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.