Sunday, January 31, 2010

Visualize your budget


My sister sent me this link on how to visualize your budget.  So assuming we make about $200 a day after taxes and retirement stuff. We have about three days at the end of each month to do at our discretion.  We usually just sock it away in savings, but if you look at this calendar we have a little bit over a week of income to spend at our own discretion if we stay within budget. 

How would your spending habits look like over the period of a month?  How much do your possessions and purchases own your time and money?

So, What can a budget do for you?

2009 Home Expense


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?

2009 Utliities Expense

This category is mostly stuff that we have to pay for unless we don't want to cook, talk to people, etc. but can be reduced through some common sense.

Our monthly phone bill was the largest culprit coming out to be about $140/month.  This is due to our 800 minutes Sprint family plan which includes my wife, myself, my parents, my wife's mom & stepdad, and her grandma.  Six people on a plan comes out to about $23 per phone.  Not too bad, but could definitely be better.

Our electric bill came out to be about $86/month.  I think the biggest contributor of electric bill is pretty much use of AC during summer months, running two refrigerators, heater and humidifier during winter months.  But overall I think we did fairly well.

Our gas bill was much lower than I expected.  About $52/month.  Winter months were high (near $100), but spring through fall were fairly low (around 20-40).  Our major uses were for heating, cooking, hot water for showers/washing clothes/dishwashing. 

The internet bill was $49/month through Verizon Fios.  This of course is a luxury.  We can live without it, but we don't want to.  It provides us with too much entertainment and I actually do some work from home at least once and sometimes more a week. 

Are there things I want to get rid of?  Sure, but that would require significant changes, especially the phone and internet bills.  But if we can shave $100 a month, that would be significant indeed. We're spending almost $340 a month in utilities.  Doesn't sound like much, but even a little bit of savings like $100 over 30 years @ 10% interest would mean a huge amount of chump change: Almost $200,000.

Almost $200,000 that's enough to fund both my daughter's college funds, and probably their weddings.  What can a budget do for you?

Saturday, January 30, 2010

What does Future Value mean?

So I've been using a term called Future Value of money. What exactly does this mean?

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

2009 Giving and 2010 Goals

Giving:

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!

2009 Auto Expense



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?

2009 Food Expense


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?

How do you make 10% return a year?

My wife asked me this question yesterday and this got me going... how does someone make a safe 10% a year?

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

Family Budget 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.

One of the things we try to do is to reduce spending, finding places that we are overspending and correcting it. A few areas we need to improve for 2010. After looking at our spending habits using Mint.com. We have been able to see what areas we've been slacking in.

So in 2009 we spent $21k for rent/mortgage, gave nearly $9k away, ate nearly $7k worth of food (which includes eating out), spent over $4k on automobile, gas, insurance, $4k in utilities, and $2k in misc shopping, $900 for education expense, and another $900 for other stuff.

So if we average that out over the year per month. In 2009, we spent the following per month (note these are after tax percentages):
  • $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%)
And the rest went into savings/investments. SO... what should we do. In most of our spending has been pretty good. Our food expense could be reduced by $150 per month, our gas/auto can be reduced by about $160 a month, our misc shopping can be reduced by $100 per month and $75 for other stuff. These four areas if we are more careful can save us about $485 a month or $5820 a year.

An extra $5820 a year is a big deal. With a little bit of care that can go to our savings account, investment account, etc. If we do this consistently every year and make 10% interest... in 30 years these small investments (future value of money) we would have... $1,096,000.

That's right, $1,096,000 in 30 years... that's if we decide to reduce $150 in food, $160 in auto, and $175 in misc and other spending.

That's what a budget can do for you.  What can a budget do for you?

Financial Goals for 2010

John Wesley said "Gain all you can, save all you can, so you can give all you can." As a result we need to frame our financial goals with God's plan for us.

Here are some of our GOALS for 2010:

GIVING
Increase Giving Goal of 15%. We were pretty consistent with our tithes but we were a little slack with other charitable donations. With the Haiti earthquake, we are going to give a little bit more. We've been listening to some sermons about being a good steward of God's resources. The question shouldn't be how much should I give, but how much does God want me to keep for ourselves. So giving should be number one priority for financial goals in 2010.

MORTGAGE
We are at about 86% of our mortgage which means we are still paying PMI, about $100 extra a month. We need to be at 80% which means we have about $13k to go from $185k to $172k.

LOAN REPAYMENT
We took out a 14k loan from my TSP last year when we were doing renovations on the house. Since this money is mine, I decided to pay this off first since this is money that goes into investments. For 2010 I will be putting in around $500 a bi-week or about $1000 a month. Since we have about $12k left on this loan, we should be able to pay this off this year (God willing).

So for the house and PMI, we are paying an extra $500 each month to pay down principal. At this rate, it will take about a year and a half to get to the golden 80%. We'll see if this is wise. Dave Ramsey says to pay down your smallest debt first. Then attack the next one. This is the debt snowball plan.

BUDGET
As for our budget, I am making about 80k which includes salary, bonuses, and investments. After taxes we are bringing in about 4k a month. So for budget goals, we hope to spend about:
  • 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
Hopefully as things progress, we'll decide what to get rid of first, but it looks like our mortgage payment of around $2k a month is a bit excessive in terms of our financial goals. But I personally really want to get rid of the PMI payments. Tell me what you think.

What can a budget do for you?

2009 End of Year Report

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.

REAL ESTATE:MORTGAGE

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).

RETIREMENT:TSP

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.)

RETIREMENT:IRA

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

About Family Financial Report

A little about us, I met my wife in 2004 and we have been married since 2005, we have two girls, been homeowners since Dec 2008, we have lots of family in the area, and spend a lot of time at our church  I currently work for the largest employer in the area, the Federal Government..

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.