I really enjoy your articles, but you talk about being relatively young and happily married with 2 children, making good money.

Your ideas are great if you are young and make good money. I have lived frugally…ALWAYS…I make ok money, nothing great…and so does my husband…between the 2 of us…we make around $100k…I am currently going back for my masters. We have 1 child together, and we have 3 children that we pay child support for (over $1000 a month)….one is going off to college, which we will help as much as possible. We have 2 cars…both paid for, but both on their last leg and no money saved for a down payment when necessary. We have all our bills paid for except are mortgage and we are barely making it. We live in the Chicagoland area. We have no savings. We both have small 401k’s. We do not have cable, internet, or any extras. My sister cuts are hair and we rarely buy clothes, unless their is an occasion (interview, wedding, etc. We both bring lunch to work and eat by our parents twice a week (free meal). Our treat is going out to dinner once a week (date night – and my parents babysit for free)and we usually use coupons….2 for 1 deals. My daughter is in daycare only 3 days a week and my parents babysit the other 2 days for free. We both have cell phones with the smallest package. We both work side jobs. What are we doing wrong! Any suggestions

]]>I don’t think I’ve ever had this conversation before, so I don’t think I’m the same one. And I don’t think we live in the same city if your transit pass is only $80 b/c mine is $110.

I DO live with someone, in a one bedroom apartment, and my rent/utilities is about $600/month. Add $200 for groceries and I’m already at half of my take home pay. I do manage to save/pay off debts with most of the other half, but I was just trying to point out that there is a certain base number to cover living expenses and if 50% of your income doesn’t cover that base, then it’s not so easy to save half of everything that you make.

]]>-Nate

]]>That a great point. I think the annualized 2 year return would be reported as 0%, though I could be wrong about that.

]]>Let’s say you are looking at a fund that gained 100% in year 1 (i.e., you doubled your money) and lost 50% in year 2 (i.e., you lost half your money). The average return over 2 years is (100-50)/2, or 25%. Sounds great, right?

If you invested $10,000 in that fund at the beginning of year 1, at the end of that year you doubled your money to $20,000. But then, at the end of year 2, you lose half of the $20,000 and are right back where you started, at $10,000. Your ACTUAL returns over the 2-year period are ZERO.

]]>In my area, a nice single-family 3/2 home can be had for $150,000. I’ll assume a 10% down payment of $15,000, financing $135,000 @ 6%. Which means approximate mortgage interest of $8,055 in the first year. Still leaving another $2,000 to come up with in itemized deductions to beat the standard deduction, and that is the FIRST year on the mortgage. As time goes by, and you are paying more principle and less interest, you will need even more itemization to beat the standard deduction.

However, if you moved somewhere where you were financing, say, $300,000 for your home, the numbers change significantly. You’ll be paying almost $18,000 in mortgage interest in Year 1. Bye-bye standard deductions.

It’s all in location and life factors – if you have significant donation write-offs or medical write-offs, plus the mortgage interest, it’s pretty easy to beat the standard deduction.

However, if you live in a fairly inexpensive area, and you sock significant money away in pre-tax avenues, significantly lowering your tax burden anyway, then the mortgage interest deduction isn’t always the best route. I wouldn’t call it “rare” to not use it, but like everything it has to be weighed as an option.

]]>The formula for compound interest is:

A = P*(1+r)^t

where

A = final amount

P = principal or initial amount ($10,000 in your example)

r = the percentage rate as a fraction of 1 (0.07 in your example)

t = time in years (20 in your example)

so, the solution to your question is:

A = 10000*(1+0.07)^20 = $38,697

This equation is precise only if your are compounding on an annual basis. However, it is still a pretty good approximation when compounding on another basis, such as monthly or quarterly (there is a slightly more complicated equation which can do this exactly, but in most cases, eh, why bother :-) )

]]>I have a question. In the process of clearing out all of the clutter in my house, I noticably have a tiny room that has turned into what my kids have termed, a computer grave yard. There is a giant prehistoric monitor, old towers, printers, etc. How do I safely get rid of stuff no one wants? I live near Des Moines IA, so I figured you might know more about this than I do.

Thanks Laura

]]>How do you discuss finances with your partner? Mine spends a lot of money on his family while I am being frugal because I have a dream that I am saving for. I really dont know how to bring this topic up for discussion – Its a very touchy area! :( ]]>

No it hasn’t the ten year return on VFINX is nowhere near that (although I wish it was). Check again! :-)

You must mean the 5 year return pre-tax.

-Frank

]]>@ Andrea, I never said it was easy- I believe you live in the same city as me, we have had a similar exchange on GRS if you are the same Andrea. My previous salary here was under 1100/month and I still managed to save small amounts. I live with a partner but I have single friends who are still on that wage who are surviving and saving. My share of rent and utilities (incl internet) is $500, health insurance and medications $160, transit pass $80, groceries $150-200. So no it wouldn’t be easy to save half your earnings but you could come close and certainly if you were inclined you could try and that was the point I was trying to make. ]]>

As mentionned in Sab’s question, they are just starting up in life! They have no real obligations! The matter is to do it as if they had only half what they truly have! It’s differing your own salary! ]]>