Living Frugally: Disregard the Naysayers

Adopt a More Frugal LifestyleI was recently exploring several personal finance blog sites I subscribe to and have noticed a pattern among the comments in stories about us frugal folks. We constantly run into opposition and misunderstanding from those who do not quite get our non-traditional mindset. We are spoken to rudely or given weird looks by those who don’t understand our decision to go against the grain.

Some of us, like Green Money Stream, grow our food instead of buying it and do not buy things like Twinkies for our children. Upon learning this, our friends, family, and neighbors tell us we are depriving our children.

Many frugal folks, like SavvyJames, seek to buy used cars and drive them until the wheels fall off. Others look at this choice as a result of being cheap, penny-pinching Grinches. They may even make fun of our vehicle because it’s old and out of date.

Despite this opposition, we move forward with our gardens of free food and our old, paid-off vehicles because of one very liberating fact…we are free from the bondage of public opinion. (This concept is very close to being free from materialism, which I’ve written about in The Frugal Mentality.) The difference here is that we do not concern ourselves with the idea that we must do as our friends, family, and Hollywood do because it’s the way it’s always been done. Neither are we swayed back and forth by ever-changing fads and fashions. We can purchase a tiny or small home, unshackled from the popular mindset that bigger is better. We pay to have shoes repaired, save as much as possible, invest, create emergency funds, etc. And we are happy!

We are not stressed out by wondering if the person next to us approves of our expensive three-piece suit or we are doing enough to keep up with the Joneses. We are fully content in our resale shop purchased blue jeans and jacket. We are not trapped in the tradition of replacing our sound system with the latest upgrades. We are just fine with the straight-from-the-factory system that came with our used vehicle. Also, if we have financed our used vehicle, we are thrilled to know we’ll pay it off in less time than it will take our neighbor to pay off his brand new, completely unnecessary Hummer. To be honest, I actually get a kick out of that.

So, let the masses say what they will, we are resolved to save in any way we can for the betterment of our loved ones and a financially secure future; and honestly, we just don’t care what others may think … ahhhh that felt good. Live more frugally and live more comfortably!

Have you Calculated how large your nest egg needs to be to generate your desired retirement income? Have you developed, and are you actively managing, a comprehensive retirement plan?

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College Return on Investment – A Forecast

College ROIIn the past, I have asked the question, “Is college worth it?” Not surprisingly, since so many people struggle with student loans, the question generated quite a bit of discussion with a wide variety of opinions. Interestingly, a new report from PayScale, creator of the largest database of individual compensation profiles in the world containing more than 40 million salary profiles, helps to answer that question by looking at ROI, the return on investment.

PayScale’s College ROI Report has been keeping track of the monetary value of a college education at hundreds of colleges and universities for years. But what about the future? What does it hold? As outlined in their press report, they turned to their data science team to forecast the college return on investment for both public and private schools through the year 2025. With data in hand, PayScale can now predict how much more college grads will earn in 20 years compared to the typical worker with only a high school education.

Overview

PayScale provides a forecast for the financial return on investment (College ROI) for a bachelor’s degree at public and private colleges through the year 2025.

Highlights

  • The financial return on investment of a college education will continue to increase in the next ten years, but at very different rates for public and private colleges.
  • By 2025, the 20-year net ROI of a bachelor’s degree at a private school will rise 4 percent, but the 20-year net ROI of a degree at a public school will rise 17 percent.
  • This may be in part because the sticker price of tuition at private schools is generally so much higher than at public schools.
  • The increased cost of a college education makes it even more important that students factor cost, career goals and projected alumni outcome data into their decisions around college choice.

PayScale College ROI_ Value of a Degree in 2025

Methodology

PayScale calculated the 20-year net Return on Investment (ROI) for those with a bachelor’s degree and no higher degree for the years 2006 through 2014. The 20-year net ROI is the difference between the earnings differential between a college graduate and a high school graduate less the in-state 4-year total cost of obtaining a degree. For each year, they calculate the 20-year earnings of the college graduate as the sum of the median earnings for each year of graduation going back 20 years (for example, for 2006, they utilize the graduation years of 1987 to 2006). Since high school graduates get an additional 4 years in the labor force, they calculate the high school earnings as the sum of the median earnings for each year of graduation going back 24 years (for example, for 2006, they utilize the high school graduation years of 1983 to 2006). All wage data comes from PayScale and is in nominal terms.

The cost data is obtained through the Integrated Postsecondary Education Data System (IPEDS) run by the department of education. PayScale calculated the cost of a degree as the 4-year total cost for in-state students. This includes tuition and fees, room and board, as well as books and supplies for each school year for the 4-year window (for example, for 2006, they sum the total cost figures for academic years 2002-03, 2003-04, 2004-05, and 2005-06).

Once they calculated the 20-year net ROI values for the years 2006 through 2014, they calculated a line of best fit for these data points. Using this line, they then projected ROI values for 2020 and 2025.

An interesting forecast that helps to answer the question, “Is college worth it?”

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Open Your Mouth, Learn to Speak

Financial TalkIn a recent blog post, It’s (Mostly) About Priorities, I noted that after two years of running this blog and three books I had changed my belief with respect to why too many people never achieve financial freedom. Whereas I formerly believed the problem was a lack of interest, I have modified that belief, slightly, and have settled on the idea that the problem for too many people is that there isn’t enough interest to make personal finance a top priority.

As I noted in the title of that previous post, I believe most fail financially because they fail to make it a priority. What might be a lesser reason – or perhaps more accurately – a supporting reason contained within the primary reason, is that a lot of people are afraid to talk about their finances (i.e. income and savings/investing practices) with others.

I suspect that part of the reluctance stems from the fact that in our society the norm is to not discuss money, whether that be salaries or savings. Perhaps the more significant reasons are that people are afraid their ignorance with respect to money matters will be revealed if they say too much and they will be unfavorably compared to others if they reveal their salary, savings, portfolio balances, etc.

How Much Does Your Spouse Make? Many Don’t Have a Clue | USA Today

I am firmly convinced that one of the reasons I have found financial success is because following my separation, and subsequent divorce, I put my pride aside and spoke to friends – who appeared to have found some measure of financial success themselves – and shared details of my financial situation at the time and I asked their thoughts on how I might turn my financial life around. I often spoke in detail with one friend who provided incredibly useful information and guidance. Even today, fifteen years after I started to make serious changes to my financial life, found success and have a solid, proven plan in place, I still have a very close friend with whom I speak frequently about financial matters and we often bounce thoughts/ideas off each other.

If you are committed to assuming more control of your financial life and finding relief from financial worries, make personal finance a priority. And as part of that education process, don’t be afraid to open your mouth, ask questions and have free-wheeling conversations about all matters related to money.

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Knowing What to Include in Your Will

Last Will and TestamentLet’s face it, the topic of wills isn’t exactly cheery and uplifting. However, if you want to make sure that your property and possessions are distributed in accordance with your wishes after you pass away, this is a subject you’ll have to broach.

The good news is, creating one of these legal documents may be much easier and quicker than you think, and once you’ve done it you’ll benefit from added peace of mind. To help ensure the process runs smoothly, here’s a quick rundown of the things you should include in your will:

Details of Your Money, Property and Possessions

Of course, this document wouldn’t be complete without details of your money, property and possessions. You should include everything from your home to your bank accounts, shares, pensions, insurance policies and more. You can mention any treasured objects that you’d like to pass on too.

Your Beneficiaries

You’ll also need to specify the people who you wish to leave your assets to. After all, as noted by The Law House, one of the reasons for making a will is to look after your loved ones and to make sure that your property and possessions go to the right individuals. As well as any people you want to include on this document, you should consider whether or not to leave money to charities or other organisations. All the parties you wish to give money or property to are referred to as your beneficiaries.

Guardianship Arrangements

There is also the issue of guardianship arrangements to consider. If you are responsible for any children under the age of 18, you should state in your will who you wish to take over as guardians in the event of your death. You should also specify where the money will come from to look after them. Usually, these financial provisions are made in the form of trusts, which hold money or property until children reach a stated age.

Your Executors

Last but not least on this list, it’s important to identify your executors. These are the people who will carry out your wishes in accordance with the details of your will. It’s best to name more than one individual, and you can choose friends, relatives or solicitors. By getting to grips with what you need to include on your will and drawing one of these legal documents up, you can ensure that your estate is handled in the way you want after you pass away.

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It’s (Mostly) About Priorities

The ‘it’ is achieving financial freedom. Soon after the one year anniversary of this blog, in the post, Talking Personal Finance in Public Forums, I discussed my thoughts following the publication of my first book and one year’s experience managing the blog; and participating in personal finance conversations across multiple social media platforms. I noted there were some things that disappointed me a little, some things I found quite interesting and the conclusions I had drawn with respect to how people approach personal finance.

PrioritiesAmong the many thoughts from that post was this passage, “Most people are not interested in personal finance; at least they aren’t that interested in talking about it in the forums with which I am familiar. Perhaps people are too busy with other things in their lives. Perhaps they aren’t comfortable talking about personal finance in any forum. Perhaps most people believe they are already financially savvy (I find that hard to believe if you trust the reports/studies with respect to Americans and their finances in general and preparedness for retirement specifically). Whatever the reason, or combination of reasons, I have been genuinely surprised at what I perceive as a lack of interest for learning more about personal finance and getting fiscally fit.”

Now, more than one year later – and two more (fictional) books, numerous updates to the blog, too many posts to count and the observation that a lot of the early bloggers I previously communicated with have left the game (perhaps that is a discussion for another day) – my thoughts have changed … slightly. I no longer believe there is a lack of interest. I believe the problem for too many people is that there isn’t enough interest to make personal finance a top priority. Two recent interactions have crystallized that belief for me.

Pensions. Going, Going … | RetirementSavvy

The first involves a co-worker who is considering retiring in a year or two. In the past, my wife and I enjoyed a personal relationship with him and his family. I know them pretty well. He had read the book, we discussed a few broad ideas and he indicated that he and his wife were interested in working through the RWR Simple Retirement Workbook with me and engaging in a more detailed conversation. We tentatively agreed to meet one night, plug in the hard numbers and discuss how they might go about drawing down their various savings/retirement accounts for annual income in retirement. That was five months ago. While we have both spent some time on the road for work, there have been ample opportunities to get together … and numerous proclamations that he was working on finding the time to do so. I doubt we’ll ever meet to have that discussion.

Detropia | RetirementSavvy

The second involves the friend of a cousin. Through my cousin, this friend is aware of my books and work on this blog. After a preliminary conversation – through my cousin – in which this friend indicated they wanted to know more about Roth 401(k)s and discuss the selection of funds for a new workplace plan they recently became eligible for, we agreed to meet one evening. The meeting has been postponed twice by the friend. In this case, the interaction only began a couple of weeks ago. I suppose it’s possible that the friend will find some time and the meeting will actually occur, but I have my doubts.

Plots Against Pensions | RetirementSavvy

More than two years after starting the blog, writing the books, participating in various social media and all the experiences generated from those activities, I believe the reason most people have not achieved financial freedom – and likely never will – is because they have not made it a priority. Just as being physically fit requires a plan that includes carving out time to workout – no matter how hectic work is or other commitments – being fiscally fit requires people to carve out some time to read more, talk more and learn more.

Broke: Struggling to Remain Solvent | RetirementSavvy

There is no doubt that it can be tough to find the time; and there is no doubt in my mind that the way in which we currently practice Capitalism often works against the individual. I have written about the forces working against individuals on numerous occasions. (Links to multiple posts are scattered throughout this post). However, it is because of those reasons that people need to be even more engaged in educating themselves, making their personal finances a priority and securing their financial freedom.

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