I'm sure I'm making our money management more complicated than it needs to be. About twice a month I sit down for an hour or so to get the budget caught up to our spending. We're pretty comfortable financially so I don't have to keep as close an eye on the day-to-day spending as many do, but I like to have a rough idea of where we are so I can pull back the discretionary spending before it gets too out of line. Unfortunately this month I've made a large purchase which, although I know we have the money to cover it, is throwing my accounting system for a loop.

The problem is that I've got the cash money (non-investment) divided up into so many accounts (3 checking, 2 savings, 1 money market), and the budget divided into so many catagories (10 master catagories, 46 line items) that it sometimes gets tricky to confirm that the budget and the total amount of money is in sync. I'm in the process of consolidating the checking and savings accounts, so that should help matters significantly. On the budget I really like having the granularity of all the line items (for instance separate lines for phone, electricity, water rather than a single line for utilities), so I don't think I will change that much.

I use YNAB as my budgeting tool, and while on the whole I highly recommend it, you can't verify at a glance that the register and budget are in sync. They are disconned by design (which is helpful for people snowballing a large cc debt), but if you're not careful the amounts in the budget and the register can get out of sync. I finally set up a spreadsheet where I list all my account balances, add up the budget numbers and calculate the difference. The large purchase is throwing everything off because it ought to be paid for by money that is currently outside the budget software. According to the software I have used up all my primary income for August and am $3k overdrawn.

Currently we have $38k cash in hand, and a $17k credit card bill to pay in full this month ($13k due to the large purchase.) We normally have $10-$12k coming in each month. I need about $7k/mo to cover normal montly outflows. I save $835/mo toward semi-annual purchases, and set aside 40% of my contracting income each month toward taxes.

Currently my budget includes the following balances that absolutely need to stay in savings:
Taxes: $9k
Semi-annual bills: $5k
House/car repair reserve: $1k

I also have $9k earmarked toward near-term goals -- vacation, Christmas, updating the wills.

$4k of cash needs to go to last month's credit card bill, and we will spend our usual $7k this month.

I still haven't decided exactly where the money for $13k purchase is coming from. The original plan was to sell stock from my taxable investment account (currently $350k). But the market's been down and I've been debating about trying to cash-flow it instead, repaying my cash accounts when the market is a little more favorable. DH's ESPP just made a purchase, and the stock is currently on the high side, so another option would be to sell, which would bring in $12k. I don't track the investment account or the ESPP in the budget, so either way would represent an inflow.

I think I have enough on hand to be safe paying the cc bill out of current cash, but I haven't figured out how to represent paying it and then paying the budget back. Loose ends like this really bug me!

When I was working full-time I always had life insurance through my job benefits. I don't remember if I took the basic 2x or 3x salary or bumped it up enough to cover the mortgage. When I became a SAHM that of course ended.

DH has insurance for 3x salary through work, and also a group term policy through IEEE (a professional organization for engineers.) The IEEE insurance is a great bargain, only $77 every six months for $500k coverage.

DH originally felt funny about taking insurance out on me, because he felt he'd be able to provide for our son on his own with no problem. Then we attended a will and trust seminar where they made the point that if both parents die you should leave enough insurance to pay for the guardian to raise your kids, and that provided a rationale he felt good about.

So I've had adding spousal insurance on the to do list for a long time now. IEEE actually called one day and instead of blowing off the salesperson like I would normally do I asked for a quote. Since I'm working again (software contracting), I could join IEEE myself and take out an individual policy, or go on my husband's policy as a spouse, so I asked her to quote it both ways. She said she'd never been asked that before. It turned out that it was about $15-$20 cheaper to be a spouse, plus I wouldn't have to pay dues (although I might rejoin someday anyway if I decide to use the club for networking purposes.)

I think my policy is about $67 every six months for $500k coverage -- what a no-brainer! I should've taken care of this years ago.

So if DH dies, there's enough to pay off the house and income replacement for 4 years, and if I die he can pay off the house and have an extra 2 years of my current income. Plus of course we'd inherit each other's IRA accounts. $2M (half from insurance, half from our current net worth) should be plenty to raise our son if we both die.

I really should get a quote on long-term disability insurance as well. I think DH has 66% replacement coverage through work. Not sure if I am able to get it while working as a contractor.

This has been on my "to do" list since paying estimated taxes in mid-June, and I finally had the time and inclination to sit down and make an attept at it. I'm still in the process of figuring out exactly what to look at in these quarterly reviews. As usual, I find that I end up spending the majority of the time creating a new spreadsheet and manually typing in details that I later decide aren't really what I should be looking at.

I've been slowly making my way through Morningstar Guide to Mutual Funds, and taking notes on each chapter. I find it to be far better than the "learning" information on the website, which seems to be generic handwaving.

So in an attempt to understand what I currently own, I created a spreadsheet wtih the following columns (picked from my notes from the book):

* fund
* symbol
* account
* style
* stars
* sectors
* % assets in top 10
* asset allocation
* benchmark
* trailing annualized return (3, 5, 10 year)
* benchmark return
* 3 yr standard deviation
* expense ratio

Then I looked up each fund I own and copied the info. Putting in the sectors and the returns took the bulk of the time -- what a lot of typing! Not sure this was worth the effort. I noticed a little bit of duplication -- two large-value, and two world large-value funds -- but the holding in the second fund in each case were fairly small.

The only conclusion I came to was that, yes, American Funds has low expense ratios.

Next I made another worksheet for the current hodlings:

* fund
* symbol
* account
* shares
* current value
* amount invested
* amount withdrawn

My basis info isn't available on my brokerage website, probably because the funds were originally purchased directly from American Funds rather than through the brokerage. I later transfered them to the brokerage so everything would be on one statement. I need to call my broker and see whether the basis info can be obtained and added, or if I need to go back through 15-20 years of statements to figure out the basis for each fund.


Finally I went to Morningstar and used instant x-ray to get an overview of the whole portfolio (including DH's funds). The asset allocation is currently:
Cash 9.47
US Stocks 35.93
Foreign Stocks 43.51
Bonds 10.57
Other: 0.53

Next time, I'd like to work out a way to streamline transferring the current holding numbers from the brokerage to the x-ray tool.

I'm considering eventually putting a 5-10% stake into REITs, but that's another learning curve in itself! My thinking is that real estate is an asset class that moves independently of the stock market, and the current bust may make the next few years a good time to invest.

The stock style is currently
size:value/blend/growth
large: 24/29/23
mid: 6/4/7
small: 2/2/3

Going forward I think I want to add more small- and mid-cap exposure.

The Stock Sector percentages were mostly close to the numbers for the S%P 500. Nothing struck me as terribly high, although I have no real opinions on which sectors should be 5%, 10%, or 15%.

World Regions:
US & Canada: 48.44%
Europe: 27.84%
Japan: 2.39%
Latin America: 2.82%
Asia & Australia: 14.45%
Other (Africa): 4.06%

Average Mutual Fund Expense Ratio: 0.68%

Stock Stats (ratio to S&P 500):
Price/Prospective Earnings: 13.27 (0.99)
Price/Book Ratio: 2.10 (0.91)
Return on Assets: 8.80 (1.03)
Return on Equity: 21.35 (1.00)
Projected EPS Growth - 5 yr% 13.00 (1.14)
Yield % 2.71 (1.25)
Avg Market Cap ($mil): 24,233 (0.49)

I'm not sure what to make of the Stock Stats section, but it seems to me to indicate that most stats are on par or a little better than the S&P 500.

As I was tracking our budget in YNAB, I grew concerned that we seemed to be spending all of the $2,000 net that I'm bringing in each month. We hope to have another child, and I plan to stay home full time again for a year or two, so it's important to me that the extra money goes to things that can be cut out later.

It was really bothering me -- why wasn't there a big surplus in the budget -- until I realized that because my income looked pretty steady we decided to increase my husband's 401k contribution from 6% to 10%, and to contibute another 10% to the employee stock purchase plan (which if you sell the shares immediately is a guaranteed 15% return.)

So about $1600 is really going to savings, and the other $400+ is funding vacations, trips to visit family overseas, and the ever-present Misc line of the budget.

Since my husband and I are both in a highly-paid profession (engineering), when we are both working we get hit at taxtime by the marriage penalty and the phaseout rules. I took some time off to be a SAHM during 2006 and half of 2007, then started doing contracting for 20 hours a week. I thought it would be really interesting to see the impact that the second income had on our taxes this year, so I saved a "what if" file in TurboTax and deleted all my business income.

I worked for 6 months, and earned $23,735. I can shelter $4363 of this in a SEP-IRA.

Our AGI increased by $17,477, our deductions decreased by $240, our federal tax increased by $7,877, and our state tax increased by $1625. This makes the marginal tax rate on my income 41%. The other big impact is that we are no longer eligible to contribute to the ROTH IRA.

I paid $1963 to a babysitter for 3 months at 10 hr/wk. (I increased her hours to 20 hr/wk in January).

So altogether our net income from my working was $12,030 -- an extra $2,000 per month. Let me tell you, an extra $2k makes the budget feel a lot looser!

After over a year of having this list in my summary, I've finally checked off one item!

Financial To Do
[ ] update wills
[ ] invest IRA rollover money
[x] stock basis into Quicken
[ ] annual review with broker
[ ] review life and disability insurance
[ ] earthquake/disaster box
[ ] move $40k to 529 plan

I finally bought the latest Quicken, downloaded all our investment info, and manually plugged in the basis for my mutual funds. Not sure why the basis didn't download as I was setting it up, but no matter. Now at least going forward I can try and use Quicken's analysis tools to look at the portfolio. (I tried using the Morningstar x-ray tools, but couldn't get it to save properly.) My goal is to review it quarterly, using the estimated tax deadline as a prompt.

Currently we have 10 different mutual funds, all American Funds, in 3 accounts with a full-service broker (taxable, my IRA, and my ROTH), and then 3 more accounds with a lot of cash in Etrade (taxable, DH's IRA, DH's ROTH), DH's current 401k, and I'll soon open a SEP-IRA.

Then we have 5 bank accounts -- checking, savings, and business with Wells Fargo, and checking and savings with Etrade. It's too much, really. I moved most of our checking/savings money to Etrade last summer, but haven't finished the process of cleaning up the old accounts.

I've decided to manage our budget and checking/savings accounts exclusively with YNAB, and only keep investment info in Quicken. I've been using YNAB for about 6 months now and am very pleased with it.

DH did a bunch of 401k rollovers into his IRA, but hasn't invested the money yet. Hopefully we can find the time to make some decisions on that money soon! It would be nice if that were the next box to get checked off...

Good news after our first pass through TurboTax. I had feared we were in big trouble after under-withholding CA state tax, and did what I could by sending in a big check for estimated state taxes on Jan 17. Right now it looks like we will owe about $1000 in federal taxes, and will get a rebate from the state for about $1200. The penality was only $36.

I've got some stock basis to figure out, and also need to open a SEP-IRA, so the news may get better yet.

It was kind of interesting to do a what-if to see what would've happened if I hadn't started consulting. We would've had very large refunds -- $6,600 federal and $3,300 state.

Fiancial Goals for 2008

Overall Goals
[ ] Needs/Wants/Savings at 50/30/20%
[ ] Target Portfolio Goal $4.3 million
[ ] Target Annual Savings $13,200

These targets come from the books All Your Worth and The Complete Idiot's Guide to Getting Rich.

Investing:
[ ] DH's 401k at 10% (12% stretch goal)
[ ] Max out IRAs ($10k)
[ ] Non-retirement contribution $3k
[ ] Net worth increase by $40k
[ ] Portfolio return of 12%

We've recently increased DH's 401k from 6% to 10%. Once that's comfortable we'll try for 12%. His employer has a match all the way up to the max contribution ($15,500)!

Short-Term Goals:
[ ] Taxes due ($10k)
[ ] Will and Trust ($2000)
[ ] Overseas airfare to visit family ($4500)

(So far I have $9500 set aside for the taxes, and $1500 for the wills.)

To Do List:
[ ] update W-4 (federal and state)
[ ] update wills and trust
[ ] invest IRA rollover money
[ ] review life and disability insurance
[ ] earthquake/disaster box
[ ] move $40k from taxable account to 529 plan

Notes
To set up the Target Portfolio Goal, I used this calculator: http://www.hughchou.org/calc/retire.cgi. The assumptions I put in are an annual income of $150k, retire at age 60, live for 40 years, 3% inflation, and 10% portfolio return.

To calculate the Target Annual Savings, I used the PMT function in excel, with rate=10%, nper=23 (num years), pv= -364,000 (present retirement accounts), fv=4,300,000 (portfolio goal). Note you need to set the PV to a negative number and the FV to a positive value. The result will be a negative number, which is how much you need to contribute ($13,200 in my case.)

It's getting close to the end of the year, so I'm inclined to look at what I've done vs what I planned to do at the beginning of the year.

Here's the to-do list that I put in my profile:
[ ] update wills
[ ] invest IRA rollover money
[ ] stock basis into Quicken
[X] annual review with broker
[ ] review life and disability insurance
[X] review phone & cell phone plans
[ ] earthquake/disaster box
[X] replace Mvelopes software

As you can see, I have made very little progress on some very important items. I did review the phone and cell phone plans, and replaced Mvelopes with YNAB, but these items were arguably the least important on the list. I had the annual review with the broker in March, but didn't act on his suggestions. (I wanted to go over them privately with DH first, but life got busy...) We still need to update the wills, invest over $80k of money that is sitting in cash within our IRA's, and add life insurance on me.

Our home value has dropped between $25-$50k, according to www.zillow.com, putting it about $675 with the remodelling.

The biggest change this year is that I started working part-time in July. My gross for the six months was $24k, and I spent about $2k on the babysitter. It will be interesting to see what the effective tax rate (given the second-earner penalty) turns out to be on this money. Regardless, it's worth it to keep my skills current and preserve my future earning potential. It's amazing how much breathing room $2k a month gives to the budget (I've been setting aside 40% for the taxman.) At one point I was lying awake at night debating how to best squeeze $150 out of the budget, now I can make that in a few hours work. It's easier to fund vacations and the occasional splurge. We've increased DH's 401k contribution to 10% (his company gives a match!), and should also be able to fully fund our IRA's in 2008. (We probably won't qualify for ROTH IRA's anymore.) I just ran some numbers, and our new "All Your Worth" balance of needs/wants/savings should be about 49/33/18, which I'm pleased about. (I'm also enjoying the mental break. Caring for a toddler means you never get to concentrate for more that 5-10 minutes at a stretch!)

I haven't done a detailed analysis of our investments yet, but our net worth is still hovering around $1.05 M, despite the decline in home value.

I've just run some numbers through a tax forecaster spreadsheet that comes with YNAB Pro. Our federal withholding will hit 115% of last year's tax (as planned), but something got messed up with the state withholding and it's only 50% of last year's. I'll have to make an estimated payment in January and hope to minimize any penalities. Right now we expect to owe $10k. I've got $8k set aside, and so will devote my first few paychecks to the remainder. Obviously I haven't been tracking this as closely as I should -- it may be time to consider hiring an accountant. I've been trying to avoid paying quarterly estimated taxes by setting up the withholdings correctly, but it might be a good thing to do them to force me to review our investments and tax situation regularly.

My biggest disappointment for the year is that I don't feel any more able to look at a list of funds in Morningstar and decide which one to invest in. My self-education campaign ran out of steam around March or April. I'm getting to the point where it's at least as important to maximize my investments as it is to keep my spending in check.

The good news was that my husband made an extra $15k in recruiting bonuses this year (it's quite common in our industry for the company to pay you a bonus if you convince your friends to take a job that open.) The bad news was that this extra income plus our stock profits and dividends pushed our income into the range where you can't contribute the full $4k to a ROTH. The good news is that we decided to put $2200 each into our ROTHs and the remaining $1800 each into our traditional IRAs. What I hadn't realized was that a spousal IRA is deductible -- the contribution lowered our tax bill from $2200 to $1600! Perhaps I should've put the full $4k into the traditional IRA to really reduce the bill, but on the other hand I want to contribute as much to the ROTH as possible now because we won't be eligible when I start working again in a couple of years.

Not much progress on the investment front. We didn't talk about our portfolio as we had planned -- I'll have to make sure we do it next weekend. DH is so worn out from his last project at work, the poor guy just needs some downtime. Getting his resume updated to find a better situation was a higher priority. We did do the end-of-month budget review at least.

The original lawyer who did my will and trust never called back, so I called him today. $300 for an hour of his time just to change the executor and guardian. I really don't want to give any more business to this guy who can't even be bothered to return my call!

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.

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.)