I’m constantly on the look out for products that will make life easier and save money. The following list of products not only makes life easier and can save you money, but they can also help the environment. I remember seeing a Wal-Mart video that mentions if everyone bought and used one energy-saving light bulb, there would be a huge reduction in energy use. One small change if made by enough people can make a huge difference.
1. Motion Activated Wall switch. I’m a big fan of motion activated sensors. I use them anyplace that we use light in short bursts and then forget to turn them off; in our garage; in our pantry; in our walk-in closet. I’ve been tempted to put them in the bathroom but it’s harder to gauge how long to set the shut-off timer. I’m so used to walking into these places and just having the lights turn on automatically that when I go to someone else’s house I think there’s something wrong when the light doesn’t turn on. You can set the lights to go on anywhere from a few seconds to several hours, depending on the switch. I don’t necessarily have a favorite brand. As far as I know, they all perform about the same. If anyone’s had a particularly good or bad experience with a brand or model, please leave your thoughts in the comments.
There is also a version made by First Alert you can plug directly into a light bulb socket that would be great for a garage or basement.
2. Motion Activated Electrical Outlet. I’ve never used one of these but, as you know, I’m a big fan of motion sensors. I would use this for lamps, fans, heaters, radios, or even power strips connected to electronics.
3. Motion-activated flood lights. Yes, another motion-activated product. We use these around the outside of our house; one on each side and two sets in the back. Not only are they great for conserving energy, they are also incredibly effective for burglary prevention. You couldn’t break into our house on any side without being in the spotlight.
4. Kill A Watt energy tracker. This device shows you how much energy other electronic devices use in kilowatt-hours. It can also monitor voltage, line frequency and power factors. I’m a little nervous getting one of these because I would spend too much time testing all our appliances. But that’s a good thing, right? By finding energy-guzzling appliances you can be more aware to use them conservatively or turn them off when not in use. A couple of common energy leaks are leaving electronics plugged in even when they’re not in use and leaving your computer turned on at night.
5. Renu-it battery charger. I go through a lot of batteries. My three-year-old boy loves trucks that make noises and take 4 C batteries. Add to that my extensive use of portable electronics and I go through batteries like crazy - AAs, AAAs, and Cs, you name it. I’ve used rechargeable batteries before but the cost of them is high and they wear out over time. The other problem is that batteries tend to disappear around my house and I don’t want expensive rechargeable batteries walking off.
Enter the Renu-it battery charger. It charges regular alkaline, titanium, and rechargeable batteries safely. It has built-in mechanisms to prevent overcharging, overheating, and short-circuits. I’ve never used this product but I love the idea. This is definitely on my shopping list.
6. Valve cap pressure indicators. Not all the products on this list are for electronic devices. These clever units replace the existing valve caps on your car tires and constantly show the tire’s pressure making it easy to know when to add a little air. According to the EPA, you can improve your car’s gas mileage by more than 3 percent simply by keeping its tires inflated to the proper pressure. In addition, keeping tires inflated properly can extend the life of your tires so you’re saving money in more than one way. Keeping your tires properly inflated is also safer since under-inflated tires are less responsive, particularly in the rain and snow. One word of warning: a few Amazon reviews indicated that some defective valve caps may cause the tires to leak slowly.
7. MagLite LED bulb-replacement kits. It’s now common knowledge that LED lights use a small portion of the energy of regular incandescent lights and last way longer. LED lights are increasingly common in flashlights, electronics, and are even available as replacements for household light bulbs. These clever kits allow you to replace the bulb in a Maglite flashlight with an LED or luxeon light bulb. Most people I know have a number of old Maglites lying around. Now they can be updated and brought into the 21st century at about half the price of a new Maglite.
8. Energy-saving light bulbs (LED or florescent). According to one Fast Company article compact fluorescent light bulbs emit the same light as classic incandescents but use 75% or 80% less electricity. Florescent bulbs are now commonly sold at major retailers. Another benefit is that the bulbs are supposed to last much longer, even for several years. Over the lifetime of the bulb you will easily save more money than you paid for the bulb.
We use florescent bulbs in several places in our house. I must admit I don’t like the light they produce as much as incandescent bulbs, but the right color lamp shade can remedy that for the most part. Less common (and much more expensive) are LED household light bulbs. There are currently LED bulbs available on the market but they are still too high priced for most consumers. I’m anxious to see what kind of light LED bulbs produce in a household light.
Here are a couple of LED lights including a small version and a floodlight version. They didn’t get very good reviews and are quite expensive. It looks like LED technology isn’t quite ready to invade household lighting.
This is an excellent Fast Company article outlining the benefits of CFL bulbs and how Wal-Mart has led a campaign to get consumers to start converting to CFLs. Well worth a read.
Do you know of any other energy-saving or money-saving products? Leave them in the comments below!
Part 3 of the FPU overview covers week 8 of Financial Peace University - Retirement and College Planning. This post will apply to Dave Ramsey’s baby steps #4 and 5. Baby step #4 is: Invest 15% of your income into tax-favored investments (typically Roth IRAs or 401ks). Baby step #5 is : College funding. It is assumed that you won’t start doing either of these steps until you have saved a full emergency fund (3-6 months of expenses) and paid off all your debt except your house.
Why should I have an emergency fund and no debt before investing for retirement and college?
Dave is very strict about having an emergency fund and paying off debt before investing for retirement. He even says you shouldn’t put money in a 401K with a match (which is when your company matches a portion of what you invest - it’s basically free money). When we attended Financial Peace University we were already contributing to a 401K with a match and decided not to follow his advice on this point. It would have been much more disruptive to stop contributing. We would have lost the match and had to wait until the enrollment period to start up again.
Saving an emergency fund before saving for retirement
I’m aware that many people disagree with Dave’s advice on this point because if you wait to invest, you lose some of the advantages of compound growth. I personally can see it both ways. I tend to agree that you should have an emergency fund first. Otherwise you may have to dip into your retirement savings to cover emergencies and invoke severe tax penalties. If you take funds out of a 401K or IRA before retirement you pay excessively high taxes which would be like kicking you when you’re already down.
Paying off debt before saving for retirement
Having all your debt paid off before saving for retirement is a more tricky argument. Frankly, Dave doesn’t address it much. As far as I can tell, the main reason for doing so is focus. The more you focus ALL available money on paying off debt the more momentum you’ll get. There’s a strong psychological benefit to seeing your debt paid off at an accelerated rate.
From a math perspective, you can argue either way. If the interest rate on your debt is higher than the interest rate you’d get investing (typically about 10-12% if you invest in mutual funds), you’re better off paying down your debt. Otherwise, you’re better off investing. Having said that, even if you think you could earn 10-12% on a mutual fund, you’re not necessarily guaranteed that rate of return whereas you are guaranteed the return by paying off your debt.
In the end, I don’t think it matters much whether you pay off debt first before investing or not. I would do whichever gives you the most motivation and peace.
What investment vehicles should I use to invest for retirement?
During the session, Dave explains many savings vehicles in great detail including IRAs, Roth IRAs, SEPs, 403Bs, 457s, and 401Ks. Rather than explain them all, I’ll hit the highlights. Here is Dave’s basic strategy for investing for retirement:
If your company’s 401K offers a match, invest just enough to take advantage of the full match.
Next invest in Roth IRAs until you reach your maximum contribution.
If you still have money left to invest, go back and invest in company plans (401Ks) or SEPs.
Within IRAs, Roth IRAs and 401Ks, you can choose what stocks, bonds, and mutual funds you want to invest in. For Dave’s advice on how to allocate funds see Financial Peace University Summary Part 1
Now let’s briefly explain the differnt retirement vehicles. Keep in mind that these are the most basic definitions. I’ve included links with more information for those interested.
Types of retirement investment vehicles
IRA
IRA stands for Individual Retirement Account (or Arrangement). An IRA allows you to invest money pre-tax and allows your investment to grow tax free. You then only pay taxes when you withdraw the money at retirement. The IRA itself is really a stock, bond, mutual fund, or other investment that is simply designated as an “IRA.” Even real estate can be used for an IRA. As Dave puts it, the IRA is just a “coat” to keep your investment protected from taxes.
To invest in an IRA you have to have a earned income in that year. In 2007 you can invest up to $4,000 per person if you’re 49 or younger or $5,000 if you’re 50 or older.
A Roth IRA is similar to a regular IRA with one huge difference - with a Roth IRA you invest money post-tax but then your investment grows tax free and you can withdraw it at retirement tax free. In very basic terms, you would typically choose a Roth IRA if you think your income at retirement will exceed your current income. Otherwise, a traditional IRA would make more sense.
A 401K acts like an IRA in that you invest money pre-tax and your savings grows tax free. You are then taxed when you withdraw the funds. One of the main differences between an IRA and 401K is simply that a 401K is offered specifically through your employer.
With a 401K you are also more limited in your investment options. The company running your 401K usually provides a pre-selected set mutual funds to choose from.
One benefit of 401Ks is that some employers offer a match - they will match a portion of the amount you save. For example, my current employer matches 100% of my contribution up to 4% of my income and then 50% of my contribution from 4 to 6% of my income. Just to make the math simple, if I made $100,000 and saved 6% of my income, rather than ending up with $6,000 invested I’d end up with $11,000 ($6,000 contribution plus a $5,000 match). It’s basically free money and you should definitely take advantage of a matching program if your employer offers one.
Dave points out some people don’t use the 401K if there is not a match. That’s a mistake. Even though they don’t offer a match you still get the great tax benefits and should still contribute.
The maximum contribution to a 401K for 2007 is $15,500.
Simplified Employee Pension (SEP) plans provide a way for small business owners to provide retirement plans to themselves and their employees. When an employee participates in an SEP, they essentially create an IRA, which in this case is known as an SEP-IRA. SEP-IRAs have the same tax implications as traditional IRAs. Employees can contribute up to 25% of their income. Self employed individuals can contribute up to 18.6% of their net profit.
The 457 allows you to defer your compensation. Instead of receiving income now and being taxed on it now, you can receive it and be taxed on it later. Rather than receiving the income, you can invest it. Essentially this acts similarly to a 401K. I’m personally not familiar with 457s and Dave didn’t recommend them. Use your company’s 401K instead.
Standard Thrift Plan for government employees
For federal government employees you have the standard thrift plan. Dave recommends putting 40% in C fund (common stock plan, 17% return over 10 years. Modeled after S&P index), 40% in S fund (small company fund [aggressive growth], modeled after Barclays index, averaged 14% return over 10 years), and 20% in I fund (International, 8-9% return, modeled after the Barclays EAFE index).
Rolling out funds
401Ks, 403Bs, and 457s are all offered by your employer. The good news is, you can transfer or “roll out” these investments when you leave the company. You can also roll over IRA accounts. Dave recommends rolling out funds whenever you have the option because you have more flexibility in a non-employer plan - you can invest the funds exactly how you want rather than being forced to choose from a limited selection. 401Ks and IRAs can typically only be rolled when you leave the company. However, 403Bs can be rolled at any time.
When you roll funds, be sure to do a direct transfer rather than bringing the money home first. If you have them cut you a check they have to hold 20% of the money until you decide where to invest it. Then if you don’t reinvest you have taxes of about 40% on those funds.
When you roll out funds, you need to decide if you want to roll them to an IRA or Roth IRA. Dave recommends you roll them to an IRA unless you meet the criteria below, in which case you should roll them to a Roth IRA:
1. You will have saved $700,000 by the age of 65.
2. You can pay your taxes separately out-of-pocket. For example, if you roll $10,000 to a Roth IRA, you have to pay taxes on the $10,000 immediately. If you don’t have the funds to pay the taxes right now, you can roll funds in chunks as you have money to pay the taxes.
3. You have less than $100,000 in income the year of the roll. Rules state that you can’t roll to a Roth IRA if you have $100,000 or more in income that year.
Borrowing against 401K - DON’T DO IT!
Some people ask about borrowing money against your 401K. On the surface it seems like a good idea - you can pay yourself interest rather than the bank. However, you should never borrow against your 401K because there are severe risks. Here are 3 reasons why you shouldn’t borrow against your 401K.
You unplug yourself from the stock-like returns.
You might leave or be fired. If you leave, that loan is due in full within 60 days or it’s considered an early withdraw.
If you die, you are deemed to have left the company and your spouse has to pay back the loan.
Saving for Education
For the seemingly rare few who already have a full emergency fund, all debt paid off, and are saving 15% of your income for retirement, you can move on to baby step #5: Funding your child’s college education. I think this step is appropriately placed in relation to the other goals. You need to make sure you take care of your own financial situation, including retirement, before worrying about your kids’ educations. If you don’t, they will have to take care of you financially when you retire. Of course, I paid for almost all my college education and therefore am biased towards having children pay their own way and/or get scholarships. Regardless of your stance, Dave’s placement of this baby step is prudent and appropriate.
Use ESAs and UTMA/UGMAs to save for your child’s education
Dave’s advice is pretty straight forward - save for your child’s education first using an ESA, then using an UTMA/UGMA if you max out the ESA.
Education Savings Accounts (ESA)
An ESA is essentially an IRA for education rather than retirement.
A parent sets up an ESA for his/her child and acts as the custodian. Contributions to an ESA grow tax-exempt. If the child uses the funds for qualified educational expenses, those distributions can be used tax free. You can make a maximum of $2,000 in contributions each year. You have have an income under $110,000 if filing as a single or $220,000 for married couples to use an ESA.
If you max out your ESA contributions or you make too much money to contribute to an ESA you can use an UTMA. The Uniform Transfer to Minors Act allows you to open a Mutual Fund account in the name of the child. The parent is custodian of the account until the child is 18. The downside (or upside if you’re the child) is that funds in an UTMA don’t have to be used for education. The child can use funds how they want when they turn 21.
Don’t use 529 plans or use life insurance for college savings
Dave recommends staying away from 529 plans which force you to put the money into pre-defined mutual funds that don’t provide a good enough return. Age-based 529 plans invest the funds more conservatively as the child reaches 18 and give you no control. They are too conservative.
Dave also recommends avoiding the following:
Using life insurance policies (such as the Gerber Life Insurance policy) to save for college
Use savings bonds or zero-coupon bonds for college investing
Using pre-paid college tuition
Conclusion
Please recognize that the above descriptions are not meant to be comprehensive by any means. Dave Ramsey goes into quite a bit more detail in Financial Peace University and even his descriptions are not comprehensive. Hopefully this will give you a base line for understanding your investment options and spur you on to learn more. Stay tuned for part 4.
If you have children, saving for their college education is probably among your financial goals. Today, the average tuition at a private college is over $22,000. Refinance the house? Dip into retirement? Not according to Anne Marie Chaker at the Wall Street Journal Online. Her article Seven Myths About College Finances debunks several assumptions people are likely to make if they don’t look deeper into college financial aid.
Myth 1: Financial aid means grants and scholarships. Truth: Financial aid includes scholarships and grants (don’t have to be paid back) as well as federal loans. Loans can be subsidized and unsubsidized, but either way there is a cap on the interest rate–saving big bucks over the long term. Some jobs after college offer loan-forgiveness programs.
Myth 2: My assets (home and retirement savings) will prevent me from getting a need-based loan. Truth: The home you live in and retirement plans are not included when determining how much aid you can get under federal rules. Private colleges may use a separate formula, but do not include retirement savings.
Myth3: I should go with the lender preferred by my college financial aid office. Truth: Shop around and read the “fine print.” What looks like a good deal upfront might include an origination fee, or heavy penalties for missing a payment.
Myth 4: I’m doomed if I have two kids in college at the same time. Truth: You are likely to qualify for more aid.
Myth 5: The federal aid process follows a strict formula and my situation will never be given special consideration. Truth: College aid officers have the authority to make adjustments on a case by case basis. Documentaiton will be required.
Myth 6: Our child is likely to receive many private scholarships. Truth: Nearly all financial aid officers agree that parents overestimate the amount of scholarship and grant money children will receive.
Myth 7: The 529 college savings plan is bound to be the best for me. Truth: Shop around–be sure to look at fees.
After reading these articles, my biggest question is: Have parents always footed the bill for college? It never occurred to me to ask my roommates how they were financing their education; I only know that at least half of them worked. My parents paid my first year of room and board, but after that I was on my own. Just the idea that they would have used their retirement or refinanced their home to pay for my education seems crazy to me.
Has a college education become an entitlement? Even at the expense of the parent’s financial future? We live in a land of opportunity, and some believe that our country stays strong because life isn’t handed to us on a plate. We believe in hard work, and the self-made man. By giving our children everything, do we rob them of the chance to struggle, work hard, and fulfill their potential?
Ok, this post is a little random. But I recently learned about a new site that does one thing and does it well: sell ties. The site, www.wearcacti.com, offers free shipping and ties as low as $9 (if you order 5 ties). I actually ordered tie #21 (I wanted a little Trump vibe) and was very happy with the quality. Looking back, I should have ordered 3 ties for $11 each since I’ve been wearing the same ties for years.
I loved the simplicity of the wearcacti site. It reminds me of Google’s bare-bones simple interface. You can buy 1, 3, or 5 ties at an increasing discount. The selection is small at this point but I talked with an owner and he indicated they will be expanding their selection soon. If you’re in need of a tie update, check it out.
Today I went to lunch with a very wealthy person. I don’t know exactly how wealthy , but based on his frequent trips to Maui, the fact that he earns a free plane ticket every month through his frequent flier points, and the fact that the other day he decided to go out and buy a truck just because he’s never had one before, there’s good reason to believe he’s close to a seven-digit earner. As I talked with him, it raised a lot of questions in my mind about how managing my finances will change as my wealth grows. If I were a millionaire would I still need to budget? Would I still want to track all my spending? Would I still need to negotiate with my wife about finances? It seems logical that with an income over $1,000,000 a year you wouldn’t need to plan as vigorously. But in the end thats a lie. Millionaires that manage their money irresponsibly can quickly lose it all and fall from grace (MC Hammer comes to mind).
Financial management principles are the same for millionaires and low-income-earners alike. Certainly the numbers your dealing with will change, but the basic principles and processes are still the same. In fact, by following sound financial management principles and optimizing your frame of mind, you can accelerate the process of building wealth and know how to keep it when you arrive. Here are 7 ideas that will help you think about and manage money like a millionaire, regardless of your income.
I’m constantly on the look out for products that will make life easier and save money. The following list of products not only makes life easier and can save you money, but they can also help the environment. I remember seeing a Wal-Mart video that mentions if everyone bought and used one energy-saving light bulb, there would be a huge reduction in energy use. One small change if made by enough people can make a huge difference. 
Part 3 of the FPU overview covers week 8 of Financial Peace University - Retirement and College Planning. This post will apply to Dave Ramsey’s baby steps #4 and 5. Baby step #4 is: Invest 15% of your income into tax-favored investments (typically Roth IRAs or 401ks). Baby step #5 is : College funding. It is assumed that you won’t start doing either of these steps until you have saved a full emergency fund (3-6 months of expenses) and paid off all your debt except your house. 
Ok, this post is a little random. But I recently learned about a new site that does one thing and does it well: 
Today I went to lunch with a very wealthy person. I don’t know exactly how wealthy , but based on his frequent trips to Maui, the fact that he earns a free plane ticket every month through his frequent flier points, and the fact that the other day he decided to go out and buy a truck just because he’s never had one before, there’s good reason to believe he’s close to a seven-digit earner. As I talked with him, it raised a lot of questions in my mind about how managing my finances will change as my wealth grows. If I were a millionaire would I still need to budget? Would I still want to track all my spending? Would I still need to negotiate with my wife about finances? It seems logical that with an income over $1,000,000 a year you wouldn’t need to plan as vigorously. But in the end thats a lie. Millionaires that manage their money irresponsibly can quickly lose it all and fall from grace (MC Hammer comes to mind).
