The Story of Goldilocks and the Three Retirement Contributions

Goldilocks and the Three Bears

By Jen Smith, The Millionaire Mommy Next Door

Once upon a time, Goldilocks went for a walk.  Pretty soon, she came upon her bank.  She asked the bank teller for her retirement account balance and when she was shown the number, she wept.

Goldilocks returned home to assess her budget and see where she could come up with some extra money to make regular IRA contributions. She thought about quitting her latte habit. $3 saved per day could grow to $177,706 in thirty years.

“This idea is too soft!” she exclaimed.

So she returned to her budget and considered cutting her housing and utility expenses in half by downsizing to a much smaller home. $1200 saved per month could compound into $2,389,653 in thirty years.

“This idea is too hard,” she said.

So she returned to her budget and took aim on her transportation costs. If she sold her car and used her city’s excellent public transportation system instead, she could save $780 per month. In thirty years, her retirement fund could blossom into $1,553,275.

“Ahhh, this idea is just right,” she said happily. Goldilocks sold her car, walked back to her bank, and made a contribution to her retirement account.

Thirty years later, Goldilocks retired, and lived happily ever after.


For illustration purposes, results were calculated at 10.00% ROI compounded annually. The actual rate of return is largely dependent on the type of investments you choose. Over the most recent 30 year span, from January 1, 1980 to December 31, 2009, the compound annual growth rate (annualized return) for the S&P 500, including reinvestment of dividends, was 11.29% (source). Total savings are calculated in actual dollars (not inflation-adjusted). A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually (from 1925 through 2008).

Do you know how many dollars your spare room is costing you?

Do you have a guest room but few friends? (sorry.) A formal dining room that looks pretty because it rarely sees a crumb? A formal living room that only gets walked through on the way to your home’s hub: the kitchen and family room? Spare rooms… you dust them, vacuum them, furnish them, paint them, fuss over them… but rarely do you LIVE in them.

How many dollars does a spare room cost?

I pondered this question during our walk to our neighborhood park today. Our condo is surrounded by large suburban homes. Each home statistically has an average of 2.5 people living in it. I suppose the poor little 0.5 member is missing a few body parts. Probably from all that excess dusting. I digress. I look at these gigantic homes and wonder how many of their rooms get LIVED in on a daily basis versus how many sit pretty all day long but never see any true love.

So being the environmentally sensitive money gal that I am, I crunched some numbers today to see if I might encourage a few folks to join me in downsizing to a just-the-right-size home.

For those of you that don’t enjoy numbers as much as I do, I’ll get to the punchline pronto:

In my neighborhood, a typical 12′ x 12′ spare room (guest room, formal dining room, whatever) could cost about $350,000 EACH over the course of a 30 year mortgage!

Mommy’s Million Dollar Recipe: Dusty Room Dump-lings

Downsize your home by 432 square feet (three 12’x12′ rooms)
Which will reduce your monthly housing expenses by $530 a month
And invest your monthly savings into a diversified investment portfolio
Yield: Over one million dollars ($1,000,000) in 30 years!

For my fellow number nerds, here’s the assumptions I used for my calculations:

12′ x 12′ = 144 square foot spare room
Typical cost of housing per square foot (in my location) = $150
= $21,600 cost per spare room
@ 5.5% mortgage interest rate for 30 year fixed
= $122.64 month / room in principal and interest cost
+ $18 / month / room in property taxes (1% of value annually)
+ $9 / month / room in homeowner’s insurance (0.5% of value annually)
+ $27 / month / room in allowance for periodic maintenance, repairs, remodeling (1.5% of value annually)
= $176.64 / month / room…
…NOT including extra utility expense or furnishings
+ lost opportunity cost of $176.64 savings invested at 10% long-term compounding average annual return for 30 years (mortgage term)
= $348,692 TOTAL PER SPARE ROOM (x 3 rooms = $1,046,076)

So what do you think? Is this million dollar recipe worth dumping a spare room or three?

Save Money and Our Earth

My family’s values-driven lifestyle of voluntary simplicity is great for our wallet and the environment. Some of our frugal choices make a really BIG impact, like how my husband and I have shared one vehicle since getting married 23 years ago. Carpooling cuts down on carbon emissions and as I calculated for you in a previous post, sharing one car instead of owning two can make anyone a millionaire in 29 years.

The little choices we make count, too. Frugality is the art of resourcefulness. Wear it out, use it up, repurpose it! Take the life of one of my t-shirts for example:

  1. I get a free t-shirt as a promotional giveaway.
  2. While the t-shirt is new, bright and crisp, I wear it.
  3. As the t-shirt fades from frequent washings, I wear it in the garden or to the dog park.
  4. Laundered a few more months and it gets super-comfy-soft. Now it becomes my cozy sleep shirt.
  5. Once my spouse gets over the thrill of my thread-bare-wee-bit-see-through sleep shirt and then starts poking fun at it, I cut it into squares and my free t-shirt becomes lint-free cleaning rags.

Today is Earth Day. What are you doing EVERY day, both big and small, to help our Earth and your wallet?

Seriously, If You Don’t Have The Money, Don’t Buy It!

‘Tis the season for buying, buying, buying. And then, if you’re like the typical consumer, you’ll spend the better part of next year paying, paying, paying for it! My suggestion? If you don’t have the cash set aside specifically for purchasing holiday gifts, then don’t do it. It really is that simple.

I know you worry about what your family and friends will think if you show up empty handed, and I know that your kids might whine for a few minutes on Christmas morning. But there are plenty of ways to enjoy the holiday without expensive gifts. Instead of shopping, spend time together caroling, baking cookies, and spreading good cheer. A cheerful attitude is easier to come by when you aren’t stressed out by spending money you don’t have.

But you say you’ve bought the gifts already? And wrapped them? It’s not too late — unwrap them, return them to the store, and have the cashier put the credit back onto your card. This year, try giving your love instead.

Happy Holidays!

Video: How To Stay Out Of Debt, a funny Saturday Night Live piece starring Steve Martin.
(Email subscribers, you’ll need to visit my website to view the embedded video.)

The Economy Relies Upon You Being A Good Consumer!

thanksgiving turkeyYou are an individual. But you are also a member of a global community. Most important of all, you are a Consumer. As a member of this community, it is your DUTY to consume.


Because the system would collapse if you stopped spending and the consequences would be AWFUL. The system that runs your country relies upon you being a Good Consumer. This film will show you how:

I jest, of course! Before you head out at the break of dawn this Black Friday to gobble up merchandise, do yourself a favor and watch this fabulous video. (Email subscribers, you’ll need to visit my blog to view the video embedded in this post.)

Should you choose to go shopping anyway, perhaps you’ll remember the turkeys you watched here and it’ll help you curb your spending. Or print the following list of questions and suggestions and review them before exchanging your hard-earned dollars for crap products:

Before you buy, ask yourself:

  1. Will I change my mind? Advertisers and retail stores are notoriously skilled at making shoppers believe that they need something– even when it isn’t true. When I find an item I want, I leave the store to think about it for a day or two. During this brief period of time, I usually find that I stop wanting it.
  2. Can I buy it for less? Comparison shop. Find it on sale. Negotiate. Look for a recycled one in the newspaper, at garage sales or consignment stores, on ebay or craigslist. Avoid the mall. I bought all of my daughter’s Christmas gifts through craigslist last year and filled the space beneath the tree for a total of $30.
  3. How long am I willing to pay for Christmas? Your loved ones would rather spend quality time with you during the holidays than have you run up your credit card balance and pay for it all year long. Give the gift of time instead.
  4. Can I trade something for it? Swap with a friend, neighbor or family member. Ask a seller if she wants something you have in exchange for the item or service you desire. We’ve traded plumbing repairs for health club dues, computer work and pizzas. Create a toy exchange with other parents. We’ve traded “new-to-you” toys for our kids.
  5. Can I borrow it from someone? Borrow books, music and movies from the library. Ask your neighbor if you can use her seldom-used yard tools or specialty cooking appliances. Just make sure you are willing and able to repair or replace damaged or lost items.
  6. Can I share the expense with someone? Co-op with your neighborhood to buy one set of yard maintenance equipment. Consider car-sharing. Ask your babysitter for a reduced hourly rate for watching your child along with another.
  7. Can I cut back on another budget item instead? If what you want to buy doesn’t fit into your budget, choose to spend less on something else for awhile. Use the money you’re saving on that budget category towards what you want to buy instead. I often cut back on dining out the month before a vacation because I’d rather use the savings generated to enjoy special meals at our travel destination.
  8. Can I sell something to come up with the extra money? Sell an item you no longer use, then use the money to purchase the item you want. Try a sales listing on craigslist, ebay, community bulletin boards or your local classified ads. Here’s an idea for toy-hungry kids (or adults!): declutter, hold a garage sale, then buy something new with the proceeds. Better yet, make “found” money go further by using tip #2 above.
  9. Can I make a green choice? Look for products that make less impact on our environment. Choose a less toxic alternative, one with less packaging and more recycled content, or something that can be reused for something else when you’re done with it.

So don’t be a turkey… Have a Happy Thanksgiving!

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Read More:

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Debt Is Slavery

photo credit: Zellaby

Five Ways To Reduce How Much You Need To Retire By $300,000

This is a guest post written by Todd Tresidder.

If the idea of accumulating a million dollars (or even half of a million) for retirement is daunting then consider this: for every $1,000 reduction in monthly retirement spending you will similarly reduce how much money is needed to retire by $300,000. That is a big deal because most people will find it much easier to retire with bliss and happiness on $1,000 per month lower income than to figure out how to put away an additional $300,000 in retirement savings.

Enjoying Retirement

If this all sounds a little confusing rest assured it is just basic math. You can use an online retirement calculator or visit your favorite financial advisor and odds are very high that you will be told you can spend somewhere between 3% and 5% (depending on assumptions) of your savings each year during retirement and remain financially secure. To keep things simple we will assume a very middle-of-the-road 4% of retirement savings spent each year. What that means is you need roughly 25 times your annual spending in savings – otherwise known as the “Rule of 25” – to support this 4% spending habit. You may find this math mundane, but the implications can be very exciting to your retirement plan.

This same rule also tells you how much less you need to save for retirement if you are good at finding happiness and bliss in life while spending less. For example, if you can figure out how to reduce your retirement budget by just $1,000 per month ($12,000 per year) the rule of 25 says you just reduced how much money you need to retire by a whopping $300,000 ($12,000 * 25 = $300,000).

Spending a little less certainly sounds a lot easier than coughing up another $300,000, especially if retirement is just around the corner and your nest egg is not as robust as you might like. By learning to live more simply, you can enjoy financial freedom during your golden years. The key to retiring successfully on less is to find an appropriate level of spending that suits your needs and lifestyle without sacrificing happiness. The only limit here is your own creativity. If you can stay focused on your core values and determine the things that are really important you could completely transform your vision of retirement.

To help get you started, here are five easy ways to save $1,000 a month during retirement without sacrificing happiness:

1) Downsize

Since the kids are grown and out of the house, you don’t need five bedrooms anymore. A smaller house means a smaller property tax bill, lower maintenance costs, lower insurance premiums, and less hassle. Take it a step farther and downsize to a condo or townhouse close to the urban core and you can eliminate the cost of owning one or both of your cars while eliminating all yard and exterior maintenance work. Renting a car for occasional trips out of town is far less expensive than auto repairs and insurance. Following the rule of “less is more,” less stuff to care for means you have more free time to enjoy your retirement, and a combination of downsizing strategies should be able to save you at least $1,000 per month.

2) Move to Mexico

Retire to MexicoIf you’re willing to leave the country then Mexico is a logical choice since it is close (you can drive there, after all). Not only is the cost of living much lower but the climate is appealing, the infrastructure is more modern and advanced than in much of Latin America, fresh fruit is in abundance, and you can surround yourself with other expatriates if you choose. Numerous websites offer logistical advice on relocating to Mexico and other inexpensive retirement havens outside the United States.

If Mexico isn’t your cup of tea then consider relocating to any number of places, foreign or domestic, that are less expensive than your current hometown. Money Magazine lists Sequim in Washington, Dunedin in Florida, Durango in Colorado, Fort Smith in Arkansas, and Janesville in Wisconsin as some of the most affordable places to retire in the United States. If you plan to travel a lot, where you call home may be of minimal importance and the savings could make a huge difference in how much money is needed to fund your retirement. Just do plenty of research before packing your bag: there are many valuable resources on the web to help you find just the right place for your retirement needs and budget – any one of which could save you at least $1,000 per month.

3) Trade Your Home For a RV

Retire as RV FulltimerIf your retirement plans involve extensive travel, consider selling your home and living in an RV. Unburdened by the labor and costs of home ownership, you’ll be free to travel as much as you like or stay put for months on end. Getting rid of your home means no more property taxes, homeowners insurance, maintenance costs or monthly payments, and the home equity is freed to produce investment income. With an RV your home and mode of travel are one and the same. Many retirees even find seasonal employment in national parks and campgrounds that provide a bit of income and social life. The rest of the year they’re free to follow the weather or the grandkids. An RV is easy to store while you travel abroad and you won’t have to worry about home security or frozen pipes. This lifestyle change can easily lower your costs by $1,000 per month and possibly raise your investment income by the same – two for the price of one.

4) Live Healthy

Eat Healthy Save MoneyHealth care costs eat up an increasing proportion of spending as you age. Although some medical issues are unavoidable, you can significantly reduce your health care spending by staying fit and living a healthy, active lifestyle. Eating low on the food chain is good for your body as well as your budget; prepackaged and processed foods often come at high prices with lower nutritional value. Similarly, regular exercise and a low-stress lifestyle can mean fewer trips to the doctor and fewer prescription medications that can quickly break your budget.

5) Make The Little Things Add Up

A thrifty shopper can easily save $1,000 a month on things like groceries, gifts, and recreation. As a retiree your time is flexible thus allowing you to take advantage of midweek savings on green fees, matinee discounts on movie and theater tickets, and early bird discounts in restaurants. Travel off-season and you will not only save money but you’ll encounter fewer crowds.

Develop the habit of asking for discounts and never paying full price. Don’t wait until December to do all your Christmas shopping—pick up items throughout the year at sale prices and give them at the appropriate time. Buy your wrapping paper and seasonal trinkets at the after holiday sales when prices are usually less than half. Or cut out gift expenses altogether and donate a fixed amount to charities or provide a charitable service personally in honor of your loved ones.

Become a grocery store “perimeter shopper,” avoiding the center aisles that are full of sugar, processed foods, and unhealthy snacks. Almost everything you need is around the perimeter of most grocery stores—produce, bread, milk, and meat. Buying certain items in bulk also saves cash. If you pick and choose from these and many other money saving strategies you could easily figure out how to live happily on $1,000 less per month.

Reduce How Much You Need To Retire By $600,000… or more!

Now that you see how easy it is to reduce your spending during retirement by $1,000 per month without sacrificing your happiness, try combining several of these cost saving strategies to double-down or triple-down and really make a big difference in how much money is needed to retire. It’s not hard to imagine a happy lifestyle living out of a motorhome, eating healthy, and enjoying off-season travel and recreation discounts.

Or if an exotic location is more to your liking then a low-cost lifestyle somewhere down in South America might just do the trick. Similarly, if you find it hard to shave expenses by $2,000 per month you may find it easy to pick up the equivalent in part time or temporary income. The math is the same. You might enjoy being a campground host in a beautiful national park, or maybe you are good at taxes and wouldn’t mind working for a few months each year during high tax season when the winter storms are raging.

The point is to get creative and figure out ways to simplify your life so that you spend less, reduce stress, and slash the amount you need to save so that you can retire now with financial security. Once you get past the notion that you have to keep up with the Joneses, you just might discover that you can enjoy retirement a whole lot more by spending a whole lot less.

About the Author

Financial expert Todd R. Tresidder retired securely when he was just 35 years young. His ebook, How Much is Enough to Retire?, shows you the next step beyond simple retirement calculators and traditional retirement planning. Check out his web site for more free retirement planning information and resources.

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Photo Credits: goingslo, VideoVik, Koocheekoo, Aylanah

Outwardly Simple and Inwardly Rich

It’s been my experience that frugality can run the continuum from miserly to magnificent.

When I was a child, I never went a day without a nutritious meal or a warm bed. Still, I recall times when I perceived my family as poor. In the school cafeteria, I furtively slipped my free lunch ticket to the cashier — with hopes that my friends wouldn’t notice that my family received government-provided financial assistance. When my father returned to college to earn his graduate degree, my siblings and I shared one crowded bedroom in a tiny apartment. I was teased unmercifully whenever my peers noticed the strips of fabric my mom sewed onto the bottom of my out-grown “high-water” pants to make them long enough to cover my ankles once again.

The most painful part of our family’s frugality, though, was when I overheard my parents argue about money.

At other times, I was aware that my parents purposely chose our frugal lifestyle — they voluntarily chose to live simply. Those were the best of times. “High-water” pants or not, our family was free from the handcuffs of Stuff. We used things up, repurposed them, and improvised. My parents were good role models for me in this regard.

As a young adult, I operated from a mindset of scarcity. I feared running out — or not having enough — of what I needed. After a year of struggling to support myself financially through college, I dropped out. I took another job: pouring coffee during the graveyard shift at a donut shop. Many of my customers were homeless. They nursed one cup of coffee – all night long – to earn a warm spot inside.

One night, it dawned on me that I was one paycheck from becoming homeless, too.

I dealt with my anxiety by hoarding what little money I made. I shared rent for a one-bedroom apartment with three other young women and dined on free appetizers offered at local bars during Happy Hour. At that point in my life, frugality – emotionally speaking – was a defensive action.

“A miser is a person who is reluctant to spend money, sometimes to the point of forgoing even basic comforts. The term derives from the Latin miser, meaning “poor” or “wretched,” comparable to the modern word “miserable”.”


Over time, my fearful and hoarding behavior resulted in a medical insurance policy and an emergency fund. I had stashed enough to see me through a missed paycheck or two. But did I have enough? Would my future always include beater cars, cramped apartments and grocery coupons? Was I destined to earn minimum wage, doing a job I hated, forever?

“Frugality (also known as thrift or thriftiness) is the practice of acquiring goods and services at minimum cost, achieved via economical restraints or creative measures. Frugality can be related to the idea of being conservative or conserving money.”


Frugality continued to feed my savings account and in turn, my savings account afforded new opportunity. Consequently, I was able to become an unpaid apprentice to learn a new skill. After studying animal behavior and learning how to train dogs, I quickly landed a higher paying job. And I loved my work. As my skills, enthusiasm and reputation grew, I started my own dog-training business. Despite my increased income, I continued to live frugally. However, I made a point to shift my mental attitude of lack to one of abundance. The purpose of my frugal behavior shifted from reactive to proactive.

“To be healthy, wealthy, happy and successful in any and all areas of your life you need to be aware that you need to think healthy, wealthy, happy and successful thoughts twenty four hours a day and cancel all negative, destructive, fearful and unhappy thoughts. These two types of thought cannot coexist if you want to share in the abundance that surrounds us all.”
—Sidney Madwed

Today, rather than being driven by fear, I embrace the abundance in my life. I have enough. Rather than flashy opulence and keeping-up-with-the-Joneses behavior, my husband and I joyfully choose a lifestyle of voluntary simplicity. Duane Elgin, author of the classic book Voluntary Simplicity, defines simple living as:

“Living in a way that is outwardly simple and inwardly rich.”

From fearful and miserly to voluntary and magnificent, frugality has had a profound impact on my life.

Simple living (or voluntary simplicity) is “a lifestyle in which individuals consciously choose to minimize the ‘more-is-better’ pursuit of wealth and consumption. Adherents choose simple living for a variety of reasons, including spirituality, health, increase in ‘quality time’ for family and friends, stress reduction, conservation, social justice or anti-consumerism, while others choose to live more simply for reasons of personal taste or personal economy.”


May we all enjoy a magnificent and inwardly rich life!