Shannon writes in with a great question:

I’m trying to figure out how exactly I should save for several goals that I have. Here are the things I want to save for:

1. A BlendTec blender – $300
2. A complete refinishing of the downstairs bathroom – $3,000
3. A vacation to Germany next summer – $5,000
4. A car replacement – $12,000
5. A house down payment – $25,000

How do I prioritize these things? How do I go about saving for different goals? Where do I put these different batches of money?

This is a great question, one that you spelled out incredibly clearly and one that most of us struggle with to some extent.

Let’s break down your question into multiple pieces.

How exactly do I save for multiple goals at once? The easiest way to do this is to choose a bank that facilitates this process quite easily. I can recommend two banks for this – ING Direct and SmartyPig. I’ve used both of these banks. They both have great customer service and they each have a set of tools to make saving for a lot of goals quite easy.

With ING Direct, you simply open an account there, which will give you a single savings account. Once you’ve done that, it’s quite easy to simply open additional savings accounts and give them each nicknames. Just create an account for each goal.

With SmartyPig, you actually create savings goals within your account. You can create as many as you’d like.

With both of these, you simply link your new account to your regular checking account and set up automatic transfers to fund each of the goals or specific savings accounts. Easy as pie!

But how much do I save for each goal? The key thing to remember with any and all savings goals is that you’re trying to come up with a certain dollar amount at a certain time. Shannon certainly knows what her dollar amounts are, but she’s mostly unclear as to the timeframe.

Let’s come up with some examples of deadlines that Shannon might decide on.

Shannon wants the blender before Christmas, so she has three months to save for the $300 blender.
She wants to refinish the downstairs bathroom next spring, so she has six months to save for the $3,000 renovation.
She wants to travel next summer, so she has nine months to save for the $5,000 trip.
She wants to replace her car in two years, so she has twenty four months to save for the $12,000 car replacement.
She wants to buy a house in four years, so she has forty eight months to save for the $25,000 house down payment.

So, how much does she have to save per month for each goal?

For the blender, she needs to save $100 per month ($300 divided by 3 months).
For the downstairs bathroom, she needs to save $500 per month.
For the trip next summer, she needs to save $555 per month.
For the car replacement, she needs to save $500 per month.
For the house down payment, she needs to save $521 per month.

Now, that seems pretty stiff, doesn’t it? That’s a total of about $2,200 per month to save. What if Shannon can only save $1,000 per month for her goals?

There are two ways to do this. One is to simply prioritize. Is there one goal (or more than one) that can be postponed for a while?

The other is to simply focus on the goals chronologically. In other words, she goes through that list and applies the full $1,000 toward each goal on the list, with the nearer-term goals at the top and the longer term goals at the bottom.

So, during the first month, she’d put $300 toward the first goal, completely fulfilling it. She’d then drop $700 toward the second goal. Over the next two months, the full $1,000 would go toward the second goal. In December, she’d put $300 toward the second goal, fulfilling it, then put $700 toward the trip goal. This will get her pretty close to fulfilling all five of the goals.

In other words, if all of the goals have a high priority, put all of your savings toward the one with the closest deadline. When it’s fulfilled, move on to the next goal.

Good luck, Shannon! You’re definitely on the right path.

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. Upromise
2. Low interest debt payoff strategy
3. Costs of raising a child
4. Lawyers and starting a business
5. Introducing yourself to neighbors
6. Pet health insurance
7. Converting 529s
8. Getting a different car
9. Early retirement question
10. Flat income tax

One of the benefits (and challenges) of being able to do The Simple Dollar full time is that when a child is sick, I just adjust my schedule so that I can take care of that child. For example, as I write this, my youngest child is home sick with some sort of intestinal bug that requires frequent diaper changes. He’s a bit relaxed, though, so he’s spending a lot of time between those diaper changes either resting on the floor or playing on his toy piano.

Of course, with that little child there, I’m tempted to grab him and read him a book or sing him a song or do something to make him laugh, which means that days when children are sick aren’t exactly productive days.

Q1: Upromise
I’m not sure if you covered this before but I would like to get your thoughts on Upromise.
- Tanya

Upromise is a program where you can earn a small amount of money for future educational spending (think college) by shopping at certain stores (my usual grocery store is in the program) or using coupons from the site. You tie it to a 529 college savings plan and whenever you do one of those things, a small percentage of what you spend is deposited into your 529.

It’s a fine program, but don’t expect it to pay for college. The amount you’d earn before your child goes to college is much more likely to cover a few textbooks, not cover tuition.

The only real drawback I can see is that it’s another source of potential identity theft, as you have to give them your personal information to be in the program.

Q2: Low interest debt payoff strategy
Like you, I also accumulated a lot of student loan debt during undergraduate and graduate school. My total student loan debt is around 35,000. My only other debts is my mortgage and 1 credit card that I’ll have paid off completely by December.

Here is the layout of my student loan debt: 3 out of the 4 loans are at fixed interest rates of only 2.5%. The 4th loan is 6.5% and has a balance of around $4500. (I plan to pay the highest interest rate loan in a few months as soon as I’m finished paying off my credit card.) My question to you is, should I be focused on paying the other 3 low interest rate debts in any hurry? The interest is so low, and I owe about 215 dollars each month for those 3 low interest rate loans. What would you recommend in this situation?
- Lacey

The rates on those loans are so low that I would probably pay them off slowly, as you’re doing. This strategy only really applies if the loans are fixed rate (as yours are) and they have an interest rate that’s below 4% or so. At that rate, you can put the money to better use almost anywhere else (besides simply spending it frivolously, of course).

The only issue with having those loans is that they do pinch your cash flow. You’re paying $215 a month, month in and month out, which reduces your breathing room on other bills and constricts your other life choices.

Thus, if you are ever given a windfall of some kind, I would use it to get rid of that debt. It will help with your monthly cash flow for the remainder of your loan, simply making your day-to-day life easier.

Q3: Costs of raising a child
We are planning to have a kid soon but the following article makes me think about having a kid twice. I can never come up with this kind of money to raise a kid.

http://money.cnn.com/2011/09/21/pf/cost_raising_child/index.htm

I will appreciate your thoughts on this in a simple dollar post.
- Andy

The costs of having a child are almost entirely misleading.

For one, such calculations make a ton of assumptions about how you’re going to be spending money with a child. They assume things like buying all new clothes, having a home where each child has their own bedroom, and so on. All three of my children share one bedroom and they often wear clothes bought at consignment shops and secondhand stores.

For another, it assumes that having children will cause no change in your life. In reality, when you have a child, you’re going to go out less. Your entertainment spending will drop. Your “dining out” spending will drop. This isn’t because your money is rerouted to your child. It’s because your time is rerouted. You’re not going to go out every night with a young child at home. Because of that time change, you’re going to be spending your money differently.

Not only that, the amounts they quote cover an eighteen year period. Let’s say you do spend in the frivolous ways mentioned in the article. That’s still $200,000 over eighteen years, barely over $10,000 per year. If you are sensible about your spending at all, it’s less than that. Because of your lifestyle changes due to having a child, you’ll also have more money to put towards it.

Articles like the one you linked to seem to serve no other purpose than to spook potential parents.

Q4: Lawyers and starting a business
I am considering starting a small staffing business (permanent placement of advanced practice healthcare professionals). I have already filed papers with the state to form an LLC and register the business name. Now I am moving on to dealing with the federal government. I don’t plan on having employees or paying wages initially. But I understand I may still need file for an tax ID # etc. My question for you is whether you think it is worth it to use a lawyer or legal site (legalzoom, etc.) when starting your own business. There are certainly government sites that make forms available to business owners, but all these sites have cautions that they are not offering legal advice. I guess I am nervous that, despite being diligent about looking into filing and registering requirements, something falls through the cracks. Is avoiding the cost of legal assistance at the start a case of being “penny wise, pound foolish” or am I just being paranoid. I’d appreciate your thoughts.
- Elizabeth

If you don’t feel confident in setting up the business correctly, it never hurts to contact a lawyer. The expense of a lawyer in this case is negligible compared to the energy and time costs of constantly second-guessing yourself along the way.

LegalZoom can certainly help you with the paperwork, but they’re not really providing legal advice, either. They’re simply expediting some common legal maneuvers that people execute.

If you’re not confident, it’s “penny wise, pound foolish.”

Q5: Introducing yourself to neighbors
I’m a single male (my wife recently passed away) who just bought a house in a new neighborhood. I’d like to get to meet my neighbors but I’m not sure what a good first step is. How did you do this when you moved into the neighborhood?
- Leonard

I went over and introduced myself to all of the neighbors. I knocked on their doors and said hello.

Shortly thereafter, I began to plan a small cookout for my neighbors, but before it was set in stone, there was a small block party. We attended it and met lots of people from our block all at once.

I’d probably say hello to them and invite any of them you’d like to know better over for a dinner sometime.

Q6: Pet health insurance
I have a question about pet health insurance vs. building up a section of the emergency fund for the dog. I have a lhasa apso puppy, and they are a resilient breed with few illnesses. I plan on taking him for yearly checkups/shots regardless (not covered by pet insurance) and I feed him good quality food (royal canine). He requires a lot of grooming that I do myself for the most part and I strive to learn as much as possible from people I meet in my dog club who also groom themselves. He is neutered.

I wonder if, instead of paying for his health insurance monthy, if I put that same amount of money in a savings account to be used if he is ill or gets in an accident, that would be financially wise.

This is the insurance I have heard good things about, and the one I would look into if I were to insure him for illness and accidents, but some banks have a less expensive plan for accident-only.
- Alexandra

The purpose of insurance is to mitigate risk. The vast majority of people who buy pet insurance do not receive an equal value of health care as to what they put into the insurance premiums. The reason people buy it is for the exceptional events. If you happen to be in that small minority that has a significant amount of health care costs, then the insurance will pay off for you.

The vast majority of the time, putting the money in a savings account will be better financially than the pet insurance.

The real question is what lengths you’ll go to continue your pet’s life in the case of a severe illness. I can’t answer that for you. That’s something you have to answer for yourself.

Q7: Converting 529s
Several years ago, I set up 529 plans for my two sons. Each had roughly $5000 each. One son went to community college for about two weeks, another for one year. Neither are interested in going back to school and have recently moved out together. My question is what to do with the 529′s now. Financially, hubby & I are fine and won’t “need” the money in an emergency. How can I convert this money (to Roth or mutual funds?) with the least amount of penalty?
- Alison

There’s no “conversion” with a 529. If you make a withdrawal from a 529 for non-educational purposes, you have to pay income tax on the money gained in that account plus an additional 10% tax penalty on the gains in that account. So, if you put in $5,000 over the years and the balance is $6,000, you’ll pay normal income tax plus a 10% penalty on the additional $1,000 earned in the account.

If you’re sure that they’ll never be using these accounts, then feel free to close them out and keep that money. If you think that they might change their mind in a decade or so and you’d like to help them then, leave the money alone. Another option would be to leave the money in place until grandchildren appear, then change the account to benefit the first child.

While the tax penalties are annoying, it’s likely (since your investment period included 2008) that you don’t have significant gains anyway and your tax penalties would be minimal.

Q8: Getting a different car
I am faced with either getting a car to save gas money or a truck which I would enjoy and benefit from more. I have to drive about 70 miles one way to work and my current car gets about 20 mpg. The road I drive on is a country road with high traffic of large trucks and tractors which lends to requiring a safe vehicle. I often have to move around from rental to rental about once every year or so, which having a truck would make more easy. In this case is frugality worth the cost of giving up the desire for a truck given the cost of gas. From my estimates I would spend about $120 on gas a week with a truck and about $60 with the car. Also I cannot move closer at this time due to a lease agreement.
- Tyler

It honestly sounds like you’ve already decided to buy the truck.

If you haven’t already decided, however, I would simply say that you should ask yourself whether the additional sticker cost and the extra $60 a week in gas is worth it for what you get in a truck over what you get in a car. Obviously, on paper, the car is less expensive, but you feel the truck has extra value in your situation. How much extra value? Would you get more out of the extra $250-300 a month you’d have if you went with the car?

It’s not an easy question and it’s not one that people often really think about with purchases. What would the extra $300 per month get you?

Q9: Early retirement question
I’m looking to retire early, hopefully around the age of 55 (I will be able to retire with 32 years company senority, and my house will be paid off) . I see a lot of information about 401ks and Roth IRAs ( i do love my 401k my employer matches up to 6% of my pay) but both of these options have fees to withdraw money before the age of 60. Could you please tell me what the best way to save for an early retirement would be? I’m great at saving.. I just want to make sure I’m maximizing my funds.
- Jim

If you’re intending to retire that early, a Roth will still work. You can withdraw your contributions without penalty. The penalties come into play when you’re looking at withdrawing the gains on your investments. So, if you have put in $100,000 over the years and you have $150,000 in balances in the account, you can withdraw the first $100,000 without penalty.

Another option is to simply use an ordinary investment account. You’ll be fully taxed on the gains you earn in that account, but there’s never any extra penalties for withdrawal.

Honestly, I would probably use an ordinary account. It gives you the most flexibility. The only drawback is that it will make taxes a bit more tricky in the coming years, but that’s easily mitigated by using TurboTax or a similar package that can easily handle such things.

Q10: Flat income tax
I recently read an article saying that our country is in as bad a financial state as Greece. What would happen if our government eliminated all current income tax laws, loop holes, and deductions, and legislated an across the board % of income tax rate for all? What % would the tax rate have to be for the US to get out of debt in 10 – 20 years? I’m thinking everyone could be required to pay the same percentage of their income over, say $30K for a married couple, or $20K for individuals. The more you earn, the more you have to invest, spend or leave to your children, live at a higher standard of living, etc. Allowing loop hole benefits for the wealthy allows them more money to invest in their and other’s companies, which I understand feeds the economy, but it also allows them special treatment to make more money for themselves. Those who live frugally paycheck to paycheck, able to earn just enough to get by and put food on the table and shoes on their kids, but don’t have spare money to invest to earn the special loop holes that the wealthy do are penalized. Aren’t they already penalized by living at a much lower standard of living? I know that’s life as we live it in the US, but is it really the right way? Is it fair for the government of “WE THE PEOPLE” to give preferential treatment to the wealthy?
- Dorothy

That’s really the fundamental economic question of the day. Should the people who invest their money into businesses (which theoretically create jobs) be rewarded for that investment with a lower tax rate on the income from that investment or not?

There is no easy answer to that question. Anyone who tells you that it’s easy is either far too married to their own political perspective or is feeding you a story.

My answer to that question is actually tied to the financial state of the nation. I think that tax rates should actually be tied to the national debt in some fashion. I would actually lower everyone’s normal tax rates, then have an additional tax that was directly tied to the national debt. That way, cutting spending is directly tied to cutting tax rates, and additional spending directly causes higher tax rates. This makes both political parties responsible for what they actually do rather than the rhetoric they shout to the American people and balancing the budget has a direct economic impact and benefit for all Americans.

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.

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Liora writes in: I love vegetable and fruit juices, so I decided to buy an inexpensive juicer instead of buying veggie juice at a stand next to my school- I think this will pay up very quickly because a cup of juice in that place costs 3.44 and a cup of juice at home costs pennies to make.

It is going to save you some money, but how much money?

In the past, we had a standalone juicer that we used several times after we first acquired it, then sat to the side simply because the cleanup was quite a lot of work for just a few cups of juice.

Instead, today we just use a blender. We take the raw fruit, toss in a little bit of ice, and blend until you have a liquid. Toss the pieces in the dishwasher and you’re good to go.

So, why didn’t we continue using the juicer? We tried two different models over the years and found that both required approximately 10 minutes of cleanup for each batch of juice that we made. The only way we could make juice efficiently using it was by making a lot of juice at once. There was also the prep time, which involved the cleaning and peeling of the fruits and vegetables that we used.

So, for example, if we were to juice a bushel of apples, we would have the initial cost of the apples – about $20. After juicing, this would make us roughly twelve quarts of apple juice (about three gallons).

Cleaning and slicing the apples took about twenty minutes – doubling that time if we chose to peel the apples first (so that we could use the pulp for applesauce).

Juicing the apples took about ten minutes, as we’d have to stop to remove pulp and clear out clogs at least a few times.

Cleanup would take another ten minutes.

This would mean that for three gallons of fresh apple juice with a juicer, we’d have to use $20 worth of apples and forty minutes of time. There’s also the additional (small) cost of a portion of the cost of the juicer itself, plus the cost of the electricity, totaling perhaps another dollar. Of course, this is fresh, high-quality apple juice.

The only comparable apple juice I could find at the store would be fresh apple cider, which would cost around $8 per gallon. This would have a total cost of $24 for three gallons.

Now, it’s worth noting that I consider my homemade juice to be substantially better than anything from the store. The homemade juice is significantly better than the $8 per gallon juice from the store.

Of course, if you’re comparing this procedure to the cost of the juice that Liora is buying ($3.44 for a 16 oz. cup, meaning $27.52 per gallon), then making her own juice is a tremendous bargain.

Still, if you’re in a situation where you’re buying juice from a juice stand, you’re far better off buying yourself an insulated cup and buying high-quality juice from your local grocer. Then, just fill up that cup each morning before you go and enjoy the juice when and where it’s convenient for you. That will still be less expensive than the juice stand if the juice stand is anything like the one that Liora visits.

Making your own juice (or at least bottling it yourself) saves dollars, not pennies, over repeatedly buying it at a juice stand.

Speaking of which, I think I’ll go fire up my BlendTec now, toss in some bananas and strawberries and a few ice cubes, and drink something delicious (and healthy).

During the summer, Sarah and I tend to stay up until 11 or so, then sleep in until 7:30 or 8 AM (usually when the children wake us up).

During the rest of the year, most of the family has to get up early for school or work, requiring alarms at 6:15 AM (or so).

The problem is that for the first month or so, I don’t adjust my evening bedtime. I’ll stay up until 11, go into bed, probably not fall asleep until 11:30 or midnight, then I’m awakened by alarms at 6:15. Add on top of that the nights when children wake up with a bad dream or something similar and you can start to guess what happens.

Eventually, I hit a wall. I spend a few days really tired, then I start going to sleep at the more rational time of 9:30 PM (or so).

It’s now time for that adjustment. Yawn.

The alternative to failure It is never better to do nothing. The biggest failure we can have as people is to simply do nothing and/or to fall into the trap of ridiculing those who actually are trying to do something. (@ seth godin)

This Time, It’s Different That statement is a crutch that people use to allow themselves to ignore the mountains of valuable lessons that the past can teach us. It’s almost never different this time. (@ chris guillebeau)

The Buffett Rule: Tax for Millionaires The more I study the issue of taxes, the more convinced I am that we need to move to a sales tax model with a rebate for all Americans. (@ consumerism commentary)

Why You Shouldn’t Care About the U.S. Government’s Debt Problems He offers some interesting reasons, but my reason is mostly that you shouldn’t waste your energy on the things you can’t control. Instead, focus on what you can control. (@ the dividend guy)

You Are Now a Consultant No matter what your job is, you should look at yourself as a consultant there. Interesting perspective. (@ your life, their life)

One of the most fascinating things I’ve discovered since starting The Simple Dollar is the 80/20 rule, also known as the Pareto principle. Simply put, it means that 80% of the effects comes from 20% of the causes.

It’s perhaps easiest to explain this principle by giving you several examples of how I see it popping up again and again in my life – and how I use my understanding of it to my advantage.

80% of our total grocery bill comes from 20% of the items. This is actually true. If I take a typical grocery receipt and count only the top 20% of items in terms of cost, those items will make up close to 80% of our grocery bill.

Thus, if I want to save money on my grocery bills, I need to address those items instead of the staples. Is this expensive item really the best bang for the buck here?

You don’t save a whole lot of money by fretting over the items that cost less than a dollar. You save money by not buying (or finding a less-expensive equivalent to) the ten dollar items.

80% of my clothes-wearing is done by 20% of my clothes. I usually rotate about five pairs of pants and about eight shirts all the time until something wears out. If I actually look through my clothes, I own substantially more shirts and more pants than that.

So why buy them? Why own them? Eight shirts and five pants gives me forty outfits – and more if I combine some of the shirts together into a layered look.

Simply put, I don’t buy new clothes unless they’re on sale or at a thrift store, period. If I do pick up new clothes, they will simply wait to go into the normal clothes rotation until another item wears out.

80% of my time in my home is spent in 20% of the space. Think about it. How much time is spent in your bed? How much time is spent in your favorite chair? For most of us, that eats up the vast majority of time they’re in their living quarters.

I spend most of my time in my home either at my desk in my office, in my bed asleep, or in the family room. I spend very little time in the rest of the house.

The only reason to have a large home is so that you have room to store lots of stuff.

80% of my entertainment enjoyment comes from 20% of my collection. I tend to re-read my favorite books, re-listen to my favorite albums, and re-watch my favorite television shows and movies fairly regularly. I’d far rather watch the run of Freaks and Geeks again than a new episode of most of the things currently on television. When I’m listening to music, I’m much more likely to throw on an old Pearl Jam CD than anything new.

This realization has moved me towards trying to find free or very inexpensive ways to expose myself to new media. I use the library. I watch free samples online. I read free sample chapters of books I’m interested in.

This way, I’m not actually investing my money into something that doesn’t click deeply with me.

To put it simply, the reality of my behavior leads me to frugality. I just have to sit down, look at what I’m actually doing, and make sensible financial choices accordingly.

This note from Phil left me thinking.

You often talk about “frugality by the hour” and mention the hourly rate for doing something frugal. Like you’ll say that you can earn $12 an hour if you make your own laundry soap.

I think that’s a really poor analogy. When I’m not at work, I don’t want to spend my free time earning more money. I want to spend it having a life. Maybe you enjoy spending your free time making laundry soap, but most people don’t.

The last time I made laundry soap, I literally made it during the commercial breaks while watching Fringe. I boiled the soapy water during a show segment, mixed things during the commercial break, and sat there watching the show while stirring the bucket full of soon-to-be laundry soap. It didn’t really eat up any devoted time at all, and it doesn’t have to for you, either.

Still, Phil brings up an interesting point that I think has more to do with perception than anything else. If you see some sort of frugal tactic broken down to how much you can save per minute or per hour of time invested in the tactic, our minds are drawn both to the reward and to the cost of the method.

Let’s take that laundry soap. If you can save $5 from making a bucket of it and that bucket takes fifteen minutes to prepare, you’re immediately balancing the $5 versus fifteen minutes of your time doing something you might not necessarily enjoy.

For some people, the $5 will be more valuable. For others, the fifteen minutes might be more valuable. It’s a judgment call.

Given that, though, I would suggest considering a few more things when making up your mind about a frugal task.

Can it be done while doing something else? A great example is what I mentioned above with the homemade laundry soap, made while watching Fringe. I would watch Fringe anyway. I just happen to be making homemade laundry soap while doing so, thus the fifteen minutes invested in the laundry soap basically disappears.

Can it be done in a group setting? One thing that I’ve seen families do together is that they’ll spend part of Saturday together working on projects, such as preparing a bunch of meals in advance or doing yard work projects. Not only does this get things done that need to get done, it also provides a great social setting. Have you ever considered spending a Saturday with friends making a bunch of freezer meals?

Can it be done as part of “family time”? For us, that usually means that we can incorporate the kids into the project. Some tasks work well for this and get the kids deeply involved, while others end up being more trouble than they’re worth. I generally find that, at least for our family, garden work goes very well with the involvement of the children, for example.

The idea behind all of this is that for us, frugality is simply a normal part of life. We don’t sit around trying to fill every hour with laborious and boring tasks that enable us to save six cents. That doesn’t benefit anyone.

Instead, we find frugal things that complement what we would already be doing in our life. The fact that it’s a great way to reduce our spending is just a kicker.

When we’re trying to decide what to do as a family, frugality is a part of that equation, but just as important is that it’s something we’ll all enjoy and that our children will get something out of that will help them grow in some fashion. Often, we can find things that do all of this, like working in the garden or making soap in the kitchen.

When we want to spend time with friends, why not spend several hours together making meals in advance or helping each other with projects? It’s a great chance to socialize and to help each other.

When we’re doing something for enjoyment, like watching a television show, is it possible to easily do something else that saves money? Sarah, for example, often crochets while we’re watching a show. I’ll do things like make laundry soap. We’re still doing fun things that we’d do normally, but we’re adding in something that will save us some nickels and dimes along the way.

Frugality isn’t our life. It’s simply something that complements life while opening up opportunities in the future.

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Erica said, I’ve been grinding my own coffee for years. I usually grind enough for a few days at once, then just use that and grind again. Recently, my mother-in-law got one of those Senseo pots with the small coffee packs that make it really easy to make a cup. The coffee was pretty good (good enough for me!) so I’m wondering how it compares price-wise with grinding your own coffee.

This is almost exactly the same question that Sarah (my wife) was thinking about recently after visiting some of our extended family. My cousin had a Senseo (or some similar brand) and Sarah liked the coffee it made and the convenience of it. Sarah also grinds her own coffee.

So, to run the numbers, I asked Sarah for help. I had her choose the usual kind of whole-bean coffee that she buys (Eight O’Clock Coffee in bulk at Sam’s Club) and grind it up. She calculated that 0.25 ounces of ground coffee is enough for her to fill up her coffee cup. She can get forty ounces of coffee for $18, so this gives her a cost per cup of about $0.11 for just the coffee.

Obviously, if you were starting from scratch, you would have to pro-rate the cost of the coffee grinder (she uses this one, which costs $19) and the cost of the coffee pot (she uses a small inexpensive one that cost her about $10) and the filters (about $0.01 per cup if you buy in bulk). I would estimate that her final cost per cup using her current setup is about $0.13.

Now, what about Senseo?

For the maker itself, the best bargain I could find on Amazon was this one for $65. I’m sure they can be found a little cheaper by shopping around, perhaps as low as $50.

What about the coffee pods? Again, from Amazon, you can get 96 Senseo pods for $24.73. That’s almost exactly $0.25 per pod.

If you used the Senseo machine 5,000 times, you’d prorate the cost of the pot down to $0.01 per use, giving you a cost of $0.26 per cup with the Senseo.

To put it simply, grinding your own coffee is almost exactly half the price of using pods. If you’re much of a coffee drinker, this is a matter of saving dollars, not cents.

Of course, there is the question of convenience when you’re looking at things like this. Senseo pods are more convenient than grinding and using your own coffee.

I had Sarah time herself with coffee pot setup and grinding that she would do in a week and it worked out to seven minutes. Assuming she’s saving $0.13 per cup over Senseo and she’s drinking two cups a day, she’s saving $1.82 for seven minutes of effort, or an hourly savings of $15.60.

Sarah is going to stick with her usual plan of grinding coffee for her morning caffeine fix. Unless those seven minutes a week are vital to you, I recommend the same.

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. Self employment and taxes
2. Macs, PCs, and frugality
3. Can’t stand frugal apartment
4. Buying a “forever” home
5. Prenatal college savings
6. A major hobby “leak”
7. Balancing hobby time
8. Investing after college
9. Earning money through social media
10. Starting over with the piano

On most days, I’m doing the job of getting the kids out of bed and getting them ready for school and preschool solo. Wake all three of them up. Get them dressed (with different levels of assistance depending on their ages). Feed them a balanced breakfast. Help them find their shoes. Help them find their backpacks. Check the weather and dress them appropriately in terms of clothes and shoes and jackets.

It’s a good hour of chaos.

I wouldn’t trade it for anything.

Q1: Self employment and taxes
I am in the process of transitioning from a full time office position to a ballroom dance teacher. Currently I pay about 50% of my day job income towards dance training locally and out of town. Since I passed my first dance teacher certification last year I have worked an average of 5 hours a week as a dance teacher and expect that to grow as I obtain increasing levels of certification and ultimately plan to quit my day job in about 2 years. This certification is required by my studio, though not all of my dance training is specifically certification related. Can I write off any of my dance training in Federal or MN state this year? What other tax variables should I consider as I plan for the future?
- Ellen

Typically, you can’t deduct expenses for education for a future job. Usually, you’re limited to expenses for education for a current job. I think that, since you’re working as a dance instructor now, you may be able to deduct some expenses for the class.

You may be eligible for some combination of the Hope tax credit and the Lifetime Learning tax credit. This IRS document will help walk you through that.

My honest suggestion? Do your taxes using a good tax software such as TurboTax or take your information to a tax preparer.

Q2: Macs, PCs, and frugality
I’ve enjoyed reading your mailbag columns from the start, but one thing has bugged me. You’ve answered several questions from people using very expensive computers without suggesting that they simply get a low-end PC. A basic PC package from a reputable manufacturer like HP will save them thousands of dollars. Why don’t you bring this up?
- Jerry

My experience has been that people often choose their computing platform (Mac, Windows, Linux) due to a number of factors, some of which include compatibility with what their office uses and what their associates use. If you’re networking computers in an office that’s primarily Macs, it can be a headache to bring in a PC.

Because this is a complicated decision, I usually encourage people to stick with the platform that they’re with for their primary computers. If everyone around you uses PCs, use a PC. If everyone around you uses a Mac, use a Mac.

In both cases, there are certainly a lot of ways to shave the expenses involved, but often the fundamental choice of platform is simply written in stone.

Q3: Can’t stand frugal apartment
My huband and I finally finished our very expensive graduate schools. Our only debt is 250,000 between two professional schools but we have good jobs that should combined pay about 200,000 yearly. We contribute about 15 percent to our 401Ks, use one salary to pay off our debt and live on the other one. We spend our 4500 a month on rent and utilities 1300, daycare 800, food 700, car w/insurance 300. The remaining 1500 goes to religious dues, gym, gas, savings, misc, and anything left at the end of the month goes back into our loans. We have 10,000 in savings and 1500 in our emergency fund.

Here is our issue: We picked our current second floor apartment (850 sq feet, 2 bed, 1 bath) to save some money. It was a frugal pre-job place which I hate and am absolutely miserable. The kitchen is tiny (and our exit/entrance), no closets, and no space for our two elderly dogs. I am pregnant with our second child so we’ll have to move again. This time I want to move into something significantly more spacious which would our rent to 1500 – 1800 without utilities. My husband and I regularly argue about our expectations for the future apartment. He wants to keep saving the extra money and is concerned about our increasing daycare expenses. I don’t think saving money like this is worth how unhappy our current living situation is making me. At what point is being frugal not worth it?
- Leona

For me, the point at which frugality isn’t worth it is when it makes your current situation less joyful than not having whatever it is you are saving for.

So, let’s say I’m trying to decide whether or not I should buy a certain book. Which would make me sadder: not having this book or not having the house in the country that Sarah and I have dreamed about? Almost always, it’s not having the house, so I can put that book back without qualms (and usually just head to the library).

I can’t say whether or not you’re in that kind of situation with your apartment. It sounds like you might be and your spouse is not. If that’s the case, you’re going to have to talk it through, perhaps with the aid of counseling.

Q4: Buying a “forever” home
A little background on us: The partner and I are 31 and 30yo, living in the SF Bay Area, and live by frugal/simple ideologies. I have a gross income of about 65K, partner is in school and studying in the art field (tuition-free, receiving some temporary govt school/living benefits). We have basically no retirement, only about 1 or 2 yrs or real credit (was anti-plastic), but absolutely zero debt. Savings are about 30k. My strategy is to put our savings into using cash to outright buy cheap land and build a cheap home in a more affordable and warmer part of the country where we want to put down new roots. This would most likely be our “forever” home. We want to go mortgage-less and to add onto the simple home as we save more money. Also, we’ll be growing our own food in earnest with the possibility of starting a small business eventually. Upon arrival, as long as I have a job in the new place, I don’t foresee any problem with continuing to generate income – that way we can start saving something for retirement and emergencies.

Question is: What do you think of this plan? Do you think this is feasible? Why or why not?
- Chris

It seems like a reasonable plan to me, especially since a friend of mine is essentially doing exactly this.

The one suggestion I might make is to consider living in a trailer or something like that on the land for the first little while. Again, I know people who have essentially done this, mostly because they were really hands-on in the building of their home. They spent the time to serve as their own general contractor and they were on site every day.

I’d just make sure that you have a big emergency fund before you dive into all of this, but it sounds like you have that covered.

Q5: Prenatal college savings
I am a married 22-year-old and graduated from college this past May. I’ve been at my job since June and make $60,000 per year. My wife makes $20,000 per year. We are expecting our first child in March. My question is basic – what are my options for setting up some kind of account to save for college for him/her? We could pretty easily put $50-$75 into something per month. We have about $4,000 in savings, so it would probably have to be a periodic deposit rather than a large, one-time deposit when he or she is born. The purpose of the account would definitely be education-related for down the road and not simply a “Happy 18th birthday, here’s $10,000″ like I have seen some kids get.
- Jeff

I did this exact same thing for each of my children.

It’s simple. Just sign up for a 529 college savings plan with you as the beneficiary and start contributing. When the child is born, change the beneficiary information to the child. As long as you haven’t contributed thousands of dollars between conception and birth, there should be no tax implications to this.

You’ll probably want to look at the 529 plans offered by each state. I use College Savings Iowa, which has investments backed by Vanguard and is easy to use.

Q6: A major hobby “leak”
I have noticed that you are someone who does a lot of hobbies like painting, board games and attends conferences like Gencon. Are you familiar with the hobby Warhammer 40,000? I have noticed that this is one of my largest spending leaks and I was wondering if you had some advice on how to enjoy this hobby more cheaply. I have started ordering more things on eBay and Amazon instead of paying retail, but so far that is all.
- Jeff

My advice is to figure out what it is about this hobby that you enjoy. Do you enjoy painting the figures? Do you enjoy planning the armies? Do you enjoy the actual gameplay?

When you figure out what it is that you actually love, focus in on that and toss the rest aside.

It took me a long time to figure this out about my hobbies and when I did, they all became more enjoyable and less expensive.

Q7: Balancing hobby and spouse time
My wife and I have very different hobbies, so we often spend evenings engaged in our own individual hobbies without much time together. The problem is that when we do this a lot, we begin to feel like we’re drifting apart and not spending nearly enough time together. How do we get past this and reconnect?
- Dave

Do what Sarah and I do: set some nights as “hobby” nights and set other nights as “together” nights.

I’ll spend some nights during a given week playing games with my friends, reading a book, or painting. Sarah will spend some nights crocheting or reading. Some nights each week, though, we spend time together watching a movie or playing a game together.

For us, it’s good to have a balance of both.

Q8: Investing after college
This past May, I graduated from college with a degree in Mechanical Engineering. At the time, I didn’t have a job in hand, but I recently landed my dream job. I won’t be able to start until December-February because I have to wait for my security clearance before I can start, so in the meantime I am reffing high school, middle school, and youth football and basketball games (making $350-400/week doing something I love).

I have been following the advice on your blog by setting up a budget and planning a debt snowball once I start my full time job. I will be contributing 8% of my salary to my 401(k) right away (100% employer match for the first 4%, 50% match on the next 4%), and according to my budget, I can have all three of my loans payed off in full four years from my start date ($10,000 @ 4.16%, $20,000 @ 5%, $3,000 @ 5%. First payments aren’t due on the latter two until December and March, respectively, but I’ve knocked $5,000 combined off the principal already) by using a debt snowball. That four years increases to six if I were to move out of my moms house and get an apartment closer to work (currently an hour drive each way).

My question is this: The company I will be working for also offers a Capital Accumulation Plan (CAP) with a 100% employer match on the first 3% of my salary I contribute. Should I start contributing to this retirement plan right away as well, thus increasing the amount of time I am paying off my loans, or would the better investment be to pay my loans off first?
- Evan

I would absolutely take advantage of this right off the bat. Whenever an employer offers that much of a match, you’re essentially looking at extra salary that you should be taking advantage of.

Yes, it might increase your loan payoff time by several months, but you’re essentially getting 6% of your salary at the expense of 3%. You’re doubling your money there, and that’s something you won’t do with the debt payments.

Another option to consider, if you really don’t feel right about that, is to contribute 3% less to your 401(k) at first and move that 3% to the CAP. Then, when your debts are paid off, bump up your 401(k) to the full 8%. This way, you’re maximizing the matching funds from your employer.

Q9: Earn money through social media
I read your comment on earning money through social media. I am interested in making some money through this source. Can you please suggest some genuine websites which can offer me decent money for doing this job.
- Kevin

Usually, you’re not going to get offered a job in social media unless you can demonstrate an ability to accumulate Facebook fans and/or Twitter followers. You’ve got to show you can do this before anyone will pay you to do it.

Thus, your first step is to get involved. Create a Twitter account or a Facebook fan page for some specific interest that you have and try to stir up followers. To do that, you’ll have to learn how social media really works.

It will take time and it won’t be easy, but it’s something you can do in your spare time. If you really figure it out, though, you’ll become far more marketable than before.

Q10: Starting over with the piano
The short of it is that you have inspired me to “pick up” piano playing again. I had lessons as a kid and then any playing as an adult has been pretty spotty. Reading about your journey has inspired me to sit down again.

However, I am having a couple of problems.
1. I am not sure where to start. Short of lessons, any suggestions of books about music to buy, books to guide me?
2. Buying music anymore is problematic. When I was a teenager, there was a music store in town. Granted, that was 45 years ago. (Yah, yah, that dates me royally!) I just went to the music store in town and the music selection is really sketchy and scant. So there is always the shopping mall known as the Internet. But how to buy when I can’t look at something. Somethings are just too far above me. But I don’t want waaaaay simplified versions either. And what about books that just have “beginning” classical music and popular music? How and from where do you buy your music?
- Patricia

If you’re looking to learn from a book, I would start with something like Alfred’s Teach Yourself to Play Piano. Work through those, then move on to other Alfred books.

I particularly find value in finger exercises, as the real challenge for me is just the finger memory – intuitively knowing where my finger should go when I see a note on the page. I can figure it out, but just knowing it cold is still elusive for me.

As for finding sheet music, I recommend using Musicnotes, which is basically the music store you describe in your email, except online. The prices are pretty good, and you just print the music on your printer.

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.