We are quickly coming up on that time of year when we turn the calendars over from one year to the next.  For some reason, we usually use this time of year to turn over a new leaf as well.  Last year at this time was a culmination of sorts for me of getting more disciplined.  I had just completed a year where I began to focus on my health and lost almost 50 pounds.  Combine that with my newly found financial discipline and I decided to actually make some real New Years Resolutions.  I decided to put some goals that were realistic and others that I would consider “stretch goals.”  Another thing I decided to do was write these goals down and keep them in a place that I would encounter often.  I decided to put this list on a piece of paper that I kept in the folder where I kept my monthly expense documents.

In the beginning of the year, I was doing a strong job of reviewing all of my finances month to month.  I would categorize and analyze each and every expense.  Keeping my resolution list in the folder where those documents lived seemed like a great way to keep them in the forefront of my mind.  Unfortunately, some of the discipline that I was so proud of seemed to leave me mid-year and I have gotten away from that ruthless monthly analysis.  The downstream impact of this has been that I have not looked at my resolution list in quite some time either.  Today, the list popped into my head and before I dug it out and reviewed it, I decided to do so publicly via this blog since one of the primary reasons for starting this blog was to keep my self accountable to my goals.

Here is my list of Resolutions for 2018:

1. 1. Keep weight under 235 pounds (FAILED)
2. 2. Re-Read “Your Money or Your Life” and “A Simple Path to Wealth” (COMPLETE)
3. 3. Read at least 15 books (later amended to say Read at least 15 books and Listen to at least 15 Audiobooks) (COMPLETE)
4. 4. Increase personal investment account to $50,000 (FAILED)
5. 5. Max out 401K (COMPLETE)
6. 6. Max out Roth IRA (TBD)
7. 7. Max out Wife’s Roth IRA (COMPLETE)
8. 8. Start blogging regularly (COMPLETE)
9. 9. Pay off Auto Loan (COMPLETE)
10. 10. Pay Credit Card balances in full each month (COMPLETE- with exception of one month)

Considering that I haven’t looked at this list in a while and have not paid much attention to it, I was dreading this accounting.  However, I think overall, I did a pretty good job of achieving my goals.

As for the failures, well, I came close.  My weight was kept pretty steady under 230 pounds most of the year.  However, in the summer, we went on a cruise and the temptations were just too great.  Since coming back from the cruise, I have had a rough time finding my motivation and have allowed my weight to creep slight above my goal.  I will be certain to include a weight goal in my resolution list for next year and push myself to get back to my daily routine.  The additional failure listed was my personal investment account.  At the end of the year, my total was approximately $28,000.  My goal included the regular scheduled movement of money which would account for an additional $13,000 and then a bump from there to account for any additional money I would be able to squeeze out of our monthly expenses and divert to this account.  This did not quite work out as my spending has increased somewhat over the second half of the year.  Again, I would blame this on my relaxing of discipline.  Couple that with turbulent markets the past few months and the account currently sits at approximately $38,000.  This is well short of my goal.

In summary, I hit a large percentage of my goals for the year, but I cannot help but be disappointed in the misses.  Especially since I can blame my own behaviors on both failures.  I will use this as motivation to double down in the coming year and ensure that I renew the vigor with which I attack these goals.  Stay tuned for a future post around the new year where I will lay out my Resolutions/goals for the coming year.

This is a continuation of a monthly theme where I document what media I am currently consuming.  In addition to sharing books, articles, and podcasts that some may not be aware of, it will help keep me honest and ensure that I continue to consume more and more information myself.  Here is this month’s entry.

What am I reading?

This month I am doing another re-read of a book that I have previously consumed but one that I have decided to read over and over as time permits.  That book is A Simple Path to Wealth by J.L. Collins.  This book had a very positive impact on my investing when I first read it.  My initial foray into investing came with my first “real” job that carried a 401K plan.  I don’t necessarily count this as I quickly viewed the menu of funds available and picked a few with no real thought into what I was selecting.  Shortly thereafter, a friend took on a job as a stockbroker.  He and I sat down, and I decided to invest some money with through him.  At that time, I selected a few individual stocks that represented companies that I had heard of and which would be easy to look up in the daily newspaper.  This did not necessarily go very well and at that point, I decided to learn more about investing.  I dove into newspapers, books and television programs all designed to improve my prowess at stock picking.   I spent countless hours researching and immersing myself in the world of Wall Street.  The net results were mediocre at best.  This book was not my first introduction to index fund investing but it was certainly the easiest explanation of the benefits.  I have since dabbled in index investing and have been quite happy with the results.  This book is an extremely easy read.  The author has a very conversational way of writing. The author first wrote an extensive series of blog posts on this topic, which can be found at www.jlcollinsnh.com if you don’t want to commit to the book.

What am I listening to?

Another favorite podcast that I am enjoying is The Money Guy Show by Brian Preston.  Brian is a fee-only financial planner with extensive experience in the field.  He blends that experience with a folksy charm that makes most topics very approachable.  I don’t always agree with his advice, but he has a great way of explaining his logic that you cannot help but understand, even if you don’t fully agree.  I have also been going back and listening to the entire backlog of shows, since the show began all the way back in 2006 and am finding that his advice has largely held up.  There have been a few items where his advice may not have been the best, but he has acknowledged those and taken full ownership of them.  One such item was his stance that he did not need a very large emergency fund since he has an untapped Home Equity Line of Credit on his home.  I have personally agreed with this logic in the past and both Brian and I quickly learned that this stance did not hold up during the housing bubble bursting in 2008.  My line of credit was quickly slashed by my bank and that available credit dried up very quickly.  Something similar happened to Brian and he has since become more supportive of building a safe emergency fund.

What am I watching?

As I predicted in my last post, my baseball team fell short of the title this year.  While I did pay attention to the remainder of the playoffs, it did not dominate my watching as much as before.  During the past month, however, my television viewing has still been consumed with sports.  This time around it is football.  My son is 10 years old and played tackle football for the first time this year.  It was a great experience and has sparked his interest in the sport tremendously.  In years past, I have tried to get my kids (and my wife for that matter) to have an interest in college or NFL football.  They have resisted.  But now that my son is playing the sport and learning all the rules associated with it, he has become extremely interested and watches every chance he gets.  This has presented some solid father-son bonding moments that I am going to capitalize on as long as they last.

If you follow any financial independence writers, you will often hear talk about savings rate.  The underlying principal getting a head is simple… spend less than you earn and invest the difference.  That “difference,” when stated as a percentage of your total income is your savings rate.  So, simply stated, if you earn $5,000 per month and save $2,500 of that, you have a 50% savings rate.  The higher your savings rate, the better your chances are of reaching your financial independence goals.  Fifty percent is a figure that is often tossed around but some folks in this space celebrate rates as high as 80% or even higher.

My current struggle is in figuring out how to determine my own savings rate.  What figure should be used for income—Gross or Net income?  How deep to you go in calculating exactly what is considered savings?  There are some obvious items such as 401K contributions and money that I have auto-directed to my investment accounts but then what?  Do I consider the portion of my mortgage payment that goes to principal as savings since this is paying down a debt?  These questions have bounced around my head so often that I wind up being paralyzed by them and unable to commit to calculating this figure.  Thus far I haven’t done this.

So, for this post, I am committing to coming up with a number.  It may not be a perfect number, and some may argue for a better way to calculate the figure but at least I will have a starting point.

I will use percentages in order to maintain privacy.

 

Total Monthly Gross Pay:	100%
Taxes Withheld:	22.59%
Other Withholding's:	5.05%
401K Withholding's:	12%
Amount diverted to Investment Account:	6.75%
Amount diverted to Savings Account:	22.52%

 

This simplistic calculation does not dissect each payment to determine if a portion is savings versus expense.  But using this very quick calculation I can see that the last three entries would be considered as my current savings rate.  So, adding those three items gives me a current savings rate of:  41.27%.  This is certainly not as high of a rate as I believe I can achieve, but I will consider it a victory at this point in my journey.

Do you calculate your savings rate?  If so, how do you go about this?  Feel free to discuss in the comments.  My challenge to myself will now be to explore ways to push that rate above the 50% mark.  Seeing the number printed in black and white definitely adds to my motivation to tackle that goal.

 

Friday was my most recent payday.  I had some expenses to be paid out so before doing so I quickly checked my bank account to see if my paycheck had hit my account yet and ensure that there was enough money in the account to trigger the payment.  I was surprised to see that my paycheck was a little larger than normal.  I logged in to my company’s payroll system to check my pay stub and see what might have changed.  A quick analysis showed that the 401K deduction was smaller than normal.  I scanned the Year-to-Date column and noticed that I have maxed out my 401K contributions for the year.  This is the second year in a row where I have done so but also only the second year I have EVER done so.

Since being eligible for a 401K, I have always put 10% in and have not wavered from that.  I assumed that 10% was a huge portion and would be more than enough to cover my retirement.  I asked around to a few family members and friends and quickly found that 10% was much more than most, if not all, of them contributed.  This reinforced my beliefs that I was ahead of the game.  Once I began diving into personal finance topics I learned that 10% was probably not going to get it done, especially not if I wanted to retire a little earlier than the norm.

Once I had that realization I began and systematic program of increasing my percentage withheld.  I started by increasing my contribution by an additional 1% each year on my birthday.  This worked well and was easy to remember since this was a nice little birthday present to myself.  The other thing I noticed was that my take-home pay before and after each change was not significantly different.  It definitely did not impact my cash flow as much as I expected.  So, what I decided to do that that point was to increase my percentage every few months.  I add an additional 0.5% or 1%, then adjust to that amount for a few months before doing my next increase.  Amazingly, I have barely noticed the difference.

Now that I have hit this major milestone two years in a row, I am motivated to do even more.  My new challenge will be to see if I can hit this milestone even earlier in the year next year.  Additionally, now that my paycheck is more than usual since that money is no longer deducted, I plan on automatically moving that money to some different savings vehicle.  For now, I have set up an auto-transfer for that amount from my checking account to my savings account on each payday.  As that amount accumulates, I will deploy it in another vehicle to maximize its impact.

I have decided to talk a little bit about an important anniversary that falls on this date.  I struggled with the idea of whether this fit into the blog’s theme.  This is something very important to my life and wanted to write about it.  I have not really focused on the financial aspects of this event but decided to do that here for multiple reasons.  First it would allow this discussion to fit into the theme of this blog.  Also, it would allow me to dive into how the financial impact of these life events played into my later decisions to take my personal finances much more seriously.

Seven years ago, I received a phone call from my wife.  She explained that she saw something strange but didn’t think much of it.  I encouraged her to contact her doctor to be on the safe side.  She did and went in to see her doctor.  Her doctor ran some test and found some alarming anomalies.  She referred us to a surgeon to perform some exploratory surgery.  That surgery resulted in something nobody ever wants to hear…. There were cancerous cells present.  This led to a second surgery, this one to remove all the effected cells.  That second surgery was seven years ago today.  That marks the time when my wife was officially cancer-free.  There was one additional surgery one year later as they found some strange results on a test and performed surgery to remove that.  It turned out that it was not a re-occurrence but merely some scar tissue.  Following the second surgery, there were many months of radiation treatments and therapy sessions and fear!  What there was not was a single moment of feeling sorry for herself.  My wife is an amazing woman and I cannot imagine having to have gone through this.  She is a fighter and she handled herself in a way that not only took the fight to the cancer but set such an incredible example for my children on how you handle adversity.

This is a story that I tell every year on this anniversary.  I always focus on her strength and resilience, as I have done above.  However, since this is a personal finance blog, perhaps it makes sense to also discuss the impact this had on our finances.

Shortly before this diagnosis, I lost my job.  At that time, I decided that I would try consulting.  I was the only income earner in the family at that time and therefore our health insurance was tied to my employer.  Upon losing my job, I investigated COBRA coverage.  This was a smaller company with some large claims in it’s past so insurance coverage was not very affordable.  COBRA coverage was available but not at a price that I could afford so we purchased insurance on our own.  We had a conversation about this and decided to get a high-deductible, catastrophic plan.  We justified this decision by saying that “we are young and have always been mostly healthy.”  I had savings at that time as well as stock market investments.  I felt that we would be able to handle anything that came our way.  This theory was put to the test almost immediately.  When deciding on the path forward, we never gave money a thought, we pursued what we felt were the best options as recommended by our doctors.

Right around the time of the second surgery that I celebrate above, the bills started to roll in.  Our insurance coverage was excellent and performed as we expected.  This is not an entry to tell a horror story about big insurance.  However, with a high deductible plan, a large portion of these bills was our responsibility.  We dipped into our savings and paid these off.  We got to the point where we paid our maximum out-of-pocket for that first year.

We felt like the worst of the financial impact was behind us and we survived it without depleting our savings.  This optimism was short lived and very incorrect.  Following that surgery, there were months of radiations treatments and appointments with many specialists, all who contributed to the excellent care that my wife received.  Those bills came rolling in and we quickly hit out maximum out-of-pocket for the second year in a row.  We did, however, finish up radiation treatments that year so we felt that we had weathered the storm, even though we had run through just about all of our savings and investments.

Then, as I mentioned above briefly, there was a test in that next year that revealed some tissue that the doctors were not happy with and they wanted to perform a third surgery.  This surgery went smoothly and returned the greatest news we had ever heard in that it was not a re-occurrence of the cancer but scar tissue.  This successful surgery and excellent news were followed by even more bills and visits to specialists.  For the third year in a row, we hit the maximum out-of-pocket spend on our insurance program.  Unfortunately, we had run through all our savings but by that time, my consulting work had picked up and was steadier and we were able to pay our obligations without having to take any extreme measures.

I have not previously looked at this time in our lives through the lens of our finances and doing so today has shown me one thing…. The financial portion of this was significant.  But not significant enough for me to view it, even with the passage of time, as a hardship.  I never considered the costs or impacts on our finances as we considered treatment options and even looking back and seeing that this caused us to run through all of our savings and most of our investments, I have absolutely no regrets as I can write this and say that today marks the seven year anniversary of that all-important surgery that allowed my wife to be cancer-free.

Jim Rohn has famously said “You are the average of the five people you spend the most time with.”  When I first heard this quote, it had a real impact on me and caused me to really look at who was in my circle.  I looked at my spouse, my close friends, my mentors and co-workers trying to decide exactly who I really did spend the most time with.  When viewing things through this lens it really forced me to wonder where I was being influenced the most.

My spouse is the obvious first person in my circle.  While she does not necessarily share my enthusiasm for personal finance topics, she allows me to handle our family finances and supports me.  This was not something that was easily handed over.  When we first neared marriage and decided to merge our finances, each of us simply assumed that we would be the one to manage the family finances.  We had each managed our own personal finances for some time and were confident in our own abilities.  We had different family histories and different “styles” of management but in the end, we each trusted the other as much as we trusted ourselves.  After some discussion, it was decided that I would take the lead on this portion of our lives, but my wife would be ready to step in if she did not agree with the direction things were going.

We do not live geographically close to any immediate family from either side so the next tier of relationships that I was forced to look at were my close friends.  In doing so, I noticed that I had a very strong support network but a mixed bag on how they handled their own finances.  My network of friends also includes people that are at many different stages of life.  Some have no children and focused on their careers exclusively, some had kids who were in the high school or college age groups, some had children in the age groups that include my kids and still some others had toddlers or newborn children.  So, this analysis was not quite an apples-to-apples comparison.  At the end of the day, I focused on those friends that either made personal finance decisions that impacted me, such as those who always wanted to do thing that negatively impact our finances, or those that had a similar interest in personal finance topics and were willing to share their experiences.  Overall, I forced myself to really look at the decisions that my friend group made, and this gave me the resolve to stick to my convictions and say “no” to more things that would negatively impact my goals.  Additionally, I have made an effort to spend more time with at least one individual that is a very positive influence.  This person is in a similar place in their life as I am, and they are always willing to talk about ideas and life hacks that they are trying or have heard about.  We try to get together at least once a month and I have gotten huge value out of those interactions.

The last group that I had to review was my work family.  This is a group that I spend the most time with since our work lives dominate most of our waking hours.  I forced myself to truly look at this group and realize that it not only includes co-workers, bosses, mentors, etc. but also includes clients and networking groups where much time is spent.  The thing I noticed the most with this group was the high percentage of pessimism that was present across the group.  I think any large sample of people will have its share of pessimistic people, but the workaday portion of the population really seems to tip the scales.  There are the usual negative ideas to contend with in the workplace where you disagree with decisions or direction of your organization, but it seems to go deeper than that.  The overall attitude can at times seem almost defeatist.  It makes me wonder if the scene is set for us.  Maybe it is not these specific people but just the working majority overall.  Can someone find happiness when they are forced to wake earlier than they would like to, leave their families, spend high-stress hours commuting and then spend the majority of your daylight hours doing things that do not necessarily contribute to their own happiness?  Is the game rigged?  What this analysis has done was further open my eyes that walking the path to a somewhat early retirement is the correct path.  That retirement may mean different things to different people and may not even mean a separation from work as a whole.  Perhaps it can mean doing work on your own terms, separated from the need to make as much money as possible to ensure that you can cover your family’s monthly expenses.

While I do not feel that an analysis of my inner circle is a task that has a distinct beginning and end, this current review definitely was fruitful.  It gave me resolve to defend my goals, motivation to spend more time with positive influences and perhaps most importantly, allow me to spot and reduce the negative influences.

Last month I posted a discussion about the media I was consuming at that time.  I have gotten some positive feedback on that entry so I decided that I would try to make this a monthly addition.  In addition to sharing books, articles, and podcasts that some may not be aware of, it will help keep me honest and ensure that I continue to consume more and more information myself.  Here is this month’s entry.

What am I reading?

I am currently reading The Millionaire Fastlane by M.J. DeMarco.  I have found this book to be very fun and easy to read.  The author starts by clearly distinguishing between those following traditional advice—those he calls Sidewalkers and Slow-Laners—and entrepreneurs or Fast-Laners.  The writing is straight forward, the energy level is high, and the personal anecdotes are inspiring.  This is a book that I can see myself reading multiple times.  My kids are a little young for this one at the moment, but I can certainly see recommending this to them when they are a bit older.

What am I listening to?

Another favorite podcast that I am enjoying is Marriage, Kids & Money by Andy Hill.  Andy has a TON of energy and that comes through the airwaves.  It is hard to avoid the contagious effects of that energy.  I enjoy this podcast as it is not solely focused on personal finance but also dives into topics geared toward improving your family life as well.  I think that there is a strong balance between the topics while staying rooted in personal finance and I have gotten many great ideas from this one.

What am I watching?

As I write this in October, much of my television consumption is dominated by sports.  The Major League Baseball Playoffs is in full swing and the NFL season is at a point where most teams have knocked the rust off and are playing some entertaining football.  I really enjoy both sports and can watch pretty much any two teams playing.  However, I am lucky in that my favorite baseball team made the playoffs and my favored football team is one that has a large national following so opportunity to watch both come regularly.  With all the televised sports these days, I don’t have much time for other shows.  It is looking very likely that my baseball team will be eliminated here shortly.  So, my screen time may be opening up just a bit.

Remember in a previous post where I explained that I was “good with money?”  I feel the need at this point to remind you, the reader, of that sentiment.  Funnily enough, the need to reinforce that comes once again as I retell a story of a money mistake from my past.

 

While I was always fairly conservative financially and focused on obtaining a strong career path and funding a retirement account, etc. my younger brother seemed to be cut from a different cloth.  He spent much of his twenties and early thirties working in bars, most in New York City.  He spent time as a bartender but really seemed to hit his stride when he got into promotions.  He seemed to have a knack for attracting crowds to the establishment he was promoting and was paid extremely well for this work.  He continued working in this field and eventually moved into management positions.  Eventually, that work appeared to pay off when he had the opportunity to buy his own bar.  He turned on his promoter skills and dialed his favorite (only) brother and asked if I were interested in investing.  The idea of owning a piece of a bar in New York City was pretty attractive.  While I was living in another state at that time, I had visions of myself visiting, walking past a long line of people waiting to get in; overhearing them asking each other who I was and why did I get to cut the line.  Typical ego-boosting type thoughts.  I think you can see where this is going…. I took the plunge and invested.

We encountered all the issues that any new business does and there always seemed to be a need for more and more money to get things off the ground.  After what seemed like an eternity, we were set for a grand opening.  The place looked great and was getting some decent buzz.  Well, decent for a place of its size at least.  The fairy tale was not meant to be however, and things never really took off.  We trudged along for some time but never really got ahead.  I tried to ask some questions about the finances but quickly learned that my brother and I had very different ideas about running a business.  In rough times, my inclination is to attack costs and see what can be eliminated or reduced.  In other words, I like to play DEFENSE.  My brother, however, felt that there was no money issue that couldn’t be fixed by attracting more revenue.  He came up with new and interesting ideas to stoke the flames of customer interest.  Many of these ideas required spending even more money.  “You have to spend money, to make money” seemed to be the mantra.  Obviously, he liked to play OFFENSE.

So, which is the correct method?  To be successful, I believe you need to play both offense and defense and find a happy balance between the two, but I just don’t think any one person can be wired to do both on the same level.   What are your thoughts?  Where do your strengths lie?

 

5 Top Changes I Made to Improve My Financial Life (continued)

What are the top changes we made to improve our finances?  Below concludes the discussion of the top 5 things we did that I feel had the largest and most immediate impact.

5.  Automate Savings

The final step that I took was to lock in these savings.  Knowing myself, I realized that I had a strong need to “hide” that money from myself and get it out of my regular checking account.  Historically, my savings have been most successful when I can play these little mind games with myself.  So, the question is what to do with those savings to attempt to turbo charge my savings.  I have spent many years “playing” the markets with varying degrees of success.  When I did well, I chalked it all up to my intelligence and skills and when I did poorly, it was undoubtedly those uncontrollable market forces or worse…. Evil politicians messing with economic policies.  Obviously, this was convenient thinking and I knew it even as I succumbed to it.  Therefore, passive index investing appealed to me.  It would neutralize my habit of overthinking things and trying to time markets.  The company that seems to be discussed the most often is Vanguard and with a little research I found that they had fees that were far better than anything I had previously paid on my investment accounts.  So, I opened an online account.  This was much easier than I expected and was set up in minutes.  It took a few additional days to link it to my bank account.  The steps to link the account took minutes, but there were some tiny transfers to and from the account to verify the access.  So, in a matter of a few days, I was all set up and ready to go.

Next, I had to decide on an automated savings plan.  I have always tried to keep a cushion in my checking account to overcome any temporary items to arise each month.  With this in mind I felt that a stepped approach would work best for me to overcome my fears of going too far with the savings and over drafting my checking account.  The timing of automatic transfers was also a concern of mine since I like the control of knowing when money goes into or out of my account.  This is just a psychological issue that I have and need to overcome.  When I started working full time, it took me many years to agree to have my paychecks deposited directly to my bank.  I liked the control of physically going to the bank and handing my check to a teller.  In hindsight, it was a pretty silly hang-up and I knew that auto-savings would fall into this same category once I overcame the fear and control issues.   I decided to time my transfers with my bi-weekly payday schedule.  I started with a $250 per pay period transfer.  This amounted to roughly $500 per month and I felt that this was a strong start and would be aggressive yet still allow me to adjust if it turned out to be too aggressive.  Not surprisingly, I didn’t even notice the withdrawals.  I did this for a few months and then stepped up the savings amount to $300 per transfer, then $500 per transfer and at present I am moving $550 every other Friday.  I just made this recent change within the past month and as expected, it has not negatively impacted my monthly budget.  I will continue to adjust the amount upwards every few weeks or months until I land on the amount that tests the limits.

One small additional change I have made attempt to automate my savings was taking advantage of a program that my employer offers which was to schedule automatic increases to my 401K contributions.  I decided to increase my contribution by 1% each year on my birthday.  For the past few years I have maxed out my contributions to my 401K and this change will simply allow that to happen sooner in the year.  When I do max out my contributions and the money that was previously automatically withheld from my paychecks comes to me, I plan to move that to my investment account immediately.