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Archive for the ‘Personal Finance’ Category

Guardian Angels

Angel

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 Must Be Lucky

I am beginning to think I have a guardian angel looking out for me, maybe more than one.  I opened our above-ground pool recently and in what seems to be an annual occurrence, I fell off the pool.  It is not that far down, but it is probably about a four foot fall.

We have been on the house for about four years and I’ve fallen off the pool at least 3 times.  Every time I have managed to escape serious injury.  I was thinking about this the other day during one of my morning runs.  I tend to have random thoughts when I am running for an hour.  I had landed on my right side this time and wasn’t really able to brace myself.  I thought this was lucky because had I used my right arm to brace, I likely would have broken it.  I then thought, even if I did break or if something worse happened, I am prepared for it.

Being Prepared

I have health insurance that would help pay for the medical expenses.  It is a high-deductible plan and my deductible is $7,000.  That is quite a bit of money, but I will have that and more in the HSA account by the end of the year.  I set aside the maximum amount allowable this year into the account, which was $6,650.  Since I had about $1,500 left in it at the end of last year, I will have more than enough to cover the deductible.  Should the medical expenses exceed what I have saved in the HSA, I have an emergency fund that I can tap into to cover the rest.  The medical insurance has an out-of-pocket maximum that I would hit before exhausting my emergency fund.

Work is Covered Too

Now what happens if I can’t work for either a short or long period of time?  My job is pretty flexible, so I could work from home if I needed to for a period of time. If my injuries were severe enough where I was unable to work at all, I would be ok.  I have short-term disability insurance through my employer.  It would cover me for the first 26 weeks of any absence.  After those first 26 weeks, my long-term disability policy through my company would kick in.  That policy would provide 60% of my current salary, which would be enough to cover my essential expenses.

Now, if the leave were to last longer than 52 weeks, that would be when my personal disability policy would begin to pay benefits.  I figured any disabilities that were to last that long would be severe and likely to last a significant time.  Thus, the personal disability policy is in place to provide additional money that I could save for retirement.

If the injuries proved to be fatal, I am not worrying about anything anymore.  My wife also will not have to worry about money.  I have enough life insurance to make sure she is comfortable.  My Social Security survivor benefits will provide nearly all of the income my wife would need.  I have the life insurance to cover the slight shortfall and to help fund retirement for my wife.  As my wife is raising our children, we have not been contributing to a retirement account for her.  Our retirement plan has been predicated on my income.  Therefore, no income from me and that likely creates a bleak retirement picture for my wife.  My life insurance makes that picture a whole lot rosier.

So, if my guardian angel or angels happen to be on a break the next time I am walking around the edge of my pool, I know I have the outcomes covered.  How prepared are you if your guardian angels are on a break?

On Top of It

Accounting

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 know I tend to be a little overzealous when it comes to keeping track of my money.  However, I witnessed two events recently with two different coworkers that made me think that being overzealous is a good thing.  In both cases, there was a change to their paychecks that they did not monitor and the changes resulted in headaches for both of them.

Case #1

My first coworker received a promotion mid-year in 2014.  She went from an hourly employee to a salaried employee.  Along with that change, she also received a raise.  When she received her first post-raise check, it was higher than her normal check, so she thought everything was ok.  It turns out, everything was not ok.  You see, she had been paid before on a bi-weekly schedule as on hourly employee.  Salaried employees are paid bi-monthly.

So, even without a raise, her paycheck would have gone up, 26 paychecks to 24 paychecks.  She did not do the math to make sure that her gross paycheck was correct.  She did not notice there was a problem until the annual salary discussion occurred in 2015.  Only then did it come up that her paycheck never reflected the raise she was supposed to get with her promotion.  She will receive the back pay that she was owed, but I bet it would have been nicer to have that money in her pocket all along.

Case #2

My second coworker made an adjustment to her HSA contribution late in the year last year.  Her paycheck was ok, but the HSA account received too much funding from the company.  Part of her last contribution at the end of December was rejected because it would have put her over the IRS limit for the year.  She did not find out about this until February when she received a credit back in her paycheck.  It turns out the company had put an additional contribution in her account for her.  Her taxes were complex this year because she had to request a corrected W-2, as the numbers that were initially reported were incorrect.

It Pays to Pay Attention

In both cases, had they checked the numbers when a change occurred, they might have caught the mistakes sooner and been in a position to correct them before they caused any more problems.  Whenever I have a change to anything in my process, be it a salary change, 401k contribution change, anything like that,  I am always sure to check that first post-change check to ensure that everything was processed correctly.  I was able to catch a problem with my first paycheck this year.

Case #3

The benefits that I selected for 2015 did not make me eligible for a company contribution to my HSA.  I instead opted for a larger deductible and lower premiums.  Naturally with my first paycheck in 2015, I looked at not only my paystub, but also my HSA account to make sure everything was alright.  What I found was that the company had given me the contribution anyway.

Normally, I try not to look a gift horse in the mouth, but I needed to know what they were planning on doing with the erroneous contribution.  If they were going to leave it in the account, I needed to adjust my contributions, otherwise I would be over the limit for the year.  When I called HR about the problem, they were aware of it.  The same mistake had happened to over 2,000 other employees.  It was a literally a million dollar mistake by someone.  I still haven’t found out if they are going to take the money back yet or not.  My current plan is to wait until November to adjust my contributions.

Ever had a mistake with your paycheck?

Woohoo!! Another Raise!!

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.

Recently, I let you peek in on what I did with my performance bonus for this year.  Now, I am going to let you in on what I did with my salary increase for this year.  I find out both numbers at the same time, but the bonus is paid in March and the salary increase does not begin until the first April paycheck.  This year, I received a 2% increase on my base salary.  This translated in $1,900 more per year or just over $155 a month.  The next question is what did I do with the extra money?

Dividing the Extra

Over the last few years, raises generally have been used to help stabilize the budget and plug any deficits there may have been.  This year was different though.  I have been actively minimizing our expenses whenever possible.  The most notable one recently was my mortgage refinancing that I wrote about.  That freed up just over $300 a month, $200 of that went back into the mortgage payment, while the rest went to our monthly spending.  So, I did not need the raise to plug any budget holes this year.  That leaves me with a few options on to do with the raise.

I could increase our monthly spending categories.  We sent aside money every month for things like car expenses, kid expenses, house expenses or trips.  There is nothing wrong with a little lifestyle inflation; people should be able to enjoy the fruits of their labor after all.  I just felt that we could make our financial picture stronger rather than just increase our spending.  That means the bonus would be going towards savings.  Not all savings are the same though.

I consider our savings in roughly three categories, retirement, cash savings, and our brokerage account.  The cash savings are at Capital One 360 and the brokerage account is with Vanguard.  Between those two, we allocate about $150 a month, with a majority going to the Vanguard account.  Right now, I am comfortable with the balances of each.  I consider the two of them my emergency fund.  I have roughly 6 months of expenses saved in them.  Mind you, not all of it is purely dedicated to the emergency fund, but if I lost my job tomorrow, all of it becomes available for the emergency.  That means I don’t really want to up the monthly amount going into them.  That leaves retirement savings as the landing spot for the salary increase.

My company offers both a traditional 401k and a Roth 401k, so I need to choose which one I increase my contribution rate.  My current contribution rates are 6% for the traditional 401k and 1% for the Roth 401k.  I selected this allocation because the company only matches on the traditional plan and matches up to 6%.  So, anything less than the 6% and I am throwing away free money.  So, why contribute to the Roth at all?  I believe the tax treatment will allow the Roth to be better for me in the long run.   Currently, I take advantage of the income tax deduction for mortgage interest and tax credits for having children.  I likely will not be able to take advantage of these when I retire, because the house will be paid off and the kids will not be on my tax return anymore.  So, in all likelihood, I’ll be in a higher tax bracket upon retirement.  Going with that assumption, it makes the most sense to increase my Roth contribution by 1%.  This works out to $80.75 a month.  So, where did the remaining $74 a month go from the raise?  The short answer is taxes, mainly.  My tax bill is increasing by about $50 a month.  The remaining $25 went to increase our fun money, $10 a month for my wife and $15 for me.

It was nice to see the hard work of reducing the expenses pay off in the ability to increase my retirement savings.  Now, with the raise and increased savings, $15,500 a year will be going into the 401k.  This is pretty good considering that in 2009 I wasn’t contributing at all.  Did you receive a raise this year?  What did you do with it?

Bonus Time Again

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.

One of the benefits of working for a larger company is that there usually is a defined plan for an annual bonus.  Bonus plans can go by various names, but in the end they all boil down to extra money.  It is bonus time again where I work.

My Bonus History

I usually try to anticipate what bonus I might get and what I would do with the extra money. This year was a little harder for figure out what I might be getting.

Last year, I received a pretty big bonus of $20,000.  Our CEO had communicated a couple months back that the bonus pool would be larger this year compared with last year.  So, what did I guess?  I ran some calculations for a range of bonuses, $10,000 to $25,000.  I will admit the $25,000 was pretty optimistic, but I guy can dream, right?

I received on the lower end of the range, $14,000.  Which as it relates to the formal bonus plan is 5% above what I should receive.  I am never upset about receiving extra money, so I was not disappointed.  What did I do with the extra money?

Dividing Up My Bonus

The first thing that comes out of my bonus is actually my 401k contribution.  The same percentage that is applied to my paycheck is also applied to my bonus.  I could elect to either have a larger or smaller amount deposited, but the election would also carry over to my normal paycheck for one pay cycle as well.  Since I did not want anything different to happen, I decided to have the normal 6% regular 401k and 1% Roth 401k contributions taken out.  The company still matches the regular 401k contribution that it does in a normal paycheck.  Specifically, the company matches dollar for dollar up to 6% plus an additional 2% (in lieu of a pension) regardless of whether you contribute or not.  So, simply by contributing to my 401k, I effectively get a larger bonus, 6% of $14,000.  The net effect is that I put $2,100 into retirement savings.

Now, I wish that I still had most of the bonus to play with, but by the time the government takes their cut, the bonus doesn’t look as big anymore.  The net amount that was deposited into my checking account was roughly $7,700.  This feels like a far cry from the original $14,000, but there is not much I can do about it.

I wish I could say that all of the money went into my emergency fund or I deposited it all in my Vanguard account.  I did deposit it into my savings account, but it is allocated essentially for future spending.  I set aside $1,200 for our Disney vacation 3 years from now.  We have been setting aside roughly that number for the last few years and now have built that bucket up to $6,400.  Our target for the trip is $10,000 by 2018 and we are on track.

We also set aside money for my wife’s gym membership, as well as some personal training.  The total on that amount was $1,700.  Her monthly gym membership is about $60 a month and then we set aside an additional $1,000 to cover the training.  I’ve have been with my wife for over 20 years, married for almost 12.  Little things like the gym and personal training help keep her on board with the broader budget goals and savings.  So, while setting aside the money for those things might not seem wise to some, in the broader picture it makes perfect sense.

Since, we set aside $1,700 for things for my wife; we set aside $300 for me.  I took that money and added it to my secret 2nd honeymoon fund.  We earmarked $1,500 for a vacation this year.  This has been the amount we have bucketed the last few years and seems to be enough for now.

The ‘Kid’ category also received a $1,000 allocation.  This category for is for just about anything related to the kids, be it an activity, clothes, or anything else I deem related to the kids.  There always seems to be something coming up with them.

The last thing we carved the bonus up for was the house.  Initially I had been planning on using some of the bonus for an extra mortgage payment, probably about $1,500, then setting aside additional money for house maintenance.  However, the house money set aside may just be used for some new windows.  I haven’t made the final call on that yet, so the money is just earmarked in savings right now for the house.

In the past, any extra money had been used for either debt repayment or padding the emergency fund.  We are in a position now where we don’t have to use a bonus for those purposes anymore.  It feels nice to be making progress.  Do you anticipate and extra cash this year?  What do you think you will use it for?

Credit Card Strategy

CC

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 used to have a fairly basic strategy when it came to my credit cards…

I only used one.

I didn’t have multiple cards in my wallet.  There was one card that was used for everything.  I certainly tried to maximize the rewards or cash back that we would get from that card, but I really didn’t spend that much time thinking about it.  I simply paid my bill in full every month and pocketed the rewards that I earned.  My situation today has certainly changed.

Multiple Cards

The first time multiple cards came about was so that both my wife and I could have our own personal cards.  Rather than use our joint card for our own purchases and then figure out how to transfer money between our accounts, it was just easier to have separate cards.  The rule was, and still is, the card is paid in full and you are not allowed to carry a balance. I did not earn much cash back with my card, as I wasn’t spending much.

Extra Cash Back

It was probably about 6 months or so ago, that I came up with an idea to earn some extra cash back.  My wife had the Bank of America card that pays $25 per quarter (an extra $5 if you have another Bank of America account) if you pay more than the minimum due on your statement and paid on time.  I noticed that we had at least 1 recurring charge that would be more than the minimum on a statement every month.  So, I opened a card in my name and put this recurring charge on it.  I have set up the account to pay the full balance every month.  For this, I have received $30 a quarter.

The next few changes occurred more recently.  The first was actually a debit card.  I had opened up a Discover checking account around year-end to take advantage of a $50 incentive for new accounts.  One of the perks of the checking account is that it pays you $0.10 every time you use your debit card.  Since we do some of our grocery shopping at Aldi’s, which only takes cash or debit cards, I thought why not use the Discover one.  I’m certainly not going to get rich with, but why not collect $0.10 for something I was doing anyway.  I simply transfer the food money from my normal checking account to the Discover account at the beginning of every month.

The other changes are credit cards, two to be exact.  The first was a solicitation we received in the mail.  Since we are members of BJ’s Wholesale club, we received an offer for their branded credit card.  The biggest benefit to the card was receiving 5% back on in-store purchases.  On average, we easily spend about $200-$250 a month at the store.  So, that’s easily $10 a month in cash back rewards.  In addition, there is a $0.10 off per gallon of gas at a BJ’s gas station.  Since there was no annual fee, I signed up for the card.  The second card is the new card offered by Citi.  You earn 1% cash back on purchases and then another 1% cash back when you pay your credit card bill, for a total of 2%.  We’ve been using the 1-2-3 card from Bank of America as our main card and have averaged around 1.3% to 1.4% cash back.  By my estimations, making this switch could bring in an additional $250 a year or $20 a month.

All in I will probably earn about $1,200 in rewards this year for doing what I was going to do anyway.  By not carrying a balance and not paying any annual fees, I am able to bring in some extra money.  I am not going to get rich off this money, but it helps pad the budget just a little bit.  I’ll take any extra cash I can.

Mortgage Refinance Odyssey

Home

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.

My odyssey started back in October 2014 and did not end until the end of January 2015.  What I thought would be a pretty straight-forward process, turned into anything but.

The Beginning of Mortgage Refinance

I am not sure how or why I decided to start looking into a refinance, maybe I was just looking to cut another expense.  The thought crossed my mind in October and I mentioned that I might be looking to refinance to a coworker.  Since they had recently purchased a house, she referred me to her lender.  I’ll call them Lender A, so things don’t get too confusing.  I was looking to eliminate the mortgage insurance from my monthly payment.

Since I didn’t have the 20% down payment when I bought the house, I was required to have mortgage insurance.  That mortgage insurance premium represents $300 a month.  When I contacted Lender A, they were sure that they could execute a refinance that would eliminate the mortgage insurance.  After taking the necessary information for the application, they ordered an appraisal of the house.

Appraisal

I’m not sure what delayed the appraisal, but it ended up taking a few weeks before the appraiser was able to issue their report.  The report did not come back as a surprise to me.  When we had purchased the home back in 2011 it was appraised for $345,000.  This appraisal came back at $340,000.  Lender A said that they would be able to refinance using a primary fixed loan for 80% of the value and a variable home equity as the second loan for the remaining balance.

It was around this time that my rate-lock was nearing its expiration.  As it turned out, rates had gone down slightly.  I inquired with Lender A about what would happen if my rate locked expired.  They simply said they would just extend it until my closing.  I can’t say I was very happy about not getting the benefit of a lower rate.  So, I decided to look around to see if any other lenders could give me a better deal.

Other Mortgage Refinance Options

I connected with 2 other lenders, Lender B and Lender C.  Lender B was a little vague at first, so I decided to proceed with Lender C.  Lender C was able to offer me a single fixed rate loan for the entire amount.  This was much more attractive than the variable rate with Lender A.  Once again, I started the refinance process.  This was probably around the beginning of December.  The process with Lender C was very quick.  The appraiser was out in just a few days and we had the appraisal report back shortly thereafter.  That’s when a wrench was thrown into the process.

This appraisal came back at $285,000.  I tried disputing the appraisal, but in the end, Lender C was satisfied that the appraisal was adequate.  Since I owed more than $285,000 on my house, there was nothing they could do for me.

Within the next week, Lender B had contacted me again.  I explained that I would only be looking to refinance if I could have one loan with an interest rate of 4.125% or less.  I had done some calculations and determined that that was my breakeven point.  If I couldn’t get those terms, it would not make sense financially to do it.  I also explained the situation of the competing appraisals.

Lender B said that they would order another appraisal, but that if it didn’t come back with a good valuation, that they could use the first one.  So, once again I started the process and the third appraisal was ordered.  This one came back with a valuation of $345,000.  Lender B now is able to give me the final terms of the new mortgage, 3.99% fixed for 30-years.  My payment would be going down about $320 a month from what I was paying previously.  I closed at the end of January.

Successful Mortgage Refinance

In the end, I paid for an extra appraisal.  Lender C credited me back the cost of the appraisal when the valuation came back in too low.  I was out the $400 I paid for the appraisal for Lender A because I had decided not to proceed with the loan.  I’m ok with that.  I have used that extra $300 a month a couple of ways.  The first was to plow a majority of it back towards my mortgage.  I am applying and extra $215 a month towards my mortgage principal.  With that and allocating some of my bonus every year towards the mortgage, I should be able to pay the house off in about 20 years.  The remaining $100 a month went to shore up some of our monthly expense items.  This should allow me to increase my 401k contributions when my salary review occurs in April.

How are your finances shaping up for 2015?

Expense Reduction

Accounting

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.

One of my financial goals is to always try and reduce my expenses. I always want to be efficient with how I am spending my money and to control the leakage that seems to occur when I am not diligent.  That leakage is what got me into financial trouble years ago.  I simply was not paying attention to where my money was being spent and ended up spending more than I was making.

Now, whenever I can, I reduce expenses.  Since I have been doing this for a few years, there are often no big changes, but this year, I managed to reduce my expenses by about $150 a month.  There was another change that began when 2015 started and another change that is currently in the works.  Those two additional changes will reduce my expenses by another $300-$400 a month.

Dry Cleaning

It was probably May or June, when I began to think about cutting out my dry cleaning expense. I wear a shirt and tie every day to work and I would have the shirts and pants cleaned at the dry cleaners.  I would clean the shirts after wearing them just once and the pants I would wear twice before cleaning them.  My average cost per month was about $115-$120.  The more I thought about this, the more I felt this was a want, rather than a need.  There were other areas of my budget that could benefit from this money.  I in turn, could simply clean and iron the shirts and pants myself.  I can say I haven’t exactly been thrilled each time I have to iron my clothes, but at least I was able to chop a significant expense from my budget.

Media

The other area that saw a reduction was my cable/phone/internet bill. I was able to take advantage of a 2-year promotional rate that locks in my price while also reducing my cost.  I generally view most cable providers as interchangeable, so I do not have a problem switching from one to the other.  The switch I did over the summer allowed me to reduce my bill by $25 a month.  The cable bill is one bill most people would probably cut entirely, but it’s a luxury that my wife and I indulge in.  My job is to simply keep the bill as small as possible.

Benefit Costs

The item that changed starting in 2015 was my benefit costs. This expense was one expense that was brought to me, rather than me seeking it out.  My company changed our medical plan to be mainly a high deductible plan and you had three choices for deductibles.  After some analysis, I opted for the highest deductible, $7,000.  This election reduced my medical expenses by $140 a month.  The reduction has allowed me to completely max out a HSA, with money left over.  My fingers are crossed that the money can stay in the HSA and will not be needed for medical expenses.

Mortgage

I am in the process of trying to reduce my greatest expense, my mortgage. I am looking into a refinance option where I would no longer have to pay for mortgage insurance.  Since I have a pretty good credit score, banks are willing to overlook the fact that I do not have the necessary 20% equity in the home.  The interest rate would be slightly higher than I currently pay now, but I would be able to eliminate the nearly $325 a month for the mortgage insurance.  If this happens, my plan is to plow $225 of the savings into paying the mortgage off that much faster.  The remaining $100 would go to some of the other spending buckets, so that we can enjoy a little of the savings.

By staying on top of my expenses, I am able to spend my money in the areas that I most want. This allows me to save for things like vacations and retirement, while still enjoying daily pleasures such as cable.

How have your expenses changed over the last year?

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