Category Archives: Strategy

Goals, Mortgage, Personal Finance, Retirement, Strategy

Forks in the Financial Path

November 7, 2016 cb3 2 Comments

Deciding What’s Next (Financially)

Over the past couple of month’s I’ve been mulling over a couple of ideas in regards to the next steps of my financial plan and pursuit of Financial Independence (and possibly Retire Early). Now that we’re down to a single debt with our mortgage, I need to re-analyze our current state and adjust some of the sliders. Our Next Life had an excellent post about how their goals changed over the course of implementing their plan. For me, debt removal was a goal, but not necessarily the goal post.

Hopefully over the course of this post, I can take a look at the current goals as well as the new goals that I’m considering and discuss what I need to adjust to accomplish them.

Here’s where we were…

Debt payoff

When I started really tracking my debt situation at then end of 2014, we had accumulated around $230,000 in total liabilities. That was a combination of mortgage, student loans, personal loans, and credit card debt. Once upon a time, I thought this was pretty reasonable although my perspective may have been skewed due to working with so many folks in the SF Bay area.

Luckily I came to my senses and realized I needed to do something about it. My original plan was to shoot for 10% of the total per year. 2015 was a success and we eliminated a little over that with a 10.65% reduction. This year, I needed to target 15% of the remaining balance to stay on track. I’ve closed every balance but the mortgage an we’re on target for a 17.73% drop this year! That’s a little over $60k worth of debt gone in two short years.

Taking those items off of the balance sheet gives me around $30k of free cash flow next year (assuming no major life changes) that I need to reallocate. I just need to figure out where to send it.

Here are the things I’m considering…

Home Repairs

This one is inevitable when you own a home. Eventually, something is going to require a larger sum of money to repair. It’s really annoying, because it came up just after making all of this super progress. Chalk one up to Murphy.

The good news is that I can handle the cost of the project. I’ve got to get some siding repaired (ours is cedar), exterior paint done, and some deck repairs done. There’s also some cabinetry repair in the kitchen as well as some drywall repair and interior paint touch-up.

The bad news is that the work on the exterior really needs to be done now, but the cash won’t be available until Feb of next year. I’m going to solve this with a Home Equity Line of Credit with the knowledge that I will be able to re-pay that in a few months. This will keep the interest payments to a minimum.

That eats up between $10-15k. Annoying but necessary.

Investment Contributions

In order to make a decision about investment contributions, I need to understand where I am and what my goals are. Ideally, I’d like to be FI by the time I’m 50. That gives me eight years to build (I turn 42 this week). That’s the goal, but where do I stand?

If I look at the statistics for the average American, I see that folks in my age group have a mean savings of around $63000. Woohoo! I have a little over $170k depending on where the market happens to land today. That’s almost three times as much as my peers, but it doesn’t give me the warm fuzzies since I don’t want to wait until 65 to retire.

I need to do a really thorough analysis of what a FIRE life would look like for me. I’ve seen several examples on other blogs and need to take the time for it. For now, I’m just going to plug in to one of the simple retirement calculators that one can find through Google.

It was hard to find one that actually let me put in the exact numbers I needed as in how much income I need post retirement (60% of my salary is still too much). Schwab has a tool that let’s me do just that so that’s where I started.

My current spending per year (that isn’t debt payment) is around 55% of my gross income. That’s around $85,000 for a family of 4. I’m planning to reduce that to $65,000 per year which is much more reasonable (this will also free up more cash flow as we move in that direction). With my current yearly contributions of $21k and planned retirement age of 50, I’m told I have a shortfall of $762,500. Shit! That’s a lot of money to conjure in the next 8 years. Obviously some adjustments are in order. If I adjust the contributions up to $44k and add an additional four years to make my retirement at 54, then I can get it to the point where I have a surplus.

Now, this isn’t exactly ideal and the tool does make some assumptions about life expectancy, investment gains, and inflation but as a basic starting point it gets the point across.

New goal: Save at least $44,000 (that’s $23k of my cash surplus next year) per year going forward!

Diving Into Rental Property

I’ve also been thinking a lot about my asset allocation and how it’s almost all in the stock/bond market right now (If I don’t count my home as an asset). I’ve been including the house in the Net Worth calculation, but don’t really consider it an asset since it doesn’t generate income and I would still take a loss if I sold now considering loan + interest.

It’s not high priority by any stretch, but I know that I could put together the funds to purchase a smaller rental and get started in that market. I’m currently in research mode on this topic and trying to learn as much as possible before pulling the trigger.

Stay tuned.

Additional Mortgage Payments

This is apparently a hotly debated topic. Many argue that if interest rates on the loan are low and the market is favorable then money is better allocated towards investments. Money spent towards extra mortgage payments also ties up capital in an illiquid asset. Depending on one’s financial health, liquidity may or may not be a concern.

The other side of the coin that I see is the amount of money that I’m spending on interest. With a somewhat reasonable rate on a 30 year fixed loan of 5.25%, I would end up spending an additional 96% of my original loan value on interest! That basically doubles what I’ve paid for the house. Insane!

So far, I’ve managed to get a little bit ahead on the loan. Over the entire duration, I’ve been spending a little over $6 towards the principal. Since I paid the car and personal loan off this fall, I’ve used some of the extra cash flow and made almost a full payment extra toward principal (~$1250).

Now, the neat thing about this is when I look at an amortization table for my loan. With just this little bit extra, I have cut ten months from the loan as well as around $2000 worth of total interest. That’s OK, but not great.

Now, if I can maintain the extra $500/month towards principal then things get really interesting. My projected payoff date would move from Oct. 2039 to Dec. 2028 shaving eleven years off the life of the loan! That also reduces the total interest paid to 66% of the original loan amount. That would only take $6000 of my free cash flow to accomlish. Sweet!

College Savings

The last topic is also somewhat of a debate (not as hotly debated though). We both agree that we want to provide for our children’s education. The debatable part is how much and to what limit.

We both come from slightly different educational paths but are both college graduates. My degree took me through four different schools and I sampled both public and private as well as four year university and two year community college. Her path consisted of two degrees; one from a private university and one from a public university.

My current leaning is to do my best to fund an education from an in-state public school. Ideally, they can get some credits at a two year school and then move to the bigger school to complete their degree focus. I have 9-10 years for the first and 13-14 for the second to work on it and I’m estimating around $15k/year which would take $60k for each child under ideal conditions. I know this is probably going to go up, but I have to start somewhere.

Not counting for investment gains and assuming I’m starting from scratch, I need to put away $6000 per year for the first child and $4600 for the second. We will also be asking grandparents to contribute to this goal going forward.

Which Way to Head

Well, what would you do? I’ve obviously come up with more options that the $30k worth of cash flow that I’m freeing up next year. I’m also assuming that nothing major happens anytime soon to cause a large unexpected expense. It’s a lot to think about.

Cheers!

-cb3

Put a little bit towards each or focus on one area more than others? Let me know your thoughts.

Expenses, Goals, Strategy

March 2016 Progress

April 3, 2016 cb3 Leave a comment

March Madness

Kinda feels that way anyway. I’m not sure what exactly happened, but we seem to have been a lot more scattered this month and much less disciplined. We’re hoping to recharge with a little trip to the beach and come back ready to be a little more focused.

We hit another milestone this month with the final payment sent to Mrs. C’s student loan. We started the year with five outstanding debts on the paydown tracker and now we have three. That spreadsheet is starting to get a little boring. I think I’ll keep it that way!

Current Goal Status:

Financial goals:

Reduce overall outstanding debt (including mortgage) by 15%.
1. Debt reduction for the month was 7.56% which puts us on track for a 16.63% overall reduction for the year. Paying off the student loan balance puts us ahead of our goal!
Make contributions to investments (taxable and retirement) of 15% of salary.
1. We have contributed 12.59% of our income to investment accounts including 401k, 529, ESPP, and Brokerage.
2. This number dropped a bit from last month due to the large influx from the tax refund.
3. Since we have more free cash flow each month, I’ve increased the amount going to the investment account by $100/month. I’m confident that I will be able to increase this again this year as well as making a lump sum contribution later in the year.
Eliminate outstanding credit card debt.
1. Outstanding balances eliminated in Feb.
2. No interest accrued on revolving balance in March
Eliminate remaining student loan debt.
1. We were able to eliminate this balance with our income tax refund. No more student debt!
Make a contribution to an IRA.
1. No progress here… yet!
Generate revenue from a new income stream.
1. No progress here… yet!

Expense Goals

Expense goals in Feb were not much better than January. Still, it was a little better:

Meet the $800 per month grocery budget
1. We actually did this. March grocery expenses came to $738. Not keeping up with meal planning and actually making it to the grocery store seems to make this an achievable goal.
Reduce dining out to $400 per month (2015 – $600)
1. Ok, so highest dining out month yet. We spent $924 on restaurants. I kinda beat myself up on this topic earlier this month, but it’s been a crazy month all around with ‘life’.
Reduce entertainment/alcohol to $250 per month (2015 – $435)
1. This was our highest month for entertainment as well at $548. We entertained more, had date night twice this month and hit our last hockey game of the season (The Preds make the playoffs, then I’m heading to Nashville for a game!)

Personal Goals:

Meditate at least three days a week
1. I meditated 16 days this month. Consecutively!
2. I owe part of this to the Headspace app.
Take walks at least three days a week
1. Down to about 45k steps this month. Between the cold early in the month and now extreme amounts of pollen, I’m not getting outside as much as I’d like.
Spend at least seven days camping
1. Nothing this month, but plans in place for June and confirmed a trip to Cumberland Island, GA in October.
Go kayaking at least one time
1. Still Brrr (the water still is anyway). Not yet.
Take one family vacation
1. I’m posting this from the beach. Shh!

Net Worth Update for Q1

Assets up 3.33% in Q1

Liabilities down 7.51% in Q1

Total Net Worth change of +17.04%

March Summary

Even with the frenetic pace of life and a frustrating amount of dining out this month we had a positive cash flow of $870. With the extra buffer in cash flow, I also set up an additional recurring monthly transfer to our taxable investment account.

Right now, the kids really really REALLY want to head down to the pool. It’s 65F here at the moment, but it’s sunny and they have unstoppable determination for some swimming. My guess is that it’ll be a short adventure. Stay tuned.

Cheers!

-cb3

Expenses, Strategy

Can We Afford It?

March 10, 2016 cb3 2 Comments

Thinking Back

With all of the progress that we’ve made since the beginning of 2015, I’ve been doing some reflecting about how we got into the hole we were in and what’s changed about our approach to expenses. Planning for our upcoming vacation put a few things in perspective as well.

I’m not saying we’re perfect and we’ve got it all figured out. There are still some challenges that we face on a weekly basis, but for major purchases (excluding things like houses and cars) it’s completely different.

We Really Need a…

Inevitably in life there comes a time when you really need (or want) a… something. Maybe it’s a new dining set, or a replacement laptop, or it’s just time to get the heck out of town and take a vacation. Whatever it is, it’s probably going to be an expense that you haven’t planned and don’t have a budget for.

The next part of the story is the bit that’s changed for me. Presented with the need (or want), we have to figure out if we can (or should) afford it.

How it Used to Go

Once upon a time, in the not too distant past, being faced with a new unexpected expense would result in a simple check of the credit card balance. It was simply a matter of whether we had the available free credit to handle the balance.

That was it.

It was a mistake.

There was never a thought for what that additional balance would mean to our finances. If the credit was available, it was easy to think that we could handle the expense and things would work themselves out in the long run. Oh how naive I was.

The New and Improved Way

Now we have several questions to consider when faced with a sudden expense. I like lists, so I’ll lay the process out like that (though a flowchart may be in forthcoming if I think about it).

Here we go:

Do we have cash on hand in the savings (not the emergency fund) to deal with this?
If not, do we have the free cash flow in the next month to absorb the cost of the expense?
If not, is it acceptable to accrue interest on this purchase if we can’t pay it off in the grace period and how much interest would that be?
- I do want to say that I don’t plan to answer yes to this question ever again, but sometimes things happen (and that’s why we have an emergency fund)

If we get to point number three and i’m looking at an expense that’s more of a want than a need, then I have to say no. We can’t afford it.

Also, let’s face it, some expenses come with emotional attachment as we experienced last year with one of our pets. It was very difficult to say no because of the emotional impact to my wife. However, having the list of criteria to go through logically made us really take a look at the impact of the decision. In that case, we had extra money coming in soon enough that we could afford it.

It’s a Simple Exercise

If you have a handle on your monthly cash flow and budget, then this is a very easy exercise to do when faced with these kinds of decisions. It can help take the emotion out of the equation and help determine the course of action in a thoughtful way.

For us, emotional impulsive spending is how we dug ourselves into a hole. Getting out of that hole takes discipline and logic.

Cheers!

-cb3

Expenses, Strategy, Tools

Spreadsheet 101 – Debt Pay-down Projection

February 22, 2016 cb3 Leave a comment

Class in Session

I’ll be the first to admit that there are several aspects of life where I really let my nerd show. Personal finance has rapidly become one of those and I especially enjoy formulating and applying spreadsheets to the tasks of managing finances.

Here and there I will do a post about a particular spreadsheet that I’ve found useful and describe how I put it together and why. Also, for those that subscriber to the blog (I promise not to fill up your inbox!), you will get an email with links to template versions of the spreadsheets that I use.

The Original

The first spreadsheet that I did for my personal finance journey was one that I originally call ‘Financial Projection’. This was a little bit of a misleading title since it was a bit more focused on tracking outstanding debts and projecting the year-end balances on those debts.

I’ve made some enhancements over the past couple of years, but I still use this sheet today.

The Layout

The spreadsheet contains multiple sheets with one sheet representing each year.

Each sheet uses the columns to represent months in the year. There are fourteen columns for data. The first data column at the beginning of the sheet shows the previous year-end balances for each debt. The last columns shows the year-end balances for the current year.

At the top of the sheet there are some rows for meta-data. The top row shows the month and the row below it contains the number of days in that month. The only update made here is for February on leap years.

The next two rows show the total outstanding debt at the beginning of the month and the percentage of debt that has been paid down so far this year.

These are sums based on the next set of rows which contain the details for each outstanding debt.

The Debt Section

Each outstanding debt in the spreadsheet consists of five rows. I used the top row to show the projected balance for the beginning of the month (I have noticed that there are sometimes slight variances between my projected balance and the statement balance but I haven’t spent any time tracking down the difference).

The next row contains the statement balance for that month. This is a value that I manually enter when I go to pay the bill.

The third row is for the payment amount. Here is where I manually record the amount of money put toward the debt.

The fourth column contains the daily interest rate for the debt. Not all loans calculate interest daily, but this is used to give me a rough idea of how much money I’m losing by having the debt each month.

The daily interest rate is used to calculate the amount of interest accrued for the month. This can be a rather eye-opening figure for some items.

Finally, I subtract the payment amount from the statement balance and add back the accrued interest. This is the value that gets put in the next month’s projected balance box.

Putting it Together

Once I have all of my debts added to the sheet, I use the statement balance from each debt and add them all together to arrive at the total outstanding debt value at the top of the sheet.

The percentage of reduction sheet is calculated by dividing that month’s total debt by the beginning of the year total debt and then subtracting the result from 1.

Since the calculations are all cascading and update when the row values are changed, I am able to project my year-end total outstanding debt and year-end debt reduction percentage.

I’ve thought about adding some fancy graphs for a more visual look at the data, but I haven’t gotten motivated to do it yet. Besides, I also have the Personal Capital dashboard for visual reference.

It really helped me to see how much progress I was making and the amount of interest that each debt was costing me. Hopefully a tool like this will help you too. If you’d like a copy of the template, subscribe to the blog.

Cheers!

-cb3

Investing, Personal Finance, Stocks, Strategy

It’s Almost ESPP Time

January 25, 2016 cb3 Leave a comment

Every Six Months

At the end of January and August of each year, my attention is brought back to the company Employee Stock Purchase Plan. I’ve gotten my email reminders that the window is open to make any adjustments for the next period.

It also makes me excited because the last period vests on the 31st and shares are purchased on my behalf with the amount that I’ve contributed. Cool!

What is ESPP?

Here’s the definition from Investopedia for anyone who isn’t familiar with an ESPP:

DEFINITION of ‘Employee Stock Purchase Plan – ESPP’

A company-run program in which participating employees can purchase company shares at a discounted price. Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price.
Read more: Employee Stock Purchase Plan (ESPP) Definition

Why I Like It

My company’s plan does use a 15% discount on the purchase price of the stock. It also selects the purchase price from either the first day of the period or the last day of the period, whichever is lower.

That means that I can sell the shares on the day they are available in my account and make around 15% profit for a six month investment at minimum! Those returns are really great. Yes, I will pay short term capital gains on the profit (difference between purchase price and sale price) but I’m still getting better returns than most investment options. Remember, this is for a six month period. That makes for a 32.25% annualized return.

Now, if the purchase price from the beginning of the period is used and the current price is higher, returns will also be higher.

Example

Let’s say, for the sake of example, that my company’s stock price at the beginning of the last period was $75 and is currently around $40 (It’s been a tough market for a lot of stocks the past nine months).

So, my purchase price this go around will be $40 minus the 15% discount which gives me $34. Let’s also assume that I’ve contributed $3400 this period. I will be purchasing 100 shares at $34. The next day when me shares are available, the stock is still sitting at $40 and I sell immediately making $600 profit (minus brokerage fees)!

If the situation had been reversed and the period had started at $40 and ended at $75, I would still be buying 100 shares with my $3400 since we select the lowest of the two prices and discount it. Now, however, I’m selling at $75 for a $4100 profit!!

Potential Downside

Now, one of the drawbacks can occur if you decide to hold your shares. Let’s say $75 was the purchased price after discount and you held. Now the stock moves down to $40. It may or may not ever recover and you have taken a loss on the position.

My personal belief is to sell the shares immediately if the value of the purchased shares is greater than 1% of my overall investment portfolio. I want to be diversified and not holding a large percentage of company stock.

If the holdings are less than 1% of my portfolio, maybe I would hold for a bit if I believe strongly in the direction of the company. Who knows, I haven’t gotten there yet. Besides, I have debt to eliminate!

How I’m Using My ESPP

In the past, I’ve used the gains from the ESPP investment to go toward debt reduction. Then I take the amount of the original investment and roll it back into my long term investment account to reallocate.

Since I am trying to pay down debt and I haven’t been accruing any interest on credit cards, I’m actually contributing more to my ESPP than I am to my 401k. I know most finance gurus may argue against this, but it’s a short term approach and I will be increasing my 401k and IRA contribution once the consumer debt and smaller loans are gone.

This time around, I may actually take the amount that I contributed and also apply it to debt reduction. This would effectively reduce the amount that I contributed to investments in 2015 since I would basically be making a withdrawal to do so, but it might be worth it to see those debt balances disappear.

Conclusion

It took me several years to figure out the best approach for leveraging ESPP. At my last company, I just held it all until we need to make a downpayment on the house (some of the shares were underwater as I described above).

Now, with the sell immediately plan, I feel that I can take full advantage of this powerful tool. In fact, I just increased my contribution to 8% which should maximize the amount that I can contribute this year.

Like a good friend once said, ‘never turn down free money’

Cheers!

-cb3

Personal Finance, Strategy

Considering a Balance Transfer

January 7, 2016 cb3 Leave a comment

Food for Thought

As I mentioned previously in my December report, I have a balance on credit card with a 0% interest introductory offer that expires on Jan. 22. A bit of background is here in my flashback post to some items that lead up to the blog. I thought this would be a good time to write a post about one’s options in such a situation.

Option 1 – Transfer to another 0% intro card offer

This would be my preferred option if I can find one with 0% intro and a $0 transfer fee. According to Nerd Wallet, it looks like the only option is a Chase Slate, which I already have since the 2014 transfers. Since I’m already an account holder I would pay a 3% transfer fee which lines up with all of the other offers. That would cost me $215.40 in transfer fees.

The only option we may have would be for my wife to apply for the Chase Slate and put the card in her name only. Her score is also in good shape and she hasn’t applied for anything since March of last year. Since we’ve been in aggressive pay-down mode, we also have a low credit utilization.

Option 2 – Transfer to personal loan

This is an option that I haven’t explored fully and honestly it’s because I don’t believe we’ll go this route. For due diligence, it’s here since it is technically a viable option.

I’ve received several of the pre-qualified mail offers from local banks and most appear to be offering unsecured personal loans at around 5.99%. There’s probably a loan application fee associate with this and I would end up paying around $40 a month in interest.

There are also several sites such as Lending Club and SoFi where I’m sure we could get a competitive offer over the banks. However, I would still be paying interest on the balance each month.

Option 3 – Do Nothing!

As crazy as it may sounds, I may do nothing. The reason that I’m thinking along these lines is due to a couple of extra income items coming up in Feb.

First up is ESPP purchase on January 31. Based on the spreadsheet that I use to track it, I’m estimating around $1200 return on the six month investment. My current plan for ESPP is to use the gains to pay down debt and then to roll the base investment amount back into my investment account. The base principal was counted in last year’s total invested cash, so I really don’t want to cut into money that has already been counted as invested.

Good thing the second event is our first half bonus. This should infuse an additional $9000 into our cash flow. Normally I don’t like to count on money that hasn’t hit yet since this value could be adjust based on company year-end results. I’m fairly confident we’ll still get enough to clear the entire balance.

Are There More?

I’m sure there are options here that I haven’t considered. I am by no means an expert when it comes to this type of thing, but I’m learning. I will say that no matter what happens, I can’t wait to get rid of this balance.

What other ideas would you consider?

-cb3

Goals, Strategy

Goals for 2016

December 24, 2015 cb3 2 Comments

Bring on the New Year

Here we are. Already at the end of 2015. It’s hard to believe how fast this year has flown by. It’s also pretty cool that I’ve managed to track my expenses, stick to my plan and meet my goals for the year.

Now it’s time to formulate a new plan. I’m fairly confident that we could take the same goals from 2015 and re-apply them. After all, if I continue to do that then I’m only 9 years away from being debt free (In order to do that, I would need to reduce debt by 10% of the 2015 starting balance each year which is approximately $24k. If I use this years starting balance, I need 11.7% reduction to maintain the pace).

Accelerate the Finances

I’ve done a little back of the napkin analysis and based on a few factors, I think we can be more aggressive in 2016.

Financial goals:

Reduce overall outstanding debt (including mortgage) by 15%.
Make contributions to investments (taxable and retirement) of 15% of salary.
Eliminate outstanding credit card debt.
Eliminate remaining student loan debt.
Make a contribution to an IRA.
Generate revenue from a new income stream.

The first two are pretty simple and I believe easily accomplished based on what I learned last year. I’m trying not to spend extra income before it arrives, but I know what my ESPP and RSU schedule is and around how much I will receive. Most of that money is earmarked for debt reduction which is how I plan to accomplish the second pair of goals.

The next goal is more for the mental victory than anything else. I’m not maxing my 401k contribution yet, so this is technically not a priority. I think it would feel good to make the contribution even if it’s just $50.

Finally, I want to establish another income stream. Right now, most of my income is generated by my full-time job. I know that my investment portfolio is earning dividends, but I haven’t started tracking those. I’m not sure what form this new income stream will take at this time, but I do have a couple of ideas to explore.

Decelerate the Expenses

I’ve looked at a couple of areas on our variable monthly expenses and it looks like there are some easy wins to be had.

Expense Goals

Meet the $800 per month grocery budget
Reduce dining out to $400 per month (2015 – $600)
Reduce entertainment/alcohol to $250 per month (2015 – $435)

If we can accomplish these, we should be able to free up around $5500 in cash flow. We just need to make sure to stick to the meal planning schedule and have groceries ready for the week. I’ll be setting up a spreadsheet to track progress on that and help with accountability.

Let’s Talk Business

I’ve been reading a bit about business entities and the various benefits afforded to them. This year I plan to create my first business entity and being to explore what I can do with that.

While I don’t have any firm plans for what I want the business to accomplish quite yet, this exercise is more about learning the process at this point.

What about Chuck

When I started the blog, I talked about the canoe dock and what it means to me. That place is capable of centering me and I love the way I feel when I’m there.

This year I’m adding some personal goals as well in order to find that state of being more often. In 2015, I only took a total of six days away from work. That was back in March. With the crunch of project deadlines, the last half of the year was a bit stressful.

For 2016, I intend to take a little more time for myself.

Personal Goals:

Meditate at least three days a week
Take walks at least three days a week
Spend at least seven days camping
Go kayaking at least one time
Take one family vacation

The first two items might be challenging as I’m not very good at establishing new routines. I’ll need to set up another spreadsheet to track progress and keep me accountable. There may also be apps that I can use on my phone to help.

The last three items should be pretty easy to do. My wife and I already have plans to hike part of the AT while our daughter is at summer camp. We also have a family vacation already scheduled.

That’s at least two weeks away from work which is much better than last year.

State of the Blog

My goals for the blog really haven’t changed much. I still want to continue to document my progress and record stories about relevant events in my life.

I have gotten a couple of comments from real people (Thank You!), so I know that I’m starting to reach an audience. If I could grow to ten comments in the new year, I think that would be just fine.

Happy Holidays

Thanks for stopping to see what’s happening here and I wish you the best in 2016.

Cheers!

-cb3

Expenses, Goals, Investing, Strategy

2015 Year in Review

December 18, 2015 cb3 Leave a comment

As we wind down 2015, I wanted to take a look back at the Goals for the year and how we did. I’m also going to talk about what went well, what didn’t, and a few of the surprises along the way.

This may be the first year of my life that I’ve ever been able to view my financial health holistically. It’s also the first time that I’ve ever written down financial goals for myself. I’ve tracked every dollar each month as well as goal progress along the way. Sitting down and Drawing My Picture has been a powerful tool indeed.

Financial Goals 2015

I started the year with three pretty basic and achievable goals.

Reduce overall outstanding debt (including mortgage) by 10%.
Make contributions to investments (taxable and retirement) of 10% of salary.
Eliminate any monthly interest payments due to credit cards.

In 2014, I had only managed to reduce my overall debt by a little more than 2%. Not wanting to spend another 49 years working on the problem I set my sights on 10%

I also wanted to continue to contribute to investments at least a little. I had a general idea of how much I would be making over the course of the year and what my previous year’s total spending was so I also set a 10% goal (pre-tax included) here. I did reduce my 401k contribution and increase my ESPP contribution to help generate some extra income for debt reduction.

Coming into 2015, I had pre-existing credit card balances of approximately $20,800. Towards the end of 2014, I had done some balance transfers to 0% offers so $12,300 of that total was not generating interest and $8500 was. Tackling the $8500 was my top priority since it was costing me an extra $180 per month in interest.

I’m happy to report that at the time of writing, all goals have been met for the year. Debt reduction is at 10.65%, investment contributions are at 10.38%, and I only paid interest on a credit card four months out of the year. I thought I had eliminated interest after March, but the extra Vet bill led to a $38 charge on the November statement.

Year-End Balance Sheet

Let’s take a look at the balance sheet for the year. I’ve intentionally left out the cash accounts (Checking/Saving) since these have relatively low balances and will fluctuate a bit by year end.

The ‘Other Assets’ listed is the estimated value of our house according to Zillow. I hesitate to use it in the balance sheet since it is an estimate and not a very liquid asset at all. Asset value increased by 7.53% this year which is mostly due to contributions and an increase in estimated home value.

The remaining $7180 of credit card debt is sitting on a balance transfer card with a 0% introductory rate that will expire sometime in January. I need to review the terms of the transfer and make a plan to deal with that before the interest starts. I do have an ESPP coming up on Jan 31 that will eliminate the balance if everything goes according to plan.

Overall Net Worth increased by 44.32%. That’s a really incredible number to see, but it makes sense when you look at the fact that I’m both adding assets and decreasing liabilities.

Cash Flow

This is the first year that I’ve tracked Cash Flow. I can say that I was very surprised to see the numbers at the end of the year. It’s eye-opening (and slightly alarming) how much money is going out the door. Here’s a summary (Income and Investments include pre-tax contributions to retirement accounts)

I’m confident that we can lower expenses next year. Right away, I know that we’ll be spending around $6000 less on outstanding credit card debt (~$13000 this year with $7180 remaining). We also had two larger purchases of a replacement laptop ($3000) and a Vet bill ($4000).

It’s possible that I can be a little more aggressive with my goals for 2016, but I don’t want to set myself up for failure so I’m still working on finding a balance. We may also be able to fund a family vacation next year which will help with the mental health aspect for the rest of the family (I think I’ve only taken 5 or 6 days off this year).

The slightly alarming bit is the fact that our total income included bonuses and RSU sales. If it hadn’t been for that, we may have ended up adding to debt instead of removing it. I need to get us to a point where we’re not dependent on extra income and everything can be handled by regular salary.

Expenses We Can Control

There are a few areas of expense where I know we can make a difference. I tallied up the monthly average for variable expenses and found the following items are over budget on average:

Pets and Electronics both have outliers that are skewing the average. Both should be much lower next year. The top item is basically anything we buy at the grocery store. We’re only slightly over budget on that but if we can cut it by 10% that’s around $1000 in savings.

Dining out should be half of what it is. One of the key challenges for us is having a weekly menu and getting the grocery run done. If we can make a better effort to be consistent there then we can easily cut this in half and save $3500 or so.

Entertainment and Alcohol includes things like movies and hockey tickets as well as trips to the package store. I’m cutting back on the craft beer and will be re-focusing some hobby time to brewing again in 2016. Honestly, I’d like to see this number cut in half too but a 10-20% reduction will be great.

Combine those reductions with the unexpected expenses and credit card payoff and we could reduce expense by up $18000. Stretch goal would be to make it under $100000 total expenses for the year, but we are still in debt reduction mode so I’m not as focused on that.

2015 – Year of Success

Well there you have it. As of right now, it looks like I was able to meet my financial goals for the year. Woohoo!

I’m looking forward to 2016 and will be updating my goals for the new year in a few days.

Cheers!

-cb3

Goals, Investing, Stocks, Strategy

What to do with RSU

November 10, 2015 cb3 Leave a comment

Have a Plan

With another segment of my Restricted Stock grant vesting on December 1st, I thought it would be a good topic to cover. Before we dive in, I want to emphasize the importance of having a plan for extra income before it arrives.

Too often do we get caught up in the excitement of a bonus or windfall and if we haven’t planned carefully, the money seems to vanish overnight. I’ve been guilty of this in the past. It’s very easy to lose track of where it goes.

Due to my current debt circumstances, I want most of the extra to be applied to that. I think it’s still important to get a little morale boost too, but we’ll be conservative with it. In this case, I will be applying 80% toward outstanding debt, 15% will go to our investment account, and the remaining 5% will be used for play.

By the Numbers

The expected net income at sale will be around $3300. This puts ~%2600 towards debt which will clear the outstanding Vet bill. That gives us around $500 to add to our investments. The remaining $165 will most likely go towards a nice dinner out with my wife. With this plan, I can feel good about spending a little on enjoyment knowing that I put most of it to work for me.

Tax Implications

With my current grant, a number of shares will be sold at vesting to cover taxes on the gain. I plan to sell the day it vest, so I don’t anticipate an additional tax burden. My ESPP behaves differently and I will cover that in a future post (probably in January when that is up next).

Portfolio Management

Some people hold onto their RSU shares as an investment. There are pros and cons to this approach. My portfolio is small enough that the shares would be a larger percentage of my holdings that I want in any one security. I like to keep each position to less than 1% of my overall holding (including all 401k, IRA, and Individual accounts). This reduces the risk that any position would have a large impact on my Net Worth.

Since I’m still in debt reduction mode, that’s all intellectual exercise at this point. It’s much more important to me to use the value to pay down liabilities than it is to hold on to the assets.

Cheers

-cb3

Personal Finance, Strategy, Tools

Architecting the Future

October 22, 2015 cb3

The other day I was thinking about this blog and it occurred to me that it’s all well and good for me to be posting monthly progress updates and tracking how I’m doing, but what does that do for you? On the surface, it helps to show you that it’s possible to come from behind and start making progress. I want to show you how I set myself up to succeed. Let’s get started.

State the Problem

In most engineering problem solving exercises, we start by defining the problem. If we don’t have a clear idea of what it is that we’re trying to solve, then we’ll never have a way to measure if we’re successful. We don’t have to start with a lot of detail at this point. Let’s just establish a good high level statement.

For me, it would look something like this: “I am a 40 year old engineer with a good salary, a wife, and two kids. We are a single income family. We have a mortgage, car loan, student loan, and some credit card debt. We contribute to 401k, but other than that don’t save much. It often feels like we are living paycheck to paycheck.”

That’s a nice concise statement about the current situation. Now we are centered in our situation and can move on to the next step.

Draw a Picture

Getting a visual representation of the situation can be very helpful. In the case of personal finance, we’re not really talking about literal pictures but we do need to gather as much data about our situation and lay it out in an easily viewable manner.

There are tools that businesses use to view their financial situation and I believe we can adopt the same for ourselves. A budget is nice, but it shouldn’t be our only tool. Let’s take a look at building a balance sheet and a cash flow sheet. Google Sheets has some nice templates for these and I will cover each in more detail in following posts.

For now, we’ll just establish what each one is and what it can do for you. The balance sheet is a list of your assets and liabilities or quite simply the things you own that have value (assets) and the things you own that cost money (liabilities)

The cash flow sheet will show your income and expense for a period of time. I track it on a monthly basis. Where budgets establish how much you should spend on each category for the month, cash flow will show you how much you did spend. It’s important to know both.

There are also online tools available that will help you aggregate all of this data and give you visual representations. I currently like to use Personal Capital for this. You can set up your account there and link it to all of your relevant financial accounts.

List the Requirements

The requirements document lists all of the goals for the project. I like to think of it as a checklist that I can go down and when everything is marked off, I’m done. Sometimes the requirements change mid-project and we need to adjust. That’s OK. In project management terms, I feel like we should take a more agile approach to this anyway.

I started my list with the longest term goal at the top. It looked something like this:

In ten years, when I’m 50, I’d like to be financially independent.
In five years, I’d like to be able to step down a notch to less stressful work
For 2015, I want to accomplish the following:
- Reduce overall debt by 10%
- Invest 10% of my earnings
- Reduce the amount of credit card interest paid to $0

It’s a simple start. I like that. Sometimes if we make things too complex or start with too may requirements, the project will feel overwhelming and we’ll never get started. Start small and build over time.

Design a Solution

Here is the not-so-tricky tricky part. We have a problem. We have a picture of our current conditions. We have some requirements for the solution. How do we solve the problem?

I think there are a lot of approaches that could be employed here. There are really only two options to consider: Make more money and have less expense. Of course, there are a lot of ways to go about those two things but it really is just that simple.

There are a ton of other blogs with great ideas for both sides of the equation, so I won’t get into that here but maybe I will in some later posts.

It’s All So Much

This may be the longest blog post I’ve ever written. The long and the short of it is this: Understand your situation, determine what you want to achieve, then formulate a plan for getting there.

Cheers!

-cb3