Medicated Money

Wednesday, March 29, 2006

This Is Just Sad!

I saw this article today while reading some of our bookmarked sites. Hard to believe this many American's claim bankruptcy. Whether filing for Chapter 7 or Chapter 13, bankruptcy ruins your financial future. What's more upsetting is the fact that under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, most of these American's are still in store for a whole lot of hurt and not much help. I understand and agree that this law was passed to get financial deadbeats who have taken on debt they can't afford to pay up. But, unfortunately, they are getting the same treatment as those Americans who are in debt due to finances that have occurred because of loss of their job, high medical bills, or major catastrophes. And the fact that so many Americans are willing to file and give in to the pains of bankruptcy, this is just sad!

Cutting Those Bills - Insure My Insurance

A little story to start today's posting:

4 Insurance companies are in competition. One comes up with the slogan, "Coverage from the cradle to the grave." The second one tries to improve on that with, "Coverage from the womb to the tomb." Not to be outdone, the third comes up with, "From the sperm to the worm!" The fourth insurance company really thought hard and almost gave up the race, but finally came up with, "From erection to the Resurrection!"

Yesterday after work we headed to a local insurance agent that came highly recommended by a personal friend. "Best rates in town!" we were told. We both use very competitive companies for our car insurance, but we needed to add renter's insurance as well as personal property insurance. We figured that with having all of our insurance under one roof (Car, Renter's, and personal property), the overall premium would be less than paying for each separate. Unfortunately for us, this was not the case. First, the price quoted for the combined car insurance for the both of us was approximately 25% higher than our current, separate plans. We were very surprise with this! We assumed that they could beat each of our rates with the other companies, but the agent said that the best she could do was cut a few of the matching perks we already have to lower the overall premium. Um, no thanks. The renter's insurance was what we expected, and the personal property insurance was 10% lower what we were paying at another company. We decided to just add renters and personal property to our plan.

As for the renter's and personal property, it was painful to write the check for something that we probably will never need, but it needed to be done. As financially difficult it was to write the check, the financial pain we would experience if we did not have these policies is leaps and bounds above this immediate pain. Truly, the real kicker was that we did not budget for this money which in turns may make the rest of this month tight! Now we know why they say financial discipline is difficult! We plan to continue to research car insurances to see if we can find a lower, combined plan. If you know of a good website to compare quotes, please let us know!

Tuesday, March 28, 2006

Want That Pension, Work For Your Favorite Uncle Sam

We have been enjoying the recent conversations over at Our Money Matters regarding the topic of pensions. For one, we enjoy John and Jane's subject matter, and two, both Mr & Mrs Medicated have pension plans through their work. After reading this recent topic, we realized that many of our parents, (who are near the retirement phase of life) and their friends, all have pensions. Not all, but many. Yet, on the contrary, we could not make this same statement about friends and family of our generation. This lead us to believe that pensions are the way of the past, and with the recent news of the automobile industry, we can understand this.

Pensions are expensive to companies, especially competitive companies. It is hard to keep a company in the black when so much of profits are going to the pension fund. It also doesn't help when the CEO's and VP's are rewarding themselves with lavish salaries, but that's for another story.

In just a short research period, it occurs to us that the only companies that can take on such a financial burden is a few large companies and the government. Both the Mr. & Mrs. here at Medicated Money work for a very large hospital, that is owned by a very large university, that answers to a very large state government. So, in around about way, we are government employees. And because of this, we have a pension.

Our pension invests 6% of our yearly salary into a general fund that supports the entire company's pension for all. Our direct employer matches the 6% as well. We become vested in 5 years, and payout begins at retirement, and as early as age 55. Payout is based on total years of service (employment) x 2.3% X Average of highest five annual salaries.

The pros of this system is that we are forced to save 6% of our salary for a very good pension system. Secondly, if we spend the rest of our careers in this current system plus invest in a 403(b), we would be sitting very pretty. The cons is that you have to stay in the system for your entire career. The likelihood of this occurring is very small. Most employees are no longer working just for one company their entire career. It just does not happen anymore. The second problem is that the 6% money is not currently being invested for us, but for the support of the pension.

Our plan is to eventual transfer the 6%/yr into a IRA when we do leave the company. As you can see, we are very confident that we will eventually work elsewhere. We do enjoy our work and the company we work for, but we know that we will eventually have a career at either another institution or in private practice. We do wish the company would allow us to op-out of the plan, and allow us to invest that 6% into a no-load mutual fund(s). Yet, we understand that to offer this plan, they must have a way to support the plan or end up like the many companies that are having the government, aka taxpayers, bail them out.

Our 2006 Goals

Kids, you tried your best and you failed miserably. The lesson is, never try! -Homer Simpson

In our last post, we looked at our net worth from 12/31/05-2/28/05. By doing this, we were able to determine that although our net worth did increase in that time period, we had no real plan to be able to repeat or even do better. In the wake of many other pf bloggers posting their short-term and long-term goals, we decided it was a good idea to create a game plan of our own. Here are our 2006 goals:


  • Retirement - We plan to both contribute the maximum amount allowed ($15,000) to our individual 403(b). Along with these contributions, an additional 6% of our salary is placed in a employer sponsored retirement program. Finally, it will be difficult, but we plan to invest ($8,000) in a Roth IRA as well, if we are eligible.

  • Emergency Fund - We currently have $1,800 in our emergency account at Emigrant Direct. We plan to place $150-200/wk in to this account. We would like this account to have 3 months of expenses by the end of the year plus money for the Roth IRA if we are eligible.

  • Debt Re-Payment - We recently joined the No Credit Needed Network, and we plan to pay off $36,500 of debt by the end of the year. We plan to make $3,500/month payments to our debt as well as any additional money we have at the end of the month. This will be difficult, but we are up to the challenge.

  • Net Worth - By the end of the year, we would like our net worth to be $-36,000. This would be roughly a increase of $50,000. We truly believe that this will be the most difficult goal to accomplish. However, we are willing to set the bar high, like many of our pf blogger counterparts.

A little late in the year to start the 2006 goals, but it's better late than never. We are currently working on our long term goals. We hope to have them set in the near future.

Monday, March 27, 2006

Goodbye Mr. Greenback

"I wish I had a dollar for every time I spent a dollar, because then, yahoo!; I'd have all my money back!" -Deep Thoughts by Jack Handy


Our money flow this weekend only went one way: Outward. Since the beginning of this site, we have had a more 'money conscience' attitude. Unfortunately, that seem to not reflect this past weekend. A total of about $700 went out the door faster than we definitely expected. From dinner to celebrate a friend's birthday to our one pet having surgery, the money was exiting stage left. Hopefully, we'll get back on track this week and still make it under our monthly budgeted amount of $3,300.

Net Worth Recap

"Oh, people can come up with statistics to prove anything. 14% of people know that." -Homer Simpson

Along with the ability to create open discussions on financial issues with readers, one of our main goals of this blog was to be able to see and track our progress as we dig ourselves out of debt, invest in our retirement, and cure ourselves of 'Docitis!' We previous discussed our net worth in a earlier post. We wanted to add a post to see our net worth from the beginning of the year. With the use of Quicken, here are those numbers:





First the good news; since the beginning of the year, our net worth has increased by 9%. Also, as you can see, we were able to pay off a student loan of $11,529 straight off. The bad news; analysis of this chart shows that we did have money just sitting in banking accounts with low interest rates. Our retirement savings was only the mandatitory 6% our employer required us to save. No 403(b)'s or Roth IRA for either of us. Lastly, our debt is just ridiculous. We are okay with debt of Student Loan #1, at 3.625%; the others are just cement blocks tying us down.

So, what does this all mean? Well, for one, we are typing this, so we think we have plugged some of the holes that were sinking the ship just by being honest with ourselves. Secondly, there was no logical to our finances. One day it was pay off the loans, next day it was just put it on the card. Due to this, we needed to create short term and long term goals to help keep us on track. In our next post, we will discuss our short-term 2006 goals. Stay tuned...

Sunday, March 26, 2006

How Do You Read?

"To read a writer is for me not merely to get an idea of what he says, but to go off with him and travel in his company?" -Andre Gide

We are always curious about our fellow bloggers; who are they reading, what are they listening to, and what are their main reasoning for writing a personal finance blog. For us as well as others, the answers to these questions have been easier to obtain thanks to a few different sources.

One of the main sources that we read on a daily basis is pfblogs.org. We absolutely love pfblogs.org! The person(s) at this site has allowed many different personal finance blogs to come together and be one, simple resource for readers to view the personal finance blog world in one sitting. We would like to just say a quick thank you for their hard work that is taken for granted often.

The second resource that we absolutely love is Google Reader. In essence, this resource allows one to create a daily reader that captures those blogs you love to read! We use this resource to keep up with our favorite bloggers, capture new bloggers we want to follow on a more closely basis, and be able to follow those that our not apart of pfblogs.org! To create a account with Google Reader is free, and is definitely worth it's weight in virtual gold!

Friday, March 24, 2006

....Just Don't Drink The Kool-Aid

“They have the Internet on computers, now?” -Homer Simpson

We are proud to announce that we have become members of the 'No Credit Needed Network.' We have enjoyed reading NCN for the past few months and listing to the NCN podcasts. NCN does a great job of discussing his battle to be debt free and other financial adventures. We have started a fairly aggressive goal of paying off $36,500 in about 10 months. Check out this goal here, and we look forward to becoming a valid member of this group!

Thursday, March 23, 2006

Uh, Sorry For The Inconvenience But....NO!

You were never there for me were you mother? You expected Mike and Carol Brady to raise me! I'm the bastard son of Claire Huxtable! I am a Lost Cunningham! I learned the facts of life from watching The Facts of Life! Oh God! -From Cable Guy

Well, yesterday we tried to tackle another reoccurring bill that we feel is just too much. 6 months ago, we signed up for digital phone with our local cable company. With this new service, the cable company was offering Digital cable, Broadband, and the digital phone service for $99. We thought this was a great deal, cancelled the local landline (SBC was charging $34 for basic service), and signed up. Well, 6 months has come and gone! We received our cable bill yesterday and noticed it was $175 with these services (We think we need a loan just to pay the taxes on this service - $20). So, we contacted the cable company to see what they could do about it!

We read that if you approach any service merchant with a change or we walk attitude, they are less likely to budge. A better way is too give them a price comparison from their competitors, and see if they will match. So we called, and we promptly discussed with the rep. that we really enjoy their service, we don't want to have to switch, but we keep receiving flyers for specials with a satellite dealer! 'I am sorry for your inconvinience, but at this time, we are unable to offer any price match from other dealers!' stated the rep. Ok, but $175 to me is just too much for us to spend on these services. 'I am sorry for your inconvience, but at this time, we are unable to charge less for these services. We could discuss downgrading your service!' Downgrade the service? How so? 'You could drop your service to basic and pay $15 less a month.' And that's when it hit me! This situation was just completely reversed. The rep. gave me an offer that pretty much said: If you think you spend too much, you change it, not us! Let's just say, game over!

I know many would say downgrade, pay $15 less, drop the phone, and pay about $100. But for right now, we are unwilling to do that. We discussed it afterwards and we both came to the agreement that we like to be able to watch what we want, when we want (DVR is included with digital cable). This downgrade, for $15/month or $180/year, is just not worth it for us. So, the cable company won this battle. We are thinking of switching if we can get many of the same services from a satellite provider, but from the little that we have read, the installing fees and switching fees (phone) can add to almost no savings in the switch! Uh, Sorry For The Inconvenience But............NO!

Wednesday, March 22, 2006

Bill Payer: Where Have You Been My Entire Life!

Peter: Oh my god, Brian, there's a message in my Alphabits. It says, 'Oooooo.'
Brian: Peter, those are Cheerios. -From Family Guy

Last night, I sat down and began the biweekly process of paying our bills. We, like our parents and probably, our grandparents, took out the checkbook, wrote the check for the bill, marked it in the ledger, placed the check and payment stub in the envelope, and placed a $0.39 cent on it! This morning, as I was dropping the mail off at the post-office, I noticed that I forgot to place a stamp on one of the envelopes. Being that it was 6am, I couldn't run into the post office and buy a stamp, and I ended up heading off to work in frustration that I overlooked this one envelope!

At work, I asked a fellow co-worker if she had a stamp I could buy from her. She did, but asked me what I was mailing. 'More bills,' I replied. 'What, you don't use bill payer from your bank!' She then told me about bill payer and many advantages of it, with the best part is that it is free at most banks. Now, I know what you are thinking; how can this guy be such a dumbass not knowing about bill payer! To be honest, I knew about it; I just thought that you had to give your account details to the payees/merchants. That just did not sit well with me. Little did I realize that is just not the case. In essence, you are just writing a virtual check through your bank to the payees. No different account information giving than writing a check and mailing it to them!

I immeditely went online to our banking instution and begin the process of setting up the bill payer! I hope that this makes life a little easier, and should probably save me about an hour/month on time I spend paying the bills!

Monday, March 20, 2006

Asset Allocation - Managed Vs. Index

J.P Morgan, when asked what the stock market will do, replied: It will fluctuate!

As we have discuss earlier, my wife and I have started the beginning phases of changing our financial lives to better ourselves for the future. We have each started a 403(b) account through our employer that begin in Jan 2006. We decided to allow for the maximum contribute allowed, $15,000/yr each. We did a little research and choose a total of 8 mutual funds. 5 of these funds are managed mutual funds, 2 are index funds, and 1 is classified as
moderate allocation with holdings in 80% stocks and 20% bonds. All in all, the asset allocation looks like this:

  • U.S. Stocks - 61%
  • Foreign Stocks - 21%
  • Bonds - 11%
  • Cash - 7%
The managed mutual funds make up 90% of this allocation. We are currently trying to decided if we should be mostly investing in the higher expense fee managed funds or the lower fee index funds. We read the Morningstar Forums often, and there is quite a split between the Vanguards (pro-index funds) and others such as Fidelity (pro-managed). We just cannot figure out which one is the way to go. For right now, we plan on staying with our current picks due to the fine print of trading funds too often, and the fact that we want to become more educated on this subject before we make any decisions.

Saturday, March 18, 2006

Cutting Those Bills - Electric Bill

We believe that electricity exists, because the electric company keeps sending us bills for it, but we cannot figure out how it travels inside wires. -Dave Barry

With the summer months coming around the corner (and here in Houston, it starts just after Jan. 2nd), we decided that the next bill we should look to cut is the electric bill. So in continuing with our goal of cutting the bill by 20%, my first response was to see what were our options. I recently learned that in the great state of Texas, the consumer has the choice to determine their electric energy supplier. If you live in Texas, check this site out.

After reviewing our choices, we decided to sign-up with a company offering 14% less then our current company for electric energy, about $0.142/kWh. We are hoping the switch, and a conscience decision to reduce our energy use, we will be able to reduce the monthly bill by 20%.

Friday, March 17, 2006

Are You Scared?

"The only thing we have to fear is fear itself" -FDR

We really enjoy reading Ben Stien articles on Yahoo Finance. Every 2 weeks, Mr. Stein is writing about a financial topic that in our opinion is current and worthwhile. This past week, Stein wrote an article about the probable grim truths of baby boomers and retirement. Until recently, we never really worried about situations like this that he describes. We figured that we could start saving for retirement in our 40's, maybe if we started early, 30's. After reading this article, I know that we are definitely scared, but not for the same reasons those might be in their 40's or 50's.

Our concern is with many Americans not having enough to live on retirement, what is going to happen to our society? With such a large voting block being the baby boomers, will Generation X'ers & Y'ers be footing the bills? Stein is in the believing that nobody (especially the government) will be there for you! I do agree with this statement, however, with a society that teaches spend, spend, spend, eventually the piper must be paid. The question is: who will be making those payments?

Cutting Those Bills - Cell Phone

Utility is when you have one telephone, luxury is when you have two, opulence is when you have three-and paradise is when you have none! -Doug Larson

In keeping with our goal of trying to reduce our bills by 20%, I was discussing this goal with a few co-workers that we work with. A co-worker then told me that our company has many employee discount plans that one can take advantage of. After a little investigation, we found that we could stay with our current cell phone provider and receive a 25% employee discount. Of course, I was on the phone last night with a representative in SouthEast Asia changing our plan to receive the discount. On top of that, we added more minutes by increasing the amounts by 37.5%, will be paying for a less expensive plan, plus then discount on top of this. All in all, we are hoping for more than 25% saving, but 25% is within our goal, therefore we are extremely happy with this deal and program!

Thursday, March 16, 2006

EmigrantDirect Up To 4.50%

As many of you probably already know, Emigrant Direct has raised their annual interest rate to 4.50% This is good news for those that use their service. We would like the rate to continue to go higher, but from what we have read, this may plateau for the year. We'll see! Either way, we are very happy with their service.

On a side note, it will be interesting to see how ING Direct responds!

Wednesday, March 15, 2006

Cutting Those Bills - Grocery Bill

The grocery store is the great equalizer where mankind comes to grips with the facts of life...like toilet tissue!' -Joseph Goldberg

In our last post, we discussed reducing each of our bills by 20%. The first step in this series of posts will discuss about our monthly grocery bill. We currently spend about 25% of our monthly expenses on the grocery bill.

The Disease: Paying too much on groceries for two people!

A little background on this subject is that we normally go to the store at least once-a-week and spend about $175. This covers the basics for the week including food for dinners and weekday lunches. We normally go to the store 2-3 times a week after work to pick up additional ingredients or something quick for dinner. These visits normally cost us about $25-30 per visit. All in all, we spend about $850 on groceries/month.

The Prescription: Spend $600 or less on the monthly grocery bill

Plan: We think that the majority of our high grocery bill is due to poor planning. We suspect that with creating a weekly dinner plan and shopping based on this plan, we can eliminate the weekday visits that drive the expense higher. Secondly, we have joined Costco's this past weekend. Even though a membership card is $45/year, our goal is buy many items that are high priced at the local grocery store and items we use often in bulk. Our goal is to spend $200/month buying bulk items at Costco, and buy $75 to $100/week at the local grocery store! This would reduce our monthly bill by 30-40%; easily falling into our goal.

Tuesday, March 14, 2006

What Are You Thinking About?

Was in a presentation today at work that discussion the importance of communication with various departments, and the presenter had this in the presentation. Just had to share it!


Bills, Bills, Bills

Joanne: "Well, what are you going to do about money and bills and... "
Peter: "You know, I've never really liked paying bills. I don't think I'm gonna do that, either." -From Office Space

In continuing with our current theme of debt reduction, we wanted to talk a little about everyday bills. We all hate them, or at least, we do! Unfortunately, if we all took the attitude of the quote above, we would not be here talking about this. So, we decided to sit down, and look where money we earmark as 'Living Expenses' really goes. For us, we calculated that $3,500 a month goes to this category. The breakdown of that is the following:
  1. Rent - 45%
  2. Groceries - 25%
  3. Dining Out - 7%
  4. Auto - 5%
  5. Entertainment - 3%
  6. Utilities
    1. Cable, Broadband, & Telephone - 4%
    2. Electric & Gas - 8%
    3. Cell Phones - 3%
    4. Water - 1%
Our biggest expense is our rent. Unfortunately, there is nothing we can do about this. However, on every other category, the amount spent is adjustable. Due to this fact, we have decided to pursue options to lower these categories. The goal is to lower each by 1/5 or 20%. This may be easy to do on some because they are based on consumption. For others, this many be extremely difficult due to our needs and wants. We feel that we do not want to completely turn everything off just to save a buck! The goal is to find acceptable and innovating ways to change.

We discovered an interesting website that discusses this issue. We have decided to try many of the suggestions as well as some ideas of our own. We will continue to post our results, and our monthly expensive to better see our progress.

Monday, March 13, 2006

Student Loans???

How is education supposed to make me feel smarter? Besides, every time I learn something new, it pushes some old stuff out of my brain. Remember when I took that home winemaking course, and I forgot how to drive? -Homer Simpson

The last few posts have been on net worth, and with that, our debt. For us, the majority of our debt is in student loans. $94,813 to be exact. That number was once much higher. We have each paid off loans of $8,000 that the interest rate was extremely high (13% & 10%). Funny how at that interest rate, I needed to pay off that ridiculous loan (definitely bad debt), but after that, the 'ok' & 'good" debts could wait! Many people comment that with our degrees, and with most of the debt ($88,752) at such a low interest (3.625%), that we should not worry about it and just consider it as 'free' money. We definitely are torn about this. 3.625% is a great rate, and definitely worth the price for our education. We both come from middle-class households and could not have gone to school without those loans. However, anyway you try to spin it, it is still a lot of money. We have talked to numerous advisors on how fast we should pay off this debt; from fellow colleagues to our parents to a financial advisor. Everyone has answered it differently.

So, we are asking our readers to answer this question: Are student loans 'good' debt to you, and how fast should one repay the loan?

Sunday, March 12, 2006

Paying Down That 'D' Word

The only man who sticks closer to you in adversity than a friend is a creditor. - Unknown

Paying down debt is one of the most humbling experiences one can encounter. It is both exhilarating and depressing at the same time. To know that you are freeing yourself from the mercy of another and realizing that you put yourself there in the first place is definitely a catch-22. Freedom from personal slavery. I heard that the debtor is slave to the lender, and I believe that this is one of the most honest statements ever declared.

We developed a debt repayment plan, and we are beginning to implement the system. Our take home pay after everything is $7,500. We believe that we can spend $3,300 on living expenses, save $700 (for money not marked yet; emergency fund as of right now), and $3,500 for debt repayment. Our repayment plan is a combination of Dave Ramsey thinking, and the 'financial advisor's' thought. Our order of paying off the debt looks like this:

  • #1 - Student Loan #2 @ 7.01: $6,241
  • #2 - Car Loan #1 @4.99%: $9600
  • #3 - Car Loan #2 @3.99%: $7,907
  • #4 - Personal Credit Cards @ 0%: $12,750
  • #5 - Student Loan #1 @ 3.625%: $88,572
Our goal is to pay minimal payments to debts 2-5, and pay $2,125 towards debt #1. Then the goal is to get the 'snowball' rolling. With this plan, we can be debt free by May of 2009. That's just around the corner! Our more realistic goal is to be debt free except for the student loan of 3.625% and to purchase a house within 12-18 months. This could be accomplished by March of 2007. A little more realistic. We will begin monthly post of our progress with this goal.

Saturday, March 11, 2006

Net Worth - Part II

The real measure of your wealth is how much you'd be worth if you lost all your money. -Unknown

In our previous post we talked a little about wealth and the views of personal net worth. Now that the some of those views have been discussed, I would like to talk about our net worth. I spent the last few days thinking about this post and whether or not I wanted to go into details about our status. Yet, to be true to this blog and some of our readers, I felt that it was important to discuss. At the very least, it will be viewed as a starting point; a point to come back to and see our progression of our worth in the future. Our situation looks like this:

Assets:
-Emergency Fund: $6,875
-Husband's Work Retirement Fund: $14,756
-Wife's Work Retirement Fund: $11,437
-Husband's 403(b): $3,775
-Wife's 403(b): $3,768

Liabilities:
-Student Loan #1 @ 3.625%: $88,572
-Student Loan #2 @ 7.01: $6,241
-Car Loan #1 @4.99%: $9600
-Car Loan #2 @3.99%: $7,907
-Personal Credit Cards @ 0%: $12,750

Net Worth: $-84,460

Yep, that's right.

Eighty-Four Thousand, Four Hundred Sixty Dollars!!!!!

That is a boat load of money. I know that I could lower that number by adding in the worth of the cars (combined $28,500), personal property that I pay insurance on ($30,000), and other items that we own that make it look like we are living the high life; but that is not, in my opinion, getting honest with yourself. So, instead, I have $-84,460.00 posted on our computer to remind us daily that 'We are in a deep hole of debt!'

The good news, if any can come from this, is that the negative part of that number has peaked! Game over, debt. You had a great run, but your days are numbered! We set up a debt repayment plan, and we have just begun. It will definitely be difficult, but we are tired of looking at that red number, and it has just been about 2 weeks of seeing it. The goal is to lower it as fast as we can, and we look forward in talking about the challenges in some upcoming post of doing it.

Monday, March 06, 2006

Net Worth - Part I

The safest way to double your money is to fold it over and put it in your pocket. -Ken Hubbard

Many other bloggers write many articles on personal net worth. In my opinion, I think, overall, this is a good thing. On the other hand, it is very interesting to see what many people say their net worth is. Now, let me get one thing on the table very early in this conversation. My view of net worth is probably completely different then the majority. I agree that net worth is:

Assets - Liabilities = Net Worth

The problem that I have is the fact that in the few discussions that I have had with folks on this topic, the assets seem to be over-valued while the liabilities are downplayed. Example of this is with cars. I hear the saying of having a car that is $25,000 in the Kelly Blue Book and only having $20,000 left to pay it off is a +5000 to one's net worth. Looks like a good investment, but in reality with a $20,000 loan, I would argue that $5,000 in hand is not the same as the possibility to make $5,000 through a car transaction. In theory, you can sell the car and it is the same, but it takes an action to complete the theory; and with many theories, they work on paper, but not in actuality. Besides, if you sell the car, what are you going to drive? How's that public transportation in your city?

In my opinion, net worth is really equal to financial risk. And with any situation when evaluating the risk of a situation, the answer can only be reached by looking at it without rose-colored glasses. I try to evaluate all financial decision on the basis of this risk. Thus in this principle an item is an asset or liability because it is either one or the other; never both. There is one example of this that does not stand true; that being a house. I think that you can count a home mortgage and the value of the house as both. Yet, in this sense, you should list the house for the price you bought the house for rather then speculating the cost of sale if you sold it! Example: Financed a house for $200,000, paid off $40,000 with $160,000 remaining; nets a positive $40,000 in net worth. Speculating that the house is now worth $300,000 is just that: speculating. Sure, it has more of a chance of obtaining that number because real estate does not fluctuate like stocks, but one never knows what the market will do; stocks or real estate. As for cars, personal property, and the like, if you owe money on it, I feel that it is a liability.

I realize that this opinion is against the grain, and with this opinion, I might catch some flak for it. But, with everything we have read, sometimes you need to remove the safety net from the tightrope in order for it to truly hit home. For us, this was true when we first sat down and tried to calculate our 'net worth.' We realized that maybe things weren't so bad. The thing is that we tried to rationalized to ourselves that we could continue with many of the same standards of living that we were accustomed to. Believe me, I tried hard to convince myself. Yet, the more we thought of things as not that bad, we could see that things would probably only get worse! So we needed to remove the net, and begin to realize that it was time to start walking the rope.

Here Comes The Taxman

But in this world nothing can be said to be certain, except death and taxes. -Benjamin Franklin

I finished the taxes this weekend, and all I can say is that Uncle Sam definitely loves us. But the good news is that I am getting a refund of $2500! I know, I know...it's a free interest loan to Uncle Sam. That's why I said that he definitely loves my wife and I. Number 1 agenda of this week is to march into the HR department and change our W-2 form. The IRS Calculator, that will help you figure out your withholdings, has been used and I hope to say goodbye to that interest free loan I give my favorite Uncle each year!

The second item of discussion revolving around our taxes is to try to lower them. I used Turbo Tax to help with the taxes due our recently change in marital status. Looks like the IRS does not care when in the year you were married, they count it as the entire year. Every question Turbo Tax ask regarding lower your taxes, we either did not participate in or were ineligible. But this year is going to be different. Here is a list of deductions that we did not take advantage of last year, but will plan for this year.

-403(b)
-Roth IRA - if we can lower our AGI enough
-Charity Donations

Unfortunately, 2 of the biggest deductions for taxes we do not and/or cannot take advantage of are:

-Student Loan Interest
-Home Ownership

We are in too high of a AGI for the student loan deductions, and our living situation is such that we do not want to buy a house in a location where we may not be here in the short-term future due to our careers and family in the northeast US. I have been reading many articles about lower one's taxes and if you, our readers, can offer any advice, it will be gladly accepted.

Sunday, March 05, 2006

Bank This

Drive-in banks were established so most of the cars today could see their real owners. -E. Joseph Crossman
We recently married in December, and have been combining the many aspects of our lives pre-marriage into our life after marriage. One of the difficulties of this task is obviously, the financial side. I have been adding, subtracting, and trying to figure out what financial accounts we need to keep, and which ones to eliminate.

All in all, we had 8 different bank accounts (checking, saving, or money market) when we got married with various amounts in each. We decided that for anybody, this was definitely too many, and just to difficult to keep track of even with the use of Quicken. We each had a separate bank account for everyday expenses, a separate one for savings, each had a local bank that we used for deposits of checks, and finally, I had one just to take advantage of a money market account that I never seem to put money into. The thought was there, though!!!!

The prescription: Cut the accounts down to a limit where we are utilizing each account effectively.

We decided to eliminate one of our two local banks, going with the bank that gave us better options, that being Washington Mutual over Chase. We felt that it was in our best interest to keep a local bank to deposit checks and money that we receive into this account. This is mostly based on convenience. We will keep a small amount of money in this account to still keep it open, but continue to pad the emergency fund account (read on) with deposited checks in this account.

Secondly, we decided to stay with the credit union that I have used for many, many years due to the fact that their service completely outweighs the fact that they are located out-of-state. I found that with the use of a credit and debit card, the online banking service, and just my overall loyalty to them because of many years of satisfying banking (this last opinion was probably the strongest due to just personal feeling), it outweighed any logical thinking that I came up with to get rid of it and we will continue to use it.

And finally, we have added a Emigrant Direct account to the mix. This last decision came down to the fact that many pf bloggers wrote very interesting articles on the use of either Emigrant Direct and/or ING Direct. I felt that for the use of an emergency fund, this is an excellent option. I like Emigrant Direct better simply due to the higher interest rate without the current special from ING Direct. With these changes our new accounts look something like this:

Credit Union: For daily expenses
Emigrant Direct: For our emergency fund
Washington Mutual: To deposit checks locally; minimal amount of money in it to keep it open

We have been transferring, closing, and eliminating all of the other accounts, and I just need to add the Washington Mutual Account to the Emigrant Direct account to complete our revamp of the bank accounts.

Wednesday, March 01, 2006

Where We Are At, And How We Got Here

Everyone thinks of changing the world, but no one thinks of changing himself. –Leo Tolstoy

As long as I can remember, I knew I wanted to be in medicine. I have always felt that the human body is truly a remarkable machine. The simplest cells and organs must work perfectly all the time, every time, in order for us to achieve our daily living activities. This feeling is not just my own, but shared with my wife, who is also in the medical field. This created an attitude towards achieving a goal of a career in medicine. This strong attitude, however, made many other aspects of our lives less important; and in some areas, it made them obsolete! And in this category, our finances fell. School is expensive! And soon, student loan after student loan,became the norm! The realization of not only could we pay for our tuition with 'good debt' student loans, we could use these loans to help us pay for our living expenses as well. We never thought long enough to realize that for every dollar we took then, we had to pay the amount plus interest back now; our degree did not allow that. Now, granted, most of that money never even touched our hands. It went straight to tuition, books, medical equipment (that the medical rep. stated we had to have as students, only to find out we never used it)! But still, the true difficulty and length of paying these loans off was so foreign to us, we kept signing on the dotted line!

Until recently, I never really worried about all this debt. I was told in school 'don't worry, when you start working, you'll be doing well. Plus, with your (then) girlfriend, now wife, in the field, you have nothing to worry about.' So we didn't! It finally hit home after tuning into a Dave Ramsey show while I was looking for the 'other' AM sports radio station in our city! I couldn't believe someone was calling student loans 'bad debt.' Here was someone telling me to 'live now like no one else, so later you can live like no one else!' I thought that was what I was doing for the past few years, working so hard in school, day in, day out, year in, year out! Now, we were living life for the moment because we already worked hard, now we got to enjoy it! Unfortunately, little did I know, but we were living with the disease 'Docitis!'

'Docitis' is where you spend many years working towards a single goal that once you hit that goal, you completely change your lifestyle to reward yourself for hitting that goal by living for the moment. No discipline, no restrictions, just caution to the wind, and enjoying the moment making sure others see you doing it! And we had it bad! Houston has great restaurants, and we were learning that almost on a nightly basis. Friends and family would come visit us due to the fact that we both are from the northeast, and we took them everywhere to show them how good we were doing. Sporting events, fine restaurants, musicals, etc. If it was going on, we were going! If it was not people visiting us, it was going to these places with people we worked with. All go, and never a no! I kept telling myself it was not a problem because we were paying all of our bills on time, though we were not paying down any loans whether that being student, car, or previous credit cards from our school days!

After hearing Ramsey on the radio and waking up one day realizing that money was coming and going through my hands faster than I had time to even see it. I was working hard to play hard, and at times, I felt that I was just working hard. I realized very quickly that I was not even close to working this hard when I thought I was in school. Even faster did I realize that I would have to do this for the next 30 years to just get things squared away! That is when the record scratched.

We decided that we would change our habits as soon as possible. Gone would be the $200 restaurant bill with friends; instead we would start funding a 403(b) through work. Gone would be the $300-$400 dollars a week on entertainment due to spur of the moment decisions; instead we would start paying down our debt. Gone would be the excess; in would be the lesson of moderation, living below our means, and changing our future! The prescription has been filled, and now we have to take our medicine. But we are definitely looking forward to moving forward. We realized that moderation is the key. We have the ability to change our future by just doing what we are good at; making smart decision on a consistent basis. Will it be difficult – absolutely; will we be questioned by colleagues and friends – probably; will we be able to achieve our goals – definitely!


Getting Started

"The secret of a good 'talk' is to have a good beginning and a good ending, then having the two as close together as possible." -George Burns

Well, I have finally decided to move forward with my ideas of beginning this blog. Over the past year, I have become more and more addicted to the personal finance blogs that are scattered throughout the virtual world. Through this addiction, the need to get 'right' with financial matters has over-taken many of my thoughts and actions. I created this blog as a personal reference for me to see where we have been, where we are today, and hopefully, where we are going in the future. There are many wonderful blogs that discuss these same issues on a daily basis, and I only hope to join that group. Thanks for reading, and without further ado, let's begin...

"Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." -Sir Winston Churchill