Don’t Feed the Alligators

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

Archive for the 'Spending Plan' Category

Free Beer

Creative Commons License photo figure credit: Timothy Lloyd

Last week ScrapperMom and I had an interview with a financial planner.  I have written before about using a financial planner and really didn’t think highly of the idea.  So how did we end up in this guy’s office? Let’s back up a bit:

A couple of years back we discovered a brew-your-own beer place about 45 minutes from our house called Deja Brew. You go in, pick a recipe out of a big book, assemble your ingredients, grind your barley, boil your wort, add your hops, cool things off, add your yeast, and put your soon-to-be-delicious-goodness in a storage container. The process takes about 2 hours, makes a half barrel worth (15.5 gallons), and you pay depending on the recipe (different amounts of different kinds of barleys cost more or less). Two weeks later you come back and bottle your beer. The whole process is not exactly cheaper than the local package store, but it’s a whole lot more fun.

Anyway, on the counter near the door was a fishbowl that said, “Drop in your business card, and you could win a free batch of beer.” So drop my card I did, and forgot all about it. About 6 months later, the phone rang saying that I had “won”. All I had to do to claim my beer was to assemble 6 to 10 friends to join me in brewing, and sit through a 10 minute presentation given by this financial planner. Assemble I did, and free beer did we get.

After the brewing session, the guy started calling me. Repeatedly. Caller ID came through for me and I avoided answering — for more than 2 months of approximately weekly calls. Finally, I broke down and answered the phone. At the conclusion of the call, I had agreed to meet him at his office to discuss our finances and what we would like to work on for improving them.  Salesmen can be persistent, and on some level I felt like we at least owed this guy a listen after he bought us a keg’s worth of beer.

So last Tuesday night, ScrapperMom, Daughter #1, and I sat down for a little over an hour with Mr. Financial Planner. We discussed a lot of topics. He quoted a lot of statistics and figures about what people should do versus what they actually do. He introduced a couple of concepts with which I was not previously familiar. I gave him the rundown on our whole financial situation, and discussed near and long term goals. At the end of the discussion the hammer fell: He asked for $500 to be my “Chief Financial Officer” (as he described it) for the next year. He would consider our goals and put together a plan that we could accept or reject. If we rejected he would make additional suggestions. We would talk monthly by phone and quarterly in person to assess progress. At the end of the year we would have a full review to decide if we want to do it again.

I have to admit to being tempted by the pitch and the offer. It would be a relief to have at least some of our financial planning burden lifted off of our shoulders. On the other hand, I’m not really sure if I can justify $500 in either return on investment or opportunity cost.  ScrapperMom and I are also engineers, and by nature we analyze EVERYTHING to the nth degree.  So I’m not even sure that having a FP would even save us any time, since whatever he recommended we’d want to go out and research ourselves anyway.  Ultimately the primary issue is one of trust: Do I trust a total stranger to do a better job of managing OUR money than we can do ourselves?  At this point, I don’t think so.

I did learn a few things that bear further exploration.  First, I learned that we should be trying to split our savings in a 30/40/30 ratio between money that can be taxed now (CDs, Money Market, other taxable investments), things that can be taxed in the future (401k, IRAs, etc.) and things that can never be taxed (Roth IRA, tax free bonds, etc.).  I also learned that, according to this FP, we are doing better than 90% of the people he deals with on a first meeting in terms of having our ducks in a row.  I also got another vote for slowing our paydown of low interest debts in favor of building up the 30/40/30 (which currently looks like 16/76/8) savings.  This is in line with what we had planned to do anyway, just not necessarily in the ratio suggested.

At this point, I think we have pretty much decided that we will stick to doing our own planning.  We’ll still use outside help in the form of books from the library and ideas bounced around on other Personal Finance Blogs and forums, as well as here at this site.  I think the toughest part will be trying to get this guy to stop calling.  And in case you’re wondering, YES, all of this was worth the free Chocolate Cream Stout!

If you ever end up sitting down with a financial planner, take a look at this site for some great questions to ask:

10 Questions to Ask When Choosing a Financial Planner

Do you have any experience with a financial planner?  Was it a good experience or a bad one?  Please share your thoughts in the Comments section below, or click here if you’re reading via email.

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08.03.2008
Cash!

Creative Commons License photo figure credit: Unhindered by Talent

Can you believe it’s August already? This weekend we’re relaxing with friends at their home in New Jersey. In the meantime, I hope you enjoy the following:

Hank at MyInvestingBlog.com asks the question:

If you were given $50,000 USD (tax free) today, what would you spend it on?”

I went back and forth on this question. The prudent thing to do would be to pay off the remainder of our low interest debts. The “dream basket” thing to do would be to use it for a down payment on a single family home, keeping our multi-family as an investment property. Paying off our debt would still leave half the money, and with the monthly payments on the debt gone, it would take us only 12 months to save that amount again, which is well within a reasonable amount of time to find and act on a new house. What would you do? Leave a comment here and then head over to the original article to enter for a chance to win an American Express gift card. If you leave a comment there, let me know!

Some other articles that caught my attention this week were:

  • Rocketc wonders if a frugal culture exists at your work place. He feels obligated to eat out with coworkers for fear of missing important business discussions that may ultimately further his career. My office is split between go-outers and brown-baggers, but nearly everyone eats at the office. I admit to feeling not so much peer pressured, but food pressured to be a go-outer, but it’s better for my wallet and my waistline to be a brown-bagger.
  • Boston.com presents a scary article about how many workers are breaking the retirement piggy bank. It’s almost never a good idea to use retirement money for anything but retirement. But you knew that already.
  • J.D. writes about How to Cope with a Lousy 401k Plan. Most of us don’t realize that the plan we have through our job is not the work’s plan, it’s our plan, and we all have the power to change it, especially if we band together with coworkers. Many of these plans aren’t set up by financial experts, and very often the administrators are sold a bill of goods. A little research followed by a little bit of squeaky-wheeling, so to speak, can make a major impact on the size of your nest egg.
  • David posted a list of state sales tax holidays. Tax holidays are a great way to save — especially on big ticket items. However, one should be sure that (a) This item is in your spending plan and not a splurge item (since otherwise you will have not saved anything…) and (b) that you know what the regular price of the item is and what a typical sale price is. In my experience, many stores have no sales on Tax Holidays and bring all of their sale prices back to full price. In many cases, you can actually save more money on the weekend before or after the tax holiday than on the holiday itself for this very reason.
  • Finally, PaidTwice wonders about how much your time is really worth. I, too, have always been skeptical about arguments like this. The key here is to set the baseline appropriately: the choice is between earning $0 and something, not between your regular hourly wage and something. I don’t buy PT’s advice on earning hundreds of dollars per hour since in most cases you can’t actually do that. Yes, you might save a few dollars clipping coupons for a few minutes, but that’s not the same thing as earning $25/hour.
Credit Cards Accepted

Creative Commons License photo figure credit: TheTruthAboutMortgage.com

Just about a year ago, ScrapperMom and I decided that we had reached the right end of the Credit Card Contiuum and that it was time to start earning some rewards for buying all of the things that we buy or pay for on a monthly or yearly basis anyway.  We went in search of a rewards credit card.

Rewards credit cards come in many different flavors.  There are air miles cards, new car purchase cards, free gas cards, free coffee cards, cash back cards, and even dedicated 529 earnings cards.  ScrapperMom and I decided that since we could not afford to contribute anything specifically to our daughter’s 529 plan that we would look for a card that would allow us to earn money for her account.

One might think that since we wanted rewards to fund a 529 account, that we would choose one of the 529 rewards credit cards that are available.  Unfortunately, the few 529 rewards cards out there have terms that are worse than those available from some other cards.  For example, one card we looked at has a limit of $300 in earnings per year.  Our goal was to put as many of our purchases as possible on the card, and knew that we would easily exceed the $300 limit.  Another card we looked at was linked to a specific 529 plan that did not fit our criteria for such a plan.

Instead, it made more sense for us to apply for a cash back credit card.  There are a lot of cash back cards on the market, and they all have different terms.  Using the credit card finder at Bankrate.com, we looked through many different cards.  Some, like the American Express Blue card have different rates for different spending amounts.  You have to spend a lot of money before the rates rise to a level on par with many of the other cards.  Most of these cards offer around 1% cash back on all purchases and 3%-5% on certain types of purchases, like fuel, groceries, and fast food.

Ultimately, we chose the Chase Freedom Card.  This card offers 1% cash back on all purchases as well as 3% cash back on things like groceries, fast food, and fuel purchases. You can redeem your cash whenever you accumulate $50 worth, but if you are patient then you can collect $200 and trade that for a $250 return (which brings the cash back bonus to about 1.25%). We can’t use this card for most of our big bills like our mortgage, car, and student loans, unfortunately, but we can use it on a lot of the small stuff like cell phones, satellite TV, Netflix, periodic insurance payments, etc.

In the past year, we have earned over $750 in rewards that we have applied to our daughter’s college savings.  In a typical month, we earn about 75% of our points at the 1% level and the remainder at the 3% level.  Since it only takes about 4 months to accumulate $200 worth of rewards, it’s worth our while to wait until that point to cash out the extra $50, since that’s a much better return than putting $50 per month into almost any investment.

Obviously the key to this whole plan hinges on spending within our spending plan.  We pay this card off every month with money from our checking account.  Again, we don’t use the card to spend on things that we would not otherwise have purchased.  One splurge purchase can wipe out a year’s worth of rewards in no time at all.

Many people have difficulty handling credit cards, and I understand that.  However, many others have aquired the self-discipline to be able to handle credit cards without breaking the budget.  I believe that not using a rewards credit card for things that we are going to buy anyway is just leaving free money on the table.  I have spent years giving the credit card companies my hard earned money, and now it’s time to redeem some of it.

Do you use a rewards credit card?  What kind of rewards do you get?  Do you find it worth it?

Piggy Banks

Creative Commons License photo figure credit: Jeff Kubina

Our daughter was born in early 2007. Knowing what I know about the power of compounding interest, I knew it was important to start a college savings fund early with something, even if it wasn’t much.  We definitely subscribe to the belief that saving for retirement and debt reduction come first in the savings plan and that college savings has to take a back seat to these higher priority expenses.  Still, it’s difficult to be a parent and not try to put something away for your kids.

With that in mind, we opened a 529 savings account for our daughter when she was almost a year old.  A 529 plan is very much like a Roth IRA — except it’s for kids and their family and friends who are saving for their future college expenses.  Money put into a 529 plan grows tax free, and withdrawals are tax free as well.  529 plans are administered by individual states, and some states also offer an income tax exemption on contributions made to your home state’s 529 plan.  It’s interesting to note that many states now offer more than one plan.

With so many plans available, opening a 529 plan can be a daunting task.  Luckily the folks over at SavingforCollege.com have made the task a bit more manageable with a search function to find the characteristics of a 529 plan that you want.  We started with this list of wants:

  • low fees — no point in having high fees eat up a large portion of the gains
  • a variety of investment options — age based, index funds, etc.
  • low startup costs — we wanted to be able to contribute small amounts at irregular intervals
  • state tax exemption — your gains only get better if you can deduct the contributions on your state taxes

Another great resource at the time we set up the account was Nickel who did a lot of the homework for us.  My search did seem to concur with his assessment.  We got 3 out of 4 of our wishes in this search.  Unfortunately our state does not have any kind of income tax exemption for contributions made to 529 plans.

We decided on the Ohio College Advantage Plan to get started.  This plan offers very low contribution amounts at $15 per contribution.  It offers a range of investment options including portfolio blends, index funds, CDs, age based funds, etc.  Most of the fees for these options are low.  The Vanguard options, for example, start with an expense ratio of 0.23%, and there are no other management fees of any kind.

One nice feature of 529 plans, however, is that you can generally switch from one plan to another with little trouble (the one great exception being after you just got a state tax exemption…). So it’s not only possible, but probably quite likely, that you may pick a plan today but change to a different plan at sometime in the future.

It took until nearly her first birthday, but we finally managed to open an account with $1,100 that we had saved over the course of her first year.  Most of this was her money in the form of gifts that she had received.  We have since made a couple of additional contributions.  Our plan for the near term is to use the cash back from our Chase Freedom Card, as well as any additional birthday, Christmas, or any other kinds of gifts she receives (at least until she’s old enough to understand money…) to fund this account.  We don’t expect it to grow like gangbusters, but we expect that every little bit that we are able to save will help.  If we get to a point where we are saving 20% or more of our income for our retirement, then we will consider contributing more towards this 529 plan as a savings plan item.

For Part II of this article, we’ll look at Pre-Paid Tuition plans.

The cost of education is already scary, and it feels good to be contributing something to help our daughter’s future, even if it eventually amounts to just a drop in the bucket.  Are you saving for your kids’ education(s)?  How are you doing with it?

In the fall of 2000, ScrapperMom and I made our first big purchase together: We bought a puppy. As two engineers are apt to do, we researched this purchase to the Nth degree: What kind of dog? Who from? How much? Vet? Crate? etc…

When we finally took the plunge, we ended up bringing home an adorable 20 pound Great Dane puppy (from a reputable dealer…). Two years later, we decided that one 120 pound Great Dane was not enough for one household, and that our little deer (pun intended) needed company during the day, and so we made the mistake of bringing home another Great Dane puppy.

Val on Bed

Orion on Bed

ScrapperMom wondered recently how the dogs fit into our financial picture, and Gather Little By Little spurred me on with a recent post about the rising cost of spending on pets.

Below is the result of the report I ran in Quicken to find out just how much we have been spending on our small horses:

Cost of Unconditional Love

Category Cost
Vet $6,589.43
Food $6,555.09
Supplies $4,962.79
Training $3,687.50
Boarding $3,645.00
Dogs $1,966.90
Dog Walkers $1,362.00
Doggie Day School $1,102.50
Damage Repair Payments $218.16
Registrations $209.74
Books $171.43
Supplements $155.15
Dog Shows $132.45
Fines $40.00

Total

$30,798.14

Yes, you read that right. We have spent thirty thousand, seven hundred, ninety-eight dollars and fourteen cents on our dogs since the fall of 2000.

For us, this was a shockingly large number on first inspection. That’s $335/month, on average, for the last 92 months. That’s a little over $11 per day. I can think of worse ways to spend $11, but I still felt that this spending was pretty high in the grand scheme of our general finances, especially when our budget in the “Dogs” category for the past year has only been carrying about $150/month.

My next step was to see how the spending varied over time, since there was definitely a dual (large) income, no kids period where a weekly trip to Petsmart was no expense spared. So I ran a new report:

Dog Cost Chart

This report is really inconclusive. On the one hand, it’s looks like spending has tapered off since about early 2007. This correlates with the birth of our daughter, so it’s really no surprise that we have paid less attention to our pooches (sorry, pups!) and consequently spent less on them. On the other hand, spending was way up as recently as the middle of 2006.

In looking at ways to cut spending in the future, I identified a number of categories that are not likely to see much new spending anytime soon: Dog Walkers, Day School, and the Dogs themselves. Additionally, there are some categories that are really not fair to charge to the Dog account, such as boarding, since this is really a vacation expense that gets budgeted for separately. A number of other categories don’t see much spending in the first place.

Val and Orion

With the elimination of all of those expenses, we’re still at a $233/month average outlay. There’s a pretty good chance that we won’t be doing as much training, since we don’t have that much time anymore, and the supply bill should stay pretty low since most of the costs there were “startup” costs of ownership. That basically leaves food and vet bills. If you count only those two categories, we’re right down under the $150/month budgeted amount.

I’m sure that we’ll have to end up spending more than this per month, since we’ll inevitably have to buy supplies and other items in the coming years. Maybe we can look for ways to save on food and vet bills for now, and bump the monthly budget up to something like $175 and see how it goes.

How much do you spend on your pets? How much have you spent on your pets? What have you done, if anything, to cut costs on them? What is your cost for unconditional love?

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