June 2011 Net Worth Snapshot

This is coming a few weeks late... I've been very busy working, going on vacation, and getting engaged! Some of those activities are represented by the big red numbers below ;). I feel like I've hit bottom on reducing costs, I've been spending a lot of time researching passive income ideas.

Residual/Passive Income

I've crunched the numbers several ways and there's not really any way I can retire in 9 years with my current income level. I'm already saving around $2000/mo and cut my spending in most of the ways I know how. Even if I save/invest 65-75% of my income (which isn't very sustainable if I want to have any sort of life) it would take me around 20 years to retire. With all of that said I think you can guess what my solution is: I NEED MORE MONEY! Passive, also known as residual income, seems like the way to go. I can devote my spare time to something that eventually will create an income stream that won't just swap out one daily grind with another.

Here are the ideas I've been rolling around in my head:

• Vending machine/bulk candy route
• Rental Properties
• Membership website with user generated content
• Some other semi-passive business with a leveraged worker
• Niche content website(s)
• Some other sort of leveraged business/website
• Affiliate (I'd rather not do sales, possibly creating an affiliate product)

Those are all of my ideas for now, lots of brainstorming to do ;)

Medical Bills, Haggle them down!

A few months ago I was in a pretty bad car accident. I totaled my car but fortunately God was looking out for me and I sustained pretty minimal injuries. During the course of the settlement I learned that most medical centers and physicians offered reduced payment options for paying quickly or being classified as self pay/uninsured. Since the other driver was liable, his insurance reimbursed me for the full cost of the medical bills. After I was reimbursed I simply called the billing center for each bill and asked if they offered bill reductions for self pay. Each time they promptly responded with a set percentage like it was standard procedure. Below is what I saved.

I saved nearly $1100 by simply making a few phone calls and asking to pay less!

Switched to Index Funds

I switched the majority of my 401k contributions to index funds today. Currently I contribute 20% of my income, some days I want to contribute less so I can build up more liquid savings but I'm earning more money at work now so it should balance out. Anyways, below is my current contribution amount and the expense ratio for each fund. There's not much reason behind choosing the percentages. I wanted a little in bonds to smooth out the volatility and I wanted some international exposure.


10% Bond and Mortgage Fund  ( .71% Expense Ratio)

40% S&P 500 Index Fund (.18%)

20% S&P 400 Index Fund (.35%)

20% S&P 600 Index Fund (.35%)

10% International Equity Fund (.86%)

That's all for now, if I can come up with a logical reason to adjust the contribution percentages I'll let you know.

Emergency Fund Milestone

Back in February I was in a car accident and my car was totaled. I had insurance but it didn't cover all of my replacement car so I had to dip into my emergency fund to cover the rest. As of today I built my fund back up! I have $6000, which is about 4 months of living expenses.

It's hard just leaving that much cash money not hedged against inflation. I guess I could put it in a high yield savings account. SmartyPig.com has a 1.35% APY savings account which I'm considering and I'm also looking around at money market funds. I'll let you know what I end up doing with it.

401k Milestone

My 401k at my current job reached $10,000 a few days ago. I feel like that's a significant milestone in my journey and I'm excited! I started contributing to that account August of 2010, so it took me 9 months to stock up 10k. Granted, my entire retirement savings is around $16k, but we all like nice round numbers. Also, I think it's a good gauge of what I'm capable of now that I have a plan because during those 9 months I wasn't really focusing on saving.

Ok, I'm done bragging now.

Goals for May 2011

This May I want to:

1. Save $1500 over and above my 401k contributions
2.  Do something I've never done on my vacation to the Great Smoky Mountains
3. Determine my monthly saving requirements to retire early

Wish me luck

May 2011 Net Worth Snapshot

I'm up quite a bit this month mostly due to my accident settlement.

April 2011 Net Worth Snapshot

Changing Oil

With the crazy high gas prices lately, I've been thinking of ways to reduce costs that involve my car. I'd like to move closer to my job, but that's not quite in the cards yet. I've been changing my own oil for awhile now and wanted to see how much I'm saving.

On to the money:Cost of oil change: $30-$40, we'll use a $35 average
Cost of oil and filter from Walmart: $13
Oil changes per year: 5
Cash saved per year: 5(35-13) = $110

I'm pretty handy so changing my own oil isn't a big deal. It takes me about 20 mins. You may think the savings isn't worth the work but there are other benefits to changing your own oil. For one, the guys at the lube shop don't care about your car. They'll overfill your oil, strip your bolts, and overlook things that could later be a problem. I like being able to do a quick spot check on everything under my car to make sure nothing is about to break down. Also, being more familiar with your car will help you from being ripped off when you have to get it serviced.

If you absolutely MUST pay someone else to change your oil, don't let them change your air filter! Even the most mechanically inept person can swap out a dirty filter for only the cost of the filter.

How to change your oil

I bought my first ETF today

Today I bought 54 shares of NYSE:KBE. It doesn't quite fit into my investment strategy of index mutual funds but I recently liquidated some shares in my IRA and didn't quite have $2500 (which is the smallest minimum investment for most mutual funds). I had several criteria for choosing this etf:

1. Liquidity: 4.47 million avg volume
2. Undervalued: The financial sector is one of the few that hasn't recovered since the 2008 crash
3. Index Fund: It follows the KBW Bank Index
4. Low management fees: expense ratio of 0.35% 
5. Dividends: yield of .75,  I'd prefer something closer to 2%, but I compromised because the dividend yield was higher pre-2008. 

Wish me luck, we'll see if the financial sector rebounds. 

No more haircuts!

Do you know what the difference between a good haircut and a bad haircut is?

About two weeks. 

I used to give myself haircuts back in high school when I wanted a mohawk or some other crazy style. I did this mainly because I knew my mom would never pay for someone else to do it, so I had to get creative. Occasionally I would give myself a more normal haircut (usually when my mom strongly, umm, encouraged me to). It was easy to learn. I watched how the barber did it, got some clippers, arranged the mirrors and went to town. Luckily for me I'm a guy so if I screwed up too badly I could just shave it off, no big loss.

Anyways, this weekend I found the clippers and decided I'd save the $15. It turned out fine, only one chunk missing (the girlfriend found a spot I missed and, ahem...,  "trimmed" it. Love you babe!). This may be harder to get away with if you're a woman, but I'd guess it would save you a lot more than $15 too. Also, if you cut all your kids' hair you could quickly multiply your savings.

On to the money:
Haircut every 2 months: 6 x $15 = $90 per year saved.
Hours worked equivalent: (After all deductions) About  6

Wine

My girlfriend and I like to drink beer and wine on the weekend. I dabble in home brewing and we're both pretty low class when it comes to wine. We don't really have refined tastes and have a hard time telling the difference between really good vintage wine and Sutter Home. That being said, we've discovered box wine is a great way to offset the cost of drinking. A box of wine is 5 liters and $11, a bottle of CHEAP wine is 750ml at $5, but we usually buy bottles that are at least $10.

The math:
5L Box of wine: $11
.750ml Bottle of wine: $10

Box cost per Liter: $2.20
Bottle cost per Liter: $13.33

Savings per liter: $11.13


We're not snoody enough to care about expensive wine, so drinking boxed wine works for us. It's important to identify what you're willing to give up to meet your goals. If you assume a liter per weekend drinking boxed wine would save you:

$2.20 x 4 weeks = $8.80
$13.33 x 4 weeks = $53.32

Monthly savings = $44.52
Annual savings = 12 x 44.52 = $534.24

$530/year is nothing to snicker at. Be careful not to abuse it and become a wino... or you'll negate your savings. Discipline is very important during your savings plan. Limit yourself to a box a month and you'll be doing alright.

How fast should I pay off my mortgage?

I know there are some PF blogs out there that promote renting instead of a mortgage, but their primary argument is the cost of maintenance. I'm handy and I think I can offset the cost of maintenance enough to make it worth while. Simply put, I think it's pretty hard to argue against the fact that at LEAST your payments towards principal are something you can recover as capital later on (if you plan to move). Rent is totally lost, you'll never see it again. Also, from what I've heard, you can deduct home depreciation. I have some more learning to do before I'll post about that but it sounds promising.

My current plan is to get a mortgage for around $45,000, putting 15-20K down. According to mortgagecalculator.org with a 15 year mortgage I would have a $412/mo mortgage. That's a lot better than my $730/mo rent now. If I paid $693/mo I'd save nearly $10,000 in interest payments over the life of the loan. Is this worth it? I need to figure out how much ahead I would be if I invested the difference. From what I've read online, considering your home as an investment is not a great idea. But the idea of not having a mortgage payment sounds psychologically inspiring. I'm pretty sure I could pay off a $45,000 mortgage in less than 3 years if I neglect other savings, but is that wisest choice? I could pay the minimum mortgage and invest the difference. Invest at 8% and pay a minimum mortgage at 5%, sounds like I should pay my minimum mortgage... but I'm not sure, I'll have to make a spreadsheet for it.

Anyways, any thoughts on what I should do? Please comment with your ideas!

No more internet, sort of

In all of the personal finance blogs that I'm reading the most basic formula for financial freedom is to increase income, decrease expenses and pay down debt. The first big expense reducing step I'd LIKE to take is to slash my home expenses by swapping out a rent check for a mortgage payment. Since my present circumstances make renting more appealing I'll have to stick with that and think of smaller steps to take in order to lower my monthly expenses. One of the benefits of renting is that you live near a lot of other people that are sometimes willing to share their wireless internet. In my situation the clubhouse on the complex has free wifi. Unfortunately for me I'm slightly out of range. My plan is to purchase one of the many wifi boosters available online and see how well it works. I also have internet on my phone so I can tether that to my laptop with PdaNet. (I haven't quite convinced myself to live without internet on my phone... even though the $30/mo is hard to swallow).

Okay, on to the numbers. How much is free internet worth in the short and long term?

Here's what I currently pay per month:

Cable internet: $49.38

Netflix: $10.69    (I'm also cutting Netflix, I'll post later on how I managed to live without it)

Total: $60.07

Real total once my introductory rate goes away: $75.69

How does this look on an annual basis?  12 x $75.69 = $908.28

How about if I instead invested what I would have spent over 9 years with a modest 5% annualized return (adjusted for inflation): $10,570

That may not seem like a ton of money over 9 years, and you may be willing to pay that amount to avoid the hassle of "jury rigging" your internet. I think it's a great example of how our standard living expenses add up and can significantly affect our nest egg. 

This is my first major step in reducing my expenses. It's not an extremely scary one and I don't feel like I'm making much of a sacrifice, but I feel that it's a significant first step nonetheless.

Starting Net Worth Snapshot

Below is my present state of affairs. The idea here is to identify exactly where I am at financially and then to identify where I want to be. Knowing where I'm at now is the easy part, nailing down where I want to be can be... daunting.

Financial Profile

Age: 26, working full time for 16 months

Salary: $63,000 (OT, bonus, profit sharing, 401k match included)
Assets: $29,100
Debts: $6,900
Net worth: $22,200


Asset Profile
401K & IRA: $15,100
Automobile: $8000
Cash: $6000


Debt Profile
School Loan: $5750 (three loans with different interest rates, weighted mean interest rate of 5.23%) 
Credit Card: $1150 ( 7.5% APR, I pay it off every month)


Automated Saving
20% 401K contribution (more to come on my retirement savings plan later) 




That's where I'm at! I'm still working out my strategy at the moment, there will be spreadsheets coming soon.