Story Problem

Amber has a student loan she is repaying.

To pay it off in three years, she'll have to pay $263.24 a month and $366.56 will be the interest.
To pay it off in two years, she'll have to pay $389.62 a month and $251.92 will be the interest.
To pay it off in one year, she'll have to pay $769.16 a month and $129.91 will be the interest.

What is her current balnce and interest rate?

LFG.com

A commercial told me to go to lfg.com and I said ok. (Yup, there is a tv in my life again.) I liked the website. The Lincoln Financial Group's website has easy to find information, financial education for teens, a quiz for how in need of financial planning you are, just all around useful stuff.

I, apparently, am in relatively high need of planning. I agree with the quiz, actually. The good news is I AM currently saving for retirement, and Erik does have disability insurance. I (we) still need to come up with an actual plan (although we do have vision), need to decide what we'll do in terms of college (or other) savings for Jasper, need to write a simple will and a living will...

We'll share our progress as it happens.
Where do you stand as far as planning for your financial future? Perhaps LFG will help you.

Ingenuity

This guy gets it.

In "Rich Dad, Poor Dad" there is a lot of talk about how creativity, ingenuity, marketing, and a little bit of greed will get you far.

In 9th or 10th grade, I threw a "bigger or better" party. We all started out with a nickel, and had one hour to run from place to place asking to make trades for something bigger or better. By the end of the hour we had a blender, a desk, and even a boat. But I stopped there, it was just a game. I never thought of setting an end goal for what I'd want to end up with, or being selective about the trades. I just wanted to see who could end up with the biggest and best thing. I forgot all about it until recently Mandy posted a link about this guy.

He's gonna do it, too. He'll end up with a house (and a lot of adventure along the way) beginning with just one red paperclip. He's definitely got marketing down. He's being selective in his trades. He seems like a genuine nice guy, with a little bit of greed that will get him far.

I personally don't think his last trade was a trade UP, (a year of free rent in Phoenix for a day with Alice Cooper) but with this guy's charisma and now popularity, he'll end up with his house.

Oh, and I almost forgot to mention. He's encouraging copy-cats. Hurray for sharing!

What would you trade for a paper clip?

Review - PIRGIM's "Master Your Money"

Randi said we should check out PIRGIM's "Master Your Money" report. So, I did and I may as well review it.

It's fine if you're struggling, and know nothing about money, I'd say. A few things seem either unrealistic or irrelevant:

First, the talk about not being able to afford a bank account. All my life I've had a free account, usually through a credit union. Washington Mutual also offers free checking accounts. It's pretty easy to get an account that has a minimum balance of $0 or $5, with no fees except for overdraft. So I found that part a little over-blown.
Also, it does the usual "group your spendings into categories" in a much more detailed than needed way. I much prefer the "All Your Worth" method of just three categories: Must-Haves, Wants, and Savings. Admittedly, we do have several categories in our own budget, but they're a bit broader than movies, eating out and clothes. (i.e. Fun Money, Car stuff, Loans, Out-Of-Pocket medical expenses, etc.)
The problem with setting a very specific goal for a specific thing is two-fold: What do you do when you reach it (continue to do well, or fall back into a not-so-good pattern) or how bad do you feel about yourself when you just can't seem to reach it. If your goal is to spend no more than 50% of your income on must-haves, and save at least 20%, than you have an ongoing goal that you can reach easily.
Having a spending plan that is "part of your daily routine" seems like it takes more time than should be necessary. Better to set it up in a way where you *don't* have to think about it. (Ok, so I'm totally sold on the "All Your Worth" method, and it looks like I ain't budging.)

The biggest things that were unrealistic were this:
*Using 5% or more interest as an example of how much money you earn through savings. If you know where I can earn 5% having a little extra set aside, PLEASE give me a link to it.
*The ways to save money. Who takes the family to the movies WEEKLY? Who takes that many family fast food trips? Who eats lunch out EVERY DAY?

Ok, enough complaining. Here's what was good:
Most of it was the same common sense budgeting advice you hear everywhere, and it's good advice. Fortunately, most of it doesn't apply to our situation at all. (High CC interest rates, payday loans, etc. etc.)
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Don't get me wrong. Overall, I love PIRG and with work they do (worked with them for a year and a half), but I found most of the report useless; at least for us.

Review - The Number

Lee Eisenberg is snippy and sarcastic, especially at the beginning of "The Number." So much so that Erik was put off by it and didn't read much. I did keep going, and as the book went on, the book provided more substance and more tollerable wit.

The number is much more of an exploratory essay than anything, so don't look to it for financial advice. Eisenberg asks how much money do we really need to retire, and what's retirement all about, anyway?

I ended up enjoying the book by the time it was over, but I wouldn't add it to my must-read list.

Money Education

"Rich Dad Poor Dad" dwells on the fact that rich families teach their children about financial management, and middle-class families don't, or at least what people learn in the home about money is usually the wrong mindset. One example is whether your home is an asset, or a liability - which I already mentioned. Another is, in his words, most people work for money, and the rich have money work for them.

I began thinking about what I learned about money growing up. I don't recall ever sitting down and learning about money management or finances at home - but there were things my parents taught by example, most of which I only understand now - looking back.

My parents were both school teachers, which meant not a large income, and no income in the summer. We spent our summers traveling and camping, so they obviously saved some money for this purpose. My mom did the budgeting, at her desk in the middle of the kitchen, where bills went in slots and cash came out of an envelope. (Looks to me like she did envelope budgeting.) I did ask her about it once, and she told me she just knows how much cash to get out each week, and once its gone its gone. Now that I'm using the same method, I can see why she did it. Early in my life, they bought some beautiful property in north-central Idaho with the plan to move there when they retired, and we would travel there for vacations frequently. My Dad would also work one week of the summer at "The Festival of the American West" at USU. This obviously wasn't necessary for income, as he quit doing it when it was no longer fun, but it did bring in some spending money while he was doing it.
When we (the kids) got old enough to get a summer job, we quit traveling with the family as much. One such summer, I was put in charge of the bills. My name went on my parents account, and my mother showed me how she does the bills. It was pretty easy, really. Pay tithing first (I was raised LDS, which meant 10% of our family's income voluntarily went to the church), then round it up to the nearest whole dollar and give the difference in other offerings (humanitarian or missionary funds, etc.), then pay the bills. I was left an envelope of cash to get groceries from. I remember my little sister wanting me to order pizza with it, and feeling very responsible when I said no because we needed to make sure we didn't run out of cash. She thought that was silly, since I had access to mom and dad's account, I could always get more. (Sorry, Linds, to confess for you.) I guess that's why I was given responsibility for the bills and not her, huh?
Anyway, I remember hearing Mom mention a Money Market account, and when I asked her what it was, she said it was where they keep the money they used to live on in the summer time.
There are two other vivid memories regarding money that have stuck with me. One was that I was never told no when I wanted something from the store. "Sure you can have it," I was told, "If you earn the money for it." We were not lavished in material possessions, but we were given opportunities to earn money if we wanted it. I frequently washed windows or mowed the lawn to earn money. For a long while, I owned the only CD Player in the house because I earned the money for it. I still own and use the same player today, and I purchased it while I was in middle school!
The next memory, rides on the exact same principle, only with different incentives. "If you want to go to college, you'll have to get good grades and get scholarships, because we're not paying your way." You can have it, if you earn the money. Education WAS highly valued, and we WERE expected to go to college, and therefore were expected to get good grades. There was a little help for each of us; $1000 (or was it $3000 - I'm not positive) was put into a mutual fund for each of us that we could cash out when we needed it. I took mine out for college, but stocks were in a slump, so I ended up with less than that. Also, due to skyrocketing college costs, the money went a lot further for my sister 10 years older than I than it did for me. One reason the older siblings left school debt free, and the younger ones didn't. (I'm not upset about this in any way, it's just what happened.)

So, I knew my parents did the following:
*Pay bills on time
*Plan ahead (for summer)
*Plan REALLY ahead (for retirement), including having dreams and not just financial goals
*Believed in the value of tithes and offerings
*Invested in Money Market accounts and Mutual Funds
*Didn't spend beyond their means
*Oh yes, and they had their home all paid for before they moved.
All really good stuff. The ONLY one we ever really sat down and discussed, to my memory, was tithing. Religious was primo important in our house.

So, I learned good middle-class examples. What I didn't learn in all this was HOW.
It wasn't until a budgeting workshop in college that I asked my mom HOW she did it (the cash in the envelope).
I had no idea what a Money Market was, or why,if,how,etc I should get one.
I knew Mutual Funds could lose you money, or gain it, but that's about it.
I never knew how to plan for retirement, or buy a home.

So, in the world of middle-class, live within your means, I've got it. No Problem.
In terms of future planning and investing, I knew squat, and am only learning now.
In "The Two Income Trap" and "All Your Worth" they argue how that was fine for our parents generation. They'll get along fine this way. But the rules have changes, and debt now chases after us screaming "Hey! You NEED me!" We have to be even smarter than they were about our dollars and cents, they say.

So, I'm curious:
HOW do you teach your family about financial management?
What did YOU learn growing up?

My program

Yes, I'm making a budgeting program to do just what we want it to. And when I'm done if anyone else thinks that it might help them out they're welcome to try it out, too. I'll make no promises about when it will be ready, or even that it will do what you want it to. But I'll try to make it as good as I can. I'm also using it as a learning process, so it might be a while. Sometimes I feel like I'm beating my head against a wall as I teach myself to program it, and other times it just flies. It is reassuring when I think that if I was in school learning it I would be going WAY slower and wouldn't be learning as much. Heck, I've only been at this for a little while now and I'm already creating a program to do just what we want.

Of course, what with how much of my time I'll spend writing the thing it might not save us any time in the long run. But I justify it because I'm using it to learn and I'm enjoying that immensely! I also know that if I get it right then it could help other people also. I know my sister Denise uses the spreadsheet that we do and would be interested, for one.

I first looked at the programs that were out there, and nothing seems just right. Once we started doing this spreadsheet, which plans ahead instead of keeping track only where money went after the fact, we fell in love with it. It makes so much more sense to have it planned out ahead instead of keeping every receipt. It's less work and then you don't have to be as careful about every little thing. You have the cash every week for out of pocket stuff, and once it's gone you're done, simple as that. There are also amounts you set aside for various bills and rainy day funds. (We have one that's car repairs.) So that way the money is already there and when you need it you spend it, knowing that that is what it was for.

When I was looking at different programs I found that they call it the "envelope method" and when cash was more prevalent rather than cards plenty of people would literally use envelopes with cash inside. I found many programs that would do this or that part of what I wanted, but nothing that would do it all. This is a good one.

This one also sounds at least somewhat good, except that to use it you need to pay a monthly fee. No thanks.

Here's another that sounds good, but when I tried to use it I found it klunky.

And, finally, the one that I liked the best, but it still lacks quite a few features that I would like. So I'm making my own. That goes to the Mac version, which is more up to date than the Windows one.

Here's a good page with links to all kinds of them.

Update: Here's an online free one that might be decent. I haven't had a chance to play with it very much. I'm hoping that Amber will have a chance to see how good it really is.

Work Ideas for Amber

I used to teach piano, but I've never been to keen on the idea of doing it once I have a family because then my working hours would be at the same time as my school-aged children's at-home hours. Last night, while reading "The Number," a book about retirement, I had a great idea. What if I offered adult beginning piano lessons to retirement communities - aka "Active Adult communities?" Then, I could work during school hours, set my own schedule, use my piano skills, my teaching skills, get to work with beginners (which I love to do), and fill a unique niche. I *like* it!

The only problem is, however, this would have to wait until my kids were in school. For now, I just have one newborn - so this idea is several years away.

I did have another idea that could get going soon, though. Even more than teaching piano, I would LOVE to teach composition. I realized last night how easy it would be to offer composition instruction online - targeting home-schooled kids. I would just have to set up a website - it would really be a piece of cake. And, the costs of running a website would be far less than renting a studio to teach in, or traveling to people's homes.

Finally, I really should finish my book. I began writing a picture book story a few years back, and I'm still really sold on the concept I have going - but it still needs a lot of work. It would take money up-front to commission an illustrator (I have one I'd like, but the art won't happen until there's financial incentive), and to market the book - but once it's done it could be a money maker. I know the idea of the story is good enough to sell - it's all a matter of me having the discipline to get it done.

Review - Rich Dad, Poor Dad

"Rich Dad, Poor Dad" by Robert Kiyosaki is a great read, even if it is poorly written. It reads just like a motivational speech, where the excited cheering speaker repeats himself often - really driving his point home. He even uses his lack of great writing ability as an example in the book! (He may not write well, but his marketing skills got him a #1 NYT Bestseller.)

I enjoy his argument that we need to choose to be rich. I've always been of the mindset that I would be poor (financially) throughout my life. I am/want to be a stay at home mom, and enjoy working in the non-profit world and the arts... not big money in those industries. But he makes a good argument that those who see any problem with the idea of a desire to be rich are simply being mentally lazy... they're really just afraid to try. He even goes so far as to argue that being greedy can be a good thing, and he manages to do it in a completely inoffensive way.

One surprising argument he makes (that fits very well with the "All Your Worth" philosophy) is that your home is actually your biggest liability, not your biggest asset. (Your brain - and using it - is your biggest asset.) The reason he argues is that assets contribute to your cashflow, and liabilities detract from it. A home takes mortgage payments, utility bills, repairs, etc., but doesn't bring cash in. (Unless, maybe you have a reverse mortgage.) Owning rentals, buying and selling real estate, these are assets.

Kiyosaki has even created a game to teach his way of handling money, and how can you not like that? We have yet to play it, but likely will one day.

The book is not a financial planner. Like I said, it's more motivational than anything, but it's an enjoyable and easy read with some fascinating ideas.

Java - it isn't a Latte

Erik has an awesome project he's working on. Maybe he'll want to post about it, but most of his computer time has been used working on it, so I'm posting just in case he doesn't have time to get around to it.

He loves learning about computers, especially programming. He also loves learning on his own through books. Classes can be nice, but then you don't get to work on your own schedule at your own pace, and you have to pay someone extra to tell you what to do. So, he's been getting books from the library to study up on programming languages - with his current focus on Java. Unfortunately, most library books are a bit outdated - but this way he can find the series or publisher that's most helpful, and then buy the most up-to-date book of that kind. Buying a book = less than buying a class. (So far, he's only purchased one - though the library piles continue to stack high.)

Also, knowledge is our greatest asset (I still need to post a "Rich Dad, Poor Dad" review, don't I!) and the more of this kind of stuff Erik knows, the more options he has in the job market. (Being able to fix just about anything is a pretty good asset too, both job market wise and money savings around the house.)

Anyway, he's begun creating something that might be pretty complicated for his first Java program, but it will be beautifully worth it. He's making our very own personalized budgeting program. He's taking concepts from the spreadsheet we began using (although we've really modified it) and planning to make everything much more automated. This is to save me time when I sit down and look at our money once a week. (Although, I don't mind the time I spend - I think it's fun, really.)

It may be a long time before it's done, but once it is, we'll have our own little online launch party.

Web Resources for "All Your Worth" Budget

Here is a website that has it's own details about "All Your Worth" style money management.

http://www.mdmproofing.com/iym/BMF.shtml

We downloaded the spreadsheet at the bottom of the page, and then personalized it to fit our own bank accounts.

Balancing Act, "All Your Worth" Style

The book suggests having your money in the following balance:
50% toward your Must-Haves (home, food, insurance, etc.)
20% savings (details to follow)
30% fun
*This is almost exactly where we're at in our own balance right now.

FUN
They have great arguments for budgeting for fun money. First, the financially wise argument: it's a safety net. If (heaven forbid) someone loses their job or can't work for some reason, if things get tight for any reason, you actually have some spending you can do without! But also important, if you can't have fun, what's the point to begin with? They also recommend a shared income household to "divide and conquer." Each of you gets money that is your own to do whatever you want with, no questions asked. For us, this means Erik can buy video games guilt free - and while I was working, I could go out to lunch frequently, financially guilt free. (Health-guilt may be a different story.) We've actually been trying to do only 20% fun money and it's been working out well. We've even reached our savings goal for a trip to Germany! (goal=$2500. Do you think we'll need more?)

MUST HAVES
Don't get monthly must-haves that you don't really need. In other words, avoid financial commitment for things like health club memberships (pay as you go), cell phone contracts (pre-pay), or credit card bills (use cash). Shop for better insurance rates frequently, and don't get insurance you don't need, don't spend more than you can afford on housing. That covers it.

SAVINGS
A clear saving plan that makes sense is outlined.
First, have $1,000 extra just sitting in your checking account. It's there for emergency readily available money, and so that you never bounce a check.
Next, pay off what they call "steal from tomorrow" debts. These include credit cards, friend or family loans, back payments, medical bills, etc. They give all sorts of reasons why it's better not to have a debt than to have the money sitting in savings. I never figured out if student loans count as "steal from tomorrow" debts, because they seem to be "invest in tomorrow" debts - but I still sure would like to be 100% debt free.
Third, build a six month security fund. Save enough money to cover the cost of all your must haves for six months.
Once you're all secure, save for retirement (10%), pay off your home (5%), and save for your dreams (5%).

Well, we've done it. The first $1,000 was easy. We've paid off all of Erik's loans (higher interest rates than mine) and we're working on mine. We've built up our security fund, and consider ourselves on the fourth step... replacing paying off our home (we don't have one) with student loans payments. We're now going to put that fund into a higher yield money market account and let it grow... or at least maintain its value with inflation and all.

It's easy to do this "big picture" budgeting.

Review - All Your Worth

So, now you've read "The Two Income Trap" and you're thinking, "Oh cussword, I'm stuck. This is totally my situation! What can I do?" Well, the authors (Elizabeth Warren and Amelia Warren Tyagi) were awful nice and answered your question in the book "All Your Worth: The Ultimate Lifetime Money Plan."

So, we've read "Smart Couples Finish Rich" and have heard all sorts of budgeting ideas. Neither of us really seemed to have the discipline to be that detail oriented with our money. It seemed more of a hassle than anything. And that silly advice of "don't buy designer lattes" didn't apply to us at all. Not only do I not drink coffee, I'm a rare breed who doesn't even like its smell. And by this time, we knew we had a baby on the way. Money was starting to become a big concern.

It may be safe to say that "All Your Worth" saved our financial lives. Now, we probably could have stayed afloat without it. In fact, I'm sure we would have managed.

I'll put it another way. Without this book, we would have been forced to move in with Erik's parents, and scrimp and save to know that we can get by on one income and without consumer debt.

After having read the book, we happily and willingly moved in with Erik's parents, we are comfortably saving, paying down our debts, have some money to play with (guilt free), and feel like we're doing well financially.

Here are some reasons I rave about this book:

It's the first financial management book that I felt applied to me. "You watch what you spend, you don't waste you're money on designer lattes, yet you're still just scraping by. Here's what you can do..." And it didn't skip straight to the usual "if you were smart and put $50,000 into a retirement plan you'll be wealthy" stuff the books always say. Sure, it said saving for retirement - and a rainy day - and for your dreams - is important... but nothing left you saying, "yeah right, and where do you think I'm gonna find $50,000 available to stock away where I can't get to it?"

It didn't expound on the virtues of owning a home. In fact, it said if you can't afford a home, don't buy one!

It DID say this: If you're struggling to get by, you're either spending too much on your must-haves or too much on your wants. It's all about balance. Then, they break down how to figure out which one you're doing, and several ways to fix the problem.

All the basic recommendations were easy to follow, and have put us where we are today - easily in the black. It's common sense simple, and takes the work out of budgeting.

I LOVE this book, and still claim it is the best financial planning book I've ever seen. A MUST read, and probably even a must own. (I took copious notes.)

Review - The Two Income Trap

The next book in line from the "recommended by Mom" category was "The Two Income Trap: Why Middle-Class Mothers and Fathers are Going Broke" by Elizabeth Warren and Amelia Warren Tyagi.

The title gives the impression that you're in for yet another "the Mother's place is in the home" argument, but that's not really what you find at all. Instead, the book touches a little on the history of women going into the work force and why economic forces have made it close to impossible for the modern mother to stay at home. But that's not the heart of the matter.

It illustrates very clearly how easy it is to go broke, and why it's happening. The thing I found most fascinating was the history of the lending industry. It used to be you had to go to a bank, and prove you actually could afford a house before they would lend you the dough. Now, folks are getting hounded left and right to borrow money for everything - and the hardest hit are those who actually can't afford anything.

The authors do a great job of debunking common myths about why so many families are going bankrupt, like people are spending too much on frivolities, and they generally spend more on stuff (a TV for every room, etc.).

A quote from the Powell's review: "Today's two-income family earns 75% more money than its single-income counterpart of a generation ago, but actually has less discretionary income once their fixed monthly bills are paid... Warren and Tyagi provide convincing evidence that the culprit is not "overconsumption," as many critics have charged. Instead, they point to the ferocious bidding war for housing and education that has quietly engulfed America's suburbs. Stay-at-home mothers once provided a financial safety net if disaster struck; their move into the workforce has left today's families chillingly at risk. The authors show why the usual remedies - child-support enforcement, subsidized daycare, and higher salaries for women - won't solve the problem, and propose a set of innovative solutions, from rate caps on credit cards to open-access public schools, to restore security to the middle class."

Overall, I love this book and would rate it as one of my favorites. It delves into our social history, politics, and is an inspiring call to action. It also makes me feel even better about my old-fashioned commitment to be a stay at home mother.

Review - Smart Couples Finish Rich

"Smart Couples Finish Rich" by David Bach was the starter book for us.
Erik's mom convinced him to read it, and then he convinced me.

I thought it was ok, and certainly important stuff to think about. I was unimpressed by the title, as I typically am with most financial books that make it sound like all you should care about is getting rich ("and this book tells you how").

Generally, I would recommend it. It's full of good advice. What I didn't like about it was David Bach's "I'm going to tell you something amazing that you've never heard before" tone. In fact, it was almost all stuff I'd heard before. (Esp. "Don't buy designer Lattes.")

Click here for Bach's "Finish Rich" website.

What's this all about?

Erik and I are/were your typical contemporary young couple when it comes to finances: neither of us were out-of-control when it came to money, both frugal, but with college degrees and the student loan debt to go with it, and the relatively low paying job. (I worked in the non-profit sector, and Erik was self-employed.) So, begin our married lives with three loans to pay off (Erik hadn't consolidated, I had). We both paid our own way through college, so our student loan debt was sizeable, yet neither of us went crazy accruing unneeded debt. I wish I could remember what our net worth was then, I think it was close to -$20,000. Neither of us really tracked our spending, but we never really had to as we just didn't spend more than we had (minus college).

It all started with Erik's mom, really. She's the one who pushed reading "Smart Couples Finish Rich" on us and got us going on this whole thing... (thanks Susan!) Now, we have almost turned budgeting and financial management into a game. Of course, being "Yellows" we probably wouldn't be doing it at all if we didn't think it was fun.

Anyway, in less than a year, our net worth is somewhere around $4,000 - not including any of the cars we have that we could sell, or any other "stuff" we could decide to add.

The purpose of this blog is to record our adventures in finance, share fun things we discover, and keep track of finance books we've read and what we thought of them. I'll try to remember all the books we've already read and write up a review of them.

Welcome to our adventures in finance!