Monday, March 29, 2010

15 rules to teach kids about finance

Wall Street Journal has this article about a new book about teaching kids about money.


I think my parents taught in such a way that their lifestyle matched their philosophy concerning money. At least that was the case growing up. We were not wasters and instead collected things and werer satisfied from the stuff that we actually bought.

But of course as I look at myself, I am not totally 100% correct in how I see money and need a more balanced view of things. Before getting married, I was a total minimalist/miser. It took an act of Congress before I would spend on anything that was worth anything. Now, all it takes is the push of my wife. Although I prefer to save as much as possible, my motivation in saving had to be for something... so I also needed a right view of spending. In the past it was just for the sake of saving. Having large bank account gives financial security, pride, etc. But I also knew that is not all there was to life.

I think starting a budget, having my kids learn financial sense is good. But even more important, I think, are the motivations about buying stuff that they want and need, finding the needs of others, and realizing the purchases that we make (whether for big ticket items or food or whatever) reflects our personal values. Underlying our consumerism is our morality and ethics.

I know I don't have this 100% down, but I'm starting to see that if you don't even consider your own philosphy towards life, your spending will be just as random. But if you have an underlying perspective in life that will help in ordering how you spend your time, money, resources, talents, etc.

Here's to leaving an inheritance to our children's children...

Sunday, March 28, 2010

Birthday Party: How to invite as many people as possible and save money

Well, we just had our girls birthday party. Since our youngest just turned one, my wife wanted to invite a lot of people. And since our older one turned three, my wife wanted it to be fun.

We actually brainstormed for almost a couple weeks back in january/february deciding where to do it at.

First choice was actually Chuck E. Cheese, you know, where a kid can be a kid... It's more like where a parent is pressured into spending a lot more than I need to for a couple of flimsy pizzas and kids run wild in the arcade/game area. Everything would have been ready and set up for us. We just had to reserve the place, buy a bunch of pizzas, have pay for each kid (12.99 per kid).

We wanted to invite a bunch of friends... around 15-20 kids. At the rate of 12.99 that would come out around $195-$260, and that just the kids. Including parents and family and friends, that would come out to be another $100-$150 for food and drinks. Estimated costs around $300-$400 for the party with built in entertainment and area for eating.

We decided to go another route, trying to be more creative. We looked at different rec centers, community centers, places where we could bring our own food and have our own games. My wife thought of a pool party. We did get married at a Jewish Community Center and they had a pool.

We were really excited. This might actually work. We would have come full circle if we had it there. We contacted them during the Blizzard of 2010 asking if they could accommodate a pool party our size (60-100 people). Unfortunately we couldn't do it on a Saturday and since went to church on Sunday, it would have been really tight in terms of timing. So we went back to searching for other pools in Fairfax County.

In God's perfect timing and providence, we stumbled upon Cub Run Rec Center located about 5 minutes from our house. We had no idea it existed. In any case, they did parties and rented out the rooms and allowed us full reign in the pool area, charging us only for the people swimming and children under 4 were free.

We ended having a little bit over 30 people swimming but ended up counting only 25 people over 4 years old. They were charged $4 each along with the room rental at $90/hour. On my last count and to the best of my memory we had close to 60 people including adults and kids (we invited close to 100 people).

Our party started around 1:30 and finished at 4:30 came out to be $190. We spent about another $100 on food (catered by Costco), so overall we spent about $300. This was almost $100 savings to the high estimates for Chuck E. Cheese... AND the adults and kids probably would not have had as much fun over there and plus the rec center didn't have scary robots singing at us.

Overall, we were quite satisfied with the facilities and how the party turned out. Our friends and family were very generous. For next year, we are definitely going to recommend NO GIFTS. Our girls were showered with lots of new toys and clothes as well as money... half of them they either don't need or will never play with because we already have a ton of toys handed down to us from their older cousins and uncles/aunts and we just don't have room for them. The money is going to their college funds and hopefully we will not have any more "BIG" parties for a while.

If we do have a big party next year... let us start saving now :)

What can a budget do for you?

Wednesday, March 24, 2010

Net Worth: March 2010

March has been really spectacular since we will have our girls' birthday party later this month and we just came back from our California trip. We have spent a bundle this month, but fortunately everything has been budgeted. We are in the rush of a huge stock market rally in which we have benefited tremendously as well.


As you can see from last month's net worth, our mortgage principal has been paid down by almost $1000.

Credit cards have been used a lot for this trip. I even got a call from Citibank wondering if there was any fraudulent activity. As for our investments, we haven't put any new money in there besides TSP contributions but it has grown by about 6% this past month from $71,731 to $75,967.

TSP has grown to about $35,942
Fidelity IRAs are at a respectable: $26,664
College Fund is now at $3,163 (and growing)

As for other savings, we transferred 2 of our car's auto insurance provider to GEICO from Farmers, saving us almost $200 a year.

I'll update later concerning our cell phone bill...

Related Links:
Wealthy Bloggers February 2010 at Suburban Dollar

The Widow's Mite

We were in the airport waiting for our plane yesterday when I saw my 3 year old daughter do something truly amazing. I would frequently give her pocket change whenever we buy something with cash.

Yesterday it was 5 pennies and a nickel. 10 cents. I gave it to her and told her to put it in her pocket. As we were walking down the different gates in the airport, we saw this big transparent box with money in it for the ronald mcdonald house. As we walked by it, my girl says to me that she wanted to put the money in there.

As she put one penny at a time, I watched in amazement that she learned something about giving... or maybe it just reminded her of her piggy bank back home. In any case she put the five pennies in the box and was going to put her nickel as well. In a split moment I asked her... are you sure you want to put ALL your money in there? Without hesitation, she said yes. She gave ALL that she had. It reminded me of the old parable Jesus taught about the widow's mite, in which a poor widow gave all that she had and it was more than what the rich people gave because she gave out of her poverty whereas the others gave out of their abundance.

In making a budget, we are designating our money to certain items in order to reduce unnecessary expenses. In so doing we are saving a bit and accumulating wealth. How does being faithful (and wise) with money reconcile with having faith in God?

My daughter gave all that she had because she knew her daddy would provide for her, would get dinner for her and would provide for her. She probably didn't understand the full extent of putting money into that box... but she did know she would not get it back.

Jesus praised the widow for trusting God even in her poverty. What can we learn from this? In many ways we are just like the poor widow. We may not be materially poor, but poor spiritually, poor emotionally, poor physically. Faith in God means that we recognize our own poverty and that God has made us rich through his gift to us.

Life then is not merely an accumulation of things, of financial reports (net worth), degrees, cars, experiences or any other thing, but it is God giving us an incredible gift so that we can share it with others and in so doing we will know God, know others community, and even know ourselves better.

Tuesday, March 23, 2010

Family Vacation 2010

Just made it back from California and enjoyed the warm weather. We spent a lot more than we planned to, but it was well worth it. The breakdown of expenses on this trip included:

$700 plane tickets (for 3 seats)
$400 extra ticket (for the mother in-law)
$200 rental car for 1 week
$200 Food: dimsum, dinners, Jamba Juice, Pinkberries, Yogurtland, (though we were treated to a lot as well)
$60 gasoline (we traveled a lot)
===============
$1560 subtotal

We also wanted to bless my wife's family on this trip. One thing we wanted to do was help one of her aunts get back on her feet (divorce, single mom, unemployed). The house we stayed in is actually hers, but because of circumstances, she wasn't at the top of her game. We knew she wouldn't accept our money, so we decided to do some sort of renovation, cleaning, etc that would in some way lift her spirits. The house was in a bit of disarray, her room had really old furniture that was falling apart.

We decided to go on a shopping spree for her at the local Ikea. We used the rental car and her minivan to pick up the furniture. It took us a day and a half to pick out and assemble everything, but we were able to rejuvenate her room and perhaps offer her some motivation to get back into the swing of things.

$130 Desk
$330 Bed
$299 Vanity
$299 Dresser
$ 55 Nightstand
============
$1113 subtotal

So this vacation was a little bit more than we intended, but because God has blessed us with more than we could use for ourselves, we knew it was right and good to share his many blessings.

This is one of the great benefits of hard work, a good savings plan, and a good investment plan. You have the freedom to be a blessing to others.

What can a budget do for you?

Saturday, March 20, 2010

2 Step Program for Investing

As always, Phil's Stock World puts the recent rally into perspective.

After gaining about 30% since January in some of the stocks in our portfolio, the best thing we can do is this 2 step program:

Step 1) Take Money
Step 2) RUN!

Haha, I found that funny. But I know a rally, whether it is a suckers rally or not, there will always be money on the table. I know there are much smarter people out there and people greedier than I am so I'll just leave some of the helpings on the table for them.

My sister has a 20% rule, once she hits it, she sells. Simple, basic plan. Make just enough and walk away from the table.

I get greedy sometimes. That 20% turns into 30, 40% and still I hang on to higher hopes. But I also know I'm not that smart and I don't got all the tools wall street and the time that day traders have. So I need to stick with a plan as well.

1. Slow and steady.
2. Look for solid companies selling at a discount.
3. Look at past history and follow it closely. Most stocks follow some sort of pattern...

Anyways, each stock, each company has there own things. Just got to keep your eyes opened and have some nerves to get your foot wet.

Happy investing!

Mortgage Payoff or Retirement Savings

This has been my on-going struggle with what to do with extra money. Should we pay down our mortgage or put it into our retirement savings (IRA, TSP, investments)? Out of your rut looks at three options for your extra money and goes through its pros and cons. Pretty basic stuff but we still having trouble doing what is better in the long term.

Right now we are doing the hybrid solution. We are putting about 15% into retirement while paying down our mortgage until we hit 80% PTV (to get rid of PMI).

We see the benefits of owning a house after getting back a substantial amount on this year's tax return from itemized deductions. But we are essentially paying an extra $100 each month on PMI so we can get $30 back, or simply paying an extra $70 each month. The interest we are getting back is similar. About $850 of the mortgage payment is interest each month. Of that, we get about $130 back. Or put another way, we pay $720 in total interest each month.

So the hybrid solution is temporary, but I plan on paying an extra $1000 each month for the next 11 months to pay down 20% principal and in parallel we are putting away about $1000 each month into retirement (not including the match). This way we are can start early with our savings and quickly pay down the mortgage.

Caveat: We're actually going in the red each month by doing this. We actually have a bunch saved up in regular savings. Instead of paying down mortgage all at once in one lump sum payment, we decided to spread this money over a year just in case something happens. So let's see if we can keep this up for another 11 months. We are currently in month 2 of this crazy paydown mode.

Questions:
Aren't we also saving to buy a new house in two to three years time frame?
Yes.

Aren't we tying up all our money into this house if we pay it down?
Yes.

How are you going to free up this money to buy a new house?
Good question. We can either sell our current house, find a way to make more money, or start saving a whole lot more in year two and year three of this plan.

What are we going to do after we pay down mortgage to 80% PTV?
I think we will continue putting 15% into retirement and the rest will be saved for future house purchase.

Isn't investing in the stock market risky?
It is, but so is putting money into the real estate market or baseball cards or just putting it under your bed. I think for me investing in solid companies and diversifying (up to a point) is a wise thing to do. I'd rather not put all my money into stocks nor put all my money into my house. Nothing is guaranteed in life except for death and taxes.

If you have any other ideas, please let us know!

Monday, March 15, 2010

College savings

I haven't really talked about college savings. We currently have about $3000 saved up for college. My plan is to deposit $1000 a year per child into the 529 college plan. This is already taxed, so whatever is in there can be used for anyone of our kids for education. And if they happen to decide to not go to a university, they can use it for other educational expenses. And if they end up getting full rides or whatever, I can pretty much transfer it to anybody as long as they use it for college. Not too shabby.

I didn't really do much research on these 529 college saving plans. Here are just some of it's benefits:

- You pay no taxes on the account's earnings.
- The child doesn't have control of or access to the account -- you do.
- If the child doesn't want to go to college, you can roll the account over to another family member.
- Anyone can contribute to the account.
- There are no income limitations that might make you ineligible for an account.
- Most states have no age limit for when the money has to be used.
- If the child gets a scholarship, any unused money can be withdrawn without paying any penalty (just the tax).

I opened it up in our Fidelity account. We have asset allocations as follows:

30% Total Stock Market, 30% S&P, 30% International and 10% Treasury

Unfortunately I started putting in 2007-2008. So we have actually lost some of our investment. Our biggest gainer has been the 10% put into treasury index. Who knew?

In any case, our $1000 deposit a year for 18 years @ 10% return will come out to about $45k. If tuition rates continue to grow along with inflation, that will probably be enough to cover two years. Oh well. That means my girls will have to work or find other sources of income... Let's hope for scholarships and some rich aunties and uncles!!

What can a budget do for you?

Sold to the highest bidder!

We've been looking around in the real estate market.  Even though we bought our house at the end of 2008, we've been thinking if we have another baby (no we are not expecting) that we should probably get a bigger house.

At the moment we've been doing some spring cleaning.  Moved our girls together into their bedroom and pretty opened up our bedroom by about 60%.  So in actuality we could probably have another 2 kids before we max out on our place.

We bought our house at a slight discount from my brother in end of 2008.  He was on the way out and looking for a new place anyways.  We wanted something cheaper that we can fix up.  It seemed like the perfect time since the government was giving a $7,500 tax credit (the original first time homeowner credit that you had to pay back in 15 years).

What we didn't know was that the government knew something we didn't know.  The market was crashing, housing prices were deflating even as we were speaking.  The tax credits and later the $8,000 tax rebates were merely ploys the goverments tried to prop up an already weak market. 

But we ended up still buying for about $215,000 and then in late Dec 2008-Jan 2009 we put in about $30,000 in renovations.  Along with our 10% downpayment we put in a little over $50k into a housing market that was quickly sinking.

Our next door neighbor had already foreclosed as well as a few neighbors down the block.  It wasn't until late 2009 that the banks sold it for $161,000.  Our Fairfax County Tax Assessment said our house is worth about $193,000. The good thing about a sinking market is that taxes are cheaper and that if you have other capital you can buy rental properties or upgrade.

Recently we've been looking at houses in our neighborhood.  To our surprise and amazement, one of our neighbors sold their house for $265,000.  They remodeled their house in a very similar way to ours.  We were looking at a clone.


It just seemed like everything we did they just copied. In any case if we sell today we probably won't get as good a price since we have been living here and there is wear and tear and we don't have granite counters or other high end material. But the similarities were uncanny.

My wife and I were thinking the other day if we did move we would want certain things in our new house. A garage, different layout for the kitchen, various changes to our bedroom, living room, an office space, etc. etc. etc. Looking at the prices in Fairfax County it would come out to around $400k or higher.

So of course, we did some calculations. If we decided to sell this place for a similar price, we would have about 20% down reducing the principal of $400k to the low $300k. That is still a bit high for me. So we need to save another $30-50k to bring our cost to mid- to high $200k and that would reduce our monthly mortgage payments.

At this point we are saving a decent amount. We are paying down the principal in the house, investing in our retirement and saving for college. If we stay here for another 2-3 years, we need to save about $15-20k each year in order to make this happen. And we're assuming the housing market will stay relatively the same during this time. I assume it is considering the large number of foreclosures and short sales still going out there. Banks are even hiding the delinquencies in order to not scare the market even lower. So I'm hoping the next 2-3 years we can save up to upgrade.

Let's see what a budget can do for us!

Related Links:
I will never buy a house again @ Gather Little By Little
Home Finance Real Cost of Ownership and Don't use your house to pay for your life @ rocket finance
Why renting is right for us right now @ financefreelancelife

Monday, March 8, 2010

Retirement Planning

This retirement calculator at creditloan.com is pretty useful. It helps you see how much you need to put away during your working years, rate of return, how long and when you want to retire. This is a good way of planning where you want to be in 10, 20, 30, or however many years from now, what kind of lifestyle you think you will be living... you make a couple assumptions including rate of inflation, rate of return, and amount of increase in your salary... but overall, I think it is helpful to at least forecast 20-30 years down the road to see the affects of our saving habits today.


Retirement at age 55 means needing to save 10% of income, having about 10% annual return before and 6% return after retirement, expected rate of inflation 3.1% (could be higher, but hoping it's not), and sticking with a 50k lifestyle (expecting to be living in a house that's paid off and kids out of the house).

Anyways, that's a doable plan. 10% savings rate + 10% rate of return until I retire. And who knows, I might work until I die or I might die before I reach 55. But it's always good to have a plan.

If you look back at my previous post on retirement in which I used the 4% rule, this plan matches up pretty well with it.

What can a budget do for you?

Friday, March 5, 2010

Cash System

We are slowly moving towards a cash system.  We still need to work out some of the kinks, but as I read about other people getting rid of their credit cards and going to a strict cash system, I see the benefits of it.

Cash has some sort of psychological thing over people that keeps them from spending as much.  Credit cards on the other hand also makes it much easier to spend. This barrier or tolerance threshold seems to be lowered considerably when using a credit card.  Why is that?

I'm not sure, but it probably has to do with convenience and laziness.  When I run out of cash, all I need to do is swipe a card and don't worry about it.  Without the card, I would have to go to the bank, withdraw a certain amount of money and then spend again.  This extra "inconenience" is enough to hinder spending.

How is it working for us?  We haven't gone cold turkey yet.  But we are trying this system.  We've allocated $150/week for food and other expenses.  I'll still pay gas with our credit card, but I see more and more gas stations give $0.05 discounts if you pay with cash.  Gas is about $2.70/gallon, so that's an instant 2% cash back right there. 

What about all those other cashback programs that credit cards have? Well, all I have to say is the less we spend, the more cash we'll have back.

What can a budget do for you?

Thursday, March 4, 2010

Average American Budget

wheredidthemoneygo

According to the Department of Labor the average American spends:

34.1% on Housing + 7% Utilities + 6.9% other Household expense
17.6% on Transportation + 12.8% on other Transportation expenses
12.4% on Food at Home + 5.4% Food away from home
7% on Entertainment, Alcohol, Tobacco
13.3% on Miscellaneous, Healthcare, Personal Care, Clothes
2.1% Reading, Education

In comparison, our annual expenditures for 2009 came out to be:


44% rent/mortgage
18% in giving, tithe, donations
14.5% on Food, groceries, eating out
8% in gas, auto insurance, repairs
8% in utilities (water, gas, internet, phone)
6% for misc shopping
2% for education

We were fairly even with the average American on many things. Higher in terms of rent/mortgage since we are going for early payoff, less on transport since all our cars are paid for and no financing on any of them (we got clunkers). As for eating at home and eating out, we are a little bit below the average, but I want to see it lower. Utilities and education are average. We have really low entertainment and misc shopping expenses. I think this has to do with having kids. We stay home more, we play, watch tv, dvds, sing songs, color, simple stuff that doesn't require hundreds of dollars.

We are planning a trip to L.A. later this month and a birthday party for the girls. So we're gonna take a hit financially, but like I said before, money is just a tool for us to build relationships.

Flight for four to L.A. $700
Rental Car for a week $150
Pool Party $200-300

Time with friends and family: Apparently it costs $1150 or 1 week of work.

What can a budget do for you?

Wednesday, March 3, 2010

Taxes: Render unto Caesar

Been working through our taxes for 2009. Many, many deductions for this year. I guess this is the government's way of refunding us so that we can spend more. Some of the deductions produced the following tax refund:

- Work (some sort of work pay thing, $800 back)
- Children (we have TWO)
- Education (my seminary classes, $150 back)
- Housing (Interest, Tax, PMI, $770)
- Home Improvement (energy savings renovations, $900 back)
- Tax savings for my wife's traditional IRA ($700 back after a $5000 contribution=instant 14% return)
- Charitable donations (getting back for giving away, $700)

I used Turbo Tax Deluxe and went through their supposedly 350+ deductions to see how much I would get back.

Stuff I could have deducted on but didn't have receipts:

- Medical Expense (even though we did have baby in 2009, I did not keep all the receipts, co-pays, and medicines)
- State Sales Tax
- Items donated to Goodwill, salvation army, thrift store (again no receipt)
- Mileage for church work (as a deacon of a presbyterian church, again I did not keep records)

Haha, money left on the table. One of my complaints for this year's deductions was that there was just so many of them (then again there probably always was this many, I just didn't pay attention). I didn't complain when I got the $7500 First time Homebuyer credit in 2008, but now that I look back, I got it because America's economy and financial situation is in much worse shape (than we actually see) and that the government must resort to these things to prop it up.

The more deductions I take, the more stimulus money I take, the more the government is trying to stimulate the economy through consumption and spending. They are hoping with the $4-5k return that I get I will go out and buy American products and eat American food in order to spur America's commerce so businesses profit and hire more people and pay more taxes. But in doing so, the government is taking a huge hit, and hence our deficit spending and huge multi-trillion dollar debt.

My co-worker says America must become a production society opposed to consumption. I think he's right. We need to encourage growth through some other means beside buying from China and having China buy our debts.

So my point: government can't fix everything, giving tax incentives for certain things cannot change spending habits, just like having a budget doesn't change a person's motivations.  And the way we are going, we won't be leaving any inheritance to our children or children's children.  Instead we will crush them with huge debts.

It's got to be the other way around. Our motivations and having an end in mind brings about change that results in things like budget and wise spending and charity and entrepreneurship.

As Jesus said when questioned if he should pay taxes to the Roman government, "Render unto Caesar the things which are Caesar's and unto God the things that are God's."

Our attitudes towards taxes, our attitudes toward government, money, spending, saving, etc. will change when we "render unto God the things that are God's."