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Archive for December, 2011

Spending Re-Cap

December 26th, 2011 at 03:20 pm

So here's my annual spending recap, with a comparison to Dave Ramsey's recommendations (rounded...he gives ranges). I'll note that my record-keeping was not as precise this year as I normally make it; I just summarized data from the Mint.com data aggregator about my spending and then put it into an Excel spreadsheet to graph it. This means that many entries are inexact--for example, a purchase at Costco might have been coded as groceries but was really half household goods. But the way life was this year, this approximation is "good enough for government work," as my Dad would have said.

First, I'll note that spending exceeded income by about $3000, the balance going to credit card debt. A no-no, but this was an extraordinary year--the "triple whammy" of negative life events.

So a comparison: my mortgage spending looks great by the recommendations, but then there's the "Other Home," which included about $1800 of needed home repairs (water heater and sidewalk replacement). Still, even that total is 32% compared to his 30%, so not bad.

My food and medical are both 5% above his recommendations. The medical is because I paid my own health insurance for 11 months out of this year. The food is always a struggle for me.

My utilities are within his recommended range of 5-10%, even though the #s aren't comparable here (I was making his ranges add up to 100%). My transportation costs are actually a bit lower.

He has 10% to charity and I have 9% to Pets (and maybe there's another 1% to Basset Hound rescue....Pets *are* my charity, I guess).

And of course, he has 10% to savings, which I didn't manage this past year, but now that I'm a working girl again, I'm well on track towards being able to meet that for 2012 and beyond.


December 26th, 2011 at 02:10 pm

One thing that I need to do at some point is to rebalance my retirement portfolio. I have some money in an inherited IRA from my mother, and there's way too much cash in there to generate good growth (though I definitely won't liquidate all the cash--I'll leave enough in there to provide some liquidity in case of an emergency....my ultimate goal is to have 6 months' worth of living expenses in an emergency fund in cash outside of retirement accounts and a years' worth of living expenses in short-term bonds, CDs, and cash equivalents inside the retirement account just in case. But the amount of cash I currently have in retirement is more than that, so in the near future, I need to invest some of that, probably in an intermediate bond fund.

There is a cool tool that is useful in rebalancing that I discovered a couple of years ago. It is called "Financial Engines," and it was developed by Economics Nobel Prize winner Bill Sharpe, and they work with many of the big retirement plan companies and big corporations to provide advice, based on Monte Carlo similations, to employees. Now I'm not saying it's a perfect tool--it IS a bit of work initially to get set up, and there are things that it won't ask about...see http://www.businessweek.com/technology/content/jan2002/tc200... for a good review...but it does a pretty good job of keeping up with how your account balances are changing IF you are not adding to them, and it provides easy access to research on various funds. This is a product that is typically offered free to employees of Fortune 500 companies as an employee benefit, or individuals can buy plans for themselves starting at $39/year, but you can get a free account at http://www.terrysavage.com--click the blue financial engines button . Once you sign up and input your data and goals, they'll mail you quarterly reports with a scorecard saying how likely their simulations say you are to reach your retirement goals. Anyways, I find it useful for taking a look at my accounts, and so I pass the information on to those of you who may find it useful as well.

Slow progress

December 26th, 2011 at 01:52 pm

The gold standard toward which I aim, as a disciple of YMOYL ("Your Money or Your Life," by Joe Dominguez & Vicki Robbins) is "F.I.," financial independence, the point at which you can live off your investment earnings (plus any Social Security that you qualify for, once you reach retirement age). That generally takes retirement savings (a.k.a. investment capital) of 12 to 15 times earnings...so that someone who earned 50,000 a year would need to have 600-750K in order to consider retiring.

So a useful year-end metric is not just to look at percentage earnings, but at how much money your money earned. That actually matters more than the percent. If that number looks like income that you could live off of (or could live off of supplemented by the social security you can expect to get), you have a sense of how close to F.I. you are.

I sat down and did that calculation. This past year, my investments (basically my retirement accounts) earned me about $5000. Not hardly enough to live on, but it's a start.

Actually, I'd *rather* be here

December 24th, 2011 at 02:14 pm

but I'm about to drag myself out to the two Christmas Eve parties I've been invited to.

I've spent most of the past two days reading "Your Money Ratios," analyzing my annual expenses, and thinking about refinancing, and the Scroogey part of me would be perfectly content to stay here doing that.

But I am forcing myself into a bit of congeniality, and even went and bought some small gifts for some of the neighbors and handed them out and did a little visiting this afternoon. Good for maintaining good relationships with the neighbors, which I value.

Tomorrow, I *will* have the day to myself, and I'm planning on *finally* putting this place in some decent order to give myself a little feeling of peace and refuge when I arrive home. At the moment, I have to put blinders on to get that.

I'm Jewish, so this holiday doesn't mean anything to me, and my focus is really on getting organized and motivated for the new year.

And maybe I'll treat myself to a movie tomorrow afternoon. We used to do that when we were kids sometimes on Christmas Day. Anyone know anything decent that's playing?

Deciding to Re-Finance

December 23rd, 2011 at 02:37 pm

Last year, my mortgage company (Wells Fargo) called me and offered me an easy refinance...no appraisal, no cost (though I'm not sure what that means...I'll have to look at the documents I have from last year to be clear). Last year, even though I was approved for the loan, I didn't go through with it, because I was employed only part-time and still collecting unemployment, and I was worried that somehow things would come back to "bite" me.

Now that I'm employed full-time again, it makes sense to think about refinancing with the rates so low. So I googled "mortgage refinance calculator," pulled one up, filled it out, and, as typically happens with these, got a list of potential lenders to call me rather than an actual printout of an estimate.

I talked to two of them today. Seems like I can go from a 30-year mortgage with 24 years remaining at 5.875% to a 20-year mortgage at 3.75%, AND lower my monthly payment by about $50. Sweet.

And, of course, if I keep on paying the same amount, I lower the payoff date to about 17 years, which brings me to full retirement age (not that I plan to retire then, but I want to be ABLE to, debt free).

So I'm going to do it. Now I need to figure out who to do it with. I have two phone quotes (both of which agreed that I can get the 20 year 3.75% rate; one also offered a 15-year, 3.5% loan, but that takes my payment a little bit higher than I'd like it).

If I stay in the house, I'll save about $24,000 in interest over the life of the loan (less any points or closing costs, which still leaves savings of over $20,000). Even if I decide to move and even if there are points or closing costs, it would be worth it in just a year or two.

I know that with both of the lenders that I spoke to today, there'd be an appraisal to get. Don't yet have the details on other closing costs.

Now I need to contact Wells Fargo and get their rate and see if it is comparable, and weigh whatever that is against avoiding the hassle of getting another appraisal.

This is my first house and I've never refinanced before. Any words of wisdom on things I should look at for as I navigate this process?

5 year recap

December 18th, 2011 at 08:23 pm

Here's a summary. First the pictures, then the words; first the past four years and then the current one.

A look at the past four years shows that both my assets and my debts climbed (with the exception of the year when the recession hit, when my assets fell). On this balance sheet graph, which gives a sense of overall context. the debts line actually looks relatively stable, but the actual amount of debt increase was significant and scary. That comes through better on the income statement graph below.

The debt ratio, by the way, is total debt relative to total assets, and shows an increase for the first four years of the period. Currently it is at about 25%, down from a high of close to 40%. My goal for the next year is to bring this down below 20%, ideally to 18%.

On this graph, you can see that, for most of the time during this period, my expenses outpaced my income, due to a 2.5 year period of unemployment combined with unusual, large expenses.

No amount of emergency fund planning that I might have done prior to this period would have been sufficient, and the financial planning literature I've read tends to significantly underestimate emergency needs as people, pets, homes, and durable goods age. Of course, I haven't read much financial planning stuff the past two years as I've been focused on finishing the CPA. The literature that I'm familiar with is from before the recession and overestimates expected retirement returns and underestimates expenses. I'm hoping that the recent literature is more realistic. (Not unduly pessimistic--realistic.)

The profit margin is net income (income less expenses) divided by income; here I just include "operating" income, i.e., salary, unemployment, and gifts, but not the investment income that accrues in my retirement accounts. As you can see, I had losses rather than income for most of the period.

As for the past year, you can note a turn-around on both graphs. This reflects a "bad" (sad) reason and a good one. The big increase in my assets is because my mother died and I had a bit of an inheritance; the recent increase in net income is because I worked a full tax season (lots of hours) back last winter and because I landed a full-time job with benefits this fall.

Hopefully the next time I do a five-year assessment, I'll be able to show annual profits (ideally, 10% for this next year and 15-20% thereafter) and a big reduction in debt.

2012 Goals

December 10th, 2011 at 07:18 pm

I drafted my 2012 goals--you'll see them in the sidebar.

The debt monster really ran amok in 2011 as I continued to run into emergency situations that were just not in the budget for a person surviving on unemployment, but now that I am employed, the extinction of the debt is in sight. As soon as I received my first full paycheck, I sat down and spent a day and budgeted and planned.

If I were paying off the debt based on my salary alone, it would take me 3-4 years, just as it did at the start of my career, when I got into debt the first time. I do expect to receive money from my mother's estate next year, however, and that will allow me to short-cut the process and pay off the debt all at once, as well as use the balance to establish the car and roof replacement and emergency funds I should have been building all this time had circumstances allowed.

Once the debt is paid off, I will increase my retirement contributions and think about other savings goals.

It is so nice to be able to plan again against a background of relative certainty compared to the planning with life-in-limbo that I've done since 2009.

Another blow

December 8th, 2011 at 08:56 pm

Teddy, my last remaining pet of the three I had two years ago, was diagnosed with chronic renal failure after I came back from my weekend away at Thanksgiving. He's now on subcutaneous fluids twice daily, and hopefully can have 6-12 more months. He's only 10, and I thought I'd have him longer than that. Poor Teddy Bear.

I read an article recently about how much better pet insurance is now than it was a decade ago. Too late for Teddy, but has anyone had some good experiences with it? Something to look into before the *next* pet.