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Archive for December, 2007

Time to celebrate the small thingsÖ

December 31st, 2007 at 10:01 am

Time for 2007 to draw to a close and not to soon. What a wild ride it was. I have had my ups and downs, both financially and personally. We had our second son born in August and he had some medical issues (he is fine now, but now the bills need to be paid). My wife had a little depression afterwards and we had some help around for her.

The first half of the year, things were tight but manageable. Then August came, and WOW Ö just wow. My insurance was just horrible. But hospitals were great both BI and Newton Wellesley. In fact, a case study was written on my son (alas no royalties).

Then things went from tight to ďoh noĒ. And this has caused me to get serious about budgeting. I had to switch insurances (about $1,260 a month) and start repaying the hospitals ($500 a month). With things being tight, I starting asking for more hours per week. I am a contractor and am paid hourly (no time and a half). No big projects start before Christmas in my field. Well, I could always work at Target, Wal-Mart, Cosco, etc.

So thatís the catalyst that pushed me to take a serious look at budgeting. December was the first month for me to try this budgeting thing. And I survived it. It is 12/31 and I have not spent more then I take home. I also have money set aside for preschool and other classes for my 3 yo son. I have money set aside for car and home maintenance.

I have 2 furnaces in my house (no, itís not a McMansion, I donít have a servantís wing). The one in the attic failed to start. New England gets awfully cold in December and with a newborn, I had to get it fixed. I called the gas company. They said they would have someone over in 2 weeks. They gave me a name of a local company. I called them and they were out that day. There was some sort of lose wire that was causing the furnace to think that the door was open.

Old me (or pre-budget me or November me) would be thinking how am I going to pay for this. Put in on CC and hope I have the money after Christmas to pay for it. Well, good luck with that plan. New me had budgeted about 200 in House maintenance and funded that envelope about a week before the furnace failed. It was already paid for in my mind. Awesome feeling!!!

Awesome feeling 2 came this last week. The wife was ďencouragingĒ me to make Januaryís budget. She needed to know how much she could spend on groceries, diapers, etc. So, I put the budget together, we reviewed it and revised it together. She started talking about a weekend trip in February that need to be budgeted and a baptism in March.

I have really started feeling like a team with my wife. There was no yelling about money, just this is what is coming in, what do we need to spend. We work on the problem together and form the solutions together. I do feel closer to my wife. I understand her prioritize a lot better now.

So even with my monthly bills going up $1,750 per month, I feel I have the tools to make a run at this added expense. I also added a couple of other goals (pay of $6k in cc, one car loan, and save $10k). It will be an interesting year and I am looking at attacking these goals with my wife.

The Smiths

December 28th, 2007 at 07:26 am

An interesting article about the Smiths.

http://therebutforthegraceofgodblog.blogspot.com/2007/12/introducing-smiths.html

Please read.

I thought it was an interesting read this time of year, especially with the new year around the corner. I agree with the blog that we look at other peopleís situations through our own glasses of experiences. Often times, those glasses are tainted with not enough information and ďthe way I do things is rightĒ.

People have different priorities and experiences that drive to the outcome we all see as the end result. We are not privy to every conversation and decision a couple makes.

The Smiths on my street get a new car every 3-6 months. They just got a new Mercedes. Most people would ask why is this family getting a new car every 3-6 months and why high-end cars. I would neverÖ. But the guy works at a car dealership and this is one of the perks.

So as 2007 draws to a close and 2008 is about to start, I am going to try to be less judgmental of people and refrain from gossip.

Letís be honest, refraining from gossip is hard. For instance, Britt Spears is living paycheck to paycheck and makes over $700k a month. And Paris Hiltonís grandfather just announced that 97% of his net worth (estimated at $2.3 billion) will be going to his foundation and not his heirs. (He mentioned that part of the decision was based on Parisí behavior.)

Hey, I said I would try Ö and itís not 2008 yet.

Goals 2008

December 27th, 2007 at 09:53 am

First of all, thank you all for your comments.

I have been struggling with my goals this week. Good comments all around. Pure logic and rational me agrees completely with DisneySteve. On the other hand starting this year I will be paying for my own insurance ($1,258/month) and repaying the hospital ($500/month on about $16,000). So I think the smart thing is to increase my financial stability in the first half of the year and then start saving in the second half.

So my financial goals are as follows:

1) Pay of $6,000 in CC by May 1st
2) Pay of one car by August 1st (currently $5,700 is owed and last payment is 2/09)
3) Invest $10,000 by year end in Taxable assets
4) Invest $15,500 in 401(k)
5) Review and reallocate (if necessary) retirement funds by end of Q1

The only reason why number 4 is so low on the list is because I have been doing this every year for the last 5 or so years. So, Iím basically already set up for this and wonít feel the pain. Nothing like autopilot.

1, 2, and 3 all feed off of each other. If I can do 1, that money will roll into 2, which will roll into 3. I just need to do 2 things: Be more frugal and more disciplined.

So personal goals:

1) Be more frugal
2) Be more disciplined
3) Enjoy life a little more

So, these are my goals. Iíll track them here and see how the new year goes.

Debt Reduction or Investing

December 26th, 2007 at 07:26 am

Well, Iíve been going over my goals for 2008 and have been struggling with whether to reduce my debt or save and invest the money I would use to reduce the debt.

Letís start with the easy stuff. I have some CC debt (about 6k with 0% interest until May). That will be paid off by May, hopefully J. No way I could earn more investing then the CC interest, unless I get in the ground floor to a pyramid scheme.

Now it starts getting harder. I have 2 car loans that are 4% and a medical bill thatís 0%. I also have a 30 year fixed mortgage at 5.5%.

Theoretically, I could save and invest and make more money then I would need to pay out for the cars and the medical, letting those 3 payments end a natural death.

The mortgage has a low interest rate over 30 years, has a tax advantage for the interest paid, and if I put the money into diversified stock funds, I could almost double the return and still take advantage of the tax credit.

Woo Hoo!!! No brainer!!! All aboard the investing express!!!

As I said before, theoretically looks good on paper. The answer has to be more complex then this. So I go to Sir Google and ask him. He returns about a gazillion articles each with a different answer. Ok maybe 2 answers: payoff mortgage and donít payoff the mortgage, and most article slanted to not pay off the mortgage.

One of the articles was from a financial advisor from either Morgan Stanley or JP Morgan. He stated that his clients that paid off the mortgage retired 10 years earlier then clients that didnít. How could this be?

The answer is quite easy: Life happens. So, letís say we have a mortgage of 350k. We start saving and investing money. After a few years, we saved about 75k. During that time, we have foregone new furniture, expensive vacations, and our cars are needing to be replaced. Well, we could use some of that money for these things we ďneedĒ. Right? And there is the trap. There is a huge temptation to use that money. After all, whatís a few thousand dollars? Youíll make it up next year.

And thatís the answer. Most average people, myself included, donít have the discipline necessary to leave that money alone. Itís just too tempting.

If you pay down the mortgage every month, you donít see the wealth accumulating and itís a lot easier to forgo the temptations.

With what to do about the mortgage answered, all my other answers are easy. Pay off all debt!!!

One last thing, I plan to live in my house for the next 20 Ė 30 years. If you are in a starter house or plan to move in the next 5 years, you might want to use the extra money to save up for a bigger down payment for your next house.

I am a failure ... but not in 2008

December 24th, 2007 at 10:12 am

Well, that time of year again. Time to start thinking about my New Yearís resolutions or goals for 2008.

I am determined not to fail this year (sound familiar?). Why is this year going to be different then other years. Because I am going to try not to make the same mistakes.

Easier said then done. I am about to do my second monthly budget, and I feel the tugs of my old ways. Due it next week, relax, enjoy the family and holidays. It will get taken care of.

Luck for me, my wife is ďencouragingĒ me to complete next monthís budget. I call it nagging; she calls it supporting.

So my goal is to me debt free in 2008!!! Sounds great. Weíll that was my goal in 2007 and 2006 and 2005 Ö.. But this year will be different!!! So was 2007 and 2006 and 2005 Ö.

So how is this year going to be different?

Achievable goals that cause me to stretch Ė OK maybe not all debt. I donít think Iíll be able to bay off a mortgage that is more than my gross salary for the year. So maybe Iíll need to refine it to something more manageable.

Plan Ė There is a saying I like ďPlan the work and work the plan.Ē The largest reason I have failed is because I will make a goal but not have a plan to achieve the goal. This year Iíll put together the budget monthly to achieve my goal.

Out of sight, out of mind Ė This year Iím not going to put my goal in a desk drawer. Iím going to keep it somewhere visible where I will be reminded everyday, maybe my bathroom mirror.

Feedback Ė I need to update these goals monthly probably at the same time I look at the budget for the next month.

No Accountability Ė This is where the wife comes in. Sheíll be nag Ö erÖ encouraging me all year.

To doís this week:

1) Determine goals
2) Plan goals
3) Post goals on mirror
4) January Budget with goals in mind

So much for an easy week, I got work to do. Good luck to everyone and may your goals be attainable and enjoyable.

Budgetting works? Who would have thunk?

December 21st, 2007 at 06:33 am

Well, next week my one month free trial period for Mvelopes expires, and I thought it would be a good time to review things in general.

Money in the Bank:

The first thing I noticed was that I have money in the bank. My old system was to grab all the bills due in the next two weeks and figure out how to pay them all, always under the shadow of that dastardly mortgage payment lurking around the corner.

This month is different. I get a paycheck and fund my priority items first and discretionary items last. Needless to say I have money spent on paper that I havenít spent yet (200 in an auto maintenance just sitting in the bank waiting for my car to breakdown). So yes, technically the money is spent on paper, but really this has led to having money sitting in bank accounts earning interest waiting for future expenses to show up.

Less Anxiety:

I no longer look at what I have to pay this week and where am I going to find the money. I already funded these expenses in the budget. I know I have the money. So, now itís a bill comes in, the bill gets paid. No waiting around for my next paycheck or the paycheck after that if itís mortgage week.

This has led to less stress in my life. Just knowing that thereís money set aside for that bill is a liberating feeling.

Communication:

A funny thing happened this month: I talked and listened to my wife. Every talk about money before this month was ďyou have to cut down, you canít spend this much, what did you do with all that money I gave you this weekÖĒ Her response was usually ďbite me!!Ē

The conversation around money now is ďwhat is this $34 chargeĒ. ďOh, I had to buy more formula. We have enough money in the grocery budget for thatĒ. I look and say ďYep itís funded and you have XX left. Is that enough for the rest of the month or do we need to move some money around?Ē

Sometimes not that nice but my point is that itís a lot better. She stopped throwing frying pans at my head.

This has also led to more respect. Maybe itís the openness (we can see every inflow and outflow).

Team Merch!!!

Itís no longer my money, her money, and our money. When I first got married, we were both working. I paid a couple of the bills and she paid a couple of the bills. Money was pouring in. It wasnít uncommon for us to blow $200 on a dinner.

Then HE cameÖ Not that I would change that. My first son changed my life so much. I had to buy a house with a yard and leave condo living. No more $200 dinners that was replaced by diaper and formula. My wifeís income Ö *POOF*

But we didnít change are finances. We still had my money, her money, and our money.

Well, that changed with the budget this month. We still have 3 physical banks, but we can see everything and now weíre a team.

Iím the worker doing the day to day stuff. Damn management never understands our plight.

My wifeís management. Reviewing the budgeting reports, asking for us workers to tweak things.

Then, once a month the executive committee (both of us) sits down to discuss next monthís budget and any big items coming up (like a weekend getaway in February, my second sonís baptism in March).

Now, some of these changes are just starting and we need sometime to change our mindset, but I can see the changes taking place. So, I think Iíll try this budgeting thing for another month.

The grass is always greenerÖ..

December 20th, 2007 at 07:13 am

Why am I the poorest one in the neighborhood? Why am I the only one struggling? These are questions I used to have.

I live in a new neighborhood where the houses are 2 Ė 5 years old. So everyone in the neighborhood is about the same age with 2 young kids. There are a couple of kids in the 6-12 range but most of the kids are less then 5 and most houses have 2 kids and of course 2 cars. Besides our occupation, we are probably the same statistically.

So why do I feel like the poor one in the neighborhood? I have a push mower; my neighbors have a lawn service or riding mower. I shovel the snow my hand, I donít have a snow blower or someone snow plow my driveway. I donít have a nanny or maid service like others in the neighborhood. My TV and stereo are from college (my wife is embarrassed by both).

Is everyone in the neighborhood that much more financially responsible then me? Am I not the norm; am I the statistical out layer? Or the black sheep of the neighborhood Ė GASP!

Everyone in the neighborhood has the nice granite in the kitchen; a lot of houses have finished basements. Not mine. When I was building the house, I was very careful on adding things that would go over budget. My philosophy, if it adds square feet it will cost less now. Kitchens and such become outdated no need for a 30-year loan for that.

Well, I kind of like looking at real estate. I even dream of flipping to being a landlord. I donít have the money to embark on this (or knowledge). So, Iím kind of in the education phase. Well, looking at some websites I came across one my county has for public records on a property, so I put in my address to see what would come up.

It listed my mortgage, the price I paid for the house, and some liens that were discharged between the town and builder Ė all public records. Amazing what is out thereÖ and for freeÖ

Of course you know, I had to try other addresses around me. All but one had a higher mortgage than me (on ave 30% higher principal) and most also had second and one had a third mortgage.

Whatís my point? From a distance, the grass always looks green. It only when you get up close and walk around that you see all the imperfections.

So this holiday season Iíll look at my Charlie Brown Christmas tree and the few gifts under it, and feel content. My fondest memories of Christmas donít revolve around the gifts I got but the family together and enjoying each other.

So Iíll gleefully wish my rich neighbors health and happiness and ďohĒ and ďahĒ at their latest gadgets, but please donít have pity on me Iím doing just fine.

Manage Cashflows? I have a budget.

December 19th, 2007 at 06:11 am

So I built my first budget at the end of November for this month. So Iím all set right? I can just spend now right?

Not so fast. You have to fund these categories.

Why? I mean I spent some serious time putting this together. I know what Iíll make this month and what I should spend. Done and done.

What about cashflows?

I have to match my inflows with my outflows. In other words I get paid weekly, but I have bills that are paid through out the month. For instance, my mortgage payment is due the first of the month. During that week, I still need to buy groceries, parking for work, gas for my car, a credit card paymentÖ Needless to say, for that fist week my outflows are greater than my inflows. Later in the month, it switches and my inflows are greater than my outflows.

So what do you do? Well, with each paycheck I get, I divide the money into different categories. I also list the categories as mandatory and discretionary. Mortgage, electricity, car payments are all mandatory. Clothing, vacation, are discretionary. I fund the mandatory ones first and the discretionary ones last.

For my mortgage, I might put some of my second, third, and forth paychecks of the month towards that expense. That way when I write the check, the money has been already allocated.

Why fund Categories?

1) Managing cashflow is the name of the game Ė The other half of cashflow is your income.

2) Easy to tweak the budget Ė Budgets to me are constantly evolving. Some times are inflows or outflows donít match our perceptions. By funding the budget through out the month, you can make small changes before they become big changes.

3) Helps prioritize items on the budget Ė I have to fund mandatory categories first.

4) Helps keep you out of the red Ė Instead of not spending more than you budgeted, donít spend more then you funded.

5) Forecast versus Actual Ė Lastly, a budget is a forecast. This is what the month should be. By funding the categories, you are moving from forcasting what should happen to what is happening.

I believe most people mange their expenses. Keep track of everything spent and categories it. Shouldnít you do the same thing with your income?

Credit cards: A necessary evil?

December 18th, 2007 at 07:09 am

Everyone has a different take on credit cards.

Some people here do interest rate arbitrage. In other words take the 0% and park the money in a savings or money market account earning 4% - 5%. They pocket the interest minus any transfer fees.

Other people here declare credit cards as pure evil and say the first thing is to get rid of them. Melt them, chop them, dip them in liquid nitrogen and shatter them, let the dog chew them up, or all of the above.

My take is some where in the middle. In todayís society, I think that itís impractical to make every purchase in cash. Do you pay your electric bill in cash or your mortgage?

So for example, my cable, phone, internet is about $160 a month. I have it as a line item in my budget. When I get my first paycheck of the month, I fund that item. Does it really matter how I pay for it? Cash, check, debit card, credit card? The item is already funded. For all purposes, that money is already sent.

What advantage do I get? I get to float the payment for a few weeks (a few pennies). I build up my credit score, using credit responsibly. I also get points or cash back.

The argument is that itís easy to charge more than you budgeted. Isnít also easy to write checks when there is no money in your account. You say no? Why? Is it because you have a different mindset around credit cards. In other words, itís ok to overspend credit cards but not your bank account.

My point. Change your mindset, follow your budget, and enjoy the perks. Never spend more then you funded and the payment option wonít matter.

But after saying all this, there are some people who canít control their spending. And maybe cash only is the way to go. But I think this population is pretty small and if you budget and are mindful of the budget, you should have no problems. And maybe turn those points into gift cards you can sell on Ebay or Craigslist for the $20 challenge.

A lazy man's budgeting

December 17th, 2007 at 08:30 am

How does a lazy guy set up? Letís start with the obvious. I didnít have a budget. I had not budgeted in the past. I knew my first pass I was going to miss something. So, letís quickly google the internet and see what other budgets people use look like. As a lazy man says, why start from scratch when I can steal from others, I mean ďborrowí.

So now I have some categories. Everyone knows the big items: mortgage, car payments, electricity, cable, groceriesÖ Itís the small stuff that will get you and those pesky seasonal variable expenses. Did you know I pay more in December than November for gas to heat my house? Did you know in December that I have to (yes have to) by a Christmas tree? Well, according to my budget I didnít know.

So this is what I did. I budgeted about 75% of my income for the month of December on what I thought. I used last monthís expenses to project Decemberís, knowing I would forget some and total guess wrong on others. But I felt comfortable that the 25% of my income would handle these bumps. So far so good.

Now for those of you that are married, you know that nothing is set in stone until the wife signs off on it. So I sat down with the wife and we went over it and I got sign off from her. Now the question is: Can we stick to this? Or more of can I stick to it for more than a month?

As I said before, I am lazy. So I need a system to track all these expense. Now, I am not going to put every expense into Excel and go to all my banks and CCs everyday to see if transactions posted. I need a lazy manís solution. Back to the internetÖ

Well, I found a solution that would work for me. Mvelopes.com allows be to hook up all of my institutions and they will bring in all the transactions. Excellent!!! A little expensive (10-13 a month), but it takes less than 5 minutes a day to do the assign expenses. I also like that I can see all the balances across all my accounts.

Now the secret to budgeting: Before you spend any money you need to start funding the different categories. In other words, I have a budget of $500 for groceries every month. Each week I put $125 into that category. If there is no money in the category, I am not suppose to spend. Therefore, every paycheck I get, I divide into the different categories.

If my envelope goes red, I got to explain it to the wife. She keeps me honest.

One of the side effects of a budget like this is that there is a total honesty about finances. My wife and I can see where every dollar goes. Just log on to the net, and thereís everything. Itís not me verse her on finance. Itís more of us.

One last thing. I have 2 furnaces in my house and one broke on Friday. I need to get someone out there to take a look. Bay Stat Gas said they could be out there on the 24th. Yea, thatís not going to work. So I called a local guy. He came out (it was a loose wire) and fixed it. $185, my wife was like ďthere goes the budgetĒ. I quickly looked at the budget and had set up a category called house maintance and it was already funded for $200. A pleasant surprise!!! Budget 1, Cynicism 0.

Why my diet failed me

December 14th, 2007 at 11:30 am

So what is a budget? Such a stupid question, right? You list your expenses for the month subtract your income, tweak it until the resultant equals zero. Sound familiar?

Sounds like a diet I was one that failed. To lose weight, take the number of calories you burn in a day and eat less calories. 3,500 calories equal a pound. So if I want to lose 10 pounds I need to eat what I burn in a day Ė 35,000 calories. HmmmÖ.. Thatís huge!!! And everything I eat is like 1,500 calories. Now I have to eat celery sticks and drink water. No more doughnuts or cream in my coffee. Well may be if I didnít want to lose 10 pounds in 2 days I could have the occasional bad meal.

So I thought ok letís give it a try. Everything I ate, I wrote in a notebook. I used a website and looked up everything I was eating. When I ate my calories for the day, that was it. I was losing weight. Life was good.

Then I started to forget to write everything down and just guessed what I was eating and the calories. I stopped losing weight.

Then, the holidays came. Can you see where Iím going with this? Yes, I ate everything cookies, pie, turkey, ham, etc. Needless to say, I gained weight and declared the diet a failure and stopped.

So, what went wrong:

1) Unrealistic expectations Ė Iíll lose 10 pounds in 2 weeks and then Iíll go back to my old ways. WRONG!!! This is life style change not a temporary thing.
2) Lazy Ė I got lazy. I didnít plan what I was eating ahead of time. The stuff I was eating, I couldnít find what the calories were (a lot of eating out because I was a consultant)
3) Eliminating the things I enjoy Ė Up until the holidays, I hadnít had a cookie or cake and I love both. When the food came my way, I had a craving and went way overboard.

I think there are a lot of parallels between dieting and budgeting. We have tried each a couple of times and failed miserably. Budgeting is a lifestyle change and a commitment.

Budgeting is a process of tweaking and refining. For example, I guessed that heating my house in December would be equal to what I have been paying the months before. Well I got my December bill and it was 4 times higher. I forgot to budget a Christmas tree in December. The old me (fat, lazy, and undisciplined) would have declared the budget broken and tossed it out.

The newer me (still lazy and overweight, but a little more disciplined) decided to rework the budget.

Also I have items in the budgeted called entertainment, vacation, and money to blow on stupid stuff. Yes, stupid stuff like a Starbuckís $4 coffee twice a week. How can I put these items into a budget? A budget is suppose to be bare bones, only the essentials. Think of that money could be put towards bills and credit cards.

Yea, thatís true. But I just donít live that way. It would be too constricting right now and I would crave those few luxuries too much. Maybe even resent the stupid budget. I think I need to have some fun in my budget a few luxuries so I can keep doing a budget. Just thinking about that vacation fund grow, I might even like the budget.

Basically, budgeting is more of a tool, a management tool. It should be able to tell you what is budgeted, what is funded, what was spent, and the differences. With a process to tweak and revise it what worked and what didnít. After all, you are changing your lifestyle.

Like diet and exercise, itís all good for you.

I think my next posts will be how I put the budget together, how to fund the budget, how a lazy man tracks everything, and how my wife puts up with me.

Budgeting Ö yuck!!!

December 14th, 2007 at 07:41 am

Letís be serious. Budgeting to me equates to exercise. There are those freaks out there that talk about getting a ďrunnerís highĒ, how they canít miss going to the gym for one day. I am not one of them. Honestly, most of us arenít.

We only get serious about exercising when our doctor calls us a fat pig or itís January 1st and ďmore exerciseĒ is our resolution. 2008, I am going to me a more moral, caring person and take care of my self mentally and physically. How long does that last? Until the first snowstorm? Not even?

Well budgeting is the same. It sounds like a good idea and we know we should do it. But thereís all that work. I have to write done every penny and what I bought, I have to set a budget knowing that Iíll miss half the expenses, I have to live my it, and then I have to do it next month. Oh joy!!! I can see this working out.

So whatís a lazy non-freak like me going to do? Have my wife do the budgeting. That didnít work very good last time. She was very good at tracking expenses and nagging me for my expenses but we never know how much we could spend on certain items. Also I wasnít good at keeping track of things.

Well, I started searching on the web for budgeting tools. Excel ones Ė too much work. Paper ones Ė way too much work. And then I discovered Mvelopes.com.

Mvelopes takes the envelope system and modernizes it. The envelope system is when you take your paycheck and put the money in actual envelopes that are labeled (like food, gas, car, insurance). Once the money is spent, itís spent. The issue in todayís world is that we donít pay cash for things. We use credit cards, debit cards, checks, and cash. Some of us have more then one bank (we have three) and multiple credit cars.

Thatís were Mvelopes comes in. My banks, credit cards, loans (auto and mortgage) all hook into Mvelopes. Any transaction that appears get uploaded to my view. Then I just drag and drop the expense in the proper folder, much like dropping emails into folders in Outlook.

The hard part is setting up the budget and funding the folders. Iíll talk about this in my next post.