Now, I could go with season passes. They are priced at $135.99 for adults and $95.99 for kids. Our total for season passes would be $639.95 (plus taxes and any other fees).

Dividing $639.95 by $204.95, I get 3.12. That means we would have to visit the park at least 3 times over the summer before the season passes would make financial sense.

We aren’t doing the season passes. Why? Because we live two hours from the park and I just don’t see us being able to get there more than one or two times during the summer. Plus, it always seems that once we go one time, we’re not too interested in going back again any time soon.

What about you? Do you buy season passes? Do you do the math before you opt for season passes?

I read a blog post a few weeks ago at Mint.com about using your Roth IRA as an Emergency Fund. Here’s the blog post: Does Using a Roth IRA as an Emergency Fund a Good Idea?

I’ve been following your blog for several years now (you even wrote a blogpost about a question I wrote to you in 2009).

Anyway, I used to contribute to my Roth IRA regularly, but then stopped amid job transitions. I have a decent sized emergency fund set up, and recently decided to target 6 months expenses. I understand not having the entirety of an emergency fund set up in a Roth, since the value can actually go down when you might need it. I was just wondering what your take is on the blog post linked above?

Thanks,

Robby

Here are my thoughts:

First I would focus on getting 3 months’ worth of expenses socked away in a cash account for the bulk of the emergency fund. Then, I would invest through a Roth IRA and use it as a backup if necessary. So, I think the strategy has some merit. Yes, there is some risk involved due to volatility but if you already have 3 months saved up in cash, you may never need to take from the Roth.

The most important thing regarding emergency funds is to make sure you use it just for real emergencies (like the air conditioner goes out or for an insurance deductible). Too many people think new shoes are an emergency.

I remember back when I was in high school, my dad telling me about how my cousin had withdrawn something like $30,000 out of her Walmart retirement account in order to buy a new car. I know new car prices were nowhere near $30,000 back then so I’m not sure why she took out so much unless she just cashed out. Anyway, based on 20% withholding and a 10% penalty (I believe both existed back then), she would have lost $9,000 right off the top. Then, she would have spent approximately $13,000 on a Thunderbird.

I don’t have the exact numbers or dates but let’s just assume she withdrew this money on January 2, 1987. The split adjusted price of Walmart on that day was $2.27 a share, which means she would have sold 13,215 shares.

Fast forward to Tuesday, May 15, 2012. Walmart is trading at around $59 a share.

Multiply 13,215 by $59 and you get…

$779,685!

I’m pretty sure she’s not still driving that Thunderbird.

Of course I made a lot of assumptions here. I assumed that the entire amount withdrawn would have stayed in Walmart stock the entire 25 years. And, there was no guarantee that Walmart’s stock would have performed that well over the years. It also would have been risky to keep all her money in Walmart stock (it should have been diversified, which would have most assuredly meant lower returns).

All that said, I seriously doubt my cousin did the math. Instead she went with her heart and bought a new car.

This paragraph illustrates the issue:

Carriers, such as AT&T and Verizon Wireless, have long chafed at having to spend billions of dollars to build and maintain networks only to watch Internet companies like Google Inc. and device makers like Apple Inc. collect most of the profits for using them. The pressure on carriers has grown more acute with the rise in use of smartphones like the iPhone, essentially mini computers that make mobile Internet use easy and put a heavy toll on networks.

I can understand that.

The change won’t affect me and my family. What about you? The article mentioned people switching to Sprint because they still have unlimited data plans. But, I have heard they are MUCH slower than AT&T and Verizon. Besides, it’s just a matter of time before Sprint changes their policy too.

I’ve tried a variety of software types, and I have yet to find one that meets our needs perfectly.  Since we’re also pinching pennies (in order to get out of debt), I’m completely against paying for software, so there are a lot of software types I haven’t tried.  Here’s a few I have looked at, and my thoughts on them:

Quicken

We’ve used Quicken in the past. Though it’s the top result under “budgeting software,” in my mind this is really a checkbook register. Yes, you can print reports and see where you’re spending your money, but it doesn’t really help you actually create a budget. It’s still helpful, just not the ideal budgeting solution.

Mint.com

This one leans more towards budgeting than Quicken does, but it’s main function is still to help you see where your money is going.  It’s got a very streamlined interface, and you can connect all of your accounts to get a big picture of your family’s finances.  You can also set savings goals and see how well you are doing on reaching them.  One drawback here is privacy – you’re giving them all of your account information.  Though they tout “bank-level security,” it’s still going to make a lot of people nervous.  I’m not a dedicated user.

PearBudget.com

This one actually is budgeting software (well, technically, it’s a budgeting website). When you first visit the website, all you have to do is enter your expenses and income and it will create a temporary budget for you. In order to access the budget fully (including adding expenses and modifying your temporary budget), you have to subscribe. I couldn’t find any solid numbers for the subscription – their front page only says, “Under $5 per month.” As I said earlier, I’m too cheap to pay for it, so I can’t tell you how well this works.

Dave Ramsey’s Software

Though I don’t agree with Dave on everything, he does have some awesome spreadsheets and budgeting information available.  In fact, we’re currently using a modified version of his budgeting spreadsheet. It’s not perfect (which is why I’m always looking for something new), but it’s the best we’ve found so far. This is another one you have to pay for ($25), though. We’ve had it for years (since before our “spending freeze”), but I don’t think I would spend money on it if I didn’t have it already.

Rather than continue through all three million results, I’ll leave you with one more.  This is another one that helps you track spending, not decide how to budget your money, but this is one that our family currently uses:

EEBA

If you’re familiar at all with Dave Ramsey, you’ve heard him talk about the envelope system.  He recommends you take out cash for your budget categories and divide the money into envelopes. If you have $100 in your “clothing” category, you know you have $100 you can spend that month. When the envelope is empty, you stop spending.

We’ve used this method with various degrees of success in our family.  We like the idea, but the practicality of withdrawing cash, carrying it around, dividing it between spouses just got too complicated for us and we stopped using it.  This website has solved that problem for us.

Once we’ve finalized our monthly budget, I put the numbers into the “envelopes” on the EEBA website. It will track how much money we have budgeted that month, and we enter each transaction when we spend money and categorize which account it came from, so we always know how much money is left in that “account.” My favorite thing: there’s an app. Since my husband and I both have iPhones, we use the app to input our transactions.  This way, if he spends money at the grocery store, I know about it. Both of us know exactly how much money is left in each category.

So far, creating our own budget and using this app to keep track of our spending is turning out to be the best way for us to stay on the same page.

Is there any software that you can’t live without? What tools do you use to budget and track your spending?

The amount of information out there on budgeting is overwhelming. There are lots of trite and obvious articles out there (like this one) that give such groundbreaking (and condescending) advice as “Incurring debt is easy but getting out of debt is not.” or “Reducing the luxuries will always be the best place to start for you to make some real savings with the least impact on your lifestyle.”

I’ve even read articles recently discouraging people from budgeting because, “You know you should budget, but you also know you’re not really going to do it.”

I vehemently disagree with this logic. The NUMBER ONE reason people are in so much financial trouble right now is that they are not willing to put in the work and sacrifice needed to save money, wait for purchases, or do without some things altogether. The simple act of budgeting is like an athlete training and developing discipline. At some point you have to be willing to do the hard and boring things if you want to make changes and improve your situation.

I will say that, in the previously mentioned article, the author goes on to talk about the idea of an “Anti-Budget” – a worksheet listing all the things you have to pay subtracted from your income, leaving you with what he calls a spending allowance. In my mind, that is a budget, so what he’s really doing is just trying to present the idea of budgeting in a different way. That’s good.

Back to our family’s budget. When we started reevaluating our finances, we had two assumptions:

• There’s no way we can decrease our current expenses – we’re already at rock bottom.
• There’s no way we can increase our income – that’s beyond our control.

Expenses
“Rock bottom” for us still meant spending more than we earned, so we knew something had to change. When we decided to get this debt taken care of – whatever the cost – we started cutting mercilessly: turning off cable, selling a car (only paying for gas and maintenance on one vehicle has saved us more than we imaginged it would!), even cutting a few important things – like piano lessons for the kids – for a short time. A lot of these changes won’t be permanent, but paying off our debt is more important to us (short- and long-term) than having these luxuries that just a few months ago seemed like necessities.

Income
When I realized that “income” did not have to equal “salary,” that was a game-changer for me. Instead of relying solely on the salary from mine and my husband’s jobs, we started trying to think of other ways we could earn money during the month. Clothing that we normally would have (tried to) sell in a garage sale, we started putting up on eBay (and getting three times a garage-sale price). We sold over half of the Wii games that our kids no longer played. Things that had been lying around the house, taking up space, now became valuable.

My point in saying all of this: If you want to badly enough, you can always find something to do to make more money. Whether it’s selling stuff or teaching an instrument or a hundred other possibilities, don’t wait for someone to give you the money you “deserve” – go out and get it.

I’ve written more about our family’s budgeting philosophy.  When we dealt with these two areas, budgeting because a lot less overwhelming. It’s still hard – and it takes discipline to stick to it. When financial crises come, the single best first step in tackling them is to have a written budget that will show you where your money is going. If money isn’t tight, your budget can probably be a lot less formal than ours is, but even then it’s still important to, as Dave Ramsey says, “Tell your money where to go, so you don’t have to wonder where it went.”

Did Netflix’s latest price increase cause you to leave the company?

I can’t say that the price increase caused me to leave but I did cancel our membership. Why? Mostly because it seemed like I would scroll through the instant offerings and RARELY find anything I wanted to watch. Maybe I’m just particular. I don’t know. We were on the plan that sent us one DVD at a time. Guess what? The DVD would sit by our TV for weeks (or months) without us ever watching it. So, I canceled the service. Don’t really miss it either.

What about you?

Oh, and if you’re interested, Netflix’s CEO offered up an apology (thanks, Lindsay) for the company’s latest moves.

Could you come up with $2K in 30 days? One quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans.

He said he got his information from a recent NBER Working Paper. I haven’t read the paper.

Anyway, to answer the question…

Yes, I could come up with $2,000 in 30 days. I’m not sure just how much I could come up with in 30 days. I suppose it would depend on the severity of the need.

It’s pretty sad that 25% of the population could not come up with $2,000 and another 19% could only gain access to $2,000 through payday loans or selling/pawning possessions. I’m thankful for the position we are in.

This is a guest post by Doug Warshauer, author of If I’m So Smart Where Did All My Money Go: Balancing Your Financial Objectives for Lasting Wealth (Personal Finance)*. I met Doug through Twitter. Gotta love social networking.

My friend Tom plans to buy a car in two years. His current car, a 2003 Chrysler, is nearing the end of the line. Tom recently began setting aside some money each month, hoping that, two years from now, he’ll have enough accumulated to purchase his new vehicle. The car he has his eye on: a Honda Accord, which he estimates will cost him about $27,000.

Tom, and millions of other people in similar situations, face a dilemma right now: how to invest that money which they plan to spend in a couple of years. He realizes that two years is far too short a window of time to invest in stocks. When the stock market falls – as it has numerous times in the past decade – the losses could wipe out a substantial portion of his savings and delay his ability to buy the car.

Unfortunately, with short-term interest rates near zero, Tom finds all the investment options unappealing. Bank savings accounts, 2-year CDs, Treasury bills, and money market funds all offer negligible returns. With such undesirable options, he feels tempted to find some alternative investment vehicle.

What should Tom do? Here is my suggestion:

First, he needs a little perspective. While nominal short-term interest rates are at an all time low, real interest rates (inflation-adjusted) are not too different from historical norms. Tom is not going to get much of a return on his investment, but the cost of the car is also not likely to rise much, either.

His ability to buy the car in two years depends on two factors: 1) saving enough money each month, and 2) not losing the money he saves through poor investing.

How can he keep from losing it through poor investing? The biggest risk we’ve already mentioned: he must avoid the temptation to invest in the stock market. Still, even if Tom sticks to fixed income investments, he needs to avoid the temptation to accept two other risks that could undermine his ability to buy that car.

First, he needs to protect against credit risk, the risk that the security he buys will fall in value if the likelihood that its underlying investments default. Tom can essentially eliminate credit risk by purchasing U.S. Treasuries, putting his money in a bank that offers an FDIC guarantee, or investing in a bond fund that buys highly rated securities. While mutual funds that buy high-yielding (lower rated) bonds might offer tempting interest rates, they could fall sharply in a down market, when the risk of default of lower-rated bonds skyrockets.

Second, he needs to protect against interest rate risk, the risk that the security he buys will fall in value if interest rates rise. He can eliminate most interest rate risk by purchasing securities with a short duration. Savings accounts, money market funds, and short-term bond funds all fit this description.

As with credit risk, Tom may be tempted to accept some interest rate risk in order to earn a higher yield. Currently, a 2-year Treasury yields about 0.5%, and a 30-year Treasury bond yields about 4.25%. After all, with a highly liquid market for Treasuries, he’ll be able to sell the 30-year bond when he wishes to buy the car.

If he buys the 30-year bond, and interest rates rise, he could be in for a shock in two years. An increase in long term interest rates of two or three percent could wipe out 25% or more of the value of his investment! Once again, the downside of chasing a higher return dwarfs the modest benefit.

True, to avoid credit risk and interest rate risk, Tom must resign himself to accepting the negligible returns he will earn investing in high-quality, short-term fixed income investments. But accepting them comes with a real reward: the near certainty that two years from now, as long as he saves as much as he intends, he will be the owner of a new Accord.

What would you do? Would you be tempted to seek a higher-yielding investment?

Doug Warshauer’s new book, If I’m So Smart Where Did All My Money Go: Balancing Your Financial Objectives for Lasting Wealth (Personal Finance)*, teaches how people can design savings and investment plans to meet all their financial objectives. He blogs on personal finance issues at www.dougwarshauer.com.

After reading her post, I got to thinking about times when I practiced self-control when at the store. I think I have a pretty good handle on compulsiviness when at the store. That’s not to say that I haven’t had times when I walked out of a store thinking, “Why did I buy this?”

My problem is with silly stuff like iTunes. I’m a music nut and I find it too easy to purchase music from iTunes. That’s not to say I’m bad or anything but that’s one area I have to be careful of.

What about you?

How Good Are You at Controlling Compulsive Spending?