What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. A brief annual budget
2. Buffett, GDP, and profits
3. Forecasting, planning, and budgeting
4. Inexpensive wills
5. Rich Dad and Amway
6. Quarterly budgeting
7. Halloween candy
8. Weird frugality
9. Minimum amount for single retirement?
10. Finding time for hobbies
11. Useless gift card
12. Frugal politics
One of my biggest challenges as a parent is teaching my children how to address and solve parts of their own character. I’ll give you an example: my daughter’s shyness.
My daughter is a bubbly and outgoing person when she’s around people she knows well and is comfortable with. She’s got a wonderful sense of humor and is extremely quick with puns and other jokes.
However, when she’s around people she doesn’t know well, she basically clams up. She chooses to sit as close to possible to one of the members of her family and won’t say anything at all.
What can I do to help her overcome that shyness? It’s really tricky.
My solution is to just try lots of little things and see which ones help. I’ve found the most successful thing is to simply hold her hand while I go and interact with people I don’t know well, which is tricky for me because I’m a bit shy/introverted myself. I try to let her see me interacting with other people and how I do it, and then I talk to her about exactly what I did.
My number one strategy for her, which has seemed to really help, is that when you’re afraid to talk to someone, just get them to talk about themselves with just a few words. Ask them how they’re doing or about the book they’re reading or the clothes they’re wearing or about the event you’re both at. Let that person talk and then just listen to what they say and come up with a follow-up question. Almost always, the other person will like you when you do this.
To me, things like this are why I deeply love being a parent. I have this wonderful opportunity to help develop a great member of society by giving that person a loving foundation and lots of gentle life lessons and support. It’s the best thing I’ve ever done.
Q1: A brief annual budget
Would you be willing to provide your detailed budget? I saw you wrote your family’s yearly budget is $28,000 a year. I would love it as inspiration on where to cut. I thought we were frugal, but we spend at least double.
– Kelly
Here’s our approximate monthly budget. Since we keep things at about $2,350 a month, that adds up to about $28,000.
Food/Household – $800
Insurance – $500
Auto/Fuel – $300 (this includes saving for replacement vehicles)
Utilities – $150
Hobbies/Entertainment – $250 (cable, cell, internet)
Housing Maintenance – $100
Apparel – $50
Travel and Gifts – $50 (we go on one “good” vacation every other year)
Other – $150 (mostly unexpected and educational expenses and overruns)
The rest of our income goes into some form of saving for the future. If we skipped that, we’d survive on $28,000 post-tax per year, and we could cut that even more if we wanted to – the food area could easily be cut, as could the entertainment section (we have a cable bill that could easily go away). I do not include taxes in this budget, obviously, as it’s an after-tax budget.
I think the biggest areas that we save in compared to the average family is that we live in a home that’s paid off, we drive cars that are paid off (and have saved enough for our next car replacement cycle), we buy most of our clothes used or on super deep discount (except for my wife who has some special clothing needs for her job), and all of our insurance is really high deductible (because we have money in the bank to help pay for that if needed). Also, only one adult commutes and she drives a 50 mpg car to work.
Q2: Buffett, GDP, and profits
Regarding the quote from Buffett from your article, if Gdp is 3%, doesn’t that equate to profits? Companies couldn’t then continue to pay out 2% in dividends. Am I right?
– B.J.
Here’s Buffett’s quote: “The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent, he said.”
Let’s ignore GDP for the moment. Buffett is saying that if GDP grows at 3%, that money will get distributed throughout the economy. Some companies will grow at faster than 3%, others slower. That money won’t necessarily appear as profit – a lot of companies will re-invest their 3% growth in some fashion, whether in raises or more employees, or other things.
Most publicly traded companies pay out most of their profits (the parts they don’t reinvest) in dividends, so if a company’s profit goes up, their dividends usually go up.
So, let’s say we have a company that has $1 billion in revenue in, say, 2016. That company makes $50 million in profit and pays out all of it in dividends, leaving the remaining $950 million for paying the bills. That company grows right along with GDP, so the next year, it brings in $1.03 billion in revenue. If that company’s profit also rises along with GDP, the profit would be $51.5 million. They could pay out all of that in dividends and their dividends would go up by 3% over last year. They’d also have $978.5 million ($1.03 billion minus $51.5 billion) for paying the bills.
So, 3% GDP growth wouldn’t cause companies to stop paying dividends. It just means that dividends would grow, over time, at about 3% on average.
Q3: Forecasting, planning, and budgeting
Was wondering what you thought about forecasting and planning and how they correlate back to budgeting? I feel like they definitely correlate to budgeting, but just wanted to get your quick thoughts on it.
– Jason
Unless you’re using a specific meaning for forecasting and planning, those things exactly describe what a budget is and how you prepare it. A well-prepared budget involves forecasting what your spending is going to look like in areas where you don’t have a lot of control (like, say, your insurance bill) and planning your spending in areas where you have a ton of control (like, say, hobby spending).
A typical budget process revolves around projecting what your spending is going to look like in the coming month. Your goal is to try to match reality while perhaps pushing you toward better choices in a few categories so that you have room left over for other goals like saving for retirement.
Again, you may be using those terms in an industry-specific way, but in a general way, that’s how those terms connect to budgeting.
Q4: Inexpensive wills
Two weeks ago, a dear friend and colleague lost her husband in a tragic accident. He was young and had no will. This has caused quite a hardship on my close friend and her young children, to the tune of having to hire an attorney to help with probate. Would you please consider writing a post dedicated to making a will in a cost-effective manner and/or including it in the Monday reader mailbag? I’ve come to the conclusion that my husband and I need to have a will but the cheapest I’ve found is a local lawyer who charges $600 per person (which does include the actual will, POA, guardian for children, health advocate, living will, etc.). I’m sure there are do-it-yourself options out there but how do I know if they’ll hold up in court? Can they be contested more easily than a will drawn up by a lawyer? Do you have any knowledge on this crucial topic? I’m hoping it will help other readers of TSD who have not made wills due to the cost. I know that’s why I haven’t! I live in FL if that helps.
– Dana
I generally think that meeting with an estate planning lawyer in your state is the best choice for everyone when they start thinking about setting up a will. It’s the best way to go to make sure you haven’t skipped a step or overlooked anything specific about your state.
If you simply want a low-cost will without really considering whether you need other estate planning documents, your best bet is probably LegalZoom, which will walk you through all of the steps. You’ll end up with a printable document at the end along with instructions on how to have it properly signed/notarized in your state. The total cost is $69. There are other services that undercut LegalZoom by a little, but LegalZoom has a pretty good reputation.
Considering that you’re getting those other documents in a bundle and face-to-face consultation with a lawyer, it’s not that bad of a deal.
Q5: Rich Dad and Amway
Regarding your post from 2014, Deconstructing Robert Kiyosaki, I was wondering if you could provide a source for where you found that Robert Kiyosaki was involved with Amway in the 80s/90s? I’m just curious because I haven’t found anything solid on that.
– Nina
Well, here’s a video where he’s pitching Amway as a business solution, for starters.
My feelings on Robert Kiyosaki remain the same as what I said in that video. His books can be very inspirational to entrepreneurial folks and investors, but many of the specific tactics and strategies he suggests are littered with risks and other drawbacks that he doesn’t mention and many of his specific anecdotes don’t add up.
If you want to read his books, go for it, but treat them as pure inspiration, not as any sort of investment or entrepreneurial strategy guide.
Q6: Quarterly budgeting
What is the best way to budget for the quarterly bills (here in Australia, that’s gas, electricity, council rates for the house, my daughter’s gymnastics…) and annual expenses (e.g., car insurance and registration)? They are usually significant amounts, and if they all come in 1 month, the family budget is, well, screwed. Shall i out money aside for them each month to save upfront? If yes – what is the best way to keep from spending this money?
– Annie
Your “budgeting cycle” should be exactly the same as the billing cycle for most of your bills – things just work easier that way. So, in your case, you should be trying to make three month budgets.
How does that work? Well, you have to figure out how much you’re going to spend in each normal budgeting category over a three month period. What will your gas bill be? Your electric bill? Your housing bill? How much will you spend in food over that period? You have to make sure that the total for each of these adds up to less than what you’re bringing in.
You should start your budget cycle shortly after you pay most of your bills. At that point, what will happen is that your big expenses will happen near the end of that three month cycle, so in a given week or month early on in the cycle, you’ll spend way less than you’re bringing in. Leave that money alone. It should just sit in your checking account. Stick to your budget. If you have $500 budgeted for food each month, stick to that number, even if you have a lot of money in checking. If you haven’t budgeted for an entertainment expense, don’t splurge, even if you have that money sitting there (you should have an entertainment line in your budget, but once you spend that money, wait until the next cycle).
That’s how budgeting works. It means not spending unplanned money this week/month when you know that bigger expenses are coming in the next week/month.
Q7: Halloween candy
I get literally hundreds of kids at my house on Halloween and I give out treat-sized candy bars. I’m wondering if it’s cheaper to buy those bars now or to buy them closer to the day. Do they go on sale close to Halloween?
– Nancy
The honest truth? The cheapest method for buying Halloween candy is to buy it on November 1 the year before and then store it in a cool, dark place in your home until the following Halloween. (Halloween candy basically doesn’t “go bad,” so that shouldn’t be a concern.) Right after Halloween, those candies go on deep discount for a few days until they vanish from shelves.
However, that doesn’t really answer the question of someone planning ahead for Halloween about a month and a half from now. How do you minimize that cost?
My experience has been that “bite-sized” candy goes on sale irregularly throughout the year. If you can hit a sale, then you’ll get a pretty good price on a lot of that candy. If you don’t see any sales, there are usually moderate discounts around Halloween, but not overly steep ones until after the day passes.
Q8: Weird frugality
So what do you think is the “weirdest” frugal thing that you do? Like if you tell other people they look at you strangely?
– Nancy
I make my own laundry soap by mixing soap flakes, washing soda, and borax in equal amounts together in a jar and then use one teaspoon per laundry load. The idea that I make my own laundry soap seems to really throw people for a loop.
I keep old toothbrushes with my cleaning supplies for cleaning awkward corners and small things. I’ve seen people discover my old toothbrushes and think that’s weird.
I basically don’t watch television, but that’s more of a “I’d rather be doing other things” choice. However, I sometimes come off as “culturally illiterate” in terms of what’s on television. I honestly don’t mind it that much, but there have been “event” television shows that I’m completely clueless about.
Most of the things I do really aren’t weird in isolation. I just use a lot of little strategies that other people use, I just use a lot of them. They don’t seem weird at all individually.
Q9: Minimum amount for single retirement?
What is the minimum amount a single person would need to retire early and just live off the money in the bank?
– Claire
It depends on a lot of factors. If you decide to live in the absolute lowest cost of living area in the country and do a fair amount of home economics and choose to minimize your insurance expenses to the absolute limit and simply hope that everything goes well and you also bank on the stock market being great going forward and can bank on Social Security down the road, you can get by on about $16,000 a year. That would enable you to “retire” on about $400,000 a year. If I were suddenly single, I could move back to the area where I grew up and easily pull off this plan right now.
The thing is, you probably won’t want to live in an ultra-low cost of living area. You probably won’t want to utterly minimize your insurance. You probably also won’t want to bank on a stock market boom forever. All of those things significantly raise how much you would need to “retire.”
It really, really depends on how you define a minimal lifestyle and what things you’ll compromise on and which ones you won’t. That varies greatly from person to person.
Q10: Finding time for hobbies
Been really enjoying your “31 Days to Financial Independence” series. Your thoughts about “deeps” and “shallows” of life is great and really insightful.
One problem I have with it though is that I have a hard time finding time for the things I want to go “deep” on. I have three big hobbies – reading and miniature painting and weightlifting. I don’t feel like I have enough time for them but I don’t know what to cut in my life. I feel like I don’t have anything I can cut.
How do you find time for your hobbies?
– David
Honestly, I look at every single moment of my day as a choice. If I’m stuck in a situation where I can’t devote a block of time to a hobby right now, I ask myself what I could be doing to enable that block of time later on in the week. If I’m sitting in front of my computer reading a website, how is that helping me devote a block of time to my hobby later in the week? If I’m vegging out in front of the TV, how does that help me devote a block of time to my hobby later in the week? If I’m just sitting there staring out the car window while my daughter finishes her soccer practice, how does that help me devote a block of time to my hobby later in the week?
I try to be doing something with every moment. If I have a few moments of downtime, I either actively “do” my hobby (usually reading a book), or I do something to free up time later in the week, like doing professional brainstorming or processing email or something like that.
I like to joke that I “compress” my “decompression” from life’s stresses by meditating, but it’s kind of true. I put aside several minutes a few times a day to follow a guided meditation like these. They just kind of clear my mind and wash away stress so that I don’t feel much need to actively “decompress” with time wasters.
As a result, I usually have plenty of time for our “family reading time” – we read as a family for 30 minutes each day, with the adults participating to set a strong example for the kids – and time for playing the kind of complex tabletop games I enjoy and time for trail hiking and so on.
I hope those ideas help!
Q11: Useless gift card
I “won” a gift card to Staples at an office drawing. Wanted to sell it online but I lose like a third of the face value of the card. I don’t need office supplies and it seems like a [bad] gift. What should I do with it?
– Tara
Go to Staples with your card in hand and look around. See what they have in stock. You might be surprised what you find.
I’d be really surprised if you didn’t need pens or notebooks or printer paper or printer ink at home (I can always use some Uniball 207 Signo or Pilot G2 pens). Staples also sells things like trash bags and toilet paper, too. They also sell all kinds of different gadgets as well.
I agree that a Staples gift card isn’t the best thing to regift, but it can be pretty useful for personal use. I could definitely spend a gift card at Staples without feeling like I was “wasting” it.
Q12: Frugal politics
Do you have any thoughts about what a frugal person might think about the presidential race?
– Anthony
First of all, I think there are frugal people all across the political spectrum. I know people who are conservatives who are also very frugal and I know people who are liberals who are also very frugal. I don’t think that frugality tends to push people toward any sort of political viewpoint, as I think that both have a lot to do with how you were raised and what your life experiences are like. Different life experiences are going to push people toward and away from frugality as well as toward and away from different points on the political spectrum.
In other words, as a writer of a personal finance site, I don’t think I have anything useful whatsoever to say about politics. I have opinions – as does everybody these days – but those opinions aren’t really based on anything more than anyone else. If I were a political writer, I would definitely share my opinions… but I’m not a political writer. It’s not that I don’t care, it’s that I don’t have any special expertise in that area and that my opinion really shouldn’t hold any special weight for anyone when it comes to politics.
In addition, I quite honestly don’t trust anything that any major candidate for president says on the campaign trail. I think that they’re all incapable of really knowing what it is like to be president.
I do think that anyone who ever has to sit down in the Oval Office deserves a ton of respect from the American public, regardless of political party. I have a ton of respect for President Obama and President Bush and President Clinton and President Bush and President Reagan and so on. I can’t even imagine the incredible pressure and challenge of that job. You have more eyes on you than anyone else in the world. You’re facing incredibly tough decisions each and every day, often based on information that very few people in the world are allowed to know. You’re virtually always going to be criticized no matter what you decide to do, which is made even worse because people are often criticizing your choice without knowing all of the information you have in front of you. Every choice you make affects millions of lives, and many affect billions.
The job of president seems incredibly, incredibly challenging, and I have a great deal of respect for any president who manages to do the job with any successes – and, yes, every president has a lot of successes.
If I’m going to make one political statement, it’s this: respect the president, regardless of party or political beliefs. That person is doing an incredibly difficult job without any sort of real safety net if they mess up and the lives of billions of people are at stake with many of the decisions they have to make. The fact that a person is willing and able to even sit down in the Oval Office without becoming a quivering mass of Jello earns my deep respect. Regardless of who is elected president, give that person your respect. No matter who is elected president, that person has my respect for even walking into the Oval Office.
You simply won’t see me endorsing a candidate ever. I can’t conceive of myself ever discussing politics directly in any way, aside from my note above about respecting the president regardless of politics.
Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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 many, many questions per week, so I may not necessarily be able to answer yours.
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