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.


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!

Saturday, April 7, 2007

Pay the Mortgage or Invest?

An interesting discussion has sprung up over at the Diehards in response to one reader's question: Should he take out a loan on his debt-free home to invest the assets?

My take on this is simple: Unless you have a very good risk/return opportunity combined with a high propensity for risk, 1) don't go back into debt and correspondingly 2) pay off your mortgage before investing in taxable assets.

# 1 is pretty straightforward.

Most folks just do better without the loadstone of debt hanging over their head. Just about anyone will agree that high-interest credit card debt makes more sense to pay off before a mortgage. Even at 10%, credit card debt isn't deductible, and so just about any other investment will pale against a 10% post-tax rate of return.

# 2 gets more tricky.

Folks who have adjustable rate mortgages now, by and large, realize that the days of cheap credit are coming to an end, and therefore their rates will (or are) much higher than historically.

For those with fixed debt, I still maintain that a 6-7% post-tax guaranteed rate of return is almost impossible to beat.

Livesoft over at the Diehards points dissents, pointing out that his 4.875% mortgage can be arbitraged with a 5.1% FDIC-insured money market account.

I still say: You are making 22.5 basis points (5.1% minus 4.875%)... assuming all of the following:

1) You fully itemize on your federal taxes (half of folks don't, the rest don't get the full value of their itemization)
2) You aren't dinged for state taxes (5.75% in my state)
3) You aren't hit by AMT
4) There are no inactivity, transfer or low-balance fees
5) There is no "lost interest" during transfers to and from your bank
6) You are guaranteed that rate for a set period of time... or at least can easily move the money out if the rate is lowered

There's probably more, but you get the point.

In this example, if you pay $1,000 a month in interest and have no fees or "waste", you can gain the princely sum of $27/year (calculated as follows):

$12,000 interest x (5.1% - 4.875%) = $27

The bottom line is this: Pay off your debts first, then invest.

And yes, I know I've neglected matching funds from employers. I'll hit that in my next post.

Good Friday and Easter, Compressed Version

Compliments of John Donne:

Good Friday

Spit in my face you Jews, and pierce my side,
Buffet, and scoff, scourge, and crucify me,
For I have sinned, and sinned, and only he
Who could do no iniquity hath died:

But by my death can not be satisfied
My sins, which pass the Jews' impiety:
They killed once an inglorious man, but I
Crucify him daily, being now glorified.

Oh let me, then, his strange love still admire:
Kings pardon, but he bore our punishment.
And Jacob came clothed in vile harsh attire
But to supplant, and with gainful intent:

God clothed himself in vile man's flesh, that so
He might be weak enough to suffer woe.


Death be not proud, though some have called thee
Mighty and dreadful, for thou art not so,
For those whom thou think'st thou dost overthrow,
Die not, poor death, nor yet canst thou kill me.

From rest and sleep, which but thy pictures be,
Much pleasure, then from thee, much more must flow,
And soonest our best men with thee do go,
Rest of their bones, and soul's delivery.

Thou art slave to Fate, Chance, kings, and desperate men,
And dost with poison, war, and sickness dwell,
And poppy, or charms can make us sleep as well,
And better than thy stroke; why swell'st thou then?

One short sleep past, we wake eternally,
And death shall be no more; death, thou shalt die.

Sunday, April 1, 2007

Quote of the Day

Compliments of Money magazine:

There’s a big cocktail party on Martha’s Vineyard. Someone comes up to this writer, I think it’s Joseph Heller[author of Catch-22], and says, “Joe, see that guy over there? He’s a hedge fund manager, and he made more money yesterday than you made on all the books you have ever published.” Heller looks over, pauses, and says, “Yeah, but I have something he’ll never have: enough.”

Saturday, March 31, 2007

Culture, Work Hours & Finances

I've worked for several companies in my relatively-short career, but I've reached an interesting conclusion: The culture of a company is absolutely critical to your success and mental health.

The company of my current employment has seen a massive culture shift in the past few years... and alas, not for the better. Creative thought, flexibility and day-to-day Innovation are being replaced by an old-school, "cut-to-and-then-through-the-bone" mentality.

Many of the folks I've admired most have left for greener pastures (always a strong warning sign). And a results-oriented work environment has been replaced by a "face time" culture that prizes how much time you're willing to spend in the office & other corporate events.

So what does one do? Well, if you're a lower-level person, my advice is: leave. Unless you have some pretty hefty access to the upper echelons, you're not likely to change the culture, and so the easiest way to advance your career is to find a company whose style & expectations are more in-line with yours.

If you're an executive (like me) it gets a bit more murky. I joined this company when they were completely on the ropes, at an all-time stock low. I was a pivotal player in helping the company to recover, and now have a vested interest in trying to continue to company's growth.

That said, I'm debating just how much impact I can have. Culture is almost always top-down in a company, and in my case the entire executive team has turned over during my tenure (yes, every single person). Some of those folks were not strong performers, but some were exceptional.

Even more concerning, the turnover rate at the executive level has accelereated... rapidly. Many of the new folks brought have, themselves, left. One executive (C-level) office has had four people in the position in as many years! Troubling to say the least.

The bottom line is: if you're not an executive or someone with significant pull & the culture is going south, leave & find a place where you can grow and better influence the culture. If you have the pull to change things and a strong desire to do so, you may stay, but be prepared for strong resistance. Otherwise, you will (reluctantly, no doubt) come to the same conclusion & search for an environment more conducive to business success.

Monday, March 26, 2007

Roll Call (aka: Is Anyone Actually Reading These Posts?!)

You don't have to say anything clever or profound, but if you're reading any of the posts, please respond so I know I'm not talking to myself. Other than when I'm actually talking to myself, I mean. Denke!

Sunday, March 25, 2007

Your Money or Your Life - Steps 6 - 7

After a long hiatus, I'm back with the next 2 steps outlined in the book Your Money or Your Life.

Step 6 is focused on finding ways to live frugally so as to minimize your expenses. I'll make this a recurring theme of this blog as I discover new and creative ways to save money. Or just old, solid ways.

For now, the focus on minimizing costs so you can live as richly as possible is central, and I'm in 100% agreement. Is money more than a means of exchange and/or personal security to you?

If so, this is the perfect stage to ponder on why you spend what you do. Use the budget/spending info from Step 3 to ask yourself whether you're truly getting the level of satisfaction from your spending when gauged by how much you need to work to afford it.

Step 7 is a radical one I haven't seen in most (sensible) self-help books. It asks you to consider your job... and whether you should quit. Yep, quit. The guideline for quitting? Whether your job matches your values.

On the surface, this sounds very pie-in-the-sky and not overly workable. "Hey, honey, my job doesn't 'match my values', so I guess we're going to have to do without electricity and water for a while!"

On another level, though, it makes tons of sense, especially since this is something that I've never encountered as a serious question throughout my schooling and mentoring experiences. The focus is always on career growth, whether a job or position will help you to grow professionally, make more money, etc. Only in rare cases (Philip Morris, for example) does the values issue even arise, and for the majority of folks the bottom line is... well, the bottom line.

As for me, I'm not sure that my current job is aligned or not aligned with my values. It's fairly values neutral... which actually is a pretty high standard, since I can think of many, many companies whose products and services are immoral or unethical to the point where it should bother me if I were to work there.

So, step 7 for me comes down to this: It could be better, but it could be much, much worse.

Sidebar: This step also has me wondering if the target audience for this book is primarily people without children. It's a lot easier to stand completely on prinicple when you can just pick up and move and not worry about those short folks who like to scribble on the walls.

If you have 2 or more young children, unless your job is directly immoral, are you really going to be self-centered and quit just so you can look for "fulfillment"? I hope not, but I'm not sure the authors would agree.

Fund-Raising vs. Faith-Raising

Taken from the Presentation Ministries web site.

"Did you ever notice that most churches are constantly raising funds instead of raising faith?

Churches usually trivialize or even prostitute themselves. They get into hard-core compulsive behavior, such as promoting gambling and drinking alcohol. They also try "Mickey Mouse" fund-raising such as car washes, bake sales, magazine sales, penny raffles, etc.

Can you imagine Jesus raffling off a ham at the beer booth to cover the cost of the disciples' next trip to Jerusalem? [emphasis mine, because this made me giggle]

Is our heavenly Father a real provider or just a myth? (see Gn 22:14) Is Jesus King of kings, and are we a royal priesthood? Or is that just religious jargon?

Since we're not doing God's will, we raise these funds for a bag with holes in them (Hag 1:6). We keep raising funds, but there's never an end to it. Fund-raising gradually escalates each year while the real issue, faith, deteriorates.

Eventually we serve such things as church buildings and finances rather than serving God and His people. Caught in our own trap, we lose our way and conceal rather than reveal the gospel."

I've always believed that giving should be from the heart, and have glanced askance at (most) fundraisers, especially those selling overpriced junk ($10 tins of popcorn, anyone?!), and especially those pushed under the banner of faith-based organizations.

Saturday, March 24, 2007

MLS Listings for Free?!

My Money Blog introduced me to Iggy's House, the online site that (currently, at least) offers free MLS listings. That's right, free.

Well, as long as you're in one of the 20 states they cover.

Looking at their interactive map, it appears that all 50 states will be covered by the end of 2007. Good news for those readers in West Virginia.

Financial Tip o' the Week: Try Craigslist

Yes, Craigslist.

Just today, I found a fantastic dresser for $35. It's not one of those cheap veneer jobs either; it's old school solid wood and will probably out last me. =D

There actually are diamonds among the junk on Craigslist. I also found: a piano with bench for $50, a free piece of vinyl fencing (worth about $60), dirt cheap firewood & a Sega Genesis with a dozen games for $35 (nostalgia thrown in free).

If you need anything that you can pick up yourself, check it out.

Generics: Even Cheaper than I Thought

I knew generics were cheap. In fact, I used to price generics and calculate profit margins in my past working lives.

That said, Free Money Finance has shown just how cheap cheap can be.

For the incredibly lazy, it's at least 50% and may be more like 60%. Check out the article for the interesting (well, to a math nerd like me anyway) details.

Monday, March 12, 2007

Index Fund Advisors (IFA): AA for Hopeless (Actively Investing) Drunks

You can find the general site and just wander around at IFA.

However, they also have a great online e-book on a 12 step recovery program for active investors. It's a great read; if you're not convinced by the end of their book, nothing will change your mind.

Of course, they try to sell you their consulting services (but it's indirect and low key).

Before you pull the trigger, just note that what they are offering can be 80-90% performed by Vanguard funds, with no 0.80% advisory fee, commissions or 0.20% higher expense ratios.

If you really must use an advisor, Cardiff Park Advisors is excellent and has flat annual pricing. Total cost per year is around $1,500, which includes everything but the commissions.

On a $500,000 portfolio, this would save you about $2,500 per year vs. IFA's offering.

And no, I don't get a commission, rate cut, Ohio State basketball tickets or anything else for this. I just happened to have researched half a dozen DFA advisors, and CPA came out on top.

Yes, I'm Still Alive

So after a flurry of posts started about a week and a half ago, this blog went silent for almost a full week.

The reason? It's budget season at work, and all I want to do when I get home at 9 (or 10 or 11 or midnight) is to kiss my wife and the kids, then crash in bed.

Hopefully, the worst is past (crossing fingers).

And I know I have at least one reader, since The Finance Buff actually dropped me a line to make sure I was still in there. Thanks compadre!

Go check out his blog, as there's lots of great stuff over there!

As for me, as soon as my brain recovers (hopefully soon), I'll be back to posting. Stay tuned!

Sunday, March 4, 2007

The Millionaire Next Door - are you a PAW?

The Millionaire Next Door is a financial classic. In it, Thomas Stanley describes how the typical millionaire is not a Porsche-driving, yacht-owning conspicuous consumer, but rather lives a dull-normal life in a modest but pleasant setting.

To this end, Dr. Stanley proposes a simple formula for determining how well (or poorly) you accumulate wealth (the Stanley Index), which is calculated as follows:

1) Calculate your net worth (Assets minus Liabilities)

2) Divide your net worth by this equation: (Your age x Your salary) / 10

For example, if you are 35 years old, make $110,000 a year and have a net worth of $500,000, then your score is $500,000 / (35 x $110,000 / 10) = 1.3

3) Find out where your score fits in the following chart

An Average Accumulator of Wealth scores between 0.5 & 2.0

A Prodigious Accumulator of Wealth (PAW) scores above 2.0

An Underaccumulator of Wealth (UAW) scores below 0.5

I have been fascinated by this formula; while it penalizes youth fairly strictly (can you imagine a 25 year old, making $40,000 a year, feeling like a failure because his net worth is "only" $45,000 and thus he's a UAW?!), it's a great temperature gauge to see where you stand as well as a strong motivator.

The first time I calculated my Stanley Index, it was a miserable 0.3. A year later, I was still at 0.3. Something needed to be done, so I got serious about my personal finances.

The next 3 years saw my scores rise to 0.6, 0.7 & 0.9 respectively. Today, I hover at around the 1.5 mark, and hope to crack the 2.0 barrier by the time I'm 40.

It's just an equation, I admit, but it's a great, quick way to determine how you're doing in the great Net Worth game.

So.... what's your score?

2006 Expenses - A Telling Story

I've always been frustrated at how money is our society's final taboo. It keeps us in the dark about how others spend, which would be helpful (to me at least) in determining where I fit in the grand scheme of things. Is a $700 a month grocery bill reasonable, frugal or extravagant? How about spending a total, including gasoline, of $3,000 a year on my cars?

To this end, I've decided to post what I spent, by category, in 2006. Yes, I'm one of those semi-anal folks who keeps track of all my spending. Hey, at least I round to the nearest dollar instead of writing down every penny.....

So here goes. 2006 was a very good year for me. I'll be making about 50-60% of this in 2007.

Groceries.........$ 8,000........5%
Health Care.....$ 6,000........4%
College..............$ 4,000.......3%
Utilities.............$ 4,000.......3%

1-2% for each of the following: Home & Religious Education, Home Maintenance, Child Care, Entertainment, Gasoline, Car Expenses (non-gasoline), Eating Out & Clothes

<1% for each of the following: Gym, Books & Magazines, Babysitting, Gifts & Dry Cleaning

Expenses (excluding savings & charitable contributions) totaled $4,200 per month or $50,000 a year.

This seems like a lot; the median household income is $46,000, and I probably need to make $75,000 just to cover the post-tax $50,000 in spending.

Now, I know that if you're from the East or West Coast, these expenses seem insanely low. Realize that I live in an average cost city in above-average but not exactly crazy housing: My 4 bed, 2 bath cul-de-sac, great school district house cost ~$200,000 when I bought it 4 years ago & is still worth less than $300,000.

On the other hand, I'm saving more than half of my Net Spendable Income (which I define as money left over after taxes & charity). Perhaps I should live it up a little more... but money for me really = financial security, so the more I can save & invest, the better.

Cash Reserves - How Much is Enough?

I've been thinking about this a lot these days, especially since we're expecting another boy in a few months & I'm trying to decide how that will impact our budget.

How much cash do you need to weather a downturn?

More is better, natch. We'd all love to have 6 figures sitting there on top of a 7 (or 8) digit investment portfolio, but what truly is the right amount?

Currently, our monthly expenses run about $3,200 a month. This is particularly light because we paid off our mortgage a few months ago; without that, the amount would be more like $4,500 a month.

Given that I currently have $30,000 stashed away for rainy days of all sorts, I have $30,000 / $3,200 = about 9 months worth of cash.

Each person will have a different number due to different circumstances. I am married, the sole breadwinner, with 4 children, in an area where I do not have close family near by. I've lived independently since I was 18, and don't have any one else to fall back upon financially if things go South.

Given this, I wonder if I have too little saved up. There's a part of me that is seriously considering an 18 month target of savings, not the least of which due to the fact that I'm not considered an "executive" (low level, to be sure) and it's harder to switch jobs and/or find work if I were to be displaced.

This doesn't even consider the fact that the A/C or one of the cars might conk out, thereby cutting into the $30,000 kitty.

What do you have saved up? Do you feel like it's the right amount, too much or (probably) too little? How do you decide what the right amount is?

Saturday, March 3, 2007

Children - Finance Style

The Simple Dollar is one of my favorite blogs. Check out this recent post where Mr. SD is discussing the potential costs of a 2nd child.

It reminded me of an article written in the Wall Street Journal a few weeks back by Terry Cullen (no link currently available, alas). She wrote about her (and her husband's) angst over whether to have a 2nd child.

Their final decision: Nope. Too pricey.

Which makes my Mom's decision all the more fascinating.

You see, Mom had 9 children. N-I-N-E.

For most of my siblings' lives, the house had 3 bedrooms, 1 full bath and was under 1,000 square feet.

Mom was a stay-at-home Mom.. but then again, in those days, the vast majority of Moms were. Dad was a working class stiff over at Ford, where he worked for 35 years or so until he got the gold watch and a (now hunted to extinction) pension.

Now, this is going to be a bit shocking for a finance blog...... but when exactly did having children become a matter of checking your personal balance sheet? Isn't there something creepy about considering children as economic liabilities?

Don't get me wrong. I have 4 kids (so far) and I know the stresses of worrying about how to provide. But is my stress greater than my parents', who had twice as many kids on an inflation-adjusted half or even a third of mine? And if that's the case, what can we say for those of us whose households make more than the median income ($46,000) or are in the top 25% ($72,000)?

It is a truism that the more affluent a culture gets, the fewer children it has. The 1st world cultural Population Bomb has imploded; instead of overpopulation, we now worry that we don't have enough youngsters to prop up Social Security.

And the # 1 reason given by 1st worlders for not having more children? "Too expensive" & its derivatives.

Given my own dear Mother as a data point, I find myself enormously skeptical of such claims. Counterpoints, anyone?

Asset Protection - Don't Forget Your Umbrella

Much (virtual) ink is spilled over asset protection at one of the sites I frequent.

I must confess that, having grown up as the youngest of 9 children, that asset privacy (or privacy of any kind, for that matter) is not exactly one of those things that ranks high of my list of necessities.

That said, I do take special interest in protecting assets from financial predators and thieves. As Scott Adams so famously said in The Way of the Weasel, "Take a billion dollars and throw it in the middle of the Atlantic Ocean, and millions of [financial] weasels will drown trying to get to it".

So what's my solution? It's pretty simple: Get an umbrella policy.

For about $150-250 a year, you can get an umbrella policy that will cover your liabilities up to $1-2 million dollars after other insurance you have (e.g. car insurance) is exhausted.

Chances you'll need to use this are slim, but remember: insurance should primarily be used to prevent against catastrophic losses. The same folks who buy contact lens insurance usually balk at umbrella insurance, although the latter is critical to your net worth.

Assuming, of course, that you have net worth. IANAL (I Am Not a Lawyer) but it would appear that having low or negative net worth takes a lot of the weasel-y fun out of suing you. "No blood from a turnip" is a maxim that also holds true in the financial world.

If you do, talk to your homeowner's and/or car insurance agencies. They may not offer umbrella insurance; in my case, I had to switch to MetLife to get it. Usually, the company who offers umbrella insurance will insist on carrying your home and auto insurance as well... so watch the total cost carefully.

Regardless, take the time to look into it, especially if you have a net worth of $300,000 or more. You may not see your nest egg as particularly huge, but why risk it when for 10 basis points (0.10%) or less you can protect what you've worked so hard to accumulate?

Co-signing - Possibly the Most Stupid Financial Move Ever

Did you ever wonder why banks make someone financially responsible co-sign a loan?

I used to. Since I never took on debt, it didn't really matter to me. Then one day it hit me like a ton of bricks: it's because the bank realizes the borrower will not make their payments.

Not exactly E=mc squared.

So I starting asking folks: Have you ever co-signed a loan or had someone co-sign for you? How'd that work out?

4 out of 5 people who co-signed loans ended up making payments for the person for whom they co-signed.

For the vast majority, it was a lot of the payments. Try "the vast majority".

I also learned while at Capital One that their internal estimate is around 65%.

If someone wants you to co-sign, follow this 2 step process:

1) Ask yourself "Would I be willing to make a gift of this money to this person to help them out?"

2) If the answer is yes, give them the money. No strings attached.

If the answer is no, don't co-sign. If you do, statistically speaking you will be giving them the money. Plus interest, fees, a messed up credit score and several years in the financial wilderness to boot.

Giving - The White Elephant of Finance

I always love to bring this topic up in RL.

It doesn't matter if I'm at a cocktail party or at a Bible study. The reactions are always passionate, often defensive & downright fascinating.

How much should we give? By "we", I'm referring to lower-middle to upper-middle class individuals with (perhaps) a smattering of the lowest tier of the upper class. No Bill Gates' and only a few financially struggling households.

For those who have a household income that puts them in the top 25% of the most prosperous country in the world (more on this in another post), what level do you consider right?

I don't have the links at this time (regretably), but surveys I've run across on several occasions consistently show that Americans give about 2% of their income to charity every year. For the median salary of about $46,000, this translates to $920.

Interestingly, the percentage of income given declines as income increases. Nominal dollars, of course, rise, but folks making < $25,000 per year give almost twice as much proportionately as those who make > $125,000.

The burning question: Why? And why don't all of us, from richest to poorest, give more?

The simplest answer is... well, duh. It's the disposable income, stupid. And that's true as far as it goes. But what's really interesting is this: I've received more joy from the money I've given than just about anything I've bought for myself. Let me correct that: more joy than anything I've bought for myself, period.

It hasn't always been a big item (a stuffed animal for a child without gifts for Christmas) but sometimes, it has (a house for a homeless family in Haiti). The unabated joy of giving was note by no less a theologian than The Reverend Stephen King, who had time to ponder such philosophy after almost being killed in a hit-skip accident. Putting aside his political slant, he hits the centrality of giving dead center: nothing is more important, and nothing else will outlive us.

The irony is that giving never seems to put people in the poorhouse. I've never met a huge overwhelming giver that was dirt poor.

Scratch that. This lady was poor... but then again, she's now richer than any of us will ever be.

The Investor's (Asset Allocation) Dilemma

I'm 35 years old, as is my wife. Most folks our age seem to have little, if nothing, in bond mutual funds & everything in stock mutual funds. In fact, a majority go further and use leverage, options, individual stock picks, etc. to juice the risk & potential reward of their portfolio.

And me? I'm trying to decide which Asset Allocation (AA) in the range between 50/50 to 70/30 between stocks/bonds I want to reside.

I freely admit to cowardice in this regard. I believe in the long-term potential of the stock market and reject market timing. And yet...

... it appears to me that the stock market's general P/E level is quite high. Worse, investor optimism is extremely high, which suggests that the risk premium for today's market is lower than historical levels.

All this is pointing me towards where I believe I'll land: an allocation that is 60% in stocks, 40% in bonds. I'll be fairly conservative in my bond portfolio too, holding the Total Bond Index with a current average duration of about 4 1/2 years.

I will ask you, Gentle Reader, a simple question to help you find the right AA for you.

Assume that, in any one year, you may see a decline of up to 50% in the stock portion of your portfolio. A cool half.

That is, if you have the 60/40 portfolio I mentioned above, there may be a year when you will lose (60/2) = 30% of the value of your portfolio.

If 80% of your portfolio is stocks and you start the year with $200,000, then your portfolio may drop to $120,000.

Question: Do you stay the course with your AA in this situation? Do you buy more stocks to replace the losses or try to shift into something "safer"?

If you answer "yes" to the 1st question, your allocation is fine. If not, you need to lower it 10 points and ask the question again. Stop when you hit a point at which you will not change your plan.

"Stay the course" is the best long-term you'll ever have. Make sure you have the right AA & 80% of the job is done.

Friday, March 2, 2007

Attention Virginia residents - for Homeowner's Insurance, Mutual Assurance is the only sensible choice

Consider this: I paid $180 this year to insure my 4 bedroom, 2,300 square foot home.

This is dirt cheap. Why so cheap? Because I belong to the Mutual Assurance Society of Virginia, whose colorful brochures include a map of Monticello, the estate owned by Jefferson, and the home of Oliver Wendell Holmes.

The 1st year's insurance is actually a little higher than what you'd normally pay. If I recall correctly, my 1st year's insurance cost around $500.

Since then, however, I've never paid more than $250. This year was the lowest rate ever at $180.

So, again... why so cheap?

Because like Vanguard, Mutual Assurance is a true mutual company: it's owned by its policyowners, and thus have incentive to charge fairly and keep rates down.

So, Virginia residents: Save yourself a fat wad of cash. Contact Mutual Assurance and see what they can do for you.

Life Insurance - Buy now (it's cheaper than it's been for a while) & buy term

Recently, I decided to shop for Term Life Insurance for my wife and me. I've been using my company's group life insurance for a while, but the rates aren't terrific and my wife is limited to $50,000 in insurance without onerous medical testing (which, hey, if I'm going to go through, I'd rather shop around).

So finally, I did. I used Quotesmith, punched in some data, and voila! Instant quotes. LOTS of them. The amazing thing to me is how much cheaper term life rates were then when I last checked a few years ago. I've since learned that increased life expectancy has driven down insurance rates, which is great news for most of us.

For example, I am an overweight (but not obese) 35 year old with a history of bronchitis, but not much else. My cholesterol is OK and I don't smoke.

With the exception of the overweight part, this describe my DW as well.

So what did we get?

Genworth Financial covered me under a $500,000 term policy, 20 year fixed term, for $365 per year. My wife got the same terms for a mere $235.

So instead of having about $500,000 of insurance on me and $50,000 on my wife for around $530 through work, I now have $500,000 each locked in for the next 20 years for $50 a month.

The point of all this: shop for term life insurance now if you have need for it. Rates are at least 20% lower than a few years ago (for those under the age of, say, 45), even better when you consider that you're probably 4 years old since then. :D

Whole life is, frankly, a huge rip-off unless you are worried about estate taxes (in which case, you need to log off and get to your estate lawyer!).

Your Money or Your Life - Steps 3, 4 & 5

Step 3 - Create a budget

Not really a problem. I've had one for ages, using one of Larry Burkett's simple yet elegant budget models. It may be interesting for you to see how things broke out for me.

less Tithe 10%
less Taxes 30%

Yields Net Spendable Income (NSI)

Investments & Savings - 31% of NSI
Housing - 28%
Food & Sundries - 10%
Child care & schooling - 9%
Medical/insurance - 6%
Auto - 5%
Entertainment - 3%
Clothing - 2%
Additional giving - 1%
Miscellaneous - 5%

Step 4 - Determine the level of time spent to cover each item, including your relative fulfullment

This was a harder one for me. Personal fulfillment for me centers on loving God, my family & my country, in that order. Although money helps a little, money for me has always primarily been connected to security. If/when I become a multi-millionaire, I will spend more, but still be frugal. I intend to give away more money rather than live it up, as giving excites me where things (as a general rule) do not. For me, then, I hope to give more in the future, and have started to prepare by giving above the tithe now.

Step 5 - Track monthly income, expenses & savings

Well, OK. I fell off the wagon here; I track my income & expenses on a daily basis in a certain sense, but I do not slice it out and create a mini-income statement every month. That said, this is a game-changing step if you are living above your means, as the net difference between your Income & Expenditures will become painfully obvious.

Strangely, steps 6 through 9 are blank in my Excel sheet, so I'm going to have to go track them down and complete them. Stay tuned!

Your Money or Your Life - Steps 1 & 2

Joe Dominquez's book came highly recommended, and since I read books the way most people drink water, I took it all in one lazy afternoon.

Basically, Joe asks the reader to do 9 steps with paper and pencil. I used Excel, one worksheet per question, and that worked splendidly (not to mention made it easier to update when I go back to revise it!)

Step 1: Write down every dollar you've ever made

Boy, was this an eye opener for me. I had a paper route for years as a kid, worked summers, and was always working one or two jobs. I had forgotten that, at age 14, I was working above-the-table (or legally or however you want to put it) for $2 an hour. That's right folks: $2/hour.

Since then, my hourly rate has risen just a bit. :)

The amazing thing is when you take all these jobs, make your best estimate and add up what you've earned so far in your life. For me, the number is a staggering $1,296,607. Now, I still have 30-40 working years left to go. I could conceivably gross over $6 million in my lifetime. Time value of money or not, it's a sobering number and certainly helps to put money worries in perspective.

Step 2: How much are you trading your time for? What's your net worth?

Step 2 has made me look at everything I purchase in terms of working time to obtain that object/service, rather than the dollar cost.

Joe has a little chart he uses to show you that your salary is offset by costs that wouldn't exist if you didn't need a job (e.g. dry cleaning, commuting, meals eaten at work, escape entertainment, & unreimbursed business expenses).

Although I made a strong 6 figure income, I was stunned at how much of my money goes towards unproductive (read: job-enabling) dollars.

My post-tax hourly rate is actually just shy of $30, which is convenient because I look at the price of everything through the lens of $30 = 1 hour of work or $0.50 = 1 minute of work.

I bought a top coat at JcPenney's on sale and paid $105. But in reality, I agreed to work 3 1/2 hours to cover the cost of that coat.

When looked at this way, you start to ask yourself: is a week at the Mouse House worth 100 hours of work time ($3,000)? Is a new car worth 1,000 hours ($30,000) when a perfectly acceptable used one costs only 250 hours ($7,500)?

Steps 3 through 9 are coming in future posts.. stay tuned!

Net Worth Tracking

If you spend any time here at all, you will quickly realize that I am a numerical, financial dork of the 1st degree.

To wit, I've been tracking my net worth. In a formal balance sheet. For the past 7 years.

Now, just out of curiosity, what have my net worth numbers looked like, by year, during that time?

2000: $ 60,100
2001: $ 68,950
2002: $141,750
2003: $169,100
2004: $250,100
2005: $382,800
2006: $603,900
2007: $727,800 (estimated as of 3/31)

Interesting thing here is that I've been working & saving since I was 9.

I dutifully saved the vast majority of my money from paper routes, lawn jobs, and the many other positions I held between age 9 & 18.

While I certainly blew some of the money ($3,000 for a desktop back in '91, thank you very much), I also saved quite a bit, only to spend it, first for my undergrad degree (graduated without debt) and my graduate MBA (also debt-free).

So, by the time I was a young Turk entering the post-MBA job market in '99, I was making about $70,000 a year with no debt... and no real savings or net worth, either. I can only wish that I had thought to track my net worth going back to my college days!

I estimate that, at the point I started working, my net worth consisted of 1) a brand new 1999 Honda Civic, bought with my sign-on bonus (yes, this was a stupid financial move that still haunts me today) and 2) a (very) modest cash reserve, probably $3,000 or so.

Given that I exclude depreciating assets from my net worth (so no cars, thank you very much), as closely as I can tell, my net worth in 1999 was around $5,000 and in 2000 was probably (thanks to hard-core savings & 401(k) participation) up to $25,000.

Anyone who has done similar data gathering and is willing to share, please do so.

Goal Setting - 2007

I've set goals for myself every year since 2001, when I read somewhere (the source escapes me) that folks who have written goals have a very high degree of business success.

Since then, I've expanded the concept to include multiple goal types:
  1. Business - All job-related goals
  2. Financial - If it deals with my money or financial condition, it goes here
  3. Spiritual - Goals related to deepening my relationship with God
  4. Personal - Anything else not covered in #1-3

While I also write 3, 5 and 10 year goals, my 2007 goals are below.

2007 Goals


  1. Turnaround a large money-losing division within my company, making it profitable
  2. Attain the highest PE rating for year-end performance
  3. Mentor at least one other individual, whether inside or outside my current company
  4. Find a mentor and talk with him at least once a month
  5. Achieve promotion to Senior Director, AVP or similar title OR attain a C-level position with a smaller company


  1. $900,000 net worth
  2. $0 in debt
  3. $200,000 in income from all sources (Day job, consulting, rental income, anything else)
  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
  5. $50,000 cash reserve
  6. Give >15% of gross income to charity


Since many folks get squeamish about religious talk, I'll demur for now. I hope to come back a little later and link here to those who'd like to discuss.


  1. Be home for dinner 4 nights out of every 5 working nights
  2. Spend time with each member of my family every day
  3. Weight: 200 pounds
  4. Take my wife out on a date at least twice a month
  5. Read at least two books a week
  6. Exercise at least four nights a week for at least 45 minutes per exercise session

What do you think? Too many goals? Where are the blind spots in my goal-setting that I need to focus upon more closely?

Need to save money? Have some time?

Go no further. has lots of junk, but the good stuff is, well, really good.

Check out their Financial Forum for everything from the sublime (How to Make Tons of Money via App-O-Rama) to the ridiculous (The Sky is Falling! The Sky is Falling!).

Welcome Diehards!

Thanks to everyone who provided advice on starting a blog over at Diehards in the Vanguard.

Don't know what Diehards in the Vanguard is? Click on the above link, but be forewarned: you'll need a couple hours as all the wonderful (and free) advice sucks you in.

I Am Facing

Do you know Casey Serin? If not, mosey on over here and learn all that you could ever possibly want to about a 24 year old with $11,000 a month in minimum payments and a -$500K net worth.

Yes, negative $500,000 net worth.

Makes your life seem a lot better, doesn't it?


Welcome to Contango, the Everything Financial (and otherwise) blog.

I've never really put a blog together before, so we'll see how this goes. Feel free to drop me a line or comment. Enjoy!