Saturday, March 31, 2007

Carnival Highlights For The Week #7

Here are the Carnivals from this past week that I am reading :

The Carnival of Personal Finance #93 is organized by Tired But Happy.

My Carnival choice is Early payoff: The great mortgage debate, posted at Frugal Zeitgeist,

I have been evaluating what I need to do to retire in my forties. My analysis shows that a key enabler will be to eliminate all debt, including my mortgage. I will likely be in the camp of paying of my mortgage in the next few years.

The Investors Blog Network (IBN) Festival #3 is hosted by One Guy's Investments.

My Festival pick is by The Israeli Speculator which presents Where Are The Customers' Yachts?, which revisits the 1920's question of why brokers were getting rich and not their customers. The reason was that brokers made their money on commissions and not stock picks.

The same question applies to all the newsletters and blogs that recommend stocks. Friends sometimes ask me about stock investments. I generally preface the discussion with, "If I were really good at investing, I'd be doing it full time, " which is the truth. True, I've had my moments, such as Dell rising 6X in 18 months and Intel calls growing 28 to 56 times in 4 months. However, I am not consistently this good, which requires me to keep my day job:-)

The Carnival of Family Life #47 is at More4Kids.

My Carnival choice is How To Pay Cash for College posted at Thrifty Mommy, which shares some excellent strategies a student can use to keep avoid using loans to pay for higher education.

I have one additional suggestions for parents. Start a college saving account when one's child is born and let the power of compounding help.

The 67th Festival of Frugality is presented by Debt Hater.

My Festival pick is Don't Budget to the Penny by Blueprint for Financial Prosperity, which is a devil's advocate post on how detailed to make a budget.

I confess, I don't keep a budget. My strategy is to put 25% of our income into savings at the beginning of the month and spend the rest. When I run out of money, I stop spending. Has worked for me for quite a while:-)



I hope you enjoy reading these Carnivals and finding ideas you can use.

Check back on Saturday for the next Reflections and Musings segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Friday, March 30, 2007

How To Retire In My Forties

I've been considering whether I can retire in my forties. Here are my some of the goals I need to achieve to make retirement in my forties a possibility.

  • Sufficient Savings. I estimate that I will need 20 times my current salary to have a financially secure retirement. I am not counting on Social Security, which would be available at 62, and have higher benefits if I wait until 70. However, I have included continuing to save for our daughter's college education.

    Currently, we have saved 15 times my salary. I need to save an additional amount equal to 5 times my salary. For reference, I have not included my house in this calculation. I am looking to investment returns and deferred compensation growth to help close the gap.
  • Zero Debt. My goal is to have no debt when I retire. Doing so will significantly reduce the income we need during retirement. Our mortgage payment is about 30% of our monthly expenditures.

    Currently, our only debt is our home mortgage, which is 1.63 times my salary. We could pay off our mortgage, but have chosen not to do so at this time.
  • Health Insurance. A major necessity in retirement is having excellent health insurance. While we are healthy now, I expect that we will have higher health care costs in the future.

    Our group health insurance is excellent and I could not match it with private health insurance.
At this point, having excellent health insurance is the key barrier that I see to fully retiring in my forties. Although challenging, I expect to achieve both our savings and debt goals during my forties.

For more on Reaping the Rewards , check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Thursday, March 29, 2007

The "R" Word

Recently, I was talking to a colleague about her grandson who is the same age as my daughter, 2-1/2 years old. He is a very bright child, who already has conversations with adults. One day he was telling his parents that he didn't want to turn three. He explained that he didn't want the responsibility that came with being three. His parents had shared with him the new expectations of a three year old. He said that it was much more fun being two, without the added responsibility.

My colleague and I had a good laugh, both about the comment and the insight. Already, a three year old thought he had too much responsibility. The insight was that taking on responsibility is an important skill that needs to be learned. Some learn the skill of responsibility early, others take a lifetime to learn, and some never learn it.

It caused me to think about areas of responsibility for personal finance. Here are the My Wealth Builder areas of Personal Finance Responsibility:
  1. I am responsible to understand financial principles. I need to understand the concepts of insurance, investment returns, savings and emergency funds, and use these concepts to create financial security for my family. I hire experts when needed, but make the ultimate decision.


  2. I am responsible to create financial security. I cannot depend on company pensions or Social Security for my retirement. I can't even count on working long enough for one company for my entire career to get any retirement benefits. I need to develop a plan that enable me to cover my family financially today and in the future.


  3. I am responsible for my financial situation. Credit cards, mortgage lenders, banks, financial advisers and others are available to serve me. If I use them correctly, I will become wealthy. If I use them incorrectly or let them decide for me, they could destroy my wealth.
We get many new responsibilities as we get older. Although it for a time much older than three, I hope to teach my daughter well about financial responsibility.

For more on Crossing Generations , check back every Thursday for a new segment.

Photo Credit: morgueFile.com, Darren Hester

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Wednesday, March 28, 2007

Another Cost Of Having Debt - Wealth Destruction

Having $25,000 of debt can cost one over $2,600,000 of wealth. How can that be? Read on...

Bloggers regularly post the amount of their debt. $25,000 or more of non-mortgage, non-business debt is a number I have seen several times. There is a great personal cost of having consumer debt - it can significantly reduce one's ability to become wealthy.

Let me illustrate with two hypothetical 20-year olds, I. M. Poor and Weeb E. Rich. To make the example simple, I assume that I. M. and Weeb both have similar pay throughout their lives and spend all of their monthly income on living expenses (housing, food, clothing, transportation, etc.) except for $500. The only difference is that I. M. Poor has $25,000 of non-mortgage debt, to which he makes the minimum payment of $500 at 24% interest. Weeb E. Rich has no debt and puts the $500 per month into a savings account. Let's track their financial journey to retirement.

Financial Status
CategoryWeeb E. RichI. M. Poor
Debt (24% interest)

N/A

$25,000

Monthly Saving (Debt) Payment

$500

($500)

Time to Payoff Debt

N/A

45 years

Total Debt Payments

N/A

$270,000
Value of Savings (8% Return) after 45 years

$2,637,270

0


When I first did this calculation, I was amazed at the result. I agree that $25,000 of debt at 24% interest may be extreme. Also, each person's situation is different and may result in significantly different or lower numbers. However, the fact remains that consumer debt significantly reduces one's capability to create wealth.

Even if one's debt payment is less that $500 per month, it can significantly reduce one's ability to build wealth. The table below shows total cost of payments and the lost savings (at 8% return) from from having monthly debt payments of $100 to $400 for 45 years.

Monthly Debt PaymentTotal Debt PaymentsValue of Lost Savings

$100

$54,000

$527,454

$200

$108,000

$1,054,908

$300

$162,000

$1,582,362

$400

$216,000

$2,109,816



For me, the value of lost savings is too high and I try to be free of consumer debt. This calculation is also causing me to seriously consider eliminating my mortgage debt.

For more on The Practice of Personal Finance , check back every Wednesday new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Tuesday, March 27, 2007

Corporate Programs for Personal Use

One benefit of working for a large corporation is that hotel, airline and credit card premiums may be available to employees. In addition, one may also be able to use the company's purchasing discounts for personal use.

Here are some of the premiums and discounts we get as employees:

Frequent User Points - We get to keep all airline frequent flier and hotel point awards. I am not a frequent traveler. However, I have colleagues who regularly achieve the highest frequent flier classification and have accumulated over a million miles worth of points.

I have accumulated enough points for multiple airline flights and a few hotel stays. I currently have several hundred thousand miles in a couple frequent flier accounts.

Key tip: Try to use one airline or hotel to maximize accumulation of points. To note, several airlines allow cross crediting of points.

Avoid: Making getting points the main priority. The biggest mistake I saw someone make was to not stay for a meeting that ran late because the later flight wasn't his preferred frequent flier provider.

Credit Card Rewards - Our company allows employees to earn rewards on our American Express corporate credit card. Any costs associated with the rewards points are paid by the employee. For our card, the Membership Rewards fee is $75, which is an increase from the $40 fee for last year.

Since my travel varies, I only register in when it appears I will have high travel for a year. Last year, I earned 40,000 points, which is worth $400 in gift cards. The cash back reward more than covered the $40 membership cost. Unfortunately, our company is cancelling its participation in Membership Rewards this year.

Key tip: To maximize one's return, don't initiate membership until just before a large purchase.

Rental Cars for Personal Use - Our company allows us to use the corporate agreements to get preferred rental car rates, including free collision and theft insurance. Occasionally, I will check and get a better rate on weekends. However, most times the corporate is the best, especially if I count the free insurance, which usually costs about $10 per day.

Key tip: Usually platinum credit cards and one's own car insurance will cover collision and theft is these should happen.

Business Discounts - A benefit that I just learned about is getting software, such as Microsoft Office, at our corporate rate, which is significantly lower than retail cost. Also, we sometimes get discounts on Internet, cellphones, and other local services.

Key tip: If one's company is a major employer in the area, it never hurts to check with local businesses if an employee discount is offered.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

Photo Credit: morgueFile.com, Daniel T. Yara

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Monday, March 26, 2007

Learning From Other's Experiences

Earlier, I had written The Secret to Career Success - Get A Jungle Guide. The principle is to find an experienced person who as done it before to guide one to success. The principle can also be applied to personal finance. Here are some examples by Silicon Valley Blogger at The Digerati Life, and Golbguru at Money Matter and More Musings, that I put in the Jungle Guide category.

My Foolish Money Mistakes: Moves That Cost Me More Than $1000 Each presents 13 experiences by Silicon Valley Blogger. Here are the headlines of a few of the "moves" that I have tucked away in the "don't do that" part of my brain.

  • Acting as one's own general contractor. I periodically contemplate doing this for a future home. After all, I am an engineer:-) However, I know I would not enjoy being a communication link between the architect and the builder. Hence, based on SVB's experience, I will pay a general contractor and avoid a mess.


  • Buying expensive items that nobody uses. As my income increases, so does my interest in expensive things that I wouldn't fully utilize - e.g. vacation property, boats, club memberships. So far I have resisted temptation as I try to buy only what I need.


  • Not backing up my computer. I never backed up our home computer until three people I knew had hard drive crashes in the same week earlier this year. Their experience convinced me a backup was worth the cost and effort. I bought a 120 GB WD Passport Portable HD from Best Buy at a sale price of $99.00 plus tax. Now I back up our computer at least once a month.

How I Killed My Debt and What I Learned From It discusses how Golbguru eliminated his debt in about three years. While hundreds of thousands of bloggers post about how they are going to get out of debt, here's a blogger that has actually done it. This is his summary on lessons learned:

"Recognize your debt early and face it fast. Start making payments aggressively; it hurts initially, but if you don’t do this …credit card interest rate will hurt…thats even worse. It takes time for debt to vanish, so be strong and keep attacking it. Only when you kill your debt will you see the benefits of your savings/investments. It doesn’t make sense to have a bunch of money in your savings account while your are loosing tons of it on credit card interest. Once your are free from debt, its important to keep it away; spend on credit cards only as much as you can pay up by the end of the billing cycle. It took me almost three tough years, but it might take you more (or less) so prepare your mind for that."

While I have never had credit card debt, each of Golbguru's lessons were true for me when I eliminated other debt, such as my student and car loans.

Both of these posts have excellent strategies, tips and guidance from people who successfully navigated through their own personal finance challenges. If I haven't had the experience myself, I hope to learn from others who have already done it so that I can avoid mistakes and achieve my goal faster:-)

For more on Strategies and Plans , check back every Monday for a new segment.

Photo Credit: morgueFile.com, Clara Natoli

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Sunday, March 25, 2007

CNBC Million Dollar Portfolio Challenge

I am participating in a new stock investment contest.

For those that want to test their skills at short term stock investing (i.e. speculation), CNBC.com is holding the CNBC.com Million Dollar Portfolio Challenge. The contest lasts for 10 weeks and the top ten finishers and ten weekly winner (greatest percentage gain for the week) will compete in a two week investment challenge starting May 14. The highest portfolio at the end of two weeks will win $1,000,000 in real money.

General Rules
To play, register at CNBC.com Million Dollar Portfolio Challenge. One can register multiple accounts as the first weekly winner, Nancy Beaumont, who allegedly has 803 accounts registered. One starts with $1,000,000 in fictitious CNBC bucks and can make up to 50 trades per day. Trades are executed on the following business day at the close of the market. The portfolio results are tallied each day and provides one's ranking among the participants.

In addition, participants can earn up to $3,000 in bonus CNBC bucks each trading day by answering trivia question. Stock Market Beat and Word on the Street are two of the many blogs that post the trivia question answers every day.

Strategies
Since this is only a 10 week contest, contest winning strategies to win may differ from a long term investment strategy. I summarize some of the differences in the the table.

Strategy Comparison
Category

Contest Strategy

Long Term Strategy

Risk

Very High

Low to High

Diversification

Single Stock

Many Stocks

Stock Types

Small Cap, Low Price, High Volatility

Multi-Cap, Varying Price

Time Horizon

10 weeks

50+ years



My Wealth Builder Status
It's hard for me to vary too much from my long term strategy, even if I know it will reduce my chances to win:-) Therefore, I did use some diversification and I am still maintaining a cash position, although both are lower than I typically do in my actual portfolio.

I entered a portfolio based on the modified Unemotional Investor portfolio which I described in My Stock Picks for Q1 2007. Disclosure: I closed out this portfolio on March 2, 2007 as described in Q1 Stock Purchases Update - Closed All Positions. In addition, I purchased Google (GOOG) and Golden Star Resources (GSS) which are stocks I like but were not identified by the system. Here are the status details.

Status

Portfolio OpenedMarch 14, 2007
Stocks Purchased Avnet (AVT)
Coach (COH)
C. B. Richard Ellis (CBG)
Google (GOOG)
Golden Star Resources (GSS)
Cash Position

About 9%

Portfolio Value

$1,065,000 (top 19% in ranking)

Gain to Date

6.5% (2.1 % from bonus bucks)


Overall, I am enjoying this contest. The contest provides a "test" of the real world stock picks I have made. In addition, I have a chance, although very small, to win some money:-) Since I can enter multiple portfolios, I may enter one more time with a one or two stock portfolio that has very high volatility, low priced stocks.

For more on New Beginnings, check back every Sunday.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Saturday, March 24, 2007

Carnival Round Up For The Week #6

Here are the Carnivals from this past week that I am reading :

The Carnival of Personal Finance #92 is organized by Lazy Man and His Money.

My Carnival choice is Million Dollar Kids - Give me a break by My Financial Journey, which provides commentary on the Yahoo! Finance article on the costs of raising children. I was planning to comment on the Yahoo! article, which puts the high end of raising a child through 17 at $1.6 million, but hadn't done so yet.

$100,000 per year to raise a child. Hmm.... we don't even spend that much for our entire family today. The parents of the million dollar children are purchasing lots of items that are not in my set of things to buy:-)

The Carnival of Taxes #14 is hosted by Don't Mess With Taxes.

My Carnival pick is by Tax Tips for eBay Sellers which asks and then answers the question, What taxes are you responsible for as an eBay seller?. The answer is sales, payroll and income taxes.

Given the additional burden of tax filing work, it doesn't seem to me it's worth the effort to buy something for $10 to sell for $20 on eBay. I'm also willing to bet the majority of eBay sellers may not be complying with these tax liabilities:-)

The Carnival of Family Life #46 is at Digital Rich Daily.

My Carnival selection is Should Parents Pay For Children's Colleges? posted at Getting To Graduation, which proposes that parents should target for paying 1/2 of the costs, with paying 100% being the exception.

This discussion has been going on in the blogosphere for quite a while, with many good points on both sides. Personally, I plan to pay for a 100%, and am acting against that plan. Of course, I may have to pay less that 100% when the time comes, or choose a less expensive school.

The Festival of Under 30 Finances is hosted by Money Crashers.

My Festival pick is Talking Dollars: The 100 Most Famous Quotes About Finance by Debt Consolidation News, which lists 100 quotes on personal and other types of finances.

Overall, I like the list of quotes and will use some of them as introductions to future posts. One I especially liked is by Andrew Mellon, "Gentleman prefer bonds." Surely, this is a topic for a future post:-)

The Carnival of Personal Development is presented by The Carnival of Personal Development.

My Carnival choice is Our Lives Tick Off One Second At A Time posted at Enhance Life, which points out that we should appreciate every moment of our lives and the time with those we care about. Well said.

My dad once said, "Funny thing about life, no one knows what's going happen tomorrow." To this point, I plan my financial security conservatively to last until my 90s and I interact positively with those close to me in the event it is the last time we see each other.



I hope you enjoy reading these Carnivals and finding ideas you can use.

Check back on Saturday for the next Reflections and Musings segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Friday, March 23, 2007

New T. Rowe Price Retirement Calculator

This is an update to my evaluation of the retirement calculator from T. Rowe Price that I did earlier. The new T. Rowe Price Calculator uses simulations to estimate whether one can achieve one's retirement income goals.

As with previous retirement calculators, it works best if one is within 5 years of retirement. If one is further than 5 years from retirement, it may be necessary to calculate an inflation adjusted or raise adjusted retirement income. Also, this calculator does not include Social Security payments for making the retirement calculations.

Here are two points I do like about this calculator:


  • It allows one to choose an investment allocation and the calculator uses that information to estimate one's investment return.


  • The calculator appears to use a Monte Carlo simulation to give a probability based answer on whether one has sufficient funds to retire. One can choose probabilities from 50% to 99% certainty.

Example 1. Will B. Retired is 64 and will retire next year. Here is his information:


  1. Start Age - 65

  2. Retirement Length - 3o years

  3. Retirement Assets - Iterate

  4. Retirement Income- $4,180 (or about $50,000 per year)

  5. Portfolio - 60% Stock/30% Bond/10% Short Term Securities

  6. Simulation Success Rate - 90%

I iterated the retirement assets until $4,180 of income was achieved. The number was $1,270,000 which was very close to the number of 1,029,000 with the previous T. Rowe Price calculator.

Example 2 - Em S. Grad is currently is 35 and will retire at 65. He earns $50,000 per year and only expects cost of living raises of 3%. Using the formula, 1.03^30 X $50,000, Em's salary will be $121,363 in 30 years. Using the following information, I iterated to find the amount of savings needed.

  1. Start Age - 65

  2. Retirement Length - 3o years

  3. Retirement Assets - Iterate

  4. Retirement Income- $10,100 (or about $121,000 per year)

  5. Portfolio - 60% Stock/30% Bond/10% Short Term Securities

  6. Simulation Success Rate - 90%
Iteration showed that the retirement assets needed are $3,160,000. This was close to the estimate of $2,475,939 by the previous T. Rowe Price calculator since Em's savings would result in $302,000 additional funds in that example. Of course, if Em receives raises due to promotions, the amount would need to be adjusted upward proportionately.

I believe the reason the estimates for the new calculator are higher due to the 90% probability of success chosen. If I chosen an 80% probability of success, then the retirement savings numbers are slightly below the previous estimates.

For more on Reaping the Rewards, check back every Friday for a new segment.

Photo Credit: morgueFile.com, Ronnie Bergeron

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Thursday, March 22, 2007

Upromise - Not Saving Much For Our Daughter

Upromise sounds like a great idea. Buy the products one normally buys and get automatic rebates for certain brands to put towards a child's college education. I signed up in February, 2006. After one year, our account has accumulated $0.07. It seems a low number is not uncommon, as shown by a post at Money Matter and More Musings, whose Upromise account had a total of $0.35, even though he had accumulated about 60,000 points on his credit cards. However, a post at The Sun's Financial Diary shows he has accumulated about $400 in his Upromise account since 2004.

While I have not been actively trying to maximize our Upromise returns, here are some reasons that I think our account credits are low.

Credit cards not registered. Call me over cautious. I don't like the idea of anybody having my credit card numbers who doesn't have "valid" reason for getting them. Accepting payment is an valid reason for me. Tracking my spending for points is not. As a result, I do not get credit for some of my purchases.

Only grocery cards are registered. So we are limited to credit for items purchased at grocery stores. Based on products that qualified, 90% of them seem available at our grocery store. However, we do lose out on points for purchases on non-grocery items, such as gasoline and electronics.

We do not actively manage the purchase decisions. While I have an idea of which products qualify for Upromise, I have never made a purchase decisions based on whether a product offers Upromise credits or not.

For now, I won't be doing anything different, since I don't believe I can significantly increase our return. As this rate, our Upromise account will have about $1.12 credited when our daughter attends college:-)

For more on Crossing Generations , check back every Thursday for a new segment.


This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Wednesday, March 21, 2007

Maintaining A Margin of Safety

One of the best principles I have learned in personal finance is to use the concept of a "margin of safety." This principle has been and will be a great help when it is needed. What, one might ask, is a "margin of safety?"

For me, a margin a safety is "additional protection" that one creates to insure against over estimating the value or against an unexpected issue. The opposite of margin of safety is "living at the edge," which is where a single financial problem would cause significant issues.

Here are some examples:

Total Debt. A typical guideline financial instituions use is that total debt payments (mortgage with taxes and insurance, car loan, credit card, student loan, etc.) should be no more that 36% of gross income.

I currently have a significant margin of safety with my current home mortgage, which is our only debt. Our down payment was 43% of the house price. Our mortgage payment (including taxes and insurance) is 19% of my gross salary, which leaves a 17% margin of safety for our total debt. If housing prices should decline or there is a short term financial issue, we should be able to handle it.

For my first house, I only put down 20% and my mortgage payment was 25% of my gross pay. My other debt was a student loan and a car loan, which were 3% and 8% for my gross income. So debt accounted for 36% of my income, and had no margin of safety.

I have recently read that some people have mortgage payments that are 40-50% of their gross income. To me, this is past living at the edge.

Auctions. I periodically attend auctions because I like to get good deals:-) Occasionally, I have seen bidders get caught up in the excitement and bid 10% or more over the market value. In the worst case, they pay more than it would have cost in a store.

A key to getting a good deal is to make a good estimate of the value of an item before the bidding starts. However, since I am not an expert appraiser for most items, there is a chance that I will over estimate the true value. Therefore, after I make an estimate, I reduce it by 30-50% and set that number as my top price. The 30-50% reduction is my margin of safety.

Real Estate - My experience with real estate has primarily been with purchasing our home. I have done this twice and my strategy has been to buy "the lowest" priced house in an excellent neighborhood. This approach offers some margin of safety against over paying. Also, I avoid getting into bidding wars with other buyers or bidding over the asking price. When this happens, I know the market dynamics has eliminated the margin of safety.

I have owned investment real estate with my father. I have also periodically looked at purchasing investment real estate on my own. My margin of safety is to look for properties in good neighborhoods that have positive cash flow (i.e. make money) at a low down payment and before tax deductions. Another margin of safety is to buy a property with a long term lease tenant. So far, I have not been able to find any investment real estate that meet my requirements.

Stock Investments. While many advisors would disagree, my margin of safety is to maintain a fairly large cash balance (about 25%) in my personal accounts. Having this margin of safety helps me sleep at nights when the market is volatile. To note, keeping this level of cash reduced my gains in the late 90s. However, having 50% cash in my personal accounts significantly reduced my level of losses in the 2002 bear market.

In addition, I do not use margin (i.e. borrowing money) for stock investments. For me, using margin would be close to living at the edge:-)

I wish I was better at estimating a margin of safety for individual stocks. As I wrote in an earlier post, I still am not very good at successfully identifying value stocks.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Anita Patterson Peppers

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Tuesday, March 20, 2007

Double Dipping - My Approach For Freebies

I like free stuff as much as the next person. However, I generally won't do something just to get free stuff - e.g. opening several accounts for the bonus money. I try to get free stuff for something that is a good deal and I was already planning to do. That way I expend very little extra effort to get the bonus.

Here are some recent examples of getting free stuff for activities I was already planning to do:

  • Opening new financial accounts - Opening separate accounts for My Wealth Builder resulted in $125 of bonuses for checking, savings, and credit cards. Opening a UTMA account for our daughter qualified us for a free IPod Nano.


  • Attending investment presentations - I have just started to look at investment property in lake, mountain or beach communities. Many of these have free dinners or discounted lodging. I just attended a presentation for a mountain community.

    Also, several reputable financial advisors in my area offer no obligation free dinner seminars, in the hopes of attracting future clients. I attend the ones that are of interest to me.


  • Test driving a car - I enjoy test driving cars periodically, because I like cars and want to keep up with prices. Mazda is offering a $25 gift card for a test drive.


  • Shopping at Costco - I regularly shop at Costco. On weekends, they have free food samples throughout the afternoon. I get free snacks and Costco gets my discretionary spending:-)

    One of the best sample deals I enjoyed was at an Italian grocery store. The were serving samples of wine and liquor. It was a free happy hour:-)
  • These are just a few examples of the double dipping for freebies since starting My Wealth Builder.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.


    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Monday, March 19, 2007

    Survivor Income Insurance- Social Security Provides Coverage

    I try to use services that are already provided because of taxes, fees or contributions that I have already paid. Recently, I've noticed families with children have access to more services and benefits than families without children.

    While I have not been counting much on Social Security for any retirement income, I realized that we became eligible for a new form of Social Security protection, survivor income insurance, when we adopted our daughter. According my annual statement, my daughter would receive up to $1591 per month in the event of my death. My spouse, as child caretaker, would also receive up to $1591 per month. In addition, in the event of my spouse's death (which we had not insured), I would receive up to $935 for each category.

    This is excellent news for us. Two of the insurances I carry are life insurance and survivor income insurance. Before we had children, the only way to protect my spouse, in the event of my death, was to purchase both insurances. The life insurance policy would pay off the house and the survivor income insurance would provide a lifetime stream of income equal to 25% of my salary.

    After having our daughter, we can use Social Security to cover a part of the survivor income insurance needs. This was a bonus I had not expected.

    For more on Strategies and Plans, check back every Monday for a new segment.

    Photo Credit: morgueFile.com, Mary R. Vogt

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Sunday, March 18, 2007

    New Friend Opportunity - Link Exchange Offer

    For readers of My Wealth Builder who are blog authors, here is an opportunity to get a new reader (me:-) and to exchange links. (This offer only applies to non-commerical blogs.)

    If you write about Financial topics (e.g. personal finance, money management, debt management, frugal living, investments, your own personal financial journey, etc.) and would like to be acknowledged in the My Wealth Builder blogroll (right sidebar) , here's how your blog can be included:


    1. Your blog is at least 3 months old and has 30 posts.


    2. Put a link to My Wealth Builder in your sidebar blogroll.


    3. Contact me by making a comment to this post that includes your URL, Blog Title, and your age group - e.g. 20's, 30's, 40's, etc. ..... or not specified. Age group categorization is being used to help direct readers to authors of similar age and personal finance interests.


    4. After I confirm your blog meets the criteria, I will add a link to it in the Personal Finance Friends section the following weekend.

    Best Regards,


    Super Saver

    For more on New Beginnings, Sunday for a new segment.

    Photo Credit: morgueFile.com, Clara Natoli

    This is not financial or blogging advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Saturday, March 17, 2007

    Carnival Round Up For The Week #5

    Here are the Carnivals from this past week that I am reading :


    The Carnival of Personal Finance #91 is organized by The Sun's Financial Diary.My Carnival choice is by The Stubborn Capitalist who presents The "Get Rich Quick" Fallacy. The article makes the point that "quick" does not mean "easy." In fact, his main learning from trying "get rich quick" programs is that getting rich requires hard work.
    The Investor's Blog Network (IBN) Carnival #2 is hosted by Investors Trip.My Carnival pick is What do you make of a stock market sell-off? by The Digerati Life, which advocates that fundamentals are still good at this time and only traders should consider exiting.

    I guess I'm a trader:-) I closed out all my 2007 purchases in my personal accounts on March 2, 2007 and am waiting for a clear bottom in the correction. In addition, I am seriously considering opportunities to short stocks for the first time since 2004.
    The Carnival of Family Life #45 is at Adventure in the 100 Acre Wood.

    My Carnival choice is Great Ways for Kids to Make Money posted at Getting Green. He presents a list of jobs that can help children learn about earning money for work.

    I would provide the additional possibilityof leveraging the Internet, since age and capital are not as critical in starting a successful Internet business.

    The Festival of Stocks #27 is presented by Fat Pitch Financials.

    My Festival pick is Is Chico’s Turning the Corner? at One Guy’s Investments, primarily because I currently own Chico's.

    Unfortunately, I have lost money on Chico's and am hoping that his analysis is right. Hope springs eternal, especially when one's investment has declined:-)

    The Carnival of Investing is hosted by The Skilled Investor Blog.

    My Carnival choice is Gold As Investment: The Basics posted at Money, Matter, and More Musings, which provides an excellent explanation of a karat and why it is important to the value of gold.

    Gold always has appealed to me, but jewelry and mining shares are the only forms I have owned to date. The inconvenience and worry related to keeping it are the main reasons I haven't invested in gold bullion or coins.

    The Festival of Frugality #65 is presented by The Festival of Frugality.

    My Festival choice is Stop The Financial Leakage! by My Two Dollars, which offers good tips on eliminating postage for paying bills, reducing cell phone plan costs, and not wasting water.

    My additional tip would be to eliminate the cell phone completely as I suggested in Buy Only What You Need.




    I hope you enjoy reading these Carnivals and finding ideas you can use.

    Check back on Saturday for the next Reflections and Musings segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Friday, March 16, 2007

    Make A Retirement Contribution - Get A Tax Credit

    If you have an Adjusted Gross Income (AGI) of $50,000 or less you may qualify for the retirement tax credit. What a great deal! Deposit money to a retirement account and the government gives one money back. This is a great way to build one's retirement account early in a career.

    Here's how it works:

    Retirement Tax Credit Filing Status and AGI Limits
    % Credit Against $2,000 Contribution

    Single, Widower,
    Married Filing Separately

    Married Filing Jointly

    Head of Household
    50%Up to $15,000Up to $30,0000Up to $22,500
    20%$15,001 to $16,250$30,001 to $32,500$22,500 to $24,375
    10%$16,251 to $25,000$32,501 to $50,000$24,376 to $37,500
    no credit$25,001 or more$50,001 or more$37,501 or more


    The maximum tax credit is $1,000 per person. Contributions to 401Ks and IRAs both count. This is a great use of the government's money. Make at least $2,000 retirement contribution and the government will refund one up to $1,000 depending on one's income. For more details, see Form 8880, Credit for Qualified Retirement Savings Contributions and complete the form to arrive at your exact credit rate and amount.

    For more on Reaping the Rewards , check back every Friday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Thursday, March 15, 2007

    Our Saving Plan For College


    In previous posts, I estimated we would need to save $12,000 per year in one calculation and $763/month ($9,156/year) in a second calculation to pay for a private college education for our 2-1/2 year old daughter. Recently I found another calculator by Archimedes System that I thought was comprehensive and easy to use. Here are the elements I like:

  • Choose the rate of tuition growth. I used 5%.


  • Choose your college and it provides today's cost. I chose Princeton University, with a tuition of $42,200.


  • Choose your investment rate of return. I chose 8%.


  • For my 2 year old daughter, the calculator estimated I need to save $811 per month ($9,743 per year) to pay for 100% of her college tuition. This is consistent with the previous two college savings calculations done above. Therefore, we will need to save $10,000 to $12,000 per year to confidently cover our daughter's college education .

    To account for the possibility that she may attend a lower cost school, we are only putting a portion of the money (about 50%) in tax advantaged college savings accounts. The balance we keep in our personal savings account. Thus, this money can be used for other purposes should it not be needed for college expenses.

    For more on Crossing Generations, check back every Thursday for a new segment.

    Photo Credit: morgueFile.com, Heather M.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Wednesday, March 14, 2007

    More On The Only Savings Strategy You'll Ever Need

    In August, 2006, I wrote a simple post The Only Savings Strategy You'll Ever Need. My point was that one needed to "pay yourself first" to create a successful saving strategy. After blogging on personal finance for the past seven months, I realized I needed to provide a little more detail. So here is the more in depth explanation of my saving strategy:



    1. Pay yourself first from every paycheck. One should do this before paying the rent or mortgage, utilities, credit card payments, student loans and living expenses. If one can't pay yourself first and pay all the other bills, start reducing one's costs in the other areas. It's as simple as that. Or so I thought.

      After seven month of blogging and reading other's posts, I realized that I was making an assumption that wasn't clear to everyone. Hence, I've added#2.


    2. Don't touch funds from #1. Yes that's right. Once you pay yourself, consider that money gone. It should be not different than paying one's rent. Once paid the money is no longer available.

      Breaking this rule will happen, but it should be the exception and not the rule. Regularly raiding this account to fund bills and livings expenses means that one IS NOT following this strategy correctly.


    3. Invest and grow the funds. Of course, one can't let the funds just sit. Inflation would eat away at it. The big questions are in what to invest, and how much risk to take. Here are some simple answers to the questions.

      The Really, Reallies - This article talks about your choices: CDs, Stocks, or Real Estate. I personally like CDs and Stocks.

      Investing 101 - Managing Risk Successfully - Investing can be scary. Instead of fearing investing, learn to manage the risk associated with investing. There are several types of risk and this post explains how to minimize negative impacts for these risks.

      In my personal portfolio, my current allocation among stocks/fixed income/cash is 34%/28%/38%. As I have noted before, I have a lower risk tolerance profile and use a strategy that preserves my principal. In my company retirement account, my allocation is about 75% company stock and 25% cash.

    This concludes my update of "The Only Savings Strategy You'll Ever Need." It has worked well for me. I hope the description provides some insights that one can use.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    Photo Credit: morgueFile.com, Michael Connors

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Tuesday, March 13, 2007

    Why I Don't Judge People By Their Car

    For some reason, certain characteristics are associated with the type of car a person drives. The characteristics often are related to the type of driver or wealth status.

    Type of Driver

    We have two family vehicles, a full-size truck and a compact car. I've noticed that people seem to drive cautiously around my truck. I rarely get cut off, tail gated, honked at nor experience other inconsiderate actions from other drivers. When I drive my spouse’s vehicle, a compact car, it seems one of these inconsiderate actions happens to me about 50% of the time.

    People must think that drivers of trucks have different characteristics that drivers of compact cars. I don’t drive any differently nor do I personally look any different. So I figure the difference must be due to my vehicle.

    Financial Status

    A few years ago, I purchased a used luxury vehicle for a very good price (less than $20,000). When the wife of a friend saw the car, her first comment was, "Wow, you must have received a really big raise." Actually, nothing had changed. Same pay, same house, and same standard of living. Again, the only difference was my vehicle.

    Of course, while wealthy people do drive expensive cars, people who drive expensive cars are not necessarily wealthy. The mistake some people make is to live by the second assumption - i.e. driving an expensive car means that one is wealthy.

    My Wealth Builder Situation

    I'm doomed to life of being perceived as an dangerous driver who is not wealthy :-) My truck, which only has the basics, is 3.5 years old and has 37K miles on it. I'll probably drive it 7 -10 more years, and perhaps 15 more years if it holds up.

    In reality, we are safe drivers (e.g. accident free discounts), and saving 20% of our income. So please don't judge me by what I drive :-)

    For more on Ideas You Can Use , check back every Tuesday for a new segment.

    Photo Credit: morgueFile.com, Matt Geyer

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Monday, March 12, 2007

    Tax Strategies - Minimize Income To Maximize Tax Credits

    Minimizing or deferring one's taxes can be a part of a wealth building plan. I like qualifying for tax credits because a credit is a dollar for dollar reduction in one's taxes. There are a number of tax credits that phase out and are completely eliminated at certain income limits. By planning ahead, sometimes one can manage Modified Adjusted Gross Income (MAGI) and qualify for a tax credit. For example, managing one's future income can be done by accelerating or delaying capital gains, or making deductible retirement contributions.

    Here are some of the tax credits in which I am interested and the MAGI limits for phase out and elimination.

    Tax Credit - Qualifications for Married Filing Jointly
    Tax Credit

    Maximum Credit

    MAGI for 100% Credit

    MAGI for Full Phase Out of Credit

    Adoption

    $10,960 per adoption

    $164,410

    $204,410

    Child

    $1,000 per child

    $110,000

    $110,000 + $20,000 per child

    Retirement

    $1000 per person

    $30,000

    $50,000


    It's too late to do anything for the 2006 tax year. However, if one expects to be close to the MAGI limits for the 2007 tax year, action still can be taken to be below the limit.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Sunday, March 11, 2007

    Extended Daylight Saving Time - A Challenge To Frugal Living

    This year Daylight Saving Time (DST) will start today, March 11, instead of on the first Sunday in April. Also, DST will end later, on the first Sunday in November. The earlier start and later finish of DST will make it harder to be frugal this year. What? How are frugality and DST related?

    First, as background, here is a great article on the history of DST. Basically, DST is supposed to help us be more frugal by enabling the reduction energy usage. The premise is that the energy demand for lighting correlates to when people get up and go to bed. While DST increases the use of light in the morning, this is theoretically more than offset by the delay of using lighting in the evenings. Hence, DST should reduce energy costs.

    However, there is a non-energy related effect of DST that is supported by the retailing industry. The reference to Halloween and increased candy sales in the DST article is only the tip of the iceberg. According a NPR story, author Michael Downing, who wrote Spring Forward: The Annual Madness of Daylight Saving Time, claims that an extended DST is also designed to help sales for retailers. Mr. Downing says a major supporter of extending DST is the Chamber of Commerce, which knows that Americans will tend to leave the house and spend money with extra daylight hours. In 1986, DST was moved from 6 months to 7 months. In the 1985 Congressional hearings, golf retailers estimated an additional $200 million in sales from the extra month of DST. Barbecue retailers estimated an extra $100 million in sales.

    Therefore, followers of "frugal living" be aware that being frugal is now even harder. We will now have to fight the "urge to buy" from extended hours for another month :-)

    For more on New Beginnings, check back every Sunday for the next segment.

    Photo Credit: morgueFile.com, Mary R. Vogt
    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Saturday, March 10, 2007

    Carnival Round Up For The Week #4

    Here are the Carnivals from this past week that I am reading :


    The Carnival of Personal Finance #90 is hosted by Mapgirl's Fiscal ChallengeMy Carnival choice is $5k Crunch presented by InsureBlog, which shares the numbers on how everyone CAN afford mandatory health insurance, no matter what their income. Given that a health catastrophe can be major wealth destroyer, I agree. I would not take risk of not being insured.
    Towards Better Life #6 is hosted by Toward Better Life.My Carnival pick is When Not to Buy a House posted at Silicon Valley Real Estate Blog, which list five reasons when one should avoid thinking about buying a house. I absolutely agree with him, especially his point about needing an "exotic mortgage."
    The Carnival of Money Stories #6 is hosted by Money, Matter and More Musings.My Carnival choice is Timeshares: Should we buy one? at It’s Just Money. A great story that illustrates my opinion about buying a timeshare - The best deal one gets is in the sales presentation - i.e. the free dinner, gift or lodging. For me, "no" is the right answer on whether to buy.
    The Carnival of Taxes #13 is hosted by Gina's Tax Articles.

    My Carnival pick is Money Monday: Choosing A Tax Professional Is No Longer a Coin Flip by Queercents. This article is an excellent, comprehensive and informative post on how to choose and evaluate a tax professional. I would add, "Get a referral from a financially savvy colleague or friend who has worked with a good tax professional."

    The Festival of Under 30 Finances is hosted by Money $mart Life.

    My Festival choice is Ouch: Experiencing Volatility posted at An English Major’s Money. Stock market investing is always fun in a rising market. In today's choppy markets, volatility and stomach wrenching drops are the norm. While I don't like it, I believe the latter situation is what one needs to expect for the next few years.



    I hope you enjoy reading these Carnivals and finding tips you can use.

    Check back on Saturday for the next Reflections and Musings segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Friday, March 09, 2007

    IRA Choices - Roth or Traditional?

    All IRAs provide for tax free earnings. Some IRAs have additional tax benefits, either at the beginning (contribution) or at the end (withdrawal). Deciding which IRA to use will depend on whether one wants the additional tax benefit earlier or later. Here is how I see the choices.

    Deductible Traditional IRA - If qualified for this IRA, the entire contribution (maximum $4000 per person) is deductible from one's taxes. For people in the 25% tax bracket, a $4000 deductible IRA contribution will results in a $1000 tax refund. A deductible traditional IRA is a great way to use other people's money to fund one's retirement. For details on qualifying for a deductible IRA contribution see 2006 IRA Contribution Deadline is April 17, 2007.

    Withdrawals from a deductible traditional IRA are fully taxable.

    Roth IRA - Contributions to a Roth IRA are not deductible. However, withdrawals from a Roth IRA during retirement (after 59 1/2) are federal income tax free.

    The idea of paying zero taxes is very appealing to me :-) On the surface, this seems like the better deal to me.

    Which is the better financial choice - a Roth or Deductible Traditional IRA? To determine the answer, I looked at two situations. In both situations, I assume that the retiree will need 100% of their pre-retirement income and therefore, have the same tax rate (25%) before and after retirement. Also, I assume earnings of 10% over 30 years in both taxable and non taxable accounts.

    In the first situation, I assume that the person needs to spend the tax savings. Thus, they invest $1000 less in the Roth IRA, which is equivalent to the tax savings of the deductible IRA. This case shows no difference between the two types of IRAs.

    Spend Tax Savings
    IRA TypeContributionTax Rate After Tax Value
    Traditional$4000 25%$20182.5
    Roth$30000%$20182.5
    Difference$0


    In the second situation, I assume they invest the tax savings in a taxable retirement account. This example shows that the Roth IRA will have about 10% higher earnings return, over 30 years. The reason is that the $1000 invested in a taxable account will not earn as much as investments in the tax deferred accounts.


    Invest Tax Savings
    IRA TypeContributionTax Rate After Tax Value
    Traditional$4000 25%$24430.35
    Roth$40000%$26910
    Difference-$2479.65


    Of course, if future tax rates are lower (not likely) or Roth IRAs become taxable (more likely) the conclusions from these analyses will be more favorable for the deductible IRA.

    Finally, the actual best choice will depend on each person's own financial situation. Please consult your personal financial advisor before taking any action.

    For more on Reaping the Rewards, check back every Friday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Thursday, March 08, 2007

    Lessons From My Daughter - "New One"

    Halloween 2006 was our two-year old daughter's first time to wear a costume and go Trick or Treating. At first, she was reluctant to do it. Walking up to a house, ringing the doorbell, saying "Trick or Treat," accepting candy, and saying "Thank You," were not activities she had done before.

    For the first five houses, she stayed close to me, informing everyone she was with Daddy. However, at each successive house she was more comfortable with one of the activities. By the sixth house, she was doing all the elements on her own and adding another one. As we left each house, she would immediately say "New one," meaning for us to get to the next house. "New" was something exciting and something to anticipate.

    "New" is a concept that I think is important to maintain as I get older - new experiences, ideas and opportunities. For me, when was the last time I thought, "New career," or "New location?" Sometimes I spend so much effort reducing risk and optimizing the current situation that I forget there are unbounded new opportunities waiting. Too often, the thought is stay with what's known and avoid the "new."

    So how can I flip the natural tendency to maintain the status quo? How might I make new the norm instead of the exception? As my daughter taught me, it might be as simple as being willing to look for and be ready to experience "new ones."

    For more on Crossing Generations, check back every Thursday for the next segment.

    Photo Credit: morgueFile.com, Dee Kull

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Wednesday, March 07, 2007

    Investing 101 - Lump Sum Performs Better Than Dollar Cost Average

    In Make IRA and College Fund Contributions in January, I shared the benefits of making my entire 2007 529 Plan (college savings account) and 2007 IRA contributions in January. Several readers questioned whether it was prudent to invest a lump sum contribution, given the risk of a short term downturn in the market. (An even more appropriate question given the market results for the past week:-)

    I recalled, but could not find, an article that concluded even if one had invested at the S&P peak every year, one would still have good investment returns. However, I did find this article, Lump Sum Beats Dollar-Cost Averaging, which share an analysis that shows lump sum (LS) investments beat dollar-cost averaging (DCA) about 60% of the time from 1926 to 1991. This difference was statistically significant. Based on this information, The Sun's Financial Diary did his own analysis and concluded that not only did DCA have lower returns, but that the volatility with DCA was also higher.

    As it turns out, the further analysis shows that investing one's money as soon as possible is the right strategy. This is true primarily because the markets have been rising over the long term since 1926. So waiting to invest LS will likely return less that DCA. Of course, if the market should to into a prolonged decline (20+ years), the results of the study will no longer hold true.

    On the other hand, dollar-cost-averaging significantly reduces the impact of market risk versus a single purchase. For instance, if one had invested LS versus 1/12 the amount in a monthly DCA prior to decline on February 27, 2007, the market impact on your entire investment woudl have been very bad. This phenomena is discussed in Dollar Cost Averaging - A Technique that Drastically Reduces Market Risk. Also, psychologically, it feels less risky to use DCA since DCA enables one to benefit should there be a drop in the market, as there was last week.

    Net, one needs to use the strategy with which one is most comfortable. However, the data show, that one needs to be invested, whether that be using LS or DCA. Otherwise, one risks missing out on the long term trend of a rising stock market.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Tuesday, March 06, 2007

    Telephone Excise Tax Credit - Claim It or Lose It


    How many of us would walk past a $20 bill on the ground and not pick it up? That's what 30% of tax filers have done to date. Out of 34 million tax returns filed, 10 million have not claimed the telephone excise tax credit, according to the IRS . About half of the returns that didn't claim the credit were done by tax professionals.



    Here's what one needs to do to get the credit:


  • Everyone who has had long distance or bundled service qualifies for the tax credit, even if one does not file a tax return. Net, nearly every tax filer qualifies.

  • Here's how to take the standard credit: Use the number of exemptions on line 6d to calculate the credit. Go to Line 71 on the 1040 and enter the amount based on the claimed exemptions.


  • Exemptions on Line 6dTax Credit on line 71

    One

    $30

    Two

    $40

    Three

    $50

    Four or more

    $60


  • If you think you may have paid more taxes (due to high amounts of long distance calling or use of bundled services), Form 8913 can be used to calculate the exact credit amount. This method will require one to have copies of the billing statements from March, 2003 to July, 2006.
  • Personally, I am using the standard credit allowed by the IRS. I did a quick check of our current bills and we don't make enough long distance calls nor have enough bundled services that would cause the tax to exceed the standard credit.

    For more on Ideas You Can Use , check back Tuesdays for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Monday, March 05, 2007

    2007 Wealth Building Plans - February Review

    “He who fails to plan, plans to fail.” - Proverb quote

    As a reminder, I have three financial goals for 2007:

    1. Keep investment income to salary ratio >0.8.
    2. Increase savings to salary ratio by 1.5.
    3. Decrease debt to salary ratio by 0.1.

    Next month I will publish how I have done versus these goals in Q1 2007.

    Below is my plan for the Q1 2007, broken down by month. I have crossed out the items that have been completed. The red items are late. Blue items were completed ahead of time. Green items were added after the initial plan was developed.


    January
  • Send payment to pay down 4% of mortgage principal.
  • Make maximum 2007 IRA contribution.
  • Make maximum 529 plan contribution for college.
  • Meet with Financial Advisor to review investments status.
  • Consolidate tax records by end of month for April 15th filing. Get preliminary estimate of capital gains from stock investments.
  • Adjust automatic savings deposits to be 20% of salary.
  • Review stock selection model and invest in picks.
  • Allocate a portion of 401K to international funds.
  • Executor work - complete transfer of assets to trust.
  • February
  • Do first draft of 2006 tax return.
  • Make full year contribution to Church via appreciated stock. January
  • Executor work - complete getting basis for 2005 and 2006 returns.
  • Open up UTMA account for daughter.
  • March
  • Final draft of 2006 tax return.
  • Review Company retirement plan results.
  • Calculate Q1 Wealth Ratios.



  • Overall, I am satisfied with the completion of action items for February, 2007. For our tax filing work, the first draft shows I will not trigger the AMT tax for the first time in two years. However, I will owe a large tax payment due primarily to capital gains for stock sales. I opened up a UTMA for my daughter's future allowances. And we will get a free IPod Nano for opening the account. In addition, I completed compiling the basis for Dad's stock sales in 2004. I was very impressed that he had one stock go up about 500% from 2002 to 2004.

    My only outstanding task item is the executor work that I wanted to complete in January. Given the lighter task load in February, I thought I would complete the executor work in that month. I have completed about 1/2 of it and will continue to work on it in March. The work is not difficult, but requires a lot of effort since new accounts need to be opened for each DRIP. Each new account requires the same amount of documentation. This work continues to confirm my personal decision to avoid using DRIPs.

    For more on Strategies and Plans , check back every Monday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Sunday, March 04, 2007

    Q1 2007 Stock Purchases Update - Closed All Positions

    This week the market got ugly and I got out. In addition, my stock picking system had sell signals for Biogen and Apple, leaving only Avnet and Coach as buys. I sold all of the positions I had purchased in the first quarter of 2007 for my personal account. Next week, I want to confirm the direction the market. I will be looking for the market to clearly reach a bottom and resume rising before making any new stock purchases.

    Here's how my Q1 2007 purchases performed:

    Stock
    (Sell Date)

    Ticker

    Shares

    Purchase Price
    1/22/07

    Sell Price

    Gain
    Loss

    Percentage
    Gain/Loss

    Avnet (2/27/07)AVT200$26.115$35.54$1,885.66

    36.1%

    Coach (3/2/07)COH50$44.01$47.81$190.50

    8.6%

    Biogen Idec (3/2/07)BIIB50$51.14$44.35$339.47

    13.3%

    Genlyte (3/2/07)GLYT50$76.5$69.93

    $328.47

    8.6%


    The overall gain is $1,407.75 and return of 10.2% on a total investment of $13,805.50, excluding commissions. Long term, I am still bullish as I think corporate earnings will continue to be strong this quarter. At this time, I believe the market may have a correction that could last a couple months. Therefore, I have sold all of my Q1 stock purchases, plus Apple, which I had owned since 2006.

    For more New Beginnings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Saturday, March 03, 2007

    Carnival Round Up For The Week #3

    Here are the Carnivals from this past week that I am reading :


    The Carnival of Personal Finance #89 is hosted by Binary Dollar.My Carnival choice is Free Money: Federal Excise Tax Refund posted by Simple Guru. This is about the one-time $30-$60 tax credit for a federal phone tax from 2003-2006. I chose this post because many filers have not taken the credit. To date, out of 34 million filers, 10 million people have not claimed the credit, which is available to everyone. (I think the reference is a Wall Street Journal article, which I can't find at the moment.)
    The inaugural edition of the Investors Blog Network (IBN) Festival is hosted by BioHealth Investor.My Festival pick is Big Business Betting on Your Second Life! presented by SciTech Investor. Virtual money=Real money, virtual lives and real companies - an exciting blurring between reality and what can be. However, I agree with SciTech Investor that my real life (versus a virtual world) is where I want to spend my time.
    The Carnival of Family Life is hosted by Modern Sage.My Carnival choice is Do It All presented by Home School Daze, which points out that a good strategy may be to choose a few things versus doing it all. I fully agree. Doing what's important or needed (and avoiding the unneeded or unnecessary) should be the highest priority.
    The Festival of Frugality #63 is hosted by Stingy Students.

    My Festival pick is My 25 Frugal Habits & 5 Spendthrift Confessions by The Frugal Duchess, which make the point that no one is 100% perfect in their strategies. While every habit is not for everybody, the list is a good starting point if one is looking for ideas. Personally, I use about 10 of the frugal habits described.

    The Carnival of 30s and 40s Personal Finances: The Wealth Accumulation State is hosted by Making Our Way.

    My Carnival choice is presented by the host, Making Our Way, and is titled Thoughts on portfolio construction & All About Asset Allocation. The post reminded me that Small Cap and Value stocks tend have higher returns over the long term. In thinking about my own portfolio, I am under represented in Small Cap, at this time. The reason is that, historically, Large Caps outperform Small Caps in the later stages of the economic recovery, which is the current stage, theoretically. Based on this article, I am going to revisit my Small Cap portfolio allocation.



    I hope you enjoy reading these Carnivals and finding tips you can use.

    Check back on Saturday for the next Reflections and Musings segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2007 Achievement Catalyst, LLC

    Friday, March 02, 2007

    A Very, Very, Bad Retirement Plan


    "You know horses are smarter than people. You never heard of a horse going broke betting on people." - Will Rogers

    Tonight's jackpot for the Mega Millions is $267,000,000 with an estimated cash payout of $163,983,325. While I don't typcially play the lottery, I'm going to buy a ticket (or maybe two:-) for tonight's drawing. Here's why I am playing:


  • The cash payout is reasonable given the odds of winning are 1:175,711,536.


  • It is a reasonable amount of entertainment for one dollar. For a few hours, my ticket has the potential to return a lot of money.

  • Here's why I don't play the lottery regularly:

  • The odds of winning are 1:175,711,536. As Durago Bill points out in Mega Millions Odds, even at a $163,983,325 jackpot, the statistical return on every $1 ticket is only $0.60. So it's a bad return, statistically. Unless, of course, one is holding a jackpot ticket :-)


  • While it is reasonable amount of entertainment for one dollar, investing a dollar a day produces a guaranteed jackpot.


  • Part of the money is used for our schools. I don't like the concept of putting the money to good use to convince me to make a bad decision.
  • So even though I don't usually play the lottery, I will do it today. It's one of the bad personal finance decisions that I make four or five times a year:-) On Sunday, the dollar I might have spent on a lottery will be put back into savings.


    For more on Reaping the Rewards, check back every Friday for a new segment.

    Photo Credit: morgueFile.com, Clara Natoli

    This is not financial advice. Please consult a professional advisor.

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