Exjackly

Being past the midpoint for this year, it seems to be a good time to take stock and review how I am proceeding against my goals.

Emergency Fund

My emergency fund has been built and is now sitting at a little over $1000.  Goal complete.

Credit Card Debt

At first, I did poorly with this goal for the year.  Several factors pushed it higher as I started my job, resulting in a high balance of greater than $17,000.  The good news is that it hit a balance of $0 on June 30.

Now, I will admit that I am not doing what Dave Ramsey recommends (among many others) and cutting up my credit cards.  I am continuing to use them for everyday purchases.  This is for three reasons.  First, by doing so I can automatically have my purchases categorized against my budget.  Second, I actually spend less using plastic (cash disappears from my hands in ways I have not been able to track).  Finally, the cards that I use have rewards that are worthwhile to me.

At this point, continuing to use my cards is not a problem.  In this first month, I am well on my way to finishing with a balance that can easily be paid in full.  I know I will have to keep track and ensure that I do not start letting the balances roll over.

Car Loan

This goal has not been touched.  The emergency fund and credit cards came first.  At this point we have a plan to work on this balance.

Housing

This covers goals 4 and 5 from my original post.  Both goals are moving forward.  We are in the process of packing up most of the decorations in the house and moving them temporarily to storage.  When it is complete, we will bring in professionals to give the house a top to bottom clean so we can list it for sale.

On the new home side, we have talked withseveral builders and are getting quotes for the first phase: architectural drawings.  We are telling the architects/designers that we want to have everything specified in excruciating detail – actual model numbers for faucets and light fixtures.  Specific makes of carpeting, etc.  Essentially, I am shooting for the ability to refer back to these drawings and schedules to resolve any disputes and questions that arise during the build process.

I know it will not solve or prevent everything.  Yet, that level of detail and thoroughness will make the rest of the process as painless as possible.

There are two ways to get ahead financially. Most people who are reading this article will readily recognize both of them:

• Spend less than you make

and

• Make more than you spend

That is it. Every single way that you can get ahead financially will fit into one of those two categories. Nothing mind-blowing by itself. What I want to do however, is to challenge you to look at life from the second point of view.

Rather than competing to see how little you can spend, put your energy into maximizing how much money you can bring in. The difference is truly night and day. Lets look at how.

Let us assume there are two categories of people to match the two ways of looking at financial wealth building. One group, the Frugals, spends their time working to minimize what they spend. The other group, the Grinders, spends their extra time trying to increase their income.

Now, since finances over the long term vary dramatically with small changes, we have to make some assumptions. In setting this up, care was taken to choose assumptions that even out between both options. So, no massive raises for the Grinders, and no excessive investment returns on savings for the Frugals.

Assumptions

Frugals

• $50,000 initial salary
• Raises match inflation perfectly
• 40% savings rate
• 4% return on savings after inflation

Grinders

• $50,000 initial salary
• Raises match inflation plus 2.5%
• 20% savings rate initially
• 50% of raises are saved
• 4% return on savings after inflation

Results

• Frugals have more savings for the first 32 years
• Grinders finish with 10% more savings, but set aside 36% more over the years
• Grinders standard of living increases every year

Frugals start off much stronger. Their savings ethic lets them build up to a very nice retirement portfolio with constant progress in the right direction. At the end of their efforts, their lifestyle requires just 1.3% of their savings for retirement. This means they can increase their standard of living in retirement and still live off less than the income from their savings. Or, the Frugals can retire early while maintaining their standard of living.

Grinders raise their savings and their lifestyle every year. Eventually, they are able to reach and overtake the Frugals. However, the income required from savings to maintain their lifestyle is 3.8%. This is much closer to the maximum 4% withdrawal rate recommended. This means that Grinders are more sensitive to recessions and run a higher risk of outliving their money.

Still, even the Grinders do very well for themselves with an excellent change of a long and happy retirement. The best part is that they do not have to dent themselves to get there. So, given the choice, I’d rather be a Grinder myself.

Fortunately, nothing prevents us from learning from both.

Frugals

Grinders

These are not resolutions for the new year, or even grand plans for my entire life.  Instead, this is simply a public statement of what my current financial goals are for the short term (calendar year 2008).  This is an effort by my to do several things.

First, a goal is not a goal unless it is shared and preferably written down.  The process of writing down and sharing a goal forces it be a concrete idea, fully thought out.  Sharing it with others, provides a level of accountability higher than keeping it to myself.

Second, documenting it this way allows me to come back later and measure how difficult these goals were and how close to achieving them I got.

Finally, it is a way for me to share with you, my readers, a little bit of what is going on in my life so that hopefully you can get a little bit better understanding of me and how I think.

Goals

1. Build up a $1000 emergency fund.  Being unemployed for the last six months of 2007, my emergency savings were wiped out.
2. Pay off my $12,000 in existing credit card debt.  After going through my emergency fund, I fell back to credit during my job search.  Once I have a basic emergency fund, it will be time to pay my credit cards off.
3. Pay off my wife’s car loan.  This is one place we did not follow the experts advice.  We took out a $25,000 loan to buy a brand new car.  I was comfortable with it, since we will pay it off faster than required and since the car will be driven for at least 10 years before we sell it.  The rate was a good one, but due to other upcoming plans, it is time to free up the cash flow.
4. Build our new home.  The layout and room sizes for our custom home are finalized.  Once I get some more work done on the specifications, it will be time to get bids and choose a builder.  We want to be in the new house before Christmas 2008.  The brings up the final goal:
5. Sell our current house before moving into the new house.  While we could make dual mortgage payments, with the size of the anticipated mortgage on the new home, that would put a definite crimp in the cash flow.  Even if we have to get into a month-to-month apartment lease during construction, it will be worth it.  Fortunately, the housing market here is still healthy, even if less robust than a couple of years ago.

Total, it means that for 2008, it will be the addition of around $50,000 to our net worth excluding retirement accounts.  Contributions of around $20,000 or more to those will get us that much closer to the end of our ‘working years’ and give us a healthy savings rate.

There will be a significant bump in our mortgage debt, but it will be matched by a similar jump in home equity and home value.  Plus, we may even save some money with the change by going Energy Star (or better) in the home construction.  Proper home design, better building practices, extra insulation, and good choices for appliances could more than offset the larger home size and result in lower utility bills year in and year out.  The decrease in maintenance will also be appreciated.

Overall, if we can hit these financial goals for the year, it will be a great year for us.  The goals are SMART and match up with my values and life goals.  I’m looking forward to working to achieve them.

In this world, we always have the opportunity to pause and reflect on ourselves, our lives, our goals and our values.  With the hubbub of daily life, we seldom do so unless there is an outside force that encourages it: New Year’s Day, a major life change, or a major change for a friend or family member.

I want to wish each of you the best in 2008.  If you have not reviewed how you are living your life recently and how it matches with your goals and values, please do so.  There is so much that each person is capable of if they choose to do so.

• Financial security is available to almost everybody, even though it will take more effort for some people than for others.
• Work satisfaction is as much about you as it is where you work, who you work with and what you do there.  If you are not happy, start taking baby steps at least towards what will make you happy.
• Do your goals still match what you truly want out of life?  Are you still making progress towards them? Update them as necessary and do not be afraid to tell other people what you want to accomplish.

There is so much to this life.  I hope you recognize it yourself and are making progress at making your life one you are happy with and proud to share with your friends and family.

God Bless, and may 2008 be the best year of your life yet.

I regularly spend time thinking about what my goals are for my life and if those goals are compatible, etc.

Today, a stray thought popped through my head that won’t let go.  It is hammering on me and I cannot decide which way makes more sense.

It has to do with my legacy and any inheritance that I will eventually leave to my heirs.  Since part of my goals involves building up a significant amount of assets, what to do with them after I am gone is a question to be answered.   There really seem to be just two options for it: give them away or give them to my heirs.

Both options have their appeal.  On on hand, it would be an opportunity to make an impact for what I believe strongly in by giving lasting gifts to organizations that are support what I care about.  On the other, is the notion of making life easy (too easy?) for my family.

Warren Buffet and Bill Gates have already addressed this question for themselves – choosing to give most of their fortunes (admittedly, much bigger than anything I expect to amass) to charities and reserving just a small portion for their families.

What are your thoughts?

Patrick, over at {Cash Money Life} relates to us his financial life story in brief.

Unlike many of us (myself included), he appears to have done the right thing from the very beginning. That, with no life-busting emergencies has him sailing smoothly. The best part? He has the freedom to be doing the work he wants to do rather than finding the job that pays him the most possible.

All I can say is Congratulations. Great job, keep it up.

Here’s hoping my efforts to join him in financial serenity works out in real life like it does on paper.

{Consumerism Commentary} did Patrick one better however.  Sasha just reached a major milestone by making the last payment on $52,050 of student loans.  That is huge and a wonderful goal to reach.  The writing is pretty entertaining too.

One of the greatest things that we can do to improve our lives is to make goals. I am not talking about just any goals either. If we want to change and improve our lives, setting real goals is one of the best ways to do this.

For a goal to be a real goal, it needs to meet a number of criteria.

1. It needs to be a SMART goal:
   • Specific
   • Measurable
   • Actionable
   • Realistic
   • Time Based

   This acronym can help you set useful goals, no matter what level of life – parenting, work, finances, even long term life goals. SMART is by itself worth its own post, but for anybody who wants to find out more now, a single Google search can get you started.

What it cannot do is tell you how well aligned your goals are with your personal philosophy, beliefs, and what is most important to you. It is entirely possible to generate a list of smart SMART goals to govern your financial life, yet which will be entirely wrong for you or your situation.

Let me give you an example from my life. I could set a goal to (S) get a new car, (M) paying cash, (A) by saving $1500 a month, (R) until I have $20,000, (T) within two years. This goal is smart, because I would not be financing an asset that will lose its value every day as I drive it. It is also a SMART goal. But it is not right for me. A new car would not contribute anything to what is important to me.

I have started the process of determining what my values are and what is important to me. I am not done, but I do know that driving a truly new car is not on that list. So, that goal would not be a good one for me.

{No Credit Needed} appears to have done some similar value setting – even if it was not a formal process. From what I can tell, he determined that holding debt and paying interest – for anything – did not match up with the values that he and his wife wanted to hold to. With guidance from Dave Ramsey NCN pulled out all the stops and attacked his debt. Now that he has eliminated it, he is saving an incredible amount of his income in an effort to prepare for expected upcoming expenses while holding to his personal philosophy.

Stick with me. I will be spending time thinking about what is truly important to me and why. I will also be relating these values to my financial situation and future. Finally, I will be setting a series of goals – both financial and non – to help ensure that I am working on what I have determined is most important.

Wish me luck.