Planning a Spending Fast

A spending fast is as vital as a food fast, rejuvenating your financial muscles. Personal finance and financial independence require a spending fast. #spendingfast #spending #personlfinance #earlyretirementFasting is a refreshing way to reset your body’s internal regulation. The benefits of fasting include weight loss and energy gain. Intermittent fasting can give you the same benefits of longer term fasting without shocking your body so hard.

Fasting is necessary for most people due to awful eating habits. Processed foods and sweeteners wear the body down, requiring a fast to cleanse the toxins out. Periodic long-term (multiple day) fasts are punctuated by several shorter fasts. Continuous intermittent fasting can train your body to burn fat while reducing cravings and increasing energy.

Bad habits are solved with a reset. You start small so success is higher. Starting with a four-day or longer fast is certain to end in failure for all but the most determined. The longer fasts also require medical supervision. Starting with intermittent fasting or a one-day fast makes a lot of sense. The timeframe is reasonable and most people can stick with it, therefore, the benefits are received.

As much as the body needs cleansing, so do your financial habits. Spending fasts have been around as long as money. Spending fasts were a natural part of money management until modern times where spending opportunities are everywhere.

Mass media and opportunities to spend at every corner (and most spots in between) encourage the growth of terrible spending habits. Left unchecked, these habits will be a cancer on your financial life. Dreams of financial independence and early retirement will burn with the bad habits. The natural cure is a spending fast and you don’t even need a doctor’s note.

Ground Rules

Like regular fasting, a spending fast has different levels of commitment. The idea is to start small, building your financial muscles before advancing to the next level. As your financial skills increase, you can engage in some truly historical spending fasts. And the good news is you get to keep all the money.

Before we begin I must point out spending fasts are not about frugality or cutting spending. The fast is designed to train you mentally and socially to live a normal life without money as part of every step. Enjoying a walk in the park with a significant other is an awesome and free experience. You can leave the wallet at home. Another lesson to learn is to walk out of a retail store without buying anything (or stealing it) if the item you were looking for wasn’t available. Shopping for the sake of finding a “good deal” is the mother of poverty.

I will outline 5 spending fasts starting with a simple financial purge all the way to the hardcore. I recommend starting small and working up. If you never manage a Level 5 Spending Fast in your life you are still a good person! Not everyone can handle a dietary fast of a week. Most will never manage it. Your health may not allow. The same applies to money. Anyone can manage the first few lower levels, but struggle as they approach the highest level. You may not want to attempt Level 5 in the same way you may never attempt to go without eating for a full week. It’s okay. Each spending fast level will help you recharge your financial muscles worn out by the constant bombardment from mass media. All fast levels are beneficial!

Also, use common sense. Turning off the heat in January in northern Minnesota is not a spending fast; it’s stupid. The idea of the fast is learn money doesn’t buy everything, even the most important things. Your geographic location will determine additional rules from those presented here. Safety first! If you require medication, you follow doctor’s orders. Don’t do anything that risks your health or that of your family or anyone else. Got it? Good.

Let’s get started.

Level 1: The Starter Fast

Breakfast (break the fast) is so named because it is the first meal of the day after not eating since dinnertime, 12 or more hours in the past. Technically you engaged in a mini-fast every day.

A spending fast doesn't have to be a lonely road. Discover all you're missing when you put your credit card down. #spendingfast #spending #creditcard #frugal livingYour starter fast should be just as simple. Brown bag lunch to work. Better yet, leave your money at home one day per week. Driving is still technically spending, but you will plan ahead and avoid the need to buy gas the day of your fast.

The Starter Fast is short-term and in most cases less than a day. You need identification and/or driver’s license when driving or away from home, but cash, credit/debit cards and the checkbook stay at home. You can still pay regular bills as always. The light bill still gets paid. The idea is to strengthen your financial legs; learning to say no to minor spending habits. The first step is to stop spending at least a few days a month at work. No office pools, dining out or other crazy spending that takes place where you work. Work can be darn expensive and it destroys your financial goals! Your work should support your dreams and goals, not suck the financial life out of you.

Level 2: Serious Spending Fast

Level 1 is the training wheels level. Everyone should practice Level 1 fasting often, in fact, virtually every day.

From this level on we will engage in a full day or longer spending fast. At Level 2 you are allowed to plan ahead. Fill the car with gas beforehand. Stock up on staples to take you through the fast. Your habits will not change much yet at this level. The cable is still ticking away; so is the electric bill. You pay those bills timely; late fees are considered spending at this level and are punished with a stern look. Your spending fast at this level is more a shuffling of expenses. Gas is paid for before and after the fast, but the consumption is still the same. The real benefit is avoiding foolish spending. Lunch at work comes from the home fridge. No tavern detour on the way home from the office. Office coffee instead of a Starbucks detour

Level 2 can start at a full 24 hours and move up. Try one day where no spending is allowed for a full day. This is more than just a “leave your money at home when you go to work” plan. Online shopping is not allowed. Money is stripped from your daily lifestyle. Now is a good time to see what’s hidden at the bottom of the freezer. Past spending will fuel your daily needs. If you run out of something, you find a substitute or do without. The exception is safety related issues. Medicine is still purchased if necessary. If injury requires medical treatment you get said treatment. Yes, it’s spending, but this program is to teach financial skills, not harm you.

Once you start building your financial muscle, work from one day to two, then three, until you can handle an entire week spending fast, including weekends. Yes, even at Level 2 the challenge starts to make the muscles sore. That only means its working. Once you can do a week at Level 2 it’s time to move to Level 3.

Level 3: The Power Fast

Now we get serious. Once again we start at a single 24-hour period and move up to a week or longer. Pre-paying for certain items isn’t allowed. For example, driving the car is an expense regardless when you fill the tank so biking or walking to work is the only option.

Ideally, you want this fast to go for several days. The light bill and cable will still operate, but most everything else will require consuming only what you have at hand. The fridge and freezer will be your food supply. The rent or mortgage payment of course still get paid; the same with other debt. In fact, since you are spending on nothing else it might be a good idea to bury that money in debt reduction. Most people at this level will not have debt so the money will go to the First National Bank of Wallet, aka, your index fund. Saving isn’t spending; neither is paying off debt. Interest accumulating on debt is spending so I recommend taking an ax to it.

Level 3 is a lifestyle change. At this level you will start to learn how to live without money. Money becomes a tool only, instead of a means of distracting you from life. Acceptable spending is limited to minor recurring bills like utilities (phone, light, heat, Netflix).

Level 4: The Lifestyle Fast

Remember all the stuff you didn’t buy in Level 3? Well, I bet you found a way around the spending problem by shifting it to somebody else.

At Level 4 you are not allowed to accept spending from others. You might have accepted a meal from a co-worker as a work-around. If the weather was hot you might have used that as an excuse to enjoy air conditioning in a public building. Shifted spending ends now! The shifted spending mindset is the same one that tells you to steal all the soap from your hotel room, justifying the action by claiming it’s a minor thing. Unfortunately you are stealing and it is a form of shifted spending we don’t tolerate around here. Getting someone else to foot the bill is still spending! All you’ve done is shift your spend thrifty ways to somebody else’s pocketbook. Good friend you are.

Plan your spending fast the right way and start living the good life. Control your finance; control your future. #spendingfast #frugal #frugalliving #freedom #money #moneyfreedonOnly the barest of necessities are allowed at this level. If you truly emptied all food sources in the house you may consider (I said consider) buying the most basic of food. This will be the healthiest and most basic stuff. I’m talking lentil soup folks. Maybe beans, the ones you soak all night and simmer all the next day. You’ll live.

The ultimate goal is to power through a month at Level 4. I encourage multiple food fasts at the same time. This is about living life at its most basic, where the real living takes place.

Level 5: The Insanity Spending Fast

This level is so diabolical my fingers are bleeding as I type. Level 5 requires a minimum of one week and ideally a full month. And everything goes.

Cable and Netflix are gone and unless your local climate doesn’t allow, you pop the main breaker to the house. No heat, air conditioning or electricity. This is brutal! Electricity is the ultimate shifting of spending. Electricity is cheap and versatile. For this fast you will learn to live in harmony with nature rather than forcing the world to your demands on the back of energy resources.

Once again, if your climate or health doesn’t allow for such extreme fasting, then don’t do it. You still need to take and fill prescriptions. If it’s well below freezing you still need to heat the house to above freezing. Broken pipes are spending! But don’t use climate as an excuse for your minor discomfort. A cool house (or humid and warm in the summer months) is no excuse to fudge on the fast. Beginners might want to plan this spending fast around a time of year where they experience the least discomfort and where utilities are least needed.

In addition to the fasting from Level 4, you will need to adjust to nature. When the sun goes down; you go down. Artificial lighting has given us a false sense of reality. This fast will break that illusion. Without electricity, TV and the computer will no longer occupy a large part of your day. You will rediscover library books and books from your personal library. You’ll also rediscover the lost art of communicating with neighbors and friends. If you have a significant other she will buck this fasting idea you have until she discovers you pay more attention to her. Real, undivided attention. It’s not a brave new world, just the one that existed from the beginning of time until the advent of modern society a hundred or so years ago.


A final recap of each fasting level is in order.

Level 1:

  • A simple short-term fast similar to intermittent fasting
  • This is more a “leave your money at home” fast for the workday.
  • Most spending is still allowed.
  • Driving to work is allowed; the stop on the way for Starbucks coffee is out. Drink office coffee. You will not die.

Level 2:

  • The minimum is one-day for this fast and ideally a week or more is needed.
  • Fill the car and stock the fridge because when it’s gone it’s gone.
  • Medical is always allowed since we practice safety first.
  • You still have Netflix and/or cable to entertain you.
  • No stops at the tavern on the way home from work.
  • You can accept gifts that are disguised as spending (co-worker buy lunch) if you must.

Level 3:

  • Stockpiling is out except for food for home preparation.
  • Burning gas still in the tank is de facto spending so walking or biking to work is your only option.
  • You always pay the rent and mortgage because late fees and penalties are spending. You also still pay your taxes on time since interest and penalties are once again spending.
  • You are encouraged to use the extra money you’re not spending to reduce and/or eliminate debt. If no debt, then invest in your index funds. Investing isn’t spending.

Level 4:

  • Level 3 is still in effect.
  • Shifting spending is out. Someone else spending on you is shifting your consumptions habits to others. How rude!
  • Basic, simple, nutritious food only is allowed. Stock piling doesn’t help at this level. Lentil soup and other simple and healthy fare is your diet during this spending fast.
  • You are reaching Stoic levels.

Level 5:

  • Level 3 and 4 restrictions still apply.
  • Cable and Netflix are out.
  • If climate and health allow, pop the circuit breaker for the house. Electricity is still spending.
  • Ideally you want at least a week to a month for this fast.
  • Learn to live in harmony with the environment.
  • Read more.
  • Spend real, quality time with friends, family and loved ones. Spend real deep emotional time with your significant other. Without the distractions of modern life she will be the center of your world. I bet you’ll love what you find.

There is still one unmentioned level: Level 6. I’m numb just thinking about it. If you think you are ready for an even more rejuvenating spending fast you’ll have to take lessons from this guy.


More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 


10 Ridiculous Ways to Save Money I’ll Never Mention

According to Sheryl Crow you only need one sheet per visit.

Yesterday was April Fools’ Day; it was also Easter. I couldn’t bring myself to pull a prank on the day celebrated by Christians of Jesus’ resurrection. But today is fair game!

To lighten the mood as your favorite accountant traverses the bowels of the late stages of the current tax season I decided to publish something fun. (Well, it was fun to me.) Be forewarned. After two months of sleep deprivation there is something seriously wrong with my head. While I think this is funny, you may not. Of course this doesn’t belong published on a personal finance blog. That’s why I published it.

Have fun with this, kind readers. The tax season finish line rapidly approaches. Nothing scares the bejesus out of you like the mind of a stressed accountant. That’s why it’s so entertaining!

If you pay careful attention you might find a few hidden gems you can secretly use yourself to save money. I won’t say a thing if you don’t.

  1. One Sheet of Toilet Paper per Event

Sheryl Crow popularized this awesome method to reduce bathroom waste. Not only do you save money, you defend the environment. Considering what TP is used for, limiting TP use might be the least of Mother Nature’s concerns. Mass extinctions have started over less traumatic events.

Once word spread, Crow backtracked on her original recommendation. I’m not buying it! Crow is a one sheet of TP per episode type of girl. I can see it in her eyes. I fully endorse this time honored way to reduce spending by implementing this practice in my household. My team isn’t nearly as psyched as I am. Might need a motivational rally.

  1. One Set of Clothing When You Travel

I ran across this several times now. If I ever hit my head and decide to take up world travel I’m going to use this idea. As a light packer when on the road this idea resonates with me.

The process is simple. You only need one or two sets of cloths when on the road. You shower with your clothes on, lathering up and rinsing off without the hassle of undressing and dressing! After walking around for half an hour your clothes are dry anyway, except in the tropics where if you started with dry clothes they’d be wet within a half hour.

Think of all the luggage fees you don’t have to pay anymore.

  1. Steal Hotel Soap

Sure, your moral compass makes this sound horrible, but stick with me. I personally keep partially used hotel soap. Why waste a good product! The goal here is to outright steal the stuff or keep using every bar of soap at least once so your conscientious is soothed. Either way, you can save $3, maybe $4, every year with this one simple habit.

Remember, it’s easier to ask for forgiveness if caught than to ask for permission.

  1. Don’t Change/Launder Your Clothes

Before you retch, hear me out. We all know people wear clothes longer between washes as they age. Heck, grandpa wore the same sweater for 22 years before it disintegrated off his back! As a responsible blogger I will NOT ask you to go that far.

Am I eating your goat?

What I’m suggesting is a planned attack on laundry. If the shirt or pants you wore today isn’t visibly dirty put it to the side for a day or two and wear it to work again. (Don’t wear the same thing to work for a week straight. Co-workers will notice and file a complaint. Yes, I know the smell is all in their head, but who needs the hassle.)

Underwear and socks are another issue. I always go for the sniff test. It’s important you do this right. You can’t just pull off your shorts and bury your face in them (as much fun as that sounds). Walk outside to acclimate your olfactory nerves to freshness before returning to undertake the sniff test. (Note: put on another set of clothes before walking around outside. I’m sure I didn’t need to say that except for maybe 20% or so of readers. If you get arrested for indecent exposure I’m not bailing you out.)

Guys, don’t do the underwear/socks sniff test in front of the wife and kids. Dad, let mom handle her own sniff tests. (I warned you at the outset this would cross the line. You, of your own free will, traveled this far. Don’t blame me.)

The few simple steps outlined here should cut laundering expenses 80% or more in most Western households.

  1. Cut Your Own Wood and Cook Outside

I joke I cut my own wood and cook meals outside as soon as weather permits here on the family farm in NE Wisconsin. My 10 acres of the world has enough trees to keep the stove hot all summer.

Country living makes it easier for me. City living still has opportunities for people willing to think outside the box. Let’s just say every city I’ve ever been to has a t least one park with trees. Need I say more?

If the cops show up you didn’t hear it from me.

  1. Free Hot Water for Showers All Summer

This frugal idea is an itch I want to scratch so bad it hurts. The concept is simple. Buy a couple hundred feet of black garden hose and place it on the roof of your house. A few strategically placed nails should allow you to spread the hose out for full exposure to the afternoon sun without the hose coming off the roof.

I was this close to using this money-saver when I had calves. I could have used the God-given hot water to mix the milk replacer for the little guys. Mrs. Accountant caught me with the ladder and the whole plan crashed to the ground.

Summer is once again approaching. Late afternoon hot showers are on the menu. (If Mrs. Accountant doesn’t catch wind of my little plan.)

  1. Reusable Toilet Paper

Before anyone says a word, this is a real thing! They (whoever “they” are) call it “family cloth” and you can buy it on Amazon. Once again we have an opportunity to save the environment and money!

Now I know what you’re thinking, my frugal friends. You think I added an Amazon link to these reusable butt wipers to cash in on the craze. And you’re right. I don’t expect to see sales for any of these things, but if I do I’m calling you out. Got it?

  1. Don’t Flush Until It’s Full

Remember grandpa again. He always said, “If it’s yellow, let it mellow; if it’s brown, flush it down.” It’s a time honored practice preserving the family budget since Julius Caesar took over in Rome. Don’t go against a tried and true method of frugality.

I’ll let you decide when to use the little lever on the side of the toilet.

  1. Get a Gym Membership so you don’t have to Shower at Home Ever Again

This one is just plain stupid, as George Carlin would say. Why else would you have a membership? To work out! Really! If I wanted to work I’d get a job. I belong to the gym for the steam room, fellowship (because I don’t attend church as much as I should) and the free showers.

I’m not going to say I never shower at home, but it’s rare. I visit the gym three or four times a week and shower when I’m done steaming, ah, working out. Every time! This saves on the water bill and the cost of heating the water. Smart people like me is why so many gyms go out of business after a few years. Hey! Don’t blame me. They signed the contract too.

  1. Don’t Wash Your Hands after Using the Bathroom

Speaking of George Carlin, I’m not alone when I don’t shower every day or not washing my hands after every visit to the restroom. Check out the YouTube link of George explaining when you should and should not wash your hands. It makes perfect sense to me. (I wash after every bathroom visit, for anyone wondering.)

Bonus: Eat Your Pets

As I researched this post I found a few really neat ideas to save money I haven’t used to date. This one really resonated because I’ve done it!

Don’t even think about. If you know what’s good for you you’ll put the BBQ sauce away.

You see, growing up on a farm we understood the value of treating our animals right. Then, after an appropriate amount of time we ate them. You call it hamburger; we called it Blackie or Bess. You call it a chicken wing; we called her Cluck.

Rabbits and other critters graced the menu periodically, too. I wanted to finish this post with an antidote about eating the family cat, but due the rude description in my notes Mrs. Accountant used her veto power to prevent me from sharing that frugal idea with you. You’ll have to figure it out on your own. If you’re as frugal as I think you are you’ll know what to do.


Okay, before I sign off I want to reiterate this is all fun and games. No animals were hurt in the production of this post. Tax season is wearing me down and I’m not normal anymore. My publishing schedule will be lighter until the finish line. Details are available on the Where Am I page.

I also promise to get serious, too. No more pu—, ah, cat jokes.


Peer Street Review

Show me the money!

Note: I no longer recommend Peer Street. This post is only for reference.

Building wealth is simple when you understand the rules. Spending less than you earn provides seed capital for investments. Index funds provide the opportunity for superior growth with reduced risk due to diversification across the broad economic spectrum.

Once you have the basics it becomes clear you need additional cash management tools to serve your financial needs. Short-term cash for emergencies or living expenses are best held as bank deposits or in high-yield accounts like Capital One 360 or Discover Savings.

With long-term investments set in index funds and short-term needs covered by liquid money market type products it’s time to fill in the remaining gap. And there are some reasonable alternatives paying a respectable rate of return.

Business owners understand the need for liquid fund to cover seasonal fluctuations. In my office tax season fills the coffers used during the slow times of the year. November and December are traditionally slow in the tax industry while expenses tend to be high. Some year-end tax planning brings in some revenue, but the cost of mailing organizers, employee training and property taxes take an ax to the budget. This is the gap I refer to above.

Individuals face the same gap. Planning for a vacation or allocating funds for property taxes are an example. Individuals may also become uncomfortable with the level of the stock market. Selling index funds to store in a money market at a percent or two doesn’t make sense and becomes painful when the market continues climbing.

I never encourage market timing. However, there are times to take some chips off the table. Example: As you approach retirement (or if you are in retirement) I always recommend keeping about two years of living expenses in cash. If the market keeps climbing you can fund living expenses with dividends or small index fund sales. When the market has a temporary setback you can use the liquid funds to live. This assures you never have to sell at a market low! If the downturn becomes prolonged you can stop reinvesting dividends and capital gains to fund expenses. The goal is to never find yourself forced to sell in a down market.

Investing Gap Funds

Money market funds and online savings accounts at Capital One and Discover are good tools to store excess funds in retirement, for future investments or to pay large one-time expenses. The interest rate is low, but better than nothing.

For several years I used Lending Club and Prosper (notice I don’t include links because I no longer recommend these options) to serve as a high-yield investment for such funds. Then we had the Lending Club fiasco I was out the door. Where there is smoke there’s fire. I could be wrong, but I’d rather be a living coward than a dead hero.

Enter Peer Street.

Another bright idea.

Lending Club and Prosper issue unsecured loans you can invest as little as $25 in. The goal is to spread your investment over as many loans as possible to avoid one bad loan destroying your portfolio. There are lots of loans that default as borrowers have no skin in the game.

Peer Street offers loans in a similar fashion to the Lending Club/Prosper model with a few notable exceptions. Peer Street loans are backed by real estate with loan to value (LTV) typically below 75%. Borrowers have skin in the game!

The minimum investment is $1,000 per loan. This is still a micro loan, but not nearly as small as the $25 minimums at Lending Club or Proper. Since there is something backing the loan (real estate) the risk is likely much smaller. (Loans backed by assets default at lower rates than unsecured loan with rare exception.) You can still—and should—spread your investment funds over several loans to mitigate risk. (More below.)

Most Peer Street loans are short term (6-24 months) and generally yield 6-12% over 12 months. Peer Street periodically has very short loans (one month) that yield a lower rate, but more than Capital One or Discover currently. This can be a powerful cash management tool.

The short-term nature of the loans makes it easy to ladder your portfolio for consistent cash flow and liquidity. A small investment can provide a steady stream of available cash while earning a higher than average yield.

How I Use Peer Street

I don’t like to over-commit to any investment. My style is to dip my toe in the waters first and then stepping slow into the shallow end until I’m comfortable.

I started investing in Peer Street a few months back. Every loan I invested in is for the minimum: $1,000. So you understand my style, I currently have $6,000 invested with intentions of reaching $100,000 over the next year or two. As long as the wheels don’t fall off (remember the Lending Club issues) I’m happy. I’ll never put everything into Peer Street, but I will invest enough to move the needle eventually.

Every week or two I’ve been adding another $1,000 or so. Peer Street reports interest income and loan maturity funds on the 15th and last day of the month. The money appears in my account a few days later. I use this opportunity to add new funds to my account to bring the cash balance back to $1,000 so I can invest in another loan.

My slow approach is for two reasons. First, I can sample how Peer Street works before committing a level of funds that would hurt if I misstep. This allows me to acclimate to the investment. Second, the slow approach means I have loans spread out over a wide range. In a few months I will have loans maturing practically every month. Coupled with the interest stream I’m in a good position to benefit from the investment.

Investing in income properties can be a lot of work with plenty of risks. Peer Street makes real estate investing easier, smoothing the income ride along the way.


Interest income is taxable. Landlords have several tax advantages due to real estate ownership. Peer Street investments are loans and income is treated as ordinary income. If you are familiar with Lending Club or Prosper you will find reporting Peer Street income looks a lot the same. The main difference is loan losses. Lending Club/Prosper have a lot of loans that default. This can play havoc on your tax return in some instances. Peer Street has had a few loans default, but according to a conversation I had with a Peer Street consultant on the phone, investors lost no money. The LTV metric does offer a level of protection to investors. (Loan losses would be handled in a similar fashion to Lending Club should they occur.)


Time for a reality check. Most loans offered on Peer Street hover around 7%. Yes, the sales literature says you can pull up to 12%. Real world experience says you will have plenty of opportunity to invest with a 7% return. Some loans are lower, more are higher. Loans paying 8% or more require a strategy.

Peer Street allows for automatic investing of funds in your account. What I do is keep $1,000 in the account and set the parameters of the auto-investing feature at 8% or higher, LTV up to 75%, loan term up to 60 months (I don’t mind a longer term investment, but you may wish to tighten this parameter) and $1,000 max per loan.

Peer Street sends an email when they invest in a loan automatically. If you don’t like the look of the loan you have 24 hours to cancel from time of notification.

New loans are available most business days. The higher interest loans usually are filled with automatic funds. The 7% and 7 ½% loans are frequently available for manual investing.


There you have it, kind readers. No fancy stories today. This is an idea I’ve been working personally on a small scale for a bit and wanted to share it with you. As a reminder, the links in this post are affiliates. Peer Street graces your favorite accountant with $30 for every new account I send their way. I have affiliate links for Prosper and Lending Club, but do not include them because I no longer support their programs. I’d rather be safe than sorry.

I can’t make a real recommendation for you personally since I don’t know you personally, along with all the relevant facts. My only recommendation is to take it slow if you find Peer Street appropriate for your portfolio. No heroes; just another nice product to handle funds living in the gap.

The Slow DRIP to Massive Wealth

Back in the 1980s and 90s a company advertised heavily promoting dividend reinvestment plans (DRIPs). The commercial looked like a staged radio show with a woman telling the audience no one has an incentive to promote these great programs to invest in the biggest companies in America.

I don’t know if the companies with DRIPs had an incentive or not to promote them. They were usually a commission free way to invest in dividend paying stocks. All I know is the woman in the commercial had plenty of reasons to promote these programs.

Her company provided the conduit into DRIP investing. DRIPs usually required one share to start. The woman’s company charged $15 or $20 per stock to get you set up. You paid for one share of stock in the company you were interested in plus their fee and waa laa, you were in.

After that you could send money in any amount within the guidelines of the DRIP you were invested. Dividends were also reinvested. This meant you had fractional shares of the companies you invested in. That wasn’t an issue to me. The real advantage was the ease at investing money as I had it.

It’s been a long time since I watched TV so I don’t know if the company I saw all those years ago is still around or advertising. Time has washed my memory of the company’s name handling this.

I ordered their packet with a booklet of all the companies with a DRIP. I did something stupid then. I picked 12 brand name companies without any real research and ordered my one share of stock so I could add commission free any time I wanted.

Trading commissions seem low now, but back then it could add up. Also, buying $1,000 of stock meant a small commission was still a large percentage of the investment so the DRIP idea made a world of sense to me.

I already owned Philip Morris (now Altria) at the time and MO was my first DRIP selection so I could compound those massive and growing dividends. Some choices were good, some not so much. I joke I’d rather be lucky than good any day of the week. Johnson & Johnson, Wrigley (more on this pick in a moment), ITW, Paychex and Alfac were solid choices. Wrigley was special. Every year they not only increased their dividend, but also sent a box of gum each year around Christmas. Then Warren Buffett gave Mars Corporation the money they needed to buy Wrigley for cash. There went my free box of gum each year and juicy dividend stream. If you’re reading this Warren, Go to hell!

I made some bad choices too. I bought General Electric. The stock had a good run back in the day, but underperformed long before the current debacle.

A Blind Sow Finds an Acorn Once in Awhile

While the Hershey’s DRIP investment did well, other languished. My goal was to pick well known brands with a history of increasing dividends. When I say I did no research that is a bit of an exaggeration. I research by default without even trying. I had an idea which companies I’d be buying. All I needed to know was if they had a DRIP.

Prior to the DRIP plan part of my investing life I kept my brokerage account with Valley Bank, a local bank since bought out. I also owned mutual funds at American Funds. I put virtually all my money in Growth & Income. There were other brokerages around, but the local bank has nearly identical commissions and I could walk into their discount brokerage office any time I wanted.

My investments always seemed to do well, especially if you waited out the few temporary market setbacks during the last thirty or so years. A few dogs reared their ugly head, but then it was back to the steady climb higher.

The DRIP put my investing into hyper-drive. Now I could invest anytime I had $25 or $50. I sent checks to several DRIPs I participated in every month; sometimes multiple times a month. It was an addiction watching the share balance grow.

The only problem I saw with DRIP investing was recordkeeping. If a guy started selling and buying often tracking basis would become a nightmare.

I never sold so all I needed to do was track the purchases and reinvested dividends. I entered all the data in an Excel worksheet. I remember days when I highlighted data and created charts with a jagged line trendingupward at an ever steeper rate. Every dividend increase created a jag higher in the number of shares owned. Each quarterly reinvested dividend was a pay increase as the new shares created a slight increase in the total dividend received the following quarter.

This jagged line racing to the moon encouraged me to add money the second it graced my paw. I became so frugal I was spending under $10,000 per year, including my mortgage! It was the 1990s and early 2000s, but that was still some mighty frugal lifestyle. I never let on why I was so tight with my money to Mrs. Accountant, but now that I’ll read this to her prior to publishing I might have a bit of explaining to do. All I can tell you, kind readers, is it was better than sex watching those share totals climb relentlessly.

Some would argue I needed therapy back then. I’d agree. There is ample evidence I need therapy now, too. My living expenses climbed slightly over the years to placate Mrs. Accountant and to stop being “an embarrassment to the family,” as my parents made my lifestyle choices clear to me were.

But, boy did I amass a fortune in the process!


Eventually the recordkeeping got old. Some stocks needed to be disposed of so I winnowed the list. Wrigley was stolen from me. (I’m still pissed at Warren. Jesus, guy! Didn’t you have anything better to do with your time?)

Valley Bank and their brokerage arm were long a part of history. I moved a large chunk of money to E-Trade and eventually found most of my mutual fund investments finding fertile ground at Vanguard.

I hadn’t added to my DRIP list in well over a decade, but kept adding new monies to legacy DRIP accounts. The erotic nature of watching my share balance climb still thrilled me if only I didn’t have to do so much recordkeeping by hand. All the DRIPs were moved to E-Trade. Dividends now accumulated in cash. I invested the funds when I felt the right opportunity graced my vision.

I still added excess cash to the deck, but my lazy nature was asserting itself. Cash kept piling into index funds. My guess is Vanguard considers me a quality client.

E-Trade holds several accounts for me. One is a mad money account where I can play with ideas and do really stupid stuff with $50,000 or so. They also hold two minor retirement accounts (it’s a long story). Then I have my serious money in individual stocks.

The market has been so good for so long the mad money account is turning more serious.

The serious money account is disturbing the account balance is so high. My net worth figures floating around the internet from a while back is getting outdated and low. I’m waiting for a nice correction back to reality so I’m not updating my net worth publically for now.

A DRIP of Honey

I miss my DRIP investing days. It also irritates me my Atria, Philip Morris International, Aflac, Wells Fargo and Apple dividends are not reinvested. I don’t get a pay increase four times a year anymore and it hurts my feelings. Kind readers, you have no idea what a spectacle a crying accountant is!

Dividends eventually get reinvested, but there is a small commission to buy stock even at E-Trade. Cash sometimes piles up like currently. (I can’t pull the trigger buying companies when stock prices exceed my valuation of the company plus a margin of safety.)

E-Trade has been redesigning their site lately. They messed around with the Portfolio page a few times this year. The latest redesign has a button near the ticker symbol on the Portfolio page where if you hover over it basic information on the company pops up. It’s an interesting tab if you obsess about every friggen tick of the stock price. Otherwise, it lists the latest news items, a stock price chart and not much else of value.

Or so I thought!

Earlier this week I was checking up on my account and accidentally hovered my mouse over the icon on the Portfolio page. I quickly went to move away when something caught my eye.

There was something about a dividend reinvestment plan!

I went to work checking this out. My guess is this has been available on E-Trade since 1894, but I was too stupid to know about it or even inquire.

On E-Trade the dividend reinvestment plan is commission free(!) on reinvested dividends only. You still pay a small commission for original stock purchases. To be clear, only the reinvested dividends are commission free.

Trading fees are so low nowadays as to be background noise at best on a cloudy day. My excitement isn’t about saving $10 or so. My excitement is over the automated process of reinvesting dividends.

Most people get caught up in their account value. Not me. I collect shares! My share total never goes down unless I make it go down by selling. When dividends are automatically reinvested it turns dividends into a compound wealth machine. And each quarter the dividends are reinvested means I have more shares earning even more dividends the next quarter. It’s like getting a pay increase four times a year!

Now I’m excited again.

E-Trade allows fractional shares with their DRIP, just like the old DRIPs I used. All my money goes to work immediately!

As many of you know, I have a lot of Altria and Philip Morris International. Altria alone coughs up twenty-four and change each quarter. This means the DRIP at E-Trade will increase my dividend with Altria several hundred dollars each quarter without Altria increasing their dividend.

I know somebody in the crowd will tell me to settle down, saying, “Accountant, this has been around since Christ walked the green earth.” Maybe so, but it’s new to me! And I bet if it’s new to me it’s probably new to a few readers as well.

I can feel the sickness returning. Soon I can produce charts again with a jagged line crawling to the stars.

Only this time E-Trade will do all the recordkeeping for me.

Real Estate versus Index Funds

As you work toward financial independence the question pops into your head: Which investment is best to get me there?  Index funds usually, or at least should, top the list. Real estate is not far behind. People wrongly believe real estate is a better investment vehicle than a broad basket of stocks.

The first fallacy I hear when I inform clients of this misnomer is a list of all the people who made it big in real estate. The current U.S. President, they argue, made his money in real estate. Except he didn’t. He made most of his money licensing his name to real estate others own. When the President was in the real estate business big he also went through a wrenching bankruptcy.

Then, of course, I hear about the Carlton Sheets, the late night infomercial guy selling courses on how to make it big in real estate without any money down or work! If you bought one of those courses I have a beautiful tower in Paris I’d like to offer you for an unbelievable price if you act now. (By the way, Carlton makes his real money selling courses, not in real estate.)

Real estate isn’t as bad as I’m making it, but the numbers tell a story you should understand when adding real estate to your portfolio. There are decided differences between an investment property and an index fund. We will explore those differences and the historical returns on each.

The stock market has real returns of around 7% consistently over long periods of time. Source: Stocks for the Long Run by: Jeremy J. Siegel.

Index Funds

Jeremy J. Siegel’s work on the historical performance of the stock market over the last 200 years is available in numerous editions of his bestselling book, Stocks for the Long Run. As much work as Siegel put into his research, the evidence is clear and simple to understand. Over long periods of time the stock market has a real return of around 7%, plus the inflation rate. The only time the market went for any meaningful period outside this norm is from 1966 to 1981 when interest rates and inflations were high. When inflation waned the market reverted back to the mean.

The story is an easy one to tell. Invest when money is available, don’t try to outguess the market by trading and wait a while.

Dividends tend to climb at a steadier rate than the overall market. Whereas the broad market can race ahead at times, it can also experience a temporary hissy fit. Dividends for the whole market rarely decline, but periodically do before resuming their upward march.

Index fund investing is also highly diversified. A total market or S&P 500 index fund spreads your investment over a vast range of industries. Index investing gives you exposure to large and small companies, including growth and value stocks.

The value of the broad market follows the growth of the economy, plus increases in productivity. Interest rates play a large role in determining the discounted value of future earnings.

The automatic advantages of index investing are absent in real estate unless you invest via a real estate investment trust (REIT).

Real estate struggles to keep up with the stock market. The more time that elapses the greater advantage equities have. Source: Russell Investments

 Real Estate Investing

Dividends tend to be smaller than the cash flow from a real estate investment if it is an income property.

Your personal residence will not produce a rental income stream, but you avoid paying rent so there is an implied value.

Real estate values tend to track personal income. If prices get ahead of themselves buyers don’t have the income to support the payments, thus containing real estate gains.

Unlike index funds, real estate is local. Prices accelerating on the coast have nothing to do with prices of homes in the Midwest. Even the section of town a property is located in has an effect on the value and potential for future gains.

Buying a stock or mutual fund is the end of the work. Periodic review of the investment is the maximum extent of effort required to maintain the investment. Real estate holdings require continuous management.

Real estate has serious holding costs! Property taxes, insurance and maintenance are the obvious costs. If the property is used as a rental you have the cost of finding a tenant. If the tenant damages the property legal costs will be added to the mix.

Investment properties are considered passive income for tax purposes, but as any seasoned landlord can attest, it takes work to turn a profit on a real estate investment. Even with a property manager you need to remain active with your investment or serious losses can occur.

Real estate has one major advantage: rents. Rent income can spike the investment’s return.

Real estate also has a double edged sword: leverage. For a real estate investment to achieve close to stock market returns leverage must be used. And with leverage comes risk. The longer you maintain a high level of leverage (borrowed money compared to the value of the asset) the greater your investment return as long as prices are increasing. If prices stagnate or decline the real risk of bankruptcy rears its ugly head.


I’ve included two charts in this post. The first chart comes from Siegel’s work and shows the relatively stable rate of return of the stock market over long periods of time. Inflation affects results, but the market returns about 7% per year after inflation (real return). The inflation of the 70s smacked the stock market around while rallying smartly in the 80s when inflation and interest rates declined.

The second chart compares real estate to the S&P 500 from 1977 to 2014. This chart unfairly gives real estate an advantage. Real estate prices were moving higher fast in the late 1970s and early 1980s while the stock market was getting crushed until August of 1982.

Real estate was given a head start and still lost the race by a massive margin! In the 34 years covered the broad stock market returned nearly 2 ½ times what real estate did without the risk of leverage or the work real estate investments require. Even if you used no leverage, you needed to fund the property from other investments (lost opportunity cost) and if a roof or furnace died you would also need to use leverage or cash from other investments to cover the cost.

What the second chart doesn’t show is individual markets. Averages work wonderful for index funds, but are terrible for real estate. Real estate has more opportunities to find a hidden gem than individual stocks.


Tax laws have changed radically over the years as it applies to real estate.

Until a few years ago, dividends were taxed as ordinary income, but now are treated as long-term capital gains in most cases.

Tax laws favored real estate holdings in the 1970s and early 1980s. The 1981 and 1987 tax overhaul changed all that.

Recent changes to the tangible property rules and the repair regs have made real estate more desirable than a decade ago.

Real estate sometimes has other serious tax issues such as depreciation recapture.

Both real estate and index funds tax income currently (unless held inside a retirement account (easier for an index fund than real estate)). Both investments enjoy long-term capital gains treatment if held for a year or longer.

Rent profits are treated as ordinary income and taxed higher than most index fund profits/dividends. Losses are limited to each: real estate is limited to $25,000 under passive activity rules if you are not a real estate professional and capital losses on index funds are limited to $3,000 per year against other income.

REITs are taxed as ordinary income and are required to distribute 90% of gains each year. The REIT itself does not pay taxes; they pass the bill on to investors.

The Best Investment

It might sound strange coming from a man who owned millions in real estate over the years, but real estate is frequently a poor performing asset compared to equities (stocks; business ownership). That said I still own my home and farm, office building and paper on some real estate.

Real estate has a home in many portfolios. I always cringe when I see people overloaded with real estate compared to other more liquid investments. I understand the risks of leverage and the capital requirements real estate frequently demands.

Investing in the stock market can be made automatic. Real estate is less forgiving.

Buying in a down market or distressed properties has its adherents. If the right property shows up I’m always happy to buy it and sometimes do.

My experience also gives me an advantage when it comes to determining which investments are best. As the owner of a tax practice for over 30 years I know who is winning who is and losing. Landlords have the distinction of having more bankruptcies of any client class in my office. They also are among the richest.

Leverage determines the winners. Property investors who pay down and eliminate leverage fast have less risk. Those who manage their properties as a business also do well. Those who buy a program thinking real estate is easy money go broke.

Real estate has one final advantage and it’s a big one: forced saving. The increase in property value is hard to access and it doesn’t always feel like value unless the property is sold. Mortgage payments applied to principle is another form of forced savings. “Good” investment property owners keep a cushion of cash for emergency property expenses which is another form of forced savings.

My successful investors don’t spend every penny of profit from their properties. There is a compounding effect with income properties harder to calculate than with equities (stocks).

A smart person will consider all traditional investments. Index funds should be a part of most portfolios. Real estate, for those who are interested in such investments, is a great way to round out a portfolio with a larger cash flow.

You can retire on real estate faster than index funds due to the extra cash flow investment properties provide. But you don’t want your eggs all in one real estate basket in case we end up back in 2008 again.

In Detroit.

Wealth Building Resources

Personal Finance is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Finance is free?

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to skyrocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon good way to control costs and comparison shop. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you.

Buy A Car at an Awesome Price (From the Dealer)!

One moment please. I need to wipe a tear from my left eye. <sniff>

There, I am better now.

Regular readers probably were wondering what happened to me yesterday. I normally publish on Friday and there wasn’t a whisper of evidence a certain accountant was anywhere to be found. I have a good excuse for my behavior: my oldest daughter bought her first car.

The process of buying her first car took time. She was working at it for 6 – 8 months. Dad didn’t do it for her either. I only gave advice; so like dad. She did all the work searching for a car and my job was to shoot down the idea. In the past I bought all my cars from the bank or credit union. Unfortunately, most financial institutions no longer mess around with selling their repossessed vehicles anymore, electing to move the assets at auction.

Unless you have a dealer’s license you can’t buy cars at auction. The effort to get and keep such a license is not worth it if you only buy a vehicle every 10-15 years.

My old bag of tricks disappeared since my most recent auto purchase. I didn’t have much advice other than to keep your eyes open for an opportunity. Not the most powerful advice I’ve given in my life. (I love you, sweetie.)

Junior Accountant needed a car and she also needed to learn the process. She would learn nothing if I did it for her. Besides, a new set of eyes might reveal a new way to get a reasonable deal on a set of wheels.

The first stop was the used car dealership. She was out the door so fast I swear I saw sparks fly. It was an eye opening experience for her. The prices were inflated, the vehicles mostly junk and then they wanted you to use their financing at 28%. I have words to say when that happens, but I promised to clean up my writing. No more f-bombs (unless absolutely necessary).

In Search Of

Since it was my daughter’s first car, she needed to walk all the steps. I had her research all the banks in town and call a few of them to make sure they weren’t selling their repossessed vehicles to the public. A few still were, but these credit unions didn’t make many car loans so there were no cars available.

Banks and credit unions had been my best source of wheels for the last 30 years. The banks loss was my opportunity. I was able to buy a relatively new car (usually around 2 years old) for around $4,000 under Blue Book. Not bad. You had to wait for the right car and you couldn’t be picky about what you drove. When the right deal showed up, you snapped it up. For me, once I snapped up a deal I was done for another decade. (No wonder the banks gave up selling to the public with such finicky demand.)

For Sale by Owners was another way to buy a car. This is where I felt the process should head.

My daughter spent serious time on Craigslist researching cars. Most autos listed were from dealerships and my girls had had enough of that racket.

Mrs. Accountant went with my daughter each time a car of interest appeared. Some vehicles listed by the owner had merit. There were no real deals to be had unless the vehicle has serious issues needing repair. For the most part, people selling their own car did their research, listing the car at Blue Book and holding tight. They knew their car would sell at that price reasonably fast.

People selling their own vehicle were more honest than the dealerships. Owners frequently pointed out flaws. If anything, my faith in humanity was restored.

My daughter needed a reliable car at a good price. She wanted a deal like dad brags about getting. And the search went on.

The Bright Light

As so often happens, the greatest opportunities appear when you least expect it. My sweetie was headed to the doctor when she noticed a business with cars for sale across from Goodwill.

She convinced Mrs. Accountant to go with her. The business in question was a collision repair shop. The owner also has a second business buying cars from auction with collision damage. He then repaired the damage and puts the auto up for sale.

Mrs. Accountant and my daughter looked at several cars at this establishment, returning again and again. Finally they convinced me to take a look.

I’ll be honest. I did not expect much. The potential problems with such vehicles were more than I would consider accepting.

Still, I kept hearing the asking price and it was compelling. These cars were selling below Blue Book!

The business owner was not a typical used car salesman either. Nobody came out to greet us when we walked around his lot. When we entered the building there were no salespeople at all!

I asked about a specific car, a 2009 Chevrolet Malibu Hybrid. The desk clerk called the owner over. He pulled the file from his cabinet and showed us the details. “Here is the car when I bought it”, he said, highlighting the collision damage.

There were pages of notes showing what he did to repair the car, including expense receipts. He showed us Blue Book; his price was lower. (I checked Blue Book before we arrived and he did not deviate from my research.) He said he can’t really sell collision damaged and repaired vehicles at full Blue Book.


One Man’s Junk is another Man’s Treasure

The car we were interested in was not a SALVAGE vehicle. That is not always the case.

The Malibu had front driver’s side collision damage. I included a before and after picture for you. My daughter picked the vehicle up for around $1,000 less than Blue Book which means she didn’t take a hit to her net worth the moment she drove it off the lot.

The car was safety inspected and we gave the vehicle a once over to assure there were no hidden issues. A few minor issues were addressed.

All in all it was a pleasant experience. My next car will probably come from the same business or a similar establishment. Cars are something I don’t want to think much about. I want value, if there is such a thing in a wasting asset, and I want it to work for a decade or so.

Since buying a repossessed car from a financial institution is getting harder by the day, it was about time I found another reliable source of purchased transportation.

There are differences between buying from a For Sale by Owner, the bank, a traditional used car dealership and the guy repairing damaged vehicles for sale.

When I bought a car from the bank it usually was two years old. Older cars were available, but I liked the newer cars so I could run the thing at least 15 years. I don’t like shopping for cars!

The bank owned cars could be had for $2,000 to $4,000 below Blue Book.

Most of the cars available at the collision repair dealership were older. My daughter picked up a 2009 Malibu. The car is already eight years old. As an FYI, in Wisconsin, cars don’t often make it to 20 years due to harsh winters and road salt. Therefore, in my opinion, the Malibu has another eight years of life before it becomes less road-worthy.

Salvaging a Loss

Sometimes the repaired vehicles have a salvage title.

My daughter’s Malibu is not one of these vehicles. It has a regular title. This means she can get a regular auto loan and regular auto insurance.

When she decides to sell the vehicle, if she doesn’t run it into the ground first, she will need to disclose the car’s history, but otherwise the car should sell for close to Blue Book. The car is also insured for its value.

[Insurance side note: I do not insure my personal vehicles for collision, especially if the value is under $5,000. Since this is my daughter’s first car I am walking her through the whole process so she is familiar. ]

[Loan side note: My daughter could have paid cash for the vehicle, but with interest rates low I wanted her to experience what it is like sitting at the credit union applying for a loan. She has a very small loan so collision insurance is required. Once she pays off the loan in a year I will recommend dropping collision.]

Salvage vehicles are repaired to good working order, but sell for even less! Before you buy a repaired salvage vehicle, be aware the title will say: SALVAGE.

Each state has different laws. In Wisconsin insurance companies can only insure a salvage vehicle for 70% of its value. (Or so I was told.) The credit union said if it was a salvage vehicle they require 25% down. Neither of these issues is important since readers here don’t have auto loans or insure for collision. But I wanted to mention it for any souls wandering through not aware of our unique demographic.

Wrap Up

I missed yesterday’s publishing deadline so I could help my daughter close on her car and walk her through the whole process. I also wanted to ask more questions before publishing. Many readers should find value from this new information.

There is still the risk it could all go wrong. There are no guarantees. I’ll update if anything meaningful changes.

Please share your experiences in the comments section below. Include laws applicable to where you live.

My guess is this will work pretty much anywhere on the planet cars are driven. Virtually every community has at least one or more of these collision centers buying schmucked up cars and breathing life back into them.

I like the recycling aspect of revitalized cars and love the savings.

Hope it helps you too.

Why Saving Half Your Gross Income is Better and Easier Than Saving Half Your Net Income

People frequently look to their accountant for sound financial advice. Good accountants are up to the task; other, not so much. Finding a good one is easy; they tell you what you don’t want to hear even if you threaten to leave.

Advice sought from accountants runs the gamut. Selling or buying a business requires in-depth analysis and most people trust their accountant’s judgment regarding this matter.

Then the bizarre requests come. Over the years I have been pulled to the side by clients wanting advice on how to raise their children, gambling problems, infidelity, and divorce issues. Some of the requests have a hint of tax built into them. Gambling problems are also tax problems. I’m never comfortable helping anyone decide if they should end their marriage. It’s not my place or at least shouldn’t be. And even if it was I want nothing to do with that kind of conflict.

My favorite requests are about personal finance, intelligent tax reduction and retirement. These are the moments when I can shine. It is also an area of massive risk. My mantra, oft repeated, is simple, yet rarely followed. First the client is in denial (which is a river in Egypt last I checked). Quickly the client moves to tell me my advice is impossible to follow and nobody does it. (Oh, yes they do.) Finally, the client starts to bargain her way into a deeper hole. They think they can change the rules and make it easier. Don’t they know I already thought of every twist and shortcut possible? Clients usually bargain themselves into a deeper hole without even knowing it.

Half for You and Half for Me

Clint Eastwood fans are well aware of the scam Blondie and Tuco had in the 1966 movie, The Good, The Bad and the Ugly. In the movie, Blondie, played by Eastwood, captures Tuco, a wanted bandit with a price on his head. Blondie turns Tuco in for the reward. As Tuco is about to be hanged Blondie shoots the rope from a safe distance and rescues Tuco only to do it again in another town.

After each escape, Blondie shares the gold with Tuco 50/50. (“Two for you and two for me.”) Of course things go south fast when Blondie decides it is time to end the business relationship. Every movie needs to keep the plot moving.

There is a lesson in finance in the business deal of sharing the spoils 50/50. It also happens to be the first part of my most common mantra: save half your gross income. I finish the mantra with: invest it in low-cost, broad-based index funds. It’s a simple concept and easy to remember. Save half or more each time income enters the household Cash Flow Statement before taxes.

As simple as the advice is, I always get push-back. As mentioned above, clients deny it is possible as if they are starting the stages of grief. Quick as a shot they get angry when I refuse to relent: save half. Then comes the bargaining and the reason for this post.

I Have a Better Idea

Imagine a client sitting across my desk dumbfounded by such a stupid suggestion. For easy calculation we will assume said client has exactly $100,000 of income (earned and/or rental or similar types of income) with exactly a 30% tax bracket. (My advice is straight-forward; taxes are never this simple.)

The “impossible” retort is quickly shot down by your favorite accountant as a straw man argument. I have plenty of clients earning half what you do and living within their means (probably saving half their income too). I also doubt you never had a day of your adult life where your income was less than it is now. So you have plenty of practice and examples of people (even an older version of you) who have or are doing it (living on half your current income).

The argument that bills are more now doesn’t work with me either. Things have not gone up that much in price! The problem is you have three SUV payments, a cottage, second home up north (it’s a Wisconsin thing), a Jet Ski and four-wheeler to make payments on and insure. That is the real reason why you are broke so stop arguing with me.

There is a simple solution: Start selling the excess baggage until your expenses allow you to save half your income. Pay off debt! You may not agree with me, but you know I’m right.

Time to get Serious

Quicker than a bolt of lightning you start the bargaining process. Before you waste your breath, I already know what you are going to ask and you are wrong. But why, you plead? Because saving half your gross income IS easier than saving half your net. Here’s why.

Take your $100,000 minus $30,000 taxes and you have $70,000 to spend. If you save half your gross, $50,000, you only have $20,000 left to live on! Not possible, you say.

If, on the other hand, you continue, I agree you should save half your net income ($35,000) it would be easier for you to make it really happen.


What happens when you save $50,000? Well, a good portion probably goes into retirement accounts. A husband and wife can plow $18,000 each into their 401(k) plan, assuming both are working, earn enough and the employers’ plans allows the maximum contribution allowed by the tax code. (Those 50 and older can add another $6,000 each to this total. In our example we will stick with young whipper-snappers.)

Each spouse can contribute another $5,500 into a traditional IRA. Added to the $36,000 contributed to the 401(k)s (not including the employer’s match), you now have $47,000 saved out of your 50% goal of saving half your gross income. $3,000 invested in a non-qualified account (non-retirement account) rounds out the $50,000 annual investment. If a Health Savings Account or other tax deferred/tax-free vehicle is available, all the better.

The above example is very simple and few will have the same exact situation. The basic example does allow us a quick look at the final results to the family budget. First, with all the money going into tax deferred accounts you probably now qualify for the Saver’s Credit and Earned Income Credit if you have kids. Add in any Child Tax Credits or other deductions and we don’t need to work any harder to reduce your tax liability because it is zero or close to it.

So how much money do you have available to spend now? Well, your taxes dropped $30,000 when you include credits. You have $50,000 invested, plus the employer’s match, and $50,000 available to spend. (FICA taxes will reduce numbers a bit, but we want to keep it simple so we can see why it is better to save half your gross income.)

Your bargaining to save less will leave you with less to spend in the end! Saving half your net, $35,000, means your taxable income is higher and you lose several powerful tax credits. Your tax liability will be lower, but probably not zero. You also lose the Earned Income Credit and Saver’s Credit, though the Child Tax Credit should still be allowed. If your taxes are lowered by $10,000 you are left with less overall money due to higher taxes!

$100,000 income – $20,000 tax – $35,000 saved/invested leaves $45,000 to spend, or,

if you’re are lucky and your taxes are reduced more without the full savings rate

$100,000 income – $10,000 tax – $35,000 saved/invested leaves $55,000 to spend

Just because you have more available to spend in some instances by saving half your net income you are really worse off. Your net worth is down $15,000 the first year alone without consideration for the employer’s match or investment gains. You bargained your way into working a decade or longer to make up the difference needed to get your nest egg large enough to fund retirement. Is it really worth years of additional required work just to have $5,000 more to waste on a gas-guzzling SUV today? I hope not. You wouldn’t be reading this blog if you really believed that.

Give Me the Facts

When I train a group of accountants I use the phrase “facts and circumstances” a lot. The IRS tax publications do too. Your facts and circumstances will change the outcome of our example. More moving parts usually means more opportunity to reduce tax and increase investments without harming disposable income.

It’s hard saving serious amounts of money. Unfortunately it is the only way to reach a reasonable retirement in a reasonable amount of time. Forty years is not a reasonable amount of time REQUIRED to work just to have enough liquid assets to retire with the same lifestyle as when you were working.

In The Good, The Bad and the Ugly things turned out well in the end. Blondie and Tuco teamed up again to cash in on the biggest payday ever. For folks familiar with the movie, Eastwood shares the spoils 50/50 one last time. He cuts the rope when he is safely out of Tuco’s reach. A funny scene to end a classic movie.

Fun movie! Entertaining. Serious lesson few grasped. Don’t make the same mistake. Half for you and half for me. The best part, you get to keep both halves.

Cut Your Clothing Costs 98%

IMG_20160827_095350Clothes are one of those expenses easily avoided. Paying $50 for a shirt, slacks, or any kind of clothes is something I’ve never done and is insane. Today I will show you how Mrs. Accountant acquires the necessary brand-new garments for our household for less than $200 per year for a family of four. If you read to the end of the post (no peeking) I will show you a trick where you can get nearly unlimited amounts of free clothing.

Trading time to find awesome deals is not cheap, nor free. Clothes shopping is simple and fast when you know where to look and when. I have a closet filled with more clothes than I need. The females of the house have more than I do. It still amazes me when Mrs. Accountant walks in the door from grocery shopping with a million dollar smile and two bags overflowing with clothes she spent less than $20 on. I must admit it is not hard to love that woman.

Low cost quality clothing requires a few tactics to divide and conquer. The most important tactic is to destroy any desire for trendy clothes. I am lucky my girls never wanted to keep up with the Sheila’s of the world and all the crap peddled by Disney teen stars. Learning to be happy with what you have is the first step. When you are in a bind and must buy something it is a recipe for disaster.

Armed for Battle

We will start our venture with some traditional ways to reduce your clothing budget to the single digits.  When travelling with Mrs. Accountant I get the honor of seeing her in action and you know how I enjoy watching a hot woman take control. Earlier this year we had a chance to spend some time in Seattle. We decided to schedule relaxing time which does not work well for me. After an hour or two of sitting around I wanted to get a book so I decided we should walk to the nearest library. Several stores were between us and the library so Mrs. Accountant was able to glance in the front door of each and could smell if there were any bargains.

In all fairness, Mrs. A only stepped into a handful of stores. Hauling a bargain home would be a waste so it was more of a fact finding mission for her. Now I want to remind you this is Seattle where breathing costs $47.50. In this rarified air Mrs. A found a jacket, pants and shirt for $6.50. It actually looked really nice. Okay, we put in the cart. What was nice about the outfit was that it was light, waterproof (the jacket), yet made of quality material.

Keith’s Rule 20: You can find deals everywhere. Keep your eyes open while travelling for awesome deals.

Many years ago, shortly after we got married, Mrs. A and I took our honeymoon in Jamaica. Near the end of our two week stay we found a vendor selling shirts and T-shirts for $1 each, American. Mrs. A demanded I buy the shirts she thought we needed in our closet. I paid for 28 and had them delivered home for under $5. I have no idea how the guy made money, but I didn’t buy another shirt for over five years.

IMG_20160827_093225Back home where most of you find the things you wear there is a plethora of low-cost clothing opportunities. You need to know where and when to look for the bargains; there is no need to waste loads of time just to get a pair of pants.

The best time to buy clothes in retail outlets is near the end of the season. What you wear next year is what you bought this year on the closeout rack. Wal-Mart has excellent deals on shirt and pants. For $1 to $3 you can find a lot of stuff to fill your wardrobe. If you are looking for higher quality, Kohl’s has serious opportunities. JC Penney also has deals, but are harder to find. Mrs. A has even found goodies at Macy’s. (I’ve never set foot in a Macy’s; it could be a strip club for ladies for all I know. That could explain some of the deals she has brought home.)

Kohl’s is an interesting example. The end of season closeout racks have high quality clothing for a few dollars. In our neck of the woods Kohl’s mails discount cards. This allows the closeout items to be even cheaper yet. Don’t worry if you don’t get the mailer. When buying clothes always ask the checkout person if there are any offers you missed and that you don’t have the discount card. Most have a default card behind the register and allow you the additional discount anyway. My oldest daughter combined several offers at Kohl’s recently for 11 clothing item for under $40.

There is more. I don’t think there is a retailer left who doesn’t offer their own credit card. As an incentive to use their card they frequently have an instant signup bonus and additional discounts just for using their card. This is above and beyond the closeout rack discount and advertised discount cards. I sign up for every store’s card. More than once if I can. If the kids don’t want one I’ll use it for them. Many companies give $50 to $100 upfront. There is a local hardware store that ran a special where you receive up to $500 off your first purchase with their card. I bought $503 of stuff and closed the card. Reopened a new one for the missus; she is such a spender.


Shirts, t-shirts, pants, swim suits, and even dresses are fairly easy to find on the discount rack. Undergarments are a different story. Underwear, socks, and bras are not always available at a discount. [I am reading this to Mrs. A while I edit and she says I am wrong here.] Guys have it better because an opened package of skivvies might get sold cheap, but lady’s undergarments generally do not. [Mrs. A says I am wrong again.] Ask the attendant at the changing room if the store has such deals on undergarments. It never hurts to ask.

If you are not picky like me you can check Goodwill or larger thrift shops. Sometimes manufacturers give undergarments with minor defects to Goodwill and Goodwill sells them to you cheap. And don’t start with me about wanting good quality skivvies without blemish. After the first use all underwear has defects!

The really hard part is finding bras cheap. [I don’t shop for bras personally (not that I will admit) and Mrs. A says you can find bras at a discount.] Ladies seem to expect comfort when covering their chest. Once again I have some ideas. Haha. Discount racks (might I add another haha) might have a limited selection of bras, none of which fit (not that I am an expert on the subject). We will use a trick I mentioned above. Online retailers, including Amazon, offer big discounts when you get their credit card. For example, the retailer may say you get a $60 statement credit when using their branded Visa card. You can buy a lot of cup holders for sixty bucks! Once you use up the credit get your husband or boyfriend to open an account. Now you can buy another $60 of slingshots. Just think, hubby will be happy when he sees a package in the mail with his name on it and will still be happy when he opens it. For some reason guys like the sight of bras. Go figure.

New Clothes for FREE!

Now for the moment you have all been waiting for. There is a place you can go where they have to throw unused clothes away and pay a landfill fee to dispose of the clothing. Print shops that put labels on uniforms, shirts, t-shirts, jackets, et cetera, have rejects that must be disposed of. Some companies demand the product be destroyed, others have no restriction.

I have a client (I always have a client) with a print shop who has given me hats, t-shirts, and even jackets for free. Sure beats tossing it in the garbage. Over the years I have collected quite a closet full of stuff without cost.

Any business I frequent I ask if they have jackets or shirts they give to clients. It is free advertising for them and free clothes for me. Now I hate ads as much as the next guy, but I’d wear a t-shirt promoting feminine hygiene products to church if was free. Just think of all the attention you will get from the ladies. You will be prime dating material.

You would be surprised how many businesses, especially contractors like HVAC guys, hand out free clothes with the company logo on it. Farmers are lucky; everybody is giving them free bib overalls. Business owners also get a lot of free goodies. Check your local printers and silk screening shops for free clothes.

Closing the Closet Door

We had some fun with this today. I hope you can use some of these ideas to cut your clothing budget and maybe invent a few new ways to fill the closet without emptying the wallet. The photo in this post of Mrs. A in a pink hoodie jacket is an example of a free clothing item available for asking. It is warm and comfortable. I know because I have a blue one I paid $3 for.

Please share any money-saving ideas in the comments section below. Some of you have better ways than I of reducing clothing costs. I have loads of ideas, but Mrs. A is a lot smarter than me on the subject. She provided some input, but I am a stubborn accountant who wrote what he wanted.