Wednesday, October 31, 2012

My Television Transitions

We’ve had an interesting history with televisions since we moved to Chicago. During our five years here we have owned 3 televisions and have dramatically changed our viewing habits. In my opinion, what is even more noteworthy is that 3 televisions in 5 years have cost us a single cab ride. Allow me to elaborate:

Our First Television

Our first television was an ancient hand me down that came from my wife’s grandparents farm house. It was a boxed TV with rabbit ears that came straight out of the 1970s and looked exactly like this one, with the old school knobs and all. It served its purpose and provided us with grainy coverage of television shows. Back then we rented an apartment that included a basic cable package. So we jimmy-rigged the thing to sit at eye level when we watched the tube, which was just about nightly back then. While grateful for the TV provided gratis, we kept our eye out for better options without having to pay for it.

Our Second Television

By this time we had moved apartments and discovered We had a laundry list of items we looked out for on posts and one day we noticed, a few blocks away from where we lived, was a posting for this boxed TV. Sure it lacked high definition but it got the job done. At this point in time we did not subscribe to any cable or satellite packages and were exclusive to regular viewing channels, watching DVDs from the library and playing Super Nintendo. But tragedy (or as I saw it opportunity) struck when the nationwide Hi-Def upgrade went into effect a few years ago. This TV was unable to keep up and we lost the ability to view any form of broadcast programming. I opted not to buy a converter box in the name of doing things other than watching TV. Since then I’ve had an increase in volunteer time, read a ton of books, made time to hit the gym, and my personal favorite, spent more time talking with my wife after work. So this was the status quo for a while, until this baby landed into our lap.

Our brand new Television

To be honest we weren’t actively looking to upgrade televisions. Our viewing habits are trimmed down now to a DVD rented from the library maybe once a week and the occasional Mario Kart race on our Super Nintendo. But every few years my wife’s employer does an upgrade of office furniture and she was on the receiving end of this bad boy. Getting this home though was quite the endeavor as I have come to realize that there is a severe shortage of sizable cabs in Chicago. It took us one weeknight and one weekend morning to flag down a large enough cab to bring this home from my wife’s office and I ended up using about $20 from our entertainment envelope to pay the fare, but I think we came out ahead on the deal! J

In five years we have owned 3 televisions that cost a cab ride from the Loop to the North Side. And here it sits in our living room as evidence that frugality, patience and a little luck will go a long way.

Tuesday, October 30, 2012

My Changing Goals

There have been some interesting conversations within our household the last week or so that generated some intriguing insights that I’d like to share with you today. Up until now for just about the past 4 years my wife and I have been following Dave Ramsey’s baby steps just about to a tee. We established our baby emergency fund and then proceeded to pay off all debt, $80,000 in all and in doing so we have happily become a debt free couple. From there we raised our emergency fund to 6 months worth of expenses, began to save for a house, set aside 15% of our gross income towards retirement, began to invest in a taxable brokerage account and started saving for what will be contributions to our future kids’ Educational Savings Accounts.

Where the rubber meets the road is in the long term approach of our game plan. When we were early on in our baby steps we had definitive goals that had end dates that ranged from a matter of months to a matter of years. Being on the latter side of the baby steps is a marathon and not a sprint. The saving and investing that we do now is for long term wealth building. Unlike when we were working our debt snowball, the 15% we set aside for retirement, at the earliest through our ROTH IRA, has a “do not use” date attached to it for when we turn 59 ½.

“But what about living on investment income BEFORE we get old?” This has been my wife’s chief concern that she brought to the table at our most recent household budget committee meeting. And she has a valid point. It would be wonderful to live off investment income well before we become eligible to do so through our Roth IRAs. But to do that we have to prioritize it.

Since we became debt free I feel like we’ve been trying to do too much and are not utilizing the power of focused intensity. Between the two of us our top laundry list of things that we want to prioritize include: paying cash for our first home, saving for retirement, regularly saving for vacations, planning a big vacation trip in 2013, investing outside of retirement vehicles and moving to a new apartment.

I definitely agree with you if you feel that is a long laundry list. So we’ve decided, after much debate and negotiations to focus on a few goals at a time. Under 2 umbrellas, for the next 2 years we will be focusing on savings goals (our first home and increasing investments in our taxable brokerage account) and travel goals (moving, vacations). While scary to me (fitting with Halloween being tomorrow) you notice that retirement saving is not on the aforementioned priority list. As my wife happily pointed out to me, currently we have $40,000 set aside in retirement between our 401ks and Roth IRAs. If we do not invest another penny and assuming 12% average annualized returns, at 59 ½ this will grow to over $1.8 million dollars. Now of course as we move through these new “shorter” term goals eventually we will get back to regularly contributing to retirement and saving for our future kids’ college.

But like the debt snowball, there are greater forces at work here. Our plan is essentially two-fold. By lumping together moving expenses, regular vacations and a big ticket vacation in 2013, we established a total number that we need to hit by about mid-year next year. So we have changed our budget to take a sinking fund approach to fund these endeavors and put these travel goals on auto-pilot. With everything else that we can squeeze out of the budget we are saving for our future house and increasing contributions to our taxable brokerage account. By the end of 2014 we plan to have more than enough funds to buy a home and be on our way through the brokerage account to live off its investment income by the time we are 50. For 2 years we will pause retirement investing to hit these goals.

I’m excited, nervous and definitely out of my comfort zone. But I’m looking forward to sharing our progress with all of you as I continue my march from 0 to one million.

Thursday, October 25, 2012

My Financial Planning Day Adventure

This past weekend my wife and I were happy participants of Chicago’s Financial Planning Day held at the Harold Washington Library. We participated in two events from that day. The first was a lecture on retirement planning and for the other we met with a financial advisor to have an outside perspective on our financial picture.

The Lecture

The presenter on retirement planning thoroughly surprised me, in a good way of course. I wish more financial advisers were like this guy. He definitely had the heart of a teacher and gave a good amount of straight talk. Although I have my own goals and pathways to retirement, this was a great gauge for me to listen in on questions and concerns from the general audience, I got a temperature gauge, if you will, on what common concerns are from people regarding retirement.

It was disheartening to hear the bulk of Q&A shift towards Social (In)Security. When to file, when not to file, when to file and suspend; All of these cares and concerns lead me to one conclusion – that those close to and near retirement are counting on this failing government system to provide income for them in retirement. This gives me an even greater motivation to write this blog. In my personal planning my goal is for 99.999999% of my income during retirement to come from my personal investment income from retirement vehicles (401k, Roth IRA) and taxable investments (brokerage account). The theme here is that I am planning to rely on myself, not the government, for my general well being.

Overall I thought the presentation was excellent. The adviser focused on investing for the long term and actually shared a lot of the same views held here at from 0 to one million, even down to a general dislike for target dated mutual funds! J

The Financial Advising Section

So here was my plan going into this part. I would present a financial advisor with our household’s overall financial picture. I would share my thoughts and concerns, and the advisor would show me holes in my plan that I have never thought of and offer tidbits on how my wife and I could improve our finances. Instead, as my wife lovingly put it, the advisor was shell-shocked with our current financial picture and, I quote directly from the advisor, had said, “I just don’t see many people in your situation.”

It was actually very humbling to hear a trained financial professional say that we have all of our ducks in a row. Most of our financial planning has been self-taught through trial and error and I was taken aback to hear, from someone who meets with people day in and day out, that we are on a strong financial path. So the bulk of our conversation focused on wealth transfer planning and long-term care insurance.

Overall I thoroughly enjoyed the event. So I highly recommend, when financial planning day comes to your town, to check it out and gather all of the information you can to make well rounded and educated decisions about your personal finances. I’ll end today with a quote that is kind of relevant to all of this.

“Where no counsel is, the people fall: but in the multitude of counselors there is safety.”
Proverbs 11:14

Friday, October 19, 2012

My Black Monday Reflection

25 years ago today was Black Monday. The Dow Jones Industrial Average, in a single day, fell 22%. I bring this up, especially today, because I am seeing a large number of financial pieces out there today and I too wanted to add my two cents. I would love to say that the bulk of pieces I have been reading today are positive, uplifting and reflective of what has actually happened in the market since then, but alas I am left to be the voice of reason. Or, to the financial goobers out there, I’m the crazy guy on the street corner that yells nonsensical and unsophisticated things to anyone who will listen. But you can decide for yourself which side of the fence you think I am on.

In a single day the Dow took a dive. It had closed on October 18th, 1987 at 2,246.74 and on October 19th, 1987 closed at 1,738.74. This fact reflects that none of us can read nor anticipate future events and what specific effects they will have on the stock market. Reflections from that day state that there was blood on the streets. Investors (institutional and individual) shed stocks and ran to “safe havens” such as bonds and even some to cash as the Dow dived on that fateful day, and that is a damn shame.

I advocate consistently investing over a long period of time, regardless of what is happening in the market. I began my life as an investor right before the freefall in 2008. Since then I have consistently and steadily invested through my retirement and taxable brokerage accounts monthly without regard to what is happening in the market. I’ve bought when it’s up, I’ve bought when it’s down and I’ve bought everywhere in between. And to this day I have average annualized returns that are beating taxes and inflation, and I expect them to do so with emphasis for the decades to come.

But back to the subject at hand. On Black Monday the Dow fell 22% and there was blood in the street. Just a little over a year later, on January 31, 1989, the Dow restored itself from Black Monday by closing at 2,342.32. From Black Friday through January 31, 1989 the Dow went on a run fit for a bull, going up 26%. If you had “nerves of steel” and invested $1,000 when everyone was jumping off the roller coaster, by the end of January in 1989 that would have turned into over $1,200.

But I don’t know when the market is going to make big jumps and falls and neither do you. All we know is that over the decades the market has always consistently risen. So my investing strategy is to invest consistently and hold my positions for at least five years. I invest for growth and ride out market cycles through my buy and hold strategy. My investments are spread across four types of mutual funds: Growth, Growth & Income, Aggressive Growth and International. And I only invest in mutual funds that have been around for at least 10 years and have average annualized returns of over 12% since inception. In fact, the first mutual fund I bought, EVER, during the freefall in 2008, has generated a 13.4% average annualized return for me.

So I’ll end by beating on this drum yet again, mainly because it’s my favorite! Only invest in proven and quality investments. If you do this and invest for a time horizon beyond five years, then you will be on the path to financial peace J.

Thursday, October 18, 2012

My Budgeting Priorities

I’ve spent some time this week thinking over our monthly household budget. One additional benefit from completing and living off a zero based budget is that I can pull back and see what we are prioritizing in our lives. I firmly believe that if you look at someone’s budget you can tell a lot about them. Dreams, goals and priorities all stand out when examining one’s budget. Below is a list of a few of our generalized budgeting items that I want to focus on today. Percentages are based on our net income and are not inclusive of every “category” on our budget, which is why these items do not equal to 100%.

*Saving: 60% (does not include pre-tax savings going into our 401k)
Housing: 15%
Food: 5.7%
Clothing: 0.01%
Recreation: 5%

Saving and Housing

The two heaviest hitters on our monthly budget are saving and housing. When it comes to saving we prioritize retirement, saving to buy our first home and saving to travel as our most important goals for the future. Time is a huge factor for us when it comes to saving. Within our retirement vehicles and our taxable brokerage account we are investing a set dollar amount every month so that we can be on the receiving end in regards to the power of compound interest. When the mathematical explosion that is compound interest occurs for us in the decades to come we plan to get our time back. The end result being that our investment income will earn more than our working income and we can retire from the 9 to 5 jobs to pursue our dreams of: living and travelling abroad, regularly volunteering, seeing family more often, just to name a few.

On the housing front we have made a conscious effort to keep this percentage figure well below 25%. In the coming years when we have children we want to have the flexibility to be able to choose if my wife will be a stay at home mom for the first years of parenthood. While we are planning to move from our current apartment when our lease is up in the spring (hopefully for a place with a bit more space and even lower rent), we can keep our housing costs within reason of our monthly take home pay on one salary.

Food, clothing and recreation

When it comes to these categories some terms that immediately come to mind for me include planning, ingenuity and thinking outside of the box. Now percentage wise we don’t give ourselves a ton of wiggle room in each area but to be perfectly honest whenever we have assessed whether to raise any one of these categories we always come back to the same question: Would we really get joy and fulfillment from an increase in spending on any of these things?

My wife is a master seamstress and she can whip any piece of clothing that I find at Salvation Army into shape. We are pros when it comes to grocery shopping and meal planning, plus we keep this cost down by consuming less meat and more fruits and vegetables (plus I hear that’s good for me anyway). When it comes to recreation, we’ve gotten pretty adept at finding events and enjoying the city of Chicago without busting the budget.

It’s not that I don’t enjoy a good meal, some nice clothes and a night out on the town. Believe me, I do. But I get a greater joy out of planning to send my kids to college debt free and being on a mission to pay cash for our first home. At the end of the day when assessing my means and opportunity cost, the budget priority breakdown is really a no brainer.  

Monday, October 15, 2012

My First Couples Counseling Session

This past weekend my wife and I attended our first marriage counseling session and I can summarize with this: I wish we had done this years ago. See, I have always philosophically been of the opinion that counseling is similar to working out and eating a balanced diet. It takes intentional and daily action over a period of time to develop and maintain a healthy body. In the same manner I believed that couples counseling is an intentional action to strengthen a marriage, make a good one great and help in staying connected to one another. After our first session I no longer believe this but rather accept it as fact.

Even through one session I feel stronger and more confident that our marriage is heading in the right direction. It was wonderful for my wife and I to open up and share our fears and desires for the coming years in a controlled setting. Our therapist was phenomenal in steering our conversation and keeping us on track and exploring specific feelings, thoughts and issues without going on wild tangents that I have been known to do when trying to talk about these things with my wife on my own. I’ve typically been reserved to only acknowledge mutual funds as sound investments but marriage counseling is without question an investment in a healthy and happy marriage.

Thankfully through my wife’s insurance our only bill is a $20 co-pay for each visit and we can save for this expense through our tax deductible health savings account. But aside from the X’s and O’s I think that this is a great step into the direction of where we want our marriage to go while healing our hurts and hang-ups from the past. For me ultimately I want our marriage to have a deep and strong connection as we began the family planning process of having our first child and I think we’ve found someone who will be a great addition to our team (our therapist) to help us get there.

Sure, we could have attended seminars and read self-help books but after being “Ramsey” for so many years a light bulb went off some time ago. Great team members in our lives can include accountants, lawyers, real estate agents and insurance agents. For each of these we rigorously screen to find ones that have the heart of a teacher to help us excel in areas that we cannot gain overnight competence on our own. Why not apply this same principle in strengthening our marriage?

So I give my thumbs up to you regarding marriage counseling. Now that my wife and I are debt free, have a fully funded emergency fund of 3-6 months worth of expenses saved for, are regularly contributing to retirement and for our future kids’ college, now we can prioritize what is important in our lives. This includes travelling the world together, saving to buy a home and nurturing and strengthening our relationship so that we are always connected as we go through life.

Thursday, October 11, 2012

My Revitalizing Work

This week was the kickoff for the 2nd Financial Peace University class that I am facilitating. And I have to say that I am again thoroughly impressed and happily taken back by the power and influence of this personal finance course. The free flowing discussion and stories of each individual truly stirs my soul and solidifies to me that this is a program that needs to reach as many households as possible.

While I believe that Dave’s principles in building wealth are the way to go, I believe an even stronger benefit of FPU is that this course breaks down the walls and taboos about discussing personal finance in an open setting. I grew up in a household where my parents kept all of their finances separate and we never talked about money. As a result when I came into being adult I was saddled with over $20,000 in debt, looking into a future of trying to afford a wedding and buy a house, and being overcome with fear and desperation.

But there is hope and a way to fruition. It takes a lot of hard work and discipline but it is definitely worth it. The start of a new FPU class has so far taken me directly back to my first days when being introduced to the world of Ramsey. The remarkable thing to me is that I went through learning the material with my wife. And now we get to introduce this material to people with our home church as the setting with a community of people that are in essence family. I certainly think there’s potential for our FPU’ers to latch onto the material even stronger and faster than I did.

It is so inspiring to me to have the amazing blessing to be a part of this process. Even after a long day of work on shortened sleep, come FPU time I perk up and could literally facilitate the class for HOURS UPON HOURS if they let me. It energizes and revitalizes my soul seeing the taboo of talking about personal finance become broken before my very eyes.  

Wednesday, October 10, 2012

My Magical Emergency Room Adventure

I’ve talked about the importance of insurance in previous posts but this week I received an upfront and personal lesson that I wanted to share today. A few months back I checked myself into my local emergency room as I began feeling excruciating pain in my lower back. I mean it was so bad I literally could not stand motionless in place for more than thirty seconds without feeling a blinding pain.

Up to this point my wife and I are debt free. We have 6 months worth of expenses in an emergency fund. Through my employer I am on a high deductible medical plan with low monthly premiums. Now back to my personal case study.

Needless to say with a high deductible plan, outside of regular check-ups, I only go to the hospital if I am in seriously dire pain. That day I was. Following a few blood tests, an examination with a doctor and a body scan I was able to rule out any damage to organs and the presence of kidney stones. In fact to this day I still am not 100% positive what caused my pain which has since subsided. The physician that treated me gave me a low dosage of pain killers and sought for me to follow up with my primary physician for further evaluation.

Fast forward to yesterday. I finally received a bill in the mail from my magical emergency room adventure. The total bill for services was over $4,000. Through my medical insurance the amount I owed was knocked down to just under $700. To pay for this I will be moving the amount due from our emergency fund to our H.S.A. (health savings account) to pay the bill. I love the H.S.A. because come tax time the amount of money deposited into the account throughout the year is tax deductible. So that’s nearly $700 in income that I get to keep from reporting to Uncle Sam.

The pain and mystery of my medical event was stressful enough to deal with. But having a strong foundation in our finances kept this from becoming a disaster and it lowered my tax bill for the year. And yes we will refill our emergency fund to its full amount through current month income. Five years ago if this had happened to me I would be in complete and total panic mode. Today it was essentially a stress test that proved my practices in personal finance are working like a charm!

Monday, October 8, 2012

My Growth as a Human Being

Today I want to spend some time talking about one of my biggest goals and dreams in my life: becoming a parent. Having a child is something that I expect to grow and stretch everything about me as a person. I can rattle off the list of attributes that I expect being a parent will grow and instill in me: patience, compassion, empathy, the ability to teach, unconditional love, courage, trust and countless others. In truth I’m not looking to start a family to directly complete my life. I look more towards it to grow me as a human being. Sure, along the way our family will value and honor sound financial independence, but that’s really more of a side benefit.

I find it interesting that the thought and idea of having kids makes me eager yet terrified at the same time. I love looking forward to the day of raising a child but am also scared of all the unknowns that come along with parenthood. Even more so I think that I am growing an anxiety to change.

Among my 2 brothers and 1 sister I am the youngest. My oldest nephew is just a few years younger than I so I have spent an overwhelming amount of my life not having to formally care for anyone. Yes my wife and I work together on bridging our goals and plans, but one of the things I love most about her is her independence and tough as nails attitude. Needless to say I am not used to having someone rely on me for their physical well being and care.

I also think about the life I have now. My wife and I enjoy nice dinners out once a week, grocery shop with super awesome efficiency on the weekends and thoroughly enjoy the time we get to spend with one another. I really have gotten used to how our daily lives function. Between the complete revamping of my daily life and having a life depend on me for whether it lives or dies, I am certainly well aware of the responsibility of being a parent.

Financially we are there though. My wife and I carry great health insurance, we are debt free and once a baby were to arrive my wife easily has the option of whether to go back to work or be a stay at home mom for those first few years. So technically, yes if a child were to drop into our laps today we could handle it and continue with our future financial goals and dreams. That’s not what worries me.

What worries me is being a parent that’s good enough. I am at the point that I am today through a plethora of trial and error experiences. Being a husband, an employee and in my personal finances. There’s a lifetime of experiences, do’s and do not’s that I can point to that have helped shape me to get where I am today. I feel like I have nothing to draw on or point to when it comes to being a parent. Will I be good at it? Will I suck at it? Can I handle the reshaping of my life? Can I handle the stress?

Ultimately it comes down to one question: Am I good enough?

To help explore this my wife and I are planning to go to marriage counseling together to work through this decision together. I certainly want to unpack the baggage I carry in my life that leads to my self-doubt before I take on the role of being a parent. And for that matter I want our marriage to be in the strongest place possible as we begin the steps towards a new chapter in our lives. I want to be intentional about continuing to grow in my marriage, as a husband and ultimately as a human being. I certainly do not want the fear of change to keep me from becoming the person I want to grow into.

Thursday, October 4, 2012

My Debate Night

I did not spend last night watching the Presidential debate. Instead I opted to spend some quality time with my wife by cooking us dinner and catching up on our work day, doing some prep work for another round of facilitating Dave Ramsey’s Financial Peace University and adding my two cents for an upcoming church cleaning project that my wife has in the pipeline. One of my favorite aspects of the evening was that we went out for a free cup of coffee. Seriously, even when I splurge I still manage to find ways to frugal it up.

I am excited about another round of hosting FPU. In the spring small group we hosted, each household had an average change in financial position of $7,700 during the duration of the course. For me the entire experience was rejuvenating and inspiring. During that session my wife and I were witnesses to seeing a marriage strengthen and singles become empowered. This fall FPU has great potential as well since we will have about twice as many households going through.

I find the timing of this fall session to be quite intriguing. I am definitely in a different place and state of mind than the 1st FPU we facilitated. Then, we were in the final months of paying off our last debt (my wife’s student loan) and were at the end of a three year battle that saw us strengthen our financial footing. Now, we are in the midst of celebrating our debt free marriage with planning and saving for a missions trip, a trip back to Hawaii and a trip to Europe.

To me the interesting aspect is that for the next few months our monthly savings will be restricted to retirement (15% of my gross income and 12% of my wife’s) and our future kids’ college savings. The bulk of it is planning to be spent for travel. So I am anticipating a below average growth in net worth over the current quarter. This puts me in an uncomfortable space and my wife into an ecstatic one. Being gazelle intense for so long imbedded into me the lifestyle of continual savings. Now I think twice about saving for travel. But the flip side of me says it is time to celebrate and take my foot off the gas pedal for just a short time.

So it is almost like two sides are about to collide. One side being our new FPU group that will be where my wife and I were almost 4 years ago: introduced to everything Dave Ramsey and seeing who gets gazelle intense and takes hold of their personal finances. And the other side being my wife and I on the latter end of the quote, “live like no one else so that later you can live and give like no one else.” This should be an exciting and soul stirring fall!