Friday, September 28, 2012

Side hustle and how/where to allocate the pay

I've been working some side jobs for almost the last 2 years and it has made a world of difference to our bottom line.  My work requires a lot of weekend travel, early mornings and long drives.  That said, my biggest expenses, apart from the time away from the family, is gas, car maintenance, and food (which is relatively minor in comparison).

I've been fortunate in that I've been able to save up a nice chunk of change in my "work" savings account.  I don't really have plans for the money at this point, but figure once my car dies (it's a 1997, paid-for 2-door with 171,000 miles) that's probably where I'll take money for a newer one.

So, I've got a round number in my head that is my goal for the account balance.  I don't think I'll hit that mark this year, but hopefully I will by the Spring or Summer of next year.  Once I have that met, while I'll keep saving some in it, I want to spread around the extra income.  I've identified five things to fund on a monthly (when I can) basis.  They are:
  1. My ROTH IRA - I just started this, this year and am contributing a minor $100/month now.
  2. 529 Plans for our boys - We've been funding these, but with only minimum contributions.  I want to bump these up.
  3. Car replacement fund - This is a dedicated car-replacement fund.  My wife is also contributing since her part-time work requires a 40-mile round trip.
  4. Mortgage principle payment - This is above and beyond what we're already doing and would help get that paid off sooner
  5. A taxable investment account - I've been thinking about this for a little while, but am not sure I want to further diversify...
Ideally, I'd like to contribute $100/month for each fund.  But, that means I'll need to bring in as much, or more, gross part-time income than I do now and really, I'd like to cut back some.  I think the order I have them listed is the order of importance for funding.  So, my first $100/month goes towards the IRA, second $100 will get split in half and $50 put in each of their 529 funds.  Then, #3 and #4 may each get partially funded with the third and fourth $100 with whatever else I make going towards either investing or saving.

What do you think?

Aggressive Mortgage Plan Payment 1

We recently refinanced our house, from a 30-year fixed APR of 5.625% that had about 25 years left, down to a 15-year fixed APR of 3.75%.  That closed on August 17th and it took them another week to get the old loan closed out and this one active.  So, the first payment was/is due on October 1st.

Well, I just made the first payment and included an additional $1,000 towards principle.  See, we have a plan to cut this mortgage down, paying it off in exactly 100 payments.  Why 100?  Well, it's not that scientific.  I was using a mortgage amortization schedule that included a column for extra principle payments. I was going through that, adding the standard "extra" we cay pay:

  • twice yearly half mortgage payments when I get paid three times in a month
  • once a year we throw some of our tax refund at it
  • once a year I get a longevity bonus that will go toward it
  • once a year I put some from my part time work that I've saved throughout the year
  • additional principle from rounding up (from $1,056 to $1,100)
  • my wife's part-time job 
  • some regular contribution from my part-time job

Once I got done with that, I noticed that a large (~$5,000) payment on month 100 would end it.  So, that was that!  Month 1 was easy.  It was, more-or-less, the refund of our escrow account from our old loan, since we pre-paid that same balance into our new loan.  [I don't know why they did that, rationally, but it's irrelevant at this point.]  

My plan is to keep the extra principle in our savings account and build it up throughout the month, then when it's time to make the payment, simply move that extra principle into the checking account.  

The thing I can't get out of my head now is: "100 months of mortgage payments on the wall....100 months of mortgage payments on the wall..."  It will be a long journey, but hey, there's only 99 left!  And then, we'll be completely DEBT FREE.

Friday, August 3, 2012

New Income source and how to budget

We've got a pretty good set-up going these days, though it hasn't been easy to get there.  My wife stays at home with our two boys and I am employed by State Government, so, we don't have a lot of extra money.  But, we've been on a pretty good budget for the last 20 months or so.  We live completely on my salary alone.

Since then, I've started some part time work that has brought in additional money.  Since it's a contract type job, I save most of it, particularly to account for taxes and expenses and such, and am saving in case I need to purchase a new car for that work (since it requires a lot of driving).  We do use some of that money for spending if we want to, and I also invest a portion in my ROTH IRA.

So, the topic of this post is related to my wife and the possibility of her starting a part-time job.  Now, the job doesn't pay a whole lot, and it is around 10-15 hours a week, but it works out to around $600 (net) a month.  So, this brings us to the discussion of how to budget this additional money.  My recommendation, I think, would be to budget percentages, but for things that do not increase or "Standard of Spending".  I would propose something like:

  • 20% for work related expenses, including gas, clothing, food
  • 20% towards retirement IRA (ROTH or Traditional)
  • 20% towards the big goal we're working on (currently mortgage payment)
  • 20% towards personal savings
  • 20% for one of our large sinking funds (car replacement, home repair, etc)
We'll see!

Thursday, June 21, 2012

Net Worth, Diversified and on the Rise

Net Worth - the sum of one's assets, minus debts.  Pretty easy concept to grasp, but according to reports in the news, not such a good thing to track these days.  It appears that the average net worth in American has decreased over the last several years (decade).  Really?  Why?

My opinion, fact or not, is that the only reason a lot of people claimed the net worth they did, up until 2007, was because they included their home equity in the equation.  This, of course, rose exponentially leading up to the big crash and recession.

My second opinion, is that you shouldn't really count your home equity in your net worth equation.  Or your cars, or most other stuff.  For ours, I include the value of the cash we have in banks, the value of our retirement savings, investments, and any other savings and money we have.

I'm in a good position in that I'm fully vested in the State Retirement System, meaning that I contribute 6% of my salary (mandatory) into a defined benefits plan that compounds annually at 4%.  There is a value of this account that I can easily identify, but that number, in the grand scheme of things, is irrelevant.  Upon retirement, should I be fortunate enough to work here for another 19 years, I'll receive a monthly pension (some amount of the average of the last 4 years' salary).  This amount will be more than enough for us to live comfortably, especially since our house will be long since paid off.

So, in addition to this amount that *never* decreases in value, we've also been saving cash for a large emergency fund.  This cash earns very little interest, but similarly (as long as we don't have a major emergency) doesn't decrease.

The other big amount that makes up our net worth is retirement accounts.  This is where our fluctuation is, but as it goes down with the market, it also goes up.  We also put money (not maxing anything out, mind you), into this account with each pay-check, so the account balance generally trends upward.

The takeaway is that diversification is very important when it comes to net worth, both building and increasing.  Put all your eggs in one basket, like home equity (that may not even be the result of hard work, but mere speculation), and you'll be bitten hard in the ass if one part of the economy tanks.

Tuesday, May 8, 2012

Side Hustle

I believe that every one who is head of their household should have a side hustle.  No.  Actually, if you make over $200k a year, you probably work long enough to where you don't have time for one, and quite frankly, you make enough as it is.

But, for most of the rest of us out there (incomes less than $70k), a side hustle is a great way to scratch a little ground out, make a little buffer on Murphy.  While I didn't understand it while I was growing up, my Dad spent Saturday mornings and a couple evenings a week preparing taxes at the local tax office.  I can only assume that dedication to our family is what helped pay for us kids to go to college.  His side hustle is something he still does today, for a few months each year, even though he lives now 140 miles away from the job.  He enjoys the work, the people, the money is good, and since he's working there for over 20 years, is pretty well vested in the firm.

My side hustle history started right out of college.  Two weeks before I started my full-time State engineering job, I quit my job at Pizza Hut, where I had delivered pizza for three years during college.  I spent those two weeks relaxing, but anxious to start making some money again.  I hadn't worked for two months at my full-time job when I went back to the Hut to ask about delivering a few days a week.  I went on to work my full-time job, and my side hustle, delivering pizza for about 3 more years.  In that time, I got married, paid off my credit card, engagement ring and car.

I ended up finally quitting that pizza delivery job when I accepted a new full-time position and when my wife graduated college (dual income household then).  I only had the full-time job until January of last year when I contacted a friend about doing some weekend contract work for his race timing company.  We hit it off well, and I worked for him all last year, and am doing the same this year.  That job, and some connections, have led to other, smaller, contract jobs measuring running courses.  It's been an awesome ride, so far, even when I get up at 3:00 a.m. on a weekend morning to drive across the state to time a 5k.

With the extra income, we've managed to avoid lifestyle creep, but have also been able to more easily absorb some bumps in the road.  There are so many great side hustle opportunities out there, get yours today!

Tuesday, May 1, 2012

What's a Sinking Fund?

What's a sinking fund, and what do you use them for?

A sinking fund, is basically a savings account that you fund with regular deposits (or withdrawals, in our case).  We use sinking funds for a lot of our budget categories, about 10 "envelopes" worth.  We currently have sinking funds for:

  • Clothing
  • Home Repair
  • Car Maintenance
  • Vehicle taxes and insurance
  • Subscriptions
  • Vacation
  • Race entries
  • Gifts
  • Dinner out
  • Pre-school (during the summer months when we don't have tuition)

These are partially funded with each pay check I get.  We store these funds in either physical envelopes or a 'virtual' envelope where we use an Excel file to account for a money market fund at the Credit Union.

For example, the first time we put a budget to a paycheck, we allocated $15 for clothing.  This went in an envelope.  During the next two weeks, we didn't spend any money on clothing.  The next time I got paid, we put in another $15, for a total of $30.  Same thing happened the next two weeks.  Eventually we had $90 in our clothing sinking fund.  Then we bought about $60 worth of gently used kids clothes for our boys at a consignment sale.  This left us with $30 to build back up.  More importantly, it left is with no stress, because we were able to pay cash that we had saved and designated specifically for this purpose.

These funds are great because they account for things we don't need to buy every pay check and for things that take a while to save up for.  I highly recommend the use of sinking funds for these and even more budget categories, since they're essentially savings accounts.  And, I love savings accounts!

Monday, April 16, 2012

2012 Financial Focus

Our focus for this year is our mortgage.  We worked Dave Ramsey's baby steps last year, paid off all non-mortgage debt and saved 6 months of living expenses in an emergency fund.

At the beginning of this year, I kicked my 401k contribution up to 6%.  In addition, I am required to contribute 6% of my salary into our State Retirement System.  So, that makes 12%.  I also opened a Roth IRA with some money I made from my side work last year.  I plan on contributing 15% of what I make from my side work towards the Roth.  That was baby step 4.

We've been working on step 5 since each of our boys were born, though, truth be told, we're not putting a lot into college savings yet ($25 per boy per month).  When they get birthday or Christmas gifts from family, they go in the 529 account too.  We'll have a lot more to save for college (or even just cash flow it) once our mortgage is paid off.

So, that gets to our 2012 focus.  The $128,700 we owe on our house.  I want to knock $10k off of it this year.  We've made ok progress through the first quarter of the year, but we've only knocked off $1,940 or so. That leaves us a lot of ground to make up.  We're in the process of trying to refinance, but the initial appraisal we got valued the house as "underwater".  Bastards.

In any event, it looks like our mortgage lender is working hard to secure us a much better rate (currently at 5.625%) under the new HARP program.  We should see some progress towards the end of this week/beginning of next.  I'm hoping to get a rate in the 3%'s.  That will help in the long run, but may put us back $3k or so.

On our current loan, about $200 gets knocked off principal with each payment.  The refi will move that up to over $400 a month, effectively doubling our pace.  We're, of course, going with a 15 year, fixed loan, as opposed to the 30 year we have now, but our payment will only increase $150 or so (nearly the equivalent of the extra we're putting towards principal as it is.)

Seems like we've got a lot of irons in the fire, but are trying to narrow our focus to really make up some ground on this one.

Monday, April 9, 2012

Emergency Fund(s)

We started last year (2011) without a clue what an emergency fund was or what it was good for.  We ended last year with a "fully funded" emergency fund.  How?  Why?  Who?  What?

Exactly.  We followed the Dave Ramsey plan and first moved $1000 into our joint savings account.  That is our "baby" emergency fund.  And, truth be told, it was our baby emergency fund before we knew what that was.  Our next step in this process was to pare our budget down to the essentials and save everything we could.  That money we "piled up" in our Credit Union Money Market account.  With extra money from a longevity pay bonus, side work, and gifts, we managed to save enough to cover almost 6 months of "bare minimum" monthly expenses.

Six months is a good guide to cover a lot of life's hidden challenges.  The fund is set to cover:

  1. Mortgage Payments (the minimum without any added principle)
  2. Utilities (cell phone, electricity, internet, and water for about $260 per month)
  3. Food (we'd cut back but will be approximately $400 per month)
  4. Health insurance (in case something bad happens)
  5. Misc (gas - a relatively minor expense for us, etc)
That's about it.  If I were to lose my job, we'd immediately stop contributions to charities, retirement, Christmas savings, the HSA.  Basically, if we didn't HAVE to do it to keep the house running while I found something new, it would be cut.  I'd also really try hard to pick up some more side work.  

The other thing we've been doing for the last year is saving up in our "sinking fund" envelopes.  (More on our envelopes to come in a later post.)  We have sinking funds for:
  • Clothing
  • Car maintenance
  • Vehicle taxes, insurance and AAA
  • Home maintenance
  • Pre-school (we continue to save during the summer to cover higher costs the following year)
  • Gifts (not including Christmas, for which we save in our Credit Union's Christmas Cash Fund)
  • Races (a now minor expense for us)
  • Travel and Recreation
  • Subscriptions
With these "funds", we've managed to capture all of our annual expenses, as we've been through a full yearly cycle.  These funds also serve the back-up purpose of a further emergency fund.  We store most of these in a money market account and track it with an excel spreadsheet.  We store the rest of it at home in case we need cash (since neither of us have a credit card, and we prefer cash to using our debit card.)  

This plan has worked well for us over the past year and I don't think we've made any major changes since inception.  The amount we regularly contribute has fluctuated based on need/availability of extra cash, but we continue to make good progress.

Tuesday, April 3, 2012

What is a BUDGET?

If the concept of a budget is foreign to you, I've got a good analogy.  A BUDGET is like a DIET.

Think of it like this, a DIET is simply what you eat.  It could be good, bad, or indifferent.

A BUDGET is simply what you spend your money on.  It could be negative, positive, or even.

You could spend less than you earn, more, or the same.  The simplest way to do a DRAFT BUDGET is to start out with the amount of money you make over a known time period (get paid once per month, bi-weekly, weekly).  Then you'd start listing your expenses, needs then wants.  The first DRAFT should not constrain spending.  It should simply be an exercise to capture what you earn and what you spend.

The effort of capturing your expenditures may take a few months, since a lot of costs are factored and paid over longer intervals (weekly groceries, monthly mortgages, semi-annual insurance, annual taxes).

Once you've done this (captured income versus spending), you should be able to see where your money is going.  This is a very important exercise as it sets the groundwork for putting your BUDGET on a DIET!

Sunday, April 1, 2012

Debt for Engagement

I look back, yet again, and wonder what in the hell I was thinking. I bought my wife's engagement ring on payments! I was less than 3 months into my first job out of college, she was out of town for the weekend, and I went to the mall (again, back when I did that).

I nervously walked around a few stores and settled on Zales "the Diamond Store". Perfect! They'd help me out and look out for my best interest. That...or, they'd sell me a nice diamond ring at twice the price I could have gotten it elsewhere. But, but, it came with an appraisal card and I was getting a DEAL!

Luckily she said yes, and we've been happily married for almost 10 years. She also knew I bought the ring on credit and I worked hard to have it paid off before we got married. (I think I even succeeded in doing this.) While it wasn't THE RING she wanted, it certainly served it's purpose. It showed initiative, a trait that still gets me in trouble sometimes. More importantly, it showed her I loved her (the act of proposing, that is), and it worked out well in the end.

If I had it to do over again, I'd have saved the money up in cash and gone to a diamond broker for a better deal on a bigger ring. Luckily, I'll never have to shop for another engagement ring as long as I live.

Saturday, March 31, 2012

My first credit card

I think my first credit card was a pretty standard thing. I was 19 and a sophomore in college at North Carolina State University. Some VISA guys had a booth set up near the Free Expression Tunnel and were giving away NCSU t-shirts, just for filling out a credit card application.

Man, if I knew then, what I know now...

I signed up, of course, and even used my real name and address. For whatever reason, VISA decided I'd be a good income source and sent me a 3 x 5 piece of plastic with a magnetic strip on the back. Merchants in the bookstore and mall (yeah, I went to the mall then, I was so 1997!) were all too eager to swipe my card, take my free money, and give me stuff I didn't need.

Throughout college I used the card, whether I had money or not (usually I did because I had a great job delivering pizza). I managed to max the card out a few times, but then, the limit was around $1,000 or so. I remember one distinct time when I bought a couple pairs of pants at Abercrombie and Fitch, simply because I had made a credit card payment, and therefore, had the "money" to do so. Ugh, I hate looking back at that.

Each time I got the card maxed out, I'd pay some off and would get a bump in my credit limit. (They must really like me!)

I never missed a payment, though, through the years of college and slightly beyond, the balanced ballooned up to over $3,000. That was enough, and as I got serious with my (future wife) girlfriend, I went to work paying it off. I paid most of it off before I graduated but kept it around, just in case I needed it. My emergency fund, before I knew what that was.

I kept that card, or a different version of it until February 2011 when we performed plastic surgery and got rid of it for good. I've been without a credit card for over a year and with an emergency fund (more on that later) in place, I'm not ever planning on going back.

Friday, March 30, 2012

Who Am I?

I'm a 33, soon to be 34 year old civil engineer with a wife and two kids (both boys). We live in Raleigh, North Carolina, in a house we bought four years ago (when my wife was working, but very pregnant with our first).

My wife currently stays at home with our boys, as she has for the last four years. In the meantime, she has earned her Masters Degree (cash flowed that) and is now looking for a job as a Librarian. So, we've been on one income for the last several years, and have managed to do ok. I work for State Government, so trust me when I say I don't make a ton of $$$.

But, I've learned some things that have helped us get ahead, if only slightly. And, if we can do it, I think anyone can.

Thursday, March 29, 2012

We Don't Need No Stinkin' Budget

Really? Really? Think you can achieve personal finance success without one? Think again!

Budget is not a bad word. It's really not. While at face value, it may seem like constraints, a budget is actually a path towards freedom. Telling your money where to go, what to do, is a big shift in thinking over the traditional money telling me where to go, what to do. Or, rather, what I can't do, or where I can't go.

This blog is my attempt to seek enlightenment in the realm of personal finance. I have different goals than some other personal finance bloggers, since my goal isn't to retire early. My goal is simply to manage what resources I have while I work a full, meaningful career.

Topics will deal with budgeting, obviously, but also saving, retirement planning, frugality, and, should I ever learn anything about it, investing. I'm no pro. Heck, I'm a civil engineer, for goodness sakes! But, I do have some understanding of how to get from $0 (or even -$) net worth to somewhere on the plus side.

I welcome any questions and comments.