Sunday, July 31, 2011

Pay the Taxes Challenge: July Results

It's time to check in with the pay the taxes challenge. I did better than expected even though I didn't make money in all the income categories I could have. In the month of July I made $245.52 outside of my regular job. That's 35% of the way to my initial goal of $700! However, when I made that goal, I forgot I should also take into consideration that most of these earnings will also be taxed, so I should probably add another 25% to that $700. So I really need to raise $875 total to pay the $700 in taxes. Darn taxes! I feel like I'm getting taxed on top of the tax!  So, I'm pretty much starting over again this month with $629.48 left to earn to reach my goal of making $875 before taxes outside of my full time job by the end of the year.

Here are the numbers broken down:

Part time job: $52.01
Blog advertising: $178.27
Amazon affiliate: $15.24
Babysitting: $0
Ebay (minus fees and shipping costs): $0
Craig's List: $0

Total: $245.52
Total left to raise: $629.48

My part-time job was about what I expected.  I didn't try to sell anything on Ebay or Craig's List this month. I finally got around to posting some Ebay auctions today, but they won't end for a week, so anything I make there will go towards next month's total. I was asked to babysit once, but had other plans, so unfortunately I didn't make any money babysitting this month either. As you can see my biggest source of income was advertising. I had started another blog about three years ago and pretty much just report on news stories about a certain topic and that's where I make about 99% of my blog ad revenue. Sadly I expect the interest in this topic to die down a bit next month and then really cool down this fall. But, I still did better than expected for this month!

Sunday, July 24, 2011

The importance of financial goals

When I first started this blog, I had a difficult time coming up with a name. I probably tried 15 different names but they were all taken. But I finally found one that wasn't taken: I can't even remember what other names I tried, but in the end, I'm very happy with the name of my blog. I think it sums up the blog nicely and it has actually motivated me to achieve my wealth goals.

Goals are very important when planning for your financial future. Having a goal is like playing a game with yourself. You want to "win" the game and therefore you'll try harder than ever to reach those goals.

Here are some of the things I have learned about having financial goals:

Concentrate on one goal at a time if you can.
I feel better if my goals are not scattered all over the place. If I'm trying to reach too many goals at once I feel like none of them are getting done fast enough. When I was paying off the second mortgage, I also wanted to save (at the time it was for a vacation we ended up not taking), but once I decided I'm just going to knock out that second mortgage, it got paid off quickly. If I would have just stuck with my original plan of paying just $1,000 extra per month, while it would have helped, I'd still have that mortgage payment today. Right now I'm currently pouring all my extra income into my 2011 Roth IRA contribution. At the beginning of the year I was putting in $200 per month, so I have only contributed $1,400 this year so far. But now that my current goal is funding the IRA, I'm being aggressive and planning on having the full $5,000 limit contributed by September 1st. Then once that goal is complete, I will feel a sense of accomplishment.

Make achievable goals, but then try to do even better.
At the beginning of the year I had set a goal to pay down an additional $10,000 in principal on our second mortgage. Since then I've paid off almost $22,000 additional principal and got rid of the second mortgage completely. While I would have been proud of reaching the original goal, surpassing a goal makes you feel even more accomplished.

Review your goals frequently.
I have re-read my blog a few times, each time I feel a sense of accomplishment when I see how far I've come. Reviewing your goals refreshes your memory about what you're working to accomplish and re-energizes you to do everything possible to reach your goal. For example, having a goal in mind made me more motivated to work overtime (when it was offered) and that extra money actually helped reach those goals faster.

So what can you do today to help reach your financial goals? Write down one goal you want to accomplish and by what time. Maybe you determine you could pay off your car by next March, so write down how much it would take to do so and figure out how much extra you could pay each month based on your current income and expenses. Then if you can make more income or are frugal enough to save some money, you can add that money to your goal and maybe get it done even faster. By the way, if you are working on paying down debt, look in to learning how to create a debt snowball.

Leave a comment below and share what your next wealth goal is!

What is my net worth?

I feel like I've been working on My IRA contribution goal for a long time. Because I am getting anxious to get this goal accomplished, I just changed my contribution for August to $1,800 instead of $1,200 so I can get this goal done faster.  My plan is to invest another $1,800 on September 1st, which bring my contributions to $5,000 for the year. 

Since I post at the beginning of each month to report on the pay the taxes challenge and my IRA asset allocation and balance,  I was thinking I should have something to report on mid-month. I've seen other websites report on their net worth, so I thought I'd give it a try.

I had created a spreadsheet with my estimated net worth back on March 1st (I didn't post it here), and this is what that looked like:
Approximate value of house: $196,000
Roth IRA: $18,853
Simple IRA: $4,000 (estimation)
Savings: $11,500 (estimation)

Mortgage(s): $204,278

Total net worth: $26,075
Here are the numbers today:

Approximate value of house: $183,600
Roth IRA: $20,110
Simple IRA: $4,759 (June 30 statement)
Savings: $6,038 (not including money set aside for property taxes)

Mortgage: $183,734

Total net worth: $30,773
Difference from March 1: $4,698
I thought I'd see a significant improvement, but it's the value of our house that really messed it up.  If the house value would have just stayed the same, it would have been an improvement of  $17,098.  So I should be able to be proud of myself for that.

I didn't include my husband's retirement savings (I only get updates on that every quarter anyway). So to make this easier to calculate, I'll leave it out for now.  I'll post my numbers because it'll keep me motivated to continuously improve the number!  Maybe I'll leave off the house value in the future because it's right around break even and just concentrate on the value of my savings and investments. I don't know.  What is the proper way to calculate net worth?

Tuesday, July 19, 2011

Where did all the money go?

In a previous post I came up with what I think our budget is.  Here is a look at the actual numbers for the last 2 months:

May's Actual Budget:
Income: $3,992

Regular bills:
Mortgage: -$1133.01
Property Taxes: -$200
Insurance (home, auto and life): -$258.24
Trash: -$23.30
Gym (with rebates factored in): -$129.57
Internet/Cable: -$107.20
Cell Phone: -$82.32

Somewhat Consistent Bills:
Gas/Electric: -$108.47
Water and Sewer: -$28.19

Other Expenses:
Grocery: -$238.94
Gas: -$471.79
Misc supplies (Stuff like Wal-Mart, Home Depot etc): -$557.41
Oil Changes: -$26.73
Gifts: Not sure on amount because it was mixed in misc supplies
Eating Out -$123.53
Entertainment -$77.62

Irregular expenses:
Medical: -$788.54
Postage: -$15.63
Liquor: -$14.78
Repair for lawn mower: -$37.50

Left over -$430.77

June's Actual Budget:
Income: $3,992

Regular bills:
Mortgage: -$1,133.01
Property Taxes: -$200
Insurance (home, auto and life): -$258.24
Trash: -$23.30
Gym (with rebates factored in): -$129.57
Internet/Cable: -$107.20
Cell Phone: -$82.32

Somewhat Consistent Bills:
Gas/Electric: -$108.47
Water and Sewer: -$28.19

Other Expenses:
Grocery: -$311.58
Gas: -$356.39
Misc supplies (Stuff like Wal-Mart, Home Depot etc) -$488.66
Oil Changes: $0
Gifts: Not sure on amount because it was mixed in the retail store
Eating Out: -$98.48
Entertainment: -$9.97

Irregular expenses:
iPad: -$821.65
Medical: -$137.81
Carpet Replacement Patches: -$350.17
Vet: -$106
Postage: -$24.92

Left over: -$783.93

Few notes: I did not include the gutters or the payoff of the mortgage. I didn't want to list things I expected to use my income on. Our credit card statement does not align perfectly with the month, so May included charges from approximately May 7 to June 6 and June included charges from June 7 to July 6.

OK, now onto my analysis. Over all I give myself an "F" on my budget estimation. I thought I should have $713 left over at the end of the month and both of these months not only did we not have any money left over, but we were negative! I was off by nearly $1,500 in June and $1,143.77 for May.

Some budget busters come as no surprise - the iPad and the medical bills set us back quite a bit. Thankfully the iPad is done (although the majority of the "entertainment" category is from iTunes). I also expect the medical bills to peter out by the end of August, so hopefully we will have better control over that aspect of our budget by then.

What really surprised me was the "misc supplies" category. Wow! I guess when I put the budget together I wasn't thinking of what my husband was spending. I figured I went to a store like Target or Wal-Mart about once a month to buy basic things like toothpaste, dish detergent and cat litter and only spent $75 on average. Well it looks like my husband goes shopping at stores like those too and is also spending money there. I forgot to include clothing in my budget, so some of that is clothing purchases. Perhaps the biggest expense in the "misc supplies" are charges from home improvement stores. I even made the carpet replacement charge a separate category, but we still spent over $200 on home improvement stores alone in the month of June and in May it was nearly $400! My husband's favorite home improvement store is only a couple miles away - probably too convenient! He goes there about once a week and it's not unusual for him to go there more than once in one day. He always has these little projects going (it's been a month since we have parked in our garage due to the cabinets and TV stands he has been working on). I usually think it's less expensive for him to do the projects himself, but after seeing how much we are spending, I'm starting to wonder if that's true.

Everything in the "Regular bills" and the "Somewhat Consistent Bills" was pretty much on track with what I thought. We recently changed Internet and cable provider and they promised our bill including tax would be under $100, and it's at $107.20 so I should look into that. The electric isn't that high because it was charges for usage in April and May and we don't need as much heating or air conditioning as we do in other months. I don't even want to know our bill for July usage will be. Our air conditioning has been running non-stop for several days due to a heat wave we've been having.

I have come in under budget for groceries. That's why it's frustrating because I'm already doing good, but because I do 99% of the grocery shopping I can control it. So I want to do even better.

Gasoline was a little high in May, but we came in under budget for June. It helped that we car pooled to work a few times in June.

So, I think once the medical bills go away we'll come closer to meeting the budget. Now if I could just figure out a way to keep my husband out of all stores, we'd really have a handle on the budget.

Taking a look at our budget

I came up what I think our monthly budget is. I want to live off of just my husband's income and according to the budget I have created, we should be able to do so, and have $700 left over at the end of the month, but we never do. We live paycheck to paycheck and usually have to use some my income to cover our expenses. Here is the budget I came up with:

Income: $3,992

Regular bills:
Mortgage: -$1,133
Property Taxes: -$200
Insurance (home, auto and life): -$259
Trash: -$24
Gym: -$130
Internet/Cable: -$100
Cell Phone: -$83

Somewhat Variable Bills:
Gas/Electric: -$150
Water and Sewer: -$35

Other Expenses:
Grocery: -$400
Gas: -$400
Misc supplies: -$75
Oil Changes (average per month): -$30
Gifts (average per month): -$80
Eating out: -$100
Entertainment -$80
Left over: $713

So where is this extra $713?  I know some of this has gone towards big purchases (like the iPad), and frustrating expenses beyond our control (such as doctor bills), but still I don't know what is happening to the rest of the money we should have at the end of the month.  I'll be back later with an analysis of where our money is going.

Monday, July 18, 2011

Links to financial articles

Here are some financial articles I have bookmarked recently and I thought I'd share them here:

Wise Bread: Are Your Finances Fragile?
Some good tips to protect yourself financially beyond just having an emergency fund

Financial Highway: 7 Ways to Earn Extra Cash With Little Effort
I've been trying to come up with some ideas to make extra money. I don't know if I can use any of these, but maybe they'll work for someone else.

All Business: Will You Be Able to Retire on $1 Million?
Article that talks about how we'll need more than a $1 million to retire (I found out we'll probably need closer to $3 million... maybe we can do it on less if we have no mortgage by then).

Budgets Are Sexy: Why Smart People Make Bad Spending Decisions
An article that reminds us all money is the same and why we sometimes make bad decisions when the scale is greater (you wouldn't spend $10 on milk, but have no problem spending $10 extra on a big ticket item like a TV).

My Pretty Pennies: Life is like a game of Chutes & Ladders
After reading this, I don't feel like the only person who has bad financial luck.

Financial Literacy Month: Your 30-step path to financial wellness
This covers pretty much everything from organizing your paperwork to creating your financial team

Monday, July 4, 2011

Are we saving enough for retirement?

Prior to this year, I had not thought much about saving for retirement because we just didn't have the extra money. I believe my husband is contributing 6% of his income to his 401k, and I was putting in a little in my IRA whenever I could. But other than that, we had been too busy putting out our current financial fires to really think much about our future. Now that my latest wealth goal includes fully funding my Roth IRA, I have been wondering if we are saving enough for retirement. My husband recently celebrated his 34th birthday and now retirement is only 31 short years away! I plugged our current numbers into MSN's retirement calculator. I believe my husband's 401k balance is somewhere around $60K, and I have $20K in my IRA, and $4K in an old 401k. So our current retirement balance is $84,000. Assuming I continue to contribute $5,000 a year into my IRA and my husband contributes 6% of his income into his 401k, the inflation rate is no higher than 3%, the return on the investments is 8%, and we only would live on 75% of our salary, we'd run out of money by age 78.

According to the projections, we need to save almost $6,000 more per year to make it to age 85. If I change the figures to age 90, we need to save $10,290 per year before tax or $858 a month. I wonder if I could convince my husband to open an IRA next year and if he contributes $5,000 per year, we'd at least get closer to making it to age 85. Another shocking thing is we need to have almost $3 Million in just 31 years to retire comfortably! Wowzers! It makes my $13/hour wage seem like nothing!

Sunday, July 3, 2011

Throwing Away Junk and Finding Money

Last year I got this book "The Courage to be Rich" by Suze Orman at a garage sale, and I'm just now getting around to reading it. In the chapter I just finished she encourages the reader to throw away of 25 things.  This is to make room for more abundance to come into your life.  I have to admit I'm a bit of a pack rat. Once in a while I watch that TV "Hoarders" to make myself feel better.  I'm not that bad, but I'm always worried about throwing things out in case I'll need them some day.  So in the past half hour I looked around to find things I was willing to part with.  Here's what I found:

  • Several pairs of socks (either they didn't have a match, they had a hole or I just never wear them)
  • Used zip lock bags I thought I'd re-use
  • Ring box
  • Lollipop from my niece's birthday party
  • Yellow highlighter (we have 3, so I got rid of the oldest one)
  • Glass jar with a chipped cover
  • Pack of gum with only 1 stick left
  • Expired debit card
  • Employee discount card from an old job
  • Jokers from a card deck
  • Pile of old receipts
  • Old box (I thought I would use for a gift or something)
  • Nail file a cat chewed on (why do they love those things?)
  • Part of packaging that came with my humidifier.  (I store it in the box it came in during the summer, but of course everything doesn't fit in the box as well as the manufacturer put it in)

The next thing you're supposed to do is look for money you have laying around the house, and then put into a "jar of abundance".

I didn't go through the whole house, but I'm actually fairly good at not leaving money around, but I still managed to find 78 cents (most of which was at the bottom of my purse). I had already been putting my spare change into a jar, but my jar is pretty small and already full, so I may have to look for a larger jar because it may be physically and psychologically preventing me from accumulating more.

Saturday, July 2, 2011

Wage Envy

I overheard a co-worker say he makes $2,500 take home every week. I don't even make that much in a month - even when I was working a lot of overtime. It's very frustrating to go to work for the same amount of time as he does but he makes about six times as much as I do. And no, I don't believe he works harder than I do. If anything I think I work harder. I'd say over 50% of the time I walk by his desk he is reading his personal email or surfing the Internet on non work related websites. His job title, has "engineer" in it, but he doesn't spend his time in a lab or doing complicated calculations. I'm not even sure what he really contributes.

Me on the other hand, I've struggled to get past the $30,000 a year mark. I just barely reached the $30,000 mark one year, and that was way back in 2002 when I had a decent job. Unfortunately I moved away in late 2003 and have struggled the make any decent money since then.  My wage earning ability has been absolutely pitiful. I found a part time low paying job in 2004, then found a full time job in 2006, but it still didn't pay that well. Then we moved again in 2007 and I struggled to find anything other than temporary jobs.  I can't find my most recent SS statement, but as you can see my income has been embarrassing:

I made more money in 1995 while I was still in high school than I did in 2008.  It's no wonder we are still struggling financially.  I'm almost thinking it is a mental thing that I can't make over $30,000. If my job still offered overtime, I most likely would have surpassed the $30K mark this year, but since they no longer offer overtime, I probably just miss the $30K milestone. It's mid year and if I work 40 hours for 26 more weeks, I'll make $13,520 before taxes for the rest of the year. I made $15,397.37 in the first 6 months, but was offered overtime for the first 4 of those. So as of right now I'm projected to make $28,917.37. So once again, still below $30K. Maybe a new wealth goal for next year is to make well over $30K. The sad thing is my slacker coworker will make $30K in about 2 months.

IRA Asset Allocation and Balance: July 2

If there is anything more volatile than the constantly changing home values, it's value of mutual fund investments. This time it was actually good news. Just 2 weeks ago, my IRA balance was $18,653.13 and as of this morning with only an additional $600 invested the balance has skyrocketed to $20,141.42!

I knew that I'd see a good number after seeing the news about the value of stocks rising this week, but I didn't expect to surpass the $20K mark. I was actually a little disappointed earlier this week when I heard the Dow was doing so well because I knew that meant I'd be buying my shares at a higher price. Now I wish I would have purchased some shares last month when they were a little cheaper. Oh well, at this point the only thing that matters is that I get some money invested and actually contribute the maximum since I don't have a 401K.

My asset allocation is pretty much the same as 2 weeks ago, but starting next month, I plan to increase my growth stock percentage.