Emergency Funds

Over a century ago, stage magician Nevil Maskelyne wrote in The Magic Circular (1):

"It is an experience common to all men to find that, on any special occasion, such as the production of a magical effect for the first time in public, everything that can go wrong will go wrong. Whether we must attribute this to the malignity of matter or to the total depravity of inanimate things, whether the exciting cause is hurry, worry, or what not, the fact remains."

Whether or not you subscribe to the Resistentialist theories that inanimate objects are out to get us (2), Murphy's Law - and its endless corollaries (3) - pretty much sums it up: if it can go wrong, you'd best bet it will.

This is the rationale behind holding some of your assets in an emergency fund.  Ideally, you'll never touch it - all of your job transitions will be carefully planned, your injuries will all be taken care of with Band-Aids and medical tape, natural disasters will hold off while you're in town, and you'll die in perfect health while mountain biking at the age of 112.

The cargo ship Ital Florida runs into some... issues in June 2007 (X1)
The best bet: hope for the best and plan for the worst, in proportion to an event's severity and its probability of occurring.


Thrift is Beautiful: Fermentation

Mmmmm. (X1)
While growing up, my family kept a vegetable garden in the corner of our suburban lawn.  The garden was not huge - we've expanded it slightly almost every year to the present, but back back then it was maybe 12 feet on each side.  In typical suburban lawn fashion, the developers had scraped away and sold all but the two inches of topsoil necessary to cover the place in a resource-intensive grass lawn; below that was mostly hard, red clay.  My dad raised the beds with railroad ties, started a compost pile, and began turning the soil religiously.  Within a few years, most of the rocks had been picked out and the clay slowly gave way to richer soil.

We grew the typical garden fare: tomatoes, carrots, onions, bell peppers, broccoli, sweet peas, salad greens, beets, herbs.  Even in this modest plot, the yields could be pretty impressive.  Many years we would return from our state park vacation to find our tomato plants bent to the ground with juicy red fruit.

Too much juicy red fruit.


Thrift Is Beautiful: Stuff You Already Own

Chances are, you weren't always a Mustachian.

No.  Chances are, in your former life, you didn't really appreciate the cost of your day-to-day luxury purchases.  You may have even gone through a phase where buying things temporarily eclipsed making and accomplishing things.  Or perhaps it wasn't quite that bad, but over a rather extended period you were rather less careful with your money than you would now have liked.

That era may be past, but the effects remain.  You certainly have less money than you would otherwise.  If you spent primarily on experiences, you have memories, consequences, and outcomes; if you spent primarily on durable goods, you may have quite a bit of stuff.  This article focuses on the latter situation.

I spy with my little eye...

So, what to do?

Sell It

There is a strong argument for getting rid of the extraneous stuff you don't use.  Stuff takes up space, meaning that you are spending more on living space than you need to in order to store it.  Stuff also has mass and volume, and serious mass and volume can set you back serious dollars (and serious time and effort) every single time you move.  Many types of stuff also require some form of management or maintenance: cleaning the stuff, organizing the stuff, keeping the stuff in working order.  If the stuff has little utility to you, that time, money, and effort is yielding a very poor return on investment.

Before you go the commercial route, hit up your friends.  You might not get top dollar, but selling to friends is fast and convenient.

It's extremely easy to sell stuff on Craigslist, Ebay, and Amazon.

Craigslist is by far the easiest - hop on the site or the Android or iOS app, enter a price, description, and location and upload some photos, and you're done.  If you live in or near an urban area with a lot of Craigslist activity, you may be free of the item and holding a stack of cash by the end of the day.  Finding a buyer might take longer in less-active regions.  Also, be prepared to do some negotiating - some people will take your stuff at the listed price without hassling you, but others may try to haggle it down.  If the price isn't negotiable, put that fact in your ad!  Mr. Money Mustache has written his own love letter to Craigslist with some good tips on buying and selling.

With Ebay and Amazon, your customer base - and your potential price range - expand at the cost of more complexity.  You'll have to create an account and set up a bunch of stuff before you can start selling, and you'll have to deal with - and pay for - shipping.  The benefits only outweigh the costs for someone planning to sell a lot of stuff, or stuff that is likely to have a limited local customer base.

If you have junk that no one is likely to be willing to pay money for, put it in the 'Free' section on Craigslist or donate it to a local school or charity.

Use It

When you bought your stuff, you probably had a plan beyond storing it in your closet.  As you scale back your spending, it's likely you'll find yourself with more time available for doing.

Books you've never read?  Tools in mint condition?  Art supplies still in the plastic?  Photography equipment?  Exercise hardware?  Musical instruments?

An often-neglected key to low-cost living is having lots of hobbies that require more time, effort, and thought than they require cash.  Perhaps you once considered exploring a hobby, but you got too busy and you never got around to it.  Especially if you already own what you'd need to get started, why not give it a shot?

One happy side-effect of the explosive growth and maturation of the Internet is that it's much, much easier to learn how to do something new today than it was a decade ago - jump online, run some Google searches, read the Wikipedia page, find a forum (or subreddit, or Google+ Community, or Facebook group, or email list...) dedicated to the topic, and jump in!  You may find that there is still tons of utility and many hours of fun locked away in the neglected stuff that you already own.

Of course, you might spend a few days trying to play the clarinet and suddenly realize why you had shoved it in the back of that drawer.  No personal utility?  Sell it on Craiglist!


Blog Tools

As you may have noticed, my blog - at least aesthetically - has time-warped from the late-90's to the present day in a rather short period of time.  Now, for instance, you can even read the body font without a magnifying glass and a bottle of aspirin.

As you may have also noticed, I've recently mastered snippet engineering, Twitter cards, and a bunch of other neat stuff.

Not content to hoard these techniques for myself, I've created a page to share them:



External Motivation

"You cannot dream yourself into a character: you must hammer and forge yourself into one."
-- James Anthony Froude, The Nemesis of Faith (1849)

Moore's Law of Technological Distraction states that the time-wasting and productivity-sapping powers of the Internet double approximately every two years.  Just see for yourself:

Units: minutes per day spent watching digital images of cats
Tech Foundings
1975.04 - Microsoft
1976.04 - Apple
1998.09 - Google
2001.11 - StumbleUpon
2004.02 - Facebook
2005.06 - Reddit
2006.03 - Twitter
2007.02 - Tumblr
2008.01 - FailBlog
2009.02 - Imgur
2010.10 - Instagram

There are, shockingly, a few services that are designed to improve your ability to make positive life changes and get stuff done.  What will they think of next?


Thrift Is Beautiful: The Gym

If you're a total gym-o-holic and your gym activities are a huge part of your free time, social life, and personal image, you'll probably read this article and think, "yeah, but it's worth it!"  If you're in that camp and a gym membership is one of your thoughtfully-chosen luxuries, have at it.  For the other 99.9% of us...

According to StatisticsBrain, fitness gyms are a $20 billion dollar industry.  45 million people pay an average of $55 per month to for gym memberships.  But fitness is good and it's totally worth it, right?
pumping some serious iron

67% of people with a gym membership never visit the gym.


Durable Goods: Cast Iron

Cooking is one of those life skills that can very easily save you hundreds of thousands of dollars over your lifetime, for a relatively minimal initial investment of time and money.

Let's look at the numbers:

Say you're saving and investing 40% of your income and planning to retire in approximately 20 years.  If the market average return is in the vicinity of 7% (and this is very reasonable), that puts your Future Value Factors (FVFs) at approximately 4x, 40x, 500x, and 15500x for one-time, annual, monthly, and daily purchases, respectively.  Let's say that you're considering changing your lifestyle so that four days a week, you cook dinner instead of eating out ($10 saved) and you have leftovers that you can bring into work the next day ($5 saved).  At $60/week, this is equivalent to saving $8.50 a day.  At the daily-purchase FVF of 15500x, this simple act will put an extra $130,000 in your bank account at your 20-year retirement goal.

Saving less than 40% and retiring in more than 20 years?  Due to the power of compound interest, your savings will be even greater.  Look up your Future Value Factors here.

Have a significant other?  If you can double the total saved on food per week, that's now $260,000 extra saved at retirement time.  If you have friends living nearby and you can coordinate regular potlucks and foodshares, the savings can be even greater for less work on your part.

Maybe it's time to learn how to cook.


Mind Your Money Mustache

I am a fanatical follower of Mr. Money Mustache.  This rather amazing specimen of an INTJ used financial common sense and a very uncommon amount of Life Wisdom to embrace a frugal, environmentally-conservative, socially-engaged lifestyle that freed him and his wife and young son from an empty existence of endless consumer consumption and ultimately, at the age of 30, from the need for full-time employment.  No inheritance, no investment windfalls, no magic - just the intellect to know that just because you make $70,000 doesn't mean you have to spend $70,000 (and the discipline and organizational acumen to follow through!).
Respect the 'Stash
Mr. Money Mustache - MMM for short - preaches a gospel of riding your bike, buying used, cooking your own food, frequenting the library, cooperating with your neighbors, tracking your habits and optimizing away the trivial.  He's not some crazy survivalist living an ultra-spartan existence in the woods somewhere - he's a devoted family man with a huge list of hobbies and pretty much the greatest life I can imagine.  He owns a home and a car and he travels with regularity, supporting it all on $27,000 a year through careful consideration of what's actually important. He's breaking into the mainstream because he addresses something that most personal finance gurus neglect: maximizing money for money's sake is a fruitless endeavor, and personal finance is only really useful when applied as a tool for maximizing happiness.


Notetaking with Google

'Google Keep' is Google's most recent foray into the digital notetaking universe (1).  Available at https://drive.google.com/keep/ or via an Android app (2), Keep allows you to quickly save your thoughts in text, voice, and photo form for future reference.

As described on AndroidCentral (3), a third-party developer created a very convenient Chrome extension that allows you to launch Google Keep in a pop-up, panel, or new window from a launcher in the Chrome extension bar (4):
Unfortunately, Google recently removed this extension from the Chrome App Store, probably because it was named 'Google Keep Extension' and Google is working on its own solution.  If you'd still like to give it a shot, click here to download my archived copy of the extension.  Then, navigate to chrome://extensions and drag and drop the .crx file into the browser window to install it (5).

By default, this extension just opens Keep in a new tab and isn't much different from a bookmark.  To change its behavior, right-click on the extension launcher and select 'Options'; from here, you can configure whether Keep opens in a Panel, a Pop-Up, or a New Tab.  To get the Panel version working, you must navigate to chrome://flags, 'Enable Panels', and restart Chrome.

Some of you might remember Google Sketchpad (6) or the awesomeness that was Google Notebook (7).  Here's hoping that the mobile component was the missing piece of the puzzle, and Google Keep will be more successful than its predecessors!

This explains it: Google's official Keep for Chrome app is now available (8).  Curiously, it doesn't have a Panel option or the right-click context menu options that the unofficial app did.  For now, I'm keeping both versions installed.

(1) http://googleblog.blogspot.co.uk/2013/03/google-keepsave-whats-on-your-mind.html
(2) https://play.google.com/store/apps/details?id=com.google.android.keep
(3) http://www.androidcentral.com/expand-your-google-keep-use-chrome-extension
(4) https://chrome.google.com/webstore/detail/google-keep-extension/jccocffecajimkdjgfpjhlpiimcnadhb
(5) http://www.howtogeek.com/120743/how-to-install-extensions-from-outside-the-chrome-web-store/
(6) http://www.omgchrome.com/google-stopping-development-of-scratchpad-web-app/
(7) http://www.google.com/googlenotebook/faq.html\
(8) https://chrome.google.com/webstore/detail/google-keep/hmjkmjkepdijhoojdojkdfohbdgmmhki/


Choosing a 529 Plan

||  This article is part of a series on the 529 Education Savings Plan  ||

This article provides a brief overview of the history and utility of the 529 Education Savings Plan, followed by a discussion of how to choose the best 529 Plan for your state of residency and investment time horizon.  It includes links to resources for further researching your plan options and a simple calculator for making the decision between home-state tax-incentivized and out-of-state low-cost plans.


Effective Annualized Return

For discussion of historical investment returns since 1950, see this article instead.

The Internet is full of people arguing about the stock market.  A question I'm interested in: if my parents or grandparents had invested in an index mutual fund that followed the S&P500 inside a tax-advantaged account such as an IRA or a 401(k), how much money would they have today?

Toward answering this question, I created the SimVestment spreadsheet that I shared in a post last month.  It uses historical S&P500 data to simulate what would have happened if a particular investment schedule had been followed over a period of time in the past.  The spreadsheet takes into account the automatic reinvestment of dividends, adjusts for inflation, and can handle investment rates that change with time; the investment rate can be automatically adjusted to a constant value in 2013 dollars, making the dollar value amounts a lot more meaningful.

As I discussed in the previous post with regards to arithmetic and geometric means, it's very important to clearly define what it is you're calculating. Take, for instance, the graph of annualized return from that previous post. Each color is a different starting year, the x-axis is the number of years invested, and the y-axis is the annualized, inflation-adjusted rate of return:
Play with the original graph here
As the graph title states, this visualizes the annualized real return over different time periods.  You could use this information to calculate the net real return of a lump sum invested all at once.

Going into the spreadsheet, I changed the 'initial investment' to zero and set the 'monthly investment' to $1000, selecting the option to invest at a constant 2013 dollar rate.  The spreadsheet then simulates a situation in which you invest a constant value (in 2013 dollars) every month.  The graph then looks like this:

Play with the original graph here