Dec 23 2012

Mayan Calendar and Money: What to do with your finances now that the world moves on?

The Mayan Calendar was in the headlines for at least one week until people started brushing up and realizing that the Mayan Calendar stated nothing of an end of the world.  It was merely a restart of the calendar.  So now that you know we have more time ahead of ourselves, what will you do to get your fiscal house in order?  Saving money is always a hard game.  But you will find it easier to cut expenses compared to finding more new avenues of money.  As we approach a new year, many should examine their household budgets and figure out where they can cut back and begin saving money.  A few key areas include your grocery budget and phone budget.  Most Americans spend way too much on these two items and have many simple methods to save in both of these categories.


First, people spend too much on groceries.  When we look at BLS data, we realize that a high amount of money is spent on food.  And this is understandable when you go shopping.  Many will overpay on items that bring very little nutritional value.  A simple rule is to shop on the outside of the store, on the edges.  Make sure you plan your meals before shopping.  Shop a couple of times a month instead of a few times a week.  Planning is the most important thing here.

Cell phones are another big spending item for Americans.  Many spend $75 to $100 a month on cell phone service when you can pay $35 for good service through other carriers.  This in itself will save $600 to $800 a year.  Now that you know the end of world is behind us, time to clean house and fix that budget.

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Dec 3 2012

Can I retire early? How much you need to safely retire.

There seems to be a serious movement online of life hackers and aggressive savers in the pursuit of early retirement.  This is a great movement and frankly turns the entire consumption driven economy on its head.  Most retirement planners and financial pundits on the media advocate saving a miniscule 5 to 10 percent per year and then when (if) you reach 65, you will be set to enjoy your million dollar nest egg.  Yet people are realizing that maybe slaving away for 40 years just to have infinite amounts of Margaritas on the beach isn’t exactly an ideal way to end your career.  Most people will end up getting bored a few years into retirement.  Many in the early retirement community aggressively save.  Some will save 70 to 80 percent of their take home pay.  So how much do you need to retire?

To answer that question, it all depends on two simple things:

-1.  Your savings

-2.  Your spending

Say you spend $30,000 a year.  Many will argue that you need 25 times your annual expenses to be in good shape.  So in this case, you would need $750,000.  What is interesting is this coincides with the 4 percent safe withdrawal rates (SWR).

$750,000 x 4% = $30,000

Now some that are socking away $50,000 a year will get there in 15 years (quicker than 40) even if they simply save it in a no interest account.  Add a little bit of compounding and you are looking at 10 to 12 years depending on your returns.

Yet many Americans are not saving much.  The personal savings rate is a testament to that:

savings rate

The current savings rate is 3.9 percent.  Even with a household income of $100,000 (this puts you in the top 20 percent of households) a 3.9 percent savings rate is only $3,900.  To save $750,000 would take 192 years!  No wonder why so many people end up relying on Social Security when they retire.

More realistically, the typical household pulls in $50,000 per year.  Even if you are able to sock away $15,000 to $20,000 a year, you will be in a much better position.  It also all depends on your spending.  If you spend nothing, then technically you can retire today.  Spend only $10,000 because your house is paid off?  You might need less than 10 years to retire.  Ultimately cutting your spending will bring a much more dramatic impact to your retirement plans.

How much do you need to retire?  That depends on how much you spend.

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Nov 22 2012

US Manufacturing data; Treading water US still lead manufacturer.

US Manufacturing has remained rather resilient in the last few years and has recovered nicely from the depths of the recession.  Some tend to think that manufacturing in the US is somehow gone but the US is still the leading manufacturing country in the world.  A good portion of manufacturing requiring large labor forces has been outsourced yet many of the higher end manufacturing functions are still within this country.  High level technology, engineering, medical devices, and other such industries are still doing very well in this country.  This kind of manufacturing data although positive for overall growth trends does not do much for those out of work.  If we look at actual manufacturing data we are very close to contracting.  Clearly this has been a very slow recovery.  The chart below highlights this and any figure below 50 signifies a contraction:

The above is showing slow growth in US manufacturing.

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