Everyday Millionaires by Chris Hogan

 (written a year or so ago)

Reading Chris Hogan's Everyday Millionaires, to see if there's anything I can learn from it. Oddly enough, though my wife and I became everyday millionaires, and share a number of traits with the 10,000 millionaires his team interviewed for his book, I appear to have gone about it all wrong, for the most part.

 

First, I have never hired a financial professional to help me create and maintain a plan. The two times in our earlier days when we trusted "financial planners" to put us into the right investments and plans, they turned out to be commissioned salespeople who put us into investment types that benefitted them and their companies, and left us with poor returns and high fees. I did much better on my own when selecting mutual funds in our 401K plans, and later on when I began to invest in "dividend aristocrats" via our online brokerage account, as well as taking advantage of ESOP plans that were available to my wife a couple of times.

A Budget Solution

(this post was written in July of 2015, so any reference to current events may seem odd, and wages/prices have changed, minimum wage has gone to $15 an hour in many places around the U.S.)

I was reading a post the other morning on Free Money Finance, and the author was talking about their pastor proposing a biblically based budget of Give 10%, Save 10% and live on 80% of your income.

One of the most interesting comments was "What about the poor? Your church must not have any poor people. They'd find it difficult to give 10%"

My thought, "Define poor." Are we talking about senior citizens living on a fixed income? At our church, they're probably our most consistent givers. Are we talking about broke college students? My daughter, when she was working part time going to college, gave 10% of her income to the church.

Defining "poor" is somewhat like defining "rich" - a tricky subject if the recent experiences of our presidential candidates are any indication. For every person in a given set of financial circumstances who believes they are too poor to give or save, there are others in nearly identical situations who are able to save and give generously.

I suppose someone who is a ward of the state, or has no income whatsoever, might have a tough time following this plan, but I don't think that's its intended audience, anyway. We have a mentally disadvantaged man named Tom who has attended our church for around 60 years, he has lived in an assisted living situation since his mother passed away about 25 years ago. Him, I would regard as unqualifiedly "poor", but I'm not sure he thinks of himself that way. He used to work at a fast food restaurant till they made him retire at 65, and I believe he used to put something in the collection plate when he had a little spending money of his own.

But I digress.

The 80/10/10 plan is a good, easy target for most people (let's just assume they're middle class, eh, and avoid any arguments about the poor) to try for in the first place. If you do something like this, you'll support charitable causes (church or secular), put some money away for a rainy day or retirement day, and probably not feel too pinched, financially, assuming you can keep the rest of your financial house in line. Could be a great starter budget. If you started doing something like this from the day you got your first job after high school or college, you'd probably have your retirement fully funded by the time you hit middle age, assuming the money was stashed in a 401K or IRA with an appropriate asset allocation (that's a whole different topic).

There may be some debate about who created the model I'm going to talk about - I first saw it in a financial article by Liz Pulliam Weston, who writes for MS Money online. It's called the 60% solution, and I think it's an even better model than the 80/10/10, but I'd call it a more "advanced" plan.

The 60% solution goes something like this:

60% - Committed expenses
10% - Retirement
10% - Long Term Savings
10% - Short Term Savings
10% - Fun Money

As you can readily see if you can read, there's no place in this budget for giving - on the surface. When I began to try to implement this in my life, I decided that the 60% Committed expenses would have to include my giving. This actually worked out well for my accounting purposes, as I've been "committed" to giving at least 10% to charity for quite a few years now. So, for the committed giver, this thing looks even harder to implement, on the surface, as now you have only 50% to spend on committed expenses, where a non-giver has that additional 10%.

When my daughter was about to graduate from college, I sat her down for an hour or two and showed her this model. I really need to sit down with her at some point and see how she's adjusted it to her lifestyle as a young married woman, just out of curiosity and to see someone else's perspective on how it all works.
Note: (2022) She and her husband have managed their money well and have both saved for the future and given some away to worthy causes. They should be just fine.

Again, I digress.

Let's talk implementation. I chose to implement this budget plan as applied to my gross income. I imagine one could do something with it on only take-home pay, especially if your retirement savings are not going into a 401K plan at work, and you have to shift them to an IRA yourself, but it seems easier to me to figure it on the gross, and to account for things that are withheld as being in either the committed category or one of the savings categories.

For example, withheld taxes are a committed expense. You must pay them out of every check, and if your income remains constant, so do they. They also tend to rise in direct proportions to most normal pay raises, so keeping them within the committed category through thick and thin keeps them as a pretty constant factor. I also put health insurance costs in as a committed expense. They're deducted from my wife's and my checks, so the amount is right there, easy to account for.

As far as retirement savings goes, here's the easy part. If you have a 401K, just sign up for a 10% contribution to the plan, and that part of the 60% solution is on autopilot from the start. Depending on when you start saving for retirement, you may need to adjust this upwards or downwards at some point - and you can move funds allocated for retirement to a Roth IRA or some vehicle which still allows you to save money, but gives you more options for when and why you're able to withdraw funds. Again, another topic.

The rest of the committed category includes everything that you have to pay on a regular basis, either monthly, quarterly, semi-annually, annually, etc. I've tracked my spending with MS Money for so long, I can predict this category pretty darned closely.

So, where are we? From our original 60%, we deduct 10% giving, and taxes. Depending on your tax bracket and how you've structured your witholdings, taxes are going to cut into that, as well. Let's just say that it's 15% of your gross. So, now we're down to 35% of your gross for fixed expenses. If you've followed the appropriate guidelines for obtaining a mortgage, your mortgage payment is no more than 28% of your income, so now we're down to 7% to live on. This includes utilities, groceries, gasoline, car payments, credit cards...all that stuff. Sounds pretty tough. Yep, it is tough.

It's probably something that's going to have to be implemented gradually, with the ultimate 60/10... proportions in mind.

Let's look at the final two categories, long term and short term savings. I'd say that long term is probably 2 to 5 years, as far as budgeting is concerned. The long term category for savings is for doing something like paying cash for your vehicles. Many PF gurus recommend that you always pay cash for a car that's about a year or two old (so someone else eats the depreciation) and drive it for 8 to 10 years.
Let's assuming you're basically starting from zero as a recent college grad, and you don't own a car yet. If we try to stick with the model as much as possible, but make an adjustment for acquiring a car, we could do the following.

Assume that your job pays $40K annually. If you follow the plan, you could save $4K a year in long term savings, and in 2 years you'd have slightly over $8K put away to buy a car - if you could defer that purchase and walk, bike or bus to work. In 5 years you'd have over 20K - with appropriate interest it'd be around $22K. This should buy you a pretty decent used car.

What if you went ahead and bought a car and financed it? Let's just assume that you bought something in the $8-10K range and financed the whole thing. Over 36 months, it's going to cost you $300 per month, limiting the amount of money you can put in short term savings to around $50 a month for that 36 months, then rising to $360 for the next two years. At the end of this time, you'll have approximately $10K saved up, so you can buy a new(er) car with cash this time, or keep driving the old one for another couple of years, when you'll have about double that.

That example assumes all other factors being equal. Inflation affecting the price of cars in just the same way as it affects your wages, and maintenance expenses, insurance, and licensing being the same no matter what car you bought. We all know this isn't totally real world, but you can see that it's going to be far better to save up to pay cash than to finance a car, assuming you can live without the latest, greatest status symbol.

Short term savings I think of as a more liquid, flexible thing, easily repurposed as situations change. You can save up for a dining room table, a new La-Z-Boy, a vacation, the kids' orthodontia down payment...whatever might be coming up in six months to a year. You can, if necessary and if you're funding both types of savings, shift a little money from one to the other, but you have to be aware of the consequences of taking money from one to feed the other, the type of delayed gratification implied. Move money from the short term to long term to get a new car more quickly, and you've now pushed out the time table for the new draperies.

(more later, perhaps)

Financial Planning

One of the things that most financial planners will do when you first get started is to have you fill out a survey that determines your risk tolerance, so they can see what sort of investments they can put you in. If your risk tolerance is low, they'll recommend money market funds, t-bills, bond funds. If your risk tolerance is high, then you get a big portion of your investment in the stock market, whether it be in individual stocks or mutual funds. Note - this is a vastly simplified model, the investment options available out there are mind-boggling.

One would expect that in the area of risk tolerance, as in most things, people would fall into some sort of bell curve, with only 10% of us being "out there" on the far end of the risk scale, betting it all on the stock market, wouldn't you? But, as evidenced by recent events, it seems that maybe 90% of us are out there on the high end of the risk scale, even those who by their circumstances (already retired, for example) should be at the low extreme end of the scale.

I submit that there's something seriously wrong with the risk tolerance model. The questions they're asking in those surveys need to change, somehow. What they really need to be asking about is our "loss-tolerance".

"How will you feel when you wake up one Christmas morning, and $350,000 of your $Million retirement fund has just disappeared?"

"How long do you think you'd have to put off your retirement if your income from your portfolio was only 70% of what it was last year?"

"What will you do when you find out that the last five years of your 401K contributions made no difference to your balance - it's basically gone?"

You see, these types of questions would perhaps more accurately allow financial planners to pick the best investments for folks, and avoid a heck of a lot of whining by those who:

"don't mind a lot of volatility",

"are willing to take a risk to get a higher long term return",

"have a long-haul, buy-and-hold investment philosophy",

and "can ride out the market's ups and downs"

I'm just sayin'.

Just Do It!

 Off topic today, but I had some thoughts I wanted to get down on paper.

I've heard various financial "experts" over the years, repeat the adage, "Investment success doesn't result from timing the market, but from time in the market." After about three and a half decades of personal experience in my own life, I have to conclude that they are 99% certainly correct, and I only use that figure because it is possible that someone, somewhere out there is smart enough to do it, but if so, they're keeping their mouths shut. Anyone who claims to have a "system" is simply trying to sell you something.

Ok, so my wife and I have saved and invested for our future in a number of ways, but primarily through 401k contributions, as well as a couple of employee stock ownership plans. We have also purchased individual stocks and mutual funds in our brokerage account, put money in our HSAs, bought CDs (way back when yields were over 6%). I've made selection errors, and suffered high fees, especially when we followed the advice of friends who had become financial planners and sold us variable annuities. 

But despite the various errors, fees and disappointments, one thing remained constant above all...we never stopped investing. Regularly, persistently, consistently, and with a fairly high to extremely high percentage of our income. In fact, the last five years before I retired, I was putting 50% of my salary in the company 401k, and my wife was contributing 25% of hers during that time period, as well as maxing out our HSA contributions and taking advantage of all company matching.

All of this has taken place over about 35 years, half a dozen major market corrections, and other market peaks and troughs. We just never quit putting money away. Instead of spending everything we made or, like some folks, more than we made, we kept our expenses down, sacrificed some of our personal desires - though never any of our real needs - and put our money to work.

You might think that we were only able to do this because we were high-income earners. I'm sadly afraid that this has not been the case. For most of our careers our income was not significantly greater than the national average, and even in recent years, most recent college graduates have higher starting salaries than we have ever enjoyed.

When markets went up - we invested.

When markets went down - we invested.

When we got a windfall - we invested.

When things were tough - we invested.

Every paycheck. Every year.

The end result of our consistent policy of saving and investing for several decades is that we have enough money in our retirement plans and other investments to live comfortably in our old age, regardless of whether Social Security pays out or comes crashing down someday. This isn't to say that a black swan event like the collapse of the U.S. or world economy couldn't take us down, but in that situation, I think we're all going to have real problems.

I say this not to brag, or to claim credit for the blessings God has given us, but rather to encourage anyone out there who doesn't think it's possible, that the system is rigged against the little guy, or that you have to have a huge salary to be able to become wealthy. Simply follow a consistent and persistent plan of investing over the long haul, and you can reap the rewards. If you start early and young, the total results will be astounding.

A Random Walk Down Wall Street by Burton Malkiel

 There was nothing terribly surprising to me in this classic by Malkiel. I'd pretty much read or heard it all before.

That said, however, for someone just getting started or looking for facts and figures and objective truth about the most effective way to invest their money without the ups and downs of the stock market keeping them awake at night, this book is a great primer.

Some choice tidbits:

"The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits."

"Discount brokerages make money on the spread between bid and ask prices on stocks."

"The golden number for American xenophobes—those fearful of looking beyond our national borders—is at least fifty equal-sized and well-diversified U.S. stocks (clearly, fifty oil stocks or fifty electric utilities would not produce an equivalent amount of risk reduction). With such a portfolio, the total risk is reduced by over 60 percent. And that’s where the good news stops, as further increases in the number of holdings do not produce much additional risk reduction."

"It turns out that the portfolio with the least risk had 17 percent foreign securities and 83 percent U.S. securities. "

A good definition:

"Some stocks and portfolios tend to be very sensitive to market movements. Others are more stable. This relative volatility or sensitivity to market moves can be estimated on the basis of the past record, and is popularly known by—you guessed it—the Greek letter beta."

There was a study performed investigating herd mentality, how people are influenced by those around them to do things that are irrational or counterfactual - often the case in investing.

"If caving in to the group was the result of social pressure, the study reasoned, one should see changes in the area of the forebrain involved in monitoring conflicts. But if the conformity stemmed from actual changes in perception, one would expect changes in the posterior brain areas dedicated to vision and spatial perception. In fact, the study found that when people went along with the group in giving wrong answers, activity increased in the area of the brain devoted to spatial awareness. In other words, it appeared that what other people said actually changed what subjects believed they saw. It seems that other people’s errors actually affect how someone perceives the external world."

In other words, the people you associate with can affect your apprehension of reality. Scary, huh?

Elements of Investing by Burton Malkiel

 Malkiel is the author of A Random Walk Down Wall Street, long considered to be one of the classic books on investment, so I thought I'd check out this book by him, as well. 

I think I've been studying investing too long now, as absolutely nothing in here came as a surprise to me. He and his co-author, to varying degrees, simply advocate buying broadly-based index funds with low expense ratios and relying on the overall market to deliver perfectly good returns without worry nor fuss. Pick an age-appropriate asset allocation, with a certain percentage allocated to bond funds, a percentage to international stocks and a percentage to domestic stocks, rebalance annually, and you can go on blissfully enjoying life on autopilot until retirement.

They provide a lot of data, painstakingly gathered over the years, to support their conclusions, which I certainly can't refute, and probably wouldn't want to. My only problem with it is it's all just so...boring. What would I fiddle with and fixate upon if I just handled all of my investments that way?

All kidding aside, this is actually very sound strategy, and could have been summed up in a simple news headline, rather than a novel-length work of non-fiction. However, it's a good idea to provide the facts to back up one's arguments, and Malkiel has done just that.

For the most part, I suppose, in my own strategy within 401k plans offered by my employers over the years, I have done something very similar to that, picking three or four funds, setting the autobalance switch to "on" and letting it ride until something changed, such as adding or removing fund selections by the custodial firm running the plan. And I've certainly recommended something similar to my own children and employees (surrogate children) over the years. 

A pretty decent book for those just encountering the idea of retirement investing, but nothing new nor exciting for those of us who have been around a while.

CFL analysis

This post is a little outdated, as CFLs have been replaced by LEDs, but the ideas apply, I believe.

Ok, read something that got me to thinking...it was about the cost savings of installing CFLs.
-------
(From Five Cent Nickel's pf blog)
"Now let’s work through the math so we can come up with some hard numbers.

Incandescent assumptions:
100 watt incandescent bulb
8 hours/day
365 days/year

100 watts corresponds to 0.1 kilowatts. At 10 hours/day that works out to:

0.1 kW * 8 hours/day * 365 days = 292 kWh

I just checked our latest power bill, and we are currently paying $0.108/kWh for electricity, so that one incandescent bulb would consume $31.54 worth of electricity per year.

Compact fluorescent assumptions:
26 watt compact fluorescent bulb
8 hours/day
365 days/year

Doing the same math as above, we have:

0.026 kW * 8 hours/day * 365 days = 75.9 kWh

At the rate for electricity, that works out to $8.20 per year — a savings of $23.34 per year just for switching out one light bulb. And that’s considering just the cost of electricity.

Given that most CFLs are rated to last an estimated 10x longer than incandescent lights, you’ll come out even further ahead if you can get them for less than 10x the price of an incandescent bulb. Since CFL pricing has come down dramatically in recent years, you’ll actually come out way ahead."
--------
I actually installed about ten CFLs in my house in various locations as the incandescents burned out, and I really haven't noticed any cost savings on my electricity bill.

So, I don't dispute that, for a given quantity of light over a given period of time, CFLs will use less energy, which is probably a good thing.

However, I don't think the theoretical cost savings will ever really be realized for most households.

In the first place, who leaves the lights on in their house 8 hours a day? In a commercial building, I can see that there would be significant energy savings, but at home? Most of us get up in the morning, turn on a few lights for whatever time it takes us to get ready, then turn them all off, and leave for work. When I come home from work, it's still lights out, and I don't turn on any lights until around 9 pm (in the summer time), at which point I've got another hour or so before I go to sleep, anyway. We turn off all lights except one on the nightstand, so on a good day, I've only got maybe 16 to 32 light-hours (kinda like man-hours) for the entire house. I suppose one could actually keep a journal of how many lights are on in the house, for how long each day, and actually make predictions based on that of more realistic cost savings from installing CFLs.

Second, who uses 100 watt bulbs in the house? Most light fixtures rated for home use say 60w maximum. Using 5C's methodology:
60 W incandescent
.06kW*8 hours/day*365 days = 175 kWh
14 W CFL
.014*8 hours/day*365 days = 41 kWh

that's a savings of 134 kWh at $.108/kWh = $14.42 per year per bulb replaced (THAT OPERATES 8 HOURS PER DAY).

From a financial standpoint, it only makes sense to replace "high use" bulbs with CFLs, if you're interested in ROI.

Third, as I mentioned before, I've seen little to no reduction in my electricity bills from the CFLs. Did I somehow purchase bogus CFLs? Or, is it just that the bulk of my electricity use is from other things. I suspect the latter. I have a refrigerator that runs 24 hours a day, an electric dryer that we run three or four 45 minute loads in each week, an electric dishwasher that runs 2 or three loads a week, an electric oven used to cook our food at least a few times each week, an electric fan in my heater/air conditioner that runs almost constantly, except in the spring and fall, an electric motor in the heat pump for the AC, computers, printers, routers, modems, coffee machine, can opener, toaster, microwave...you get the picture? CFL usage just isn't gonna cut it, in my opinion.

If you want to save the planet, you better learn to live without any of the modern conveniences, the light bill ain't the half of it!

Impulse Buying

From the Get Rich Slowly blog, I found the following list of questions to use on yourself to avoid impulse buying.

1. When will I use this?
2. Do I have another one like this already?
3. If I buy this, where will I put it?
4. If I buy this, can I pay cash?
5. Can I buy a good-quality, used version for less?
6. Do I know somebody who already owns one I can borrow?
7. Can I wait to buy this?
8. Why do I want to buy this?
9. Are there better options available?
10. What would my wife say if I bought this?

Great list, and I use some of these questions, myself.

1. This tends to ward off the "ooh pretty!" factor. I've always wanted a pair of snakeskin cowboy boots, just because they look so cool. I've never spent the money on them, though, because the number of times I'd wear them in my life is below trivial. They used to be mandatory wear for corporate VPs at a company I formerly worked for and owning them back then might have gotten me recognition, promotion, or respect, but I find cowboy boots extremely uncomfortable with my wide, ducklike feet, and I don't wear dress up clothes more than once or twice a decade.

2. This is a real kicker for me. It's why I have a monster card catalog of my books. I should have one for all my tools and gadgets, too, but it's way too much work to create. Failing to bring my card catalog along to bookstores these days keeps me from buying anything I'm not absolutely certain I don't already own, but it didn't used to be that way - I'd just take a chance.

3. I'll put in the garage, most likely. That's where most of my junk ends up.

4. Who carries cash any more?

5. Well, duh.

6. This one is great. I've managed to talk myself out of buying a pneumatic nail gun several times, as my neighbor, Dan, has a couple I can borrow any time. Same thing with a furniture dolly and my neighbor, Paul. I have another neighbor across the street who is a general contractor, so he's got all the tools, too. Sometimes, though, there's an immediate need for something and you can't wait for the person who owns one to get home. I'm always loaning out tools to people I know, too, so it all comes around.

7. This is one use for creative procrastination. At times, though, it leaves me scrambling around at the last minute before a trip or some other deadline, when I determine that I really do need it...NOW!

8. Aside from books, most of the things I buy have some rational basis in need.

9. You're talking about a guy who suffers from analysis paralysis here, so if there's a better option, you can bet I've researched it endlessly.

10. Usually, "just buy the darned thing!"

The Overwhelming Power of Stuff

While working on rebuilding the back porch of Dad's cabin with him, I reflected on the packrat mentality that seems to be an integral part of my family culture. I'm certain that it's a cultural and not a genetic thing, because I'm not biologically related to him, or to his father, the king of pack rats. For grandpa "Pa" Herman, it was an attitude that he learned as a young man experiencing the Great Depression. My father was born in 1936, and he remembers all too well the type of frugality required to survive in the pre-war years.

Anyway, all three generations of our family that I've seen as adults had or have garages and homes packed to the gills with "stuff". Not necessarily new shiny stuff, but just stuff, tucked away on a shelf or in a drawer, "just in case."

When the "just in case" was rebuilding the back porch 45 miles from the nearest lumber yard or hardware store, Dad had stashed away a length of 2x6 that was long enough to build a new joist, and a piece of 2x4 that was just about right for the new stair tread. If he hadn't tucked them away however long ago, we'd have had to wait until he'd gone home and come back, having made a trip to Home Depot in the meantime. Upstairs in the cabin there's a ton of potentially useful items mouldering away; lumber, pipe and fittings, wire and electrical fittings, and all kinds of tools - duplicates of things we have in our garages at home.

The "wise" thing to do, it would seem, is to only purchase one of each kind of tool we might need, and merely do a better job of planning what tools to bring from home to the cabin on each trip. However, in this case, and on many other occasions, having the right tools and supplies for the job on hand saved us time and money.

In my own garage, for example, the amount of stuff is overwhelming at times. There's partial rolls of fiberglass insulation and a half a bag of blow-in insulation, a bundle of shingles the same color as the roof on the house, partial cans of paint from each room's color. There's an entire box full of old hinges, door handles and latches, boxes full of plumbing fittings, electrical outlets, and sprinkler parts. There are extra trailer hitch balls, converters for every imaginable type of trailer lighting connector, and nearly any type of screw, bolt, nut, nail, staple or fastener. There's mortar, paste, glue, grease, and dozens of cans of spray paint.

Then, there's some truly odd stuff. I have a blade for an antique scythe, a couple of rings from horse collars, an old tv tube, two AT&T brand D batteries, a 120/12V transformer, two wheel weights from a long-dead riding lawn mower, a spare drawer for a vanity I don't possess, a bucket of extra socket wrenches, the bunk bed and back door (WHY??) from the old camper, six inches from the end of a logging chain, a jacuzzi pump (I don't own a Jacuzzi), two shovel blades, a kit to make a wood stove out of a 55 gallon drum, a sturgeon pole (never been sturgeon fishing), extra boot bolts and fins for wakeboards, and so much other stuff that it's really impossible to list.

When I'm working on little repair or construction projects around the house, I often wander out to the garage and find something that will help me finish the job without a trip to the hardware store. It's impossible to know ahead of time just what might be required, so I hang on to everything. A month or so ago, I poured a concrete box for my irrigation line near the driveway, and for some odd reason I held on to the used pieces of wood I'd cut out to fit around the pipe as a concrete form. Last week, when I was working on the irrigation project down at a neighbor's place, those same pieces of wood, with minor mods, worked perfectly to form up a box around the new pipe we'd installed and the old pipe, so we could seal things up with concrete. I just never know, and my packrat instincts work out for the best every so often.

As you might imagine, finding things in my garage can be a bit of a challenge, and I can often be seen wandering about with a puzzled look, muttering to myself, "I know I have one of those somewhere..." Would it actually be more time-efficient if I just ran to the store?

The One-Page Financial Plan by Carl Richards

I really enjoyed Carl Richards' The Behavior Gap, both the book and his web site, and so I looked forward to reading his new book about financial planning. For me, however, there wasn't anything really new to learn here. I can see how it would be good for a person who was feeling intimidated by the magnitude of the financial planning task, but I really didn't have a lot of takeaways here.

He starts with goal setting concepts, and builds on a very simple framework of just doing the right things a piece at at time to accomplish those goals. What he really tries to do is to make a scary process seem folksy and conversational. You might buy this book for one of your kids who is just getting through college. 

Nothing bad to say about the book, but it didn't really float my boat.

The Last Chance Millionaire by Douglas R. Andrew

 Andrew starts with a good discussion of the basics, such as compound interest vs. simple interest, and the different types of tax-advantaged retirement accounts most Americans use, as well as knocking down a few myths about Social Security. If you need the primer, this is some good foundational material. 

He dropped hints along the way which led me to believe that he's going to propose something similar to the universal/whole life insurance policy-based juggling act proposed in Dan Thompson's book which I reviewed back in 2010.

One serious issue I have with some of his basic information is that its underlying assumptions about returns are flawed. Dave Ramsey does the same thing, telling his viewers that it's possible to earn a steady 12% return in the right mutual funds year to year. That's simply not true, I'm afraid. Thompson talks about making huge equity gains in the real estate market, which you can tap into by refinancing your home and using the money to invest (something I heard about years ago, called the Smith Maneuver), but this book was published in 2007 - just before the big real estate bubble burst. If your investment time horizon is long enough, returns in the stock and real estate markets are positive - over the LONG haul. Timing those markets can be a real, pardon the phrase - bear.

Reading on through. my surmises turn out to be correct. Andrew recommends purchasing a "properly structured investment grade life insurance policy", and basically funding the policy to the maximum allowed by tax law, in order to get a guaranteed tax-free return on your retirement funds. If it meets federal guidelines for insurance policies, then you can withdraw the proceeds tax-free up to the point where you've withdrawn the equivalent of your "basis", I believe, after which you can take out loans against the principal and, in theory, still pass on the full face value of the policy to your heirs when you pass on.

Though it goes against the whole "buy term and invest the difference" motto I've used for several deccades now in my own investing, I thought it might be worth taking a peek...until I discovered that the whole book is simply a referral to his own firm, and that the only other firms he recommends must be affiliated with him and "properly trained" to set up these types of contracts. In fact, you can't even get a list of the names of these firms without going through his agents, it appears.

Just another well-disguised sales pitch, sold as a book.

Ah well.

Around the Web

A good article on the costs of commuting at Get Rich Slowly.

How Rich People Think by Steve Siebold

 A while back, I read an article with excerpts from Siebold's book online, and found it so interesting, that I put it on my TBR list, waited for ages for my local library to get a copy, then even longer before my hold came to the top of the list. Now that I've finally started reading it, I think the article cherry-picked the best points out of the book, as I'm finding a great deal of it repetitive and, well, the best adjective is perhaps... "unsupported" as if he just pulled some assumptions out of thin air and run with them.

The format of the book is a series of paired statements beginning with "The middle class..." and "World class..."comparing the two groups. "World class" appears to be used interchangeably with "the rich" and "middle class" with "the poor", but he doesn't really define "world class" very well, though a partial definition appears twenty one chapters in, when he attempts to separate the "upper class" or ruthless rich, from the world class rich,

"Are some rich people ruthless? Of course, but that type of people we define as 'upper class.' Upper class consciousness is an ego-based level of thinking rooted in fear and scarcity, and some people operating at this level become rich. The world-class level of thinking is spirit-based with its roots firmly planted in love and abundance."

I agree with Siebold in his assumption that - all other things being equal - the difference between financial success and failure is largely (he would say entirely) a product of how a person thinks about money. I firmly believe that any citizen of the U.S. has the opportunity to rise above their circumstances and become as successful as they want to be, if they will quit listening to the lies told by their friends, family, the news media, their local politicians, their schoolteachers, and coworkers, and be set free by the truth. That said, I also firmly believe that the results, as in pretty much everything else in life, will probably fall into a bell curve distribution, with a very small upper "head" succeeding beyond their wildest dreams, the vast majority landing somewhere in the middle, and a narrow "tail" bringing up the rear in abject failure. This is simply the nature of the world as we know it.

One of the best features of this book, from my point of view, is its function as a virtual bibliography of books on finances and success. At the tail end of each chapter there is the title of a relevant book for all you "world class" thinkers to read. I'm taking notes and putting a number of them on my wish list at the library.

Some pertinent quotes that I liked:

"Identify the biggest problem in your business or industry, that if solved, would earn you a fortune. Then go solve it."

I like that thought.

"While the masses are memorizing box scores and batting averages, the world class is directing the same amount of mental energy into revenue producing ideas."

and

"While the masses are playing video games, watching television and surfing the internet, champions are setting goals and designing strategies to make them a reality."

Not to mention the masses' wondering what is happening with the royal babies, and actually caring about Brittany Spears' latest trip to rehab, or falling for the latest conspiracy theory.

"Middle class earns money doing things they don't like to do...World class gets rich doing what they love."

I'm sorry, the first may be true, but the second is, once again, a perpetuation of the idea of "do what you love and the money will follow." The only people statistically speaking who are getting rich off this idea are the ones writing books touting such foolish advice.

I have yet to get rich by reading science fiction and fantasy books or, for that matter, by writing about what I've read. There's simply not that much of a market for my opinions. I could make a decent living running my own restaurant, or a catering business, but it's highly unlikely that I'll become a million- or billionaire doing so. Now, if I had figured out that there was a huge market for people to buy science fiction and fantasy online a decade or so ago, I could have founded Amazon, but my last name is not Bezos. One of these days I'll have to read his bio, but I'm pretty certain it wasn't a love of reading that got him to where he is today.

The question has yet to be answered, "Can you become rich/wealthy by doing something you hate well enough and long enough?"

"Don't let the opinions of the average man sway you. Dream and he thinks you're crazy. Succeed, and he thinks you're lucky. Acquire wealth, and he thinks you're greedy. Pay no attention. He simply doesn't understand." Robert Allen

Great stuff there.

"The most frequently uttered comment of the middle class in reference to money is "I can't afford it". Rich people know not being solvent enough to personally afford something is not relevant. The real question is, "is this worth buying, investing in, or pursuing?" If so, the wealthy know money is always available because rich people are always looking for great investments and superior performers to make those investments profitable. The great ones are aware that it's easier to borrow ten million than ten thousand, a critical non-linear concept to know when raising capital." (emphasis mine)

This one is very very true. Dave Ramsey is right when he criticizes consumer loans as a bad idea. Paying interest to purchase a depreciating asset (which nearly everything we middle class buy is) is a bad bad investment. A number of very successful people I have known in my life, however, use other people's money, wisely borrowed on favorable terms, quite regularly in order to make sound investments in property, the markets, or business. Not going to go all Adam Smith on y'all, but ready access to capital has been the root of all success in the last couple of centuries.

An action step:

"Start telling yourself on a daily basis that money is your friend and a positive force in your life, and your mind will go to work to help you acquire more."

This one just gets me giggling. It reminds me of a  recurring SNL sketch for some reason.

Regarding the world class,

"Materialism is only part of their motivation, the strongest for most is the freedom to do what they want when they want."

Oh Lord, don't we all want that?

This one is worth reading for the nuggets of gold inside, and especially for the bibliography stuff.

Around the Web

An interesting article about saving for retirement, for those starting early, by Marotta on Money.

Another Fun Money Tip

So, there appear to be a number of my friends who like to give Uncle Sam and their local taxing authorities a bunch of money over the course of the year, trusting the .gov to maintain their savings account, and who are pleasantly surprised by how much money they get back in the Spring. Personally, I'd rather not do that, but there is a year-end tax strategy one can use to increase the amount  of your own money refunded money the nice man saved for you that you receive.

(consider this a generic disclaimer about YMMV based on your AGI) For every $100 that you put into an IRA before April 15th, you will receive a credit on your federal and state returns equal to the percentage of the marginal tax bracket you fall into. Doesn't that sound funny? Whoops, I just fell into a tax bracket, twisted my ankle! So, if your marginal tax rate is, for example 15%, you'll get $15 more in your refund check for every $100 you put into an IRA.

If, and I know that this is a big if for some folks, you have some money you have managed to save without the help of the lovely folks at the IRS, putting it in an IRA before the 15th of April designated for the previous tax year will get you more money back from your "savings account." It also has the double-plus-good advantage of also being saved for your retirement someday.

Statistics tell us that few people in this country are maxing out their 401Ks and IRAs, so at least the strategy is potentially available for many. In a practical sense, perhaps not.

Stealth Savings

I've found, over the years, that the best way to save and invest is to a) automate it, and b) save before you have a chance to spend it. I like to call this "stealth savings".

If you're fresh out of school, and just starting your career, you may think that you'll always have time to save later on..."someday". Unfortunately, "someday" seldom just leaps up and whacks you on the head with a two by four and gets your attention, so it's best to make "someday" today. This is actually the best possible time to start the saving and investing habit, and the best shot you've got at using the effect of compounding over time to grow your net worth.

You see, when you first start that new job as a new graduate (or for those of you starting career #3 later on), you have the chance to set up automatic payroll deductions before you even receive that first paycheck. The human tendency to rapidly grow accustomed to spending whatever amount of money you have in your checking account works in your favor, if you make sure that a certain percentage of your income is sent away before you ever see it, to go to work growing and compounding for you.

The first thing to fund at your new employer is your 401K plan. This subject has been thoroughly explored by personal finance bloggers for ages, but I'm just going to tell you what I told both of my children when they headed out on their own after college. At a bare minimum, contribute enough to your employer's 401K plan to take advantage of every bit of the match that they offer. I've seen a 50% match up to the first 6% contribution from a number of employers so often it's probably the "standard" that 401K custodians offer. Rule #1 - get every penny of matching funds that you can. It is FREE money, TAX FREE! Well, actually tax-deferred, but that's another day's topic.

There is absolutely no better way to get a guaranteed return on your investment. I can think of no other investment out there that will get you a 50% immediate return, before any compounding. Even if the matching percentage is lower, as long as it's better than the average returns of the equities market (historically between 8% and 12% long term), take the free money!

Now, I actually recommend allocating no less than 10% to your retirement - and some financial planners will recommend 15 - but you can spread that out between 401Ks, IRAs and Roth IRAs, if you have them set up. However, as a newly minted baccalaureate, you probably haven't gotten around to it yet, so the 401K is quick, easy, and painless.

After that, you'll get your first paycheck, and within a few months, you'll have become accustomed to living on the net amount, while happily knowing that your retirement is being at least partially funded and that you're getting better returns than anyone with a hot stock tip around the water cooler.

One other opportunity that's often made available by employers is called an ESOP (there are a couple other acronyms out there, too) or Employee Stock Ownership Plan/Program. These have sometimes gotten a bad rap because of companies like Enron that played fast and loose with the accounting, and encouraged their employees to invest heavily in the plan, as well as loading up their 401K with company stock. If you see this sort of hype happening at the company you're joining, RUN!

For most well-established companies, however, the risk involved in an ESOP plan is minimal, and the upside can be quite nice.

While I, personally, have never had an ESOP available where I worked, my wife has been able to take advantage of them twice in her career. And when Mama's happy...well, you know.

The first ESOP plan we encountered allowed her to put a certain amount of money in company stock, deducted regularly from her paycheck, and the company contributed a 100% match to purchase the stock, up to a maximum dollar figure which I can't recall just now - it was fifteen years ago. We were all over that like white on rice! We weren't exactly high rollers at that time, busily raising our family, but she contributed $25 a month, the company contributed $25, and the net effect was a 100% automatic return. Unless the stock's value went to zero, it was very difficult to lose money on the deal. By the way, the company she worked for was very stable, had been in business for decades, had a good business model, etc. That's not to say you shouldn't give this a shot if you're working for a high tech start up - just don't play with money you have to have to pay the bills. I'm sure Bill Gates' early employees are happy they took advantage of the stock plan at Microsoft.f

The first part of the stealth strategy, then, is participating in any automated savings plan, especially those that get matching money, offered by your employer. If you're self-employed, you're gonna have to do it the hard way.

So, here's the second part of my stealth strategy. Whenever you get a raise, put at least some of that raise into an automated savings/investment plan. You'll never miss the money this way. The least painless way to do this is, for example, if you get a 4% annual raise, instantly allocate 2% more to your 401K contribution. Then, you get half of the net raise in your take home pay, which you can spend on a few little rewards, or increase your lifestyle slightly, while half of the gross (pre tax) raise is going directly to your retirement plan. Do this regularly over your career and you'll be a happy camper when you're ready to retire.

Alternately, you can increase your contributions to an IRA or Roth account, if you've got one set up by now. Your financial planner should have gotten you all set up, right? Or, you can increase the money you're putting away in company stock. As long as it's not cutting into your basic living expense budget, it's usually a good strategy.

In our case, my wife went from contributing $25 a month to $50, then to $100, then $200, over about five years' time. When she finally left the company, she had a pretty substantial investment nest egg of their stock. Additionally, it paid quarterly dividends which were DRIP'd (see Get Rich Slowly's great article on DRIP investing) back into the plan. We ended up making a lot of money on that stock by the time it was all gone. We sold little bits of it here and there, to take advantage of other opportunities.

The second time she participated in an employee stock plan, it wasn't a "match" type of plan, but gave a fixed discount on the price of the stock for money contributed throughout the course of the year, purchased for her at the end of each plan year, based on the lowest price, either at the opening of the year, or at the closing of the year. Even if the stock went down in price, you couldn't lose money!

That plan also offered dividend reinvestment, but we declined it, and had them send my wife a dividend check every quarter, so she'd feel like she was getting some immediate, concrete benefit from the plan. Once every three months, she'd get a nice little "mad money" check from the company, and get to spend it on fun stuff for herself. Use whatever strategy motivates you best.

The point of this tale is not "Woohoo! Look how much money we made!", but that we did it without ever really noticing that the money was not in our budget, because we used the stealth tactics of a) automating the investments and b) investing the money before we ever got the chance to spend it. When you combine those tactics with the effects of free money from an employer match, price subsidy, the compounding effects of dividend reinvestment over time and price appreciation over time, you, too, can have powerful results.

Mythbusting Again

From U.S. News and World Report
Paying off debt before saving for retirement a bad choice
Some popular financial pundits urge people to pay off credit card and other non-mortgage debt before saving for retirement. Such advice is arguably the most costly mistake a future retiree can make. While every situation is unique, such blanket advice misses the mark for two reasons.

First, the vast majority of a retirement nest egg does not come from the money you save. It comes from the compounding returns earned off of the money you save.

Compounding requires time. Delaying retirement savings by even a few years can significantly reduce your savings decades later. Second, with today's interest rate environment, it's easy to lower the rates on most debt. From mortgage refinancing to credit cards with 0 percent introductory rates, the cost of debt can be dramatically reduced while you work to pay it off.

True, the vast majority of a retirement nest egg does not come from the amount saved, but from compounding returns over time. But what about the compounding interest on debt?

If you make the minimum payments on credit card debt at 18% or more, you'll end up paying for a long long time, and the interest will vastly outstrip any returns you're like to get, even in a bullish market. For my own long term calculations, I like to use 8% returns over the long haul, which is far more realistic than the 12% Dave Ramsey likes to use in his seminars. It is very very difficult to find a credit card that doesn't charge at least 12% interest, so even if you get Ramsey-like returns on your investments, you're only breaking even, not to mention what it's doing to your cash flow.

For example, on a credit card balance of $15,252 (the US average), at 18% interest, making a 2% minimum payment - and that's a constant payment of 305.04, not the decreasing approximately 2% minimum payment that appears on your statement- it will take you 94 months to pay it off, for a total expenditure of $28,674, nearly double the original amount. That figure gets worse if your interest rate is higher.

To end up with $28,674 in your retirement account over 94 months, at even the generous 12% returns touted by Dave Ramsey, you would need to contribute $185.22 each month. If you try to subtract that amount from the minimum payment you have to make on the credit card debt, you'll never pay the credit card off. The amount owed will simply grow unbounded, even without the extra charges the bank is going to whack you with for not paying the minimum.

And, I'd think it would be obvious to anyone with even a tiny knowledge of arithmetic that if you are only required to pay a 1% minimum on your credit card at 18% APR, once again you can never pay it off! The monthly interest exceeds the payments - just staying even requires a 1.5% minimum payment! At 12% interest and 12% return, your debt doesn't grow, but you pay on it forever, even if you don't run up more when the kids go off to college. Quite frankly, the numbers are more likely to be 6% to 8% return and 18% to 21% credit card interest, for most people.

In the opening line of their advice, they say "paying off credit card and other non-mortgage debt", then they go on to talk about refinancing your mortgage as a solution. Are they advocating wrapping credit card debt into a new mortgage? I have no objection to refinancing a mortgage to get shorter terms and lower interest rates, when possible, but increasing the balance on what's already probably the biggest debt you owe isn't really such a good idea.

Psychologically, most people who refinance credit card debt, whether it's into a mortgage payment, or through some other debt consolidation tactic, end up running the credit cards right back up again in a very short time. From that standpoint alone, it's a very bad idea.

What about transferring the balance to a 0% introductory rate card? If...and it's a big IF...there are absolutely no fees for balance transfers, and IF the 0% rates last at least a year, and IF you divide the balance by 12 and make every equal payment, so that it's paid off within a year, it can be a great idea. Again, what really happens for most people is that they get the 0% interest for one year, and either make minimum payments and/or run the balance up higher with new purchases, and when the rate reverts to its default rate, they're worse off than they were before.

The best idea might be a "balanced" approach, where you contribute at least enough to your 401K plan to get the employer match - it's the risk-free yield you'll ever get, and then pay down your debt as aggressively as you can with what's left over. Note: people generally spend everything they have in the checking account if they don't have a spending plan (budget) in place, so I recommend getting a plan and working it asap.

Ok, rant complete. Have a nice day.

The Way to Wealth by Benjamin Franklin

It's amazing how many of the principles that personal finance bloggers are using today are the same ones put forth by Poor Richard over two centuries ago. Of course, they showed up in The Richest Man in Babylon a while back, too...but that was actually not written during Nebuchadnezzar's reign, you know.

A great quote:

'Friends,' says he, 'the taxes are indeed very heavy; and, if those laid on by the government were the only ones we had to pay, we might more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly; and from these taxes the commissioners cannot ease or deliver us by allowing an abatement.'

Remember..."God helps those that help themselves." Franklin

On the first of Franklin's virtues, Diligent Work,

"Sloth makes all things difficult...and...early to bed, and early to rise, makes a man healthy, wealthy, and wise."

I rather like,

"Diligence is the mother of good luck, and God gives all things to industry..."

Another Franklin classic,

"Never leave that till to-morrow, which you can do to-day."

And perhaps more pointedly,

"Many, without labour, would live by their wits only, but they break for want of stock;"

Coming unarmed to a battle of wits, I see. LOL.

Ever hear a businessman say that if you want the job done right, you've got to do it yourself? Franklin says,

"If you would have a faithful servant, and one that you like,—serve yourself."

After hard work, Franklin's next recommended virtue is Frugality.

"If you would be wealthy, think of saving, as well as of getting."

"Beware of little expences;(sic) 'A small leak will sink a great ship', Poor Richard says."

"Many a one, for the sake of finery on the back, have gone with a hungry belly, and half starved their families."

Wow, does that make you think of some folks running up the credit cards or what?

"If you would know the value of money, go and try to borrow some; for he that goes a borrowing, goes a sorrowing," says Franklin's alter ego, and, "Lying rides upon Debt's back."

A short work, readily available for download from Project Gutenberg, and well worth perusing. Far cheaper than Dave Ramsey's seminars.

Money Rules by Jean Chatzky

Jean Chatzky is a very successful writer on the topic of personal finance. I'd heard her name taken in vain not so very long ago on an infotainment segment, where the "expert" proceeded to rant about the horrible advice people like Chatzky, Suze Ormond, Robert Kiyosaki, and Dave Ramsey peddle. For the most part, I've found the advice of Ormond and Ramsey to be fairly sound, though I have taken issue with a few bits and pieces here and there. I got a copy of this Chatzky ebook along with a copy of Willmaker I picked up at Costco, so I thought I'd check her out.

The books was an extremely quick read, just a series of short rules about money, with only a paragraph or two about each rule. Again, for the most part I have no problems with recommending Chatzky's rules to most people, most of the time, but for more complex financial situations, some of them are simply going to be inapplicable, and more professional advice required - probably paid professional advice.

Some bits that caught my attention as I buzzed through:

Rule 12. Save more with every raise.

I've followed this one for a number of years, and passed it on to my children. At least one of them that I know of has been following it, and are well-started on building their retirement nest egg. When I get a raise at work, I take half of that raise and just add it to my automated 401K contribution. I never miss it! My paycheck still goes up, and my retirement plan looks better, too. I highly recommend following this rule. You could also shift a portion of every raise towards other savings goals, like saving for a down payment on a house, a new car, or your kids' college funds. Avoid lifestyle creep - don't spend all of your raise.

Rule 21. Save for something

Chatzky says to put a name to your goals and put aside savings for those things in particular. Here's one, aside from my retirement, and my grandkids' college funds, that I don't do so well. I just put money away "for a rainy day", and when I need money for an emergency, a down payment, a major purchase, or whatever, I have money in my general savings account (usually) to pay for it. I'd really like to do a better job of this, but I just hate having multiple savings accounts at multiple banks.

Rule 29. Use your emergency savings for emergencies.

Chatzky says you should always take money from your emergency fund to pay for emergencies, like the car breaking down, or unexpected medical expenses, and that you should not put it on your credit card. So, this is where I break from people like her and Dave Ramsey. I put everything I possibly can on my credit card and pay it off at the end of the month, taking money from my emergency savings for anything charged on it that was actually an emergency, or unexpected. In the first place, I get a nice cash back bonus every month from my credit card company. There have evidently been studies performed that show that people spend more money when they use a credit card than when they pay cash, but I firmly believe that I'm not one of them. My wife will tell you I'm so tight I squeak. Second, the credit card statement, and the card company's utility that categorizes expenses, are a nice way to actually keep track of what I spent, when I spent it, etc. I have an emergency fund. I use my credit card. I love the cash back! Sue me.

Rule 34. The best cost-cutting tool is a good night's sleep.

Chatzky recommends that you sleep on it before making a purchase decision. If you don't feel the urgent need to buy after a good night's sleep, you didn't need it that badly to begin with. I agree totally. In fact, I have a list of things that I think I need to purchase that I carry around with me. If it's not an urgent immediate need, sometimes things stay on the list for months before I get around to buying them. At that point, I run across the item used, at a deep discount, borrow it from a friend, be given the item as a gift, or I may simply never buy it, removing it from the list at some point, as the need has passed.

Rule 38. Pay bills as they come in.

Having a big pile of unpaid bills is a huge stress inducer. I used to let my bills stack up on the kitchen counter until payday, then sit down and write out all the checks at once. Then, I moved to writing out the check the day the bill arrived, putting it in the envelope, ready to mail, with a post-it note showing the due date, and placing the bill in the mail a week before it was due. Now, for the most part, all of my bill paying is fully automated, with my bank mailing out the checks for me. I check up on things every so often, and have to go online to enter the amounts of variable bills once in a while, but it's a very painless process.

Rule 47. Shop with a list.

If you make a shopping list, and only buy the things you have put on the list when you go shopping, you'll save a lot of money by avoiding those impulse buys. I am a list freak. My shopping list is even arranged in the order the items appear at my favorite grocery store. I have lists for everything, from shopping, to daily tasks, to packing for a camping trip or a trip overseas. They're all in my documents folder, and I can print out the type desired within moments of the need. Yeah, I'm way compulsive about lists.

Rule 53. It's not about having it all. It's about having what you value most.

Chatzky believes many people have regrets about how they spent their money, down the road. She says one way to avoid making the same mistakes over and over again is to keep track of your feelings about your purchases, so that when you have a bad experience with a vendor, a brand, or a meal, you won't buy there again. Pretty smart idea. I've been journalling my life for about ten years now, and I can go back and search the archives to find out when and where I purchased things, whether I was happy with them, and what the name of that restaurant where I had the most awesome French Dip of my life was. It's quite handy.

Rule 91. Don't take financial advice from someone just because they're wealthy (or related).

Chatzky doesn't elaborate on this rule at all. I'd love to know her thinking on this one. First, would it make sense to take financial advice from someone who is poor? I don't think so. I always thought that you should get financial advice from people who have achieved the type of financial success that you want to achieve. On a parallel note, I wouldn't take relationship advice from someone who has been divorced multiple times; I'd rather hear from someone who stayed married for fifty-plus years. Second, would it make more sense to take financial advice from a stranger, rather than someone who actually loves or cares about you. I'm not entirely sure this rule holds water. I think I'll have to go look at what she has to say about it online somewhere. Maybe I'll get back to you.

All in all, a quick read, worth the time, and there's definitely some great principles here.

Another Fine Myth

No, not the marvelous book by Robert Lynn Asprin...just another semi-debunking by yours truly. I've read, several times, articles by frugal folks that claim that you need to unplug all of your appliances, TVs, computers, etc., even while they're not powered on due to the whole issue of "phantom power". Phantom power appears to be the consumption of power by the circuitry of devices when they're in a standby state, without being fully powered on. If you unplug those appliances, you'll save lots of money, they claim.

A little background - first, I live in a state where we have pretty cheap power, generated mostly by hydroelectric means, so YMMV if you live in New York or California. Second, even if there were some amount of phantom power being consumed, I'd be willing to put up with it for the convenience of having some things always ready to power on, and we all know it's a real pain to have to reprogram the clock on your microwave, VCR and everything else in the house that has one, so the cost savings would have to be pretty large, as a percentage of my total power bill, for me to make the change.

I bought a little device at Home Depot last weekend called a Kill-a-Watt, which measures the power consumption of any device plugged in to a 120V electrical outlet. You can program your per-kilowatt-hour-cost (look at the rates on your most recent power bill) into it, and it will automatically calculate the hourly, daily, weekly, monthly or annual costs of the device - based on 24x7 usage. Unfortunately, it has no way to monitor the 220V appliances around the house, like my dryer, furnace, oven and water heater, as I suspect those are the big draws to begin with.

My total average monthly electric bill is $120 - higher in summer and winter, lower in spring and fall.

Here's some of my results:

The charger for my cordless drill, which I leave plugged in all the time, and which has a glowing green LED. Total Cost per month $0.

An entire group of charging devices for my wife's and my cell phones, bluetooth headset, Nook e-book reader, and Zune music player, plugged into a single power strip. Total Cost per month $0.05.

My wireless printer/scanner/copier on standby. Total Cost per month $0.38.

A dorm room fridge that used to belong to my son, that we keep soft drinks cold in, in the pantry. Total cost per month $1.42.

40" Flat Screen TV, Cable Box and BluRay player with WiFi. Total cost per month $2.29.

A 60W bulb in a light fixture on an end table in the living room. Total cost per month $3.11.

Two computers and all the peripherals in our home office. Total cost per month $3.93.

The refrigerator in the kitchen. Total cost per month $8.00. Now we're getting somewhere. By the way, the freezer out in the garage was drawing no power at all - but it's the middle of winter and about twenty degrees Fahrenheit anyway. I need to check it this summer.

The biggest draw is the block heater for my diesel pickup truck. Total cost per month $47.10. Good thing I've got it on a timer, so it only runs four hours early in the morning, which takes me back to around $8 per month. I read somewhere the other day that I could cut that down to one hour, but I'd hate to wake up and find out that wasn't long enough, and the truck wouldn't start.

I forgot to write down the result of running the washing machine through a couple of loads, but it was minimal; even less than a light bulb for a month's worth of laundry.

My conclusion is that phantom power is not as much of a big deal as they are claiming. It appears to be about the same amount as leaving one 60W bulb burning all day and night. Perhaps not the most thrifty of behaviors, but it's not going to make a big difference in your power bill. I'm pretty certain the best bang for the buck can be found in:

• having a reasonably new energy efficient heating and cooling system installed in the first place, using a programmable thermostat to regulate temperature efficiently, and perhaps keeping the temperature just a little lower in the winter and higher in the summer than you'd really love to.
• Keeping the water temperature setting on your water heater set in such a way as to ensure you have sufficient hot water for personal needs, while not keeping it too hot all the time.
• Using your clothes dryer as little as possible.
• Not forgetting to turn off the oven or (if you have an electric one) stove after you're finished cooking or baking.
• If you do have lights that you leave on all night, for security reasons, or just to keep you from running into things, it might be a good idea to put them on an appliance timer - usually about $6 at the hardware store - to keep them from staying on during daylight hours when you're forgetful.