Sunday, January 31, 2010
2009 was our first year as homeowners. This was probably our biggest expenses. We spent almost $22k for the downpayment and $30k for the renovations on the house completed in January. I didn't include that in the budget because those were one time costs and were more like investments rather than monthly expenses.
Our mortgage and rent category came out to be about $1670. Of that $1670, $100 was paid to PMI, about $260 in early principal repayment, $300 in insurance and taxes, $800 in interest, and $200 in principal payment. We need to have 20% of principal in order to be rid of PMI, so that's why the early principal payments. We've paid down 15% so far, so another 5% (almost $10k) to go...
HOA dues were raised to $55 a month for 2010, so can't really do anything about that.
Like I said in the previous post. Housing prices have stabilized. There are less foreclosures and short sales pulling the market down. The benefits of lower housing prices are lower taxes, but since our family is still growing, we have to look down the road to upgrade, so we'll keep our eyes open to that possibility.
But in anycase we have $7500 to repay for the first time homebuyer loan program, we still have a little bit of repairs that wasn't 100% complete during the renovations, and we plan on staying here for at least two years due to tax implications. We'll see what happens then, as for now, we'll try to be faithful to our budget and giving goals.
What can a budget do for you?
Saturday, January 30, 2010
Well I usually give this example of saving $1000 a year for 30 years at 10% return annually.
That means after Year 1 you will have $1100 = $1000 (principal) + $100 (10%).
After Year 2 you have $1210 = $1100 (Principal) + $110 (10%)
And you continue this process for 30 years. That is if you just saved $1000 that first year. You will have $17,449.40 after 30 years. Not bad for letting your money sit in your investment.
Your equation should be for a single deposit at year 1:
Future Value = Savings (1 + rate)^Years
Now what if you continually save $1000 every year (also known as an annuity)? Your future value would be the sum of the above equations for each year.
FV(annuity) = FV(30 years) Year 1 + FV(29 years) + ... + FV(1 year)
So the formula is:
FV(annuity) = ((1 + rate)^years - 1)/rate * savings
So if you saved $1000 every year for 30 years and 10% return at the end of the year you will have:
FV = ((1 + 10%)^30 - 1) / 10% * $1000
FV = ((1.1)^30 - 1) / 10% * $1000
FV = 16,449.40 * $1000
FV = $164,494
Not bad for only $1000 a year. Enough to buy a cheap condo in the DC area. Note also that it's the money at the beginning that is compounding the most and as you near the end of your 30 years, those $1000 are insignificant in relation to the early deposits. What does that mean? That means start saving EARLY!
Plug it into this Future Value Calculator if you don't believe me. Play around with it, see how much if you save $50, $100, $150 each year. You'd be surprised how much you can save.
What can a budget do for you?
Friday, January 29, 2010
I was looking at our giving for 2009, and on the surface it looks pretty good, but after going a bit deeper, I discovered some things we could be doing better. According to Mint.com we gave away almost $9k, about 12% of total income, in 2009. But the question is who did we give to? About $5.7k was given to church tithes and offerings 60% of total giving, $2.5k in gifts we gave people 30%, and the remaining 10% we gave to various other charities.
So who did we give to? The tithes and offerings went straight to church and other missions organizations. Our giving were a splattering of birthday parties, newborn baby parties, weddings, gifts to friends and familes, etc.
We probably can give 13-15% of income without feeling pinched, 20%+ should be our goal. I hope as a family, we can "Make all we can, Save all we can, so that we can Give all we can."
Let us be a family disciplined in how we spend, how we save, and how we live.
As the previous sermons we've listened to said, the focus really isn't how much we are giving, but how much we are keeping for ourselves. As stewards of God's money, we need to be aware constantly that money is only an instrument for us to use to bring about a greater good.
Let His Kingdom Come!
My manhood got the better of me. I spent $3500 on a 1999 Ford Ranger last year. My dad gave me $800 towards the truck to have 1/3 ownership. But overall our 4th largest category in spending was in the automobile category right after mortgage, giving, and food.
We spent a little bit over $4k in auto expenses.
$1807 on Gas and Fuel = $150/month
$1000 on Service and Parts = $83/month
$932 on Auto Insurance = $78/month
$500 on other expenses like DMV, parking tickets, towing, etc. = $42/month
We are in the process of giving our 1991 Honda Civic away. Which means we are going to reduce our auto insurance to about $640/year or about $53/month, saving about $300/year.
The other expenses will drop significantly. This was a leak in our finances and I intend to do a better job dealing with things. SO savings hopefully about: $400
Service and parts, we'll budget in another $1000 just in case for emergency repairs, new tires, etc. So spending $83/month.
As for the Gas and Fuel, $150/month means 1 fill up per week based on our gas tank and current price of $2.75/gallon. We can't guarantee the price of gasoline, but we can consume less by staying at home more, finding activities closer to home, hosting things at our house.
So, our savings could conceivably be about $700 this year or about $60/month or FUTURE VALUE in 30 years @ 10% return = $130K.
What can a budget do for you?
How much do you actually eat? We spent $6,253 on food and dining in 2009. This averages to about $520 per month. Not too bad but it could be better.
The following breakdown is how we spent it:
$4,400 on Groceries (Grand Mart, Costco, Giant, Shoppers were the main places we shop)
Almost $1,100 on Restaurants (IHOP, Glory Days, XO Taste, Sichuan Village, Tian China... this is mostly with friends and family. We probably can do better by cooking at home and inviting people over. We actually didn't eat out that much in big restaurants. There were about 25 transactions averaging about $40 per meal).
$760 on Fast Food including coffee shop (Biggest culprits: McDonalds, Burger King, Wendy's, Pizza Hut, Arby's, Dunkin Donuts, Starbucks, Subway. We had over 100 transactions in this category which means every time we spent 5-7 bucks here and there... and going out almost twice a week.)
If we can control our french fry habit we can save about $65 a month.
If we can control our Sichuan Village, XO habit, IHOP, Tian Chinese habit, we can save about $90/month
That brings our food budget to around $400-450, we can save: almost $155/month.
This savings ($155/month), using our previous calculator for FUTURE VALUE over 30 years at 10% would be: almost $340,000.
I know, $155 a month doesn't sound like a lot, but in 30 years that's enough to buy a house. That's not chump change.
So, What can a budget do for you?
The simple answer is that they can't. In 2008, most people lost about half their savings due to stock market volatility. In 2009, they gained it right back. So year after year, no one can consistently make 10% in the stock market, but if you have a 20-30 year time frame with a consistent savings plan, diversify your investments, you can expect good returns.
If you put all your money in a house ten years ago, you would probably have lost money, but if you bought a house 20 years ago, the market now is much higher due to inflation, appreciation, etc. If you bought Microsoft, Google, Dell or whatever stock 10 years ago, you would have quite a run up and then a big drop and then another run up.
So what is your plan? Proverbs say gather little by little. You can't predict the stock market day after day, but in the long run, there is almost guarantee there will be up years and down years. So if you have a 20-30 year time frame for savings and investment, you can expect fairly decent returns. Will it be 10%? Probably not, but some years you will get 100% returns and other years 50% declines. Will I be scared, probably, but as the ant gathers little by little, he will survive the famine seasons. But if you look at the Dow charts from 1970-2010 you'll see that in the long run, some companies will be profitable and others won't.
Will you join me in saving now?
Thursday, January 28, 2010
Why do we make a budget? One of the main reasons for making a budget is to give us a chance to save little by little so that we can be free to make purchases and pay for things that we need or want.
- $1750 in rent/mortgage (43.8%)
- $750 in giving, tithe, donations (18.8%)
- $580 on food (14.5%)
- $360 in gas, auto insurance, repairs (9%)
- $360 in utilities (water, gas, internet, phone) (9%)
- $166 for misc shopping (4.1%)
- $75 for education (1.9%)
- $75 for other stuff. (1.9%)
That's what a budget can do for you. What can a budget do for you?
- 45% $1400+500 Mortgage
- 15% $600 giving
- 10% $400 for food
- 7.5% $300 utils (phone, gas, electric, internet, water)
- 5% $200 auto (gas, insurance, etc)
- 12.5% $500 loan repayment (which most will go to TSP)
- 5% $200 savings/investment
What can a budget do for you?
With the return of the stock market and monthly savings plan, our portfolio has nearly doubled since the end of 2008 and beginning of 2009.
In Dec 2008 we purchased a townhouse for $215,000. We put 10% down at an interest rate of 5.5%. We also qualified for the first time homebuyers program but in 2008 it was a $7,500 loan at 0% for 15 years which means we got to pay back $500 a year during tax time.
We went ahead and did renovations fixing up 2 full baths, 2 half baths, 3 bedrooms, new kitchen, brand new appliances, the living room, etc. The total bill came out to be around $30k. So for all the housing stuff we payed about $50k into the house. Hopefully we'll get it back when we sell...
(update - housing prices in this area have stabilized and should sell around $250k-270k, the major cause of price decline were the foreclosures and short sales. These brought house prices below $200k as can be seen by our next door neighbor who bought at bargain price for $160k).
In other areas of finance for 2009, we consistently socked away 5% to the Thrift Savings Plan (government version of the 401k) with a match of 4%. At the end of 2008 we had about $30k. We ended up taking $14k loan at 2.75% interest for 15 years for the renovations from my TSP account. I thought it was a low interest rate and since the market was tanking I thought my money was better spent being used rather than sitting in my retirement account.
(update - the market rallied in 2009 my account increased nearly 30%. Had I left the $14k in my account, it would have increased to almost $20k and my TSP would have been nearly $40k. But because I borrowed it from my account, we made a little bit less. As of Dec 31, 2009, we had about 30K in the account, we our total contributions to my retirement account with government matching and loan repayment came out to be about $10k for 2009.)
As for Roth IRA, we contributed the maximum $5000 for 2009.
As for all other investments, we had a nice 10-15% gain making back most of our losses in 2008-2009 thanks to a few end of the year investments in such companies as General Growth Properties, Netflix, Umpqua Holdings.
(update I'll try to update you on our investments in 2010)
All other savings and retirement, we have about $30K in TSP, $15k in our Roth IRA, $3k in Traditional IRA, and $15k in savings and no debt besides the 14k TSP loan and about $185k left in our mortgage.
GIVING:TITHES, DONATIONS, GIFTS
I was looking at our giving for 2009, and on the surface it looks pretty good, but after going a bit deeper, I discovered some things. According to Mint.com we gave away almost $9k, about 12% of total income, in 2009. But the question is who did we give to? About $5.7k was given to church tithes and offerings 60% of total giving, $2.5k in gifts we gave people 30%, and the remaining 10% we gave to various other charities.
That's it for 2009! I'll share more of our goals for 2010.
Friday, January 1, 2010
The Family Financial Report was first thought up in 2010 as a way to report our finances to my family since we spent so little time talking about finances. This was a way I could report back to my wife and allow her time to analyze the data at her convenience. I hope it will serve both as a guide and accountability for us as well as a resource for whoever wants to see how we do budgeting.
I'll try to make things simple and practical but if you have any questions or if there is anything you don't understand please feel free to ask.