Friday, January 11, 2008

They Shoot Horses, Don't They?

One thing I've noticed pondering my 2007 & 2008 goals is this: a relative level of success in business & financial items, a relative level of failure in personal and spiritual items.

This has me concerned, for obvious reasons. Who wants to be the guy who made it big and made tons of money, but died fat and lonely at age 45?

I started realizing how intertwined these goals are... just now. It's 7:03pm. I'm still at the office on a Friday night. I'll be leaving soon, but hey.. I'm not an investment banker and I don't have A Passion For My Work That Surpasses All Else.

(Side Story: At my 1st job interview out of college, the Senior Vice President of the company I worked at was the last interview before a job decision. He asked "What's the most important thing in your life?" and I immediately responded "My faith in God". He looked about as stunned as if I had said "Porn". He then, very cautiously, said "I've never heard that response before in all the interviews I've ever had." To which the chipper 22-year-old me responded "I'm sincerely sorry to hear that". I got the job.)

So what's the problem? Well, it's hard to be home for dinner 4 nights out of 5 (a goal from last year), work out 4 nights a week (another goal) or hit your weight goal (well, I *exceeded* my goal... does that count?!) if you're working 12 hours every day. Work/life balance appears to be more than just a cliche'.

I'm sure some of you with 2 (or more) jobs are saying something to the effect of "Quit whining", but I'm guessing many of you recoil in horror at the thought that something even approaching 60 hours a week might be normal. This does not include my time spent cheerfully blogging; those hours are mentally deducted (as is lunch, although I hardly ever take a lunch and haven't eaten since 6:30 this morning) to arrive at my weekly work schedule.

Actually, my boss asked my team to track its time in various areas to see if we were focusing on the right work items. This is excellent, because it also allows me to see, at the end of the year, exactly how much time work takes out of my life.

My ideal goal would be to work a 45 hour week. Not realistic by any stretch of reality at this point, but that would be nice. 50 hours is more likely, and 55 hours is probably the reality I'm facing assuming I work hard to reduce 5-10 hours of work a week.

I'm interested in the work patterns of my readers. If you'd like to discuss my work/life (im)balance or your own working arrangements, I'm all ears.

2007 Goal Setting Redux - How'd I do?

I just realized that I posted my goals for 2007 on this very blog. Hooray! Let's see how I did...


2007 Goals

Business

1) Turnaround a large money-losing division within my company, making it profitable

Well, kind of. I left before I got the see the exciting conclusion, but it was certainly on that pathway. I'll take this as a partial achievement.

2) Attain the highest PE rating for year-end performance

I left mid-year, so it's hard to say what my rating would have been. The top rating is for the top 5% in the company... feasible, but I wouldn't say it was a slam dunk. I'll give myself a partial victory here too.

3) Mentor at least one other individual, whether inside or outside my current company

Slam dunk victory. I mentored TWO people within my company and another TWO outside. I still talk with all four of them on a regular basis, and know that I've contributed in a tangible way with at least three of the four. The fourth is doing well, but I'm not sure she wouldn't have done all those things even without my advice... I think I make a better sounding board than anything.

4) Find a mentor and talk with him at least once a month

Miserable failure. Not only did I not talk to my mentor... I didn't even HAVE a mentor. I did acquire a spiritual advisor, but since my move that relationship has stalled as well.

5) Achieve promotion to Senior Director, AVP or similar title OR attain a C-level position with a smaller company

Unfortunately, a failure. I'm still a Director, and although I'm doing well in the compensation department YOY, much of that was from my previous (as opposed to current) position.

Financial



1) $900,000 net worth

Not even close. $775,000 and change. My net worth goal for this year is, ironically, $900,000. Hey, maybe I'll get it this time. ;)

2) $0 in debt

Hey, success! I have no debt... and no plans to go back into debt. Ever.

3) $200,000 in income from all sources (Day job, consulting, rental income, anything else)

Also a solid victory. Total income from all sources this year was $246,000. I won't achieve that next year without some big help, which is why I dropped my 2008 goal to $200,000.

4) Save 50% of my Net Spendable Income, defined as Income less Tithes & Taxes. Acceptable savings categories: Cash Reserves, 401K, Roth/Traditional IRA, College 529 Plans, Taxable Index Fund accounts

I came close. I ended up saving 44% of my Net Spendable Income. Although not technically a success, I'm thrilled that I'm able to save $4 out of every $9 that I can chose to do something with. Next year, 50% is back in my sights.

5) $50,000 cash reserve

Right on target. I have about $54,000 in cash reserves right now. I'd eventually like to grow that to about $100,000, but until I have a hefty net worth, I'll stick with what I've got.

6) Give >15% of gross income to charity

I overachieved here, giving almost 22% of my gross income to charity. I am fortunate in that I love to give and get excited thinking about people who will benefit from a small dollop of money that wouldn't do much to modify my standard of living.

Spiritual

I didn't post my goals last year out of a desire not to offend. Well, offensensitivity is out the window this year! Check out my 2008 goals to see what I've put on the Big Board for the coming 12 months.

Personal

1) Be home for dinner 4 nights out of every 5 working nights

Without a doubt, the biggest failure on the chart. And that's saying something. If I get home one night a week at dinner time, it's a miracle.

2) Spend time with each member of my family every day

This was a success. In fact, given the extra time I've focused on spending with my boys and wife every day, I'd say it was an exceptional success. I love my family, so again.. not a real struggle.

3) Weight: 200 pounds

Har! I just took a physical last week. Weight: 225 pounds. Pfffft.

4) Take my wife out on a date at least twice a month

Interestingly, this was a modest success. For background, I noticed that back in '03 (right after Child # 1) we had only taken 6 dates all year, so I decided to work on that. We had a decent babysitter in Virginia and are now getting settled with 2 new ones here in our new digs (hooray!). I think we'll be on track for 2008 too.

5) Read at least two books a week

Meh, too hard given the other goals. I average just under a book a week, so I made a book-a-week goal one of my 2008 specials (I read about 45 books last year).

6) Exercise at least four nights a week for at least 45 minutes per exercise session

Well, hope springs eternal. I'd say I hit about 2 nights a week. I have since bought an elliptical trainer and am averaging... 2 nights per week. Grrr. Must. Try. Harder.


Well, overall... a mixed bag. But then again, I try to put pretty tough goals so that even if I fail I feel a reasonable sense of accomplishment. I'm also reconsidering some of the '08 goals I had to tie them to some of these non-attained '07 goals.

Setting a finish line for your wealth

One of the more interesting concepts I've read involves a "finish line" for your net worth.

Larry Burkett wrote a series of books which imbedded this concept, which simply states that you should seriously consider how much money you need to live, choose a net worth that supports that (plus a buffer, naturally) then give away everything above and beyond that level.

As a personal example, I have been considering a finish line at $3,500,000 of investable assets, excluding the value of my home.

At a 3% withdrawal rate, this would yield just over $100,000 in year 1. At that level, I feel reasonably confident that I could increase my withdrawals for inflation each year without risk of depleting my portfolio.

Of course, this raises several questions: How much is enough? How do I take the impact of old age and potential sharp increases in health care expenses? Should I exclude the value of my house or see it as a (highly-concentrated, to be sure) real estate asset? Is a 3% withdrawal rate safe or too conservative?

The biggest question of course centers on the reasonability of this concept. I've heard of folks who have considered doing this with their finances, but don't actually know anyone who has done it so that I can compare The Number with them.

For now, $3.5 million sounds about right, if a bit high. I'm fairly certain that $3 million would still be plenty, although I'm waiting to see if my tastes change as my wife and I age. :)

Thursday, January 10, 2008

2008 Goals - Spiritual, Business, Financial & Personal

My 2008 Goals

Spiritual
1) Pray the Rosary 4x each week
2) Pray with my wife in some fashion 5x each week
3) Receive the Sacrament of Confession twice a month
4) Complete coursework on Catholic history


Business
1) Institute a strong direct sales channel at my current employer
2) Receive a ranking in the top 10% of all employees in my peer group
3) Implement a strong succession plan, both for myself and the next layer of employees
4) Recruit aggressively from my alma mater, resulting in at least 2 job acceptances



Financial
1) Save $55,000
2) Contribute $30,000 to charitable causes
3) Attain a net worth of $900,000
4) Spend < $3,500 per month (excluding savings & charitable giving)
5) Establish a solid "finish line" for net worth (adjusted annually for inflation)


Personal
1) Exercise 4x per week
2) Achieve 200 lb. weight goal
3) Read a book every week
4) Blog at least once a week (given the sporadic nature of my blog so far, you may consider this a stretch goal)

2008 Goals - A brief discussion

Last year at this time, I shied away from posting my goals in non-financial areas.

This year, I've decided on the opposite tack for several reasons.

First and foremost, everything I do has a spiritual bent. My Catholic faith is central to who I am. I see myself as the Director of Finance for God's funds, rather than a conventional owner. As such, you Dear Reader are entitled to know my perspective so you can comment or ponder whatever I post from that perspective.

Second, it has become much more challenging for me to separate my personal, business and financial goals as life has progressed. For example, my desire to do well in the business world is based on Colossians 3:23. My weight reduction goals are based upon my belief that I need to take care of my own personal Temple of the Holy Spirit. Even financial goals are focused on wealth creation, not in and of itself, but because of the independence it will (God willing) ultimately provide. This is why I constantly debate a "finish line" goal: the net worth at which I will give away everything above and beyond that goal (more on this in a future post).

I hope that you find this enriching to my posts and (any) discussions.

2008 Financial Goals

2008 was a reasonably decent year from a net worth perspective, although Q4 was the first quarter in which my net worth actually went down (due to a reduction in the value of my primary home) since Q3 2002. Yikes.

My net worth as of 1/1/08 stands at $775,200, a 10% increase from January 1st last year. In nominal dollars, I saved/invested $64,000 this year and netted a $70,000 increase in net worth. Not great, but not terrible either.

My financial goals for the upcoming year are as follows:

1) Save 50% of my Net Spendable Income (NSI) - Targeted at $55,000

I define NSI as my gross income less taxes (Federal, State, SS, Medicare) and less charitable giving.

So, for example, if I have a gross income of $100,000, $25,000 in various taxes and $15,000 in chariable contributions, my NSI is $100,000 - $25,000 - $15,000 = $60,000 and thus my savings goal for the year is $30,000.

Due to an expected raise in early '08, a (relatively optimistic) expectation of a decent bonus and some sideline consulting work, I am tentatively setting my income goal at $200,000 for the year. I'm also assuming that I will contribute 15% of my gross income to charity, and that taxes will total 30% of my gross income.

Thus, in nominal dollars, my savings goal for the year equals $55,000 ($200,000 - $30,000 charity - $60,000 taxes = $110,000 / 2 = $55,000).

2) Contribute 15% of my gross income to charity - $30,000 target

Giving is a huge goal for me. My long-term goal is to reach a point at which I'm contributing 50% of my gross income. This will take some time, but I have consistently given at least 10% for the past 5 years and will work towards hitting a consistent 20% level over the next 5 years.

3) Achieve a net worth of $900,000

Starting at $775,000 with a $55,000 savings goal yields $830,000. To this, I'm planning on $70,000 of investment income (9% weighted average investment return).

And yes, I know I have close to zero control over this given my index-centric philosophy.


I'll put up my quarterly updates to track my progress through the year.

Monday, October 22, 2007

Happy New Year: Your health premiums will go up 35% in '08

I just returned from my company's benefit fair. As I was chatting up one of our benefits specialists, he casually mentioned that the yearly cost of one of our medical plans was increasing 35% next year.

More of a curiosity than anything... anyone else seeing anything like this? The worst increase I've seen in past years is 15%.

401k - How to save money... without spending a dime of your own

It's amazing to me how many folks neglect to put money into their 401k plans, saying that they can't afford it.

I'll give the standard bromide about how you're passing over 100% (or 50%) returns by not contributing up to the level of matching by your company. If you're not doing this, you're giving up an instant doubling (or 50% increase or whatever) of your money.

If you're still not convinced, read on. I have a method for you to save a (modest) amount in your 401k without really contributing a single dollar.

All it will cost you is the time to withdraw your money immediately after it's contributed.


It's easiest to show how to do this with an example.


Assume you have a 401k where my employer matches $1 for $1 on the first 3% and $0.50 on the dollar for the next 2%. (As an aside, this is known as a Safe Harbor Plan and is gaining in popularity for reasons I'll discuss in a future post). Let's say you put 5% toward your 401k and you make $60,000 a year.

Each month, $5,000 * 5% = $250 will be put into 401k along with an employer match of $200 for a total of $450.

Now, you want to get your $250 back so you request an early withdrawal.


Therefore, I withdraw about $280 from my 401k, since there's an additional 10% penalty on early withdrawals above and beyond the normal tax rate.



Net, I have the same amount of after-tax money as I did before... but now I have $170 in my 401k.


Do this every pay period, and at the end of the year you will have over $2,000 in contributions... with no financial contribution on your part. At all.

(Note that your employer's matching funds have to vest immediately in order for this to work. Not sure if they do? Ask your HR representative, but more and more companies are moving to instant vesting).



Amazing, but true. Spread the word!

Health Savings Accounts (HSAs) - A great deal if you're in a high tax bracket

I've just started working for a new company. One of the health care benefits they offer is an HSA plan. Under the terms of this plan, which is a high-deductible plan, you can shield up about $6,000 a year from taxes while creating a nest egg for any potential health care costs.

Anything not spent can be used after age 70 1/2 as a de facto retirement account, thus creating some interesting opportunities for savings if you're already tapped out on your 401k and looking to shield more money from taxes.

In my case, for example, I can take the HSA Medical option, with all preventative health items covered at 100%, for about $130 per month. In addition, I can fund my HSA for co-pays, deductibles, etc.

Since contributions are pre-tax and (very important) are not "use it or lose it" funds like Flexible Spending Account (FSA) dollars, the tax savings are enormous. In my case, the combined federal + state savings is almost 40 cents on the dollar. For most folks, it's still 30-35 cents on the dollar, which make this an attractive option to say the least.

Assuming your family stays in (relatively) decent health, and you have the extra money to save, this will provide a nice enhancement to your retirement savings in future years.

Consistency is the Hobgoblin...

Ok, so I'm ripping off Emerson but I really needed to justify the fact that I haven't blogged in, oh, months.

Hat tip to Barry Barnitz over at the Diehards group for getting me off of my duff. I've taken a new job in a new city, so I'll have plenty to talk about. Stay tuned.

Saturday, May 12, 2007

Flashback - How to Save circa 1948

I saw this over at Get Rich Slowly. It's a hoot... and what's more, it's very sound advice!

Tuesday, April 24, 2007

A Car Is Just A Car - Reason # 123781237 Why America Is Hopelessly In Debt

I drive a 1994 Toyota Tercel.

I purchased this Caddilac of vehicles 4 years for the princely sum of $2,300 (in cash, naturally).

It has A/C, automatic, heat, power steering and a rear defroster. About the only thing it lacks that I "need" is cruise control, which would be helpful on my (rare) long drives.

I make a comfortable six-figure income, and no, I'm not a Voluntary Simplicity advocate (well, not yet anyway)...

...BUT, I don't understand paying more than necessary for a depreciating asset.

Had I bought a "normal" new Toyota for $18,000, I would have paid an extra $10,000+ over the past 4 years (see below). And that's being generous, since insurance, taxes, etc. are much higher on newer vehicles.

True, it would have been more comfortable. But how much comfort does one need? Is a Corolla really that inferior to a Camry, and a Camry to an Avalon, much less a Lexus or Mercedes?

When I hear folks who make $40K a year complaining about $300 a month car payments, I have to fight every urge I have to grab them and walk them out to my car, still worth about $1,800 after 4 years of depreciation and costing me about $350 to insure. A year.

Comparison

I paid a grand total of $1,500 last year for my Tercel, as follows:

Depreciation $150
Gasoline $450 (yes, I only drive about 5,000 miles a year)
Insurance $350
Maintenance $250
Repair $250
Taxes $ 50


Think about what you spend on your car: Depreciation + Insurance + Taxes + Maintenance + Repairs + Gasoline.

My calculation is that folks with a $300 per month car payment spend about $600 a month total for their car:

Payment $300
Gasoline $100
Insurance $ 70
Maintenance $ 25
Repair $ 25
Taxes $ 50
Total $570 per month or $6,840 per year


$6,840 "Normal" car cost
$2,400 Cost to drive a Tercel/Corolla for 12,000 miles per year

$4,440 Net savings every year


Your car may be eating you alive.

The Onion - Proving George Orwell Right

"If you tell someone the truth, you'd better make him laugh. Otherwise, he'll kill you." - Orwell

Radio Shack gets a good send up on The Onion, a great satire site. It devolves into potty humor at times... which is especially annoying, because those articles are neither funny nor insightful.

But with respect to the business world, it's spot on. Check out this little ditty about Starbucks... I swear this will happen some day.

Friday, April 13, 2007

Good Geeky Compounding Fun: When a 14 Year Old Can Surpass a 45 Year Old

Let's ponder for a bit.

Many financial analysts use the 25 year old vs. 35 year old example to show that starting early trumps trying to play catch up. Fair enough. It's an impressive example.

But I wanted to go one further: What about starting really early? If I can install saving and investing in my boys when they are early teens, how will that impact their retirement (or other) savings?

Naturally, I whipped out Excel to help me out.

Let's take a 14 year old boy who is fairly lazy, but mows lawns for an entire summer due to the overwhelming mathematical brilliance of his sainted Father, then socks $3,000 away in a Roth IRA. He plans to start taking withdrawals at age 65.

When this boy turns 45, a friend of his decides it's time to start saving for retirement. He puts away $3,000 a year, every year, from age 45 until he retires at age 65.

To make this easy, let's assume they both earn 8% per year, every year, on all invested monies.


Who had more moolah when they turned 65? (You can see this coming a mile away, can't you Dear Reader?)


14 year old boy who invested 1 year @ $3,000: $103,422 (total invested: $3,000)
45 year old who invested for 21 years @ $3,000: $ 90,973 (total invested: $63,000)


Now imagine the delta if the boy invested $3,000 a year for 5 years (ages 14 - 18).

He would have $445,970. Amazing.


So if your kids want to be rich, show them this... then show them where you keep the lawn mower and the gas can.

Pay the Mortgage or Invest? Redux

In a previous post, I advanced the position that it is (almost) always advatangeous to pay down mortgage debt vs. putting the money in a higher-paying money market account.

This article focused on the word "almost".

My employer has what is called a Safe Harbor 401(k) Matching program. Long story short, it matches 4% on the first 5% of a person's 401(k) contribution. These company matches vest instantly, which is a critical distinction.

Thus, if you make $50,000 a year, a $2,500 annual contribution is matched with an additional $2,000 from the company.

In this scenario, I would unequivocably encourage contributing at least to the point of the maximum company match. The guaranteed rate of return on your investment is 80% ($2,000 / $2,500), so unless you are in a Payday Loan Trap, this is going to be far more beneficial to your net worth than paying down your mortgage.

Real Estate Roller Coaster

If a picture is worth 1,000 words, then a solidly done video says millions.

Exhibit A: Real estate prices (adjusted for inflation) presented as a roller coaster ride.

Yes, a roller coaster ride.

Those of you gamers will recognize Roller Coaster Tycoon as the artistic medium. This is an amazing journey, going from 1890 until today, and reflects why so many thoughtful folks believe that real estate is overvalued.

Take the 4 minute ride and see for yourself!