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The Simple Dollar

Today's tip for the budget-conscious homeowner: If you have an older showerhead, replacing that showerhead will save you a lot of money, even if you invest in a very expensive showerhead that provides a great shower experience. (Marvin Gentry/Reuters)

Clean and green: Replacing your old showerhead is a double win

By Guest blogger / 06.07.12

Shower heads vary widely in the amount of water that they disperse, and the water flow isn’t directly connected to how strong the shower feels, either.

The best shower I’ve ever had was when I was in college, where the dormitory had these enormous showerheads that dropped water on you from the ceiling. It felt much like standing in a mild rainstorm. The shower made it very easy to get clean and feel refreshed.

After researching them (mostly because I wanted a similar setup in an apartment I lived in), I found that the showerhead was a very low-flow showerhead. However, the landlord didn’t like the idea of switching showerheads, so I used the one already in the apartment. The flow from that showerhead was intense, but much of it was wasted as it just ran right down the drain.

At our current home, we have a showerhead in the master bathroom that’s somewhat similar to the one I loved in college. It produces about a gallon of water per minute, which is a pretty low rate, yet it provides a great shower experience.

On the other hand, a friend of mine has an extremely high-flow showerhead. He lives in an older house, where the same showerhead has been in use for a long time.

He grumbled a lot about the wasted water, so eventually he wanted to test it. He got a five gallon bucket and let the shower run into that bucket to see how long it took to fill up. It turns out that his older showerhead was producing somewhere around 4.2 gallons per minute.

So, let’s run the math here. My low-flow showerhead produces 1.0 gallons per minute. His high-flow older showerhead produces 4.2 gallons per minute. That means over the course of a ten minute shower, his shower is going to use 32 more gallons of water than mine.

What does that mean over the course of a year? Let’s say we’re looking at an average of two showers per day among the residents of the home. That’s 23,360 gallons of water wasted in a year. Depending on your local water rates, that’s going to be somewhere around $40-50 per year in wasted water costs.

There’s another cost, too: heating that water. Let’s say half of that water comes out of the hot water heater. You’re going to be paying to heat 12,000 gallons of water for an average of 24 hours over the course of a year. Again, depending on your home energy costs, this is going to cost you somewhere around $40 in energy costs.

If you have an older showerhead, replacing that showerhead will save you a lot of money even if you invest in a very expensive showerhead that provides a great shower experience.

If you want to know whether you should replace your showerhead, put a gallon bucket into your shower (or a larger one with the one gallon level clearly marked). Turn your shower on, then see how long it takes for the bucket to fill to the one gallon mark. If it fills in twenty seconds or less, then you should strongly consider a new showerhead (if it fills up at the twenty second mark, your head is producing 3.0 gallons per minute; if it takes less time, the rate is higher).

If you can easily chop a gallon per minute off of your water flow in your shower, you’ll save some money by switching showerheads. Shaving one gallon per minute off of your showerhead – assuming you take one ten minute shower per day in that shower – will save you 3,650 gallons per year, which will approximately trim $5 off your water bill and $3-4 off your energy bill each year. If you use the shower more or shave more off of your flow rate, your savings will go up far more than that.

Sarah, Jason and their sons Sam, 4, and James, 8 weeks - participated in a program to access the energy efficiency of their home, as shown in this January 2008 file photo. They bought a new freezer, new window shades and plastic coverings, efficient light bulbs and wrapped their hot water heater, a smart move, according to our personal finance expert. (Melanie Stetson Freeman / The Christian Science Monitor)

Efficient heater insulation puts dollars back in your pocket

By Guest blogger / 06.06.12

In most houses, you’ll find a large tank water heater. If you were to open that tank up, you’d find some form of insulation surrounding an inner tank full of quite hot water. The insulation inside the tank is pretty good, but no insulation is perfect.

Try this. Go down to where the hot water tank is located and put your hand near the outside of it. If it’s not overly warm, gently touch the surface of the tank.

Depending on how well it’s insulated, the tank should feel at least a bit warm and, if the insulation is poor, it will feel quite warm to the touch.

The heat that you feel on the tank is simply being lost. The warmer the surface of the tank is, the more heat is being lost and the more energy you have to use to keep the water hot.

During the winter, this loss could be considered an extremely inefficient way to heat your home; at least the heat isn’t working against you. In the summer, though, the heat loss from your tank will actually work slightly against you as it contributes warmth to the air inside your home when you want the air to be cool.

So, what’s the solution? The best long-term solution is to insulate your tank with a water heater blanket and with a piece of insulation on the bottom, as described at

The first thing to check is the R-value of your existing tank. Finding this information out can be a bit tricky. Many models have a sticker that tells you the R-value of the tank; if you can’t find one, simply identify the model and use Google. If your tank has an insulation R-value of less than 24, it’s going to be cost-effective to insulate it.

If you decide to insulate, contact your energy company first. Many energy companies will help you with a hot water heater insulation kit, either by giving it away or selling it at a very low price (on the order of $10). Depending on the company, the kit may include a blanket cut to fit your water heater as well as a piece of insulation to place under the heater to reduce downward loss.

If you do have to buy the insulation separately, look at a pre-cut hot water heater blanket at your local hardware store. Get one with a minimum R-value of 8 (and preferably higher). You should be able to find one for $20 or less that will fit your heater. You’ll want to know the dimensions of your heater before you go, so measure the height and circumference.

What can you expect to save from this? Insulating an inefficient hot water heater can cut the cost of running that heater by 5% to 10%. Depending on the model, that can save you anywhere from $5 to $20 per year, which means you’d pay for the blanket in 1 to 4 years and save money thereafter.

This is another one of those subtle “do it once, slowly save money for a long time” tasks that you can do around your home. It doesn’t immediately put cash in your pocket, but it quietly cuts your monthly energy bill by a bit. Think of it as an automatic savings plan.

Our personal finance guru shares some tips to ensure that this summer your family eats well, while staying under budget. Tip number one: picnics are great ways to explore, while avoiding pricey restaurants. Portlanders Jennifer Spiegelberg and Jesse Olmsted enjoy a picnic at Mount Tabor in Portland, Ore., in this April 2012 file photo. (Faith Cathcart/The Oregonian/AP)

Family vacations on a budget: Yes, you can have it all.

By Guest blogger / 06.05.12

Over the next two months, our family is going to be doing some vacationing in various places in the Midwest and Great Plains. The longest trip in that period will be nine days spent in South Dakota and Wyoming with my wife, my children, and my parents.

Vacations can be a lot of fun, but they can also be really expensive, and one of the biggest travel expenses is food. When you’re traveling, not only do you not have access to your own kitchen, you’re also often tempted to just eat at a restaurant when you’re near one while out and about visiting sites.

That can seriously add up. If we were to eat out and spend even just an average of $10 a meal per adult and $5 a meal per child, our trip to South Dakota and Wyoming would set our family back $1,485 just for food alone! That actually exceeds our lodging for the trip, believe it or not.

At the same time, eating out at an unusual restaurant in a town you’ve never been to before and may never be in again can be quite fun. To us, that’s a part of a family vacation.

So, what can we do to cut down on those costs without removing the fun? Here are some of the tactics we’ve built up over the years.

Take along some food for the first leg of the trip. The night before we leave, we’ll actually pack a bunch of food for breakfast and lunch the next day. Fresh fruit, sandwiches, vegetables, water bottles, and other such things can easily be packed up in advance and kept cool with ice.

Then, we just stop at a state park or something near lunchtime and eat a picnic lunch. It gives the children a great opportunity to run around and wear themselves out, which usually causes them to nap most of the afternoon (enabling much easier travel for a while).

Visit a grocery store upon arrival. Pick up things like breads, cold cuts, fruits, cereals, and other such simple fare. Fill up your refrigerator (in your hotel room or cabin) or your cooler with the stuff that needs to remain cool.

Each day, prepare a simple breakfast of fruit and cereal from what you have on hand and pack a lunch with those materials, too. Pack the lunch along with you and eat it on that day’s excursion.

Use the peak-end rule for evening dining. Pick two evenings during the trip in which you’ll eat out at a very nice restaurant. I suggest an evening fairly early in the trip for one such nice meal and the final evening of the trip for another nice meal.

For the other evening meals, eat at a low-cost place for dinner or, if you have a cabin or are camping, simply prepare a meal of your own at those spots.

The “peak-end rule” is a psychological phenomenon in which we judge our experiences almost entirely on how they were at their peak (pleasant or unpleasant) and how they ended. For example, if you have a family reunion that was largely pleasant except for one big argument in the middle and a big argument at the end (I have been part of such reunions), you’ll view the whole reunion as pretty unpleasant in retrospect.

Similarly, I’ve found that if you plan a vacation with one amazing event in the middle and a pretty good event to close the vacation, you’ll remember the vacation as being incredible, even if most of the days weren’t stuffed with excitement.

The same goes for dining. If you visit a town and eat two really great meals there, one at the end of your visit, you’ll come to think of the food as incredible on the whole and you’ll look back with pleasure. The rest of the meals are far less vivid in retrospect, so make them inexpensive and simple.

Keep hydrated and keep snacks on hand. If you end a vacation activity and find yourself really hungry and thirsty, you’re going to find it much easier to talk yourself into eating out somewhere expensive without making a good, rational decision about it. If you keep some snacks on hand, though, and everyone has access to water bottles, you won’t have your choices driven by the base impulses of hunger and thirst and won’t make a rash decision.

Choosing and executing a few simple frugal food tactics can turn a rather expensive vacation into an affordable one without taking away from the experience or the memories.

Pearl Ganotisi sips from her 24-ounce of soda drinks as she takes her meal in an American hamburger chain June 1, 2012 in Manila, Philippines. New York Mayor Michael Bloomberg's proposed ban on large sugared drinks has got our personal finance expert thinking about financial limits you should keep in mind in order to save money at home. (Pat Roque/AP)

Using '16 ounce cup' logic to reduce your personal spending

By Guest blogger / 06.04.12

Last Wednesday, the mayor of New York City announced a proposed ban on large sugared drinks, which essentially limits all drinks with added sugar content to be limited to one pint (16 ounces) or less.

Naturally, there was a lot of outcry over this. Overzealous government! Restriction of freedom! Underneath it was a pretty sound idea, though, even if it isn’t the government’s role to intervene in such ways.

Let’s say you’re at a self-serve restaurant and you can get either a 16 ounce cup or a 32 ounce cup. If you take the larger cup, you only have to fill it once and take it to your table to consume 32 ounces of a sugary beverage. If you take the smaller cup, you can still consume 32 ounces easily, but halfway through you have to stop and make the active choice to get more soda.

The smaller cup becomes a natural limit, one that forces you to stop and think about your actions before you make another (potentially poor) choice.

Should the government be doing this? Probably not. Should you be using this kind of tactic in your own life? Most definitely.

I think a story from my own life will help show how easily this idea translates to money.

One thing my family enjoys doing during the summer is going to community festivals. We like watching the town parades with the marching bands and the handmade floats (with our children collecting the candy tossed from the floats). We like wandering through the exhibits and learning about local history.

We also like visiting the inevitable flea markets that are part of such community festivals.

Several years ago, when Sarah and I would go to such festivals (before our children came along), we’d hit an ATM and get plenty of money for the excursion. We would want to make sure that we didn’t need to visit an ATM at any point during the day, so we’d withdraw a wad of cash that far surpassed what we would actually need during the day.

Almost always, we’d end up spotting something we “needed” during the flea market. We’d see a hand-woven rug or a hand-blown drinking vessel or a handmade ceramic bowl.

Conveniently, whenver we would have this impulsive desire to buy this “needed” item, we’d have plenty of cash in our pocket. Because the cash was right there, we wouldn’t stop and think about whether we should really spend $50 on this earthenware pot. We’d just pull out our healthy wad of cash, hand it over, and walk away with some item we really wanted in the moment but didn’t actually need.

Let’s call that our “32 ounce cup” model.

Today, we use something more like a “16 ounce cup” model. Instead of withdrawing plenty of money from the ATM before going to such a festival, we just withdraw enough for any food we plan on eating plus a bit extra for one small item at the flea market.

If we come across some “must have” item during the flea market, not having enough cash to buy it means we can’t buy it impulsively. We have to talk it over and, if we do decide to get it, we have to invest the time going to an ATM to withdraw the cash to afford it.

Usually, we end up not buying that “must have” item. Yes, every once in a while, we decide to go to the ATM to buy something, but most of the time we realize that the item is pretty unnecessary and don’t spend the cash.

You can use this type of “16 ounce cup” logic in a lot of ways to reduce your spending.

For example, when you’re at the grocery store with a pretty short list, grab a hand basket instead of a cart. That way, you’re naturally limiting what you can carry to the checkout aisle, meaning impulse buys are going to be much trickier.

Another example: if you’re out shopping with friends, “accidentally” leave your wallet in the car but perhaps have a $10 or a $20 bill in your pocket. That way, if you’re thinking of making a bigger purchase, you have to walk out to the vehicle to retrieve your wallet in order to do it.

These tactics don’t keep you from having the things you want. They just force you to actually decide what you really want instead of giving in to the impulse of the moment. The less you listen to immediate impulses, the more you’ll do for your long term financial health.

Connecting your appliances to a switch on the wall is a convenient, easy way to cut down on energy costs (Courtesy of Brittany Lynne)

How a switch-based power source will save you money

By Guest blogger / 06.03.12

One of the things I really liked about our house when we first moved in is how each room had multiple switches that controlled particular wall outlets. All you had to do was flip a switch in that room to cut electricity to the outlet.

At first, this was just a convenient novelty. We hooked up a few devices that we might want to turn on when we entered a room, like a digital picture frame.

After a while, though, I began to realize that this little feature can save a lot of money over time. Here are three examples.

The entertainment center Hook up your television, your DVD player, your stereo, and any other devices on your entertainment center to a single surge protector, then plug that surge protector into an outlet controlled by a switch. Whenever you leave the room, flip that switch.

What this does is it not only eliminates the power use from any devices you forgot to turn off, it also cuts out the phantom energy drain from devices that stay on standby mode. Several devices left on standby mode can easily devour 100 watts of energy, meaning that you’re down a dime during your overnight hours or during the workday. A simple flipping of the switch keeps this from happening.

The lighting In a dimly lit room, you can hook lamps up to those power outlets to provide whatever lighting arrangement you’d like. If that outlet is hooked up to a switch, you just have to flip a switch when you enter or leave the room to manage the lights. There’s no need to reach for lamp switches, and several lamps can be controlled by a single switch.

The small kitchen appliances Many of these eat electricity over time if they sit in standby mode. There’s no reason to have a food processor, a blender, a microwave, or other devices just sitting there sucking down electricity when they’re not in use. Put them all on a switch, then when you’re about to cook, flip that switch. Do your food preparation, then flip the switch back off. It’s much easier than chasing cables around.

How much does this really save you? Per use, it’s a small amount. As I noted above, an entertainment center might suck down 100 watts of power when everything is on standby. In other words, you’re devouring a kWh every ten hours, and the electric company charges anywhere from $0.10 to $0.26 per kWh.

So, let’s say you’re in your room with an entertainment center an average of four hours a day. That leaves twenty hours where your devices would be in standby mode. That’s $0.20 to $0.52 per day saved by having things on a switch.

Over the course of a month, that’s $6 to $15.60 saved by simply having things hooked up to a switch. Over a year? $72 to $187.20.

If you have any outlets in your home hooked up to switches, I recommend taking advantage of them. If you’re building a new home, plan to have some outlets hooked up to switches. If you’re an electrician, this is a straightforward home improvement project. Is it something worth hiring an electrician to do? Probably not, unless you’ve got some pro bono work coming your way.

It’s just a simple way to save some money on your energy bill. Saving money becomes as easy as flipping a switch.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

This 2008 file photo shows a compact florescent light bulb at the home of Carol Hayward in South Orleans, Mass. Until the technology for LEDs improves, Hamm recommends using a strategic combination of incandescent and LED light bulbs to save on energy costs and still enjoy good light quality. (Mary Knox Merrill/The Christian Science Monitor/File)

A strategy for using LED light bulbs

By Guest blogger / 06.03.12

For indoor use, there are three primary types of light bulbs available in the American market.

Incandescent bulbs are the ones most of us have used all of our lives. They produce wonderful bright light, but they’re also incredibly energy inefficient and burn out all the time.

Incandescent bulbs are also the least expensive problem. However, they’re slowly being phased out, both by corporate choice and by legal measures.

The most common replacement for incandescent bulbs is the CFL. They last longer than incandescents (though not as long as advertised, at least in my experience), but their light quality isn’t quite as good (though the newer ones are getting pretty close).

CFLs are more expensive up front, but they’re far more energy efficient than incandescents. You also have to be careful when disposing of them. These are the most common bulbs for sale now in stores.

However, the future is in LED bulbs, which are just beginning to show up in mainstream stores. They last far longer than incandescents and CFLs. They’re also far more energy efficient than either type.

What’s the drawback? Right now, the light quality of LED bulbs isn’t anywhere near as good as incandescent bulbs and isn’t even as good as CFLs. However, the light quality of LEDs is drastically improving. Every time I see one, I’m impressed, and there are some high-end LED bulbs that are getting very close to incandescents in light quality.

The other drawback of LED bulbs is the expense. They are by far the most expensive bulb of the three types.

So, why would you ever use an LED? Well, the energy efficiency and long lifespan of LED bulbs makes up for the initial cost and more. The total cost of ownership of a typical LED bulb is about half of that of CFLs and about a third of that of incandescents because of the higher energy costs and the cost of constant bulb replacements.

I am currently using one of the earliest LED bulbs in one socket in our living room. We have been using it for four years. Right next to it is another socket, which has had two incandescents burn out in it along with a burnt-out CFL. The LED has outlived all three of them and is side-by-side with a fourth one.

The big challenge with LED bulbs at this time is light quality. I would be highly dissatisfied using a current LED bulb as the primary lighting in a room I was in frequently or as a reading light. With most of them, the light has a somewhat bluish tint and in many of the older ones, the light is very directional (like a flashlight). While both of these factors are improving, current LEDs just aren’t quite there yet.

A community bulletin board at Stop and Shop in Hingham, Massachusetts displays advertisements for local businesses and services in this January 2011 file photo. According to Hamm, starting up a side business doesn't have to be expensive, but it will take up a lot of time. (Melanie Stetson Freeman/The Chrsitian Science Monitor/File)

Starting a side business doesn't have to break the bank

By Guest blogger / 06.02.12

When I started my computer consulting business, I spent about $150 in startup costs. I printed some flyers, had some business cards made, and had a lawyer check over a few documents. That’s it.

When I started The Simple Dollar, I spent even less. I spent somewhere around $40 launching the site, all told.

In both of these cases, it was not a big initial investment that led to success. The ingredients for success were found elsewhere.

This isn’t just my experience, either. Recently, I was reading Chris Guillebeau’s book The $100 Startup and it was loaded with stories very similar to mine. People launch side businesses all the time with very little money.

Chris draws a lot of conclusions about starting such side businesses, but from my perspective, success with a side business comes down to a handful of things.

 With each side business I’ve found success with, I’ve started with one simple question: what do I want?

If you look at any business out there that works, large or small, they’re all doing the same thing. They’re taking care of something that someone wants.

If I find myself looking for something and not finding it, that means I want this thing but, for some reason, it’s not easily available to me. If there’s something I want enough that I’d be willing to pay for it – even a little bit – but it’s not something I can get right now, there’s a side business waiting to happen.

For example, if you love reading fantasy novels but you wish you could find a good one with a truly independent female protagonist, you’re probably not alone. Why not try writing one?

If you’d love for someone to come to your door, pick up a bag of laundry, wash and fold it, then return it to you, you’re probably not alone. Why not start this business?

Think about items and services you would like to have but don’t. That’s the start of any business.

 More than money, the biggest investment that a person can make in their side business is time. If you want to succeed, expect to put in a lot of hours early on with very little return on your money. Think pennies per hour for a very long time.

Many people simply aren’t willing to commit a lot of time and effort without much return. For some people, they have to be passionate about what they’re doing beyond merely running a business. Others will get by purely on patience. Many others simply won’t make it.

Assume you’ll be spending a lot of hours at this without making a lot of money. You’ll be doing things like creating content, networking with others, promoting your business, learning a new skill, learning about a particular supply chain, managing a Kickstarter project, or something like that. These things won’t earn you much money at all (assuming they earn you anything, which is a big “if”).

If you’re not about to spend time without an immediate financial return on that time, then starting a side business probably isn’t for you.

 No matter how good your idea or how much effort you put in, sometimes things just don’t launch. You don’t have customers. You don’t have readers. You have a giant creative block.

Can you step back and look critically at what’s going on? What’s wrong with the situation? Can those things that are wrong be fixed? Can they be incorporated into the plans for what comes next?

Sometimes, the best solution is to try again. Sometimes, the best solution is to walk away and try something new. Sometimes, the best solution is to keep plugging away.

In each of those cases, re-evaluating the situation for problems and solutions is key. You have to step back regularly and ask yourself what’s going right, what’s going wrong, and whether the wrongs can be fixed.

Many (if not most) modern side businesses do not need money. They need an idea, they need time, and they need the willingness to re-evaluate. If you bring those things to the table over and over again, you can start something of your very own, whether it’s just a small side business to bring in a few bucks or the birth of a big enterprise.

A Trane ComfortLink II thermostat is displayed during a media preview event for the 2011 International Consumer Electronics Show (CES) in Las Vegas, Nevada in this January 2011 file photo. Using a programmable thermostat can save your household a good chunk of change in energy costs. (Steve Marcus/Reuters)

Properly used, a programmable thermostat cuts energy costs

By Guest blogger / 06.01.12

During the day at our house, I leave the air conditioning and furnace off, no matter the time of year. I’m pretty comfortable with a wide temperature range.

However, my wife and kids prefer a somewhat more narrow range in temperatures, so it makes sense to turn on the air conditioning (in the hot months) or the furnace (in the cold months) an hour or so before the family comes home.

Doing this saves us some money. The air conditioning/furnace doesn’t spend all day kicking on and off maintaining a temperature. Instead, it just works for a short period adjusting the temperature to what my family likes.

The problem with this strategy is that it requires me to adjust the thermostat twice a day. If I don’t adjust it in the morning, it stays on all day, kicking on and off and costing us money.

If I remember the morning adjustment but don’t adjust it in the afternoon, the house might be sweltering or freezing when the rest of the family comes home – and that means unhappiness.

Forgetting a single thermostat adjustment also meant a big waste of money. I calculated that not turning off the thermostat in the morning would cost us about $8 for that day without any real benefit.

Our solution to this problem has been a programmable thermostat. We have a weekday cycle that includes an appropriate evening temperature, an appropriate nighttime temperature, and a complete absence of air conditioning or heat during the daytime hours.

It is extremely hard to calculate exactly how much money this saves, but our energy use when comparing the same month to a year prior dropped about 10% after installing the programmable thermostat. That amounted to a roughly 7% drop in our energy bill.

Considering that our programmable thermostat cost us only about $20, it only took a handful of months for the programmable thermostat to pay for itself. In the years since we installed it, we’ve paid for the unit several times over. It just slowly saves us money on each and every energy bill.

Installing a thermostat is really straightforward. It took me about fifteen minutes and only required a screwdriver. I just flipped a breaker, removed the old one (requiring unscrewing a few screws), installed the new one (requiring unplugging two cables from the old one, plugging them into the new one, then screwing in a few screws), and flipped the breaker back on.

It’s really important to note that a programmable thermostat won’t help in some situations. If you rarely use air conditioning or the furnace, a programmable thermostat won’t help at all. If you just keep your home at a steady temperature all the time, a programmable thermostat won’t help.

However, if you regularly adjust the temperature in your home, particularly in a clear pattern, a programmable thermostat (used properly) can really save you money.

In this May 2012 file photo William Jones holds a copy of the winning $1 million lottery ticket his wife claimed in Beebe, Ark. Its well known that lotteries exist to turn a profit. Our personal finance analyst explains just how bad a deal it is, on your wallet. (Jeannie Nuss/AP)

To play or not to play: Is that Powerball ticket worth it?

By Trent Hamm / 05.31.12

Julie writes in:

I would love to see you run the numbers on playing the lottery. My mother spends $20 a week on Powerball. I keep telling her she’d be better off putting that $20 a month into a savings account, but I might as well be talking to the wall.

Lotteries wouldn’t exist if they didn’t turn a profit. If you spend $1 on a lottery ticket, the lottery is going to keep at least some portion of that money. In addition, another portion of that money is spent on maintaining the lottery – the machines, the paper, the software, the employees, and other expenses.

How bad is it, though?

The odds on a normal Powerball play are as follows:

The odds of winning a $4 prize (just matching the Powerball) are 1 in 55.41.
 The odds of winning a different $4 prize (Powerball plus one number) are 1 in 110.81.
 The odds of winning a $7 prize (Powerball plus two numbers) are 1 in 706.43.
 The odds of winning a different $7 prize (three numbers) are 1 in 360.14.
 The odds of winning a $100 prize (Powerball plus three numbers) are 1 in 12,244.83.
 The odds of winning a different $100 prize (four numbers) are 1 in 19,087.53.
 The odds of winning a $10,000 prize (Powerball plus four numbers) are 1 in 648,975.96.
 The odds of winning a $1,000,000 prize (five numbers) are 1 in 5,153,632.65.
 The odds of winning the jackpot (Powerball plus five numbers) are 1 in 175,223,510.00.

What we’re interested in is the expected value of a lottery ticket. In other words, if you buy a lot of tickets, how much can you expect to win per ticket?

For example, if you buy 55.41 tickets, you should expect to win a $4 prize. That means that for each ticket you bought, you should expect to win 7.2 cents of that prize, on average.

The expected value from the $4 prize (just matching the Powerball) is 7.2 cents.
 The expected value from the other $4 prize (Powerball plus one number) is 3.6 cents.
 The expected value from the $7 prize (Powerball plus two numbers) is 1.0 cents.
 The expected value from the other $7 prize (three numbers) is 1.9 cents.
 The expected value from the $100 prize (Powerball plus three numbers) is 0.8 cents.
 The expected value from the other $100 prize (four numbers) is 0.5 cents.
 The expected value from the $10,000 prize (Powerball plus four numbers) is 1.5 cents.
 The expected value from the $1,000,000 prize (five numbers) is 19.4 cents.

In other words, ignoring the jackpot, you should expect an average return of $0.36 on every $1 Powerball ticket you buy.

The lottery grand prize would have to be gigantic in order to give you an average return of $1 on each ticket you buy. In fact, the jackpot would have to be $112 million in order for you to get an expected value of $1 on each ticket you buy.

Another problem: this doesn’t include taxes. Once you get above the $100 mark, a significant portion of the prize is going to be taken in taxes. If you assume 35% of the prize is taken in taxes for each of those prizes, you’d have to have a jackpot of $194 million in order to have an expected value of $1 on each ticket you buy.

Yet another problem: this doesn’t include split jackpots. Most large jackpots involve two or three groups winning the prize, which splits the amount any one of them wins. So, you’d have to win that giant jackpot with no other winners to get a good expected value.

In other words, an expected value of $1 on a lottery ticket isn’t going to happen. Even with a giant jackpot, you’re almost assuredly not going to get an expected value of $1.

But what do you even get with a lottery ticket expected value of $1? You get a terrible investment, that’s what.

Imagine you could buy an investment where 31 out of 32 times, you lose all your money. Even worse, no amount of information can help you figure out which of those 32 times is going to be the winner. That’s essentially what a lottery ticket is, even one with expected take-home prizes totaling $1. No one would invest money in that.

In fact, if the jackpot is less than $100 million, you’re actually better off putting your money into a slot machine in a typical casino. Most casinos have an expected value of about $0.91 to $0.95 in their slot machines for every dollar played.

If you put your money in a savings account, you keep that dollar and put about one cent in there on top of it each year. That’s better than a slot machine and far better than a lottery ticket.

So, why do people ever play the lottery? They play it for hopes and dreams, that’s why. If you see someone playing the lottery, it’s because they’re dreaming of a situation where they get rich very quickly and thus are able to turn around their current situation in some fashion.

Your mother isn’t playing the lottery because of the investment potential. It’s pretty easy to see that it’s a terrible investment. She’s playing it for emotional and psychological reasons.

Now, is that a good use of money? As an investment, it’s terrible. However, everyone spends some of their money on something completely wasteful. If your mother has the rest of her financial house in order and is in a good financial place, I wouldn’t begrudge her this expense if it bring her some joy and peace. I would only worry about it if she’s experiencing financial troubles.

Balloons fall on the 2012 graduates of the University of Alaska Fairbanks to end their commencement in this May 2012 file photo, at the Carlson Center. According to Hamm, paying off a chink of student loan desk or investing in mutual funds are more lasting options for graduation gifts. (AP Photo/The Daily News-Miner, Sam Harrel) (Sam Harrell/The Daily News Miner/AP/File)

Graduation gifts: Consider the investment route

By Guest blogger / 05.29.12

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
 1. Financially sensible graduation gift
 2. Using lots of oregano?
 3. Summer vacation reading
 4. Basic expenses more than income
 5. Retire now or later?
 6. Unwanted friends for children
 7. Should we replace this chair?
 8. Son in financial trouble
 9. Fast supper fallbacks?
 10. Home dreams slipping away

It was a hot afternoon. We had spent several hours outside and all of us were slightly sunburnt and worn out from all the activity.

What did we do? We piled together in the living room and watched home movies. Family vacations, Christmases, soccer games, graduation ceremonies. We laughed and smiled and remembered good times.

Home movies are made for days like this.

Q1: Financially sensible graduation gift
 My son will be graduating college soon and I am stumped at what to get him as a gift. I was hoping to get him a CD or mutual funds for him after he graduated from grad school. I have come to dead ends, since it is my understanding that he needs an account for either of these. I was also told that the purchase of stocks, but right now that is too risky. Savings bonds are OK, but then I heard of Treasury Inflation-Protected Securities (TIPS). What will be the best vehicle other than cash for a graduation gift.
 - Andrew

For starters, does he have any debt? If your son is getting out of college with student debts, the best financial gift you could give him is a big payment on those debts.

If he’s debt free and he’s financially sensible, I would simply have him open an account with the investment house of his choice and put his gift in there. That way, he can control the financial choices himself.

If he’s not financially sensible, then you may just want to give him something small now and sit on the money yourself for a while. If you don’t, it’s likely to go to waste. I speak from experience here.

Q2: Using lots of oregano?
 What are you going to do with your [mass quantities of] oregano? Pesto?
 - Angelique

We use oregano in lots of things. We make our own pasta sauce, for example, and both fresh and recently dried oregano is great in that. Pesto is certainly another option.

With our pasta sauce, we will often make large quantities of it, use some immediately, freeze some more, and give away the rest to friends. Thus, we end up using a lot of oregano this way.

If we end up with a lot of excess oregano, we just dry it, chop it up, and give it to friends. Freshly dried oregano is still far better than anything you’ll find dried in the store.

Q3: Summer vacation reading
 What books are you taking on your summer vacation this year? I’m looking for something more thought provoking than the usual beach read and I know you dig into some deep stuff sometimes.
 - Martin

My big read for this summer is going to be Robert Caro’s book The Passage of Power, covering Lyndon Johnson’s years as vice president and his first year or so as president. Fascinating for politics and history junkies, but perhaps pretty dull for everyone else.

I’m also going to read Billy Lynn’s Long Halftime Walk by Ben Fountain, which promises a powerful story and some insights into the reality of war and how the government promotes it.

For more light reading, I’m working on Steven Erikson’s Malazan Book of the Fallen fantasy series.

Q4: Basic expenses more than income
 I know you get thousands of emails like mine everyday and you are very busy but our situation is a little desperate. The basic rule of debt repayment or budgeting is to “SPEND LESS THAN YOU EARN”, but what do you do if your BASIC costs are exceeding your income?
 - Denae

If you have reached a point where your basic expenses exceed your income, you have to start looking at some radical changes. Sell your home. Have your lowest wage-earner quit work and spend time with the children to eliminate the child care costs. Get a second job. Move to another part of the country.

You have to do something to cause your income to exceed your expenses, and if the little things aren’t working, you have to make a radical move.

Many people don’t even consider these kinds of shifts when considering how to make things work. Instead, they find themselves struggling and drowning for many years of their financial lives.

Look at big changes, not little ones.

Q5: Retire now or later?
 I have worked for a local government for 31 years and have been eligible to retire for 5 years. I’m hanging on to increase my pension and have reached the point where I will make substantially more by retiring than by continuing to work and draw my salary. Every year I continue to work, I will earn substantially more in my pension. The dilemma is when is it enough? My husband wants me to continue to work for at least another 3 years which will increase my annual income by around $18,000. Another year would add even more. This is all very good of course because once the pension is set there are no cost of living increases, so the more I get the better the hedge against inflation. I will also get social security someday (I hope), and I have an additional deferred compensation retirement fund through my employer that I contribute to with pre-tax dollars as another hedge against inflation. The retirement pension deductions from my paycheck are also pre-tax so I will have to pay income taxes on my pension and the deferred comp income. My husband also works for the same government entity but has been here far fewer years so his pension will be very small and will never even match his current salary, so we will be mostly dependent on my pension. He plans to continue to work until he is 65.

Our retirement system is said to be very solid and we are told that we don’t have to worry about it getting into trouble because by law it has to be fully funded by the government entities that participate in it. I’m happy to say the local government I work for has not gotten into any of the financial difficulties that have plagued others around the country. Employee participation in the plan is mandatory and a percentage of our salary is deducted each month. We get around 7% interest on the total deposited at the end of each fiscal year. At retirement my employer kicks in 225% of the total amount in my account. I feel very blessed and lucky to have a good retirement fund in place and I do want to take advantage of it by retiring early. The main reason I have stayed at this job for 31 years is because of the retirement plan. I can’t say I love my job; some days I feel very burned out. I’m torn by my desire to retire next year while I am still young enough and healthy enough to really enjoy it – I am 53 years old and my husband is 58. On the other hand, my husband wants me to continue to work for a few more years in order to get a very hefty increase in my pension.

Also, our house is paid for, ours cars are paid for and we have zero credit card debt. Do you have any advice on how we can solve this dilemma? Would I be foolish not to work for another 3 to 4 years?
 - Willa

What would you do for the seven years that you’re retired and your husband isn’t? If you don’t have a really strong answer to that question, I would plan on retiring on the same day that my husband retired.

I think that retirement shouldn’t happen unless you have a strong plan for what you will do once you don’t have a job to fill your days. Most of the people I’ve watched in retirement have struggled mightily with what to do with themselves after retiring, even when they thought having all that time to themselves would be liberating.

If you don’t know exactly what you would do with that time, don’t retire. Retire later, when you have someone to spend that time with and a lot more financial security to boot.

Q6: Unwanted friends for children
 My twin sons have started spending a lot of time with a kid that I simply don’t trust in our home or around our twins. The new friend has already lied to myself and my wife two or three times and we think he might have stolen some money left out on a table. I don’t want our kids to start copying this kind of behavior. What should I do?
 - Lucas

I’d approach this on two fronts.

First, I’d minimize the time your children can spend with this kid. Don’t invite him over and don’t let your kids go over to his house. You can’t completely stop them from interacting, but you can take steps to minimize the time they interact.

Second, I’d make sure to reinforce the values you care about. Talk about how stealing and lying are wrong and how they can damage your life. Make sure it’s clear what kind of children they are and what you expect them to behave like.

Having your children grow up and begin to make moral choices on their own is never easy. Just make it clear what your values are.

Q7: Should we replace this chair?
 My husband and I are bickering a bit back and forth about the dining room chairs. One of the decorative spindles falls off regularly. We put it back and it gets knocked off all the time. The arm of the chair constantly gets broken. My husband bangs it in with the hammer, braced it, etc. The kids often climb on the chair and knock it out. Whereupon he puts it back. I have been making noises that we should replace the chair (we have 4 chairs, and his is the only one that is broken) or get 4 new chairs altogether (we regularly have 14+ people over for meals, but we use folding chairs). It is aesthetically abrasive to me. My husband says it’s perfectly fine (he also objects to my throwing out his chair, replacing his seat with the other chair with arms and having only 3 chairs plus the folding chairs). He said, appealing to my frugality streak, that it works perfectly well (these chairs are hand-me-downs from my parents’ friends and are at least 25 years old). He said, “What would your friend at the Simple Dollar say?”

I was wondering if you have disagreements as to how much more life is left to an object, and how you navigate them. Usually, by the time my aesthetic sensibilities are offended (I’m pretty relaxed), my husband agrees. We tend to agree when our couches are destroyed and when we are ready for a new one. The seat and back of the chair are still in excellent condition, though, hence our debate.
 - Claire

I don’t worry about aesthetics very much. I do worry about functionality, though. If the chair is consistently unusable, then I would replace it. The entire point of a chair is to provide a reliable place to sit.

That being said, this doesn’t sound like a situation where you would toss the chair out. I can’t see the chair, of course, but it doesn’t seem like anything that can’t be fixed.

Since I can’t really see the chair, I would ask if you’ve done things like apply wood glue to the pieces that aren’t staying in place and using a clamp to make sure that the wood glue has plenty of time to dry and form a tight seal. We had a chair with a loose leg recently and this worked wonderfully.

Q8: Son in financial trouble
 They have only been married just over one year and are over $100,000. in debt, including my son’s student loan debt of $32,000.00 but not including their mortgage. My son told me they have enlisted a credit counsellor who (for a fee of course) claims they will be debt free in 5 years. He also claims they do not qualify for bankruptcy. (By the way, we live in Canada). Frankly I was appalled. But after the first shock, was not really shocked. Before marriage, they both maxed out their credit cards and lines of credit. I don’t have proof of this, but I’m sure this is the case. My son’s wife (then fiancee) was able to arrange a mortgage on a small house which, at the time, I applauded due to her reasoning. My son’s credit was hopeless with the student loan so the mortgage was in her name only and she claimed the payments were such that she could afford it alone. Now, even with my son working at $13. an hour, they still cannot meet their obligations. I’m afraid that if they go this route with a credit counsellor, they will not really learn the lesson of spend less than you make and they will be in the same boat 10 years from now. I really think they should plan a debt repayment on their own and learn to live within their means, but I’m only a parent and feel I should not butt in. But it’s tough to zip the lip! What, if anything, can I do? I’ve been following your 365 tips especially the ones lately on debt and I’m tempted to forward them on but I don’t want to alienate them.
 - Leon

I don’t think there is too much you can do. In the end, it is their problem, not yours. I know the desire of a parent to want to help their child, but sometimes the child has to swim on their own.

That being said, if you want to send along a little bit of advice, that’s probably a worthwhile move (whether it’s a post from The Simple Dollar or something else). Just don’t make a habit of it. Find the best one-off piece about debt management you can and send that to them, then let it drop.

The most important thing you can do is make sure they know that they can come to you when they need to and that you’ll help them in what ways you can.

Q9: Fast supper fallbacks?
 What do you prepare for supper on evenings where you have very little time for prep? We’re trying to get out of a cycle of eating fast food which is expensive and unhealthy.
 - Joan

Our fallback meal is spaghetti with one of our canned sauces. We fill a pot with water as soon as we come in the door and we’ve usually got a pasta dinner on the table in fifteen to twenty minutes.

If we know an evening is going to be tight in advance, we usually prepare a crock pot meal of some kind. That means it’s done when we walk in the door so we can immediately serve dinner.

Another option is to prepare a “picnic” style supper that evening and store it in the refrigerator. We’ve stored some of the contents of a picnic in the fridge and left the rest in a basket just outside of the refrigerator before. This means all we have to do is go home, grab the cold stuff, add it to the basket, and go.

Q10: Home dreams slipping away
 I have a family of three. I am 32, I have no education, and I have stayed home with our daughter for her entire 7yrs. Anything kid related, I take care of it. My husband is a carpenter. A few years ago, we scraped up the money for him to get licensed. It was logical that he would be able to earn more money as a self employed businessman.

Financially, we had almost nothing. When our daughter was born, the three of us lived on 30K a year. When we married our credit scores were a negative, and an absolute zero. I handle our house money, and in a few years, we went from no money to $20k in the bank, and credit scores of 700′s. We also bought two new vehicles, one brand new (now pd for) and one gently used in 2009. That one is now 50% paid for. There are some other minor bits of debt, but nothing too severe.

Last year, we relocated our family. Our daughter was getting a horrible education, and we couldn’t afford a house. We rented a small apartment in the new town.

When we got here my husband got a job quickly. He was making 1400 weekly. Remember, we moved for two reasons- one was for a better education for our daughter, the other was to buy a house. He worked for this man until the end of 2011. I hurried out and got us pre-approved for a home loan. Rates are great, and we have the money to put something down. Around January, my husband had an opportunity to apply at a really great company. He went through the application process and is currently one of few qualified for the job. It is now the end of April. The company he applied to won’t return our calls. He is taking odd jobs. We are now dipping into our savings every month, and are down to 13K with no options in site. We are planning to move to another area that has more affordable houses in a couple months when our lease expires.

I attended a trade school to get a certificate, and I must complete an internship to recieve it. They will only give me short shifts, and no routine schedule to rely on. I cant really complain because I will come away from this with some education for myself. I still handle the kid things, and the house things. I also draw a small bit of unemployment. I pay for all the groceries and my gas with that money.

I am watching our money slip through my fingers. We were THIS CLOSE to buying a house, and now the dream is slipping farther away. We can’t meet our bills, and with this route of work, we can bet on paying self employment tax. Did I mention I hate apatment living? I am very unhappy here. I thought it would be temporary. I have tried to not be a nag. I have asked my husband if he needs help getting his resume together. I have gently asked if he called the company he applied with to see whats what. If you were me, what would you do here? I don’t want my husband to feel like a failure; I dont want him to think my concerns are ultimatum-y. I can’t even apply for jobs until I get my certificate in my hand so I dont waste the money spent already.
 - Lois

Life has its ups and downs. Sometimes success seems like it’s right around the corner and other times it seems far away.

The one thing you can’t do is give up. He needs to keep looking for a good job. You need to keep plugging away at your certification and start applying for jobs before you even have the certification in hand. Keep looking at different options: a different place to live, a different location, and perhaps even living with relatives for a while.

Don’t worry that your goal seems further away now than it did a year ago. Focus instead on making sure you fill every day with steps that move you toward your goal, even if life sometimes pulls you away from it more than you’d like.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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