Wow, is it already that time of the week again?  Seems like just yesterday I was writing the weekly roundup for last week.  One benefit to staying busy is it helps time go by fast.  One downside to staying so busy is time goes by too fast.  I need to remind myself to come up for air ever-so-often, and stop to smell the roses.

photo by Versatile Aure

It was an exciting week, professionally, as I started writing for Wise Bread.  I’ve always enjoyed the community at Wise Bread, particularly their forums, so this has proven to be a great opportunity.  I also wrapped up that proposal I’ve been working on for a freelance gig and shipped off the first two sections of work for the full manuscript.  Hope to hear approval this week so I can finish the entire project by the end of May.

Here are a few of my favorite articles from the past week:

Does Living Frugally Harm the Economy?  I always thought the economic stimulus checks should be used to pay down debt and boost savings. In this way, the checks would be used frugally instead of providing a short-term boost to the spending economy.  (@Wise Bread)

Check New Tires for this Code Before They Cause an Accident.  Wasn’t aware tires had a “born on” date until I read this. Good info! (@My Two Dollars)

Dining Out Frugally Without Stiffing on the Tip.  How to be frugal without being a tipping cheapskate. ( @Mrs Micah)

The World Needs More Great Followers.  Leadership is overrated and over-emphasized in our society.  Many a great leader is successful thanks to a legion of great followers.  (@My Super-Charged Life)

High Prices GOOD for America.  You won’t hear this on the nightly news, but it sure makes a lot of sense! (@The Wisom Journal)

How to Shop at a Farmers Market.  I hope to find a good farmer’s market in our area to start buying locally grown produce. This looks like a great guide for navigating the market! (@Cincinatti Locavore)

Twelve Top Personal Finance Podcasts. My favorite of the bunch is The Dave Ramsey Show, but several others look interesting.  (@Get Rich Slowly)

Sixteen Hardcore Tactics for Lowering Your Monthly Bills.  Great ways to lower your monthly bills! (@The Simple Dollar)

Going Back to the Corded Phone to Save Energy.  Simple, painless way to reduce energy consumption. (@The Good Human)

Goodbye Citibank!  A sure-fire way to make it on the roundup is to destroy a credit card!  Congratulations to Lynnae for taking yet another step towards debt freedom!  (@BeingFrugal.net)

Don’t forget, if you would like to ask Frugal Dad a question, submit it to last week’s Sunday Conversation comments and check back tomorrow for my response.  Have a great weekend!

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In lieu of a personal finance post today I wanted to share a bit of exciting news. I’ve been invited to write for Wise Bread, one of the top financial communities on the web. My first article was published yesterday evening, and I invite you all to take a look and share your comments.

Here’s a link to my first article:
Make Grocery Budgeting a Game, The Price is Right Style

And don’t worry - other than today’s break in action this new opportunity will not affect my regular schedule here at Frugal Dad. I still plan to share my thoughts on frugal living with you on a daily basis.

Reminder: If you haven’t already submitted a question for this weekend’s Sunday conversion, time if running out.

Thanks to all of you who are helping spread Frugal Dad’s message!

Do you dream of one day leaving the rat race? Who doesn’t? For me the idea of “retirement” does not evoke visions of fishing and golfing, rather the ability to do whatever it is that I truly want to do. Personally, that looks a lot like writing, coaching youth sports, and perhaps working with a non-profit for a cause I strongly believe in. Unfortunately, much talent is wasted doing the 30-year corporate shuffle to pay for “stuff.” What if you could begin to eliminate some of this “stuff” and find new ways to diversify your income to cover basic expenses?

Step 1: Tracking Expenses

One of the best ways to begin any new plan is to figure out a baseline. Dieters often begin a new fitness plan with the dreaded measurements of weight, BMI and bodyfat percentages. Think of this portion of your plan for an early “retirement” as your financial fitness evaluation. The very first thing you should do is figure out what you’ve been doing. Stop reading this and estimate in your head how much your monthly expenses are (debt payments, utilities, food, gas, etc.). Keep that initial estimate in mind as you move forward with this exercise.

At the beginning of the next calendar month start recording all expenditures, from the $2.00 cup of coffee to the $1,000 mortgage payment. If it is early in the month you may begin this step retroactively, assuming you can account for expenditures up to this point. For now, don’t be overly concerned with the method of recording these figures, just record them. Some people like to set up elaborate Excel spreadsheets; others prefer a ledger pad and pencil. During this first month resist the urge to reduce your spending. Try to spend and save as you have been doing to get an accurate representation of your starting point.

Step 2: Tracking and Diversifying Income

This step will take much less time, unless you are already in the enviable position of receiving daily income from multiple income streams. Most of you are probably like me. My first month of tracking income had exactly three records. Two paychecks and about $0.16 in interest from a savings account. Some of you may have even less. That’s fine - as they say in the book that inspired this entire exercise, Your Money or Your Life, “No shame, no blame.”

If you really want to step off the corporate treadmill one day, you simply have to increase your passive income either by investing current earnings in high-yield accounts, or by developing multiple income streams from part-time or freelance work, or some combination of the two. As long as you rely on your current full-time paycheck to pay for your expenses you are trapped in the rat race.

Step 3: Creating a Freedom Chart

At the end of the first month you should now have a detailed cash flow statement listing all of your expenditures and your household income. You may need to sit down for this step. For most people this is the point where they realize they are spending more than they earn. This overage accounts for what I refer to as “lifestyle debt.” It is the two hundred dollars you charged at the grocery store to float until you got paid, or the insurance bill you paid with your credit card because there wasn’t enough in checking. Lifestyle debt is a killer when it comes to early retirement plans. It ties up your income from future investment, and the interest accrued cheapens your future earnings.

Step 4: Project the Intersection

At some point in the future, as your passive income increases and daily living expenses decrease, your monthly expenses will equal your passive income. It is at this point that you are technically free from the rat race. If you received a pink slip from your job tomorrow you could survive indefinitely assuming your expenses did not increase significantly due to health coverage, etc. From this point of intersection forward you are continuing to work, save and invest to improve the quality of life in your early retirement. The more you have invested in high-yield accounts the higher your passive income will be, allowing you a few more expenses each month. You may decide to continue working at your full time job to generate some capital to put into your own business, adding even more to your passive income stream. Whatever you decide, the choice is now yours. At this point of intersection you are officially free from the rat race.

photo by davidandnasha

I read an article the other day that reported an interesting dilemma in the making. Apparently, older “Mom-and-Pop” service stations equipped with older pumps are unable to process gasoline purchases at a cost higher than $3.99 per gallon. That’s because their pump’s price dials were never configured to handle a “4″ in the dollar column. I’m not making this stuff up, folks. If there is a sad spin to an otherwise amusing story, it seems many of these stations will be forced out of business. The cost of replacing the pumps is prohibitively expensive considering the volume of gasoline sold.

Imagine the Possibilities

If such short-sighted design, reminiscent of the “Y2k” programming flaws, could be the answer to keeping prices low, what other areas of our lives could we implement such tactics? Imagine if fifty years ago car dealerships had not planned for five-figure pricing. “No one will ever pay $10,000 for a car!” We might all be driving Model T’s, but at least they would be paid for.

What if soft drink vending machines had not thought to equip new machines with dollar bill accepters? With the price of a 20oz. bottle of Coca Cola now as high as $1.25 out of a machine, would there be a national shortage of quarters? Surely this would have capped the cost of vending machine goods at $1.00 because anything more than four quarters just seems ludicrous! Well, at least it used to seem so.

If there were no “big and tall” clothing stores, would we all be forced to conform to “standard” sizes to find an adequate wardrobe. As a big and mostly tall guy, I’ve benefited from “big and tall” men’s clothing shops, so I can’t knock this idea too hard. However, I wonder if I had more difficulty finding expandable waistlines, and plus-sized shirts if I would be more strict with my diet and exercise program. Not much I can do about being tall, but plenty I could do better about being big.

A Growing Trend

It seems over the years our nation has outgrown their pants and their pocketbooks (and now their gas pumps). Some of it can be attributed to inflation, the rest of it to our insatiable collective appetites for something bigger and better. Either way, it is obvious something has to change. The Wisdom Journal seems to think higher gas prices may be good for us. Now that’s a statement you won’t hear on the nightly news! He may be onto something. There are some industries out there really hurting because of the high prices (trucking, travel, etc.), but for the majority of us this spike in prices has forced us to look for ways to conserve, to be more frugal. In this way the higher prices have been a good thing. However, I hope for the sake of the “Mom-and-Pop” store owners we see some relief soon.

photo by ellie

In response to my review of ING Direct and emergency funds James asked a question in the comments, “How close should they be?” That’s a great question, and one I have asked myself since turning to online banking. A few online banks offer ATM card access, and a couple even reimburse ATM fees for withdrawals. However, the ING Direct Orange Savings account offers no such features. Transfers are handled online and take two or three business days to show up in either account. This presents a dilemma - what if I need access to my emergency savings today?

Start Local and Expand Later

We have decided to save $1,000 locally in a bank savings account, and anything we save above that we transfer to ING. The interest on a bank savings account these days isn’t enough to buy my kid a pack of chewing gum, but I’m more concerned with accessibility. Keeping a portion of your emergency fund locally provides quick access to at least the first $1,000 of our emergency fund in the event of a real emergency. This would be enough to cover the initial costs for most repairs, out-of-pocket medical care, etc. The remaining emergency funds would show up a couple days later for larger emergencies that required more than this “local emergency fund” could cover.

Select a Comfortable Level for You and Yours

I mentioned that I am not overly concerned with the interest rate on this local emergency fund. However, I do want to maximize any interest income potential with the larger, online emergency fund, so it makes sense to limit our local emergency savings fund to a specific amount. This minimum amount should be decided on by you and your family, not based on a recommendation from someone else. Around $1,000 works well for our family, but it may or may not work for yours, and that is fine. In uncertain times it makes sense to save a little more. When your checking account has a healthy balance, perhaps you could save a little less. The point is to have something liquid, easily accessible, and local so you can avoid turning to credit cards in an emergency.

Couldn’t I Just Use an Emergency-Only Credit Card?

Sure, assuming you have the discipline to identify real emergencies, and pay off the bill using emergency fund savings when the bill arrives. I have fallen into the trap of using a credit card to finance an emergency with the self-promise to pay it off when I get the bill. The bill arrives, and I am reluctant to use such a large chunk of savings to pay if off in one payment, so I rationalize that I will pay it off over time since the credit card’s interest rate is low, or because I like having the safety net of cash in reserve. Now I am stuck with a revolving balance that with interest is causing that emergency to become more and more expensive with each billing cycle. The only way to get off the never-ending hamster wheel of debt is to stop using credit cards and loans to finance life events. Create a local emergency fund to catch the small stuff, and a larger, fully-funded emergency fund online to save for life’s curveballs.