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Take A Personal Day To Fix Your Finances

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So often our lives get busy, and it can be hard to stay on top of all the detailed minutia of our financial lives.   Things tend to slide, and we end up not having the optimal setup for anything in our finances because we just don't want to jump into the details.  Since performing certain financial tasks can be a bit boring or mundane, it can be easy to just push off fixing things indefinitely.

This is why I suggest having something MSN calls a “personal money day”.  A day dedicated solely to reviewing your financial life, and fixing the things that aren't optimized.  Getting better rates on your insurance, finding higher interest rates for your savings, rebalancing your portfolio, switching TV providers, setting up a budget and a variety of other things.

So let's get started.

Getting Started: Focus On Fixing The Big Things

So where do you start when  you've decided to take a personal day to fix your finances?  At our house I decided to take a personal day when I was stuck at home one day because my car was in the shop being repaired.  I had to take the day off from work anyway, so I decided to make it worth my while.

If you're considering taking a day off as well, I'd suggest trying to take  a day off from work because a lot of the things you'll be doing – you may need to call a place of business to get details or a quote, so doing it during business hours will probably work better.  It also puts a bit more pressure on you to get things done because you're paying a price – a vacation day – to do this.

I like to focus on the bigger things first to help maximize the return.  Some of the things I might focus on include:

  • Insurance:  Make sure that your homeowners, auto, life, disability and other types of insurance are all set to go, and that you've got good rates. If you don't have one of the types of insurance, consider getting quotes to transfer your risk.  If you've got decent rates already, consider changing your coverage to save money.  Reduce deductibles, or drop un-needed coverage.
  • Bank accounts: Consider closing accounts with fees attached and opening accounts with higher rates of interest,  investigate the advantage of laddering.  Find better rewards and less fees.
  • Credit cards:  Get accounts with lower interest rates, especially if you are carrying a balance.  Cash in any rewards you've already got on current cards.  Set up a plan to pay off your cards.
  • Set up a budget:  If you've never set up a family budget, consider doing that now. It's a lot easier nowadays with the advent of all the budget software out there.
  • Retirement planning:  Over time your retirement account allocations can become skewed.  Consider re-balancing your portfolio.  If you don't have a Roth IRA, IRA or other retirement account, consider opening one at a discount brokerage or mutual fund company on your day off!
  • Find better deals for utilities and services: Cancel cable or satellite TV and sign up for a cheaper alternative, or watch TV for free via your computer.  Look into cheaper home phone and cell phone alternatives.
  • Cancel services you don't need:  Signed up for cable TV but you don't watch?  Have a gym membership, but don't go?  Cancel the un-necessary expenses!

What I Did On My Personal Money Day

On my day off (a while back now) I focused on a couple of areas that I knew were long overdue for a look-see.  I began by looking at my car related expenses, mainly auto insurance.  I submitted online quotes for a bunch of different companies and to my horror realized I was overpaying on my insurance to the tune of almost $1100.   I quickly switched, started paying less for the same coverage.

Next, I looked at homeowner's insurance. I found that by switching I could save another $200, and still have the same coverage.

I also looked at our savings account which was holding our emergency fund and realized that our bank was paying us next to nothing in interest.  I researched some online savings accounts and signed up for one of the ones with the highest interest.  This ended up meaning a few extra hundred dollars in interest every year.

So on my day off, even just looking at a few things, I ended up saving almost $1300/year.  Not too bad of a return!

Conclusion

These are just a few of the things you can look at on your personal money day. It may not be the most enjoyable day you've ever had, but in the end you’ll be glad you did.   It can end up saving you hundreds or even thousands of dollars.  And who doesn't like having extra money to help pad their bottom line?

Have you taken a personal day to fix your finances?  What types of things did you look at?  What things did we miss that people should consider looking at?   Tell us your thoughts in the comments.

Retiring Wealthy On An Average Salary: The Story Of The Sensible Social Worker

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This post is part of a continuing series called “Retiring Wealthy On An Average Salary” that looks at the inspiring stories of men and women who earned average salaries during their working years, but in the end retired wealthy, with plenty of money to spend and give. In fact, I've found that as I read more of these stories, these frugal investors also tend to be very generous people, giving away a huge chunk of their fortunes after they pass.

Today we have another story of someone who lived a frugal lifestyle, and was able to retire quite well off. Her name was Jane M. Buri, a St. Louis social worker.

The Story Of The Sensible Social Worker

When I read the story of Miss Buri –  the social worker, one thing that struck me is that it sounds like she lead a pretty full life, despite the fact that she was so frugal.  She frequently socialized with friends, and was very involved with her church. It also talks about how she allowed herself to have small indulgences like a trip to Europe, and a visit to the Rose Parade.  She didn't live without, but she was frugal.

Jane M Buri, a school social worker, spent nearly four decades fighting to keep kids in class.

She tracked students to their homes, found them shoes, meals, jackets, and returned the truants to their teachers. She never married, never had children, never missed a day of work.

All the while, she was quietly building a small fortune. Buri died at 84 with $1.4m to her name.

Then in death, as befit her life, she gave it all away.

The last checks from her savings – willed to more than 50 friends, cousins and charities – should be arriving soon in mailboxes.

She gave to African missionaries, Legionaries of Christ and Catholic schools for the Sioux and Cheyenne. She donated to her high school, college and graduate school, to the south St Louis parish she visited thrice weekly, the Alexian Brothers nursing home where she volunteered, and the disabled friend she took to the discount grocery store every Friday.

How did she amass such an estate?

“It beats me,” said old friend and co-worker Genevieve O'Hara Brueggemann. “And it beats everybody who knew her.”

In retrospect, friends say Buri's savings made sense. They say she drove a 30-year-old car, watched an ancient TV, lived four decades in a house bought with cash in 1969 and just kept stacking charity donation envelopes in her sun room, until, once a year, she sent them all in.

They say she gave of herself and asked little in return.

Nobody's disputing that generosity. But it's not the whole story.

Because this isn't about someone who selflessly saved so others could have.

It's about someone who saved because spending more just didn't occur to her.

It seems as if so many of these closet millionaires are able to amass a fortune because living a frugal lifestyle comes as second nature. They're able to live with less, even still while enjoying some of the finer things, while allowing a lot of other things they don't need, that others might have bought,  to pass them by.

Buri was a child of the depression, which may help to explain her frugal lifestyle.  She did it out of necessity first, but then by habit.

Buri grew up in the packed city neighbourhoods of the Great Depression.

Her father ran a cigar shop in downtown St Louis. Her mother was a prim, fancy-dressing woman.

Buri was their lone child. They protected her, family members said.

“Nobody had too much money,” said Jack Goettelmann, Buri's cousin and her last relative in the area. “And all they did was try to improve.”  Buri clipped coupons, her cousin said, because that was how she was raised.

As mentioned, she didn't deny herself when she wanted something.

Nor did she deny herself small indulgences. Some weeks, she ate out three meals a day, friends said. She traveled to Europe, and to the Rose Parade in California. She bought a baby grand piano.

There was nothing she wanted and didn't buy, said Brueggemann, the co-worker.

“She was frugal because she didn't need anything else,” she said. “She wanted that old car. She dressed the way she wanted to dress.”

When she passed away Miss Buri left an inheritance to many around her including missionaries, school associations, friends and family.  In life she had realized that happiness doesn't come from money, and in her death she was able to continue giving to those around her and leave a legacy of caring.  I can only hope I do as well to follow her example.

Renting Vs. Buying A Home: Which Is The Best Choice?

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When my wife and I bought our new home in 2006 we were moving from a neighborhood that was undergoing significant changes.  Not only was the neighborhood starting to have more crime and lack of homeowner pride, we also discovered that there was  a new 4 lane highway going in within throwing distance of where our townhouse sat.  It was a scary prospect, and we didn't want to have to put up with the sounds of loud cars rushing by our house every day.  So we decided to pack up and sell our house fast.  The only question now was whether we would buy something right away, or whether we would rent.

In our culture home ownership has almost been deified, to the point where if you don't own your own home, something is wrong.   You might say that some of that cult of home ownership also helped to bring about the recent real estate and economic meltdowns (remember how they were pushing home ownership on a whole lot of people who couldn't really afford it?).  From CNN:

Modern America has long paired the “American Dream” with home ownership. The idea of staying put, paying property taxes and periodically mowing the lawn belonged to citizens who were somehow more American than the poor saps who could only afford to rent the place they called home.The notion isn't accidental. Ownership and the American Dream are deeply linked in government policies that favor mortgages over rent payments, dating back before Herbert Hoover was elected president in 1929.

While I still think that home ownership is in many cases a good thing and can be a blessing, if you're not careful it can also become a curse.  You need to make a careful examination of the facts in your own situation before you jump headlong into purchasing a home.

Questions To Ask Before You Rent Or Buy A House

Some things you might want to consider before making a decision on whether to buy or rent:

  • Do you have a nice emergency cushion saved up?  At our house this meant having at least 3-6 months of expenses saved up – that would not be used for a down payment. That would need to be saved separately.
  • Do you plan on being in the house for more than a few years?  In most cases you would probably need to be in the house for at least 5 years to break even with costs associated with the loan and closing.
  • Are you able to put down a sizable down payment? 20% is a good goal to have because it can help you to avoid paying private mortgage insurance.
  • Do you have any outstanding debts – especially high interest credit card debt? Pay that debt off first!
  • If you were to rent, how much would it cost in your area?  Is it enough less than buying after added ownership costs that it will be worth your while?
  • Do you expect to be downsized or let go any time soon? Is your job stable?
  • Have you put together a zero based budget, and determined what your cash flow plan is?
  • Do you know how much of a home you can afford?  Dave Ramsey suggests not buying a home more than 25% of your income.
  • Do you feel you understand the complete costs of home ownership?  Don't forget all the fees, property taxes, association dues, etc.

Another good resource for helping you to make a decision on whether to rent or buy are rent vs. buy calculators like the one found at dinkytown.net or the New York Times:  Rent Vs. Buy Calculator vs. Rent Vs. Buy Calculator

Conclusion

Buying a new home is a huge decision, it will be one of the biggest purchases you probably ever make.  It will pay to carefully weigh your options and ask yourself all of the important questions before you just jump into something.    If you don't, the homebuying blessing can quickly turn into a curse.  Remember, there is absolutely nothing wrong with renting, and for many people renting is actually the better choice.

What do you think about renting a home instead of buying? Have you ever made the choice to rent instead because it seemed to be the more logical choice?   Have you ever bought a home and regretted it later?  Tell us your thoughts in the comments.

Spousal IRA Contribution Rules And Limits

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Marriage. It is one of the sacred and fulfilling of institutions that we have, but, it can also be a lot of work.  When you get married there is so much to be done in the financial realm including setting up joint bank accounts, bringing together disparate accounting methods, doing your taxes together.   Those things can definitely be a positive or negative depending upon your situation, past life history for the partners and so on, but in my opinion coming together in all things, including financial, can only be a positive in the long run.

Among the benefits of being married is the Spousal IRA, and the ability for a non-working spouse to contribute retirement funds to an IRA.  Now that my wife is staying at home with our first son, it's something that we'll be looking into. There are however quite a few rules and restrictions when it comes to these Spousal IRA accounts, so you need to be cognizant of those rules when selecting the right account for your family.

Spousal IRA Contribution Rules

When making contributions to your spouse's IRA, there are some criteria you need to meet.

  • Working spouse earned taxable income for the tax year and can cover contributions.
  • Married to your spouse at the end of the tax year.
  • File a joint federal income tax return.
  • Your taxable income must be less than that of the owner of the IRA.

Spousal IRA Contribution Limits

There are different rules on how much or if you can contribute to a Spousal and Traditional IRA, depending on who is working, how much income there is, and who is participating in a qualified retirement plan – so it is important to know the specifics depending on your situation.  In general, however, a non-working spouse can contribute $5,000 for the 2010 tax year, $6,000 if they are 50 or older.

The working spouse may also contribute to an IRA as long as they meet the requirements.  So for a given tax year a couple can contribute up to $10,000 in an IRA.  Here are the contribution limits for the past few years.

YearAge 49 and BelowAge 50 and Above
2002-2004$3,000 $3,500
2005$4,000$4,500
2006-2007$4,000$5,000
2008$5,000$6,000
2009$5,000$6,000
2010$5,000$6,000
2011$5,000$6,000

Spousal IRA Phaseout Based On AGI

Spousal IRA contributions have phase outs for Traditional IRAs if you reach certain compensation limits.  Once you reach the limit range your allowed contribution amount goes down and eventually phases out completely.   For phaseout limits, see the table below.

Married Filing Jointly Phase Out LimitsNon-Working Spouse Phase Out LimitWorking Spouse Phase Out Limit - Covered by Qualified Retirement PlanBoth Spouses Working Phase Out Limit - Both Covered By Qualified Retirement PlanBoth Spouses Working Phase Out Limit - Neither Covered By Qualified Retirement Plan
Traditional IRA$167,000 – $177,000$89,000 – $109,000$89,000 – $109,000No AGI restrictions

So as you can see it can get to be a bit complicated.  But basically it comes down to this. If you are a non-working spouse and not covered by a qualified retirement plan, your AGI phase out limit will be $167,000 – $177,000.  And if neither spouse is covered by a plan, no phaseouts apply and both can contribute $5000 to the IRA.

For a further discussion of confusing phase out and contribution limits, check out this post on Spousal IRAs

Conclusion

Even if one spouse in the marriage isn't working, it's important not to forget to contribute to an deductible IRA for them as well.   Down the road you'll be glad you did.

What do you think of Spousal IRA contributions?  Do you take advantage of them currently, or have you been considering them?  Tell us your thoughts in the comments.

Retiring Wealthy On An Average Salary: The Story Of The Altruistic Educator

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Last week I published the first post in a series I'm calling “Retiring Wealthy On An Average Salary”. The series is intended to give us a brief glimpse into the lives of some average people who made average salaries, but still managed to retire with a net worth that we would say makes them wealthy. My intention in writing the series is to help people realize, you don't have to be a celebrity or a doctor in order to retire comfortably. Instead, you just have to work hard, have a plan, and save and invest diligently.

Last in this series, we told the “Story Of The Thrifty Engineer“. This week I want to talk about the story of a thrifty teacher who was able to save a fortune on a teacher's salary, and later give it all away to help others.

The Story Of The Altruistic Educator

Edna Diehl, was a Davison, Michigan woman who spent almost 3 decades as a teacher and counselor at the city's high school.  She was known to be a serious educator that didn't take any nonsense from her students.  She pressed them to succeed and do well in whatever careers they pursued.  Former students have also stated that she had a soft side, and showed how she cared deeply for them and wanted them all to do well in their lives.

Edna and her husband (who had no children) were also careful with their income, and made sure to save and invest their money regularly over the years. The result was that they had amassed a fortune of well over a million dollars by retirement.

Instead of spending all of that money as some might have done, Edna decided that once she passed her fortune would be used to fund college scholarships for the district she had taught in.

DAVISON, Mich. — A woman who spent 29 years as a teacher and counselor at the city high school has left $1.3 million to the school district.

Edna Diehl died in July at 88. The Davison Educational Foundation will hold the money in trust, with the interest to be used to fund scholarships.

The district expects the interest will generate about $60,000 a year, paying for two years' worth of college for five students every year, said Kevin Leffler, a school board member and foundation president.

Diehl and her husband, Ben, who died in 1997, had no children.

She was known as a serious, sometimes even strict, teacher at Davison High School. Former students said she cared deeply and wanted them to succeed in life.

“She was pretty serious most of the time. But she could also be fun outside of school,” Connie Olejniczak, a student during the mid-1960s, told the Flint Journal.

Diehl was known for her ability to raise money for student trips, colleagues said.

“I remember her having to count money all the time,” said Dick DeLoge, a retired teacher who worked with her for about five years.

Davison is 50 miles north of Detroit.

I'm sure it must have been a wonderful feeling for Edna to be able to give such a wonderful gift to the students of her district as she did. Being able to give $60,000 a year in scholarships is no small feat, and her hard work and forethought will mean a college education for many hard working students in her district.

How Can Even A Teacher Become Wealthy?

So how does someone become wealthy on a teacher's salary?  Education experts Mark C. Schug and William C. Wood offer their advice to teachers in an article on beyond-the-book.com. Their 3 rules for teachers:

  • Start Early:  When you start saving early you have the benefit of having more time to enjoy the wonders of compound interest.
  • Buy And Hold:  Spend less than you earn, and don't go into debt.   Save your money, and purchase investments, and then don't touch them.  If you withdraw your money you short circuit the gains you might have made due starting early and the wonders of compound interest.
  • Diversify:  Don't put all your eggs in one basket, in other words, don't have all your money invested in one – or only a few stocks.  Instead diversify your holdings via low cost mutual funds.

They say that since teacher salaries start lower than some other professions, it is doubly important that they start earlier than others.  I think their advice would be applicable to most of us, however, not just teachers.  Start early, invest regularly and make sure you are diversified.

What do you think?  Does the example of the altruistic teacher give you hope that you could do the same?  Do you think it's possible to become wealthy on an average salary? Tell us your thoughts in the comments.

Do The Rich Work Harder? Is The Key To Wealth Hard Work?

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It is often assumed that because the rich have amassed a fortune, that they really don't have to work very hard, and that in general that they work less than others who are less well off.   They just have others to do the work for them.  It's an assumption that is even held by some of the wealthy.

British billionaire Richard Branson is quoted today as saying that the wealthy don’t work harder than everyone else–they are just fortunate.

“Yes, entrepreneurs may work hard, but I don’t think they actually work any harder than, say, doctors, nurses or other people in society, and yet tremendous wealth comes with it and therefore enormous responsibility comes with that wealth, responsibility to do good things, maybe create new businesses and maybe tackle some of the more seemingly intractable problems in the world

While I might agree that with wealth comes an enormous responsibility, I don't think that the assumption he makes about the wealthy not working harder than other people in society would bear out.  Studies seem to agree:

studies on the comparative work habits of the wealthy tell a different story.

Research by professors Mark Aguiar and Erik Hurst combined the results of several large surveys (including studies where randomly chosen subjects kept detailed time diaries), and found that the working time for upper-income professionals has increased compared with 1965, while total annual working time for low-skill, low-income workers has decreased.

As David Brooks put it in a 2006 column: “For the first time in human history, the rich work longer hours than the proletariat.”

So those who had high income professions tended to work longer hours than those in lower skilled lower income professions.

I really do think that in our day and age being in poverty and having a low income has become much more tolerable than it may have been in the past.  Even those who are poor and living on government benefits can have a TV, game console, a car, food to eat through local charities or government programs and the rest of their basic necessities covered.  In the past, they would have had much less, and had to work much more for it.  I'm not sure it is completely a good thing to have so much more available for so little.

Being Wealthy And Successful Isn't All Fun And Games

With those working so hard to become wealthy you might think that they also play hard, but research has shown that the wealthy also found less time for leisure pursuits.

Research by Daniel Kahneman, the Nobel Prize-winning psychologist, shows that “being wealthy is often a powerful predictor that people spend less time doing pleasurable things and more time doing compulsory things and feeling stressed.”

His study found that people who earn less than $20,000 a year, for instance, spent more than a third of their time in passive leisure, like kicking back and watching TV. By contrast, those earning more than $100,000 a year (more affluent than wealthy), spent less than a fifth of their time in passive leisure.

My own experience tells me that the wealthy work insanely hard. I spent Monday and Tuesday with a billionaire who got up at 4:30 a.m., held meetings and business briefings until 9 p.m., ate dinner, then worked on emails until 2 a.m. He woke up at 5 a.m. the next morning, and started all over again. Seven days a week. This entrepreneur hadn’t taken a day off in 10 years (and I checked).

So apparently being wealthy isn't all unicorns and rainbows. Quite often you've become wealthy and well off for a good reason. You're motivated, disciplined and you work hard.

The number that really surprised me in the above quote, however, was the one that said those who earn less than $20,000 a year spent more than a third of their time in passive leisure, while those earning more than $100,000 spent less than a fifth of their time doing the same.    That's quite a difference!

Finding A Balance Between Hard Work, Passive Leisure And Other Things

For me I think it's commendable that by working hard, being motivated and disciplined you can find success.   I know that not everyone who works hard becomes wealthy and that not everyone who has a low income job spends as much time in passive leisure pursuits.   Personally I think the sweet spot lies somewhere in between where  you work hard, but you also play hard.   You are dedicated to your career, but your family comes first.  You spend some free time in leisure, but you don't become a couch potato.

I believe in moderation in most things.  If you let one thing become too important in your life, like your job or like your leisure pursuits, it can have an unhealthy and damaging effect to your life.   Anything can become an idol if you allow it to, and it can ruin your life.

So my motto is to love God and my family, to work hard, and to play hard.  How about you?

Do you think that the wealthy work harder than those who aren't as well off?  Can you see how you might be able to spend less time in passive leisure, and more in promoting your career and work life?  Do you think it can be hard to find a balance? Tell us your thoughts in the comments.