personal Finance Story

Well it just figures that the very day I announce to the world I paid off my car I would also be involved in my first psuedo accident.

I say pseudo because it was not enough to report it to the insurance company but just enough to frazzle my nerves.

I was driving home from work as usual. I am of course following the speed limit more or less, as are two cars in the left lane slightly ahead of me. Well I guess the second guy in the left lane didn’t feel like going the speed limit was fast enough, so he promptly swerved to my lane to accelerate.

Only problem was my car was in his way. Luckily I happen to have cat like reflexes. I leaned into the horn while doing a bit of swerving of my own, screeching tires and all, to avoid a collision. His rear right corner touched my front left corner, bouncing me into the curb.

He did not stop.

After pulling over I investigated the damage. I lost some paint where the two cars met, but did not end up leaving any dents. I had to wander back down the street on foot to retrieve my hub cap. Other than that, I was ok, and the car was fine too. The tires looked ok, albet a bit scratched.

So I’ve made it back home and thats that. Just thought I’d like to share. I feel better anyways.

As the title suggests, I paid off my car recently. The last payment of $1,852.00 has cleared through the system and is in the hands of Toyota Financial. It took them a bit longer to process than my ussual payments but I guess that can be expected.

I’m feeling great. Getting rid of debt once and for all is an invigorating event. I feel very proud that I have made it this far and stuck to my frugal guns to make this day happen. Lets make a rundown of how this affects my financial life from here on out.

One Less Bill to Pay

I’m going to type that again, because it feels so good. One less bill to pay. I can officially delete two rows out of my budget spreadsheet (The payment in my expenses worksheet and the total in the liability sheet). One less bill to pay means less stress and more peace of mind. It is the unlocking of money that can now build my net worth month in and month out. That is financial power.

Lower Emergency Fund

While I do not have my emergency fund fully funded yet, the requirement of that fund is now lower and easier to reach. If I aim for three months savings, then the goal just dropped by $750. If I wanted six months, then the total savings would be double that or $1,500. That is significant change that can be put to better use elsewhere, like debt reduction or wealth building.

More Fuel for the Debt Snowball

I now have $250 extra each month to put towards other debts. First in line would be my wife’s car payment. The best part is that if we commit to it, we can easily pay off her car by next month. Within two months of our getting married, we will have paid off both of our cars.

And after that we can start making a few choices. For me, it may make sense to start sending $500 payments to my student loans just until the balance comes down to where the interest is not killing me as much each month. After that, the house fund gets priority. We are adamant about owning our own home in the near future and need to be sure we will have a 20% down payment to buy one.

A Promise for the Future

I will never have another car payment so long as I live. I like my little Corrola. I often joke in my monthly reviews about my Corvette fund. If I ever do get another car or that coveted Corvette it will be paid in full before leaving the dealership. I don’t want to ever have to make a payment for a car again. That is a promise to myself that am happy to keep.

Welcome to the new recession. High inflation coupled with a weak housing market are throwing the media into a frenzy of doom saying. Either issue alone would not be that difficult an issue to tackle. However, when combined as they are today, it makes for an especially difficult financial times.

High Inflation Reducing Income

Inflation is here to roost. Every time I fill up my car I feel it. I’ve had to make an adjustment to my monthly budget to account for the sharp increase in prices. I just wasn’t making it on the estimate that I made at the beginning of the year.  Granted the increase is only $40 a month, the approximate cost of a tank of gas for my Corolla.  One of the benefits to having your finances in order is being able to shrug off periods of high inflation.

We are feeling the same pressure at the grocery store where specific foods have jumped in price. This isn’t as bad as the gas bump. We can always adjust for higher grocery prices by slightly changing our food preferences. However, I feel that a family already close to the edge may already be waiting for the sales and using coupons as a matter of course. The recent increases are just going to make matters worse.

The Housing Bubble Bursts

You’ve read the headlines. You know the story. Houses are in foreclosure left and right. Desperate home owners have their houses languish on the market while buyers sit on the sidelines waiting for the prices to drop even further.  Hell, I’m one of them.  I’m cheerleading the market to crash deeper.  As a potential first time home buyer, times are good.

This was long overdue. There was no way prices could continue to climb the way they did during the boom.  Thank goodness, because otherwise, home ownership would become an ever elusive luxury for new members of the middle class. It is high time that prices took a dive.

The One Two Punch

Matters only get worse when the Federal Reserve cuts into interest rates to keep the credit markets functioning. This act feeds into the inflation troubles. We are facing negative real rates on our savings because of the current Fed policy in work.

That isn’t the troubling part of the equation. As I see it, the weak housing market is actually reducing home ownership in this country. A house, if used properly, i.e. not as an ATM using home equity loans and the like, can be the largest and most effective hedge to inflation for a family.

If your expenses in gas and food go up in a given year, it would ultimately be ok if the cost of owning your house stayed the same. Your overall inflation rate will be small because the biggest expense in your budget is fixed.  This is exactly what happens when you have a traditional 30 or 15 year fixed home mortgage.  You can always get ahead because even today’s high inflation would not overrun the fixed cost of owning your home.

As a percentage of your expenses, a house in going to be at the top of the list. The fact that this cost will never increase is the layman’s protection from inflation. This protection was eroded significantly in the bubble due to the presence of ARMs, home equity loans and other lines of credit. Ever bigger houses became the norm as credit practices became shadier and shadier.  Years of poor lending standards have finally reaped what they have sown.

The Solution is Simple, Make More Money

Today is the day to do whatever is required to get a better job and make more money. If you have an extra 3 to 4 hundred dollars every month then chances are you still cringe when you fill up your tank but it doesn’t materially hurt you. You are still going to make all you payments and keep food on the table.

The horrible irony is that the ones who are least able to handle the economic difficulty are always hit the hardest. It is just the way the math comes out no matter what kind of recession we are in.

Advance your education and be ready to jump at an opportunity. If you are in any way struggling as a result of the current market you can’t afford not to be prepared. I wish I had a more concrete answer but when you crunch the numbers, the result is always the same. Cash is king. So get your own crown if you can help it. You can’t afford not to.

Getting married is a very special event in any couple’s lives. My new wife and I wanted nothing less than to drive off into the sunset after getting married, leaving our troubles and stress behind as we embark on our honeymoon.

That vivid fantasy aside, we needed a plan. Our wedding cost us over $10,000 and we wanted a honeymoon that would not shortchange our future. A future where having a 20% down payment on a house featured prominently.

Together, we put our ideas on the table and looked at each for the alternatives

DO Nothing

This one definitely wins in the cost category. We thought about this one long and hard for about two seconds. We are not going to be absolute cheapskates. Completely cutting out any semblance of a honeymoon would have saved us money but it would have robbed us of an opportunity to build our new memories together as wife and husband.

Remember that line between being frugal and being cheap? Yep, this one crosses it I think.

Take a Cruise

We have done this before and loved our trip. We estimated the cost to be around $4,000 for a week long cruise to some tropical destination.

But we really had already done it. We had a collective been there done that feeling about taking another cruise. So we thought about other destinations.

Road Trip to Nova Scotia/French Canada

This idea was all the wife’s. I have to confess that I didn’t see too much into going to Canada for a week and a half. This was the one we eventually chose and I am glad we did. It was a very fun vacation!  It had all the feel of some far off European destination, without all the pain of actually going to Europe.

The budget for the trip broke out into three broad categories.

• Hotel ($200.00 / night)
• Food ($100.00 / day)
• Misc ($100.00 / day)

For a ten day total trip, that made out to roughly $4,000.00, same as the cruise.

Hitting the Road and Saving Some Money

Our destination set, we jumped in our car and headed off. Here are a few tips to save some dough on an international trip.

• Don’t exchange money at the tourist centers! They will gouge you on fees. Use a local bank which will have much more reasonable fees. You need cash for a lot of things so you might as well get the best deal possible when exchanging.
• Use a no-fee credit card whenever possible! My wife’s Capital One card has no international exchange fees. You simply pay the current exchange rate and viola! This saved us big bucks by paying with credit card for things like eating out and souvenirs.

The best part of our honeymoon above all else was the fact that our guest’s gifts more than covered the full expense.  It was a pleasant surprise to have so many loving people in our lives who together gave us an amazing honeymoon without us having to dip into our house savings.

The moral hazard. An ever so fine line between good fiscal policy and encouraging poor financial decisions.

I’m not talking about anything the Feds are doing right now with Fannie and Freddy. I’ve got a personal twist that I am willing to share with you all. Perhaps you can shed some light to my actions. Am I really a bad person or am I simply a victim of my own rampant curiosity?

It all began one Saturday at work. I was working because my supervisor had a special job for me to do and I needed to make up some time anyways due to my vacation plans for the year.

While taking a trip to the water cooler for a much needed drink I saw, out of the corner of my eye, a stack of papers on a co-worker’s desk that looked, familiar. Upon a closer inspection, my suspicions were confirmed. It was a credit report.

Now who among you would have, given the opportunity, NOT have peeked through? The temptation was too much for this soul. Not only did I steal a glance, I took notes!

Not to do anything nefarious mind you. I was just curious. Deathly curious. It was if I believed it my right to rife through another man’s financial details. I knew I would not be caught and my actions speak volumes of my character. I couldn’t help myself. Not then and certainly not now.

The Dirt

It seems as though my co-worker, who I have mentioned before is in a pickle. I had heard inklings of it in the past but looking through his records was a confirmation of my worst suspicions.

He has over $45,000 in student loans. While he does have a Master’s degree to show for all of that debt, I will very soon be making as much as he does now. He has a combined $80,000 on credit cards. I’m sure that most of them are at horrible interest rates. The final icing on the debt cake is a house bought during the peak of the housing boom financed by a combined $420,000 of debt.

A Terminal Case

Even with an engineers income, I am sad to say that that sort of debt level is a non-recoverable case. How can you bounce back when you are over half a million dollars in debt in your mid thirties? Even if he turns his life around tomorrow I can guarantee that he will never have more money in the bank than my wife and I will since we started our lives without credit card debt and with clear financial goals.

The moral hazard thickens. Should I do something? Try to help? Or is it none of my damn business. Should I let him sink or swim in his current fiscal quagmire?

I wish everyone in life simply followed the same set of rules when it came to money. While not everyone will be a multi-millionaire living the high life, we can all afford to live comfortably and not have to deal with a financial disaster in our thirties.

For those of you out there who missed the news, a company called Cash America, ticker CSH revealed to investors yesterday that they would be revising their second quarter earnings upward. Their expected results would exceed prior guidance.

The news whipped investors into a frenzy and on heavy volume, the stock price of Cash America shot up a bit over 14% in yesterday’s trading.

Why is this a bad sign for the economy? Cash America is a cash advance and pawn shop company. When times are good for them, I can only conjecture that it means that times are indeed bad for the rest of the country.

From the Associated Press:

Cash America said its pawn lending business benefited from higher-than-expected revenue from pawn loans and higher gross profit dollars on the sale of merchandise.

In addition, the company said its online cash advance product offering posted strong revenue growth and lower-than-expected loan losses.

More people are getting payday loans and visiting pawn shops. The numbers don’t lie. This industry should be on the ropes in this country not posting significant gains.

State Caps are Working

Even with positive news for a company like this, I would stay far far away as an investor. There are a few bits of silver lining included in the press release. Several Cash America outlets are in the process of being closed in Ohio due to a new state law that caps interest rates at 28%. Even more store in California and Texas are being shuttered by Cash America this quarter.

Declining store numbers will eventually catch up with the company and outweigh the benefit of higher per store returns. The current 52 week high is above $48.

Better Than Expected for Now

At the very least, people are paying back their loans on time. “Lower-than-expected” loan losses means that for at least the moment, the new breed of pay day loan takers are responsible enough to pay back the loans they take. Either that or they are simply not yet been nudged off the cliff face of debt entirely.

There may be hope. Then again, this may be one more straw on the camel’s back. A few more and we may start having real problems.

Thoughts on the Big Day

With the wedding itself in the rear view mirror all we have left is the memories of the event. The guests are gone, the cake is eaten, and the bill is waiting to be paid.

First before I begin any kind of analysis on the cost of the event, I have to say it was worth it. We had a lot of fun. We saw friends we had not seen for a while and got to spend meaningful time together.

It was worth it.

The Final Cost

Our original budget for the wedding was $10,000. In the third most expensive state to get married in, was it even possible?

We managed to find out. While we did not exactly hit our goal, we got close. And by keeping frugal thoughts in our heads throughout the planning process we were able to get it close.

From my records, our total cost for the wedding was $11,079.11.

Our wedding ended up having 55 guests. Only the closest and most important people were invited. We did away with brides maids and best men. We skipped the limo as well. With the ceremony and reception at the same venue, there was no real need to look fancy just because.

Not everything worked exactly as planned. I am not sure either of us was prepared for how much a cake or flowers would cost. We ended up liking the respective vendors so much that we went with them anyways despite being slightly higher than we had anticipated. In the end we were thrilled with their work and would not have done it any other way.

• Wedding Bands $802.50
• Dress $1,070.00
• Tuxedo $144.99
• Invitation & Postage $101.65
• Wedding Application $30.00
• Ceremony and Reception Fee $476.25
• Officiant $150.00
• Florist $1,000.00
• Photographer $1,000.00
• Hors D’Oeuvres $977.90
• Dinner $2,095.50
• Bar $1,563.99
• Cake $568.33
• Music and Entertainment $1,100.00

Frugal Yet Satisfying

We kept things simple, but still have all of the memories you would otherwise have had. Our evening was intimate and memorable. All of our guests felt important because we had the time to interact with everyone during the festivities.

We are both thrilled with how the wedding turned out and are looking forward to starting our lives together on the right financial foot. While we may argue on the path needed to get there, our goals align well. I hope this blog serves to further our financial knowledge and help us work together towards a common purpose in the future.

Cheers!

According to my budget, I am saving or investing a bit over 20% of my gross income.  I am actually doing a bit better than this if you count money I am putting towards paying off my debts early. For the moment however, 20% is how much I am really putting away.

To put this number in perspective, I will have to gross around five million dollars to actually have saved a million for myself.  Dividing that five million by my actual gross salary and I will have an estimate for how long it will take to actually save my first million dollars.

I am currently making a bit over $70K at my job, so that translates to 71.4 years.

That is of course just a rough estimate.  I should obtain a million much earlier than that if my investments provide any sort of meaningful return over the next few decades.

Increase Your Saving Rate

No matter how you slice it, increasing the amount of every dollar you keep for yourself will help push your millionaire moment closer.

If I could double my saving rate, I would be a millionaire in only 35.7 years.  All of a sudden that number seems more reasonable.

Don’t think you can double your own savings rate?  How much money are you putting towards debt repayment right now?  For me, including extra payments I am making above and beyond my minimums, I am right around 10%.  As soon as my remaining debt is gone, my savings rate will jump to a bit over 30%.  Already half way there without too much sweat.

Don’t Forget to Make More Money

The best way to increase your savings rate is to simply make more money without increasing your standard of living.  Easier said than done?  Absolutely.  But then if the best things in life were accomplished by reading blogs, we would have nothing but happy and successful people in the world.  Here are a few broad ideas.

• Ask for a raise at work
• Start a side business
• Turn a side project into something marketable

Keep the idea in the back of your mind at all times and be ready when an opportunity presents itself.  Inspiration may come from unanticipated sources and fortune as we all know favors the prepared.

For the month of June, my net worth actually decreased by $240.82. This is the first time this has happened since I began keeping track more than a year ago. I am aghast and slightly depressed.

But it is not as if I’mswimming against a constant current. I got married this month. I don’t plan on getting married again in the near or distant future. So that one time event aside, I expect big gains to be back in style in the coming months.

A sizable drop in the stock market did not help matters either. My 401K saw a decline in value this month. Usually, my own contributions increase the total value more than any one monthly decline. Not the case in June. Unfortunately this is an event that I will have to get used to in the future. As my portfolio grows, my own bi-weekly contributions will become a smaller and smaller percentage of the total amount. Not a bad problem to have.

Assets: $31,537.96

• Cash in Hand, $100.00
• Emergency Fund, $1,100.71
• House Down-payment Fund, $5,046.91
• Corvette Fund, $2.15
• 401K, $10,731.41
• Roth Startup Savings, $76.26
• Taxable Stock Account, $2,840.68
• Prosper Loans, $406.34
• Family Loans, $1,780.00
• Toyota Corolla, $8,000 (kbb.com value)
• Apartment Security Deposit, $1,453.50

Liabilities: $21,295.52

• Student Loans, $19,119.67 (6.00%)
• Car Loan, $1,888.74 (4.99%)

Spending was under budget by $21.99 for the month. This does not count wedding related expenses, just the usual items I track normally. I’ll have a post or two on that topic later on.

The big hitters were eating out and gas. $4.00 a gallon and a road trip honeymoon contributed to the gas part. The eating out comes from being incredibly lazy in the days approaching the big day. We were simply over stressed from planning and arranging things for relatives that we often rationalized eating out over cooking at home to help soothe our frazzled nerves.

Spending Budget: $610.00

Spending Actual: $588.01

• Petty Cash: ($20.00) $0.00
• Gas: ($180.00) $232.51
• Eating Out: ($120.00) $171.53
• Entertainment: ($50.00) $10.70
• Hobbies: ($60.00) $66.70
• Fitness: ($40.00) $0.00
• Other: ($140.00) $106.57

(Budgeted) Actual

A while back, I asked if the bottom had set in on the current market downturn.  In the following months, the Dow and S&P 500 had enjoyed a generous bounce in value.  Despite this, the market has a way of making liars of us all.  Stocks are today  treading on fresh lows while oil dances above $140 per barrel.

While I never will consider myself a maven of investing knowledge, I am still purchasing stock in this environment through my automated 401K investments.  In the long run, I know I will make out.

I’ve pointed out before that investing at any time for the long haul is a smart investment.  Doing so in a down market is even better.  While there are examples of horrible performance out there, such as General Motors, the market as a whole is a great place to invest.  That means today is an even better opportunity than before to buy up more shares at a discount.

When time is on your side, as it should be with your employer sponsored retirement plan, you should not be afraid to dive in when the market throws a sale.

Take this opportunity today.

Bump up your 401K

If you are not contributing up to your employers full match, bump it up 1%.  Do it today.  Make it a priority and make it happen.  1% will not kill your spending for most readers out there.  If you are getting your full match, consider it anyways.  Like I said, 1% will not kill you, but it may be a sizable boon to your future nest egg.

Contribute to a Roth IRA

If you have been considering making or contributing to a Roth IRA then do it now.  The stock market is on sale.  If this was a grocery store, you’d be stocking up on essentials on the cheap.  The stock market is no different.

Perhaps the market continues to slide.  There is a good chance it will taking into account the amount of fear in the market.  Don’t let fear dictate your investment strategy though.  Keep your time horizon long and you will be glad you stayed the course while the chicken littles around you ran for the hills.