Who Moved My Cheese?

Remember a couple of posts back when we chatted about my annual check-up? Part II of that check-up is analyzing who moved my cheese ... out of my pocket ... and into theirs. Here's the snapshot:

Investments......................30%
~~Charitable Contributions (yep, I consider them investments), Retirement, HSA, Non-Retirement Savings & Mortgage Accelerator

Housing.............................26%
~~Mortgage, Utilities, Lawn Care, Pest Control & Cable

Taxes and Benefits.............25% (single w/no kids, what can I say)
~~Fed & State Taxes, FICA, Medical, Dental, Vision, FSA & Parking

Personal..............................9%
~~Personal Care, Blow & Vacation

Car......................................6%
~~Insurance, Maintenance & Gas

Food....................................4%
~~does not include eating out, that is allocated as "blow"

Looking at this snapshot tells me a few important things.

1. My spending is in line with my personal values. It's important to me that I not only invest in myself but that I invest in others as well. Now that I only have a mortgage, I have more resources to fund my dreams and passions, give to causes and organizations that are near and dear to my heart, as well as give to individuals who may be in need.
2. I literally live on less than 50% of my income. Excluding investments and taxes, my living expenses account for only 45%, or only 36% if you exclude the "personal" line item. HOT DOG!
3. The 9% I spend on yours truly is absolutely okay. I worked hard to pay off my debts and implement a financial plan that would allow me to win with money. I've been on both sides of the fence, a miser and a spendaholic, but now I'm at a healthy balance. For about 20 seconds I thought about reducing my "personal" budget to pay off the mortgage even faster but 21 seconds into it I completely abandoned the thought. I'm all about preparing for tomorrow, but I'm also about enjoying the journey. Okay, I couldn't resist, here's a quote for you "The journey is just as important as the destination," author unknown.

Do you know who moved your cheese? It's okay if you don't like who's moving your cheese now, just be sure to put a plan in place that will help you get where you want to be. I began my journey in June 1999 and failed two times before I could finally declare victory in February 2006 (if you haven't already, read http://mymoneychat.blogspot.com/2008/11/my-wealth-building-strategy.html for more details.)

Ebenezer Scrooge Platform

I read a humorous post from Clark Howard, a nationally syndicated consumer advocate radio show host. Below are a few snippets from his "2012 platform "(no, he is not seriously going to run).

• Spend only what you make -- In a Howard administration, your president would pass a balance budget amendment to the Constitution. We'd become a pay-as-we-go country -- instead of doing the opposite as we have for years.

• A flat income tax policy -- The flat tax would be somewhere around 18%. There would be a high standard deduction so that those with lower incomes don't get pinched. A flat income tax would also eliminate the corruption in Washington and let you know what tax burden you have.

• No more employer-provided retirement plans -- Your president would require that every dime on a dollar your earn goes into a personal retirement account with ultra-low management costs and simple investment choices. ***(question...have you ever added up all of your annual earnings for your entire work history? I did a quick calc and let's just say that I wouldn't be mad if I had saved 10% of my earnings since I began working. After all, we are required to "save" 7.65% for SS & Medicare but those funds are not set aside in a personal account. I think I like the 10% personal account better.)

• Just say no to socialized medicine -- there would be just 12 health plans offered: 3 HMOs, 3 PPOs, 3 HSAs and 3 of the traditional 80/20 splits. Every insurer would have to sell identical plans. That way you could switch if your insurer's plan is too costly. There would be no redlining based on your past medical history. You wouldn't be required to have health insurance, but you wouldn't be allowed to buy it when you're sick; instead, you'd have to wait 18 months.

My favorite: In a Howard administration, we would all need to do a hard reset about the issue of personal responsibility vs. what we expect from government. Santa's sack is getting less and less full, so you've got to be your own Santa. Clark will be running on the Ebenezer Scrooge platform for 2012!

Here is the entire post - http://clarkhoward.com/liveweb/shownotes/2008/11/04/14378/

What do you think about the Ebenezer Scrooge platform?

Financial Nuggets - 1

There are few accidental millionaires in the world. People who achieve financial independence, however they define it, make getting there a priority in their lives.
~Authors Stanley & Danko…The Millionaire Next Door

What each of us calls our 'necessary expenses' will always grow to equal our income unless we protest to the contrary.
~Author George S. Clason...The Richest Man in Babylon

Any thoughts or comments?

Investor Beware

If you are investing long term, are comfortable with your current investment strategy and have a weak stomach for the stock market's volatility, then do not look at your accounts or you will be tempted to make an emotional decision rather than a financial decision. If you must take a peek, then I suggest focusing more on the amount of shares you are purchasing rather than the amount of "unrealized" loss you have suffered. Think of it this way, all of the stocks are on sale and you're getting more bang for your buck. A little paradigm shift is just what the doctor ordered for the investment blues;-).

Guess what happened when I looked at my statement today? I noticed that I purchased 50% more shares this month for the same amount of money I invested last month (I invest the same amount of money each month).

Trust me, I'm seeing double digit negative returns as well but I am comfortable with my investment strategy and I am investing for the long term. The market fluctuations may get a good frown or a raised brow from me, but I shall not be moved. What about you?

Non-monthly Expenses

Are you familiar with the quote "people don't plan to fail, they fail to plan?" I find this quote to be very true in so many aspects of life, including our finances.

Many of us have expenses/bills that we pay on a non-monthly basis. I remember when those expenses used to be "emergencies" for me. Yeah, right! They were emergencies that could have been avoided so I ask you, were they really emergencies? Not at all, I failed to plan so consequently I planned to fail.

Since failure does not look good on me, I had to take a different course of action. Today I have a dedicated checking account for non-monthly expenses. Each month I deposit $210 into this account. Most of the costs are known but there is one that is unknown, car repairs. I drive a 10 year old car so I can reasonably assume that there could be maintenance costs above and beyond oil changes and tire rotations. If the car maintenance is more than the accumulated balance, I can tap my "car fund." My car fund is in a designated savings account. This is where I save money for the sole purpose of purchasing my next car in cash - that's right, no more car payments for me!

It took some time for me to get my system in place. What used to be an emergency soon become an inconvenience; what used to be an inconvenience is now just business as usual. For example, when I had to pay $590 in October for my annual car insurance premium, I didn't even notice the payment. How do you handle your non-monthly expenses?

**If you can't read the picture's legend, U is unknown but probable. Also, "frequency" is how often I pay the expense, "amount" is the total amount on an annual basis and "allocation" is the monthly amount deposited into the designated checking account. The only exception is Trash, which is $54 quarterly. For some reason I didn't annualize the payment in the "amount" column (which would have been $216, i.e. $54 * 4)...perhaps I need to update my spreadsheet. Nonetheless, the allocation amount is correct at $18.

Annual Check-up

Around this time each year I conduct an annual financial check-up to ensure that (1) I'm on track or exceeding my goals, (2) no major year-end adjustments are needed and (3) other items such as my e-fund and insurance policies are adequate. The results are as follows:

1. As of today, I have met all of my goals for the year! Anything else accomplished this year will be a bonus.

2. My homeowner's insurance company sent me a renewal notice with a 17% increase in premium. Hmph! Perfect timing. After calling around getting quotes from "reputable" insurance companies (side note...after AIG, I'm not sure what reputable means anymore), I realized that I have the best rate available for my car insurance but I hit a grand slam with my homeowner's policy. I was able to lower my rate by 20%; I saved the proposed 17% increase plus an additional 3% off of what I paid last year. Oh and I forgot to tell you, I'm getting more coverage and paying less money. Yes, more for less.

3. Okay, here is something a little unconventional. I reviewed my living expenses for 2008, took a snapshot of 2009 and determined that my e-fund is still 100% funded. Since this account is solely intended to pay my living expenses for 9 - 12 months should I need it, I am not interested in growing this account more than necessary. With that said, I have decided to take the amount above the necessary e-fund amount (basically the interest earned) and apply this to my mortgage. Remember I'm still trying to pay at least $100 a month towards my principal payments in 2009. The excess amount from the e-fund account will provide an additional $35.50 so now I'm up to $77.50 ($42 + $35.50) in extra principal payments monthly - still $22.50 shy but I'm getting closer.

Do you have an annual review process for your finances? If not, this may be a good time for you to do an annual financial check-up. Feel free to share any insights or best practices you may have with the rest of us. If you have any questions, share those as well.

Let's chat soon!

Oh My Gasoline!

Could it be...is it possible...does this mean....that we are going back to the days when gasoline prices made sense?! Gas prices were below $2 in my neighborhood as of Wed 11/5. This is one case where I hope the downward trend continues. Are you seeing the same trend in your area?

My Wealth Building Strategy

In a previous post I promised to share my personal plans on how I am building wealth. In order to appreciate where I am, I owe you a little more gritty details on where I came from.

Once upon a time there was a little girl born in a small town in the wonderful state of Georgia. She was an only child raised by a young, single mother. Fast forward 17 years to when she got her first credit card, which was a Discover card. Needless to say she "discovered" just how high it could go. "Wow" she thought, "this is so much better than layaway. I can have my things right now and pay on them later."

Throughout her college years she continued to accumulate more credit card debt, various Visas, Master cards, store credit cards, and of course American Express - but not the traditional green card that had to be paid off each month, American Express Optimum, the AmEx card at that time that allowed monthly payments without penalty (so she thought).

Like many other college students, she graduated with student loan debt, a car note, and mounds of credit card debt that she could not account for. Suddenly she had what seemed to be a great idea, "okay, let me go down to the local bank and see if they'll give me a loan to pay off these credit cards." Prior to this time she had no idea or knowledge of the term debt consolidation. Yep, the bank approved her loan request and she paid off all the credit cards.

What happens when you try to change the outcome without changing your actions? You will find yourself right back in the same situation if not worse. She was no exception, her actions did not change so she found herself back in debt, more than she was previously. Now she had the bank loan plus new credit card debt.

After two failed debt consolidations, she was still oblivious to the root causes of her debt issues, her mentality and her behavior. I guess you can say that she was treating the symptoms and not the problem. Her next brainchild was to increase her income because "obviously she was not making enough money."

You know how it goes, a friend invites you over to hear about this great business venture that he or she has recently joined. You get there and the presenter begins to tell you how much money you can make, how easy it is, how little you have to do and before you know it, you sign up and pay idiotic start-up fees. Months went by and fees associated with joining the business were paid, products were purchased, miles were driven, and very little income was produced so guess how all of this was financed...credit cards! Since I have the inside scoop on this young lady I can tell you that she made purchases without much consideration because after all, this was for her business and oh, let's not forget the almighty tax break that comes along with spending money for business purposes (please note that I'm being very cynical here;-). When it was all said and done, the only thing that came out of this attempt to produce more income was an increase in debt.

Through a series of what appeared to be unrelated incidents, she stumbled across several resources about personal finances. The Light! She was beginning to see it. During this time her job required a lot of travel so there was plenty of time for reading on the planes and in the hotels. She read everything she could and began to take pieces of this and slices of that until she came up with something that worked for her, oh wait, me;-)

Ladies and Gents, today the only debt I have is my mortgage and I am working on my plan for creating, maintaining and transferring wealth that will last for generations. How? By building my financial house one block at a time and ensuring that the foundation and structure are sound. Below are the steps that I have worked through and now I'm at the finishing touches. In subsequent posts I will expound on each block one at a time.

The Finishing Touches




Establishing the Structure





Laying the Foundation

Counting Pennies but Still Encouraged

On Saturday I promised myself that I would review my cash flow analysis to see if I could "find" additional funds to begin accelerating my mortgage. Since I allocate every dollar each month I did not expect to find a gold mine but I was hopeful that something would surface. At this point I am just looking to begin the process of consistently paying extra towards the principal. So that you can help me out, here is a snapshot of my variable and/or discretionary spending:

Net Spendable: $ 892.00

Expenses:
Auto - Gas 200.00
Groceries 200.00
Personal Care 150.00
Blow 200.00
Vacation 100.00

Net Surplus: $ 42.00

***Everything above net spendable is non-negotiable (i.e. taxes, charitable giving, retirement & other savings, mortgage and utilities.) I do pay $40.99 each month for cable and I classify it as utilities. I sacrificed and worked so hard to get out of debt that I promised myself I would not carry the miser mentality with me when I became debt free. With the exception of groceries and gas, everything else below net spendable is up for grabs...to some extent....maybe;-).

My net spendable amount rarely changes because the line items calculated to that point are pretty much fixed costs. If your budget moves around significantly each month, one suggestion is to put your utilities on budget billing; I participate in budget billing with my utility companies.

The way I see it, I can allocate the monthly surplus of $42 as my additional principal payment or I could dig a little deeper and do a little more sacrificing. Before I commit to digging deeper, let me explain what goes into each category.

Auto - Gas: I think this is self explanatory.

Groceries: Again, self explanatory. I like really good food and sometimes my food costs can get out of hand. The only method that works for me is to use cash in the grocery store. Cash and cash only. Whenever I use my debit card I go over budget 100% of the time!

Personal Care: Ahhh, my fabulosity fund (aka fab fund or glam dollars). Expenses in this category include dry cleaning, hair, manicures, pedicures, eyebrows, I think you get the picture. Although I do not indulge in all of these services every month, I do tend to use every dime in this category. When I was plowing my way out of debt this line item did not exist. In the spirit of transparency, I have to let you know that I am quite hesitant to eliminate this category. I could possibly reduce it, but I surely will not eliminate it.

Blow: Yes, I blow it. I could not tell you for certain where it goes. This is my freedom cash. I get to do whatever I want to with it. Again, during my debt payoff days, this line item did not exist. Whenever I eat out or purchase gifts I use blow money. There are times when I don't spend all of the blow money but even if I don't I still get my monthly amount.

Vacation: 2008 was the first year that I actually had a vacation line item. I set aside $100 each month towards my vacation plans for the year. This is a line item that I'd actually like to increase.

Did you notice that a category is missing? One line item is noticeably missing...clothes. I have yet to include a separate line item for clothes but between blow, personal care and infrequent cash inflows (i.e. bday/Christmas gifts, bonuses, and tax refunds if applicable) clothes are purchased.

The chat lines are open. Do you have any suggestions on how I can at least increase the additional monthly principal payments to $100 rather than $42? Remember I plan to begin accelerating my mortgage 1/1/09 but I do not plan on living like a miser again. Ever.

~Ms. Money Chat

Like David, I Have Encouraged Myself

There is an occurrence in the Bible where David encouraged himself because there was no one else around to do so (see 1 Samuel 30:6). After Thursday's chat about the benefits of paying off a mortgage early, I become encouraged all over again. I ended the chat with saying "when times meets opportunity" I will be the person who chooses to pay off her mortgage. Well the time and opportunity is now!

I love quotes. I am a self proclaimed quote junkie; some I make-up and some I get from others. One that I love and that is often echoed throughout the personal finance community is "when you begin to do smart things with money, money will become attracted to you." Okay, I'm not sure if this is verbatim but that's the way I hear it in my head. LOL.

I will share the details of my personal philosophy to building wealth in a separate post, but in the meantime, I will list the steps involved.

1. Create and maintain a monthly budget.
2. Determine your Wealth Building Index (WBI).
3. Open, designate and fund a baby emergency fund (e-fund) account.
4. Payoff non-mortgage debt using the debt snowball method.
5. Complete your e-fund account by increasing it to 9 - 12 months of living expenses.
6. Fully fund retirement - at least 15% of your current salary...generally through a combination of employer sponsored plans and Roth IRA.
7. Payoff mortgage and build wealth through non-retirement specific accounts.

I am proud to report that steps 1 - 6 are completed and I am currently working on step 7. My preference is to accelerate the mortgage payoff and simultaneously build wealth but the mortgage part has been on hiatus. Long story short, I took a temporary pay cut (voluntary) in order to free up more time to achieve other goals. ***this is a great place to pause and emphasize how being debt free gives you choices. I could not have taken that pay cut if I was burdened down with debt. The pay cut was at my discretion because there were other things I wanted to do with some of my time. It is my hope that you are encouraged and motivated to become and live debt free as well.

I digressed;-). Where was I? Oh yeah, so now that I have successfully managed living on less, literally, the passion to payoff my mortgage has been rekindled. The sun shall not go down today without me reviewing my monthly cash flow analysis (that's what I call my budget) to see where I can "find" some additional funds. Beginning January 1, 2009, I will send extra principal payments until that booger is paid off!

~MMC