Where the heck is the author?

Sorry I haven't been very diligent in putting up new content lately. I am actually working on upgrading my blog and will be moving it to my own webhost with its own domain. Hopefully I get this done by this weekend and then I will start posting articles/comments on a regular basis again. Also I may actually change the title of my blog as MyFinancialGoals is not an available domain name. I'll keep you posted.

Compound Interest Article

While I had heard this story in the past and was actually planning on doing a write up on it for this blog, but after reading the blog entry on Personal Finance Advice I decided there is no way I could do a better job. Check out the article here This is a great example of the power of compounding interest. "The most powerful force in the universe is compound interest" - Albert Einstein

Disclaimer

Maybe I should have mentioned this right away but I really have no clue what I am doing. I am not an expert, nor even that knowledgeable about investing or saving for retirement. I really have very little experience in financial matters and my career has absolutely nothing to do with financials of any sort (computer programming). Anything that I say on this blog is most likely just my opinion and has no scientific data or knowledge to back it up. Most of what I say will be a culmination of what I have learned so far or just some convoluted idea I came up with myself. If by chance I do state some fact or figure assume it is just some number I made up in my head. In instances where I am actually using valid data or viewpoints I'll be sure to point that out for you and include the source. Regardless I do not necessarily endorse how I go about doing things and I am not recommending you listen to what I say or follow what I do. I'm just an average person looking to learn more about personal finance and hopefully improve my chances at being successfull in the process. As always when it comes to financial matters - don't ever just take advice from one source, seek out as many reputable sources as possible (I'm probably not included in this list) and make decisions for yourself.

Goals Rough Draft

Well I have been thinking a lot about some of the financial goals for myself and I think I will just list them all here and decide which one's to fine tune and set for myself on this blog. Accumulate $100,000 in retirement savings by the time I am 30 years old I like this goal because one it is a nice BIG round number that would give me a sense of pride and accomplishment. Also it would put me in pretty good shape for the rest of the longer term goals I have for myself. The only problem with this goal is I think at first glance it might not be attainable as I have slacked so far, but I am going to leave it for now and unless further analysis reveals its truly not attainable will likely leave this as is. Accumulate $10,000,000 by the time I am retired This obviously is a longer term goal and would be the culmination of all of the other goals I have set for myself. I'll do research to see what I need to actually do to get to this point, obviously there are a lot of IFs as it involves something that might be as long as 40 years away, but I think its a good positive long term goal. Reach $1,000,000 in my retirement accounts by the time my oldest kid starts college This goal I just recently came up with, but again think it is an excellent goal to shoot for. First off if I am going to get to $10M by the time I retire the sooner I get to $1M the better. My oldest and only kid currently is just 7 months old so that leaves me just over 17 years to essentially go from scratch to $1 million dollars. This is a very aggressive goal, but if set out a good framework and have a fair amount of success investing I believe this one is probably my most attainable goal so far. Become financially independent early enough in life so that I can truly enjoy my kids. Here is where I might have some conflict with the $10 million dollar goal. I was doing some math while day dreaming during lunch the other day (that's when I came up with the $1M by the time my son enters college goal). Well I figured if I had $1M by the time I was 43-44 years old that would alleviate any worries I had about saving for retirement - IE I could quit saving for retirement completely and still end up pretty comfortable. This would allow me to do the following if I so chose

• Stop saving for retirement completely and use that money that money instead to help support my kids college education.
• Start an early-retirement and find a job that had very liberal time commitments that would allow me to spend much more time with my family.
• Quit my day job and try to start my own business (granted this is 17 years down the road but I got loads of ideas for low-time/ low-capital requirement/internet businesses. I've got a pretty strong entrepreneurial spirit, just I am more concerned about getting my ducks in a row now while I am young before I fall flat on my face attempting one of my hair-brained ideas. Once I am in my 40s income will be less important to me (yeah I know kids and college aren't cheap, but I'll discuss this in a separate post).

Help family or good friends learn more about the power of money and how to harness for themselves. I've got 3 sisters, 6 brother-in-laws, 4 sister-in-laws, 4 nephews and 6 nieces. My three sisters are all older than me, but the other 20 nephews/nieces/brother&sister-in-laws are all younger than me and I think for those that are interested I could use my experiences thus far to help them get on a good track even earlier than I did and achieve goals that are much greater than mine. I've already got one nephew who seems to be pretty interested in investing and he is only a sophomore in college. It would be nice to have him become a successful investor also and then we could do all kinds of fun things together and not have to worry about the money aspect. This is kind of a soft goal, but I'm going to set a short term goal of getting my nephew to open a Roth IRA account before his senior year of college. Find room to set up college savings accounts for my children This may sound bad, but my kid's college fund really are taking a back seat to my retirement savings. In fact I have contemplated completely ignoring their college savings entirely. Partly due to trying to sore up my retirement by the time they enter college that way I can just change the financial spigot from my retirement saving to their college savings if the need be. The other reason is that they can get jobs, take out student loans, and really in the big scheme of things it won't set them that far back. Look at me I have $50,000 in student debt yet I have plans to be a multi-millionaire. Regardless my state's 529 plan allows me to contribute $3,000 per year per child tax deductible and that money grows tax-free and I can withdraw it tax-free. That is just incredible and is probably something I won't want to pass up. Regardless my family lives on my income alone and I honestly don't have the resources currently to achieve my retirement goals and my kids college goals. Well that's enough for tonight. I'll do further research into these goals and hopefully we can get something set in stone by this weekend.

December 2005 Net Worth Calculation

Note: Hopefully this will get prettier as time goes on Traditional 401k Account Balance = $10,147.11 Roth 401k Balance = $0 My Roth IRA = $6763.21 Wife's Roth IRA = $7706.61 Net Worth = $24,616.93

Tracking My Net Worth

I've been thinking about how I am going to track my net worth. A lot of the blogs out there have very detailed records of their financial wherewithal (checking, savings, 401k, IRAs, taxable accounts, Home Equity, Mortgage, Student Loans, etc) Heck My Open Wallet even let everyone know that she has exactly $2.02 in her wallet and this balances out to her Quicken Cash balance. While I commend her for having such an accurate picture of her financial picture, I currently do not have a mastery of Quicken to that degree (just got it around Christmas) and nor do I think it will be necessary to track my financials that detailed as far this blog is concerned. While it is very important to know exactly where your money is and where it is going in order to successfully reach your goals, I've tended to shoot slightly more from the hip (at least that's my perception of myself). Savings and Checking Accounts Things like savings and checking accounts fluctuate greatly and really don't tell you much about your financial picture. As long as the bills get paid and my retirement accounts funded I don't really put to much weight behind whether my short term accounts are big or small. I've never had too big of an issue with them getting too small, if they do I would adjust my spending. If they get too big money gets taken out of them and put in a slightly more long term vehicle. In the big picture though (my retirement) these accounts don't mean anything as they will not be a source for my retirement. This money will eventually fall prey to some expenditure and cannot be relied on as true worth, so for the purpose of tracking my net worth I will ignore them. Home Equity and Mortgage debt Next up is Home Equity and Mortgage debt. I guess credit card debt could be thrown into this category also, but I never have and hopefully never will have any form of credit card debt. But back to the house. Here is how I view my Home Mortgage. I will always need somewhere to live, whether I am renting an apartment or condo or owning my own house. When I retire I will still need somewhere to live and it will likely cost me money. I view housing as an expense just as I would my cell phone bill, internet connection, or gas for my car. So in essence it is really more of a cash flow issue than a true liability that decreases my net worth. Also I am only 26 and by the time I retire assuming I don't buy a new house every couple years and refinance with a 30 year mortgage, my mortgage should slowly take care of itself over my working years and when it comes to retirement should not be on my mind. On the flip side many people track the Equity they have in their house. And while I am not oblivious to the advantage of Home Equity. I do not feel that it can be accurately tracked nor should it necessarily be included in your net worth. First off the value of your house can fluctuate greatly and there is not a really good way to determine the actual value of your house without actually selling the darn thing. You can't check a monthly statement or look up the price in a newspaper so I think there is a large margin of error to consider when tacking on Home Equity value to your net worth. On a standard home this can fluctuate probably $20k in a calm housing market and then there is always the roughly 8-12% transaction cost to sell the house which many people might brush under the rug when calculating the profit they made off the sale of the house or the current "equity" they have built up in the house. A house is not a very liquid asset, and for most people a home is exactly that. It's a place where you live and not an investment, so don't treat it that way. In the event you do cash out your house, you'll still need somewhere to call home and that will probably cost money. Student Loans Student loans are another debt that I currently have, but once again I am not going to track them as they will like my mortgage take care of themselves over time. I actually have $50K in student loans but do not feel that they pose any significant threat to my retirement as to even track them as a liability. I plan on paying them off as slowly as humanly possible, but even at that rate I believe I will have them paid off at age 53 so I won't be worrying about them in retirement. What I will Track Maybe I am being too simple in my approach, like I said I am not exactly sure the best way to do this, but I figured simple is better. In tracking my net worth I am only going to focus on retirement accounts such as my 401k and mine and my wife's IRAs. Now that I am going to only be contributing to a Roth 401k and Roth IRAs I don't have to worry about subtracting taxes from my net worth, which should make things even simpler. Should sometime down the road I put money in a taxable account that I plan on using for retirement I will add that. I guess if the time comes that I buy real estate for an "investment" outside of my home I would maybe try to add that into this equation, but as I noted above real estate can be hard to value and I'd rather keep my net worth calculation as accurate as possible. So in essence for the purpose of this blog Net worth = 401k + My Roth IRA + My Wife's IRA

Roth 401K: Cont

Well I didn't exactly get to my follow up post as quickly as I would have liked to, but here goes. Well I ended up sending the form in and leaving my contribution at 14%. According to my calculations I had figured this would cost me an extra $124 out of every paycheck. Now I have our budget strung pretty tight as it is, but when it comes to saving for retirement I tend to act irresponsible like this and splurge on my retirement. I've done this a number of times in the past and I've never had cash flow problems yet, somehow there always seems to be enough money left over to pay the bills. The good news though is that by switching to a Roth 401k and leaving my contribution percentage the same it didn't cost me the extra $124, in fact it worked out being only $67. I guess the extra deductions for my wife and kid lowered my federal withholding percentage from my check lower than what I had guessed at in my example. This has me actually contemplating upping my percentage a few more points as I was already ready to bite the bullet on the $124 per month why not up my percentage and take that money out. But before I make that decision I want to get a better grasp on my overall financial picture and goals before I make any more changes to my current structure. Hopefully I'll get a few posts out tonight and make some progress on this front.