Archive for the ‘Personal Finance’ Category

Plugging a Hole

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I was bad. I spent more money than I should have spent.  The good news is that the over spend came from my allowance, so the damage was minimal.  Still, I was in danger of not having the savings that I wanted by year-end.  I planned on having $600 set aside by the end of the year for the surprise trip for my wife in a few years.  Poor impulse control led me to spend too much money.

The Spend

The biggest expenses I had were a couple casino trips that I had not anticipated. I have not really been to the casino much in the last few years, so I had not set aside money for gambling purposes.  I ended up going with my good friend a couple of times.  I went mainly because he was having heart surgery.  He and I went once before the surgery and then again a couple of months after his surgery.  We both had a great time.  I think it also helped my friend after the surgery as he couldn’t drive, so it got him out of the house.  So, in that respect, the money was well spent.  However, my luck was nonexistent at the casino and I lost everything that I took.  What this meant for my finances is that I would be falling about $150 short of my year-end goal to save $600 for the trip for my wife.

Extra Income

Since my allowance is fixed I was initially just going to accept the $150 shortfall and make up the difference next year. I was not exactly excited about the idea, but felt it was probably inevitable.  I then began seeing a bank advertise a bonus for opening up a checking account with them.  The bonus was $100.  It probably took a few weeks of seeing the ads before I started considering opening the account.

I finally investigated the conditions necessary for the bonus.  I would need to have at least $250 direct deposited into the account over a 60 period and keep the account open for 90 days.  The account’s only requirement to avoid any monthly fees is that I have to have at least one direct deposit into it every month.  This seemed like an easy $100 to make.  I can easily adjust my paycheck direct deposits with a few simple mouse clicks.  So, now all I have to do is wait for the bonus and then transfer all of the money back to my savings account.  The remaining shortfall was made up via another checking account bonus.  This one was even easier.

Since I have a Discover credit card, they were offering a $50 bonus to also open up a checking account.  There were no restrictions or conditions necessary to receive the $50, just open up a checking account.  That felt like a no-brainer to me.  So, with a little paperwork, I was able to pick up an extra $150 and plug my deficit for the year.

Morality

It took some time to think about opening the accounts. I wondered whether it was ‘right’ to open the accounts.  I had no intention of keeping the accounts, just of getting the bonus.  The more I thought about it, the better I felt about it.  I reasoned that I was following the conditions without bending rules or doing anything dishonest.  There was nothing illegal about opening the accounts just for the bonus and then closing them shortly thereafter.  By abiding by the conditions the banks set forth for the deal, there was nothing wrong with opening the accounts.

Future Budget

Since it looks like I’ll probably be headed to the casino more frequently (more than zero times), I should plan for it. I don’t want to be in this position at the end of next year.  Have you taken advantage of any bank incentives to your advantage recently?

Middle Class

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

When it comes to financial articles, I usually fall for click-bait. Such was the case when I came across this article a while back.  The article discusses seven things that the middle class can no longer afford.  I consider myself middle class.  I am probably upper-middle class with and annual income around $100K.  So, naturally I was curious about the things I was supposedly unable to afford.

Vacations

This first item listed is vacations. This is not something that I have given up.  Granted I don’t take an expensive vacation every year, but my wife and I still get away for a few days.  I am saving for two big vacations.  One is a family vacation to Disney World.  I am expecting the cost to be about $10,000.  The trip is planned for roughly 3 years from now.  I have been saving for it for the last couple years and should easily have the money when we need it.  The second vacation is the second honeymoon I am going to surprise my wife with.  That trip is going to cost in the neighborhood of $6,000.  That trip is also budgeted and won’t be an issue financially.  I think for middle class earners, a little planning can keep vacations easily accessible.

New Vehicles

I think the issue with cars, is that people buy too much car, much like they buy too much house. They then compound the problem by not driving the car for a long time.  My wife and I have two cars, one is 3-years old and the other is 13-years old.  Neither one of the cars is top of the line nor have all of the features you could buy.  By being sensible about what we buy and only buying what we need, we can still afford to buy a new car.

To Pay off Debt

Do I have debt? Yes, a car loan and a mortgage.  I could pay the car loan off, but with an interest rate less than 2%, it is not my priority.  I do not have any credit card debt, nor do we have student loans anymore.  We paid all of that off within the last few years.  Sure, we could have used that money for other things, but paying off those debts was a higher priority.  I think that’s the issue most people have, prioritizing where they want their money to go.

Emergency Savings

My emergency savings aren’t quite where I want them to be yet. I have about $15,000 dedicated for emergency savings and another $10,000 that I could use if it was a true emergency.  Establishing the emergency fund was one of my top priorities when I was digging out of my hole.  When life’s unexpected expenses would pop up, it would put me back in the hole.  The cushion allows me to absorb life’s expenses without having to go into debt.

Retirement Savings

This one is simply people not prioritizing the future. I currently set aside 7% of my gross pay and my company contributes another 8%.  When people say they can’t afford to set aside any money, they are simply not prioritizing their retirement savings.  Instead, they are going out to eat, buying a new TV, or buying the latest iPhone.  Sure, all of those things are nice, but not having to work the rest of your life is nicer in my opinion.

Medical and Dental Care

The article listed these two separately, but they are essentially the same to me. I’ve experienced both this year, first with my root canal and then with surgery for my little guy.  I was able to handle the expense for both because of my HSA.  I had been saving the money throughout the year in the HSA and used it when the expenses came up.  Once again by planning ahead, I was able to handle the expenses when the unexpected happened.

Plan Ahead

In my opinion, the middle class can afford all of these things with a little planning. Since their income is limited, the middle class just needs to prioritize where their money goes.  They may not be able to take a vacation every year or a buy a new car every 3 years, but it doesn’t mean they can’t have them at all.  By setting a little bit of money aside each paycheck, all of this is possible.

Light, Energy, Action: How Blinds Can Save You Money

Chairs

To some of us, blinds are just something that makes our windows look a little prettier. For the rest of us, they can be a real money-saver that proves to be one of the shrewdest investments for your home you can make.

Ever since the first set of blinds was invented (and unfortunately, we don’t have any concrete historical stats in front of us), they have been boosting energy efficiency. The fact that they are just able to block some sunlight, made them a firm winner and meant that our homes were either to intercept more sunlight, or retain their heat.

That’s now just the tip of the iceberg. Catching onto the fact that we’re now all obsessed with energy efficiency and ways to save money, blinds manufacturers have taken their initial creations several steps further. Some serious technology has been invested into some blind types – and this means that the potential to save more money has gone through the roof.

Let’s look at what the situation used to be like with blinds. Whether it was Roman, Venetian or vertical blinds – they could all serve the purpose of cutting our bills in some way or another.

Chairs

Now, their “big brothers” have taken things a step further. To combat chilling temperatures, and ultimately soaring heating costs, we’ve been presented with blinds that have been specifically designed to combat temperature control. Insulated shades are the product in question and some of the stories that have been released about these types of blinds are bordering on the ridiculous. For example, one household reported seeing a “puff of condensation” when they opened their blinds in the morning – as the difference between the general room temperature and that on the window-side of the blinds was so different. In other words, the savings can be huge.

As the title of our post suggested, there’s also a big point on light with modern-day blinds. While you could have experienced some thermal benefits with something like a blackout blind several years ago, it came at the cost of a room in complete darkness. Solar shades have stepped in to save the day in this regard and if you do reside in a hot climate, you can block out the sun’s heat but keep the natural light. It means that you save on both energy costs, and lighting costs – so the savings can again border on the ridiculous.

The list really could go on. For those looking to make a heftier investment, motorized blinds aren’t just for show either. They can be programmed to function only in the peak hours of the day, from a weather perspective anyway, so it can be possible to allow optimum amounts of sunlight in at various timeframes.

What has become clear is that this is an industry where any investment you make will now pay for itself several times over. The energy efficiency benefits of blinds shouldn’t be underestimated and in an age where our bills are soaring, this shouldn’t be taken for granted. After all, our windows are the biggest source of air leaks which in other terms means, they’re also our biggest source of money leaks!

Capital Allocation

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I feel like I am entering a new phase financially.  I am looking at aspects of my financial life that I had not contemplated previously.  I have to say that I like it.  As I have stated recently, I am feeling more secure financially than I have ever felt.  What this has meant is that I am beginning to think more in terms of where to save my money and less about can I save money.  Now that the cushion is sufficient, I want my money working as hard for me, as I worked for it.

The Current

The cushion, as I like to call it, is divided between two accounts, my Vanguard brokerage account and my Capital One 360 savings account.  The savings account is where all of our savings go and I use a spreadsheet to keep track of the various things for which we allocate money.  For example, we set aside money for property taxes, gifts, car repairs, and the emergency fund.  The Vanguard account is strictly emergency savings.  

I started the two account approach about 3 years ago as a way to make it harder for me to access the money.  When I first started trying to save for the rainy days, I found it too easy to dip into the savings account.  The lack of discipline is what got us into trouble in the first place.  So, the brokerage was my way of making it harder to access the money.  Instead of simply transferring the money from savings into the checking account, I would first have to sell some securities, wait for the trade to settle, and then transfer the money to the checking account. 

Since the process would take more than a week, it gave me enough time to really think if the transfer was necessary.  I have only tapped the Vanguard once since I opened it, when we bought our house 3 years ago.  In the Vanguard account, we have about $5,600 and in the emergency category in Capital One, there is about $8,200. 

I know what you are thinking, that’s not a big enough reserve. 

I agree.  My goal is to have about $30,000 dedicated to emergency savings.  While I do not have that amount in the emergency bucket, I have other buckets that I could access in the event of an emergency.  For example, I have mentioned that we are saving for a Disney vacation in about 4 years.  Right now, there is about $5,000 in that category.  If I lost my job tomorrow, that $5,000 would become available to use.  So, without going into all the other buckets, there is probably another $13,500 available.

My Plan

I feel like I would like to have the cash portion of the emergency fund at $10,000.  So, I will add some portion of my bonus every year to it until it is at that level.  I figure it should only take a couple of years to get there.  Then I would like to have the Vanguard account make up the rest.  I plan on contributing to it on a regular basis and maybe even more so in the future.  I am sending $75 a month to the account now or $900 a year. 

At a minimum I would like that number to be $1,000 a year.  Depending on what, if any, salary increase I receive next year, it could happen then.  From then on, I would likely throw a little bit of the bonus at it every year as well, just to get to the finish line as quickly as possible.  My strategy is a result of the interest rate I am currently earning.  At 0.75%, any interest I earn is an after-thought.  As I said, I want my money to work as hard as I do.  I have the money invested in 4 different Vanguard ETFs to balance my portfolio.  The hope is never to need this money and maybe I can even use it in retirement.  I’m just glad that after digging out of the hole, I get to admire the grass.

Throwing Away Money

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I came across an article recently in the Wall Street Journal.  It was written as a tongue-in-cheek way on how to throw away a fortune.  It is written to show you how you might be spending or throwing away money by accident.  The author listed seven ways to throw your fortune away.  I was curious as to how many of these I was guilty of in the past, and whether I was actually still doing any of them today.

Delay Saving

Yes, I was guilty of this in the past.  It was one on the reasons I was in a financial hole to begin with.  My retirement savings did not begin in earnest until late 2007, when I was 32.  Now, I contribute 7% to my 401k, with my employer kicking in an additional 8%.  This year, I also began fully funding an HSA.  These steps, along with additional savings and paying down debts has allowed my net worth to go from negative to over $120,000 in about 7 years.

Shun Retirement Accounts

I can’t say I was guilty of this in the past or the present.  In the past, there virtually was no savings, so there wasn’t anything to put in a tax-advantaged account.  Today, I fully take advantage of the retirement accounts that I can.  With my 401k, 1% of my contribution goes into the Roth 401k option that is available to me.  Since I don’t know what taxes will look like in the future, it is my way of diversifying my tax position.

Forfeit the Employer Match

Yup, I was guilty again on this in the past.  It wasn’t so much that I didn’t get the match; it was that I didn’t leave the money in the account.  I pulled all of it out at one point in time and paid the tax penalty for doing it.  It was the right move at the time, but by doing so, I did forfeit the match that I had earned.  Today, I make sure I get every dollar for which I am entitled.

Buy Active Mutual Funds

I was guilty of this in probably a couple of ways.  The first being my 401k when I first opened it up years ago.  I was not as diligent as I am today at making sure my expenses are at a minimum.  I had probably picked whatever fund looked like it had a great return, with little thought to expenses or asset allocation.  Today, my 401k funds are all index funds with low expense ratios.  I have come to believe that market returns are good enough for me and that I don’t have to strive to try and beat the market.  I was also guilty of this in another way, trading costs.  When I first began investing outside of my 401k, I was guilty of paying trading fees.  Not knowing any better, I was paying for every trade I did and thus cutting the amount I had available to invest.  Since then, I have been investing with Vanguard for free.  The fund fees are miniscule since I invest in index ETF’s.  Thus, more of my money goes towards investing and growing my net worth.

Carry a Credit-Card Balance

Again, I was guilty of this in the past.  This was the hole that I was in.  I probably had $30K on credit cards at one point.  I tried to minimize as much as I could any interest I had to pay, but I still paid.  Today, I don’t carry a balance.  I still use credit cards, but they are always paid in full when due.  I haven’t carried a balance for at least 3 or 4 years, I’ve lost track of exactly when they were paid off.

Get a New Car Every 3 Years

This one I can claim not-guilty.  I haven’t bought cars that often, mainly because I knew I could not afford that large a purchase.  My current car has about 157,000 miles on it and I hope to get another 30,000 miles out of it.  I haven’t decided yet whether I will go brand new or slightly used when I buy the next one.  I’m still on the fence on that one.  I have typically gone the brand new route in the past, but my views on things have evolved over time.  I’m not sure that’s exactly where I want to be spending my money.

Remodel Your Home

I am definitely not guilty on this one.  I have never done anything to a home simply for the resale value.  When I first bought a condo years ago, I had new floors installed, but that was because I didn’t like the old floors.  I kept in mind what would appeal to buyers in general with my choices, but it was not done simply for the resale value.  In my current house, any remodel that is done will be done because that’s the change that I want.  I plan on being in the house for 30 years; I am not concerned about the resale value just yet.

Progress Made

It’s good to see that I am not guilty of these practices anymore.  I’d like to think I have learned quite a lot about how to manage my finances over the last 10 years.  I am always on the lookout for new things to help me or new ways to save money.  How about you, how many things were you guilty of?

Hacked

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I am a pretty laid back guy.  I tend to not get overly stressed or worry about things in general.  So, when I saw the headlines recently about the data breach at Home Depot stores, I mainly shrugged it off.  Yes, I had used one of my credit cards there during the time they were hacked.  So, in theory my account information may have been compromised.  The best reaction I can muster is a yawn.  Why am I not more concerned?  There are several ways in which I am protected, some of which I had already been doing already and one that is new since the breach was reported.

Daily Routine

It is not quite every day, but at least every work day, I spend five minutes and log-in to my accounts to check the activity.  This routine serves two purposes.  The first is used for my budget tracking; I record any new activity into my spreadsheet.  The second purpose is early fraud detection.  Any activity that I don’t recognize, I can instantly report it and hopefully limit any damage.  I have been keeping an eye on the card that may have been breached and have not noticed any unusual activity.  My card company has also informed me that they also are monitoring my card for any suspicious activity.

Credit Score

One of the perks of my Discover It card is that it shows me my FICO credit score every month.  So, I have the history of the last few months to see if there have been any changes.  Since I know that I haven’t been applying for any new lines or credit or credit cards, my score should remain more or less then same.  As it turns out, it has risen in the last couple of months. 

Credit Report

My next line of defense is my actual credit report.  You can check your report from the 3 main credit bureaus once per year.  I do check them one per year, but I do not check all 3 at the same time.  This was a trick that I learned from Crystal a few years back.  I check one of the bureaus every four months.  Then I wait a year and check them again.  By only checking one bureau’s report at a time, I am only four months away from checking my report at a time.  Granted, not every credit institution reports to all three bureaus, but I am much more likely to spot something sooner with a check every four months as opposed to every twelve months.

Credit Card versus Debit Card

Since it was my credit card that was potentially breached and not my debit card, there is some built in security.  With the credit card agreement, I am not responsible for fraudulent charges as long as they are reported in a timely manner.  With both myself and the company on the lookout for suspicious charges, I think we have this one covered.  The hackers also do not have access to my bank account.  With a debit card, they could potentially drain the checking account associated with it.  This is one of the reasons I prefer a credit card to a debit card.

Credit Monitoring

This is the one security measure that I started after the breach.  Mind you, I am not paying for it, it was offered to me by The Home Depot.  They offered to pay for one-year of service because of the breach.  I did really think I needed the extra protection, but at no cost to me, why not take the insurance.  The service will alert me any time a new account is opened and they have personnel to help repair any damage done to my credit history.

Status Quo

At the end of the day, the breach means very little to me because of the steps that I have already taken.  The only real change is I receive a monthly e-mail from the monitoring firm announcing that nothing has happened.  If you don’t check your credit report at least once per year, you need to start.  Since I have created an excellent credit history, I want to keep it that way.

Open Enrollment, Take 2

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

Once again, it’s Open Enrollment time for my employee benefits.  As I discussed last year, there were some pretty big changes to my choices.  This year will be no different, but I am happy about the changes.  Naturally, there were calculations involved and of course I’ll share.  The changes are only occurring with the health insurance options, so thankfully there was only one moving part to worry about.

Current Plan

This was the first year of being enrolled in a high-deductible health insurance plan (HDHP) with a corresponding health-care savings account (HSA).  I personally did not feel like the deductible ($2,500) was all that high.  I was rethinking that slightly after the first month, but things settled down for the most part.  I also knew that we would hit the deductible without question given my son’s condition.  His annual check-up with his cardiologist is about $2,500.  Still, the premium was a reasonable $184 a paycheck or $368 a month.

New Choices

This year, the company is essentially moving everyone into a HDHP.  We have 4 choices, 3 HDHP and one preferred-provider organization (PPO) option.  The PPO was far and away the most expensive and one that I did not even consider. 

The 3 HDHP’s all have different deductible options and different co-insurance provisions.  For my family, we have the choice of a $3,000, $5,000 or $7,000 deductible with a 10% co-insurance for the $3,000 deductible or 20% for latter two.  To throw one more variable into the mix, the company would contribute $800 towards your HSA for the $3,000 and the $5,000 deductible options, but nothing for the $7,000 option.  Got all that? 

The premiums for the 3 options ranged from $156 a month to $404 a month.  So, which one is right for me?

Evaluating the Options

This is something that I love to do, figuring out which is the best choice for me because I love working with numbers.  In the end, I will either be paying my medical costs in premiums or directly via claims.  So, the first thing I did was to make sure my claims information is up-to-date.  Yes, I keep track of my claims; that started with my son and trying to make sure all the bills had been paid.  Now, I can use that information to actually keep track of my medical costs, so that in situations like this and know what numbers to use. 

The gross medical costs for this year were about $12,000.  If I just used that number, then the $3,000 deductible option (called the Value option) with the highest monthly premium was the appropriate choice.  When I thought about it some more, I began to question whether I should use all of the claims we had this year.  Specifically, my son had hernia surgery this year, and that represented about half of our total claims for the year. 

Now, the choices look much different.  The best option is between the $5,000 deductible (Standard) or the $7,000 (Basic).  I also remembered that my daughter had some vision therapy in the first half of this year that would not be repeated next year.  Removing those claims brought the total down again by about a $1,000.  My anticipated expenses for a year were actually closer to $5,000. 

This means the Basic option is actually the most cost effective choice.  I will be paying for virtually all of my medical expenses with only major events triggering the insurance to kick in.  My premiums are going to drop from $384 a month down to $156 a month while still fully funding the HSA.

Taking on More Risk

By selecting the Basic option, I am basically accepting more risk for lower premiums.  This is a trade-off that I am more than willing to make.  Since my financial position is more secure and stable, I can accept more risk.  Should costs end up higher than anticipated; I have the money in the HSA and also my emergency fund should we approach the out-of-pocket maximum. 

Do you have any changes for your benefit options this year?

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