred all of my overtime payments as well. Since I only budgeted for gross spending and regular paychecks, I didn’t notice any difference in my everyday account.’”

I have two non-sequiturs* that I’ll save until the end so I can get to the real point.

This sounds like a very cool way to save money. I immediately dismissed it because I’m Lazy and I’m not going to go into my bank account and physically transfer the money. When you are on the go, it simply doesn’t make a lot of sense. I could save receipts for home and do it then, but it still is “bookkeeping” and part of my message is that you shouldn’t spend time managing your money.

It was then I realized that I had my Digit Dobot account. I can just text, “Save 13.72” in the SMS thread with them on my phone and move on. Dobot will transfer the money out of my checking account and put it in their (FDIC-protected) savings account.

Regular readers know that I love my Digit Dobot account. You can read my Dobot review here).

Dobot makes Nisall’s idea very easy and much more practical for the average person.

As I was publishing this, I decided I should read the comments on the Lifehacker article. It’s really interesting…

One person asks for an app to make this easy and the author of the article agrees it would be “amazing.”

The very next person asks if someone has heard of Digit and proceeds to explain how it squirrels away little bits of money each day. This is my main reason for using Digit. However, the person bringing up Digit and the people responding don’t bring up the texting functionality of Digit that is the amazing app that the author is looking for. It seems like it was brought up as an alternative to Nisall’s way of saving money rather than a way to easily implement it as a complimentary savings tool.

* 1. I had dinner at a Five Guys with Eric last year at FinCon. First time I had gotten a chance to really talk with him. Great guy.
2. This is the first time I’ve had to embed three layers of quotes with the “total savings” quote in the article. I have to admit that I didn’t know what to do here, so I just stuck with the single quotes.

Filed Under: Money Management Tagged With: digit, saving

The More It Costs, The More You Should Research It

October 5, 2015 by Lazy Man 4 Comments

My friend Jim from WalletHacks asked me a question last week. It was along the lines of, “What is your best personal finance tip?”

I’ve been asked this about a dozen times. There’s the obvious money golden rule of “Spend Less Than You Earn”. That’s too easy though. Every personal finance writer would likely say the same thing.

Rather than give that answer, I’ve always responded with “the more a purchase costs, the more you should research it.”

money pile

Then I realized that I never wrote an article about it. I’ve been giving this information to everyone else except my readers. What an epic fail! (Is describing something as an epic fail in 2015, an epic fail itself?)

I think the concept is fairly self explanatory, but let’s dig into anyway.

There are some things that are going to matter greatly in your personal finance life. They are usually big purchases such as houses, cars, weddings, even having kids. (Yes, I know kids aren’t a purchase, but that decision spawns a lot of other purchases.) Then there are things that aren’t going to matter so much, such as adding some gum at the grocery checkout line.

If it’s a big purchase that’s going to be part of your life for some time, it’s worth putting a lot of thought into it. I had a friend who thought about a purchase of a car for a couple of years. That’s an extreme example. If we were discussing a $700 coffee table book, I’d probably have to think about it for 4-6 months. Okay, I’d simply reject it on the grounds that it is a $700 coffee table book, but if it were something a little more practical I’d put some time into it.

When I take this time, I usually find that I don’t need it at all. Sometimes I realize that I don’t even want it. I’m not immune to impulse buying, but having this policy in place substantially curbs it.

I realize there’s a difference between researching and thinking about a large purchase. However, I’m going to lump them together. I often tell myself that I’m “researching the best option”, when I’m really debating whether or not I need something new. For example, I’ve been researching the best television for a few years now, because (and don’t tell my wife I wrote this), our current generic 55″ television does the job. (For those wondering, this is the best television.)

The biggest exception to this rule is subscriptions. They can be large purchases, you just pay for them over time. I bet some people pay more for their cable bill than other people pay for their cars (on a monthly basis). It’s definitely worth spending some time to think about those as well. I put daily coffee and lunches are in the same category of subscriptions, they are a lot of the same small purchases that add up. If you can change your habit to do other things that may be more frugal, you’ll save a lot of money there too.

If you did nothing else but follow these two bits of advice, you’d have solved about 80% of money’s golden rule of spending less than you save.

P.S.

I couldn’t think of a good image for such an abstract concept… but I enjoyed this image of a pile of money from Breaking Bad.

Filed Under: Spending Tagged With: frugality, money rules, saving

Money Rules by Jean Chatzky Reviewed

April 3, 2012 by Lazy Man 4 Comments

Money Rules by Jean Chatzky
Money Rules by Jean Chatzky

What’s this? Two book reviews in two weeks? Are you really reading Lazy Man and Money? Have I gone mad?!?!

For years I’ve shunned book reviews. Why? Reading a book in addition to all the blogs and other things I read daily is a lot. It takes me 6 to read a book on a good day (I’m not a fast reader), and then writing up the review can take a couple more. It’s a commitment and not one that fits well with my cat-like attention span.

So why am I reviewing another book this week? There are two reasons. One is that it’s from Jean Chatzky. Despite the fact that I’ve been waiting three years for an email interview that her publicist promised, I think she’s got some of the best advice of any personal finance guru. The other reason I’m reviewing it? It is 109 pages and just about every page consists of just a few sentences. Some are simply pictures. I didn’t time myself, but I’m guessing that almost anyone can get through it in about 40 minutes.

Today’s book is Money Rules: The Simple Path to Lifelong Security by Jean Chatzky. The book itself consists of 94 rules. I’m surprised at the number. You’d think they’d stretch it to 100 or 101 for marketing purposes. It seems like it wouldn’t have been that hard to come up with a few more. Since the book is so short, this review will be as well. The 94 tips in general are pretty good ones, but ones that many would expect to know. For example, there was one about smoking, essentially pointing out the monetary costs to it. I’m on the fence about criticizing it because if it weren’t there, the book might seem incomplete, but by including it, it went a little bit into the common sense territory. I think the best tips were the ones that pointed out the psychology behind spending or saving.

I didn’t find myself agreeing with all the tips though. Tip #19 suggested that you carry $100 bills rather than $20 bills because psychologically it is more difficult to spend that big bill. If you combine that with rule #18, which says that you’ll spend less if you pay in cash rather than credit, you may find yourself not being able to purchase things like lunch. Not every place takes $100 bills and some places limit the change that they have on hand. Another of the rules, #39 was so vague that I don’t understand it all, “Always get three bids. Never take the high one.” It’s in the spend wisely section, so I guess this would mean that I should get three bids for landscaping and never take the most expensive one. That seems to be over simplistic. I’m sure there’s a case where the most expensive of three landscapers does offer a better level of service.

Oh and I like do with all the books I review, just to prove that I did read the book I’ll point out the page with the error. Page 101, which has tip #88 should be “leaving $20,000 to your kids”, not “leaving $20,000 to you kids.” The irony that I’m a great proofreader of other people’s writing and a terrible one of my own is not lost on me.

The Bottom Line: I’m of two minds on this book. On one hand, there’s great value in having something concise and to the point. On the other hand, it’s not a lot of information for $13. I could see it as a gift for someone graduating college. It’s got enough of the beginner tips, and it doesn’t require a commitment to read. It also says, “I spent nearly $15 on you and I care about your financial future”, so that’s a good thing.

Filed Under: Book Review Tagged With: Investing, Money, saving, spending

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