February 2009 Financial Status / Net Worth Update

Posted on February 3, 2009 // 34 Comments
Net Worth Chart 2008

I pretty much have a general feeling of malaise right now. Hiring freeze at one job, big group meeting about how “we don’t have to worry about layoffs… right now” at the other. And now it’s time to look at my incredibly shrinking net worth… I know I have it really good in general, but let’s just make this quick. 😉

Credit Card Debt
I do not carry consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of good no fee 0% APR credit card offers, I am just waiting to pay off my existing balances.

Retirement and Brokerage accounts
The media has pronounced last month as the “Worst January Ever” for the Dow (-8.8%) and the S&P (-8.6%). The value of our passively-managed portfolio shrank accordingly. Our 401(k) contributions for the month and new company match got swallowed up instantly by losses. Same old, same old.

Cash Savings and Emergency Funds
Our net cash balance (aka emergency fund) increased a bit, and remains more than 12 months of our total monthly expenses. Let’s hope we don’t need it.

I intend to contribute again to a non-deductible Traditional IRA for 2008. My reasons are basically the same as last year: Should I contribute to a non-deductible IRA? The limits for Roth conversions are removed in 2010, which is just around the corner.

Home Equity
I continue to estimate our home value using internet tools, starting with the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. After taking off 5% to be conservative and 6% for expected real estate agent commissions (11% total), I am left with $515,257.

I need to work out the last few kinks in my new long-term goals, in order to regain some focus. You can see our previous net worth updates here.

Filed Under: Goals, Investing, Real Estate, Retirement //

MyMoneyBlog 2009 Upcoming Financial Projects

Posted on January 9, 2009 // 23 Comments

While Suze Orman has her Action Plan, I have also been thinking of my own. The first is general but the rest should be good blog fodder. They also fit into the concept of Kaizen and continuous improvement. Not really resolutions… I just want to keep making small steps forward.

Project #0 – Make Sure You’re Valuable At Work

I basically think of job security like this. Would life be difficult if you’re gone? Make sure it would be. 🙂 In addition, networking can be hard for the introverted like myself but necessary.

Project #1 – Back to Basics, Conscious Spending

Tracking Spending
People either love or hate budgets. But can you say right now how much your annual expenses are? I think that is more important. I have already estimated that my family spends about $3,500 on housing per month (!) and $1,500 on everything else. But I want to drill down further.

I plan to try out the newest versions of free online money management tools like Quicken Online, Mint, Geezeo, Wesabe, and Yodlee MoneyCenter and review each one.

I’ve already started using Quicken Online for January, and it has already had a lot of improvements since it became free a few months ago. This old screenshot is obsolete.

Critical Examination Of All Expenses
Next, I plan on going through every single expense category one by one (housing, electricity, dining out…) and looking at each with an open mind. Am I willing to move somewhere with cheaper housing? How about when I retire? Should I install a solar water heater? Buy a new car and drive it into the ground, or buy used? I also feel I should prioritize all expenses.

Project #2 – Build an Online Store

I don’t get too excited about selling a physical product as a main job, primarily because it is so labor-intensive if you do the inventory yourself. I’m more interested in either drop-shipping or dealing with electronic product, even though it is a very crowded field. Investigate profit margins. I also like the idea of playing with the back-end software like shopping carts and content management.

At a minimum, it will be a educational hobby with small start-up costs and one that might make some money. Lots of trial and error expected. Want to tell me about any good drop-shippers? I can keep it a secret. 🙂

Project #3 – Rental Property Search and Education

I don’t think the real estate market in most areas will be picking up anytime soon. But with lower prices and real estate agents with more time, I think later this year will be good time to learn about possibly being a landlord. I might hire a Realtor to run some searches, and also do browse some foreclosures. Learn to run the calculations and properly estimate rental income, expenses, and tax benefits.

This way, I can recognize an opportunity when I see it, and act accordingly. As part of being ready, I should also commit some cash to this goal.

Filed Under: Goals //

January 2009 Financial Status / Net Worth Update

Posted on January 6, 2009 // 21 Comments
Net Worth Chart 2008

Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of no fee 0% APR credit card offers, I haven’t been as active with this recently.

Retirement and Brokerage accounts
The value of our passively-managed portfolio bounced back by about 10% compared to last month. There were no new contributions. As noted, we did manage to max out both of our 401(k)s this year, and plan on making 2008 IRA contributions by the April deadline.

Cash Savings and Emergency Funds
Our emergency fund balance is nearly at 12 months of our total monthly expenses. So theoretically both my wife and I could be laid off and we would be okay for 12 months without having to sell any longer-term investments. I am very happy with this cash cushion.

Where is it? I suppose you could say I “actively manage” my cash, putting it in various places to maximize yield while maintaining the highest possible safety. For example, I have some in a previous WT Direct promo at over 6% annualized interest, some in Series I Savings Bonds at over 6%, and a chunk at a WaMu 12-month CD paying 5% APY with about 10 months remaining.

Compare this to the piddly 0.14% for 90-day T-Bills and 0.43% on 1-year Treasuries! If you didn’t get in on any or all of these, keep reading or subscribe to updates for new deals as they come up.

Home Equity
I continue to estimate our home value using internet tools, starting with the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. This left me with $584,516. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total) to reach my final estimate. Fortunately, we bought as prices were falling already, and the area where we live has not been hit nearly as bad as other major metropolitan areas.

Looking ahead, I am working on new goals for 2009, and also better metrics for measuring our financial progress. You can see our previous net worth updates here.

Filed Under: Goals, Investing, Real Estate, Retirement //

December 2008 Financial Status / Net Worth Update

Posted on December 4, 2008 // 24 Comments
Net Worth Chart 2008

Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 3-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of good low fee 0% APR credit card offers, I don’t think I’ll be doing anymore in the near future.

Retirement and Brokerage accounts
Ignoring new contributions, my retirement accounts have lost about ~$8,500 over the last month. I will perform another portfolio update soon to find more accurate year-to-date return numbers.

I have sent in another $5,000 late last month and $5,000 this month in order to max out my pre-tax 401k contributions for this year. My asset allocation is way off target so I need to sit down and try to rebalance using these funds today. It might be tricky to due to the $10,000 minimums for index funds at Fidelity, and I might actually buy ETFs and pay the trade commission.

Cash Savings and Emergency Funds
Why am I not panicking (yet)? Well, I think a big part is my fat cash pile that serves as my emergency fund. In my mind, having a separate short-term reserve keeps me from worrying about my long-term “can’t touch” portfolio.

I have about $49,000 net in sitting in different forms of safe cash earning from 3 to 6% interest, while now my entire retirement portfolio is worth about $93,000. I will keep accumulating cash until I reach a full year’s worth of expenses, which is about $60,000. I think this is prudent given the high unemployment rate right now.

Home Equity
This is the second month of testing out my new way of estimating our house’s value. Again, I take the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total). I use this final number as my estimate for home value. Looks like my home value has dropped by another 1% or so.

Overall, another tough month. However, I am very thankful we both still have jobs – knock on virtual wood!

You can see our previous net worth updates here.

Filed Under: Goals, Investing, Real Estate, Retirement //

November 2008 Financial Status / Net Worth Update

Posted on November 3, 2008 // 23 Comments
Net Worth Chart 2008

Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer credit cards and instead of spending it, I am placing it in high-yield savings accounts that actually earn 3-4% interest or more, and keeping the difference as profit. I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why I have credit card balances – I am not accumulating more consumer debt.

Retirement and Brokerage accounts
Well, it’s time to uncover my eyes and peek at my financial statements. My retirement accounts have lost another $15,000 (14%) over the last month, in addition to the $12,000 from last month. I did not make any further investments besides the $5,000 in early October.

However, I am still planning to max out my 401k salary deferral by the end of the year, and will still be buying stocks according to my previously set asset allocation plan. I still believe that stocks are the best bet for inflation-beating returns in the long run.

Cash Savings and Emergency Funds
I remain a big proponent of emergency funds held in safe cash or cash-equivalent accounts. We now have approximately 7 months of our actual monthly expenses saved up. Increasing this is a lower priority than the 401k contributions, though.

Home Equity
I am testing out a new way of estimating our house’s value. First, I take the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total). I use this final number as my estimate for home value.

I know that each of these sites can be inaccurate, but I am primarily looking for overall trends based on recent comparable sales, and this should take care of that with minimal effort. Feedback is welcome. The mortgage amount is taken directly from my loan statement. Which reminds me, I might need to see if I can argue with the tax collector about my property tax appraisal.

We are still socking away about half of our take-home pay each month, but this looks like the worst drop ever in our net worth. Let’s hope it stays the worst! 😉

You can see our previous net worth updates here.

Filed Under: Goals, Investing, Real Estate //

Your Own Financial Rescue Plan, Part 1: Adequate Cash Reserves

Posted on October 15, 2008 // 20 Comments

Well, the big boys are getting their rescue/bailout plan, but I guess ours got lost in the mail… So what should we do? I think that everyone should take a second look at their cash reserves. Do you have enough?

What Job Security?
These days, I don’t see any job as safe. My company went from interviewing people to hiring… nobody. Even local and state governments are facing major budget deficits. At a minimum, I would want a few months of living expenses to tide me over until I find another job. I still remember the dot-com bust days when former tech workers ended up living in their cars.

A Reason Not To Invest In Stocks
Hey, if you’re looking for an excuse not to buy any more stocks for a while, beefing up your emergency fund is not a bad one. Any money you may need within 5 years should be in cash or short-term investments anyway.

A Reason *To* Invest In Stocks
Ironically, after you build up a nice cushion, it may actually make you feel better about investing in the stock market. I definitely helps me to keep short-term money separate from long-term money. As such, I’m still applying my upcoming income towards maxing out my 401(k) for 2008. But after that, I will probably start to save another three months of living expenses, for a total of 9 months in cash.

Less Credit Available
A lot of people used to simply assume that their home equity line of credit (HELoC) could serve as their emergency fund. But these days, it just takes one letter in the mail that says your HELOC is frozen or greatly reduced. You don’t want to be forced into taking an early withdrawal from your 401(k) or IRA, or paying exorbitant credit card interest.

If anything, apply for a credit card with a low fixed interest rate now while it is still offered. Here is a list of no fee 0% APR balance transfer credit cards. Just buy goods as you regularly would, and pay the minimum while saving the difference in an interest-bearing account. (Don’t go buying more stuff, obviously!)

Looking Ahead
For me, an alternative reason for increasing my cash reserves is that I can also use it later for investing in real estate. I still don’t see many opportunities with good cashflow right now, and may not see them for another couple of years. But I want to be ready, as the no-money-down days may never come back.

Where do you keep it?
As long as it is safe and liquid, I just go by rate. Use the new FDIC insurance estimator if you have lots of money. Both Vanguard and Fidelity are participating the money market fund insurance program, so they are super-duper safe now. . Well, your old money is safe. Still, I consider money market funds with Fidelity and Vanguard as safe as FDIC-insured, although this is only my opinion. However, my cash is currently split between:

  1. Series I US Savings Bonds – Bought in April with 1.2% fixed rate, now only 0% fixed rate available. Note that they are illiquid for the first 12 months. Rates adjust semi-annually. I earn 4.38% for 1st six months, 6.06% for 2nd six months. With recent inflation, my 3rd six months should also be pretty good. Exempt from state income tax as well.
  2. 12-Month 5% APY CD at WaMu/Chase – Sadly, no longer available.
  3. Low or no-minimum banks with high liquidity – A big chunk currently in transit to Everbank at 1.10% for first 6 months.
Filed Under: Banking, Career, Frugal Living, Goals, Taxes //

October 2008 Financial Status / Net Worth Update

Posted on October 6, 2008 // 33 Comments
Net Worth Chart 2008

Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn 3-4% interest or more, and keeping the difference as profit. Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the credit card balances off, I choose not to.

Retirement and Brokerage accounts
Whew! Ignoring new investments, the value of my holdings lost nearly $12,000. I won’t go into why, I think most people have heard the overall reasons. I did a portfolio update in mid-September to better understand what happened specifically. Accordingly, I am directing future contributions as I can to help rebalance my portfolio back towards the target asset allocations (mainly international developed and emerging markets stocks).

I did make an $5,000 contribution to my self-employed 401k, although I am still left in negative territory for the month. I do hope to contribute at least the $15,500 maximum salary deferral in 2008, as this has been my only contribution so far this year. My wife has already maxed out her 401(k).

Cash Savings and Emergency Funds
Last month, we achieved our mid-term goal of six months of expenses ($30,000) in net cash put aside for emergencies. Once my retirement accounts are funded, I may try to increase this cushion. An alternate reason for increasing cash is for potential real estate opportunities (way) down the road.

Home Mortgage
Another ~$500 of loan principal paid off. According to Zillow, the estimate of the value of my house is still higher than what I originally paid for it, but has also dropped 3% in the last month alone.

Big Expenses
We are taking a trip to Spain in November, which will cost us about $1,000 each. I wrote earlier about how we tried to save money on travel and how we manage cash and credit cards abroad. The airfare has already been paid for (charged on the credit cards to earn rewards, of course).

Basically, I still consider myself doing well, but I guess it is hard to avoid what everyone else is experiencing. Shrinking 401(k). Dropping house value. Rumors of potential layoffs for part-time employees at work (who’s next?). Lots of red in my net worth chart. 🙁 Fun times, eh?

You can see our previous net worth updates here.

Filed Under: Goals, Investing, Retirement //

September 2008 Financial Status / Net Worth Update

Posted on September 8, 2008 // 24 Comments

Finally got around to adding up the numbers for the last month:

Net Worth Chart July 2008

Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn 3-4% interest or more, and keeping the difference as profit. Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the credit card balances off, I choose not to.

Retirement and Brokerage accounts
The bad news is that the market value of our investments went down over $3,500. And this is despite my wife being able to finally max out her 401k for 2008 (total of $15,500 as of this month). At least I don’t own much Fannie Mae stock…

The good news is that I am finally ready to make some big contributions to my Fidelity Self-Employed 401k, at the same time that the markets are near their 2008 lows. Buy low, sell high! Why now? I like to wait because my income fluctuates and this way I have a clearer idea of what my contribution limits will be, as they are based on gross income.

Cash Savings and Emergency Funds
Our mid-term goal was to have six months of expenses ($30,000) in net cash put aside for emergencies. This is now done. As mentioned, future cashflow will be put towards retirement accounts. Speaking of emergencies, with all these hurricanes, I have been checking out portable generators as well.

Home Mortgage
Another ~$500 of loan principal paid off. Housing prices are still dropping in my area. I will probably have to adjust my home value estimate in the future, a short-term goal might be to pick a simple benchmark to follow. After a few other financial priorities are taken care of, perhaps I’ll start a DIY biweekly mortgage plan.

We had some visitors and took a tiny bit of vacation this month, so it was a nice end to the summer. You can see our previous net worth updates here.

Filed Under: Goals, Retirement //

Utilizing The Public Library To Complete Some Goals

Posted on August 20, 2008 // 35 Comments

Have you heard of the Olympics Hangover? It’s when you stay up way too late watching “just one more event” and end up being red-eyed and unproductive the next day. So to counteract this, I used the public library for the first time in a long while. Funny thing: childless friends and co-workers had no idea where the library was. Only the parents did, since their kids use them. Why do we stop using the library as we grow older?

It was a productive visit, helping me to complete both a few short-term and lifetime goals:

  1. Read one financial book per week. Obvious one first. 😉 I put the following books on hold: Work Less, Live More and The Complete Idiot’s Guide to Retiring Early. Hope to find some good nuggets.
  2. Visit a Foreclosure auction. In most areas, listing notices are required to be in the newspaper. I don’t have a subscription anymore, but I was able to look through the last 3 days of papers at the library for free. Looks like there will be one on September 9th at Noon at the county courthouse. Also, I found an announcement that a local self-storage place is also auctioning off the contents of the lockers that have been abandoned and unpaid. That might be interesting to go to as well.
  3. Learn more about financial analysis of potential rental property. Also found the Landlord’s Survival Guide and The complete guide to your first rental property. To judge the quality of books I’ve never heard of, I consider both Amazon.com review (if any) and also the number of copies in the city-wide system. I simply assume (right or wrong) that the better books will have more copies.
  4. Plan international travel. The in-branch pickings were slim, but I found a nice book on Spain. I should be able to find many more online. I’ve actually brought library travel books with me on international trips. (Well taken care of and returned on time, of course!)
  5. Learn a Foreign Language. Borrowed a few Pimsleur language audio CDs (intro to Cantonese and Spanish). The full sets of these often cost over $200. These will go great in the car and in my iPod while jogging.

Of course, not all goals can be done at the library. 🙂 I also recently signed up for a 3-day PADI scuba diving certification course over Labor Day weekend that will cost around $400 altogether. I’m really looking forward to it.

Filed Under: Goals //

Writing Down Some Short-Term Goals

Posted on August 13, 2008 // 29 Comments

Watching the Olympics has been both inspiring, entertaining, and also taking up a lot of free time. I can’t believe the amount of dedication these people have towards their goals. I am trying to go back to setting regular monthly goals, and writing them down always helps.

A rough list:

  • Visit a live foreclosure auction at county courthouse, just for the experience.
  • Buy a term life insurance policy.
  • Learn more about long-term disability insurance.
  • Read one financial book per week, and take notes.
  • Learn more about financial analysis of potential rental property.
  • Investigate solar water heater credits, and get quotes from contractors. Also look into solar fan for roof/attic.
  • Have a series of dinner conversations about finances with wife. Teach her the details of managing all household finances if I am incapacitated. (Show her where I stashed all the money in all these bank accounts…)
  • Help parents firm up outlook for retirement based on current assets. Help them complete rollovers of 401k/IRAs to Vanguard.
  • Plan international travel somewhere. Currently thinking of hiking the Inca trail in Peru.
Filed Under: Goals //

August 2008 Financial Status / Net Worth Update

Posted on August 4, 2008 // 32 Comments
Net Worth Chart July 2008

Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn 3-4% interest or more, and keeping the difference as profit. Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the credit card balances off, I choose not to.

Retirement and Brokerage accounts
We added another $3,048 in 401(k) contributions, which given the numbers above means our retirement accounts actually lost about $1,000 in value. YTD performance numbers are… not good. I just hope that the prices stay low until I can start buying again now that I am done with the Emergency Fund.

In my brokerage accounts, I sold all of my “play money” stocks (only valued at ~$2,000) and instead participated in a minor arbitrage attempt. It worked out well, I made a gain of 10% in 17 days. It’s all in cash now and I again have no position in individual stocks at all.

Cash Savings and Emergency Funds
Our mid-term goal is to have $30,000 in net cash put aside for emergencies, for example if both of us find ourselves unemployed for an extended period and even have to start paying for things like health insurance on our own. We are basically done, with about $500 to go. Now to find better uses for our incoming cashflow.

Home Mortgage
Another ~$500 of loan principal paid off. I am debating whether to start paying extra towards my mortgage right now. In my mind, it would feel nice to have a home paid off as part of my grand early retirement plan. However, I also like the idea that such a long-term loan at <6% can act a nice inflation hedge. Besides healthcare costs, I view unexpected inflation as another scary unknown for early retirees.

You can see our previous net worth updates here.

Filed Under: Goals, Retirement //

One Way To Track Your Progress Towards Financial Independence

Posted on July 9, 2008 // 29 Comments

Another more conventional definition of financial freedom is when you have “passive” income that covers your expenses so that you no longer have to work. Usually, this comes from paper investments like stocks, bonds, or annuities. In the book Your Money or Your Life, the authors outline a somewhat unique way to track your progress towards financial independence (FI).

First, you should go out and buy a huge wall-sized piece of graph paper and put it up somewhere you’ll see every day. Create a chart with the horizontal axis being time, and the vertical axis being money. Each month, you should record the following items:

  1. Your monthly income
  2. Your total monthly expenses
  3. Estimated investment income

Here is a sample of what it might look like:

Line 1 – Graphing Your Income Each Month
While many personal finance articles focus on spending less, the book does a good job of reminding us that income matters and we can always do something to increase it. It also tells us that the path towards a happier life and a career you enjoy of also tends to increase your income. The book summarizes this with the following:

“Increase your income by valuing the life energy you invest in your job, exchanging it for the highest pay consistent with your health and integrity.”

Line 2 – Graphing Your Expenses Each Month
Note that we are not making a budget here. A budget often seems to suggest a goal of “I will spend this much”. Instead, here you are first making an assessment of your situation from last month. You then attempt a few (or several) changes, and re-assess again a month later. This continual feedback should ideally help you see what is working and what’s not.

For those dealing with debt, the Expenses line might even be higher than your Income line at first. This should provide a nice incentive to get to the first “crossover point” where you at least earn what you spend. Gradually, we can shave off those lower priority expenditures as we keep seeing that gap between income and expenses grow wider and wider.

Line 3 – Graphing Your Expected Income From Investments
Here, the simple formula given for finding the income you can derive from your investments is this:

savings x interest rate / 12 = monthly investment income

The suggested investment here is to use is that of the 30-year U.S. Treasury Bond, currently yielding somewhere around 4.5%. This means if you bought $100,000 of these bonds with your savings, you would earn $375 reliably every month for 30 years without risking your principal. Other people might use dividend payments from stocks, or use a historically-safe withdrawal rate.

Either way, the big goal is to make this third line meet up with the expenses line. As time goes on this line will hopefully curve up exponentially, providing inspiration to reach this “crossover point”. The idea of working for only a finite period of time can be very motivating.

Given that this book was written in 1992, I am going to guess that doing this using a spreadsheet program like Excel is also acceptable. While a physical chart may work better for some people and provide a more constant and tangible reminder, I think perhaps making the chart your Desktop wallpaper might serve a similar purpose. (Or you could create blog about it…)

This is a pretty cool idea. Perhaps I should stop tracking net worth and simply do this? For us, as mentioned before, once our mortgage is paid off the expense line should drop dramatically. Separating out the non-housing expenses into a separate line might help me focus better.

Filed Under: Frugal Living, Goals, Retirement //
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