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This article is by staff writer William Cowie.

Several readers responded to our “Big Question” post by saying they’d like to see something about investing, and some elaborated that they’d like to see some advice for investing on a small scale. Small in scale obviously means different things to different people — but I’ll relate my experiences, for what it’s worth.

My background is in finance and accounting. You’d think having 10 years of college, focusing on business and money, I, sooner or later, would know what I was doing with my money. You would be wrong. Coming out of college, I joined the rat race in the fast lane and zoomed past most of my peers, landing a top executive job in a fast-growing computer company at a young age, and ending up with a small minority stake in it. When it was sold to a major conglomerate, all the stockholders received generous payouts. I was 30 at the time and decided to retire. For my retirement, I wanted to come to America and study some more — isn’t that just the geeky “investment” to make?

Not wanting to become a professor, I rejoined the rat race, only this time taking care to stay away from the fast lane. It may look attractive to those getting passed, but staying in it requires too much time and dedication, and you have no life beyond it. I wanted to visit, smell and photograph some roses along the way.

I never gave retirement another thought. I just figured that I’ve done it once, I can do it again anytime I like. Well, that’s not quite as easy when you don’t make fast-lane money anymore. It took me a few years to realize this. I know, I know: I may have degrees up the ying-yang, but that doesn’t mean I’m smart. I was now in my 40s, and starting all over with close to nothing.

The smart people (like J.D. Roth) say you have to invest and start early. Sounds good, of course … but I couldn’t get myself to actually do it. Looking back, I can see several things which held me back.

Roadblocks

1. I didn’t make enough money. At least that’s what I told myself. If you want to invest, you need to have some “over and above” money, right? I had myself convinced I couldn’t check that box.

2. I didn’t want to make sacrifices. In graduate school, we had a Polish couple living next to us in student housing, Wojcek and Kinga. He was an out-of-state student and had to pay high tuition fees. Yet, when he graduated, they had a down payment for a house. Amazed, I asked him how he did it. His answer boiled down to living close to the poverty line and squirreling away every penny they could. In five years, they saved up $18,000 and they bought a $180,000 house. My earlier life, on the other hand, had accustomed me to an inflated lifestyle. It doesn’t take many years for that to turn into a sense of entitlement. “Hey, I’m entitled to eat out so many times, drive such-and-such a car, and live in a house with so many square feet.”

3. I failed once. I tried to open a brokerage account with Charles Schwab, back when they were the only discount brokerage around, to invest in stocks. I didn’t have the minimum required to open an account. It was humiliating to be told I don’t have enough money and, for some weird reason, that just stuck in my mind, reinforcing the first point I made up above. Worse, it made me not want to try again.

4. What’s the point? Even if I had the minimum (as I recall, it was something like $1,000 back in those days) it was so little, there was no way it could ever be enough to give me a comfortable retirement. Besides, even back then everyone was talking about the market being rigged against the little guy. So why bother? I may end up losing it all, anyway.

5. I didn’t know enough. Talking to friends, coworkers and acquaintances, it sounded to me like you needed a lot of luck to make good investments. At the time, I remember Microsoft and Walmart were the hot, high-growth stocks. But were they going to mature right when I bought? When a growth stock matures, its stock price crashes as the P/E (price-to-earnings) multiple gets deflated (like happened to Apple last year and Whole Foods this year). Because I didn’t know enough about the stock market, I figured I had better stay out of it.

Other people told me they don’t have time to invest, but I knew that didn’t apply to me (or to anyone else, for that matter). If someone told you you’ll win a million dollars if you set aside an hour every Saturday, we’d all do it. We all make time for something we truly value. I knew that I would make time for investing if I truly believed in it. Trouble was I didn’t.

What changed?

Three things:

1. Our 401(k) plans. We both got jobs which offered what was still a fairly new thing back then — 401(k) retirement plans. These things are not perfect, and they’ve generated a lot of criticism; but at the time, I thought it was a great thing for only one reason: I got to take it with me.

Until the early ’80s, the default retirement option at most employers was a pension. The problem with a pension, though, was you often lost it all when you changed jobs — and that was by design. Back in the day, employers used their pensions as a golden handcuff, an incentive/reward for staying there. A 401(k) was different because you could take it with you when you moved on, or if you were “asked” to move on.

So, we embraced our 401(k) plans and contributed to the level our employers matched. It wasn’t much, but at least there was some “free money” (the matching) to give us the motivation to do it.

And then we forgot about them. In hindsight, that was probably a good thing because they grew quietly and undisturbed. You avoid using any 401(k) plan at your own future peril.

2. Our savings. My wife and I grew up in frugal households and we tend to live below our means. So, we opened a savings account to serve as an emergency fund. We lived on a strict budget — not overly tight, but it was a high priority never to exceed it. And, every month, we’d transfer everything left over to the savings account and start fresh for the next month. The emergency fund slowly grew, and we never paid it much attention. There were a few times a car needed repairs and so on, and it was nice to have enough for that. But, other than that, we never really thought of it.

Then, one year, we got a bigger income tax refund than we expected. The natural thing was to put it into the savings account, which we did. But then, suddenly, we looked and saw that we had “real money” in that account.

It dawned on me that we had enough to risk opening a brokerage account without the fear of being told we’re insignificant cockroaches.

3. Old age suddenly drew closer. After we turned 50, and the over-the-hill parties faded in the rear view mirror, we looked through the windshield of time and gulped. What’ll we do when, like the Beatles song, we turn 64? Funny how you never think of this when you’re young. But, as they say in the sports world, Father Time is undefeated. Sooner or later he’ll beat you.

My (and your) only defense against that old fart is our investments.

Decisions

So, all of a sudden, I was confronted with the question: What am I going to invest in? I had no clue. That’s when, as my wife put it, I went to “night school.” Every night, for months, I’d hit the Internet after dinner till past midnight and learn everything I could about investing in general and stocks in particular.

Why stocks? If I were a different person, I’d probably go for rental real estate, because you can (literally) buy the house next door and keep a watchful eye as other people pay down your mortgage and inflation builds you a lovely nest egg. However, to make that work, you need a modicum of handyman skills and you should be somewhat of a people person, engaging enough to attract tenants, and tough enough to kick them out when they don’t pay on time. I’m neither. I am enough of a geek, though, with enough education to understand companies and stocks. So that’s why I became like the little robot in the movie “Short Circuit,” muttering “input, input” night after night.

What I learned

1. Investing matters. I can kick myself for the years I avoided it, and the overcome-able reasons I used to justify that. As time passes, we’ll be less and less able to rely on Social Security or pensions. Therefore, you will be the master of your fate, and there’s no way other than investing to master your fate when you’re older.

2. You get nothing for nothing. To get something in the future, you have to forgo something now. It is what it is.

3. Time is everything. Even if the amounts you work with are small — and they can be — they will add up the longer you give them.

4. Patience is essential. As Warren Buffett puts it: Investing is like planting a tree — nothing happens overnight.

5. Perfection is not required. Nobody, not even Warren Buffett, has a flawless track record in their investments. That’s the bad news. The good news is investing is robust enough that, as long as you are patient and diligent, the good will far, far outweigh the mistakes and misfortunes. My perfectionist tendencies kept me from investing for too long. (“If I can’t do it right, why do it?”) Imperfect investing, started earlier, will always beat perfectionist investing delayed.

6. You can learn. There are plenty of resources, free and paid, to learn everything you need to know to succeed at investing. The good news is it’s not rocket science, so anyone can learn it. The bad news is it’s not all obvious, so you do need to put in time (nothing for nothing, again).

But…

7. It’s never too late. We got serious after reaching 50, so we had to sacrifice more than we would have needed to if we started earlier, but that’s the price of folly. The good news is you can learn from my mistake. And if you think you’re too old, stop. Just stop. You can always catch up; it’s never too late.

The key to success, though, is the old Nike slogan: “Just do it.”

This article is about Investing

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This post is by staff writer Honey Smith.

In May, Jake and I bought a house and moved in. We’ve been loving it so far! People who have always lived in a place with decent structural integrity may not appreciate it, but considering the many problems with our previous rental, it feels like we live in a palace now.

At the time of my last post on homeownership, we had about $10,000 in liquid savings. Beefing up our emergency fund even more was on our list of priorities. I was hoping to start saving for that in earnest in 2015. However, a situation arose this weekend that will cause us to reprioritize our financial goals.

Air conditioner repair

On Saturday afternoon, I noticed it seemed a bit warm in the house. When I looked at the thermostat, it said 82. Since it was set at 77, something was obviously wrong. I went outside and looked at the drip spout that comes off of the roof, and there was no water dripping. I assumed this meant that our air conditioner had frozen.

Jake concurred that was a possibility. You’re supposed to change the air filter every 3 months and we hadn’t done it since moving in, so we were slightly past the date. In ordinary climates that’s probably not that big a deal, but it was 108 that day. We turned the A/C to “off,” turned the fan on, and left the house to grocery shop and run errands so we didn’t have to be home while we waited for the unit to defrost. Unfortunately, when we got home and turned everything on again, it wouldn’t start up at all! So we called in a repair company to check it out.

The repair person got us up and running again sometime around 11 p.m., but we ended up paying about $1,000. However, it wasn’t due to our lack of routine maintenance. The repair person recommended that, based on the unit’s age, we should think about saving up for a replacement. The ballpark estimate, which was based purely on his look at our existing unit and the square footage of our home, was $7,000. Wowza! This was something that was already on our radar after our home inspection. Now “on our radar” has morphed into “our most important priority.”

The hope is to get the new unit during the winter, before next year’s A/C season cranks up again. We are also hoping that a new unit will drive our electricity costs down in the future. We have double-paned windows and a brand new roof, but I can only imagine how inefficient our HVAC unit is at its age. And while a new air conditioner may not be one of the 10 easy ways to lower your electric bill, the part of me that loves spreadsheets can’t wait to start crunching numbers after we get our new unit. In the short-term, however, this means that I will be cutting back on my aggressive student loan payments for the next few months as we set aside money for our new goal.

Other house projects

Now that we’ve lived in our house for awhile, we’re starting to get a sense of other projects that need to be completed and how to prioritize all our goals. We can’t afford to do everything at once! Here is a prioritized list for tasks that we either can’t or don’t want to DIY.

  1. Replacing the A/C. First priority, anticipated timeline six months. Amount: $7,000 (just in case our midnight estimate was a little off).

  2. Demolishing the shed. Second priority, anticipated timeline six months. There’s a corroded metal shed in the backyard that isn’t safe to use or really even be near, and we don’t need it because everything fits in our garage. Amount: unknown, but this shouldn’t be too expensive.

  3. Resurfacing the back deck. Third priority, anticipated timeline between six months and one year. Amount: $3,500.

  4. Installing solar panels. Fourth priority, anticipated timeline 18 months to two years. Amount: $10,000 out of pocket, according to other folks we know who’ve had this done.

There are also some rooms that won’t be fully furnished for awhile, but we’re in no hurry for a few reasons. First, it takes time to get a sense of what we really like and what will actually fit in the space. We also want to save up and buy nice things that we love. I think new furniture will probably end up between “resurfacing the back deck” and “installing solar panels” in terms of our prioritized list above.

Coming to terms with adjusting my goals

In the early part of the year, I was making extra payments of $300 per month toward my student loans. It was important to me to make extra payments, but I also wanted to save up to buy our house. Since moving into our new house, I’ve been making extra student loan payments of $500 per month. Additionally, I’ve also been making the regular payments. In all, I’ve been paying close to $1,000 a month!

I’m on a graduated repayment plan where the amount of the regular monthly payment goes up every two years. However, apparently the resets are not based on calendar years, but on payment years. What does this mean? Let’s say the regular payment on the smaller balance is $100. (It’s actually more; this is an example.) Two years’ worth of payments at that rate is $2,400, so my rate would reset after two years or after paying $2,400, whichever comes first.

So not only have I been making larger extra payments recently, the amount of my regular payments has gone up as well. Additionally, more of my regular payments goes toward the balance as opposed to accumulated interest. So even though I plan to cut back on the extra payments for the time being, I’ll still be making progress. And the sooner I reach my larger house-related goals, the sooner I can start making those satisfying big payments again.

One of the most challenging adjustments in all of this is allocating savings toward something I’m not all that excited about. I mean, by the time we got the A/C working again, I was pretty darn excited to start cooling our 97-degree house down. And of course having a crane putting things on our roof is just plain cool! But outside of that, it just seems like a lot of money.

How do you prioritize when you have several larger financial goals that take time to save for?


This reader story comes from Paul. Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income. Want to submit your own reader story? Here’s how.

I’ve always had what I term a “fluid budget”; that is, I always make sure I have more money coming in than going out and I don’t track every penny (though I have a good idea where everything is going). I’ve never made more than $40,000 a year in my lifetime (I’m 34), but I have always worked from the time I was twelve years old. I can also honestly say I’ve never spent more than I’ve earned, thanks to a father who viewed debt as a kind of slavery. Looking back, I’m grateful for this somewhat extreme worldview, as it forced me to be resourceful.

Saving is a priority for me because I was raised to believe that money gives you options and not having money means not having options. This could be the option to choose a different job if needed, take a vacation, buy in bulk when it is cost-effective, and allow my wife and I not to have to fight about every expense or stress about purchases. I don’t know about you, but I like having options.

I was grateful that, when my wife and I got married four years ago, she was willing to adopt a more financially mindful lifestyle. (She was a bit of a spender.) I, in turn, have learned to loosen the reins over time to allow for some more relaxed spending. I think we’ve found a healthy balance and thankfully we don’t fight about money too much (which is worth its weight in gold). We don’t feel deprived or that we are extreme cheapskates, though some things might seem extreme (a matter of perspective if you ask me).

Here are some examples of how we try to cut expenses and live within our means:

  • We use rags instead of paper towels in the kitchen.
  • We use a bidet attachment (pretty standard in Europe and Asia, though we are American and it’s basically unheard of here), which saves money on toilet paper and is more hygienic. (We still have toilet paper for guests.)
  • I bought a $20 clipper set and started cutting my own hair and my children’s hair recently. It’s easier than I thought, saves me the hassle of going to the barbershop, and doesn’t look bad either!
  • We hang our laundry out to dry and make our own laundry soap. Takes five minutes for each.
  • Even though we live in a townhouse, we have a small garden that produces fresh produce for the summer (tomatoes, eggplant, peppers, cucumbers, zucchini, strawberries, lettuce, and herbs). Gardening is a relaxing hobby for me, not work.
  • We get books and DVDs from the library. We don’t have cable (though we do have a Netflix subscription that is $8 a month)
  • We don’t eat a lot of meat. Instead, we make lots of dried beans/legumes and lentils, rice, pasta, grains, frozen veggies. I bake bread. I feel that we eat well and balanced.
  • I try to shop for clothes infrequently and, when I do, it’s often at Goodwill. Generous friends have given us lots of hand-me-downs for the kids.
  • I get snacks at the Dollar Store.
  • I try to bike to work a few days a week to save on gas and wear and tear on the car, and get some exercise and free endorphins. It is 35 miles round trip, but I have an electric assist which keeps me from arriving all sweaty or too tired.
  • We bought our cars used on Craigslist and paid cash. They are ten years old but are reliable (Toyota and Subaru) with low miles when we bought them, and are good on gas.
  • We don’t tithe 10 percent of our earnings, per se, but we do contribute financially to our church and to those in need.

A lot of these money-saving tactics have been added gradually over time, not all at once. Sites like GetRichSlowly have been great for learning the tricks of the trade from people with similar financial goals.

As for expenses, here is a breakdown of what is going out each month for our family of four:

  • Mortgage/taxes/insurance: $1,130
  • Daycare: $1,560
  • Water/Sewer: $36
  • Cell/DSL/home phone: $180
  • Car insurance (2 cars): $128
  • Car maintenance/registration (average): $30
  • Gas: $200
  • Charitable Giving: $200
  • Groceries: $400
  • Utilities: $110 (average)
  • Diapers: $90
  • Health Insurance (through our jobs): $290
  • Dog food/vet: $35
  • Misc: $400

Based on our income, I have calculated our savings rate to be about 40 percent after expenses.

A couple notes:

  • We pay off our credit cards in full every month.
  • We do not have student loans. My parents paid for college (though I graduated in 3 1/2 years from a state school and also received scholarships). I worked my way through grad school, taking one course a semester and paying as I went. My wife earned her BSN at a state school which her parents paid for.
  • We have been prepaying our mortgage for the past few years pretty aggressively. We are set to pay it off by the end of the year on my wife’s 40th birthday. We live in a modest townhouse in an urban area. Our interest rate at present is 5 percent.
  • Living in a 1,100 square foot house means our utilities are relatively low, we have no lawn maintenance, and housing repairs at this point are minimal and manageable. We have no homeowners association fees.
  • We have no other debts.
  • Our jobs are relatively secure.
  • I contribute $300 per month to my employee pension plan and also max out my Roth IRA. My wife contributes about $500 a month to her retirement plan through work.
  • We have a healthy emergency fund and are looking toward learning more about investing once the house is paid off.
  • Daycare expenses will phase out in a couple years. Schooling for our children is the big issue at this point, or at least it will be in a couple years. The public schools in our area are not an option, and private schools are somewhat pricey. We are leaning toward homeschooling, which is why we are saving so aggressively and planning to pay off the house this year, so that my wife might be able to cut back to part-time work. I would love to hear from anyone who has gone this route, and if it has been a worthwhile endeavor.

Shifts in perspective have been helpful for recognizing the richness of our life (even though we are not, by any means, rich in the normal sense of the word) — that is, focusing on what we have, not what we don’t have. We have hot water on demand whenever we want it, our roof doesn’t leak, and both of our children have their own bedrooms. We have never gone hungry. We have personal vehicles to take us wherever we want to go, whenever we want. We are in good health and have family nearby. We are both gainfully employed. We enjoy things like walks in the park and ice cream cones and time together as a family. We are able to give to those in need.

The other thing that has been helpful whenever the temptation toward spending our hard-earned money presents itself is to remind ourselves that doing so is borrowing from our future selves. It takes time and practice to develop good financial habits; but the thought that doing so is benefiting our future selves keeps us going, one dollar at a time.

Reminder: This is a story from one of your fellow readers. Please be nice. It can be scary to put your story out in public for the first time. Remember that this guest author isn’t a paid or professional writer and is just learning about money like you are. Unduly nasty comments on readers stories will be removed.


This article is by editor Linda Vergon.

This week, Phoenix, Arizona, had extreme flooding and, before that, Napa, California, experienced a 6.0-magnitude earthquake. Landslides, earthquakes, extreme heat, floods, hurricanes, severe weather, space weather, thunderstorms and lightning, tornadoes, tsunamis, volcanoes, and wildfires are just some of the natural disasters that can plague us in a given year. Yet “nearly 70 percent of Americans have not participated in a preparedness drill or exercise outside of fire drills at their place of work, school or home in the last two years,” according to Gwen Camp, director of FEMA’s Individual and Community Preparedness Division.

September is National Preparedness Month, and the theme this year is “Be Disaster Aware: Take Action to Prepare.” Throughout the month, FEMA will be helping individuals and communities understand the risks and gather the tools they need to be more resilient in the face of natural disasters and other emergencies. They are sharing information and resources to community leaders, schools, houses of worship, and businesses that want to organize preparedness training events twice a year in April and September – and you can get involved too. Each week they will help people take some sort of action to prepare themselves for an emergency because, as we all know, many of these events come as a complete surprise.

Most all of this activity will culminate on September 30 in America’s PrepareAthon, when a lot of communities across the nation will hold some kind of event designed to provide information or even train people on what to do when disaster strikes. Some events may occur in later weeks. It all depends on a community’s overall calendar of events, but FEMA’s website, Ready.gov, shows when and where these events will be occurring: America’s PrepareAthon Event Map.

If you can’t participate in an event, FEMA’s site is a great resource to help you plan for all kinds of emergencies from pandemics to winter storms too. Their Natural Disasters web page is an excellent resource to understand about each of the disasters listed above, as well as how to make a plan, build an emergency kit, and help your kids deal with disasters too. For those that are interested, Red Cross has a number of natural disaster applications for your smartphone too. Teach your kids and elderly family members how to use them!

FEMA wants you to learn about your local hazards and take action by practicing plans and participating in a PrepareAthon event. And I think this is an important part of emergency preparedness that is often overlooked. Participating in such an event is a good way to get involved with your community programs, houses of worship, schools, and workplaces. When you make yourself known to people in the emergency preparedness community, they will recognize you as someone that has training and is reliable to offer assistance to others in need. So often when disasters strike, people are offended when a law enforcement officer, firefighter, or other individual doesn’t accept their help. But honestly, if they do not know you, they can’t in good conscience enlist your support in any way. And without proper training, you can be a potential hazard to them in their effort. Make yourself known to the emergency preparedness workers in your community, so at a minimum they are aware of your ability to help and your intentions.

Do you know which disasters could happen in your community and what to do to be safe and mitigate damage? Will you participate in your community’s disaster planning efforts?


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