Want to learn how to be frugal without having to resort to the extremes of spending only a dollar a day on meals? Try living on minimum wage. I’m not recommending that you pull a Morgan Spurlock but you should try to put yourself into the shoes of millions of Americans working a minimum wage job and try to figure out how they’re surviving. They do it every single day and they, through trial by fire, have learned what it takes to truly be frugal. You have to walk a mile in a man’s (or woman’s) shoes to truly understand.

Minimum Wage

So, how much is minimum wage and how much can you spend? The Federal Minimum Wage is currently $6.55 an hour, set to increase to $7.25 an hour on July 24th, 2009 (it may be higher in your state). If you assume an 8 hour day, that’s a grand total of $52.40 in earnings that day.

Taxes: If you worked 2,000 hour (the standard number of hours budgeted by companies) year, $6.55 is only $13,100 a year. Once you deduct the standard deduction of $5,450, we’re talking $7,650 of taxable income assuming no other deductions. According to the 2008 IRS tax brackets, you would be taxed at 10% for a total tax of $765.

Your $13,100 a year is effectively $12,335 after taxes. That’s a little under $1028 a month.

Rent: It’s difficult to assume what your rent is because it varies across the country but let’s take a nice round number of $500. Deduct $500 from $1028 and you’re left with $528. Divide that by 30 to figure out how much you can spend each day.

How Much Can You Spend?

The answer is $17.60. (if you assumed rent of $300, that would still leave you with only $24.27 a day to spend)

That’s right, if you work eight hours of minimum wage and have a $500 a month rent payment, you can only spend $17.60 before you start going into debt ($25 if you pay only $300 a month in rent). This is why so many people working minimum wage work two or three jobs, because eight hours is simply not enough. (There may be other social programs to help, like food stamps, but I didn’t want to get overly complicated in this discussion)

Eye opening huh? Try living on less than $18 a day for an entire month, I mean really try, and you’ll discover some things you didn’t think were possible.

(Photo: ppdigital)

Would you believe it’s possible to live on only a dollar a day in food? I didn’t. I still wouldn’t, except I saw this “little” project by Christopher Greenslate and Kerri Leonard called the One Dollar Diet Project. As if in a reverse Morgan Spurlock Super-size Me, they were going to live for thirty days on only a dollar a day in food. In true blogger fashion, the two Social Justice teachers blogged about what they did each day in September (Day 1 … Day 30) and it’s gained them quite some notoriety and quite a bit of knowledge. The best part is that they’ve kept on writing about it.

One dollar a day meals seems almost impossible but sometimes just setting the bar that high is enough motivation to make significant changes in your life. An example of this is when I was budgeting diligently right after graduation. I would try to maximize the number of no spend days each month. A no spend day was a day in which I didn’t spend any cash or charge anything to my credit cards. I still “spent” money because I still drove to work and I still ate, but the idea was to create a metric I could use to motivate me to not spend money. My all-time record was eleven days (in a 31 day month) and the longest streak was three days. I believe both metrics were made higher because I was tracking them and competing against myself. It probably saved me a little bit of money too, which was helpful when it came time to make a down payment on a house.

Try setting your own “one dollar a day” goal or a no spend day goal and you’ll certainly benefit from it somehow, someway.

In 1916, with the threat of World War I, major civic leaders launched an educational campaign known as National Thrift Week that began on Benjamin Franklin’s birthday, January 17th. As you can probably see by the calendar, it’s the 19th so I’ve already been remiss in missing the first two days!

For fifty years, National Thrift Week ran strong passing from sponsor to sponsor, starting at first with local YMCAs and local businesses looking to cash in, but eventually in 1966 the push fizzled out (read the full history of National Thrift Week). You could argue that for another forty years, thrift was replaced by consumerism and easy credit and our reversion back to thrift is one out of necessity.

Templeton Press is a non-profit book publisher founded by investor John Templeton and they’re the ones behind this push to bring back National Thrift Week. Regardless of how you feel about thrift, a quick scan of the seven days of National Thrift Week will prove to be invaluable in that each day is devoted to one simple concept in personal finance:

• Have a Bank Account Day,
• Invest Safely Day,
• Carry Life Insurance Day,
• Keep a Budget Day,
• Pay Bills Promptly Day,
• Own Your Home Day, and,
• Share with Others Day.

On each of those days, take a few minutes out of the grind to think if you’ve got that base covered or not. If you do, wonderful! If you don’t, take a few more minutes to see what it would take to get that bullet knocked off your list.

Finally, Templeton is running a contest where you can win a $100 savings bond by writing a fifty word or less essay!

Last week, we signed up for Netflix.

Yep, even with such posts as “Why do people sign up for Netflix?” peppering the archives, we at the BFP household signed up for the $8.99 a month plan that lets us borrow one movie at a time, unlimited movies a month, plus unlimited streaming video on demand.

Online Video: So-So

Part of me wishes we read reviews of the video online portion of the service first because that was one of the driving factors in signing up for Netflix. It turns out that the selection consists of television shows and older movies. It doesn’t include many recent films, which was a real let down, but it does include current television shows so that is a mitigating factor. The reason why the online video was so appealing was because it was now more closely integrated with our XBox 360 in the winter update and the XBox is our main media player in the basement.

However, despite the limited selection, we’re sticking with the subscription past the two week trial just to see how often we use it. We might even analyze our Netflix usage in a few months to see if it’s money well spent.

Setting Up XBox for Netflix

The setup was remarkably simple, simply navigate to the Video Marketplace menu and slide over to the Netflix box (mine was the second one). From there, download and install the Netflix application. It’ll kick you back to the menu after you’re done, just go back to the box and select it. Then you’ll be asked whether you have an account already or whether you want to activate a free trial (2 weeks), I selected that I already had an account. The Xbox will display a super secret code that you then enter on this activation page. It thinks about it for a few minutes (”Activating”) and then you’re ready to go.

You can watch any movie available for your PC on your XBox. Unfortunately, this only includes older titles. You won’t be able to watch any newer movies instantly, which was originally our intent. It was a little unreasonable for us to expect that but we didn’t know, but the selection of movies available via the web is still pretty good. They tend to be older movies but by signing up, we’ve essentially made Netflix our database for movies at only $8.99 a month.

We’ll give it a shot and see how it goes! First DVD, The Dark Knight (my wife hasn’t seen it yet), comes in the mail today.

(Photo by brymo)

We don’t use Netflix because we don’t watch a lot of movies but a lot of our friends do. One of the things I notice quite a bit, and something that my friends freely admit, is that my friends don’t watch a lot of movies either and they will have the same movies for weeks at a time.

I recognize that Netflix isn’t about watching as many movies as you can. Part of Netflix’s appeal is in their extensive library of movies, movies you would never be able to find in a Blockbuster store like indies and foreign films. However, if you’re one of the Netflix subscribers who is really into the cost benefit analysis game, there’s a website called FeedFlix that will do all that for you without any additional help. You don’t have to sign up or anything, you just have to paste in one of your RSS feeds into their box and a wealth of personalized usage information appears.

I don’t have a Netflix account so couldn’t run myself but I asked my friend Jeremy at GenXFinance.com for one of his feeds and he obliged, here’s his usage:

According to Feedflix, Jeremy holds DVDs for about 5-6 days and each rental costs about $3.96, which puts him in the 67th percentile. Since the data only seems to find December, there isn’t much historical data to play with but if you’ve had it for quite some time then you might be able to see some trends. You might even want to pause Netflix during those slower periods.

Some caveats about Feedflix:

• It seems to be a bit inaccurate, Jeremy said that his wife easily returns more than 1 DVD a week and that they’ve had service for longer than December, which is the only month that appears.
• It doesn’t take into account movies you watch streaming across the web, which is how Jeremy watches most of his movies. (through his XBox 360).

Give it a whirl, let me know what you think!

I don’t know when car companies started running commercials where people, usually spouses, bought each other cars as gifts, but it always struck me as a little ridiculous. A car purchase isn’t something that should be entered into lightly and, if I were to give one to my wife, she probably wouldn’t like it if I ran off and bought her a car without talking it over with her first. It could be a gift but, let’s be honest, it would never be a surprise in our household (and in most households, I’d imagine).

One of the reasons why it wouldn’t be a surprise is because cars are both expensive to buy and expensive to maintain. Most gifts cost little to maintain relative to how much they cost to buy, but cars are in the category where the upkeep costs are significant. They aren’t alone, it’s very easy to get a gift for someone that will end up costing them quite a bit just to enjoy it!

In our troubling economic times and with people looking to tighten up their belts, it might be a good time to think about the gifts you’re giving and making sure they don’t entice your friends or relatives into a bad financial situation.

Here are some other gifts that are high upkeep:

• Apple iPods – The iPod itself is expensive but if you want to put music on it you need much more.
• Cars – This is the most obvious one and gifters know this (and it’s usually not a big deal because the gifter and giftee are often related somehow).
• Pets – These little guys are expensive, as I learned when I calculated the total cost of owning a dog, and this is another common mistake people make. The gifter gives a furry little guy as a gift but then the recipient ends up not being able to support him and he has to return them to the pound.
• Cell Phones – Gifting a cell phone is normally not going to be a big cost to maintain unless the cell phone starts offering features that require higher service plans to take advantage of. A prime example is an Internet enabled phone where the recipient has to get a monthly data plan to take advantage.
• Video Game Systems – It’s definitely cool to get a Wii, XBox 360, Playstation 3, or PSP but games are pricey. As a gifter, you could always get them a year’s subscription to Gamefly or some other game subscription service.

Just a thought as we enter the home stretch of the gifting holidays! (and, if you want to get a gift that shows real spirit and is usually quite economical for both gifter and giftee, consider one of these homemade gift ideas from Nickel).

(Photo: sheeshoo)

Tim Clark, author of The Prosperous Peasant (my review), has a blog called Soul Shelter and he posted a guest article last week where the author’s friend Dave, a multi-millionaire from the dot-com boom, bought an espresso machine for $945. At first I reacted the same way as the author, “It must be nice to be able to afford a high-end, fully automatic espresso maker, I mused aloud.” But as the article continued, I saw the logic.

“OK, consider this: One double latte costs three dollars at a coffee shop, so your outside coffee-drinking habit comes to six dollars a day for you and your wife. That’s $2,190 per year in after-tax dollars,” Dave extrapolated. “Assuming you’re in the 27 percent tax bracket, that means you have to earn $3,000 before taxes to pay for those lattes. That’s more than a month’s wages for a substitute teacher here in the state of Oregon.”

I don’t spend $3 at a coffee shop each day but he and his wife do. I don’t spend $2,190 per year in after tax dollars on double latte’s, but he and his wife do. I don’t have to $3,000 before taxes to pay for coffee each day, but he and his wife do. For him, the $945 espresso machine makes perfect sense even after you factor in the cost of milk, beans, etc. It may not make sense for me, but for him it makes perfect sense.

This is basically the reverse of the monthly payment math trick. The monthly payment math trick is where a salesperson tricks you into paying more for something by justifying it in terms of monthly payments. If I were to argue that he’s making a bad decision, I’d be falling for the trick in reverse by focusing on the $3 a cup cost versus the $1000 espresso machine. When you do the math and find total cost, his logic is sound. You could argue that he shouldn’t be spending $3 on a double latte every day but then you’re not talking money anymore, you’re getting into personal preferences.

The bottom line is that you should always be doing the math. A commenter, Hank, said that his mantra this year is to “just do the math.” When you do the math, the answer is usually pretty clear. In this case it’s crystal clear, once you get past the $945 up-front cost. The other comments for this post are pretty good too, I think many of the commenters know each other so it makes for some lively debate.

What are your thoughts on the purchase?

(Photo: asurroca)

There are plenty of things we absolutely need. We need food. We need water. We need shelter. Heck, Maslow built a career on a hierarchy of needs that we absolutely must satisfy (with an order too!). Somewhere along the line, the massive marketing and advertising machine that is capitalism, our needs became converted and adjusted to fit the bottom line of some firm. Much like how the term “hero” is often overused (athletes aren’t heroes, first responders are), we often call something a “need” when in reality it’s a want.

Here are just four “needs” that really and truly are simply “wants:”

A 5-Bladed Vibrating Razor

Companies often feel as though they need to constantly innovate or be left behind. Cannibalize yourself or your competitors will. That’s probably the logic that led to one of the most ludicrous innovations in straight razor technology, vibration. The Gillette Fusion razor is a five-bladed razor that vibrates, effectively simulating an automatic shaver. The vibration does absolutely nothing, yet they have convinced many that this innovation is worth $9.99 (current price on Drugstore.com). It might be unfair to pick on Gillette but many razor companies rely on fancy innovations to try to win your business. While one could argue whether we actually “need” to shave, the fact is we don’t need a $10 razor ($15 for a refill 4-pack) to do it.

Adding more blades doesn’t really add much to the equation anymore either. When razors went from one blade to two, the incidence of cuts went down dramatically because the pressure per blade was halved. From two to three, the pressure was cut down by a third. From three to four, that’s only 25%. How many innovations do we have left and how much more are we willing to pay for a razor?

Stainless Steel Appliances

When the housing boom was in full force, THE thing every home must have was stainless steel appliances. The dishwasher, the range, the fridge, and even the microwave had to have that reflective sheen that screamed “modern.” It was partly style, partly preference, but hardly any substance because stainless steel meant absolutely nothing. None of the benefits of stainless steel really apply to the kitchen appliances. How often is your dishwasher subjected to ultra-high temperatures? Hopefully never. How often do you clean the exterior of your fridge? You probably wipe it down every once and a while (ours is covered in magnets and clippings, I haven’t wiped it down in three years). Stainless steel, outside of aesthetics, offers no appreciable benefit… unless you’re selling it.

The Swiss-Army-Knife of Cell Phones

Let’s take the basics of a cordless phone and pimp it out so hard that people would be willing to pay hundreds of dollars for them and sign up for service plans that will slowly extract thousands. When you get past the “cool factor” and technological beauty that make up today’s smartphones like the Apple iPhone and Blackberry (whatever), they all do the same thing as a phone that a telephone company would give to you for free.

Somewhere along the line, we became enamored with the fact that we could get a phone that take photos, capture video, send and receive text messages, surf the web, play games, and do all sorts of really cool things. Don’t get me wrong, I think the devices are absolutely wonderful… but how connected do you really need to be? On a recent trip to London, my wife and I had no cell phone and felt absolutely wonderful about it. No phone meant no work emails or work “emergencies” (that are never emergencies). While it also meant no maps or search, we fared perfectly well by asking complete strangers where the nearest tube station was. The phones certainly are nice… but we don’t need them.

900 Channels on Cable Television

In our “more is better” society, cable companies have learned that the quickest way into our wallets is by touting how many million channels they offer. The reality is that we watch very few of them. For the last week, we wrote down how many channels we watched and the answer was eight. We watched full shows on NBC (Heroes, Law & Order(s)), ABC (Desperate Housewives, Grey’s Anatomy), and FOX (House), and NFL Network (Thursday Night Football). And we popped in on TNT, Discovery Channel, CNBC, and History Channel. Of the hundreds of channels that we get through Verizon FiOS, we watched eight. Eight is probably about average too, sometimes we touch on a few more random channels (Food Network is always popular, we just didn’t catch any last week), but considering we have so many, isn’t it odd that we only watched 8?

It’s probably not that extraordinary and I suspect many people share our experience. We simply don’t watch a lot of television (some would say we watch too much!). I think that if we were to cut out cable television, we wouldn’t miss much. We could still catch most of our shows on the regular network’s websites or Hulu.com (every 30 Rock episode I’ve ever seen was on Hulu.com). Another great online site for free television shows is Sling.com.

Can you think of any needs that are really just wants?

(Photo: Gillette Fusion by dbarefoot, Stainless steel appliances by john-schilling, iPhone by johanl, Television by janramroth)

When I started working in the summer of 2003, I kept a pretty diligent budget. My friend Melinda sent me her “Budget Bible” excel spreadsheet as a guide and I tweaked it so that it fit the budget categories I was most curious about. I kept up with it for about six months, until I reached a steady equilibrium, and then dropped it.

One of the most valuable parts about keeping the budget was that it helped me identify financial leaks I was otherwise unaware of. I could discover these leaks and easily plug them, saving me hundreds of dollars in the process.

A financial leak is when you have a series of expenses you didn’t know you were spending so much on. They’re often small, irregular, and easily overlooked. Buying a cup of coffee at Starbucks each day is not a financial leak – you know you’re spending that money (and you get something for it, you get coffee in the morning). While some would argue that you’re overpaying, I think we’re all adults here with different preferences so that spending wouldn’t be considered a leak.

A leak is more like an ATM fee every few weeks because you’re getting cash from another bank. You know that you’re being dinged that ATM fee but you might not realize you’re getting dinged as often as you are. A $5 fee every other week is over a hundred dollars a year – that’s a leak that can be easily plugged.

How do you know if something is a leak? You’ll know it when you see it and it’s different for everyone. You might see yourself spending a thousand bucks a year on coffee as a leak whereas someone else would see it as a cost of waking up so early. You might see 5 ATM fees a year and consider it a leak whereas someone else sees it as the cost of traveling. Either way, you’ll recognize it without any problems.

How do you plug it? Usually you just need to add a little more planning on whatever you do. If it’s coffee, buy a coffeemaker (or get a free coffeemaker) and remember to program it in the morning. If it’s ATM fees, remember to get more cash out or try to utilize your credit cards more often. It usually comes down to preparation.

Whatever you do, don’t beat yourself up about it! It sucks to see a hundred bucks frittered away on ATM fees and easy to wonder what could’ve been, but be happy you discovered it now rather than in a year… or never. We all make mistakes, we should be happy to discover them after only a hundred bucks of pain rather than a thousand (or more!).

(Photo: johnx62 )

The National Bureau of Economic Research has determined that the United States economy has been in a recession since December of 2007… this really comes as no surprise to most people. In fact, last October, I wrote a post outlining what I think one should do during a recession and that one predates the technical start of the recession by a good two months (here’s what you all said when I asked whether we were in a recession last August). If you boosted your emergency fund starting then, you would’ve had a two-month head start on the recession! The lesson from this? Believe me! (Ok ok, I’m only kidding, I can’t see the future and I’m probably wrong more often than I’m right on about everything)

Since then, I’ve been focusing a lot more of my articles on frugality (such as 100 money saving tips and 11 tips to save on shipping) because I think frugality is the way we can get ourselves, individually, through this economic slump. More broadly, we need people and businesses to spend money so the economy recovers but individually, and this is selfish advice, you need to have a bunker mentality and save your way through this.

Stick that money in your mattress, a high rate CD, or a plain old online savings bank… until the clouds roll past anyway.

(Photo: bobjagendorf)