Wednesday, January 19, 2011

2010 4th Quarter Expense Report

Here's the 4th quarter expense report for 2010.

4th Quarter Income: $17.5k
4th Quarter Expense: $11.4k
4th Quarter Net Income: $6.1k

Thanks in part to my bonus coming in and some overtime worked in the last quarter we were able to do fairly well. I hope to match this this coming quarter (now that I know overtime can be done with a little bit of effort).

So here's the breakdown:

30% Gifts and Donations
20% Home
12% Food and Dining
10% Auto and Transport
10% Bills and Utils
8% Travel
5% Shopping
5% Misc

As you can see, housing was actually down this quarter due to the refinance. We did not have a mortgage payment in December. Auto and Travel expense was on the high side due to the front end of our Christmas vacation.

We have been very blessed this year and was able to give away almost $4k at the end of the year, including one organization that reaches out to North Koreans, our church tithe, support of missionaries and other year end gifts.

In looking at this new year, I hope you can say with me how much a budget has helped you.

Wednesday, January 12, 2011

Goals for 2011

It has been a beautiful start to 2011. We went on a wild vacation and came back more or less intact. So what do we have planned for 2011?

Here are my goals:

- Save $30k for downpayment on new house.
- Buy or be in the process of purchasing a new house with at least 4 bedrooms, 2 baths, garage, an office for me and nice kitchen for my wife.
- Match or surpass last year's stock market rally of 50%+ gains

- Take at least 4-1 week vacations this year.
- Start teaching my daughter to read and count numbers
- Continue learning chinese
- Start playing soccer with the kids (teaching them all my skills)

- Work from home 100% (this will actually happen in Mid-February)
- Get my next Pay Grade promotion (hopefully in July).
- Maintain 110% production (6.8 cases)and 20 Hours of OT (1.2 cases)

- Finish at least 3-4 classes towards my degree in Seminary
- Read through Bible in a year using the M'Cheyne reading plan.
- Memorize the Book of Philippians
- Continue hosting bible study and be active in a 3-4 more people's lives.

Well there you have it. Some of my goals for this year.

Sunday, January 9, 2011

Future Value of Money

Part of my Engineering degree required taking a class called Engineering Economy. Most of the class was filled with calculating annuities and savings and calculating whether a present value of money was worth spending or would it be better to save.

On this website there's the Free calculator for you. This calculator requires the amount you save a over a period of time at a specific interest rate. How much would you have at the end of 30 years if you saved $100 a month at a return of 10%? According to the calculator you would have $197,393. That's only saving $100 a month.

What if you put a lump sum in an index fund that returns 10% interest each year for 30 years?

The Compounding Formula for Future Value would be this:

FV = PV (1 + i)^t

FV = Future Value
PV = Present Value
i = interest rate/time
t = time

Let's say we spent $25,000 renovating our house. What is the actual cost of the renovations in terms of future value. According to this formula it would be:

FV = $25000 (1 + .10)^30 = $25000 * 17.45 = $436,235

By spending $25000 today you forgo a future savings of $436k in 30 years.

You can use this formula for pretty much anything.

A friend is getting married soon, if you do a quick google search, the average wedding for most couples is $20k.

In 30 years, that $20k is actually worth $350k.

By choosing a slightly cheaper venue and spending half of that $20k, you actually save $175k in 30 years.

And if you were like us, and go even cheaper, spending a quarter of that $20k would be saving you $262k. Well, that is if you actually invested the rest of your money. We ended up paying off school loans, and later spending $25k on home renovations.

Oh well. You win some you lose some.

What can a budget do for you?

Thursday, January 6, 2011

Buying that new car

A bunch of kids (twenty somethings) at church just recently purchased brand new cars. Of course they were 0% down and 0% APR financing for 60 months. Boy, that shining car looks really nice. Was this a smart decision?

Here's the breakdown. In this scenario, a $15k new car would be $250/month or $3k/year and probably under warranty for the first 60k miles. So in any case, owning a car is expensive.

Dave Ramsey says that we shouldn't even consider buying a new car unless we have $1Million net worth. Why is that? Because of compounding interest. If we invest $250/month for 60 months and earn 10% interest that $15k would actually be something like $18k. If we continued this habit for not 60 months, but for 30 years, that $250 would be $493k. By forgoing a little in the present time we can save up a bunch through investing.

If they paid $3k-4k for a used car, they probably would have to pay maintenance and car repair, probably $1k-2k/year. What about a $3k car today? Using our same assumptions of 10% return and 30 years, $3k today would be $52k in 30 years.

But I need a car now. Okay using our above values... a new car paid in full after 60 months would cost about 18k. Hold on to your horses. 18k at 10% return for the remaining 25 years would come out to: $195k.

So what would you rather have? $52k less in 30 years if you bought a used car or $195k less if you bought a new car?

OK, what about maintenance costs? Okay, let's say we spend about $1k each year for maintenance on the used car. LAST SCENARIO: After 5 years, we would have spent $3000+5000=$8000. Including maintenance, our used car would come out to about $82k over that 30 year period.

My advice for the young kids out there. $250-300/month may seem like a doable payment, but you are missing out on a larger nest egg of over $100k if that money was invested.

Don't be fooled by these new car ads. That's why we had a 1991 Honda Civic, currently driving a 1999 Ford Ranger and 1999 Nissan Quest. All with retail values of less than $5k. They may not look nice, but they drive fine. And in the long run they are saving us $100k+.

What can a budget do for you? (Hope I don't sound like a used car salesman).

Financial Strategy: convincing 20 year-olds to make ROTH IRA Contributions
Dave Ramsey:saying no to new cars
Great Video: Drive Free

Tuesday, January 4, 2011

Why Budgets Fail

NY Times has an interesting article about a guy who is devising a wallet that makes it harder to open when the bank account goes low. People have no self-control and as an analogy to dieting, plans fail. So we need other types of safe guards. This is one. I'm not sure how effective this is or how secure it is for a wallet to always be connected to a bank account but I guess we can always try...

I think budgeting and dieting are very similar since both require discipline in maintaining and sustaining a reasonable lifestyle. Are people now less disciplined? I doubt it, I think it is the ease of use that is making things harder to control. In the past, money came in a physical form, now it's all virtual and credit. In the past, we actually had to spend hours cooking our food and then finally eat it.. now, there is fast food, restaurants, and other high calorie, FAST service foods. Too easy to access and too easy to forget your plans.

What's next? I see all these gadgets and electronics are going to make us dumber... it used to be we have to do calculations in our heads or memorization of facts, etc... now, it's all on the tip of our fingers... Making things easier is not going to make us better. It is when you undergo physical, mental, and spiritual training, that's when you will produce a more financially stable budget, a healthier and leaner body, a more gracious and thankful person. I hope your desires for this new year is not to continue in laziness, but a renewed sense of who you are and where you belong on this world. Strive to do that which is hard or in some cases impossible.

What can a budget (or a PLAN) do for you?

Monday, January 3, 2011

Budget for 2011

Looking at our budget for last year and how much we actually spent. This is my proposed budget for this 2011

23% Mortgage (HOA, insurance, tax, mortgage)
17% Giving (tithes, charities, missionary support, gifts)
11% Food (groceries, eating out)
7% Utils (phone, gas, electric, internet, water)
7% Auto (gas, insurance, etc)
5% Travel (hotel, rental, airline tickets)
3% Education (tuition, books, etc)
3% Misc
24% Savings/Investment (Roth IRA, TSP, 429)

Here is a breakdown of our Net Income month by month for 2010.

Here is a breakdown of our spending by Category for 2010.

Hopefully we can carry this on to 2011.

Happy New Year!

Just came back from our vacation... here's the break down:

16 states, 15 days, 3 hotels, 3839 miles, 140 gallons of gas, lots of food, lots of burgers, lots of fries...

Hotels: $466.26
Gas: $406.48
Rental Car: $336.89
Eating out: $217.27
Misc Shopping: $140.42

Total Vacation: $1567.32

We were treated to a lot of food and received a lot of gifts along the way. It was a blessing to us and we hope a blessing to others to see the kids. In any case, this trip averaged about $391.83/person.

Which means I needed to budget about $130/month for this trip. This year we spent about $2,188 (traveling from Jan to Nov) and $803.15 (Rental and Hotel for Dec) totalling $2,991 this year.

This means we need to budget about $250/month for an annual travel budget. Some years we might travel less, but with the two girls getting bigger and the possibility of more children, we're going to have to find ways to cut back on hotel costs, rental costs, and meal related costs.

$250/month is about 5% of after tax income. That's a big chunk. But that's a part of our life that we decided would be good for our family. Both educational and maintaining relationships.

Saturday, January 1, 2011

Net Worth (Dec 2010)

Final Net Worth for 2010: