Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for the 'Planning' Category

Nail Biting

Nail Biting: A Bad Habit Creative Commons License photo figure credit: coxy

We’ve had a busy few months:

During this time, we have not paid very much attention to our finances.  Most of our finances are automated, so our bills still got paid on time, and I know that we’re generally doing okay.  However, I really can’t say whether we’re still saving enough, or even whether we have anything to save.  

Our busyness is really no excuse for taking our proverbial eyes off the ball here.  The truth of the matter is that I’ve had my head in the sand since shortly after ScrapperMom lost her job.  I really did not want to have to acknowledge the drop in income and figure out how to live without it.  As a result, I haven’t looked out our Spending Plan in months, I have no idea whether we’re spending more than we earn.  I do know that we have not yet made any retirement contributions for 2009 even though we are already 13% of the way through the year, and that’s starting to bug me.

Good personal finance is a habit like any other.  Breaking bad personal finance habits takes time, dedication, and work.  We’re all susceptible to falling back into our old habits, especially during times of stress, inattention, etc.  I gained a few pounds over the holidays (no excuse again…), and I’ve been working to take the excess off again.  Similarly, it’s time to get serious with our finances again.

Tomorrow I will draw up a new Spending Plan.  I will find money to contribute to our Roth IRAs, even if I have to take it out of our savings.  I will forget about our spending over the last month or two and focus on the future.  I will get back into the habit of good personal finance.

Do you fall back into old habits?  How do you get yourself back on track when you do?  Share your story in the Comments section below.

02.10.2009
Piggy Bank

Creative Commons License photo figure credit: ken +

Reader Jenn asks:

Are you planning to open a second 529 Plan for the new baby or maintain one account for both kids? We opened a 529 when we had kid #1 but when kid #2 came the financial planner we consult with said we can use the same plan for both kids?

Hi, Jenn, thanks for the great question.  Prior to your question I had not ever considered this and had plans to set up separate 529 accounts for each of our little dears.  I did some research on this and found a number of pluses, minuses, and rules that have swayed my ultimate decision:

Rules that seem to apply to this question:

  • “Each beneficiary must have his/her own account. Siblings or cousins can’t share an account. You can, however, roll any remaining portion of an account over to another child once the account’s beneficiary has completed college.” (source)
  • “If the child doesn’t want to go to college, you can roll the account over to another family member.” (source) You can also split the account into multiple beneficiaries.
  • “There are no restrictions on who can open an account for whom. You can open an account for your child, a friend’s child, a relative, the paper boy, or even yourself.” (source)

Advantages of saving separately for each child:

  • In our case, all of the money contributed to the plans, at least for the foreseeable future, will be money that has been given to the kids as birthday, Christmas, and other presents, so it’s more equitable to keep the accounts separate.
  • Individual accounts can be better tailored to the time horizon for each child — different investment choices can be made depending on age.
  • If it applies, you can contribute more in total before incurring the federal gift tax.
  • If you should die, the childrens’ guardian will know exactly what you intended.
  • Some states allow you to take a bigger tax deduction if you save in multiple accounts.

Advantages of saving jointly for more than one child:

  • You can start saving before you ever have kids, reducing the overall amount of saving that you have to do. (See The Beneficiary Loophole.)
  • Some plans charge a maintenance fee for each account.  A $25 annual fee per child would really ding our child’s account.
  • It’s simpler to deal with a single account than many.

One thing that doesn’t seem to matter at all is the amount of interest and compounding.  For the same investment choices, it does not matter whether you have a certain amount of money in one account or 100 accounts. J.D. at Get Rich Slowly demonstrated this recently.

For me, the only genuinely compelling reason to have just one account seems to be the idea that you can save before you have kids, but since we missed that boat already, it doesn’t apply.  So the bottom line is that I will be opening a new account for our new daughter.

I’d like to hear our readers’ thought and comments on this topic!

Dear Daughter #2

photo figure credit: MITBeta

I already outlined a number of lessons learned since the recent birth of daughter #2, and I’d like to share a few more before I get back to more “hard core” personal finance topics.

Having been a parent for 2 years already, I thought I knew a lot about parenting.  I was right — I know a lot about how to take care of a newborn baby.  However, as it turns out I don’t know all that much about raising a 2 year old big sister.  So the next lesson that I would like to share is:

  • Big sister is harder work than the baby

Newborn babies are relatively easy to deal with.  They eat, they sleep, they poop, they burp, not necessarily in that order, but they do a lot of each.  When they cry it’s almost always because of one of those things.  You don’t have to convince them to do any of the above.  You don’t have to tell them why they are doing any of those things.  You don’t have to entertain them or worry that they’re pulling the dog’s tail.

Toddlers, on the other hand, are a different story.  I’ve had many people tell me that having 2 kids is more than double the work of one and that the older child is going to have jealousy issues with the younger one.  Boy, were those both understatements.  Actually, the two of them together haven’t been too bad in terms of work load (maybe ScrapperMom will disagree with me here…), but we totally underestimated how much jealousy there would be by big sister of little sister.

Even after getting Dear Daughter #1 excited about the imminent arrival of DD#2, it has still taken 3 weeks of daily convincing that having a little sister is a good thing.  #1 has had issues with: Mommy holding baby, baby sitting in “DD#1’s chair”, baby eating, baby going into the car seat, etc., etc.  We have finally worked through most of these issues, but in retrospect, I wish there was more we could have done to soften the blow to DD#1. I am very grateful for the thoughtful people who have brought gifts for baby AND big sister.  I would encourage those of you who might be about to have a second child to think long and hard about how it will affect your first child and try to take steps to avoid some of these issues, if that’s even possible.

Another lesson learned:

  • Overconfidence can be a problem

In Part I of this series, I detailed the case of the missing car seat bracket.  The full story is that I couldn’t remember how to put the seat in, and left it for the night before we needed to use it.  I’ve put that car seat in several times, and figured it would be easy, but it’s been over a year since the last time and I was a bit rusty.  This meant that it took me far longer to put in (even once I found the missing bracket) than I expected.

Another example is that when I went to give DD#2 her first bath it didn’t even occur to me that this could be difficult.  I got out the infant bathtub, checked that the sprayer worked, filled the reservoir with warm water, stripped baby girl naked, and then listened to her wail for 5 minutes (it seemed like 20).  I had forgotten that newborns generally can be bathed with just a cloth, and that until their cords fall off, that area should be kept dry.  For the next couple of days I was paranoid that I might have caused an infection at the cord base. To top it all off, when the bath was done we couldn’t even come up with an infant sized towel to wrap her in and wound up using receiving blankets instead. The second bath went a lot more smoothly.

The last lesson that I’ll share in this series is:

  • Don’t overdo it

On the 4th day of DD#2’s life, we completed the following marathon: went for a short visit to ScrappeMom’s cousin who lives almost across the street from the pediatrician’s office, took the girls to see the pediatrician, went to Grammy’s house, went to a wake, went out to dinner, back to Grammy’s to collect DD#1, and then back home.  This was too much to do, even though we weren’t exhausted when we got home.  We had a couple of other days like this, but not as bad, since the arrival of DD#2, but we have finally figured out how to take it a little easier.

I hope these lessons are of value to some reader out there, even if only for the comic value in our follies.  This weekend I will get back to the personal finance talk and to answering some outstanding questions posed by readers.  As always, we’d like to hear your feedback and you can leave your Comments below.

Holiday

Creative Commons License photo figure credit: muha…

Happy New Year to all!  As we close the chapter on one year and move on to a new one, I find this to be an excellent time to reflect on the state of life in general, and for the purposes of this blog, Personal Finance.  If you’re a regular reader of this blog you will know that I am a big fan of automating personal finance:

  • Our cash back credit cards get billed directly to our bill-pay account at our bank and the bank automatically pays the full balance every month.
  • ING and Vanguard both automatically withdraw pre-set amounts from our checking account monthly to cover various savings goals like increasing the size of our emergency fund, Roth IRA contributions, savings to cover annual payment to insurance, etc.
  • Bill-pay automatically pays all of our fixed monthly expenses like our mortgage, student loans, car loans, etc.

The only things that we ever have to really worry about paying on time are utility bills, gas and electric.

Given this level of automation, it’s easy to neglect our finances.  They’re not really neglected, but they’re not always getting the attention that they may deserve.  Sometimes we’re saving too much or too little.  Sometimes we’re spending more than we should and don’t realize it.  Sometimes we need to shift saving priorities because goals have been met or circumstances have changed.

I’m apparently such a work-a-holic that I had to take the last several days of the year off in order to burn, rather than lose, vacation time.  I spent the better part of one day and small parts of others catching up on our finances — a Personal Finance Holiday of sorts.  I’m not by far the first person to propose such a concept, and I’ve thought about taking a Personal Finance Holiday for a long time, but didn’t think that I had enough personal finance “stuff” to do to fill up a whole day.  Well, after neglecting to even open Quicken since mid-October, it turns out I did have a whole day of catching up to do.

Usually a Personal Finance Holiday is used to get going on all of the little things that you’ve been meaning to do, but haven’t found the time for (you have been meaning to do these things, haven’t you?):

  • creating a Spending Plan
  • opening a new Savings Account
  • starting an IRA savings account
  • buying life and disability insurance
  • opening a 529 account for your child(ren)
  • writing down or benchmarking your Personal Finance goals

Reading any of the myriad of Personal Finance books available can leave one overwhelmed by the number of things that you realize that you should be doing with your finances.  Taking a PF Holiday gives you the perfect opportunity to sit down and bang all of these items out in one shot.  It also gives you time when you would otherwise be unavailable to do all of the little things that might distract you from actually getting this stuff done, without feeling guilty about it: Can’t do it on Saturday because you have to spend time with the kids; Can’t do it on a holiday because you have to spend time with grandma; Can’t do it on a vacation day because you have to run all those other errands that you’ve been neglecting; Can’t do it on a sick day because, well, you’re sick (right?).

Maybe you’re thinking that you can’t possibly take a PF Holiday because you don’t have any vacation time.  Well, take it unpaid.  That’s right, it might not sound very frugal or financially prudent to do so, but let’s look at what a PF Holiday is worth:

  • If you use your PF Holiday to open an IRA and put just $100 per month into it, you’ll have $1,227 in one year at a modest 5% average return, and $15,528 in 10 years.
  • If you setup a disability insurance policy, you and your family will likely be able to maintain your standard of living should you become disabled.  If you can’t work for 10 years, this might be worth a quarter of a million dollars
  • If you set up an emergency fund, and use this fund instead of a credit card when a true emergency rolls around, you might save $1,400 in interest on that credit card.

If the average person makes $40,000/year or about $20/hour, then the cost of a PF Holiday on unpaid time is just $320.  It’s actually even lower than that since you won’t have to pay taxes on money that you don’t make (or conversely, if you had worked the 8 hours you would have brought home closer to $250).  So a small $250 investment could be worth tens or even hundreds of thousands of dollars over the next decade, and even more beyond that — perhaps even enough to vacation at the beautiful looking spot in the photo above!

In our case, we already have most of our Personal Finance stuff under control, or so we’d like to think, so the PF Holiday was used to catch up on what’s been going on, make sure that everything is going the way it should be.  It was also used to tweak and steer the various Personal Finance vehicles toward their respective goals.

Have you ever taken a Personal Finance Holiday?  Do you need to take a Personal Finance Holiday?  Do you have any new or redoubled goals for 2009?  Let’s hear about your experience in the Comments Section below!

If you liked this article, you may be interested in seeing some related articles:


12.19.2008
Days 'til Christmas

Creative Commons License photo figure credit: aussiegall

Despite our best efforts we still didn’t sit down to do our shopping until about a week later than I would have liked. Unfortunately, with a work trip for MITBeta, a new baby on the way, and an apartment to be rented, we were preoccupied earlier this month. Because of my frugality and my past experience with Amazon I still choose to use Free Super Saver Shipping, even though they warned things may not reach us by Christmas. I will have to wait and see if this was a prudent choice. We are buying multiple gifts for most of the kids so my hope is that at least some of the gifts arrive on time and in a perfect world Amazon is managing expectations and everything will be in on time anyway. I haven’t had problems in the past and everything usually arrives in the nick of time. As of this post a lot of items have already shipped despite the late estimates. Amazon does a really good job of managing expectations.

One regret I have is not using the click thru option for shopping with Amazon. MITBeta and I are big fans of public radio and like to support it when we can. I obtain almost all my news from this source and feel like it’s nice to give a little back. Our local station has an option to click thru from their site to do your Amazon shopping. Although I remembered this fact while we were shopping for gifts, when I actually placed the order I forgot to click thru. I will try to remember this for next year.

I have decided it would also be a good idea to add Christmas cards to the budget for next year. It may not change the overall total since we came in under budget but it is an anticipated cost that can add up. I ended up buying 75 photo cards from Costco which had the best prices around for around $20. I think I typically spend about $40 for a similar amount of cards. In order to mail these cards I bought stamps, 100 for $42. So I think a safe budget number for cards would be around $60 and it pays to look around for the best deal.

Another thing that no one probably thinks about is swaps and charitable giving. Swaps are a great way to cut down on the amount of gifts purchased, while still sharing in the tradition of giving. If you are involved in a few different swaps each year it is probably a good idea to add those to your budget. If you have a couple of swaps with friends and work this could account for up to an additional $100.  It’s also nice to donate to charity at this time of year and MITBeta’s work has organized giving for Toys for Tots.

We do not want to forget our readers who may celebrate other holidays this season. I’m sure budgeting for Hannakuh gifts would be no different. Both holidays have anticipated expenses and are something to add to your yearly budget in order to avoid the holiday shopping crunch and credit card run up in January! But let us not forget that the most important thing this holiday season is spending quality time with friends and family.

We like to extend our warmest wishes to all our readers this holiday season!

Editor’s Note: All of the gifts that we ordered from Amazon.com last week have arrived and are wrapped. Hooray for Amazon and free shipping.