Friday, September 28, 2007

New home purchases

As my wife and I have purchased our first home we are being presented by many tempting choices to buy "stuff". Luckily my wife and I are mostly on the same page when it comes to purchasing household items. However, our new home is three times larger than the apartment we have moved out of. Our living room, dinning room, and two of the three bedrooms are empty. We have placed an order for a new couch and rug for the living room (about $1,000) but have decided to hold off on any furniture for the bedrooms. The dining room set is probably an inevitable purchase within the next 6 months. This is not something I am looking forward to but I know we should just bite the bullet and get it done. Purchasing these items for me is a very difficult process. I want nice things but don't want to pay for them. Is this a problem?

Throughout the entire home buying process I have learned and seen how easy it is to fall into the many middle class traps along the way. First was the real estate agent who kept sending me links to homes outside of our agreed upon price range. Then there is the loan officer telling me I qualify for a $600,000 dollar mortgage. Yikes...I feel sorry for anyone who just goes along for the ride and decides not to take control over the situation. Now we are faced with the traps of wanting to have nice things for our new home. Luckily I have a wonderful wife who does an outstanding job at finding good deals and sales on items for the house. I thinke we struggle equally with these decisions.

The question is how do you balance enjoying today while wanting to save for tomorrow. If we lived in a small one bedroom apartment we would be able to save a lot more money but our quality of life would be very low. I am hoping we have made a good decision with the purchase of our townhouse. The longer we live in our new house the more I think we will stay for many years to come i.e. we will avoid the temptation to upgrade.

Tuesday, September 25, 2007

The Tax Man

One of the main benefits of our home purchase (besides making $20K the day we closed...on paper at least) is the tax breaks to come in 2008. The last two years we have gotten killed on taxes. Two incomes and no kids = your paying a lot in taxes. Our 2006 tax strategy was maxing out my 401K and just about maxing out my wifes. In addition to this I was also paying an extra $300 a paycheck to taxes. I did this by adjusting my W-4 form and checking the box "additional amount". I was trying to spread out the pain throughout the year. We still ended up owing a few thousand dollars. In 2007, we have cut down on our 401K contributions in order to increase our take home pay and ability to save additional cash in our ING account. I have also changed my W4 form to only take an additional $250 per paycheck. I am expecting to still owe some money for 2007. We may be able to save some money on taxes from the deduction of loan interest and any additional tax breaks from purchasing our home, however since we bought in May we will not receive the full tax benefits this year.

January 1, 2008 is a brand new day. I will immediately adjust my W4 form and give myself a $250 a paycheck raise. This will be nice. My plan is to put this money automatically into savings buy bumping up our ING savings rate. This should put us up to $750 a week in savings! I am expecting 2008 tax year to be completely different for us. We should be able to deduct over twice as much from our 2006 and 2007 filings.

Sunday, September 23, 2007

Home Improvements

My wife and I have recently purchased a new townhouse. Our home is an end unit so our living space and yard is much larger than our surrounding neighbors. We bought in May and spent the next several months renovating. In an uncertain real estate market we felt more comfortable with hedging our bets by purchasing a fixer upper. We purchased the home for $370,000 which was $20,000 under the appraised value. We have recently updated the kitchen, flooring and several other minor projects around the house. A home two doors down from ours (not an end unit) has recently sold for $395,000. In theory an end unit should sell for about $15,000 more. However, I only list my house value as $390,000 when calculating my net worth. I'm trying to be conservative about my homes estimated value.

Here is my challenge. How much money should my wife and I spend on fixing the house up. We still have new siding to replace ($2,500), new tile and vanities in the 2.5 bathrooms (Hoping for under $5,000) and landscaping ($1,000).

My current numbers are below for the amount of money I have put into my home. As a new home owner I am finding it harder than anticipated to get my mind around home equity. Right now, my wife and I are automatically putting $500.00 a week into our ING Orange savings account. This feels a lot better to me than putting $500.00 a week into fixing up my home. This is my struggle. I also feel that I need to build up my cash cushion. Prior to buying our home my ING account was just over $50,000. I want that back.

I am leaning more towards holding off on any major fixes for at least 4 months.

Monday, September 17, 2007

Work is Hard

I am currently on business travel. Two weeks away from my wife and daily routine. I am very lucky this time that I am actually on the West Coast staying in one of the most beautiful places in the world. Huntington Beach. I love the pier and Maine Street activities. My day is full of contrast. What I mean is that during the day I am usually totally stressed out and stuck in a not so good working condition. After work I am running on the beach or along the Pacific Coast Highway without a care in the world. This should be good motivation for achieving my financial goals. I wonder how many people on that beach are financially free? How many of them are only working part time? How many of them have sacrificed early in there lives so that they could enjoy such beautiful scenery later on in life?

I'm not sure I would ever want to live full time on the West Coast but it would sure be nice to rent a house a few weeks out of the year. It's on the list for reasons to sacrifice now for a better tomorrow...

One major plus for travelling for work is the extra money I make. Every day out in CA I receive an extra $64 a day for my expenses (tax free). I typically spend about half. For a two week trip I should walk away with an extra couple hundred bucks that will go right into savings. Over the past few years I have managed to save an extra $4,000-$5,000 dollars tax free.

Saturday, September 8, 2007

2 Years Ago

A friend of mine who I had served with was driving through the area and asked if he could stay with my wife and I. Two of his close classmates had been killed in Iraq during the same incident and he was driving back from the funeral at West Point. We spent some time catching up and exchanged stories about the civilian world. He had done much better than me. He had found this great company who truly valued his military experience. I was totally jealous. I wanted to give him my resume. The only catch was that he worked 400 miles away. I still gave him my resume knowing it probably wouldn’t work out anyways. After a few phone calls and emails I was on a plane for an interview. I was offered a job with a salary of $40K more than I was currently making. My wife and I both agreed that we had to take the opportunity. There were plenty of jobs within my wife’s industry in the area and we anticipated the transition to be a relatively easy one. Within a few months she had a job making almost $20K more than her previous position. Our situations had completely changed. I was back in the game. When we moved we had a net worth of about $60K. We were both 28 years old.

4 Years Ago

I was headed home from active duty with no solid plans for my next job. I had a close family member who was very sick with cancer and a fiancée ready to settle down. Coming off of active duty was a huge transition. I was fortunate to have money in the bank, a brokerage account and very little debt except for a car payment. I spent the next 2 years trying to figure out what I was supposed to be doing as a civilian. I literally changed jobs every 6 months. I hated just about every boss I had. I also felt completely under used. I had been an officer in the military in charge of at one time almost 2oo people and millions of dollars worth of equipment. I felt my dream of saving money for a better life slipping away. Luckily my wife had a great career and literally carried us through this time. I made enough money to pay some of our bills but very little money went into our savings. However, even with a tight budget we still manage to save a few thousand every year. I was still very frustrated. We had a net worth of about $45K

8 Years Ago

Eight years ago I had just graduated from college. I felt lucky because I actually had a full time job waiting for me when I graduated. I had always wanted to be in the army and ROTC (Reserve Officer Training Corps) was my route in. I was awarded a two year scholarship which not only paid for my tuition and gave me a monthly pay check as a college student. The scholarship also guaranteed me active duty. Believe it or not but back in 1995 when I was freshman, active duty assignments in the army were extremely competitive to get. By 1999, when I graduated, active duty was not as competitive. How times have changed.

Three days after graduation my car was packed and I was headed to my Officer Basic Course for training. For the first 5 ½ months of active duty I was being paid my salary as a 2nd LT and also a monthly stipend equal to about an additional pay check to compensate for my in transit for training status. I felt rich..Honestly…I had gone from a college student to collecting what felt like a huge pay check three times a month. My living expenses were also extremely low. The army covered just about all of my living expenses including housing. For me this was a small two bedroom apartment just outside post. They also offered cheap alternatives for eating etc. At the time I had about $8K to my name made up of a checking account and a fidelity brokerage account. I started to quickly pay down my car loan which was in my parent’s name. My parents agreed to pay my student loan for the first two years of my in state tuition. My parents were nervous about me being in the army but were thrilled that the army had paid for the last two years.

With the army paying for my housing, giving me a salary of about $900 dollars take home pay twice a month and an additional stipend of $900 more dollars I felt in great shape. $2,700 dollars a month in take home pay and next to no living expenses. Within two months of being on active duty I had signed up for a Roth IRA and set up automatic payments to max it out. I also set up automatic payments of $150 dollars to contribute to my brokerage account. Within the next few weeks I remember realizing that I had a lot more room within my budget (remember I was totally new to the real world…well the army). I gradually increased my automatic savings or would manually transfer money over to my mutual funds. My brokerage account began to grow. While other young officers were buying new clothes or fancy cars I was watching my savings grow. I was hooked.

If I had it all to do over again, I think I would have focused more on building up a large cash savings for an emergency fund. However, during 1999 it was hard to ignore the gains of the stock market.
Overall, I would say looking back 8 years ago; I had a huge advantage of having an immediate job after college and one that paid relatively well. I also had supporting parents who helped cover college costs and an Army scholarship that chipped in a huge amount. What I remember most was the excitement I had over seeing my brokerage account increase on a monthly basis. It was during this time that I wrote down that I wanted a 6 figure net worth by the time I was 30 years old. At the time I was quickly crossing from $8K to $10K. The hardships of the army helped me save more money. I was deployed or in the field training for over 50% of the time I was on active duty. While deployed I had the advantage of not paying federal taxes and receiving hazardess duty pay. During one 7 month deployment I only spent $2,000 the entire time I was away…and that included my plane ticket home to see my family. The rest went into my saving account or mutual funds.

Friday, September 7, 2007

My Real Goal

I know I’ve said that my goal is to have a million dollars. This is basically my 10 year goal. There is more to the story. My real goal is to accumulate enough money to live off the interest, dividend and appreciation of my money without touching the principle. I would like to be able to work part time/consult or take a less stressful full time job. Besides wanting more choices (see previous post) I would also like to be remembered. What do I mean by this? I was attending a family party on my wife’s side and my father in law was showing us a family genealogy book he had just put together. There were lots of old pictures of family members from a few generations back. My father in law had struggled to find the names of these people. The pictures were old, but not ancient. It struck me on how quick people are forgotten once they are gone. I might be crazy, but I guarantee it would have been easier to remember those people in the picture if they had passed down a substantial amount of wealth when they passed on. My real goal is to pass down wealth to the next generation. I want to educate my children (I currently don’t have any) to treat money in the same way I do and continue the tradition of saving and accumulating wealth. I would also like them to have more choices (or choices faster) than I did. I’m sure that most people don’t think about this but I guess I’m the exception.

Why I'm Saving

Why I’m Saving
A few years back when I was in the military one of my Sergeants compared being in the army to being in prison…He had a very good point. First of all we were standing on a hill top in a third world country under very difficult conditions. He quickly ran down the list of, we don’t eat what we want, sleep when we want, wear the clothes we want, or basically do anything we want…He wasn’t complaining, in fact he was one of the most pro Army soldiers I ever worked with. It was just how he looked at it. It was hard to argue. I think I said something like, “yah, but we have guns.” We had a good laugh.
Bottom line was that he felt like he was in prison because he had no choices. This really stuck with me. During my time in the military I learned so much from the people who were on my team.
Although I would never truly compare my life to someone serving hard time in prison I still think about what he said to me that day. By all accounts I have a great job. I have a boss who loves me, pushes for promotions and gives me large raises when he can. But I still don’t have the freedom of choice on any given day. I have to go to work to get a paycheck. I don’t get to wear what I want or keep the schedule that I want. I often have to jump on a plane at a moments notice to attend meetings putting my entire life on hold until I get back. Again, I have a great job but I don’t have the choices that I want. That is why I am saving. I don’t want money... I just would like to have more choices in my future. Maybe take a job that truly inspires me instead of a job that pays me the most amount of money...The list of choices seems endless. It would be nice to have a few more in my life one day...

My Financial Strategy

A few things about me…In my daily life, I typically don’t enjoy details. I tend to gloss over pretty quick. I like broader strokes and concepts. This is where I excel. I run my financial life much in the same way. Also, from the time I was very small I was a saver. I always asked my parents for singles because some how I thought it looked like more money. I’ve had a fidelity account since I was about 16 years old (thanks dad). I must admit I did have a Legg Mason account for 2 years but have since moved back to Fidelity. I enjoy listening and reading about single stocks but rarely act on any of this info. I dream of one day being a day trader of such but have enough of an understanding to know this takes a lot more time than some late night infomercials admit to. A key moment in my life was first reading about compounding interest. If I remember correctly I was in middle school. From a very young age I understood this concept of compounding interest and it has made all the difference.

So here is my strategy (1) starting early is one of my strategies. I’m saving as much as I can now so it will have the biggest impact on my life (and brokerage account) later. Also, (2) making up for my lack of Warren Buffet stock picking skills by sheer volume of money saved. I want to make up for my projected smaller rate of return by saving more money. I can control how much I save way more than I can control if a small cap stock will triple in the next 6 months. (3)Being disciplined. I am the king of delayed gratification. Discipline is on my side I must admit.

For most of the past 8 years I have decided how much I wanted to save first and then lived the rest of my life with what was left over. Most people do it the other way. I am merely going to try and use my strengths to my advantage in order to meet my goal.

Over the last two years, my wife and I have seen a huge increase in our net worth by using these three basic strategies. I hope you enjoy my posts and following me on my journey.

Welcome!!!! First Entry

Welcome to my personal finance blog
I have decided to start a personal finance blog. I read a few different financial blogs and have been inspired. In a world where talking about finance is so taboo it is such a relief to see blogs where real people share their financial challenges and goals. I love talking to people about money and frankly don’t get enough opportunities to discuss personal finance. So here is my chance. I also noticed that the financial bloggers seem so focused on their goals. The saying, “be careful what you write down because it might come true,” should be changed to “be careful what you blog...”

Creating this blog is my way of keeping on track for my short term and long term financial goals. About 8 years ago I wrote down on a piece of paper that I wanted to have a net worth of $100K by the time I was 30. At the time I had about $8K to my name…I beat that goal by 6 months. I often wonder what would have happened if I wrote down a bigger number.

My long term goal is to have a net worth (including my primary residence) of one million dollars by the time I turn 40. I’m hoping to beat this goal.