Year End Milestones

Today I am reflecting on the past year, which has been a rough one, and trying to look at the positive things I have done. Some are financial and some are personal goals that I met. It is a good feeling to reach a goal and be able to move onto the next. Here is what I have to report for 2009:

• Paid off Prosper loan: I had a $1,500 personal loan that I paid off early
• Bought a house: Aside from the $6,000 tax credit I gained equity and a lot of knowledge from a major remodel. I also lowered my total expenses with a roommate.
• Emergency Fund: I finally have 2 months of take home pay in savings to lean on if I need it. This mostly came from the refund mentioned above.
  
• Overseas Travel: This year I visited Colombia and Thailand. Thanks Skymiles!
• IT Certification: CompTIA Network+. I recently passed this exam to make myself more marketable in the job market.
• I still have a job: This is saying a lot for some folks. A lot of my friends were laid off this year and I am happy to still have my job. It is a rough job market out there right now!

Even though 2009 was a rough year I am still keeping my chin up and pushing forward. I don't do New Year's resolutions but rather update my goals for the next year. They may or may not get completed within 1 year's time but I have to have a sense of direction. Here is what I wish to accomplish:

• IT Certification: MCITP, Microsoft Certified Information Technology Professional. This will greatly help my future job prospects.
• Debt Consolidation: Once the house remodel is complete (by Feb) I am going to consolidate everything in to lower, tax-deductible (interest) loan.
  
• Debt Pay Down: After the house work is complete I can focus on putting every extra dollar towards my debt. Any extra bonuses or side work will go to debt payments.
  
• Travel: I would like to see at least 2 more countries this year. Travel is my passion!
  
• Health: I am going to focus on eating less and eating better. I want to lose some weight and feel better. This is going to be a tougher goal as I love all kinds of food!
  
• Consulting: I am going to work on my network of people and side jobs to earn extra money and stay on the path to self employment / IT Consulting.

I am sure that my goals will change as the year goes by. I will have to make some difficult adjustments to parts of my life. Being stubborn about my goals and honest with myself is the only way I can get ahead. Hope everyone has a great New Year's holiday and weekend!

Medical Alternatives for those without health insurance

If you are like me and millions of other Americans you know that health insurance is expensive and out of reach (cost wise) for most of us. I personally do not have health insurance and haven't had it for years. My employer currently offers no plan so I just made do without it. At this point I simply cannot afford it on my own.

For those of us without insurance going to a typical doctor's office is not an option most of the time. I personally rarely get sick so this is normally not an issue for me. I have done some research for ways to get healthcare at a reasonable cost without having insurance. Here are a few options:

• Drug store / Grocery Store Clinics: These are usually set up during the fall/winter to give flu shots. What most people don't know is that they are staffed by a nurse practitioner and you pay set rates for getting other treatments. You pay $59 for flu treatment & prescription of any needed drugs, for example. For someone without insurance this is very reasonable!
• Generic Drugs: This is a big way to save on costs. Most prescription drugs have a generic version which is always cheaper. If the pharmacy does not offer it then ask for it!
• County Health Departments: A lot of counties across the US run a county sponsored health clinic. This is a great place to get shots for school or travel, treatment of minor illnesses, and advice on preventative care. They are also very reasonable cost wise since they are supported by taxes.
• Immediate Care Clinics: This is probably your most expensive option but is still cheaper than a hospital in a bind. These are run for non-emergency care and you can negotiate the price a little if you pay cash. They do accept most insurance providers if you have it. The advantage here is that you can walk in without an appointment and usually be seen right away.
  
• Free Clinics: You may have to wait a long time but you cannot complain for free! These are not everywhere but major cities tend to have at least one. You might wait all day and not get seen but if you need the care and cannot afford any of the above options this is your only choice!

Even if you have no health insurance at all we have some reasonable options out there. It is also good to call a doctor's office and tell them what you need and how much you can pay. Some are flexible and like getting cash today instead of waiting for weeks from an insurance company. It never hurts to bargain and the worst thing they can do is say no!

Reminder: Year end tax loss harvesting!

The end of the year (and the tax year) is fast coming and I want to remind everyone to have a look at your investments. If you are holding anything in a taxable account and have losses it would be a good time to harvest them.

You only want to sell if you truly do not wish to own the asset any longer and have a loss on the position. If you change your mind later be sure to wait 30 days to avoid the wash rule. Now is the time to be able to claim those tax write-offs for investment losses!

Remember: You can use your losses against any gains this year and still deduct up to $3,000 in additional losses after that. Any net losses beyond $3,000 can be carried over for next year and claimed then.

Don't pay too much tax! Claim your losses, have a smaller tax burden, and move on!

Don't forget your points!

These days their are rewards programs for just about anything you can imagine. Cash back, airline miles, hotel stays, coffee, gasoline, and the list goes on and on. The problem with having so many programs is that we get signed up and sometimes forget. They are very difficult to track!

I am writing this post to remind everyone to check on your points balances. A lot of them expire so we need to use them if we can to maximize what we get from them. A lot of programs offer great rewards such as American Express gift cards, restaurant gift cards, and even popular items such as iPods.

Make sure to check all of your balances and use them! Here is a quick list of what I got from points I had sitting around:

• $25 AMEX gift card (Chase Freedom)
  
• $25 paid toward my student loans (Citi ThankYou)
  
• $25 Home Depot gift card (Chase Freedom)
  
• A free flight home for a friend for Christmas (Delta Skymiles Amex)

As you can see this can really add up! Don't leave money on the table. Cash in your points!

Needs versus Wants versus Saving

Budgeting is a daunting task for some and other love it. One major roadblock for getting people to start using a budget is that they think they will be restricted and unhappy. This most certainly does not have to be the case!

I came across a good rule to use when deciding how you should use your money. It strikes a good balance and can cover all the bases for most people. This of course is not set in stone and is a general guideline that can be adjusted.

The formula says everyone's budget should be close to this:

50% for needs, 30% for wants, 20% for saving

The difficult part is to sit down and differentiate a need from a want. Some are obvious. You need food, shelter, and transportation. Wants are going out to dinner, concerts, gym memberships, vacations, etc. Saving can be either retirement/investments or debt repayment if you still have debt other than a mortgage.

The idea here is to make sure you budget for everything that comes up. Allocating 30% to your wants will make sure you include things that you enjoy and make you happy. 20% is a good rule for saving and can always be higher. The more you save now the less you need later. I like 50% as needs as it makes you really evaluate what truly is a need and leave room for the fun stuff.

Most of our budgets don't fit this formula. That is OK as long as you are happy with it. This general guideline gives us a target to aim for during the budgeting process. Most of the time people discover they are well over the wants category and little to nothing for savings. This is a great indicator that it may be time for some adjustments!

I hope you all have a great holiday. Enjoy the season!

Asset Allocation: The rule of 120

I get quite a few questions from friends and family of how much money should be invested in stocks versus bonds. Part of the answer lies in your own risk tolerance and preferences. I found a good rule of thumb that is based on your age and is a great starting point.

The rule of 120:

Basically you take 120 and subtract your age. If you are 25 years old the result is 95. This means that you should have 95% of your retirement assets invested in the stock market and 5% in bonds. This is not a concrete rule just some general guidance.

Using this rule is a good way to slowly make your portfolio less aggressive as you age. Once you hit at 65 you would be invested in 55% stocks and 45% bonds. This is a reasonable asset allocation for someone entering retirement. No matter your age you will have some money invested in stocks to outrun inflation.

This rule is good to use to get a basic idea of how to invest. Once you figure out your own mix you would need to invest in the correct mutual funds to cover all the bases. As long as you have a well diversified portfolio with low expenses you will be on the right track.

Ways to start, build, or rebuild your credit history

For those starting out for the first time or having to rebuild credit due to extreme circumstances it can be tough to get that first creditor to start (or restart) your credit history. Their are a couple of options out there that can help. I will go over the best ones that I have found:

1. Secured Credit Cards: These are generally easy to get. You must put money, such as $500, as collateral on the card. Your credit line equals the amount you put down. Use the card and pay it on time build credit history. Beware of fees as some have very high start up costs. Good secured cards only have a small annual fee around $30-$40. Avoid all others.
2. CD-backed Loans: Credit unions offer these as a way to build credit. It is a fixed installment loan that uses a Certificate of Deposit (CD) as collateral. The term of the loans equals the term of the CD. The interest rate you pay is usually around 3% more than what the CD earns. This is a small price to pay to establish credit!
3. Having a co-signer: While this involves risk on the part of the person signing with you it is a good way to gain history. The best road to take is to get a fixed payment installment loan for $1000. This will limit the risk to the co-signer to the amount of the loan. As long as you pay on time you both get good credit! I would only do this if the above 2 options are not available or feasible.
4. Student Loans: It can be a little difficult to obtain without any credit but student loans in college do establish credit history. A lot of the time parents may have to co-sign but this is still an option. You get the advantage of lower, tax-deductible interest and the ability to defer payments during financial hardship. If you must borrow for college this is the best way and you get credit history as a bonus!

The above methods are the safest and easiest way to start or rebuild a credit history. They are the lowest cost options I could find that actually work. I found that most other methods were some sort of scam and / or they come with high fees. Stick to the basics and you can't go wrong!

Tighter credit policies are good for us!

Their has been a lot of talk about the fact that credit for most people is harder to get these days. Some say it is a bad thing and will hurt our economy and others disagree. I too disagree as having less access to credit keeps us that much more out of debt. The banks are getting hit hard with defaults and really pulling back. I am glad!

Rewind a few years and think about all the different credit card and personal loan offers we got. Also remember the housing prices skyrocketing and banks lending to practically anyone who had a paycheck. Fast forward to today and look at the mess they are in. Credit limits are dropping, interest rates on consumer debt skyrocketing upwards, and foreclosures are left and right. Both banks and people got in over their heads and this is the fallout.

Based on these events it is now more difficult to obtain credit. I like this because it forces us to save for what we want and not senselessly borrow for it. I cannot think of a better reason to accelerate our debt repayments (aside from saving on interest) than the very fact that it is now a lot harder to get more credit! I hope it stays this way for a long time.

America really needs to get their savings rate up. We cannot rely on government bailouts and social security to carry our weight forever. If we lose at least some access to credit we will be forced to save or go without which I think is a great thing. Get out of the paycheck to paycheck rat race and act like we have a future to save for!

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!