Prepay Mortgage or Invest?

Lupe's Notes: Unless you are nearing retirement or have a mortgage rate over 7-8% you are better off putting any extra money you have towards your investments.

The tipping point between the two is whether you can earn a better rate of return through investing than what your mortgage rate costs you. At first blush this seems to indicate that so long as you are able to achieve investment returns in excess of 7-8% than you are better off investing. While that is true, there is an even stronger argument to allocate extra money towards your investments.

If you account for an itemized deduction of mortgage interest on your federal tax return, the total cost of mortgage debt falls below the mortgage rate. This lowers the rate-of-return hurdle one needs to clear in deciding which of these avenues to pursue.

When pondering this decision, one must also consider what type of investments the money would be put toward. As I have mentioned, I will be struggling to max out my tax sheltered investment accounts (401(k) and Roth IRA) for 2008. These vehicles will provide me the best rate of return, therefore, I have all the more reason to focus any residual savings towards these investments. If you are one of the fortunate ones with money to invest above your tax sheltered accounts your mortgage/investment decision is slightly more intriguing. Again, it ultimately comes down to which will provide you the better overall return. However, I would bet investing is still the way to go.

There are also psychological factors to consider briefly. Clearly, there is intrinsic value to the notion of owning one's own house. I know that sounds great to me. Though no matter your desire, I would not just flippantly decide to pay down your mortgage over investing. Instead, I would argue that depending upon the strength of your desire to own your house free and clear, you assign an interest rate value to your wants. For instance, say you have a high mortgage rate and you have maxed out your tax sheltered contributions and you REALLY hate debt. I would assign a mortgage rate reduction of 1.5% (I picked this arbitrarily, you decide what to do) to your debt hate and then reincorporate that into your total return on investment. If the balance now tips in favor of prepaying the mortgage, decision made.

Lastly, maybe this should have been firstly, you need to check with the mortgagee and determine a) whether they even permit prepay b) they charge for early payment and/or b) whether there are costs associated with making differing payments.

1/31/2008-DB

Breakfast ($1)
Lunch ($4)
Dinner ($8) Uncle Sam's
Alcohol ($12) Drink with Lace before traffic court, what's better than that?
Misc. Parking Ticket: $16
Total: $41....$9 over budget. This has been a BAD budget week, due largely in part to my bad luck with parking tickets.

Time budget
Tasks: 1(4hrs)- finish reevaluate later

I have attempted to add financial goal meters to the side of my blog. Clearly, I do not understand HTML. I should note that I got this idea from another personal finance blog I like, Beachgirl's Budget Blog. She has a better grasp of HTML than I.

Daily Time Budget

I have known for a long time that I have a terrible procrastination problem. If there is anything else, and I mean anything, other than work for me to do I will almost always choose to do that anything over work. This blog is a good example. What can I do? I'd like to think I have wisened up in my old age and realize now there is no getting rid of the procrastination monster, at least not entirely. So I need to embrace it and work around it. Additionally, though I'm only a week and a half in, I realize that I like writing in this blog and am doing a pretty good job logging all my financial transactions. This was what I set out to do and it's going well so far. I'd go so far as to say that I enjoy this blog. Now I figure, if I am doing OK with a financial budget, why not blend in a daily time budget as well? Well, that's what I am going to try and do.

Given my profession as an attorney floundering about in Pittsburgh, I realize I cannot just set a daily time break up. That is too structured and draconian, because my schedule is different every day. Alternatively, I will need to plan ahead (either the night before or in the morning) for how I intend to allocate my time. Also, the time budget has to include a combination of individual task/project goals for the day combined with goal times to complete each task. To protect the innocent (me) I will only refer to my tasks by number and projected time commitment. And with that, I propose the following budget for me for the rest of 1/30/2008:

Tasks: 1-3
1-30min
2-45min
3-3-4 hours (This will probably not complete today.)

It is 1pm. I have a 40 min appointment at 1:30. So my goal is to complete 1&2 and largely cut into 3, while allotting approximately 45 minutes to down time.

Update: I was able to complete the first two tasks. I did not get to task 3. Instead I completed 2 other small tasks that were of more immediate concern.

1/30/2008-DB

Breakfast ($1)
Lunch($4)
Dinner($0)
Total: $32-($4+$1)= $27 credit; $23 ahead for the week.

I am going to withdraw $20 and go pay my parking ticket. How I wish I had a job that I could bike or ride the bus to (Less overall consumption and less money spent!). Following a random parking ticket, I can't help but get paranoid that the parking authority is on to my evasive maneuvers.

Though I don't want to jinx myself like yesterday, I think this should be a low cost day. Although, I might go out and by ingredients for crock-pot chili. I should add this to my 2008 goals but I want to become a crock-pot guru.

OK, I am forever done making "no more costs for the day" budget predictions. I just went to pay my parking ticket only to find that I had another ticket on record that was unpaid. $39! Because it is now late. I never got it! That is a huge problem with the parking authority. They could just type the ticket up print it then wad it up in their hand and throw it away. You never find out about it until its ratcheted up in cost and the city makes out. So I paid the most recent ticket and set a court date for tomorrow to challenge the old ticket. What my excuse will be, I am not sure. I think I will claim broken meter in an 8 hour parking zone. That's infallible! However, I guarantee I go to the small intestine-anus of Pittsburgh (parking court) and get my ass handed to me. But I've really got nothing to lose, save my time and dignity. I almost think it would be worth the investment to get a job as a meter maid and really figure out the method to their ticketing madness. !@#$*$$&!!!##*@$&#$*@#&#$*!!!!!

Yodlee.com Technical Difficulties- 402 Error

Yesterday I was singing the praises of yodleee.com. This morning I was cursing the program as another mediocre personal finance tool. My anger began when I attempted to update my checking account to reflect this mornings automatic paycheck deposit. My update changed nothing and I was told there was a 402 re-verification error. Though the site was working perfectly yesterday it had now totally crapped out and clearly it was the computer's fault not mine. All of this went hand-in-hand with my inability to upload my student loan information from AES. I was getting the same 402 re-verification error with the AES site. This was all very frustrating.

After a little research, I discovered the problem. In addition to inputing your login ID and password correctly, each site also comes with specific security questions. Some of these sites, like my checking account and AES account never ask you the security questions when you login. Other sites like ING ask you for them every time. I did not even know I had these security questions for my checking and AES accounts. After some digging and a couple calls to customer service I located my security questions and their corresponding answers. I input each exactly into my Yodlee account and now everything is on track. Funny how I always assume it is the computer's problem not mine. Lesson being, if you decide to open a Yodlee account (which I highly recommend!) ALL of the information has to be input correctly.

The downside to all of this is that I was able to upload my student loan information. My present day net worth is (-$50K). I hope Lacey knows the type of person she's getting mixed up with ;) The upside to my student loan is that I refinanced and have an overall interest rate of 2.3% So I can make the minimum payments on this loan for the next 24 years and know I am always getting a better return elsewhere (well at the very least a high-interest savings account is a better investment than paying more than the minimum on this loan).

Yodlee.com!!!! Best personal finance interface yet.

I was reading a Money magazine issue from a few months back which was discussing all the best financial websites on the net. Yodlee.com was discussed as being a great way to keep track of your personal finances. So I checked it out and it is indeed an awesome interface. I am almost wondering whether I will need to bother with MS Money any longer.

In about 20 minutes I was able to upload all of the recent account activity and current balance for my checking, savings, Roth IRA, and 401(k) . All of this information is now neatly consolidated providing me the ability to look at my spending habits/allocation, net worth and spending v. income. Although, I am having trouble uploading my student loan information, for the time being, I am blown away by this site. I would strongly recommend it to anyone. You can start tracking your global finances here.

Additionally, this is touted as one of the safest online sites going as the Yodlee company is responsible for the online security of a number of well-known banks. Also, this site is free...ship it!

1/29/2008 Daily Budget (hereinafter "DB")

Breakfast ($1)
Lunch ($4)
Dinner ($0)
Misc. Parking Ticket: $16
Total: $21...$11 ahead of budet for the day.

I believe this should be all the expenses I have for today, which would put me $27 ahead of budget for Tuesday. It also puts me $27-$15=$12 ahead of budget for the week. Back in the black.

Of course I jinxed myself and got a $16 parking ticket today. So now I am back in the red $4. I am going to have to go budget nuts for the rest of the week to make up for this semi-surprise expense. I wish there was a way to budget for the occasional tickets I get. It comes with the territory when you park for "free" at broken meters. My feeling is that I park so far away the powers that be shouldn't bother with me. Anyway, I average about one ticket a month. $16 a month for parking in the city is acceptable. I do think that if I had the wherewithall to wake up an hour earlier, I could get lower risk free parking spots that are closer to my office. If I get another ticket this month, I may just start doing this.

January 28, 2008

Jim brought up a good point about the accounting for my Clif bars. I was sort of unsure of this as well since I buy them in bulk for ~.97 a piece. So to simplify things I am now going to mark my breakfast Clifs $1.

Today:

Misc: iTunes song ($1)
Breakfast ($1)
Lunch ($5)
Dinner ($0)
My portion of groceries ($40)
Total: $47 ($15 over budget)

While I am not thrilled to start the week off over budget, it was unavoidable. Groceries are obviously a necessity and should provide us with dinner for at least a week and a half. Also, $7 of my grocery expense went to reimbursing gloves she bought me at TJ Max. I was in a rush today to make an appointment I drove off with my gloves on the roof of my car. I realized my error when I was on the highway and noticed one of my gloves caught on my spoiler flapping in the wind, waving goodbye if you will, before floating off into oncoming traffic. RIP old gloves you served my hands well.

Self-Directed IRA's

There is an article here that I plan on researching. The gist of my inquiry is how SEP-IRAs and solo 401k can be used in addition to employer 401k plans for individuals who both work for an employer and also have their own side business. I believe it is possible to contribute $44k total to various retirement vehicles under this scenario.

Wikipedia has the following entry regarding self-directed IRAs:

A Self-Directed Individual Retirement Account is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan. IRS regulations require that either a qualified trustee, or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account. Self-directed IRA accounts are typically not limited to a select group of asset types (e.g., stocks, bonds, and mutual funds), and most truly self-directed IRA custodians will permit their clients to engage in investments in most, if not all, of the IRS permitted investment types (an almost unlimited array of possibilities including foreign real estate). Some of the additional investment options permitted under the regulations include, but are not limited to, real estate, stocks, mortgages, franchises, partnerships, private equity and tax liens. Self-directed IRAs, by allowing a wide range of investment choices, improve the account owner's opportunities to diversify their IRA portfolio(s). Some investments, such as life insurance or collectibles as defined by the Internal Revenue Service, are not permitted in IRAs^[1]. Also, if real estate or any other investment asset held in a self-directed IRA has been employed for personal use, or to gain any other personal benefit (other than a return for the IRA), in the view of the IRS or the Department of Labor, the IRA(s) may become immediately taxable. In addition, if the IRA owner is younger than 59 1/2, the IRA will be subject to an early withdrawal penalty of 10%. It is important, therefore, that those interested in self-directed IRAs work with qualified and experienced IRA custodians.

Top Checking and Savings Account Rates and How to Become a Millionaire

Consumerism commentary updated its list of the top Checking and Savings account rates. The updated list can be found here.

I also came across a good, albeit basic, article on how to ultimately become a millionaire here. Not surprisingly, I think about our financial wellbeing on a regular basis. While I would like to become a millionaire one day, I realize that this is an arbitrary goal. But then, what is a good long-term financial goal. This article I just linked from bankrate.com discusses a more practical goal, that of financial independence. Financial Independence is the point in time when your cash flow from investments is equal to or greater than your income from work. Apparently, 95 percent of the population never achieves financial independence. Given the constant threat of inflation, the goal of financial independence makes a lot more sense to me.

Another important point of this article is to start your financial planning by creating a written plan. I need to work on this because right now I am just saving like a banshee and figuring out the best places to stick my money. But a financial plan would remind me why I am doing these things and what it's all for.

Lastly, this article reminded me of the simple concept that the one thing you have to have in order to achieve your financial goals, is income. The more you have the faster and easier it is to achieve your goals. While I think about it generally, I really need to so something about creating more income. Presently, I am just pondering things in the abstract and need to change that.

January 27, 2008

Sunday had no expenses. The grand total credit for the week ended up being $85+$32=$117. Not bad. Its good to know that this will not be impossible to duplicate.

Time to do it all over again. One day at a time.

January 26, 2007

Friday was a good day. My daily expenses of $12 were offset by, drum roll, a $12 profit in our home poker game. Though, I vowed to no longer drink while I play poker, I wound up boozing last night, high alcohol content beers at that. Anything close to break even last night would have been a win, so I'm extra happy I managed to come out a little bit ahead. Lace made a couple bucks too.

Saturday, today, is a break from the rest of the week. Budget-wise its not so good ;)

Breakfast ($0) CLif
Lunch ($14) Clif + Tai Pei lunch
Misc: ($2) Two songs from iTunes: Machine Head-Halo; The Ocean- Hadea;
($20) Wedding Tux downpayment
Dinner ($22) Elbow Room, one of our favorite local restaurants.
Alcohol after ($12)
Total: $70
$123-$38=$85 ahead of budget for week.

But for the week, I sliced and diced. As of Thursday I was $91 ahead of my budget. Thanks to poker friday night, Friday was a goose egg. Therefore, I was $91+$32=$123 ahead of budget as of Saturday. But I am over budget for saturday (ok cuz its all built in). I am already at $36 and we are going out to dinner in a bit. However, tomorrow stands a chance of being a zero. If Sunday can stay a low expense day, it will cap a great budgeting week. I am excited to see where I end up.

Total for Saturday: $70
$123-$38=$85 ahead of budget for week.

That was a pretty crummy Saturday. I had the unexpected tuxedo expense and then 4 beers purchased while out. The latter being totally unnecessary. Limit it to one beer! Then you feel better the next day physically and financially.

I expect Sunday to be very cheap for projected budget beating of +$100 for the week.

Ok...time to work on my MS Money accounting.

January 25, 2008

I stumbled upon an intriguing, albeit somewhat depressing, personal finance blog today here. I say intriguing because the author started back in 2002 or so in a position not so different from my own presently (upon further research, he started with net worth of ~$70K). I say depressing because the guys goals for this year are for net worth in excess of $1M, slightly different than mine. In any case, the site seems to be worth digging into for a number of reasons.

For me today:
Breakfast ($0) ye old Clif bar.
Lunch ($4)
Dinner ($8) Chinese.

I also refueled on gas today. I stopped at a Giant Eagle Get Go and got a fuel perk savings of .20. I am pretty sure they slightly inflate their base prices to make up for their fuel discounts.

The gas has yet to show up on my checking account statement. This has made me realize that when you use a debit card as a credit card it takes longer to show up on the checking account statement. Debits immediately show up at least as far as my available balance is concerned, but a credit card charge...who knows when it shows up? Therefore, if you are a receipt collector like I am trying to become, you need to be conscious of getting the receipt for any purchases made as credit on a debit card. Although, this may be a moot point if you have sufficient cushion.

Depending upon how our home poker game goes, Lacey and I are off to a good start as far as the weekend budget is concerned. Normally, the weekend cuts into any built up budget credit for the week as we typically go out to dinner at least once if not both nights. Weekend dinners out are not something I intend to focus my budgeting fanaticism on as I simply enjoy them too much. The change of pace spent with Lacey at the end of a work week is worth the slight hit to the budget. As it stands, because we are hosting cards tonight, we won't have time to go out and eat thus my picking up chinese instead.

While poker is probably not the best example, I think a great way to save and to improve one's life is to find cheap social activities to replace expensive social habits (although poker has the upside of being profitable!). So rather than go out either aimlessly or to meet friends at a bar where you will inevitably wind up spending much more money than you wanted, have people over for drinks and/or games whatever. Just avoid the trap of feeling like its the weekend and I have to go out because well...its the weekend. It makes no sense. These days, 9 times out of 10 that I'm at a bar I'm wondering "Why the hell am I here?"

As I write this, I feel like an old fart but whatever, I'm better off.

Real Estate Investing Through IRAs

Yesterday, my friend Adam, a fellow Pittsburgh attorney, was giving me a hard time about this website . Fair enough. However, in talking, he alerted me to a use of IRAs that I was unaware of. Apparently, it is possible to use IRA proceeds, Roth IRA for best results, to purchase investment property. While I am still trying to wrap my brain around the concept, I found the following article on the subject here.

Free dinner with a side of strings

It should come as no surprise that the "free" dinner I was wondering about turned out not to be free...surprise. We of course had to pay for our meals. Fortunately, I had the forethought to opt for a sandwich rather than a pricy entree. Although I paid for my decision, beyond the $18 I wound up forking over, as the eggplant club i ordered was unrecognizably bland. It reminded me of one of those rubbery chicken patty's served in middle school cafeterias, sans the taste.

So the daily budget turned into a $4+$18=$22 day. That is still a $10 credit for the day, so things could be worse.

www.diehards.org - Bogleheads Advice on Investing Priority

I have been burning through "The Bogleheads Guide to Investing" by Taylor Larimore, Mel Lindauer, Michael LeBoeuf, and John C. Bogle. It is a great read and I would recommend it to any fledgling investor like myself.


Both the book and the website it grew out of http://www.diehards.org/forum/advocate the following general investment strategy:




Investing Priority

The general rule of thumb for investing priority is:
1. 401k/403b up to the company match
2. Max out Roth IRA
3. Max out 401k/403b
4. Taxable Investing

The reasoning being that the standard employer 401K while tax efficient comes with A LOT of hidden costs, maintenance fees, etc. Many fees of which, unfortunately, are hard to discern from any statement one receives from their plan administrator. Also, the investment options in many 401Ks are poor or limited. But your first priority should be to at least meet the employer match because that is free money you can't afford to waste. However, once the employer match is met, you need to focus on maxing out your Roth IRA. The reason for this is that your investment options are essentially unlimited (You can open a Roth IRA with a brokerage or directly through the fund owner you wish to invest with...I am all about Vanguard) and, I may be mistaken here, since there is not a separate entity managing your Roth IRA, like there is your 401K, the Roth is much more financially efficient. Once you are able to max out the Roth IRA, you focus back on maxing out your 401K. Then...if somehow you have one red cent left over to invest....you begin to think about taxable investing options.

Obviously you have to look at this suggested investment priority with respect to the money you have free to invest. I look at this table as a challenge rather than something I must accomplish. If you are starting from scratch, first things first, start small and try to at least save enough to meet the company match. Once you are able to accomplish that, focus on trying to set enough aside to make the max contribution to a Roth IRA. (Note: each accomplishment will come with its own learning journey on investment vehicles, allocation, tax issues, etc). Many people, such as myself, will have a difficult time getting to No. 4...and thats OK! Either you simply do not make enough money to be able to accomplish 1-3 and have money left over to invest in a taxable account or you have the income but are simply unable to budget and save to that extent.

One of my goals for 2008 is to open a Roth IRA, learn a lot about my investment options, and then max it out, which for 2008 will be $5,000. Presently, I allocate 11% of my gross pay towards my 401K. My employer matches the first 3% and then half of the next 2%. That last part seems like an SAT question that I floundered over in high school. Correct me if I'm wrong but I believe that with my contribution percentage my employer is matching 4% of my contribution. My calculations indicate that for a year at that rate, I will have contributed $7,300 to my 401K. For 2008, an individual is permitted to contribute $16,000 to their 401K. Needless to say, I have my work cut out for me trying to meet the max contribution. At the rate that I am saving, I am struggling to complete level 3 of the Boggleheads suggested investing priority. Therefore, at this point in time I don't really need to be going nuts learning about taxable investing because I'm just not there yet. But a little anticipatory preparation never hurt.

One annoying thing about the above investing priority is the jumping back and forth between the 401K and Roth IRA. In my plan at least, I am permitted to adjust my percentage of income withheld twice a year. Without very precise numbers on budget, yearly expenses etc., it is hard to know the savings needed ahead of time to meet your goals. For instance, I am trying to figure out how much of my income I need to withhold to max out the 401K while also considering whether I will have enough money to live comfortably while trying to max out the Roth IRA. This is why I need to figure out MS Money!

That is all....

January 24, 2008

Lacey surprised me last night by buying dinner for us....two tasty sandwiches from Trader Joe's and some forgettable sushi. She saved me my planned dinner expense of $8 leaving me with only having spent $5 for the day yesterday. It is sort of dumb to consider Lacey having bought dinner as a freebie for me since we are only a joint account away from the money having come from the same place. But then again, I only have my money to worry about until that time so I will continue the accounting charade.

Before yesterday, I was $54 ahead of my weekly budget schedule. Wednesday put me another $27 ahead for a weekly credit of $54+$27= $81. Nice.

Today January 24, 2008, I've had my standard Clif bar breakfast and anticipate a $5 lunch.

Breakfast ($0)
Lunch ($4) Wound up eating tasty chili for $3.75.
Dinner(??)
Misc. Expenses (None foreseen, but dinner is such an X-factor, I'll be holding my breath until bed)

Tonight we are apparently being taken out to dinner by Lacey's childhood friend and her friend's husband. I can probably count on my hand the number of times someone other than a family member has taken me out to dinner and inevitably there has always some snag. The thought of being treated to a meal makes me slightly queezy.

In my opinion, there really is no such thing as a free lunch. Sure my boss will occasionally take me to lunch and pick up the tab but that comes with the obligation of me working for him. Clearly, he is not taking me out to lunch if I am some joker off the street providing no service to him. Everything like this has a price. It is disconcerting heading into such a situation not knowing what the price will be. With this in mind, I can't help but feel this "free" dinner tonight will come with some sort of string attached. What the string will be is the question. Maybe it is fear of the unknown string that has me all askew. My prediction is that tomorrow I will be able to reveal the string attached to dinner, its just too good to be true. Also, I am being incredibly dramatic and unreasonable here. I am sure tonight will be great.

On to more important things...I've got a nice budget credit going for this week. I wonder if it has to do with me having started this blog and trying to set a good example or show off. Not entirely. I have definitely over-budgeted my per diem expenses which I think is a good idea. I think overestimating your daily budget provides a two-fold benefit. It gives you a cushion and it keeps you positive. There is really no benefit to setting an absurdly low budget because it just sets you up to fail. So you nailed your super low budget right on the nose, big deal, you were supposed to. Worse...you go over your super low budget...FORK! You feel like a failure and are more likely to give up. Now you set a nice reasonably cushioned budget that fits with your income. Hey! I'm $81 ahead of my budget at Wednesday. I'm sticking to my budget (something a lot of financial planners say is too hard to do), in fact, I'm ahead of my budget, this is so easy, my future is so bright, etc. So the moral of this story is set yourself up with a budget that you can beat not one that will beat you.

www.PBJcampaign.org

As an addendum to this morning's post, I wanted to note that Jim's PBJ challenge was in support of a greater campaign. The campaign headquarters are located at: http://www.pbjcampaign.org/

Apparently this movement is based on "eating lower on the food chain" as in plants. The site author asserts that "Animals are inefficient" and "The basic problem is that animals are inefficient at converting plants into meat, milk, and eggs. Relatively little of what they eat ends up in what you eat because animals use their food to keep them alive – to fuel their muscles so they can stand up and walk around, to keep their hearts beating, to keep their brains working.

"Every time you eat lunch, you’ve got the option of cutting out the middleman, or the middle cow, and helping the environment. " citing www.pbjcampaign.org. So...replace a higher level food with a PBJ and you are helping the environment...who knew?

Though I do not foresee myself replacing a substantial number of meals with PBJs (though i do love them) the theme of this campaign that jumps out at me is the benefit of avoiding over-consumption in general. I would argue that the less you consume in all aspects of your life, the better off you are and the better off the environment is. If the general population was just a little less piggish when it came to food intake, alcohol intake, energy consumption (gas, electricity, all general energy sources) and various other material consumption, they would be better off physically and financially and I'll be corny and say spiritually as well. Plus, we get the residual benefit of lessening our negative impact on the earth and environment. So, here's to minimizing intake and increasing saving!

BTW...my other good friend Jared was the biggest donor to Jim's PBJ-athon. He is a very generous person and really steps up for things like this. I fell somewhere in the middle of the donation pack but consider my donation a part of my goal to donate $500 to charity this year since after all Jim is a charity case ;)

January 23, 2008

So i managed the perfect day yesterday. Lacey made an awesome dinner with marinated chicken, red potatoes, and broccoli. I didn't get a parking ticket and there were no other expenses or bills associated with the 22nd. I spent no money yesterday... so thats just great.

As of today I am $22+$32=$54 ahead of my weekly budget. This is a great start!

I was also very excited yesterday after talking with Lace regarding our long-term savings plans. Amazingly, I think we are on the same page with just about everything. It has been my hope that following the wedding and honeymoon we could eventually get to a point where each of us is saving 20% of our income which would include: 401K contributions, IRAs, savings for our next home, and other investment expenses. Lacey believes that once the dust settles we will easily be able to save that much if not more. I agree. What an amazing feeling to be on the same level with her, including personal finance.

Over the last year and a half or so, I have become obsessed with studying personal finance and trying to apply what I learn to my life. That being said, I am admittedly the kind of person who reads a book and then secretly considers himself an expert on the subject. So of course, as far as our personal finances are concerned, I was thinking I had all the answers. Of course I did not, as I quickly realized when discussing such matters with Lace. All my savings hording and investing was focused solely on maxing out our IRAs and 401Ks (missing out on the power of compund interest and time freaks me out!). Lacey pointed out that we really need to begin to save for our next house as well. Oddly, this had not dawned on me. Presently, we are the proud owners of a one bedroom condo. It is absolutely perfect for us. However, if and when we decide to have kids our serene living quarters would quickly become a brutal abode. So kudos to my soon-to-be wife for having such a smart view of the future.

Therefore, following the wedding, I think we will be able to save more than 20% of our combined income. This will include first creating a sufficient emergency fund, then bumping up our 401K contributions, and splitting the rest of our savings between our IRAs and savings in a high interest bearing CD or money market account for our next home.

Presently, we have agreed to work towards a $5,000 emergency fund. Personally, I feel this is a little low as everything I read from Money magazine, The Bogleheads Guide to Investing, and www.getrichslowly.com, seem to indicate an emergency fund should be equal to 3 months to a years worth of income. This of course is a fair bit more than $5,000. However...$5K is a start and it will sit in a high interest bearing savings account at ING. So once we get to $5K, the money will continue to grow on its own. Hopefully no emergencies occur that will deplete the fund at its inception.

Anyway, the daily budget for 1/23/2008 is as follows:

Breakfast ($0)

Lunch ($5) I budget $6 for lunch everyday but rarely meet that mark. Most of my lunches be it a 6" sub from subway, a bowl of chili and crackers, or a smoothie are less than $5. But I mark it $5 for accounting ease and as a financial buffer.

Dinner ($8) I am getting the dank chinese food tonight from Sczechuan Express in Oakland. We do this once a week as a ritual/treat. It really comes out to like $7.5 but again, for reasons already discussed, I mark it $8 (mark it zero Donnie! snort). Even though I pick this dinner up and it gets perilously close to my nightly dinner budget of $10, it is soooo worth it because it feeds both of us and we don't have to waste any time preparing it. Plus, Lacey and her mom constantly keep our place stocked with "free" toiletries and basic food stuffs that I clearly make out like a bandit in the scheme of things :)

I do not foresee any other expenses today, so hopefully I am able to limit today to $13 and add to my lead on my weekly budget.

Lastly, I was thinking that there is an obvious correlation between staying fit/eating healthy and consumption and savings and then how those interrelated concepts apply to preservation of our planet. My friend Jim's PBJ challenge got me thinking about this. I may never fully flush this out but I wanted to make a note of my thought for future reference should the mood hit me to expound.

January 22, 2008

Unfortunately I was unable to eat only table crackers and drink water last night. I had one bottle of beer and a bowl of chicken gumbo and with tip it came out to exactly $10. This was yet another reminder of how expensive alcohol is, especially when purchased from a restaurant.

On a side note, my dinner was well worth the $10. I was able to catch up with some friends that I do not get to see so often and the founder of the bi-weekly gathering, Jason, set the group in the right direction with a long-term purpose. While I am only mildly optimistic of the likelihood this group will evolve into something great, I really hope it is able to continue to develop.

So anyway, instead of a $32 savings credit toward my weekly consumption budget i only have $22 in savings. However, to further defray the extra cost of last night i brought a can of soup and a clif bar in to work today for lunch.

So for today I will be:

Breakfast: ($0)
Lunch: ($0)

Barring i don't get a parking ticket, I don't foresee any other costs associated with today. Plus, Lacey defrosted chicken, so dinner tonight will be a $0. So like yesterday, I am again shooting for the daily budget goose egg. I have to rack as much savings credit up during the early week because inevitably the weekend is always a little more expensive than i anticipate.

I think an overlooked aspect of one's ability to save has a lot to do with significant other compatibility. Lacey and I love being together, which in and of itself is a great thing. But additionally, because we like being together so much we don't need expensive distractions. Instead of going to a bar and running up a tab we are generally happier staying at home and watching a dvd, playing poker, cooking, talking, or reading. On the weekends especially, that happiness of staying in saves a lot over time. So being in a good solid relationship is a two for one kind of deal.

General Monthly Expenses

I also might as well post my general monthly expenses...so here they are:

Monthly Bills:

1. AES Student Loan ($275.64)- x/5/xxxx
2. ING Savings ($400.00)- x/3/xxxx
3. Car Ins. ($85.00)- x/6/xxxx
4. NetFlix ($15.00)- x/7/xxxx
5. Cell Phone ($80.00)- x/23/xxxx
6. House ($660.00)- x/20/xxxx
7. Gas ($90.00)

TOTAL: $1,605.64


Cell phone plan has changed. I believe it will now be ~$60/mo. My house/mortgage payment fluctuates a little as well, I think $660 is on the high side...and $80 might be underestimating monthly gas charges. I plan on keeping better track of my gas charges this month. It turns out my gas charges are more like $90-$95 per month. Hopefully the price of oil continues to drop.

Start of my personal finance blog

Today is Monday January 21, 2008 and I am attempting to start a blog as a financial diary to both keep track of my finances and keep my spending in check. I also hope to use this blog to help me achieve various financial goals I have/will set for myself. Lastly, I hope to use this blog to document websites, reading material, and any general information I discover and find helpful to my quest to improve my personal finances and life. In so doing, I want to share what I learn and be a living, documented example of self-improvement to anyone willing to read what I write.

The following are my tentative financial goals for 2008:

1. Become proficient with Money software
1. Start to track finances monthly/weekly
2. Create a $2500 emergency fund (Lacey and I have a collective goal of $5,000)
   
3. Open Roth IRA with online brokerage
4. Max out Roth IRA
1. When I am ready to do this, I hope to document the research relied upon to determine my allocation.
   
5. Donate $500 to charity

Number 1 has proved surprisingly difficult. I just haven't figured out how to utilize the MS Money software yet. But I have a Dummies book on the subject and hope to better incorporate the program into my life soon. Numbers 2, 3, 4 and 5 are doable but have the obstacle of my honeymoon savings in front of them. So in reality I will have from June 2008 to December 31, 2008 to accomplish those goals. We shall see. Actually now that I think of it, Lacey and I will start a joint account following our wedding so these goals might be a little off. I still think these are good goals to start with.

The more I read the more I realize how a $2000 emergency fund is not even close to what I need. but it’s a start. In reality it seems i need more like 3-5 months pay.

I also have the following quote alongside my goals:

“Be intent on action, not on the fruits of action. Avoid
attraction to the fruits and attachment to inaction.”

This makes me think a bit and seems to fit me well as I often find myself inadvertently attaching to inaction. I think this also, at least tangentially, addresses the concept of "keeping up with the Jones's". Though I haven't gotten to the point in life yet where I am overly concerned with the financial success of friends and neighbors, sadly, I could see myself falling into this trap way of thinking.

Anyway, the main point of this blog is for me to keep a journal of my daily spending and income.

My present food/misc. budget is as follows:

Mon. Tues. Weds. Thurs. Fri. Sat. Sun.

Misc	7	7	7	7	7	7	7
Bfast	1	1	1	1	1	1	1
Lunch	6	6	6	6	6	6	6
Dinner	10	10	10	10	10	10	10
Alcohol	7	7	7	7	7	7	7

TOTAL/Wk: $224.00

Assume the table is identical for all 7 days of the week. I can't get the formatting to include the entire chart.

So, ill start with yesterday, Sunday January 20:

Breakfast: Pancakes and coffee c/o lacey, yum! ($0)
Lunch: Soup ($0)
Dinner: Fondue c/o dinner at my mom's ($0) we had previously donated wine.
Misc. expenses: ($0)

The monetary values I assign to meals etc makes me wonder... for the soup and pancakes we had previously purchased those items, so for purposes of tracking finances, it seems easier to state the cost of groceries and mark ($0) for the actual meals.

Monday January 21:

Breakfast: Clif Bar ($0)

Lunch: Free lunch on boss! ($0)

• I’m supposed to go to dinner tonight with some friends but do not want to eat out (trying to get free meal from Lacey’s parents house) and its implied that we will be drinking beers but I am on a kick of not drinking alcohol during the work week....so I'm curious to see how I will fare tonight attempting to drink water and eat table crackers .
• I do not foresee any other expenses for today....if that’s true than I have a $32 credit towards the rest of the week!
• Really though, I'm trying to be a frugal degen and make this $32 additional savings not money to be spent for a more lavish later week.
  

That is all....