The Ramsey Plan vs. The Nerd-ey Plan

A reader commented on a previous post (thanks!) about my general financial strategy and how similar it is to Dave Ramsey’s Baby Steps. This post is a result of that comment. Also, before reading the details of my family’s strategy, please understand that I am not a financial planner. I don't have a degree in finance or even economics. I don't work in finance for a living (directly, anyway). I’m just a regular Joe that’s lucky enough to have a decent finance understanding and is willing to share my family’s long-term strategy!

I’m big fan of goal-setting, both short-term and long-term. I write them down, check on them regularly, revise them if necessary, and celebrate my successes when I reach them. I truly believe that once you set a clearly defined goal for yourself and write it down, you’re well on your way to achieving that goal. Just merely having a plan to follow makes decisions easier and keeps you focused on what’s really important to you.

So it shouldn’t surprise you that I’ve got financial goals...lots of them. I keep monthly, yearly and lifetime financial goals and they’re all meticulously documented, revisited, and revised regularly. They all help me make day-to-day decisions, and keep me moving the direction I want to go. One of the most important is my overall financial strategy.

Dave Ramsey's plan is a great starting point for the majority of Joe Q. Public. It's simple, easy to understand, and effective. But, I certainly don't think it's optimum, at least for us. The plan my wife and I follow to manage our finances and investments is more sophisticated than Dave Ramsey's plan, but I think it's a better fit for us. Yours may be totally different!

For comparison's sake, here's Dave's plan:

1) $1000 for a starter emergency fund.
2) Pay off all consumer debt using the debt snowball.
3) Accumulate 3 to 6 months worth of living expenses for an emergency fund.
4) Invest 15% of gross income into Roth IRAs and pre-tax retirement.
5) Fund college.
6) Pay off home early.
7) Build wealth with mutual funds and real estate.

My family's strategy varies in the steps themselves and in the amounts dictated by each step. Hopefully, I'm able to fully explain my reasoning for the changes I've made. Here are my steps:

1) Save $1000 per member of your family for a starter emergency fund. Personally, I don't think $1000 is quite enough, especially if you have children. It's a great goal for a single person, but if you've got a family, you've got more folks to cover and emergencies have the potential to hit a little harder. I realize for people with large families, this goal becomes significantly more difficult, so good judgment needs to be used when determining your personal amount.

2) If your company offers a match on your 401(k), take it. Invest only up to the amount required to get the entire match. If you don't do this step, you have the potential to leave a HUGE amount of free money on the table. Think of it this way: If on every payday, a man at the exit of your office's building would hand you a stack of 20-dollar bills ($100, $200, or $500) just for investing 5% of your income, wouldn't you take it? That's what your company match is: free money. Even better, it's free money that'll compound as your 401(k) balance grows over the years.

3) Pay off all consumer debt, starting with the smallest amount, using a debt snowball. In this instance I agree with Dave. Even though starting with the balance with the highest interest rate would result in a mathematically better result (minimally in most cases); I think the smallest balance should be tackled first, for a couple of reasons. First, if you go after the smallest balance first, you knock a minimum payment off your books quickly. This could be a big help if your family does get hit with some sort of financial hardship; it's one less minimum payment to make, which means your overall minimum monthly outlay is smaller. Second, there is a significant psychological boost over dropping a debt entirely, which does help to motivate you to keep moving.

4) Accumulate 4-6 months of living expenses for an emergency fund in a high-interest savings or money-market account. . I've written about the virtues of a solid emergency fund in the past, so this shouldn't be a surprise. Once you've got your debt paid off, accumulating this money shouldn't be too difficult. If you've only got one bread-winner, I think a six-month cash cushion is pretty darned important.

5) Invest 15-20% of gross income in Roth IRAs and tax-advantaged retirement accounts, up to federal maximums. I think that you can never have too much retirement income. Dave suggests 15%, but for us, 20% works up to the federal maximums. If you're fully funding two people's Roth IRAs (currently $5000 each), it doesn't take very much additional investment to reach that 20%! If you can make it automatic, so much the better. Fully funding a Roth IRA for one person is only $96 a week!

6) Fund 80-95% of college costs for your children. While you can certainly do 100% funding if you so choose, I like the 80-95% number a bit better. I firmly believe that when someone has a monetary stake in something, they take it more seriously, and in my mind, college is no exception. I fully expect my future son to contribute something to his college education (which is a long way off!).

7) Put 10% of your net paychecks into a mutual fund as a "freedom account". This is your "retire early" account, or your "travel around the world" account, or whatever-big-dream-you-may-have account. For us, it's retire early!

8) Pay off your home mortgage. Obviously, we'd all love to own our homes outright. Since a home mortgage is typically lower interest and tax-advantaged, I think this is the proper step to do it.

9) Build wealth with mutual funds, real estate, and businesses. When you get to this last step, you're living the good life. You'll have plenty of cash on hand, solid retirement accounts, a paid-for house, and fantastic cash flow. It's time to build it up even more through investing. If you choose real estate (rentals) or a business, that’s great. Mutual funds are great, too.

As I said before, this likely isn't the path that's right for you. Each individual needs something just a little different. Right now, this path is perfect for us. As things change in the future, our goals and needs may change, too. So, we're going to keep our strategy flexible.

So, what does your financial strategy look like?

YFNN

Evil Tax Refunds and Human Resources

With tax season here, millions of Americans are filing their tax returns and receiving sizable tax refunds shortly thereafter. To a lot of people, that extra money in March or April is like winning the lottery. But, in reality, it's just a sign that you're getting ripped off with your own money.

To understand why tax refunds are evil and what you can do about it, you really need to understand how the whole withholding and refund tax thing works. As I'm sure you're well aware, an amount of money is withheld from each paycheck to pay your federal taxes (and state, local, FICA, etc., but I'll only deal with federal for simplicity). The amount withheld for your taxes is dependent on how much money you earn, how many exemptions you claim, and how much additional withholding you allow.

"Exemptions? I think I remember seeing that on a form when I first started my job. Isn't that the thing where the HR lady just told me to put a zero or a one?"

Pretty much. Basically, that form you filled out is a W4. It helps to tell your employer how much money they should withhold from your paycheck to pre-pay your taxes for the year. That way, when tax day rolls around on April 15th, or April 16th this year, your taxes are already pre-paid (deducted from each paycheck) and the government doesn't have to worry about trying to squeeze you for the entire bill at once. When you receive a refund, you've essentially pre-paid too much money, and they're giving you the amount you overpaid back. The reason the smiling HR lady suggested that you only claim zero or one exemption is that it helps to ensure that the ignorant masses don't underpay their taxes for the year and aren't stuck with a tax bill in April.

“I’m still confused. I thought a refund was the government paying me?"

Think of it this way: Assume your electric bill only comes once a year. But, in order to make sure they get their money, the electric company makes you pay each month. Since they don't know exactly how much your bill will be for the year, they make a guess: say $110 a month. So, at the end of the year you've paid a total of $1320. But, what if your yearly bill only comes out to $1200? Well, you'd be refunded the $120 you've over-paid for the year. They're just giving the extra money back that you've paid them unnecessarily all year long.

So what can you do to keep from overpaying throughout the year? You adjust your exemptions. Basically, the more exemptions you claim, the less they'll withhold each paycheck, and the more money will end up in your pocket each month. But, if you claim too many exemptions, or withhold too much additional money, and they don't withhold enough, you'll end up owing money at the end of the year.

"Okay, so how come getting a nice big check for a refund is so evil?"

A couple reasons:

1) You're giving the government an interest-free loan. Basically, you're saying "Here's some extra money. I won't need it until April, so go ahead a use it until then."

2) You're cheating yourself out of additional interest money. When you don't pre-pay extra money, you have more money available to invest or pay off debts. That's pretty valuable time money-wise, since when it comes to interest, either on your mortgage, credit cards, or a savings account, time is money.

3) You're depriving yourself out of additional monthly cash-flow. Every extra dime you pre-pay the government is one less dime in your pocket each month. Those dimes could be used for groceries, the electric bill, or insurance.

Basically, loaning someone (the government in this case) money interest-free, while you could use the money is a very poor financial decision. From a purely financial, numbers-only standpoint, it's a no-brainer to try to eliminate your refund.

All that said, MLB and I are will be receiving a rather large tax refund in the next week or so, and we did it completely on purpose.

"What? After that long dissertation on why refunds are evil, you STILL get one?"

Yep, we sure do. More on why we intentionally make such a poor financial decision tomorrow.

YFNN

Heat Yourself With a Fan?

MLB and I operate our ceiling fans in the winter. We run them most of the time, actually.

"What?! Is he crazy? Ceiling fans in the winter?"

Yeah, crazy like a fox. Here's why: Ceiling fans can actually save on heating costs in the winter. The temperature of the air in a heated room varies in layers; it's stratified. Because warm air is less dense than cool air, the air near the ceiling is warmer than the air near the floor. A ceiling fan can help push the warmer air that is trapped near the ceiling back down into the room, de-stratifying (or breaking apart) the layers of air. This way, the warm air is circulated where it is needed (to the middle and floor of the room, where the people are), and the heating system doesn't have to work as hard to warm the room.

"Okay, I'll just walk over here and turn it on..."

Not so fast. It's not quite that simple; it has to be running the proper direction. Have you ever noticed that there's a small toggle switch on your ceiling fan? That switch controls the fan's direction, making it spin either clockwise or counter-clockwise. But, there's a catch. That switch isn't labeled with a "forward/reverse" sticker on most ceiling fans (none of ours, for sure). You have the beauty-conscious "form before function" folks to thank for that one.

"Great. I'll just flip that little toggle switch and..."

Hold your horses. It's a bit more complex than that. The direction the fan needs to turn is dependent on the height of your ceiling.

"Now I have to measure my ceiling? I'm all about saving money, but not if I have to do math. FNN, this is getting too complicated!"

Hang in there. I promise to keep it as simple as possible and you won't need a calculator. Basically, if you have a standard height ceiling...

"Whoa, whoa, whoa. A 'standard height ceiling?' Now, I'm a contractor?"

Alright, fine. Stand up. Stick your hand up in the air. Jump. If you can touch the ceiling, or almost touch the ceiling, it's a standard height ceiling, typically eight feet. If you can't touch it, and your tallest friend probably couldn't touch it, it's greater than standard height. See? No math required.

Anyway, if you have a standard height ceiling, then you want the fan to run in the reverse direction. Specifically, the fan blades should be running with the lower edge being the leading edge into the air. Having the fan run in this direction will pull the air in the room upward, which will push the warm air near the ceiling outward and force it to mix with the rest of the air without creating turbulence that you can feel. While it seems to be common sense that running the fan in the forward direction (as you would in summer) would also push the warm air down, it also creates a breeze in the room, which gives you an undesired cooling effect, much like wind-chill. Running it reverse avoids this wind-chill effect, but still mixes the air.

However, if you have a tall ceiling (greater than eight feet or so), you want to run your fan in the forward direction. Specifically, the ceiling fan blades should be running with the upper edge of the blade being the leading edge. This pushes the warm air near the ceiling down into the room. But, because the fan is far enough from you, the breeze that is created is dissipated before you can feel it.

"Okay, I got my fan running the right direction. So, how much can I save?"

Well, according to the manufacturer of the ceiling fan I installed last year, you can save about 10% of your heating costs in the winter. That's nowhere near the 40% you can save in the summer, but still noticeable. These savings are more noticeable homes with high or vaulted ceilings.

10% in the winter...and you didn't even have to do math.

Who's crazy now?

YFNN

Green Peppers and Gasoline

This obsession that some people have with gas price fluctuations is getting way out of hand. People seem to think that gasoline is the only commodity whose price moves up and down on a weekly, or even daily basis, and that loads of money can be saved by shopping around. Truth be told, gas prices really aren't too volatile, especially compared to some other regularly purchased items.

When I get home from grocery shopping, I take my receipt upstairs to the office and go over it in detail. I do this for two reasons. First, I want to make sure that what I paid was correct, and that I wasn't charged something way out of line for toilet paper or ground sirloin. Second, I want to generate some illustrative data.

"Wait, did he just say 'generate illustrative data'?"

Yes, I did. Remember, I'm a data man. Things like this should no longer surprise you.

The prices that I paid for regularly purchased items (bread, milk, chicken breasts, green peppers, etc.) are logged in a spreadsheet (surprise!) and I track them over time, generating trend curves for their prices. For example, I can tell you what the low price I've paid for chicken breasts has been for the last six months, and I can tell you the average price I've paid. This way, before I head over to our Giant Eagle grocery store, I can see what I've been paying historically, and make a decision as to whether I should buy something now (because the price is below my average), or if I should wait until next trip. That said, my grocery-shopping methods and adventures should probably be another post. Back to how this relates to gasoline...

What I'm getting at is this: produce and meat prices fluctuate far, far more than gas prices ever have. Even when you throw out sale price ups and downs, they're still far more volatile. And, you can save more money driving across town for cheap vegetables than you can by driving across town for cheap gas.

Example: The last time I went to the grocery store for green peppers, they were priced at an outrageous $2.19 each at Giant Eagle. So, of course, I didn't buy them. However, I still needed them for a recipe, so I went to Kroger instead. They had them for $1.39 each. I bought two and saved $1.60.

Compare this to gas prices. I personally know people that will drive well out of their way to save a measly five cents a gallon on gasoline. But, by buying just two green peppers at Kroger instead of Giant Eagle I saved more money than buying thirty-two gallons of gas (more than two fill-ups) priced at a nickel cheaper. How absurd is that?

Furthermore, I use coupons at Giant Eagle and regularly save around 7-10% because of it. On a typical $250 a month food budget, I save $20 to $25 just by cutting out a few slips of paper from the newspaper. In order to save the same amount of money on 5-cent discounted gasoline in a month, I'd have to drive over twelve-thousand miles in only thirty days! That's almost as much as I drive in a year! I save far, far, far more money by clipping coupons than nearly anyone ever will by changing their habits about gasoline.

There are a ton of places you can readily yield more savings if given the same amount of effort that many people do trying to penny-pinch at the pump; green peppers and coupon clipping are just a couple. Yet, lots of people moan and groan about the fluctuations of gas prices and drive well out of their way for five or ten-cent discounted gas, yet completely neglect to clip coupons or merely price shop for other items. It simply doesn't make sense.

So why do we have this undeserved obsession with gas price ups and downs? I think it's simply because gas prices are constantly in your face around town and constantly pounded into your mind by the media. When was the last time you heard Katie Couric say "Kraft Cheese Singles hit their highest price in six weeks, today..."?

In fact, most prices look outrageous when you put them on tall signs in big numbers. If you see huge numbers displaying the price of gas every single day, you can't help but notice and track them, and of course, I still do. But, I certainly won't go out of my way to find the cheapest place to purchase gasoline.

Green peppers, though, is another matter entirely.

YFNN

Buck Your Brick Bank For Bang For Your Buck, Part Two

Yesterday, I posted about one of the big benefits of some of the internet banks like ING Direct, HSBC, and Emigrant Direct: the big interest rates. At the end of the post, I mentioned that there are two more benefits that are whoppers for MLB and me. We certainly make the most of them.

My experience deals specifically with ING Direct, so I can't speak to what is available at some of the other banks.

So here are those additional big benefits:

1.) I can set up multiple sub-accounts within our Orange Savings Account, each with a different nickname and purpose. And, since they don't have a minimum balance or any other fees, I can have very small amounts or even no money at all in them without penalty. This is important to me because I can have different small savings accounts (at the great 4.5% rate), each saving toward a different goal.

2.) I can set up automatic savings plans (ASPs) for each sub-account. What this means is that I can have ING Direct pull an amount of money from my checking account at a regular interval of my choosing. For example, I can have $20.00 pulled from my checking account and put into a savings account every other Friday, if I'd like. This is vital because it's completely automatic. That means I don't have to think about it, which means that I won't ever forget to do it, which means I always stay on track. Another reason this is important is because it creates a state of artificial scarcity in my checking account. That helps me to adapt quickly to the smaller amount of money that is readily available, and I spend less. That's vital because I can't waste what I don't have.

You're probably asking, "So how do I make this work for me?"

Well, MLB and I currently have eight savings sub-accounts. Yes, Cowboy Troy, you read that right; we have eight savings sub-accounts. We have an emergency fund, several short term holding accounts, and a couple long-term savings accounts. Basically, this is the way we make it work for us: our paychecks are deposited into our checking accounts every two weeks, or twice a month. This is our main holding area. Throughout the month, money is pulled from these checking accounts into the various sub-accounts. The amount and timing of these withdrawals varies with the sub-account, typically in three different ways for us.

Savings Technique #1: We make small deposits in regular intervals for our emergency fund.
Basically, every two weeks (or whatever interval we chose), we deposit an amount from our checking accounts, thus funding our emergency fund a little each time. Since this account is for emergencies (NOT a big LCD TV), we won't draw from this account unless we absolutely need to. This is a very important account because it ensures that a short-term emergency doesn't derail us from our long-term financial plans.

Savings Technique #2: We make small deposits in regular intervals for long-term savings.
At regular intervals, we deposit an amount of money into what we call our "future kids" and "forgotten money" funds. The "Future Kids Fund" is set up for future children, since they're so stinking expensive. Things like day-care, private school, and size 4 Air Jordans, will eventually come out of this account. Note that this IS NOT a college savings account. We've got a separate 529 account for that, which is invested in the stock market. The "Forgotten Money" fund is basically for whatever we decide to spend it on. That big LCD TV or big donation to an un-named dance organization might come from this account.

Savings Technique #3: We make deposits in regular intervals for short-term holding.
Aside from the emergency fund, this is probably the most important savings tool for us. These accounts are short-term holding areas for bills and events that happen on a regular basis, but not monthly. We've currently got one for insurance, vacation, holiday gifts, and a couple others. These accounts are the reasons we're never surprised or thrown off by semi-annual or annual bills. Throughout the month, we automatically put small amounts of money into these accounts, so they grow slowly behind the scenes. Then, when a big bill is due, we pull the money out and pay it from that account. For example, we pay our insurance (auto, liability, etc.) every six months. If we expect our 6-month bill to be $600, we'd put $100 a month, or $25 a week, into the account. That way, instead of getting that big bill in December or January, and then worrying about how we're going to come up with $600 for it, the money is already there! It's a lot less painful paying $25 a week for six months than to come up with $600 all at once. Plus, the money's been earning interest for us throughout those six months.

We do the same thing with holiday gifts. We each put $10 a week into the account, and when December rolls around, we've got over $1000 ready to go for gifts. And, since it's such small amounts at a time, we don't even miss the money! It works beautifully for us.

So, how do you start? Check out bankrate.com for a huge list of high interest savings accounts. Pick one, sign up and transfer some money from your checking account. Don't forget to set up an automatic withdrawal plan so you can slowly grow your savings without much pain. And, if you want a referral for ING Direct (you get a $25 sign up bonus if you use a referral), just leave a comment with your email address, and I'd be more than happy to hook you up.

YFNN

Buck Your Brick Bank For Bang For Your Buck, Part One

I'm willing to bet that the average American has a savings account at their local brick-and-mortar bank or credit union, if they have one at all. If you're one of those people with a savings account, you're on the right track, but I think you can do a lot better. The local brick-and-mortar banks around here are offering the following rates on their basic savings accounts, as of today:

If I had a $5,000 balance in their standard savings account, these are the rates I'd get:

5/3: 0.65%
Chase: 0.40%
Huntington: 0.05%
National City: 0.75%
US Bank: 0.17%

Those rates are absolutely awful. Plus, many of the accounts hit you with "maintenance fees" if you carry a balance less that a certain amount (usually $200-$500). With those dreadfully low rates and fees it's nearly impossible to get ahead!

So what's a guy with some cash to save supposed to do? Fortunately, the internet banks come to the rescue with savings accounts with many of the same benefits of a regular run-of-the-mill savings account, but with an interest rate that actually makes money! Some of the more popular ones are ING Direct, Emigrant Direct, and HSBC. These banks still have the important features, like the fact they're FDIC insured, it's easy to perform transactions, and the customer service is top notch, but they have interest rates ranging from 4.5% to 5.5%. Some even offer sign-up bonuses or even higher introductory rates!

"That's great FNN, but what does that really mean to me? Give me some illustrative numbers!"

Okay, no problem. I'll even use myself as an example.

MLB and I keep an emergency fund of cash equivalent to five to six months of living expenses in a savings account. Since we want to have easy access to the money (in case of emergency), we don't want to put the money into a brokerage account, IRA, or other investment. We want a genuine savings account. So, say we trudge on down to our bank, Huntington, and sign up for a "Premier Savings Account" with their interest rate of 0.05% and deposit our money.

At the end of a first month with our "Premier Savings Account", we've earned a whopping $0.63. That's right, sixty-three cents. At the end of a whole year, our balance is $7.50 higher than when we started. Seven dollars and fifty cents. For the whole year. Whoopity-doo.

Okay, say instead of going to our local Huntington, we decided to sign up with ING Direct (which we did) and transfer the money from our checking account. We get their standard "Orange Savings Account", and get a rate of 4.5%. At the end of the first month, we earn $56.25 in interest. Yes, you read correctly. $56.25 in one month. That's over seven times more than the Huntington account made all year! After one full year in the ING account, our balance is almost $700 higher!

"Wow, FNN, that's a lot of money!"

Darn tootin'.

"Okay, I'm interested. So what are the drawbacks?"

Well, there's a handful, but they're pretty minor. First, there is no brick-and-mortar building to go to make deposits. You have to make deposits to your regular checking account and then transfer the money to your internet account. Second, it usually takes 2-3 business days to make the transfer back and forth between the accounts and our Huntington checking accounts. However, this can be a positive. Because it takes a few days, it forces me to think a little harder about the reasoning behind the transfer. Since it's a savings account, the money should be staying in there unless I've got a really good reason.

"Are there any other benefits?"

Absolutely, and they're big ones to me and MLB. But, it's a long topic, so I'll go into more depth tomorrow. In the mean time, check out what ING Direct, HSBC, and Emigrant Direct have to offer.

YFNN

Price Drops and Refunds

This post is based on one of the "blog inspiration emails" I've sent to family recently.

If you buy lots of things from Amazon.com, this can be pretty valuable information.

Not many people know this, but Amazon.com has a price drop policy. They don't exactly hide it, but they certainly don't advertise it. Basically, if they lower the price on something that you’ve purchased within the past 30 days, they’ll issue a credit to your account (although you have to catch the price drop and ask for it).

If you want to check if any of your recent purchases are eligible for a refund, just follow these simple steps:

1.) Visit your account and look at all of your invoices from the past thirty days.

2.) Click on the item names to pull up the current item description and price and compare to the price that you paid.

3.) If you paid more than the current price, copy down the order number and go to the Returns and Refunds Contact Form.

4.) Select “Refund Inquiry” as your subject, and check off the orders of interest. If you don’t see the order in question listed, enter the order number in the “Other” field.

5.) State in the comments that the price dropped, and that you want to be credited for the difference. It might help to mention the item name as well as old and new price, but I’m not sure that this is necessary.

That’s it. You do have to be semi-vigilant in checking for price drops, but it's not that big of a deal.

In the past month, I've gotten refunds on a DVD player that I purchased, and the Kill-A-Watt, since they dropped the prices on both items since I purchased them. I also got back money on a pair of 19" LCD monitors. Overall, I got almost $20 back so far.

Being a nerd pays off again.

YFNN

Kill A What?

This post is based on one of the "blog inspiration emails" I've sent to family recently.

Here's some proof that little changes can yield big (well, relatively big) results.

On January 15th, I replaced about 80% of the light bulbs in our house with compact fluorescent bulbs (CFLs) from Home Depot (the only CFLs that I've found that have the quality of light that we like). The remaining 20% (basement, storage, etc.) we don't use often enough to warrant the extra cost of the CFLs. Most of the bulbs I replaced were 60-watt bulbs, replaced with an equivalent 14-watt CFL. I also started shutting off both of our computers at night and when we're not home, rather than leaving them run 24/7.

Our electrical billing cycle runs from the 15th to the 15th, so I got a full month of data. In January, our electric bill was $124.65. The bill I received yesterday, with the same amount of days in the billing period, same rate per kWh, was $89.57. That's a reduction of 28%!

Now, you're probably thinking "Wow, that's pretty good, but what about the outside temperature? That will drastically affect your heating and electric." Well, we have gas heat for the house, so the furnace won't affect it hardly at all (pennies at most...solely for the blower), but, the hot tub is electrically heated. However, the February billing cycle was COLDER than the January one, so even with the increased heating of the hot tub, it should have affected it the other direction.

So, now you're probably thinking, "Great, the electrical bill is lower, but he just shelled out over $60 for some silly light bulbs!". Well, you're right. After one month, I'm in the red overall, by about $25. But, after next month, I'll be firmly in the black, and since the CFLs last about 7-10 times longer than standard bulbs, I won't be replacing them nearly so often. So, the savings will add up even more quickly.

So, just by paying a little closer attention to our computer habits, and by replacing some bulbs, we're set to save about $400 a year. That's not too shabby.

I also recently purchased a Kill-A-Watt. It's a great little device that measures the energy usage of anything you plug into it. It's a perfect tool to assess how much power that 5-bulb office lamp pulls (322 watts!) or how much it costs to run the porch light all day long. And, at only $25 or so, it's a great gift for any nerd you know. I got mine at Amazon.com.

Other interesting things I learned by taking some measurements with my Kill-A-Watt:
- Even in hibernation mode, our computers used about 220 watts. That's like running two 100-Watt light bulbs 24 hours a day.
- Our air purifiers use 61 watts in "high", but only 22 watts on "medium", with just a small drop in efficiency. No more running them on "high" at night!
- LCD monitors use A LOT less power than the big bulky CRTs (about a third, actually).

Science is fun AND profitable!

YFNN

My "Self Tax" and Initial Results

This post is based on one of the "blog inspiration emails" I've sent to family recently.

I'm a big personal finance person. I enjoy shuffling money around, managing expenditures, and budgeting. I strive to make good financial decisions, plan effectively, make the best return on my money. I absolutely LOVE automatic savings and investments and forced savings. I like crazy ways to save more money. Basically, I'm a money nerd. So, I came up with my "Self Tax":

I'm forcing myself to pay a 10% "tax" on items that are unnecessary or poor choices. This not only forces me to reconsider most purchases (after all, a 10% tax is a stiff penalty...even a quick dinner at Wendy's costs an extra buck), but it forces me to put an extra amount into savings every month.

Here are my criteria for the tax. Essentially anything that is not:
- a regular bill (mortgage, cable, insurance, electric, etc.)
- groceries (since we SHOULD be eating at home as often as possible)
- a gift (we shouldn't be taxed for giving)
- charity
- healthcare/medical/prescription

is taxed.

Really, what it comes down to is that anything that is discretionary is taxed. This forces me to reconsider meals out, movie tickets, and other unnecessary or unhealthy purchases.

So, our self-tax for December came out to be $147.07. So, that money was transferred to a high-yield savings account today, where it can earn 4.5%. After $500 has accumulated in that account, the money will be transferred to a Roth IRA (the reason it's not directly placed into the Roth IRA is to limit the fees in the IRA...I pay per trade), where it can supplement our retirement. Woohoo!

So far the plan has been successful. Expenses for December were actually slightly lower than previous months, and I was able to put more money into savings, both of which are good things. I think that over the long haul, this tax will force both MLB and I to reconsider purchases and keep expenses down.

Is this necessary for us? Not at all, but MLB and I don't really deny ourselves very much. To be sure, we can live more frugally without giving up much. This seems to be an effective (and call me crazy: fun!) way to save a bit more.

Am I a total nerd? Absolutely. Am I lucky to have married a woman that will put up with this crap? Unbelievably.

YFNN