Budget Freak

It’s now been two months since I’ve started BudgetFreak. In those two months, I’ve written 45 posts, and have received 70 comments. I’ve gotten about 1,000 unique visitors, 3,000 visits, and about 9,000 page views. I’m not breaking any records, but still much more than I was expecting.

If you’ve missed anything in the past two months, here’s what I’ve done to help myself out financially:

• Saved $75 using coupons
• Saved $300 canceling my gym membership
• Opened up an interest earning checking account at ING
• Lowered my credit card interest rates and increased my credit limits
• Started earning interest borrowing $16,800 from credit card companies for FREE, taking advantage of 0% balance transfers
• Checked my free credit report
• Opened a ROTH IRA and maxed out my 2006 contribution
• Opened a Washington Mutual Savings Account earning 5% interest
• Will save $500 a year by driving slower
• Participated in my first Blog Carnival
• Will save about $400 a year by shopping around for car insurance
• Managed to grow my net worth by 33%

I’d say I’m off to a pretty good start. So thank you all for reading and commenting, and here’s to many months to come!

Since the beginning of this year, I’ve been keeping track of my net worth. For those new to the game, net worth is basically the total of all your assets (checking and savings accounts, investments, real estate, etc), minus all your liabilities (car loans, credit cards, mortgages, etc). To see how to build your own net worth spreadsheet, check The Simple Dollar’s How to Calculate Your Net Worth. While this calculation is not the be-all-end-all, it’s a good progress indicator.

For the first quarter of this year, my net worth is up 33.8%. I enjoyed 3 positive growth months of 12%, 6%, and 14%. Most importantly, my retirement assets almost doubled, growing 82% in 3 months. Funds went from $6,800 in December 31st, to now $12,500 as of March 31st. This was mostly due to increased contributions to my 401(k), a $4,000 contribution to my ROTH IRA, and a little help from the market.

All told, I’m moving in the right direction. I’m spending less than I earn, and stocking as much as I can towards retirement. I’m still working on getting my spending down, but if I can continue these double digit growth months, I’ll be happy.

After putting it off for so long, I finally took the plunge and opened a ROTH IRA. This is in addition to my 401(k) through work (contributing 12% of my pre-tax salary), and a regular IRA thats holding rolled over 401(k) plans from previous employers. I’d been researching ROTH IRA’s for awhile now, and finally, after some helpful advice, I decided not to wait any longer. My biggest concern was that the money would be locked up until I retire, some 35 years from now. I would rather have the money in a savings account where I could access it quickly. Turns out, you can withdraw your contributions anytime without penalty. It’s only the profits you can’t touch (and actually, you can withdraw them under certain circumstances, which I won’t go into here. Go read The Motley Fool’s All About IRA’s). I don’t know how I missed that part during my research, but that solves the emergency access problem.

I decided to go with Vanguard after reading plenty of good things about them on other personal finance blogs. Pretty much any link over on the right will say good things about them. I opened the account online, and the process couldn’t have been easier. They walk you through 6 or so steps from entering personal information, banking information, and selecting funds. The whole process took about 20 minutes once I knew what funds I wanted to invest in, and I linked to my savings account so the money would be transferred quickly.

And speaking of funds, I chose their Target Retirement 2045 mutual fund. The target retirement funds base their asset allocations on when you plan to retire (2045 in my case), and then automatically adjust their holdings as that date nears. Right now, since we’re still 40 years off, the fund is around 90% stocks and 10% bonds. It’s designed for large growth, but with a higher risk. The retirement funds are great, in that I can just keep pumping money into them and not worry about allocation. They handle all the work. It’s the perfect lazy man’s fund.

Thanks to the tax laws, I was able to contribute this money towards last year’s limits. I put in the maximum yearly amount of $4,000. That means I can still contribute another $4,000 for 2007. It’s a little scary to throw a big chunk of money like that into something that I won’t be able to access for another 35 years, but consider this:

If I invest $4,000 today, and the fund earns a modest 8% annual interest over the next 35 years, that initial investment will be worth over $59,000. More realistically it’ll earn somewhere around 10%, which in 35 years will be worth $112,000.

That’s right. The power of compound interest. So yes, I’m giving up my money now, but when that $4,000 is worth $100,000 in 35 years, it doesn’t sound so bad.

Here is my second post in my Financial Goals series. If you missed them earlier, please see my Long, Long Term Financial Goals. I’m going a little out of order here, but I wanted to get my year long goal posted sometime before the year is over.

As this is my first year attempting to be financially responsible, I have no idea how these are going to play out. Nevertheless, here are my goals for 2007.

• Have $20,000 In Savings - I started the year with just under $14,000 in my account, and as of today, I’m just over $15,000. With 10 months left in the year, I’ll have to save an average of $500 per month. Part of this money will eventually be used as a down payment on a house, but in the mean time, it’s a great emergency fund. In a crisis, $20,000 could last me at least 6 months.
• Put $2,000 into a ROTH IRA - At my age, I can put $4,000 a year into IRA accounts, but looking at my salary and other goals, I don’t think I can swing it. So far I’ve contributed $0. With 10 months left in the year, it’s only a $200 a month commitment. Seems like a perfect opportunity to set up an automatic savings plan so I don’t even have to think about it.
• Get Car Loan Below $5,000 - Ideally, I’d like to pay if off completely, but that’s probably not going to happen. I’m 23 months into a 60 month loan, and I’ve paid off half the principle. I’m a little bit ahead, but there’s still about $10,000 to go. Most likely, I’ll use some of my 0% balance transfer money to pay off a big chunk early, then make my usual car payments to myself to pay back to balance transfer. Still on the fence about that move, but either way, I’m looking at $500 a month towards this goal.
• Make $2,000 in Extra Income - Who doesn’t like more income? There’s plenty of opportunities out there, I just have to go out and find them. This will come from a combination of side jobs, credit card arbitrage, selling stuff, blogging, recycling, etc.

There you have it. 4 simple goals for the year. It’s not going to be easy, but with a bit of discipline, I think I can do it. I’ll keep you updated as the year goes on.

As one of my goals for this year (a post I swear I’ll write someday), I decided to give credit card arbitrage a try. A couple months ago, I had no idea what that term even meant, but thanks to posts at Blueprint for Financial Prosperity, Five Cent Nickel, and most importantly the tutorial at My Money Blog, I decided to go for it.

Simply put, credit card arbitrage is borrowing money from a credit card company using a 0% balance transfer offer, putting that money into a high yield savings account for the length of the 0% promotion, then paying off the original loan and pocketing the interest. Taking out $10,000 with 0% interest for a year and putting that into an account earning 4.5% APY, you’ll earn (before taxes) about $450. Now, there are a TON of issues to consider, and this scheme is NOT FOR EVERYBODY.

First, for the length of the 0% promotion, you must still pay your minimum payments every month. If you miss a payment or are late, you can kiss the 0% APR goodbye and you’ll start paying around a 30% APR. It’s VERY important to stay on top of payments. It’s also important to pay off the entire balance before the end of your promotional terms. Any interest you gain could quickly get eaten up with finance charges at a regular interest rate. Also, the other major drawback is your credit score. Opening up the cards, plus maxing out your limits will put a strain on your credit score that could potentially impact any loans in the near future. In my case, I’m not looking to take out any new loans in the next 12-18 months, so it’s not an issue.

That said, if you’re on top of your finances and don’t mind a dent in your credit score, there’s a pretty easy way to earn some free money. I’ve applied for a couple cards and have requested some balance transfers already, so please stay tuned as I’ll give you all the details along the way.

This past week, I’ve been taking a hard look at salary, savings, retirement, investments and I came up with a list of goals. I broke the list down in Long Long Term (think 10 years - retirement), Long Term (2-5 years), Year Long Goals, and Immediate Goals. This post is the first in a series on my financial goals for the rest of my life. As the week goes on, I’ll have posts on the rest of my goals, and then, in future posts, I’ll detail specifics on how I plan to achieve these goals and introduce some milestone deadlines along the way.

Long, Long Term Goals
Although I’m still really young, it’s never to early to think about the future. You might think it’s silly to look at some of these goals now, but the earlier you start, the better off you’ll be. If you’ve ever read ANY article, in ANY publication about retirement, then you know it pays off to start young. Compound Interest is your friend, and I’m hoping to compound for 40 years or so. With that in mind, lets take a look.

• Retire Early - This is vague, but pretty self-explanatory. I want to be wealthy enough to stop working at 50 or 55 (maybe earlier?). Travel the world, golf, whatever. The idea is to stop working full time and start enjoying life.
• Pay for my children’s educations - This is probably one of the most important goals for me. My parent’s were kind enough to pay for my entire college education, and I can honestly say I wouldn’t be where I am today if they hadn’t. I’d like to do that for my children, and give them a head start on their lives.
• Be a Millionaire at 35 - This might seem pretty pretty trivial and vain (and it is), but having a net worth of $1 million will get me well on my way to fulfilling my first 2 long term goals, and will keep me disciplined and focused on my journey to accumulating wealth. Not to mention I’d really like to start calling myself a millionaire. And I’d probably start wearing robes and smoking pipes.
• Never Have to Worry About Money - By this, I simply mean I never want to have to worry about making a mortgage payment, or worry about how we’re going to pay the bills or buy groceries. It’s about making smart decisions with my money and making sure I have an emergency fund to fall back on. And I’m not just talking about a ‘couple months’ emergency fund. I mean something catastrophic happens and I’m out of a job for a year, the house burns down, and all my kids need braces, and we need to buy a new car. I want to be able to live comfortably and worry free for at least two years on that emergency fund.

That should give you a big picture overview of how I’d like my financial life to unfold. Unless I win the lottery, it’s going to take serious planning, budgeting, discipline, and maybe a little luck, but I absolutely believe I can accomplish these goals.