This is the seventh article in Frugal Dad’s week-long series, The 7-Day Turnaround: One Week to Change Your Family’s Financial Destiny. Each day brings a new step to implement and help you get control of your finances.

The word “retirement” has always evoked day dreams of playing out the remainder our lives fishing, golfing and joining a bridge club. However, with improvements in preventive medicines people are living longer, and with a bull market at the end of the last decade, many of those people are “retiring” earlier. Instead of retiring from the work world entirely early retirees are simply hanging up their careers and looking for more fulfilling work, a search for that self-actualization Maslo referred to. That is a noble goal. We spend the majority of our early careers working to pay for things (houses, cars, college for the kids). Why not start saving for an early retirement from your day job so you can then go do something you have always wanted to do, regardless of the pay.

Invest outside of retirement accounts. We’ve already learned the virtues of investing inside retirement accounts, but in this final step let’s start to invest outside of retirement accounts so that money is available to tap before 59 1/2, the current minimum age to withdraw from an IRA. This step requires closer scrutiny of investment options than investing inside retirement accounts. For one thing, your time horizon is shorter so you have less time to recover from making a bad investment selection. You also have less time to recover from a market downturn, so riskier investments are usually off the table for this type of investment. Capital preservation is nearly as important as capital appreciation in this step.

Don’t forget about taxes. Since these investments are outside a tax-deferred, or tax-free retirement account you have to be more conscious of the tax implications. Consider investing in a more conservative mix of index mutual funds with a low turnover to minimize taxes. Vanguard’sTotal Stock Market Index Fund and 500 Index Fund are good examples of low-cost mutual funds with low turnover. With interest rates hovering near record lows, high-interest savings accounts are not as attractive an option as in times of higher rates. Still, keeping a portion of your “early retirement” fund in cash may make sense if you can find rates that significantly out-pace inflation. Treasury bonds, high-interest bearing CDs and money market mutual funds offer decent returns with minimal risk, but should only represent a portion of your total early retirement fund in the beginning stages. You need growth on your side up front, and once you’ve earned that growth you can begin to take those profits and preserve them in these safer savings vehicles.

At some crossover point in the future your monthly investment income will match your monthly expenses. At this point the money in your “early retirement” account is generating enough working capital to pay your monthly expenses. You are no longer dependent on earning a wage to provide necessities. This point was best illustrated in the book Your Money or Your Life. Author Joe Dominguez used a graph to plot monthly expenses and monthly investment income. Over the years his investment income grew, and as he practiced frugal living principles his expenses decreased. One day the two figures met. It is at this point that you can finally break away from the daily grind. What is it you’ve always wanted to do, but could never afford to start? Maybe you want to start your own business, or perhaps you would like to volunteer more of your time towards a particular cause. Regardless of your chosen endeavor, you are now free to make the jump without worrying about how much money is involved. With that kind of freedom creativity is released in waves, and you just might find yourself making more money than you made in your working lifetime.

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Mrs. Micah has graciously hosted the 110th edition of the Festival of Frugality. Frugal Dad’s submission, “The One Hundred Fifty Dollar Coin Wallet” made the cut, along with some other outstanding posts on the subject of living a frugal life. Head over to Mrs. Micah’s site and check them all out.

Since getting on board with our new frugal lifestyle I’ve notice that my wallet is getting a little thicker, and my gut is getting a little thinner. It made me wonder if there is a correlation between frugal living and losing weight. After reflecting on my progress over the last few months a few ideas stood out as possible explanations for why my weight has dropped.

I started eating like a kid again. Sounds like weird advice doesn’t it? No, I am not advocating eating hot dogs and ice cream three times a day, as that would surely have an opposite effect on my waistline. What I am recommending is using smaller plates, smaller drinking cups and therefore smaller portions. When selecting a large dinner plate, or tall glass for our dinner beverage of choice, the natural inclination is to fill them up. If you are like me and enjoy a cold soft drink or sweet tea with dinner filling a large glass can add up to quite a few liquid calories. By using a smaller glass I am reducing the caloric intake with my evening meal and increasing the life of that 2-liter bottle of Sprite.

We scaled way back on television viewing. My wife and I recently agreed to drop our cable service down to the basic package only. We had already eliminated digital cable last year, but further reduced the channel offerings and our monthly bill. The $11 bare-bones service provides us access to local channels, the Fox affiliate and PBS. The benefits, other than the reduced cable bill, are that we have had to find other things to occupy our time. Back when I was a couch potato I frequently snacked while watching television. For some reason the two activities just seemed to go together. Big game on? Let’s get some buffalo wings. A good movie on tonight? Let’s order pizza. With the television turned off there are less opportunities to sit down and snack. Reading a copy of The Total Money Makeover just doesn’t produce the same cookie dough ice cream craving as watching the new episode of Lost.

We only see the inside of a restaurant once a week, and it is usually a Subway. Eating out is a sure-fire way to destroy a food budget. It is tough for a for a family of four to leave Outback Steakhouse spending less than $50 for meals, drinks and a tip. When you compare that to the frugal grocery choices available for $50 you realize you are trading several days worth of food for one evening out. Besides the obvious financial benefits to eating in, your health will improve as well. Fast food, and food served in typical restaurants is loaded with calories, saturated fats and sodium. By preparing food at home you control the nutritional content. Our weekly splurge is a visit to a nearby Subway where on Sundays they offer a “two footlongs for $8″ special. Like any good frugal dad, I resist the temptation to eat the entire thing that night and take the other half for lunch the next day, spreading the cost over two meals.

Has anyone else experienced a slim down thanks to focusing on a frugal lifestyle?

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Technorati Tags: frugal lifestyle, frugal living, food budget

This is the sixth article in Frugal Dad’s week-long series, The 7-Day Turnaround: One Week to Change Your Family’s Financial Destiny. Each day brings a new step to implement and help you get control of your finances.

One of the most valuable gifts we can give our children is the gift of education. Used properly our kids can lead successful lives long after we are gone. I am not one of those that believes a college degree is an automatic way to wealth. What you do with your education is far more important than the degree hanging on your wall. Having said that, if you are in the position to help your children complete their education it will help them immensely because they won’t owe Sallie Mae two years of their first salary earned out of school. Too many new graduates are saddled with huge student loan debt, stifling their financial productivity in those precious early years after graduation.

Start early. Like any type of investing, the key is to start early. College tuition continues to rise at a staggering rate, and by the time your newborn heads off to school it may costs as much as your mortgage, in today’s dollars. The only way to beat that pace, other than hitting the lottery, is to get an early start and take advantage of 18 years of compounding growth.

Take advantage of tax-free savings vehicles. The government has made the job a little easier these days by offering two outstanding tax-free savings plans for college savings. Education Savings Accounts (ESAs), sometimes referred to as an Education IRA, may be opened at nearly all brokerages. Unfortunately, you can only contribute up to $2,000 a year for junior, but the earnings do grow tax free. So if that $36,000 in contributions from birth to age eighteen grows to $100,000 you can withdraw 100% of the account balance tax free, as long as it is used for educational expenses.

Education Savings Accounts may provide adequate savings for your child, but in case they get accepted to attend an ivy league school it might also be a good idea to invest in a 529 College Savings Plan. 529 plans are sponsored at the state level, and many states offer tax deductions for contributions made to your in-state plan. If your state’s plan is lousy, don’t invest just for the tax deduction. You are able to invest in plans managed in other states, you just simply don’t get a tax deduction on your state income taxes. Saving for College has a good 529 plan overview that lists all the state plans.

Financial aid is still available. Neither type of college savings plan are considered student assets in the eyes of federal financial aid providers, and therefore will not significantly reduce your child’s eligibility to receive federal financial aid. However, since most needs-based scholarships are offered at the individual school level the schools may have different rules on how assets are treated.

Chart your own course. Regardless of savings vehicle you choose be sure to select your own investments. Some of the best 529 plans offer a wide range of investment options in top mutual fund brokerages such as Vanguard or TIAA-Cref. Others offer only “managed allocation” options based on when your child plans to attend college. The plan administrator may not have the same tolerance for risk as you, and move your child’s savings balance to more conservative options too early.

What if my son or daughter decides to take a different path? If your child decides not to attend college you may assign another family member as beneficiary, which could be a nice gift for a brother, sister, or favorite niece or nephew. If you have a small family with no other beneficiaries available you can always cash out the savings and pay a 10% penalty, in addition to your ordinary income tax rate.

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I admit to being completely out of the loop (thankfully) when it comes to designer anything. Fashionable clothing, jewelry and accessories are all lost on me. I happen to believe the only “accessories” a man should wear is a wedding ring, but I realize that is just so “1980s.” Today my wife told me about visiting a Neiman Marcus store with a friend and seeing a $150 Marc Jacobs coin wallet on a sale table. My first reaction was, “Who the heck is Marc Jacobs, and why would anyone care to buy his coin wallet?” Apparently he is some high-fa luting “designer.” I began to ponder what would motivate a person to buy a $150 coin wallet to transport metal currency in denominations no greater than $0.25 each - I mean, am I the only one who sees the irony in that? The story did remind me of the three questions I ask myself before making a major purchase:

1. Is there a cheaper alternative? Sure, you may have to give up brand loyalties or favorite designers, but chances are you could find a suitable, cheaper product or service that meets your needs. In the case of our coin wallet there are thousands of alternatives to Mr. Jacobs’ accessory. A quick search of Amazon.com lists hundreds of similar products for a lot less money. In fact, a comparable leather coin wallet lists on Amazon.com for $14.00. Of course, far be it from me to advise others on fashion accessories. When it comes to carrying change anything from a Ziploc bag to a warm pocket suits my needs just fine.

2. Will my life really be improved by this purchase? In this case, it’s hard to make the argument that this purchase does anything to improve our place in this world. I guess a few of your friends may be impressed, depending on the type of friends you keep. My friends would probably think I’ve lost my mind to spend a week’s worth of gas and groceries on a change purse, errr…”coin wallet.”

3. What is my motivation for buying this item? When I am about to make a major purchase I always attempt to identify my true motivation for the purchase. Now that I am devoted to frugal living I try to only buy things that are an absolute necessity. If I was in the market for a “coin wallet” I might ask myself why I had to have a Marc Jacobs coin wallet, instead of a $14.00 Fossil change purse from Amazon.com. Both serve the same function, both are made of high-quality materials, and both are reputable brands. In the end it comes down to opportunity cost. The money spent on more high-priced items uses up the opportunities for putting those funds to better use in the future. In the end, that lost opportunity could be much more costly than the $150 price tag.

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Technorati Tags: Marc Jacobs, Amazon.com, coin wallet, frugal living