Goals for the New Year

Here is a short list of our financial goals for this coming year:

• Grow our emergency fund from $5k to $15k
• Contribute the max ($5k) to each of our Roth IRAs
• Stay within our budget in every category* for two consecutive months
• Find ways to earn more beyond our “regular” jobs

*we are within our budget total almost every month, but there are usually a few straggling individual categories where we spend more than we budget.

New Year

There’s not too much to add recently.  We managed to make it through the holiday spending season pretty well, and we’re still gaining ground in terms of saving for both our retirement and for emergencies.  After almost 2 years of learning the stock market (I turned $1,000 into about $600), I’ve now started experimenting with trading options.  I’m only using money that we can easily live without (i.e. not putting any additional money in the brokerage account), but my $600 is now up to $1,100 after reaching almost $2,000 a couple weeks ago.  Even though options can be risky, that same risk allows for amazing returns (and some crazy volatility).  So, gone are the days of watching our account value move up and down 1, 2, or 3% per day.  Now everything moves 10, 30, or 50+% almost every day.  Hopefully I can continue to do well and get us some extra money…

October

Another month has passed, so it’s time to update our money stats! Our net worth growth has slowed to a crawl recently but, like I said last month, it is still increasing! I’m sure that after some of the recent market falls our investment/retirement accounts will shrink in November, but hopefully our spending will also shrink. In October we were hit with renter’s insurance and car insurance, but from now on we are going to be saving ahead of time for expenses like these so they are less of a hit when they come around again.  We’re still trying to find the right balance between living well and spending wisely, and it seems quite elusive at this time.

Compounding At Its Best

In my spare time today, I threw together a few quick calculations in Excel regarding retirement, specifically how much we should save and how often we should save it. The results are quite startling, at least to me. Everyone has heard about the power of compounding and the importance of saving early in your life, but I think there are many creative ways to save, and now I have the numbers to prove it! All calculations are based on an 8% yearly interest rate earned, and the columns are as follows:

Yearly Savings, # of Years, Comments, Value In Year 2047

• $10k, 40 yrs., Base Case, $3.03M
• $10k, 35 yrs., Skip Last 5, $2.97M
• $10k, 35 yrs., Skip 2nd 5, $2.34M
• $10k, 35 yrs., Skip 1st 5, $2.02M
• $10k, 10 yrs., First 10, $1.70M
• $15k, 5 yrs., First 5, $1.52M
• $10k, 5 yrs., First 5, $1.01M
• $10k, 5 yrs., Last 5, $63k

Wow, so ideally we will have around $3M in the bank when it’s time to retire, if we continue on the savings plan we are currently on. Other things of note include the fact that if we stop contributing for the next 5 years, we end up with $2M, a decrease of a million dollars! Alternatively, if we keep saving like this for the next 10 years, we can stop saving altogether after that and still have $1.7M to retire on. This sounds like an interesting option, because it would free up more money later to spend on housing, or travel, or whatever else. Essentially, whatever money we can put in over the next five years is likely to increase by a factor of 20, so each $50 extra we can put away will be worth $1,000 to us in the end. This really brings home the fact that we really need to keep focusing on saving as much as possible, even if it means deferring things like world travel, at least for the next 5-10 years.

Sounds easy, right?  I think it will be quite challenging, particularly since we both have good, steady jobs which somehow translates into the feeling that we have plenty of money and we shouldn’t have to watch what we spend as much any more.  I think it’s harder to save now than it has been over the past few years when money was tighter…

October Update

Our finances from September have been posted here, and it was a bit of a tough month financially. It seems that every month we do great in most of our budget categories, but invariably we go over in one or two, making it difficult to have any money left over to save. In September, however, we went over in almost everything (food, gas, clothing, car maintenance, etc…). I suspect we are fighting a slight case of lifestyle inflation, since we have previously lived on far less income for long periods of time. So, how to fix it? Well, we’ve started by spending more!

Actually, for the first time in a few years, we paid our six-month car insurance premium up front instead of paying it monthly. This saves us a $1/month fee, and now we can put our “monthly payment” in savings each month for next April when insurance is due again, giving us a little extra interest income. In addition, we will probably not renew the “NFL Package” we currently have allowing us to see every televised game throughout the season – this will save approximately $20/month. These are small changes, but hopefully a good start as well.

Retirement: To Be or Not To Be?

Interesting food for thought in this article (Point No. 5) about how our generation’s retirement will be vastly different from our parents’ or grandparents’. If we plan to retire at or around 65, we should expect 25-30 more years ahead of us with little to no income. I’m not counting on Social Security to be solvent by that time, so that would mean our retirement savings would have to fund all those extra years. In order for that to happen, we would have to save up a huge amount of money, probably $4+ million in today’s dollars. That raises the question, should we really be saving as much as possible (currently around 15% of our income) right now for our retirement? Or should we focus on living our lives with a little more spending now, and plan to continue working as long as possible? My first instinct is that we should do both: first, save as much as possible over the next two years, then, while that is (hopefully) growing, relax on the saving to allow for more traveling, etc. Both of us highly resist the idea of “waiting” until retirement to chase our dreams, and the idea of having a little more money freed up now sounds great. But is it a sound financial decision?

The Whole Foods Big Deal

Whole Foods, one of the grocery stores we frequent, is currently in a struggle with the FTC to allow them to purchase a small competitor, Wild Oats. The court hearings which will decide the case have been going on yesterday and today, and a decision is expected by the end of the day. As both a customer and a stockholder, I’m very interested to see what the decision will be. To me, it seems almost incredulous that the government is arguing that WF will not have competition if the purchase is allowed to go through, even though every grocery store I’ve been to in the last year or so has organic offerings. On the other hand, WF does sell a lot of unique products that are not found at many other stores, so from that perspective I can see how competition might possibly be reduced if they purchase another store that also (from what I hear) carries many unique products.

Basically, the FTC is protecting the health-food crowd by attempting to ensure that all the alternative ingredients that we already pay way too much for don’t get sold only at WF. For that, I can thank them. However, I think in general they are taking this way out of proportion, because even if WF was allowed to purchase Wild Oats, there are still many, many other stores that compete with WF; some on quality, some on uniqueness, and almost all on price. It will be interesting to see how this court decision ends up, and how it affects the “healthy” grocery store markets.

Interesting blog posts from WF’s CEO, John Mackey, here.

News article describing both sides of the argument here.

Budgets, Time, and Money

We’ve now completed two consecutive months where we’re both working full time!  It’s starting to show in our finances, as we’ve been able to contribute more to our IRAs and our net worth has begun to increase for the first time in over a year.  Our budget is working well – now we need to find a way to work long-term travel expenses into it, as we’re hoping to take a trip to China next summer!

Maxed Out

This weekend, on the recommendation of one of our favorite money blogs, we went to a showing of Maxed Out, a recent documentary on the aggressive marketing tactics of credit-card companies, the moneymaking enterprise of debt purchasing/trading, the negative manipulation of credit scores by the companies that create them, and the support these three entities receive from our elected officials. The movie is only running in select cities, so we joked that America probably couldn’t afford to pay the $9.50 to see this movie. Seriously, though, we highly recommend this movie; it’s very informative and moving. It will inspire you to be more careful with yourself, your credit, and your money. Some important ideas that we learned in the movie include:

• Don’t get yourself in credit-card debt!
• Don’t ever get money at a payday loan shop – the average $325 loan will cost you $793 to pay back
• Don’t pretend that your long credit history with a company will protect you in the event of a late or missed payment. Even if you’ve had decades of perfect credit, they will slap you with the same late fees as everyone else ($43 on average), and promptly raise your interest rate to 26-30% or more. Read the fine print on your card, and don’t miss a payment!!!

Our Current Net Worth