Adfecto Abundantia - Aspire 2 Wealth

Net Worth Update: May

2009-06-02T23:37:00.002-05:00

So another month has come and gone. I updated the data on my NetworthIQ page and was pleasantly surprised to have added $2,100 to the total during May. The big bounce in my retirement accounts continued, and including new contributions the market accounted for all of my net worth gains. The three month run for my investments is about a 30% return! From peak to trough I'm already back above where I started in dollar terms (because I kept pouring in money on the way down) and on a dollar/share basis I'm down around 20%. That's a whole lot better than the nearly 40% loss I was looking at at the market bottom.

Looking ahead the the month of June I know there will be a big expense when I replace the tires on one of the cars. I've racked up nearly 60,000 miles in three years! Apparently we drive a lot... I also learned that the car has some pretty fat rubber that is going to run me about $150 per tire to replace. Beyond that I think the month will be pretty tame. With a little luck in the markets I might be able to break $40,000 net worth barrier this month. Check back in a few weeks to see if I make it.

Net Worth Update: March & April

2009-05-06T16:43:00.002-05:00

I have continued to update NetworthIQ regularly every month. I didn't get around to a blog post to go along with it last month, but I'm still keeping up with the data. Thankfully the market has rebounded and with my new contributions it has made a big impact. I've added a good amount to the net worth figure in the last two months.

There have been a few interesting financial events lately. My paid for car has been giving me trouble all along and I decided to replace it. I bought a very lightly used (14k miles) 2008 Hyundai Elantra. It was priced very nicely and I think I got a good deal. The downside is that I added a new monthly payment to the mix. Overall it seems like a good reasonable expense to keep reliable transportation.

I've also done some projects around the house. I'm 90% done installing a tile backsplash in the kitchen. It's taken a big investment of time but not a large dollar cost (~$500). I'm also battling the weeds and grass in the yard now that it has warmed up. I need to buy some trees and shrubs sometime soon too.

I'll try to keep up with the blog a bit more over the Summer and write a bit more often. Certainly check out my NetworthIQ page and the blog to follow my updates.

Net Worth Update: February

2009-03-12T18:42:00.003-05:00

Yes, I know it is already more than a week into March. Sorry. For those that pay attention I actually updated NetworthIQ on time at the close of February. The results were lackluster mostly due to the ugly stock market. In all there was a small decrease in net worth. I did make good progress on the debt front (as in, I didn't add any). If you are interested in the details then please click over to the full results via the graphic in the right sidebar.

March is looking like a better month thus far. That is, assuming the nice stock market gains of the last 3 days hold. I'll update in a few weeks to see how it all turns out.

Net Worth Update: January

2009-02-03T21:57:00.003-06:00

The time for January net worth results has arrived. The numbers are pretty straight forward. We reduced our debt a bit and stayed even on our cash. The net result was a moderate increase in net worth during January.

Assets		$ Diff	% Diff
Cash	$2,156	($1,388)	-39.16 %
Stocks	$0	$0	-
Bonds	$0	$0	-
Annuities	$0	$0	-
Retirement	$19,044	($793)	-4.00 %
Home	$194,900	$0	-
Other Real Estate	$0	$0	-
Cars	$12,125	($2,595)	-17.63 %
Personal Property	$0	$0	-
Other	$2,204	$2,204	-
Total Assets	$230,429	$23	0.01 %

Debts		$ Diff	% Diff
Home Mortgage(s)	$175,356	($195)	-0.11 %
Other Mortgage(s)	$0	$0	-
Student Loans	$0	$0	-
Credit Card	$1,346	$167	14.16 %
Car Loans	$6,695	($379)	-5.36 %
Other	$15,865	($359)	-2.21 %
Total Debts	$199,262	($766)	-0.38 %

Total

$31,167

$789

2.60 %

Net Worth Update: December

2009-01-06T22:59:00.002-06:00

Time has flown by as we rush into the New Year. We are almost a week into 2009 so it is time to look back at December and all of 2008 to assess my financial results.

Over the past month a great thing has happened, the S&P went UP 0.78% and the MSCI EAFE Index went up a whopping 7.5%. That means that for the first time since August I had a positive return in my retirement accounts. Because I've poured almost $13,000 of new money into my 401(k) and Roth IRA over the course of 2008 I even had a gain for the year (nevermind the the gain was only $4,900 or a net loss of about $8,000 or 40%). The good news is that I've stuck to my plan and focused on the long term benefits of buying into the down market.

During December I also managed to pile up a significant amount of new cash. This was mostly due generous family memebers at Christmas. Unfortunately there was a corresponding (though thankfully not as large) increase in short term debt as I used most of those funds to buy my wife a laptop. We also paid my wifes Spring tuition. Both of those expenses add up to the entire balance shown for the credit card ($1,179) which will be paid off in short order during January.

For the whole of 2008 kept our cash position virtually equal and made a small bit of progress on the debt front (an almost pathetic $2,500). As far as "bad debt goes" we ended the year almost exactly how we started with about $24,500. This include our car loan, personal loan, and some 0% interest furniture loan.

I adjusted the value of our hard assest this month as well. The result was that the value of our home is virtually static with no change and the value of our cars dropped significantly. No surprises there, but still a bummer to watch how fast a new-ish car drops in value. I do this adjustment every six months rather than every month because the month-to-month trends for auto and home values seems too volitile to give a good reading. If someone has a better suggestion for how to track these values please leave some feedback in the comments section.

I think that covers all of the key areas. The full number can be found in the table at the end of the post. Sometime in the next few days I hope to sit down and write up a list of goals for 2009. Check back for that post soon.

Assets		$ Diff	% Diff
Cash	$3,544	$1,936	120.40 %
Stocks	$0	$0	-
Bonds	$0	$0	-
Annuities	$0	$0	-
Retirement	$19,837	$2,293	13.07 %
Home	$194,900	$0	-
Other Real Estate	$0	$0	-
Cars	$12,125	($2,595)	-17.63 %
Personal Property	$0	$0	-
Other	$0	$0	-
Total Assets	$230,406	$1,634	0.71 %

Debts		$ Diff	% Diff
Home Mortgage(s)	$175,551	($196)	-0.11 %
Other Mortgage(s)	$0	$0	-
Student Loans	$0	$0	-
Credit Card	$1,179	$777	193.28 %
Car Loans	$7,074	($368)	-4.94 %
Other	$16,224	($312)	-1.89 %
Total Debts	$200,028	($99)	-0.05 %

Total

$30,378

$1,733

6.05 %

Net Worth Update: November

2008-12-01T15:43:00.005-06:00

September turned out to be an interesting month. I put to bed $1,200 in debt! Unfortunately the stock market continued to bring the pain which tempered the mood a bit. I poured about $1,200 into the market and ended up down $492 (a loss of about $1,700 or ~10%).

The debt side of the ledger was dominated by my decision to refinance our "bad debt" into a fixed rate, fixed term personal loan. I now have a specific date when we will be (bad) debt free. It has only been one month, but following this plan has proved easier to stick to than plans in the past.

On the asset side there was a dip in cash which will be rectified soon when my next payday arrives. This month I will have an extra paycheck so I will use it to juice up my cash holdings. The retirement accounts continued to suffer with a loss, but I'm holding steady and continuing with my investment strategy.

As the stock market has fallen I have gradually moved away from bonds and become more fully invested in stocks. On November 20th, when the S&P dropped to 752, I moved the last 5% of my investments into stocks. I had set an 800 threshold for myself and went all-in when it dropped below that level. I picked 800 by doing a linear extrapolation of stock prices from the 1980's without the exponential rise that came with the dot.com bull market. It was a rough forecast, but gave me a jumping in point. Thus far it looks like a pretty smart move. Even if I did not hit the bottom of the market perfectly I am confident that a few years down the road I'll be glad that I used this buying opportunity.

Now that you've got the story, here are the numbers:

Assets		$ Diff	% Diff
Cash	$1,608	($502)	-23.79%
Stocks	$0	$0	-
Bonds	$0	$0	-
Annuities	$0	$0	-
Retirement	$17,544	($492)	-2.73 %
Home	$194,900	$0	-
Other Real Estate	$0	$0	-
Cars	$14,720	$0	-
Personal Property	$0	$0	-
Other	$0	$0	-
Total Assets	$228,772	($994)	-0.43 %

Debts		$ Diff	% Diff
Home Mortgage(s)	$175,747	($194)	-0.11 %
Other Mortgage(s)	$0	$0	-
Student Loans	$0	$0	-
Credit Card	$402	($293)	-42.16 %
Car Loans	$7,442	($373)	-4.77 %
Other	$16,536	($341)	-2.02 %
Total Debts	$200,127	($1,201)	-0.60 %

Total

$28,645

$207

0.73%

Net Worth Update: October

2008-11-04T16:32:00.001-06:00

I updated my financial records for the month of October. It was a huge disappointment. In total $3,072 was shaved off of my net worth. This comes out to almost 10% of my total! Ouch!

Most of the problems were contained in my retirement accounts. My Roth IRA and 401(k) completely tanked for the month. I made a big change on the debt front as well. I refinanced my debt. All of the plastic debt was consolidated into one loan with a fixed interest rate. I wanted to get away from the risk of rolling over balances every 6-12 months to keep them at 0% interest (which was starting to get hard in this tight credit market). Instead, I have a fixed payment schedule that will have my debt completely gone in a few years. I now can cut up the cards! Actually, I've frozen all but one in a block of ice in my freezer. The single card I kept is for buying gas, plane tickets, and hotel rooms when I travel.

For all of the details, check out the chart in my right sidebar and click-thru over the NetworthIQ where I track my money.

Net Worth Update: August - September

2008-10-16T19:17:00.003-05:00

In August I had a pretty big and completely unexpected life change, in a good way. Ha, I bet some of you readers are thinking Baby Time, but for now my wife and I are happy to borrow our niece and nephew when we are feeling "parental." Instead, I returned to school to start work on a PhD in Computer Engineering.

I have remained at my job full time and added classes on top. Not surprisingly I haven't had time to fully explore blogging and writing on Aspire 2 Wealth. I will from time to time try to add articles and "Brain Droppings" (to quote George Carlin). Long articles and deep financial analysis will resume at some undefined point in the future as well.

For now, Aspire 2 Wealth will continue to function as a means to track my path to wealth. I still compute my net worth each month on NetworthIQ (see the graph in the Sidebar). Please continue to check back regularly to see how I'm progressing. Comments, suggestions, and wealth building tips from readers would be greatly appreciated whenever you happen by the site!

Now for the painful part, over the last few months I've taken some pretty big hits against my investments and had a string of unexpected expenses. Untold billions have been wiped off the balance sheets of people all around the world, bummer. The mantra is to spend less than you earn and invest for the long haul. I know that if we, individually and collectively, follow that simple advice we'll do just fine. Till next time...

Net Worth Update: July

2008-08-18T21:23:00.002-05:00

I'm late posting my Net Worth report which should have come out August 1st. I updated NetworthIQ on time so if you were paying attention then you'll see the information is the same.

To explain some of the results... I had a net increase for the month.
Here is the single bright spot from the month, I continued to invest diligently in my retirement accounts. I also continued to spend large amounts of money on stuff via my credit cards. I justified the purchases a dozen different ways, and put off doing this post for a couple of weeks out of frustration and shame at how bad I overspent.

A run down of the spending is entirely centered around the house. We got a patio set for the newly fenced yard, a refrigerator for the garage, a used Ping Pong table, and a huge 40 gallon tank / stand for my turtle. The purchases were spurred on by my wife and I hosting our friends for our annual house party. We wanted to get the place into tip-top shape and be prepared for almost 20 of our closest friends to come visit.

Enough explanation and excuses; here's the damage:

Assets		$ Diff	% Diff
Cash	$2,519	$2,168	617.66%
Stocks	$0	$0	-
Bonds	$0	$0	-
Annuities	$0	$0	-
Retirement	$20,282	$310	1.55 %
Home	$194,900	$0	-
Other Real Estate	$0	$0	-
Cars	$14,720	$0	-
Personal Property	$0	$0	-
Other	$0	$0	-
Total Assets	$232,421	$2,478	1.08 %

Debts		$ Diff	% Diff
Home Mortgage(s)	$176,526	($181)	-0.10 %
Other Mortgage(s)	$0	$0	-
Student Loans	$0	$0	-
Credit Card	$12,704	$1,938	18.00 %
Car Loans	$8,926	($356)	-3.84 %
Other	$1,334	($58)	-4.17 %
Total Debts	$199,490	$1,343	0.68 %

Total

$32,931

$1,135

3.57%

For a quick mid-month August update, we are doing much better and seem to be more on track this month. Overall it is likely that our debt will decrease at least $500 for the month and assets will likely grow by about $1000. We also managed to pay my wife's tuition in cash this month too. Not a perfect month, but certainly not the embarrassing showing from July.

Thanks for reading. Check back again soon for updates on my path to wealth.

Net Worth Update: June

2008-07-01T19:39:00.002-05:00

This month was a total bomb. Ugh. Not much went right financially. The stock market tanked. My car broke down. I had a fence installed for the back yard that went over budget. I spent a ton of time and money on seemingly "minor" home maintenance projects. I added to my debt. My assets lost value. June did not treat me well.

To make up for the shortfall I've bumped up my savings rate on my emergency fund from $100/month to $200. I am back in the rebuilding phase to get a little cash cushion. I've also cut costs on a few monthly recurring bills to try and gain back some ground. I cut my pest control service to be bi-monthly rather than monthly and decided to perform DIY termite control. I've got a few other cuts in mind that may help more over the next few months too.

There is a short list of positives for the month. After doing some repairs on my '99 Lumina I found it is now worth slightly more than it was prior to the repairs. My house also appreciated due to the installation of the fence and other projects I've undertaken. I also will look at the glass as half full because since so much went wrong this month it should be smooth sailing for a while, right?.

Now for the numbers:

Assets		$ Diff	% Diff
Cash	$351	($1,871)	-84.20 %
Stocks	$0	$0	-
Bonds	$0	$0	-
Annuities	$0	$0	-
Retirement	$19,972	($87)	-0.43 %
Home	$194,900	$3,000	1.56 %
Other Real Estate	$0	$0	-
Cars	$14,720	($1,403)	-8.70 %
Personal Property	$0	$0	-
Other	$0	($151)	-
Total Assets	$229,943	($361)	-0.16 %

Debts		$ Diff	% Diff
Home Mortgage(s)	$176,707	($190)	-0.11 %
Other Mortgage(s)	$0	$0	-
Student Loans	$0	$0	-
Credit Card	$10,766	$1,291	13.63 %
Car Loans	$9,282	($360)	-3.73 %
Other	$1,392	($58)	-4.00 %
Total Debts	$198,147	$683	0.35 %

Total

$31,796

($1,044)

-3.18 %

Net Worth Update

2008-06-04T10:15:00.001-05:00

I have updated my Net Worth on NetworthIQ. Despite not posting regular blog entries I have continued to make progress growing my assets and paying down my debts. The progress has been slow and steady, but things are clearly moving in the right direction. Follow the link in the Left Sidebar and check out my progress.

I don't intend to make any excuses, but obviously I have not been regularly blogging. However I do want to let people know that this blog is not dead and writing will resume on a semi-regular basis once a few things are ironed out personally. I hope that there are some readers that miss my financial musings and look forward to more in the future.

Thanks for reading.

Too Many Carrots?

2008-04-24T16:23:00.001-05:00

I came across a great article today that I felt compelled to write about. The piece, Life and Taxes, was written by Yaron Brook for Forbes. First, I would like each reader to stop for a moment and consider all of the impacts taxes have on your day-to-day life and on your financial decisions. The most obvious effect of taxation is the large chunk of income tax withholding that drains cash from each paycheck. Almost certainly you will recall the property tax, sales tax, FICA tax, gas tax, and sin taxes too. What Dr. Brook made me realize is that taxes actually have a much larger impact that just draining away your money.

Taxes are a means for the government to control the people. How is that possible you say? By rewarding the behaviors that the government deems moral and punishing the behaviors that the government deems immoral. There are carrots (ie rewards) for buying a home (mortgage interest deduction), saving for retirement (401(k) and IRA), having children (dependent and childcare deductions), and getting an education (Lifetime Learning Credit, Hope Credit, etc). There are also penalties, extra taxes, for driving a car with poor gas mileage (guzzler tax) and smoking and drinking (sin taxes). On the surface it appears that influencing or regulating these behaviors is indeed beneficial. Instead, I would agree with Dr. Brook that in fact this system is terrible for both the individual and society as a whole.

For example, how can it be bad to incentivize saving for retirement? The simple answer is because it distorts the free market mechanics of the economy. A better answer, and the one I focus on, is how it affects the individual. As a person intent on saving for my retirement I am going to save, invest, and prepare for the future no matter what. Now, because there is a government tax structure called a 401(k) it controls my behavior. Rather than select the investment brokerage I prefer, I am instead effectively handcuffed to a single provider. To get my tax break I am forced to pay a third party, which I did not select, management fees and commissions. Without this government intervention I'd be free to pick the lowest cost, best service provider and likely keep more of my money. The market place would respond to the increased freedom and choice given to the individual and in response companies would compete for my business.

Under the current system I am also limited in the investment vehicles available to me. Mutual funds, often with high costs, are the investment of choice in most 401(k) plans. The government and its retirement tax legislation discourages novel investment ideas and exotic asset classes. I am also restricted as to when, why, and how I access my own money. Again the government controls my behavior and my money by using the 401(k) legislation and the carrot of tax deductions. There is also a stick, to punish me, should I need to spend my own money before I reach the government designated age (59 1/2). Clearly early retirement is discouraged and the system is weighed against it. There is in fact, an illusion created by the system that everyone should work until the designated age. Why? It could be because it is good for the government but not necessarily for the individual.

Furthermore, not everyone has access to a 401(k) account. This skews the system of rewards further by punishing people who fit outside the accepted worker/drone role that the government overtly encourages. How many people would be more apt to take a different job, become an entrepreneur, or work as an independent consultant if the 401(k) system did not tip the scales. The same is even more true when we consider the tax incentive toward employer centered health insurance. Look at how much this government tinkering distorts our life choices! I am an employee less because that is what is best for me, but more because the government has created a tax system to pigeonhole me into that role.

There is even an entire legion of white collar professionals that exist solely to deal with the implications of the tax code and our governments policies of taxation. Accountants, tax preparers, IRA custodians, 401(k) plan providers, human resources benefits experts, and the entire IRS exist solely to execute this government moral agenda. If there was a vastly simplified tax legislation none of these people would be needed. In fact, most personal finance blogs too would have very little to talk about too if the government would butt out of our personal spending choices. No more headlines like: 46 Tax Deductions that Bloggers Often Overlook, My 401(k) to IRA Rollover Decision Process, or Bush Proposes Health Insurance Tax Reform. We could stop spending so much time reading blogs and analyzing the tax implications of our finances and simply make the best choice for us, as an individual.

There are dozens of other examples: buying too much house, having too many children, being content with underemployment, paying inflated tuition, being less productive (work less) because of punitive tax rates. These are all symptoms of tax policies which steer individuals to fall in line with the government determined ideal. The conceit that government can better decide than individuals is at the heart of this issue. Dr. Brook and I are in agreement that we are more than capable of making decisions for ourselves without any government meddling.

It could also simply be the unintended consequences and unfortunate side effects, but it all distorts the market none the less. The more I learn the more I wish government would stay out of my finances and let us use our freedom to make our own decisions about what is right for our money.

Airlines Are Not My Friend

2008-04-09T21:51:00.001-05:00

If you've read the news over the past two days one of the leading stories is that American Airlines has cancled 1,000 flights. Unfortunately I have been snagged in this travel nightmare today. I had a quick two night business trip that was to conclude with an evening flight home today. Of couse my flight was one of those that were cut.

I learned of the problems around mid-morning when a coworker jumped on the web during a break in our meetings. I remembered that I had been scheduled to fly on an S-80 for my return trip so I immediately logged into my frequent flier account to check my status. The remarkable thing was that the airline's website barely even mentioned the issues. A plain link to a quick PR blurb was all of the information given.

Next I pulled up my intinerary and was happy to find that my flight was still listed for departure at its original time. Satisfied that things were looking fine I went back to work. Unfortunately, right before lunch I again logged in to print my boarding pass. That effort was met with a website error and the suggested remedy was to "speak with ticketing agent at the terminal." That message is NEVER a good sign. Still my itinerary showed that I had a flight and that it was on time. Something was up.

My next move was to get on the phone with AA customer service. I was pretty suprised that the phone call was met with a message, "All representatives are busy. Please try your call again." What? They wouldn't even put me on hold? That is a REALLY bad sign. I tried calling a dozen more times and kept getting the same message. The system would not let me talk to a real person, and the automated prompt said that my itinerary was still valid and on time. Lies!

In a last ditch effort I followed the voice prompts to dig through the automated system until I was prompted to say "Agent" if I had a special need. A little weak I know, but that seemed to be the only way to talk to a real person. At that point I advanced to actually being on hold, which I considered progress. I then spent over 90 minutes on hold. During which time I drove across town (speaker phone rocks), ordered food, ate, and had plenty of leasurely water cooler talk. My cell phone battery died shortly thereafter, without me ever talking to a real person.

I had already checked out of my hotel and my rental car needed to be returned. It looked like I was about to get stranded at the airport. I called the car rental company and they were kind enough to let me know that if I were to return my car, I would be unable to rent another. All of the cars were booked so if I gave up my car I'd be without wheels. My solution was to immediately drive to the airport to talk to a ticket agent, but in order to keep my car I left it in hourly parking. The rep on the phone said it would be $75 if I were to ditch the car in the parking garage. If I could get a flight I'd pay $75 but if not I'd still have a car. It would be totally worth it either way.

After about an hour in line at the airport I was finally able to talk to a real person. I finally caught a break when they were able to find a commuter jet that had an open seat tomorrow morning bright and early. I immediately set to work getting my hotel to hold a room for tonight and extending my car rental. I caught another break when I was able to secure a room (places had booked up quickly) and even got them to match the prior night's rate despite the fact that they doubled the rate overnight. You've got to love a company that charges everyone double due to this sudden scarcity. Capitalism at its best.

So now I have returned to my hotel. I've spent the whole afternoon and evening working to get myself home, but now I've gotten as far as the hotel where I started the day by the time I was scheduled to arrive home. Today has been a-hell-of-a-day. Thankfully A little experience let me keep my rental car and some bargaining and quick action let my hotel room at a semi-reasonable rate. I have a boarding pass in hand that will get me home only 15 hours late. I managed to work the system well enough that it didn't turn into the total nightmare it easily could have been.

Today I learned that the airlines are not even close to prepared for this type of problem. They don't have enough phone lines or the ability to scale up their customer service numbers. They also are completely unable to give any useful information on the internet or by phone. In this day-and-age it is rediculous to expect someone to be face to face at the terminal to get a flight rebooked. I hope that this experience is a wake up call for all of the airlines (I'm sure none of the others would have done any better than AA) for their maintainance programs and their customer service departments.

I love to travel but these days it is becoming more and more of a bitter experience if I have to give up my fate to the airline industry. Come on guys, lets get our acts together.

Introspection Found in a Suit

2008-04-07T11:15:00.001-05:00

Over the weekend I was honored to be an usher at the wedding of two great friends. We had a really great time celebrating, and I got that warm fuzzy feeling that you get at a wedding when you know that the couple is truly meant for each other. I also had to Dress to Impress and wear a suit. I hate dressing up.

I've reached the point in my life where I can no longer get away with khaki pants and a button-up shirt at formal gatherings. This was very apparent when I under-dressed for my cousin's wedding last summer. It was an outdoor wedding on a hot summer day and I thought comfort and practicality would prevail in the wardrobe choices of the guests. I was wrong. While I hate dressing up, I learned that I hate under-dressing even more. Who wants to stick out and look like a schmuck in front of the whole family by being the only guy not wearing a blazer? I felt like a lightening rod for the biting wit of my judgmental family. Ugh.

I own a nice suit that I bought three years ago to wear to my job interviews as graduation approached and I had to secure a "real job." Unfortunately, a sedentary job and diminished athletic activity has taken its toll on my physic. Thus, in order to avoid any hushed Chris Farley jokes at my expense I needed a new suit jacket. The marketing machine of the local mens formal store was kind enough to sucker me into buying more that I intended by offering the evil and manipulative "free" bonus. With the purchase of a $99 blazer I was awarded a pair of free matching pants. The sales person also convinced my wife that I needed a new tie to complete the package.

I planned to buy a $79 blazer and instead got a $99 blazer, matching pants, and a tie. After alterations and taxes the total bill was $160.00. I'm a sucker, BUT at least I didn't look like a schmuck at the wedding. I also took solace in the fact that this entire package is exactly half of what I paid for my last suit. Yep, my last suit that was worn about a half dozen times and outgrown in three years cost $320.

The way I look at it today is that I've made progress. I've realized that the way I dress does matter from time to time. I've realized the direct costs of being in bad physical shape, and since January I've been at the gym 3-4 times every week. I've grown more frugal and spent half as much to buy a suit, simply by ignoring the brand name. Finally, I've realized that I am not a financial robot and that slips and compromises are a part of the process.

Who knew that buying a suit could be such an introspective process. Thanks for reading.

Carnival Update

2008-04-03T21:14:00.002-05:00

Over the last week I've been included in a pair of quality carnivals. The first is the Carnival of Real Estate hosted by Searchlight Crusade. The editor disagreed with my recreational approach to real estate I called House Lust. I agree that it can be dangerous, but if you are conscientious I think cruising the open house circuit can still be an informative and fun way to spend a pretty weekend.

One of my articles was also included in the Carnival of Ethics, Values, and Personal Finance. I've always thought it is important to recognize that personal finance is much less about numbers and more about our values, goals, and aspirations. Check out the carnival for some great reading.

One last thing I want to include in today's round up is the creation of a new category of post on Aspire 2 Wealth. Recently I've written two posts on the topic of Behavioral Finance. I am a big fan of this area of research and so over the next few weeks and months I will hopefully continue to cover more aspects of this neat (financially powerful) science. Check out Your Brain Make Building Wealth Hard and More Ways Your Brain Tricks You if you missed them the first time.

Costs of a Luscious Lawn

2008-04-02T21:15:00.000-05:00

As Spring has crept up on me and it is time to start working on some outdoor projects. One of the most pressing is the dirt and weed patch that is lovingly called my back yard. It is a mess and far from the fun and functional space I need.

To address the problem I've started with a little research. Starting with no clue about cultivating a grassy yard I have learned that in my part of the country there are two options: burmuda or fescue. Burmuda grows like a weed and is very tolerant of the hot sunny climate and better suited to lower amounts of watering. On the downside, burmuda is totally brown 5 months out of the year and never the soft carpet of green I would ideally grow. Fescue on the other hand is an attractive green color year round and can be made to flourish. Its weakness is that it is best suited to shade and requires very regular watering.

Fescue depends so much on regular watering that the local garden center recommended it only if we were willing to install a sprinkler system and run it 4+ days a week. My frugality, moderate as it may be, prevents me from ever seriously considering a sprinkler system or signing up for massive water bills just for the sake of a better shade of green. After facing water restrictions from drought last summer I am also weary to be so wasteful. Thus, I feel I am left with burmuda as my only real option for my yard.

Now I also have to determine how I want to approach "installing" the grass (I'm an engineer, not a gardener). The two basic options are to seed the lawn or buy sod. With each choice there are a number of secondary choices.

Surface seeding involves tilling the whole yard and adding lime and compost. As another option, I could seed the yard with a special "plug" planting device. What should I do about aeration? On the upside, seed is relatively inexpensive, ~$150 would cover the whole yard. Unfortunately each step in the process requires buying extra products and renting equipment that are costly instead. Finally, none of this comes with any guarantee of results.

If I choose to sod the yard there are is a different slate of challenges. The largest of which is the upfront cost of the sod which would run a minimum of $720 even if I choose to install it myself. Self installation of sod is again without a guarantee of results, but it has a benefit of far fewer complications and no special equipment required.

I've also considered putting the whole process in the hands of an expert. The companies I have called will charge about $40 a month for application of an assortment of fertilizers and weed killers. Lime application is $33 once per year. Profession seeding or sodding of the back yard would run over $1,000 for either option, but seeding is cheaper and will condition the soil in addition to just adding grass.

For now I'm stuck in decision paralysis. None of the available options really meet my budget constraints or my original idea of a luscious green yard all year round. I am currently leaning toward buying sod and installing it myself. It would serve as a trade off for me to provide the labor but pay extra to simplify and streamline the process. I am open to all comments and suggestions. How much is a gorgeous lawn worth and what route would you take to get it?

More Ways Your Brain Tricks You

2008-04-01T14:32:00.001-05:00

Today I came across a great article about more ways your brain tricks you into making bad financial decisions. The article, Why You're a Big Sucker, explains how a few blind spots in cause us to make bad consumer decisions and cost us money.

Two examples resonated with me personally. The first is how the word FREE tricks us into doing some very stupid things. In short, when a marketer or sales person is giving you something for free there is always a catch. In my case, I called a toll free number advertised on the radio to collect my "free" trip to Las Vegas. Of course, I found out when the marketing materials arrived there was indeed a free trip, except for the $29.99 handling fee, the $79.99 conditional cancellation fee, and the mandatory 2 hour time share presentation. Oh, I also forgot that my wife and I could only collect our plane tickets if we were flying from a designated airport (all on the West coast) or were willing to pay a $200 travel destination upgrade to allow us to fly out of Atlanta (still a 3.5 hour drive from our house). I also learned that by giving out my person information I landed myself on direct mailing list for every scam under the sun; I was a big sucker.

The next example that hit home is the idea that prices are relative to your surroundings. When I am in Best Buy looking at televisions, the $1,500 42" LCD TV seems like an absolute bargain when it is put up next to the $2,700 50" LCD and the $3,300 55" Plasma. A sneaky merchant will add a moderately priced set into a lineup of pricey sets and then tack on a "free bonus." Of course, $1,500 for a TV is a lot more expensive when considered in a vacuum, but when it is sitting next to a whole row of more expensive options it can seem like a great deal. Amusement park food also comes to mind when I think about the relative cost of available options. When it costs $8 for a hamburger and $4 for a 20oz Coke a frugal person will pick the $4 hot dog and a $2 bottled water. The situation has induced you to spend way too much money, but still get the illusion of being responsible with your money. In other words, be sure to keep costs in their true perspective and keep the situational bias at bay.

I am regularly fascinated with the ideas behind Behavioral Finance. A few days ago I wrote another article on the topic that you should check out as well titled, Your Brain Makes Building Wealth Hard. Thanks for reading.

New Worth Update: April

2008-03-31T22:19:00.000-05:00

March has been an eventful month in my personal life. Here are the numbers:

Assets		$ Diff	% Diff
Cash	$3,934	$126	3.31%
Stocks	$0	$0	-
Bonds	$0	$0	-
Annuities	$0	$0	-
Retirement	$17,001	$866	5.37%
Home	$191,900	$0	-
Other Real Estate	$0	$0	-
Cars	$16,123	$0	-
Personal Property	$0	$0	-
Other	$0	($151)	-
Total Assets	$228,958	$992	0.44%

Debts		$ Diff	% Diff
Home Mortgage(s)	$177,272	($187)	-0.11%
Other Mortgage(s)	$0	$0	-
Student Loans	$0	$0	-
Credit Card	$10,918	($70)	-0.64%
Car Loans	$10,365	($351)	-3.28%
Other	$1,566	($58)	-3.57%
Total Debts	$200,121	($666)	-0.33%

Total

$28,837

$1,658

6.10%

There were several notable financial happenings during the past month. On the downside, the market continued its downturn and new retirement contributions of $995 resulted in only $866 in gain. Progress on the credit card front was also hampered by car repairs that left the balances virtually treading water.

Largely because of the uncooperative stock market, we are behind pace to make our net worth 2008 goal. Thus far we have added $4,408 year to date and our target was $6,000. We are currently at 73.4% of our Q1 goal and 18.4% of our full year goal.

On the positive side I celebrated my 25th birthday. We also added to our cash savings so our emergency fund has now broken the $2,000 mark. I feel much better knowing that we have cold hard cash for a rainy day. The plan is to continue the $100 per month emergency fund contributions on the way to saving 3 months worth of cash (or about $11,500).

Overall, In all major categories, assets increase and debts decreased so I think we are finally on the right path. That is all for this month. Onward and upward on our path to wealth.

Car Insurance: Deductibles & More

2008-03-30T19:38:00.001-05:00

Three years ago when I got my BA degree it was time for me to get my car insurance under my own name. For the sake of comfort and simplicity I stayed with the same insurer that my parents have used as long as I've been alive, State Farm. I also kept the exact same coverage my parents had selected.

Now, after gaining a great deal more financial literacy I think it is time to revisit my car insurance. A little research gave me all of the information I need. First we have a 1999 Chevy Lumina (Kelly Blue Book Private Party value $2,880) and a 2007 Dodge Caliber (Kelly Blue Book Private Party value $10,995). Second, I just turned 25 and should now qualify for lower rates. Third, neither my wife or I have ever had an accident that was turned in to our insurance company.

Our current coverage has all of the basics such as liability, uninsured motorist, and medical payment coverage. We also carry comprehensive on the Caliber (required because of the car loan). Under no circumstances would I recommend skipping any of these coverages, and generally I would buy the highest payout offered.

We also have a few extras like towing and trip interruption coverage. Unfortunately I've goofed up and paid once each for a locksmith and a tow because I didn't realize I had these coverages. We also have roadside assistance for both cars, the Lumina is $3 a month through State Farm, and the Caliber is covered under the manufacturer's warranty. I'm undecided about paying for these coverages. Why should I insure against a risk that will cost somewhere in the range of $50-250. I should be able to pay that out of pocket (aka emergency fund) if it is needed.

The last thing that I learned is that I have very low deductibles. In fact, for the comprehensive I have ZERO deductible and for collision I have the lowest available, $250. When I was first starting out in the "real world" it made more sense to have these low deductibles. I didn't have any savings and even a small problem would hurt my cash situation badly. Now, I basically self insure by having $1,000+ in an online savings account. The math tells me that I should raise these deductibles to at least $500 but maybe even $1,000.

By raising my deductibles and dropping "extra" coverage (which I accidentally paid out of pocket twice already), I would save money on my regular payments. I also learned that by being billed monthly I pay a few dollars extra as a processing fee. In total I can reduce my monthly car insurance bill from $137.00 down to $738.00 twice annually. A $14 a month savings isn't much, but over time (and with a little luck on the road) it could add up.

I haven't decided for sure to make the changes. Reducing the monthly bill about 10% but in exchange doubling my risk exposure still isn't clear cut to me. So, now I am looking for comments and advice about what to do. When I make a decisions Aspire 2 Wealth subscribers will be the first to know. Also, let this post be a reminder for everyone else to take a few minutes and double check your insurance coverage.

What Are We Proud Of?

2008-03-28T16:41:00.000-05:00

I heard someone on the radio today talking about Americans and what makes them proud. That is a funny little word that has a tendency to have deep emotional and moral connections. Another way to look at pride is one of its opposites, shame. Both pride and shame have important applications to personal finance that I'd like to consider.

First, what about your money situation are you ashamed of? Debt is something that makes many people ashamed. But, not all debt! The debt that you are ashamed of comes from those purchases that you know deep down you never should have made, or the times you splurged when there really wasn't any money to splurge. I know that right now I am ashamed that I have about $10,000 in credit card debt. How do I know I'm ashamed? Because I've told "white lies" or understated the amount debt I have when talking about the issue. I know that if I'm willing to lie about something it really means that I'm ashamed of it.

I am also ashamed that I do so little to help strangers or those in need. Since leaving High School I have rarely volunteered my time for others. I do not donate to political campaigns even though I care deeply about certain issues. I do not give to the homeless or the hungry. I see the importance of giving but have not made it a part of my budget.

I am sometimes ashamed that I do not save more or pay down my debt faster. From my gross income I save 12.9% plus an additional 5% in 401(k) matching. I know that there are many people out there that save more than twice as much as I do on a similar income, but I enjoy my lifestyle and don't want to sacrifice anymore.

I recognize that the thing that make me ashamed are weaknesses where I can improve. Rather than beat myself up I made a plan to address these issues. I am making steady progress toward getting completely out of non-mortgage debt and will be done by July 1, 2010. I plan to give a significant portion of my estate, should I be lucky enough to have one, to charity when I die. I also have plan to gradually increase my savings to 20% of my gross over the next few years. I am not perfect, but I've realized areas I need improvement and set to work on it.

Now, what about your money situations are you proud of? I am also very proud of many of my accomplishments. I am proud that I pay my own bills and am off my parents dole. I am proud of my education. I am proud of my job. I am proud that I own my own home. I am proud that I have made great progress saving $17,000 in my retirement accounts by my 25th birthday. I am proud of my wonderful wife and the life we have together. All of the things I am proud of are the things that I've done right and enriched my life and put me on track to achieve my dreams.

The things we are proud of can help you set goals for the future. You want to continue to excel in the areas where you have already had success. I would like to eventually start a family with my wife, that would make me proud. I would like to finish a PhD, MBA, or CFP to further my education. I would like to grow my investments to reach wealth and true financial independence. I have set goals that relate to many of my proudest money achievements, and new goals will be created as I learn more about what makes me proud.

All of us should stop and take a moment to realize what in our lives makes us proud and gives us shame. We should embrace what we learn from this exercise and use this knowledge to set goals and improve our personal finances.

Anecdotes from the Downturn

2008-03-25T11:59:00.001-05:00

CNN Money is running a series a short stories from those who are struggling financially. In total there are 26 articles that cover a diverse mix of Americans. The common theme is that broad swaths of our population have been hit by hard economic times. However, all of these stories remind me how important it is to recognize the difference between a collection of anecdotes about individuals economic hardship and statistically important analysis of the whole economy.

After reading through all of the anecdotes, the most common hardships are job loss, health problems, and single parent households. What struck me is that even in good economic times these problems are very real and likely to hurt the prosperity of ANY household. As it turns out, unemployment is still at solid levels historically speaking, less than 5%. A net loss of 63,000 jobs in February may significantly impact individual families, but it has almost no effect on the broader economy. The past nine months of the credit crunch have not made it any harder to be a single parent or any more likely for health to prevent someone for working.

There also seems to be a big difference in the outcomes for those who have prepared themselves and those who are oblivious to the basics of personal finance. Simply having an emergency fund and a college degree can insulate most people from the threat of unemployment. Those who have a degree are less than half as likely as the general population to become unemployed and with a graduate degree or beyond it is less than a 2% chance of becoming unemployed. Finally, if you have little or no debt, there is almost no risk of having significant hardship during a downturn. Even part time work can put food on your table as long as you don't have debt payments getting in the way.

Another observation I have made recently is that the media, in all of its forms, is fixated on the bad news rather than the reality of the situation. By reporting on the misfortune of a tiny subset of the population, it skews our confidence in both the system and our own prospects. We empathize with those who are struggling and worry that we may be next. By reporting the monthly job data with a headline of 63,000 Jobs Lost in February rather than Unemployment Remains Virtually Unchanged at Historic Lows a reporter gets more attention but also puts a huge spin on the "news." While the spin may sell more papers and drum up more readers, it is not a good basis for making financial decisions.

Another observation I made is that not everyone on the series was actually struggling. One profile is about a middle class family with a self employed bread winner. They bought a house they could afford with a 30 year fixed mortgage and have taken personal responsibility for their financial future. Future tax increases are their biggest financial worry. Another profile covers a couple who are nearing retirement. They have saved diligently and lived a life within their means. Their biggest financial concern is not about today, but rather the impact of loose fiscal policy and Wall Street shenanigans which may eat into their buying power. These people are responsible with their money and are in a position to prosper in the future. Their worries about politics and economic policy are ones that I share, but because of their good financial choices they are far ahead of the game. Even in tough times they are likely to have a roof over their heads and food on the table. It is simply a question of whether they will live "the dream" or "just get by." That is a good problem to have.

The point of this post is to point out that there are reasons that some people are struggling and others are not, and very little of it has to do with what is found in newspaper headlines. Rather than worrying about national or global economic conditions we should instead focus on the things we can control: living within our means and making good life choices. If we do that individually then there is little need for pessimism or doubt about the future.

Your Brain Makes Building Wealth Hard

2008-03-24T22:55:00.002-05:00

One of the first steps to overcoming a challenge is to recognize there is a problem. If you do not know where your stumbling blocks lie it is often impossible to achieve the results you desire. In the wealth building process there are multiple challenges, but one that many people don't recognize is your own brain. Our brains developed to do a great job helping us hunt, gather, and reproduce. Unfortunately our brains are not particularly suited to the challenges of creating wealth.

There is [relatively speaking] a new field of study called Behavioral Finance. The basic idea is that investing decisions are made by people, and people are influenced by psychology in addition to the pure numbers of the markets. In fact, investors (being human) are subject to quarks of neurology, biochemistry, and evolutionary anthropology which in turn influence all of our money decisions.

So, now that we realize that there is more to investing than just the numbers, what does that mean? First off, it means that your brain is not always aligned with your aspiration to build wealth. In many cases your brain can drive you to do the wrong thing with staggering regularity. The best example is the tendency to sell your investments (in panic) during a market downturn.

Everyone knows that to make money a person must "buy low, sell high" but in practice most investors jump on the bandwagon when the market seems to go up, up, up and then sell to stop the pain as the market falls. What is the result? The average investor buys stocks when they have already gone way up and sells after they have dropped. This is a "sell low, buy high" strategy that will loose money every time. Why then do some many people follow this pattern?

The short answer is people "feel" the pain of a loss in the market much more strongly than they "feel" the joy of a gain in the market. Think about this, if you have saved a nest egg of $200,000 which would effect your emotions more, gaining $20,000 or loosing $20,000. The vast majority of people are more emotionally impacted by the loss. In order to stop the pain, they sell the stock. This effect is call Myopic Loss Aversion and has been studied and documented in the majority of people, professionals and amateurs alike.

Behavioral finance relates to several other important ways in which your brain sabotages your finances. It has uncovered important data about why people have such a difficult time saving, budgeting, and investing for the long term. It turns out we are nearly all subject to a Stone Age era inability to evaluate the benefits of long term returns versus instant gratification.

Centuries ago it was much better to have a bird in hand (to eat tonight) than to wait a few weeks or months to be able to eat two birds. If you starved now, doubling your "investment" isn't worth anything (you'd be dead). This is one key reason our instincts fail us when it comes to evaluating market returns. Market bubbles and crashes are another example of psychology creeping into our investing reasoning (and reaping havoc).

In other words, behavioral finance has some impact on nearly all aspects of our financial lives. Now that we know there is a problem, lets do what we can to create wealth for ourselves in spite of our brain.

March Money Madness

2008-03-21T16:53:00.001-05:00

The pinnacle of the college basketball season is upon us, and like many people I have found myself checking stats and picking brackets. In years past I have put some cash into various betting pools and wagers. This year I have decided to enter only for fun but I now regret that decision. Why? Paying with nothing on the line isn't very much fun at all.

It is my theory, and I'm not psychologist, that the small bets I've made in the past give me a personal stake in the outcome of the games. If I don't care who wins I don't enjoy watching as much. Who cares if Butler or South Alabama win in the first round? I do because I've got $5 on Butler. Why did I bet on them? Because I have a cousin that went there. Does that make logical or mathematical sense, of course not. It does however make March Madness more fun.

Next question: How much should I spend to add to my b-ball enjoyment these next few weeks? If history is a determination, I normally enter a couple $5 pools, maybe one $20 pool and then I'd be willing to take a few $10 side bets too. All told I have never put more than a couple hundred bucks, but usually it is around $50. I'd say it is enough to make it interesting but not enough to make me go broke. However, partially because of my new attempt at financial responsibility and partially because of fewer opportunities this year the total is ZERO. I think the right number is somewhere in between, so more than $0 but less than $100.

Next year I will try to enter one "high dollar" $20 pool to get the endorphins pumping and that's it. $20 is less than my wife and I spend on a quick dinner out, but it will magnify my overall enjoyment of March Madness several times over. I will now have a reason to root during Drake vs. Western Kentucky and West Virgina vs. Arizona. I will celebrate each bucket a little more and bemoan every missed call just that much louder. Over three weeks of basketball I'll have hours of enjoyment from a very small "investment" in betting pool.

Who knows, if I win, I might even be able to pay down some a bit more of my bad debt. Comments and suggestions welcome. Boo Carolina!

Hump Day Round Up

2008-03-19T23:30:00.002-05:00

I've continued to look into the inflation problem I raised in my post How High is Inflation Really? I found two good links that dig deeper into rising food costs and rising fuel costs. In general it seems like there have been a whole series of failed policies and broad economic mistakes that have all built up to give us a perfect storm for rampant inflation. It may not be too late to fix some of the problems but there is the potential for very bad things.

On another note, Aspire 2 Wealth has been included in a whole slew of carnivals over the past week. I have gotten behind with sharing them, but today I sat down and read through many of the posts and came across a lot of great information. Here they are:

Money Hacks Carnival #2 hosted by beingfrugal.net
Money Hacks Carnival #4 hosted by Amatureist Financial Journey
Ethics, Values & Personal Finance hosted by Money and Values

How High is Inflation Really?

2008-03-19T15:12:00.001-05:00

If we stop at the gas station to fill up the tank it is obvious that prices have done nothing but go up, up, up these days. What is even more worrying is that it isn't only fuel costs that have skyrocketed. Two years ago it would cost about $100 for a trip to the grocery store. This would provide all of the staples for two weeks. In a month, the total bill would be about $250. Lately I am budgeting $300 a month and finding that I consistently go over budget.   It isn't a scientific measure by any means but it feels to me like my buying power has dropped by as much as 25% in two years. How is that possible?

The official figures for the Producer Price Index, which measures the cost of goods at the wholesale level, rose 0.3% in February and 1.0% in January as reported by Forbes. Year over year inflation clocked in at a 6.4% rate. This trend seems to be accelerating to an annual rate in the neighborhood of 7.8% for 2008 based on the most recent readings. Of course, the policy makers and talking heads bring up that "core" inflation increased at a 2.4% rate year over year. Core inflation my @$$. The core inflation rate excludes the cost of food and energy, and be honest, that is completely idiotic. Exactly what matters to the average person is the cost of FOOD and ENERGY.

Now, what do these inflation numbers mean to you? It means that if you haven't gotten a 6.4% raise in the last 12 months that you are loosing ground, going backwards, in the earnings game. Are you in line for a 7.8% raise in 2008? If not you should start planning now for how you will cut your spending and reduce fixed expenses. The money won't go as far as it once did and something has got to go. I feel fortunate, in that it is very likely I will get a raise during 2008 that will be somewhere around 4-5%, but my plan to increase my Roth IRA savings by half that amount (2.5%) may be sidelined in the effort to keep up with rapidly rising prices.   If that is happening to me, I know it is happening to many people all around the country. We will be the lucky ones; I don't even want to think about how tough it would be to face this inflation on a fixed income.

Another important note is that I have heard a great deal of chatter and online commentary that inflation numbers (which already appear elevated) from the Labor Department are still understating inflation.   I am not prepared or qualified to debate the issue of exactly what the rate may be, but obviously it could be a scary time we do indeed return to double digit inflation as some have suggested. The bottom line is that inflation has reared its ugly head and if it is 5%, 10%, or 15% it will play a big part in the economic story of the next several years.

Now I want to point out that the media and the government are often wrong about these things as much as they are right. There is also a component of self fulfilling prophesy whereby the more we talk about high inflation the more it happens. I don't want to be a Chicken Little and add more fuel to the fire so here is my advice, "prepare for the worst but hope for the best."