15-Minute Resolution #2: Start Spending Consciously

Alright, now for a 15-minute 2010 Resolution that doesn’t make you spend less, just better. Huh? Achieving financial success doesn’t mean pinching every single penny all day long and watching your net worth ticker inch upwards. It means spending money on what you enjoy, and not wasting it on things that you don’t (like credit card interest).

An interesting exercise to help you focus is to list ALL your voluntary expenses, and then organize them by priority. When I say voluntary expense I mean that you should generally ignore bare expenses like rent for a single room and basic food. This is not a rigid exercise, but mostly to get you to think more about spending consciously. Again, don’t spend more than 15-minutes on this.

What is your most important expense?

What is your LEAST important expense?

For example, your list might look something like this, from most important to least important:

  • Mortgage on my dream house
  • Yearly travel
  • Monthly iPhone Bill
  • Dining Out
  • Daily Starbucks
  • Rounds of golf
  • Cable TV
  • Beer & Alcohol

You might think, well everyone is going to put housing first. No, in fact it may be at the bottom. Maybe you live in a luxury downtown urban condo right now, and would rather save $1,000 per month and share a 4-bedroom house with a bunch of friends and spend that money on private French lessons and wine. Only you know!

Now write down your list and place it somewhere visible. Make it your computer desktop background if possible. Next time you spend any money, you’ll think twice about whether you’d rather allocate it to something more important to you. You can now finish the rest of the 2010 with a better frame of mind.

In addition, the next time you run into a money hiccup, you’ll know what to cut first before dipping into savings or *gasp* stopping your 401k contributions.

See all the 2010 Instant New Year’s Resolutions here.

15-Minute Resolution #1: Save More For Retirement

Do you feel you aren’t saving enough for retirement? Worse, do you feel like what you should be saving for retirement is some huge number you’ll never reach? I think such daunting numbers are what kept a lot of my younger co-workers out of the 401k plan completely.

How about 1% then? Let’s see how much 1% is for a household with a single earner making $50,000 gross per year. For simplicity, let’s say they live in a state without income tax like Texas. If you are paid bi-weekly, putting away $500 pre-tax annually (1%) into a Traditional 401k amounts to an additional $19 reduction per paycheck. If you do live in a state with income tax, the actual paycheck difference will be even smaller.

I know that even this may be hard for some families, but keep in mind this money is still yours and you’re just using the 401k or IRA container to save you taxes. Now, if you’re convinced that you can handle this (and I hope you are), then go right now and either fill out the proper form from Human Resources or go online and submit for a change. As for the investment choice, if you are undecided consider just going for the target-date option for now until you learn more.

Most importantly, increase your contributions by 1% today! Now you can say in 2010 you started saving more for retirement.

Fine Print
I kept things simple above so you don’t get bogged down. You might be satisfied with your current contributions, or you might want to put away more than 1%. Even better, you might get a matching contribution from your company, which will boost your savings even further. On the other hand, what if my 401k has horrible investment options? Or what if you don’t have a 401k/403b at all? You can start an IRA with just a $50 per month commitment with a low-cost provider.

What about Traditional vs. Roth? Check out this Video Post: Roth IRA vs. Traditional IRA.

You may find that if you haven’t maxed out your Roth IRA for 2009 or 2010, then you may want to do that instead of the 401k because Roth IRA contributions can be taken out at any time without penalty (but not earnings).

See all the 2010 Instant New Year’s Resolutions here.

This Week: 15-Minute 2010 New Year’s Resolutions

credit to Bill Waterson

This time of year, it is trendy either to make New Year’s Resolutions or to talk about how resolutions are stupid. I know, because that’s what I usually do…

I thought I’d try something a little different this time – something I was going to call the “instant” resolution, or “single serving” resolution. The idea is that this is not something huge that you’ll have to tackle over an entire year, but something significant that can be done today and then you’ll be done!

So I’m going to put up one per day this week, and challenge you to finish it in that day. They won’t be earth-shaking or surprising. The goal is gradual improvement and motivating action, not becoming some super-saver overnight. I hope it works!

2010 Instant Resolutions

  1. Save More for Retirement
  2. Start Spending Consciously
  3. Check Your Free Consumer & Credit Reports
  4. Automate Your Emergency Fund
  5. Check the Asset Allocation of your Investment Portfolio

Monthly Net Worth & Goals Update – December 2009

Net Worth Chart 2009

Wow, December already…

Credit Card Debt
Up until now, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn up to 4-5% interest (less recently), and keeping the difference as profit. However, given the current lack of good no fee 0% APR balance transfer offers , I am no longer playing this “game”. The balance that you do see is either before the end of the statement or during the grace period, where I’m also not paying any interest.

Retirement and Brokerage accounts
Mrs. MMB and I have both maxed out our 401k salary deferrals for 2009. We have also started to invest in regular taxable accounts by investing $30,000 that was previously being held as cash. I’ll outline the trade activity in an upcoming portfolio update.

Our total retirement portfolio is now $231,368 or on an estimated after-tax basis, $191,475. At a theoretical 4% withdrawal rate, this would provide $638 per month in after-tax retirement income, which brings me to 26% of my long-term goal of $2,500 per month.

We are also getting ready for a Traditional-to-Roth conversion once the income limits are removed in 2010. We’ll need to gather up some information in order to see how much tax we owe on any gains. More details on this to come.

Cash Savings and Emergency Funds
We keep a year’s worth of expenses in our emergency fund. Potential large expenses include $10,000 for home improvement projects (minor roof repair and solar water heating), as well as $15,000-$20,000 on a new car to replace our 1995 Nissan. Hope it can last us 15 years as well!

Home Value
I am no longer using any internet home valuation tools to track home value. Some people have suggested using my tax assessed value, but I also think that is too high. I simply picked what I felt is a conservative number based on recent comparables, $480,000, and keep it for at least 6 months if not a year. (Currently on month 3 out of 6.) For the most part I am concerned about mortgage payoff, which I still plan to accomplish in 20 years at most.

You can view previous net worth updates here.

Monthly Net Worth & Goals Update – November 2009

Net Worth Chart 2009

Credit Card Debt
In the past, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way.

However, given the current lack of great no fee 0% APR balance transfer offers, I am no longer playing this “game” and have just paid off my last 0% offer for now. This makes the net worth chart a bit funny, but it should clear up next month.

Retirement and Brokerage accounts
Our total investment portfolio increased by a few thousand dollars since last month. DW’s 401k was already maxed out at $16,500. I made another $1,000 contribution to my Solo 401k, for a total of $16,500 contributed in 2009 as well. (I forgot the limit was $16,500 and not $15,500 last month…) This makes us done with our goal of maxing out both our 401k salary contributions for 2009.

I am starting to build up too much cash, and have started investing for retirement in a taxable brokerage account as well. In the interest of tax efficiency, I’ll have to move around some investments in order to keep bonds in the tax-advantaged IRAs/401k and the “extra” stocks in taxable. I expect to finish investing $20,000 this week.

Taking that additional 20k into account, our total retirement portfolio is now $211,095, or on an estimated after-tax basis, $170,047. At a 4% withdrawal rate, this would provide $567 per month in tax-free retirement income, which brings me to 23% of my long-term goal of $2,500 per month.

Cash Savings and Emergency Funds
We keep a year’s worth of expenses in our emergency fund. Another $10,000 is earmarked for upcoming home improvement projects that I keep putting off (minor roof repair and solar water heating).

Home Value
I am no longer using any internet home valuation tools to track home value. Some people have suggested using my tax assessed value, but I also think that is too high. I simply picked what I felt is a conservative number based on recent comparables, $480,000, and keep it for at least 6 months if not a year. (Currently on month 2 out of 6.) For the most part I am concerned about mortgage payoff, which I still plan to accomplish in 20 years at most.

You can view previous net worth updates here.

Monthly Net Worth & Goals Update – October 2009

Net Worth Chart 2009

Credit Card Debt
For newer readers, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am mostly waiting on existing offers to end.

Retirement and Brokerage accounts
Wife’s 401k was already maxed out at $16,500 for 2009. I made another $5,500 contribution to my Solo 401k, for a total of $15,000 contributed in 2009. This makes us about 95% done with our goal of maxing out both our 401k salary contributions for 2009.

Our total retirement portfolio is now $190,085, or on an estimated after-tax basis, $152,349. At a 4% withdrawal rate, this would provide $508 per month in tax-free retirement income, which brings me to 20% of my long-term goal of $2,500 per month.

Cash Savings and Emergency Funds
We still have a little over a year’s worth of expenses in our emergency fund. Part of the cash is earmarked for some smaller home improvement projects.

The next step is to put future funds into buying ETFs in a taxable brokerage account since I no longer have room in tax-sheltered accounts. I’ll probably use TradeKing or Scottrade as my buy-and-hold ETF broker, and keep Zecco as my “play money” account.

Home Value
I am no longer using any internet home valuation tools to track home value. If I still did, it would have been $572,000. Some people have suggested using my tax assessed value, but I also think that is too high. I am simply picked what I felt is a conservative number based on recent comparables, $480,000, and keep it for at least 6 months if not a year. This way, I just focus on the mortgage payoff, which I still plan to accomplish in 20 years at most.

You can view previous net worth updates here.

2009 Q3 Investment Portfolio Update – 9/21/09

2009 Q3 Portfolio Breakdown
 
Retirement Portfolio Actual Target
Asset Class / Fund % %
Broad US Stock Market ($64,794) 33.8% 34%
VTSMX – Vanguard Total Stock Market Index Fund
DISFX – Diversified Stock Index Institutional Fund*
FSEMX – Fidelity Spartan Extended Market Index Fund*
US Small-Cap Value ($17,554) 9.1% 8.5%
VISVX – Vanguard Small Cap Value Index Fund
Real Estate (REITs) $18,004 9.4% 8.5%
VGSIX – Vanguard REIT Index Fund
Broad International Developed $46,820 24.4% 25.5%
FSIIX – Fidelity Spartan International Index Fund*
International Emerging Markets $21,678 11.3% 8.5%
VEIEX – Vanguard Emerging Markets Stock Index Fund
Bonds – Short-Term $4,484 2.3% 3.8%
VFISX – Vanguard Short-Term Treasury Fund
Bonds – Inflation-Indexed $18,568 9.7% 11.3%
VIPSX – Vanguard Inflation-Protected Securities Fund
Total Portfolio Value $191,902
* denotes 401(k) holding given limited investment options.

Like many others, for most of this year I’ve just been trying to keep my head down, make my regular stock contributions like a good boy, and not looking at my statement balances too much! There’s been a lot of “wow, my portfolio isn’t so bad anymore” talk due to the recent market run, so I figured it was time for a checkup. You know of course, that this also means the market will tank today… :)

Contribution Details
So far in 2009, we have made the following contributions:

  • $5,000 x 2 for 2008 non-deductible IRA contributions
  • $5,000 x 2 for 2009 IRA contributions
  • $33,052 for both of our 401k contributions, including salary deferral and company match. One is maxed out, the other has a little left to go.

2009 Performance
In my last update back in April, I had found our year-to-date performance to be about -15%. According to my spreadsheet, the 2009 year-to-date dollar-weighted performance of our personal portfolio is now 41% YTD.

For reference, the Vanguard S&P 500 Fund (VFINX) has returned 20.52% YTD, their FTSE All World Ex-US fund (VFWIX) has returned 35.72% YTD, and their Total Bond Index fund (VBMFX) is 5.11% YTD as of 9/18/09. The Vanguard Target 2045 Fund (VTIVX) has returned 23.4% YTD, which as a similar stock/bond breakdown to our portfolio, but less international exposure. Part of the good relative performance (which was previously relatively poor) is also likely due due to the timing of my large lump-sum investments.

Investment Changes
We have used our new contributions to keep us close to our asset allocation target, with a 85% stocks/15% bonds split. Right now, we are not too far off. The target percentages for each asset class are shown above as well. Currently, with the run-up in equities, we are a bit underweight in bonds.

You can view all my previous portfolio snapshots here.

Monthly Net Worth Update – September 2009

Net Worth Chart 2009

Credit Card Debt
For newer readers, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am mostly waiting on existing offers to end.

Retirement and Brokerage accounts
Not much stock market movement this past month. Wife’s 401k was already maxed out at $16,500 for 2009. I made another $5,000 contribution to my Solo 401k, for a total of $10,000 contributed in 2009. This makes us about 80% done with our goal of maxing out both our 401k salary contributions for 2009.

Our total retirement portfolio is now $181,673, or on an estimated after-tax basis, $145,887. At a 4% withdrawal rate, this would provide $486 per month in tax-free retirement income, which brings me to 22% of my long-term goal of $2,500 per month.

Cash Savings and Emergency Funds
I did pay an additional $6,000 towards my mortgage this month, which ate up a lot of cash. This is roughly two extra mortgage payments, which if I do this every year will put me on track to shorten my 30 year mortgage to 20 years. Depending on interest rates, future contributions may be invested into municipal or government bonds.

We still have a little over a year’s worth of expenses in our emergency fund.

Home Value
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I again took the average and took off 5% to be conservative and 6% for real estate agent commissions. This ended up giving me a 6% value increase this month, which again makes my home value movements dwarf all other activity for this net worth measurement.

I’ve been using these internet tools for 10 months now, and while I like being able to track the overall trend in home values, the wide swings in estimates make me very skeptical of their accuracy. I expect to do this for another 2 months so that I have an entire year of data, but after that I will switch to another less volatile method.

You can view previous net worth updates here.

Historical Net Worth & Goal Chart Updates

I finally got around to updating all my net worth charts and graphics. Here is my net worth since I started tracking it on this blog in December 2004:

You can also view my net worth since graduating from college in my Net Worth page. You can download my tracking template here.

Since I had all the data handy, I also put together a chart of the value of my retirement portfolio. This is simply the sum of all the money in our 401k/IRA/403b’s over the years, including any gains/losses and contributions. Since I did a Traditional-to-Roth IRA conversion a while back, I normalized all the values by taking 30% off of any pre-tax account values. Therefore, the chart is of (estimated) after-tax balances.

As you can see, my portfolio is small enough that regular contributions have been able to counter the rather mediocre returns over the last 5 years so. The swings in our property value is also contributing to making our overall net worth very volatile recently.

Goal Tracker Chart
I also wanted to update my little goal meter on the top-right of every page. I updated our 401k contribution progress; we are on track to max them out for 2009. My first long-term goal is pay off my home mortgage, so I won’t have a house payment anymore. My second is to build a $750,000 investment portfolio. More details here.

At a 4% inflation-adjusted withdrawal rate, a very rough rule-of-thumb, $750k would create an annual income of $30,000 per year ($2,500 monthly). This should cover all our non-housing expenses. At the current $140,000 value, I’d theoretically be able to produce about $467 of “passive” income per month.

I’d like to come up with a better graphic to track these things, but for now I’ll stick with the progress bar. Any creative ideas out there?

Monthly Net Worth Update – August 2009

Net Worth Chart 2009

Credit Card Debt
For newer readers, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am mostly waiting on existing offers to end. I just paid off a large-ish balance this month.

Retirement and Brokerage accounts
Besides watching another market rally, we made a bunch of retirement contributions this month. Wife’s 401k is now maxed out at $16,500 for 2009. I made a $5,000 contribution to my Solo 401k. This makes us about 65% done with our goal of maxing out both our 401ks for 2009.

Early in the month, I also decided to go ahead and make our IRA contributions for 2009 (non-deductible due to income limits). So that’s another $10,000.

Cash Savings and Emergency Funds
We still have a little over a year’s worth of expenses in our emergency fund. I was supposed to use up some of the cash to make a principal prepayment this month, but didn’t do it due to a variety of reasons. Mainly, I wanted to do things in order and do the retirement contributions above first. We also found that we have a roof leak that may require some cash.

In addition, we have gotten some quotes on a solar hot-water system for the house, which seems like it would have a fast payback period of 2-3 years. A photovoltaic system would cost significantly more and have a payback period of around 8-9 years depending on size. Still researching this.

Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I again took the average and took off 5% to be conservative and 6% for real estate agent commissions. The bloodshed slowed a bit this month. :)

All in all, more steady progress. I feel like I’m not learning a lot from these updates, but it seems to be a good habit to keep an eye on things.

Monthly Net Worth Update – July 2009

Net Worth Chart 2009

Credit Card Debt
I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn 4-5% interest (much less recently), and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am mostly waiting on existing offers to end. My credit score remains high enough that I haven’t seen any negative actions.

Retirement and Brokerage accounts
Markets most went sideways this past month. 401k contributions are still going regularly, and I want to make my 2009 non-deductible IRA contributions soon. I still think the best thing to do is to keep investing regularly, although it is quite boring to watch.

Cash Savings and Emergency Funds
We still have a year’s worth of expenses in our emergency fund, and it is still growing. Possible uses for extra cash might include capital improvements to the house, including a solar hot-water system to reduce electricity bills, or a photovoltaic system to possibly eliminate them! I love the idea of selling electricity back to the city.

Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I took the average and took off 5% to be conservative and 6% for real estate agent commissions.

We remain “underwater”, with our outstanding mortgage balance greater than what we probably would net after selling our home. Home equity variations continue to dwarf all other activity, which is somewhat annoying since it’s not that important. Just gotta shrink that mortgage!

Monthly Financial Status / Net Worth Update (June 2009)

Net Worth Chart 2009

Credit Card Debt
In the past, I have taken money from credit cards at 0% APR and placed it into online savings accounts or similar safe investments that earn 4-5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how to make money off of credit cards in this way. However, given the current lack of great no fee 0% APR balance transfer offers, I am have not been as active in this “game” recently. My credit score remains high enough that I haven’t seen any negative actions.

Retirement and Brokerage accounts
Markets went up, although as usual I don’t know why. I’ve been swearing off CNBC so I’m especially detached from all the buzz. Most of our retirement accounts rose about 10% the last month, which was over a $10,000 gain. I actually wish it stayed down so I could start investing some of my new cashflow at lower prices. However, waiting for it to drop again is not logical behavior, or so I keep reminding myself…

Cash Savings and Emergency Funds
We did still save a good deal of cash from our income this month, but I shifted about $10,000 of it into my brokerage account so that I can start investing in taxable accounts, which skewed the values above a bit. We still have a year’s worth of expenses in our emergency fund, which always gives me the warm fuzzies.

Home Equity
Using four different internet valuation tools – Zillow, Cyberhomes, Coldwell Banker, and Bank of America (old version) – I took the average and took off 5% to be conservative and 6% for real estate agent commissions. These sites are really wonky. Last month I was actually up, but this month my home’s estimated value dropped over $32,000 in a month. Shrug. I’m lucky that our work situation is doing well and we have no plans on moving.

According to my quick and dirty plan for financial freedom I should start paying extra towards my mortgage, but I’m having a hard time pulling the trigger on this one as well. I feel inflation coming. Should I just invest in stocks, and keep my 5% mortgage as long as possible?