Financial Goals for 2011

With the New Year right around the corner, I thought I would compile a list of what I would like to achieve financially.

1. Be rid of all credit card debt.
2. Earn $5000 in extra cash from side jobs.
3. Have $10,000 in non-retirement accounts.
4. Have $80,000 in retirement accounts.
5. Get total loans/debt below $200,000.

This will require some work on my part. We have to reign in our extra spending and work on creating some side income. I have some thoughts on the latter that I will share in the future.

New Goal for Paying off Auto Loan and Others

Back in April, I laid out our goals for paying off our debt. In there, I figured that after paying off the credit card debt, we could put all our resources towards the auto loan. The earliest I figured we could pay that off was August of 2014. Well, now that we have paid off the CC debt earlier, I believe that we can tackle the auto debt earlier. If all goes to plan, we will have it paid off by December of 2012. That would be welcome news, as we would then begin to tackle the 2nd mortgage.

By then, the mortgage will have about $56000 remaining. I would give us 3 years of accelerated payments to finish off that loan. That would be December of 2015. All that would remain now would be the 1st mortgage with $115000 remaining in principal. By throwing all that extra dollars($1350) into the principal every month, I see us paying off this debt within 3 more years. This means by December of 2018, the house will be all ours. This is one lofty goal, but if we can get back to two incomes next year, it will be totally doable. Also, I plan on working in some extra hobby income as well.

Mid December 2010 Update

It has been some time since my last update. I have been super busy and not had much free time to think about a post. Lots of stuff happening between work and home. We have made a big decision to use some of our retirement savings to level our debt. I know that this is number 1 on the list of things not to do financially, but with our situation (one income, mounting debt payments, chronically sick child), we felt this absolutely necessary.

Doing this is actually saving us money now, since we don't have a that 6% finance charge every month anymore. It is one less expense that we don't have to account for. Also, we are not having to set aside $380+ towards debt payment. It eases our monthly overage quite a bit, almost putting us in the black when we get some extra income in.

So with that said, here is our latest new worth statement.

So we see that our retirement accounts have taken a hit, but we have the up-tick in savings. Half of those savings will go towards finishing off the remaining credit card debt as well as another outstanding one. From here, we will see where our tax return and next years bonus put us. I would like to eliminate the auto loan next. Also, we hope to bring in some extra income with some ideas that I will go into later.

Rising Prescription Costs are Hurting Us

Our little one, requires a high dosage of vitamins that are compounded so that she can take them orally. She has feeding issues (not able to chew well) so we give them by oral syringe. There are 8 separate vitamins that are put into 5 compounds of varying tastes. These are to make up for her genetic/metabolic vitamin deficiency. She has been on the cocktail for a year and has shown improvement.

The problem is that the cost of the vitamins and compounding has gone up drastically in the past 6 months. At the end of last year, it was $10 per prescription, with 3 being twice a month. At the time, there we a total of 9 refills per month. That comes to a total of $90/ month. Then in January of this year the co-pays went to $30 so the grand total went to $270/ month. We worked hard with the pharmacist and neurologist to cut the total prescriptions down to 5 a month and the total was $150/ month.

Well, this month our health provider decided to upped the co-pays to $50 a month. That makes the total $250.00. I think they are trying to make our live miserable. We are currently working with the pharmacist and neurologist again to try and bring the cost down. Otherwise we are gonna go on the canned beans diet.

Dividend Play: Altria

On Friday, I decided to add to my position in Altria. I could not resist the 7% dividend this stock now offers. I was actually looking to add Chevron or Exxon Mobil, but settled back on Altria. The stock is down 10% since April, and I believe this to be unwarranted.

So, now I am done with my initial dividend portfolio. This portfolio currently makes up only 5% over my overall investment portfolio. The other are in mutual funds. The dividend portfolio includes Fifth Street Corporation (FSC), McDonald's (MCD) and Altria (MO). The later to are setup in DRIPs, so I look forward to seeing the shares grow over time. Also, when finances offer, I will add to these positions.

I am actually contemplating increasing this portfolio's value in my overall investment approach. I would like to to be at least 50%, so that it will produce a generous income when the time comes to live off our investments.

Net Worth Update: Ugly May

Here is my first net worth update. It just happens to be on the end of a bad month for the stock market.

The auto category comprises 2 cars, one which is paid out right. We plan to keep both fo many, many years.

As you can see, I paid off quite a bit this month on the credit cards. I am not sure how much I a can keep that up.

The taxable accounts comprise emergency funds and some misc savings.

Dividend Play: McDonald's

Yesterday, I started a position of McDonald's stock in my Roth IRA. It is only 15 shares at the moment, but I plan to use the dividend reinvestment plan there and let the shares grow over time. The company has been raising it's dividend each year at a pretty good rate and I don't see it stopping that anytime soon.

I am studying up on some other stocks to add, as I have left some dollars in my Roth account to make one more purchase. The sectors I am looking at are utilities, energy, consumer goods and some others.

A Great Dividend Portfolio for the Long Term

I have been researching stocks that would be great for dividend income. This would play into my eventual to be able to live off the dividends the stocks would provide, while still enjoying equity growth. Imagine, if you will, being in a position to be able to get $100,000 a year on income from the stocks in you portfolio.

If you want to do that today, you would need a $4,000,000 paying a 2.5% yield at the time of purchase. A more attainable option would be to build up a portfolio of stocks that not only pay dividends, but increase them on a yearly basis. If you were to reinvest the dividends back into the stocks, that 2.5% average yield could be more than 15% on your initial investment 20 years from now.

For example, in 1990 McDonald's paid a 3.49% yield. On that same initial investment, you would get a 25.6% yield today. In terms of dollars, in 1990 you would have received a $8.75 for every $1000 invest back then. Today, you would get $64 every quarter. That is just amazing and does not take in to fact that you would have more than the initial shares you purchased with that initial $1000. If those dividends were reinvested, then you would see over $300 per quarter.

With that in mind, I ran into a great list of dividend stocks for over at Dividend Growth Investor. Over there you will find great dividend growers such as Altria, McDonald's, Clorox and Con Ed.

A Different, Yet Ultimate Dream

I have mentioned in the past that our younger daughter has medical issues which has been making it tough for my wife to find some part time work. The little one has an odd school schedule (1/2 day) as well as a slew of therapy sessions during the week. On top of this, she has more than the normal doctor's appointments, some of which are out of state.

Another problem with the little one is that she only eats well with yours truly. Mom has a tough time feeding her and more calories are wasted than taken in. My work has been accommodating, but that can only last so long. By not being in the office as much as before, I lose that face time with my fellow coworkers. Even though I put in my best, the perception is that I am not putting in as much as I can. This is normal office politics.

This has lead me to think about what my long term goals are and where my priorities should be. Ultimately, I would love to be able to spend as much time as I can taking care of our younger daughter. The more we can work with her now, the better for her long term development.

So, my dream would be to free myself of the 9-5 work day. I think that by paying off our debts and earning passive income would be the best way to achieve that goal. Passive income would be in the form or website earnings and writing for sites such as Associated Content, as well as investment income. I would be ideal to gather enough dividend paying equities to be able to live off the payments.
Now I have to work towards that goal. I have setup my get out of debt plan already, but need to see if I can advance that somehow and in the meantime, build up my equity portfolio. Good luck to me!!

Secrets of Self-Made Millionaires

I found this Readers Digest article via Yahoo on the 5 Secrets of Self-Made Millionaires. It was quite an interesting read. Here is the breakdown of the 5 and my look at them.

1. Set your sights on where you’re going

So true. If you don't have a vision, then how will you know where you end up.

2. Educate yourself

Whether you want to be a finance guru or scientist, you will want to study, study, study.

3. Passion pays off

You have to love what you do, otherwise, you will not succeed.

4. Grow your money

Reinvest what you earn back into your business. Don't squander your earning frivolously.

5. No guts, no glory

Just like exercising, "no pain, no gain." You have to take a risk and sometimes it may seem tough, but you have to continue.

One Million Not Enough Anymore?

I just read an interesting article over at The Motley Fool. The premise is that $1,000,000 is enough for retirement if your are doing it today, but what will it bring 10, 20 30 years from now.

"But if your retirement remains several decades distant, you'll need to remember that inflation will eat away at your purchasing power. At 3% inflation each year, in 30 years that $40,000 you withdraw will buy as much as a mere $16,000 does now. Ouch.

So how much would you need to retire at age 65 with the equivalent of today's $1 million? Check out this handy chart:

Current Age	You'll Need This at Retirement
25	$3.26 million
30	$2.81 million
35	$2.43 million
40	$2.09 million
45	$1.81 million
50	$1.56 million
55	$1.34 million
60	$1.16 million"

According to this chart, we will need over $2 million saved up by the time we hit retirement. Currently we are on track to have $550,000 in retirement funds when we hit 50 years old, leaving us with 15 year to reach the the new goal. Yikes!

2010 Financial Goals

It being late in the first half of the year, I thought I would throw out some goals for the end of the 2010. This is all incumbent of my wife being able to find some part time work. If she doesn't soon, we are going to have to tap into the emergency fund even more and then lord knows what. I have been contemplating finding a second job, but my work sometimes requires weekend builds, so it would be tough to schedule. Lets hope we find something soon.

1. Emergency Fund: $5,000.00 (currently at $6200 and being taped into)
2. Taxable Investments: $2,630.00 (currently $1758.87)
3. Retirement Accts: $99,540.00 (currently $90980.79)
4. Credit Card Debt: $10,393.00 (currently $12793.42)

As I stated, if my wife does not find work soon, the emergency fund will really be dwindling, but I guess that is why we have it. I have started selling stuff on Craigslist and Gazelle, but that is going slowly.

Stock Purchase #2

Today I picked up Altria (MO) as my second stock in my taxable account. I grabbed 22 shares for a whopping total of $483. I have owned MO in the past and done really well with it, especially when they spun off craft and then Philip Morris International. The stock pays a dividend of over 6% currently and does increase it every year, so I should see decent income over the next few years.

Combined with my prior purchase of Fifth Street Finance Corporation (FSC), I should be getting around $79 a year on my initial $990 dollar investment. This is much better than if I left it in a savings account since I don't plan on touching the money for years. I will also look forward to being able to add to the account when our finances are more stable.

A Giant Step Backwards

I knew this was going to happen, but decided to take the hit all at once. Today, I paid off to large bills to the city. One is a sewer assessment annual payment, and the other is our regular sewer bill. Combined, the total comes to $1189, which has to come out of our emergency savings.

The sewer usage bill could have been split into two payments, but I wanted to get it over with. Out of sight, out of mind. Hopefully we can make this up over the summer somehow. I might have to switch some things out, like the extra cash I was going to put towards our credit card bill. Also, we have no auto insurance payments over June/July as well as a couple of dividend checks from our insurance company.

Decided on my Scottrade Account

Yesterday I was pondering what to do with my taxable brokerage account. Well, today I made my decision and pickup up a stock as well. So that means I decided to keep the money in the account. My next choice was to go for a growth stock or some income. I decided on the latter.

I did some research last night on high dividend paying stocks and settled on Fifth Street Financial Corporation. They are kind of a private small business administration, providing loans to companies looking for some capital injection. This type of business was set up through government legislation back in the 1980s. FCS has excelled at these loans in the past decade. This is because they have a strong capital base as opposed to other companies who rely on loans from the big banks to fund their own capital. FCS also uses loans from the banks, but because they have their own capital, they are less risky.

The good thing about these corporations is that they have to payout 90% of their net earning back to their shareholders. In the case of FCS, they pay rather well. The stock is currently trading at about $13 per share and the quarterly dividend is $.32. This means their yield is 10%. As long as the economy continues to pickup, I see the company and it's group doing well. We should see more startups now and existing small businesses will be looking to expand. With that in mind, I decided to pickup 38 shares at $13.07. This should pay me around $48 a year, if the free cash flow is maintained.

After going back and forth, I decided to split the $1000 in the account into 2 dividend stocks. I have not decided on the other one yet, but am leaning towards a big guy, like McDonalds or JnJ. This will be me one dividend grower to match with FCS.

What to do with Taxable investment Account

I have had a Scottrade account for a few years now. It was funded with a $1000 and after a couple of holdings, has now $1003 in cash. Actually, it is earning a grand $.04 month right now. I was thinking of closing it down and adding that money to my emergency holding or putting it towards my debt snowball. But, part of me wants to keep the money there. I am really torn on what to do. I do like the idea of seeing if I could grow that money.

Here are some options of what I can do with the money:

1. Cash it and put it in towards a credit card that is at 4.99%
2. Cash it and add it to our emergency fund earning .50%
3. Keep it at Scottrade and put it in a dividend paying stock such as JNJ or ADP which will get me nearly 4%.
   
4. Keep it and try to search for a good growth stock. I actually did well in my last holding at Apple and made some good money after seeing the account dip down to about $500.

I am leaning towards the dividend stock at the moment, since it will be a safe play and It will be earning money better than in the emergency fund. Decisions, decisions.

Big Day Today

Last week, I stated that I would put $1000 towards our one of our outstanding credit cards which is at 4.99%. Well, today I did just that, knocking the balance down to around $5806. I did not stop there though.

As I was looking at our other outstanding credit card, which is at 1.99%, I decided to check out my rewards balance. I was elated to find I had enough to throw $25 at that balance. It is now down to $6925!! That brings the total of both down to $12781. Boy that that feel good. Now, I wish that I could throw this type of money at the balance every month, but this was a great opportunity.

I won't have this chance to bring the debt down for a while, as we have some summer projects lined up. We need to finish reseeding our lawn and also need to retile the bathroom and put in some new fixtures. While these are some big expenses (probably around $500 total), they are sorely needed. We want to make sure the house is sellable if the opportunity arises.

The Debt Reduction Journey Begins

Today, I decided to kick start my ambitious debt reduction journey. I am using the Debt Snowball method that David Ramsey has made famous. Basically, he said to list your debts from the smallest amount to the largest, and start paying them off in that order. I idea is that tackling the little ones first gives you a psychological boost. The faster they are eradicated, the more you stick with the plan.

So that $7000 credit card debt @ 4.99% is going to get hit first. Actually I have 2 payments this month going in. Today, I paid $275 and next Monday will see another $1000 go in. Where did that extra dollars come from? My older daughter goes to a private school (we do get some financial aid here) and we pay on monthly installments. It is automatically deducted from a separate bank account that gets money directly from my paycheck. Well, the payment for this year are done, and we had $1100 left over. I decided to put that money towards the credit card debt.

Actually, since we don't pay over the summer as well, I hope to put another $800 towards the debt in August. That should leave the first debt in our snowball down to $4250 before September, if all goes as planned. By August of next year, the first debt in out Debt Snowball will be payed off as planned.

Tackling Our Debt

On our 5 Steps to Acquiring the Dream, number 3 was getting out of credit card debt. To that, I would like to add an auto loan and a second mortgage. We also have our first mortgage, but getting that one done soon does not seem realistic, and I would like to hit the others before the mortgage. Actually, the 2 mortgages provide some tax savings versus the others, so I am going after the bad ones first.

I am going to list our debt in the order that I would like to attack them.

1. Credit Card One: $7000 @ 4.99%.
2. Credit Card Two: $7200 @ 1.99%
3. Auto Loan: $21000 @ 5.49% for 6 years
4. Second Mortgage $66,000 @ 6.25% with 13 years left
5. First Mortgage $134100 @ 5.75% with 24 years left

That bring our debt total to $235,300, give or take a few dollars since I rounded everything up. I am going to hit that first credit card as hard as I can. Every bit of leftover cash we have at the end of the month will be going towards that one. My goal is to have it paid off in 15 months. That puts us at August of 2011. In the meantime, I plan on paying the minimum the second one. At about 2.5% as the minimum, that would leave around $4700 left there.

The next step would be to roll the payments from the first credit card, into #2. I see myself finishing that card off in 12 months. So, by August of 2012, all the credit card debt would be gone. Then it would be down to the auto loan, which at that time would be down to about $13000. Agian, rolling the old payments from the credit cards into the auto loan would finish that one off in another 19 months. This would put us out to about March of 2014.

That means in 4 years, we will have knocked off $35000 in bad debt. Our second mortgage will be down to about a $51,000 balance with 9 years remaining. Throwing the payments from the old credits cards and auto loan into this one would have us done with it in less than 4 years, putting us at Jan of 2018. At this point, we can tackle the last piece which is the first mortgage.

By 2018, the first mortgage will have $108,000 in balance remaining, with 15 years left on the loan. Now, will all that extra money from the old debts being thrown into this one, the house will be totally ours by 2020. That would mean we would be totally debt free have over $2000 a month going towards savings. I see us being able to put some money into a NYC property by then.

Of course, there will be setbacks from now until then, but there will also be bright spots, so I hope they will even out. If my wife can go back to work full time as well, then we can accelerate the payoffs. It is good to dream you know!!!

On That Second Job

Number 2 in my 5 Steps to Acquiring a Dream had to do with adding a second income. Currently, my wife is out of work and is sort of looking for a job. I say 'sort of' because with our situation at home. We have two girls and the youngest one has medical issues that require my wife to be available for doctors and therapist appointments at odd times. Therefore, it is hard for her to do a 9-5 job.

Before her current unemployment, she was a part time tutor at a company that went out of business. It was perfect for her, because she could set her hours weekly. She was also in charge of scheduling, so was able to make sure she was taken care of. Well, it has been nearly a year now since she last worked and while we are still afloat, we will need to find some more income.

With that in mind, I have been contemplating what we can do for extra income. Then I looked at all the stuff we have around the house, and I thought maybe we could sell off stuff we do not use, such as books, toys and baby items. There are several options out there such as eBay and Craigslist, but what to do with books.

I did a quick search for selling used books and found Powell's Books. They buy used stuff and will send you prepaid shipping labels. You just have to box the stuff up and take it to the USPS. Now the price is not too great and they don't take all books. It is kind of hit or miss. So far, I have made a grand total of $5.50 from 4 books, but it is a start. I have some more boxes to go through, and am looking for more sites to try out.

All, this money is going straight into my PayPal account and will eventually be used to payoff some debts early. Also going into the PayPal account is money from tech toys that I have been selling on Gazelle. That is another decent site, that is comparable to eBay without the hassle of going through the bidding process. I have made some decent money by selling old cellphones and PDAs.

How About Renting in NY?

So we don't have the $2,000,000 to lay down for a nice pad in NYC. Would renting be an option? The Real Estate Group New York, which produces monthly Manhattan rental reports, has come out with it's April Report. The latest figures show that there was an uptick in rental prices, but most places are still pretty cheap when compared to last years.

Now cheap is a relative thing. I believe that prices are still crazy. Two bedroom apartments in the Lower East Side are running at $3000/month on average. If you factor that your gross annual income should be about 45x the monthly rental, that comes out to a salary of $135,000 a year. Still though, using a calculator for take home pay, that salary translates to about $7000/month. This means the average rental would be 43% of monthly take home pay. That is ridiculous!

Even areas like Harlem run about $2000/month, which requires a $90,000 salary. Also, these rate are for non-doorman apartments. You want a doorman, be prepared to spend another $1000/month. That is some price for the luxury.

So, this means that renting is not a good option unless I had a super well paying job. We would need at least a 3 bedroom apartment in a good neighborhood. That means paying almost $4000/month which requires a $180,000 combined salary. Right now we are almost surviving with a single income, so would like to maintain that as long as possible.

Why $2,000,000?

In my post on 5 Steps to Acquiring the Dream, Step one was setting a quantifiable goal for a piece of property in Manhattan. I said $2,000,000 was the price I was aiming for. This number was not pulled out of thin air. Some research was done to arrive at it.

I went to the Trulia NYC website, and looked for 3 bedroom, 2 bath apartments/condos/co-ops on Manhattan. A minimum of 2000 square feet was also chosen. The results started at $1,500,000 and went all the way up to $30,000,000. Needless to say, I stayed closer to the bottom end. Even at that price, the home sizes were pretty decent. Ideally, I would like to be somewhere nearer to midtown, which would offer good walking access to the theaters and central park. I did find some deals there.

Now of course, right now in April 2010, we are probably near the tail-end of a major recession and real estate prices have taken a hit. Who know what prices maybe when we can afford $2,000,000. Lets hope we don't have another run up like we did before this last bubble.

Curbed NY Real Estate Website

I was looking around for blogs on NYC real estate and ran into Curbed NY. It quite a feature packed place. They have quite a few daily updates with information on local sales and news. Some of the information here is a bit on the entertainment side, such as a post on where Matt Damon has been real estate shopping. For the most part though, the information is good, such as daily open house listings as well as a complete Sunday open house guide for buyers and renters.

Then there are sections for current sales and rentals. Their listing cross multiple agencies and allow you to narrow down your search, whether it is the number of bedrooms, bathrooms, or the max dollars you want to spend. The results are given is the normal list format that is sortable for varied fields such as bedrooms, square footage, or price. The indiviual listings provide photos as well as an embedded google map that is expandable.

All in all, Curbed NY is a great site for a NYC real estate junkie. They also have sites for the Hamptons, San Francisco and Los Angeles.

5 Steps to Acquiring the Dream

This post outlines the 5 steps needed to attain our dream of owning real estate in New York. While this is our goal, I believe it can be adapted by others to fulfill their dreams. This could be owning real estate or saving or retirement or maybe buying a boat or RV. It could be whatever you want to achieve.

1. Setting a price goal: I believe that $2,000,000 is the minimum to get a decent property in Manhattan, whether through a cash purchase or finance. We may find something for less depending on how the market is, but this is what we should reach for.
2. Getting a second income or increasing my income: Right now, we are working with one income, since my wife has been out of work since last year. Either she needs to find a job or I need to find a better paying job. I could also try and work part time online somehow.
3. Getting out of credit card debt: This is a tough one. We have some debt that we have built up due to my wife being out of work. While we have stabilized that for now, we need to get rid of it.
4. Paying off our mortgage: After the credit card debt is gone, it will be time to work on this one. We still have 23 years left right now, but is we can eradicate the $300+ dollars we are paying on step 3, that money will go towards the mortgage.
5. Look for a place and move: Self explanatory, but still complex, with all the details involved with uprooting.

The list is not set in stone of course, but is a good guide to use in trying to reach for our goal. This would all be thrown away if I were to find a good paying job in NYC and we were to move closer to the city, whether is a suburb or in a neighboring state. Then we would go directly to step 5.

Acquiring a Dream

I have always been fascinated with New York City. As a child, it was movies like King Kong, Arthur, Escape from New York and Ghostbusters and later Wall Street that introduced me to the city. They all used the city in different ways, but I was intrigued by the large building and busy streets. Of course Escape was quite dark in tone and visual appearance, it did highlight some of the streets.

Then as I got older, I could stay up New Year's Eve to watch the ball drop in Times Square. It was quite a sight, even on our small tv, to see hundreds of thousands of people on the street waiting for the new year to come. Throw in all those Macy's Thanksgiving Day Parades and I thought that this was one happening city. I had to see it for myself.

It was not until my teenage years that I got to visit, but that was only in short spurts for the St. Patrick's Day Parade. I was in high school and the marching band would travel to take part. We really did not get to see much, because we would take the four hour drive there in the morning and leave in the evening. The time we walked about was on the parade route and at the end we had to jump back on the bus. I did enjoy looking at the city though, while on the bus. The tall buildings really fascinated me, as they do till this day.

In the 1990's I did travel there once for an overnight. A couple of friends went to a concert at the Beacon Theatre. We drove in, went to the hotel, then the show, then back to the hotel to sleep, woke up and drove home. Not much happened on this trip, but the show and theatre were cool.

It would be another 10 years + before I got back to the city. By then, I was married with 2 kids. The dream of moving there had waned due to priorities, but the love of the big city was still there. The family has been there several times on our way to and from vacations. We usually spend the better part of the day walking in the Midtown area seeing the large sites, such as Rockerfeller Center, St. Patrick's Cathedral and Times Square. Having one pre teen means we have also made the trip to the American Girl's store quite often.

Also, my wife and I spent as lovely day and a half there a couple of years back, to take in a theatre show. It was probably my favorite time, because it was a rare opportunity for the 2 of us to be alone and we got to walk about the city quite a bit. We plan on going back later this year to see another show. This time it will be 2 nights and we are looking forward to visit the lower part of Manhattan.

The dream of moving to NYC has pick with these little trips there. It would mean quite the uprooting for the family. My wife and I always discuss the possibilities of moving to different places and at least we do share these common thoughts. I am the only one working right now and it would only mean one job change for now. Also, there is the possibility of just buying vacation property there, but that would be quite the expense. You never know though, that's why we have dreams...