Budgeting for Back-to-School

Screen Shot 2014-04-14 at 8.12.36 AMBut it’s only April, you say. The new school year is months away.

Ah, but so are those heavy startup costs. The folders, glue sticks, pencils, calculators, tape, binders and highlighters. Boxes of Kleenex. Locks.

Depending on how you establish your budget categories, you might even include new sneakers, gym shorts, hoodies and jeans in your children’s back-to-school costs. I don’t; I have a separate clothing category for the kids, and it stays relatively stable from month to month. I am also extremely lucky to have an older sister who regularly boxes up and sends me the OshKosh and Children’s Place items that her own children have outgrown.

But it doesn’t just end with the September stock-up. There are myriad other expenses that pop up throughout the school year. If I search YNAB for “school fees”, I can see that over the last two years, I’ve shelled out for school supplies, hot dog lunches, popcorn days, pizza lunches, tennis lessons, chess lessons, festival costumes, badminton lessons, field trips and project supplies. And that’s not all: there’s a camping trip coming up at the end of June for the grade 4s. Cost: $190. (Luckily, the boys’ dad will split it with me.)

YNAB lets me plan for these inevitable expenses ($56.76 for just one term of hot lunches, holy cats!). This makes August much less stressful, because I know I’ve already got a healthy category balance for buying the kids’ school supplies.

And actually, as I flip back through my budgets for the past number of months, I can see that I have been budgeting too little (I had to snatch five or ten bucks from several categories last September so I could blast an extra $70 into the school fees budget). I see now that ten bucks a month isn’t going to cut it, even with my ex sharing some of the costs. I think boosting my monthly budget to $20 will provide me with more peace of mind, especially now that both boys are getting older. And more expensive.

How do you manage your back-to-school costs?

YNAB Podcast Episode 70: I’m Saving This Money. (For What?!)

podcastmic

Prefer audio? Click the play button.

Hello YNABers. My name is Jesse Mecham and this is podcast number 70 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I want to specifically talk about saving money and how you do that in YNAB. Why you shouldn’t just save money, but should save money with a purpose.

I was talking to my sister – my sweet, sweet sister – and she said, “I’m saving money. Where should I put it? Should I invest it?” So I said, “Well, what’s the money for?” “Well, it’s just savings.” I said, “Well, what are you saving for?” “Well, nothing. I’m just saving it.” And I told her I really couldn’t give her an answer because I’d have to know more about what she was going to use the money for. So I said, “Well, is it for retirement? Is it for a house down payment? Is it for a vacation? Is it for a crock pot? What exactly are we saving for?” Until you decide that, you can’t really save with the same focus and the same intensity you could otherwise.

Savings that don’t have a job, savings that are just savings, will be raided at the first sign of an emergency, or an excuse. So you’ll say, “Oh man, this came up. Well, let’s just use our savings.” Well, if that savings was for a new MacBook Pro or it was for a vacation or for Christmas, you’d think twice about raiding the savings to bail yourself out of some perceived emergency. That emergency is probably an under-funded rainy day fund from Rule Two. Sometimes there are legitimate emergencies where an emergency fund would need to be utilized, and an emergency fund is savings. You’re saving for an unforeseeable emergency, not for a larger, less frequent expense like Christmas.

So, make sure your saving has focus. YNAB handles that really well for you. There are a lot of different ways you can handle savings in YNAB. You can keep the savings completely off-budget and simply when you transfer money, let’s say, from checking to an off-budget savings account you would categorize it as savings for car, savings for vacation, whatever category set-up you have. And the money flows out of the budget and then it’s gone. It goes into that savings, and you don’t see the savings on your… in YNAB at all. It’s not even an account, not even an off-budget account, it’s just not there. So it’s like an outflow.* The category is like a gatekeeper for your budget. Categories let money come in and let money go out of your budget. If it never enters the budget, it obviously doesn’t get a category; and if it’s never leaving the budget, it doesn’t get a category there either. So one way that you can do savings is to not have your accounts in the YNAB software at all.

*Check out this helpful tutorial video about on and off-budget accounts in YNAB. 

Another way is to have your savings as an off-budget account. That way you could record transfers, but you just want to make sure that your transfer out of your checking account is categorized because it’s leaving the budget, it’s going off-budget. And any transfer from your savings back to your budget would be categorized because it’s entering the budget, and those categories are the gates for the budget.

Another way you could do it is to keep your savings on-budget, where you’re transferring money from your checking to your savings account and neither is categorized because the money is staying within the budget. In that regard, you can just use your categories and set… fund those categories – say $400 for car replacement. You put that in your car replacement category, you budget for it, and you watch that category balance grow. And then you do the transfer – physically when it happens at the bank, and then also virtually in YNAB. Transferring on-budget to on-budget obviously means there is no categorization. So, that’s another way to do it.

Finally, you don’t have to use a separate savings account physically at all, and you simply use your category balances to track all your savings. Your checking account will grow to a size that you likely have never seen, and it’s kind of cool. That’s what we do. Our emergency fund sits in our checking account. Our new car fund, before it was massively depleted, sat in our checking account. We just have a big, flush checking account. And then if little, niggly things happen like Rule Three and having to roll with the punches, it makes it much easier to actually roll with those punches.

So, there’s four different ways you can handle savings. We have a best practice way – I can’t recall it off the top of my head which one of those it is. But if you have any questions you can check out our support page, and go to the video and see Erin, our lead teacher, explain that much better than I just did, with some visuals and everything.

So, I just wanted to make everyone aware, you know, be aware of how you can manage those savings, and also talk about why it’s important to have a purpose with your savings. Savings without purpose is savings with a target on its back.

Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

Three Ideas for Avoiding New Credit Card Balances this Holiday Season

gift-boxI’d guess “Christmas” is the second-most mentioned Rainy Day category in any discussion about the You Need A Budget (YNAB) philosophy of money management.

I’m afraid many families start the new year with a serious holiday hangover in the form of fresh credit card balances. Nothing quite like the horror of 15% to 25% interest to knock your holiday cheer down several notches.

With 13 days until Christmas, many of you have already finished your shopping. Others of us will be hitting it hard this weekend.

I wanted to pass along a few thoughts about how to minimize (eliminate?) new credit card debt from your holiday gift giving.

I’m treading lightly here, acknowledging the high emotions around gift giving and money. These are my own thoughts and feelings, not given as right or wrong – just shared to start a discussion.

1. Detach the dollar amount from the value of the gift.

Two Christmases ago I spent close to $1,000 on my wife’s Christmas gifts. Yes, it was a fun morning. But when we talk about gift ideas for her birthday/Christmas/anniversary, she always reminds me her favorite gifts have been the few handwritten letters I’ve given her over the years (pardon the personal mushiness).

Given our current struggle to free ourselves from debt, I bet my wife would have much preferred a letter to the stuff I got her that Christmas.

(Kate also tells me one of her best Christmas memories is of her dad making toys from wood to give to her brothers.)

2. Consider returning a few things.

If you’re finished (or close to finished) with your shopping, and you know you won’t be able to cover the full credit card balances when they’re due, consider taking some stuff back.

Sorry to be the ultimate scrooge, but I’ve never given my children a gift (for any occasion) that was so useful or exciting that it was worth carrying on a credit card at 25% interest.

If you’ve managed to follow my first bit of advice (detaching the dollar figure from the value of the gift), I’m sure you can find ways to give that more than make up for the “loss” of any item you return.

3. Do your own thing; don’t worry about how much your family or friends are spending.

My parents weren’t big spenders (thank goodness), so I’d usually go back to school after the holiday break and hear lists of gifts received that were much longer and more expensive than mine. Yes, I did feel envy. I’m sure I also wished my parents were “richer” – which in my friends’ parents’ cases likely meant “more willing to carry Christmas debt.”

But as an adult I’m grateful my parents didn’t make life about stuff. I didn’t follow many of their good financial examples, but they seem to have permanently innoculated me (and my siblings, now that I think about it) against addiction to stuff. I hope to pass the same along to my own kids.

There’s no shame or judgment here – just me encouraging you to take a step back, slow down a little, and think hard about the value of the gifts you give.

What are you doing to keep your holiday spending at comfortable levels?

How I’m Saving $1,828 Per Year on My Cellphone Bill

I gave up everything, and lost nothing.

Step One: Admit That You Were Just as Happy Prior to Being Shackled by Your Large Smartphone Bill.

ball-and-chainBefore I dive into what will be an extremely-detailed, tactical post for saving you well north of $1,000 per year, let’s take a step back and look at the big picture. If you’re at all like me (handsome, witty, but otherwise quite normal), you 1) have a smartphone and 2) pay through the nose for it.

And if you’re at all like me, you didn’t have a smartphone…say…10 years ago.

Our first step is to admit that ten short years ago, we all at least barely survived without smartphones.

I can’t say I’m any happier now, with my fancy iPhone, than I was without it.

That being said, this post will not be about giving up convenience, but about finding an exact or near equivalent alternative to save you serious money.

One more thing: convenience and happiness are not the same. Gardening, exercise, pursuing higher education, and raising children are inconvenient, but doing all four of those things makes me happy :) You likely have similarly inconvenient pursuits in your life, and are happier for it.

A Step One Sidenote

Some of you are actually less happy since you adopted the lifestyle of the smartphone owner. Your device owns you. For the rest of us, it’s probably just a mild, to moderate addiction.

Step Two: Examine Your Current Cellphone Bill

Background: Julie and I are were with Verizon Wireless on a shared plan of unlimited talk and text, and 2GB of data each month.

Divide your examination into three components: talk, messaging, and data.

Talk

We average 675 minutes per month.

Our top twenty phone numbers that we call account for 94 percent of our total minute usage each month. It gets better when I examine our top five uses:

  • Julie and I calling each other accounts for 40 percent of our minutes.
  • Julie chatting with her mom that lives across the country accounts for another 25 percent of minutes.
  • Add Julie’s sister and two good friends, and that’s another nine percent.
  • Basically, 74 percent of our minutes are from talking with each other, and four other people.

Messages

Texting is my preferred vehicle of communication between friends. It doesn’t demand they respond immediately and it keeps things short.

Between the two of us, we send about 650 messages per month.

This does not include iMessaging between other iPhone users. Since Julie and I are both iPhone users, we iMessage a lot, and those aren’t channeled through Verizon’s system.

I don’t know where we fall in the spectrum of text usage, but we’ve proven that we use it regularly, and that it would be an adjustment to go without it.

Data

This is the expensive part. I think across the board, data is the most expensive aspect of everyone’s smartphone plans.

Our data usage is about 1GB per month. We’re “lazy” about our data consumption, in that we don’t ever throttle our usage, wait to be in a wifi area, or generally maintain awareness of its consumption at all. Why would we maintain awareness when we rarely cross the 50 percent usage threshold (more on that later)?

Data is the carrot the carriers dangle so tantalizingly in front of us. It’s the reason some of you will resist the remainder of this post. You can’t imagine your life without a data plan, and instant, everywhere-access to whatever addiction you’re currently nursing on your smartphone ;)

I have an answer for you, where you’ll give up almost nothing, and gain a whole lot of money, and quality of life in return.

Step Three: Mentally Walk Through Your Day, and Locate Wireless Internet Around You.

Short Analysis:

My time not in a wifi-available area is limited to:

  • Going to the gym
  • Walking the dog
  • Riding my bike (80%, it’s a new habit I’m loving), or driving (20%) to and from work (12 minutes on bike, five minutes in the car).

Long Analysis that You Can Skip If You’d Like:

I wake up at 4:30 AM, in an overflowing bath of virtual wifi data, for which I’m paying $50/month—whether I use it or not. As I put on my gym clothes, drink my protein, and eat my apple, the Wifi access just floats around me. Plenty of it. More than I could ever use.

I leave for the gym at 5:05 and about fifty feet from my house, the wifi signals fade away. The gym does not broadcast wifi, and I wouldn’t need it if they did. I’m there to work out.

Home at 6:45, I’m back in a wifi area that I’m paying for.

At 8:00 the kids are sent off to school, and I walk the dog. There is no wifi during the walking of the dog, but that’s okay because it’s My Time to Think.

At 9:00 I’m back home, back where the wifi is plentiful (that I’m paying for, but rarely using—notice a pattern here?).

Here’s where I practice the piano, basically wasting the available wifi, since I don’t use it while practicing. Or showering for work.

By 10 AM, I’m off to work, with a 12-minute bike ride to the office. There is no wifi during the ride, and if there were, I couldn’t use it anyway. I survive.

Once in the office, wifi is available. Readily available. There for my consumption, and I greedily eat it up as I manage whatever needs to be managed for YNAB.

The 12-minute ride home at 5:15 PM is still wifi-less. Survivable.

Once home in the evenings, my home wifi is waiting, readily available, and stays that way until I go to sleep at 9:00 PM (You would too if you got up at 4:30 AM).

Wifi Availability Conclusion

If you’re anything like me, it’s probably all around you, for a very large chunk of your day. Based on some quick time analysis I did, I have available wifi during 88 percent of my normal day.

What does this mean for the expensive data plan I’m on? It means I’m paying through the nose to use half of the data (one nostril’s worth), where that convenience can be employed for maybe 12 percent of my day. I’d be stupid to use the data while I’m riding my bike, or driving, so I could only really use the data during the walk with the dog (again, that would ruin my Time to Think), or other exceptional uses. So without riding or driving, those data use cases are really only available to me about eight percent of my day.

What a ripoff.  WE ARE BEING RIPPED OFF.

I’m paying two times more than I should (because I only use half of my available data), to use a benefit that’s available for one tenth of my day.

Let’s start using the wifi readily available to us, shall we?

Step Four: Ditch Your Cell Minutes, and Chat over Wifi

A Quick iOS-specific Aside

Going back to my cellphone minute usage, Julie and I combined are the top chatters. I know her schedule, and know that she’s also bathed in wifi that we’re paying for and not always using. We’re both on iPhones, we’ve both updated to iOS 7, and now we’re both recognizing the benefits of the new FaceTime Audio feature (there may be an Android equivalent, I didn’t dig deep there).

FaceTime audio is a lower-bandwidth option than FaceTime video (because there’s no video), but limited to Apple devices. It’s only available over wifi, but we’ll talk about how to get wifi anywhere further on this post, so no worries there.

Bonus though:

“FaceTime Audio also provides a sharper, higher quality sound than traditional phone calls by utilizing the technology known as “Wideband Audio.” The difference is as clear as comparing a 1970′s television set to a IMAX screen. Once you hear the difference, you’re unlikely to want to go back to regular cell phone calls. Plus, the service is free.” (source)

I snagged Julie’s phone and swapped out my mobile number for my FaceTime Audio option as a Favorite in her phone. We’ve chatted over Facetime Audio for the past two weeks and the sound quality is stellar. It sounds like she’s in the office with me.

And Now for the Non-iOS-to-iOS Use Case, Which is Much Larger:

We want to chat over wifi, not cellphone towers.

Step Four (A): Sign up for Google Voice

Google Voice is not a mobile phone service provider. It’s a fancy router for your phone number, so you can do fancy things with it. You can learn about the specific features here, if you’d like, but I’ll just speak specifically to how I’m using it to save a bundle.

(Optional): Port Your Cellphone Number to Google Voice

The port cost $20, and is totally optional, but I wanted to do it so if I ever change my cellphone setup, I’ll just tell Google Voice to forward calls to whatever new cellphone I get (or any other contact point). Having your number with Google Voice gives you the flexibility to basically never have to port your number again :)

Just as a quick example, let’s say you’re at your employer’s for eight hours Monday-Friday, instead of having personal calls go to your cellphone, you’d have Google Voice route the calls to your work office number, but would have that happen Monday-Friday, from 9:00AM-12PM and 1PM-5PM (lunch break). People calling you wouldn’t know you picked up on the office phone of course, but you’d be saving minutes. This suggestion only applies if your employer is cool with it.

The port took 22.5 hours, so their estimate of 24 hours was pretty spot on. Also, Google was very clear on the ramifications of porting my number. Read those carefully.

To be clear, when Google Voice is forwarding, you’re still paying for minutes. And as I mentioned before, we don’t want to be using minutes. We want to be using the bounteous wifi available all around us to make and receive calls like everyone else. Let’s leave Google Voice for a moment, and talk about Talkatone.

Step Four (B): Install Talkatone on your Phone

The Talkatone app is a bit kludgy, it has ads (you can pay to have them removed but, honestly, they’re not that big of a deal), and the workflow could be a bit nicer.

BUT, it integrates seamlessly with Google Voice, where setup takes just a minute or so. And then you’re making calls over wifi, with your Google Voice account.

I originally set this all up using Skype, which cost me a bit of money, because I was certain that was the way I wanted to go. I was wrong. Talkatone was just as good as Skype in my testing, and costs nothing.

When setting up Talkatone, make sure you turn on the appropriate notifications for it, as an app, on your phone. For instance, on my iPhone I have it set to alert me, and make a sound—equivalent to what my phone would do if it were ringing through the native phone app.

A Few Nice Features

1) Call Screening
Google Voice has this great feature where you can basically have people report who they are, then Google Voice calls you and let’s you hear the recording. You can then decline or accept the call.

For me, this is awesome. I seem to receive business solicitations more than ever, and declining those will feel so good.

You can set up groups for your contacts, where specific groups always bypass the screening. For instance, I wouldn’t necessarily screen my wife’s calls (she’d be using FaceTime Audio anyway…but you get the drift).

2) Targeted Voicemail
With your contacts in groups, you can prepare specific voicemail messages. For instance, if you’re a small business owner, you’d want to default to having a “business-like” greeting for your voicemail, and a personal one for family. You could reserve a special one for your mother-in-law calling from Alabama…maybe you could say something like:

“Mom?…Mom?…You there? It sounds like you’re breaking up. Hang up and try and call me again…Go on and hang up…just call me right back.”

Hilarity ensues.

We’ve handled minutes usage. We’ll only make and receive calls when we’re in a wifi-plentiful area. Need for “normal” cellphone minutes: zero.

Step Four (Righteous Indignation): Breaking Down on the Side of the Road

I’ve mentioned my plan to lots of people over the past two weeks, and EVERY SINGLE ONE has asked me, “What if you break down on the side of the road?”

Originally, I entertained the idea of an emergency cellphone (or two, one for each car) for this scenario. However, the monthly maintenance cost, and thought overhead required, is too high. I looked at Tracfone, with two $10 phones, and 30 minutes of prepaid minutes that would last a year for each phone, and we’re already at $20 per month. Unacceptable.

So I looked harder for a cheaper option. No dice.

Whereupon I convinced myself that an emergency cellphone is unnecessary. This internal struggle reminded of the late comedian Mitch Hedberg’s bit:

“I sit at my hotel at night, I think of something that’s funny, then I go get a pen and I write it down. Or if the pen’s too far away, I have to convince myself that what I thought of ain’t funny.”

Now, you certainly can accept the cost of an emergency cellphone, but consider the fact that ALL of these things would need to happen, in order for you to require one:

  1. An emergency would need to take place that was NOT worthy of 911 (you can dial 911 on any cellphone, whether or not it’s attached to a cellphone plan), AND
  2. There would be NOBODY around, whose phone you could borrow (remember, it’s a non-911 emergency, so the time sensitivity of this emergency would likely drop, making this even less likely, AND
  3. There would be no wifi available (likely, if #2 is happening), AND
  4. Plan B from an upcoming Step Six would fail.

From my recent podcast #94 – “Cellphone, Unshackled” (where I work this written plan through verbally, and was less accurate as a result), I had a podcast listener write in with the following firsthand observation. David gave up his Android smartphone last year and this is what he had to say about pre-paid backup phones. Read this slowly, then re-read it, and let it really sink in:

“For a brief while, I had a pre-paid backup phone. I ditched it when my minutes expired. Almost everyone else these days has a cell phone and every business has a land-line. If you look like you need help or you ask nicely in a safe space, many people will gladly lend you their phone for a moment or two. When I had a flat tire last Thanksgiving, a police officer offered to make a call for me.

As you said on the podcast, people got by just fine not all that long ago without cell phones.

Needing to rely on myself and strangers rather than just calling my nearest friend or family member for help has been a salutatory experience. It’s made me prepare ahead a little bit more and to pay closer attention to what resources are available just for the asking (both of which I think are excellent skills for a budgeter to practice).

When that police officer offered to make a call for me, I didn’t need it—I had everything necessary to fix the flat on my own. When I started looking around, I discovered that payphones hadn’t really disappeared from suburban America—they’d just moved inside supermarkets and Wal-Marts where vandals can’t easily damage them.”

This from a guy that’s been living sans ANY phone for the last year. I’m hoping others will chime in on the comments and relate similar stories.

If you’re still feeling your stomach turn knots over the idea of not having an emergency phone, the BEST solution I’ve found came after I’d given up the idea, courtesy of the Mr. Money Mustache forums:

“As a less extreme emergency phone only secondary option that still lets you call home or a tow truck or something while on the road if needed, obtain any Verizon or Sprint phone (might work with other regional CDMA carriers, not 100% certain on this yet – it is important that it’s a CDMA phone with a clean ESN, though – most people who do this seem to favor using Verizon handsets) take it into the store and have them deactivate it as before for the 911 only option and get the MIN/NAM set to identify the phone number as 123-456-7890 (the universal deactivated handset identification number). From this point, you should be able to try making a call and getting a woman’s voice talking about making a collect or credit card charged phone call. Congratulations! In addition to making 911 calls, you now have access to the American Roaming Network (ARN) and can make outgoing calls to the US and Canada. Although horrible expensive doing collect or credit card based calls, you can buy a 60 minute PIN card for $20 that will last a year and you can recharge the PIN account at a 25¢ a minute rate afterward. This is the perfect, lowest-cost non-911 exclusive emergency phone for the glove box option available. As before, this is also a great option to keep in mind if you’re going to try the ultra-extreme WiFi/VoIP only with no wireless carrier option with your smartphone (still not recommended). If you go this route or the 911 only route, just keep that phone turned off with about a 2/3rds battery charge in the glove box and with a car charger, and you should be covered. For safety sake, be cautious of really hot lithium ion batteries during usage in the summer, though.”

Let’s move on to Step Five, and talk about texting. This part’s easy.

Step Five: Free Texting Through Google Voice, Through Talkatone

And…that’s pretty much it. You can send and receive free SMS texts. At this point, with my testing, you cannot send pictures via text, but hey…maybe just email the picture.

A few things to note:

  1. There is currently no MMS support from Google Voice (boo), so we’ll live without it. You will not receive group texts from iPhone users unless they send it to you as an iMessage.
  2. You can’t send group texts with Talkatone. You can send group texts from within your Google Voice account on your browser, and I’ve used that as a workaround once when I had to text a half dozen people. Small price to pay for free texting, in my opinion.

Texting has been taken care of. It’s free, people. Never pay for it again (and yes, unlimited texting plans still cost money…because the unused capacity of other features pump the costs up…)

Let’s get to the biggest catch of all. Data.

Step Six (A): Go on a 24-hour Data Fast.

Every one of your smartphones lets you turn off your data. Grab your phone (if you’re not already holding it as you read this, you addict! ;)), go to the settings, and turn off the data connection.

Do not turn it back on for 24 hours.

What happened?

I’ll report my own experience, which is now going on two weeks: Nothing has happened. Except when I was at the drive-thru of Jimmy John’s (hey Jimmy John’s, could I get a truckload of coupons for mentioning you guys specifically? I could use ‘em), and found out they’re not as lightning-fast with your sub if you opt for the lettuce-wrapped Unwhich. Once I realized I’d be waiting in the drive-thru longer than 25 seconds, like an addict, I went for my phone:

“I wonder what’s going on with Twitter?! Who’s updated their Facebook status? Is there some random information I should be consuming right now? Has the President of the United States invited me to dinner tonight?! I’d better check my email to see…”

Those kinds of thoughts. In the space of waiting 45 seconds for my Unwhich to arrive.

Then I realized my data was turned off, and tossed the phone back on the other seat, thinking one thing: “I am such a sucker.”

So turn off your data. You’ll be surprised how little you need it. DON’T TURN IT BACK ON.

Step Six (B): Analyze Your 24 Hours Without Data

Here’s what you’ll realize. You’ve been had.

The vast, VAST majority of you have no real need for data. It’s a big distraction in your life, masquerading as a time-saving convenience.

And yet, this wolf in sheep’s clothing is why your cellphone bill is astronomically expensive. It’s the allure of the data…floating available everywhere you DON’T have wifi. And remember your wifi analysis? You probably could only consume data for about 10 percent of your day.

You’re fundamentally NOT getting what you’re paying through the nose for.

Step Six (C): Keep Your Data Turned Off.

And once you’ve gone a few days without it, change your cellphone plan.

Step Six (The Alternative)

If you’re worried about never having data, and being in a tight spot where you need it (Google Maps directions (which can be covered with a one-time $30 app for offline maps called Sygic, checking email for a legitimately time-sensitive item, watching YouTube videos during your lunch break off-site…), I introduce you to Karma.

Karma is a remarkably small device that could easily fit into your pocket (not conveniently, because I hate having full pockets). This little device is a mobile hotspot, and will take 4G cell data and give your phone, computer, or other wireless device a wireless connection.

The device costs $99 and comes with 1GB of data use. For every additional gigabyte of data, you pay $14. You pay the $14 up front, and Karma warns you when you’re approaching your limit. Fourteen dollars per gigabyte is much cheaper than you’d pay any major carrier.

Everything about Karma I like. Their design is spiffy (and we here at YNAB appreciate that), their communication is clear, and you get the feel that they genuinely want to make the whole process easy for you.

This is in comparison to their competitor, FreedomPop (not worth a link), that claims you get FREE data all over their website, until you go to sign up, where they then (in very small print) let you know that they’ll charge you some monthly amount thereafter. That, and the fact that their Amazon reviews reeked.

Anyway, back to Karma, you only pay for what you use, there is no monthly plan which, by definition, eliminates that thing about YOUR data plan that you should be hating right now–the fact that you will ALWAYS pay for something you aren’t completely using.

In my field testing, it worked great. Check their coverage map to see if it will work for you. However…

Now that I’ve bought the Karma device, I’m sure I’ll bring it with me when I travel, but would I recommend it for you right out of the gate? Nope. Go for a while relying on just wifi for your data. You’ll be pleasantly surprised at how LITTLE you need that data after all. In two weeks, I haven’t used Karma once, except to test it for this blog post.

An Option For Those of You Scared Out of Your Minds

First, don’t let the contract “out” fee scare you. The savings you amass from switching away from a big carrier pays back most contract cancellation fees in a matter of months. The carriers want you to fear that contract cancellation fee. Fear not.

Second, you don’t HAVE to go wifi-only, as I have, in order to amass some significant savings. Mark switched to Ting, and I’ll likely be easier on Julie’s workflow, and switch her to Page Plus (a Verizon-based small carrier), where they have a $12/month plan with 250 minutes, 250 texts, and 10MB of data.

Julie will need to have her phone tweaked just slightly:

- Call me with FaceTime Audio when she’s bathing in wifi (done).
- Call her mom with Skype when at home.
- Call her sister with FaceTime Audio.
- Call (most of) her friends with FaceTime Audio.

This would cut her minutes from around 400, to about 100. So she’d be well under the 250 minute cap.

The texting would be easy for her to stay under as well, because 1) I wouldn’t be texting and 2) she’d be using iMessage for most of her friends (we tallied them up, most have iPhones).

The data will need to be turned off on her phone, so she won’t use up the 10MB in a heartbeat. If she does have a “data need” emergency, she can turn data on and use some of it.

If I wanted to take the VERY soft approach, I’d move Julie to the $30/month plan, and she wouldn’t notice a thing had changed–except for the fact that we’d be paying $70 less per month. I like going for the phone bill’s jugular on this though: $12 plan it is.

Look for the prepaid, no contract providers that are already working with your phone’s underlying network. Here’s a fantastic list to get you started.

A Conclusion Full of Options

In the end, the main takeaway is this: Don’t be a sheep and follow all of the other sheep over the cliff (as they grab their phones and Google “how to levitate in a pinch.”). Consider your options and be INTENTIONAL about what’s bringing you happiness—not just convenience.

You can:

1) Ditch your phone completely
2) Go wifi only, as I have
3) Switch to an MVNO (mobile virtual network operator) for big savings, and no disruption at all to your “flow” (what I’m starting Julie on) or
4) Keep doing what you’re doing, and make me sad.

Your call, but we’re now saving ~$145/month, and that’s nothing to sneeze at.

A 50% Savings Rate is Impossible…Isn’t it?

piggy bank copyI may never achieve a 50% savings rate (as Mr. Money Mustache encourages). But it’s such a compelling ideal that I’ve resolved to start generally wandering in that direction. How’s that for commitment?

Here’s the thing: I realize people typically seek a high savings rate because they want to leave the employed world. That’s great; I support it wholeheartedly.

But what if your working life isn’t awful? If you have low-cost income that improves your happiness, there’s no need to hurry up and retire.

So if my current (and future) employment contribute to my happiness without imposing excess costs on my life, why would I think about accelerating my savings rate? Why not just continue earning while setting aside the traditional 15% of gross income* for my eventual traditional retirement?

Two words come to mind: intentional and optimal.

By setting a target savings rate of 50%, I know I’ll have to adjust my life. I’ll have to spend less and earn more. Both carry costs and benefits. Somewhere in the exploration I hope to find a highly-optimized, perfectly intentional life.

Let’s get “optimal and intentional” out of the abstract. Below is a table showing my six-month average expenditures in descending order. Next to the averages, I’ve guessed at what could be “possible” for that category, and shown the corresponding savings.

Interesting side note: compare my six-month average to the amounts from my shiny new budget (from three months back). See how my average expenditures exceed my budget? Looks like I still have some head-in-sandness to resolve in my life, but things are heading in the right direction. Several of these categories are already moving toward my “possible” number. 

Expenses My 6-month Avg “Possible” Change
Mortgage 1,710.48 1,710.48 0
Tithing 725 725 0
Groceries 625 525 -100
Health Insurance 611.7 611.7 0
Household Needs 350 250 -100
Fuel 235 150 -85
Restaurants 160 100 -60
City Utilities 150 125 -25
Residential Lot 163 163 0
Car Repairs 150 150 0
Life Insurance 144 144 0
Dental 110 110 0
Student Loan 97 97 0
Clothing 85 50 -35
Preschool 75 0 -75
Natural Gas 69 49 -20
Internet 53 30 -23
Car Registration 30 30 0
Other Medical 45 45 0
Home Exterior/Interior 50 50 0
Entertainment/Kids’ Activities 40 40 0
His/Her Fun Money 40 40 0
Birthdays/Gifts 25 25 0
TV 16.52 16.52 0
Total Expenses 5,759.7 5,236.7 -523

It’s a little tough to calculate my current savings rate because my side income is variable. I know I’m no longer spending more than I earn, so for the sake of setting a baseline, I”ll use my average expenditures as my take-home income.

Factoring 401k contributions and principle paid on property loans, my current savings rate is 13.25%.

Savings Rate = (Retirement Account Contributions + Principle Paid on Loans with Underlying Assets) / Take-home Income. In a previous post on calculating savings rate I included principle paid on unsecured loans, and was set straight by commenters. Principle paid on property loans is fair game because those dollars can recruit more dollars as the asset appreciates.

Adding in the “possible” $523 from expense reduction would give me a savings rate of 22.3%.

That’s pretty solid, but Mr. Money Mustache would tell me I’m still a slacker (I believe he sets 30% as the minimum savings rate for those who hope to be financially free in any reasonable time frame).

Assuming my expenses (with the $523 in new savings built in) are as optimized as they can reasonably be, it’s time to make more money if I want to jack up the savings rate.

It turns out I’d need around $4,300 in extra monthly income (allowing for Taxes and Tithing) to crack the 50% savings barrier. $4,300 represents a 60% increase over my current income.

This is the part where people shake their fists in outrage and say “Well, sure – but YOU CAN’T JUST RAISE YOUR INCOME BY 60% OVERNIGHT!!”

Right. But you can raise your income 60% in five years by increasing 12% per year. Or you could spend the next two years developing marketable skills, then increase your income 20% per year for the following three years.

“We greatly overestimate what we can accomplish in one year. But we greatly underestimate what we can accomplish in five years.” – Peter Drucker

I can’t jump from 13.25% to 50% savings rate in a day or a month. But I wonder if I could do it in two years. Three? Who knows – and really, who cares? Remember – the savings rate is just a metric that steers me toward a more optimal, intentional life.

Here’s how: I’ll start at the top of my list of expenses, then do a “deep dive” on every category. A deep dive looks at a category’s costs, benefits and alternatives at a level that goes beyond the numbers.

This is the beauty of pursuing a 50% savings rate. It’s a standard so high that it requires me to go deep on my assumptions of what adds value to my life – deeper than I’ve gone in the past examinations of my basic financial structures and expenses. It’s intimidating, but only good can come of it.

Our first “deep dive” will be on the costs and benefits of your job, and we’ll lean heavily on Your Money or Your Life to guide the discussion. Stay tuned.

Jesse Interviews Mr. Money Mustache: The Full Transcript

mmm

A second interview, where we dive into some other topics, is available here as Podcast Episode 96.

Jesse: Okay, I’m here with Mr. Money Mustache, from MrMoneyMustache.com and today we’re going to focus mainly on the savings rate, and I want to have everyone approach this with an open mind, so open your minds, and then let’s dive in.

*Full transcript available for download at the end of the post.

Welcome to the podcast,

Mr. Money Mustache: Thanks a lot Jesse, it is a pleasure to be here.

J: So you and I just finished up a business trip down in Ecuador.

M: Yes it was very serious, very business like.

J: Very business like. Powerpoints were flying. There was lots of downtime and conversation and we got to know each other pretty well. I wanted to basically have you come on and introduce you to YNABers who don’t already know about you, which there are probably a good bit. For those that are fans of both of us, then you know, double bonus.

I want to talk about the savings rate today, and I guess first, let me have you give a little bit of background on who you are, and why you’re an authority–the authority–we talked about how absolute truth flows from your website. So, why you’re THE authority on all things you decide to write about, and then I’ll start asking you questions–I might even play devil’s advocate.

M: Sounds like trouble. Okay well, the story is that I came to this United States country from another one, one called Canada, and I just found, without studying up on the cultural norms here, I found that by earning a reasonable professional salary and spending a reasonable amount of money, you end up saving a reasonable of money so I had enough to retire just before turning 31–my wife and I did. So I quit working in 2005 in order to start a family, and here we are eight years later.

A couple of years ago I found that none of the other coworkers in this industry–engineering–did the same thing. They’re all living paycheck to paycheck. I became exasperated with their financial behavior, and started this blog explaining how you can actually not spend all the money you earn, and how it builds up and gives you financial freedom sooner than you realize.

J: Much, much sooner than what is the norm out there. So you retired at almost 31, and you and your wife were both working, I guess, and you were an engineer, correct?

M: Correct, we both worked in a high-tech industry, sort of engineering things. She was a project manager for a while, and while we had higher than average salaries, they weren’t like wall street or lawyer salaries. So it’s entirely within the possiblity of a lot of the type of people I see YNAB customers as…most white collar…well the biggest thing is just understanding savings rate, and undersatnding happiness, and how often is that really connected to spending–less than we think.

J: Yeah, they’re not really connected much at all.

M: Right.

J: That is a good point. I guess that’s one way to approach it is from the angle of what makes people truly happy, but we’ll do a little bit–we might get into that, but that’s a fairly deep topic–but we’ll definitely talk about maybe some ways that you question the cultural norms that you didn’t study up on, and maybe how people could do that as well.

You’re well known for a post, I can’t remember the exact name…

M: Yeah, the Shockingly Simple Math Behind Early Retirement.

J: Give me, walk me through a hypothetical scenario…someone saves x%, what their retirement horizon looks like.

M: That post was all about how retirement saving is simpler than they think. Everyone thinks in terms of million dollars needed, or how many hundreds of years do I have to work to retire. Really if you do the math it kind of cancels itself out and you end up with some neat stuff.

So if you’re saving 10% of your income, and investing to get stock market returns, it’ll take about 51 years of saving that much, until you have a big enough stash of investments that you can live off, replace that 90% of your take-home pay that you were spending. But then as you slide up the savings rate, that makes a huge difference, so just going from 10 to 15 percent you’re down to working only 43 years, so you just cut eight years off your mandatory working career just by going from 10 to 15 percent.

Here’s where things get crazy. I talk about people saving 50% of their take-home pay, which sounds crazy but it’s not difficult at all once you get into practice, so if you do that, it’s a 17-year working career. If you start at 20, you’re retired at 37. It can go even further. A lot of people who read my blog, have more like 65 to 75% savings rates and that actually. That translates into about a 7-year working career. Mine was somewhere in between, where I worked about nine years before I had enough to retire.

J: You mentioned in that same post that it’s a two-edged sword, a double-win, if you lower what it takes to live happily, then you lower the amount you need to save in perpetuity.

M: Yeah, that’s right. So imagine somebody who’s gotten used to a lifestyle that costs them maybe $65,000 per year, which is maybe what a 2-income family would be living on nowadays, with pretty good jobs. And they’re locked into that, because they can’t imagine spending any less, which means they’ll need $65,000 per year, with inflation, which takes well lover a million dollars, a lot of money, to have that type of passive income.

On the other hand, it’s possible to live on a lot less. My family, with the exception–the only cheating we do is that we have a paid off house and the property taxes are fairly reasonable, but anyway on top of that it only costs us about $25-30,000 to live, so you can retire with much less than a million dollars, or even less if you’re a landlord or rental house guru, so you can income out of even less savings with that.

J: Building up a little stream of income, if you were to build up, just to give people some math, if you were to build up a stream of income that paid you $1,000 per month, that’s $12,000 per year, and ignoring taxes for a little bit, then you’d say, to nest egg that amount you’d need $12,000 times 25.

M: We didn’t mention that in this interview so far, but to figure out how much money you need to save thinking about dollars, take annual spending and multiply it by about 25, and that’s about how much you need saved. So if you have $10,000 of spending, you’d need $250,000 saved to live on that the rest of your life. You may make an adjustment if we were to go through some giant economic depression or something comes along.

It’s called the 4% rule, and you can basically think of it as 25x your spending.

J: So if you LOWER your spending by $1,000 per month, it’s the same as finding an income stream of $1,000. They work the same way–well no they don’t. The nice thing about cutting your spending is that you’re not taxed on that $1,000 that it took to earn. Although if we’re talking about spending levels, and income levels where you’re at, then taxes become almost a non issue.

M: You’re totally right. I made another post about this called The Lovely Low Taxes of Early Retirement and while the typical golf-at-the-hilton [person] needs to plan for a $250,000 a year retirement, which means a lot of that money is going to taxes out of your retirement income, in my case, living as a family with a young child, on $30,000 or less there’s pretty much no income tax due on that, because the government takes pity on you and says “Oh! It must be so hard living on only that amount! We’re going to put you in the lowest bracket and give you credits and stuff like that!” So if you’re really only drawing that amount, you’re pretty much immune from taxes in the US anyway.

Now I’ve been having a higher income so we’re still paying lots of taxes, but it’s sort of like an unexpected thing that happened in retirement, and it doens’t matter because our needs are still the same, because we only need that 25-30,000 so if that income ever went away then the taxes would go away too.

J: The income’s kind of gravy, the taxes you shrug your shoulders at, because it doesn’t approach your needs at all.

Now, you have thousands and thousands of people right now, that heard you say well, we live on $30,000 or something…

M: Yeah it’s 25-30 depending on the year. Last year it was in the 25 range, but we’re trying to spend more.

J: Trying, as hard as you can.

M: It’s hard to do, but once your needs and your wants kind of fade away, then you feel that you’re living this crazy expensive life, then you add up the bills at the end of the year and it’s still 25,000. It’s kind of a nice problem.

J: Yeah, that is. So tell me, let’s do a little bit of lifestyle analysis. I’m sitting here questining even the remotest possibility on living on such a–I would adjust mine up because I have more kids–but I would still say No, that’s too low. I can’t do that. So a big area for people is housing, tell me how you would approach that from a Mustachian point of view.

M: Well, I’m not the most mustachian person when it comes to housing because I have a fairly big house right now. But property tax is a big thing, so a lot of people live in NJ or CN, so your property taxes are $10-20k a year, you’re never going to have a $25,000 annual expense with that. So you have to question where you live, or you just have to save more, if you live in this high-home priced areas. Or you could be a renter.

But one of the biggest things you could do with any house is to figure out your energy consumption and make it lower. For example, our natural gas bill is less than $40/month year round. A lot of people spend a lot more. Our electricity is about $20. Just standard stuff, like what kind of lightbulbs you use, how much air conditioning you use, considering line-drying your clothes if you live in a dry climate like you and I do. It’s really, actually huge changes–thousands of dollars per year and people just aren’t thinking about them.

So you look at each of your expenses separately, don’t think “25% I can’t get there!” You think about each of these things, sliced down individually instead of the total, and it ends up being small.

J: I’m working on an epic cell phone post and that’s one thing, my business pays for the cellphone and so I suffer from this small business owner mentality where the expense, if it’s through the business is somehow not as important.

M: I do the same thing.

J: A lot of people do that, so it’s like play money until it actually hits your personal account. But I’ve been saying, no, even though the business pays for it, I still want to get it down. Inspired by your post about just cutting your plan, I think from my analysis, and I maybe wasn’t as aggressive as you in your post, I can’t remember the details, but I’m jumping from $170 a month for me and my wife, with fancy iphones, down to $20 per month, if I’m okay with only making calls in a wifi area, or grabbing an emergency phone out of the glovebox of my car. So, people will always say, “What if you’re stranded on the side of the road?” As if we weren’t for the prior 50 years before cellphones–and nobody died.

Anyway, I was looking at that, $165 down to $20 per month, a savings of $140 a month, about, and thinking about how much I would have in my nest egg for that. 140 x 25…

M: Actually, 140 x 12 to get your annual, and then times 25. That’s a great way for the readers.

J: 42 grand. That’s what I got.

M: I got the same thing.

J: So you’re thinking about saving that much money for somebody…that would take a long time.

M: So there you go, you think about slicing your expenses by $140 per month, that’s $42,000 closer that you are to retirement. A lot of people spend more than that just on coffee per month. Let alone, you know, important stuff like communications. And the same thing goes with cars, people are, financial beginners are still financing cars. They might have $150 to $300 payments, and then they realize later, “Oh I don’t have to do that. I can buy a used car.” And if you choose your housing to be relatively close to work, then you never use that used car, so it may last you 15 years instead of a new car lasting you five years if you live out in the sticks. So these things can make a much bigger difference than $140.

I hear from people every day that have cut their expenses by $3,000 per month. they went from $6,000 for a family, down to $3,000, just by changing stuff like cars, cellphones, cable TV, groceries, restaurants, so $3,000 times 12 times 25.

J: This is the best math to do.

M: Yeah, so those people are $900,000 closer to retirement.

(Laughing/Coughing)

M: A million bucks richer, by just cutting this typical high-income lifestyle in half. And they’re still just as happy because they still have their friends, eating healthy food, and didn’t even have to move to a smaller house. If you do that, it’s an even bigger change.

J: Our blogger Mark, who really likes your stuff, he started walking to the office, which is I think two miles away from his house, he and I live in the same neighborhood, and he’s dropped his gas needs on a monthly basis down from, I think they were maybe $250 per month, and now they’re $100 per month. So it’s the same thing as the cellphone bill, you look at a $50,000 nest egg bonus AND he’s lost I don’t remember how many pounds, and inches he’s lost, but you know that it’s meditation for him, to and from work.

M: So now you’re talking, because this is what my blog is all about: you’re not making sacrifices; you’re making improvements in your life that happen to make you wealthier. For example, I would say, nobody should ever start their work day without getting some exercise first. You gotta do something outside, so you don’t want to just get out of your bed, into your car, have coffee then go to the office because you won’t be productive, and you’ll be getting creeky and old at the age of 30 if you maintain that kind of lifestyle. So your blogger, Mark, has made a positive change, and made a ton of money in the process. That’s kind of what I push for in all areas of life. Nobody is making their life worse to save money, you’re making it better. I never compromise on life quality.

J: And that is the ticket. You’ll have people that, you know, I’m one of them, I still will push against things I’m sure, you just have to ask yourself, what do I care about? When we were in Ecuador, when JD Roth gave his presentation about what you care about, you know if you’re financially free, what would you do? I think the next was if you had a year to live, or five years… but you didn’t know when exactly, what would you do…and then if you had a day to live. 24 hours. And it was amazing how my answers changed from being financially independent and thinking what would I do, versus having 24 hours to live…what would I do. Then it was all about my family, spending time with my kids, enjoying them, and if we could adjust our thinking more toward what we REALLY care about, at our core, all the spending just plummets.

M: It’s really nice when that happens. I’m kind of living my life, not on a 24-hour plan, but on some kind of “make the most out of every day” plan. So what I do is that I spend what I can with my son, who’s 7 1/2 years old, and I’m with that guy when he wakes up I’m making him and my wife breakfast, and then he goes to school, and then after school we’re doing things together. So if he’s not playing with his friends, which he loves to do, but when he’s with his parents then we’re with him too. We’re not just watching TV or doing work while he watches, we’re actually with him, at the park, or making stuff, or writing books together, so that stuff doesn’t really cost any money. You don’t have to take him to Cirque du Solei every night and spend $300. Kids don’t care whether you’re making legos with them, or messing up the kitchen table with paint, or going for a bike ride. So if you have a limit to the amount of wealth, a billionaire already, you just choose the cheaper stuff with your kids, which is good for them, and then surprisingly it doesn’t cost $100,000 a year per kid, to raise a child.

We actually added it up and we’re around $300 per month, for the total cost of childhood stuff if the 7 1/2 year range.

J: You said $300 a month for your son?

M: Yeah, we spend $300 a month on our son-related stuff since he was born.

J: The norm is that 100 grand or something per kid.

M: Sometimes it’s $250,000, it all depends on the income. People will sign up their kids for ballet lessons 2.5 hours away, so then they’ll drive the Chevy suburban 5 hour round trip three times a week, for ballet lessons. Things like that, “I’m doing it for my kid, because she’s the most important.” They don’t realize that you can separate importance from incredibly expensive and still win in both ways.

J: Yeah, and that is the double-win. It’s the quality going up, spending going down, and when spending goes down, there’s another layer of psychology there, that we get a bonus from, that we haven’t mentioned. When you’re living within your means, WELL within your means, you feel, I mean, there’s this stress that just melts away. So not only area you spending less and your quality life is improving from these hacks that we’re doing, and lifestyle design scenarios–moving closer to work, or walking or riding a bike to work, eating healthier, which means less eating out–all of these things that are paying us dividends in other aspects of our life, on top of THAT our stress drops. Which means we lose more weight if we’re overweight, our sleep improves, we don’t snap at our kids, we’re happier parents.

M: Yeah, you get better at your job, which means you’re more likely to be promoted, and the mental energy to try new stuff. If you’re totally stressed out, you might think you can’t give up cable TV because it’s all you’ve got, but when you have the cushion you have more energy, “Hey, I’m going to try and get ride of TV and see what happens!” Suddenly that’s another change, and you have even more mental power. “You know what? I’m going to bike to work even though it’s 8 miles each way because I’m feeling pretty strong, and am not stressed about work.” These things build on each other.

J: And then you reach the penultimate of where you have a grocery trailer.

M: Yes, that’s right. Then you stop taking your car to the grocery store.

J: I’m not there yet, I would need two trailers for our Costco runs. They’re fairly substantial. It would be a good experience.

M: There’s bigger trailers for people like you. Company called BikesAtWork, I’m getting one myself, because I use my trailer for construction materials, so anyway, you can get a trailer that’s like 8′ long. You can carry appliances on it.

J: And you’re on a bike.

M: Of course.

J: You’ve piqued my interest. Mark wrote about, inspired by you, he decided to make a Costco run on foot. It’s about 2.5 miles from our house, or three miles. It’s close, which is nice, and he did it on foot and then was carrying–(laughing)–the box on his shoulder for miles. He said it was poorly planned.

M: Yeah, I believe he complained about it. “In this case MMM, isn’t too smart.” I felt like mailing him a boxing glove with a spring in it to punlch him in the face. Dude, even I don’t carry boxes home from Costco. Put it on a dolly man. There’s a difference between being financially savvy just being…just being…dumb.

J: That was dumb, for sure. It made for a good blog post I suppose.

M: Yeah, it got a comment out of me, so that was worth it.

J: We’ve talked about a lot of different things, Mustachians don’t finance cars, they don’t buy gas guzzling cars, because why would you? It doesn’t make any sense. They don’t use their car if they don’t have to. And they kind of question the norm there. They probably don’t have cable, I’m guessing..

M: We’re too busy to be watching other people broadcast stuff. We’re busy learning and stuff.

j: Learning, creating, you don’t eat out a ton, we ate out a lot on our trip and didn’t you get kind of tired of it?

M: Well, I enjoy luxury as much as anybody else, but you know eating out all the time takes more time, and it’s nice to be able to control your own food intake, because another thing of Mustachianism is that you kind of want to eat as healthy as possible, and most restaurants aren’t going to provide that for you. You need to be able to control your vegetables. You don’t want to be eating a bunch of white flour, or the cheapest oils, whatever the chef could find on sale.

J: The benefits, financial benefits, that come from eating healthier are huge. One of the biggest costs that the US has on our health system is obesity. So it naturally follows that if people were healthier, they’d be spending less fighting that fight, the sickness that they experience a lot.

Everything’s connected, and when you make an iprovement in one area like I did, you mentioned bulbs a while ago, I didn’t really believe..I’m naïve when it comes to electricity consumption..I mean I just figured out what a killowatt hour was a year ago. I looked at my bill and thought, “oh $.11 per KWh” which I guess is a pretty good rate. I got one of those meters where I could measure the usage of different appliances and someone said..an electrician came to fix something, and he said the biggest drain is bulbs. I thought for sure he would say dryers, you know, the big clothes dryer, but he said no, bulbs. You’re using 60 watts all over your house, all the time, pumping, so you switch them out– so I did with CFLs. I couldn’t believe how much my bill dropped.

It cost me a little bit to get them all, and we had like 100 bulbs in our house, which blew my mind as well. I went and counted them all and couldn’t believe how many bulbs the house has. But, we have a large house, so I bought all of the bulbs, put them in, and my bill just plummeted. It was so simple, and very satisfying. It’s paying dividends daily for me. Which is fun.

M: Yep, that’s one of things I tell people. Especially if you have a modern house, modern houses have a lot of those recessed lights, and so the builders just put those in, in a grid, you know just all over the house so you can actually add up to a huge amount. Someone in a smaller house where you’re using lamps, then your clothes dryer or AC is the biggest draw. Either one, you just look at it and if you think about–I have a 2,600 square foot house– and my electirc bill is about $20 per month. So if you’re anywhere near 10x that, or much higher, then it’s worth looking at. It makes a big difference in your savings rate.

J: The LED bulbs are looking even cooler.

M: Yeah, I’m switching CFLs, I’m upgrading those to LEDs in the important rooms of my house, because the LED gives a much nicer kind of light, more classy like boutique look to it, and then also you’re using less power. They cost more, so you don’t put them everywhere, for now you just put them where you care about the light quality.

J: And in fiveyears, they’ll be cheap and we’ll be enjoying that luxury.

M: Exactly.

J: So you live a luxurious life, you really do.

M: Yeah, it’s hard to convince people, except for the ones that know me in person, occasionally I put articles describing the stuff, but then new people come along, “Oh! $25k per year. It must be such a terrible lifestyle.” So it’s an ongoing battle, but I’d say that pretty much anybody with the right mentality could have a similar lifestyle with similar cost, and you just have to add in any unique stuff. So if you have some healthcare stuff, sure you add that on, or if you have more kids, you can add in $3-4k per year per kid if you wanted to just compare yourself to the Mustache Family. Certainly it’s not a minimal lifestyle. A lot of peoplle do much better than us. It makes the savings rate pretty easy, the high savings rate pretty easy.

J: YNABers make pretty good money. I did a survey a while ago and they make good money. They’re learning how to manage it better, and be aware, and align their spending with what they care about, and I guess the point of this podcast here is to really ask yourself what you REALLY, really care about. So when..something trite..going to a movie, you really care about the in-theatre experience, with all of the people around you? Or WHAT exactly are you going for? Are you going for the family time? At its essence, could you get that family time back at home? So asking yourself what your core motivation is for taking whatever action it is. Going out to eat, for instance, “I love the social aspect.” I love that too. That’s way more fun than the food. But having people at my home is social, and healthier, and less expensive, and all of those things. I think at the core, when we question our values, and I’m always telling people when your money aligns with your values you start to feel content, but you really need to get to the base values, adn then ask yourself, okay I’m doing these things, what do I really care about?

M: So true. There’s a great little trick you can play on yourself, because people always think, “I’m happy when my spending aligns with my values.” The trick is to convert saving into one of your values, and give it a different name. I call it freedom. Every dollar you save is actually becoming an employee that works for you for life. Because you’re going to have it invested. When you’re deciding on the $100 dinner out for the third time in the week, you think would I rather spend on this? Or would I rather buy a little bit more of my freedom. Freedom is a pretty nice sounding thing to buy, and that’s really what you’re doing. You’re not depriving yourself–your’e buying freedom. As soon as you put it that way, people get a little more excited. I’m going to put 50k into my freedom this year, instead of saying I’m going to deprive myself of $50,000 of luxury cars this year. That sounds sad.

J: Reframing is a good idea. You’re investing in your freedom. You’re purchasing your freedom.

And you stay busy? You’re still making money and I know the blog has been an unexpected success for you because it resonates with millions of people. I know you do rentals, and love construction, so retirement is not the martini-sipping hammock situation that we all think it would maybe be. That would be boring.

M: Not every day anyway. Especially if you’re doing an earlier retirement, like the younger you retire the more energy you’ll have left over and you won’t have been destroyed by a 40-year corporate career. I find that everyone that I know who retired early, ends up doing a lot of interesting stuff. Sometimes it makes money, usually it does, other people are really charitably-oriented, so they just donate all their time and surplus money, either way it’s a pretty happy existence. It’s certainly not..it’s more energetic than your working life usually.

J: That actually makes a lot of sense. You kind of wander through the cubicles and there’s not always a lot of positive energy. Some people love their jobs and I think they should keep doing what they love, but there are many many more that would love to invest more in their freedom and get there a little sooner.

M: I can’t recommend it highly enough.

J: So YNABers savings rate..a lot of us are sitting at 10-15% and were feeling really good 32 minutes ago. And now we’re not. We’ve got a little bit of a challenge but I think everyone should start with squeezing out five percent, take a month to do that, to analyze and then take another month to look for another five percent. Since I started reading your blog in…February…I think I was a latecomer, I bumped my savings rate from 15 to 35 percent.

M: That’s a huge difference.

J: I’ve got more work to do yet. It is quite fun.

M: Your biggest enemy is the mainstream media because they’re the ones telling you about this five, ten, even fifteen percent savings rate. “yeah, it’s just compounding so magically! If you just save a dollar a day for 500 years, you’ll have hundreds of millions of dollars!” We don’t have decades and decades that we want to be working. Why not just increase that, with shockingly simple math we’re told that small increases make a huge difference in your freedom coming up sooner. So ten percent is really not a useful goal, unless you’re living right on the edge, you know if you’re in a poverty situation–a single parent with multiple kids then that might be all you can do. But for anybody with the gift of a professional job, university degrees, and all of this other stuff, you’re wealthy enough to own a car, then you can do way better than ten percent. You’ll thank yourself for that.

J: So YNABers, let’s step it up. I’m right there with you all. And Mr. Money Mustache, thanks for coming on and helping us question our norms. Because that’s exactly what we’re going to do. Hopefully we can have you on again and we can keep spreading the word. It’s an awesome message. So, MrMoneyMustache.com for those that haven’t been there yet. I should warn, because we have a somewhat…um…let’s see…if you are not used to colorful language then MMM will maybe get you a little used to it. Because we didn’t have any color on the podcast, but I can’t say anything for the writing. But, that’s your style and truth flows either way. Just want to give a few of the…I don’t know what word I should use there…but a few of those that are maybe sensitive to colorful language, to be forewarned. But I love reading it. I don’t subscribe to any personal finance blogs, except yours, where I get an email whenever a new post comes up. I enjoy every one of them thoroughly. My highest endorsement for everyone to check it out.

Thanks again for coming on. It was 9AM when we started this, which means for a retiree that’s like, you know, ripping your eyelids open I would imagine!

M: I had already biked my son to school this morning, so I was wide awake.

J: So you did the exercise thing, just as you preached. Thanks so much and hopefully we’ll talk to you again. I’ll see you at Fincon and that’ll be fun. So we’ll catch you there.

M: Sounds good.

J: Talk to you later.

This post is 5,479 words, which is why I’ve made it available as a PDF download. It’s not pretty, but the links are intact. Enjoy. Click to download the full transcript. - Mark

Ting Review: One Month In, $110.20 Saved

Screen Shot 2013-09-04 at 7.58.13 AMI’ve finished my first full billing cycle with Ting, and I couldn’t be happier with them. One month with a non-traditional cell provider has me convinced these guys (and companies like them) are going to break the Big 3′s stranglehold on our mobile devices.

I want to cover the three basic aspects of cell service and tell you how I think Ting is winning (for me) at all of them.

1. Quality of Service

As a Sprint MVNO, Ting is simply using Sprint’s network to deliver its service. I was already with Sprint, so I’ve noticed no change at all in call quality or data speed. Both are as good as when I was paying $155/mo instead of $45/mo.

2. Quality of Support

When I signed up for Ting and bought my two new Android devices, I somehow managed to skip a step that would have qualified me for a $25 discount. After completing the registration process, I submitted a support ticket asking if they’d apply the $25 to my account. Less than 12 hours later I got a reply that said they’d be happy to. Now, I’m not saying this is crazy, over the top customer service. What they did was fair and reasonable, and prompt. When was the last time you used the words fair, reasonable, and prompt to describe your cell phone provider?

When you have an issue requiring more immediate attention, just pick up the phone and call them. Prepare to have your mind blown: the phone will ring (maybe a good number of times, so be patient), and then….a human being will answer the phone and ask how he or she can help you.

What?? No confusing, convoluted phone tree? No “press this for billing” or “press that for technical support?” Nope. Phone rings, english-speaking human answers it, english-speaking human solves your problem. The end. I had some issues activating my new phones (read: I didn’t look at the instructions), so I called Ting support. I can’t remember the name of the guy who answered, but he hung out with me on the phone for about 15 minutes while I walked through the activation process. The experience was just…pleasant.

If Ting can preserve this kind of customer service experience as they grow, I think they’re going to rule the world.

3. Cost

My monthly bill with Sprint (two iPhones, 1,500 shared anytime minutes, unlimited mobile to mobile, unlimited texts, unlimited data) was $154.87. Problem is, I didn’t need all those minutes, texts, or data.

Because Ting is set up as a “pay-for-what-you-use” service, this is how my first bill broke down:

Fee Type Usage Cost
Minutes 633 $18.00
Texts 352 $5.00
Data (in Megabytes) 72 $3.00
Devices 2 $12.00
Taxes and Gov. Fees $6.67
Total Bill $44.67

$110.20 per month less than my old Sprint bill. Over $1,300 per year in savings.

The best part is I think I can get the bill down another $9 per month without affecting my convenience/quality of life.

How do I know that? Because Ting has combined their slick “pay-per-use” pricing with total transparency. Check it out -

When I log into my Ting account, the first thing I see is my Dashboard:

ting-dashboard

It tells me when my billing cycle ends and what my current charges are. Under each service category, it shows me my highest ever usage and my average (which are the same because I just started with Ting a month ago). Later in the month it will also estimate my bill based on my usage trends for that month.

As a budgeter, I understand how awareness improves behavior. Ting’s transparency with billing and usage make it easy to improve my behavior and save money.

Clicking on ‘View Details’ under minutes, texts, or data shows which device is responsible for what percentage of use. Turns out my wife accounted for 70% of our minutes usage, while I made up 90% of the data use.

According to Ting’s bill estimation tool:

ting-bill-estimator

…my bill would be $29 + taxes and govt fees, or about $35 total. And all I have to do is keep my minutes and text usage in the same range, while reducing talk time from 633 minutes to 499 minutes. Will we do it? I don’t know. But I love knowing that we have the ability to determine our cell phone bill.

I can even set alerts in my Ting account to let me know when any aspect of my usage exceeds certain thresholds.

ting-minutes-alert

…which means I don’t have to babysit the account to protect myself from wasteful usage. If I had teenagers who really needed to be kept in check, I could even tell Ting to disable their device if they exceeded the usage limit I set (muahahaha).

The Downside

Getting out of my Sprint contract cost me $234 and change, which is a bummer. Also, Ting doesn’t (yet) have an agreement in place with Sprint and Apple that would allow them to offer the iPhone. Not only did that mean I couldn’t use my iPhone anymore, I had to buy two Android devices to get going with the service.

By the way, that’s one thing I would have done differently: the devices. I bought the cheapest phones Ting offers (LG Optimus something or other), and my wife hates it because the keyboard is basically unusable. Now, this isn’t Ting’s fault. I should have shelled out the extra couple hundred bucks to get her a better device (they offer a great selection, including – I think – some cheaper refurbished phones). Buying Kate a nicer phone (like a Samsung Galaxy) would have made the transition much easier for her, and would only have extended my break-even date on the move by a couple of months.

(Ting is apparently in negotiations with both Apple and Sprint to be able to offer the iPhone. I can’t wait. When Ting gets iPhone, I’m pretty sure they’ll conquer the world.)

Speaking of my break-even point, I’m sure many of you won’t want to move to Ting because of cancellation fees with your current provider. Make sure you do the math, because I bet you’d break even within a reasonable period of time, and then it’s all gravy.

My cost to make the switch was $234 (cancellation fee) + $343 (device cost after $25 account credit from Ting) = $577. It will take me a little over five months to break even on the move.

Making the move to Ting will be easiest and cheapest for those of you who are already on Sprint using a Ting-approved device. But no matter what phone you’re using or who which of the Big 3 you’re currently chained to, look hard at your options. There’s really no reason to break the bank on your phone bill anymore.

By the way, filled with referral links. If you happen to click one of those links and end up signing up with Ting, you’ll receive $25 in account credit, and YNAB will receive a little referral commission. Thanks in advance. :)

How to Calculate Your Personal Savings Rate and Start Thy Purse to Fattening

piggy bank

On Monday we talked about learning how to acquire gold. Today I dip back into The Richest Man in Babylon for more wisdom on wealth creation.

This paragraph comes chapter 3: Seven Cures for a Lean Purse. The first cure is “Start thy purse to fattening.”

“For every ten coins thou placest within thy purse, take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to they soul.”

I want a fat purse, and I like the simplicity of taking 10 cents of every dollar earned and saving it for the future. Various blogs around the web will tell you to chase a savings rate of 50% or more, and they show you reasonable ways for achieving such a rate, so a 10% savings rate ought to be very manageable.

And since we already discussed it, I don’t mind saying I’ve been used to living off 90% of my income for years, as my definition of tithing is to take the first 10% off the top and give it to the church. It shouldn’t be a problem for me to simply take the next 10% and put it away for the future.

So let’s define savings rate and see where mine is.

A YNAB-friendly definition of saving would be “assigning a dollar the job of obtaining more dollars”, giving us a savings rate equation along the lines of:

Savings Rate = Sum of Dollars Assigned to Obtain More Dollars / Total Income

or, more specifically…

Savings Rate =
Personal Retirement Contributions +
Employer Contributions +
Debt Principal Payments /
Total Income Including Employer Contributions

Getting tabular with my actual numbers yields:

Savings Type Current Amount
1% Personal Contribution $58.33
3% Employer Contribution $177.99
Principal on Mortgage 1 $349.17
Principal on Mortgage 2 $62.11
Betterment Deposit $0
Principal on Student Loan $95.50
Principal on Residential Lot Loan $25
Total Saved Dollars $768.10
Gross Income $6,011.32
Savings Rate 12.78%

Note: I added the employer contribution to my gross income and calculated savings rate accordingly.

I’m shocked to see it “so high.” The analysis gives me two big takeaways:

1. I can move my savings rate a lot with relatively small contribution increases.

For example, using freelance income to add an extra $200 per month to my 2nd mortgage payment would take my savings rate above 16%.

If you’re unwilling unable to increase your income, fighting to free up an extra $100 or $200 per month will make an enormous impact on your long term prospects.

2. Debt is killing my savings rate and my future.

If I didn’t have my Deep Shame 2nd Mortgage, my student loan, or the loan on the residential lot, I’d free up the current principal payments to the tune of ~$183 per month. I’d love to have that money going to Betterment or allow me to increase my contribution to the 401k.

But the freed-up principal would be the smaller win. Getting rid of those loans would also let me save the ~$513 per month in interest those loans currently cost. (Pardon me while I barf.)

Adding the extra $513 with the $200 from freelancing to my contributions shoots my savings rate to 25%!

In other words: getting out of ugly debt and increasing my income by all of 5%* allows me to double my savings rate.

*$200 would be a 3.3% increase, but I’m allowing for T&T (tithing and taxes).

This is a productive analysis for me – it shakes me out of complacency and reminds me that a) my debt is an emergency and b) small increases in earnings massively impact my finances.

Anybody care to share their savings rate?

How to Set Savings Goals Mindfully

wallet

YNAB makes it easy to set and achieve savings goals. I find the tough part is knowing exactly what I want to save for.

Sometimes it’s as simple as putting two goal categories in your budget, and having them compete for new dollars as they become available.

But I have tons of goals, real needs, and passing fancies floating around in my head at any given time, and I want to be more purposeful about how I save, and for what.

I’m starting a Wants List – a spreadsheet – with the following columns:

  • Goal
  • Estimated Price/Cost
  • Easy to Buy Used?
  • Frequency of Use
  • Is it Awesome?
  • Key Features
  • Contenders
  • Reviews

There are no hard and fast rules about how to use the Wants List – the point is simply to capture your goals and fully consider their value relative to each other. Here’s how I’ll use the columns:

Estimated Price/Cost will be (obviously) be a range from low to high.

Easy to Buy Used? forces me to research the possibility of buying the thing from a person else instead of a retailer. It’s not something I’m used to, but the merits are obvious.

Frequency of Use lets me consider how often I’ll use (and benefit from) the goal, and may lead me to a) scrap the goal altogether or b) realize that, while awesome, it makes more sense to rent the item (I’m looking at you, offroad toys).

Is it Awesome? is a continuum that runs between “No big deal” and “Gray matter all over the walls” (because the awesomeness made your brain explode). Is it Awesome? should be a source of lively discussion and debate between interested parties.

Key Features will be an evolving list. As I shop and read reviews, I’ll get a better sense of which features matter, and which perks are worth the increased cost.

Contenders is the running list of makes and models that could satisfy the goal.

Links to Reviews will be a library of good advice on the purchase, also helping me discover questions I didn’t know I should be asking about the product/experience.

The Wants List is a home for any goal that requires you to save up or prepare in advance – whether it’s a new TV, a vacation, or the goal to quit your job and become self-employed.

 

 

Ignoring Your Single Largest Expense is Folly

I’m a recovering CPA.

So I don’t legally “know” what I’m talking about, but I can still remember a bit from when I did. And since this is my least-favorite season of the entire year, it’s also going to become a Savings Tip topic (and the focus of a free course launch I’m working on, see below for details).

You’re Trained to be Focused on the Completely Wrong Thing

The impetus of this post actually happened this morning on the treadmill. There was a commercial for Intuit’s TurboTax…how it guides you through your taxes and then they showed this really fancy image with a guarantee seal. On Inuit’s website you’ll see this front and center.

I don’t want to just single out Intuit. Not at all actually. TaxACT.com’s front page does the same thing.

Intuit’s fine print reads as follows:

If you get a larger refund or smaller tax due from another tax preparation method, we’ll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to a payment of $14.95 and a refund of your state purchase price paid.

Fair enough.

TaxACT’s fine print re: their guarantee sheds a bit more light on the problem:

If you get a larger refund or smaller tax due from another tax preparation method with the same data, we will refund the applicable product price you paid for your TaxACT Deluxe federal return.

Emphasis mine.

I won’t even go into H&R Block’s “Instant Refund Anticipation Loans.” Nasty — and a whole other story.

The focus is on that carrot dangling out in front of you. Your own money that you paid to the government in anticipation of your tax liability — your tax refund.

Even Trained Accountants Get it Wrong and Fall For the…Indoctrination :)

Back when I worked for a large accounting firm (don’t get the idea that I have tons of experience doing that — I lasted 10 LONG months), I remember sitting around the table in the cafeteria of our client. It was tax season and I was probably complaining about this very thing. One of my colleagues — a CPA said something along the lines of:

Oh, I didn’t pay any taxes this year. I got a refund.

I about lost my lunch.

If that same concept can happen to someone who passed the Reg section of the CPA exam, it certainly happens to your average Joe the…Piano Tuner.

What was the problem with my colleague’s statement? Even if they had just slipped up and really meant to say that they didn’t need to pay any additional taxes for the year…it was still alarming.

Just to be 100% clear.

1) You earn money.
2) You pay income taxes that are either withheld from your paycheck automatically (so you’re not as aware of the expense, removing you psychologically from it and encouraging just the problem we’re discussing here — a HUGE lack of awareness) or you’re required to file quarterly estimates.
3) By April 15 of each year, you calculate what you actually owe and either pay more (because your estimates weren’t enough) or you’re paid a refund (because you paid too much).

Unless you literally did not have a tax liability that year, you paid taxes. You may not have a tax liability if:

1) You’re dead or,
2) You earned only a small amount of income.
3) You have tons and tons of kids :)

I’m grossly simplifying with the above three points.

So know this: you very likely pay taxes every single year.

And I’m not even talking about the FICA (Social Security & Medicare) taxes that you can’t avoid (re: minimize) much at all if you’re a wage worker. Even if you did fall into #2 or #3 above, you still paid almost 8% of your wage in FICA. (By the way, your employer paid another almost 8% to FICA as well — the money which they just might pay to you if they weren’t paying it to the government, so you can choose to see that as a tax you pay as well).

You pay taxes. Every year of your life. And when you die, you pay again. Don’t let me ever hear you say, “Oh, I didn’t pay taxes this year — I got a refund.” Wrong. Wrong. Wrong.

This is Not About Tax Policy. It’s About Your Life’s Single Biggest Expense

This is not about political leanings, or tax policy. It’s about what will likely be (or already has become, and will only continue to be) the single largest expense of your entire life.

I’m guilty as charged. These Savings Tips that I’ve written have ranged from saving time and money with dinner groups to 29 Ways to Save a Fortune on Your Energy Bill.

If I were doing these tips according to bottom-line affecting expenditures, I’d probably be writing about tax savings two out of every five times. For almost everyone.

Going Back to the Refund Focus. Which Way Are You Facing?

At the beginning here I established that we’re trained to be refund-focused. With tax compliance software we’re trained to drop in data (what we’ve done) and have the computer spit out what we owe or are owed. We’re complying. We’re facing backward.

Over a year ago I wrote about preferring head-on to rear-end collisions (the metaphor breaks down quickly in real life, but you get my point) when it comes to making spending decisions. You want to be proactively looking forward and acting — not looking backward and reacting.

Taxes are the exact. same. way.

Remember TaxACT’s guarantee from above? How they mentioned the same data? They’re basically saying that their software will return the same result as another software because both softwares do an excellent job of looking back, crunching the numbers, considering the rules and spitting out the liability. Hang on to that thought.

If Things Were Simpler, It’d Be Easier. But They’re Not, so Let’s Move On

We can lament and moan (I do my share of it) about how economically costly tax compliance is. How it’s a huge drain (as a whole) on the economy with no value-add. How a client I worked on employed 35 people full-time to make sure their M-1 (that’s a C-Corporation’s return, that has maybe…12 boxes to fill out) was correct…

But we won’t.

blackcloud

Things aren’t simple. Life is complex. In honor of the season premier of Lost tonight, I’m going to say it’s a lot like that black cloud that haunts the island. It’s always there. Nobody knows what it is or how it works. And it kills you.

At the end of Lost this season, perhaps we’ll know how it works. At the end of this tax season, we still won’t know how the tax code works.

So, let’s just get comfortable with the idea that the tax code will always be complex.

Even for those situations where the tax scenario really is simple, we have divergent voices. The New York Times wrote a very interesting article days ago, “Why Can’t the I.R.S. Help Fill in the Blanks?” that cast some of the large tax preparation software backers in a negative light.

The gist: California uses ReadyReturn, where they send eligible Californians a pre-filled return. The data can then be validated by the person, but it “gets the ball rolling”. It costs the state $.34 to process a ReadyReturn, while a paper return filed in the traditional way costs $2.59 (not including the taxpayer’s savings in both time and possibly money).

The tax preparation software lobby pushes against this for obvious reasons. Intuit’s response is here.

Whichever side of that debate you’re on, it’s clear that there are interests hard at work on both sides, furthering their own agenda. What I want you to take away from this Savings Tip is that you need to have your own agenda.

What To Do About Your Single Largest Expense

The agenda is simple. Minimize it. Minimize your tax liability. Educate yourself.

My real awakening to this situation happened last year during preparation of our 2008 personal return. Before I get into that, let me tell you about my brother-in-law, Casey.

Casey is a tax preparation…guru? Yeah, guru’s the right word. He might be partially insane as well — he loves this stuff. Absolutely loves it. I’ve seen him become giddy over some strategy. It’s a sight to behold.

He’s also a straight-arrow. He deals in blacks and whites. Prior to using Casey, I used another CPA to prepare my taxes and heaven only knows how much money I overpaid (he was lousy, and I should have fired him immediately. Plenty of warning signs told me as much). This was all apparent once Casey got a hold of my tax documents for the 2008 return.

It’s the kind of thing where taking an expense here instead of there saved me over $10,000. I’ve been trained in taxes. The Reg section of the CPA exam was my shining moment (a 94 baby! Nothing to show for it now). I had class after class in school. I know enough to know that I need help.

$10,000 (and change)!

We used the money to help us pay down the mortgage.

But that money would have been gone. Forever. There’s literally nothing that you’re given in return for the extra you pay on your taxes. You are flushing money down the toilet. Stop doing that.

Casey’s in the know about this stuff though. He soaks it up. He prepares return after return and sees different situations. He dives into the tax code — discusses strategies and knows the forms inside and out. He’s a phenomenal resource.

I don’t think he’d want me to disclose what it cost me to have him prepare our 2008 taxes, but I will say it was a bargain (and I didn’t get any family discount :). An absolute, no-brainer bargain.

But here’s where the real value comes. Casey now can sit down with me and help me look forward and begin planning. For the 2008 return, he hadn’t seen anything going on prior to having my documents in hand. He was forced to comply and we still did phenomenal.

So the real value comes in being able to plan and structure things in such a way that your tax bill is minimized. Having that ability is, as Michael Scott (The Office) would say, “Incalclacable.”

I led into this talking about tax preparation software. I think, on net, it’s a positive thing. But don’t be deceived. No consumer-facing software is forward-looking. No tax prep software would have told me that I just needed to take my health expense here instead of there. It would have just accepted my answer and moved on. Did you hear that flushing sound? :)

The savings we found had to do with how we were handling health insurance premiums in relation to adjusted gross income (AGI) that was on a threshold of causing phaseouts for Roth contributions, child tax credits, and I believe some itemized deductions. Sound like a foreign language to you? Embrace it.

Remember, you need to have your own tax policy: Educate yourself. Pay as little as possible and use the savings to reach your financial goals.

And please, please, please people: Do not turn this into some raging political discussion. I’m not talking about tax policy. I’m talking about taking the tax hand you’ve been dealt and proactively making the most of it.