I found the perfect voip solution for the death of OBI/google voice!!!

So many of you know that I like voice over IP (VOIP) since it enables free/cheap calling (http://thebaughfamilypublic.blogspot.com/2012/11/update-of-our-phone-strategy-version.html). The OBI100 device + google accounts ='d free calling for the past several years. However, this is about to expire in mid May, leaving those with OBI devices left to figure out what to do with their devices.

After a few hours, I came up with the perfect solution: CALLCENTRIC (http://www.callcentric.com/). Pay attention to ordering below when signing up for Callcentric, which seems to matter.

• First, get a free inbound number from callcentric: http://www.callcentric.com/coverage/free_phone_number
• The number has to be from NY, but it doesn't matter at all. I chose an (845) area code number: $0/month.
• During the process it will ask you if you want to pay $1.50/month for E911 services. Say no by indicating you live outside of US/Canada.
• However, you need to make 1 minute of calls per 90 days to not get deactivated.
• What does this mean? I think you need to also add Callcentric's pay-per-minute feature to your account. The outbound rate is $0.02/minute. So you can conceivably have phone for $0.08/year (1 one-minute call per quarter) for unlimited inbound calls and unlimited outbound calls if you initiate them through the GV web interface. When you sign up for prepaid it asks you to fund $5 for an initial funding.
• This area code (845) number can be used for forwarding in both my wife and my GV account, so there is no need to get two accounts. However, if you want distinctive rings, like the OBI did, you need to create two separate callcentric accounts using the process above. I just finished it and I now have the distinctive rings like I had with OBI. If that isn't important to you, then don't waste your time with that.
• Outbound CallerID spoofing if dailing directly from phone (at a cost of $0.02/minute: http://www.callcentric.com/faq/31/218
• Instructions on configuration here: http://blog.voipdiy.com/2013/06/manually-configure-callcentric-on.html
• Pay particular attention to the factory reset instructions. I skipped this step and it cost me 2 hours of frustration.
• Add this free android app (or $3 apple app) to initiate free outbound calls from your smart phone while at home (which will cause your voip phone to ring, just like the CALL button on voice.google.com does):
• https://play.google.com/store/apps/details?id=hu.xilard.voiceplus
• https://itunes.apple.com/us/app/gv-connect-call-sms-for-google/id347835665
• You'll be assigned two callcentric numbers. The 777 one is what you'll use when configuring your OBI device. The 845 number is the one you'll use for forwarding within Google Voice.
• Callcentric allows for free(ish) international calling through your 777 number by using this link:
• http://www.sipbroker.com/sipbroker/action/pstnNumbers
• Explained better here: http://www.obitalk.com/forum/index.php?action=printpage;topic=6986.0

Another option is Vestalink, which many people like. However, I tried them tonight (as part of their free trial) and the lag was HORRIFIC. I'm talking about a 1-1.5 second delay. Callcentric was much better. If not for the lag, I would have gone with Vestalink. However, it drove me to Callcentric, and I love it.

• http://www.vestalink.com/ is seamless and only $40/year. They have a 30 day free trial. Apparently, many others are very happy with the service.
  

*** Update #1 ****
I love the configuration. I think I prefer it to the old GV/OBI setup. Callcentric is fantastic. The smart phone apps make free outbound calling a breeze. If not for Callcentric's lack of SMS support, I'd port over to them today. Callcentric even supports "Call Hunting" which redirects rings to other numbers.

I ended up signing up for E911 on the primary line (not the second line which requires **2 to dial out). It was super easy to do.

*** Update #2 ****
We got a few unwanted "Direct IP" calls with the new configuration. This can be remedied by going to the IP address of the OBI100, then navigating to:

(Voice Services)SP1 Service->X_InboundCallRoute:

Make the following change:
{ph}                 [before]
{>17771234567:ph}  [after adding protection from SIP scanners]

Source: http://www.dslreports.com/forum/remark,28124893, https://www.obitalk.com/forum/index.php?action=printpage;topic=6976.0

How to pay tithing with stocks (and why you should)

We've paid tithing with stocks for the past several years. It's awesome. I'll never go back to the traditional way of doing it. I thought I'd share how we do it, along with some general thoughts on investing.

Here's how I'd prioritize my investments over the course of the year:

• Contribute up to 401(k) matching limit
• My former employer matched 75% of my contributions on the first 8% of my contributions, so I'd have to be an idiot to turn down free money (like I did when I was a lowly intern....I was an idiot!)
• Then max out your Roth IRA for both spouses (currently $5.5k/year per person, or $11k per couple)
• If you have a high marginal tax rate, it might make sense to do a traditional IRA instead, but I really love the flexibility of the Roth; particularly the ability to touch the principal without penalty.
• If you're in a high tax rate, max out the 401(k) (current contribution limits are $17,500 / year)
• Think about funding a 529 account, which is structured similarly to a Roth, but it's for education purposes.
• This Bogleheads link contains fantastic information on comparing 529 plans: http://www.bogleheads.org/wiki/529_plans
• Invest the rest in taxable accounts
• If the market goes up, pay tithing with the stocks. Don't realize the gain (meaning sell the stock). Simply transfer the stock to the church. Instructions on how to transfer the stocks are found here: http://www.ldsphilanthropies.org/planned-giving/ways-i-can-give/assets/donating-stock.html
• If you don't itemize your taxes, it's still a sweet gig. However, if you do itemize, this is a really sweet gig. Not only do you avoid the taxes on the investment gain, but you actually get a tax break on the investment gains as you donate. For every $1 in gains you donate, you get a $1 tax deduction, and hence pay $1*(your marginal tax rate) less in taxes if you itemize.
• If the market goes down, sell the stocks to realize the capital loss. This loss is deductible from your taxable income (http://www.irs.gov/uac/IRS-Reminds-Taxpayers-They-Can-Use-Stock-Losses-to-Reduce-Taxes), so the loss only costs you LOSS*(1-marginal tax rate). Of course you still lose money in a down market, but it's less painful than realizing the full amount. Once you realize the loss (i.e. sell a stock which has gone down in price), you can do what you want with the money. Pay tithing with the cash or reinvest the money by purchasing shares again (at a lower cost basis.....or the purchase price which is used when computing the tax liability........
  
  taxes owed = investing tax rate * number of shares * (price when selling - price when purchased)
  
  number of shares * (price when selling - price when purchased) is referred to as the capital gain. ). 
• Besides the tax benefits of this approach, you save brokerage commission fees, which is nice. But if you invest in no-load mutual funds, like I do at Vanguard, these trade commission free anyway, so I guess it's a moot point.
• Oh yeah....if you donate stocks and have to realize any capital gains (or losses), then filing taxes is simpler. Turbotax requires you to pay more money to deal with capital gains/losses. However, TaxAct does not....it's included in the basic (free) TaxAct version. I think this is sufficient to push me to TaxAct from here on out. (Though as a student I qualify for turbotaxes low income edition (https://turbotax.intuit.com/taxfreedom/) which handles this nicely without any fees).

So that's my two cents on paying tithing with stocks. It's easy.

[So what should you be investing in? Vanguard's 2040 Target Retirement Fund (or equivalent from competing brokerage). That's it. Select the year of the retirement fund to match your projected retirement year. If you want to retire in 2030, chose the Target Retirement 2030 fund..]

So the simple mathematics of regular saving, tax planning, minimizing investing costs, investing in a well-diversified and low-cost portfolio (achieved by the single fund mentioned above), and compound interest will make these modest annual contributions balloon into a fortune over time.

And how do you produce these elusive savings? Contrary to popular belief, the above strategies are not only attainable to those making over $100k/year. I apply these principals while on a lowly grad school stipend, and we pack it away. We simply chose to live differently than 99% of the US by spending money strategically (frugally). Think I'm pulling your tail? here's the thoughts of a dude who retired at 30 by applying the same simple math: http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/

Scroogenomics

Many of our friends know that I'm the scrooge of the holidays.  I don't enjoy giving gifts (I prefer simply gifting cash) and I don't particularly enjoy receiving them.  It probably makes me a horrible person.  The inefficiency of gift giving, particularly around Christmas, irritates me.

Apparently at least one other person on the planet shares my feelings.  He's a professor of economics at University of Minnesota and has written a book and a journal article in the most popular economics journal on the subject.

His thoughts mirror my own:  People tend to understand their preferences better than everyone else.  The result:  huge inefficiency.  People value gifts they receive for much less than the cash value of the gifts (not to mention the additional anguish on the part of the purchaser, which isn't even accounted for, or the anguish of the receiver for trying to graciously receive a bad gift).  This loss is what Joel Waldfogel calls the deadweight loss of Christmas.  He implemented a survey in a class that he taught, and estimated a deadweight loss of 10-33%.  That is, if a person in the class received a $100 item, they would have preferred simply to have received $67-90 cash instead of the item.  For me, I think the average deadweight loss is closer to 50%.  Why?  Because I have everything that I need or want.  Anything else is just clutter.

At this point, I will point out that thoughtful gifts, such as those that are hand-made or whatever, are great.  I have no qualms with this.  I think there is value here.  But I think this is the exception in our culture, not the norm.

My beef is the American way.  Most of us are wealthy.  And by wealthy, I mean we can provide for the necessities of life for our families and can easily satisfy many of our wants.  Most of us have savings.  The accumulation of savings in and of itself is proof that an individual prefers consumption tomorrow (say groceries, rent, a cruise to Hawaii) to consumption today (say a sweater, video game, whatever).

So the approach many of us take is to ask our friends/family what gift they want.  If we're lucky, they tell us. This reduces the deadweight loss.  However, what's the point of gift giving if it is a mechanical exchange of goods?  If I tell my friend Bob that I want product XYZ and he tells me that he wants product ABC, why do we go through this silliness of exchanging gifts in the first place?  Why not just declare holidays a time of guilt-free spending on one's self, since this is essentially the scenario described in the previous sentence?  I feel that much of our gift giving is precisely the above scenario.

But the fact that people have savings means that they'd prefer not to partake in this guilt-free spending.  Because they have already chosen to defer consumption today to some future date.

So why exchange gifts?

I do acknowledge, however, that gift giving (in moderation) to kids makes sense.  I actually believe that parents can understand their young children's preferences pretty darn well.  However, I think that giving cash to kids and letting them go buck wild at Walmart is better.  I think letting kids go buck wild with cash in a thrift shop (or Amazon) is even better.

Books are tough gifts, because a book recommendation and libraries are just as effective as gifting a book.  DVDs are tough gifts due to the same logic:  a movie recommendation and a $1 redbox rental (or library rental) is just as effective as gifting a DVD.

So what do I want for Christmas?  A personally tailored list of recommendations on books, products, DVDs, travel destinations, or family activities.  That would be a phenomenal gift!  Perhaps this is the gift that I will give this year!

To all of our friends and family out there:  I highly recommend a trip to Columbus, OH.  It's a beautiful vacation destination!

- The Scrooge

* Update a few days later *
Let me clarify things.  To clarify that I'm not a horrible cash-obsessed monger, let me append my comments.  I would much prefer the equivalent cash spent on bad gifts be given to charity in lieu of the bad gift.  With so much need in the world, why waste precious resources on the proverbial fruitcake or ugly sweater?

* Update 2 *
Another observation is this:  It's tacky in our society to gift others the option of current or future consumption (i.e. cash) or to simply desire more future consumption for one's self (i.e. ask for cash).  The prospect that an individual is satiated...that is she has everything that she needs/wants....is mind-boggling and unacceptable.

Update of Our Phone Strategy (Version 2012)

Like most Americans, Tiffany and I blindly paid $60/month or so for our cell phones when we were newlyweds.  Then my good buddy Spencer Grange told me about prepaid phones.  He had access to free phones on campus through his campus office, so when his wife needed to get a hold of him and he wasn't at his desk, she would call the cell phone.  Then he would walk to the office phone and call.  So he used the phone as a free pager.  I thought it was brilliant.  So we switched to prepaid almost immediately.

That was 6 years ago.  Since then, Tiff and I have paid $50/year each for our minimal use cell phones.  So we've paid $600 over the past 6 years total.  I'm venturing to guess that most families pay on the order of $100/month (easily) on cell phones.  6 years of cell phone bills at that rate amounts to $7200.

We've supplemented with cheap VOIP, which is basically free.  We started with Viatalk.  Then we moved to MagicJack.  Then we almost went to Ooma, but we did Google Voice instead.

I focus so much personally on our recurring expenses because these are the expenses that can kill us.  They deplete you of your resources without you consciously deciding to purchase something.  That's why they are so dangerous.  They're also dangerous because poor choices are amplified.  If I make a bad purchase on a pair of jeans, I'm out $20 once.  If I make a bad decision on a cell phone plan (or car insurance, or life insurance, or TV cable plan, etc), and fail to realize my failure over the course of 10 years, I'm out > $10k.

So a lot has changed with technology since I made the switch to prepaid.  In summary, the prepaid argument has never been stronger nor more functional.  Technology, particularly high speed internet, wifi, google voice, and smart phones, make paying for cell phones and data plans completely unnecessary for most of us.


Google voice is a new innovation since I made the switch to prepaid.  Before, I used to be the annoying person who would pick up my cell phone and say "let me call you back from my landline."  Now, when my google voice number is called and I'm home, I pick up my VOIP line directly.  Perfectly seamless.  Not to mention the voicemail capabilities and integration with gmail.  I love it.

Setting up this VOIP stuff in years past was a little technical and challenging.  Now it has never been easier.  Log in with your google credentials and your'e good to go.

Here's the diagram of how we use google voice's service:

Inbound calls are routed to whatever phones you have linked up.  The OBI device that I refer to is this one: http://www.amazon.com/OBi100-Telephone-Adapter-Service-Bridge/dp/B004LO098O/.  We love it.  I have google voice routed to my cell phone too, and my work phone.

The thing is, smartphones + wifi + (GrooveIP for android or Talkatone for iphones) = free wifi calling (inbound and outbound).  It takes all of 2 minutes to set this up.  OBI is just as intuitive.

The one slight annoyance with our setup is that the outbound caller ID for cell phones is different from our google voice numbers.  With the exception of that slight nuisance, the system works flawlessly.

In this setup, smartphones can save you cash by facilitating this wifi calling.  Google released their new state of the art unlocked, no contract Nexus 4 today for $300:  http://www.google.com/nexus/4/.

Other recent developments.  Need data on the road?  Trick question.  Of course you don't need data on the road you compulsive email checker!  But if you wanted data on the road, supplement the above strategy by turning your car (or pocket) into a wifi hotspot with the FreedomPop Photon:  http://www.freedompop.com/.  It offers 500MB data/month for free with the hopes of upselling you later.  Oh yeah, the device requires a $90 deposit refundable if you return the device within 12 months of purchase.  Check the coverage map before you buy.

Calling through gmail (which is what OBI and the smart phone apps technically do) / Google voice is currently free.  Surely this will end in the near future and be replaced by a trivial fractional penny per minute calling rate.  This doesn't change the goodness of the strategy at all.

So that's all I've got.  Technology makes cell phone plans obsolete, though you have to carefully tread through the marketing lie to figure out that nugget of truth.  The behavioral adjustment required to spend less is the simple act of calling while at home or in wifi hotspots.  If copious amounts of communication is needed outside of home / wifi hotspots, then this strategy would of course not make any sense.

One last thing:  I've had this discussion with dozens of people before.  And the response is usually something like this "but I love my smart phone, so I must keep my data plan."  What brainwashed individuals like this don't realize is that they love the functionality of their smart phones.  I agree!  I love my smart phone functionality.  Compulsively checking email, blogs, news, etc.  I get that.  What they don't realize is that 100% of these activities can be accomplished just fine within a wifi hotspot (i.e. work, home, school, church, etc) without a data plan.  What they also don't realize is that smartphones are pretty cool even without the internet.  I can still pull up the contacts, send emails (which won't sync until I get back to wifi), take pictures, play games if I were into that sort of thing, etc.

So that's it.  95% of the benefit of a traditional cell phone plan for less than 10% the cost of a full blown plan sounds like a winning proposition to me.

And that's in part how our family of 6 saves > $10k/year (which will fund our annual Roth IRA contributions) while making a modest grad school stipend.  And that's in part how we intend to be financially independent within the next 12-15 years.  The other part, which of course is way more important, is avoiding rampant consumerism by living differently than 95% of Americans, but that's a topic handled quite nicely by other blogs such as www.mrmoneymustache.com (be forewarned of occasional profanity).

The case (for and) against frugality

Here is a mathematical proof for frugality:

• Diminishing marginal utility of wealth.  Simply, each additional dollar you spend provides you less value than the previous dollar you spent.
• Compound interest.  Deferring gratification now will enable you to exploit compound interest and enjoy more consumption in the future.  I like to think of 4% as a reasonable approximation of what the real (inflation adjusted) return on risky investments ought to be over my lifetime.
• Progressivity of the US tax system.  Progressive is a fancy term which indicates that the more income you make, the higher RATE at which you are taxed on each incremental dollar.  Because we have a progressive tax system in the US, different chunks of income are taxed at different rates.  For example, in the US,  for a married filing jointly return in 2012:
• For simplicity, a rough approximation of taxable income = gross income - (10.6k + 3.7k*#of_people_in_household) for a family filing jointly).
• The first 17k in (taxable) income is taxed at 10%
• From 17k-71k in  (taxable)  income is taxed at 15%
• From 71k-142k in  (taxable) income is taxed at 28%
• ...
• Over 388k in (taxable) income is taxed at 35%
• http://taxes.about.com/od/Federal-Income-Taxes/qt/Tax-Rates-For-The-2012-Tax-Year.htm
• The US government hopes that you and I don't understand this stuff.  They think we are too stupid to understand the complexities of the US tax code and the association between gross income and net income.  For example, society would break down if all people realized and exploited this little loophole (with the assumption that everyone could live happily on 40k):   http://gregmankiw.blogspot.com/2009/11/poverty-trap.html.  A family of 4 can make 0 dollars/year or 40k/year and be just as well off after accounting for government transfers, and bring home a net income of 40k/year.  Incentives to work are completely destroyed if a family of 4 learns to live well on 40k/year.
• Democrats (and some republicans) will have you believe that you can raise marginal tax rates to 70% without significantly affecting behavior (http://en.wikipedia.org/wiki/Laffer_curve#Research_on_revenue_maximising_tax_rate).  If the world were full of more people like me, this clearly wouldn't be the case.  But perhaps democrats are right and very few people think about this stuff...I certainly don't blame them.  It's somewhat convoluted.
• Generally, people prefer leisure (not being at work) to work.  There is a certain amount of intrinsic value to working.  I agree with that.  But I think that most people would stop going to work if they were not paid for it.
• If this assumption is invalid, then the argument for frugality breaks down.

I bring up taxes here because they distort incentives.  In economics, we say that leisure, or sitting at home and watching TV is costly because we forgo wages in opportunity cost.  How taxes effect us is that it lowers our net wages, and thus lowers our opportunity cost.  Raise taxes high enough, and leisure becomes pretty darn cheap.

The only compelling argument that I have ever encountered in opposition to a frugal lifestyle is found here:  http://dmarron.com/2012/04/30/investing-in-memories-ocelot-edition/ and http://www.theatlantic.com/business/archive/2012/04/memory-as-a-consumer-durable/256327/.  This is consistent with the research which shows that happiness is not correlated with accumulation of shiny trinkets, but rather using money to create good and lasting memories.

The authors describe memories as an investment that pays dividends over the course of your life.  The earlier you invest in these memories, the longer you can reap the benefits of dividends.

If I defer consumption (say a cruise to Hawaii) today, and let the magic of compound interest do it's thing, I should be able to consume more in the future (say two cruises to Hawaii).  Using the "rule of 72", and assuming a real return of 4%/year, deferring my trip to Hawaii today would grow to 2 trips to Hawaii in 72/4 = 18 years.  However, I will have missed out on 18 years of memory dividends along the way.

You can use the same analysis to evaluate whether going into debt to justify a vacation is warranted.  If your real interest rate on an outstanding loan is 8% (say on outstanding student loans, for example), and you plan a cruise to Hawaii, you will have to justify that 1 trip to Hawaii today is better than 2 trips to Hawaii in 72/8=9 years.

So there you go.  A mathematical proof for a frugal lifestyle followed by the most valid argument that I can think of against it.  Personal takeaway:  take the best of both worlds....live frugally and find ways of producing fun/impactful memories in an economical manner, like those described here:  http://www.mrmoneymustache.com/2012/04/06/get-rich-with-nature/.  Some of my most vivid and lasting memories from my childhood were trouncing around the Sierra Nevadas with $50 of trail mix in my backpack at a cost of $100/week.

Blogs Brian Likes

I love blogs.  I love RSS readers, such as google reader.  It's like subscribing to my personalized daily newspaper compiled from only my favorite authors.  Over the past few days, I have been asked by a few people which blogs I like.  Here they are (in no particular order), with the associated RSS address that you would input into an RSS reader.

• Dilbert.com http://dilbert.com/blog/entry.feed/
• This isn't an RSS of cartoons.  It's an RSS of the author of Dilbert, Scott Adams.  I think he's brilliantly insightful on how we ought to be leveraging technology to better improve our lives.  He is often very sarcastic and pretty outlandish, but there is an eerie amount of truth to most everything he says.
• mankiw:  http://gregmankiw.blogspot.com/feeds/posts/default
• Head of Harvard's econ department.  Advisor to Mitt Romney.  Brilliant guy.  Frequently authors and links to very insightful articles regarding timely economic issues in our lives.
• fama french:   http://www.dimensional.com/famafrench/atom.xml
• The fathers of modern finance (Fama is at Chicago, French is at Dartmoth), the most prolific publishers in the field.  The post very infrequently, but I love what they have to say.  Mostly obliterating the idea that practically anyone can beat the stock market over the long run, and completely obliterating fad investing trends.
• valuation blog from NYU professor:  http://aswathdamodaran.blogspot.com/feeds/posts/default
• The most famous valuation professor that I know of, at one of the best finance departments in the world.  Discusses various behaviors of firms and how they can add/destroy value.
• good blog on us policy:  http://dmarron.com/feed/
• phd grad in economics from MIT.  Former U Chicago professor. Former member of President’s Council of Economic Advisers (CEA), former director of the Congressional Budget Office.  Talks about very relevant US policy stuff:  tax policy, health care mandates, etc.
• Mr Money Mustache  http://feeds.feedburner.com/MrMoneyMustache
• Probably my favorite blog (though I'm still a newbie here...time will tell if I bore from it).  A well articulated guy whose mind is a clone image of mine in how he views the world of personal finance.  Retired at the age of 30 after 8 years or so as an engineer.  Lives a simple life in Boulder, CO and spends lots of time with his family, the outdoors, learning, and investing for fun.  He throws in an occasional profanity for dramatic effect.  Sorry about that.
• freakonomics:  http://freakonomics.blogs.nytimes.com/feed/
• Not my favorite blog, but several economists post interesting insights here.  They are more "cute" than substantive issues, just like the book.  Unfortunately, the authors of the book are only infrequent contributors to the blog...with other prominent economists picking up most of the slack.
• mymoneyblog blog:  http://www.mymoneyblog.com/feed/
• Probably the first blog that I ever read consistently.  Helped me to gradually sort through the financial maze which is before us and understand basics such as what is a Roth IRA, basic principles of passive investing, etc.  Since there is not much to say on the subject (it's pretty timeless), new articles can be a bit stale.  He often posts promotions (such as brokerage account opening bonuses) which have earned us over 3k over the past several years.  One promotion alone pocketed us 1k.  A few days ago we got $400 through another promotion.  Now that I think of it...I'm pretty sure that I'm understating the financial benefit I've received from his blog.  My life has been greatly enriched from his plain insights.  He's an engineer who loves personal finance.  His posts are very thorough and insightful.
• The Becker-Posner Blog  http://uchicagolaw.typepad.com/beckerposner/atom.xml
• Becker is a Chicago econ professor who won the Nobel Prize in 1992.  Posner is also at U Chicago.  They write weekly opinions on interesting subjects.  This week's topic:  Should we be concerned about the decline of US manufacturing?  They are short opinions, but very well articulated.
• Erik The Black's Backpacking Blog http://feeds.feedburner.com/EriktheBlack
• This guy, from what I gather, is a professional backpacker.  He does what are known as thru-hikes, which is basically a fancy name for an insanely long backpacking trip.  He writes guides and books on the subject.  I basically want my retirement to consist of me backpacking the world, so his blog reminds me of my end goal.  Practical weight savings/gear advice from a master.
• Digital Photography School http://feeds.feedburner.com/DigitalPhotographySchool
• I'd love to be a professional landscape/nature photographer some day.  I'm not exactly sure what that means, but I think it means to get paid to take cool pictures of nature.  I guess I'm not hoping to ever make money on it, but rather to really improve upon my landscape photography...by mainly going beautiful places.  The blog isn't really landscape-heavy in particular, but it's a good resource for techniques, ideas, gear, etc.
• Joe Hoyle: Teaching - Getting the Most from Your Students  http://joehoyle-teaching.blogspot.com/feeds/posts/default
• This guy is an accounting professor on the east coast.  His dedication to teaching inspires me, given my 8 year track record experiencing frequently apathetic professors while in college (with some few obvious exceptions).  And I can't fault professors for being apathetic towards teaching....they are paid and promoted 99% on research productivity, so it is a completely logical consequence of the compensation structure.  This blog gives me hope that someday the profession will change.
• KeithHennessey.com http://keithhennessey.com/feed/
• Another econ blog.  Keith Hennessey is the former Assistant to the U.S. President for Economic Policy and Director of the U.S. National Economic Council.  I don't remember many specifics from his blog, but I haven't unsubscribed from it yet so I probably like it.
• Seattle Bubble http://feeds.feedburner.com/SeattleBubble
• The best real estate blog that I've ever found.  Founded pre-bubble and made a bubble-believer out of me in no time.  He has excelent visuals.  Started off as a hobby.  Then he recently got scooped up by Redfin, which I view is the future of real estate....customercentric with low real estate agent commission.  After patiently and methodically waiting for the bubble to burst, he bought a home about 8 months ago.  A recent post that caught my eye was the implication of future interest rate hikes on real estate prices. I think that it will obviously hurt the housing market since it directly affects affordability.  He largely disagrees.  We'll see in the next 10 years who is right.  Seattle-centric, but I still read the blog.  He posts very frequently, often for trivial "ask the readers" polls, but I still subscribe because I love the visuals.

So that covers most of the blogs that I subscribe to.  I love blogs!!!!!  Where would I be without them?

Thoughts (Rant) on the Financial Services Industry

It's time for my once-every-couple-years financial rant.  For those looking for Baugh family updates, please disregard this message.  For those interested in saving hundreds of thousands of dollars of unecessary financial management expenses (and hence 5-10 years of your life sitting in a cubicle) over the next 5 decades of your lives, read on.



I have good friend looking for work.  When he told me that he had a possible opportunity working for Fidelity as an investment adviser, I said "it'll be a pay check, but I predict you'll grow tired over time of giving shoddy advice to clients."  When my friend asked why he couldn't give good financial advice to clients, I responded "because the entire industry is based on swindling customers."  After a few minutes of discussion and disbelief on his part, I proposed calling Fidelity to see what financial advice they would give me if I played dumb.

Here's the scenario that I conveyed to the Fidelity representative:  I received an inheritance of 100k and it was currently sitting in a taxable savings account.  I wanted it to keep up with inflation at a minimum, but I also wanted it to grow.  I could tolerate risk if it provided long term growth.  I wanted a "hands off" approach to investing.

My friend, who was on mute during this conference call, said that the "hands off" approach to investing was too much of a trap.  I disagree, because 95% of the public would give this same response.

In any regard, this is the advice that the financial advisor gave me.  Have Fidelity actively manage my portfolio for a base fee of 1% per year.  Since they invest in actively managed mutual funds, there would be an additional 1% of mutual fund expenses passed on to me.  In total, I would expect about 2% in fees per year.

I predict that the stock market will return about 6-7%/year over my lifetime, with inflation running about 2-3%.  The difference, or 4ish%,  is what I predict the "real return" on the stock market to be.

Countless academic studies have shown that mutual funds, in aggregate, produce gross (before fee) returns what the market does.  This makes sense.  These same studies show that mutual funds produce inferior returns after accounting for management expenses.  The best and brightest finance professors that I have come in contact with advocate index funds as a low-cost way of guaranteeing yourself a market return.

So this financial advisor was essentially advising me to forfeit half (2%) of my real return (4%) for the rest of my life in fees.  His answer included references to how all of the "rebalancing" would be taken care of for me.  This was his attempt to maintain the facade of the industry.  I explain what "rebalancing" really is down in the bullets below.

I find this to be an entirely unacceptable business model.  Financial advisers should, and are obligated by law, to act as fiduciaries, which is a fancy word for someone who acts n your best financial interest.  Inherent in their compensation structure is a direct conflict to your financial success:  a 1% drag on your returns for financial managment fees and an additional 1% drag on your returns if they invest your funds in mutual funds for the rest of your life..  I ended the conversation with a confirmed disgust for the industry.

The stock market seems like a scary place to be.  The financial services continued livelihood depends on the perpetuation of the myth that no lay person would understand how to possibly navigate the complexities of the market.  That is a bunch of BS.

In the following bullets, I'll give you all of the financial advice that you'll need to know for life.  And I'm giving it to you for free, because I like you.  Please share it with your friends:

• My generation is of the first to deal with the diminishing prevalence of pensions.  As a result, the onus is on us to figure out the financial maze that is in front of us.  We need to figure out how much we need to save and where to invest it.
• As a general rule of thumb, you can retire when you have stockpiled enough investments such that your expenses are less than 4% of your stockpile.   A less clumsy way of saying this is that you can retire when you have accumulated 25 times your annual expenses in investments.  Thus, if it takes you 30k/year to live on, you can retire when you accumulate 750k (30k/.04 or 30k*25) in investments.  Of course, taxes factor into this as well, so this would only increase that number.
• The most important skill to develop in reaching financial independence is to learn to live happily on less than you make.  This produces "savings."  Intelligent consumption will get you there, as will the ability to be easily satiated.  Those two attributes working in harmony will create a savings symphony.
• These savings should generate returns for you....hopefully real returns which exceed the rate of inflation.
• Financial markets have historically provided good returns, and should continue to do so in the future.
• The best way of maximizing your after-fee returns, and thus your savings, is to invest passively in index funds, which are like mutual funds except for they don't try to beat the market, nor do they charge some hot shot manager a huge salary for failing to do so on an after-fee basis.
• The simplest way to decide your mix of bonds/stocks and domestic/international is to invest in a lifecycle fund, which automatically decides this for you and changes allocations over time.  For example, the Vanguard Target Retirement 2050 fund (or its equivalent if you plan to retire in another year) is the only fund that you'd need to own for your entire life.  It invests in many thousands of companies, so you need not worry about lack of diversification because you are invested in a single fund.  It will invest in both bonds (loans) and stocks (ownership).
• Another way to maximize your returns is to legally minimize the amount of taxes owed on returns.  This is accomplished through tax-favored accounts, such as 401k's, IRAs, and 529s for college.
• If a lifecycle fund isn't available to you at a reasonable cost (i.e. <0.25%/year), then reconstruct your own portfolio with low-cost index funds and rebalance annually.  Rebalancing is a fancy word for making sure your allocation remains what you want it to over time.  A good baseline is to look at the composition of the  Vanguard Target Retirement 2050 (or equivalent) fund as shown here (Note that this Target Retirement fund consists of only 3 funds:  total bond, total domestic stock, total international stock....this isn't rocket science and buying 3 funds is something that anyone can do, which is what the financial services industry doesn't want you to know).  Rebalancing takes about 2 minutes per year and can be accomplished with a few mouse clicks at home.
• Exploit 401k matching.
• Exploit Roth IRA contributions every year.  Currently the limit is 10k/year per couple.
• If you distrust the above advice or want a second opinion, seek out a "fee only" financial planner.  They receive an hourly rate for giving advice to you.  This is a great, honest, and sustainable business model. Hopefully you find a good one.

Of course retirement and financial independence should not be our only goal in life.  Enjoying each and every day is the whole point rather than longing for a distant, perfect, tomorrow.  Enjoying your employment will have profound effects on your happiness given the amount of time spent there.  I would argue quality time away from work has profound effects on happiness as well....which is precisely my objective.  I want to maximize the amount of quality time that I have away from work and eventually get to the point where I can go to work when/where I want because I have that financial freedom.  Learning to be happy living on next-to-nothing (well below the poverty line) is the most important skill that we've developed that has allowed us to put the corporate rat race on hold for a few years to expand our education and converge closer to our goals.  It's a pretty empowering feeling.

For those I haven't formally introduced the blog to:  I highly recommend reading: http://www.mrmoneymustache.com/ to get a hilarious and well articulated glimpse into the mind of someone that I have a in lot common with.

* Update * The advice that I received was actually worse than I thought.  For one, they didn't tell me that I should use this money to fund an IRA.  Additionally, fully knowing that I would be in a taxable account, they mentioned that each time they transact I will be hit with a taxable event.  These two factors combined amount to a huge oversight on their part, which conveniently aligns with their financial interests.

** Update2 ** Dilbert author hits the nail on the head with his commentaries:
http://www.mymoneyblog.com/dilberts-one-page-guide-to-everything-financial.html

Thoughts on Debt

If you haven't seen this clip, you have to. Sorry about the 7 second commercial.

(To be explicit, my loose definition of "affordability" is purchasable with cash...only with the exception of a home and a reasonably priced education).

So I haven't really blogged about personal finance stuff in a while, because there's not really much to say on the subject (just like the video clip says). Spending less than you make means that you'll save. Spending far less than you make means that you'll save more. Routinely investing savings over time will grow your savings. Routinely investing your savings over time in tax sheltered accounts will grow your savings even more.

Here's my personal finance observation of the year: If you have any debt at all, each discretionary purchase you make is essentially being financed at your outstanding debt's highest interest rate. Let me explain with a crude example.  I call it the parable of the candybar.

Let's say that I have an outstanding car loan of $10,000 at an interest rate of 10%, with 7 years left on the loan. Let's also say that I find a $1 bill on the ground.  Let's say I really want to buy a $1 candy bar.

What is the cost of a $1 candy bar?

If I am paying with cash, the cost of a $1 candy bar should be $1....right?

Am I really paying with cash for a $1 candybar?  I mean, I have a $1 bill in my hand, so it seems like this is the answer, right?

I'd disagree.  I think that any dollar that passes through my hands is a dollar that could have been diverted to repay my outstanding debt.  In other words, every time I spend money on something other than repaying my loan, I am essentially financing the purchase though my existing debt, with associated rates.  After crunching some numbers in Excel (=PMT(0.1,7,1)), this candy bar is really costing me $0.21/year for 7 years.

Does this sound ridiculous to you?  Financing a candy bar over 7 years?  Well this is precisely what we do when we fail to divert cash to accelerate repayment of loans!

It's the truth.  I'm a numbers guy.  I cut through the crap of the world, and I see things numerically.  Every time an indebted person spends any "discretionary" dollar, they are essentially financing these purchases through their existing loans.

If you take this logic even further, which I do, it extends to those not in debt.  A $1 candybar today, for a person with no debt, costs them the opportunity cost of investing that money for the rest of their life.  When I blow $1 today, in my mind I realize that I'm forgoing $3.42 30 years from now for myself, my posterity, or a philanthropic organization (assumes a 4% real return, which ought to be fairly realistic =FV(0.04,30,0,1), or alternatively, 1*(1.04^30)).  Alternatively, if I wanted an annual income rather than a distant payoff, a $1 candybar is costing me 4 pennies a year FOREVER in an opportunity cost.

You may think that I'm arguing about pennies here.  I'm not.  When you aggregate lots of these candybars, these hypothetical $0.04 annual dividends (if I don't want a distant payoff) or alternatively $3.42 30 years from now can amount to a fortune.

When you think even harder about the numbers, there is an even more compelling reason to get out of debt:  You don't pay taxes on savings.  When I go to the store with a $1 coupon, the impact on my net worth is an increase of $1 relative to the no-coupon scenario.  When I go to work and earn $1, I pay taxes on it, and I take home $1*(1-my marginal tax rate).  What does this have to do with debt?  When I put money in a bank account and earn $10 interest/year, my net benefit is $10*(1-my marginal tax rate).  However, when I save $10 interest, my net benefit is $10.  I don't pay taxes on savings.  If you were to ask me whether it's better to save 7%/year in interest payments by repaying debt or diverting that money to a risk-free, taxable investment of 7%/year, the obvious answer would be to repay debt because there is the obvious tax benefit.  I'd also punch you in the face because there is no such thing as a 7%/year return on investment for a riskless asset.

If you don't know what your marginal tax rate, you should.  It's the most relevant of all numbers in the tax system.  It is the tax rate on the last dollar you earn in a year, given that we pay taxes according to annual income.  Raise it high enough and there is an awfully compelling argument to under-employ by working part time.

Believe me.  I'm a numbers guy.  This is truth.  Get out of debt.  View every unnecessary transaction (aside from basics such as cheap rent, water, electricity, cheap groceries) as a renewal of your debt because you are consciously deciding not to repay your debt.  There is such a mathematical, emotional, and financial purity to my argument.  We are living in the richest period in the history of the earth.  We have so many resources at our disposal that we've turned money-dumb.  Beat the system.  Realize that you can live just as happily on much less, provided that you use your frugal dollars wisely.  Over time, you will watch your savings grow.  This is as fulfilling as anything to me, knowing that growing savings equates to financial security for my family and an increased ability to do good in the world.

Life is too short and there are too many needs in the world to mindlessly squander cash...especially while being subject to the bondage of debt.

Never be complacent by paying the minimum amount with an outstanding debt.  It's this complacency which keeps people from realizing how truly indebted they are.  I think being suggested to finance things such as furniture, electronics, and even vehicles is insulting to my intelligence.  Being offered to finance something other than a home is analogous to a sales guy implying to me that I don't understand the basics of mathematics, and that I don't have the self-discipline enough to restrain my spending enough to buy a couple hundred dollar sofa while living in the richest country in the history of the world.  Give me a break.

“The most powerful force in the universe is compound interest.” Albert Einstein (maybe)

“One of the most potentially destructive forces in the universe is compound interest against you.” Me
"Those who don't understand interest pay it, those who understand it make it."  unknown source

Check your Credit Score for Free

You can get your credit score for free by following the instructions here (http://www.mymoneyblog.com/easy-cancellations-free-fico-score-from-myfico-com.html) if you remember to cancel your trial (which you can do immediately). It's an easy process that should take no more than 5 minutes.

Normally it'll cost you 10 bucks or so to get the number (the official report is free once/year for each of the credit agencies).

If your score is low, order your reports here (https://www.annualcreditreport.com/cra/index.jsp) and dispute any wrongful errors directly with the credit agencies. Tiff and I did that about 5 years ago and bumped her score up 50+ points.

Quantifying the Tax Benefit of Kids

I did my taxes yesterday. Let me tell you something...I think that the tax code is way too complicated. I'm a proponent of the Fair Tax, but I'm fully aware that it will never be implemented in my lifetime; we're too stuck in our ways to change any time soon.

How I learned about taxes last night was by experimenting with answers in TurboTax and seeing how it changed my tax liability. Prior to last night, I had tried reading the IRS documents, but that proved to be pretty painful and ineffective. Here's what I learned:

Taxable Income = Income - Deductions

Taxes Owed = (Tax Rate * Taxable Income) - Tax Credits

Deductions:
Standard Deduction: $10,900 (married filing jointly...though mortgage interest and tithing would put a lot of people over this amount)
Personal Exemptions: $14,000 ($3,500 per person * 4 people in household)

Tax Credits:
Child Tax Credit: $2,000 ($1,000 per child * 2 children)

Doing some quick math, we can quantify the cash benefit of each child:

Cash Benefit per Child = Marginal Tax Rate * $3,500 + $1,000

Assuming a marginal tax rate of 15%, the cash benefit per kid is $1,525 (0.15*$3,500 + $1,000). So, the gov't gave me $3,050 for having 2 kids. Thanks Uncle Sam.

Another way of viewing this $1,525 cash gift purely as deduction from taxable income (rather than the $3,500 deduction + $1,000 credit). $1,525/0.15 = $10,167. For each child you have, you're essentially reducing your taxable income by about $10k (based on today's allowances and tax rates).

Is my math right?

Basically, we got a pretty sizable rebate that I wasn't expecting at all because I didn't understand the US tax system very well. Now I have a lot better understanding of the numbers. Come Monday I'm going to change my W-4 allowances so that I don't end up getting a refund next year (because I'd rather have the money up front and be making interest on it rather than giving the gov't an interest free loan).

The Perfect Credit Card for Costco Enthusiasts

So I've blogged about my love of Costco before (here), so I won't repeat why I think that Costco is the greatest store on Earth.

I've also recently blogged about the benefits of using rewards cards to pay for everything imaginable. In particular, I mentioned that a particular 2% cash back rewards credit card in this post looked really good.

Well, Costco fans, I have news for you. There is a new 2% cash back card American Express card offered through Fidelity (here) which can be used at Costco. I got mine in the mail about 3 weeks ago and am loving getting 4% cash back from Costco (2% from the card + 2% from my Executive membership(though in reality, it's more like 3% due to the extra $50 for the Executive membership).

I spend about $6,000/year at Costco, so doing some quick math, this card will get me $120/year in cash. Since our family is growing, I anticipate my Costco expenditures growing with time, meaning that this $120/year will also grow.

This card is much better than the 1% cash back card that they advertise within the store (here).

I realize that the Fidelity Retirement Rewards card is advertised as a retirement card which deposits your cash rebate into an IRA, but the fine print says that you can deposit your rewards into a normal brokerage account. Translation: you can turn your rewards into cash by pulling the rewards out of the brokerage account. More comments on the card here.

Obviously, this card will also be pretty good outside of Costco as well, provided the merchant accepts Amex. I've only run into a few vendors in the past month who haven't.

I'd like to reiterate my appreciation of consumers who pay interest on credit cards, helping to fund my 2% rebate and 30-day interest free loan on every purchase that I make (and I'd also like to thank the merchants, who help foot some of the bill too).

Later,
Baughman

The Wonderful World of VOIP

So, in previous posts I shared my thoughts on Viatalk. I started using them 2.5 years ago and have been very pleased with them. For those of you who are unfamiliar with them (which should include everyone), they're like Vonage, but about a fourth the price.

Since my 2.5 year agreement with Viatalk is about to end, I did some more research to decide whether to renew or whether to go with a different service.

After hours of researching, I fell in love with a new product called Ooma. Ooma is like Vonage and Viatalk (i.e. VOIP service where you don't need a computer), but once you buy the initial $200 unit, there are no more fees ever (provided that the company stays in business). Reviews have been outstanding for this product (here). The official website is here.

Because I am a bit skeptical of the long-term feasibility of this company, I was planning on buying the product from Costco. If Ooma croaks some day, I'd return the product to Costco since it's guaranteed for life (because I don't think that a telephone unit like this falls under their 90-day return policy on electronics described here).

I would have bought the unit already, but I found out that they are releasing an improved unit within the next 6 months called the Ooma Telo (details here). Looks pretty sweet to me, but it doesn't come out until after my current Viatalk subscription ends.

The interim solution: MagicJack. I'd read a lot of mixed reviews about this product, but I decided to buy it anyway from BestBuy (so I could return it if it didn't work). The unit cost me $40, which included the hardware and the first year of service. Apparently, the renewal rate is $20/year for each additional year. I looked really hard into Skype, which offers both Skype-in and Skype-out services, but the math just didn't add up against MagicJack.

Fortunately, MagicJack worked great straight out of the box. Here it is in action:


As shown, it is a tiny little thing that plugs straight in to your usb port. You are assigned a new phone number, though I believe there may be an import option if you want. Your analog phone plugs in to the box, and whala, you have a dial tone. It's magical. Did I mention that it costs $40 for the first year and $20 for each additional year?

With that said, here are a few (small) complaints that I have with the unit.

• CallerID does not show names; only numbers. My outgoing CallerID only shows my number as well.
• I have to leave my computer on (which costs me several dollars a month in electricity; I should probably estimate that some day).
• It takes an extra 0.5 seconds to connect during phone calls. Kind of annoying having to say "hello" twice sometimes.
• Annoying pop-ups on the computer every time a call is made/received. The solution: there is an option to minimize the dialogue when the phone is not in use. When the phone is in use, I drag the dialogue nearly off the screen so that it is barely visible. Not the most elegant solution, but it worked great for me.
  

With that said, I'm a happy customer. I thought I'd shed a little positive light on this product which has gotten many bad reviews on the internet.

In conclusion, if you have high speed internet and you're still paying for a land line, your getting duped. (The corollary to that is that if you are paying for high speed internet and also paying for cell phones which you exclusively use at home and work (i.e. not mobile-ly), you're also getting duped and should use prepaid cell phones through T-mobile). Get VOIP. If you don't mind leaving a computer on 24/7, or the four bulleted items above, give MagicJack a try from BestBuy. If not, get Ooma. If you have the patience to wait 6 moths, get the Ooma Telo.

- Consumer Advocate Baughman (i.e. cheapskate)

P.S. I know I've already mentioned this, but if you are making less than 3% in a savings account, your also getting duped. With the economy in the crapper, many people are seeking refuge in FDIC insured savings accounts. DollarSavingsDirect, which is FDIC insured, is currently paying 4%.

2% Cash Back Credit Card Offer

I love credit cards. They're great; rather than paying with cash, I pay for every purchase with credit. I make 2% cash back with my current credit card. Of course I have the cash before buying the product (or else I wouldn't have bought it in the first place), but credit cards allow me to defer payment until my statement comes around. Since we put our money in high interest savings accounts (currently at 4%), we're making interest on this money in the 6 weeks it takes for us to be billed. So the real benefit to us of using credit cards is 2% of every purchase + the interest accrued during the 6 week billing cycle. This amounts to several hundred dollars a year.

If you exercise self restraint with credit (i.e. spend with them as you would with cash), I recommend buying everything imaginable with credit. You're also helping your credit score at the same time. Along those lines, I will open up a credit account for each of my children when they turn 16 or so. Length of credit history is a HUGE portion of your credit score, so setting up a credit card for a 16 year old will significantly help your son/daughter when it comes time for them to get a mortgage/student loan. Parents who teach children that credit is evil are setting their children up for failure when they go to apply for a mortgage or student loan. Responsible use of credit is a valuable skill.

If you want a 2% cash back credit card, they're hard to come by. Mine is no longer offered. Here's a new one that I found out about today: http://www.mymoneyblog.com/archives/2008/12/schwab-2-cashback-credit-card.html.

Have fun exploiting credit card companies (at the expense of stupid consumers who pay interest)! Can you imagine a world where nobody paid credit companies interest? Credit card companies would all fail.

Want $500x2 to open up a brokerage account for you and your spouse?

The deal ends tonight, so time is of the essence (link here, be sure to enter C3 into promo code box during application, or simply click here to bypass that step). I'm putting $600 into an account for myself and $600 into an account for Tiffany. Supposedly, optionsxpress will match $500 for each account (after you leave your money in there for 6 months). Discussions on the promotion are here and here.

Based on the comments of the above links, there doesn't seem to be a great understanding of whether the $500 bonus per account can be cashed out or whether it is strictly to be used as a credit for future trading comissions.

I'm confident that the $500 cash out option will be clarified tomorrow in these threads, as users will post comments after talking to customer service reps. If the $500 turns out to be credits only, then I simply won't bother funding the accounts this week (but I still opened up the two accounts tonight, just in case it turns out favorably tomorrow) .

If it's true, this promotion is the best I've seen in a long time. A while back, I made $240 through a similar Sharebuilder promotion.

As far as I can tell, there is no hard credit pull for opening the account, so your credit won't get dinged (based on comments from the above links).

Good luck to anyone joining me in in this promotion.

UPDATE: As of Tuesday, 12/2, there have been hundreds of comments in the forums linked above confirming that the $500 may be cashed out in 6 months. Happy $1,000 to anyone who created their accounts in time!

UPDATE: As of 5/20, the $1000 was deposited into our accounts and the promotion worked as planned. Yippee. Best promotion I've ever seen.

Where We're Storing Our Cash

What a crazy year this has been in the financial markets. A few weeks back I wrote a post about timing the markets, claiming that it was impossible. I can assure you that if I could time the markets, I would, and I would be a lot richer right now.

With that said, I hear a lot of people around me saying that now is a good time to buy. I don't agree with this statement. I believe in efficient markets and believe that any time is a good time to buy, because the price of stocks should always reflect all publicly available information, and that the best strategy is to buy a little stock with every paycheck. This article explains that stock prices are not exceptionally cheap right now; they are about on par with historical averages.

Sorry about my stock market rant.

Now, to the point of my post...We're storing our cash under our mattress.

Just joking. We've been using a WAMU savings account which was paying 4.0% just a few weeks ago. Now it's down to 2.5%. With inflation at 4-5%, a 2.5% yield on savings isn't particularly impressive. We decided to open up a savings account at Dollar Savings Direct. As of today, this is the best rate available in the country. Deposits are insured up to 250k by the FDIC. I'm not sure how long the rate will last, but I was excited to find out about it and thought I'd share the info with you. The account opening process wasn't too painful and the website is easy enough to use. More discussion on Dollar Savings Direct is found here.

12 months of spending - revisited

If you don't use Mint.com, you should. It's an account aggregation service that consolidates your entire financial situation onto one screen. With one click of a button, you can get an up-to-the-minute view of your net-worth, bills, transactions, etc.

So, like many financial products, Mint.com enables you to categorize expenses. Here are a few of our biggest expenses over the past 12 months:

Rent       $12,560.00
Groceries         $6,511.33
Travel         $3,239.11
Hobbies         $1,496.83
Gasoline/Fuel         $1,221.31
Child/Dependent Expenses         $1,000.73
Insurance         $934.40
Automotive Expenses $643.88
Home Improvement $586.54
Utilities $346.63
Restaurants/Dining $329.32
Cable/Satellite Services     $301.16
Clothing/Shoes $278.04
Healthcare/Medical $230.15

Telephone Services $108.90 

	This is what the Baugh family spends their money on. I glean a few bits of information from this list.

1. I should own a house. Too bad $400k is the going rate for a starter home.
2. I should live closer to family to cut down on travel expenses. What's within a short driving distance of both San Jose and Chicago?
3. I'm lazy at categorizing my expenses. Every Costco expense counts as "groceries" even though at least 25% of our expenses there are not food.
4. I love prepaid cell phones combined with VOIP. We paid $109 last year for all of our phones. It would have been about $120 more, but our VOIP was prepaid this year.
5. We paid $1200 on gas during the last 12 months. Since gas is up about 25% from last year, we can expect to pay about $300 more this year on gas if our driving habits stay the same and gas prices stay elevated. I'm skeptical that gas prices will stay this high, but our driving habits have changed. We've started to drive less. We try to consolidate errand running so we visit stores that are next to each other. When we want to go out for fun, we walk/bike/play tennis, which don't require cars.
6. We only paid $330 in restaurants during the past twelve months. That makes me happy. I'm convinced that cutting back on restaurants, cell phones, phone services, TV, and movies is some of the most effective ways to increase your savings. Most of these are recurring things which you don't even think about.

You probably don't care about my finances. I just thought that this might be a thought-provoking post that might convince on or two of you out there to get a better hold of your finances. As I have said before, it's not how much you make, it's how little you spend.

Does anyone have any recommendations on how I can cut my expenses? What are you spending your money on?

If I cared about budgets, I'd probably do something responsible and divide these amounts by 12 and allocate a set amount to each category each month. I don't care about budgets, so we spend our money on stuff we need and try to avoid frivolous wants. It works out well for us that way.

If nothing else, this post may convince on or two of you to check out mint.com. It's a cool program that I wish I had discovered a decade ago. I love tracking our net worth over time. It's empowering. It might help some of you to realize what you are spending your money on. I encourage you to at least glance at every penny that leaves your accounts.

- Brian

I Love Costco

My love for Costco is surpassed only by my love for Tiffany (and Megan). Seriously, I love that place. When I got home from my mission, it was one of the first two places that I wanted to go (the other was Fry's Electronics).

I just got my executive membership rebate in the mail last week. It was a check for $100. Doing some quick math, at 2% rewards, that means I spent $5000 at Costco over the course of the year. Though some may gasp at that number, let me tell you what we buy there:

• Pretty much all of our food ever (with the exception of a few items such as condiments, onions, and minor cleaning supplies). We don't eat out too much, so the $5000 includes breakfast, lunch, and dinner for a whole year.
• Pictures. We print lots of picture through costco.
• Staples such as laundary detergent, toothpaste, trash bags, diapers, wipes.
• Gas. It's cheaper there than it is anywhere else. I love the fact that I don't have to go to a different place to gas up. (The gas doesn't count towards my 2% cash back on the executive membership).
• Applicances. Last year we bought a rice cooker. We also bought a KitchenAid (it was actually a gift, but bought on our card so counted towards our rebate). I've also bought tools and other stuff there.
• Clothes. I'm a dork. I buy my clothes at Costco. We have several of Megan's outfits there. I have worn Kirkland Signatures $14.99 Court Classic Tennis Shoes for the past 4 years now. They've taken me up Mount Timp 3 times and gone on countless hikes here in Washington. I love striking up conversations with fellow Court Classic wearers. One of them happened to be a director of engineering at Boeing. I had a fun chat with him...we're good friends now. Maybe my shoes will land me a job as CEO of Boeing....one can only hope.
  

After looking at what is included in my $5,000, I felt a bit more comfortable with the astounding number. I pretty much convinced myself that I could sustain life on $5,000 a year! That's pretty impressive. Maybe I'll retire in a few years. Too bad there's other expenses like housing and health insurance.

I'll try to dispel a few myths about Costco:

• "The membership cost isn't worth it." As described in the first paragraph, I got a rebate for $100. I paid $100 for my executive membership, so I got a free year of membership because I used it so much. One nice thing about the executive membership is that if you don't make at least $50 back (which is the added cost of the executive membership), you can get it reimbursed. I did that last year. They gave me cash. In diapers/wipes alone, I swear I've almost saved enough to justify the basic $50 membership.
• "My family is too small to buy in bulk." This isn't true either. When Tiffany and I were dating at BYU, we shopped at Costco. We split things like milk and bread, and we saved a lot of money on groceries. We freeze lots of things like bread and cheese to keep it from going bad. Buying fruits/veggies in bulk has been great for our health. It has encouraged us to eat lots more. Costco has some great prices on produce.
• "It's impossible to get out of there under $100." If you don't want to spend a lot of money, don't do it. Costco will kill you on impulse buys if you let it. Seeing a 50 pack of snickers for $20 may be a great deal, but you'd go broke if you bought everything in the store just because it is a good deal. Only buy stuff you need. Make a list and stick to it.
• "I can get better prices shopping sales." While this may be true for some sale items, I would argue that Costco is much more economical when you consider your time and gas for shopping. Tiffany and I can go grocery shopping about twice a month no problem when we shop at Costco. We don't bother to sale shop at 10 different stores during the week to beat Costco's prices.

Lastly, Costco has an amazing return policy. Tiffany and I bought a pillow at Costco about 2.5 years ago. We tried it once, but it was like sleeping on a brick. We never used it again, and it sat unused in our laundry room collecting dust for 2.5 years. We didn't return it at the time because we had used it and felt bad. Fast forward 2.5 years. We didn't have a receipt or a box, but I suddenly had the urge to return the thing. I convinced Tiff to do it (because it was humiliating to me), and she came back from the return counter with $30 cash. I LOVE COSTCO!!!!!!!!!

In conclusion, everyone on earth should shop at Costco. It is a worthwhile investment. If you already shop there, try to buy more stuff there. Be wise in your purchases; don't buy stuff that you shouldn't just because it is a good deal.