Wednesday, December 28, 2011

My First 2012 New Year's Resolution

Stop trying to be so dang efficient by multi-tasking.  Said another way, focus on task at a time.

Today was the second time I've bungled an iPhone software update by trying to do it at work on my work PC.  Of course, we are about to go out of town, tomorrow, of course I needed the update, but why try to do so from work when I know I might have trouble completing the update because (1) I am on a PC and (2) I am on a work PC with certain security settings.  So here I am, now, without a phone trying to figure out how to restore it which means from home on my Mac or a trip to the AT&T store or both.  And I'm distracted by this problem, which I created myself, instead of getting my work done before I head out on my trip.

How did I end up in this situation?  Trying to get it done now, in the background, while working because that would save me time.  Thinking that the work PC related problems I had before would be different this time.  Why would they be different because I've figured out how to work around them in the past (of course never with an update has it worked).

I really am going to resolve to do one thing at a time in 2012.  Multi-tasking never seems to save me any time.

Tuesday, December 27, 2011

Other Goals from 2011 - Part Two

In addition to our 2011 savings goals and our other 2011 personal financial goals, I had a couple of other big projects on my list for 2011.

First, one of my big goals was to clean our my closet.  This goal is basically completed.  During the summer, I took everything out of my closet and spent a weekend trying everything on (except for clothes that were current - meaning I had worn them in the past few months).  It was an exhausting project, but I estimate that I got rid of 50% of my clothes/shoes/purses.  I got rid of clothes from high school and college, I got rid of clothes that no longer fit, that were not in style, that were poor quality, etc.  I even got rid of clothes that still had tags on them, meaning I never wore that particular piece.  

When I was done, I had two huge trash bags of clothes for Goodwill and another huge bag of purses and shoes that went to Goodwill.  I also had a huge trash bag of business attire which I still have as I'm trying to find a place to donate business clothes.  However, if I don't locate a proper charitable organization for my business clothes, I will drop this bag off at Goodwill as well.  In order to complete this goal I need to drop off this last bag.  

Mr. Sam also took all the racking out of my closet, painted and we put new, and better designed, racking back in.  I organized the remaining clothes into color, type, style (business or casual), and put it neatly back into my closet.  I still have too many shoes, but overall the closet project has held up well. 

Second, my other big goal was to get our office organized.  This goal is 75% completed.  I pulled a ton of paperwork out of three file drawers (I still have one left to do) and went through all of it.  I shredded hundreds of documents that were old and no longer needed.  I also implemented a new system for our filing.  Mr. Sam and I each have different color folders for our personal filing, we also have different color folders for each property and a different color folder for the dog too.  I also purchased a new two drawer file cabinet, as our filing was completely overstuffed in the original space, to keep all filing related to our real estate.  

I still have one file drawer to go through and I can't pretend I'm doing a good job at keeping up with day to day filing.  I'm trying to figure out a system that works for me, as I'm a fan of systems, to keep up with the filing.  I need to do 5 minutes a day or I need to do an hour a week or two hours a month or something.  At present, I have six months of filing waiting to be filed.

How do you keep your papers organized and how do you keep up with the inflow?

Sunday, December 25, 2011

More on the Mortgage

As previously posted, we are working on both our 2012 Annual Spending Plan and our 2012 Savings Plan.

One of our goals for 2011, which we completed, was to prepay $5,000 on our primary home mortgage.  I expect that we will repeat or increase this goal for 2012.  But, I'm somewhat conflicted because I know that our primary home mortgage is fixed rate, at 4.6%, for 25 years.  I also know that our mortgage interest is tax deductible so the effective interest rate of the mortgage is even lower.  Most likely, we could get a better return on our money if we invested it in the market.  However, in Florida, especially South Florida, we could save quite a bit of money in insurance if our home was mortgage free.  We could reduce our coverage, reduce or drop wind-storm insurance for our carriage house, we could self insure, etc.

Liz Pullam Weston opines that we should basically do anything else with with our money besides paying down a mortgage.  Although she doesn't suggest spending it on frivolities.  

First, Ms. Weston suggests investing in one's 401k to get a guaranteed 50% return rather than paying down the mortgage.  As an aside, I get so annoyed that every financial writer out there assumes that an employer provides a match or a match of up to 50% of one's contribution.  I've been contributing to a 401k for 10 years now and during that time (with three different employers) I've never received a match from my employer.  Even, Mr. Sam who gets a great match does not receive a 50% match, rather he receives a 30% match and it is all in company stock.  Putting all that aside, I agree that it doesn't make sense to forego contributing to a 401k or an IRA in order to prepay one's mortgage.  For us, this advice is not applicable because we are already maxing out our retirement accounts.

Second, she advises that paying down other debt before prepaying mortgage debt is probably the way to go because other debt likely has a higher interest rate.  Again, while I agree with this point, for us this advice is not applicable because we don't have other debt.

Ms. Weston's last two points, however, are interesting and I think more applicable for our situation.  Specifically, she suggests that we might be better off putting money we would use to prepay our mortgage into our emergency fund because we would have more flexibility.  I've got to agree with that, the $5000 we prepaid on our mortgage in 2011 is $5000 we cannot currently access.  We do, already, have an emergency fund, but we could continue to add to it rather than prepay the mortgage.  After a few years, if we found ourselves with an overly large emergency fund we could make a lump sum prepayment.  The only problem with this plan is that we are more likely to spend money that is available to us (even money that is in our emergency fund).  If we prepay our mortgage that is forced savings since we can't then turn around and spend that money.

The other point that Ms. Weston makes, and it is one I have already identified as something we need to look at in 2012, is that we should make sure we have adequate insurance coverage and if we do not we should be using our extra dollars for same.  Her point, if we don't have proper life or disability coverage, we could lose the house (and all the prepayment monies) if one of us became disabled or died.

So, are we going to prepay our mortgage principal in 2012?  I think we will still put a sum of money towards the mortgage principal, but we are still discussing the issue and this article has raised at least one point, the insurance issue, we have not really properly considered.

Friday, December 23, 2011

Other Goals from 2011

In addition to our 2011 savings goals, we had a couple of other 2011 Goals.

I'm happy to report that just this week I finally rolled over my old 401k.  This "to do" had been on my personal to do list for six months when I put it on our "2011 other goals" list.  That means I've been thinking about this personal project for 15 months.  But, listing this "to do" on our "2011 other goals" list got me to do it before the end of 2011.  And, crossing this "to do" off my list before year's end makes me happy.

We also had a goal to get our debt under $600,000 in 2011 and we were able to accomplish that goal as well. We actually added to our debt load, a bit, this year when we rolled refi costs for one of our investment properties back into the loan.  Right now our debt load is at $595,088.  In January 2011, our debt load was at $613,291.  Which means, in 2011, we have paid down $18,203 in debt.  As we think about our 2012 Savings Goals, we are thinking about whether to renew the goal to pay down mortgage principal.  I vote yes as I find paying down debt more fun than savings.  I wonder why this is, I need to research and spend some time thinking about this issue.  

Regarding our debt load, it doesn't really make sense for us to pay down the debt on our investment properties because our tenants are doing that for us.  Since we will be holding these properties for some time  there really is no advantage to prepay when our tenants cover the carrying costs for us.  Even though this debt is on our personal balance sheet and in our personal names it really is business debt.

But, when it comes to our primary home, I would really like to pay down that mortgage.  Being personally debt free would, of course, be awesome.  Without a mortgage payment we would have a lot of extra money to invest and save.  And if we paid off our mortgage we would have flexibility with our wind-storm insurance which is very expensive in South Florida.  However, I still question, as we should, the economic benefits to paying down our mortgage when we've got a low fixed rate and it is tax deductible.  On the other hand if I'm using dollars to pay down our mortgage that I'm not using for savings/investing, well that probably makes sense.  For example, if we reduce our eating out expenses and use some of those dollars to pay down the mortgage.  Could we get our debt down to $575,000 in 2012, I think we probably could.  That would mean paying down @$20,000 in 2012.  And in 2011 we paid down more than that, but we added some debt back in during our refi.

We still need to find a new accountant.  We have got to prioritize this goal for early in 2012, because I would like to get our taxes done on time and not file for an extension again.

Also adding to the other goals for 2012 is revisiting our insurance on each property and on our cars. We need to determine if we have the appropriate coverage and determine if we can save and/or take advantage of discounts.

Thursday, December 22, 2011

2012 Savings Planning

We are starting to think about our savings goals for 2012.

First on the list, max out our 401k accounts.  The amount we can save is going up from $16,500 to $17,000.  If you are over 50, the catch up contribution max is $5,500 in 2012.
So, goal #1 - Max out our 401ks - $34,000.

Second on the list, max out our IRAs.
So, goal #2 - Max out our IRAs - $10,000.

After the retirement accounts, we probably should be focusing on much of the same from 2011.  We should probably add more to our emergency fund.  And, I would like to keep chipping away at our mortgage principal.  Since we own a historic home, adding to our house project account (this is more of a short or mid term savings goal) would probably be a good idea.  Finally, we probably need to start a car replacement savings account for Mr. Sam.

Goal number one and two are set.  After that, everything else is up in the year and dependent on the 2012 Annual Spending Plan and deciding how much we can and how much we want to save this upcoming year.

Wednesday, December 21, 2011

2011 Savings Goals - December Update

(1) Max out 401k(s) - $31,329 (95%)(goal is $33,000)
(2) Max out IRA(s) - $10,000 (100%)(goal is $10,000, this goal is completed)
(3) Add to e/r fund - $9,200 (92%)(goal is $10,000)
(4) Pay down mortgage - $5,000 (100%)(goal is $5,000, this goal is completed)
(5) House projects - $2,161 (40%) (goal is $5,000)

Total - $57,690 (92%)

Based on my calculations and projections, we will complete three out of five of our 2011 goals.  Two goals have already been completed, maxing out our IRAs and paying down an extra $5000 in mortgage principal..  We will come very close to maxing out our 401ks and I likely will count that as completed for 2011.  I will max out my 401k contributions and Mr. Sam will be just a couple of hundred dollars short of maxing his out.  And, since Mr. Sam has already received $5,000+ in matching 401k funds in 2011, in addition to his contributions, I think it is safe to say we completed goal number 1.  We will also complete goal number 3 and we will finish up adding $10,000 to our emergency fund this year.

I don't see how we will finish funding our house project account, at most I might be able to get it up to $3,000 by the end of the year.  I was trying to bump up the house project account by year's end, but we just paid out $2000 for Mr. Sam to take a Six Sigma green belt class so that is $2000 that we don't have to bump up the house account.

Overall, I'm generally pleased. We have saved $7000+ more in 2011 than we did in 2010 and we still have a couple of weeks to go. However, as I've discussed in other posts, we think we can do better and someone we respect is challenging us to look closer at our numbers and see if we can save more in 2012. This year we basically saved more because we saved our salary increases. So, we kept our expenses generally flat and we banked our increases.

I have to give us a pat on the back for fighting lifestyle creep. But, as previously discussed we could be doing better on controlling our expenses.  

Slow Posting

Sorry for the lack of posts recently.

One, I've been having trouble with Blogger.  As you can see, I'm updating the design.  Certain features are not displaying properly at this point, but I'll work on getting them back.  

Two, busy with holiday activities, family in town and the like.  

Thursday, December 8, 2011

Investment in Self

Mr. Sam has an MBA and works for a large corporation in logistics.   He works very hard and is trying to move the company forward from 1980s systems to modern, automated processes that are both more efficient and more accurate.  He is under utilized in his current position and also bored at times.  He is also a behind the scenes type of employee, so he thinks if it came time for cuts or layoffs he would be easily cut because no one really knows his worth. 

But, the job has lots of pros, he is working in his field in a professional job, he is paid reasonably well, he can work from home, if he works in the office his commute is 20 minutes, the benefits are great (we save quite a bit of money by both being insured under his medical insurance plan and this year he probably will get close to $6000 in 401k match), and he has a boss that is very hands off, etc. 

While he sits tight in this job with this company, he is thinking he ought to be obtaining more education.  As a result, he is thinking about taking a Six Sigma class.  First, he would like to be challenged since he is somewhat bored right now.  Second, he thinks the classes would be helpful for his career both at his current position (demonstrating his initiative to further his career and utilizing the techniques he will learn) and if he opts to look elsewhere.  The black belt certification and the green belt prerequisite will cost about $6000 and he will end up using two weeks of vacation.  There is a chance his company will reimburse part of the class costs (maybe like $2000). 

Anyone obtained a Six Sigma certification and if yes, was it worth it?

Wednesday, December 7, 2011

All Spending is Local

Talk about an expenditure cascade, I'm living across the bridge (we call it a moat) from the richest zipcode in the nation.

Expenditure Cascade

I came across the term "expenditure cascade" in this Slate article.

The author defines the expenditure cascade process as starting with the fact that those at the top are spending a lot more money.

The process begins with the completely unremarkable fact that top earners have been spending at a substantially higher rate than before. They’ve been building bigger mansions, staging more elaborate weddings and coming-of-age parties for their kids, buying more and better of everything.

Such spending then changes the norm in a particular circle, neighborhood, or community "since all spending is local" and those on the edge of that circle spend more and "shift the frame of reference" for the next group down and so on. So, you are not just keeping up with the Joneses, but keeping up with your peers, friends and other circles you may move in and out of.

I feel like I normally do a good job at ignoring the Joneses, but I recently altered my normal behavior based on  context.  I was at a charity, holiday luncheon on Palm Beach with a very large group of women who are affectionately known as "ladies who lunch."  These women range in age, but the majority are super rich or very rich, they do not work and rather their "job" is to attend social lunches, support wonderful causes and be seen in the society pages.   Before the luncheon there was shopping opportunities, think high end jewelry, fancy purses, etc.  Normally, I would never shop at this type of event because Palm Beach is not known for bargains.  But, being with this group, normal shifted for me and I bought two items (paying too much for both, but 20% went to charity).   Looking back, I was taking my cues from both the environment and the group that I was with. 

Monday, December 5, 2011

Eating Out

In reviewing our spending, in preparing our 2012 Annual Spending Plan, one of the categories we could cut back on is eating out. 

I eat out, on average, five times a week.  Eating out can consist of ordering lunch in at work, eating out on the weekend with my husband, eating out during the week with work colleagues or friends, etc.   I prefer eating out because (1) I hate to cook; (2) I work hard and after working 12 hours I'd rather not spend time cooking or preparing lunch for the next day; (3) I enjoy food prepared by professionals more than food prepared by me or my husband.  But eating out is expensive and adding it up we are spending more than $4000 a year eating out.

So, I'm going to cut back in this category.  I've decided that it would be reasonable to eat out twice during the week and once on the weekend.  My plan is probably to order lunch in on Monday, go out for lunch once during the week and bring my lunch the other three days.  I think that I can probably save $1000 by making this switch, plus I likely will reduce my calorie intake.  I can't cut the bill in half because the grocery bill is going to go up and groceries are expensive too.   I also won't cut back on eating out when we are traveling, when we have guests in town or during the holidays. 

How about you, is this a spending category that you struggle with?  If so, any tricks you have utilized to decrease your eating out spending.

Thursday, December 1, 2011

Progress - Depends on Your Point of View

I think, over the last five years, we have done a super, duper job with our finances. 

We, in year one of our marriage (2007), paid off all our unsecured debt ($55,000+), created an annual spending plan, began tracking our expenses and developed our allowance system. 

In the last couple of years, we have saved quite a bit of money.  Last year we saved $49,500 and this year we have saved $54,400 (thus far).  I'll have to look back and see what we saved in 2008 and 2009 as I don't have the data available right this minute. 

We feel like we are doing great, we are maxing out our retirement funds and also saving other monies, we are not incurring debt, we are paying down mortgage debt and we are saving monies in our emergency fund and elsewhere. 

According to the Employee Benefits Research Institute’s 2009 Retirement Confidence Survey, 53% of workers in the U.S. have less than $25,000 in total savings and investments. The typical American household had just over $18,000 in savings.  So, we are certainly doing better than many, but these statistics set a very low bar. 

So recently, someone (whose opinion I respect and whose personal finance acumen I admire) has challenged us both on our perspective and our progress.   He says we could save more and, that since we started late and based on our age, we should save more. 

Could we save more?  I think we could which is why I'm working hard on our Annual Spending Plan and trying to figure out where we could squeeze and reduce to free up more for savings or debt repayment (I count putting money towards our mortgage principal as savings). 

Should we save more?  Probably. 

How do we save more?  I'm working on this, but I, more than Mr. Sam (sorry honey), work really hard and as a result want to enjoy some of the fruits of my labor now.  If I'm just working really hard and putting every dime into needs and savings I'm going to get grumpy fast.  I want to eat out, enjoy my entertainment, travel, clothes, art, etc. now. 

Anyways, I'm glad that we were challenged in our thought process and I'm going to be working on reassessing our current habits, how we can improve, how we can save in some categories to free up money for spending in other, more important, categories and additional savings.