New Financial Plan

Early on I never put much on my credit cards.  I wasn’t spending that much.  So when the payments came due they were small.  One time I spent more than I noticed, more than I had free when the statement came.  When my statement came I was close to having enough to pay the whole balance but not quite there.

Without quite understanding how credit cards worked I decided to save up and pay off the balance in one shot instead of sending little payments.  In my blissful ignorance I threw away the statement and figured that soon enough I would have the full amount and send it all in at once.  Whoops!  Of course I forgot to send any payment until the next statement came.  Not only was the balance bigger, but all sorts of interest and fees were on there.  That was an expensive lesson.

A while later I was up to using several credit cards and getting rewards for them.  I would pay them all off each month and file the bills away.  All of the cards had different grace periods and cycle dates.  So there were statements coming in several times a month, and payments due several times a month.  Wouldn’t you know I confused the dates and ended up with one payment early and another late.  I didn’t even notice until the next statements came in.

Late payment fees again, interest charges again.  This time I knew a bit more and thought I was doing everything right.  I called the companies and tried to sort things out.  The late payment fee was forgiven.  I changed the dates on my accounts so that they were a bit more in line.  I set up a system for myself of gathering all the bills in one place and paying them in two big batches.  It’s better to get it all done with less work and fuss.  Some payments are early, none are late, and there is way less room for error.

• Leave a comment... (0)

Things have been hectic through the holiday season.  Thanksgiving was busy enough and nothing has let up with all of the preparations for Christmas.  We still have some last minute gifts to get.  We have to sort out family schedules.  Then Christmas and New Years will be here.  At least the kids activities and schools have a break.  I have some time off too!

The end of the year is a good time for a big money review.  There are tons of opportunities to use your money.  Holiday gifts are a good way to spend a bunch.  Charitable donations are another good way to share your wealth.  Retirement contributions can be made.  This year we can almost figure out our tax situation to help decide what moves make sense over the next week.  It looks like there will be AMT relief again.  We’ve never had to worry about that but it is nice to know that other people will be able to plan a bit earlier if that does go through.

With all of the activity going on I am already feeling behind here, in both my blog and my plan.  Through the end of the year I am hoping to get another credit card post, a first good look at college savings plans, new years resolutions, and some other odds and ends.

• Leave a comment... (0)

If you want to be rich you have to save money.  It doesn’t matter how you get the money coming in, what matters is how you save and invest it.  You can earn money, make money on investments, generate passive income, inherit it, win it, find it, or anything else.  If you get enough you can consider yourself rich.  If you plan and use the money wisely you can actually become and stay rich.

While we don’t have enough money coming in to be considered rich, we have a plan, a savings and investing habit, and a good enough start that we anticipate growing our assets to allow us to be rich in the future.  We simply save money when we can, invest it according to our situation, and patiently watch it grow.  We don’t use many gimmicks or tricks in our savings.  We have made it a way of living, not anything special or hard, and that makes us more confident in our goals.

This article talks about “money-saving games” you can use to “trick” yourself into saving money.  The exercises are a coin jar, pay yourself first, lower your recurring bills, live a raise behind, continue payments after payoff, and pay to use.

Here is my quick take on each of these.  We have a coin jar, and coin collections in each car, just because we don’t carry change around.  I guess we pay ourselves first, even though we don’t think of it like that.  All money coming in goes into the bank first so it earns interest and can be tracked.  We don’t try to lower bills as some sort of contest or competition, but weigh spending options on all bills up front.  I measure patterns and changes to understand them, and make changes if necessary, but never blindly force savings just to beat my past performance.  We don’t live a raise behind, but always live on less than we earn.  I plan enough to know when payments will start, end, or change.  I weigh my options to consider refinancing or paying loans down early.  I haven’t had reason to “trick” myself into saving payments after payments ended, mostly because our situation always changes and I update our plan often enough that there is no reason to “trick” myself into anything.  I always consider the cost of using things and replacing them, but never pay myself to use our own things.

My plan seems to be more basic than those tips.  Maybe there is something there that would help us.  I don’t use separate accounts or strict budgets.  My “budget” tracking is mostly backwards looking.  We track our goals, plans, and spending at least monthly.  We have less accounts to track, a higher balance to earn tiered interest, and still do well saving.  We know how well we are saving each month and make decisions as they come up.  So far we have maxed out IRAs for several years, paid down loans, and steadily increased our net worth.  All of this we did consciously.  Maybe I’ll find a reason to trick myself into doing things differently.  For now I believe that I have a good enough handle on things to manage my money without screwing things up.

• Leave a comment... (0)

One of the things I would like to do is to put together my own financial calculators.  I have a mortgage calculator that I will update to put here on the site.  Other calculators I will have to put together based on what seems to be useful.  Most of the calculations you need can be done with basic tools.  The other calculations take some combination of more complex calculations, large amounts of data, and assumptions about the future.

An article over on Marketwatch talks about some complex calculations you can use to figure out a retirement number.  The article is here.  This article is about the different options in retirement planning calculators, from free online tools to programs you can buy for $150.  The economist they talk about has the opinion that the free tools “get it wrong.”

My opinion is that none of these tools should be viewed as the right or wrong answer to retirement savings planning, but should be used to set guidelines.  Any tool or calculator that I create will say that up front.  In fact my opinion is very similar for all general financial tools or advice.  Take it and learn from it.  Use it to help set up your own rules and guidance.  Build an understanding of *why* it is suggesting the plan it gives you.

As for this type of calculator, I’m not sure how much of it I would put in a calculator I would create.  A good worksheet and planning session will give a pretty close idea to what this type of calculator would.  It wants to smooth out finances based on changing incomes, costs of living, family expenses, etc.

The big points to consider here are risk and opportunity cost.  I think a few starting questions make a good first step.  What are the odds of a good retirement at different levels of savings, using simple calculators?  How happy will I be spending the $ left in my budget each year, after savings and out of the ordinary expenses?  Have I considered the risks of inflation, changing taxes, career changes?

• Leave a comment... (0)

I’ll assume that if you are reading this you are already saving for retirement, or maybe figuring out how to start.  If either is true you are apparently way ahead of many people.  I just finished reading an article on CNN about scary estimates of how little people are doing to save for the future.

The article can be found here.

One of the main points of the article that I have to question is the estimate that 36.8% of 17 year olds will retire without any retirement plan savings.  It’s easy to guess that very few 17 year olds have retirement savings now, some might not even have jobs yet.  My first read through the article I thought that so many of them not saving a penny over 50 plus years was quite an assumption.  I didn’t want to think that there is so little confidence in the education and drive in today’s teens to believe those numbers.

Of course the other point that surprised me was that only 62% of all workers were offered a retirement plan in 2004, and only 36% of those people participated.  I believe that would make around 22% of workers participated in a retirement plan in 2004.  I feel even more fortunate in my situation seeing that.  When I looked for jobs after college I considered what type of plan and matching contributions were offered.  All of the jobs I looked at had retirement plans.  I assumed most did.

Reading over the article a second time is a little scary.  Looking back at that number I see that only 62% were offered plans, so if that holds steady than 38% would not, right in line with that estimate for 17 year olds who won’t have savings.  Of course not all people are participating.  I guess people will move between jobs and participate at one point or another.  Unfortunately it sounds like there will be lots of people with little savings in 50 years.

• Leave a comment... (0)

Back when I was getting my first credit cards all I needed to know was what I got as a bonus when I signed up.  At that time it was shirts and hats.  If I liked the little prize I was happy to sign up.  When I went to the store I pulled a card out.  If they didn’t take that one I just pulled out a different one.  Eventually I realized that you only need so many cards, and there are problems with having too many.

Next I realized that not only could you put off paying for something for a month, but some companies even rewarded you for using their card.  I had a discover card so it became my card of choice.  I used it for everything.  When I went to get my rewards they seemed low.  It turns out that up to 2% back was hard to get to, and probably impossible for me at the time since I wasn’t spending all that much money.

With my spending increasing each year my rewards were building up.  Good news for me when they had the double your reward program in place.  A friend of mine had a mastercard earning a steady 1% on everything and thought I should switch.  I never stopped to crunch the numbers, but I figured that since I was reaching 2% at the end of the year, and doubling all of it, I was probably coming out a bit ahead of 1%.

Then discover started removing the rewards I liked.  The double rewards were in things I didn’t want.  I still had reward money sitting in my account, so I chose the best rewards and cashed out.  Then I got one of the 1% mastercards.  When the 5% gas/grocery rewards cards got popular I got one of them.  When they changed my account to a 2% version they changed my account numbers.  Since I had to update my account numbers everywhere I moved on again to the chase freedom 3% on top three select categories.

• Leave a comment... (0)