Everybody Loves Your Money

I’m so close I can almost taste it.  (Although, I’m not really sure what $100,000 tastes like).  After almost 6 years on the job, my 401k is about to hit $100,000.  I would have already hit the mark if I hadn’t scaled back my contributions to help offset our vacation home purchase (scaled back to 8% to get all the company match) but I expect that we’ll more than make up the difference in additional equity on the vacation house.  It’s really kind of amazing how quickly the 401k balance can add up when you are contributing to it every two weeks.  My contribution level has varied over the last 6 years but here are a few of the details around what I did to reach this milestone.

-Contributed as much as my budget would allow (up to the IRS maximum) for part of the time

-Made sure to get every cent of the company match

-Made a few strategic trades in my account during wild swings in the market

-Diversified across large cap, small cap and international index funds

-Bought a large chunk of company stock in the 401k after 9/11 and then moved out of it after a significant increase in value

Overall I’m quite happy with the 6 year performance of my funds.  I definitely made some mistakes along the way too though.  For quite some time I was way too heavily invested in a large cap S&P 500 index.  While that gave me “okay” returns, I missed out on massive returns in some of the international and small cap funds.  I corrected that a couple years ago though and have been happy with the overall returns since.

While the 401k is an important part of my investment portfolio, it isn’t the only part.  We are also funding a ROTH ira which, when added to the 401k balance, puts us well above the $100k mark.  I like the idea of having multiple potential income streams during retirement, some taxed and others not.  What I haven’t done a good job of is funding a conventional brokerage account.  I plan on using some of the real estate equity we have and will have in the future (potentially sell the vacation house years down the road) to help fund our after tax needs from the time we retire to the age that we can start withdrawing pretax retirement income.  This is probably a flawed approach for a number of reasons and we intend to diversify further by getting more money put in to a standard brokerage account soon.  The other investment that we are funding is a 529 college savings plan for our daughter.  While there isn’t a ton in there, we are investing in that monthly and will probably contribute some lump sum money in there over the years as well.  Between the 529 plan and paying off our home before our daughter goes to college, we hope to have the cash flow necessary to help her get through college.

It is about time.  I just happened to check my connection speed this morning and found that Comcast had increased both my download and upload speeds.  I’m not all that excited about the increased download speed, although it was neat to see the speedtest register up to 20 mebabit down (although the average was somewhere around 10-11 megabit.  What got me the most excited was my new upload speed.  I’m consistently getting 1.7 megabit upload speeds.  This is MUCH better than the 330kbps upload speed I’ve had for the last few years.  I actually found myself wishing for more upload speed many, many times.

What’s even better about this is that I’m getting all this speed for only $29.99 a month.  The last time I called to get my price lowered, they agreed to lower it for an entire year.  I guess you could say that I’m finally pretty happy with Comcast.  I’m finally getting a decent upload speed and am paying the same price as the cheap DSL.  I really can’t ask for anything else.

It’s about time I made a blog update.  I’ve been out at the cabin for the last few days (since last Thursday night) and quite frankly, it’s kind of nice to be home to rest.  I had intended to blog a bit out there but just didn’t have time.  (I did, however, manage to keep up with a lot of the blogs in my reader).  What was I doing out there?

Well, I started Friday morning by getting out early to continue caulking our place and getting it ready to paint.  In case you don’t recall, we have a family cabin that we all built a few years ago directly across the street from where we are building our cabin.  That makes it nice for us.  We can go up and be comfortable in the family cabin and then work on ours.  Now that my dad has passed away, I try to keep up on the maintenance on the family cabin so that my mom doesn’t feel overwhelmed with the upkeep.  So, between doing the maintenance on her place and building our place, I find I’m always pretty busy out there.  Anyway, back to what I was saying.  On Friday I got out early and did a bunch of caulking until I ran out of caulk.  After that, my wife, daughter and I headed in to “town” to get some groceries for the weekend.  I was amazed how busy it was getting out there.  A town that is normally fairly “gray haired” was hopping with tons of families etc.  Apparently we weren’t the only ones that got out there early for the memorial day weekend.  Once we got back from shopping I did a little bit more wiring on the cabin and then we just took it easy that evening.

Saturday was where the hard work started.  We have a ton of dirt piled up on our lot because we had to dig it out for the foundation.  I have been planning on renting a backhoe to move the dirt but got a burst of energy and decided to start moving the dirt by wheelbarrow.  I have no idea how much dirt I moved, but I can tell you it was a lot.  I was at it non-stop for about 4-5 hours.  I decided that I could use the exercise and was looking forward to being nice and tired and sore the next day.  I definitely succeeded at that.  (When you are an office sissy like me, I think it’s natural to want to do some hard labor now and then to make sure you still can)  I woke up the next morning feeling like I got hit by a train.  I decided that the best way to feel better was to stretch a bit and then go right back at it.  After breakfast, I headed out again and did another 4 hours on Sunday.  I think that’s probably the hardest I’ve worked in at least 10 years.  I think about 5 or 6 people must have come by and thought out loud how much easier it would be with a bobcat or backhoe.  I just smiled, nodded in agreement and then said, “But I wouldn’t be getting all this cheap exercise”.  After this weekend, I think I’ve decided to save the $500 and just do the rest by hand as well.  I’m probably about halfway done and I know I’m in better shape for it.  It just goes to show that being cheap can be good for you in so many ways. 

After all the manual labor on Sunday, we got together with some of the neighbors out there and had a big barbeque.  It was definitely a great time and is one of the big reasons why we love it out there.  The people around us are great and the area is just beautiful.  Oh, I forgot to mention that we went out to an indian casino on Saturday night, gambled (aka: gave away) $20 and then went to an all you can eat buffet.  I think my wife got more than her money’s worth with all the fresh crab and seafood she ate.  God, I love a good buffet.  Having eaten 3 times as much as I should have Saturday night probably played in to the desire to go back out and do a bunch of hard work on Sunday too. 

Every now and then I like to read the crime reports in our local newspapers.  This one caught my attention.  Something doesn’t sound quite right.  The fact that the “victim” had $25,000 in cash and $12,000 in diamonds to lose tells me something is fishy.  I especially like the part at the end where the victim falls for the old, “We just need to get out of your sight for a minute to prove you trust us”.  So, for your reading pleasure, here it is:

“On 4-18-07 the victim was approached in the US Post Office parking lot at S.37th and G Streets by a b/m who showed him a stash of money in a satchel. The suspect said he wanted to give the man $70,000 to keep and to give to charities. He said he was looking for a “good man” whom he could trust, but first the man would have to give the suspect $20,000 just to show his good faith.

The victim gave the suspect a ride to S. 56th and Pacific, where they “found” another man, whom suspect No. 1 claimed he did not know. They told this man the story and said they needed him to produce cash also, which he did.

The victim then drove both men to a 3rd location and the victim gave the suspects $25,000 cash plus $12,000 in loose diamonds.

The suspects left on foot, saying they just needed to get out of sight to prove the victim trusted them, and they never returned.

Suspect No. 1: b/m 40-50 yrs. 5 feet 2, 140 pounds.
Suspect No. 2: Pacific Islander/male 40-50 5 feet 9, 200 pounds, shaved “buzzed” hair, not bald, large stomach”

Lately I’ve been seeing advertisements for Clearwire.  Clearwire is a new broadband wireless service that people can get as an alternative to DSL or Cable and it is portable within Clearwire’s service area.  It actually sounds really cool.  It’s definitely a viable solution for many people that are outside the reach of standard broadband services but I can’t tell you whether it’s a good deal or not.  Why?  Well, it’s not very easy to see what they charge.

I can tell you that the first 3 months of service with Clearwire costs $19.99 a month.  After that, it’s anyone’s guess.  The latest flyer that I received also offers a $50 Visa web certificate.  Neat.  That’s just what I’m looking for as I shop for broadband service.  If I don’t like that, I can choose a free inkjet printer.  I can tell you that the printer MSRP is $54.95 because I saw it in the fine print.  Well over 50% of the fine print on their flyer addresses both the terms and conditions of the Visa card and the printer.  I would have expected that more of the fine print would address the cost and service agreement of the broadband service, but that just shows you what I know.  Some of the other fine print also tells me that there is a $50 activation fee to start the Clearwire service.  I guess that offsets the Visa card.  There is also an early termination fee but there is absolutely nothing on this flyer that tells me what the service actually costs, other than the initial $19.99.  I hate those introductory rates.  I hate them on bank services, I hate them on phone service and I most certainly hate them on internet services.

I decided to go check out the website for Clearwire.  No pricing on the front page.  There is that printer promotion again though.  I also see that I can get $100 in savings if I order right away.  Hmm.  After navigating about 3 pages deep, I finally found a place to get pricing but I need to enter my address first.  I entered the address where I received their flyer and guess what.  It says service isn’t available in my area.  I wonder why they are paying that guy to wander through my neighborhood putting these on all of our doors if the service isn’t even available.  I thought for sure I’d get to see how much their service cost if I entered my address on their website.  No dice.

So, I’m left wondering how much this new fancy wireless broadband service costs.  I do know that if I had acted now I could have saved $100 and received a free printer or a $50 Visa card though.  I guess I’ll just have to wait until they actually have service in my area.  Maybe by then, they’ll be giving away Paris Hilton dolls or something.

I love Craigslist.  Every now and then I browse through the “Best of Craigslist” posts.  Here was one from a guy trying to sell his couch.  I wonder if he was successful:

Couch - Very Uncomfortable, Red - $3.75

Hello. Here is my couch. I hate this couch and it needs to get out of my house. It is the worst couch I have ever seen. I sat on it and now I’m in a back brace. I let my dog have the couch, but then he died on it, so I don’t really need it anymore. I miss my dog and I hate this couch. I’m asking $3.75 for the couch because thats how much Buck’s favorite chew toy cost me each month. However, I’ll consider other offers. I would just throw this couch into the river, but I hurt my back sitting on the couch.
A little more about the couch:
I bought it 3 months ago.
I paid $900
It came from this swanky furniture place
I hate the couch
It is uncomfortable and will probably put you in a back brace

And here are a few good reasons NOT to be a landlord.  Dealing with people like this would drive me crazy.  I think I’ll just keep investing in the stock market:

The kind of landlord I am

1. Responsible for the weather
My building manager called to say one of the tenants wanted a discount for the days it was hot outside. Why? Because it was also hot inside. Their electricity is fine. They could run both air conditioners and fans and keep a supply of popsicles, just like I did in my apartment. My response: Will you pay extra if the weather is nice?

2. In charge of the animal kingdom
A tenant complained about mice. I sent over an exterminator several times. He stuffed steel wool in holes, baited traps, sprayed outside etc. Eventually he refused to go back because the tenant continued to leave open packages of food on the floor and counters. She insisted I was responsible for the problem. As if I commanded the mice to invade her house.

3. Menace to domesticated animals
One tenant was convinced I was poisoning her and her wooly mammoth dog with carbon monoxide. (What will I think of next?) Fire department went over there. Gas company went over there. City of Evanston sent an inspector. Everyone who tested got the same result. No discernable level. She tried to deduct $200 from her rent to pay for her vet bill. This woman also accused me of running a bicycle chop shop in the basement. And wanted me to compensate her for a parking ticket she got in front of my building.

4. Pet killer
I hired a carpenter to fix something. With the tenant’s permission, the carpenter went into the apartment. Apparently the act of opening the door scared the dog. The dog ran down a set of internal stairs, bumped his head and died six weeks later. This story was condensed to “Landlord killed my dog.” There are several neighbors who will not even say hi to me. One of whom made it his mission to make sure my landscaping is always in 100% compliance with arcane City ordinances.

5. Made of money
Tenant asked to break her lease because the price of her anti-depressants went up. No mention of the car she just purchased. Maybe she thought the hint of mental illness would scare or embarass me. She was three months into a twenty four month lease. 24 month lease she specifically asked for.

6. Heartless
Contrary to popular belief, I do not enjoy evicting single mothers at Christmas time. It takes months to evict and the landlord rarely recoups the back rent or court costs. FYI, I do not think it is more important to make your car payment. Thanks for asking.

Please pay your rent on time and remember, I am not omnipotent or an evil genius. A lease is a business arrangement.
And one more thing, why oh why wait until Sunday at 8pm to call and say your heat has been out since Friday afternoon? You call immediately if the microwave burns your popcorn.

The first thing I thought about when I read this story is, “That million isn’t going to last long”.  This woman found a $10 bill on the ground and then used it to buy lottery tickets.  She’s glad she did because she won a $1 million dollar jackpot.  The article says that she has 9 maxed out credit cards and $8500 in debt from an associates degree.  Apparently that associates degree hasn’t really paid off yet because she is working as a cashier in a gas station.

The woman’s one saving grace may be that she took the annual payments instead of the lump sum because she knew that she would have blown the lump sum very quickly.  While the lump sum probably isn’t the best financial decision you could make, for someone like her, who recognizes her inability to manage money, it’s just what the doctor ordered.  The payout is only going to be about $34,500 after taxes but it’s most likely more than she was making as a cashier.  It seems like the best thing that she can do is to use that money to supplement her income and continue working.

http://www.cbsnews.com/stories/2007/05/21/national

I just noticed there is a new “millionaire in the making” that I hadn’t seen.  Jeanette Courts is a divorced 38 year old mom who works for the Pentagon making 94,000 per year.  Here is a summary of her net worth:

Government Thrift Savings Plan: $107,000
Roth IRA: $6,000
Savings Bonds: $2,000
Online savings account: $10,000
Brokerage account: $1,000
Other savings: $4,000
Home equity: $190,000

Jeanette is looking good.  I’d say she is doing an outstanding job of living below her means and is on track to be a millionaire by the time she retires.  I found a lot of similiarities with her habits and our family’s habits.  Buy the products you use a lot in bulk (think Costco), take our lunches to work and buy clothes in the offseason whenever we can.  We don’t use our flexible spending account, mostly due to the exceptional benefits I get from my employer already.

After reading a story like this I can’t help but compare it to our situation.  We are about 3 years younger than Jeanette and are significantly farther along than she is.  I’m sure that her divorce set her back a ways, but I think she seems to have bounced back from that really well.  While this certainly isn’t a contest, I think it’s human nature to think about how we all shape up.  I mean, be honest.  It’s really not all that different from comparing yourself to the Jones’, but I would argue it’s a much healthier exercise because you are comparing yourself to someone that is doing the right things.

So anyway, after seeing Jeanette featured in a “millionaire in the making” story and then seeing where we are at, I have to walk away feeling pretty darned good.  We are still enjoying life, but are also experiencing the peace of mind and security that comes with having money put away for the future and having more and more money working for us, instead of us working for it.

On a side note, I notice that CNNMoney seems to be changing their format a bit.  You’ll notice that the URL to the story has the word “blog” in it.  I wonder if that might indicate they’ll have more featured people for this millionaires series.  It seems to me that they would be smart to crank one of these millionaires stories out at least once a week.  They seem to be very popular.

It seems like such an easy question to answer.  Of course the answer varies from person to person, but let’s just say that you know what you need to have when you retire.  If you would like to retire with an annual retirement income of $50,000, you are going to need to have roughly a million dollars at retirement age.  This assumes that you are able to earn 5% on your investments during retirement and that you don’t touch the principal.  With inflation as a consideration and additional variables out there, maybe it’s better to shoot for $2 million at retirement age.  That would give you $100,000 per year without cutting in to your principal.

Let’s just assume that you want to be able to draw $50,000 per year once you retire.  If you want to retire at age 62, you should have about 62,500 put away at 30.  Now, that assumes that you aren’t saving any additional money between now and age 62.  The reality is that you will be putting money away for the future via your 401k, or other retirement savings vehicles.  So, 62,500 could be considered worst case scenario if you want to have $1,000,000 by the time you retire.  The other big assumption here is that you are earning 9% on your money.  That’s not really a very unrealistic expectation if you are in index funds.

If you don’t have 62,500 put away by the time you are thirty, don’t sweat it.  You have a ton of time to catch up, but you have to start NOW.  The easiest way to do that is to start putting more away in your 401K through your employer, or start contributing the maximum to a ROTH ira each year.  If you only have $7500 at age 30, but start putting away only $400 per month in your tax deferred account, you can still reach $1,000,000 at age 62!  For every month you delay your saving, it’s going to be much harder to reach your goal, so start now.

If you want to play with some various scenarios to see how much you’ll need to save in order to retire comfortably, you can use this calculator at CNNMoney: http://cgi.money.cnn.com/tools/millionaire/millionaire.html

And where should you be at various ages along the way?  (Assuming no futher contributions @ 9% interest)

30: $62,500

38: $125,000

46: $250,000

54: $500,000

62: $1,000,000

As we have been slowly working on our lake house we’ve been faced with more than a few options on what we should install.  Originally we had planned on just putting in wall heaters and baseboards for heat.  There is no “in ground” gas available out there and we really didn’t want to have a large tank on the property to hold gas for a gas furance so electric space heaters seemed like a logical choice.  The main reason that we thought space heaters would be a good idea is that they are FAR cheaper than an electric furnace.  After much debating though, we decided to go with an electric furnace and heat pump.  Here was our reasoning:

-We wanted even heat throughout the house

-We think that a full furnace will help with resale value later

-We wanted a heat pump to keep the energy costs lower and the side benefit of a heat pump is that it gives you air conditioning in the summer

-I was able to negotiate a lower price for the complete package

That’s the short list of why we ended up getting a furnace and heat pump.  The furnace has been installed and we have just about got it all wired up.  Once we finish the ground work outside, we’ll have the heat pump installed.  We haven’t regretted the decision to go with the furnace and heat pump, although I think our bank account may have regretted it a bit.

Here’s what it cost:

-Furnace, ducting, thermostat, installation: $3500

-Heat pump and installation: $1500

Originally the quote I received was for $5750 but I was able to negotiate a lower cost on the heat pump and installation.  It’s amazing what a company can do for you when you sound very interested but “fret” about the cost while negotiating.  I told him that I really wanted to get a heat pump installed at the same time as the furnace but just couldn’t afford it with all of the other construction costs.  I think he really wanted to sell the complete unit so I asked him if he could give me a better price and that’s when he came back with the second, lower price.  I also was able to negotiate only paying 75% at rough in.  (Rough in means the furnace and ducting is all installed and then they come back to put in the thermostat and heat registers etc once you have flooring in place.)

So, the furnace is just about complete and we are just about done with all the wiring in the house.  Very soon, we should be ready to insulate.  Our new goal is to get the sheetrock in place by the end of summer so that we have heat, power and a nice warm place to work during the winter months.  There will be plenty to do inside once the sheetrock is done.  We’ll need to paint, install the kitchen cabinets and countertops, install the wood floors and complete the bathroom.  Did I mention that I’ll never do this again?