July 2006 Financial Status / Net Worth Update

Net Worth Update July 2006


Dude, Why So Much Credit Card Debt?
Newer readers may note some serious credit card debt going on above. In short, I’m borrowing the money for “free” and keeping it in safe investments while earning me interest. Please see my posts on taking advantage of no fee 0% APR balance transfers for more. Some recent examples are my $9,000 from Citibank and $10,000 from Discover Card. Roughly, I’m earning 5% on $30,000, which is $1,500 of free money a year for doing nothing but paying bills on time.

Thoughts
Stock market was pretty flat this month, I still can’t tell if we are in for a recession or not.

Overall, a good month that went by really, really fast. I’m a working stiff again over the summer (after some thought I took a job), so we’ll be seeing a pickup in the bling coming in for the next couple months. I look forward to seeing some bigger jumps towards our goals. I think I’m going to keep most of it in cash in preparation for that looming house purchase. Every time I see people with $1,000 mortgage payments it amazes me the differences in living costs across America.

Still need to set up that Self-Employed 401k. Mainly I’m waiting for some low-cost administrators for a Roth Self-Employed 401k, but it looks like it may not happen this year.

Comments

  1. Bank of Parents just turned out to be my mortgage lender. I pay back with a rate more than what they get from long-term bonds/CDs and less than that from the banks. It’s a win-win situation.

  2. AA: Then you don’t get a tax deduction for interest?

  3. since u post all financial details online – did u ever post your annual salary? or combined income?. Not to be intrusive or anything, but just to get an yardstick measurement.

    My savings is almost similar to yours (95k), so I was hoping to take inspiration from you to grow my savings :) – and also it helps us understand how your savings magically grow everymonth…

    thanks for a great blog!
    ram

  4. Just read this in the WSJ:
    “A 45-year-old worker should have savings equal to about three times annual salary, overall debt should be no more than one times salary, and a savings rate equal to 12% of income.

    A 30-year-old, by contrast, should have 0.1 times salary saved, debt of no more than 1.7 times salary, and a savings rate of 12%”

    You are doing pretty darned well in the savings department with savings of over 1.1x, no net debt, and what looks like a pretty hefty savings rate!

    In our case (as 30 yr olds) we have 1x salary saved (short term + retirement), debt of 1.5x of salary (mortgage only, california living gotta pay the price!), and a savings rate of 15%(401(k)only).

    Any extra money left over goes in to the mortgage, so that kind of disappears from the view and hence the savings rate looks somewhat lower…but then when you look at the equity in the home, you feel happy on paper :), not that it helps one bit since we cant afford to sell the house and buy another one in the same area, it would be smaller and we would pay more taxes, on the plus side we love our house….man I keep wandering off! Happy 4th!

  5. Hi there –

    I’m not sure a self-employed Roth 401k exists/I’m not sure what you’re talking about here. The self-employed retirement plans out there are the SEP-IRA and the SEP-401k. The former is SUPER easy to set-up and administrate, whils the latter has more fees (usually) and more paperwork.

    SO, I just set-up a SEP-IRA via E-Trade, no fees, painless to administrate (as in I don’t have to file anything other than indicating on my 1040 how much I put into the account).

    To answer the other poster’s question – any interest paid on a mortgage, whether it’s a owner financed or via a bank is tax deductible.

    -Mark

  6. Solo (or Self-Employed, or Individual) Roth 401ks are definitely allowed by the government as of this year, but only a very limited amount of brokers are offering it. Just Google “Solo Roth 401k”.

    I have a SEP-IRA with Vanguard already, I like the ease and flexibility, but I don’t like the 25% caps.

  7. Jonathon: Do you have an emergency fund? Is that what your “Cash Savings” or “Brokerage” account would be used for?

  8. I don’t have a special account labeled ‘for emergencies only’, no. I just try to keep enough liquid assets so that if something were to occur, we could cover it.

  9. Here you suggest that you have both Roth & Traditional IRA. Can we do that? Like contribute $8000 per tax yer. Please give more details. Thanks

  10. No, you can do both, but you it’s still a $4,000 limit. So you could do $4000 in a Roth, or $2k in a Roth and $2k in a Traditional.

  11. Jonathan, how soon do you have to pay back your credit card debt in order to get a good rate on your mortgage loan for you house purchase? I might come into a similar situation in about year. Thanks for your help.

  12. Jimmy – The credit card companies report to the bureaus once a month your balance, etc, so I plan on paying everything off about 60 days before meeting with a mortgage broker to be safe.

  13. Susannah says:

    I think this would be more useful if you broke up the change in your brokerage account into what was caused by new contributions and what was caused by stock market change. It would give more of an idea of how much you are actually saving, and how much is your money growing on its own.

  14. Hey thanks…. above u have said Cash Savings of $203… so is it that you put 203 every month aside in your savings account? how do u calcuate this magic number? Love!

  15. Nicholas says:

    James, I am guessing the $203 increase in Cash Savings was partly from interest due to high yield savings accounts.

  16. Anonymous says:

    You should prank your wife on April Fools Day. Tell her you made a bad investment and gambled away all of your cash savings. That’ll get you in the dog house for couple weeks. But I tell you what, when you see the look on her face when you say, just kidding. Deep down inside, she’s relieved.

  17. Your credit score will suffer if you pay off a huge debt immediately before going for the loan. The loan officer would be looking for where that debt went.

  18. “I think this would be more useful if you broke up the change in your brokerage account into what was caused by new contributions and what was caused by stock market change. It would give more of an idea of how much you are actually saving, and how much is your money growing on its own.”

    Agreed. Will work on that.

    “Your credit score will suffer if you pay off a huge debt immediately before going for the loan. The loan officer would be looking for where that debt went.”

    Well, it won’t be right before, it’ll be two months before. Can’t I just show him the credit card statements along with my bank statements? There’ll be one big payment to Citibank :)

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