Archive for April, 2010

« Older Entries
Newer Entries »

Expenses That Are Like Neverending Lifetime Debt

April 13th, 2010

Currently, my Debt has been contained, but the expenses still march on…

Being debt free is great, but now I have to get ready for the 2nd great battle, and that’s the battle against necessary lifetime expenses (food, clothing, utilities, gasoline, taxes, etc).

In this post, I’m just going to talk about a subset of my expenses that I consider are debt-like in nature. 

The Expenses below have debt-like properties:

  • Taxes (Real Estate, Property, etc):  My biggest Debt-like tax expense is Real Estate Tax!  Unlike debt, this is an expense that will rise with the appreciation of your house, and any community levies that are passed.  Now I know, some of you will say, I can avoid this by Renting, but renting is even more expensive!  There isn’t any way to avoid this, so the best you can do is plan around it!  Like an oyster, you must build your wealth so that you can coat a smooth layer around this irritation! 
  • Utilities (Gas, Electric, Sewer, Water, Trash Collection):  These are also debt-like, but less so than Taxes.  The prices of utilites can do down sometimes, but mostly they go up.  Over years, the trend has been an upward slope!  You can control the cost of these expenses by conservation or going green.  Going Green (solar, wind, etc) may be an options in the future, but currently it’s too expensive.
  • Misc: Certain insurance costs, Driver’s licenses, and other little costs that the goverment requires that you pay.

 

Some lesser debt-like expenses can be reduced to a minimal cost:

  • Clothing: the cost associated with this lifetime expense can be minimized by buy cloths at garage sales, thrift shops, goodwill, etc…
  • Food:  this can be mimized by growing your own food, and possible a small bit of farming…
  • Gasoline prices: similar to utilities, the price of gas can go up and down, but over years, has an upward slope.  You can control the cost of gas by carpooling, driving less, implementing telecommunting at work, and using public transportation.  Walking is an option, but if the distance it too long, then the time factor may be too expensive (life is short).

Initially my plans were to build up investments that I would call “Dividend Funds” and have them pegged to help pay for certain debts and other expenses.  However with the threat of increasing taxes on the dividend yields of such financial instruments, I’m starting to re-think this approach.

Readers: Can you think of any addtional expenses that are debt like that I missed? 

-MR

17 comments »

Posted in Expenses

Tags:

Are You Tracking Your Cash Flow? You'd Better Be!

April 12th, 2010

This is a guest post from Money Beagle, who writes about personal finance with a focus on the personal side of things. 

A few years back, my financial tracking was a lot less involved than it is now.  I had started tracking my Net Worth and investment performance in 2001, but that was about the extent of it.  At the time, I had a low mortgage payment, was making pretty decent money, and the net worth statement went up more often than not.  I was single and had money to spend when I needed it.  Life was good.

At the time, I knew that I was doing pretty good with saving.  Every few months when my savings account balance would grow, I’d take a chunk of cash and either send it off to retirement savings, a high-yield savings account (this is back when they were paying 5-6%) or something else.

Financial life was pretty smooth!

Then something happened to change all that: I bought a car.  Or, as might be more appropriate, I bought a second car.  A fun car.  A sports car!

I’d always had my eye on a Corvette.  They’ve always been my favorite car, and since I had recently done very well in the stock market, knew I was saving money, and knew that the car I coveted was pretty good at holding its residual value, I started taking a look around.  I found one I liked and away we went! 

The car: Awesome.  For everything I’m about to write, I have no regrets about having bought the ‘Vette.  I saved it for more ‘special occasion’ driving, put minimal miles on it, and loved every second I was behind the wheel.  That includes spending a lot of time behind the wheel just parked in my driveway or garage.  I loved it that much!

It took awhile, but I noticed that I wasn’t doing my somewhat regular contribution to savings that I had noted above.  By that I mean, I had stopped altogether.

I sat down one day to take a look at why this was.  I knew that the extra car payment and insurance was going to slow things down, but I thought I’d still be able to put money aside.

Turns out, I was WRONG!

I sat down and added up what I brought in (my paycheck) and subtracted out all that I was paying out (mortgage, car payments, insurance, utilities, spending money, groceries and everything else).  I didn’t believe what I saw so I added it again and again. It still came out the same.  I was spending more than I brought in!

I had a cash flow problem!

Even though my net worth was going up, it was because I was seeing increases in non-cash areas.  My mortgage balance was going down.  My retirement contributions were growing.  The value of my house was growing (ah, the good old days).

But, the numbers didn’t lie and they said one thing: I was slowly bleeding cash.

Luckily, even though I was burning through cash, it was a slow burn where I was pretty near the break-even point. It would have taken me a few years at the rate I was going before I would have run into a real cash flow issue.  In all honesty, that’s probably why it took a while for me to even notice it.

Still, even though I wasn’t in any imminent danger, I didn’t like it.  So, I resolved then to begin tracking my cash flow and I started right then and there.  Now, in addition to tracking my net worth, one of the statements I prepare every month shows our cash flow.  It’s as simple as I outlined above:

Money in minus Money out = Cash flow

If the number is positive, things are good.  If it’s negative, then there’s a problem! Tracking it makes me aware of any issues so now I can head off any possible issues.

To finish off my personal ‘Vette story, I fixed the problem.  You might think I turned around and sold the car, which would have been the best method to address the problem.  While I ended up doing that, it was over a year and a half later before I did, and was for different reasons (I was about to get engaged).

What ended up happening to relieve the immediate problem was a friend of mine ended a relationship and needed a place to stay.  I had a spare bedroom and the $350 that my new roomie brought solved both of our problems temporarily.  This brought me back into positive territory and let me keep the car longer and later sell it on my terms, and not in a panic as I might have otherwise done had the problem gotten worse.

This was my eye-opening experience on the importance of knowing and tracking your cash flow.  Please stop by Money Beagle and let me know if you’ve had any experiences of your own that led you to track this very important measure of personal finance health.  And, if you’re not tracking this, start tracking your cash flow today!

3 comments »

Posted in Budgeting

Yakezie Challenge Carnival #7

April 11th, 2010

Well, this is #7 of the Yakezie Challenge Carnival!  The membership list just keep growing and growing! 

Wait… You might be wondering what is the Yakezie Challenge?  It all started as an effort by Sam at the Financial Samurai.   This is the original post that started it all: Creating Powerful Friends: Samurai’s Alexa Ranking Challenge. 

Basically the first phase wave of this challenge is improving your Alexa ranking.  Sam has since added addtional challenges, trying to help members improve their financial blog sites.

Since the formation of the group, members had added value to the group by additional sub-projects.  In fact, this Yakezie Challenge Carnival is one of the results from the group brainstorming process!

And now enjoy the great financial posts from the Yakezie members below:

Financial Samurai: Play Games To Save Money And Achieve Your Goals! – Great concept, helping people save money by making clever mental money games!

Eliminate the Muda: Combat The Closing Technique – The Consultative Close – This post had me at ““You can skin a sheep once, or you can shear it for life.”! Actually the entire “Combat The Closing Technique” is a great educational read! In fact, I’d go as far to say this is a must read series!

Planting Dollars: The Quiet Hours – This post hit at home with me because I do my best work during solitary time too!

Free From Broke: Wedding Questions With Anja Winnika Editor At Knot.com – Great interview and answers for those getting married from the Knot.com website editor!

Sweating The Big Stuff:  When You SHOULDN’T Worry About Money - Action speak louder than spreadsheets (ratios really).  Daniel points out that not all people are motived by money ratios, and to find what works for you, the individual.

Credit Card Chaser: Infamous Credit Card Hacker Albert Gonzalez Sentenced to 20 Years in Prison - I blogged about the dark elements in personal finance…  This Albert guy takes it to a whole new level.  Interesting read!

Canadian Finance Blog: 5 Ways to Make Your Credit Card Work For You - Great reasons to use credit cards instead of only cash!

Ultimate Money Blog:  Read Your Labels - What is having money without health?  As Mrs. Money states read your lables!  She goes on to list some of the ingredients to avoid too!

Darwin’s Finance:  PEG Ratio: Why It’s More Relevant than P/E for Stocks - I’m a fan of the P/E ratio comparisons and the Market Cap. level.  Darwin, present a good argument for using the PEG Ratio too.

Early Retirement Extreme:  Five things every early retiree wannabe knows - The title says it all!  Great strategic points to consider!

My Jouney to Millions:  What is Keyman Insurance? Is Your Business Protected From Death? - This is something I’ve never thought of, but make an incredible amount of sense.  Unrelated to the article, but congratulations Evan for getting under 100,000 in the Yakezie club!!!

Deliver Away Debt:  Zero Debt Christmas 2010 -  Now (or even earlier) is the time to start preparing!  I know in previous years, Christmas, and surrounding birthdays, has always had me start the new year extremely tight!  Using Jeff technique, you can really take the bite out of one of the negative aspects of Christmas.  Nice!

Monevator:  The truth behind the Natwest Black Card’s shocking APR - Amazing way of advertising a credit card!  Check this out, it truly is a shocker!

Fiscal Fizzle:  Can You Make a Living Recycling 10 Cent Bottles & Cans? – Interesting read and great concept (especially as a side job), but it was the Seinfeld reference that made me choose this article by guest poster:  Dough Roller. 

20′s Money:  Americans Get Their Economic Views From Headlines - Excellent point!  Great presentation for doing your own homework instead of reading the headlines!

Money Funk:  Maximize your Retirement Account - Very well thoughtout plan on the options for maximizing your retirement number!  Great details!

Punch Debt in the Face:  Funny Money Habits - I’ve studied the martial arts in the past, but apparently, I’m also a student of financial ninjitsu and I didn’t even know it!  Great post, I’m a little embarrassed to admit I have some of the same funny money habits!

Wealth Pilgrim:  What is the difference between Chapter 7 and Chapter 13 Bankruptcy? - Pretty obvious what the post is about on this one.  This is a good area to talk about, you don’t see this much out in the pf blogsphere.  Nice writeup!

The Centsible Life:  Desperate Housewives, David Arquette, and an auction - There is great material at this site, but I chose this article because of her incredible experience!

Evolution of Wealth:  Life Insurance’s Recent Overhaul - Great info to know, perhaps we should all look to see if we can get a lower rate on insurance (esp. term).

Well Heeled Blog:  New 2010 Financial Goals - Since getting a new job, Well Heeled rightfully has re-aligned her financial goals!  Kudos to her for getting the new job and the goal tweaking!

CJ Bowker:  How do you set expectations?  Everybody is different, and things come up that aren’t predictable…  What say you on this one?

Couple Money:  Debt Reduction Strategy Guide - Excellent compilation of debt reduction strategies!  Great read!

Rainy-Day Saver:  What Happens to Your Debt When You Die? - Scary topic, but just knowing your state laws is half the battle (or perhaps even more than half).

Frugal Zeitgeist:  Watch TV On Your Computer- Great tips on how to watch TV on your computer!  I’ll be referring back to this one!!!  Nice compilation!

JoeTaxpayer:  Your Credit Score - Discusses the magic involved in the computation of your credit score number.  Great explanation!!!

Little House in the Valley:  Homes in a Box….When Sears Ruled Mail Order - Great article, nice to see a one with a historical perspective.  I hope Walmart doesn’t read this though!!!

Engineer Your Finances:  FinEngr Meets T. Boone Pickens! - Wow, how cool would this be!  Congrats FinEngr!

One Money Design:  Basics of Bankruptcy - Great writeup on bankruptcy!  Discusses the types of bankruptcy too!

The Amateur Financier:  Correlation is NOT Causation - Truly great writeup on spurious relationships!  I see so many people come to false conclusions because of what Roger blogs about here!  This is a must read article!

Young And Thrifty:  Questrade and the Online Trading Academy - I’m not sure if this is in the states or not, but is sure sounds interesting!!!

Redeeming Riches:  IRA Withdrawal Rules – When Can You Withdraw Your IRA? - Nice writeup on the withdrawal rules on a traditional IRA!

Single Guy Money:  The Hiatus Is Over – SingleGuyMoney is Back Now - I’m glad those aliens wised up and sent you back!  Welcome back, sounds like you’ve been pretty busy!

Beating Broke:  UPS To Become Luggage Carrier - This is about Spirit’s airlines decision to charge for luggage.

Personal Finance by the Book:  With Apologies to Dave Ramsey, One Size Doesn’t Always Fit All – I must be the only pf blogger that hasn’t read any of Dave Ramsey’s books…   I think this post sounds like a great topic of a great debate!

My Money Minute:  The 200,000 Mile Club - Not bad for an attorney!  I aspire to hold onto my car for as long as Jason!  Very frugal indeed!

Foreigner’s Finances:  Why a Spreadsheet is Your Money’s Best Friend - Instead of buying special financial software, I also go FF’s route and use my spreadsheet for everything!  Great point on this topic!

Cool to be Frugal:  What Is Your Family’s Money Dynamic? - Mrs. Frugal talks about how Mr. Frugal’s family handles discussions of money matter differently than her family does.  Interesting dynamic, good read!

Saving Money Today:  7 Things Worrying the Middle Class - I’m a sucker for any post that involves the middle class!  Hopefully things right themselves soon!!!

Bucksome Boomer:  4 Career Tips for Success from the Military - Interesting, in just Bucksome’s military history in itself.  Interesting read!

Moneycrush:  Can You Invest With Just a Small Amount of Money to Work With? - Great article for someone that only has a little to invest per month or is just starting out with only a small amount to contribute!  Great job taking into account the fees associated with investing small amounts of money!

PersonalFinanceJourney:  7 Actions for Financial Spring Cleaning - Sounds like sound advice to me!  I think I’ll try her suggestions this year!

The Debt Hawk:  Opening a Simplified Employee Pension Plan (SEP) To Lower My Taxes - Great details about using a SEP to lower your taxes!  Also to my surprise, I learned that you can have a 401(k) and a SEP at the same time (as long as you have a side business that creates the income for the SEP).

Christian Common Cents:  Never Loan Money To Friends and Family - True, so entirely true!  Please head his advice in this matter!!!

Girl with the Red Balloon:  wedding-wednesday-planning-wedding - Sounds like a race against time!  But that you are going a great job of managing it!  Good luck and thank for sharing!

Money Beagle:  Great value on half-and-half - We think that Walmart is the best deal in price all the time, but this isn’t always so!  Find out why at the Money Beagle!

The Millionaire Nurse:  Apple’s I-Pad: Buying One is Stupid! - Another opinion about an iPad, looks like a iPad showdown between Zach and Dr. Dean!

Peak Personal Finance:  Your Options Under the Health Care Reform Bill - Interesting info in how the Health Care Reform Bill will affect you!

Narrow Bridge:  Is Your Credit Score Age Appropraite? - Good questions about your credit score age.

PF Firewall:  Your Guide to Income Based Repayment - College loan replayment info.  This is a must read if you are graduating from college with loans!

Family Balance Sheet:  Square Foot Gardening: Making A Transition - Great writeup on how they did it!

Dividend Monk:  Harleysville Group Inc (HGIC) Dividend Stock Analysis - Great research on this particular stock.  But more importantly, the Dividend Monk does great analysis of many quality dividend stocks!!!

Well, that’s all the members that I’m aware of!

The previous carnival was hosted by Tom @ Canadian Financial Blog

58 comments »

Posted in Carnival

Tags:

Asset Class Diversification For The Middle Class

April 9th, 2010

Yesterday, I blogged about my high net worth friend that has over 5 million in assets in my post Ways To Invest Money Once You Have Over 1 Million in Financial Assets.

After reading the comment left by Investor Junkie, I now realize that my friend already has a decent amount of asset class diversification. 

The following list are the ways that he is already diversified:

  • Real estate (mostly business related)
  • U.S. Treasuries Bonds.
  • Local Municipality Bonds
  • Solidly rated Company Bonds
  • Investmenting in small businesses.
  • Mutual Funds and ETFs
  • Certain low risk, but high growth individual stocks
  • Others?

So my question is, how can we experience some of the diversification that my HNW (High Net Worth) friend experiences?

  • Real Estate:  We can invest in REIT stocks, but I don’t think we truly get the full leverage that we would need to become rich, but at least we would have that diversification via the REIT route.
  • U.S. Treasuries:  He buys the $10,000 issues, so we might be able to buy 1 of these, but there are lower issues that we could affort.
  • Local Municipality Bonds:  My HNW friend buys these too for the tax benefits.  I don’t think they would benefit me much at this point in time.
  • Solidly rated Company Bonds:  He does this, but so can we fairly easily.  I plan on using the age based approach to determine my amount of bond ownership
  • Small Businesses:  His small businesses are large to me, but from a U.S. perspective they are small.  I’d recommend starting with a tiny business such as Ebay selling, or blogging (I haven’t made any money with blogging, so ebay could give you more bang for your buck quickly).  After playing with the small stuff for a few years, jump into something that you have a true passion about.
  • Mutual Fund & ETFs:  Most of my HNW friend’s money is in mutual fund (and so is mine).  This is a good way to go especially with index funds…  You might want to do one better by looking into ETFs instead of mutual fund!  ETFs have much lower expense ratios… or at least the ones I own do…
  • Individual Stocks:  My HNW friend has me beat here.  He buys for the long term, and not the high risk, high growth stocks that I buy.  He has outperformed me in this area!  Surprisingly, he has just a hand full of these stocks. (he’s owned stocks like soft drink and entertainment stocks).

I mentioned the Age based allocation for bond and stock ownership, and just in case you aren’t familar with this approach, there it is:

  • SOP: Stock Ownership percentage (of your investment portfolio) =   110   -   (your current age)
  • BOP: Bond Ownership Percentage (of your investment portfolio)  = 100 – (Stock Ownership Percentage number)

So if you are 35 years old, your SOP would be 75 and your BOP would be 25  Since my friend doesn’t need as much risk in his portfolio, he has a high BOP number and most that are is age.  But us middle class folks need that growth…

Most of us will never own a small business, and many will not own real estate other than our primary home.  But, like my HNW friend, perhaps we should…

-MR

UPDATE: Check out Enemy Of Debt‘s post:  “my interview about being debt free“.

9 comments »

Posted in Investments, Wealth

Tags:

Ways To Invest Money Once You Have Over 1 Million in Financial Assets

April 8th, 2010

Okay, it’s 10 years in the future and you’ve already made your first million (much like Bytta)!  And now you’re midway thru working on your 2nd million.

So the question is…. “Do you invest the same way you did with your 1st million?”  Or if you’d like to think of it this way, how do you invest differently now that you have your 1st million under your belt?

Hmmm, if not for the 1st million, but how about after you reach your 2nd, or even your 5th million?

I have a friend that didn’t change his strategy, so during the downturn I estimate that he temporarily was down close to $1 million.  I say temporarily, because he didn’t panic and pull his money out of the stock market, he let it ride (as I did, but my temporarily loss was much smaller because I don’t have 5 million dollars).

Only after he recovered did he talk about how nervous he was.

So, I was thinking, what would I do if I had that much money…

I think I would diversify my money into different asset classes.

  • a small amount of precious metals (gold, etc)
  • real estate (local and global)
  • foreign currency (a small speculative amount in emerging countries)
  • definitely US Treasuries bills
  • solid company bonds
  • investments in small established solid businesses, maybe franchises like McDonalds?

What other ways would you invest money amounts over 2 million?

-MR

12 comments »

Posted in Wealth

pfblogs.org logo

Disclaimer: This site is for informational and entertainment purposes only, and the content herein should not be mistaken for professional financial advice. It is highly recommended that you seek advice from a professional for serious financial matters. This site and its author may be compensated for expressing personal opinions regarding featured products and services.