Not So Mighty Merch

Well every good plan hits some speed bumps. I am not saying that I went backwards or stopped, just slightly less process then I would have liked.

So, let’s jump into things, shall we?
My goals for 2008 are:

1) Pay off debt (except mortgage) by October 1st
. a) Pay off CC by April 1st
. b) Pay off Car 1 by June 1st
. c) Pay off Car 2 by Aug 1st
. d) Pay off wife’s braces by June 1st
. e) Pay off son’s medical by October 1st
2) Invest $10,000 by year end
3) Invest $15,500 in 401(k)
4) Review and reallocate retirement funds by end of Q1
5) Will by end of Q2
6) Life Insurance by end of Q2

1) Pay off all debt but the mortgage by October 1st

$6,000 CC (0% until May 2008)
12/31/2007 - $6,000
01/31/2008 - $3,543 ($2,457 paid)
02/29/2008 - $1,388 ($2,155 paid)
03/31/2008 - $0 ($1,388 paid)

Car 1 (4% interest rate)
12/31/2007 - $5,726
01/31/2008 - $5,317 ($409 paid)
02/29/2008 - $4,761 ($556 paid)
03/31/2008 - $4,264 ($497 paid)


Car 2 (3.9% interest rate)
12/31/2007 - $17,064
01/31/2008 - $16,432 ($632 paid)
02/29/2008 - $15,800 ($632 paid)
03/31/2008 - $15,168 ($632 paid)

Wife's braces (0% interest rate)
12/31/2007 - $2,652
01/31/2008 - $2,496 ($156 paid)
02/29/2008 - $2,340 ($156 paid)
03/31/2008 - $2,184 ($156 paid)

Son's medical (0% interest rate)
12/31/2007 - $18,000
01/31/2008 - $17,500 ($500 paid)
02/29/2008 - $17,000 ($500 paid)
03/31/2008 - $16,500 ($500 paid)

This month I had some extra expenses: summer camp for my son was $350, CPA $400, baptism for other son with brunch $250, and hockey and swimming classes for my son $200.

Given these expenses, I am still pretty happy with my progress and am still on goal for all my consumer debt. I am also getting a $13k refund that I’ll use for car 1, wife’s braces, and start attacking car 2. I checked the IRS website and my refund was mailed on the 26th so should be here pretty soon.
Bottomline: I paid off the credit cards before the rate adjusted from 0% to who knows what.

2) Invest $10,000 by yearend

After the debt is paid, we will start tackling this. I am hoping to start this in September. When I first put this goal down, I was thinking there would be no way I would get to this. To me, it’s all about having a roadmap with your goals prioritized and then focusing on the first one, accomplishing it, and moving on to the next.

3) Invest $15,500 in 401(k)

Invest $15,500 in 401(k)
01/31/2008 - $1,451 invested
02/29/2008 - $3,291 invested
03/31/2008 - $4,881 invested

I am very happy with this. I am still on schedule for the end of October and then I’ll roll the extra money into my holiday budget.

4) Review and reallocate retirement funds by end of Q1

I am putting in my trades today. I believe the market has bottomed and the volatility has decreased to a level I feel comfortable with.

5) Will by end of Q2
6) Life Insurance by end of Q2

These two steps are going a little slower then I thought they would. I’ll have to just clamp down and get through this. My cash flow is improving so l should be able to float the lawyer fees and insurance premiums. I just need to get on them.

Summary

All and all, I’m pretty happy. We had some extra expenses this month and yes some of it was discretionary. But, the good news was we were able to absorb it. The big accomplishments this month are I get to cross of 1a and 4 from the list.

So, my wife has started her new job and she will be working 5-10 hours a week. Truth be told, this will probably last until June when the weather gets nice and then she’ll start working again in October.

Well, after her first day on the job, she was feeling all empowered and made the statement “Now that am working, you can stay home with the kids.”

I said “OK, to bring home what I bring home you would need to work over 100 hours a week.” She quickly calculated in her head that would be about 20 hours a day. I said or 14 hours if you work 7 days a week.

She then said “Never mind, you can continue to work.” I just kind of laughed to myself.

So my dream of staying home with the kids and watching ESPN will drinking beer and eating chips is still but a dream.

Shifting gears, I have been watching Dave Ramsey’s TV show at night lately, mainly because nothing else in on and I like to see him slam some of the people that call him. My wife usually sits on the couch next to me reading a book or magazine.

Well last night, I was watching some coverage about a little tourney coming up.

My wife goes “No Dave Ramsey tonight?” I was really stunned. I didn’t even know she listened to the show never mind enjoyed it.

Especially since she was complaining the other about needing more clothes the other week. Now for some perspective. We have a closet that’s 9x10 filled with some of her clothes and all of mine. Yes I do have about 5 feet of one wall. And she has a closet in the guest bedroom (not walk in but still big) and she has the entire coat closet. I think she may have boxes of clothes in the attic or basement but I’m not sure.

Since, watching Dave Ramsey, she hasn’t asked for money for new clothes or in general money for anything discretionary. She also is asking more questions about the budget and participating in it.

In fact, I never bring my lunch to work and always buy lunch, she said Dave Ramsey wouldn’t approve. Probably not, probably not.

I so disgusted today with stories I see in the news about people not taking responsibility for their actions.

At lunch, I watched a video on CCN.com about a couple in Las Vegas that were foreclosed on and moved from a house with huge kitchen and granite countertops on a mobile home. The basic story is that the moved into a house for $276k. For the first couple of years, the house went up into the $420k or $450k range. Then wife lost her job, they took equity out, and the ARM re adjusted.

So who do they blame? The lender and everyone else but them. These evil lenders took advantage of them.

Are you kidding me? Do you actually think a bank makes money on a foreclosure? You think banks want to be in real estate?

Then I was hearing some advise on credit cards. Basically to not pay for 120 days and then you can settle with the credit cards for half. Is this sound advise? This is the way we want to bring up the next generation?

I’m sorry but that’s not how I roll. If I borrow money or use credit cards or have medical bills, I pay what I owe. If I did something stupid that costs money, I take responsibility and pay what I owe. I don’t try to screw someone out of something I owe.

You might be saying that you owe $90k in CC and only make $30k. I say pay it all off and don’t weasel out of the bill. You owe the amount, you signed a contract, now pay it off up. Sure it may take 10 years but “man up”.

Sorry about the rant but I am so pissed off about people not taking responsibility in this country.

Your word is the only thing you have in this life so man up and accept your fate.

In an emergency meeting today, the Fed cut the discount rate by a quarter to 3.25% and approved Chase's purchase of Bear Sterns.

The street is also looking at the Fed dropping the fed funds rate to 2% on March 18th (a full percent).

I personally believe this is the other shoe dropping and this deals directly with confidence in the market.

We moved from credit quality issues (sub prime, CDOs, SIVs, municipal bond insurers, and CDS where the counter party was Bear Sterns, to solvency issues (Countrywide, muni insurers which led to issues in ARS, Bear Sterns), to the fed now flooding the market with liquidity.

I still haven't rebalanced my portfolio as I have been waiting for the market to settle. I believe this is the last shoe to drop and will wait for the dust to settle.

Most of my rebalancing was selling international to invest in my US stock portfolio and my small REITs. I believe this week we will see downward pressure on stocks (especially financials) and downward pressure on the dollar.

Good luck all!!! And cash is king (just not US ).

Source: www.bloomberg.com/apps/news?pid=20601087&sid=asg0H5x.VQ4g&refer=home

It’s a few days early, but I decided to go ahead with my mid month update. My February one, I was feeling like I might not be able to pay down the debt as quickly as I thought. At the end of the month everything worked out and I has a few hundred ahead of target.

Well, last week was one of those stressed week where Murphy puts you to the test. We had my son’s baptism and family had to stay over. This included a donation to the church ($100) and additional food and wine for dinner (people stayed over or house - $150) and party (small brunch party - $75). So, I had to borrow from some envelopes to scrap the cash together. And a very stressed wife. No new debt – I’ll take my wins where I can.

So we are closing in on the second week of March and I am actually feeling pretty good. With the paycheck I am getting tomorrow, I well have my envelopes funded where they need to be, a $1,000 in the CC envelope, and $416 in my 401(k).

This should put be on target to pay my minimums plus another $2,000 towards debt, eliminating my credit cards before they start charging interest and starting on paying down the first car.

I also sent in my taxes this week. Bad news – cost $400 for the CPA to do it, good news – we’re getting $13,400 back between state and local. This is mainly because when I switched jobs they screwed up my medicad withholdings and I paid double.

So, I hope that I’ll get my tax refund in April and most of that will go for debt. I’ll probably skim off about $1,200 for TruGreen to take care of my lawn this summer. The one that services my neighborhood really does a good job and it makes a huge difference. That still leaves $12,200 to go towards debt reduction then in May we get the tax credit. I’ll get $1,800, which will go towards debt.

I am basically hoping that by end of June I’ll have the CC, car 1, car 2, and the wife’s braces paid off. So, I’ll be able to snowball everything into my son’s medical.

So far, March is looking good. Looks like by end of June, Murphy’s family will be gone. Murphy will still be at my house, but I told him that he’ll have to find a new place by end of the year. But you never know with Murphy, he’s a tricky guy and once he’s in your house he’s tough to get rid of.

There was an interesting article I came across that offered a different way to look at retirement planning.

The article discusses a years worked to years in retirement ratio. So, if I work from 25 – 65 and plan on living till 85, my ratio is 40:20 or 2:1. To live comfortably in retirement, I would have to save 15% a year. The article continues that a 15% savings rate over 40 years is extremely aggressive

I just thought it was an interesting and different view of retirement savings.

W:R RATIO AND REQUIRED SAVINGS RATE FOR RETIREMENT

Working Retirement W:R Required
Savings Rate (%)
40 20 2:1 14
43 17 2.5:1 11
45 15 3:1 9.5
48 12 4:1 7
50 10 5:1 6


Source: http://www.aei.org/publications/filter.all,pubID.24940/pub_detail.asp

Well, I think the wife’s back on board.

I also think that she believes I was right. I think it was a couple of things just coming to a head. Our son is getting baptized this weekend. So I need extra money for the church and we're having family over for brunch. Also, both my sons seem to be eating a lot lately and it has really put a strain on the $100 per week grocery budget.

I think the furniture (one step up from parents basement) was the last straw and the wife went a little crazy. So, looking back, I think it was more a comment about the stress.

As I said before, since I didn’t have to sleep in the guest room, I wasn’t in the wrong. And that’s all am going to say on that

So next week things should get back to normal for her … and that means me too.

So what does this all mean? Well, right now I have some extra expenses that are coming up putting a little strain on the cashflow at the moment. My monthly budget is fine, just a short-term blip. So, I am going to steal from Paul to pay Mary. I’ll take some money out of my water bill envelope to pay some of these bills do this week and replace the money later in the month.

Hey, not perfect but I don’t have to take on new debt.

As an aside, Dave Ramsey actually said yesterday that in a certain case he would use a credit card. The only case he could see using a credit card was if the alternative was to borrow against your 401(k).

http://biz.yahoo.com/ts/080114/10398317.html?.v=2&.pf=retirement

This article talks about a 401(k) debit card. Basically, you transfer the amount that you can get as a loan to a line of credit. You pay a set up fee plus 2.9% above prime. What a bargain.

Great idea … just great. So my stock portfolio is gone, my home equity is gone … Hey wait I got some money left in my 401(k). I need my “buy more expense stuff to jam in my house with an arm that will be foreclosed in 2 months” fix.

Well, it’s that time of the month for me. The big bills come in – health insurance $1258, mortgage plus escrow for insurance and taxes $2800, ½ a car payment $316, and sons medical $500.

Am I worried?

Well, each month I worry about this time of the month less and less. Between the 10th and 15th is when all these bills seem to be due, and it is a lot of money shooting out. This month, I’ll actually have to have all the envelopes funded with my 3/7 paycheck, as the 3/14 will come too late. It’s a good feeling to know the amount you have due, when, and a plan to have that money there for the bills.

On a side note, the wife is having a hard time. Most of her luxuries have been cut out. I had started cutting the monthly clothing budget, entertainment budget, eating out budget, and vacation budget. She started complaining that she can’t live like this. So a little fight broke out (ok maybe not little).

I think this is the time when the rubber meets the road. Either we move forward or fall back, and I ain’t going back. The good news is she is going to get a part time job. She’ll make about $500 a month and we’ll just use this money for the discretionary items.

Anyway, it’s stressful now in the household, but I think if I can make the transition a little easier on her, she’ll get on board. Deep down, she knows that we have to do this. I also think that once we start baby step three and she sees mad cash going into her money market account, she’ll be all right.

Right now it’s just tough to keep the focus, if you don’t see that light, very faint in the distance. It doesn’t look like it’s getting any brighter on a month to month basis. You need scientific tools to measure these small changes, but the changes are there and that light is getting brighter.

When I first created my goals for the year, they seemed difficult. Since I’ll be starting my 5th monthly budget this weekend, these financial goals now seem easily attainable.

My goals for 2008 were:

1) Pay off $6,000 CC by May 1st
2) Pay down car 1 by Aug 1st
3) Invest $10,000 by year end
4) Invest $15,500 in 401(k)
5) Review and reallocate retirement funds by end of Q1
6) Will by end of Q1
7) Life Insurance by end of Q1

My new goals are:

1) Pay off debt (except mortgage) by October 1st
. a) Pay off CC by April 1st
. b) Pay off Car 1 by June 1st
. c) Pay off Car 2 by Aug 1st
. d) Pay off wife’s braces by June 1st
. e) Pay off son’s medical by October 1st
2) Invest $10,000 by year end
3) Invest $15,500 in 401(k)
4) Review and reallocate retirement funds by end of Q1
5) Will by end of Q2
6) Life Insurance by end of Q2

So, how are we doing with these new goals?

1) Pay off all debt but the mortgage by October 1st

$6,000 CC (0% until May 2008)
12/31/2007 - $6,000
01/31/2008 - $3,543 ($2,457 paid)
02/29/2008 - $1,388 ($2,155 paid)

Car 1 (4% interest rate)
12/31/2007 - $5,726
01/31/2008 - $5,317 ($409 paid)
02/29/2008 - $4,761 ($556 paid)

Car 2 (3.9% interest rate)
12/31/2007 - $17,064
01/31/2008 - $16,432 ($632 paid)
02/29/2008 - $15,800 ($632 paid)

Wife's braces (0% interest rate)
12/31/2007 - $2,652
01/31/2008 - $2,496 ($156 paid)
02/29/2008 - $2,340 ($156 paid)

Son's medical (0% interest rate)
12/31/2007 - $18,000
01/31/2008 - $17,500 ($500 paid)
02/29/2008 - $17,000 ($500 paid)

I am actually a few hundred dollars ahead of my targets.
One of the things I have not talked about was that I switched jobs and the firms took out double the FICA, so I will be getting $12k back from the government. I expect the check to either come in April or May. My CPA is currently finishing the forms.
So once this check hits, I plan on eliminating debt for car 1, my wife’s braces, and make a huge dent in car 2. So end of May, I plan on owing less then $1,000 on car 2 and my son’s medical will be the only outstanding debt (minus mortgage).


2) Invest $10,000 by yearend

After the debt is paid, we will start tackling this. On hold for a few more quarters.

3) Invest $15,500 in 401(k)

Invest $15,500 in 401(k)
01/31/2008 - $1,451 invested
02/29/2008 - $3,291 invested.

This is kind of where Dave Ramsey and I disagree. I can not bring myself to stop contributing to my 401(k) while I pay off debt.
So, I am about 21% done with this. This should be complete by November 1st. Then, I’ll use the extra money for holiday stuff. Wine for thanksgiving and Christmas, presents, tree, etc.

4) Review and reallocate retirement funds by end of Q1

I have everything set to go. I was just waiting for the market to become a little less volatile. I will probably due this towards the end of next week. I have a spreadsheet set up to show me the trades. I just need to update quantity and price, then execute the trades.

5) Will by end of Q1
6) Life Insurance by end of Q1

I wanted to talk to my CPA first and I did. I have interviewed a few lawyers and found an estate one I like. The next step is for me and my wife to really talk about what we want, then we will probably talk to the guardians for our children if we were to die, and then we will talk to the lawyer to draw up everything.

I am pretty happy so far. It hasn’t been easy these last 3 months. We have really focused on where our money is being spent. I feel I am just starting to get some traction. I can see things starting to come together, but I am still a little apprehensive.
Time to keep the focus and give the troops a pep talk.

I made it through my crunch time and I still have some money in the bank. Woo hoo!!! The first half of my month is paying the BIG bills. The second half of the month is to pay smaller bills (gas, electric, cell, cable, etc.), start saving for the BIG bills, and allocate the rest for debt reduction.

At this point of the month, I start doubting my debt payment plan. “It will never work, I’ll never be able to save up that money by the end of the month.” Those are my thoughts, but my plan says otherwise. My plan says to keep the focus and the numbers will work themselves out.

Tax rebate checks will begin going out in May, Treasury Secretary Henry Paulson said after the House's passage of a Senate-approved $167 billion economic stimulus package Thursday.

Senate Majority Leader Harry Reid: "This legislation is not everything that I wanted. But I am very happy."

The House of Representatives voted 380-34 to send the measure to the president a few hours after Democratic and Republican senators reached accord and ended a dayslong stalemate over the legislation.

Earlier, two White House officials said President Bush would support the package. The bill will be delivered Friday to the White House, with Bush's signing likely sometime next week, Democratic aides said.

The package, which passed the Senate 81-16, will send rebate checks to 130 million Americans in amounts of $300 to $600 for people who have an income between $3,000 and $75,000, plus $300 per child. Couples earning up to $150,000 would get $1,200.

The checks are an advance on next year's refunds, and most, if not all of the money, will be deducted from taxpayers' refunds in 12 months' time.

"My team will be sitting down with the IRS tomorrow, and the IRS, right in the middle of tax filing season ... will be working to get checks out," said Paulson, who helped broker the deal.

Paulson said the process of sending the checks would be completed by the end of summer.

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Senate committee approves bill
Senator wants seniors to get rebate checks
The leadership of both parties hailed the efforts that moved the package through Congress.

"You don't see anybody up here gloating about being a winner," Senate Minority Leader Mitch McConnell, R-Kentucky, said after the House vote.

"There were no winners or losers in this except the American people, who saw us rise above any differences we might have had and work to agreement on what is the No. 1 issue, and that is our slowing economy."

House Minority Leader John Boehner, R-Ohio, said, "The House gave a little, the Senate gave a little. I think that's what the American people expect of us -- to find some way to come together and deal with the problems the American people are facing."

Senate Majority Leader Harry Reid, D-Nevada, called the approval an "example of how government is supposed to work." Reid said, "Legislation is the art of compromise, and that compromise comes very hard sometimes. It came very hard this time."

After the House passed a stimulus package last week, Senate Democrats made a number of changes that Republicans would not accept, saying that they were too big and loaded with special-interest provisions.

After Democrats were unable to break a Republican filibuster threat, the leadership headed back to the negotiating table, finally agreeing to leave rebate check amounts at the House level. (Senate Democrats had lowered them and raised the income caps.) The Senate measure also added checks to more than 20 million Social Security beneficiaries and 250,000 handicapped veterans and their widows who were left out of the original House bill.

The Democrats dropped demands for an extension of unemployment benefits, energy assistance for low-income households and tax breaks for energy providers.

"This legislation is not everything that I wanted," Reid said. "But I am very happy."

While the members of Congress and Paulson applauded the bill's quick passage, a survey found that about one in four Americans (26 percent) said they would spend their tax rebates.

Nearly half (46 percent) said they plan to use the rebate to pay off debt and a quarter (28 percent) would save the money, according to the International Council of Shopping Centers and UBS Securities, which jointly commissioned the study of 1,005 households between January 31 and Sunday.

"The money will go into the hands of lenders rather than retailers," said Mike Niemira, chief economist of the International Council of Shopping Centers.

The crushing weight of Americans' debt load was underscored Thursday when the Federal Reserve reported Americans owed a record $943.5 billion in credit card debt at the end of December.

Including loans other than mortgages and home equity lines of credit, Americans are shouldering a record $2.5 trillion in debt.

That amount increased during the month by a relatively modest 2.1 percent, an indication that Americans have been restraining their spending


source: http://www.cnn.com/2008/POLITICS/02/08/economic.stimulus/

Justthe shear amount of debt boggles my mind. $2.5 trillion in debt not including mortgages and home equity loan? Wow!!!

46% said they would use it to pay off debt. I wonder what the actually numbers will be. I say most of the 46% will spend atleast some of the money.

We all have that one week in the month that is like the hump. Once we get over it, it’s all down hill. This is that week for me. The second week of the month.

My outflows:

Insurance: 1,250
Mortgage: 2,800
½ car: 316
Medical: 500
Groceries: 100
Utility:140

Needless to say, I don’t take home that type of cabbage on a weekly basis. This is where a budget fails. A typical budget looks at these items occurring within a month without regard to the cashflow. This is why it’s important to have a funding plan. Your inflow and outflows don’t match up. Some weeks are feast and some weeks are famine.

This is my third month of having a budget and funding plan, and I always had doubts on the second week. Is this going to work?

Well, this is the first month that I truly don’t feel stress paying these bills. I do have doubts about how much I will pay my debt down this month but not how I will pay for the essentials.

I guess what I am really trying to say is that I am starting to fully trust the plans (budget and funding plans). And as the saying goes, “Plan the work and work the plan.”

PS: No my employer doesn’t have health insurance. And this was the best plan for piece of mind. Sometimes the expense is worth the peace of mind (especially if it keeps the wife off my back). I’ll probably look for a cheaper plan next year.

So, I have a spreadsheet that tracks all my debt except the mortgage. I have everything bucketed by month and what I plan to pay off and when. I have a regular and aggressive payment sheet. The theory on the regular is that the are realistic numbers and if I stay on track I should hit them. The aggressive numbers are a motivational tool. Just out of my grasp but attainable in a perfect world (barely).

Well, after much debating internally, I have decided to redo my goals. I am dropping regular plan and adding a super aggressive plan. I don’t know how I’ll even come close on the super aggressive plan, but the goals on the regular plan were being easily accomplished.

1) Credit Card Debt (0% until May 08) – Balance 1/1 – 6,000

Regular: April 2008
Aggressive: March 2008
Super Aggressive: February 2008

2) Car 1 (4% interest rate) – Balance 1/1 – 5,726

Regular: July 2008
Aggressive: May 2008
Super Aggressive: March 2008

3) Car 2 (3.9% interest rate) – Balance 1/1 – 17,046

Regular: February 2009
Aggressive: September 2008
Super Aggressive: July 2008

4) Wife’s Braces (0% interest rate) – Balance 1/1 – 2,652

Regular: March 2009
Aggressive: September 2008
Super Aggressive: April 2008

5) Son’s Medical (0% interest rate) – Balance 1/1 – 18,000 (estimated)

Regular: August 2009
Aggressive: January 2009
Super Aggressive: September 2008

Let’s see how this works. Strive for the super aggressive plan and settle for the aggressive. Keep the focus!!! I don’t know how I’m going to do it, but that’s the challenge.

My goals for 2008 are:

1) Pay off $6,000 CC by May 1st
2) Pay down car 1 by Aug 1st
3) Invest $10,000 by year end
4) Invest $15,500 in 401(k)
5) Review and reallocate retirement funds by end of Q1
6) Will by end of Q1
7) Life Insurance by end of Q1

So, how are we doing? Good in some and procrastinating in others. Probably par for the course.

1) Pay off $6,000 CC by May 1st

12/31/2007 - $6,000
01/31/2008 - $3,543 ($2,457 paid)

Nice. I might be able to pay this off by end of March. 2 months early. Keep the focus.

2) Pay down car 1 by Aug 1st

12/31/2007 - $5,726
01/31/2008 - $5,317 ($409 paid)

Well, if I can keep up the pressure and the focus, I might be able to pay this off by end of May. Nice.

3) Invest $10,000 by year end

Yea, well, you know… I’ve been real busy lately. Seriously, once car 1 is paid is will get attacked. On hold now but itching to start.

4) Invest $15,500 in 401(k)

01/31/2008 - $1,451

Right on target. Looks to complete in middle of November. (A little boost in income around Christmas by not having the old 401(k) deducted from the paycheck.)

5) Review and reallocate retirement funds by end of Q1

I have reviewed the allocations and mine are all out of wack. I have set up a spreadsheet to figure out the buys and sells automatically. I am just waiting for some of the volatility to leave the market. No sense rebalancing if I need to rebalance next quarter. I like to do it once or twice a year. So ready to go, just waiting.

6) Will by end of Q1
7) Life Insurance by end of Q1

These last two items I believe go hand in hand. I might push these off to Q2 because I want to get some advice from my CPA, and I definitely don’t want to rush it. I figure work out the general plan with the CPA (how the trust and wills work together for tax purposes) and then have a lawyer fill in the blanks. Now, I’m not a millionaire; but once I throw in life insurance for me and my wife, my estate’s value goes up considerably.

All and all, I think I am pretty much on target to get all my goals accomplished this year. In fact, I have two other goals I might add: pay off a second car ($16,432) and my wife’s braces ($2,496).

The funny thing was that when I started putting together my goals for 2008 in December I thought that they were tough and it was going to be a stretch to achieve. After the first month of January, I’m ready to add more goals to the list.

I was watching Myth Busters over the weekend and they had a show where they were talking about how lead balloons can not fly. When you’re looking at material make a balloon, 2 characteristics come to mind: strong and light. Lead is neither. Lead foil rips easy and is 6 times heavier than aluminum foil.

In the end, the built a 10x10x10 cube and inflated it. All the time repairing rips. Make sure the various sides weren’t rubbing against each other. After it was inflated, it rose to the top of the ceiling and yes the lead balloon floated.

Sometime when I think of my finances, it seems that I am trying to get a lead balloon of the ground with debt and financial obligations being the weight of my balloon. The rips occurring so easily are my old spending habits.

So how do I get a lead balloon airborne? Well, I’ll follow what the Myth busters did.

1) Have a plan – So my plan is to start shedding debt. The order will be credit cards, my car, wife’s car, wife’s braces, and son’s medical. Basically it is from highest interest rate to lowest.

2) Implement the plan, working each step of the plan – In other words, concentrate on the first step. Let’s get the credit cards paid off before worrying about sending more to the cars.

3) Plan for the catastrophic risks – I may not know what the risks are, but I can plan for what happen when they occur. I have a budget that should take care of most things (car maintenance, house maintenance, etc.). I also have an emergency fund to go above and beyond this. I haven’t tapped into since I started a budget.

4) Review progress of the plan –
Now, you can review your progress to your plan. Is too aggressive, not aggressive enough?

5) Make adjustments as necessary – Little bumps are to be expected. Just rework the plan and make the small adjustments you need to.

And this is how I plan to fly my lead balloon. Tears rips and all, my toxic shining balloon will rise

I have been thinking of writing this for some time now. I figured today is as good as any day. A lot of you are feeling the pain of the stock market. It’s been down for 6 days and looking to go down again. The Fed lowered rates from, I feel, a position of weakness and not strength. The financials are leading the markets lower (even though yesterday was pretty good for some).

So what do I do now? Bury my head in the sand? Move everything to cash and put it in a mayonnaise jar?

Did you do that when you were creating a budget? No, you took a deep breath assessed things and came up with a plan. When times started getting tough with the budget, did you abandon it? No, you worked through the pain.

So what should we do?

1) Continue to put money in your retirement accounts. Remember, this to shall pass. Dollar cost averaging is a powerful concept.

2) Review your funds. Are some of these dogs that have been under performing for years?

3) Review your allocation.

The best way to illustrate this is the internet bubble. Internet stocks are growth stocks and in the late 90’s just took off. Chances are your portfolio was overweight technology and mostly likely you were taking on more risk then you wanted or intended.

It might make sense to review your portfolio and make sure your allocations are in line to your target allocations. I know for my portfolio, I am currently overweight international and emerging market, while underweight domestic stock and REITs. I reallocate every 6 months and am scheduled to do so in the next 3 weeks.

There are 2 ways to rebalance your portfolio:

1) Buy and sell shares in your accounts.

2) Tweak your buying so you buy more of your underweight and less of your overweight.

Lastly, don’t panic. Come up with a game plan that works in good and bad times and stick with it.

This was the other shoe I was talking about a few posts ago.

“The seven AAA rated bond insurers place their stamp on $2.4 trillion of debt. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg. The industry guaranteed $127 billion of collateralized debt obligations linked to subprime mortgages that have plunged in value as defaults by borrowers with poor credit soar to records.”

The article continues….

“MBIA and Ambac both said they were surprised by Moody's decision to start a new review, less than a month after affirming their ratings. The flip-flop by the ratings companies is making investors wary of buying stock or bonds of the insurers, Giordano said.
``You have a market that has zero confidence in anything financial right now,'' Giordano said. ``You have the agencies who, in my opinion, have continued to make a comedy of errors. And you have very complex companies that are very hard to understand. It's easy for investors to just sit on the sidelines.'' “
Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aoQISj8w4Z90&refer=home

I believe that the whole market will be in a panic this week. I believe that the Fed emergency rate lowering is coming from a position of weakness and not strength. I am looking at financials to start bottoming out. Besides a total meltdown of the financial infrastructure, I don’t see much more bad news. I would look at today setting up some lows in the financials and then testing these lows later this quarter.

I am starting to reevaluate my list of financials looking at the strong ones like GS. Not buying yet, but getting closer. I need to make my list and then look at some entry points.

Breaking news....

Fed lowered rates by 75 basis points at 8:20 today. Federal Funds rate at 3.5%.

For those looking to refinance, this week might be the week to do it. Keep an eye on the treasuries.

I expect with today's meltdown, money will be flowing into treasuries causing prices of treasuries to rise and the yields to plummet (proce and yield have inverse relationship, like seesaw). So, you should see mortgage rates down this week.

Merrill reported their earnings and just like Citi, the reports were not good. Merrill had a write off of $15 billion, which lead to a net loss of $9.83 billion. Or, $12 a share.

Since May, the banks and Wall Street have written of over $100 billion since May. Greatest quote - Chief Executive Officer John Thain called the results “clearly unacceptable”'. Do you think?

$11.5 billion was for subprime and $3.5 was related to bond insurance contracts when ACA Capital Holdings Inc’s ratings were sent to CCC (junk). When ACA got slashed, Credit Agricole and CICBC took write downs of over $7 billion combined. The culprit was bond insurers branching out from guaranteeing municipal bonds to getting in the structured finance products, like CDOs (basically a collection of mortgages, loans, and other things).

All the major bond insurers (MBIA, FGIC and Ambac) have been put on notice by the major rating agencies. MBIA just got an injection of $1 billion from Warburg Pincus. So what does this mean, if you have insured muni bond funds, they just got a lot riskier.
“Many CDOs were downgraded by Standard & Poor's and Moody's Investors Service as an increasing number of borrowers fell behind on home-loan payments, sending prices on some of the securities plunging to as little as 30 cents on the dollar.” (Source: Bloomberg)
Citi also took a writedown of $18 billion and reduced the dividend by 40%.
So to recap the last 6 months, we have had write downs of over $100 billion because of subprime, we have had cash enhanced and cash plus funds caution about trading below a $1, we have CDOs write downs that could affect bond insurers and hence muni insured bond funds.
At the moment, cash is king. I am and will continue to stay away from the financials. I think there will be more write offs around CDOs. In other words, I don’t think all the bad news is out there yet.
Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aWfl7kVEmU_k&refer=home

Source: http://www.tradingmarkets.com/.site/news/Stock%20News/939115/

One of my goals this quarter is to have a will in place. My wife and I haven’t really discussed the particulars, but I thought I would present it to my wife and she can tweak it as necessary.

First, and easiest, surviving spouse gets everything. What’s mine is hers and what’s hers is hers.

Now the tough part, if we both die. I thought the best place to start was what we wanted and didn’t want.

1) I don’t want my and my wife’s death to be a financial burden on anyone
2) I don’t want my children to be a financial burden on anyone
3) I don’t want to have higher education costs be a burden on my children
4) I would like to have funds available to help by children buy a house but not squander any remaining money

I know for a “we” thing I sure use a lot of “I”. Again, this is just my framework. The boss … er wife … will need to sign off on this.

So, I was thinking that the estate would settle up all the debt and sell all “stuff” (house, cars, sofa, etc.) and transfer all of our financial accounts into a trust. The trust then would dole out a certain amount every month to the guardians of my children. I have a figure of $2k - $3k a month, adjusted for inflation yearly. I have to see if this figure is realistic.

Also, I will also need to put in something about money for special circumstances (medical comes to mind), where one child might need access to the money.

Anything that is left over will be used to pay for college. Probably room, board, and tuition. I’ll have to figure out a fair way to allocate this. I don’t want one child using all the money and none being left for the other child. Maybe when the first child enters college, the money is split into 2 sub-trust, one for each child.

Lastly, if anything is left over, split evenly between the children at age 25 or 30. I want them to have some maturity about money before the money gets to them. Of course, there may be nothing left by this point.

One exception would be if my wife has special jewelry that she wants to give to her family, heirlooms come to mind.

Today’s headlines from Bloomberg:

1) Retail Sales in US Unexpectedly Fall 0.4%, Capping Worst Year Since 2002
2) Citigroup Posts Record Loss, Cut Payout
3) Dollar Drops to Lowest Since 2005 versus Yen
4) Merrill, Citigroup Get $21 Billion From Outside Investors to Boost Capital

Yes, an additional $21 billion. Citi raised $14.5 billion and Merrill raised $6.6 billion. That brings the Wall Street bail out to $59 billion, mostly Middle East investors.

Citi said it was to shore up their Tier 1 capital ratio. This is the number that regulators look at to assess if a bank can withstand loan losses. With the injection of capital, the Tier 1 ratio will be 8.2%. Citi likes to see it above 7.5%.

So what does this mean? To me, US stock market should continue to be volatile with pressure to the down size. I expect to see more layoffs on Wall Street. Citi was talking about laying off 45,000 a few months ago.

I already heard that bonuses are way down. Looks like BMW and Mercedes dealership will be disappointed.

But I do expect financial to bottom out in the first half. I wouldn’t buy yet. Subprime mortgages are still out there. Also, some of the bond insurers are having issues, even though Berkshire Hathaway announced they were getting into the business.

Bottom line: Cash is king. And, it an excellent time to build up your cash position and your emergency funds.

These are pretty much my opinions and what I think about the current market.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=anjGWhqi0PSE&refer=home

I have started to reach a really weird point in this budgeting project. I’m looking forward to paying bills.

Let me explain. Each month, ok I’m on my second budget, I create a budget and every week I get paid and allocate that paycheck into different items on the budget. During the week, we try not to go over the funded part of the budget.

I am currently $1.20 over budget on my groceries and $20 over the funded amount on eating out, but way within budget. BAD MERCH!!!! I should allocate other money from a different envelope, but I get paid tomorrow. So, I’ll take care of this tomorrow.

I use credit cards for all my transactions. Mvelopes.com keep track of all the transactions and I drop them into the right envelopes. When I need to pay the credit card, I look at the balance in Mvelopes and pay that to the CC, usually the same day I receive the bill.

No sense in waiting. The money is already spent on paper, just send out the check.

Now the worst thing about my bills is that they all are due at about the same time. For me, I have a mortgage, car payment, health insurance, escrow payment (house insurance and taxes), and medical bills all due around the 15th. This in the financial world is called a liquidity issue. For that week, my outflows are way greater than my inflows.

So what do I do? I save a piece of these bills every week, so when the 15th comes, the money is there. For me, it will take we 2 months to burn in my funding plan. In other words, January is going to be tight but it should set me up for a good February.

So, I’m keeping my eye on this month will looking forward to February. I still have goals on the left side that are realistic but I’ll need to keep a tight leash on the budget to accomplish everything.

Secretly, I’m wishing to accomplish more.

Top Treasury money market funds have yields at about 4.58%, but top performing prime money market funds have yields of 5.18%. What gives? Aren’t all money market funds created equal.

Alas, the answer is no.

To achieve the performance over treasuries, these prime money market funds, also called enhanced or plus cash funds, invest in asset backed commercial paper and SIVs.

What is a SIV? It is a fund that borrows short and buy long term securities at a higher rate. Well, there are 2 risks with SIVs: solvency and liquidity. Solvency has to deal with risk of the long term debt failing below the value of the short term debt (read subprime mess). Liquidity deals with outflows to the short term borrowers coming due before the long term assets pay (read credit crunch).

Everyone knows that a money market account won’t go below a dollar, right? GE Asset Management fund (an enhanced cash fund) hit $0.96.

Other headlines include SunTrust buying SIVs for a money market account from Cheyne Finance that defaulted last month. Bank of America is planning on providing as much as $600 million to fund debt from SIVs. Blackrock sent a letter to shareholders specifically stressing that “enhanced” and “plus” cash funds were not money market accounts. (http://literature.blackrock.com/eStudioContent/public/BRLF_Cash_Mgmt_082007_Client_Lttr.pdf?PubDate=/1_8_2008_BRLF_Cash_Mgmt_082007_Client_Lttr.pdf)

So what does this mean? The higher the yield, the higher the risk. But, I am not suggesting that money market accounts are going to be imploding all over the place. I do expect that most financial institution will put capital into the funds to maintain the $1 price.

So what should you do? If you are in an enhanced or plus cash fund, you should see what type of investments the funds are. For the AAA money market funds invested in treasuries, you should have no worries.

You could also park your money in 3 month CDs. They are FIDC insured up to $100,000 (I believe) and earn around 5%. If you need the liquidity, you might want to review the holdings of your money market account.

Yesterday, my wife decided to go grocery shopping, armed with a budget of $100. I gave her some coupons to use on stuff I know she buys. There is a ton of other stuff she buys that I don’t know about. Well, the coupons were $0.75 off of this $0.50 off of that.

She was talking about the gold old days when she didn’t have to use coupons. She also use to grocery shop everyday before we had a budget. It was like $40 at the grocery store and stop into CVS for another $30. Well, now we budget $100 per week for groceries and we eat out far less.

We used to eat every meal on the weekends out. We have changed that. I now spend $20 a week on pizza for Saturday night and we eat the leftovers for lunch on Sunday.

Well, when she said do you remember, I started remembering about double income and no kids. Living in a condo in Brookline (in 2004 it was $360k condo for 900 square feet). Eating at the Radius in Boston ($300 per meal, I recommend the chef tasting menu). And sleeping in late on the weekends.

Sorry about that tangent. Where was I? … Oh yes … grocery shopping.

My wife came back from the grocery store and showed me the receipt. She spent $77 this week for all our meals. She saved about $33 on coupons and sale items. She was talking about how she got a center cut roast for $10 that’s normally over $20. She was talking about how see saved on this and that.

Not all of the buys were great. She bought strawberries on the cheap and some of them were rotting.

I thought to myself, who is this woman and what did they do with my wife that left the house. And could I keep this one?

She must have had one of the light bulb moments in the store or the way back after seeing all her savings.

I was listening to Dave Ramsey the past few days.

The first caller I remember was a guy engaged. He had a 30k car and his wife to be had a 30k car. They were making 60k between them. The guy also just got out of bankruptcy. He also had a couch from Rent-A-Center.

I was thinking to myself “WOW, what the heck.” Could you imagine being the loan officer at the car dealership? “Let’s see. You make between 30k – 40k? And you just got out of bankruptcy? How about fully financing that purchase?”

So, who pays the price of this high risk loan? The dealership? The car company?

Neither, you and me take the risk on these people. See, Wall Street bundles up all these loans from GMAC, Nissan, BMW, credit cards, etc. and sells them to mutual funds (similar to mortgages). So the auto company sells their receivables to Wall Street then they offer securities based on these loans. These are called Asset Backed Securities.

Anything with a payment stream (auto loans, credit card payments, bank loans, boat loans, etc.) can be securitized.

No wonder store credit and loans are so easy to get. The stores don’t have to hold on to them sell the best ones to Wall Street and then the really bad ones to collection agencies. No need to wait for your money.

Where does this leave us as a society? The sad thing is that this isn’t a unique story.

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 … 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 “oh no”. 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 that’s 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, it’s not a McMansion, I don’t have a servant’s 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 “encouraging” me to make January’s 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.

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 people’s situations through our own glasses of experiences. Often times, those glasses are tainted with not enough information and “the way I do things is right”.

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 never…. 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.

Let’s be honest, refraining from gossip is hard. For instance, Britt Spears is living paycheck to paycheck and makes over $700k a month. And Paris Hilton’s 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 Paris’ behavior.)

Hey, I said I would try … and it’s not 2008 yet.

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, I’m basically already set up for this and won’t 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. I’ll track them here and see how the new year goes.

Well, I’ve 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.

Let’s 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 that’s 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 don’t 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 didn’t. How could this be?

The answer is quite easy: Life happens. So, let’s 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 “need”. Right? And there is the trap. There is a huge temptation to use that money. After all, what’s a few thousand dollars? You’ll make it up next year.

And that’s the answer. Most average people, myself included, don’t have the discipline necessary to leave that money alone. It’s just too tempting.

If you pay down the mortgage every month, you don’t see the wealth accumulating and it’s 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 – 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.

Well, that time of year again. Time to start thinking about my New Year’s 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 “encouraging” me to complete next month’s budget. I call it nagging; she calls it supporting.

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

So how is this year going to be different?

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

Plan – There is a saying I like “Plan the work and work the plan.” The largest reason I have failed is because I will make a goal but not have a plan to achieve the goal. This year I’ll put together the budget monthly to achieve my goal.

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

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

No Accountability – This is where the wife comes in. She’ll be nag … er… encouraging me all year.

To do’s 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.