Last summer I read Stephen R. Covey’s The Seven Habits of Highly Effective Families. This book, like many that I have read in my life, was profoundly inspiring. After reading it I was determined to follow all of the great advice in it, but somehow in our overly busy world I have just not found the time.
One of the first tangible suggestions in this book is to create a series of mission statements: first one for yourself, and then one for every major relationship in your life. Examples would include a marriage mission statement and a family mission statement. ScrapperMom and I scribbled some notes down during our vacation last September, but I have no idea where that paper is.
Lately I have been thinking about the things that I value, and about how I seem to be running on the treadmill of life, but not sure that I’m making any progress. I remembered the idea about creating a mission statement. Such a statement should serve as a target for where I want to go. As Covey points out, pilots are off course for 90% of every flight, but because they have a clear endpoint in mind, and tools in the form of equipment and ground support to keep them pointing in the right direction, they almost always arrive where they set out to go.
I started thinking about what I would include in a personal mission statement, and the first (and so far only) thought that immediately popped into my head was:
Live a purposeful life: Make every action you take count towards getting you to where you want to go and who you want to be. You simply don’t have the time or the energy to waste on things that do not contribute to your goals.
This statement really begs the question: Where do I want to go and who do I want to be? This is a difficult question, and probably a large part of the reason that ScrapperMom and I did not follow through on completing our marriage and family mission statements. What I do know is this: The most important “things” in the world to me are the members of my family, both nuclear and extended. The second most important “things” to me are the friendships that I share. Happiness to me is having a get together with friends penciled in on my calendar for the end of the week. So at least I know who I want to be: a great partner with my wife, a great father to our daughter, and a great friend to all the rest.
How does this relate to personal finance? Well in thinking about the above, we all find that we’re a bit off course a lot of the time. We spend much of our time, energy, and money doing things we don’t necessarily enjoy: We get up and go to work, we pay taxes and insurance, we vacuum floors and mow lawns. Most of these actions are simply necessary, and there are few ways around them. But we have to always keep in mind why we’re doing these things. If it’s not something that contributes to our goals, we should ask ourselves why we are doing them. I work to provide food, shelter, entertainment, etc. for my family. I pay taxes and insurance to keep my family safe (and for other reasons). I mow the lawn so that my daughter has a place to play.
Here are a few examples of things that I’ve heard recently that reinforce the idea that we have to remember what we value and not forget to actually enjoy those things every now and then:
- I was in New York City on business last week and had dinner with an old friend with whom I used to be very close, but who I had not seen in over 3 years. Said friend suggested that I would like the beer at a certain bar because it was cheap. “What do you mean by that?” I asked. “Well,” came the reply, “I figured that since you write about personal finance, you are always looking for ways to save money.” That may be true, but life’s too short to drink cheap beer.
- J.D. at Get Rich Slowly wrote an article that concluded: “Remember: There’s nothing inherently wrong with purchasing things that bring you joy. But problems come when you finance these purchases with debt. If you’re meeting your other financial goals and have money left over, it’s good to indulge your interests and passions.”
- About 6 months ago I started a personal finance discussion group with some of my friends (more on that later…). While trying to get a group of friends together, one friend told me: “I like this “good life” of expensive shoes and handbags, going out for pricey dinners and expensive drinks and don’t really want to think about things like retirement planning and emergency funds.” This particular friend and I had already discussed our philosophies about retirement planning, life and disability insurance, etc., so I knew that she was already in pretty good shape. It looked to me like she could afford to indulge on the things she liked, and I applauded her for that power.
So I have the first couple of lines of my personal mission statement down now. It’s time to try to fill it out with more of the specific things I value, then move on to the relationship mission statements as well.
I’d love to hear about some of the things that you value and how you act to support those values. Feel free to comment below.
Noah’s Ark for a 1st Birthday Cake!
A great book we found back when we were earnestly baby gear shopping (can’t believe our little one is a year and a half now!) was Baby Bargains. Grab the latest version from the library to save even more! This book has a lot of reviews and recommendations on baby gear. It tells you what you need, what you don’t and which products are worth the money and which you can get on the cheap. Definitely talk to friends as well, to find out what baby gadgets are worth the money and which are not. I found tips from other moms invaluable when buying for baby. It’s amazing how quickly a baby outgrows different toys and items. Some items make your life more manageable (the bouncy seat allowed me to shower for the 1st 8 mos!) and some seem like a waste of money (I bought a little food mill and found that it always jammed. It was easier to either use a fork or get out the food processor).
Yard sales and craigslist are a great way to pick up toys and books on the cheap, typically in great condition. I have purchased a lot of great books at yard sales. Since they were 4/$1 I rounded out her collection of board books for $10! Our daughter can sit and look at her books for what seems like hours (or at least enough time to do some dishes!) I also hit the town yard sale and picked up a lot of summer clothing. Since our daughter was born in the winter we did well with presents for winter/fall clothes, but didn’t have any summer items. I was able to buy shorts, bathing suits, water shoes and t-shirts for under $20 to complete a summer wardrobe. I have also had great luck looking for specific items on craigslist. I wanted to buy the Little People’s Noah’s Ark to use for her first birthday cake. I found out that the all plastic version I wanted was no longer sold. I was able to find one locally on Craigslist. People use baby items for such a short time. There are always bargains to be had in the second hand market. Currently I’m in the market for two items: A push around trike or buggy for walks around the neighborhood and a toddler swing (we are getting the swing set as a hand me down from my sister). MITBeta is looking for a toddler trailer for his bike.
One other frugal tip I found out from a friend is, you should never spend $14 on a pregnancy test. I did not know there was any other option! It turns out that you can obtain very affordable pregnancy tests online for around $1 each! Check out Early Pregnancy Test. You can also pick up tests at the Dollar Tree for a $1 as well. For everyone who has ever spent a fortune on tests this will save you a ton of money! They are also just as accurate as the $14 versions at the drugstore.
Here are some of my top frugal buying tips:
1. Try not to get any “real” clothes for a baby under 3 mos old. You won’t want them in anything but onesies and one piece sleepers anyway. You can save the “real” clothes for when they are older.
2. Since you will be doing laundry so frequently with a new baby you probably won’t need 20 of any one item. As they get older and the laundry stretches out to every 2- 3 days you start to need more (i.e. we need about 5 pairs of spring jammies)
3. Buy things that morph or can be used for longer periods of time: our bouncy seat converts into a toddler rocker that she loves using now.
4. Skip the highchair and just get a travel seat. Our travel seat is always attached to our kitchen chair, but we had it for outings as well. Now she’s big enough for a high chair at restaurants, but the travel seat still works great at home. Space saver as well!
5. Babies/kids don’t need a million toys. Our daughter has entertained herself for days by putting her babies and stuffed animals in a cardboard box and pushing them around. It doesn’t take bells and whistles (and batteries) to entice children.
6. Since you will have the need for some battery operated items, invest in a good charger and rechargeable batteries.
7. Some safety items are not worth the money. We have all the outlets covered, tot locks on the dangerous cabinets and the door to the outside has a knob cover on it, but I found items like a toilet latch, toilet paper cover and table guards are not necessary. I found just teaching her not to touch the toilet lid was enough and since I NEED a shower every day she has spent 95% of my showers hanging out with toys in the bathroom. Some safety items actually attract the child to the hazard. Better if they hadn’t noticed it at all or learn that some things are not toys and should not be played with. Save some money but make sure you are equipped with adequate smoke and carbon monoxide detectors and have a quality car seat. Wait and see, you might be surprised what your own child gets into and what they avoid.
Last week ScrapperMom and I received our “Economic Stimulus Package” via Direct Deposit. Since there are the two of us plus one dependent, our package totaled $1500. For now, this money will sit in our high interest savings account. With all of the bad economic news lately, we feel a bit more secure with more of a buffer — just in case. (I would like to thank our children and grand-children for giving us this money — you guys really shouldn’t have — really)
If you haven’t received your stimulus check or deposit yet, you can check the schedule at the Economic Stimulus Payments Information Center at the IRS website.
Even though we will be squirreling away our refund for the time being, that doesn’t mean that we won’t still be able to take advantage of some really great additional incentives offered by a number of retailers, including grocery stores. A number of stores have made the offer to increase your stimulus check by 10% if you use it to shop at those stores.
Here’s a list of stores participating:
- Sears, Kmart, and Lands’ End
- SUPERVALU Stores:Acme, Albertsons, Bigg’s, Cub Foods, Farm Fresh, Hormbacher’s, Jewel-Osco, Lucky, Shaw’s/Star Market, Shop’n Save, and Shoppers Food & FarmacyPress Release
- Kroger Supermarket
- RadioShack
Each of these stores has a different policy on the increment value of your check that you can redeem, but they all offer to stretch your check an additional 10%. Now I certainly don’t encourage you to spend at these stores just to get the extra 10%, but if you were going to shop there anyway, or needed something that one of these stores offers, then by all means, stretch away.
If, like us, you received your stimulus payment by Direct Deposit, you may still be able to receive the 10% by showing proof of your receipt of the stimulus in the form of a bank statement. This article from the Boston Globe states explicitly that Shaws will allow you to redeem your 10% in this way.
In our case, we will be getting triple credit by using the Stimulus like this:
- Purchase $1320 worth of gift cards from Shaws (which is where ScrapperMom typically does our grocery shopping) for a cost of $1200.
- Use our Chase Freedom card, which offers 3% cash back on grocery purchases to buy the gift card, to reduce the cost of the gift card to $1164.
- Keep the $1500 Stimulus in our high interest savings account until September when our credit card bill for the year is due (point 2 in this article).
And actually, since we would be spending money at Shaw’s anyway, the final payment for the gift cards will come out of the grocery line item for our spending plan (aka budget) for the next 3-4 months anyway, allowing the Stimulus to continue sitting in our high interest savings account, earning away.
Here are some other ideas for what to do with your Stimulus:
- Start or augment your emergency fund
- Pay down high interest debt like credit cards or car loans
- Fund your Roth IRA
- Pay down low interest debt like student loans
- Fund your kids’ 529 college savings plan
- Donate it to your favorite charity or cause
Have you received your stimulus check yet? How did or do you plan to spend it? Let’s hear it in the comments section!
A couple of months ago I was alerted by Nickel to a great tool for Vanguard customers called Portfolio Watch. This tool allows you to look comprehensively at one’s investment portfolios, even if they are scattered across a number of different management companies.
If you are a Vanguard customer (and I strongly urge you to become one for the low overhead costs), you can use Portfolio Watch by logging into your account and clicking the link in the menu bar at the top of the page. When I first tried this, I only got an option for something called Portfolio Analysis. Vanguard has this to say:
Portfolio Watch is a tool that is almost identical to Portfolio Analysis except Portfolio Watch is only available to clients enrolled in Vanguard’s Enhanced Services (with Vanguard assets greater than and equal to $100,000).
The Portfolio Analysis tool allows you to manually enter your non-Vanguard portfolio data, but Portfolio Watch is more of an active service that actually connects to your other accounts and continually updates the analysis. Having only the former option, I entered my portfolio, totaling over $100,000, manually. Wouldn’t you know, that within a few days of doing this, Portfolio Analysis turned into Portfolio Watch. Apparently you do have to have greater than $100,000 — just not solely with Vanguard. I suspect that if this is the case it will be very easy to scam the system.
As a bit of background, I currently have 3 investment accounts at two brokerages: A Traditional and Roth IRA at Vanguard and a 401(k) from a previous employer at T. Rowe Price. Since stocks represent about 90% of the value of my portfolio, this article will concern itself with only that portion.
So, on to the analysis:
This first graph shows the relative amounts of domestic and international stock in my portfolio. Most of the money in my portfolio is allocated to the respective Target Retirement Funds at the two brokerages. At some point in the past I also purchased some shares in my 401(k) in a stand alone international fund. Because the Target Retirement Funds already invest some of their assets in international funds, the amount of money I put into the stand alone international fund has made my exposure a bit higher than in really should be in this category, as can be seen from the cautionary note that goes along with the analysis.
As a general rule of thumb, one’s international mix should be approximately 20% to 40% or so of total stock allocations. From Vanguard:
A stock portfolio can gain important diversification by investing up to 20% in international stocks. Moving beyond 20% improves a portfolio’s diversification but at a significantly lower rate. Because of the risks inherent in international investing, an upper limit of 40% is prudent.
This next table compares my portfolio to the overall market with respect to the mix of large, medium, and small companies. As you can see, my portfolio is a bit heavy on large capitalization stocks. This came as a bit of a surprise to me. This skewing largely has the T. Rowe Price Target Retirement Fund (TRF) to blame. Unlike the Vanguard TRF, which counts the Total Stock Market Index Fund as its largest asset, the T. Rowe Price fund has very few investments in medium and small cap stocks. While the vast bulk of the value of the US Stock Market is in large cap companies, much of the growth that occurs in the market is in the small and mid cap companies. Therefore, it is important to have a good amount of exposure to this class of businesses.
This deviation actually closely matches the difference between an index fund that seeks to match the Standard and Poor’s 500 Index and one that seeks to match the total market. The S&P 500 index tracks, as its name would suggest, the stocks of 500 mostly American companies, all of which are large cap. This represents about 75% of the total market capitalization. A Total Stock Market Index Fund, on the other hand, seeks to match the entire market as an index. The Vanguard version of this fund invests in approximately 1300 stocks which together represent about 95% of the total value of the stock market.
This final chart illustrates the deviation of the international portion of my portfolio from the market. Despite the fact that my portfolio is heavy on international stock, the stock itself is not well balanced with respect to the various world markets. As with the difference between large and small cap investments, Emerging Markets are (by definition) not as mature as other markets. These provide great growth opportunities that other markets do not. It is again important not to over-, or in my case under-, invest in this category.
Specific Conclusions:
- I have a number of deficiencies in my portfolio that need to be addressed.
- Most of these deficiencies seem to stem from the investment selections that I have made in my 401(k) at T. Rowe Price. Because my money is still in a 401(k) the overall number of options available to me is relatively low.
Plan:
- In the short term, I will sell some my T. Rowe Price International Fund shares and purchase some additional fund shares in the TRF as well as some in a small cap fund. This will reduce my international exposure and increase my small cap exposure. I will use the Portfolio Tester tool in the Vanguard Portfolio Watch analysis to figure out what the dollar amounts to move should be.
- In the long term, I will begin the process of finally rolling this account into my Vanguard IRA account. This will have the additional benefit of giving me enough money so that I can balance my portfolio the way that I suggested in this post. Vanguard has a $3000 minimum investment in most of its funds. To implement the strategy that I laid out before, I will need to have at least $18,000 in my account.
I also learned:
- It is important to write down your investment strategy so you remember why you made specific investment decisions.
- Not all Target Retirement Funds are created equally. Taking this for granted can find your portfolio skewed from the composition of the rest of the market and what your goals are.
- The Portfolio Watch tool (as well as the Morningstar X-Ray tool) provide much needed cross-sectional views of mutual funds, brokerage accounts, and even whole portfolios spread across multiple custodians. I strongly encourage you to give one of these tools a try as soon as possible. While my portfolio was not horrible, every fraction of a percentage in total return is important over a 30 year investment horizon.
Have you looked at your portfolio lately? What did you find out?
I went back to the data mine this week to see how our current heating and electric bills compare to those from the same period in the prior year.
In 2007, we had a number of circumstances that affect our heating and electric bills change, some for the positive and some for the negative:
- ScrapperMom was on maternity leave for 3 months at the beginning of the year. This resulted in a higher demand for heat and electricity, especially since there were now more loads of laundry each week.
- After her maternity leave ended, she took a new job that allows her to work from home. This extended the added demand for heating and cooling.
- We replaced our older boiler with a state of the art Micro-Combined Heat and Power system. This reduced both our heating and electrical costs.
- We set up an office for ScrapperMom in the basement. The basement was previously heated with electric heat, so to take advantage of the new Micro-CHP system we converted the basement over to hydronic baseboard heating.
- We decided to try an experiment:cross-tie our heating system with that of our rental unit to see if we could offer heat and hot water at a higher efficiency than the rental heating system, but still keep costs even or come out ahead.
When our rental apartment became available last fall, we listed it on Craigslist for $1250 per month. The previous tenant had paid $1200 per month for the prior 2 years. This monthly fee did not include heat and hot water. After a few weeks of nothing but nibbles at the $1250 price, our new boiler was installed. We set up the cross-tie with the other boiler and then listed the apartment for $1300 with heat and hot water included. The previous tenant paid a little under $1100 per year for gas (heat, hot water, stove/oven), so the extra $1200 per year in rent should have been enough to cover the additional costs that we would be incurring to heat the apartment — especially considering that the replacement boiler is more efficient than its predecessor.
What we found was a large increase in responses to our advertisement when we listed the apartment for more money but included heat and hot water. In this case, the difference in rent (presumably) more than covered the additional costs to provide the heat. I certainly didn’t expect it to make nearly the difference that it did. My best guesses as to why so many people were willing to pay a fixed cost for heat and hot water are:
- When moving into a new apartment, people generally have no way to tell how expensive heating is going to be. It could be a super-insulated unit with very low costs, or more likely an older, drafty apartment that costs a small fortune to heat.
- People recognize to a certain degree that they are bad at budgeting for costs that can vary dramatically from month to month over the course of the year and can handle it much better if they simply paid a fixed monthly rate all year round. I suspect it is this very concept that has prompted our local gas utility to offer what it calls “Balanced Billing” which estimates your annual bill and then breaks it down into even monthly payments so that you might still pay $125 per month in the summer, but you avoid a $350 bill in January.
Before simply cross-tying the heating systems, I thought of a couple of different ways to account for using one boiler to provide heat for the whole house. Obviously solution number one is to figure out what it cost to heat the apartment with the old boiler and then charge a flat rate based on that. The obvious downside to flat billing is that there is no “nudge” to conserve by relating consumption to payment, but since the apartment in question has a relatively low heat loss, even cranking up the heat will result in little additional fuel usage.
Another solution would have been to purchase BTU meters for each heating zone. Since there are 4 heating zones in the house, a BTU meter on each would indicate what percentage of the bill for heating was used by each zone. Once this information is known, actual bills for each apartment can be calculated. Tying the actual consumption to actual price would help on the conservation side, but the cost is over $500 per BTU meter.
Now that I have a full heating season worth of data, let’s look at the results. For the last year, our cost of heating for the rental unit has increased by about $600 (as compared to a tenant paying the bill). The cost for heating our apartment and the basement has risen by about $300. The electric cost for both our unit and the public areas of the house has risen slightly, which brings the overall utility increase for the house to $1070 for the year. Clearly this indicates that not only does the $1200 per year in extra rent cover the cost of heat and hot water, but it also covers (indirectly) the increased cost in our utilities as well.
The bottom line in all of this is that offering heat and hot water in a rental unit increases the amount of interest which decreases the amount of time it sits unrented. Also, the market will bear more than the actual cost of the utilities for the peace of mind of not having to guess what they will cost and not having to budget for big bills in the winter and smaller ones in the summer. Lastly, by tying the apartment heating into the new boiler setup, the cost to heat the apartment was reduced drastically.
What do you think?
photo figure credit: Karen Apricot New Orleans
