'Tis the Season for Ten Frugal ways to Save Energy

A list of the Top Ten things that I have done this Fall to help reduce heating costs:

10. Installed programmable thermostat
9. Built attic insulation box for pull-down attic stairs
8. Blocked attic turbine vents
7. Placed draft blockers at threshold of exterior doors
6. Closed doors and heating vents to rooms not frequently used. This is only beneficial when there are no return air vents in the blocked off rooms. Otherwise the cold air in the room will be returning to the furnace causing it to work more to heat this colder air.
5. Added down comforter to bed and programmed thermostat to drop eight degrees lower at night
4. Placed space heater in computer room. If you spend most of your time in one room, it can be economical to use an electric space heater to increase the warmth in that room only instead of heating up the whole house.
3. Dress warmly, wear slippers, fleece, wool and/or poly-p which are excellent insulators
2. Take the dog for a walk. Even a short walk around the block will get the blood flowing to your extremities.
And finally the #1 way to feel warmer
1. Sip alcoholic beverages. Creates a sensation of warmth and well-being. Use at your own discretion.

Overspending – stop the spread of this demoralizing affliction

Stop for just one day. Delay unnecessary purchases for one day. Take charge of your spending. Yes, its addictive. Its cool to have a new gadget and sometimes that feeling lasts for days before the need to buy something else returns. Break the chain. Only you can do it.

Branding
Its amazing how much we identify with our brands – levi, gap, nike, etc. Not just any shoe will do its got to be a specific brand. We have many choices. But the selection rarely has anything to do with the quality of the item. Have you ever thought about how silly that is? Do you know where that attitude comes from? Its that same source that tells us everything we know about consumer products. Turn off the TV and Think for yourself.

The hidden costs
When you make a purchase, not only are you spending that dollar, but also all of the future earnings from that dollar. Its real simple, It takes money to make money. So, when you trade away money it can no longer work for you. That money will not earn any interest for you again. Its gone forever. Take notice - this is powerful information.

Who owns who?
All that Stuff requires maintenance. The more stuff you have the more time you must devote to maintaining it. Washing the car, painting the house, mowing the yard, washing the car, dusting the plasma TV, cleaning the bike, etc. The most valuable thing one can have is time and we give a lot of our time to stuff. All of that stuff owns you. When it gets to be too much – you know it. You get stressed out. People with less stuff and less choices have less stress.

Underlying issues
Why do we spend so much on stuff we don’t really need? Are Americans using shopping to soothe their pains and fill the voids in their lives? Is living an uncomplicated and simple life really that boring? Is shopping patriotic? There are lots of theories out there and its probably a combination of things that vary from one shopoholic to another. An interesting take on this was presented in the documentary “Freedom Fries”. Check it out - Its an instant watch movie on Netflix.

Improving your Tax Efficiency

The following list by Taylor Larimore over at diehards.org is often cited on the internet as the rule for tax efficient fund placement. The basic idea is to shelter tax-inefficient funds in tax advantaged accounts. Tax in-efficient funds are those that distribute dividends and/or have a lot of portfolio turnover resulting in capital gains distributions.

4-Step Rule for Tax Efficient Fund Placement:

1. Put your most tax-inefficient funds in 401ks, 403bs, Traditional IRAs and similar retirement accounts. When full..

2. Put your next most tax-inefficient funds in your Roth(s). When your Roth(s) are full..

3. Put what's left into your taxable account.

4. Try to use only tax-efficient funds in taxable accounts.

Here is a list of securities in approximate order of their tax-efficiency. (Least tax efficient at the top.):

Hi-Yield Bonds
Taxable Bonds
TIPS
REIT Stocks
Stock trading accounts
Small-Value stocks
Small-Cap stocks
Large Value stocks
International stocks
Large Growth Stocks
Most stock index funds
Tax-Managed Funds
EE and I-Bonds
Tax-Exempt Bonds

The underlying issue here is the disparity in tax rates. The IRS taxes dividends from bonds at your income rate and that rate is typically higher than the capital gains rate. For example, if you receive the same amount in dollars in capital gains from an equity mutual fund as dividends from a bond fund you would still pay more tax on the bond dividends. Consequently, it is possible to significantly reduce a tax bill by sheltering bonds in tax advantaged accounts.

Given the current marginal tax system, the tax bill for a single taxpayer earning $60,000 in dividend income would look like this:

10%*7825
+ 15%*(31850-7825)
+ 25%(60000-31850)
-------------------------------
= $11,423

Compared to the tax bill for $60,000 on long term (held 1 year or more) capital gains

15%*60000
= $9,000

That’s a savings of over 21%

I currently have very few bond holdings. As I near retirement, my goal is to gradually increase my bond allocation. In light of this tax information, I plan to convert approximately 20% of the funds that I hold in my Roth IRA to a bond fund. In the next few months, as part of my 2008 financial resolution, I will be evaluating several different bond options, posting about each and eventually making an investment within my Roth.

Personal Finance Quote of the Week

Quotes are great. They can be insightful and thought provoking. I am a long time subscriber to A.Word.A.Day. I look forward to learning a new word everyday, but my favorite part is the quote at the end of the message. Over the years, I have saved several quotations into a favorites document. Now, once a week I plan to share one of those quotes and relate it to PF, of course.

He will always be a slave who does not know how to live upon a little. -Horace, poet and satirist (65-8 BCE)

This is the cornerstone to successful PF. Living upon little and spending less than you earn. As long as you are overspending, you are in debt to others and you are in their servitude. Think about it. Could you quit your job tomorrow and pursue your dreams? Walk away and not worry about any bills or creditors coming for you? Probably not. We work to pay our debts. Some never pay off those debts, instead they accumulate more and more debt and remain bound and chained to unfulfilling jobs. True freedom is being a master of your own time – being financially able to walk away.

My 2008 Financial Resolution

It's never too early to get a jump start on your new years resolutions. Especially when Cash money life is offering a chance to win a 4GB iPod nano for writing out a financial goal for 2008.

My 2008 financial resolution is to learn and evaluate several bond options and make an investment.
Using the S.M.A.R.T goal format:
Specific - I want to increase my knowledge about investing in bonds to include mutual bond funds, US govt bonds, TIPS and municipal bonds.
Measurable -. I will evaluate each of these, make blog postings on each and make an investment in the bond instrument that best suits my financial plan.
Actionable - This is 100% possible. I have books that cover the subject, internet resources to mine and I can draw upon the experiences of individual friends and family that have invested in various types of bonds.
Realistic – I want to learn enough to feel confident in my bond investment. I do not expect to become an expert or become a bond trader.
Timely – I plan to start this month, evaluating a different bond instrument each month and then making an investment in April of 2008.

What is your financial resolution? The giveaway ends December 4th at 11:59 PM, Eastern Daylight Saving Time and the winners will be announced Thursday, December 6th.