- Getting ready to go build a rain gauge at home depot with the kids. #
- RT @hughdeburgh: "Having children makes you no more a parent than having a piano makes you a pianist." ~ Michael Levine #
- RT @wisebread: Wow! Major food recall that touches so many pantry items. Check your cupboards NOW! http://bit.ly/c5wJh6 #
- Baby just said "coffin" for the first time. #feelingaddams #
- @TheLeanTimes I have an awesome recipe for pizza dough…at home. We make it once per week. I'll share later. in reply to TheLeanTimes #
- RT @bargainr: 9 minute, well-reasoned video on why we should repeal marijuana prohibition by Judge Jim Gray http://bit.ly/cKNYkQ plz watch #
- RT @jdroth: Brilliant post from Trent at The Simple Dollar: http://bit.ly/c6BWMs — All about dreams and why we don't pursue them. #
- Pizza dough: add garlic powder and Ital. Seasoning http://tweetphoto.com/13861829 #
- @TheLeanTimes: Pizza dough: add lots of garlic powder and Ital. Seasoning to this: http://tweetphoto.com/13861829 #
- RT @flexo: "Genesis. Exorcist. Leviathan. Deu… The Right Thing…" #
- @TheLeanTimes Once, for at least 3 hours. Knead it hard and use more garlic powder tha you think you need. 🙂 in reply to TheLeanTimes #
- Google is now hosting Popular Science archives. http://su.pr/1bMs77 #
- RT @wisebread 6 Slick Tools to Save Money on Car Repairs http://bit.ly/cUbjZG #
- @BudgetsAreSexy I filed federal last week, haven't bothered filing state, yet. Guess which one is paying me and which one wants more money. in reply to BudgetsAreSexy #
- RT @ChristianPF is giving away a Lifetime Membership to Dave Ramsey’s Financial Peace University! RT to enter to win… http://su.pr/2lEXIT #
- RT @MoneyCrashers: 4 Reasons To Choose Community College Out Of High School. http://ow.ly/16MoNX #
- RT @hughdeburgh:"When it comes to a happy marriage,sex is cornerstone content.Its what separates spouses from friends." SimpleMarriage.net #
- RT @tferriss: So true. "Nearly all men can stand adversity, but if you want to test a man's character, give him power." – Abraham Lincoln #
- RT @hughdeburgh: "The most important thing that parents can teach their children is how to get along without them." ~ Frank A. Clark #
Evil Interest
Everybody with a savings account or almost any form of debt has at least a passing familiarity with interest. How many of you actually know what it is, or even how much you are actually paying?
First, some definitions.
Principal is the term used for the amount of money you have borrowed.
Interest is the rent you pay to have that money. Interest is money-rent, expressed as a percentage of the principal. If you borrow $100 at 10%, you pay approximately $10 in interest. I say “approximately” because it’s just not that simple.
There are two kinds of interest: simple and compound.
Simple interest is called that because it is just that: simple. It’s easy to understand and it’s what most people mistakenly assume they are paying. With simple interest, the interest rate is only applied to the principal, never to the accumulated, or accrued, interest.
For example, if you have borrowed $100 at 10% annual interest, this is what your balance will look like:
- At the time of borrowing the money, you owe $100.
- After 1 year, you owe 10% of the $100, in addition to the original $100: $110.
- After 2 years, you owe 10% of the $100, in addition to the original $100 and year one’s interest: $120.
- After 10 years, you will owe a total of $200.
That’s simple.
On the other hand, in addition to five more fingers, you have compound interest. Compound interest complicates things considerably. With compound interest, interest is applied to the entire balance of what you owe; both the principal and the accrued interest are included in the calculation.
For example, with $100 at 10% compounded annually:
- Year 1: You will owe $100 + 10% of the original $100, or $110
- Year 2: You will owe $110 + 10% of the $110, or $121
- Year 3: You will owe $121 + 10% of the $110, or $133.10
- Year 4: You will owe $131.10 + 10% of the $110, or $144.41
- Year 5: You will owe $144.41 + 10% of the $110, or $158.85
- Year 6: You will owe $158.85+ 10% of the $110, or $174.74
- Year 7: You will owe $174.74 + 10% of the $110, or $192.21
- Year 8: You will owe $192.21 + 10% of the $110, or $211.43
- Year 9: You will owe $211.43 + 10% of the $110, or $232.57
- Year 10: You will owe $232.57 + 10% of the $110, or $255.83
That is a total of $155.83 in interest paid over 10 years, or $15.58 per year, for an effective interest rate of 15.583%.
To throw another twist into the mix, interest is rarely compounded annually. Monthly, or even daily, is much more common. With monthly compounded interest, the annual rate, or APR, is divided by 12 and recalculated every month.
For example, using the same $100 at 10% APR, compounded monthly:
Since the interest rate is compounded monthly, we will be using the monthly periodic rate, which is 10% / 12, or .83%
- Month 1: $100 + .83% of $100 = $100.83
- Month 2: $100.83 + .83% = $101.67
- Month 3: $101.67 + .83% = $102.51
- Month 4: $102.51 + .83% = $103.36
- Month 5: $103.36 + .83% = $104.22
- Month 6: $104.22 + .83% = $105.08
- Month 7: $105.08 + .83% = $105.95
- Month 8: $105.95 + .83% = $106.83
- Month 9: $106.83 + .83% = $107.72
- Month 10: $107.72 + .83% = $108.61
- Month 11: $108.61 + .83% = $109.51
- Month 12: $109.51 + .83% = $110.42
That’s $0.42 more interest paid the first year, and that number will continue to climb each year the interest is compounded.
It gets worse if interest is compounded daily, like most credit cards. If you see “Daily Periodic Rate” anywhere in your agreement, you are getting compounded daily. This same loan, compounded daily instead of monthly will yield $110.51 owed the first year. That $0.51 might not seem like much, but imagine it on a $10,000 credit card, or a $100,000 house! And that’s just the first year. Every year after, the disparity gets bigger.
Edit: The formula for calculating compounding interest is Principal x (1 + rate as a decimal / compounding term)compounding term. So, for $100 at 10% compounded monthly, the formula is 100 x (1 + 0.1 / 12)12
That’s the downside to compounding interest. There is an upside, if you have investments or interest-bearing accounts. If that’s the case, compounding interest is working in your favor.
If you save $100 per week, and manage to get a 10% return on your investment, you will have $331,911 after 20 years(with $104,000 contributed) and $2,784,424 after 40(with $208,000 contributed). That mean you will have tripled your money in 20 years, or vingtupled* it in 40 years.
That’s how you get rich. $100 per week for the rest of your life will leave you with a comfortable retirement, without missing out on life now.
—
* Yes, it’s a real word**. It means a twenty-fold increase.
** No, I did not know that yesterday.
Medical Costs and Choices
- Image via Wikipedia
I’m not a bad father.
Last spring, we noticed my son had a wandering eye. One of his eyes would just drift when he was looking at something. It was happening consistently, so we brought him to the eye doctor. After an exam, we found out that his eyes were 20/100. The doctor said that getting him classes may be enough to fix the wandering eye problem. The theory was that his eye was drifting because his eyes weren’t able to focus. Bringing the world into focus could have let his eyes train themselves to work right.
Nine months with glasses later, the problem hasn’t gone away, so we went back to the eye doctor.
He’s got alternating exotropia. His eyes aren’t working well together. One eye will focus, and the other will drift. So now we’re looking into vision therapists.
A friend went through something similar with his kid, so I asked him for the name of the doctor he used. He gave it to me and told me the clinic was the best in the business, and I would be paying for that. I asked about the cost and was handed the doctor’s spiel about how sad it is that parents focus more on the cost of care than getting the best possible care.
What a load of crap.
First of all, that’s a sales pitch. Of course the doctor is going to defend his prices. If his prices are exorbitant(I don’t have a basis for comparison) and he can’t defend them, people will go elsewhere. $3000 isn’t pocket change. That’s a significant chunk of change. Refusing to look at your options is irresponsible.
Second, price does not equal quality. There are a ton of things that are overpriced garbage. Not only do scam artists abound, but some legitimate things are are horribly overpriced at one location and reasonably priced at others. To stay on the vision theme, my $10 glasses are every bit as high quality as any $400 pair I’ve ever owned. The difference between generic and brand-name drugs? The label and the price. The FDA requires they be chemically identical to be sold. If you insist on the brand name because it’s “better”, you are flushing your money down the toilet. If you live by “you get what you pay for” you are guaranteed to get ripped off.
Third, balancing cost and treatment doesn’t mean I care less. Yes, I am killing my debt as fast as I can right now. Even when I was willing to use a credit card, I wouldn’t drop $3000 without considering my options. I have an entire family to consider, not one problem that my kid doesn’t even notice. Grr. I hate getting told–implicitly or otherwise–that I am a bad parent because I don’t choose to waste my money the way other people do. I’ll check out my options first, thank you.
Now, I will pay for the best when it is warranted. My wife wants Lasik and mentioned some sale some company was having. No. The guy sticking a laser and a scalpel in my eye will not be the lowest bidder. When I left the gene pool, I went to one of the top guys in the state for the procedure. When those things screw up, it’s permanent.
Vision therapy? Not so much. If it comes to surgery, we’ll go with the best. But it’s not there, yet. My kid is going to get a series of eye exercises, no matter where we go. Even if I go to some back alley vision therapist with a degree from a Nigeria U, what’s the worst case scenario? We may have to try someone else. Since I will be doing a bit more research than that, odds are better that my kid will get exactly the same therapy regimen for 1/4 of the cost. That’s the difference between a perfectly competent doctor and a perfectly competent doctor who convinced some trade magazine to write him up as the best in the business.
What do you think? Am I neglecting my kid by wanting to save some money for his braces, too?
Sunday Roundup: Reddit Rocks
Friday was my biggest traffic day, ever. Mike‘s guest post, Brown Bagging Your Way to Savings, went slightly nuts on reddit. For a few hours, it was in the top 10 on the front page, generating more traffic every half hour than I normally see in a day. That was fun.
In other news, my kid is in the #2 slot for wrestling the heavyweight slot on his wrestling team.
30 Day Project Update
This month, I am trying to establish the Slow Carb Diet as a habit. At the end of the month, I’ll see what the results were and decide if it’s worth continuing. For those who don’t know, the Slow Carb Diet involves cutting out potatoes, rice, flour, sugar, and dairy in all their forms. My meals consist of 40% proteins, 30% vegetables, and 30% legumes(beans or lentils). There is no calorie counting, just some specific rules, accompanied by a timed supplement regimen and some timed exercises to manipulate my metabolism. The supplements are NOT effedrin-based diet pills, or, in fact, uppers of any kind. There is also a weekly cheat day, to cut the impulse to cheat and to avoid letting my body go into famine mode.
I’m measuring two metrics, my weight and the total inches of my waist , hips, biceps, and thighs. Between the two, I should have an accurate assessment of my progress.
Weight: I have lost 25 pounds since January 2nd. That’s 3 pounds since last week. 17 more to meet my goal for February.
Total Inches: I have lost 14 inches in the same time frame, down 2.5 since last week.
Best Posts
J. Money has launched an awesome new project called Love Drop. Once a month, they go make a huge difference in someone’s life. Wise Bread interviewed them yesterday.
Tip: Use the word “solved” in a google search to find the answers to tech problems.
If OMG and Awesome got drunk and made a baby with Optimus Prime, Arnold Schwarzenegger and Cobra Commander’s nastiest fantasies, the offspring wouldn’t be this good. Holy crap. Major cheese alert.
Q. Why do some business lobby hard for excessive regulation in the name of protecting the environment or forcing people into decisions they disagree with, only to turn around and lobby for waivers to those regulations once they are passed? A. Because it’s not about the environment or health or giving-a-crap. It’s about the money. When an established company pushes for regulations, it’s to keep upstarts from entering the market. Regulations add barriers to entry. Anybody who’s trying to force you to do something for your own good has a product to sell to meet that “need”.
LRN Timewarp
This is where I review the posts I wrote a year ago. Did you miss them then?
Have you ever given any thought to the idea that debt is a social disease? It’s taboo, you usually didn’t do anything nice to get it, and it’s hard to get rid of.
In case I haven’t made it obnoxiously clear, I’m more than a bit of a geek. The post I wrote about D&D and personal finance should make it more obvious.
Carnivals I’ve Rocked and Guest Posts I’ve Rolled
Medical Costs and Choices was included in the Festival of Frugality.
How to Save Money On Anything was included in the Carnival of Personal Finance.
Mike from http://savingmoneytoday.net presented Brown Bagging Your Way to Savings, which is the post that went kinda nuts on reddit. He also hosted my post, Resisting Temptation.
Thank you! If I missed anyone, please let me know.
Get More Out of Live Real, Now
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You can send me an email, telling me what you liked, what you didn’t like, or what you’d like to see more(or less) of. I promise to reply to any email that isn’t purely spam.
Have a great weekend!
Brown Bagging Your Way to Savings
Today’s post is written by Mike Collins of http://savingmoneytoday.net as part of the Yakezie Blog Swap in which bloggers were asked to share their best day to day money saving tip.
Do you buy lunch at work every day? Have you ever actually sat down and added up how much money you’re spending?
I did once…and I almost fell out of my chair when I saw how much I was spending!
Back in the day I used to buy lunch at the office almost every single day. It certainly didn’t seem like I was spending much. A chef salad here, a cheese steak and fries there. But every day I was spending about 7 dollars and change. That’s $35 a week, which adds up to a whopping $1820 over the course of a year!
I started thinking about all the things I could do with that extra $1820, like paying off some of our debt, increasing my 401k contributions(ed: but staying with your 401k contribution limits, of course!), picking out a new big-screen tv, or enjoying an extended family vacation at Walley World.
I immediately starting bringing my lunch to work 4 days a week (I do treat myself once a week) and I’ve been saving money ever since.
Now I know what you’re thinking. It costs money to bring lunch from home too right?
Yes, of course it does…but nowhere near as much as eating out every day. Let’s do some basic math to prove the point. Say you swing by the grocery store to buy some ham and cheese so you can make sandwiches for the week. You pick up a half pound of ham for $3 and a half pound of cheese for $2. A loaf of bread on sale runs you another $2. That means you just spent $7 for a week’s worth of lunches. Even if you only bring lunch 4 days a week you’ve still saved yourself $21. That’s over $1000 a year!
And here’s a tip to save even more: If you have extra food from dinner, just bring the leftovers for lunch the next day. We always try to make just a little bit extra so I can have free lunch the next day.
So the next time you’re sitting around complaining that you don’t have enough money for so and so, think about how much money you are spending every day on lunch, or coffee, or cigarettes, etc. You might just find that you have plenty of money after all if you just shift your priorities a bit.
Filing Bankruptcy: Pride or Shame?
I’m a big fan of personal responsibility. If you’ve promised to do something, you should do it. With that said, it seems odd to some people that I don’t have an ethical problem with bankruptcy. For some people, it is the only option after a long series of problems.
Don’t get me wrong, it should be a shameful decision. Reneging on your word should never be a source of pride. It should be a difficult decision to make. A couple of years ago, I came very close to making that decision myself.
It should not be a reason to celebrate and it should absolutely not be a reason to behave irresponsibly. Some people don’t see a need to take care of their responsibilities because, when it gets bad, they’ll be able to file bankruptcy and make the creditors go away. They are abusing a safety net. That abuse hurts everyone. Credit card companies have to charge higher interest rates so the paying customers can cover the risk of those who default or file bankruptcy.
There is one prominent local bankruptcy attorney who files every 10 years, and has filed consistently for decades. He runs a thriving practice, so it’s not a matter of poor choices, it’s a matter of deliberately living beyond his means and screwing his creditors. He’s one of the slime-balls that give lawyers a bad name. He is one of the many who abuse a lifeline designed to save people from a life of destitution they didn’t ask for, and he does it to finance his extravagant lifestyle.
If you have found yourself buried in a debt you didn’t plan for, if life threw you a curve-ball that you are entirely unable to deal with, if you have to file bankruptcy, it’s okay. Really. When you go in front of the judge, have the decency not to enjoy it, and try to learn from the experience.
