Tuesday, November 30, 2010

Net Worth (Nov 2010)

I'll do the percentages later, but we just refinanced so don't have all the updated numbers yet.

We are expecting a bunch back as well...

Learning vicariously through people's mistakes

Just read this article off Yahoo! Family fall from affluence is swift and hard.

This is followup of my previous post If I had a million dollars.  This is a man who was given a 10+ million dollars and had no plan.  He didn't do anything to earn it except having a daddy who had a good business and brothers who ran that business.

In any case, due to reckless spending and some bad luck in the real estate market... ALL of his inheritance went down the drain.  This is a man without a plan and he has the nerve to complain that he didn't get more money.

Still, Mr. Martin is prone to ruminate over the loss of so much money. He is furious at the banks and the bankers, who he thinks gave him bad advice, and he still sounds angry at his brother and others who decided to sell the company and who he says gave him little voice. Some of them got more than $100 million each, he said, while he got $14 million, as did his father and his sister Ann, because they were all minority shareholders.

He was angry at banks, bankers for giving him bad advice...

Here's my free advice: God gave you a brain, use it. Do the homework and due diligence on your own. Find advisors who you trust and are smart and have no interest in your money. But first of all, admit that YOU ARE THE CAUSE OF YOUR OWN PROBLEM.

Time for bed. What can a budget do for you?

Saturday, November 27, 2010

Happy Thanksgiving

Happy Thanksgiving to everybody. What are you thankful for?

Philippians 4:10-13 I rejoiced greatly in the Lord that at last you renewed your concern for me. Indeed, you were concerned, but you had no opportunity to show it. I am not saying this because I am in need, for I have learned to be content whatever the circumstances. I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do all this through him who gives me strength.

Contentment is key.

Tuesday, November 23, 2010

Teaching your kids money management

Great article on the MINT Blog. Teaching your kids money management by opening your own bank.

I think I'll do this with the girls.

Friday, November 19, 2010

2010 3rd Quarter Expense Report

Well, here's the latest in terms of our bills for 3rd quarter. In comparison with 1st Quarter and 2nd Quarter we had a few extra expenses.

3rd Quarter Income: $14.2k
3rd Quarter Expense: $16.8k
3rd Quarter Net Income: -$2.6k (DEFICIT)

We spent about $16.8k in Quarter 3 and made $14.2k in salary.  So net income down $2.6k this quarter

(29%) In preparation for our refinance, we had paid down a considerable amount of principle,
(27%) gifts due to weddings and tithes and offerings, and support, 
(17%) I also decided to continue my classes.  I had taken 1 year hiatus,
(10%) food was average,
(7%) auto - gasoline, insurance and shipping "george" to Texas
(5%) util bills lower than expected but we had fraud alert on our cell phones, so didn't actually receive the final bill until October, so I'll expect a higher 4th quarter bill for utilities.
(3%) went to shopping a bulk went to buying pillow pets... ehem...
and all others... you do the math.

This was a bit more spent than we budgeted for in Quarter 3.  I don't like seeing the $2.6k deficit, but I did make it up end of the year with some overtime...

Thursday, November 18, 2010

If I had a million dollars

What would you do if you had One Million Dollars? I hate these hypothetical questions, but they are good to ask especially before you actually have that level of money.

People spend 40 years working and saving will understand the value of it because they earned it through hard sweat. I've also seen people who earn it through hard sweat but in a lot shorter period of time like famous athletes. Those who are good make that in a matter of months but what happens to their money in a few years? There are stories where they went crazy buying new houses, cars, throwing parties, and because they worked hard during the season, they partied hard during their off season... and in the end they don't have much to show for the tens of millions they earned.

Well, this past week was similar. Our two roths were up about 85%. Like I said in my previous post about being under-diversified. Well I hit a new high of almost 50k. However, not knowing when this run-up would stop, I kept our money invested in a couple stocks. In a matter of days, this 50k dropped to 35k. A 30% decline in less than a week. Since I was still up 30% for the year, I didn't fear much, but losing 30% in a week really hurts.

Which is why I have to ask you... do you have a plan for $10k? Do you have a plan for $100k? What makes you think you can handle $1M?

So here's the moral of the story: Unless you know what to do with $1000, don't even think about that $1M or more, because without a plan, in a few years you're just gonna waste $1M or however much you have. Whether its gambling in the stock market or gambling in the casinos or just gambling without a budget/plan, when it come to easy winnings, what follows is most definitely easy losings.

What can a budget do for you?

Saturday, November 13, 2010

Utilities Expense: Is your refrigerator running?

Here's the latest breakdown of our Utilities expense for the past two years.

41% Mobile Phones
25% Electric
15% Gas
11% Internet
5% Water

Looks like a lot going to our phones. It is. We're paying about $350/month or 7% of our income. Of that $140 is going to phones including applicable taxes and other surcharges... almost 3% of income. That's huge.

I want to cut back. but oh well.

Home Expense: Joys of Homeownership

Our running average over the past two years of homeownership is about $1600/month or about 32% of income.

This includes mortgage, tax, insurance, HOA, and various other stuff.  With our newly refinance our mortgage will drop $344, saving us over $4128/year and paying for itself in 16 months.  In any case, it looks like our housing expense will drop to 25% of income, a great deal of savings.

Giving Expense: Two years in review

I actually should wait until next month since December is the big gift giving month. In any case, here is the breakdown of our gifts for the past two years.

Here's the breakdown of our giving
51% Tithes and Offerings
37% Personal Gifts
12% Charity/Missionaries

We averaged about $876/month in our giving or about 17.5% of income. Not bad, but I do want to increase that to about 20% this coming year especially with our newly refinanced house and the extra cashflow because of that.

Food Expense November 2010

Looking at our food expenditures for the past three years we have averaged about $550/month. This includes groceries, eating out, McDonalds, Costco, and others.

Here's the breakdown of our food expense:
72% Groceries
16% Restaurants
10% Fast Food
2% Misc (coffee, alcohol, etc.)

In comparison with our current income it is about 11% of our budget. Not bad. We'll aim for 10% so as to not rock the boat too much.

That's a great job considering we currently host a bible study on Thursdays which includes dinner for our friends and many other dinner parties. My wife has a gift of hospitality and I believe she has been doing a great job exercising her gift.

Friday, November 12, 2010

Quantitative easing

Funny video I found from Greg Mankiw's blog.

Wednesday, November 10, 2010

Mortgage Update

We just closed on our refinance today. God willing everything will be in order in the next month or so. We got a 4.125% interest rate for 30 years.

The closing costs with all the taxes and fees and everything else came out to be about 6k. Although they say we should be getting 2k back from escrow because of random taxes and insurance they had to collect up front.

In any case, our new mortgage is $1070 or $344 less per month. Incredible. We actually paid down over 40k + 30k in renovations. So in effect we have put over 70k into this house. But it's good.

We like it and we like how manageable this new mortgage is. We have been owners of this house for almost 2 years now. Bought in Dec 2008 and will probably stay here for another 2 years just so we make back what we lost through this refinance. $6000 divided by our $344 savings is 17.5 months or about one and a half years. Not bad.

On the horizon: we have been actually contemplating renting out this house. With a mortgage of $1070 and the going rental rate going between 1500-1700 we could actually make a decent cashflow. But we will definitely need to examine who rents this place.

This townhouse is old, so there is still stuff that needs fixing especially electrical, plumbing, and other minor stuff that may be annoying to renters.

This reduces our housing costs to less than 25% of total income. Definitely a huge boost in our budget.

What can a budget do for you?

Friday, November 5, 2010

Investment Strategy

I was looking at my portfolio this past week and noticed a real imbalance in my portfolio.  Diversification is a key word that I've adhered to most of my investing life.  I realize that if we put all our eggs into one basket, one little drop can crack a LOT of eggs.  If we have many baskets, then one drop only affects a small portion of our eggs.  BUT there is opposite is also true.  Finding those many other baskets takes time and requires more work so collecting your more eggs is a slower task than if you just carried one basket.

Last month, on the advice of some advisors and some research,  we purchased some stock in our retirement fund that went high pretty quickly.  I ended up buying more shares as well as some call options.  Usually I don't buy naked calls and if I do I usually balance with a covered call or some other hedge. 

But I got carried away and by the end of this week, we had about 90% of our ROTH IRAs in 5 stocks.  THAT's RIGHT. FIVE STOCKS.  This is NOT good.  Although the gains have been astronomical, doing so incurs great risk.  The same upside gains could equally be downside losses.  So why did I do this and HOW do I know this this will work? 

Good question.  First off, I can't predict the future.  I just know that it is earnings season, that stocks historically go up during Thanksgiving/Christmas time, that these companies are growth companies, that they have good balance sheets and that they have been helped by a weakening dollar, some are international stocks, others are commodities, and some are US stocks.  So even in these five stocks there is a bit of diversity, but still not enough to justify such a large position in them.

Here are some reasons I did this. 

1) I only have 50% of my money in individual stocks.  The other 50% which is in my work TSP is split into 4 funds, S&P fund, Small Cap fund, Gov Bonds and International Fund.  So I do get some diversity there.
2) They are in my ROTH account.  Which means I can't touch it until I retire.  I have a long time horizon for this money, so taking a bit of risk is definitely warranted.
3) I get greedy and sometimes I bite off a bit more than I can chew.

So if I was a portfolio manager of $100k, I would definitely have to diversify.  I cannot justify putting 100% of my money in one or two stocks. THat's just plain stupid/insane.

My breakdown is this:
15% S&P Fund
15% Technology (semiconductors, computers, automobile)
15% Financials, Real Estate
15% Commodities (oil, metals, industrial materials)
15% Retail, Food (entertainment, clothes)
15% International
10% Cash/Bonds

I'm a little bit imbalanced in my current portfolio, ideally this is what I would do. Have fun investing. Play safe but definitely take calculated risks and track them like a hunter... :)

Update: November 2010

As November goes into full swing, we are planning to close on our refi on Wed of this coming week.  We were able to lock into a lower interest rate of 4.125.  We'll see how much that saves us.  They said our mortgage PLUS tax and insurance should be somewhere in the ball park of $1075 a month.  That is incredible.  We've actually paid $43k into this house as downpayment and extra principal + over $20k in interest payments over these last two years + $30k for renovations. 

That's right... over $20k in interest payments alone and almost $100k put into a house in 2 years...  I am kinda glad we got a lower interest rate.  It cost us a couple thousand to refi, but that gets rolled into our new mortgage.  Oh well.  Owning a house definitely has a LOT of cost up front, but if it will definitely take a bit of time for it to pay for itself. 

Had we just rented a place for $1500/month for the past two years, it would have been: $36k.  But instead we paid about $1414/month of which we got about $300 went into principal and $100 came back after taxes... Our house is currently worth about $233k according to Zillow.  If we sold today, we would have lost about $31k.  Which would have been about the same as renting a place for two years. 

If we bring this calculation out to 5 years... based on the same assumptions: 1500/month rent would be about $90k.

On our current 5.5% interest rate, we would have paid about $45k in interest payments + $19k in principal + $18k in insurance/tax...

If there was appreciation on home prices in five years, my estimate about $269k... we should be ahead by about $21k... compare that to a complete loss of $90k had we rented...

If there was no appreciation on home prices... if in 5 years, it stayed at current Zillow estimate of $233, we would have lost $15k... not bad compared to $90k if we just rented. 

Home prices would have to decline to $158k in order for us to be equal to renting.  I definitely do not believe this will happen considering all that money the mint is printing.  We probably get inflation before that happens. 

Of course I didn't take into consideration this new interest rate and new mortgage rate.  But had we continued it still would have made sense to buy.