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Archive for February, 2007

Thinking about a living trust

February 28th, 2007 at 03:21 pm

I asked some friends for recommendations for a wills and trusts lawyer. I called one of the names given to me, and he seems really good. He's both a lawyer and a CPA, charges a flat fee for the documents, and future changes are free. We talked for about 40 minutes. He said that if all I wanted to do was change the executor and guardian, that it was probably going to be cheaper to go back to my original lawyer. On the other hand, my original living trust was established when I was single, and he would recommend gutting it and converting it to a "double trust" where it is joint between DH and I. He very strongly recommended putting our house into such a trust in order to avoid probate, and naming the trust as beneficiary to all life insurance and retirement vehicles. He pointed out that if DH and I both die, my existing trust has provisions to prevent our children from inheriting and blowing all the money at a young age, but our retirement money currently would go to them immediately. His normal fee for a single trust is $1400 and for a double trust is $1800, but he said he'd do it for half that since I already have a trust in place.

Still, $900 is a lot of money right now -- either our laptop or vacation fund. How awful is probate anyway? Do we really need a trust at this point?

The existing trust has a bit of bad history behind it. When we got engaged I had a bunch of stock options that were going to hit it big (yeah right -- we all know how well that one turned out) and we compromised by putting my assets in a trust instead of drawing up a prenup. So now the stock options are a net loss, but this trust is sitting out there with about $300k of mututal funds in it and the wrong successor Trustees on it. DH hates to talk about the "what-if" details you need to go into when planning life insurance, wills, etc., so getting all this straightened out is not going to be fun.

In other news the 400 point drop in the market yesterday dropped my portfolio value about $15k-$20k. I didn't even think to check until other people mentioned how it affected their portfolios. I don't watch my investments much -- I tend to err on the side of inaction. Happily I can still call myself a millionaire because I'm just over $1M. I'm ok with being 100% invested in stocks because these kinds of drops don't bother me and because I have enough of a nest egg that even with a big correction it's still a good amount. DH will be happy -- he's got $55k sitting in cash in a rollover IRA, so it's a good time to invest.

Forget PC Attorney!

February 26th, 2007 at 05:17 pm

I finally found the copy of PC Attorney that we picked up a few years ago. The install instructions didn't even list Windows XP so it's pretty old. It was on the $10 rack at Best Buy so I wasn't expecting much.

I was still disappointed.

Yikes. There are choices for "simple will -- all to spouse" and "create trust for children", but the children's one doesn't even have you name a guardian! Come on, that's really basic! There's no choice allowing you to leave it all to your spouse and then only if the spouse dies, leave it to the children.

I guess we're going to need a lawyer. My orignal will leaves everything to a living trust, and the trust goes to DH and then to children. I even have a clause that I like that says they get 1/3 at ages 25, 30, and 35. I just need to change the executor and guardian. Surely that won't cost as much as doing a new will from scratch. DH doesn't have a will -- do you think we should have him fill out the simple will just to have something until we find a lawyer? (I don't want to go back to my original lawyer because he was so sloppy.)

Business ideas so far...

February 25th, 2007 at 08:27 am

I'm not seriously moving toward anything yet, just thinking about possibilities and hoping the right thing comes to me eventually...

* Computer tutor. Would need babysitting for DS to pursue this.
* Children's resale shop. There's definitely a market hole in my immediate area, but it's a low-margin business and I'm not that keen on running a retail shop.
* A la carte cleaning -- I wonder if there are many people who don't want to fork over $80 to clean the whole house, but would pay $25 for just the bathrooms or kitchen floor. Not really appealing because it would be a labor intensive business, I would want to hire people to clean rather than doing it myself.
* Website and discussion forum. I've got the background but need the right site idea. Maybe a site to discuss and blog about books. Hmmmm, must check out the sites that are already out there.
* Software consulting. A former coworker has several people working for him on a freelance basis. Waiting to talk to him until I'm really serious about working again.
* Hardware consulting/contracting. A possible business with DH. I'd try to be more on the business end of things. I do have a EE degree (in addition to my CS degree) and could probably function at a new-grad level on the technical side.

If anyone can recommend good discussion forums about being an entrepreneur I'd love to check them out!

Just notes....

February 25th, 2007 at 07:11 am

Thanks for all who replied to my request for investment sites. I didn't like the way the motley fool board was set up -- too hard to follow a thread. The morningstar one is promising, similar to kiplinger. It's funny, but I think people in debt seem more willing to share a bit of their personal lives anonymously than folks who are investing!

I didn't get the gig as a ghost-blogger. The poster wrote back and said that it had already been filled when I responded, but that I would've been a good candidate. It's too bad, I would've really enjoyed the look of confusion when I answered "ghost-blogger" to that "So, what do you do?" question!

I have made absolutely no progress on my Financial To Do list. It's just procrastination pure and simple.

I hope I haven't been coming across as arrogant and full of myself. I just haven't had time to look at the big picture for so long that I'm a bit stunned that things are going so well.

Dad was right...

February 23rd, 2007 at 04:28 pm

...at least financially.

In my senior year at college, I was both job-hunting and applying for PhD programs in computer engineering (a cross between hardware and software). I hadn't really decided what I was going to do when my dad and I went out for a walk. His advice was that if I started working straight away, and put $2,000 a year into an IRA until I was 30 and then stopped, I would have more money when I retired at 65 than if I waited and put $2,000 per year into the IRA from age 30 to 65. I was 22 and figured most PhD programs take about 6 years. My parents have always made disparaging remarks about "professional students" so it was pretty clear what his recommendation was.

I ended up receiving a killer scholarship -- admission to a top program, $18,000 stipend per year (that's about $25,000 in today's dollars), and guaranteed summer jobs at Xerox -- but turned it down. I didn't want to be a professor, didn't feel like I had the inventiveness to come up with an original research idea, and was sick of school. I went to work, signed up for the 401k as soon as I was eligible, and maxed it out at 15% until I married at age 30, then cut back to 10% until I stopped working when my son was born a few months before I turned 35.

So yesterday I was playing with an Excel spreadsheet, trying to figure out what my Target Savings Goal should be. I was having trouble because the calculations from the Complete Idiot's Guide to Getting Rich assumed you are starting from $0, and they referenced clunky future value tables in the back of the book. Plus I didn't like the numbers that came out because it would really pinch to save that much. So to account for the money we already have invested, I had to figure out how to use the FV, PV, and PMT functions in Excel. I plugged the numbers in -- 10% return, $320k today, 29 years till age 65 -- and kept coming up with either negative numbers or really large values. Finally I used the numbers from our mortgage to figure out where I needed to enter positive or negative values into the functions and what the results mean. As unbelievable as it sounds, in order to have $2 million at age 65, I actually have to take out $20k per year! If I just leave it alone, I will have $5 million at age 65. I am dumbfounded. It brings into question whether I should push so hard to get our savings back to 10% or go take more vacations now.

I said Dad was right about the financial aspect of my career decision. I'm not as certain about the non-financial aspects. Frankly, I'm bored to tears with software now. Just thinking about coding again depresses me. Although I don't really regret not getting the PhD, I think if I had I might have more interesting work to go back to. I suppose I could go do one now, but it doesn't seem right to me to ask DH to support me through both SAHM years and a PhD program -- better for us to find a business we can do together.

Looking for investment forums and blogs

February 20th, 2007 at 06:48 pm

I really enjoy the SavingAdvice board and will keep posting here, but I'm also interested in finding another forum that has more people focused on the details and experience of investing rather than debt-reduction. EnoughWealth was kind enough to suggest www.kiplinger.com -- it's got the right focus but it isn't as active or as personal as I was hoping for. Maybe I just need everyone here at SavingAdvice to reach the point where they're hanging out on the Investing & Banking forum!

So far I've found the following blogs where the author is focused on investing, yet is also blogging from a personal perspective:
EnoughWealth: http://enoughwealth.savingadvice.com/
My 1st Million at 33: http://www.1stmillionat33.com/

With over 150 blogs on SavingAdvice alone, I don't have time to check them all out, so if you see one you think I might like, let me know!

DH is on-board with the budget review!

February 19th, 2007 at 03:07 pm

Hooray! In the middle of January I asked DH to sit down with me twice a month and go over our envelope balances. I did this because he had made a joke that I was beating him over the head with Mvelopes, and I realized that our budget had always been a one-woman show. After the 2nd review he made the comment that he liked the system and it was really going to keep us on track, and after our 3rd review he asked if I wanted to do it weekly instead of twice a month! I actually prefer twice a month but it was nice that he was so enthusiastic.

DH has a fiscally sound mindset to begin with, which makes a big difference, but before we started the envelope system we had trouble communicating about our spending priorities and where we stand financially. I think what makes this system work for us is that I print out the envelope balances and highlight just the ones we need to talk about -- anything that is in the red and the progress toward goals that DH really cares about. This makes the discussion go very fast. Every time one of us mentions wanting to buy a big-ticket item, I create an envelope for it. We don't necessarily fund the envelope, but it makes it easier to talk about prioritizing. For instance, we recently decided to move all the "landscaping" money to "laptop" and "US vacation". DH regularly asks me if we have enough money in the envelope to buy the laptop yet, and seeing the envelope grow from month to month is very motivating.

The default catagories in most budget software group things by "Auto", "House", "Household", etc., but I find it useful to do something a little different. I based my catagories on the All Your Worth system of dividing money between needs, wants and savings. Further splitting the wants and needs between "monthly" and "accruing" makes it really easy for me to do a sweep of extra funds from just the "monthly" envelopes at the end of the month. Before I split them this way I had to look at every envelope each month and decide which to sweep and which to let grow. In the utilities envelopes I do carry over $10-$25 to the next month, and only sweep above that amount.

The "misc" envelope deserves special mention. I've found over the years that it's hard to predict what I'm going to spend each month at places like Best Buy, Linens -n- Things, the post office, etc. I might buy nothing several months in a row and then make several purchases in a row. I've decided that it doesn't matter exactly where we spend the money that goes to those places, as long as the total isn't more than $300 a month.

DH and I each have a "free $$" envelope that can be spent on anything we want. In keeping with All Your Worth I make a distinction between a basic grocery allowance in "Monthly Needs" and the "fun" food (and alcoholic beverages) in "Monthly Wants".

The envelopes that tend to go in the red most often are "dining", "food", "misc", and "clothing zetta". Usually "cash", "home depot", and "target" have enough extra to cover the first three, and I transfer my free money to "clothing zetta". A purist would insist that we never make a purchase that would cause an envelope to go red in the first place, and if money were tighter I would follow that philosophy. As it is I feel comfortable with moving money between envelopes in the "monthly" catagories to eliminate red at the end of the month before I sweep the extra funds into one of the "big-ticket" envelopes.

I regard the "emergency fund" as untouchable unless DH gets laid off, so the "basic savings" is sort of a "baby emergency" fund. It was very welcome when I discovered we were going to owe on taxes this year. I'm still trying to decide how much we should keep in it. The "emergency fund" has two months of all spending -- counting the month-ahead funding we really have three months worth -- if we cut out all wants and savings this would stretch for 5 months.

We are able to fund the envelopes a month ahead -- DH's two Feb paychecks sit untouched until after I do all the bookkeeping on March 1. If you are living paycheck to paycheck I highly recommend saving a month's spending so you can switch to month-ahead funding.

Here are my catagories:

Monthy Wants
baby stuff
food (above basic groceries)
home depot

Accruing Wants
clothing DH
clothing zetta
free $$ DH
free $$ zetta

Big-Ticket Wants
laundry cabinets
vacation US
vacation overseas

Monthy Needs
car fuel
car loan
grocery (basic allowance)
home HOA
home mortgage
utilities cell phone $10
utilities gas & electric $25
utilities phone/dsl/satellite $10
utilities water $10

Accruing Needs
car insurance
car registration
home insurance
home property tax
professional membership
life insurance
vision, dentist

Savings Investment
ROTH contrib
investment contrib

Savings Reserve
basic (ie baby emergency/slush fund)
emergency fund
car repair reserve
home repair reserve

Financial Housekeeping for 2007

February 17th, 2007 at 08:04 am

There's a lot of financial housekeeping that I've procrastinated on for a long time, and it's time to get into gear and knock it out already! I've decided to add the following goals to my blog profile -- I love the feeling of crossing something off a list so writing it down should help motivate me!

[ ] update wills
[ ] invest IRA rollover money
[ ] stock basis into Quicken
[ ] annual review with broker
[ ] review life and disability insurance
[ ] review phone & cell phone plans

It's terrible that DS is almost 1.5 years old and we still haven't updated our wills. DH actually doesn't have one, I put one in place for myself before we married, but named my father as executor and guardian if DH also died. My parents have since divorced, and we want my mother to be guardian, so this needs to get fixed ASAP!!! I used a lawyer last time who was very sloppy -- his first draft had tons of misspellings and wrong names, and if I hadn't had to pay half the fee upfront I would've fired him. This lawyer was recommended by my broker, must've been a client because he certainly wasn't any good. DH wants to just use a software will package we picked up ages ago...and now I can't find it. Grrrr...maybe I'll go check out www.legalzoom.com that is heavily advertised around here.

With Quicken I need to buy the 2007 version (I got a notice that downloads won't be supported for the 2004 version anymore) and just start over. When we switched from Etrade to Scottrade I don't think the basis information for about 3 stocks followed, so I need to go find the old statements and enter everything in. I'm thinking I'll just let the brokerage track all the mutual fund basis, but it might be fun to download all the investment info into Quicken and play with the analysis tools. I won't bother with downloading my checking and savings accounts into Quicken this time -- Quicken's budgeting just sucks and I'll stick with envelope software.

Between us, DH and I have worked for 7 companies in the last 4 years. We rolled over the 401k for all but DH's current employer into IRA accounts, and have about $70k sitting in money markets within the IRAs that need to get invested. It's about $10k in mine and $60k in his -- I had resolved that I was going to understand my current portfolio before investing my $10k, while he's felt that the market was just too high and he's been in such a crunch at work that he hasn't had time to decide what to do. It's not good that the money is just sitting there, so it's time to really figure out what to do.

For life and disability insurance, I plan to get 5 quotes. The hard part is deciding how much coverage to take out. Currently we have $500k life on DH and none on me -- at a minimum we need to take out at least enough on me to cover daycare. I don't know if we have any long-term disability at all, maybe $100k through DH's employer if we're lucky. This is one area where it's frustrating to be the at-home spouse who takes care of these things -- I have no direct access to the benefits information at DH's company, and have to rely on asking him to contact people and bring info home. When he worked for large companies this stuff was all online, but his current company is very small and poorly managed -- I'm not sure if they even have a dedicated HR person. DH's current project has been a nightmare for the last 3 months, and he's currently working 12 and 16 hour days, so dealing with benefits is not really on his radar. Plus as soon as this project is over he's planning on getting his resume out there and finding somewhere else to work, so hopefully it will be a moot point soon. I'm guessing the best deal for LTD will be through his professional association, but unfortuately their quotes are all over the phone and not online, so it's time-consuming to figure out the best deal on coverage.

Our cell phone contract is up in April or May. I can't find out the exact month because the contract is in DH's name and the company won't disclose any information to me. Grrrr. All future things like this are going in my name as the primary! We only use about 200-300 minutes per month and are paying about $78 after all is said and done. I need to figure out whether it's cheaper to have two phones on a shared monthly plan or to do two pre-paid plans.

Booknotes: Money-Driven Medicine

February 12th, 2007 at 04:26 pm

Every time I hear a news story about the rising cost of health care I ask myself, “Just where does all the money go?” Somebody must be getting rich from all this, but it’s not clear who it is. So I was pleased to see Money-Driven Medicine on the new books shelf of my library. It’s written by Maggie Mahar, a financial journalist. While I have no means to judge her credentials, the book is well written and has some interesting points. (If anyone else can recommend similar books on the topic I’d love to read them!)

First, a breakdown of where the money is coming from:
(* denotes money from taxpayers, for a total of 51% funded by the government)
30% Private insurance
17% *Medicare
16% *Medicaid & SHCIP (I think this is a program for uninsured children?)
14% Patients out-of-pocket (ie copays and uninsured self-pay)
12% *Other public spending (including veterans, public hospitals, school programs)
6% *Private insurance for government employees
5% Charity and philanthropy (includes private money for hospital construction)

Next a breakdown of where the money is going:
31% Hospital care
22% Physicians and other clinical services
22% Other spending (dentists, home health services, over-the-counter medicines, etc.)
11% Prescription drugs
7% Nursing home care
4.5% Private insurance profits and administrative costs
2.2% Government programs administrative costs

According to the author, in theory free market competition should reduce the cost of a product, but in practice, “the current system pits each of the health care industry’s players against one another: hospital vs hospital, doctor vs hospital, doctor vs doctor, hospital vs insurer, insurer vs insurer, insurer vs drugmaker, drugmaker vs drugmaker.” She quotes Michael Porter, a Harvard Business School professor, “competitors do not create value, they divide it. And sometimes, they destroy it... all are trying to assemble bargaining power so that they can strike a better deal for themselves while shifting cost.” Gains from one player come at the expense of another, creating no net value and adding administrative cost.

Another thing that hinders market forces is the nature of health care. The customer is faced with a great deal of ambiguity. According to Kenneth Arrow, a Nobel laureate economist, “Recover from disease is as unpredictable as its incidence…The information possessed by the physician as to the consequences and possibilities of treatment is necessarily very much greater than that of the patient.” The author states, “Health care is not a commodity. While two consumers may derive pretty much the same value from a new refrigerator, a particular course of treatment can have a drastically different effect on two different bodies…Three out of four health care dollars are spent on products and services that the patient has not purchased before…there are no warrants and no guarantees. The patient cannot return an unsuccessful operation.”

Historically, the fee-for-service model of medicine had the supplier (the doctor) both telling the customer (the patient) what he needs to buy and setting the price for it. “Allowing physicians so much autonomy all but guaranteed that the cost of health care would soar…The patient wanted as much care as possible; the physician had been trained to provide the best care possible. The price was not his concern. To the contrary, from a purely economic point of view, it was in his interest to see health care spending climb.” Until the 1930’s the patient’s ability to pay was the only check on rising health care costs.

When private insurance became the norm, this restraint was removed. “Blue Cross helped pave the way for health care inflation by reimbursing hospitals on the basis of their costs – an early example of the perverse incentives that would fuel health are spending for the rest of the century…Any hospital that tried to be more efficient and managed to reduce the cost of doing business would find its income reduced by an equal amount….hospitals were encouraged to solve financing problems, not by minimizing costs but by maximizing reimbursements.”

The book’s first chapter goes on to cover the rise of insurance, Medicare, and HMO’s, and concludes, “As medicine becomes more corporate, it is driven by the quest for profits…more sales lead to higher earnings. But more health care – more devices, more drugs, more procedures – does not necessarily lead to greater health.”

The second chapter covers how all the players are competing against each other. For instance, all the hospitals in an area may have a “medical arms race” to all open competing facilities in the most profitable areas such as cardiac care. The result is redundant service centers and a push to do procedures to profit from the investment, thus encouraging patients to have things done sometimes with doubtful benefit. On the other hand, “If too many facilities are trying to specialize in heart surgery, the surgical teams at these hospitals do fewer procedures. They may draw enough business to turn a nice profit – but not enough to remain at the top of their game.”

“Private insurers regularly skim off the top 10-25 percent of premiums for administrative costs, marketing, and profits. The remainder is passed along a gauntlet of satellite businesses – insurance brokers…lawyers, consultants, billing agencies…and so on. Their function is to limit services in one way or another. They, too, take a cut….as much as half of the health-care dollar never reaches doctors and hospitals.”

The third and fourth chapter cover (in far too great length!) various instances of hospital takeovers by for-profit companies and some of the sleazy doings of the guys at the top.

The fifth chapter covers the issue of end-of-life spending. Some of the rise in health care cost is attributable to doing lots of procedures on elderly and frail patients who die anyway a short time later of other causes. There is a map of the US showing a map of Medicare spending. It’s titled, “During the final six months of life, Medicare patients in high-spending regions receive 60% more care.” “Doctors like to fix whatever is fixable, and as a result, many patients die in intensive care units with their blood chemistries in perfect order.”

The sixth chapter covers the impact of the uninsured. “While well-insured Americans face the hazards of overdiagnosis and overtreatment, millions of uninsured patients routinely receive care [that can be described as] ‘too little, too late.’ And in the long run, ‘too little, too late’ proves expensive.” “Contrary to urban myth, it is not the uninsured who are crowding emergency rooms.” Hospitals find subtle ways of discouraging uninsured patients – such as charging the uninsured higher rates than those with insurance.

The seventh chapter calls for the industry as a whole to improve their use of computer technology, to move to “pay for performance” models (paying hospitals and doctors based on measured quality rather than simply on number of procedures performed), and to adopt evidence-based medicine.

The eighth chapter covers device makers, drugmakers, and their relationship with the FDA. Large device makers have very high profit margins – something like 19 percent in some cases. Some things other countries do to regulate or negotiate prices for devices and drugs: set reimbursement rates for new drugs based on how they compare to existing drugs (Japan), capping profits (Britain), putting a ceiling on total spending (France), restricting the rate of medical device and drug inflation to no more than general inflation (Canada). In the US, drugmakers and device makers can charge whatever the market will bear.

All in all, a very interesting read, although it’s hard to take away from this book a bullet list of why everything is so expensive.

A possible side business

February 9th, 2007 at 03:04 pm

Being a stay-at-home mom leaves me little time to concentrate (except during naptime!) but lots of opportunity to mull over things. My thoughts on starting a business are really going three different directions at once, which may make my ramblings seem a little inconsistent from entry to entry.

First, there's the idea that it would be nice to have a little extra cash to spend on some of the fun things in life. Hence the idea of finding something fun to do during naptime that generates a little cash. A key requirement for this type of business is that it enhances our quality of life -- nothing too time consuming or stressful. It wouldn't have to be at all related to any future career plans.

The second direction is that maybe I should be doing a little something useful for my resume, so that I have an easier time of it when I do decide to return to the workforce. Perhaps I could take on a small project for one of my former employers. The upside is a little cash and not having that gaping hole in my resume, the downside is that it would require more time and I would be on the hook to deliver.

The third direction is that DH and I have often talked about going into business together. We're both getting fed up with being at the bottom of the engineering hierarchy, having to put up with long hours due to poor planning on the part of managers and VP's. In theory, once the kid(s) are in school, I could be the one to start a business while DH continues to work. Once it gained sufficient momentum, DH could quit his job and join me. But what business? And how do we gain some of the skills we lack like sales and marketing? It's still mostly a daydream at this point.

So today I decided to browse the want ads and gigs on Craig's list, just to see what's out there. Something really interesting popped up -- someone wants a ghost writer for their blog on career development. I got the impression that the poster had some ideas, and the ghost would flesh them out -- 30 posts upfront, then 3 posts per week, at $10-$15 per post. Could this be legit or is there some sort of "pay-for-blogging" scam that everyone but me knows about? I love to write and to edit, and I could see myself doing this during naptime. I emailed the poster a summary of my relevant experience (I was in charge of a lot of interviewing and hiring at my last job), so we'll see what happens.

Booknotes: The Millionaire Maker

February 8th, 2007 at 07:03 pm

I stumbled across The Millionaire Maker on the "new books" shelf of my library. While it is actually a "get rich quick" instead of a "get rich slow" book (the things the author recommends doing with your home equity and your IRA are truly frightening, and her example investments and returns are ridiculous), it did have a couple of ideas that I found useful.

I really liked her version of a net worth statement:

One-Year Freedom Day Goals:
• List goals for where you want to be in 1 year, for example:
• Establish a business
• Shift from draining assets to performing assets
• $ of invested assets
• $ /month in passive income
• Create $ / month of cash flow from new business
• Eliminate $ of debt
• One less employee in family (replace salary with passive income)

Asset plan

Shift $ of Assets as follows:
• For instance:
• buy $ of rental property
• invest $ in a business
• loan $ in a promissory note


Cash Machine
• List type of business, cash flow goal, and ramp-up time

Passive Income: $ /mo
• For instance:
• $ /mo in rent
• $ /mo from note
• $ /mo from dividends

• Projected appreciation on rental property

Financial Baseline:

Income: $ /mo (pre-tax)
Expenses: $ /mo (average)
Assets: $
• List assets
Liabilities: $
• List liabilities

Skill Set:
• List skills

The author doesn't believe in saving your way to wealth -- in her view it takes too long. Instead, she advocates finding ways to generate extra income, through starting small side-businesses and passive income from owning rental property. She wants you to think up a business you can start within the next 24 hours based on skills and resources you already have (simple things like dog walking, computer tutoring, etc.) You use this first business to learn about how to run a business, and to provide a source of income for real estate investing. Eventually your goal is to reach the point where you have enough income from your side businesses and rentals that you can quit your job if you choose.

Our goal is to take those skills and gifts you have and put you in immediate action so that you can learn a whole new skill set, that of running your own business….Here’s the sequence:
1. Use a known skill set.
2. Create a viable Cash Machine.
3. Learn business skills.
4. Take those business skills into any arena you desire.

Whatever you decide to do, your first business:
1. Should have a low barrier to entry. That is, you should be able to have it up and running and possibly generating real money within 24 hours.
2. Shouldn’t take more time than you can allot, though perhaps you can get up an hour earlier every day.
3. Shouldn’t take more of your capacity than you can allot, tough it will be a stretch.
4. Should diversify your income.
5. Should give you a nice return on your investment.

Again, I want to emphasize that I think the book promises the moon, and I’m definitely not following her investment advice. However, a few worthwhile ideas gave me that lightbulb feeling: 1) the idea of starting a side business to learn business skills, 2) focusing on passive income in addition to salary vs. expenses, 3) setting long term and one-year goals.

Thinking about a side business

February 7th, 2007 at 05:01 pm

Recently I’ve been mulling over the idea of starting a side business. An extra 10k-15k net per year would allow us to visit the in-laws in Australia, take another nice vacation, add a front patio, buy cabinets for the laundry room, buy a 2nd laptop and other toys, and maybe even invest a little more. (Notice how low investing falls on the priority list --- bad Zetta!)

The problem is that I would have to give up my free time when DS naps for 3 hours each day. So ideally it should be something I enjoy and would want to spend time on anyway. I can’t see getting anything productive done during the 9 hours he is awake, and don’t want to take away from time with DH in the evenings or on the weekends. Let’s say I could spend 10-15 hours per week. Dreaming some more, the ideal would be something flexible where I could work on something at home as it suits me and sell it when its done (as opposed to working according to a fixed schedule or delivering on deadline.)

I really don’t know how much other people are able to net from that kind of schedule, but even 5k would be a nice addition to our finances.

Hobbies: reading, surfing the net
Skills: software design, writing, layout, public speaking,
Personality: detail oriented

I’ve browsed through a couple of books along the lines of “101 Home Business Ideas”, but haven’t come across anything appealing. Some ideas that do occur to me are freelance writer, newsletter editor, website designer, discussion forum moderator – I wonder how one gets into this sort of work, and how well it pays…

Anybody have a good entrepreneurial or home-business website to recommend?

Philosophical Differences

February 6th, 2007 at 03:59 am

DH and I are mostly on the same page financially, but there are a few areas where we’ve got philosophical differences. We agree on never carrying a credit card balance, on putting 20% down on a home, that money that’s been invested is basically locked away, and that it’s good to have an emergency fund in case he gets laid off.

Cars are one area of disagreement. I was taught to look for a car that was 2-3 years old and 20k – 30k miles, while he and his family believe in buying new. I hate car loans while he believes anything under 2% is a great deal and should be taken advantage of. Having a really “nice” car gives him a lot of pleasure. He cares about horsepower, I care about trunk space. He’d like to get new cars every 5 years; I’d like to make them last at least 10. (To be fair, I have to admit that I only kept my last two cars for 5 years each, although they did both hit 100k miles.) When I got pregnant, we bought a new SUV for me, with all the latest side airbags and so forth. A year later, we bought him a new car. We compromised in that I agreed to take a $7k loan at 1.9% in order to get the car he really wanted without dipping into our emergency fund or selling off investments. I remind myself that it’s only costing us $300 over the life of the loan, and I’d gladly spend $300 on a present for him.

When we met, I was putting 15% into 401k and he was putting in only up to the company match, maybe 6%. We compromised at 10% each for a few years, but had to cut back when we went to one income. Currently we don’t like the funds in his 401k and his company doesn’t match, so we are prioritizing contributing to the ROTH IRA first.

Gifts are another area where we differ. His family is very generous with presents, and DH is naturally generous as well. I probably tend to be a bit on the cheap side. With friends birthday parties and the like I sometimes worry that giving too expensive of a gift will make the other person uncomfortable, as they may feel under pressure to reciprocate. In our budget I’ve just allocated an envelope for gifts and funded it according to how much we spent the previous year rather than trying to bring the amount down.

Traveling is very important to DH. I love it too, but don’t mind giving it up for a few years so I can be a SAHM. I think the cutback in traveling is what pinches the most about not having two incomes. DH really wanted to set up a trip to Hawaii this year, but unfortunately we don’t have the money right now, and have some higher priority items to save for first. He talks a lot about the places he’d like for us to go see, and I have to be careful not to squash his daydreams.

I like to get down and dirty with the numbers on our spending. For years I would periodically download all our transactions into Quicken, make lots of graphs, set up a budget, and contemplate the results. Quicken is impossible for truly tracking and sticking to a budget, however, and I am much happier since switching to an envelope system. I make up spreadsheets with our mutual funds and net worth, and puzzle over what I should understand as a result. I sometimes get too caught up in getting all the little details recorded accurately rather than in comprehending the big picture. DH, on the other hand, is more intuitive. He will look at our bank balance, mentally subtract the large upcoming payments like property taxes, and quickly make a judgment on whether we can afford a big purchase. He’s usually right, too!

Speaking of big purchases, I have to be pushed to spend money even on things that really enhance our lives. We spent a lot of money on remodeling the kitchen and bathrooms, and have gotten a lot of pleasure out of them – very worth the money, but without DH’s influence I would’ve held back.

The first time I read The Complete Idiot’s Guide to Getting Rich, I got a bit depressed for a few days because we weren’t saving my calculated Target Savings Goal each month (and I didn’t realize that our investments were returning as much as they are.) We had a big conversation about whether it was worth being super frugal now in order to retire very wealthy 20 or 30 years from now. We decided to go for more of a balance – spend some and enjoy life a bit today, while still saving enough for a comfortable (but possibly not wealthy) retirement.

A final point I almost forgot -- investing! I favor buy-and-hold (to a point that is detrimental as I've missed out on selling declining stocks) very long-term investing, loaded mutual funds (Dad's influence there), and using a full-service broker. DH trades individual stocks through a discount broker, looking to make a profit within a couple of years. When we first met he talked about the ups and downs of the stock market so much it drove me crazy, as I really had no interest in individual stocks (and my eyes still glaze over). He hasn't been trading stocks much since we married -- I'm afraid I've really discouraged him by not wanting to join him in it.

Unpleasant surprise in the paycheck

February 4th, 2007 at 08:17 am

I was looking over DH's first paystub of the year and noticed that the company didn't withhold a contribution for 401k. Grrrr...this company is pretty poorly managed, and we had a big fiasco at the end of the year when they didn't have the open enrollment information available until Dec 15 -- after we'd already left the country to visit my inlaws -- and they required the forms back before Dec 31. We had to sign up for health insurance without having any information on how much the premiums would be, and I still don't know whether we've got any LTD coverage. Looks like you had to re-enroll in the 401k instead of your previous contribution just continuing automatically.

So I told DH about it and didn't think much more about it until I sat down to fund our envelopes for the coming month. The January paychecks were $250 less than normal. Very odd -- without the 401k contribution it should've been higher than normal. Did our medical premiums go up that much? So I dug out an old paystub from the end of 2006. The medical premium was only $20 more. The main difference was that the new paycheck had $300 withheld for something called OASDI. This didn't ring a bell until I went to www.paycheckcity.com -- it's social security.

There is a cap on how much income is taxed for social security, and apparently instead of spreading the payments evenly across the year, we have this withholding until about October and then suddenly get a larger paycheck. Unfortunately I based our budget on a paystub from November, so now I have to find a way to trim $500/month. Ugh. Although I'd prefer to have a simple budget with the same contributions to each envelope each month, I think I may have to make an exception for the envelopes for Christmas gifts and IRA contribution, weighting them more heavily at the end of the year.

How much is enough?

February 3rd, 2007 at 06:16 am

Shortly after I graduated and started working, there was an article in the "Living" section of the local newspaper. You know, where they put the fluffier human interest pieces as opposed to hard news. It was entitled "How Much is Enough?" and really had an impact on me.

The journalist had interviewed many people at many different income levels, and asked two simple questions, "How much are you making now?" and "How much would be enough for you to be comfortably well-off?" The person making $15,000 said they were just getting by, and thought $30,000 would be enough to live very comfortably. The person making $30,000 said the same, but they thought $60,000 was where well-off started. The person making $60,000 thought $120,000 was the magic number, and so on and so forth up to the family bringing in $5 million. They said that the yacht and the horses and sports cars were all very nice, but they wouldn't really be well-off unless they had $10 million! Now I'm sure that there's a lower limit to this, and I bet the top end was a setup, but basically the point was that everyone thought that about twice what they currently had was "enough".

At the time I had just started my first "real" job, and I was making $36,000. One of the perks of engineering is the high starting salaries, and it was easily more than enough for a single person with no debts in a low cost of living area. I resolved then and there that I would always look at whatever I was making as "enough". I've been stumbling with this a little bit lately, as we can't afford to do the amount of travel and home improvements we used to do when we had two incomes. But overall we are definitely blessed to have much more than "enough".

Blew it on the 2006 W-4

February 2nd, 2007 at 09:27 am

2006 was the first time I decided to adjust our withholding so that we would have more money coming in each month and not get such a big refund at tax time. It's kind of complicated for us because I have to take into account dividends, capital gains distributions on the mutual funds, capital gains/losses of any stock sale, and an unpredictable AMT recapture credit. So I was very keen to do our taxes this year and see how I did.

Looks like I blew it. We're going to owe about $1380 on federal and $840 on state. We won't have to dip into the emergency fund, but it does almost wipe out the funds from an envelope I call "Basic Savings" -- I guess you could consider it our baby emergency fund rather than the emergency fund we'd dip into if DH got laid off. It also means that now we really really have to live within the budget I set up in Mvelopes -- I'd hoped to have a few more months to fine-tune it.

When working on the W-4 I correctly anticipated about $6k in dividends, but I'm not sure about the $13k in capital gains distributions. And I completely forgot about $15k in profit from where our broker advised us to sell one mutual fund and redistribute the money to some other funds. I can't remember why we did this, maybe it wasn't performing that well. I've decided I need to keep a notebook where I write down the reason for each purchase or sale. I have about $600k spread across 11 different mutual funds (within the same fund family) and I really couldn't tell you why. Luckily I was conservative on the AMT recapture, predicting $850 when we got back $2500, and we had a capital loss carryover of $10k, or we would've ended up owing a lot more!

I don't trust TurboTax's W-4 page -- it told me to take something like 12 deductions in 2006! I can't remember if we did that for any lenght of time, but at the end of the year DH's paystub shows that we were taking 6 deductions and still ended up owing money. TurboTax is telling me to take 12 deductions for 2007 as well...something's not right. There's a withholding calculator on the IRS website that I trust a lot more:
and it has us at 5 deductions.

Contemplating our house

February 2nd, 2007 at 09:02 am

Real estate here in California has had an amazing run over the last 10 years. I bought my first house, a 1170 sq ft townhouse, in 1998 for $189k, and sold it 4 years later for $369k -- a profit of about $160k after paying the real estate commission. At the time, we considered keeping it as a rental property, but were nervous about carrying two mortgages. Too bad we didn't -- those townhouses were selling for $600k just a couple of years later!

Our current house is 1900 sq ft, 4 bedroom, 2.5 bath. It has a large yard (for California) and is in a very special location -- our back yard borders a large canyon, probably a quater mile across, that is protected by the city as a nature corridor. We fell in love with the view and went $70k above our intended budget to buy the place for $520k in 2002. We thought we were at the top of the real estate bubble then, but closing prices on this model have gone up over $200k since then. (They've fallen $20k since the peak a year ago. Not sure how much more they'll fall, but I don't think they will go back down to the price we bought at.) With the downpayment and the principal we've payed off, we're sitting on about $300k of equity.

Interest rates have been in our favor as well. We started off with a 30 year fixed at 7.0%, and refinanced twice in the first year as they kept falling and falling. In the end we decided to go for a 10/1 ARM that is fixed at 5.125% for the first 10 years. I figured that the longest my parents had ever lived in one house was 9 years, so it was worth the risk of taking the ARM to get the low rate. This decision has been a major factor in allowing me to be a SAHM.

After reading a few posts on EnoughWealth's blog, I'm wondering if we should consider doing some "gearing" -- taking a home equity loan and using the money to invest in either mutual funds or rental properties. The biggest problem I can see is that servicing the debt could really put a squeeze on our cash flow.

The other issue with our house is that the local schools are only average. I recently looked at the published test scores for our local elementary. The 2nd graders did great, but then the test scores for that same group of kids was lower for each succeeding year. Not encouraging. Of course we knew the district wasn't the best in the region when we bought the place, but we figured we'd have years to make a decision about either moving or paying for private school. At this point, it might be cheaper to pay for private school than to pay for a higher mortgage and property taxes if we moved to a similar house in a better district. I'll have to go back to work for us to afford either option. We do have a choice lottery within the district, so I'll also be looking to see if any of the other elementary schools are better. The houses on the other side of the canyon are in a much better district, the California rating index is a full 100 points higher, but the house prices are easily $500k more than ours.

As for the house itself, when we were looking we really wanted about 2200 sq ft but compromised for the view. Ideally I'd like one more bedroom, a kitchen table separate from the dining room, and a slightly larger living room. I guess it's human nature to always want just a little bit more than you've got. When we have a 2nd child, the current guest bedroom will become his or her room, and we just have to figure out what to do with the queen guest bed (the room is 10x10, so a queen doesn't leave much room for a kid to play.) I really love the bedframe, so I don't want to sell it. I'd like the office bedroom to be a combination exercise/playroom, although today it's too cluttered up with outgrown baby equipment, computers & printers, and bookcases to be useful. (Houses don't have basements in this area, so you end up storing stuff in either a bedroom or the garage. I really miss having a basement!) We might add a murphy bed so it can double as the guest room, although I'm worried about losing a couple of feet for the murphy. The room itself has 3 windows along the hallway so we'd need blinds to use it as a bedroom.

x-post from Consider starting your teenager in a Mutual Fund

February 2nd, 2007 at 09:01 am

Lots of people open children's savings accounts to help teach their kids about saving, but how many teach their kids about investing from an early age?

When I was 13, my dad made a career change to become a stockbroker. After going through his training, he decided he wanted my brother and I to each have a mutual fund. My parents contributed the minimum amount to purchase American Mutual Fund for each of us ($250 -- still the minimum today!). In the early years, he encouraged us to put money we received as presents and for good grades into the fund. When I worked as a waitress in high school, I often saved part of my tips and wages and put it in the fund (not all of it, I was a teenager after all!) By the time I graduated from high school, the fund was worth $3,970. When I graduated from college, it was worth $7,494.

Here's a summary of my contributions from age 13 to 22:
1984 250
1985 150
1986 2,036 (I think 1,000 of this was transferred from my saving acct.)
1987 614
1988 0
1989 310 -- HS graduation
1990 150
1991 200
1992 0
1993 550 -- college graduation
total: 4,260

I briefly considered cashing out some of the shares after graduation to fund a roadtrip around the US, but my parents discouraged cashing it in. Luckily I had enough cash on hand from summer jobs to take the trip.

After I got my first real job, my dad often encouraged me to contribute $50 to the fund every month. There were a couple years I was pretty good about doing this, but mostly I just got busy and forgot. I wish I'd known about setting up automatic deductions from my checking acct back in 1993!

I'm missing some of my records, but I think I contributed around 300-600 every year from 1194-1998. I don't think I've added to this particular fund since 2001, when it was worth $27,115. Today it's worth $38,496.

In hindsight, I didn't learn much about choosing investments from this experience, but having the fund and being encouraged to contribute to it regularly went a long way in impressing the importance of saving and investing in my mind. Plus I have a big chunk of cash that I would not have had otherwise. Smile

So I would urge all of you who have teenagers to scrounge up $250, and consider starting their investing education today.