Category — Goals

A few days ago a wrote about 120 minutes to success, and I have been thinking more about it the past week. I really started thinking about all of the things I would like to accomplish and I thought about how huge those goals are.

When you’re in your 20’s it’s really hard to think about how you’re going to save a few million dollars to retire on. It feels ridiculous to even write that I want to have a few million dollars one day. It’s hard to imagine that one day I could be my boss’s boss, or what it would take to even get there.

This originally came about as I was planning a “no-spending month” for November so that I could save money for Christmas presents as well as save money for new work clothes if I need them. That got me thinking about step four of the success plan, and I figured if I was going to do one step I might as well try doing them all. I started thinking more about what I could accomplish if I were to put in a steady effort over a period of time.

Here’s the original “bootstrapper’s/marketer’s/entrepreneur’s/fast-rising executive’s effort diet” from Seth Godin’s original article:

1. Delete 120 minutes a day of ’spare time’ from your life. This can include TV, reading the newspaper, commuting, wasting time in social networks and meetings. Up to you.

2. Spend the 120 minutes doing this instead:

* Exercise for thirty minutes.

* Read relevant non-fiction (trade magazines, journals, business books, blogs, etc.)

* Send three thank you notes.

* Learn new digital techniques (spreadsheet macros, Firefox shortcuts, productivity tools, graphic design, html coding)

* Volunteer.

* Blog for five minutes about something you learned.

* Give a speech once a month about something you don’t currently know a lot about.

3. Spend at least one weekend day doing absolutely nothing but being with people you love.

4. Only spend money, for one year, on things you absolutely need to get by. Save the rest, relentlessly.

The recommended time period is six months, except for the limited spending which he recommends doing for one year. That’s a pretty long time and to be honest I am not sure I can keep up the effort for that long. So I am going to give it a shot, but only for one month initially.

That’s one month of spending on only essential items, one month of exercising every day, and one month of reading, learning, and blogging. This month should be interesting, and of course I will let you know how it goes.

One of my first posts on this blog was thinking about my New Year’s resolutions for 2008. I thought I might go back and look at my goals and see where I’m at.

1. I have been reading more, but not as much as I planned. The pull of the internet is too strong, and this is something I still need to work on. I would especially like to start reviewing more books on Free From Money, which could potentially help bring in income from Amazon Associates.

2. My sweet tooth is as strong as ever, but I have stopped getting candy out of the vending machines at work, which has probably saved a few dollars every month. My caffeine addiction is getting weaker, but it’s a tough thing to crack. Teas drinking hasn’t happened.

3. My goal to write more has been on and off, butt it is something I need to do more still.

4. This goal is something I have managed to keep up with. We get out every few weeks, which is free entertainment for us. We also got out for a backpacking trip last month, which was fun but far from free after accounting for the costs of equipment.

5. I volunteered for the trail maintenance crew at Mt. Diablo, but only once. It was okay, but not something I would be excited to do again. Eventually I will look around for more opportunities to volunteer, but for now I need to refocus my efforts into other things.

Overall I’m not too disappointed with my progress. Looking back I wish I had kept up with this blog more, but I still think I’m doing pretty good.

While owning a house is not a huge priority to me, it is something that I think I would like to do one day when it’s time for a family. Being able to work on my own backyard, being able to paint the house the colors I want (okay, the colors my wife wants) and generally being able to do things however I want are all appealing to me.

Unfortunately for me, I live in the San Francisco Bay Area, which is far from friendly for first time home buyers. If you’re curious just how much it costs to buy a decent place out here, check out burbed.com. The site is pretty funny to read, until you realize that the insanity means its harder than ever to find a place to live.

Let’s do a little math. I am unsure of the median home price, but I do know the average homes in our area that we rent go from nine-hundred thousand to over a million. We would have to move to a cheaper area for sure, but I’m not willing to give up a decent commute and buy outside the bay area. I also wouldn’t buy in a bad neighborhood. So I am going to pull a number out of thin air and say an actual house (not a condo) would cost us about $700,000 to buy.

The first hurdle is saving the 20% down-payment of $140,000. If we stuck to our current budget, we could probably save two thousand dollars a month, or about twenty four thousand a year. At a 4% interest rate, it would take almost 6 years to save that much. But that would mean no vacations, no retirement savings, and almost definitely no kids. So more than likely $1k a month is a more reasonable, but still high, amount to save for a house, which means we’re now looking at 10 years to save for the down payment.

Now to affordability. I believe 28% debt-to-income is a recommended amount to shoot for when you consider only your base mortgage. At that debt to income I would need to make one hundred and fifty thousand dollars a year to comfortably afford the mortgage. That is assuming a 30 year mortgage at 6.75%. If you think this is a ridiculous amount, you’re right. But don’t forgot maintenance, HOA fees, and taxes. A 1.25% property tax on a $700,000 house is going to cost you over $700 a month, not a small amount. Even if you increase the debt-to-income amount to something higher, say 40%, we would still require over one hundred thousand a year. Of course that probably means going back to no vacations and very little retirement savings, so it might not be worth it to try and squeak by.

Also remember that it took 10 years to save that down-payment, so we’re likely going to be facing a higher purchase price than we initially planned for, as well as inflation in our budget.

I’m not trying to complain here, I’m simply trying to explain that thinking a home is out of reach is probably the reality for a lot of people, especially those in major metropolitan areas.

As for me, I’m on the fence. I would like to dream that 10 years from now I will be pulling in $150k a year, but it’s not something I will be counting on. In the meantime I will continue to try and make good financial decisions and hope everything turns out for the best as the years go buy. If this blog is still around in 10 years maybe my post will read “I bought a house!”

I hope so.

This week I had a project due for my class that I am taking, and as always I ended up doing most of the work last minute. This put a serious damper on the quality of work, so now I’m hoping for leniency versus being confident in a high grade.

While driving to class I started to think about the consequences of procrastinating on bigger things. First up is the biggie - retirement. Are you doing everything you can to ensure you can retire when you want and with enough income to support yourself? What happens if you don’t save enough? Will you just throw up your hands and hope for leniency? Do you really want to be dependent on someone else to take care of you in the future? I know I don’t.

Of course there’s always things that stand in the way of saving. Maybe you have too much debt to pay. Or you have kids or car problems or whatever. There will always be problems. The question is are you taking care of them today or putting them off for later?

What about your health? Do you get annual physicals and dental exams to make sure there’s nothing going on that could be a big problem later? I know I am guilty of not getting my checkups done as often as I need to.

How about your cars? Do you take them in to get serviced at the manufacture’s recommended milage? Do you even know how often you should be going in and what services to get done? Taking your car in every 5000 miles to get the oil changed is a lot cheaper than buying a new engine because you were too cheap to get the oil changed and the engine froze up.

I am not trying to harp, these were really questions I asked myself. I encourage you to do the same. What are you putting off for tomorrow that you should be doing today? Every project begins with a first step. I encourage you to think of the next action that needs to be done and do it as soon as possible. You will feel better you did.

Thanks to a generous refund from Uncle Sam and the debt snowball, my wife and I have paid off our next major debt. At the beginning of the year the car loan had a balance of almost $6,000 and our goal was to have it paid off by August. So paying it off in March is awesome. It now looks like having my personal credit card paid off by the end of the year should be completely doable, assuming nothing major happens in our financial life (knock on wood!)

Getting rid of this debt really makes me a believer in Dave Ramsey’s debt snowball method. Not having to make a car payment anymore is a huge motivator to keep going, and a sign that we’re doing things right. We will now be putting over $1k a month on the credit cards, so even with its high balance and higher interest rate there will be a noticeable change in the balance every month. I am looking forward to watching the rest of our debt melt away over the next year. Now I need to get back to tracking our net worth to see where we’re at.

“Those who cannot learn from history are doomed to repeat it”

Before we can really begin to plan where we’re going, I think it’s important to reflect on where we came from.  I have been working on this post for about a week now, and while I would love to tell you a long elaborate story about how my wife and I got into so much debt, the truth is neither of us really knows exactly where the money went.  I think most people who are in debt feel the same way.  Except for a few expensive things that we’ve bought like a plasma TV and an expensive mattress, it’s the nickel and dimes of life that are thrown on the credit card that add up over time.  It’s those nickels and dimes that turn into thousands of dollars when only the minimum payments  are made on the balance every month. 

So instead of a giving you a long, drawn out story to read, which probably wouldn’t be that interesting anyways, I thought I would list a few of the pivotal points in the past few years that got us into the debt we’re in now. 

 The beginning

My wife and I haven’t always been in debt.  After high school I spent four years in the Marine Corps, and was pretty conservative with money, mostly because I never had any.  At the time I only had a single credit card with a low $1,000 limit, and I almost never carried a balance.  My wife went through school with a small shopping addiction, but nothing too crazy.  She graduated school with one fairly low student loan. 

Going back to college is when my own debt really started to build up.  I received money from the GI Bill every month, but that was just enough to pay rent and buy food.  This was also around the time my wife and I started dating, so of course going out on dates was a regular thing then too.  Dating and fixed income don’t really mix too well, and I still spent money like I was receiving a monthly salary.  

Buying a new car

About a year after my wife started her first job, her 1990 Honda Civic called it quits.  But not in a cheap fashion, instead it would randomly die on the freeway, and then start up again as she tried to coast to the side of the road, giving everyone in the car a good scare.  The mechanics couldn’t determine what caused the problem, so our only choice was to pay a few hundred dollars at a time to try and fix what may or may not have been the problem.  Instead she decided it was best to buy a new car.  But not just any car, a car that cost about 100% of her annual salary (the car we’re currently working to pay off).  She financed it for 6 years, which reduced the payments, but meant she would end up paying more in interest over the loan’s life.  Being able to afford such an expensive car meant paying everyday expenses with the credit cards, always with the good intention to pay them off at the end of the month.  This is when my wife’s debt really began to add up.  

Hitting the tipping point

I would guess that near the peak of our debt, my wife and I had over $40,000 in debt, which included credit cards, an auto loan, and student loans.  The sad part is that other than a few big luxury items we shouldn’t have bought, we really don’t have much to show for all of that spending.   We used our credit cards the way you would use a debit card for every day purchases.  It was the little things that really added up - $60 to eat out one night, $60 on groceries another.  We bought nice clothes to look good for work, after all if you want to get promoted you should dress the part. We didn’t live an extravagant life, but we didn’t live cheaply either.  Shopping was a popular past time for both of us.  She frequented the malls, while I regularly went to the bookstores and electronics stores.

The tipping point for us was our wedding this past June.  We didn’t have a choice about starting our new married life together in debt or not, but we did have the choice about which direction we were going to go.  We have decided to take the road to freedom from our debt.  And so now, a few months after the wedding, is where you enter the story and we begin our journey together. 

Small Victories

Even though our current debt situation is less than ideal, we like to look back at the good choices we made in the past, choices that would have qualified as extremely dumb moves in this story. 

The biggest decision we’re glad we made was to not buy a condo in San Diego, where both of us went to school.  For one it would have been a terrible financial decision.  We would have bought near the peak and surely would have been upside down now that the housing market has begun to plummet.  Making the monthly payments would have been tough, and it’s likely we would have continued to put living expenses like groceries on our credit cards.  Add to that the interest adjustment we would have been facing, and our financial picture could have been looking very different right now.

Buying the condo would also have prevented us from moving to the Bay Area this past year, a move that has brought an enormous amount of happiness to our lives.  Both of our families live up here, as well as many of our long time friends.  We both agreed that we feel more at home here than we ever did living in San Diego. 

Another good decision was not buying another new car this year.  I totaled my car almost 12 months ago, and almost bought a new Honda Pilot.  That choice would have put our debt levels up another $30,000.  It also would have reduced the extra money we have available monthly to pay down existing debt.  Factoring in gas, insurance, and maintenance, and we would probably still be making minimum payments on all of our debt, if we could have made them at all. 

Where we’re at now

After the wedding we worked hard to pay off our joint credit card.  This card had both the lowest balance and the highest interest rate.  We paid that off at the end of November, and next up is the car.  We will continue to use the debt snowball method to pay off our credit cards and student loans until we are completely debt free.  It’s going to take a few years, but our long-term goal is to be debt free by 2010. 

 You can take a look at a past post I wrote about fulfilling the requirements to get out of debt to get a better idea of what we’re doing to work towards our goals.  

I hope if you’ve read this far you’ll stick around until then to see if the dream of becoming debt free becomes a reality.  You can subscribe to the FreeFromMoney.net feed, found at the top right corner of the page, either through RSS or email.

After getting all of our financial statements in order, I made the first calculation of our total net worth (roughly calculated as assets – liabilities). What followed was not pretty. My Wife and I know how much debt we have, yet seeing the number totaled up and written down was a shock. I will not put numbers up here, at least not yet. I will, however, keep track of our progress on a monthly basis to see how we are coming along. It will be interesting to see how much of a change occurs month to month.

What do we plan on doing from here out?

The biggest drag is obviously our debt level. Since our wedding in June we have been using the debt-snowball method to pay off our debts. The first credit card debt was knocked out at the end of November, which felt great. Next up is the car, which we aim to have paid off in July, a full year earlier than the maturity date. When that’s out of the way it will really begin to feel like we’re making a dent in our debt levels.

On the other side of the net worth equation are our assets. Most of our money is in 401(k) retirement accounts, with a small additional amount in an emergency fund. We will both continue to take advantage of our 401(k) accounts, and will continue to fund the emergency account. I anticipate that by July, when we pay the car off, our assets should outweigh our debt and our net worth will turn positive (a great thing even if it is only a few dollars!)

As a follow up to yesterday’s post on my personal goals for 2008, I felt it was appropriate to list my financial goals for 2008 (since this is a financial blog!).

1. Pay off our car early. My wife and I have been living with one car for almost a full year. Not making insurance payments or paying for maintenance has given us extra money to pay towards the one car we have. So by August we should have our car paid off, almost a full year early.

2. Achieve secondary income. I hope that eventually this blog gains enough readers to sell add space, at which point it will be another source of income. Short of getting a second job, I am unsure what else I could do.

3. Begin credit card payoff mode. Right now we are using the debt snowball method, which means we put all of our extra money towards paying off our lowest debt (the car). Once that is done we will begin paying down our credit cards, each of which are in the low 5-figures. By the end of the year I don’t think it’s unreasonable to have one card at least half-way paid off.

4. Contribute to an education fund. I plan on returning to school for a Masters in Business, which requires money for tuition. So by the fall quarter I will need about $1500 to cover tuition and books. By the end of the year I will need another $1500 to pay for the winter quarter. I should be able to save at least part of this due to a budgeting quark – I budget monthly, but get paid biweekly. This means I get two extra paychecks a year. That will cover some of the education fund, but I will need to budget in money monthly as well.

6. Build up a variable expense fund. It is ideal to have at least a small emergency fund available of about $1000, which we are close to having. After that though, I would like to start a second account which we can use to pay for things like our car and renters insurance, car maintenance costs that pop up, or other small expenses that occur that are not true emergencies.

Most of these goals are fairly easily attainable. Achieving secondary income from this blog will require some writing skills, which I will need to work on. I guess if I had a stretch goal, it would be to pay off at least one credit card by the end of the year. It might be possible, but with changes like going back to school it will be tough to accomplish.

2008 is just around the corner, so of course that means New Year resolutions! Here are a few of my non-financial goals for the year:

1. Read more. I used to love reading, but lately Internet surfing and video games have taken more and more time out of the day. So I am planning on sitting down with a good book every night for at least an hour on weeknights, and a few more hours on weekends. I also plan to read more industry related news for my job. I aim to finish two books a month, which should be doable.

2. Eat healthier. Yes, one of the cliché resolutions, but also one of the most difficult and important to stick to. Over the years I have gotten addicted to candy and soda (or in other words sugar and caffeine), so I plan to cut back on both. I am planning on switching from soda to tea to ease the caffeine cravings, but giving up sweets is going to be tough.

3. Write more. This blog is the first step towards this goal. Writing will help me focus my thoughts and get my brain working. It will also be nice to look back and see where I’ve been and what I was thinking.

4. Get outdoors more. My wife and I have started to hike about once a month, and I absolutely intend to keep this going. Hiking also encourages us to exercise more during the week so that we’re not hurting so much when we hike. Along with hiking I would love to take a camping trip, but that would require purchasing equipment like a tent and sleeping bag, so I will have to wait to do that.

5. Volunteer. Along with my love of the outdoors, I plan to give some of my time back to help the environment. Whether it’s helping with trail maintenance or volunteering time elsewhere, I am sure there is something I can do.

Most of these goals should be easily attainable; I will just need to put more time towards doing useful things like reading and writing, and less time being lazy. Maybe my first books will be on better time management!