All of which kind of illustrates the point of my latest Money Crashers article: some financial tasks make sense to do on your own, and for others, it's best to hire a pro. And which ones are which really depend on your personal situation. So, in the article, I offer a rundown of the different types of financial professionals, from accountant to "money coach," explaining what each one does and how to decide when it makes sense to hire one.
Check it out here: 7 Types of Financial Professionals and When You Need to Hire Them
Thursday, April 19, 2018
Saturday, April 14, 2018
Recipe of the Month: Aloo Gobi
Apologies for skipping my regular blog entry last week. It was a pretty busy weekend, with lots of activities (mostly gaming-related), and I discovered on Sunday that the post I was planning to do—a Recipe of the Month based on sweet potato noodles—was basically the same thing I'd posted as my Recipe of the Month last April. So I decided to just put up a post about my new Money Crashers article and let it go at that.
But now, I have an actual, legitimate Recipe of the Month to post. Last week, on a trip to the H-Mart, we decided on a whim to pick up some cauliflower that was selling cheap—even though we had no specific idea what to do with it. As the week progressed, Brian realized he'd have to come up with some way to use it, so he dug out a cookbook we seldom use called Heart Smart Flavours of India and turned to the recipe it calls "Aaloo Gobi," or cauliflower and potatoes (which is more commonly spelled as "aloo gobi," with just one "a"). We actually had nearly everything that it called for on hand, including a complex spice blend called Sabzi Masala, which Brian had mixed up over a year ago for another recipe and hadn't used since. (It also called for a much simpler blend called Dhania-jeera Masala, but since that contains nothing but cumin and coriander, it was easy to mix up on the spot.)
Anyway, as we were eating it, Brian noted that he'd actually never made this particular dish before. He'd made the "Aaloo Mattar" (potatoes and peas) on the facing page, but since we're not normally in the habit of buying cauliflower, this was the first time he'd done the aloo gobi. So, since this was definitely a vegetable-based recipe—in fact, containing pretty much nothing but vegetables and various seasonings—I decided it would do just fine as a Recipe of the Month.
There are many versions of aloo gobi, and the only ingredients all of them have in common are the potatoes and cauliflower. This version also called for onions, tomatoes, green chilis (which we didn't have, so Brian substituted a bit of diced bell pepper and a touch of cayenne), garlic, ginger, turmeric, the Dhania-jeera Masala and Sabzi Masala spice blends, salt, and chopped scallions for garnish. It made a very colorful dish, bright yellow from the turmeric with touches of red from the tomatoes and peppers. It was quite flavorful, too, with all those spices going on. And since we had the complicated spice blend prepared ahead of time, it wasn't all that hard to make.
Its only weakness was that, with nothing much in it but veggies, it wasn't all that filling. The recipe suggested serving it with a bread of some kind, either parathas or chapatis, and adding that probably would have made a much heartier meal—but it would also have taken a lot more time to cook, and we figured that with the potatoes in there, it should have enough starch by itself. However, with only two potatoes to a whole head of cauliflower, it actually wasn't that substantial. So if we make it again, we'll probably either do it on a night when we have time to make bread also or simply serve it over rice.
But will we make it again? Well, I guess it depends. Cauliflower isn't a veggie that we grow, and it's not one we're normally in the habit of buying—but that's mainly because (1) it's a little pricey, especially when out of season, and (2) by itself, it's not very interesting. However, when combined with potato, tomato, and lots of different Indian spices, it's very interesting. And the dish also has the advantage of being both vegan and gluten-free, which means it's something we can serve to pretty much anyone who ever comes over to dinner.
So I'm thinking this dish isn't something we'll make all that often, but it will be handy to keep on hand, sort of in our back pocket. That way, any time we spot a great deal on cauliflower again, we'll know of something to do with it aside from just blending it up in macaroni and cheese. And, should we ever need to feed some vegan and/or gluten-free friends, we'll have one more dish on our list that will work for them.
But now, I have an actual, legitimate Recipe of the Month to post. Last week, on a trip to the H-Mart, we decided on a whim to pick up some cauliflower that was selling cheap—even though we had no specific idea what to do with it. As the week progressed, Brian realized he'd have to come up with some way to use it, so he dug out a cookbook we seldom use called Heart Smart Flavours of India and turned to the recipe it calls "Aaloo Gobi," or cauliflower and potatoes (which is more commonly spelled as "aloo gobi," with just one "a"). We actually had nearly everything that it called for on hand, including a complex spice blend called Sabzi Masala, which Brian had mixed up over a year ago for another recipe and hadn't used since. (It also called for a much simpler blend called Dhania-jeera Masala, but since that contains nothing but cumin and coriander, it was easy to mix up on the spot.)
Anyway, as we were eating it, Brian noted that he'd actually never made this particular dish before. He'd made the "Aaloo Mattar" (potatoes and peas) on the facing page, but since we're not normally in the habit of buying cauliflower, this was the first time he'd done the aloo gobi. So, since this was definitely a vegetable-based recipe—in fact, containing pretty much nothing but vegetables and various seasonings—I decided it would do just fine as a Recipe of the Month.
There are many versions of aloo gobi, and the only ingredients all of them have in common are the potatoes and cauliflower. This version also called for onions, tomatoes, green chilis (which we didn't have, so Brian substituted a bit of diced bell pepper and a touch of cayenne), garlic, ginger, turmeric, the Dhania-jeera Masala and Sabzi Masala spice blends, salt, and chopped scallions for garnish. It made a very colorful dish, bright yellow from the turmeric with touches of red from the tomatoes and peppers. It was quite flavorful, too, with all those spices going on. And since we had the complicated spice blend prepared ahead of time, it wasn't all that hard to make.Its only weakness was that, with nothing much in it but veggies, it wasn't all that filling. The recipe suggested serving it with a bread of some kind, either parathas or chapatis, and adding that probably would have made a much heartier meal—but it would also have taken a lot more time to cook, and we figured that with the potatoes in there, it should have enough starch by itself. However, with only two potatoes to a whole head of cauliflower, it actually wasn't that substantial. So if we make it again, we'll probably either do it on a night when we have time to make bread also or simply serve it over rice.
But will we make it again? Well, I guess it depends. Cauliflower isn't a veggie that we grow, and it's not one we're normally in the habit of buying—but that's mainly because (1) it's a little pricey, especially when out of season, and (2) by itself, it's not very interesting. However, when combined with potato, tomato, and lots of different Indian spices, it's very interesting. And the dish also has the advantage of being both vegan and gluten-free, which means it's something we can serve to pretty much anyone who ever comes over to dinner.
So I'm thinking this dish isn't something we'll make all that often, but it will be handy to keep on hand, sort of in our back pocket. That way, any time we spot a great deal on cauliflower again, we'll know of something to do with it aside from just blending it up in macaroni and cheese. And, should we ever need to feed some vegan and/or gluten-free friends, we'll have one more dish on our list that will work for them.
Money Crashers: Net Neutrality Explained
It's been about five years now since Brian and I got fed up with Verizon (after they'd screwed us not once but twice) and switched over all our services—phone, Internet, and for a while at least, cable TV—to Cablevision. Since then, I've been tempted repeatedly by the offers we keep getting from Verizon saying they can offer us all three services—including faster and more reliable Internet—at a significantly lower price than we're paying now.
For a while I was holding out against them on the grounds that based on our past experiences, we had no reason to believe Verizon could actually deliver on its promises—but then several things happened to shake my confidence. First, a Verizon rep rang our doorbell and started trying to sell me on their new FiOS service, going so far as to point out the actual cable that carried the signal. Second, our Cablevision Internet connection started to become a little wonky, cutting out at unexpected times. And third, I saw several survey showing that of all the ISPs available in our state, Verizon actually had the best ratings for customer service, which suggested that they had actually "upgraded their customer service" just as the rep had claimed.
However, just as I was on the point of giving in and making the switch, the Trump administration started making noises about scrapping the 2015 Open Internet Rule (as it eventually did in November 2017, though the change doesn't take effect for another couple of weeks). At that time, there were reports that multiple ISPs were actively lobbying the administration to make the change—and when I checked, Verizon's name was right there on the list. That got me so hopping mad that I decided, screw it, I was willing to pay an extra few hundred bucks a year to support a company that wasn't actively working to destroy the Internet as we know it.
So, the next time a couple of Verizon reps showed up at my door, I politely but firmly said I wasn't interested in ever having service with Verizon. And when they asked why, as I had expected they would, I was happy to explain that it was because of the company's stance on net neutrality. What I wasn't expecting was for their next question to be, "What's that?"
This forced me to think as best as I could on my feet to explain what net neutrality means in just a couple of sentences. I think it came out something like, "Well, it means that the people who own the pipes that deliver your Internet service can't control what you see online by blocking certain sites or making you pay extra for them. And right now there are laws that say they can't do that, and Verizon is working to get those laws changed." Which wasn't bad for an off-the-cuff response, and clearly came as news to the two students who were shilling for Verizon—but it got me thinking that apparently there are a lot of people who really understand this issue, and a more complete and coherent explanation might be handy for them.
So in my latest Money Crashers article, I've attempted to provide this. As clearly and succinctly as I could manage, I explain what net neutrality means, give some examples of what can happen when there are no rules to protect it, outline the changes in net neutrality law over the past few years, and explain how the new rules to "restore Internet freedom" could affect us all: how we pay for Internet service, what content we're able to view online, and what products and services will never get off the ground because they can't afford to pay for access to the new Internet "fast lane." Then I wrap up with some discussion of how the fight over net neutrality is being continued at the federal, state, and local level, and what you can do to get involved.
So if you don't feel like you quite understand net neutrality—or if you do understand it but aren't sure what you can do to protect it—this article is for you: Net Neutrality Explained – What It Is and Why Internet Regulation Matters
For a while I was holding out against them on the grounds that based on our past experiences, we had no reason to believe Verizon could actually deliver on its promises—but then several things happened to shake my confidence. First, a Verizon rep rang our doorbell and started trying to sell me on their new FiOS service, going so far as to point out the actual cable that carried the signal. Second, our Cablevision Internet connection started to become a little wonky, cutting out at unexpected times. And third, I saw several survey showing that of all the ISPs available in our state, Verizon actually had the best ratings for customer service, which suggested that they had actually "upgraded their customer service" just as the rep had claimed.
However, just as I was on the point of giving in and making the switch, the Trump administration started making noises about scrapping the 2015 Open Internet Rule (as it eventually did in November 2017, though the change doesn't take effect for another couple of weeks). At that time, there were reports that multiple ISPs were actively lobbying the administration to make the change—and when I checked, Verizon's name was right there on the list. That got me so hopping mad that I decided, screw it, I was willing to pay an extra few hundred bucks a year to support a company that wasn't actively working to destroy the Internet as we know it.
So, the next time a couple of Verizon reps showed up at my door, I politely but firmly said I wasn't interested in ever having service with Verizon. And when they asked why, as I had expected they would, I was happy to explain that it was because of the company's stance on net neutrality. What I wasn't expecting was for their next question to be, "What's that?"
This forced me to think as best as I could on my feet to explain what net neutrality means in just a couple of sentences. I think it came out something like, "Well, it means that the people who own the pipes that deliver your Internet service can't control what you see online by blocking certain sites or making you pay extra for them. And right now there are laws that say they can't do that, and Verizon is working to get those laws changed." Which wasn't bad for an off-the-cuff response, and clearly came as news to the two students who were shilling for Verizon—but it got me thinking that apparently there are a lot of people who really understand this issue, and a more complete and coherent explanation might be handy for them.
So in my latest Money Crashers article, I've attempted to provide this. As clearly and succinctly as I could manage, I explain what net neutrality means, give some examples of what can happen when there are no rules to protect it, outline the changes in net neutrality law over the past few years, and explain how the new rules to "restore Internet freedom" could affect us all: how we pay for Internet service, what content we're able to view online, and what products and services will never get off the ground because they can't afford to pay for access to the new Internet "fast lane." Then I wrap up with some discussion of how the fight over net neutrality is being continued at the federal, state, and local level, and what you can do to get involved.
So if you don't feel like you quite understand net neutrality—or if you do understand it but aren't sure what you can do to protect it—this article is for you: Net Neutrality Explained – What It Is and Why Internet Regulation Matters
Money Crashers: 6 Ways to Build Credit Without a Credit Card
When I first arrived at college, over (gosh) 25 years ago now, there were a lot of vendors offering products and services to the incoming students—including credit cards. I smugly bypassed those, telling myself that I was too smart to get lured into that trap. I assumed, probably correctly, that having a credit card when you don't have a steady source of income is a good way to get in over your head with spending and graduate with a lot of debt.
However, I also knew that I probably would eventually need a credit card after I graduated, and that I'd have to build up a credit rating somehow to get one. I'd heard that a good way to do this was to have a regular bill, such as a phone bill, and pay it on time every month. So, for the next four years, I made a point of getting the phone line in all the dorms where I lived set up in my name and paying the bill promptly and fully.
Imagine my surprise, then, when I applied for my first credit card after graduation and was told that I didn't qualify because I had no credit history. What I hadn't realized was that bills like a phone bill aren't always reported to the credit bureaus; you have to call up the providers specially and ask them to report the payments. All my careful planning had been wasted, and I had to ask my dad to co-sign for a credit card with me so I could start building some credit in my own name.
This story came back to mind recently when I read about how a majority of Millennials—about two out of three—are opting to go without credit cards completely. That's easier to do nowadays, since it's possible to pay for stuff with debit cards and payment apps instead—but it also means these cautious Millennials are in the same position I was after college. Since they've never used credit, they have no credit history, and when they finally need to borrow money—say, to buy a house—they'll have trouble doing it.
So my latest Money Crashers article is all about strategies for building credit without having a credit card. It covers the method I tried to use in college (and explains how to do it right), as well as newer methods like using an alternative credit service, reporting your rent, or paying off student loans (which all too many graduating students have).
Read it here: 6 Ways to Build Credit Without a Credit Card
However, I also knew that I probably would eventually need a credit card after I graduated, and that I'd have to build up a credit rating somehow to get one. I'd heard that a good way to do this was to have a regular bill, such as a phone bill, and pay it on time every month. So, for the next four years, I made a point of getting the phone line in all the dorms where I lived set up in my name and paying the bill promptly and fully.
Imagine my surprise, then, when I applied for my first credit card after graduation and was told that I didn't qualify because I had no credit history. What I hadn't realized was that bills like a phone bill aren't always reported to the credit bureaus; you have to call up the providers specially and ask them to report the payments. All my careful planning had been wasted, and I had to ask my dad to co-sign for a credit card with me so I could start building some credit in my own name.
This story came back to mind recently when I read about how a majority of Millennials—about two out of three—are opting to go without credit cards completely. That's easier to do nowadays, since it's possible to pay for stuff with debit cards and payment apps instead—but it also means these cautious Millennials are in the same position I was after college. Since they've never used credit, they have no credit history, and when they finally need to borrow money—say, to buy a house—they'll have trouble doing it.
So my latest Money Crashers article is all about strategies for building credit without having a credit card. It covers the method I tried to use in college (and explains how to do it right), as well as newer methods like using an alternative credit service, reporting your rent, or paying off student loans (which all too many graduating students have).
Read it here: 6 Ways to Build Credit Without a Credit Card
Tuesday, April 10, 2018
Money Crashers: How Feeling Poor Hurts You – and How to Stop It
One of the keys to living a frugal life is to avoid feeling deprived. Many people seem to think that living frugally is all about "doing without," but to me, the whole point of frugality is to avoid wasting money on the things you don't really care about, so you can have more to spend on—or save up for—the things you do. A frugal life, lived right, should make you feel rich, not poor.
Now I've learned just how important this attitude really is. Apparently, there's a wealth of research out there to show that feeling poor makes you less satisfied with your life, damages your mental and physical health, and leads to risky financial decisions that can make you actually poor if you weren't before.
My latest Money Crashers article is all about the risks of feeling poor and how to counteract them. I discuss what can make you feel poor—regardless of your actual income—and the ways feeling poor can hurt you financially, emotionally, and physically. Then I discuss ways to break out of this trap by:
- changing your perspective to focus on how well-off you are already;
- taking steps to strengthen your finances so you'll know you'll have more in the future; and
- making yourself feel rich by indulging yourself with cheap luxuries and giving money to charity.
Learn more about these techniques here: How Feeling Poor Hurts You – and How to Stop It
Sunday, April 8, 2018
Money Crashers: 6 Types of Unexpected Expenses and How to Plan for Them
Over the 15 years we've been together, Brian and I have weathered a lot of emergencies. We've never suffered a house fire or had our roof collapse in the middle of a storm (knock wood), but we've been through two car accidents, a cat who started having seizures on a Saturday night when the vet's office was closed, at least three trips to the emergency room, four family funerals, and several major home repairs.
In all these cases, our goals have been, first, to deal with the problem itself, and second, to avoid letting it drive us out of our minds in the process. At no point, at least during the immediate crisis, did we give any thought at all to how we would pay for it. It just wasn't an issue.
This was due partly, I'll admit, to luck. But mostly, it was because, while we hadn't expected these disasters to occur, we were prepared ahead of time. We had good insurance, roadside assistance, and plenty of money in an emergency fund to cover any costs that the insurance wouldn't.
This kind of planning is the topic of my latest Money Crashers article: 6 Types of Unexpected Expenses and How to Plan for Them. In it, I discuss the various types of unexpected expenses that can derail your budget—medical emergencies for both humans and pets, major home and auto repairs, unplanned travel, and even unexpected gift expenses—and how to avoid them if you can and pay for them when you can't.
If you have any doubts about how well your wallet could handle a crisis, it's worth a look. (If you're just unsure about how you'd be able to handle it without going off your rocker, sorry—I haven't entirely figured that one out yet.)
Sunday, April 1, 2018
We're more frugal than the Frugalwoods (no fooling)!
I know that in the world of frugal-living blogs, I'm a very small fish in a pretty big pond. With just over 1,000 posts total and an average of around 2,000 page views per month, I can't compare to leading lights like Mr. Money Mustache, J.D. Roth of Get Rich Slowly, or the team of experts at Wise Bread. And that's okay. I've got my little niche, and I'm pretty content within it.
But sometimes, reading these more successful blogs, I start to feel inadequate—not about my blog's modest scale, but about my finances. These bloggers boast about how they were able to retire in their early 30s just by cutting out luxuries and investing sensibly, and I think, "Well, gee, I do all that—how come I'm 45 years old and not financially independent yet? What am I doing wrong?"
The answer, it turns out, could be that there's nothing at all wrong with how I spend my money—I'm just not making as much as they are.
This came home to me recently when I came across an article in The Guardian by Elizabeth Willard Thames of the popular Frugalwoods blog. She and her husband Nate have built their brand around their personal success story, which reads kind of like Horatio Alger meets Henry David Thoreau: they both had high-powered careers and a big house in the city, but they weren't happy with that lifestyle, so they decided to scale back, save up, and trade it all in for a cozy homestead on 66 acres in Vermont.
In her article, "Mrs. Frugalwoods" insists, "My husband, Nate, and I are not exceptional people...we’ve never won the lottery or had investment banker salaries or been the beneficiaries of inheritances or trust funds." She goes on to concede that they are "extraordinarily privileged" to have had parents who were well-educated and financially stable, so they could grow up "happy, warm, well-educated, [and] well-cared-for," but that just seems like rubbing it in: basically, she's implying that anyone else (like me) who had a similar upbringing could retire at age 32 and buy a farm in Vermont if they really wanted to. The fact that I'm still working for a living in my forties just proves that I'm not trying hard enough.
However, before I could get too glum about this, I happened upon a second article about the Frugalwoods that tackled their story from a completely different angle. The Outline points out that the Frugalwoods' story of achieving financial independence through "extreme frugality" leaves out one rather important fact: how much money they actually have.
The Frugalwoods are "tight-lipped about their income," the article says, but there are enough financial clues on their blog to make it clear that their rags-to-riches story doesn't exactly start with rags. For instance, they reveal that they bought a $460,000, four-bedroom house in Cambridge back in 2012, which they were later able to rent out for $4,400 per month. (That property alone brings them close to $27,000 in income, even after you deduct the cost of a property manager, taxes, and the mortgage they're still paying on it.) And in a 2014 post, Liz notes that they've both maxed out their 401(k) contributions, to the tune of $35,000 a year—a sum they don't even count when calculating their annual savings rate at just over 71 percent of their income.
Now, I think our lifestyle is pretty frugal, but our savings rate has never been anywhere close to 71 percent. We currently save a bit more than 50 percent of our take-home pay, and back when we still had a mortgage, it was less than 40 percent. So I started wondering: how do the Frugalwoods really do it? Just how low are their expenses? Are they really living on that much less than we do—in the Boston area, no less—or are they just making a lot more?
It seems impossible to say, given that the Frugalwoods refuse to disclose their income—but taking another look at that 2014 blog entry, I realized that I actually had all the information I needed to figure it out for myself. After noting that they saved 71.4% of their income for 2014, Mrs. Frugalwoods goes on to add that "If we include both of our 401K contributions...our savings rate is 93.07%." And since she'd already said their 401(k)s were maxed out at $17,500 each, it was clear that this $35,000 per year represented 21.67% of their total income. Thus, their total income for the year was $161,513.61.
Now here's where things start to look weird. If their income was $161,514, and they saved about 93 percent of it in total, that means the amount they actually lived on was 7 percent of it, or $11,305. Except, as they disclosed in their post about renting out their house, their mortgage payment and taxes on their Cambridge house come to $1,921.66 per month, or $23,060 per year. Clearly, the math on that does not work.
More likely, what they mean is that if they counted the $35,000 they saved out of their pre-tax income toward the amount they saved out of their take-home income, their savings would be 93 percent. (Actually, it wouldn't, because the taxes that also came out of that pre-tax income would also have to be counted as an expense—but we don't have enough info to figure out what the right number would be.) So I'm assuming that the $161,513.61 a year I came up with for the Frugalwoods' income is really their take-home pay, not gross. And since we know they saved 71.4 percent of that, the amount of that they actually spent was 28.6 percent of it, or $46,192.89.
Armed with this figure, I clicked over to my budget spreadsheet, where I've been tracking all our expenses since 2005, to figure out how much we spent in 2014. The answer was $28,902.66—more than $17,000 less than the Frugalwoods.
However, it only took me a few minutes to figure out that this wasn't really a fair comparison. By 2014, we'd already paid off our mortgage, so our living expenses were naturally much lower than theirs. So I went back a little further and looked at our expenses for the year right before we paid off the mortgage: October 2012 through September 2013. For that period, our total living expenses came to $38,983.65—still a good seven grand below the Frugalwoods' level of "extreme frugality." Apparently, we were actually living more frugally, despite spending over 60 percent of our income, than they were while spending less than 30 percent of theirs.
Now, the point of this isn't to brag. Well, maybe just a little, but the main point of it is that if you, like me, have been reading blogs like Frugalwoods and thinking, "Oh man, I've never been able to save 71 percent of my income, I must be doing it all wrong, I'll never be able to buy my farm in Vermont"—stop. Instead, substitute this thought: "My financial situation is unique, and I can't reasonably compare my savings rate to some blogger's (especially one who's refusing to disclose his or her income). What I can do is to learn as many tricks as I can to cut my expenses so that I can close in on financial independence as fast as is reasonably possible for me."
And if that's your goal, it would appear that maybe you actually could learn a trick or two from a little-fish blog like this one that even hot shots like the Frugalwoods haven't picked up yet.
But sometimes, reading these more successful blogs, I start to feel inadequate—not about my blog's modest scale, but about my finances. These bloggers boast about how they were able to retire in their early 30s just by cutting out luxuries and investing sensibly, and I think, "Well, gee, I do all that—how come I'm 45 years old and not financially independent yet? What am I doing wrong?"
The answer, it turns out, could be that there's nothing at all wrong with how I spend my money—I'm just not making as much as they are.
This came home to me recently when I came across an article in The Guardian by Elizabeth Willard Thames of the popular Frugalwoods blog. She and her husband Nate have built their brand around their personal success story, which reads kind of like Horatio Alger meets Henry David Thoreau: they both had high-powered careers and a big house in the city, but they weren't happy with that lifestyle, so they decided to scale back, save up, and trade it all in for a cozy homestead on 66 acres in Vermont.
In her article, "Mrs. Frugalwoods" insists, "My husband, Nate, and I are not exceptional people...we’ve never won the lottery or had investment banker salaries or been the beneficiaries of inheritances or trust funds." She goes on to concede that they are "extraordinarily privileged" to have had parents who were well-educated and financially stable, so they could grow up "happy, warm, well-educated, [and] well-cared-for," but that just seems like rubbing it in: basically, she's implying that anyone else (like me) who had a similar upbringing could retire at age 32 and buy a farm in Vermont if they really wanted to. The fact that I'm still working for a living in my forties just proves that I'm not trying hard enough.
However, before I could get too glum about this, I happened upon a second article about the Frugalwoods that tackled their story from a completely different angle. The Outline points out that the Frugalwoods' story of achieving financial independence through "extreme frugality" leaves out one rather important fact: how much money they actually have.
The Frugalwoods are "tight-lipped about their income," the article says, but there are enough financial clues on their blog to make it clear that their rags-to-riches story doesn't exactly start with rags. For instance, they reveal that they bought a $460,000, four-bedroom house in Cambridge back in 2012, which they were later able to rent out for $4,400 per month. (That property alone brings them close to $27,000 in income, even after you deduct the cost of a property manager, taxes, and the mortgage they're still paying on it.) And in a 2014 post, Liz notes that they've both maxed out their 401(k) contributions, to the tune of $35,000 a year—a sum they don't even count when calculating their annual savings rate at just over 71 percent of their income.
Now, I think our lifestyle is pretty frugal, but our savings rate has never been anywhere close to 71 percent. We currently save a bit more than 50 percent of our take-home pay, and back when we still had a mortgage, it was less than 40 percent. So I started wondering: how do the Frugalwoods really do it? Just how low are their expenses? Are they really living on that much less than we do—in the Boston area, no less—or are they just making a lot more?
It seems impossible to say, given that the Frugalwoods refuse to disclose their income—but taking another look at that 2014 blog entry, I realized that I actually had all the information I needed to figure it out for myself. After noting that they saved 71.4% of their income for 2014, Mrs. Frugalwoods goes on to add that "If we include both of our 401K contributions...our savings rate is 93.07%." And since she'd already said their 401(k)s were maxed out at $17,500 each, it was clear that this $35,000 per year represented 21.67% of their total income. Thus, their total income for the year was $161,513.61.
Now here's where things start to look weird. If their income was $161,514, and they saved about 93 percent of it in total, that means the amount they actually lived on was 7 percent of it, or $11,305. Except, as they disclosed in their post about renting out their house, their mortgage payment and taxes on their Cambridge house come to $1,921.66 per month, or $23,060 per year. Clearly, the math on that does not work.
More likely, what they mean is that if they counted the $35,000 they saved out of their pre-tax income toward the amount they saved out of their take-home income, their savings would be 93 percent. (Actually, it wouldn't, because the taxes that also came out of that pre-tax income would also have to be counted as an expense—but we don't have enough info to figure out what the right number would be.) So I'm assuming that the $161,513.61 a year I came up with for the Frugalwoods' income is really their take-home pay, not gross. And since we know they saved 71.4 percent of that, the amount of that they actually spent was 28.6 percent of it, or $46,192.89.
Armed with this figure, I clicked over to my budget spreadsheet, where I've been tracking all our expenses since 2005, to figure out how much we spent in 2014. The answer was $28,902.66—more than $17,000 less than the Frugalwoods.
However, it only took me a few minutes to figure out that this wasn't really a fair comparison. By 2014, we'd already paid off our mortgage, so our living expenses were naturally much lower than theirs. So I went back a little further and looked at our expenses for the year right before we paid off the mortgage: October 2012 through September 2013. For that period, our total living expenses came to $38,983.65—still a good seven grand below the Frugalwoods' level of "extreme frugality." Apparently, we were actually living more frugally, despite spending over 60 percent of our income, than they were while spending less than 30 percent of theirs.
Now, the point of this isn't to brag. Well, maybe just a little, but the main point of it is that if you, like me, have been reading blogs like Frugalwoods and thinking, "Oh man, I've never been able to save 71 percent of my income, I must be doing it all wrong, I'll never be able to buy my farm in Vermont"—stop. Instead, substitute this thought: "My financial situation is unique, and I can't reasonably compare my savings rate to some blogger's (especially one who's refusing to disclose his or her income). What I can do is to learn as many tricks as I can to cut my expenses so that I can close in on financial independence as fast as is reasonably possible for me."
And if that's your goal, it would appear that maybe you actually could learn a trick or two from a little-fish blog like this one that even hot shots like the Frugalwoods haven't picked up yet.
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