It’s been a while since I offered a giveaway contest here at Frugal Dad.  I’ve been playing around with a site called CafePress.com where you can brand your own items, and I have to say that of all the things I’ve ordered for my own personal use, I like this canvas tote bag the most–I even had to order two more for my wife and my mom.

One of our custom tote bags makes a great companion to take along on trips to the grocery store (save a few plastic bags while you’re at it), to the library to stock up on great reads, or even to work with lunches packed, a change of clothes for the gym, etc.  The “frugaldad.com” logo goes along with you to remind you to “be frugal” throughout the day!

Entering the contest is simple–just leave a comment on this post and check back next Saturday, November 1st (sorry, you won’t have this in time for trick or treating!).  I’ll select THREE lucky winners using the site random.org and ship out your FrugalDad.com tote bag.*   Be sure to fill in your email address where asked when submitting the comment so I’ll have a way to contact you if you are a lucky winner.  Comments will be closed at 11:59pm the night of October 31st (Eastern time).  Winners will be announced the following day.  Good luck!

*Contest available to U.S. residents only

More about the bag (from CafePress.com):

Our 100% cotton canvas tote bags have plenty of room to carry everything you need when you are on the go. They include a bottom gusset and extra long handles for easy carrying.

• 10 oz heavyweight natural canvas fabric
• Full side and bottom gusset
• 22″ reinforced self-fabric handles
• Machine washable
• Measures 15″ x 18″ x 6″

This guest post was written by ABCs of Investing – a brand new site for novice investors which offers two short and quick investing posts per week.  Feel free to subscribe to the feed.

How ’bout them stock markets?  Hmmmm…not so good?  Well, whatever you do – don’t wimp out and switch your equities to cash, however tempting as it might be.  Why is that you ask?  To answer that I’m going to go into one of the main lessons of the Four Pillars of Investing – know the history of the markets.  This doesn’t mean memorizing any boring dates or who was present at some document signing but rather taking a look at some past market bubbles…and more importantly, some past market crashes.  The idea here is to put that famous expression “those who cannot learn from the past are doomed to repeat it” to rest!

Investing in stock markets has a huge behavioural component to it – balance sheets and price/equity ratios are all fine and dandy, but the real question is – can you avoid pulling the trigger on the ’sell’ button when the markets take a nose dive?  Some investors talk of buying when stocks are “cheap” – don’t forget that not selling is the same as buying.  If you take a big loss on your investments and sell, then you have locked in your losses and have no chance of profiting from future stock market gains.

William Bernstein, author of The Four Pillars of Investing, has completed a lot of research which show how the stock markets always come back from the depths.  His advice is “when things look bleakest, future returns are highest“.

Let’s take a look at two examples from his book:

1929 stock market crash

This is undoubtedly the most famous stock market crash of all time – over the course of almost 3 years, the Dow Jones Industrial Average lost about 90% of its peak value from Sept 3, 1929 to July 8, 1932.  Needless to say, this event was quite devastating and many former investors swore off equities forever.  Investors who stayed in equities were rewarded however, since the markets returned 15.4% annually for the 20 years following the 1932 bottom.

1973-1974 crash

This market crash followed a period of great market returns due to the phenomenon of the “nifty fifty” companies.  Unfortunately the “fifty” weren’t so “nifty” after all and the Dow Jones lost almost half its value (sound familiar?) from the beginning of 1973 to the end of 1974.  Bernstein introduces an interesting statistic – in the late 1960’s, which was the middle of a huge bull market, 30% of American households owned stocks.  By the late 1970’s and early 1980’s which was after the big crash, only 15% of of households owned any stocks.  It is unfortunate that so many investors chose to leave the market when the going got rough, because the market returned 15.1% annually for the 20 years following the 1974 bottom.

Stock market prediction time

I’m no economist or stock picker but one of the interesting things I recently found out about the 1929 crash was that the Dow Jones had increased approximately 350% (not including dividends) in the 5 years prior to crash.  350% in five years is absolutely amazing and it shouldn’t be a huge surprise that a bubble had formed.  The aftermath of that bubble was that the equity markets lost 90% of their value (from the peak).  Is this happening again?  I doubt it, the returns of the US equity markets have been relatively modest in the past few years so it is hard to believe that a major bubble had formed.  My grand prediction?  The US equity markets will not lose 90% of their peak value, but rather a lesser number – hopefully much less.

Conclusion

Switching your equity investments to cash after they go down is not a good way to invest.  After events like the markets we have suffered through this year, there is nothing wrong with revisiting your asset allocation but the best thing you can do is to learn more about investing.  Study past market history, read investing books, blogs (especially this one) and keep track of your investments.  If you have an advisor then talk to them frequently and make sure you know what you are invested in.  Stock markets go up and down – the more you are prepared for it, the easier it will be to ride out both the good times and the bad times.

TradeKing.com. $4.95 trades + 65 cent option contracts. Free real-time quotes. Find out why TradeKing is the King of online brokers.

A couple months ago my wife and I started a passive search for a new home.  We are looking to downgrade to save a bit on the mortgage, and have more money each month to put towards meeting our aggressive savings goals.  When starting the house hunting process it is a good idea to check your credit report to make sure things are being reported correctly.  Inaccuracies discovered late in the game could jeopardize the approval of your mortgage, and the ability to close on a new home.

Skeletons In Your Credit Closet?

Often times consumers have legitimate, negative blemishes on their credit history that are being accurately reflected in their credit file.  For these types of items there isn’t much you can do, but wait.  The earliest most accurate, negative information can be removed from your credit file is seven years.  However, if you are like me, and find an inaccuracy in your report is dragging down your FICO score, there is something you can do about it.  I had to contact a certain unnamed bank that may or may not be represented in the picture above to get an issue resolved with an inaccurate item on my credit report.  In addition to dealing with the bank directly, I also disputed the item at all three credit reporting agencies.  Here a few steps to take to resolve inaccurate information being reported on your credit report.

Steps to Resolving Credit Report Errors

Contact creditor and notify them of the inaccuracy.  Creditors reporting data to credit reports have the ability to wipe clean inaccuracies in your file by submitting what’s called a Universal Data Form (or U-Data Form).  Ask for the creditor to correct their records, update your data with all three major credit reporting agencies, and notify you in writing when the process is complete.  Creditors update credit bureau files every month, or every quarter, and if you don’t notify them of the inaccuracy it could wind up right back on your credit file weeks after getting it resolved through the credit bureau.

Write a letter to the credit reporting agency.  In the letter, identify the account that is reporting inaccurately, give a brief explanation why you believe the record is incorrect, and sign and date the letter.  Be sure to include a copy of any relevant documentation you have from the creditor indicating this was a mistake.

Time is on your side.  According to the federal Fair Credit Reporting Act, credit bureaus have 30 days to remove the record from your file, or provide you proof that the account is reporting correctly.  Occasionally, creditors or reporting agencies miss this window and the information has to be removed, but if it is legitimately being reported by the creditor often times it will reappear.  This strategy is commonly used by these “credit repair agencies” that are usually nothing more than a scam disguised as a legitimate service.  If you legitimately owed a debt, and were late paying on that debt, then there is nothing you can do to have it removed from your record, other than wait the required period of time.

Send correspondence via certified mail, return receipt requested.  The 30-day ticker starts when the bureau receives your letter, and the signed receipt is your proof that is was delivered.  Be sure to stash it in a safe location while waiting to hear back from the credit bureaus.

This scary economy has many folks terrified at the thought of spending $40 on a Halloween costume, so frugal ghosts and goblins across the country have decided to go with homemade Halloween costumes.  We typically do this in the Frugal Household, although this year my son had to be The Incredible Hulk, so we caved and bought him an inexpensive Halloween costume.  My daughter is more creative, and each year enjoys coming up with her own homemade Halloween costume ideas.  With her help (and a lot of input from my wife) we offer up the following frugal homemade Halloween costumes, along with the supplies needed for each:

Hobo/Bum

• Old tattered clothes with a few holes (maybe some of Dad’s old work clothes)
• An old, beat-up hat
• An old pair of well-scuffed shoes
• Worn canvas sack on a stick over the shoulder carrying belongings

Spa girl (My daughter dressed as a “spa girl” last year)

• Green face paint to simulate a mask
• Towel for head or curlers
• Sleep mask
• Bedroom slippers
• Bath robe
• Pajamas

Nerd

• An old pair of eye glasses with black electrical tape for reinforcement
• Too-small pants (short ones/high risers)
• Shirt tucked in with pocket protector and a handful of pens
• Hair slicked down with gel
• White socks
• Black shoes

Ghost (a frugal Halloween classic!)

• Sheet with holes cut out for the eyes
• White, long sleeve shirt to wear underneath
• White gloves
• white pants, socks and shoes

Hunter/Soldier

• Camouflage clothing
• Dark green (olive) paint for face
• Black face paint for under the eyes
• An old Army belt with canteen
• A green backpack

Scarecrow

• Flannel Shirt
• Overalls/Jeans
• Rope belt
• Wheat straw to stuff under the cuffs of the jeans and shirt
• A straw hat
• Paint a few freckles on face

Present

• Big box wrapped in festive wrapping paper
• Large bow to place on your head
• Cut holes on sides of box for arms, and in the top of the box for your head

Bunch of Grapes (This one reminds me of the old Fruit of the Loom commercials)

• Purple sweatsuit
• Purple balloons pinned to sweatsuit

Chef/Cook

• Tall chef’s hat or hair net
• Apron
• White button down shirt
• Black pants and shoes
• A big pot to collect candy in (with a big wooden spoon)

Kitty cat

• Black clothes
• Black shoes/socks
• White cardboard for the belly
• Tail (can use an old sock or buy one)
• Ears (headband with felt)
• Facepaint for whiskers and nose
• White gloves (optional)

Most of these homemade Halloween costumes can be put together with items from around the house, or for less than $10 by visiting a consignment shop or Dollar Store. However, if you must resort to buying a Halloween costume, check out the deals at BuyCostumes.com!

I do my best to avoid complicated mathematical formulas (like the one featured above).  In my experience, mathematicians do a great job of taking a relatively simple process and making it overly complex by applying a series of inexplicable formulas.  I guess that’s why I was happy to run across an interesting concept the other day called “the multiply-by-25 rule.”

The idea is that you can estimate how much is needed in savings to generate enough income to pay for an item.  The only factors you need to know are how much something costs you now, and at what interest rate your money will grow.  Of course, determining both in this period of a inflation and fluctuating interest rates is tough, but you can get a general idea of how the math works by looking at a real-life example.

Photo courtesy of Behdad Esfanbod

A Working Example

We are fans of Netflix because it offers a relatively frugal entertainment option for family movie nights.  It’s cheaper than going to the theater, and cheaper than an expanded cable package.  At roughly $9 a month, our Netflix membership sets us back $108 per year.  To continue paying for Netflix out of passive income earning 4% per year, I would need a $2,700 ($108×25) savings balance.  Since most of my savings are now earning closer to 3% I would need to multiply my costs by a factor of 33.33% (100/interest rate).  This increases the amount needed to pay for Netflix after reaching financial independence by $900 to $3,600.  Maybe I should just cancel Netflix!

A Bigger Example

I have heard stories of people paying off their homes, cars and all other debts and living quite comfortable on a couple thousand dollars a month, or less.  Assuming our goal is the high end of that estimate, how much of a savings balance would be required to spin off $24,000 a year in income?

If earning:
3% interest, you would need $800,000
4% interest, you would need $600,000
5% interest, you would need $480,000

And you thought you needed to be a millionaire to retire early! This exercise does fail to account for inflation, both in terms of cheapening dollars and the costs of goods and services over time.  I doubt Netflix, or a similar company, will continue to offer one-at-a-time unlimited rentals in the year 2030 for $9.  However, running these numbers does emphasize the importance of minimizing the number of expenses you commit to early on.

Our Netflix membership alone puts us $3,600 further away from financial independence.  Our cable bill, although relatively small at $12/month, puts us $4,800 away from retiring early.  When you start to convert monthly expenditures to the amount of money required to cover their upkeep it really helps you prioritize what is important in your budget.

Homework:  Apply this formula to some recurring expense in your current budget and report the results in the comments below.  Does this required savings amount change the way you feel about continuing to pay for the item?