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The Simple Dollar

One-hundred dollar bills are seen in this photo illustration at a bank in Seoul. The 'personal tax' is a great tool, but in the end, just like budgeting, it comes back to personal discipline, Hamm writes. (Kim Hong-Ji/Reuters/File)

Personal budget or 'personal tax'? How best to save money.

By Guest blogger / 12.27.13

Recently, Sweating the Big Stuff featured a great article on using a 100% “personal tax” to “force” yourself to save. The idea really is pretty cool:

Whenever you buy something that isn’t a necessity, you impose a 100% tax on yourself that goes toward your savings account. For example, if there is a Blu-Ray you want to buy on Amazon for $20, you have to have $40 to spend on it. $20 goes to the Blu-Ray and $20 goes to the savings account. As the redditor puts it, “your larger savings plan can dictate where the money goes that accumulates in this account. (i.e. IRA, 401k, emergency fund, etc)”

When I first read about this idea, I was a huge fan of the concept. It provides a great way for people to feel less “trapped” by money responsibility. It allows people to spend freely but still make progress toward savings goals.  ( Continue… )

A vault in the lower level of the First National Bank building in Richmond, Va. If you’re a professional adult without any retirement plan in place, you need to start a retirement plan, Hamm writes. (Mark Gormus/Richmond Times-Dispatch/AP/File)

Not saving for retirement? Start now.

By Guest blogger / 12.26.13

This article first appeared at U.S. News and World Report Money.

It’s pretty well established that if you start saving about 10% of your income for retirement starting at age 25 or so, you’re going to be in excellent shape for retirement when you hit age 65. This fact should be emblazoned on every single college and trade school diploma issued in the United States today: start saving for retirement now, not later.

Unfortunately, that fact doesn’t fit with most of us. Quite a few of us didn’t save at all during our twenties… and some of us didn’t save during our thirties, either. I hear from readers all their time in their late thirties or early forties (or even later…) who are just now realizing that they need to start saving for retirement or they’re going to work forever.

If this describes you, the obvious answer is to start saving immediately. Right now. If you’re reading this article and you’re a professional adult without any retirement plan in place, you need to start a retirement plan.  ( Continue… )

Hamm warns not to include expected inheritance into financial planning. If you do receive inheritance, he says, treat it as a windfall. (Issei Kato/Reuters/File)

Planning for inheritance? Don't.

By Guest blogger / 12.23.13

A surprising number of readers write in to me asking about whether or not they should change their financial plans to account for a healthy inheritance from their parents. Often, these are children who see their recently-retired parents having a significant amount of cash that the children believe they will eventually inherit.

Unfortunately, that’s not the reality of inheritance for most people.

In truth, 92% of Americans will receive no inheritance at all and only 1.7% of Americans can expect to receive an inheritance of more than $50,000.

Beyond that, roughly 20% of Americans will wind up providing care for their aging parents. This can easily be viewed as a “negative” inheritance.

What about those parents flush with cash? Like it or not, a significant portion of retirees will see their entire retirement savings vanish before they reach the end of their lives.

These stories reflect my own reality quite well. Neither Sarah nor I expect to receive any significant inheritance when our parents eventually pass away.

Although both sets of parents are in reasonably good financial shape at the moment, both sets have quite a few more years of living in retirement before they pass away, years that will likely eat through their savings. ( Continue… )

Name brand and generic oatmeal in the cereal aisle of a Hannaford grocery store in South Portland, Maine. Hamm recommends spending as little money as possible on consumable goods, like groceries. (Clark Canfield/AP/File)

When to skimp and when to spend on quality: four ways to decide

By Guest blogger / 12.18.13

Two of the biggest principles of frugality often seem to point people in opposite directions.

On one side, we have the idea of minimizing the amount you spend. It’s often a good goal to plan nutritious meals for the week with minimum expense, seek out needed household supplies at the lowest possible rate, reduce your monthly bills as much as possible, and, in short, do everything you can to minimize the amount of cash that flows out of your wallet.

On the other side, there’s the idea of buying it for life. It makes sense to spend more to buy an item that you’ll be able to use for a very long time. For example, buying a cast iron skillet might be more expensive than buying a Teflon-coated skillet, but after five years, that Teflon coating begins to peel, requiring a replacement, while that cast iron skillet will last for many, many years.

One idea pushes you to spend less on your items, while the other pushes you to spend more on the items. How do you determine which is the right approach for a particular purchase?

For me, I use a few easily determined factors to figure out whether I should buy an item for life or minimize the cost of the item. ( Continue… )

Bitcoin tokens in Sandy, Utah. Hamm recommends only investing in Bitcoin on a speculaltive basis. (Rick Bowmer/AP/File)

Bitcoin: Should you invest?

By Guest blogger / 12.16.13

Over the last year, quite a few readers have written in asking me for my take on Bitcoin and, lately, other digital currency such as Litecoin. As I often do when I get many emails on the same topic, I thought I would sum up my take on the issue in a single post so that I can simply refer back to it in the future.

First of all…

What Is Bitcoin?
In simplest terms, Bitcoin is digital currency. You can essentially think of it as a new type of money with a few special features, which I’m going to explain in a simplified form.

For starters, Bitcoin is tied heavily to a network of computers all over the world. Anyone who wants to can run the Bitcoin app on their computer and become part of that network. Among other things, that app stores part or all of the Bitcoin transaction history.

What’s the transaction history? Whenever someone gives someone else a Bitcoin (or a fraction of a coin), they must share that transaction with the entire network. The other computers on the network can then store the record of that transaction.

Another important factor is that there is a very limited number of Bitcoins in existence. The entire system relies on a very brilliant mathematical system to verify that each Bitcoin in existence is unique and who the initial owner of that Bitcoin is. ( Continue… )

Motorists drive in the rain north, top, on Interstate 270 in Rockville, Md., out of Washington. Moving closer to work cuts down on commute times and transportation cost, but high living costs tend to make up for it, Hamm says. (Charles Dharapak/AP/File)

Is moving closer to work financially worth it?

By Guest blogger / 12.15.13

It’s a classic problem for people who live in a city. Initially, they choose to live well outside the city because it’s less expensive to find housing. Eventually, they start to realize that it’s not the great deal they thought it was. The commute is long. If they’re driving a car into the city each day (usually, they are), the cost of gas and maintenance starts to add up.

Before long, people start wondering whether it’s worth it to pay more for housing and live closer to the city.

The advantages are clear.

If you live closer to work, your commute is shorter. If you can shave 15 minutes off of your commute each way, then that’s another half an hour each day that’s available to you for personal use. If you shave 30 minutes off of your commute, that’s another hour each workday. Some people like to commute, but I know that a lot of people loathe it.

You may gain access to public transportation. This may save you on parking, fuel, and maintenance on your commuting vehicle. It also opens the possibility of actually reducing the number of cars owned by your household. ( Continue… )

An electrician installs power cables outside the Indian Parliament building in New Delhi. Hamm argues that some hugh school graduates should give trade school serious thought. (Anindito Mukherjee/Reuters/File)

College savings plans not enough? Consider trade school.

By Guest blogger / 12.13.13

For a lot of people, going to a four year college seems like an automatic choice when they graduate from high school. The reason is obvious – more income. According to the National Center for Educational Statistics, a college degree accounted for $15,000 in additional income per year versus a high school diploma ($30,000 versus $45,000). Over a thirty year career in the workforce, that adds up to a $450,000 difference.

However, there are a few drawbacks with this happy picture.

For starters, a bachelor’s degree typically takes four years of study, which means that people who enter the workforce after receiving their bachelor’s degree aren’t doing so until age 22. That shaves some years off of a person’s career.

Another drawback is the cost. The average bachelor’s degree in the United States costs $127,000.

A third drawback: some people simply aren’t prepared for the rigors of a four year college. The Institute of Education Statistics estimates that 40% of attendees at a four year college drop out before completing their degree. If you find yourself as a part of that 40%, not only have you incurred some of the expense of college, you left without receiving a degree.

My response to these statistics is that people approaching high school graduation should seriously consider trade school, particularly if they’re not at the top of their class. Trade school offers a pretty compelling career path, particularly compared to the college path described above.

For starters, the salary isn’t that much of a drop-off compared to a four year degree. SimplyHired.com estimates that a trade school graduate will make about $42,000 per year. Over the course of thirty years, the difference between that trade school graduate and the four year college graduate is only $90,000. ( Continue… )

A boy somersaults at the beach during sunset, in Colombo, Sri Lanka. Spending money you don’t have on a weekend trip simply means you’re going to return to bigger issues than what you left behind, Hamm writes. (Dinuka Liyanawatte/Reuters/File)

How to take a weekend trip without breaking the bank

By Guest blogger / 12.12.13

This article first appeared at U.S. News and World Report Money.

My wife and I have three children in elementary school and/or preschool, so the opportunity for “escape weekends” have been few and far between for a very long time. When we get those opportunities – usually thanks to a generous grandparent – we deeply enjoy the chance for a bit of “us time.”

Still, an escape weekend isn’t an excuse to go break the bank. We strive to escape the stresses of our day-to-day life for a little while, but that doesn’t mean we need to add to those stresses.

Here’s how to pull off an “escape weekend” with your partner without melting your credit card and adding to your financial stress.  ( Continue… )

Credit card machines were busy as bargain hunters at Best Buy made doorbuster purchases just after midnight on Black Friday last month, in Dunwoody, Ga. A buy-one-get-one-free sale might seem incredible until you realize that all of the items aren’t really things you want to begin with, Hamm writes. (David Tulis/AP/File)

Buy one, get one free! Or don't.

By Guest blogger / 12.10.13

On the surface, a “buy one get one” sale sounds like a good deal.

“I really want two shirts and if I buy one shirt, I can get the other one for free!”

“I really want two games and if I buy one game, I can get the other one for 50% off!”

Almost everyone is on board with those kinds of deals.

The problem is that, in reality, deals don’t quite work out like that. Almost every “buy one get one” deal that you find has some sort of catch… and, often, there are multiple catches.  ( Continue… )

A piggy bank branded with the logo of the English Premier League soccer club Arsenal. Trent Hamm shares where he draws the line between frugality and tastefulness. (Chris Helgren/Reuters/File )

The balance between frugality and tastefulness

By Guest blogger / 12.09.13

A few weeks ago, I was riding shotgun on a lengthy road trip with a friend of mine when we made a stop at Taco Bell. We ordered our food and sat down when I noticed that he had a small mountain of sauce packets on his tray.

I asked him whether his burrito was going to wind up swimming in sauce and he just smiled. “Nope,” he said, “these are going home with me.”

On our way out, he stuck about twenty five sauce packets into his coat pocket and then, when we were in the car, he tossed them into one of his bags.

When I asked him about it, he says that he takes them home and squeezes them into a hot sauce jar. He says it takes him just a few minutes and he can easily do it while watching something on television. 

While I suppose that this is a way to ensure “free” hot sauce, something about it just didn’t feel right to me. After some reflection, I realized that I don’t like it when people abuse things that are clearly presented in a “take what you need” fashion.  ( Continue… )

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