Posts by: Donald
Jeez, has it been since May? I’ve been keeping away from posting on here basically because we’ve been spending money like crazy and our numbers are not looking terribly good.
Anyway, here’s the update. Current net worth $272,378.
I’m definitely disappointed to see cash go down so far and credit card debt go up. That’s mostly due to the deck I built this summer and the hot tub installed on top of it. I had turned the bright light of the Savings Laser onto the deck project and saved up around $10k, but I hadn’t budgeted nearly enough. In fact, I was about $6k short. So we financed that through a 12 month, no interest credit card which will come due in May. In the mean time we’re saving the cash up so in a couple of months the balances will just switch out.
That would have been bad enough, but our dog was diagnosed with cancer. It’s a long story, but ultimately we decided to treat her and that destroyed our emergency fund and left us around $7k less wealthy than we would otherwise be.
So I’m happy to say that there was growth in the last 7 months, but it was very minor–just 5%.
| Categories | Value | Change | % Change |
| Assets | $401,668.55 | $16,385.21 | 4% |
| Cash | $11,796.92 | ($2,706.26) | -19% |
| Investment | $381.55 | ($150.00) | -28% |
| Property | $148,532.00 | ($168.00) | 0% |
| Vehicle | $30,080.00 | $0.00 | 0% |
| Retirement Account | $210,878.08 | $19,409.47 | 10% |
| Debt | ($129,289.92) | ($2,968.38) | 2% |
| Mortgage | ($115,248.77) | $1,026.59 | -1% |
| Car Loan | ($3,889.65) | $1,242.97 | -24% |
| Credit Card | ($10,151.50) | ($5,237.94) | 107% |
| Net Worth | $272,378.63 | $13,416.83 | 5% |
Wow, looks like we did it again! With every paycheck, we put half a mortgage payment into our Chase checking account–this makes it very easy to make payments as Chase holds our mortgage. Well, getting paid every two weeks means that occasionally we get paid three times in one month, leaving an excess of almost $700 in this checking account.
The first time it happened was July, but we didn’t notice until September. Well, then it happened again in September and we didn’t notice again until now.
This is great for our Emergency fund, it’s been boosted by $1100 in just a couple of days. I should start projecting this, rather than just waiting for it to happen.
So among my savings accounts is one strictly for insurance. It’s an effort to smooth out payments that happen every 6 months or a year, and every paycheck we put $65.60 into it. Well I decided to check today and see if we have any excess, as I’d never really done the analysis to see how low it gets at different parts of the year, and lo and behold we have a $500 cushion!
We’re pulling that and putting it right in the Emergency fund where it belongs. The poor Emergency fund has suffered quite a bit this year, this infusion should help it out a bit.
Thanks a lot, stock market! I thought we were friends…
A good month for cash, but a bad month for our retirement savings–it’s a good thing we’ve got 35 more years to go! I set up a retirement goal in Mint.com just to see how they’d do with an extremely long term goal, the good news is that we’ve only got $4.5 Million to go! I immediately deleted the goal.
So what happened this last month? The biggest hting form is that I got numbers instead of estimates for Anna’s 403b balance along with her car loan: we owe more money on the car than I thought. 
However, knowledge is power and we’ve now got another clear target for the Savings Laser.
We accumulated cash more slowly than we have in the last few months, the result of a few factors.
- Anna drove many hundreds of miles to come visit me where I was out of town for work. That was about $200 extra in gas. Also, there was some restaurant spending on that trip we normally wouldn’t have done, so throw another $100 on it.
- We spent almost $300 on gifts in May. 2 baby showers, 2 high school graduations, a couple of love gifts and a get well soon just about cleaned us out.
- Threw a party to celebrate being back in town, so that set us back about $100.
All of these unexpected things fly in the face of my desire to totally smooth out our spending and make it 100% predictable. Sadly, that’s just never going to happen, but a man can dream.
July should see some big drops, as I’m going to break ground on the deck/hot tub project really soon and spend probably around $6k on that.
Another great month, thanks in large part to the fact that I’ve traveling for work the whole time. Anna is much more thrifty than I am about food and alcohol, so having me out of town means she’s pinching our pennies for us. Plus, my 2011 contribution to my traditional IRA came in from my family’s business, which is a quick way to see my assets increase by $5,000.
Cash is up, my one stock is worth $0.05 more than when I bought it, as always Zillow is playing with my emotions on the value of our house, and the retirement savings got the aforementioned $5,000 bump. Also our credit card is basically paid off (that last little balance is set to pay today or tomorrow) and as always I have no idea the balance of the car loan.
Looking at it again, it’s a little deceptive as we haven’t paid our mortgage payment yet, but I can live with that little fluctuation. I’m willing to accept a 6% increase in net worth over the month.
Anyone who has spent any time at all reading this blog knows that Paul is a lot better at this stuff than I am. Not only does he have a comfortable lead on me, but he spends more time and effort managing his personal finances. However, that just gives me more room to grow! This is the latest trick I’ve discovered to help manage cash flow:
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It’s about time I address the issue of our SEP-IRA as it makes up 15% (and growing) of our net worth. SEP stands for Simplified Employee Pension and is mostly used by small businesses to provide a tax-advantaged retirement plan for their employees without going to the trouble of putting together a complicated 401k plan. Like other IRAs, there are annual contribution limits, but unlike most IRAs which cap limits at around $5,000, an employer can contribute up to 25% of an employee’s wages up to $49,000 to a SEP-IRA.
Also, a SEP-IRA need not be under the control of a financial services institution like Fidelity or Vanguard. The owner has complete control over the account, so long as he/she doesn’t engage in so-called “Prohibited Transactions.” These can get a little complicated but it basically means that the employee must make decisions for the IRA which are in the IRA’s best interest, and not anybody else’s interest. For instance, you are allowed to buy real estate with the IRA and rent it out to someone at a reasonable rate. However, you can’t rent it out to yourself for free or a family member for close to free: that’s prohibited. Any rent you do collect (like interest, dividends and capital gains in most IRAs) is tax deferred!
They recently garnered a lot of media attention when it became clear that Mitt Romney has an IRA worth as much as $100 million. How could he grow it so large if contribution amounts are limited? Simple: he’s got complete control of it! He was able to use the funds to invest in his own company, Bain Capital Management, and Bain even allowed employees to directly invest in Bain-managed firms. If the company made a really good bet (which is the whole point of private equity) then employees like Romney stood to win huge!
However, there are some issues with investing in anything which is debt-financed, like the companies private equity firms tend to manage. Any income the IRA earns in a debt-financed operation is considered Unintended Business Income and subject to a special tax (UBIT) at 35%. However, if you read the Romney article you’ll see that one can avoid this UBIT by opening an offshore “blocking” corporation and investing in it. Then this corporation will, in turn, invest in the debt-financed operation… Too complicated for me.
So what are we doing with ours? Not a lot right now. I’ve got about $55,000 in it right now and the only investments I’ve made have been in CDs which, as I’m sure you’re aware, are not high performers these days. I’m currently trying to open a brokerage account for the IRA, but I’ve been frustrated by the fact that some companies will not manage these types of account. ScottTrade allowed me to open an account and fund it with a token $500 before kicking it back to me a week later after the “New Account” department determined they don’t actually support those types of accounts. Now I’m trying again with Fidelity. I like Fidelity because they offer a wide array of investment opportunities from stocks and bonds to mutual funds and even money market funds. Hopefully they will be more eager for my business.
And, there’s a really exciting new development in this area: the JOBS Act (should it pass) will allow small investors like me to make investments in startup companies through mechanisms like Crowdsourcing. This is supposed to be a boon for startups and small businesses in the US, but is also potentially an invitation for fraud.
Upside
- High annual contribution limits
- Freedom to invest in (just about) anything
- Tax-deferred growth
Downside
- You need your own (profitable) business to open one, or convince the owners of the small business you work for to make gigantic contributions for you.
- Freedom to invest in (just about) anything: if you sink your retirement into pig farming on the moon, you may find that you did not meet your retirement targets when you retire.
- Complicated structure and rules can lure unwitting investors into prohibited or taxable transactions.
IRS rules for SEPs, including what constitutes prohibited transactions are documented in IRS Publication 560. UBIT is covered in IRS Publication 598. Of course, you probably want to consult a financial advisor and probably a lawyer before trying to start your own. We used Guidant Financial to set ours up in 2009–it was a little pricy, but worth it in the long run. You can also set them up on your own and save yourself thousands, you just want to be very careful.
Update
President Obama signed the JOBS Act into law last week, opening the door for small-time investors like myself to take a gigantic risk on startup companies. Still waiting to see what sorts of avenues will open up, will it be Kickstarter-like websites? Will there be an exchange? Time will tell…
Have you looked at the standings recently? Today I’m in Paul’s rear-view mirror to the tune of $35,000–that’s pretty far back there!
If I’m ever going to catch up, I’ve got to get my spending under control. Look at what Paul is doing with Lending Club, he’s saving money by bringing his lunch to work and then investing his savings! Not only that, but he’s probably getting some health benefits as well, which is just good business. I did a little analysis of the money we spend going out to eat and this is what I came up with.
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Woe be unto those who attempt to build a Savings Laser; ours has been sputtering crazily for the last couple of pay periods. We were off to a good start there at the beginning, right in line with what we were projecting. However, when a car payment was paid by check and a credit card payment was made online, it left our checking account teetering on the edge of the $1000 threshold set by First Niagara for the privilege of No ATM Fees. So we pulled back $600 of the $700 for that pay period (lame!).
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I feel like playing the Marketplace “We’re in the Money” song because we’ve had a pretty good uptick in cash since last month! Of course, that’s also come with a small increase in debt. It seems like things keep popping up that require us to use the credit card. However, we’ve been careful not to pay any interest on the card, clearing off last month’s purchases just in time to drop another plane ticket or hotel room on there.
Part of the upsurge in cash is our targeted savings with The Savings Laser, but that’s come with its own set of problems which I will address in another post. We’re still working out how to handle our finances as a team, and that is not without issues.
Usual caveats: I have no idea how much we actually owe on the car and I don’t know exactly what Anna has in her 401k. This is a result of neither institution having an effective online presence.
Donald
Age: 32
Assets: $401,669
Liabilities: ($129,290)
Net Worth: $272,379Memberships
Paul
Age: 31
Assets: 477,660
Liabilities: ($123,725)
Net Worth: $353,935
