Happy New Year!

I'm off to spend the New Year's weekend snowshoeing in the Olympic Mountains. Happy New Year everybody!

Liberal Store Return Policies

There are a couple of stores that I am fiercely loyal to because of their no-questions-asked return policies: Nordstrom and REI. Don't you hate it when you buy something and use it only to find that something significant is wrong with it? Most stores would look at you like a crazy person if you tried to return a pair of shoes that had already been worn outdoors. Both Nordstrom and REI will take back any item they sell within any period of time. Because of this amazing return policy, I will shop at their stores first before looking for a product elsewhere. Just yesterday I returned a bike to REI that I purchased over a year ago because the gears weren't shifting properly and they weren't able to repair it.

I save all of my receipts which allows me to get the full price I paid back on my purchase. Otherwise, the stores will offer the current price of the item if it is on sale.

I've heard that LL Bean will take back their products as well, but I have never returned anything there. Does anybody know of other stores that offer a similar return policy?

Has Anyone Heard of This Uber-Frugal Guy?

Last January my coworker read an article that inspired her to change the way she spent money. She does not recall where she saw this, so I'm reaching out to the blog-o-sphere to see if anyone has a link to the article. The article was about a guy who made a New Year's resolution to spend money only on bare necessities for one year. He would purchase clothing if what he already owned wore out during the year and could not be repaired. But all superfluous expenses were eliminated. It was an extreme example of frugal living, but I'm dying to get my hands on it to use it for inspiration. Hopefully somebody out there has a link to the article. Thanks!

Frugal Cable TV Bill

I was disappointed to find out that my trusty rabbit ears didn't provide reception when I moved into my condo a couple of years ago. I begrudgingly called my local cable company, Comcast, and asked for basic cable service. Their price for basic cable was around $40 a month. I told them that all I wanted was to receive the network stations, and they said that they offered a non-advertised package called Limited Service which includes the network stations, HGTV, MTV, E!, Discovery Channel, Hallmark Channel, American Movie Classics, the Weather Channel, and a few assorted others. My monthly cable TV bill for this service is less than $13 a month. It is a much better option than $40 "basic" cable.

Update on Holiday Layoffs - I've Been Spared!

Two weeks ago, my department announced there would be some layoffs prior to the Christmas holiday. I'm happy to report that I was spared from the chopping block. I breathe a sigh of relief for myself, but I feel for the individuals who were affected.

Simple Airline Travel

Yesterday I flew home from my week-long vacation in Houston. Because I live 2,400 miles away from my family, I fly to visit them two to three times a year. I also travel for work once or twice a year, and I take an international vacation every year or two. After having this travel pattern for several years, I have established a few practices that have simplified airline traveling immensely.

I never, ever check a bag. I have a small suitcase with wheels that fits in the overhead bin that I use for all domestic flights. If it doesn't fit in there, then I'm trying to take too much. I also bring along a duffel bag that I bought at REI that crushes down into a small zipper pocket. If I return from a trip with several additional items (such as Christmas gifts) I use this for overflow and place it under the seat in front of me. For international travel, I take a backpack. My longest international trip was four weeks long visiting six countries in both hot and cold weather. I took nothing but a simple backpack. How nice it was to hop on a train or subway with everything I owned. I followed packing tips found on Rick Steves website. Before I carried everything on the plane, I would wait up to an hour in baggage claim. What a waste of time!

I never sit in rows 1 - 19. Because I don't want to be caught without overhead bin space on a plane, it's important to board early. Most airlines board from the back of the plane. Recently some airlines have started boarding window seats first, so be aware of changes.

I always check in online. Printing a boarding pass before arriving at an airport eliminates the need to wait in line at the airport. There are even lines at the self check-in kiosks as they have grown in popularity.

I always book a direct flight. My days of saving $50 on a connecting flight are over. The simplicity and time savings of one direct flight to your destination is well worth the extra money for me.

Cash Flow Effect of Having No Mortgage Payment

I've written recent posts on my long-term goal of eliminating my mortgage. In the comments on that post, it was pointed out that by paying off my mortgage early, I would be missing out on the tax savings of the mortgage interest deduction. So I thought I would take a look at the big picture on how paying off my mortgage would affect my cash flow. Using my 2005 figures for income, IRA contribution, mortgage interest paid and property taxes paid, I ran the TurboTax tax estimator for the following two scenarios:

Scenario 1 (Today's Reality)
Pay monthly mortgage with no additional principle payments.
Annual amount of principle & interest payments = $11,890.
Annual taxes owed: $14,503.
Total out-of-pocket expenses: $26,393

Scenario 2 (A Perfect World: my goal in 10 years)
Condo is paid off - pay no mortgage interest.
Income, IRA contribution and property taxes paid are the same as in scenario 1.
Annual amount of principle & interest payments = $0
Annual taxes owed: $16,291.

The tax estimator predictably calculated higher taxes owed for scenario 2. However, when you take into account the fact that if my mortgage were paid off, I would not have an annual expense of $11,890 on principle and interest payments, scenario 2 is the clear winner. I realize that this is a simplistic analysis of whether I should pay off my mortgages, but it is powerful.

Going Against the Grain

It is common for those practicing simplicity to be misunderstood and to have the majority of society disagree with their choices. I mentioned in an earlier post that I chose to step out of the management track at my company in exchange for a low-stress position with no management responsibilities. Although I did not take a pay cut, I will forgo future salary increases associated with promotions. I expect to continue to receive annual merit increases and performance bonuses. My friends were aghast with my decision and couldn't believe I'd pass the opportunity of having a prestigious title at my company. Well, I did pass on it. And I'm glad.

When I revealed my decision on this blog to pay my mortgage off early, I received a few comments from readers stating that I'm basically leaving money on the table by not considering the impacts of the mortgage interest tax deduction or the very low interest rate of my mortgage. And in response to that, I completely agree! In the short term, yes, this is costing me money. But in a quickie analysis I did, if I am able to maintain $10,000 per year in extra principle payments, I will pay off my mortgage in approximately 10 years and eliminate about $100,000 in future interest payments. In 10 years I will be 47 years old and will be mortgage-free. The opportunities this will offer will be amazing! I might decide to quit corporate America at that point and take a part time job. Or maybe I will buy a new house and keep my condo as investment property. By going against the grain and keeping my sights on a long-term goal, I will have many future opportunities.

Hit but No Run

Earlier this week I parked my car in a pay lot downtown. When I returned to my car there was a note on my windshield from somebody who had dented my door when she pulled into the space beside me. I was so pleased that she had left a note. But I started to get concerned when she didn't return my phone call to discuss the dent. I became even more concerned when the estimate from the body shop came back at $995! My fears were allayed today when she called back and said she'd be happy to pay for the damages. The next step will be for me to actually receive a check from her that doesn't bounce. But I'm going to give her a chance, because she did the right thing by leaving a note.

Even if she doesn't pay, I'm going to have the car repaired - I can't stand driving around with a dent. I like to maintain my stuff. I'm hoping she won't want to involve the insurance companies, because I'll probably pay more in higher premiums than the cost of the repair. We'll see how this plays out.

Early Mortgage Payoff Analysis

As stated in my 2006 Financial Goals and Objectives, in January 2006 I will start making extra principal payments toward my mortgage. I own a one bedroom, one bathroom new construction condo that I purchased in April 2004. My mortgage is a 7-year arm that is at 4.75% interest. I discuss my decision to pay off my mortgage early as opposed to investing the extra money in the post of my long-term financial goals. I purchased my condo in April 2004 for $269,000. I put $79,050 toward a down payment, the result of appreciation from the sale of a house I owned in Seattle. I built an amortization table in Excel to calculate the impact of extra principle payments. Here are the key figures:

Loan amount: $189,950
Interest rate (until April 2011 - 7-yr ARM): 4.75%
Monthly payment (principle & interest): $990.87
Mortgage balance (as of Dec. 2005): $184,727

It is staggering to see that I have made 21 payments against this loan totaling $20,808 and I have only reduced my balance by approximately $4,000. Ouch.

My objective for 2006 is to contribute $10,000 in extra principle payments throughout the year. If I reach that goal, by December of 2006 I will have knocked 3 years off the term of the loan and reduced the mortgage balance to $171,633 (versus a balance of $181,543 if I chose not to make extra payments). This will have a negligible affect on my net worth as I believe the extra principle payments would have just gone into my money market account if I hadn't chosen this objective.

I chose the $10,000 target to pay toward principle based on three factors:
(1) I thought it was an achievable yet ambitious number,
(2) if I continue this trend through 2011 when my ARM expires, my mortgage balance will be close to $100,000 when I refinance, and
(3) it allows me extra funds each month for 'mad money.'

Read more about the controversial decision to pay off my mortgage early.

Follow my progress to see if I am able to meet this goal.

Long Term Financial Goals Driven by Voluntary Simplicity

Voluntary simplicity means something different to every person who practices it. For some, it means living off the land in a farm house and being self-sufficient. For others, it means living without a car and cable TV. I have read a dozen books on the topic as I sought to embrace simplicity in my own life. I was disgruntled with corporate life - I was working long hours in a high stress position. I felt bitter that I was dependent on this job for my livelihood. I was secretly hoping I would get laid off so I would be forced into a change. The layoff never happened and I was too scared to leave my job. As I explored ways to change my life so that I wasn't so dependent on that corporate paycheck I stumbled upon the concept of voluntary simplicity. After much research and reflection, I decided to stay with my company to take advantage of the good pay and benefits, but I switched to a lower stress position with more reasonable work hours. In essence, I quit climbing the corporate ladder in exchange for a personal life. It was a very difficult decision to make. I have given up future promotional opportunities with my company but in hindsight, it was the best decision and I'm thrilled with it. I no longer work past 5:00 pm; I no longer dread going to work on Mondays, and when I get together with my friends, the most common topic of conversation is how much they all hate their jobs. I can just smile and say mine is great. They're jealous! Now as I embark on setting my long term financial goals, I have decided that my 'financial comfort zone' will be when I pay off my condo. I know that many personal finance experts believe that this is a bad idea - the opportunity cost of investment gains vs. the mortgage interest rate, yadda yadda yadda. But for me, the peace of mind that I'll have my mortgage wiped out in less than 30 years is worth more to me than any additional gains I would have made investing those extra principal payments. I am also saving a fortune in future interest payments. Plus, once my condo is paid off I'll no longer feel like I'm chained to my corporate job. I can also move out and rent it for much higher profits than if I have a massive mortgage payment. This strategy might not work for everyone, but it's definitely for me.

Read how I quantify my 2006 financial goals and objectives.

2006 Financial Goals & Objectives

My goals and objectives for 2006 merge my personal finance and voluntary simplicity beliefs. My goal is to payoff my condo as quickly as possible while maintaining: maximum annual contributions to retirement savings, a $20,000 cash emergency reserve, and enough cash to have some fun in 2006.

My starting point for these objectives is my December 2005 net worth summary. Let me provide some context for these goals:

401k contribution. The maximum 401k contribution was increased from $14,000 in 2005 to $15,000 in 2006. I must adjust my paycheck percentage contribution to achieve the maximum contribution by next December. My current contribution amount is still set at the $14,000 level which I achieved with my December 3 paycheck.

IRA contribution. My money market account currently contains approximately $28,000. In January, I will transfer $3,000 to my Vanguard IRA.

Extra mortgage payments. I plan to send $200 every two weeks to my mortgage company for extra principal payments. That will result in $5,200 annual payments toward the principal. I am hoping my annual bonus, which is paid in February, will be sufficient for the remaining $4,800. Read about my decision to pay down my mortgage.

Money Market Account Balance. I shall keep my emergency fund, vacation fund and kayak fund consolidated in my Vanguard money market fund account. I am taking a kayak course in the spring and will look to purchase a used boat and all the necessary kayaking accessories by May 2006 in preparation for a 10-day summer kayak trip in Canada. I will discuss my decision to maintain my cash at Vanguard in a subsequent post.

Monthly Credit Card Payment. I use the Chase Cash Plus Visa for all my monthly expenses: phone, electric, gas, groceries, etc. I pay the card off each month. In 2005, I charged less than $1,200 in only 3 months out of the year. The other months averaged around $1,400.

I will provide monthly updates on my progress toward these objectives and the effect on my net worth and mortgage balance. Stay tuned for updates!

Holiday Layoffs

My company started downsizing employees yesterday. I work for a large telecommunications company. During our weekly team meeting this morning, my manager said that she couldn't comment on whether our group would be affected. However, she said that all affected employees would be notified by next Friday, December 23. Luckily, I have an emergency fund established. I hope I won't have to use it. Stay tuned to see if I receive a pink slip.

2005 Tax Estimate: I'll Owe $1,145

Yesterday my mortgage company emailed my 2005 year-end statement (form 1098) to me showing the annual property taxes and total interest paid on my condo. I decided to pull my latest paycheck stub and estimate how my 2005 taxes will turn out. I've been using TurboTax for several years so I accessed their website and saw that they offer a free 2005 tax estimator calculator. You can find it on the left sidebar under Tax Planning and Tips. I entered my data and the result was that I would owe $1,145. I am very pleased with this estimate. I like to owe money come tax time so the government isn't getting a free loan from me. However I am careful not to claim too many deductions on my W-4 because it is possible to underpay on tax withholdings which will cause a penalty. You will need to have your most recent pay stub to run the numbers. Below I show the inputs for my calculation. It is only an estimate because I did not have my charitable deductions handy, nor accurate interest and dividend income figures. But it did give me an idea of what to expect for next April 15. Here are the figures I used as inputs:

I was very disappointed to see a TurboTax promotion offered called the Refund Bonus. If you use TurboTax and are eligible for a tax refund, you can direct some or all of it into the gift card program, where TurboTax will add 'bonus dollars' to your amount and return it to you in the form of a gift card for select merchants such as Starbucks, JC Penney, Lowes, Blockbuster, FTD Florists, Foot Locker and The Olive Garden. This is fine if you have a predictable, necessary expense such as home improvements at Lowe's. But to have your refund returned in a Starbucks gift card? That just guarantees you'll spend the money instead of using it to retire debt or save. I'm not a fan of this program at all.

Snowshoeing in the Washington Cascades

Last Saturday I went snowshoeing in the Cascade Mountains an hour outside of Seattle. We were treated to a gorgeous, sunny day. I took this photo of what I think is Snoqualmie mountain on the left. Hitting the trails on the weekend is my favorite hobby. After an initial investment in gear (backpack, hiking boots, etc.) it is a very affordable pastime. On this trip I spent $4 on a sandwich and snacks to stock my backpack for lunch and I spent $2.50 for a hot chocolate in the ski lodge at the end of the day. Not bad for a full day's entertainment.

Frugal Online Shopping Tip

If you still have some online shopping to do before Christmas, you may benefit from this tip that is posted to Bankrate Frugal U, "Whenever I'm shopping online, before I checkout I do a search to find out if there are any online coupons or promotions that can be used for my purchase. Simply do a search that contains the name of the retailer and the word "coupon" and you can find big discounts. I've saved up to $10 on my orders using online coupons and have received free shipping many times. --Jennifer Erdody, MILFORD."

Savvy Shopping: $4.99 Jeans on eBay

Three months ago I went to the Gap to purchase a new pair of jeans. I have been wearing the same style of jeans that the Gap has carried forever - original boot cut. As I dug through the stacks of jeans on the shelf, I found that they were only stocking jeans that contain lycra. I don't like lycra in my jeans - it make me feel like I'm wearing stirrup pants from the 1980s. I wanted a pair of 100% cotton jeans. When I inquired the clerk told me that they rarely carry 100% cotton in the stores anymore and that I should order them from gap.com. A quick look at the website reminded me that these jeans cost $59. At the time, I was decluttering my house and had a lot of items listed for sale on eBay. So I decided to surf around on eBay to see if there were any jeans for sale. I was pleasantly surprised to find multiple listings for Gap Ladies Original Boot Cut Jeans that were 100% cotton! I chose a pair to bid on and confirmed with the seller (who had an excellent feedback rating) that the jeans were like new condition with no defects. I won the auction for $4.99! I was charged $7 for shipping and when the jeans arrived they were perfect. I couldn't be happier with my purchase and I effectively saved $47. Moral of the story: if you know the exact style and size of a clothing item, check eBay before paying full retail price and ensure the seller has a good feedback rating before bidding on the item.

Girls, Give Yourself a Raise

My sister has two young children. She recently made the comment that there were two milestones with each of her children that made her feel like she got a raise. First was when they switched from drinking formula to milk; second was when they became potty trained. She no longer had to purchase expensive formula or diapers (she did not use cloth diapers). I realized that I, too have given myself a raise by eliminating some expenses over the past couple of years in my quest to simplify my life. I made the following changes, resulting in significant savings:

• I quit having my hair highlighted. Annual cost savings: $1,120. I was a natural blonde in my youth. As my hair naturally darkened, I started highlighting my hair in salons when I was 19 (I lived in Texas at the time - it was pretty much a requirement). It became a vicious cycle to break because I always had to keep up with my 'roots.' Last year at 36 I decided to end the madness. I got a good colorist to match my natural color, and I got a couple of high-quality haircuts to eliminate those fried ends. I love the freedom!
  
• I quit getting manicures and pedicures. Annual cost savings: $480. For a brief time (again, while living in Texas) I got sculptured nails. But I won't even address that expense. That fad ended for me after a couple of years. After that madness, I would frequent the inexpensive nail salons in those strip shopping centers for a monthly mani/pedi. Anytime my toenail polish would start to chip, I felt the need to head back into the salon. I loved the feeling of being pampered in such a girly way. But I realized two things: first, there's no reason my nails can't look nice and presentable without nailpolish and second, there's no reason I can't do it myself. I invested in a good manicure set, and now I do my own nails each week while watching my favorite show, Nova, on PBS. I actually enjoy doing my nails, I do a better job than the salons, and I get immediate gratification.
  
• I quit buying department store cosmetics. Estimated annual cost savings: $200. I don't wear much makeup - just blush, eyeliner, mascara and lipstick. I use to be a victim of those cosmetics gift sets that are offered in the department store if you spend a certain amount of money. I would purchase things I didn't need just to get the gift set. Talk about consumerism at its finest. As a result, I had a drawer full of ugly lipsticks. I ended that madness by switching to drug store brands and naturally, I can't tell the difference in my cosmetics at all. I no longer purchase unnecessary items, and I can affordably replace my mascara every three months without taking out a second mortgage. .
  
• I quit buying cheap clothes. Estimated annual cost savings: $800. I use to purchase several clothing items each season from stores like Old Navy and Target. I thought I was being thrifty by shopping there. They have cute styles, but of course the clothes don't last more than a year or two. As I entered my mid-30s, I realized that being trendy wasn't as important to me anymore. Now I favor classic styles and I only purchase very high quality items from stores like Brooks Brothers and Harold Powell. I shop much less often and merely maintain the clothing that I own. My winter work wardrobe consists of a few turtlenecks, a couple of cashmere sweaters, and three pairs of pants. Everything mixes and matches and I always feel great in my clothes. After the initial investment in clothing, I find I only need to buy underwear and socks on an ongoing basis.

The total estimated annual cost savings is $2,600. That's almost enough to fully-fund my IRA. I love raises!

Beyond Monopoly

I love to play games. It takes me away from the idiot box and keeps my brain active. My Cranium parties are famous with my friends. It gives us something else to do besides eat and drink when we get together. I have two young nieces, ages 5 and 8. Every time I visit them in Texas they beg me to play games with them. I got tired of the brainless games such as Shoots and Ladders or Barbie Monopoly. Games should engage people of all ages. So I went on a quest to find a smart game that appealed across generations. I discovered that the Germans are famous for creating family games. I purchased a game called Carcasonne that I truly enjoy playing - and so do they! I also taught the 5-year old how to play chess. I couldn't believe how quickly she picked it up. To level the playing field, I remove my queen from the board, then we proceed as normal. Recently, my boyfriend and I have been trying other German board games and now we are completely addicted to them. Some of our favorites include Euphrate & Tigres, El Caballero, Java and Torres (I have a couple of these listed in the sidebar on the right side). When the weather turns bad outside, we spend hours playing games in front of a fire. There's a whole world beyond monopoly out there.

Seattle Sunset

Seattle is the most beautiful city. I just had to share...

Frugal Shopping: The $15 Party Dress

My boyfriend's office Christmas party is this weekend. My company doesn't have parties. I haven't had an office party to attend for years so I don't own a dress that is appropriate for an event taking place in the winter time. I set off shopping last weekend in search of something that is simple, classic (so it won't go out of style), and high quality (so I can wear it for years to come). After dismissing the overpriced, over-glittery party fare offered in the major department stores I decided to try my luck at Marshalls, Ross and T.J. Maxx. I struck gold at T.J. Maxx. I purchased what is arguably my best value find ever. I was digging through the dresses on the clearance rack when I found a black sweater dress by BCBG Max Azria. It has simple white piping that makes it dressy enough for an evening event. The retail value was listed at $250, T.J. Maxx's price was $85, reduced several times to $20. I determined that this dress had been passed over because it had a flaw in the seam of the left arm pit - the seam had a 2 inch gap where it wasn't stitched properly during manufacturing. The sweater wasn't frayed at the seam so it would be a simple fix in a location that would never been seen. I went to the checkout and pointed the flaw out to the clerk. She offered an additional $5 discount, bringing the purchase price to $15! An added bonus - it can be hand washed. No dry cleaning bills! I feel like I've won the lottery.

Deals at Grocery Outlet

Unfortunately I do not live close to a warehouse store like Costco or Sams. I stumbled upon a chain of stores called Grocery Outlet. They are only located in western-U.S. states. I visited one a couple of weeks ago and wasn't very impressed. It was kind of grimy, and when it comes to food I like to shop at a really clean store. I visited a different location a couple of days ago, and this one was very clean. You can get good deals on food, although much (but not all) of what they carry are never-heard-of brands. What impressed me the most was the great prices on beer and wine. I bought a bottle of red wine that was originally $18, marked down to $3.99 and it was delicious. I also bought a two-pack of Progresso spaghetti sauce for $2.99. They also carry many national brands of dog and cat food. If you have one close by, it is worth checking out.

Simplifying Christmas: Ban Catalogs

Have you noticed during the holidays that catalog companies send multiple copies of the same catalog, each with unique cover art? It is amazingly wasteful, not to mention annoying. I live in Seattle where the local government recently made recycling mandatory. If the garbage man finds recyclable materials in your trash he can slap a fine on you. I think it is a fantastic program because I have been a compulsive recycler for a long time. I have been known to fish bottles and cans out of my coworkers wastebaskets and take them to the centralized recycling bins on our office floor. Luckily, they find this to be an endearing trait. So it won't surprise you to know it pains me to haul a heavy load of catalogs to my recycling bin each month. Dawn at Frugal for Life recently wrote an article about how she helped her aging mother who was bombarded with junk mail. Earlier this year, I embarked on a similar mission with unwanted catalogs. I called the 800 number in the catalog and requested that my name be removed from their mailing list. They all agreed to do so, but informed me that I might receive one or two more catalogs before they stopped arriving. So I would tear off the cover and place it in a drawer so I knew I had already called them when a subsequent catalog arrived. You wouldn't believe how thick that stack became. Just in time for the holidays, all the unwanted catalogs quit arriving. My load to the recycling bin is much lighter, I helped to reduce unnecessary waste, and I no longer have to deal with stacks and stacks of catalogs during the Christmas season.

My Net Worth: $395,602

I should have been an accountant. I love to track numbers. I have a spreadsheet that dates back to 1998 when I started to track my net worth. It is gratifying to look back on the progress I've made and to see how things like consistent saving for retirement, or buying and selling a house affects the numbers. My December 2005 net worth tally is $395,602. Here is how that breaks out.