December 2009 Prosper Lending Update

It is the middle of the month again and it is time for my update on prosper.com lending. Things went negative this month due to 3 loans going into collections. Once this happens I consider their remaining balance as lost and deduct it from my total principal.

Here are my stats as of today:

Outstanding Loans: 50

Late: 0 (< 30 days)
In Collections: 3 (written off)
Current: 47

Closed Loans: 7

Charged Off: 1
Paid Off: 6

Open Bids: 3

Total currently invested: $1523.80 (Principal Value)
Cash in Account: $ 142.96 (includes open bids)

Total Principal: $1666.76

Net Change from last month: $(45.19) (2.64%) decrease.

Personal Annual Financial Review Part 5: Estate Planning

Finally we will examine your estate documents. At a minimum everyone should have a will, living will, medical power of attorney, and financial power of attorney. These need to be kept up-to-date and an annual review of the documents makes sure your intentions are legally stated!

Will:

• Make sure all major assets are covered. This includes Home(s), car(s), investment accounts, bank accounts, etc.
• Make sure all listed assets are going to the people you want to have them in the event if your death.
• Make sure your will follows estate laws (attorney review is recommended for this!)
  

Living Will:

• Make sure the person you list as a decision maker to turn off life support in the case of extended coma or unconsciousness is still the person you want to have this power.

Medical Power of Attorney:

• Make sure the person listed on this document is correct.
• Make sure the powers given are explicit and clear.
  

Financial Power of Attorney:

• Make sure the person listed on this document is correct and is someone you trust with your money.

Investment and Bank Accounts:

• Check all beneficiaries on IRA accounts, trusts, employer retirement plans, pensions, and payable on death accounts. Make any changes you need to be sure your money is still going to the right people.

Estate Planning is the least fun part of managing finances. It is very important as you want to be sure your assets go to those that you actually want to have them. It makes things a lot easier for your loved ones in a very tough time.

Life Events that would cause you to change these documents:

• Marriage
• Divorce
• Death of a Spouse or Partner
• Death of other friends or family members
  
• Having/Adopting Children
• Changes in what your wishes are
  
• Buying or selling major assets such as real estate, collectibles, etc

Keeping your estate planning documents up to date does not take long. As always it is a good idea to seek professional help when making changes to be sure that everything is legally sound and will not give rise to a dispute in court. Reviewing them annually ensures your wishes are met!

December 2009 Net Worth Update

It is the 1st of the month again and it is time for my net worth report card. I did way better than I expected yet again! I am a little late due to my vacation in Thailand.

As of today my current net worth is (21,772.63). That is an increase of $7,465.54 over last month. The major factors contributing were a large tax refund, cutting spending, living cheaply in Thailand on vacation, and eating out less!

I expect next month to be a slow month since Christmas always puts a dent in net worth due to travel and gifts. I also have some unpaid time off this month that will set me back but not too badly.

Alternative Income:

- none for this month.

Personal Annual Financial Review Part 4: Taxes

Next it is time to have a look at your taxes. Understanding and taking proactive steps will make sure you achieve the smallest tax burden possible. This part will cover Income and Property taxes. You will analyze each thoroughly to be sure you don't miss anything!

Income Taxes:

• Was enough withheld from your pay? Was too much withheld? Make adjustments to your w-4 and other documents at work if needed. Do this for federal, state (if applicable) and local taxes (if applicable). The idea is to have little or no tax refund if possible.
  
• IRA/401(k) contributions: Do you need to adjust the amount you deposit based on any change in tax laws or employer matching? Increasing these is a great way to reduce your tax burden!
• IRA Conversion: Depending on your income this year and your tax bracket it may make sense to convert some or all of you traditional IRA assets to a Roth IRA. It is best to consult a tax adviser about this if you are unsure in any way. It does pay off in the long term!
  
• Tax Credits: Are you eligible for any credits? Examples: First Time Home Buyer, education credits, foreign tax credits, and so on. This list is long so be sure to do some research or consult a professional so you don't miss any!
• Tax Deductions: Should you take standard deduction or itemize? Run your numbers both ways to compare. Common (non-itemized) Deductions: student loan interest, 50% of self employment taxes, medical bills over 7.5% of income, etc. This list can also be long and you should consult a tax adviser if you are not sure!
  
• Accuracy: Make SURE all of the tax documents (W-2, 1099, etc) are completely accurate. The documents you get are what the IRS gets as well so they need to be 100% right!
• Social Security Statement: Be sure to review this each year and that it matches what you actually earned. Call the number on the statement with questions or concerns. Inaccurate information can cause to to get a lower benefit!

Property Taxes:

• Carefully review your property tax bill for any changes. Make sure it is accurate!
• Did your amount increase or decrease? Why? Be sure to call and ask them questions if you are unsure about any adjustment.
• Exemptions: Most counties have a homestead exemption for your primary residence. Has this been filed and reflected on your bill? Do you have to refile it each year or is it permanent?
• If your change in property tax is large it may be worth to file an appeal and have it re-evaluated. If you and the county disagree on the value of your home it is worth getting a appraisal to support your case. Property tax appeals can be tedious but well worth the time!

Spending a couple of extra hours on your taxes and studying them can pay off. Be sure you get all deductions, credits, and advantages you are due. Make sure you are investing in the right kind of IRA account to get the most out of your money in retirement. Roth IRA's are almost always the best choice for those who qualify. Paying a little now to consult a tax adviser can really pay off for years to come. Use it as a learning experience that will pay for itself many times over!

Tune in next week for the final step in the Personal Annual Financial Review process (Part 5): Estate Planning!

Personal Annual Financial Review Part 3: Investments

Next it is time to have a look at your investments and retirement savings. This part will determine that you have invested your money correctly and are on track to reach your goals. It will cover asset allocation, retirement accounts, and taxable investments.

Asset Allocation:

• The first step is to evaluate your current target asset allocation. Is it performing as you expected? Are you able to tolerate the ups and downs in your portfolio?
• Based on the above questions you can make adjustments to your target asset allocation if needed. Example: Current: 80% stocks, 20% bonds. New Target: 70% stocks, 30% bonds.
• Once you have determined the correct target allocation it is time to re-balance your portfolio. If you have new or idle cash to invest use it first. Once that runs out do a Sell/Buy to bring it back to the target allocation if needed. Using cash first reduces transaction costs!
  

Retirement Accounts:

• Fees: Have a look at any fees you were charged over the past year. Is their any way to reduce or eliminate them? This includes changing brokers to a discount one such as Firstrade.
• Contributions: Are the amounts you deposit each month / quarter / year correct? Do you need to contribute more? Are you getting your full employer's match, if any?
• Tax Status: Does it make sense to switch to a Roth IRA from a Traditional or vice-versa? ( See Part 4 next week for more in depth tax information)
• Progress: Are you in line to meet your retirement target?
  

Taxable Investments:

• Fees: Have a look at any fees you were charged over the past year. Is their any way to reduce or eliminate them? This includes changing brokers to a discount one such as Firstrade.
• Shifting Assets: Are you maxing out your IRA contributions each year? If not, use assets from this account to fill the gap so you can get the tax benefits.
• Check your 1099 tax statements versus your actual activity to be sure it is accurate!

A yearly (minimum) review of your investments makes sure that you stay in line to meet your goals by maintaining your target asset allocation. Re-balancing forces you to sell high and buy low. Keeping an eye on account fees and knowing your options prevents wasting money and time. Tune in next week for Part 4: Taxes!

Happy Thanksgiving!

I am writing to wish everyone a Happy Thanksgiving back home in the USA. I am currently on Koh Phangan, a wonderful island, in the Gulf of Thailand. I plan to spend the day on the beach and eating some fried rice for my Thanksgiving dinner.

Hope everyone has a great holiday and weekend!

Personal Annual Financial Review: Part 2: Savings & Debt Analysis

Next it is time to have a look at your savings and debt. This is also known as your net worth. We will examine each separately starting with debt. This part of the review is to make sure that we are on track to get out of debt and reach our longer term goals. We grade ourselves on how we are doing and make adjustments to get there!

Debts:

• Credit Card: This is the top priority to pay off. It is generally the most expensive form of debt and can really hinder our financial progress. Now is the time to examine balances, minimum payments, and amount of credit card debt. Check your budget to see how much you have allotted to payments and attack the lowest balance first until they are all paid off!
• Auto Loans: These are loans in depreciating assets. If your credit cards are paid off this is the next one to accelerate payments on. It can be worse if you have an accident and the car is totaled and you are left with no car and a loan to pay. Pay as aggressively as you can to clear this debt off!
• Student Loans: A lot of us have had to borrow to cover the rising costs of a college education. Luckily for us the interest is tax deductible and usually pretty reasonable. These loans are an investment in yourself but would be good to pay off early. I would only pay more than the minimums here if you have adequate (6 month+) emergency funds saved already.
• Mortgages & Home Equity: These are loans against (usually) appreciating assets and are considered good debt. The main thing to examine here are your interest rates to see if it is worth it to refinance (more than 0.75% drop in rates). Only accelerate payments if you are nearing retirement age as you want this paid before you hang up your work gloves!

Savings:

• Emergency Fund: This is the most important savings you can have. I recommend having a minimum of 3 months of expenses saved. Others say 6 or even 9 months. This should be funded before any acceleration of debt payments including credit card debt. Paying more on your credit cards with no savings can get you right back into credit card debt again if an unexpected expense or job loss occurs.
• Bill Escrows: Make sure your irregular bills are covered using a savings account to accumulate money for when the bill is due. Examples: Property taxes, annual dues, car registration, or insurance premiums.
  
• Goals: If you are saving for a big ticket item such as a car, house, or dream vacation make sure you are putting enough into this account each month. This should also be covered in your budget review!
• Retirement savings and investments will be covered in Part 3.

One final note about savings: For your cash savings you need to shop around for interest rates. Compare your current rate with other banks to be sure you are maximizing your earnings. Bankrate.com is a great place to comparison shop. Open accounts and move your money if needed. Also make sure you are using the correct vehicle to reach your goal by using savings, money market, or CD's. CD's are great for longer term goals to earn more interest! Try to match the CD term to your goal time line.

Now that we have looked at everything it is time to see how we are doing! Calculate your net worth by adding up all your assets: Cash, Savings, Investments, House(s), car(s), and anything else of value that you have. Now subtract all outstanding debts from that amount. The result is your net worth. Those of us with a lot of debt may have a negative number. It is good to record this to compare in next year's review. It is a good gauge of how we are doing!

Next week I while show you how to review all of your investments. This is the most important step to stay on track for retirement and financial freedom!

Focusing on achieving goals (wins) keeps us going!

Greetings from Bangkok, Thailand!

I wrote this in response to an article over at Get Rich Slowly. It had some lively comments which I added the majority of this post to. Writing my comment on the article sparked the idea for this post. Enjoy!

You win when you achieve a goal. It is a great feeling of accomplishment. Some are large goals such as paying of all debts and some small such as cutting your entertainment spending by $100 per month. Small wins add up to big ones. A "small" or "big" win does not have to be a dollar amount!

A win for me, no matter the size, is something that relieves stress, pushes me closer to my goals, and generally makes me happier. If we focus on working towards things that will make us truly happy then you will be constantly improving.

Examples:

1. I paid off the remaining $900 on a small loan early. I gained $50 a month in cash flow but more importantly the great feeling of paying off one of my debts completely. I am motivated to attack the next!

2. I worked really hard the past 2 quarters and as a result get 5 weeks off to go to Thailand. I leave next week! This doesn't involve money as much as quality of life and experiences/memories I will have forever!

3. I bought a foreclosed home and did the remodel myself (with family help). While this turned out to be a great financial investment I got a lot more from doing all the work myself and learning about home repairs and remodel. It gives you an entirely different perspective!

Achieving goals and feeling better about yourself and your life are the biggest wins you can have. It doesn't have to always involve money. In my book money is a means to get experiences we love, such as travel. Money is important but we cannot forget the non-financial aspects too!

What other big wins can you think of that don't necessarily involve money?

Personal Annual Financial Review: Part 1: Budget

The yearly budget review is a great starting point for you annual financial review. You look at all of your real expenses over the past year and decide if you need to make any adjustments. This is where we usually find out if we eat out too much or were allocating too much money to our water bill. This step is critical!

Items examined in this section:

• Income: What are your sources of income and how much are they? Has their been any change in the past year that needs to be noted?
  
• Expenses: Look at the budget for your monthly expenses and also look at your actual payments for each. Also note any unexpected expenses and new ones not included in your budget.

Now that you have gathered all of the data for your budget it is time to make adjustments. Here are the key action items:

• Income: Total up your income and come up with a monthly figure. Insert it into your new budget. If you have side business or income note is separately for ease of accuracy and adjustment
• Expenses: Did you drop any expenses this year? Do you have any new ones to add? Adjust all numbers to reflect what you really need to cover them.
• Savings: Do you need to adjust the amount you move into savings up or down? Make this adjustment in your monthly budget as well.

Now you have adjusted your budget to reflect your current situation. The numbers do not have to be 100% accurate as they never will be! Rounding up is OK and is a best practice when creating your budget. Make any adjustments to automatic transfers as needed to cover the new amounts.

Tune in next week for Part 2: Savings & Debt Analysis!

Off to Thailand and Laos tomorrow!

For the next 5 weeks I will be on extended vacation in Thailand and Laos! I leave tomorrow morning to fly out and return on December 20. I am looking forward to some much needed beach time and possibly some jungle trekking and waterfalls. I plan to take tons of pictures!

While I am gone I have scheduled a 5-part guide to doing your own personal annual financial review. It goes over all aspects of your finances. It is designed to make sure that you have everything in order and stay on track to reach your goals.

Here are the 5 parts:

1. Budget
2. Debt & Savings (Net Worth)
3. Investments & Retirement
4. Taxes
5. Estate Planning
   

I hope you enjoy the guide! If I have time I will make some sporadic posts from Thailand in my travel blog.