Everybody Loves Your Money

I always like to know if I’m on the right path and on schedule with my investing and saving.  I normally keep a spreadsheet of what my net worth needs to be at various points along my journey.  I use this as one of many tools to see if I’m making good decisions about saving, investing and avoiding purchases.  We each have a unique number that we are striving for.  Certainly, for a long time, one million dollars has been the “magic” number.  That’s not quite as magical as it once was but it’s safe to say that if you amass $1 million dollars at any age, you are doing much better than the majority of others.  So what amount of money do you need to have at each age?  Here’s a graph from age 21 up to age 65 with the dollar amounts you want to strive for at each age.  You can reach this number in multiple ways.  You could save more or compound your existing assets by changing your investment strategies.  You’ll find that some years you miss the mark and others you exceed it.  A changing market certainly will take it’s toll.

Age 65: 1,020,875

Now for the assumptions:

-You invest $2500 per year over your entire life

-You earn an 8% interest rate every year  (In practice, some years will be better, some will be worse)

I confess that I love playing with numbers like this.  Using this tool, I can quickly glance at my investment balances and compare that to the chart above to make sure I’m on track.  I actually use a different set of numbers based on my income and my current balances to see where I will be if I keep up at the same rate that I’m investing today.  Since I know I want to have much more than $1 million by the time I retire, I’ve got a more aggressive age vs net worth chart.

Want to create your own chart?  Go to:

http://www.money-zine.com/Calculators/Retirement-Calculators/401k-Savings-Calculator/

and punch in your own numbers!

Uggggh.  I just got the bill for the sheet rock.  It was over $2000.  That’s just for materials, delivery and staging of the sheetrock.  I’ll also be having to pay upwards of $2000 to have it all hung and mud/tape/textured.  I was hoping to get through sheetrock with less than $3000 in total cost.  Needless to say, the wallet is feeling rather light these days.  I considered doing the sheetrock myself but I was turned off at the idea of hauling all of it, lifting all of it, screwing all of it, and then doing an amateur job of mudding and taping etc.  Since I will have to look at these walls every time I’m there, I’d rather just suck it up and pay the cost now.  It may be time to see about that paper route for my wife……

So, it’s safe to say I’m in money hemmorhaging mode.  It’s funny how you alter your behavior when faced with large bills.  I’ve found myself eating at home much more and spending less on just about everything.  I guess I’m subconsciously trying to make up for the crazy building materials cost.  While this doesn’t make up for the large sheetrock expense, it does help.  By just avoiding a couple dinners out with the family and making sure I take my lunch to work etc, I’m easily saving between $100 and $200 per month.  That’s 10% of the cost of the sheet rock by just altering my behavior a bit.  (Yes, it could be easily argued that I should permanently change my behavior to save the money.  I am making improvements in this area)

On another note, we were given a nice table, chairs and hutch for the cabin.  This furniture is a couple years old and is still “in style” so it should go nicely in the cabin.  That helps us save on the costs of the furniture once the place is done.  It was very nice of my wife’s sister to offer them to us!  This continues the trend we’ve had forever on furniture.  Well over 60% of our furniture was given to us.  While that may make it sound like we are using old sweaty college couches, I can assure you we aren’t.  We have only taken very nice pieces over the years that look good and are in “like new” condition.  Sure, our home doesn’t look like Pottery Barn inside, but it doesn’t look like Sanford and Son either.

Here’s an interesting link to pictures from various countries showing how close the ultra poor and the not so ultra poor live.  It’s interesting to me that a simple street is sometimes the only divide.

http://deputy-dog.com/2007/09/19/extreme-rich-poor-divides/?/

Whether this letter is legit or not, it still made me laugh.  It’s definitely worth reading.  I think my favorite one is that he put packages of condoms in unsuspecting shopper’s carts.

http://www.gilaizen.com/images/kmart.gif

We’ve got the people who blow every bit of their lottery winnings in record time.  Then there was Brad Duke, who is turning his lottery winnings in to a much larger sum. 

And then there is the 70 year old man from Hamelin, who won over 2 million euros and is refusing to take the money.  That’s something I never thought I’d hear.  It is a bit sad to read.  His wife has passed away and he doesn’t have any other family or children so he figures he’s got no use for it.

I wonder if he is interested in adopting a 36 year old son………

I don’t know about you, but the news these days is freaking craaaaaaazy.  From the sounds of it, I may lose my house at any moment and have to wash dishes at a sleazy strip joint where they serve steaks for $5.99.  (Because, let’s face it, no matter how bad the economy gets, guys will still go to strip joints and who doesn’t like a cheap steak)

So, we’ve covered the fact that, based on the news, financial Armageddon is near.  You know what?  Nothing feels too scary at this point.  My 30 year fixed loan is still the same each month, in fact, things are a little less scary because I’m not wondering how high my property taxes are going to go this year based on a new skyrocketing assessment.  Sure, I’m not seeing the crazy increases in home prices that I once was, but that’s okay.  I’m still in the same house, with the same neighbors, with the same bills I’ve had for years.  I know, I know.  Not everyone is in the same boat.  I do feel bad for all those people that are faced with mounting bills, job losses, adjustable rate mortgages that are about to adjust so far that they’ll have trouble counting all the zeroes on their payment.  I guess my point is that, the slow and steady, low risk life I’m leading isn’t being too impacted…….. so far.

All that being said, we are continuing to chip away at this humoungus monkey on our back (aka: lake house).  We passed the insulation inspection last week so we are ready to sheet rock.  Oh man, I can’t wait.  Once the sheet rock is done, we are on the home stretch.  We paid $2100 to have the insulation completed and it was worth every cent.  We’ll also be paying for the sheet rock to be completed.  Yes, well spent.  I don’t know a thing about doing sheet rock correctly and am far too lazy to hang all that rock myself.  Since I’ll be looking at the quality of the work every time I’m there, it’s worth it to me to “outsource” it.  Now it’s just a matter of getting the guys scheduled to get that completed.  Once that is done, we’ll have a reasonably comfortable heated place to work on over the winter.  I am hopeful that we’ll be enjoying the place by next summer.  Sure, I could have paid someone to finish the place out but it would have come with an extra $20K+ in costs.  For that kind of money, I’ll suck it up and work on it all winter long.

Here’s a shot of the place insulated:

About a year ago I happened to look out the window of my office when I was working from home one day.  We live in a quiet, nice neighborhood in the suburbs of Seattle.  Nothing ever happens around here and all in all it’s a peaceful existence.  People that live in the neighborhood are all solidly “middle class” and most have white collar jobs that earn decent incomes.  So it was quite a surprise when I looked out the window and saw swat team members marching down the street (not our street but the one at the end of our street).  They were headed to the house in the picture to serve a search warrant.  Apparently the house had been under surveillance for some time and was part of a large marijuana grow operation.  Yes, that’s a first for our neighborhood.

Here’s what the bad guys do:

They buy a house in a nice neighborhood, sometimes for cash.  They then quietly move a person in and proceed to start building a massive marijuana grow operation.  Basically the house turns in to one heck of an indoor garden.  They use bedrooms, living rooms, basements, pretty much everywhere in the house to grow marijuana.  I had heard of this before from my wife’s uncle that lives in Vancouver BC.  It’s a huge problem up there with multiple houses in neighborhoods being used for this.  I think that’s where “BC Bud” comes from.

So, here was this nice quiet house who’s owner was never seen.  This isn’t the typical drug house in that they don’t deal the pot out of the house.  It’s simply a grow operation and the marijuana is sold in large quantities elsewhere.  You would have never guessed this was going on inside.  After the bust was over, the only sign that there was anything going on there at all was a large pile of fertilized dirt in the garage.  The front door was open for weeks because the police had smashed the latch open during their initial storming of the house.

And did I mention the police?  Most of them were federal DEA agents etc.  You would have never known that they were DEA etc because they were driving some really nice cars.  I’m talking Lexus, BMW, etc.  I hope that they confiscated those cars from drug dealers as opposed to using tax money for them.  While I support these guys 110%, I don’t like the idea of using high end luxury cars for their work.

So, why am I even blogging about this?  Well, the house just went up for sale.  See the picture above.  It’s listed for $386,000 “as is”.  This is a full 75,000 less than comparables in the neighborhood and is sure to bring down prices in our neighborhood a bit.  I’ll be surprised if it isn’t sold very quickly, although I have no idea what it looks like inside.  It’s in a culdesac location though so I’m sure it will probably go pretty fast regardless of the condition.  If someone can buy the house that cheap and get in to a premium location, it’s probably worth a little sweat equity.

A friend of mine sent me an article from MSN that talks about CEO wages relative to the “Average Joe’s” wages.  I’ve heard similiar information before but this one reminded me of how different someone’s life is down in the trenches as compared to an average CEO of a Fortune 500 company.

A few of the statistics from the article:

• The CEO’s at the biggest U.S. companies last year made as much money in a single day as the average worker made for the whole year.
• Top execs at Fortune 500 companies averaged $10.8 million in total compensation in 2006
• The average worker made $16.76 an hour which worked out to $29,544 for the year
• The top bosses at the top 20 investment shops earned an average of $657.5 million for the year
• Many workers got a break on July 24th when the minimum wage was increased from $5.15 to $5.85  (do you detect any sarcasm in my typing?)
• The minimum wage is 7% below where it was 10 years ago when adjusted for inflation
• CEO pay has gone up 45%, adjusted for inflation, in the same period
• CEOs at S&P 500 companies retire with an average of $10.1 million in their supplemental executive retirement plans
• Only 36% of American households headed by someone over 65 had a retirement account in 2004.  They had an average of $173,552 in those accounts

Anyway, I’d recommend reading it.  It is pretty interesting.

http://articles.moneycentral.msn.com/Investing/CompanyFocus/IsACEOWorth364TimesAnAverageJoe.aspx

I wish I had a nickel for every time this question has popped in to my head.  I thought about this a lot more when my net worth was quite low and I had just gotten started.  It’s hard to imagine that you are on the right path to retirement when you only have $10,000 put away in your 401k or IRA.

So how do you know if you are saving enough?  It’s never a cut and dried answer.  There are so many variables that play in to how much money you’ll need when you retire.  You have to consider health care later in life, whether you expect to get any social security money, whether you’ll ever have a pension, or whether you’ll inherit a large sum of money  (fat chance for me and I don’t recommend assuming you will get squat).

The conservative approach to deciding whether you are saving enough is to expect nothing.  Assume that the only way you’ll live comfortably in retirement is to generate income from money that you have saved/earned by investing.  At first that can be a rather frightening thought, but the reality is that most people will HAVE to count on themselves later in life.

Maybe it’s not as bad as it seems.  If you were able to amass $1 million dollars by the time you wanted to retire, you would easily generate about $50,000 a year before taxes.  Sure, inflation needs to be considered because $50K tomorrow isn’t as much as $50K today but it is significant.  With inflation in the mix, maybe you should shoot for $2M.

How do you know if you are headed down the path to at least $1M?  Just head on over to an online calculator and do the quick calculation by punching in a couple numbers at this online calculator:

http://www.investopedia.com/calculator/MillionaireCal.aspx

If you are 35 today and want to retire at 65 you need to save $442.38 per month until you are 65 to amass $1 million dollars.  That assumes that you have nothing today and will get a 10% return on your money.  The calculator also lets you input the total that you have put away today and tells you how much less you need to save to reach the $1M mark.

Every so often I like to visit one of these calculators to check up on where I’m at and to make sure I don’t need to increase my savings rate.  I like to change the expected retirement dates around etc to see how much earlier I can retire based on various investment and contribution rates.  I’m currently tracking to retirement at 50 or so.  That’s the date that I “can” retire, but most likely I’ll push a little farther because the investment gains really pile up at the end of your work career.  For every year you can delay, you see significant increases in your nest egg.

The one other “gotcha” in making your decision on how much to save is all the things that can happen in your life.  That’s probably the biggest risk to your plans.  You could lose your job and fail to find a comparable one.  You could experience a death in the family or have some catastrophic event that completely impacts your finances.  It’s an endless number of scenarios that could go wrong.  With this in mind, I’d recommend “shooting the moon” and saving as much as you can.  That doesn’t mean you should completely starve yourself of living for the day, but you should take a long hard look at what you “need” versus what you “want” and make sure you aren’t screwing your future self by paying too much attention to all the “wants”.

My birthday is next week.  I’ll be turning the ripe age of 36.  While this isn’t exactly a major roadside attraction along the highway of life it is important because it’s MY birthday. 

Anyway, I stopped by my sister’s house last night for awhile and while I was there I tried out their new Nintendo WII.  It’s absolutely a kick in the pants.  That’s all I can say.  There is no question that I want one.  I’ve decided to pool together all the money I’ll receive for my birthday and buy one (if I can find one).  I played “Tennis” on the WII with my 3 year old nephew.  He beat me.  Yes, it was embarassing.  The funny thing is, he barely knew what he was doing.  In my defense it was the first time I’d tried it.  My skills drastically improved the second time I played and I’m just sure I could have beat him if there had been a round 2.

I think Nintendo really nailed this system.  The graphics aren’t quite as good as the Xbox 360 or the Sony Playstation 3 but it doesn’t matter.  It’s less about the graphics and more about the interactive experience.  The Nintendo actually senses your hand movements and it is incredibly accurate.  Better not twist your arm while bowling or you are going straight in the gutter.  Backhand at tennis?  Yep.  If the tennis ball is coming to your left, you better have a decent backhand.

So, rather than save all the birthday money I’ll be receiving, I’m going to blow every bit of it.  Chalk this up to “living a little”.  Heck, I’m 36.  I better make sure I have a little fun along the way.  I’ve only got four more years until my midlife crisis and I plan to really live it up then……….