Millionaire Mommy Next Door » Save Money (frugal ideas)

The Story of Goldilocks and the Three Retirement Contributions

Millionaire Mommy Next Door — Fri, 16 Jul 2010 16:37:20 +0000

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.

THE END

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).

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

Millionaire Mommy Next Door — Thu, 13 May 2010 03:05:28 +0000

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 huge rabbit hutches, er, I mean 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 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 my bunny neighbors? Is this million dollar recipe worth dumping a spare room or three?

Save Money and Our Earth

Millionaire Mommy Next Door — Fri, 23 Apr 2010 02:26:53 +0000

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:

I get a free t-shirt as a promotional giveaway.
While the t-shirt is new, bright and crisp, I wear it.
As the t-shirt fades from frequent washings, I wear it in the garden or to the dog park.
Laundered a few more months and it gets super-comfy-soft. Now it becomes my cozy sleep shirt.
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?