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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 03:49 PM   #21
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Re: Help me stop my constant worrying about retirement!

Roth IRA's allow withdrawal of everything you contribute with no penalty or taxes. This is only the contributions you make (the $4000 per year). This does not apply to earnings on your contributions. Also, there is an exception to the penalty rules called 72(t) that allows withdrawal of substantially equal periodic payments each year for the rest of your life. This usually amounts to 3-6% of the total amount in your IRA. What this means is you can tap your IRA's and 401k's (once you roll the 401k into an IRA) before you turn 59.5.

You may also want to look at your 401k's and IRA's as a last resort to be tapped only in a catastrophic emergency. You should have a sufficient emergency money buffer (usually said to be 3-6 months expenses) on hand (in a bank). You may want to invest some money in taxable accounts that can be tapped without penalty. The problem is paying taxes on the distributions and income from these investments. This will be a drag on your rate of return.

If nothing you own is returning 7% real or nominal, then you may want to get some new investments. If the real estate isn't making money for you, it may not be worth holding. Unless you like gambling/speculating that the property will go up in value. If your properties are a headache (mine was till I got rid of it), then you should factor in this "cost" into your consideration of investments.

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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 04:09 PM   #22
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Re: Help me stop my constant worrying about retirement!

Quote:
Originally Posted by retire@40
I agree.* So it would be prudent to create at least two retirement budgets.* The first would be the budget you plan to have if everything goes well, say at the 4% SWR, and the second would be at the lowest REALISTIC rate you could live with.

The second budget would only include food and other bare living essentials until things get better.

. . .
Discussions about simulating the basic vs discretionary budget case:

http://early-retirement.org/forums/i...p?topic=2048.0

http://www.retireearlyhomepage.com/c...0433;start=0#1


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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 04:46 PM   #23
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Re: Help me stop my constant worrying about retirement!

very good points justin. I forgot to tell him that he can get at his iras.
Sounds like he is Idaho, so I dont think he is a RE speculator, lol. Unless Idaho is hotter than I thought. It sounds like he is tired of the hassles with tenants. The only RE that I have or want is my current house unless there is a bust and I might pickup something. I dont know how people make it work.

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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 05:41 PM   #24
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Re: Help me stop my constant worrying about retirement!

Ducks to water - er ah something like that. The SO's old boss had a six unit building in Slidell, LA for years when she/he was still working - far as I know he's still working(one of those age 65 types) and still has it. The owner of my apartment building(retired airplane salesman) in Littleton, CO - keep telling me to go rental RE - he was up to 10 -12 buildings in and around Denver - built up over 25 years.

Our duplex(New Orleans) was ok - with good tenants - no horror stories - BUT - it never floated my boat.

Done well - you can totally ignore stocks/bonds - but it's not my bag - nor did I expand the required skill set - it does take work - oh yeah - location, location, location helps - but if you learn local conditions - I believe you can be successful anywhere - provided you learn the ropes.
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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 08:03 PM   #25
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Re: Help me stop my constant worrying about retirement!

Yeah, I have dabbled in a lot of different investments.* Some of those investments lost hard.* Oh well, I learned something.* I worry about just putting all my retirement monies just in 401K and Roth IRA but I also don't want to spread myself so thin that I am slaving today just to prepare for retirement (which is where I feel I am now).

You all seem so relaxed about retirement, like it is basically inevitable.* The whole point of this discussion really is based on that point.* How do you enjoy today yet feel secure that you are doing enough about tomorrow?
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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 08:27 PM   #26
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Re: Help me stop my constant worrying about retirement!

Spreadsheets!

For me, being able to look at the numbers and figure out exactly what we needed to do to get from A to B, was the key to relaxing. I don't know yet what our exact retirement expenses will be like since we're still 12 years away, but I started by picking a reasonable goal to shoot for. I then projected out our household income for the coming years, assumed a conservative rate of return, and came up with what we needed to save each month to reach our goal. Our plan is ambitious, but not unreasonable, and the great part is that we feel free to spend the rest of our money on "the now." We tried going the "save as much as possible" route, but it didn't work for us - we have a pretty natural sense of balance and so didn't feel too deprived, but there was always that nagging guilt that we should save even more. That guilt is now gone...

Our system isn't perfect, and every so often we'll have to check in and revise the target and/or savings rate - but for right now the retirement plan is mostly on auto-pilot and we're having a lot of fun in our lives.
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Re: Help me stop my constant worrying about retirement!
Old 07-30-2005, 09:56 PM   #27
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Re: Help me stop my constant worrying about retirement!

Quote:
Originally Posted by daxm
. . . You all seem so relaxed about retirement, like it is basically inevitable.* The whole point of this discussion really is based on that point.* How do you enjoy today yet feel secure that you are doing enough about tomorrow?
Several years ago, my DW was scared -- I mean irrationally terrified -- of cows. Now, this may sound like I'm way off topic or that such a fear would not matter, but let me continue and I promise to end up on topic . . . Anyway, we do a lot of archaeology survey and mapping out here in the dessert Southwest. To do that, we drive off road on rugged two-track 4x4 trails across all kinds of grazing land. And we have to go through a lot of gates. So DW prefers if I do the 4x4 driving which leaves her to get out and open the gates. But if cows were near the gate when we pulled up, she would freeze up and refuse to get out. Worse, once we got as far as we could drive, we would hike. But if we had to cross a field with cows, she couldn't bring herself to do it. We'd end up walking miles out of our way to avoid cattle. Sometimes the detours would actually keep us from getting to where we wanted to go.

So . . . we bought a Texas Longhorn and joined the TLBA (Texas Longhorn Breeders Association). This required her to feed and care for our cow, to take it to shows, etc. She started reading about cattle, breeding, etc. She became an officer in our TLBA chapter and helped plan shows and events. Our cow finished in the top 10 in her class at the TLBA World competition one year. We eventually sold our herd (through successful breeding we ended up with 4 cows before we quit). This was a hobby, not a money making venture. In fact, it was a pretty expensive hobby. But my DW is not afraid of cattle anymore. She knows a lot about them and is comfortable walking through a herd to open the gates and get us to our destination.

See . . . I told you this was on topic.
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Re: Help me stop my constant worrying about retirement!
Old 07-31-2005, 10:29 AM   #28
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Re: Help me stop my constant worrying about retirement!

Quote:
Originally Posted by ((^+^)) SG
Several years ago, my DW was scared -- I mean irrationally terrified -- of cows.* Now, this may sound like I'm way off topic or that such a fear would not matter, but let me continue and I promise to end up on topic . . . Anyway, we do a lot of archaeology survey and mapping out here in the dessert Southwest.* To do that, we drive off road on rugged two-track 4x4 trails across all kinds of grazing land.* And we have to go through a lot of gates.* So DW prefers if I do the 4x4 driving which leaves her to get out and open the gates.* But if cows were near the gate when we pulled up, she would freeze up and refuse to get out.* Worse, once we got as far as we could drive, we would hike.* But if we had to cross a field with cows, she couldn't bring herself to do it.* We'd end up walking miles out of our way to avoid cattle.* Sometimes the detours would actually keep us from getting to where we wanted to go.

So . . . we bought a Texas Longhorn and joined the TLBA (Texas Longhorn Breeders Association).* This required her to feed and care for our cow, to take it to shows, etc.* She started reading about cattle, breeding, etc.* She became an officer in our TLBA chapter and helped plan shows and events.* Our cow finished in the top 10 in her class at the TLBA World competition one year.* We eventually sold our herd (through successful breeding we ended up with 4 cows before we quit).* This was a hobby, not a money making venture.* In fact, it was a pretty expensive hobby.* But my DW is not afraid of cattle anymore.* She knows a lot about them and is comfortable walking through a herd to open the gates and get us to our destination.

See . . . I told you this was on topic.* *
I am glad your wife was able to overcome an irrational fear.* Sometimes the knowledge you have the fear (and letting other people see/know it) is worse than the fear itself.* My hats off to her for her accomplishment.
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Re: Help me stop my constant worrying about retirement!
Old 07-31-2005, 10:38 AM   #29
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Re: Help me stop my constant worrying about retirement!

Quote:
Originally Posted by ((^+^)) SG
Several years ago, my DW was scared -- I mean irrationally terrified -- of cows.* Now, this may sound like I'm way off topic or that such a fear would not matter, but let me continue and I promise to end up on topic . . . Anyway, we do a lot of archaeology survey and mapping out here in the dessert Southwest.* To do that, we drive off road on rugged two-track 4x4 trails across all kinds of grazing land.* And we have to go through a lot of gates.* So DW prefers if I do the 4x4 driving which leaves her to get out and open the gates.* But if cows were near the gate when we pulled up, she would freeze up and refuse to get out.* Worse, once we got as far as we could drive, we would hike.* But if we had to cross a field with cows, she couldn't bring herself to do it.* We'd end up walking miles out of our way to avoid cattle.* Sometimes the detours would actually keep us from getting to where we wanted to go.

So . . . we bought a Texas Longhorn and joined the TLBA (Texas Longhorn Breeders Association).* This required her to feed and care for our cow, to take it to shows, etc.* She started reading about cattle, breeding, etc.* She became an officer in our TLBA chapter and helped plan shows and events.* Our cow finished in the top 10 in her class at the TLBA World competition one year.* We eventually sold our herd (through successful breeding we ended up with 4 cows before we quit).* This was a hobby, not a money making venture.* In fact, it was a pretty expensive hobby.* But my DW is not afraid of cattle anymore.* She knows a lot about them and is comfortable walking through a herd to open the gates and get us to our destination.

See . . . I told you this was on topic.* *
So many puns spring to mind my brain is spinning. Guess I'll steer clear

JG
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Re: Help me stop my constant worrying about retirement!
Old 07-31-2005, 11:06 AM   #30
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Re: Help me stop my constant worrying about retirement!

Quote:
Originally Posted by daxm
How do you enjoy today yet feel secure that you are doing enough about tomorrow?
You have nailed the question.* This is the art of living.* We have a habit of thinking, "in a perfect world I would do this or this would be happening".* The reality is that where we are at this moment is a perfect world.* We have the opportunity to experience and learn exactly what we need.* My experience has been that when I do my sincere best to both enjoy today and plan for tomorrow, it all works out OK.
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Re: Help me stop my constant worrying about retirement!
Old 07-31-2005, 12:29 PM   #31
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Re: Help me stop my constant worrying about retirement!

I'm late to the game but I lugged along a lot of math & numbers.*

BTW, this is part of worrying constructively.* At some point you'll get tired of it and go surfing, so you'll have enjoyed today while remaining secure in the knowledge that you'll have done quite enough about tomorrow.

Anyway as many others have pointed out, there are two issues here.

First, your retirement expenses are probably going to be considerably less than your working expenses.* One estimate from this board is $50-$100/day, another is 50%, and one extremist claims 33%.* (Unclemick2, your $12K/year is about two standard deviations outside of even that extremist.)* Take a look at your work expenses, consider paying off your personal-residence mortgage, and look for any other things that you won't be paying for in retirement.* Some years you'll spend 4% of your portfolio but others you'll only spend 2-3%.

Second, there's compound interest.

According to my 1977 edition TI-55 calculator handbook, the final value of a series of payments is:
FV = Pmt x {[(1+i%)^n - 1]/i%}

and eventually

n = ln[(FV*i%/Pmt) + 1]/ln(1+i%)

n = number of compounding periods
ln = natural logarithm
i% = interest rate as a fraction (.06 instead of 6%).

So starting from nothing (although you already have $125K), saving $12,000/year, and compounding it at 6% after-tax annually to achieve $1.625M would take

n = ln[(1,625,000*.06/12000) + 1]/ln(1+.06) = 37.9 years.

I believe that 6% is a pretty achievable rate of return, but it's much more fun to plug in 8% (32.1 years).* Or presume that you keep on achieving 8%, you get a raise, and you can afford to set aside $1200-$1500/month (30-27.4 years).

But let's take this to its more conservative conclusion-- assume your current net worth of $125K keeps compounding at 6%.* In 10 years you'll have $223K and in 20 years you'll have $400K.* Let's also assume that you keep saving $12,000/year at 6%, so in 10 years

FV = 12,000 x {[(1+.06)^10 - 1]/0.06} = $158K for a total of $381K

and in 20 years

FV = 12,000 x {[(1+.06)^20 - 1]/0.06} = $441K for a total of $841K.

25 years produces $125K*(1.06)^25 + $12Kx{1.06^25-1/0.06} = $1.2M.

As FlowGirl has pointed out, it's time to make a spreadsheet that lets you vary your initial net worth, your monthly savings, and your rate of return.* The more time you spend on this the more detailed/accurate it will be, and the less you'll worry.

As others have mentioned, 6-7% is concensus from Warren Buffett and other reasonably accurate market prognosticators.* And as others have mentioned, if you put that in tax-free accounts (401(k) & Roth) then you'll easily achieve 6-7% and you'll still be able to withdraw the Roth contributions anytime.

Combining all these variables, I'm betting that you're only 23 years MAX away from achieving your ER.* I also predict that somewhere during that period you'll determine that you don't need that much, so you're closer than you think...
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Re: Help me stop my constant worrying about retirement!
Old 08-10-2005, 10:31 AM   #32
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Re: Help me stop my constant worrying about retirement!

Quote:
Originally Posted by Nords
I'm late to the game but I lugged along a lot of math & numbers......
~
According to my 1977 edition TI-55 calculator handbook, the final value of a series of payments is:
FV = Pmt x {[(1+i%)^n - 1]/i%}

and eventually

n = ln[(FV*i%/Pmt) + 1]/ln(1+i%)

n = number of compounding periods
ln = natural logarithm
i% = interest rate as a fraction (.06 instead of 6%)...
Nords,

I was looking for an existing thread to post an article about how today's investors are caught between "want and worry", when I found your post above. Man, I have to give you credit. Apparently your math can bring a very active thread to a dead stop faster than kayaks or dryer sheets.

So instead of "What color is your kayak?" as the rallying cry from the forum when we are saying enough already (think Art vs. th), maybe we should say, "Nords, what do the numbers tell us?"

REW
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Re: Help me stop my constant worrying about retirement!
Old 08-10-2005, 11:20 AM   #33
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Re: Help me stop my constant worrying about retirement!

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Originally Posted by REWahoo!
Nords,

I was looking for an existing thread to post an article about how today's investors are caught between "want and worry", when I found your post above.* Man, I have to give you credit.* Apparently your math can bring a very active thread to a dead stop faster than kayaks or dryer sheets.

So instead of "What color is your kayak?" as the rallying cry from the forum when we are saying enough already (think Art vs. th), maybe we should say, "Nords, what do the numbers tell us?"*

REW
Thanks, I think!

One of our biggest ER influences has been the ability to set aside the advertising hype (or the fact that the advice is coming from a friend) and to do basic "what if" math.

One of the components of the Navy's nuclear power training program is "theory to practice". The watch team is supposed to calculate the effects of doing some normal procedure and then observe whether their numbers are matched by the plant's performance. If it doesn't work out the way you expected it to, then it probably wasn't the plant's mistake and you need to go back to your number-crunching.

That practice pays off in "real" life too...
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Re: Help me stop my constant worrying about retirement!
Old 08-10-2005, 08:12 PM   #34
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Re: Help me stop my constant worrying about retirement!

Quote:
Basically I think I worry so much because I don't want to waste our lives working toward an unachievable goal.
Lots of fantastic advice here on the monetary side, so I'll focus on what I personally felt was the nub of the problem -- the tradeoff you have to make between living for today and saving for tomorrow.

I read "Your Money or Your Life" several years ago and immediately started living well below my means and saving like a fiend. This led me to a job that maximized my income, to very modest living situations, often with multiple housemates, to a modest car I just sold after 14 years, etc. etc. And I'm well on my way to my monetary goal as a result.

But I started to find that this laser focus on saving every dime left me MORE distressed, rather than less. Would I sacrifice for retirement only to find that I'd grown old in the process and had lost interest in things I wanted to do? (Travel, meaningful work for humanity, etc.)? Would I save like mad only to become sick or die before my time? After some years I decided that for me personally, balance was going to be more important than leaving my job on the earliest possible date.

I kept to my plan in large part, but backed off enough to start enjoying the here and now more. This included several (frugal) trips to Europe and one blowout trip to Africa, it included a stint of part-time work to combat burnout and reconnect with the family somewhat, and it included donations to those causes I would like to support but dont' have the time to volunteer for -- yet.

I've told this story before but I had a friend who skipped a group trip to Mexico two years ago because he "had too much to do at work." One month later he was diagnosed with brain cancer and his first words were "I should have gone to Mexico." He died four months later.

Adding balance to my life has helped me to manage something I fear more than a delayed retirement -- the thought that I'll end up like my friend and put off life now for a future that never arrives.

I started on the road to FI in a full-out run, but realized that FI is a marathon, not a sprint. Slowing down a little to take advantage of the water stops actually improves your chances of getting to the finish line.

FWIW,
Caroline
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Re: Help me stop my constant worrying about retirement!
Old 08-10-2005, 11:42 PM   #35
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Re: Help me stop my constant worrying about retirement!

Nice post Caroline. FWIW, it's worth a lot.

Haha
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Re: Help me stop my constant worrying about retirement!
Old 08-11-2005, 08:03 AM   #36
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Re: Help me stop my constant worrying about retirement!

Caroline, that is a great post. I keep thinking about those index funds and I-bonds that just keep growing. If I don't spend it, I have a couple of grandkids who will know how to spend it, and quickly. I've got a friend of mine I ran into Sunday, who told me she has budgeted $1000/month for travel. She asked me why I did not do the same. I had no answer! Especially since we attend the same funerals of people we knew while working. There's a message there! And you hit it, balance.
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Re: Help me stop my constant worrying about retirement!
Old 08-11-2005, 09:46 AM   #37
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Re: Help me stop my constant worrying about retirement!

good post, Caroline. I agree on the balance issue, that is why spreadsheets are so great for me.* I can update annually (or more often for some) and figure out where I am with my goals, expenses, and savings rates.
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Re: Help me stop my constant worrying about retirement!
Old 08-11-2005, 10:13 AM   #38
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Re: Help me stop my constant worrying about retirement!

Great post, Caroline,

Balance is critical, I view it like going on a diet, crash diets leave you crashing and burning. I was pondering in the shower this morning how some on those other boards take it too far from any logical view. If you save and extra $10 a week spending an extra 3 hours a week washing tin foil or biking to 3 different grocery stores instead of driving to one, when you could have spent those 3 hours with family and friends, what did you really gain? 1 year ealier retirement? 2, maybe? At the cost of being mental and having stunted relationships with the world around you?

I have a goal date, I know how much per year I need to save and any extra gets used now for fun/immediate needs.

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Re: Help me stop my constant worrying about retirement!
Old 08-11-2005, 10:28 AM   #39
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Re: Help me stop my constant worrying about retirement!

I agree on the balance issue.

Have a goal in mind to save X% of your income each year. It should be enough to get you where you want to be but not so much that you miss out on living each day. It is a fine balance but one that is important for mental health.

If you have to wait another year of two to ER then so be it. It is not a race it is a journey.

I think that some people get so involved in the nuts and bolts of saving a few bucks here and there that they forget to live and enjoy life. None of us are promised tomorrow. Worrying and scrimping at the cost of your family life or your sanity may lead you to be a rich but bitter person. Learn to live for today but save for tomorrow. Life if a balance and too much of any one thing will make you sick.
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Frugality isn't deprivation
Old 08-11-2005, 01:42 PM   #40
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Frugality isn't deprivation

Quote:
Originally Posted by Caroline
But I started to find that this laser focus on saving every dime left me MORE distressed, rather than less.* Would I sacrifice for retirement only to find that I'd grown old in the process and had lost interest in things I wanted to do?* (Travel, meaningful work for humanity, etc.)?* Would I save like mad only to become sick or die before my time?* After some years I decided that for me personally, balance was going to be more important than leaving my job on the earliest possible date.
People keep bringing up frugality and dragging it across the line into deprivation.

One of the biggest questions is deciding on your interests and what your time is worth. If you're the kind of person who enjoys passive entertainment (TV or radio) then it's not that hard to occupy your hands with washing plastic bags or cutting up dryer sheets or other "excessively frugal" activities while you're engaged in your primary interest. IOW you're making good use of your time without detracting from your interests. I don't NEED to pick up pennies off the sidewalk, but it's an enjoyable part of the evening's exercise and I feel a ridiculous surge of pleasure when I pick up all that "free" money.

We don't focus on "saving every dime". We avoid wasting the dimes on things that have no value to us or that would consume way too much of our time. Again it's a cost/benefit debate whether the upfront labor is worth the putative back-end saving. I don't personally care to wash out plastic bags, but we save the clean grocery plastic bags and we buy in bulk whenever there's a plastic-bag sale.

Another waste is food prep. It's much more convenient to pay higher costs for prepared food, but in ER I have more time to cook. I don't particularly care for cooking, but I'd rather spend the savings on other things and I'm hyper-concerned about the unhealthy aspects of most prepared foods. So I'm efficient at cooking-- large quantities, making the most of a hot BBQ grill, crock pots, and lots of freeze & reheat. We tend to eat about the same 10-15 dishes every month with an occasional test recipe. But we still "waste" $12.97 every Friday for CostCo pizza and a couple frozen yogurts. You'll never find me in the kitchen glazing carrots or making Hollandaise sauce, but I can get dinner on the table from scratch in 15 minutes.

So when you're trying to cut expenses, look at the things that have value to you. If travel is important then put it in the budget. If a commuter Starbucks & Krispy Kreme is more a hassle habit than a necessity, and if you decide that the money you're spending could be better saved, then do without it for a week and see if you miss it. Then take an extra step down the frugal path-- try brown-bagging your lunch. Take a look at what you're paying on your utility bills and consider whether a new refrigerator or water heater would reduce costs enough to pay back in a few years. Question conventional wisdom whenever you can do the math to prove it!

And despite years of subjecting my taste buds to Navy coffee, today I still drink 100%Kona. The Navy stuff is cheaper, but life is too short. My FIL is still trying to convince me that it's worth buying a grinder for the beans, but that's just too much of a hassle right now. Maybe when a free grinder drops into my lap...
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The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
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