Real World Finance$

Time for the budget update for the month of April.  Here’s where the budget stands for the year and some comments below:

• Income - Always the top line of any budget.  We are over budget still yet this year.  The addition of our tax refunds in April helped keep this number above budget.  However, things will change the last half of the year as my wife will no longer be babysitting and I’ll take a break from my teaching so we can take a vacation.  All that will eat into the over budget and into our cash savings we’ve been building up as well.
• Committed- This is a target of 60% of our income and includes all of our monthly commitments such as taxes, mortgage, insurance, etc.  We are still 14% under the YTD budget so far, so that’s good.  Part of that is due to missing 2 mortgage payments early on, but even with that this past month we were several hundred dollars under budget.  I don’t see that trend changing, so I may move some more from that category to the debt category.
• Debt - The target here is 10% for all debt except for the mortgage, but we are budgeted at 14%.  We are way over budget here because of that large payment this month.  Future months will be back to normal so to speak and we’ll drop down some, but I hope to keep that number up as high as possible this year. 
• Retirement - The target for this category is 10%, but we are down at 6% to put more towards debt.  I’ m putting 6% of my income in my 401(k) and started getting a matching contribution from my employer in April.  So, that puts us over the 6% budget for the year and will keep us over I’m sure.  It’s also helping out as it’s classified as extra “income” that I hadn’t really planned on for the budget.
• Fun- This is another 10% of the budget for all of our fun expenses for things like dining out, baseball games, new clothes, Netflix & Gamefly, etc.  We are still under budget here, but part of that is because we’re a bit over budget in Irregular at the moment.  Some of the expenses we’ve had lately for getting a garden ready and doing some planting around the house have been going to irregular rather than fun.  Re-classified we’d be right on budget in both.
• Irregular - This is the last 10% of the budget and is for stuff like my orthodontic payments, vacation and home improvements.  See the note on our Fun category for much of this, though we did also have our gutters and sewer lines cleaned out this past month.  That’s keeping the water flowing away from the house and out of the basement.  A much needed repair.
• All expenses- I put this line on there just to see where we were in total for expenses.  We went from 11% under budget for the year last month to 3% over this month.  The big change, the now infamous 4 grand debt payment.  Our expenses will be much lower in future months and we’ll continue to try and stay under.  The more we can stay under each month, the more we can save for extra debt payments.

I finally have a breather to get back to this.  April turned out well and was fun with our big debt payment.  We are a third of the way through the year, so you would naturally expect to be 33% of the way to our goals.  Let’s look at the numbers, shall we?

• Credit Cards - Over a $4,000 reduction in our credit card debt.  While we made a payment almost that large on our AC debt, we also had a balance transfer fee to transfer the remaining balance.  Luckily, the introductory interest rate reduction will make up for the transfer fee in the end and keep the remaining portion of that balance at 5.99% fixed.  Over 40% of the way to our goal, so that’s good, but we’ll need to keep up with that to make sure we stay on track after such a large payment.
• Net Worth - Up another $3,600 this month.  About two thirds of that was due to our tax refunds however, so we won’t see that big a jump every month.  Even knowing that, the remaining change this month would keep us on pace to hit our goal of $0 net worth by the end of the year.
• Retirement - This one picked up the pace this month as I started getting my employer matching contributions to my 401(k) this month.  So, while I am still behind the 33% pace, I’ll be making up ground on that from here on out (as long as the stock market co-operates and we don’t have another 8 months of January!)
• Cash-Down quite a bit this month as expected.  Considering that I made a $4,000 extra debt payment though I think a $2,500 drop isn’t too darn bad.  Even though I have some more home improvements planned in the near future, I think we should still be able to hit that goal number by year end.

Now for the details on the Net Worth Update:

Pretty much as expected this month.  Our cash was down which was offset by the decrease in our credit card debt.  Our other debts are making steady declines with their fixed payments at this point as well.  You can also see the uptick in the retirement account now that I get matching funds from my employer.  Between that and a timely purchase of 100 shares of Countrywide (CFC) made for some nice changes this month.  Of course, Countrywide has taken some pretty good hits this last week, but I managed to buy very close to their bottom point a couple months ago.  I was up as high as a 50% return at one point, but I’m still in it for the long haul.  The good thing is, I ONLY have 100 shares, so that’s still only like 5% of my retirement funds at this point (and shrinking as I contribute more to my 401(k) funds).

What I love to see most on this chart was the nearly five grand reduction on my liabilities side!  I look forward to those total debts to someday be $0!

Looking forward to May, I expect some more regular changes plus our “stimulus” check.  We’ll hang on to that in savings until we are ready to do our electrical work and garage door sometime this summer.  If the month goes really well we just might dip within 10k negative on that net worth.  Wish us luck!

I realize it’s already the 7th of the month and I haven’t posted my month end update from April.  I’ve got everything done and I’ve updated my Networth IQ profile, but things at work are pretty busy with a software implementation going on this weekend.  I hope to get the update posted before this weekend, wish me luck!

Our current line of credit that is the bulk of our unsecured debt is at a 10.99% interest rate.  Not the best, but it’s also a line of credit with a fixed rate and fixed payment schedule which helps to avoid the “minimum payment” trap.  My wife, the homemaker, just got a solicitation in the mail from the same bank advertising the same program at as low as 7.99% (when we got ours, the ad was for as low as 9.99%). 

So, me being the industrious person I am, I called them up and asked for a lower rate.  After all, the Fed has lowered their rates by 3 points over the last 6 months or so.  Here’s my recollection of the phone conversation:

• Me - I wanted to inquire about getting the interest rate lowered on my account.
• Bank - I’m sorry, but that account has a fixed rate, only variable rates adjust down.
• Me  - I realize that, and I’m asking for a review of the account to get a lower fixed rate.
• Bank - I’m sorry but we’re not able to do that.
• Me - You realize the Fed has lowered rates 3% in the last several months right?
• Bank - Yes, but they lowered the Prime rate and only variable rates tied to prime adjust down.
• Me - Actually, the Fed doesn’t deal with prime, that’s set by the bank.  The Fed lowers the Fed funds rate.
• Bank - No, the Fed sets the prime rate and only variable rates tied to prime are able to adjust down.
• Me - You see, the Fed has lowered both the Fed Funds rate which is what banks charge each other for overnight loans as well as the discount rate which is the rate the Fed charges banks like you to borrow money directly from them.  So,  you are borrowing your money cheaper and I was wondering if I could get mine reviewed for a cheaper rate as well.
• Bank - I’m sorry, we’re not able to do that.
• Me - My account is up to date and in good standing, correct?
• Bank - Yes.
• Me - So, the only way for me to get my rate changed is to either open a new account under my wife for the amount you offered her, or to move my up to date, always on time payments to another bank.
• Bank - Yes.
• Me - Okay, thank you.

So, it appears that even the bank customer service people aren’t taught about how banking actually works, and they are supposed to help the customers.  I think the lady was a little taken aback when I explained in detail what exactly the different Federal Reserve rates were.  She sort of shut down and gave as little response as possible after that point.  I wasn’t trying to be rude, just trying to make an argument that I should be able to get a reduction. 

Yes, there is an occasional bank that ties their prime rate to LIBOR (London Interbank Offered Rate), but most strictly advertise prime and want you to assume there some big board someplace that says Prime Rate that is set by the market.  It just ain’t so.  There may be some “accepted” norms for what constitutes prime in general, each bank still has the final say in what their prime is.  Oh, and for the record, my view of prime rate was given to me by a graduate finance instructor of mine who was a retired bank president.

What does it say about the state of our economy that even the people who are supposed to help us with our banking don’t understand the basics of how banks operate?  At least, I hope the lady really just didn’t know.  If the bank had taught her what she told me, then the bank really is out to get you with misleading information.  Either way, the bank needs to revisit their training program.  A script and phone manners just isn’t enough.

I just recently finished up reading the book Naked Economics: Undressing the Dismal Scienceby Charles Wheelan.

The most memorable parts of the book were the last few chapters that deal with international trade and poverty.  There are some very compelling arguments against the idea of trade restrictions with countries that have a poor working conditions.  His suggestion is to actually buy MORE product from those countries.  The idea being that higher demand for their labor will lead to better conditions as companies try to compete for workers.  That, in turn, would lead to higher wages and a better standard of living.  Instead, those who generally oppose the “sweat shop” type of work environment would rather see third world citizens out of work than working in conditions deemed sub-standard by our own terms.

Another thing I had never really considered was the lack of a well developed nation between the Tropics of Cancer and Capricorn.  Is there something to do with being in warm weather that makes for unintelligent or lazy workers?  Not according to Wheelan.  He suggests that much has to do with diseases that never go away.  Why is malaria a problem in most African countries and not in the US?  Maybe because our winter freeze kills mosquitos that continue to breed strong all  year long in those warmer temperatures. 

While we often try to fix problems in other parts of the world with things that work in ours, we just as often fall short of the mark.  Because of economic incentives, we have very little desire to solve problems in developing nations.  But we are usually willing to throw money at a problem to make us feel better about it.  It’s just too bad too many of those governments squander whatever resources they are given.

In general this isn’t a bad book, but wasn’t one of my favorites either.  If you’re in the mood for some challenging ideas, pick it up at the library and read the last few chapters… then put it back.

Can you believe it’s May already?  My how time flies.  I was pretty busy yesterday at work and had my first night of a new class (Managerial Accounting this time), so I didn’t have much extra time to wander through here.  I did see some really good links and stories posted in my blog reader this morning though and thought I would share:

JLP over at All Financial Matters posted a great Interview with Larry Winget.  I’m not familiar with the guy, but I like the way he thinks!

Five Cent Nickel has a short, but sweet post on the idea of the Gas Boycotts.  I had a couple of similar posts over on my other blog here in the last week as well.  Short story even shorter, if you want to save money on gas, don’t drive so much!

Madame X has a great set of links to Today in the News over at My Open Wallet.

I had my annual check up at the doctor a couple weeks ago now.  I was down about 10 pounds from last year and my blood pressure was back down to the normal range as well. 

With all of my thoughts and posts recently on health care, I was tempted to ask my doctor if he had ever considered doing a “cash only” business and leaving the insurance processing up to the patients.  However, considering he ended up running an hour late coming from his hospital rounds I was in the mood to just get out of there.

Then, last Friday, I got some mail from my doctor.  A very nice color brochure talking about upcoming changes to his medical practice.  He says he will be seeing fewer patients and spending more time with them and on preventive care.  He will also be offering direct phone contact within an hour of call and his personal cell phone available on evenings and weekends.  Now, there is no information on exactly how is planning to do that, buy my thought is that he very well might be going cash only.

The brochure says details will be coming in the next couple of months and that patients will need to apply for the new practice to start in September.  I’m looking forward to getting the information to see what’s coming down the pipe.  Personally, I would be very excited for him to be cash only. 

I recently looked at moving to a private insurance rather than through my employer.  For the same plan I currently have, I can buy one with a $10,000 deductible rather than my current $2,000 and save $400 a month on insurance cost.  Yes, that leaves a lot of expense there should something major occur.  However, by putting that $400 a month into the HSA account (which is done tax free) that adds $4,800 a year to money available to pay the deductible.  Add that to the $125 a paycheck I’m putting in there now ($3,250) and that covers $9,000 a year with only a minor change in my tax liability.  Because payments to the HSA come out as adjustments to gross income, I’m only paying additional taxes on the $180 monthly premium. 

The real catch to the whole situation is this, if I don’t spend my entire deductible in a year, I can drastically reduce my contributions for the following year and have upwards of $9,000 extra income (before taxes).  If I have to dip into it during the year, I can always put more in to replace it and save on taxes while still keeping our buffer.

Am I nuts or does this make sense to more people besides me?

We finally made the plunge with our big debt for our A/C we had installed last year.  It was “financed” then with 1 year, no payments and not interest.  That was set to expire in Mid May and I’ve been putting together plans to make the move.  The total debt on that special card was $16,064 (we had no duct-work or anything, so we were starting from scratch, and we also qualified for the $300 energy tax credit this year because of this).

I have a scheduled transfer from our savings account of $4,000 on the 30th of the month.  That same day I have a scheduled payment from the checking account of $4,064.  The remaining $12,000 is in process to be transferred to a credit card that is in my wife’s name.  It didn’t have a balance previously and had room for the balance.  While we did have to pay a 3% transfer fee, the transfer offer is at 0.99% for 6 months and then goes to her current fixed rate of 5.99%.  The 3% fee basically washes out with the savings from the 0.99% for the first 6 months.  That said, the fixed rate on her card is outstanding for a credit card, so we don’t really have any complaints there.

The best news is still that there is $4,000 less of debt for the end of this month!  That’s a really big step and puts us near the halfway point of our goal for debt reduction this year.  Hopefully after we get some other work done on the house and plan for our vacation there will still be some money left for another big payment sometime in the next few months.

In a preview of our month end, I saw where we currently have less than $48,000 in “credit card” debt with these payments (though there is an interest charge yet to post on our line of credit account) and our net worth has gone up to -$12,000.  That’s another big jump this month thanks to the tax refunds and such.  Everything should be done and posted by the end of the week for me to get some final numbers by the first of next week. 

This was meant to a post for Earth Day, but with jury duty and trying keep up/catch up at work it got pushed off. 

We’ve been doing sort of an energy audit around our house lately, not really on purpose, but it’s getting done none the less.  It seems over the last few years we have gradually been moving faster towards being Green in our house.  You can save some pretty good money with being more green, but it’s not always a quick payback.  Here’s some of the changes we’ve either made or are contemplating sometime soon.

• Recycling- We’ve been doing this for a number of years now.  While we weren’t always the best at it, we’ve been much more conscious of what we throw away in the last 6-9 months.  While our savings are $0 due to the trash pick up being included in our property taxes, the feeling of throwing away only about 1 sack of trash a week for a family of 3 is pretty good.
• New Car - Yes, we bought a more fuel efficient car back in December.  With 27 MPG compared to the minivan at 17 MPG, we are saving about half the extra payment in gas alone each month (and using only 5-6 gallons of gas a week is a good feeling).  Add on the couple thousand we needed to do in maintenance on the van to the ever increasing gas prices, and we’ll probably break even this year on expenses.
• Lighting- We’ve switched out almost half our light-bulbs in the house now with Compact Florescent.  I’ve been very pleased that they don’t have the typical florescent lab look from the lighting.  We’ve been buying them on sale for about $1 a piece.  The change from 60 watts down to 14 watts will have some impact on the electric bill for sure.  The fact the bulbs are expected to last 6-7 years rather than 6-7 months should help too!
• Air Conditioning - We had central air installed in the house last year.  It was very expensive, but well worth the expense in comfort alone.  We were stuck using window units in a large home with not really enough outlets to plug them in before.  Our budget electric bill did go up about $20 a month after using the AC for a summer, but with having it as a heat pump, our natural gas budget bill went down $29 a month from turning the boiler on later and off sooner this year.
• Windows - Our house is 85 years old, and so are the beautiful wood windows.  Unfortunately, they are also single pane and not very energy efficient.  However, I’m not about to deface my beautiful home with vinyl windows while there is still breath in my body.  We did take the time to put all the storm windows back in this winter and noticed a considerable difference in the draft.  Several of the storms are missing windows and several others are just in pretty poor shape, so it might be worth the effort to look into some new storms at least.  I may even choose to put them inside to show off the windows on the outside a little better, but I’m not sure yet.
• Doors - Again, with an old house come beautiful old wooden doors.  The back door, doesn’t currently have a storm/screen door.  We’ll need one of those so we can leave it open during nice spring and fall days more often.  The front door has a storm, but it is warped and doesn’t close so it too needs to be replaced.  Problem is, 39″ doors.  Yep, standard sizes only go up to 36″, so we are looking at custom.  My solution, build my own.  It’ll be a fun project for this summer and let us keep the doors open for breezes in the fall like the house was built to use.
• Heating - Yet again, the old house blues.  While the feeling of radiator heat in the winter is beyond compare, our approximately 40% efficient, 85 year old, originally coal fired boiler just isn’t always the best.  We can get up to 80% efficient for about $1500 plus installation.  There are boilers ranging up to 95%-98%, but those are 3-4 thousand.  Payback time is much longer for this one, but if natural gas rates go up over time, the payback comes even sooner.
• Electric - We’ll be replacing some of the old knob & tube wiring in our home soon.  Part of the plan is to put electric back out in the garage at the same time.  However, we’ve also gotten a quote to run our garage and my workshop off of strictly solar and keep it off the grid (it’s a detached garage).  Seems though that the cost might not be worth it at $2500 versus about $500.  Sure, there’s now energy costs, but I won’t use enough of it to make much difference.  The next option would be to see the difference in cost of making the system grid connected so that the extra electricity we generate doesn’t just sit idle in batteries, but gets either used in the main house or sold back to the electric utility.  Again, will be quite a while for pay back, but there is a request for a 17% increase in electric rates also.
• Appliances - We do have some older appliances in our kitchen that sometimes seem on their last leg, while we don’t plan on replacing any at the moment, we’ll keep energy efficiency in mind if it comes to that in a few years.
• Water - While we are not currently on a water meter (we pay a fixed rate based on the number of “fixtures” in the house) we are still conscious of our water usage.  I actually assume we would pay less for water if we were actually on a meter because we don’t water the yard and there is only 3 of us in a house built for 5.  That said, we are planting our vegetable garden this weekend and we will need to water there.  Unfortunately, we didn’t get the chance to get some gutters put up on our garage these last few weeks as we would like to do that and send the water to a rain barrel instead of the alley.  That water would be perfect for watering the garden later and we’ve had a ton of rain the last month.  I’m sure, with our luck, we’ll hit a drought about the time we get it in place, but it will still be done.  About $50 for gutters and $100 for the rain barrel to use fresh water on the garden and avoid the water bill if we were on a meter.

So, lots of ideas some of which will happen and others won’t.  To help me keep better track of things I just contacted both our electric and natural gas utilities this morning and requested they send a report of our usage for the past 2 years we’ve lived in the house.  That way I can really see the impact we are having by changes we are making. 

Any other ideas out there?

Will be back to writing in a few days.  I’ll be completing my civic duty as a juror in the mean time.