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$48000 Goal Update: 4 Months (Repaying Myself)

May 9th, 2007

NCN

CLICK HERE TO WATCH MY SEGMENT ON CHANNEL 2 WSB ATLANTA WITH CLARK HOWARD

This year, I am trying to save $48,000 dollars. $48,000 represent 60% of our household gross income. To read more about my goal and to see what I’ve managed to save, so far, click the category link labeled $48000.

Last month, I found myself in an awkward position. April 15th was fast approaching, and I had not fully funded my 2 Roth IRAs for 2006, so I “raided” my ING savings account. So, I spent the rest of April paying
myself “back”. In other words, I did not contribute any money to my after-tax retirement accounts, but I did increase my savings account.

lso, I decided to wait one year to open an ESA for my son, thereby reducing by $2000 the amount that I had planned to contribute to that account this year. Here’s a chart of the current breakdown, where I stand, and the progress that I’ve made:

As you can see, I have managed to save $16,667 over the first four months of 2007! This amount includes the amount that I have contributed to my 403b, the amount my wife has contributed to her pension plan, the amounts contributed to our Roth IRAs and my daughter’s ESA, minus the amount that I still “owe” to my ING Direct account. In April, I was able to send $2000 to my ING Direct account, thereby reducing the amount that I owe myself to $3000.

I am amazed at the continuing power of FOCUS! Two years ago, it took me 10 months to payback $11.5K. One year ago, it took me 8 months to save $20K. Now, after learning more and more about personal finance and money management, I’ve managed to save over $16.5K in 4 months! Budgeting, frugal living, and planning really do work.

Posted in $48000, Retirement, Savings

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Using My Emergency Fund To Buy A Car (How To Buy A $10,000 Car For $7800!)

May 3rd, 2007

NCN

By the end of 2007, I plan to have $20,000 in my emergency fund. (Remember, I “borrowed” some money from my Emergency Fund so that I could fully-fund my Roth IRA’s for 2006. I am in process of “paying myself back”.) Since I’ve been thinking about purchasing a “new” car, I started thinking about how rapidly I could save $10,000 by the end of 2009.

First, I found this awesome calculator and I entered the following:

Number of years: 2 (January 2008 until December 2009)
Annual Rate of Return: 4.5% (Current ING Direct Rate)
Opening Balance: $20,000
Monthly Savings: $325
Ending Balance: $30,025.61

For the 24 month period from January 2008 until December 2009, I will deposit a total of $7800 ($325 X 24). Adding that to the amount of interest that I will make during that same period of time (about $2200) and I will arrive at my grand total of $10,000. So, in two years, I could purchase a $10,000 automobile after making $7800 in “payments” to myself.

Notes: The above calculations assume that I will NOT have to use my emergency fund funds for any other purchases, that the interest rate in my ING account will not dip below 4.5%, and does not include tax that I will pay on interest earned.

Now, let’s assume that at the beginning of 2008, I decided to finance an automobile and that I wanted my payments to be $325 per month. How much of an automobile could I afford? Just for simplifying the calculations, let us assume that I am going to get financing at 4.5%. I realize that this number is “low” for a used car, but let’s just keep things “simple”.

I could FINANCE the purchase of a car at 4.5% for 24 months, with payments of $325, and I could buy a car valued at $7445.
Over a 24 month period, I would make 24 monthly payments of $325 (totalling $7800). Over that same time, I would pay the finance company $353.95.

So, the difference, in this example, between saving $325 per month (and adding this money to the interest that my savings account is already accruing) and financing a car purchase for $325 per month, is about $10,000 – $7445. So, by saving for my purchase, instead of financing it, I can get $2500 MORE car.

Notes: Using my method, I will have to delay the purchase of the car for 2 years. But, whenever I make the purchase, I will be getting a ‘nicer’ car.

Now, suppose that, instead of sticking with the $325 payment, you simply wanted to purchase a “$10,000″ car, financing it at 4.5%. Now, what would be your total cost?

I could FINANCE the purchase of a $10,000 car, for 24 months, at 4.5% with payments of $436.48. Over the life of the loan, the total amount of payments plus interest would be $10,475.52.

Now, back to my plan. In two years, I will have turned $7800 plus interest into about $10,000. If I were to finance a $10,000 car at 4.5%, I’d be “out” $7800. That, my friends, is a $2600+ difference!

The above just gives a taste of the power of interest working FOR me instead of AGAINST me. In the “real world”, I hope to make a better return on my money than 4.5% and there are very few people who qualify for used-car loans at 4.5%. So, the difference in the “real world” would probably be MORE than I have figured. (I used the calculator located here to figure loan payments.)

Resources:

Posted in $48000, Automobiles, Emergency Fund, Money Management

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I Made A Decision About ESA Funding For 2006

April 16th, 2007

NCN

My original goal for 2007 is to save 60% ($48,000) of my gross income in retirement or education savings accounts. One of my mini-goals, inside of my main-goal, was to contribute $2000 to my son’s ESA for fiscal year 2006. I have made the decision NOT to fund his ESA for 2006. I have already fully-funded an ESA for my daughter for 2006 and 2007, but my son is 4 years younger than she is, and I am busy exploring other investment opportunities. To be honest, I will probably wait until 2008 to begin funding his ESA. Right now, I am focused on fully funding our Roth IRAs and saving money in our car-replacement fund. (My son is only three, so it’s not like I am neglecting him. My daughter is 7, and we began to save for her college education when she was 6.) I will still aim to save $48,000 this year, but I shall allocate the funds that were going to go into his ESA into other accounts. (Saving for college is a MAJOR priority. We plan to pay for our children to attend quality schools. We are planning to save for a majority of their college expenses and then budget for the rest when they actually enter school.)

Posted in $48000, College, Goals

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My Current Investments

April 12th, 2007

NCN

I don’t talk a lot about my investments. Why? I don’t really know all that much about investing. Remember, for the first 31 years of my life, I was broke and in debt. Now, I’m debt free, saving some money, and I’m learning as much as I can about investing. I am funding my 403b (at work), a Roth IRA for myself, a Roth IRA for my wife, and an ESA for my daughter. (If you ever want to know about my retirement and education savings, simply click the category labeled “$48,000“. $48,000 represents 60% of our combined gross income and is the total amount that I am trying to save and invest in 2007. All categories are all listed on the left-hand side of this page.) I have been contributing to my 403b for the past ten years, but the annual amounts that I contributed were very, very small (usually less than $1000). Now, I am aggressively funding my 403b and my other accounts. Here’s a breakdown of my current investments.

403b

30% REIT, 40% Small Cap Growth, 30% International Growth

–My 403b funds are aggressively invested. I know this, I acknowledge this, and I am FINE with this. Why? My wife’s job provides her with a pension fund and will be our “safety” net. I have decided to be aggressive with my 403b in an effort to maximize my returns. (NCN “personal prediction sure to be wrong”: I think that the areas for growth in the next 5 years will be in international stocks and small cap stocks. I’m probably wrong, but this is what I “think”. Please note, I would NEVER, EVER suggest that ANYONE mistake my prediction for advice. The FASTEST way for you to go broke is to listen to what I have to say about investing! If you are looking for blogs by people who KNOW what they are talking about when they talk about investing, check out some of my personal finance blogging pals: Five Cent Nickel, My Money Blog, All Financial Matters, and Free Money Finance. Getting out of debt or trying to save for emergencies? I’m your man. Learning how to invest? Read those other blogs!)

My Roth / My Wife’s Roth

100% in RFG, an ETF which tracks the growth stocks in the S&P Mid-cap 400.

–I do not practice “dollar-cost-averaging”. I save up an entire year’s worth of contributions, send a check for that amount ($4000 for 2006) to my brokerage and then purchase a single ETF. Again, this ETF is more aggressive than an ETF which tracked the total market or the S&P 500. I use ETF’s (instead of mutual funds) because I like to make ONE purchase per year.

Daughter’s ESA

90% in RSP, a weighted ETF which tracks the S&P500 Equal Weight Index. 10% in CLX, my only single-stock investment.

–RSP in an interesting ETF. It is an “equal-weight” ETF. What does that mean? Most ETF’s invest in a multitude of stocks, and the amount of stocks owned PER company is determined by company SIZE. An “equal-weight” ETF (at least I ‘think’ this is right) purchases all of the stocks in an Index, but purchases the same amount of stocks PER company, regardless of company size. Benefits of this approach include the fact that the smaller, faster-growing companies in an index make more of an impact on an ETF’s price. As for CLX (Clorox), I just wanted to own a solid, dividend paying company. I purchased this stock two years ago when I opened my daughter’s ESA and I’ve just continued to hold onto it. The percentage of my portfolio dedicated to CLX stock will decrease as I make additional contributions to the ESA, but I plan to simply hold the stocks that I already own.

Again, please do not “copy or emulate” my investing strategies. I am in the very, very early stages of learning about investing. I’m POSITIVE that there are TONS of blogs, sites, and television shows from which you can get good, solid, dependable, investing advice. No Credit Needed is NOT an advice site! I just share with your WHAT I AM DOING!

The final breakdown looks like this:

Small Cap, REIT, International, Mid-Cap, Large-Cap, Single Stock.

(By the way, here’s how my retirement account performed in 2006.)

Posted in $48000, College, Retirement

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$48000 Goal: 3 Months In (An Update)

March 25th, 2007

NCN

I began 2007 with a goal of saving 60% of my gross income ($48,000).

(On this blog, whenever I say “my” I am referring to “household” income.)

So far, I have fully funded my daughter’s ESA for 2006 and 2007, fully funded my Roth IRA for 2006, and fully funded my wife’s Roth IRA for 2006.

(In order to fully fund both Roth IRAs before April 2007, I “dipped” into my ING Direct Savings Account. I am now aggressively “paying myself back”.)

If I plan to live without borrowing money, I have to save a considerable amount of money. I need to have savings for major purchases that will occur in the next few years AND I need to save as much as I can in my retirement accounts. Remember, I don’t plan to borrow money EVER.

Here is a chart detailing my progress thus far:

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If you subtract $16000 (my pre-tax retirement contributions) from $48000 (my total ’savings’ goal for 2007) you get $32,000. I have “saved” $13000 of the $32000 in various types of accounts. If you add back the $5000 that I owe myself, you get a total of $8000 saved in 2007. $8000 is 1/4 of the way to $32000, so I am RIGHT ON TRACK! I will be focusing on TWO things in the next few months. I need to put $5000 back into my ING Direct Account, and I need to fund my son’s 2006 ESA, BEFORE April 17, 2007. I will likely withdraw $1000 from my Brokerage Account and then withdraw an additional $1000 from next week’s paycheck.

Just a word to all of you who are wondering about whether or not it pays to “pay attention to your finances”. The definitive answer, from my experience, is YES!

Posted in $48000, Retirement, Savings

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