My Quarter End: 3Q 2012

Now that was an unbelievable quarter. Typical summers include outdoor barbecues and patios, lots of trip to the beach, good suntans and little to no market movement. Historically speaking, summer trading sessions are usually thin with a trend of generating marginally negative returns. But not this past one! In just our taxable brokerage investment account alone we saw growth of nearly 10%  in this 3^rd quarter alone.

Now while I advocate buy and hold investing over a long period of time, I sincerely hope you guys and gals out there got to be a part of this unexpected lift this past quarter. What is even better is that there is still the 4^th quarter of this year to look forward to. The US President will be elected, Thanksgiving will occur followed by black Friday and the Santa Claus rally all give me cause to sound my bull horn to close out 2012. I firmly believe, given how returns have been so far this year, that 2012 will go down as one of the best years in stock market history. I mean as of the end of this quarter the Dow Jones is up over 11% from January 1!

But beware because glancing into my crystal ball I do see an ugly bear on the horizon for the 1^st quarter of 2013. I can summarize with this one statement. The US Government is stupid. Yes we are heading towards a fiscal cliff and I do not think anyone in the Senate nor Congress is smart enough to keep it from happening. Partisan lines are drawn too thick and the grandiose ineptness of government is going to show its true colors through this debacle.

Which leads me back to my general investing philosophy: buy and hold for at least five years in old and historically proven mutual funds. Yes in the short term once we are all pushed off the fiscal cliff the market will drop, but in the long run market returns will come back and be right in line with historical averages.

So I’ll end the 3^rd quarter of 2012 with this PSA: Do not count on the government. Romney can’t help you. Obama can’t help you. Only you can change your fiscal picture by getting out of debt and saving for your future. Because frankly I’m with Dave Ramsey on this one (surprise): If we can all band together to create a total money makeover movement, where we all get out of debt, build wealth and give on a level unseen before in our world, TOGETHER we can all put the government out of business! And that’s a crusade I am happy to lead on the front lines. Happy 4^th quarter out there to everyone!

My Big 3

As an aficionado of learning I am generally not one to pass up a free opportunity to attend a workshop/seminar relating to personal finance. I feel that if I can learn one new thing that the event was worth my time. I also use it as an opportunity to compare and contrast my personal finance practices against the industry standards, which just about every time only reinforces that what I am doing will enable me to continue to grow my nest egg and to avoid standard practices like the plague.

In a recent workshop the presenter named three of the biggest expenses that we incur during our lifetimes that “most people” need credit for and a rare few pay cash for: Cars, kids’ College and Real Estate. I’d like to expand on each of the three.

Cars

Nothing drops in value quite like a car. A car is not an appreciating asset and is best described as a long term cost. So why on Earth do people finance new cars that, according to Consumer Reports, lose 70% of their value in the first four years of ownership? I have not owned a car for 9 years and rely on public transportation to get around. But when I do buy a car I will only buy used vehicles that are at least 10 years old and I will pay cash for the whole deal. No payments, no lease contract, no 0% APR while the car is losing 70% of its value, just peace of mind. And yes, whether the car is new or used it will eventually break down and need routine maintenance, so I will counter that by adding car maintenance/repair line items to my monthly budget. And when the time comes to buy another car, I’ll simply use a sinking fund to replace the cost of the vehicle that died. Car payments will not be a part of my life.

Kids’ College

I elaborated on this topic before on my kids’ college savings plan. But I’ll reiterate with a reader’s digest version. I currently do not have children but have began saving for their college expenses. I plan to use an ESA and will max out the current $2,000 contribution limit every year from the kids’ age from 0 to 18. Since I can’t open an ESA because I have no children, I have started to set money aside every month to get ahead start on what will be cash contributions to the ESA. We plan to cut costs by having our kids attend community college and transfer as many credits as they can to a state college.

For those with little to no time left before college starts there’s a solution I have called work. In my current state of Illinois minimum wage is $8.25 an hour. If your child works 30 hours a week that will equate to $12,870 a year. The estimated annual cost for attending a local community college in my area, with the kid living with their parents is $6,112.  In earning an Associate’s degree the kid would earn $25,740 over two years and pay $12,224 in tuition, netting $13,516. By the way as of 2012 the federal tax rate on this income earner is 15% so you’re working college student could cover tuition and taxes all by his or her self!

Now if the kid plans to earn a B.A. I would advise going to an in state public college. In my corner of the world, in tuition and fees that comes out to about $14,000 a year if the kid goes full-time. I recommend the kid goes to class part-time, work full-time and cash flow their own way to a B.A. degree. At the end of it your kid will graduate debt free along with years of working experience. College debt is not a way of life.

Real Estate

Here it is, the big enchilada. My wife and I plan to pay cash for our first home. To accomplish this we plan to move to a small market area (i.e. Nashville, Charleston, etc.) and buy a distressed property at a fraction of the appraised value. Yes it will likely need some TLC but without a rent or mortgage payment this task should be more than feasible J! Plus by buying at the bottom of the market range we expect to get great appreciation over the long term.

Consequently I believe that the mortgage interest deduction is one of the biggest scams that exists in our country. For example, if my wife and I paid $10,000 in interest on a home mortgage we would be able to deduct $10,000 from our gross income. We are currently in the 25% tax bracket. If the same home were paid for with no mortgage than instead of sending $10,000 in interest to a bank we would be taxed on that 10k at 25%. Between the two I would prefer to pay $2,500 to the government than $10,000 to a bank.

In summarization I will not use debt for the big 3 purchases in life: real estate, cars and college.

My Two Heartfelt Stories

Two stories from two of my favorite speakers have been in my head over the last few days and I wanted to share these with you today. The first is from my favorite spiritual guru Terry Hershey. The story goes something like this (loosely paraphrased):

A businessman is on his way home following a lengthy trip. While on these trips he has several traditions. For himself he reads self-help books on how to hone his craft and ferociously jots notes down while in flight and during downtime. It has also become somewhat of a tradition that he buys a keepsake for his six year-old daughter. Deep down the man wants his daughter to know that he was thinking of her on his trip. This time the gift is a T-shirt with a cartoon picture of an armadillo. Rushing home and up the driveway the man walks through the door, embraces his wife and is told their daughter is waiting for him upstairs in her bedroom as bedtime has come and gone. The man rushes up the stairs and slowly enters his daughter’s bedroom with gift in hand. As he enters the room, before he can say a word, his daughter says, “Mom let us wait up!” as both the daughter and her teddy bear have their eyes fixated on her father. “We made space, come sit here with us.” As the man sits down he lifts the bagged present onto the bed, but again, before he can say a word his daughter says, “Tonight, teddy and I don’t need anything. We just want you to sit here with us and tell us a story. All we want, is one good story.” The man hugged his daughter and kissed her on the head. He was quiet for a good deal of time enjoying the warmth of his daughter as she leaned against his chest.

He forgot about the books he read on the plane.

He forgot about the notes he made.

He forgot about the goals reached on the business trip.

He rested.

And he knew this moment matters.

This moment. This sacred moment.

The other story comes from Jon Acuff. It talks about Jon helping his daughter transition from training wheels to a two wheel bike. After several weeks of effort the daughter finally takes off on her own, albeit wobbly down a straight path. Ten feet, then twenty, now thirty feet she pedals on her own. Jon is so proud of her and in this moment is in full embrace of the moment having helped his daughter, giving himself a ton of attaboys and feeling like he’s got this parenting thing down. He is smiling and is just about as happy as his daughter is, when he hears her shout with unbelievable glee. “Daddy, daddy, I’m doing it! I’m doing it! I don’t need you anymore! I’m doing it!”

That line just about crushed me. “I don’t need you anymore.” Even now it brings tears to my eyes just thinking about it. I guess I’m in a state of mind where I want to be more intentional about enjoying and embracing moments. I mean, life moves really fast. I am a few years away from turning 30 and in the last few years have just started to understand what it means to enjoy the here and now. As life moves forward I want to look back on it knowing that I fully embraced and loved exactly where I was, with my loved ones every step of the way.

My Incredibly Awesome Credit Score!

There have been a few moments in my life where I have been filled with so much joy through triumph that I just want to run through the streets jumping and screaming with glee. This is one of those days. After nagging my wife for what has been a few years I finally went to myfico.com to order my credit score.

For those of you new to the show I’ll bring you up to speed. I have personally been debt free for three years. I have no credit cards, no student loans, no car loans and no mortgage debt (I’m a renter and am currently saving for the 100% down plan when I buy my home). For payment methods I strictly use cash, one debit card and checks.

Enter the fico score. According to myfico.com a fico score is broken down as follows:

·         35% Debt payment history

·         30% Debt amounts owed

·         15% Length of debt history

·         10% New debt

·         10% Types of debt used

Dave Ramsey is right when he says that this is an, “I love debt score.” In my pursuit of wealth building I’ve held one core principal: Get out of debt and stay out of debt! So I know exactly where my net worth stands and where it’s going and debt will never enter that equation. So I wondered what my credit score would be after a few years of bludgeoning debt to death with a steel pipe and standing tall on the debt free mountain. So here it is, my credit score J

As soon as I get a chance the first thing I am going to do is print this bad boy out and use some of our budgeted blow money to get a beautiful frame to encase this gorgeous score report! I will happily send notice to everyone that you can prosper in personal finance and move up the socioeconomic ladder WITHOUT DEBT! Our household net worth has been steadily rising quarter after quarter and the most important factor in that is being debt free.

I will celebrate this achievement with both a relevant and overplayed trend, by going Clint Eastwood on my fico score.

Fico score: (blank stare)

Me: “There’s no need to apologize to me fico. An error has not occurred and I can assure you that every bit of my efforts and planning is true and well calculated. I don’t need nor want your score. I am securing my retirement, finding financial peace and changing my family’s destiny all without debt. Debt is NOT a tool to build wealth and prosperity. It is a one-way ticket to financial detriment.”

Fico score: (vacant gaze)

Me: Trust me dude, I did try pulling the score based on the Equifax report and got the same exact response from you. The best part of that one was that you told me to pull my report at TransUnion. Look, I enjoy breaking this news to you that I don’t need nor want you. It’s extremely personal and with the highest prejudice. Your influence in my family tree of financial ruin and mediocrity stops with me. From here on out my family will never look to you for approval. My family tree is heading towards prosperity and the type of giving that changes the world. And I am going to convince as many people as I can to do the same.

Fico score: (empty look)

Me: So what do you have to say for yourself?

Fico score: (nothing)

Me: Exactly my point!

My Relaxed Weekend

It has now been close to 3 months that my wife joined me in being debt free and consequently our marriage became a debt free one as well. We still do a monthly budget, use envelopes for certain expenses and allocate every single dollar on paper before the start of every month.

One of our goals in busting up and getting rid of debt was to get our time back. Ultimately I would love to reach the age of 50 and have the opportunity to leave the work force and live off investment income from our brokerage account well before we are eligible to withdraw from our retirement vehicles. But in the mean time there have been ample examples where I’m getting a small taste of the freeing of our time.

When we were gazelle intense and squeezing every dollar we could to pay off debt my wife took a part-time job teaching English as a second language and I picked up every ounce of overtime offered at work. Nowadays in our free time rather than earning extra to pay down debt, we volunteer our time through our home church serving on committees and leading small groups and we have spent more time with extended family.

But ultimately my favorite piece of getting our time back is having the freedom and flexibility to re-connect with my wife following the busy work week. This past weekend we spent our time going out for leisurely walks in the park, napping by the lake front and talking and hanging out at our apartment. With our income freed up to focus on wealth building, giving and short term savings I have found that I am happiest following a weekend of leisure and being alone with my wife J.

Overall I don’t think that my spending will ever wildly increase. I mean we are planning some fun trips for the next year but in the day to day and month to month I think our scaled down lifestyle has really set itself into my spirit. Before my total money makeover I measured life entirely on the superficial. Now I’m starting to feel like I’m getting my time back and am more than content exactly where I am: which is living below my means, giving and staying connected to the person I am going to spend my life with!

My Event Review: Dave Ramsey's One Day Entreleadership

First and foremost allow me to say that it was amazing and awe inspiring to be in an auditorium with some of the producers that make America great. This week I was in Indianapolis, Indiana in attendance at Dave Ramsey’s 1 day “Entreleadership” seminar. This event brought out small business owners and entrepreneurs, the real job creators of this country. The aura of the event was vastly different from the Total Money Makeover Live Event. Entreleadership was focused, intentional and I could feel that the participants in the room helped create an aura that was all about business. For me it was humbling and inspiring to be in a room with so many of the best and brightest in this country.

Although I myself do not own a formal business, there were a ton of great ideas and concepts to focus on when thinking about and building my personal brand that came from this one day seminar. Speakers at the event included the man, the myth, the legend himself Dave Ramsey along with Jon Acuff and Chris LoCurto.

Now the Entreleadership event in itself has a tough act to follow. The Total Money Makeover Live event provides tangible and real world steps to beat debt and build wealth. You can’t exactly translate that into a new forum to provide precise, “How to” steps in building a great company. But given the audience Entreleadership is targeting, I think the event is absolutely worth it.

At the event I was surrounded by producers, the real deal in people who create jobs and stimulate the economy. If they are Dave Ramsey fans then they know that there is neither get rich quick nor short cuts to anywhere worth going. The concepts presented in the one day seminar lead to a ton of internal dialogue and business assessment, almost like a process of connecting the dots to your own unique situation.

Now make no mistake, while the one day Entreleadership event provides a ton of great content, it is also a pitch to do the six day seminar version. Now while my wife would not personally use Ramsey’s company in the six day consulting environment, her family company did walk away with notes that lead to lots of discussion about direction and unity related to the family business. Ultimately, as I sat in on discussion, I believe that a few hinge moments were achieved. Of course Ramsey can’t spoon feed what business decisions will lead to success, but I feel that the material presented is solid in self-assessing your business and when unpacked with your team leads to reflection and discussion needed to get your business to the next level. I highly recommend it!

My 9/11 Memories

11 years ago today I still remember as if it were yesterday. Although literally across the country from Ground Zero the impact weighed on my heart and soul then, as it does today. I was still in high school. My usual morning routine consisted of waking up and taking a shower with the radio on while listening to my favorite Southern Californian morning hosts.

But that morning in my groggy state I noticed a distinct difference and change in the tone of the show. I remember the voices over the radio having a sobering and serious tone to them. Words I remember hearing included: tragedy, not some kind of accident, unbelievable, we don’t know how many lives were lost.

In an almost apathetic way, with the shootings of Columbine having been a few years earlier and seemingly still fresh in my mind, I wrote off the event being talked about to another random school shooting. But by the end of my shower I slowly began becoming more alert and awake as the words over the radio slowly became coherent in my mind, I distinctly remember hearing in no particular order when I began to grasp what was going on: planes, buildings, New York, not an accident.

By the time I got myself dried off, out of the shower and into my school attire I flipped on the television right around 6:50 am PST, 9:50 am EST, only minutes later to see the South Tower of the World Trade Center collapse. My heart absolutely broke. 11 years later it still does.   

On 9/11 in 2007 I was working in New York and was humbly honored to be near Ground Zero as the names of the departed were read. Tears streamed down my face that morning and I am choked up thinking about that and all of this today. For me 9/11 will always be a somber day. It’s a reminder of the fragility of our being and to cherish those close to me in this life more than anything in the world.

But it’s also about healing. For literally thousands of families the last 11 years have been filled with memories of lost loved ones and battling illnesses developed from that day. Many have found peace. Many have not. For anyone and everyone impacted by 9/11 I want to share that I genuinely keep you in my prayers and think about you often. We may never be able to explain why evil acts happen. But I can assure you that the hands and feet of good also exist in this world. Whether through acts of courage by entering where others are evacuating, generosity by those whom offer free and anonymous counseling, or an outpouring of donations made by blood drives, good exists in this world and is at its best in the midst of turmoil.

My FPU Facilitating Recap and FPU Part Deux

For those of you who follow From 0 to one million closely, you might be wondering, “What in the world happened to the first Financial Peace University class that you facilitated?” Well I am happy to report that each household that participated had an average change in financial position of $7,700!

The entire experience of facilitating FPU is energizing and I highly recommend it if you ever have the chance. Witnessing people in the class become empowered with this life changing information was a genuine blessing. And helping people through Dave Ramsey’s baby steps was motivating to me and a great reinforcement that pushing for financial literacy is one of the things God put me on this Earth to do.   

In just a few short weeks my wife and I will be kicking off another session of facilitating FPU. As I think will be usual for the occasion, I am blisteringly nervous whether anyone will show and whether I can successfully field any and all questions that may come up during the course.

Overall I am happy and excited to have another round of FPU on the horizon. Walking people through smart financial practices and exposing them to empowering information sets my soul on fire. So needless to say I am open to your thoughts, prayers and general good vibrations that the upcoming session of FPU will be as impactful as ever before.

My US News Find

Normally when I flip through the world wide web and its various personal finance articles I lovingly shake my head in disgust. Typically I find about 99% of the material and recommendations put out there to be based on faulty personal financial practices and written by people who are not building wealth that lasts in good and bad times. But when I came across this piece in US News my attention was immediately grabbed. Although this is mainly because I now believe that Joe Udo is stalking me, it is partially because the content of the piece was spot on and couldn’t be said better by myself.

Below are Joe’s 7 ways to prepare for retirement in your 20s, along with my personal application of each.

1.      Avoid consumer debt

And for that matter all forms of debt. The biggest improvement made in my personal finances came when I became debt free. Ridding myself of debt unlocked my biggest wealth building tool –> my income. Avoiding all debt has been one of the best decisions I’ve made in my life.

2.      Avoid lifestyle inflation

This has been an amazing ingredient in our formula for financial peace. While it’s true that having a large income solves a lot of problems, I am also a proponent of the motto that follows, “the best defense leads to a great offense.” While our household income has steadily rose since we entered the workforce we have maintained a standard of living that equals out to a little more than $20,000 a year. I’ll sum up with this: Income can fluctuate but you can always control expenses.

3.      Grow your income

In our debt busting days we worked and saved liked animals. I racked up as much overtime as I could at work and my wife even took up a part-time job teaching English as a Second Language. Dave Ramsey’s grandma  said it best, “There’s a great place to go when you need money…to work!” I know in my life, sacrificing for a short while with an end goal in mind paid off huge and then some once we became debt free.

4.      Sign up for a 401k account and start saving

As an overlay once we became debt free we aimed to save around 15% of our gross income in retirement accounts. I currently contribute 4% to my 401k (currently no match offered) and my wife contributes 6% to hers (100% match up to 6%). While the options in IRAs are more extensive than those offered in 401ks, my wife’s immediate 100% returns and my keeping 4% away from being stolen by D.C. fuel the road to financial peace.

5.      Open a ROTH IRA

In a ROTH I contribute 11% (bringing me to 15% total savings towards retirement) of my gross income and my wife 6% (her total to 12%). The trade off in a ROTH is that while I do not get a current tax year deduction on contributions, the growth is tax free. In an example say today I invested $1,000 into a ROTH IRA into a growth stock mutual fund that made average annualized returns of 12%. In 2012 I cannot deduct $1,000 from my tax bill. But when I retire, without any further contributions, that $1,000 is now worth $51,435.75, growth totaling $50,435.75…tax free J

6 & 7  Open a taxable brokerage account/buy income producing assets

I consider these last 2 one in the same. Beyond retirement vehicles we place a priority on saving and investing. So beyond the 15% gross income that we set aside for retirement, we utilize a taxable brokerage account to invest and build wealth so that we can have access to some of our wealth without the restrictions of needing to be at retirement age. We do not buy things that depreciate in value such as: cars, jewelry and designer clothes. I buy my clothes at thrift stores and dumpster dive for my living room furniture and invest what I would have spent on those items paying retail.

So kudos to you Joe Udo, these are 7 great principles.

My Dumpster Diving Finds

When you’re a frugal fury fighter dumpster diving becomes somewhat of an art. Over the past few years I have not only saved a few items from the landfill, but I have also added some nice pieces to my living room décor which I am happy to share with you today.

Exhibit #1 & 2 TV and television stand

Now while it’s true that this television only plays DVD’s and picks up no channels, I still love it as well as the stand it sits on. The TV we picked up via freecycle and the stand sat beside the apartment dumpster with a sad look on its face, longing for a new home.

Exhibit #3 The Table

This guy actually has a pretty neat story tied to it. About three years ago my wife and I were going through Crate and Barrel, not to shop but to get ideas on how to arrange our apartment. While on that trip my wife came across this very same coffee table at a very insane Crate and Barrel price. Fast forward to earlier this summer and during the move out season this very same table stared us down as we were leaving for the gym one night. I told my wife if it was still there when we came back then it was ours. It is now ours. Take that Crate and Barrel and your insanely high marked up prices!

Exhibit #4 The Dresser

This piece took a while to grow on me but I am starting to think it livens up the living room a bit. This dresser was also tossed aside near our apartment dumpster during a move out (are you seeing a trend yet).

So with a little patience and a keen eye you too can outfit your place with some new additions just by paying attention, which at the end of the day costs a lot less than anything at Crate and Barrel J