My dad and I are watching the BCS Championship.  He’s been at the house all day, installing a set of doors for the baby’s room.  Tomorrow, we’re going to finish the playhouse!  (Longtime readers will remember that I started building a playhouse for my daughter last spring.  I completed about 85% of the playhouse, but then I got ’stuck’.  Frankly, I just didn’t have the skills required to finish the project.  Luckily, my dad is a carpenter, and he’s going to help me finish up tomorrow.  Click here to see a few pictures of the playhouse, as it stands today.  I’ll take a few more shots, once it’s completed.)

As I sit here watching the game and thinking about the playhouse, I’m reminded of the power of having a plan.  I had a plan for the playhouse.  I created a budget.  I bought materials.  I worked hard.  I measured, cut, nailed, sanded, and leveled.  I did my very best.  And, if push came to shove, the playhouse would be “O.K.”.  The windows open and close.  The door swings open and shut.  The roof repels water.  The floor is solid.  The walls are square.  But, as serviceable as it is, it just isn’t ‘complete’.  I want the playhouse to be finished - painted, decorated, and furnished.  I want it to have an electrical outlet, trim around the door, and carpeted floor.  In other words, even though I had a good plan - I had to recognize when to ask for a little help.

It’s cool to admit when you “don’t know how to do something”.  One of my favorite comedians is the late, great, Jerry Clower.  He used to say, “There ain’t no shame gettin’ the seven year itch… the shames in keepin’ it”.  The same holds true as we plan for our financial futures.  There’s no shame in “not knowing”.  The shames in “not knowing” and being content “not knowing”.

As I move forward, I have a general plan for my financial success.  But, I also know that I have a LOT to learn.  Instead of throwing my hands up in frustration (or burying my head in avoidance), I choose to acknowledge my ignorance - AND - I choose to seek guidance from trusted sources.

The third quarter is about to begin, but before I go, I wanted to share a link with you, from Gen X finance.  Gen X always has a unique take on things, and I found this post about avoiding bad decisions to be very, very interesting.  I must admit, as the market moves up and down, it’s easy to get frustrated.  Gen X reminds us to stay focused on the long-term.  Great, great post!

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As many of you know, my wife and I are expecting our third child.  My wife is an educator.  If all goes well, my wife will have the baby in April.  She will not work the last two months of school.  So, as we plan for 2008, we have to account for this loss of income - and the additional expense associated with a newborn baby.  Still, we plan to be very, very aggressive with our retirement and education savings, plus we plan to save as much as we can in our regular savings account.

Here are our definite goals for 2008:

Here are our stretch goals for 2008:

Are there some things that I can do in 2007 that might help us reach our 2008 goals?  Sure!

1. I can adjust tax withholdings.  As we move from a family of 4 to a family of 5, we’ll have an extra dependent (and lower taxes) in 2008.
2. I can use any bonus money / gift money that I might receive in 2007 and apply it to my Son’s ESA.  (I’ll have until April 15 to fully-fund the 2007 contributions to his ESA.)
3. I can begin to look for deals on diapers / baby clothes / baby-related items.  For instance, when winter clothing goes on sale after Christmas, I can stock up for next year.
4. When friends and family ask, “What do you want for Christmas or your birthday?”, I can reply, “Diapers and formula, diapers and formula.”
5. I can make a slight change in our health insurance coverage.  We shifted to a slightly cheaper plan, which should save us about $30 a month.
6. I can continue to lose weight.  When I eat less, I spend less on groceries.  When I weigh less, I sleep better.  When I sleep better, I spend less money on sleep medication.  (I no longer need Lunesta - a $50 per month savings!)

My wife and I cannot wait for the baby to be born.  But, we also realize that our household expenses will go up, while our household income will (temporarily) go down.  I love being debt-free, because it gives us the opportunity to spend money when we want and SAVE money when we want.  So, if things get a little tight, we can do without a few niceties - and we don’t have to worry about debt collectors or credit card companies.

2008 is shaping up to be an awesome, interesting, busy year.  Having a plan helps keep me grounded, focused, and motivated.

If you have goals for 2008, I’d love to hear about them.

By the way, ESA stands for Education Savings Account - also known as a Coverdell Education Savings Account.

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My wife is a school teacher. She started teaching 10 years ago at the age of 22. In 20 years, at the age of 52, she will be eligible to retire. My wife contributes to a pension plan and will receive a monthly benefit. The amount of the monthly benefit will be determined by the amount she is paid during the final two years of her employment.

My job does not provide a pension plan, so I am aggressively saving for retirement. I thought it would be interesting to see where our savings might be in twenty years. I plan to save a MINIMUM of $20,000 (combined) per year in various retirement accounts.

I used this calculator to calculate results: Compare Savings Rates Calculator

For the purpose of this post, I entered “zero” as my starting value. I wanted to see what would happen if I discarded the fact that I already have SOME retirement savings. What if I had to “start” today?

Here’s a screen-capture of my inputs:

I chose the following rates of return: 4%, 7%, and 10%

Here are screen-captures of the outputs:

Wow, there is a $600,000 difference between 4% and 10%! Of course, I’d love to make more than 10%! (Last year my retirement portfolio posted a 17.29% return.)

So, in 20 years, I’ll hopefully have between $600,000 and $1,200,000 saved in my retirement accounts, my wife will be ready to draw her pension, and life will be good.

Some notes:

While I entered “zero” as my starting point, I actually have over $33,000 saved in my retirement accounts.

While I assumed a return between 4% and 11%, the actual returns could be much more OR much less. In fact, I could easily LOOSE money. I am aware of these facts, but I will continue to save and invest.

I do not include Social Security income.

Inflation was not considered.

While I plan to save a minimum of $20,000 per year, in 2007 I actually plan to save $32,000 in retirement accounts.

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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.)

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I just finished to process of opening two Roth IRAs.  The annual contribution for 2006 is $4000, and I hope to contribute at least a portion of this amount to my account and my wife’s account before April of 2007.  My next goal will be to make/save an additional $8000 to fully fund the two Roths for 2006.  Tradeking is my brokerage.  Stocks and ETFs trade for $4.95 per trade.  No-load mutual funds trade for $14.95 per trade.  I will not purchase mutual funds.  I will be depositing as much money as I can before April of 2007, and I will make one purchase in each account.  I will purchase a single ETF and let it “ride” for a year.  Most of my retirement investing will continue to take place inside my 403b account.  At the end of April, my retirement savings should be broken down as follows:

My 403b:

30% International

30% Small Cap

40% REIT

My Roth:

S&P 500 ETF

My Wife’s Roth:

S&P 500 ETF

As you can see, I have a rather “aggressive” 403b portfolio and a rather “boring” Roth portfolio.  I realize the “risk” associated with an “aggressive” 403b account, but I feel that I am young enough to take a few chances.  I closely monitor my 403b and I am poised to move into a “less aggressive” position if the need should arise.  Currently, even with the confusion of the last few days, my 403b is still in positive territory for 2007.  As for using ETFs, I have learned over the years that I do a very poor job of picking individual stocks, and I like the idea of “indexing” with ETFs.  As I learn more about investing, I am sure that I will change my investing habits.  For now, I am super-focused on FUNDING THE ACCOUNTS.

Oh yeah.  If you’d like to open a Tradeking account, use my contact form and I can send you a referral and we’ll both get $50!

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