I totally agree! Who do they think they are fooling? Other repeat offenders are Macy's and Kohls - so many "sales" that you wonder why anyone would pay the original sticker price.
Being unemployed for 18 months, I am thinking about looking for 'full time seasonal' garden jobs not related to my skill set and schooling. These jobs pay less than my unemployment benefits. This is the type of job that anyone can do. I am not sure if this is considered 'suitable' work for employment since I have a technical degree and have been in the profession for over twenty years. Ideally, I would like to work part time so that I can continue my job searches in my field and keep up with my technical skills at home. Comments?
We still have a VOIP account through Callcentric, which essentially gives us a landline using our original phone number for about $10 a month. When my youngest child is old enough to have a cell phone, we'll get rid of it -- he's the only one who ever gets calls on it at this point!
Don't get me wrong, I like this post and I think these points are worth pointing out. But this PR tactic may be counter to some very strong evolutionary drives. See http://en.wikipedia.org/wiki/Signalling_game#Biology
Good, but not exactly what I was looking for. On days when I wash my hair I take 6 times longer - any hints for how to rinse my hair faster? I tried last night and now I have dandruff (never a problem for me before)
Thanks for the reply, Justin! (And sorry for the inordinately long reply below -- I hope it is helpful to someone other than me!)
Your explanation confirmed my understanding of the "conventional wisdom" that compounding interest makes a HUGE difference when you are investing over a long period. Since it makes such a huge difference, my thought was that surely the compound interest on the extra (pre-tax) money that you can invest in a 401(k) would be greater than the percentage increase in the tax rate. For instance, even if my tax rate goes up from 25% to 35%, I would have earned way more than 10% of my investment with that additional compound interest.
But your explanation pushed me to look into the math more closely. And now I am pretty well convinced that the additional compound interest doesn't make ANY difference in the end. This is counterintuitive given the way I laid out the scenarios above, but I think it ultimately makes sense.
So, the formula for compound interest (assuming it compounds annually) is:
Future Value = Present Value x (1 + r)^n
Let's take your two scenarios again but assume that the tax rate remains EXACTLY the same between now and retirement (just for the sake of comparison). So, let's say the tax rate (t) = 25%.
In both scenarios, let's assume the rate of return (r) = 12% and the number of years it has been compounding (n) = 30.
If I have $100 to invest, I could put all of it in a 401(k) and let the full amount compound for 30 years:
Future Value (30 years from now) = Present Value x (1 + r)^n =
$100 x (1 + 0.12)^30 = $2996
But of course, now I have to pay taxes on the future value when I take distributions. Rather than getting the full $2996, I get 75% of it. So, my "take home" from investing the full $100 in the 401(k) is $2296 x 0.75 = $2247.
Now, what would have happened if I invested in a Roth IRA? I have $100 to invest, but I pay 25% tax on it first. So I have $75 left to put into the IRA and only that $75 earns compounding interest over the next 30 years:
Future Value (30 years from now) = Present Value x (1 + r)^n =
$75 x (1 + 0.12)^30 = $2247
When I am retired, I can take out ALL of that $2247 without paying more taxes (assuming the laws haven't changed). So my "take home" with the IRA is *exactly* the same as it would have been had I invested the full $100 in a 401(k), $2247.
Now that I look closely at the math, this outcome makes sense. The compound interest formula is simply a series of multiples. The tax rate is only one more multiple added to the series. The only difference (in our simplified scenarios) is that the IRA multiplies by the tax rate FIRST, and the 401(k) multiples by the tax rate LAST. But, of course, order of operations doesn't make a difference in multiplication. So:
(PV)(t)[(1+r)^n] = (PV)[(1+r)^n](t)
This is really counterintuitive given my initial thought that compound interest makes a HUGE difference! How could it make NO difference?? I think what I was failing to recognize is this: even though my extra $25 is earning a huge return based on compounding interest, the EVEN HUGER return on the other $75 of my investment will also be reduced by 25% when I eventually pay my taxes. Compound interest does make a huge difference -- but 25% of a huge amount of money (the full return on my other $75) is still a pretty huge amount of money to pay in taxes. In fact, it is EXACTLY as much money as I earned by compounding the interest on the additional (pre-tax) $25.
In the end, the tax rules for the 401(k) and IRA don't have any impact at all on the potential for earning compound interest.
Of course, as you and the post writer have pointed out, there are other variables that we've ignored in our scenario. If my tax rate goes up, then my "take home" on the 401(k) will be smaller. But if the legislature changes the tax rules for IRAs at any point before I retire in a way that requires me to pay more taxes, then I could end up with the same (or worse) tax liability on an IRA. I am inclined to agree with you that this whole debate ends up being based on different gambles about what will happen with taxes.
Now that I see the real differences between the investments, my own personal strategy is this: above and beyond the employer match, diversify between a supplemental 401(k)--actually, I'm in a 403(b), but all the same--and a Roth IRA. Since it's easier to get money out of a Roth pre-retirement, there's some reason to have part of my savings in that kind of investment rather than a 401(k). And since the rest is a gamble, it's best to spread the odds out over both kinds of investments. How much of a split will depend on some of the questions in the post--which one has better options? Which has lower fees?
Anyway, that's my take. (If I've missed anything in the math or the explanation, I hope someone will correct me!)
I see this every day when I look for the daily deals here - it's such a common tactic it's awful. The best way to be sure you are getting a great deal online is to price check similar items on Amazon or Walmart, or use a "shop and compare" type search on Google.
This is a great article, and really highlights an issue you don't hear much about.
I had to stop shopping at Hobby Lobby myself - it isn't just the pillows that are too pricey. The whole store is that way. Once in a while I can find a good deal, but most of the time I can get the same quality (or better) online for less money, with free shipping! Needless to say, Hobby Lobby doesn't ever get featured in the daily deals!
Wow! I'm really interested if someone from Hobby Lobby is going to reach out to you about this article to try and smooth things over. That is ridiculous.
I didn't see the one thing that came to my mind when I read the title: frugal men are smart with money and they can help make a woman feel secure. Spendthrifts are scary as hell and they can ruin a woman's life as well as their own. Frugality says you've grown up; spendthrifts are little boys and a lot of women don't want to take a partner to raise. You can't built a future with a spendthrift - he'll spend the future to enjoy the present moment. You can't have a partnership with someone who hasn't grown up yet. Frual is sexy doesn't even start to describe it: frugal is majorly hot.
That is a fair assessment if it was the natural ebb and flow of property values. However, when you consider that it's a fact that the slimeball banks caused these housing values to go to pot and caused the economy to take a dump-well...I'd have to say that is NOT the way "it did and should work." The chickens are coming home to roost and the banks and the government that allowed this to happen need to pay the piper. So, you are saying someone like me with perfect credit (820 plus), waited until the market tanked a bit, took out a 30 year fixed, had a great job and put down 20%. Essentially, 100% did it the right way, deserves to now be stuck in my house for 10 years because some greedy banks gave a bunch of knuckleheads loans with no docs or verification of income? That's a negative. Pull your head out of your pooper dude. You are living proof that a little bit of knowledge is dangerous. Darwin came up with "survival of the fittest." Should we let die that part of humanity that is not as smart and clever as you? C'mon. You are speaking of some people. But many of us are not dirtbags who were flipping homes and taking advantage of the system. Watch "Inside Job" and get a little insight and have some empathy for others.
I have a landline for two reasons, both of which put me in definite minorities. The first is that I live in a slice of land in which dial-up is my only option for internet connection, and the other is that I don't want a cell phone. Call me old-fashioned, but I kind of like living a little more slowly and a little LESS connected.
I still have a landline. Why? Because we get a discount as a bundle package from the phone company. I tried to get rid of the landline but the company told me that all of my discounts would be taken away and it would be like paying the same amount and getting the landline for free. So, I may as well keep it. Plus, the kids have used it when I had a medical issue and needed assistance. So all in all, it's better for me to keep it.
As a former career counselor, these recommendations are well suited to the digital age of job searching. I would also recommend a time tested technique called "informational interviewing." Speak with individuals working in your field for quick 10-15 minute meetings to gather information about the field, trends , and advice. Most people are happy to help someone out and if you present yourself well and stay in touch, they may at a later date lead to a job. In the meantime you are becoming more knowledgeable about the field.
No personal landline, though there is a business line for a home-based business in the house that we occasionally use as for personal calls on the weekend. However, we wish our reception for our cell phones was better, but now that we've switched to pre-paid plans, we only use the cell phones for quick calls instead of chatting with family and friends.
We're 7 months out from a cross-country move and this posts gives me some great new ideas for saying thanks to everyone who will help us pack and carry. Thanks!
Returning the favor is huge. If your helpers are not going to move in the near future then help them with projects around the house. I am sure they would appreciate it.
My husband has a large glass jug for pennies, then coffee mugs for quarters, dimes, and nickles. They're currently overflowing, so maybe we should cash those in...
Yes, we do. In case of an emergency (earthquake, black out), the phone line will still have power. We don't have an digital/wireless land line phone, either. The darn thing is plugged into the wall, and the handset is plugged into the phone. To top it off, there 's no answer machine attached. It's a bit nostalgic looking. People make comments and laugh.
The most important way to thank people is to have everything organized so the move can go quickly. Have everything packed by the time they get there. Take things out of the drawers and pack them in boxes instead of making them carry the furniture full. Have each box labeled with the name of the room it should go in. Have a rental truck and someone to organize it's loading.
Also, make sure there are plenty of cold drinks at each place, and make sure there's toilet paper at the new place.
Beyond that, I'm yet another pizza-serving person. I've also seen breakfast tacos at the start of a move. And people have also taken me out to eat afterwards. One time when I moved to a place with a pool, there was also swimming.
Yes.
I totally agree! Who do they think they are fooling? Other repeat offenders are Macy's and Kohls - so many "sales" that you wonder why anyone would pay the original sticker price.
Being unemployed for 18 months, I am thinking about looking for 'full time seasonal' garden jobs not related to my skill set and schooling. These jobs pay less than my unemployment benefits. This is the type of job that anyone can do. I am not sure if this is considered 'suitable' work for employment since I have a technical degree and have been in the profession for over twenty years. Ideally, I would like to work part time so that I can continue my job searches in my field and keep up with my technical skills at home. Comments?
We still have a VOIP account through Callcentric, which essentially gives us a landline using our original phone number for about $10 a month. When my youngest child is old enough to have a cell phone, we'll get rid of it -- he's the only one who ever gets calls on it at this point!
I have a landline..only because we have an alarm systems that requires it. We don't use it at all though.
Don't get me wrong, I like this post and I think these points are worth pointing out. But this PR tactic may be counter to some very strong evolutionary drives. See http://en.wikipedia.org/wiki/Signalling_game#Biology
Good, but not exactly what I was looking for. On days when I wash my hair I take 6 times longer - any hints for how to rinse my hair faster? I tried last night and now I have dandruff (never a problem for me before)
Thanks for the reply, Justin! (And sorry for the inordinately long reply below -- I hope it is helpful to someone other than me!)
Your explanation confirmed my understanding of the "conventional wisdom" that compounding interest makes a HUGE difference when you are investing over a long period. Since it makes such a huge difference, my thought was that surely the compound interest on the extra (pre-tax) money that you can invest in a 401(k) would be greater than the percentage increase in the tax rate. For instance, even if my tax rate goes up from 25% to 35%, I would have earned way more than 10% of my investment with that additional compound interest.
But your explanation pushed me to look into the math more closely. And now I am pretty well convinced that the additional compound interest doesn't make ANY difference in the end. This is counterintuitive given the way I laid out the scenarios above, but I think it ultimately makes sense.
So, the formula for compound interest (assuming it compounds annually) is:
Future Value = Present Value x (1 + r)^n
Let's take your two scenarios again but assume that the tax rate remains EXACTLY the same between now and retirement (just for the sake of comparison). So, let's say the tax rate (t) = 25%.
In both scenarios, let's assume the rate of return (r) = 12% and the number of years it has been compounding (n) = 30.
If I have $100 to invest, I could put all of it in a 401(k) and let the full amount compound for 30 years:
Future Value (30 years from now) = Present Value x (1 + r)^n =
$100 x (1 + 0.12)^30 = $2996
But of course, now I have to pay taxes on the future value when I take distributions. Rather than getting the full $2996, I get 75% of it. So, my "take home" from investing the full $100 in the 401(k) is $2296 x 0.75 = $2247.
Now, what would have happened if I invested in a Roth IRA? I have $100 to invest, but I pay 25% tax on it first. So I have $75 left to put into the IRA and only that $75 earns compounding interest over the next 30 years:
Future Value (30 years from now) = Present Value x (1 + r)^n =
$75 x (1 + 0.12)^30 = $2247
When I am retired, I can take out ALL of that $2247 without paying more taxes (assuming the laws haven't changed). So my "take home" with the IRA is *exactly* the same as it would have been had I invested the full $100 in a 401(k), $2247.
Now that I look closely at the math, this outcome makes sense. The compound interest formula is simply a series of multiples. The tax rate is only one more multiple added to the series. The only difference (in our simplified scenarios) is that the IRA multiplies by the tax rate FIRST, and the 401(k) multiples by the tax rate LAST. But, of course, order of operations doesn't make a difference in multiplication. So:
(PV)(t)[(1+r)^n] = (PV)[(1+r)^n](t)
This is really counterintuitive given my initial thought that compound interest makes a HUGE difference! How could it make NO difference?? I think what I was failing to recognize is this: even though my extra $25 is earning a huge return based on compounding interest, the EVEN HUGER return on the other $75 of my investment will also be reduced by 25% when I eventually pay my taxes. Compound interest does make a huge difference -- but 25% of a huge amount of money (the full return on my other $75) is still a pretty huge amount of money to pay in taxes. In fact, it is EXACTLY as much money as I earned by compounding the interest on the additional (pre-tax) $25.
In the end, the tax rules for the 401(k) and IRA don't have any impact at all on the potential for earning compound interest.
Of course, as you and the post writer have pointed out, there are other variables that we've ignored in our scenario. If my tax rate goes up, then my "take home" on the 401(k) will be smaller. But if the legislature changes the tax rules for IRAs at any point before I retire in a way that requires me to pay more taxes, then I could end up with the same (or worse) tax liability on an IRA. I am inclined to agree with you that this whole debate ends up being based on different gambles about what will happen with taxes.
Now that I see the real differences between the investments, my own personal strategy is this: above and beyond the employer match, diversify between a supplemental 401(k)--actually, I'm in a 403(b), but all the same--and a Roth IRA. Since it's easier to get money out of a Roth pre-retirement, there's some reason to have part of my savings in that kind of investment rather than a 401(k). And since the rest is a gamble, it's best to spread the odds out over both kinds of investments. How much of a split will depend on some of the questions in the post--which one has better options? Which has lower fees?
Anyway, that's my take. (If I've missed anything in the math or the explanation, I hope someone will correct me!)
Lining up is a no lose proposition (except for time)
If you can't sell for more than you paid, just return it (and hope there is no restocking fee)
I see this every day when I look for the daily deals here - it's such a common tactic it's awful. The best way to be sure you are getting a great deal online is to price check similar items on Amazon or Walmart, or use a "shop and compare" type search on Google.
This is a great article, and really highlights an issue you don't hear much about.
I had to stop shopping at Hobby Lobby myself - it isn't just the pillows that are too pricey. The whole store is that way. Once in a while I can find a good deal, but most of the time I can get the same quality (or better) online for less money, with free shipping! Needless to say, Hobby Lobby doesn't ever get featured in the daily deals!
Wow! I'm really interested if someone from Hobby Lobby is going to reach out to you about this article to try and smooth things over. That is ridiculous.
I didn't see the one thing that came to my mind when I read the title: frugal men are smart with money and they can help make a woman feel secure. Spendthrifts are scary as hell and they can ruin a woman's life as well as their own. Frugality says you've grown up; spendthrifts are little boys and a lot of women don't want to take a partner to raise. You can't built a future with a spendthrift - he'll spend the future to enjoy the present moment. You can't have a partnership with someone who hasn't grown up yet. Frual is sexy doesn't even start to describe it: frugal is majorly hot.
That is a fair assessment if it was the natural ebb and flow of property values. However, when you consider that it's a fact that the slimeball banks caused these housing values to go to pot and caused the economy to take a dump-well...I'd have to say that is NOT the way "it did and should work." The chickens are coming home to roost and the banks and the government that allowed this to happen need to pay the piper. So, you are saying someone like me with perfect credit (820 plus), waited until the market tanked a bit, took out a 30 year fixed, had a great job and put down 20%. Essentially, 100% did it the right way, deserves to now be stuck in my house for 10 years because some greedy banks gave a bunch of knuckleheads loans with no docs or verification of income? That's a negative. Pull your head out of your pooper dude. You are living proof that a little bit of knowledge is dangerous. Darwin came up with "survival of the fittest." Should we let die that part of humanity that is not as smart and clever as you? C'mon. You are speaking of some people. But many of us are not dirtbags who were flipping homes and taking advantage of the system. Watch "Inside Job" and get a little insight and have some empathy for others.
Thanks for the mention Ashley! I got all the tips for my post from my review of David Bach's new book so the credit goes to him :)
I have a landline for two reasons, both of which put me in definite minorities. The first is that I live in a slice of land in which dial-up is my only option for internet connection, and the other is that I don't want a cell phone. Call me old-fashioned, but I kind of like living a little more slowly and a little LESS connected.
I still have a landline. Why? Because we get a discount as a bundle package from the phone company. I tried to get rid of the landline but the company told me that all of my discounts would be taken away and it would be like paying the same amount and getting the landline for free. So, I may as well keep it. Plus, the kids have used it when I had a medical issue and needed assistance. So all in all, it's better for me to keep it.
As a former career counselor, these recommendations are well suited to the digital age of job searching. I would also recommend a time tested technique called "informational interviewing." Speak with individuals working in your field for quick 10-15 minute meetings to gather information about the field, trends , and advice. Most people are happy to help someone out and if you present yourself well and stay in touch, they may at a later date lead to a job. In the meantime you are becoming more knowledgeable about the field.
No personal landline, though there is a business line for a home-based business in the house that we occasionally use as for personal calls on the weekend. However, we wish our reception for our cell phones was better, but now that we've switched to pre-paid plans, we only use the cell phones for quick calls instead of chatting with family and friends.
We're 7 months out from a cross-country move and this posts gives me some great new ideas for saying thanks to everyone who will help us pack and carry. Thanks!
Returning the favor is huge. If your helpers are not going to move in the near future then help them with projects around the house. I am sure they would appreciate it.
We choose not to have cell phones, so we do have a landline.
My husband has a large glass jug for pennies, then coffee mugs for quarters, dimes, and nickles. They're currently overflowing, so maybe we should cash those in...
We treated our friends that helped us move to an evening of entertainment with us and Carlos Santana.
Yes, we do. In case of an emergency (earthquake, black out), the phone line will still have power. We don't have an digital/wireless land line phone, either. The darn thing is plugged into the wall, and the handset is plugged into the phone. To top it off, there 's no answer machine attached. It's a bit nostalgic looking. People make comments and laugh.
The most important way to thank people is to have everything organized so the move can go quickly. Have everything packed by the time they get there. Take things out of the drawers and pack them in boxes instead of making them carry the furniture full. Have each box labeled with the name of the room it should go in. Have a rental truck and someone to organize it's loading.
Also, make sure there are plenty of cold drinks at each place, and make sure there's toilet paper at the new place.
Beyond that, I'm yet another pizza-serving person. I've also seen breakfast tacos at the start of a move. And people have also taken me out to eat afterwards. One time when I moved to a place with a pool, there was also swimming.