Las Vegas is famed for its sin and sleeplessness. But really, the city remains one of America’s last affordable indulgences. Off-season rooms at Circus Circus drop to $23/night so it turns out cheaper to live on the strip than to rent a two-bedroom Vegas home! Affordability and convenience make Vegas a hotspot even during a recession.
Check out this Infographic scaling Sin City’s crazy tourism industry:
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There’s no question that software and technology represent some of the fastest growing industries today. The internet has fundamentally changed the way we interact, do business, and spend money—without it, Frugaldad wouldn’t exist. That said, I always try and keep abreast of what’s happening in these sectors, and to be aware of how the online and tech industry makes its money.
I recently listened to an episode of This American Life called “When Patents Attack!”. Something that surprised me while listening was that while I think of patents as being mostly for gadgets and the kinds of products you see on infomercials, patents have become a huge factor in the software and online industries, to the tune of billions of dollars.
This infographic discusses some of the facts behind the patent industry and how it’s changed as software, technology, and the internet have developed at an incredible pace. I find the information to say a lot about the state of development and innovation; both how important it can be to everyday life, and the problems it can face on a larger scale.
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Have you seen the commercial from ING where the guy is out walking his dog carrying a sign with something like $1,086,532 in cut-out numbers? A neighbor stops to ask him, “What you got there?”
The man explains it is his number – the amount he “needs to save to retire the way he wants.” He notices his neighbor has a sign of his own…”$ GAZILLION.” “Is that your number,” he asks.
“How do you plan for that?”
“Oh, I blindly throw money at it…hope something good happens.”
While it is sort of humorous look at retirement planning, I suspect it represents the sort of planning most of us do when it comes to far off goals. I have sat down a time or two to attempt to arrive at my own ”number,” but it is rather difficult to predict what life may be like a few decades from now.
Save as Much as I Can
Up to this point my retirement strategy has been to “save as much as I can,” which reminds me a little of the gazillion guy. “Saving as much as I can” is not a viable strategy for retirement planning.
Instead, I should come up with a goal amount, a number, based on our current living expenses, project what our retirement income needs may be, and factor some unknowns like inflation, health care costs, etc. Now you see why arriving at a number is so difficult.
Then there is the daunting task of developing a savings strategy for reaching your number. The dog-walker in the video is a little older than me, so for simplicity I will double his number for example purposes.
Let’s pretend my number is $2 million. I’m roughly 25 years from traditional retirement age, so I’d need to save about $3,500 a month at 5% rate of return and 3% inflation, assuming I had no savings right now, to reach this retirement savings goal.
Just $3,500 a month, huh? No problem…just have to set aside a little after I pay the mortgage, the food, the utilities, put gas in the cars, etc, etc. Nothing to it. Yeah right.
You see why this gets overwhelming.
Now let’s assume I’ve been reading Frugal Dad the last four years and socking way a huge amount of savings. I have $100,000 saved towards retirement. With this starter savings amount in place, I only need to put away $2,800 a month to reach my goal.
That’s still a decent chunk of money, but I suppose if I pay off the mortgage early, take on a second job, and/or forgo things like eating and lights I might could scrounge up the money some years down the road.
By now I hope you understand the importance of starting early – particularly if you are reading this and your age begins with a 2!
This is how the exercise usually works for me. Rather than coming up with a goal number, I plug whatever seemingly small amount in I can afford to set aside each month for retirement, extrapolate out 25 years and see what the balance will be. The problem is, using this method I come up woefully short of my “number.” Sigh.
Determining Your Number
Much of the success or failure of this exercise comes from the first step – determining your number. There are plenty of retirement calculators out there that will help you arrive at this number. My suggestion is to use three or four of them and take the average. Most brokerage websites have calculators freely available, as do most major financial sites – Google is your friend here.
One drawback to these online calculators is that they make some pretty broad assumptions. It’s difficult to personalize the assumptions based on your lifestyle, your appetite for risk, your frugality, etc.
I often find the stated income needs in retirement to be much higher than what I really believe I could live on with no debt, no mortgage and a relatively simple lifestyle.
Take the results for what they are – a ballpark figure from which you can make adjustments to arrive at your “number,” or even better, your “Goal Retirement Range,” or GRR, an acronym I use to represent the range I’d be happy retiring on (and an acronym that adequately represents my feelings when trying to perform these retirement planning exercises – GRR!)
Your GRR may look like $600,000 – $800,000. Your neighbor may prefer a GRR of $1.2 – $1.4 million. It all depends on a variety of personal factors.
Just don’t let your GRR look like “oh, somewhere between $1 and $2 gazillion.” How do you plan for that?
If you asked me about the key figures of 2011, Justin Bieber and Charlie Sheen would be the last names to come out of my mouth. And yet, according to the 75% of us who use social media, these two are this year’s most important figures. Check out my new graphic illustrating our surprising social media addictions and what they say about us:
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Did you indulge in a few too many purchases this Christmas? Between sales for pre-Black Friday, Black Friday, early-bird Christmas, and the day after Christmas, it was almost hard not to overspend, unless you possess an iron frugal will.
We made it through the spending season mostly within budget, but there are a couple areas I’ll need to review in planning next year’s budget, and the corresponding contributions to our Christmas sinking funds.
In years past, we often blew through the budget and financed the remainder of our gift purchases on a credit card. Judging from the amount of swipes I saw in the check-out lines, I can assume we were not alone. Even in what most consider to be a fragile economy, there didn’t seem to be a shortage of shoppers willing to finance Christmas on their credit cards this year.
Assess the Damage
I’ve found the best cure for a holiday spending hangover is to address the damage head-on. No avoiding the bills until January 30th. No pretending it didn’t happen.
Between now and January 1st, figure out where you stand – how much damage was done. Did you blow through your budget and now find yourself low on cash? Did you rack up more credit card debt than you intended? Maybe a little of both?
Use Mint.com, or even a homemade spreadsheet, to take an updated inventory of your household finances. If you are able to transfer some money from savings, without jeopardizing your emergency fund, consider paying off your credit card debt before the New Year – debt free is a great way to start a new year!
If you don’t have enough cash around to pay off debt in one fell swoop, now is the time to devise a debt repayment plan for the coming year. How much will you have to pay each month to be debt free by April? Don’t let holiday debt hang around; it winds up becoming permanent debt, and two years down the road you’ll find yourself still paying interest on Christmas 2011 purchases. Not fun.
Update Your Plan for Next Year
Once you have addressed the damage done this year, consider updating your holiday spending plan next year. We underestimated our budget a bit for presents to extended family members and friends for which we wanted to give a gift. We also underestimated our “giving” budget, as we felt compelled to help beyond that for which had saved.
I don’t regret either decision, but I do want to build it into next year’s budget, because the earlier you start planning for a big expense, the easier it is to save for it.
Consider the following example:
Let’s assume next year’s Christmas shopping budget will be $600. If we start saving now that looks like $50 a month for the next year. If we wait until July, we’ll need to save twice that amount, $100 a month, to hit our goal. That’s a big difference. And it isn’t like Christmas sneaks up on us; it comes around every December 25th.
If you haven’t already created a separate savings account for these types of annual (or nearly as infrequent) expenditures, I highly recommend it. We have an online savings account that allows us to create a sort of subaccount where we save for infrequent expenses like car tag renewals, Christmas shopping, quarterly estimated self employment taxes, etc.
The sinking funds are funded by small contributions all year long, and when the expense is due, we simply transfer the money to our checking account and pay for it with cash. This has a way of smoothing out large budget blips, and reducing the likelihood of a spending hangover the next time around.
Before the New Year has us back in “holiday mode,” take a few days to reflect on this year’s holiday season. Hopefully, gifts will play but a small role in those memories, and instead you have happy memories of time spent with loved ones.
