marți, 1 februarie 2011

Net Worth Snapshot

Here is the net worth snapshot for Mr. and Mrs. FSA.

Assets Value Comments
Home $220,000 appraisal
Car 1 - 2001 $9,000 trade-in value
Car 2 - 1995 $1,950 trade-in value
Checking $3,900 best estimate
Savings $1,138 best estimate
Emergency Fund $1,500 emigrant direct
401 (k) $0
Roth IRA $0
Misc $477 kids 529 plan
Total $237,965
Liabilities Value Comments
Mortgage $190,000 5/1 ARM
Car 1 Loan $14,000 60 Month loan
Credit Card Debt $5,893
Student Loans $24,000 Husband and wife
Misc $0
Total $233,893
Total Net Worth $4,072

Not too bad so far. The good news is that it's positive. The bad news is that financialbabysteps is catching up to us quickly. That is one financially savvy baby! A little friendly competition never hurt anyone :). Here's the rundown on our assets and liabilities:

We refinanced our home recently so the appraisal value is only a few months old. Funny story about our mortgages. I was just graduating from college and couldn't qualify for a conventional mortgage yet. We wanted to move in and get settled before I started working so we did an IO ARM which allowed us to buy the home when we wanted. After making one payment, I started working and we refinanced to our current mortgage which is a 5/1 ARM with a really low rate of less than 5%. The total P&I payment for the ARM is less than the IO payment of the first mortgage we had which is great. It was fortuitous timing for us since it was right around the time that interest rates bottomed out. We will certainly be moving in under 5 years, so I'm not worried about the ARM reseting at a higher rate. The only negative I have about the mortgage is that we're currently paying PMI. That sucks. I tried using
homegain to see what some comps would be for our area, but they didn't have data for our little town. I'm planning on waiting another six months before trying to get rid of the PMI.

We own two used cars. We bought one with cash and the other we financed through our credit union with a 5 year loan. Ordinarily I would say that taking out a 5 year loan is a bad idea for a car, but considering the fact that the interest rate was exactly the same whether I got a 3, 4, or 5 year loan it made sense to me. The rate is below 5% on the car loan as well, and I can earn almost the same amount of interest from an online savings account so I'm not really in a hurry to prepay the loan.

The emergency fund really needs to be more, but we're going to be concentrating on the Credit Card debt first.

You might notice that we have started saving in our kids 529 plan, but hasn't funded my 401(k) or a Roth IRA. More than half of the kids 529 comes from family memebers for Christmas and Birthdays. We did the inial seeding to open the account, but we haven't added anything since we opened it last month.

In terms of the retirement accounts, my company doesn't match until I've worked for a full year. I'll also be getting my first raise at the same time that I qualify for the match, so that's when we'll start contributing.

A large portion of the credit card debt (> 75%) is currently in the form of a 0% balance transfer for 12 months. We're going to be aggresively paying that off in the coming year. The rest of it is from our home improvement project that we did at the beginning of the month and will be paid in full from savings. So far we have yet to pay any credit card interest and plan to keep it that way.

For our student loans I've signed up for the electronic payment option so I qualify for a lower interest rate. My wife is finishing school so we don't have a pay her loans for at least a year. I consolidated my loans and I'm currently paying less than 5% on the balance. My mortgage rate is actually lower than the rate on my student loans :).

So there you have it. Our financial picture for the current year. In another post I'll go over the goals that we have and how we plan to achieve them. Any comments or thoughts on our net worth picture would be greatly appreciated. Thanks.


Thanks to everyone that commented on the net worth snapshot post. In this post I wanted to talk more about our financial goals and why financial independence is important to my wife and me.

When it comes to money, my wife and I had similar upbringings. She was born in the US but her parents were immigrants from another country. My entire family (except for one brother born here in the US) immigrated to the US at different times. My wife's parents and my parents both came to the US for two main reasons: better educational opportunities and jobs.

We both grew up watching our parents struggle with money, from paying the bills to chasing get-rich quick schemes. Our parents also shaped some of our frugal habits, for example: we almost always get water when dining out; we gravitate towards the clearance section in stores and stuff like that.

The short end of it is that experiencing our parents respective struggles made both of us resolve to be financially independent and secure, albeit in different ways. It made me want to be rich, i.e. butlers, maids, and mansion rich. It made my wife risk-averse and crave financial stability. As a result, we compromised at financial independence and freedom :).

Ideally what we would like to do is "retire" when we are both 45. By "retire", I mean we want to stop working and do whatever we want for 3-5 years. That includes traveling around the world, spending time with our children and/or grandchildren; visiting every single tourist destination in the United get the idea. Personally, I'm looking forward to being able to spend time with my wife and only my wife. It would be like when we first started dating in college, only this time we'd have more money and gray hairs.

After the initial downtime, we'd most likely become bored and decide to start working again. However, we'd be able to work in "fun" jobs. I'd like to try my hand at teaching, maybe as a high school math teacher, or how about a realtor. Hell, maybe we'll work at Starbucks! The point is that we'd have the freedom to do what we want.

To meet these lofty ambitions, I've calculated that we will need approximately $3,000,000 in retirement assets. I used a variety of retirement calculators that I found online. The main assumptions were usually that we retire at 45, die at 95 and our only source of income is our 401(k) and other taxable assets (so no social security, or pension).

The only caveat is I've promised my wife that if at anytime before we're 45 that our net worth including our primary home is greater than or equal to $4,500,000 then we would retire right away. So if the market has a huge run-up one year and we juuuuust peak over that for a brief millisecond, we have to retire. That's why I've listed our goal net worth at 4.5MM. It sort of corresponds to our target age for retirement, but it was more of a random number we could both agree on.

It's not going to be easy trying to meet that goal. While we are on the right path, I still think there is so much more that we could be doing. Here are some of the areas where I foresee improvement:

- We're going to start funding my 401(k) once my company starts matching. Looking back, I would have started right away, but we've committed ourselves to this method. Plus, instead of funding the 401(k), we're paying down credit card debt. So it's not a complete waste. After this year, I'd like to start funding a Roth IRA while we still qualify.
- We need to do a better job with our budget. I've tried using MS Money but haven't been as diligent as I would like. One weak area for both of us is eating out. We like to eat out a lot. This is especially tempting when we're both tired and don't feel like cooking, and the kids are acting up. We've thought of a few ways to deal with this. One is to budget $20 a week for eating out, and once we've used it all we're not allowed to eat out anymore. Anything we don't use, we save. Another is to try to utilize coupons when eating out, or only eating at places where we have coupons and/or specials (like kids eat free).
- Another area of weakness is impulse buying. To combat this I need to be more vigilant with MS Money (theres that program again) and as
Early Riser said: "measure [my] progress and know where [my] money is going at all times."
- We don't do a very good job of living below our means. Part of this is due to the credit card debt we took upon ourselves to furnish our home, as well as a combination of the other weakness mentioned above.

This is the short list of what needs to be done. I would add to it learning as much as possible about all sorts of personal finance issues from books, personal finance blogs, and other internet resources.

I would greatly appreciate any advice from the blogosphere. I haven't the time to peruse through all the great posts that are out there that probably deal with most if not all of these issues I've mentioned. I will keep reading the personal finance carnivals on an ongoing basis as well as contribute as much as I can.

ING Direct

I've recently opened an ING account. If anyone would like an additional $25 for opening the account email me at frankyj009 with yahoo. I'd get $10 for you signing up and contributing $250. Jim, at bargaineering was kind enough to refer me and I got $25. Also, they are currently having their special 4.75% APY period. So now is a good time to sign up.


Final Lotto Post

Anon in my previous lotto post has been playing devil's advocate saying that he/she is still going to play the lotto. Here is the comment:

Well, if the choice is a dollar on the roulette wheel vs. a dollar on consumer goods, I say let the good times roll! or, as you suggest I could take my weekly dollar and put it in a savings account and at the end of 30 years at 4.0% (taxed) I'd have 2,300 dollars which with inflation will be worth less than 1,000. Since I will have saved 1560 dollars from a lifetime of avoiding the lottery and depriving myself of M&Ms, that doesn't seem like very good return. Even if the chance of winning the lottery is teeny-teeny tiny, it is still larger than my chance of getting great honking wads of cash with my dollar any other way. Hey, someone has to play devil advocate! I should mention here that the 2nd dollar that you spend on the lottery each week is completely wasted since it does not appreciably increase your odds. Guess I wont have to skip the diet Coke.

First, if you took that $1/week and invest it in the stock market for 30 years, assuming a 10% rate of return, you'd have almost $9,000. Take into account 3% inflation and you're looking at $4,000. True it's not "great honking wads of cash", but I'll take it.

Ironically, you touch on the second point I wanted to make: "the 2nd dollar that you spend on the lottery each week is completely wasted since it does not appreciably increase your odds". This is even more true over the entire 30 years. I took a look at the fictional lottery that I mentioned before, and here is what I found

After 30 years
Probability of matching 3 numbers 99.9999820851%
Probability of matching 4 numbers 48.7778006739%
Probability of matching 5 numbers 1.0045145272%
Probability of matching 6 numbers 0.0031159717%

After 30 years of playing the lottery, you have a 99.9999% probability of matching 3 numbers. So you'll definitely win that $3 dollars, but you'd have spent $1,560.

You have a 48.77% chance of matching 4 numbers, so then you'll win a couple hundred dollars.

Now it gets really bad, even after playing for 30 years, week after week, you would still only have a 1% chance of matching 5 numbers and a .003% chance of matching 6 numbers. Needless to say, your expected value is still quite negative. Plus remember, this is the cumulative probability, you're still very unliklely to win on each individual lottery game.

So there, that's it. No more lottery posts after this, I swear. :)

On another note, Anon, thanks for playing devil's advocate on this one. If you're going to forgo those M&Ms to play the lotto, that's fine. The sad part is when you have people that forgo food for their families to play the lotto.

Some quick updates

Some quick updates:
- I'm a wiggly worm in the TLLB Ecosystem. Alright!

- Carnival of Personal Finance #33 is up and my
goals post is listed. Yeah baby!

- As a follow-up to my
0% balance transfer post, a few things have changed. Credit card minimums are going up to 4% and emigrant direct (one of my online banks) has increased their rate to 4.25% APY. As a result, I expect to make roughly 3.32% APY on the 0% CC balance transfer. I expect to generate roughly $500 in passive income for Mr. and Mrs. FSA. Wohoo passive income! Also, it's been mentioned that doing these offers will hurt our credit score, and I'm aware of that. We're not going to be applying for anything important anytime soon, so I'm not worried about the hit we're going to take. Gotta love arbitrage.

- I've been mulling an idea for a series. I will be starting one called "Conversation with my sons". In each one I'll post a fictional conversation between me and my sons when they are older. The topics will be varied and I'll delve into many controversial issues. I figure the series will be enlightening to my readers as they learn more about me and I hope that it will provide practice for later in my life. When the time comes and my sons ask me some of these questions, it will be nice to have a template of sorts.

Conversation with my son(s) #1: Why don't we go to church?

This series will be a weekly (hopefully) endeavor where I will imagine some hypothetical conversations with my boys when they grow older. Hopefully they will prove insightful. Not too sure on what the format is going to look like, but I'll tweak things as I go along

Son: Hey dad, can I ask you a quick question.

FSA: Sure son, what is it?

Son: Um, well I was just wondering, why don't we go to church?

FSA: Why were you wondering that, if you don't mind me asking?

Son: Well, some of my friends were asking me at school. They were talking about going to church and stuff, and they asked me what church I went to. I told them that we didn't go to church and that we just stayed at home, but I figured I'd ask you why.

FSA: Ok, fair enough. You see son, church is for people that belong to certain religious groups. It's for people who more or less believe the same thing and every Sunday they meet to talk about those set of beliefs and be part of a community of like-minded individuals.

Son: How come we don't go?

FSA: Simply because we don't share one major belief. I'm an atheist, and your mother is a...hmm, spiritual agnostic is the best way to put it.

Son: What does that mean?

FSA: (laughing), for me it means that I don't believe that god exists. For your mom, she's not really sure if god exists, but she tends to believe that there is a spiritual realm to the world...or something like that, you should talk to her and get her thoughts on the matter.

Son: What does that make me then?

FSA: Well son, most likely it'll make you either an atheist, or an agnostic. Most kids usually follow their parents when it comes to religion.

Son: I thought grandma and grandpa were Christian though? Why aren't you a Christian then dad?

FSA: That's a long complicated story, son. Suffice it to say that I took a look at the evidence and it lead me to atheism.

Son: What do you mean by that dad?

FSA: That's going to be a conversation for another time son. I promise we'll get to it though...we could go to a church if you wanted to see what it's like. Maybe we could go to different congregations and we'll talk about what we like and don't like.

Son: Do you think that would be a good idea?

FSA: It's just a thought. I'll talk to your mother about it and see what she says. We might go to a Unitarian Universalist church first and see what they're like.

Son: Ok...what's a Unitarian Universalist?

FSA: I wish I knew son, but we'll figure it out together. (wink)

Son: (laughing) Ok dad, if you say so.

FSA: I love you son.

Son: I love you too dad.


So that end's the first of what should be a weekly series. In this short conversation, I wanted to touch on how my sons might feel like an outsider because of our familiy's lack of religion. I hope that I'll be able to do a better job explaining to them, while at the same time allowing them to explore and be their own person. I'll try to refine the format and improve upon the dialogue going forward.

My blogroll: Funny Munny

I just wanted to point out a new addition to my blogroll: Funny Munny. It's hilarious. I was reading his post about big business reading blogs to get honest opinion and the way he ended it was aweseome:
Okay, Umbria[company behind the softwarea], let's see you work your magic on this honest-to-goodness opinion of a white male between the ages of 18 and 25: Kellogg's needs to bring back their watermelon Pop Tart. I repeat, give me back those scrumptious watermelon Pop Tarts. And I obviously have lots of money to buy them with seeing as I got too jiggy and now there's bling in my prostate.

It's just too funny.

Bruce Almighty

This weekend I saw portions of Bruce Almighty again. Funny movie, and Jim Carrey is his usual self. This was the second time that I've seen the movie, the first time I saw it I was a theist, this time I'm an atheist. I still enjoyed the movie, but this time I saw it for what it truly was, an exercise in Christian apologetics. There were many different aspects of faith dealt with in the movie, but the largest one seemed to stem around free-will. One memorable quote from the movie is when Bruce askeds God (Morgan Freeman):
Bruce: How do you make somebody love you without affecting free will?
God (Freeman): [scoffs] Welcome to my world, son.

This raises some serious questions of consistency in the movie. The movie makes it clear that God cannot alter our free-will, but at the same time, he is omnipotent. As such, he was able to grant everyone's prayer and several thousand people choose the same lottery numbers. How is that not changing their free-will? Wouldn't you have to alter their wills in order to get so many people to pick the same numbers? Then there is mention of people's stocks tripling in five days. The stock market is made up of people. These people engage in buying and selling based on a variety of factors. In order for a stock to go up, people have to want to buy it. If the demand for the stock exceeds the supply, then the stock goes up. So in other words, people's will would have to have been manipulated to some extent to get the stock moving. These are the two most obvious contradictions as I wasn't able to watch all of the movie again.
As some of you are already aware, I am already of the mindset that free-will and omnipotence are mutually exclusive and things like this cement that notion in my mind. I promise that I'll try to get a fully fleshed out free-will post later on. I have it somewhere in my head, I just need to get it down.

Tax Cuts (again with the tax cuts)

Ok, I'm just going to post a response before I see it somewhere else again. I've been seeing this news article being posted on left-leaning blogs and some atheist blogs as well. I've responded twice and I'm just going to post those responses so that people can just come here instead of me copying and pasting all the time. The Article in question is this one: Is Bush the Worst Pres Ever. The article lists a bunch of different things to support it's claim and one of them is
He is bankrupting the country with a combination of aggressive military spending and reduced taxation of the rich;
I'm going to post my comments with a little editing to make them more readable. Also, I'm attaching a graph that shows US GDP growth and the circle is around the recession. Here are my original comments:

When Bush took over as president, the economy was going strong, however, there were problems (can we say tech bubble). Then, 9/11 hit and we had a recesession. This lead to two things, the Fed lowered interest rates and the government cut taxes. This was a good thing for the economy and the result was a fiscal and monetary stimulus that many say caused the recession to be short-lived. As a result we ran up a large deficit. In the short-run, that is ok, because we needed a stimulus. However, in the long-run the deficit will strangle US growth. So think of it that we had some bad times and we had to run up our credit cards to keep going. Now that we’re back on our feet, we need to start making some minimum payments.
In order to get the deficit under control, we need to either raise taxes or cut spending. As a Republican president, Bush is doing what others (Regan) have done before him: run up a deficit and then claim government is too big we need to cut spending. What would be more prudent is to do a combination of cutting spending and raising taxes.
So, we did have a recession, but it was short-lived. The cuts were for everyone, the middle class received cuts as well.
I am not denying that the cuts created the deficit. What I am saying is that the cuts were justified at the time. Yes, the military spending is also a significant contribution to the deficit.
This is the Republican formula. Run up a large deficit and then claim that we are in a budget crisis, Government spending is too large, yadda, yadda….we need to cut spending. It’s the same tired old trick. Could Bush had handled the recession differently, yes. Would it have been better to curb spending and cut taxes rather than one or the other, yes. Is it politically easier to just cut taxes rather than cutting spending (at least initially), yes. These factors are the reasons why there were tax cuts.

Going forward the tax cuts need to either be revoked or spending cut drastically to get the deficit manageable. So we shouldn’t just wail at the tax cuts incessantly, we should try to talk about them more rationally.

Finally, here is the graph of GDP:

Sporadic Posting this week

I'm going to be posting sporadically this week. I have a lot of stuff to do at work and I'm transitioning to a new area in my job as well, so it's like I have two jobs...sort of. I'll try to cross-link interesting articles and/or posts, but I wouldn't expect anything substantiative from me unless I get struck my inspiration (i.e. procrastination). Thanks, and remember:
In religion and politics people's beliefs and convictions are in almost every case gotten at second-hand, and without examination, from authorities who have not themselves examined the questions at issue but have taken them at second-hand from other non-examiners, whose opinions about them were not worth a brass farthing. [Mark Twain].

My Blogroll: The Raving Atheist

TRA has a great post up entitled: Message of Christmas Marred by Violent Santa Displays. It is hilarious, I've posted it below, but please go and check it out:
New York, New York, December 13, 2005Special to The Raving Atheist
A holiday display outside a Manhattan brownstone depicting a bloody-bearded Santa holding a knife in one hand, and a severed doll's head shooting blood from the eyes sockets in the other, has provoked anger from parents who fear the gory display will traumatize their children.
The outrage is the latest in a series around the nation, including one
last week in Miami beach in which a blindfolded Santa was hanged from a tree, a noose around his neck and his arms and legs bound with wire.
"Christmas is a time to celebrate the birth of a sweet baby, sent to earth to be beaten, whipped, scourged and impaled on a cross with rough spikes splintering the bones of his hands and feet," said Donna Rossi, the mother of two. "Why are they trying to destroy the meaning of the holiday by exposing our kids to brutal executions involving mythical characters?"
"This is blasphemy," agreed Father Thomas Mallory, standing in front of an icon of the Virgin Mary
miraculously shooting blood from her eye sockets like a South American horned lizard. "The gentle Yuletide message, for which Christ's flesh was flayed and pierced so that we all may now wash it down with His blood at Communion, is not served by these unholy displays."
The owner of the Manhattan exhibit, Joel Krupnik, claimed that he was merely protesting the commercialization of the Christmas season. "The moneylenders must be cast out of the Temple," he said. Scoffing at this excuse, Rossi suggested that she wouldn't be surprised if an angry, violent mob "decided to teach that crazy Jew a good lesson."

On another note, how do I enable trackbacks for my posts? I'm too lazy to do the research right now. Thanks