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Archive for January, 2007

We hit the million mark!

January 29th, 2007 at 10:37 pm

Hooray! When our year-end brokerage statement arrived I was excited to notice that the sum of our non-retirement assets (stock, mutual funds, checking and savings accounts) are within $2k of equalling the balance on our mortgage. It's just so cool to think that in theory we could cash everything in and pay off the mortgage -- not that I plan to, as I believe in letting those investments grow. So I pulled up the networth screen to enjoy the feeling, and realized I had never entered our home as an asset, only the liability of the mortgage. When I added a reasonable estimate of our home equity based on recent sales of the same model house in my neighborhood, the bottom-line networth topped $1,000,000! We're technically millionaires! Smile

Now this may not last, as home prices have been dropping a bit lately, so I expect to dip back under the $1M mark again. But it's a great feeling while it lasts. Our networth is basically 1/3 home equity, 1/3 IRA/ROTH, and 1/3 liquid assets.

I've been doing some calculations based on The Complete Idiot's Guide to Getting Rich. We need to increase our savings by $200/month to hit our Target Savings Goal, which is the requirement for meeting Wealth Level One. On the other hand, last year the non-retirement funds generated 2 times the Target Savings Goal in returns, so that puts us in the middle of Wealth Level Two. My goal is to reach Wealth Level Three so that we can afford to do a lot of travelling.

Booknotes: All Your Worth

January 27th, 2007 at 01:12 am

Until I read this book, I never had a good sense of when my saving was "enough" and it was ok to spend on things that would be enjoyable today. I almost missed out on buying my first house because I wasn't sure it was ok to reduce my 401k contribution from 15% to 10% for a few years. On the other hand, after marrying my DH, we bought a larger house together and remodelled the kitchen, and I didn't have a good sense of whether the amount we were spending on it was ok or should've gone into long-term savings instead (we paid cash, so it wasn't "beyond our means", just a though call on enjoying life vs saving).

All Your Worth was the first book I've read that gave the guideline I was missing. Her recommendation is that you divide your money 50% for needs, 30% for wants, and 20% for saving/debt reduction. It strikes me as a reasonable balance that should allow you to have some enjoyment of your wants today while still saving for tomorrow.

Here are her definitions of needs, wants, and savings:

Needs: Mortgage or rent, utilities, a basic grocery allowance, car fuel, all forms of insurance (health, dental, car, home, etc.), minimum credit card payments, car loan, phone and internet access (necessary for job hunting), and any contracts you've entered into (such as a cell phone contract).

Savings: Emergency fund, 401k and IRA contribution, extra payments that reduce loan principal, long-term investments (for instance stocks and mutual funds), and other long-term savings vehicles

Wants: Everything else -- clothes, entertainment, cash, dining out, vacations, groceries above your allowance, etc.

The thrust of the book is that you analyze your needs, wants, and savings to see where you're out of balance. The point is to focus on finding ways you can save big bucks (insurance) instead of pennies (Starbucks coffee). (My favorite quote is, "What do all these financial advisors have against coffee, anyway?"). If your needs are too high, she advises you to look for ways to reduce them by taking out less expensive insurance and not entering into contracts. She has a section on how to tell if you ought to go to extreme measures such as selling your house or car and buying a cheaper one.

She goes a little too far for me in saying you should pay for all your wants in actual cash. The book is geared toward people who have credit card debt, so I felt some of the advice didn't apply to folks who have some assets built up. She is a big advocate of paying off your mortgage early, where I think it's smarter to invest that money in mutual funds and get a larger return.

She also gives some examples of when it's ok to temporarily violate the 50/30/20 rule. One example was taking a couple of years off after the birth of a child then returning to the workforce.

As for myself, our budget is currently 58/33/9, so we are out of balance a great deal on the needs side, and a little bit on the wants side. I'm working on getting the wants down to 30% so we can increase the savings/investing to 12%. (Interesting -- I set this goal initially because I thought increasing our savings in small steps would be easier to stomach than making a big change. I just checked with my Target Savings Goal calculation from The Complete Idiot's Guide to Getting Rich, and to meet our TSG we need to save exactly 12%!)

Here's the breakdown of our budgeted needs:
mortgage/tax 36.0%
insurance 3.3%
utilities 3.3%
car loan 2.8%
contracts 2.9%
groceries 4.4%
gas 5.4%
total 58.2%

We might be a candidate for downsizing the house if I didn't plan to return to work in a few years. (If I were to go back to work our needs would drop to around 40% for part-time or 30% for full-time.) Although I plan to shop around, our insurance already has high deductibles so I don't think there's much savings to be had there. The biggest places to consider saving are the car loan and contracts -- that's 5.7% that isn't going into savings. The grocery allowance is reasonable (in fact we enjoy cooking and entertaining so there's a separate line item in our budget on the wants side for food above the allowance.) Gas isn't going down unless DH changes jobs or the Middle Easts settles down.

I actually set up the catagories in my budget according to needs, wants, and savings rather than the traditional auto, home, etc. This makes it really easy to quickly determine how my balance is looking.

Booknotes: Common Sense on Mutual Funds

January 18th, 2007 at 01:22 am

Common Sense on Mutual Funds by John C. Bogle

This was a very good book on mutual funds, very thoroughly researched, lots of historical information. Gotta warn you, though, it's long and the analysis gets very dense, not for the math-phobic by any stretch.

Here are the points I remember from the book (I don't have it in front of me).

* Although some mutual funds beat the index in any given year, there's no way you can know in advance which ones they will be.

* Over a longer period of time, all funds tend to return to the average performance of their class -- funds that perform higher than average early on tend to do less well, funds that are lower than average tend to improve -- so that over a 10 or 25 year horizon they pretty much mirror the performance of the index. This is known as "reverting to the mean".

* Once you take all fees into account, you're better off just buying a low-cost index fund in the first place.

On this last point, although supported by huge amounts of convincing analysis in the text, it should be noted that the author is very famous for having invented the very first index mutual fund! This may explain why a lot of the getting-started type books like The Complete Idiot's Guide to Getting Rich recommend that you purchase a single no-load index fund -- I think the authors have all read Bogle!

When I asked my dad about index funds a few years ago, he said that because everyone was jumping on the index fund bandwagon, they were becoming overvalued. How ironic if all the advice out there to buy index funds was actually creating a bubble in the stocks that are members of the indexes!

I think I do believe there is value in having fund managers who do research on the companies they are investing in. Warren Buffet made his wealth that way.

The Generational Wealth Effect

January 16th, 2007 at 11:23 pm

My financial situation is a living example of the generational wealth effect, whereby the financial successes of one generation gives the next generation an easier start in life. I owe a great debt of gratitude to my parents, grandparents, and even my great-grandparents for my start in life.

Family lore as told to me by my maternal grandfather:

"Your great-great grandpa [this would be his wife's grandfather] was a very successful farmer. He had 4 sons, and gave each of them $5,000. [I'm not clear if this was an inheritance or money to start out in life. In either case this would've been around 1900, so $5,000 was a huge sum of money.] 3 of the boys ran through all their money very quickly, but your great-grandpa was tighter than bark on a tree. He saved all his money and worked hard all his life. He gave your grandmother and I the downpayment for our first home, and your mother and father the downpayment for their first home. Even though he lived to be 90, the money he left us made a big difference when I retired."

Another bit of family lore was told to me when my family were celebrating my college graduation. My parents married at the end of their junior year in college (although they didn't tell their parents at the time, I'm sure everyone knew the story when I arrived six months later.) At the wedding, my mom's father went over to my dad's father and said, "You know, I'd really like to see my daughter finish school." My dad's father replied, "Well then, let's put them through." And the two fathers shook hands on it.

As a result, my parents started life with no debts -- they even got a used car for a graduation present. I'm sure this made it a lot easier for them to put my brother and I through college, and we also each received a used car as a graduation present, and $20k toward the downpayment when we bought our first homes.

Without a doubt, this debt-free start in life made it a lot easier to start investing as soon as I started working, and I plan to do the same for my children.

Getting back on-topic

January 16th, 2007 at 11:37 am

After all those cross-posts, I decided that my final entry today (and the one that shows up on the blog page) should get back to my main topic. I really do intend this blog to be primarily about building wealth and investing. There are already so many other blogs out there about budgeting and being a SAHM...and I want to add something different to the mix! On the other hand I do love to hear myself talk. Wink

If you are primarily interested in building wealth, scroll down and read my entry about The Complete Idiot's Guide to Getting Rich. It needs a few edits but the basic info is there. (I went ahead and posted because I wasn't sure I could have multiple drafts open at once. Glad to discover that I can.)

I find it very ironic that my dad is a stockbroker and yet I don't feel I understand enough to pick my own mutual funds. I could title this entry, "The Stockbroker's Daughter Has No Stocks", but it isn't quite true as I do own one stock and a bunch of different mutual funds.

I've made a few attempts to ask my dad to teach me. The first time he sent me a book by Jane Quinn Bryant (not sure if the name is correct) that was exceedingly general about saving for retirement, nothing I haven't read before. Dad left the stockbrokerage firm several years ago and now works for a mutual fund company. Usually he just tells me which funds from that company are currently a good buy compared to their historical performance (I plan to talk about a book that talks a lot about "returning to the mean" in a future post.)

During our last visit I asked him to sit down with me and a list of his company's funds and explain why he would move money in or out of each one. It boiled down to "returning to the mean."

I also asked him for advice on how to split my money between the various catagories of funds. I don't think I should repeat the percentages here as they were very specific to my personal situation and I'd hate for someone else to invest inappropriately based on something I write here. Maybe it would be more appropriate to start a thread asking everyone to comment on their asset allocation strategy and why it is right for them so mine isn't the only one presented? This is the kind of advice you can get from a full-service broker that I have not yet seen much in my reading.

Once a year DH and I sit down with my broker, a full-service broker from the firm Dad used to work for, and get his advice on the mix and where to direct new money. I've been terrible about following up and taking action after the meeting, which I plan to change this year.

Escaping 'What's for Dinner?' (x-post)

January 16th, 2007 at 10:43 am

DH cooked dinner every night from early in my pregnancy until our son was about 10 months old. He's such a great cook, and he volunteered, so who was I to mess with a good thing? But he had to start putting in really long hours on a work project, so I decided I would start making more of an effort in the kitchen.

I discovered that the actual cooking isn't that much of a chore, but I absolutely hate figuring out what to make from the ingredients on hand. I even hate it when DH asks me, "What would you like me to make you for dinner?" I'm just too lazy to sit down and come up with a menu for the week before going to the grocery store.

Believe it or not, I found the perfect solution on the internet, and thought some of you might be interested: www.savingdinner.com

For a $10 subscription, every week the site emails me 6 recipes and, very key, the grocery list to go with them. Every recipe has been simple, quick (< 30 minutes), healthy, and very flavorful. You can choose between 2, 4, or 6 servings, and between regular, low carb, heart healthy, vegetarian, frugal, crock pot, and weight loss menus.

I've been using it about 4 months now, and have seen our grocery bills fall by 25%.

Everyone has their own system, but this one really works for me!

x-post from How much time do you spend on housework?

January 16th, 2007 at 10:29 am

When I was still working I couldn't figure out why it seemed like I was spending all my free time cleaning, so I tried flylady. I laid out a cleaning schedule (as she suggests) and actually timed how long each task took because I was so annoyed about the whole thing. It turned out that no matter how I sliced and diced it, there was always about 5 hours of cleaning per week. I could either do it all at once on the weekend or spend an hour after work every night, but it was 5 hours just the same.

DH didn't want to spend time each night cleaning, and didn't like losing so much weekend time. I decided I didn't either, so rather than continue to nag him or do most of it myself, I hired someone to come every other week. And guess what -- it takes two people working together 2.5 hours, or 5 hours total! It's $80/visit and worth every penny.

Most housecleaners don't think it's worth their while to pick up less than a full house, but maybe you could post an ad on Craig's List or at your local grocery store to find someone who would be willing to do a smaller job on a regular basis for less.

x-post from How expensive are kids, really?

January 16th, 2007 at 10:16 am

Another cross post:

My baby is 15 months old now, so here's where our money went for the big purchases (in San Diego). I'm in a position to buy new when I want it, but I also like getting a good deal at a garage sale or resale shops. Not everything on my list below is essential, so you can cut back where you see fit.

Even if you breastfeed, be sure and ask for free formula samples at every doctor's visit. I ran into issues with my milk supply at around 4 months, and because I had stocked up on the free formula during the early visits I saved quite a bit of money. If you don't use them you can always donate them later. Also, use up your formula coupons before they expire! I got caught out with quite a few of those.

I made some of my own baby food, but found that even using frozen veggies I wasn't saving enough to make it worth the effort. I calculated that it was about a 20% savings -- but 20% of $30 is only $6.

I use the most expensive brand of diapers (Pampers) because I like them the best. Target and Costco brands are about half the price. I've heard that cloth diapers can be quite expensive initially (you need multiple sizes as they grow), so do research and the math before making a decision. Of couse you save a bunch when you use them for a 2nd kid.

There's also a Carter's clothing outlet where I often find new clothes for $5-$7 (as opposed to $10-$20 new). You can get resale clothes for $1-$5, but some are very faded so you have to be willing to dig.

My equipment list (below) for the first year comes to $1540. I'm sure I've missed some things and the little extras add up so $2000 sounds quite reasonable. I might suggest budgeting closer to the $100/month for diapers, formula, food, and extras. And check out the increase in insurance with your husband's employer, since everyone's rates are different.

Currently I seem to be spending about $75-$100 per month on things like toys, clothes, and misc purchase from Babies R Us. I'm spending about $50/month on diapers and $40/month on whole milk and baby food, so I'm closer to $150 - $200 per month for baby. I think our insurance is about $100 extra per month.

If I had to, I could probably cut back to $25/month on toys, clothes, and misc, $25 on diapers, and maybe $30 on milk and food, for a total of $80/month for baby.


0-3 months
combo stroller/car seat $75 new at Target
bassinet gift, but I've seen them for $40 resale
crib & mattress $200 garage sale (was $600 new!)
bouncy seat $20 resale
pack-n-play $25 garage sale
monitor $20 new
front carrier $60 new
breastfeeding pillow $40 new
bottles, nipples, etc about $30 new
diaper champ $25 new
2 changing table pads $25 new
diaper bag free from hospital
breastfeeding free
diapers can't remember, maybe $60/month?


3-6 months
swing -- gift, but I've seen them for $40 resale
exersaucer $40 resale
backpack $20 resale
playmat $15 ebay
breastpump rental for 2 months about $150
breastfeeding free
formula supplements free samples from doctor's office
diapers $50-60/month

6-9 months
jogging stroller $25 garage sale
high chair $120 new
convertible car seat $120 new
convertible car seat (2nd car) $120 new
better backpack $60 resale
baby proofing stuff about $40 new
3 gates, $60 each = $180 new
formula $20/month Target brand
baby food about $30/month
diapers $50/month

9-12 months
umbrella stroller $30 new
walker/ride-on toy $10 resale
outdoor baby swing $10 resale
formula $20/month Target brand
baby food about $30/month
diapers $50/month

12-15 months
2 gallons whole milk per week -- about $18/month
baby food about $20/month
diapers $50/month

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One expense I forgot to mention when I did this post was clothes for mom! Not only do you need maternity clothes, but also clothes to wear as you are losing the baby weight. Losing weight is highly touted as a benefit of breastfeeding, but my experience was just the opposite -- my body would rather cut milk supply than let go of body fat, and after the first month I did not lose any weight until I stopped breasfeeding at 7 months. I'm still 10 pounds above my pre-pregnancy weight, and as a result have bought 3 pair of shorts, 3-4 pair of jeans and pants, 10 summer tops, 10 winter tops, and underwear in my current size. I'm working on those last 10 pounds again, but will reuse the clothes after the next pregnancy.

x-post from Budgeting Software

January 16th, 2007 at 10:02 am

I hope it's not bad netiquette to cross-post between your blog and the boards. I'd like to keep some posts that I spent quite a bit of time on here on the blog where they're easily accessible to me. The forum and the blog potentially reaches different audiences as well.

Edited excerpts from my thread, "Looking for envelope budgeting software":

Here's a summary of the links for anyone else who is interested:

My Spending Plan:
www.myspendingplan.com

Mvelopes:
www.mvelopes.com

Crown Money Map:
https://www.moneymapsoftwaresupport.com/default.asp

Home Budget:
http://softperfection.com/hb

Budget:
http://www.snowmintcs.com/products/budgetwin/index.php

YouNeedABudget:
www.youneedabudget.com

Home Budget 4.0 from Tucows shareware:
www.tucows.com/preview/198092

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Someone mentioned these to me -- I'm not sure if they are envelope-style or not.

Personality Budget
http://www.personalitybudgeting.com/

My Budget Planner
http://www.mybudgetplanner.com/partner/homemoneyhelp/mbpmain...
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I've been looking for envelope budgeting software. I've found two website-based systems so far -- mvelopes.com and mysendingplan.com, but I'm wondering if there are any others worth checking out.

My main issue with these packages is that I want to download transactions from my bank and credit cards instead of typing them in manually.

MySpendingPlan is all manual entry of transactions. The main advantage is that it's free (paid for by advertising).

I signed up for the 30-day free trial with Mvelopes. At the time of my post they were having issues with Bank of America, but I loved the look and feel of the software. They have since fixed the problems, and I think I will keep it. At $10/month for a year's subscription it is quite pricey compared to other software.

Both of these companies keep all your transaction info on their servers. This does allow Mvelopes to offer a cool feature where you can check your envelope balances via your cell phone. Personally, I'd really prefer to have software that keeps it all local on my PC rather than on somebody else's server.

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I found a 3rd package I'd heard of -- Crown Money Map at crown.org/cartproducts/product.asp?sku=MM966

The interesting thing I've heard is that they offer a web-based version that is really a Mvelopes back-end with a Crown user interface.

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Overall the software will basically do what I want, but I was unhappy with the user interface for importing transactions. I'm a quick typist, and prefer to keep my hands on the keyboard instead of doing a lot of clicking with the mouse. The problem I had was that after importing a month's worth of transactions, I couldn't just arrow up and down and enter the envelopes -- with a lot of tabbing I could get to the catagory and envelope fields, but I had to keep going back and forth between the mouse and the keyboard to advance to the next transaction. It also has no mechanism for importing from a comma-separated-value file, so like Mvelopes I'd be stuck either entering all my transactions manually or waiting until the end of the credit card cycle for my BofA account (which defeats the point of envelope budgeting IMO.)

I liked the look and feel of Mvelopes better, as the main view is envelope centric instead of account-centric, and with Mvelopes I had more control over the catagories (Money Map has 10 built-in catagories that cannot be renamed or deleted, and these are displayed first.)

However, I will say that Crown Money Map is only half the price of a one-year subscription to Mvelopes, and once you've bought it it's yours, so that would be a point in its favor.

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I plan to check out the trial versions of Home Budget and Budget (which is available for both Mac and Windows) after we get back from our Christmas vacation. I have high hopes for Home Budget, as it looks keyboard-friendly and has QIF imports (I have a CSV to QIF converter.)

Anyone else care to tell what they like or don't like about the various programs?


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I quickly checked out the free trial of Home Budget. The overall look and feel was pretty good, but I was unhappy with the transaction download -- some of the field tabs weren't set up so I had to use the mouse to save and move to the next transaction.

Mvelopes has fixed the Bank of America problem so I've decided to stick with them despite the high price.

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Just added a new one I heard about, youneedabudget.com. I contacted the company to find out if you can import transactions, and they said the feature was in beta and should be released in a month or two.

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And another one from Tucows shareware:

www.tucows.com/preview/198092

Booknotes: The Complete Idiot's Guide to Getting Rich

January 16th, 2007 at 12:24 am

As I started hitting the library for books on personal finance and investing, I had a really hard time finding books that fit my situation. I don't need advice on getting out of debt. I'm not interested in get-rich-quick schemes. I have a solid foundation and want advice on moving up to the next level.

I found The Complete Idiot's Guide to Getting Rich to be very inspiring and motivating. A good background and starting point book, although it's too general to be of any help in my quest to pick a good mutual fund.

The biggest idea I got from this book was how to numerically set my goals. One time I asked my dad how much I should save and he said, "everything you can." Well, when have I saved enough that I can slow down and enjoy a little of it today? I've plugged numbers into online retirement calculators, but by the time you futz around with the inflation and return assumptions it's hard to know if you're out in left field or not.

Once you've figured out your current monthly expenses, the author lays out a calculation of two key values: Target Portfolio Goal (TPG) and Target Savings Goal (TSG). The Target Portfolio Goal is the amount of money you would need to have to be able to retire and live off the income without touching the principal. Target Savings Goal is the amount you need to invest each year to reach the TPG by your desired retirement date.

Next the author defines 5 levels of wealth:

Level 1: You are living within your means and save enough to meet your Target Savings Goal. Your financial focus should be on maximizing your actual savings amount by either increasing your income or reducing your expenses -- portfolio return is secondary.

Level 2: The returns each year from your investment portfolio are equal to your Target Savings Goal. This means that you are accumulating double your goal each year -- on part from your savings, one part from your investment returns. Your financial focus should be equally split between maximizing savings and maximizing investment return.

When your portfolio returns are twice your Target Savings Goal, your focus to maximizing investment return alone. The final goal at this level is to have returns three times your Target Savings Goal.

Level 3: Your portfolio returns enough to cover your annual spending, inflation, and your Target Savings Goal. Employment is now optional.

Level 4: Your portfolio has grown large enough to generate a return that allows you to substantially increase your standard of living while still keeping up with inflation. Financial focus is on total return and reducing volatility.

Level 5: You have more money than you can easily spend in your lifetime. You have the option not to work, raise your standard of living, and give large charitable gifts. Once you reach this level, you need serious estate planning help.


It is possible for most people who are employed by someone else to eventually reach Level 3 by the time they retire, but to reach level 3 earlier or to reach levels 4 and 5 you pretty much have to start your own business and be successful at it.

Doing the numbers and seeing our Target Savings Goal was a real wake-up call that we needed to get back on track with budgeting and saving.

Introducing Myself

January 15th, 2007 at 11:12 pm

Hello and welcome to my blog! It's the first blog I've ever created, so please forgive my inevitable newbie netiquette missteps.

As I said in my bio, I am a 36, an "on sabbatical" software engineer, SAHM to a toddler, and married to another engineer. We live in southern CA and are fortunate in having a high income, no student loans, no credit card debt, and a solid mutual fund portfolio.

So why am I here on SavingAdvice.com?

We made a fairly painless transition from two incomes down to one (since our salaries at the time were equal this was a 50% cut for our family), but I found that we were now spending most of what DH makes and decided it was time to start budgeting. Quicken's budget tracking just wasn't working for me, and in the process of searching for a better system I found SavingAdvice and Mvelopes. The community seemed so interesting that I decided to stick around. I'm hoping that there are other people here that are beyond the debt-elimination stage and are actively building wealth that I can learn from.

DH changed jobs and we finally got around to rolling over 401k's from about 4 different companies. My IRA's are with a full-service broker while his are with a discount broker, and as I contemplated this large chunk of money that needs to be invested I realized that despite having a father who is a stockbroker, I really don't understand much about how to choose the right mutual funds. I've started reading books on personal finance and investing in the hopes of educating myself.

So my purpose in writing this blog is to motivate myself to stay the course with the budget and the investing, and also to share interesting books or ideas that I discover along the way.