Carpet expenses

Okay, I meant to post this sooner, but I've been a little busy. As mentioned a while ago, I own a house with a friend that we were hoping to turn into a rental. However, we've decided that the location just isn't the best for either of us, and we are both going in different investment directions right now. So, to facilitate getting rid of the house, we needed new carpet/vinyl throughout.

Got a quote and had it done in under a week. Cost us just south of $3k, and was worth every penny. It looks like an entirely new house! I wish we'd done that before we lived there, and it wouldn't have seemed so bad. Anyway, Chris showed the house to someone on Friday and they seem interested in putting in a formal offer. Let's hope that works out so I can cut out a $500 loss each month that I pay for half the mortgage. I could even make a small profit with some luck!

My favorite new program

Recently I decided to start storing all of my financial records in PDF format. This is a lot easier than the 15 or so 3-ring binders I have stuffed with about 10 years of old statements. It also allows me to do nice things, like burn a DVD copy of my records and store it with a family member in case of fire at my apartment.

I haven't yet bought a scanner to start converting old documents, but I did download as many statements as I could from my online accounts . For those accounts where a PDF was not available, but an online statement was, I found a program that allows me to "print to PDF". This program rocks. I wish I'd found this sooner.

My next steps are to get a scanner, get a shredder, and buy a thumb drive. I'm going to move all my data to an encrypted area on the thumb drive, and remove it from my computer when not in use. This will minimize the risk of storing such things directly on my computer.

Savings rate

It's a little early in the year still, so my numbers are skewed a bit for the better. Anyway, as of my last paycheck, here are my standings for 2006:

*Taxes as a % of gross income: 34.09%
Living expenses as a % of gross income: 30.45%
Savings as a % of gross income: 35.46%
Savings as a % of net income: 53.80%

*For some reason my company was taking about 4% too much for the first two months of the year. Also, I like to do contract jobs on the side that are 1099, and I put 40% of that income aside in an interest bearing account to cover any tax bills the next year.

What I did right

Someone asked me recently if I had any tips I could pass on about how I was able to start meeting my financial goals. I'm not sure I'm terribly great off, all things considered, but maybe I can share some of the things that I've done along the way that ended up being right and in another post I'll share some that ended up being wrong.

1. I paid myself first.
This cannot be said enough times, in enough books. It's probably the simplest and yet most powerful thing I've learned. I often like to joke when people ask me why I still have over 25k of student loans yet continue to beef up my savings that "The citibank executives aren't going to Hawaii off me until I can afford to go myself." By paying myself first I was able to build up a nice emergency fun which has saved me several times in the last couple of years, preventing me from having to tap my credit cards for "help".

2. I started my 401k.
I originally only meant to contribute to the match amount of my employer, but accidentally ended up contributing 10%. I didn't even notice the difference in my check, so several months later I upped my deductions to the max allowed. My 401k hasn't yet hit a year but is already up 10%.

3. I started a Roth IRA.
I'd been hearing about Roths for a while and knew that they were "good" but didn't really understand them. However, I contributed anyway deciding it was better to learn as I go than to stall (my usual practice) and miss out on a year of contributions. Seeing as I am not eligible to contribute this year, and my Roth is up about 8.5%, I'd say it was a strong choice.

4. I worked hard to further my career.
While this may seem like a given to most, it's surpising how many people stay at a job because they are comfortable. My last job was very slack, with only 30-35 hours required, compared to my current job where 40 is the minimum. However, I love what I do, love the people, and am learning a great deal more. The 25% raise was just icing on the cake compared to the satisfaction I get at knowing I'm finally making it as a professional.

5. I kept an open mind.
Everytime I tell someone that I keep my emergency fund with an online bank, that I can't get to my money in under 3-5 business days, and that without Internet access I can't get it at all, they stare at me in horror. The entire idea of an online bank frightens many smart people. Because they are unwilling to research these online banks or to explore the benefits, they miss out on 4% or better on a liquid account in favor of 2% or so on a local account, or worse yet, 3.5% on a 12+ month CD.

6. I learned how credit works.
It's funny to look back and realize how little most of us know about credit. My dad, who is the most obsessive saver I know, does not see the wisdom of having multiple credit cards. When he would pay one off that my mother had run up, he'd close the account. I've learned that credit cards can be powerful, as long as you don't fall into the trap set for you by the credit card companies and your own desire to buy things you can't afford.

In the black!

As of this morning, I am very pleased to say that I have a postive net worth of $1325.71, compared to a negative of $11994.83 at the end of 2005 and a negative of $38110.76 at the end of 2004. My contracting job has really helped me make strong gains for the first quarter this year, as I'm getting some overtime.

I won't be able to sustain my current savings amount for too much longer, but I'm hoping to keep up with the percentage of savings after I convert to a permanent position. Of my gross earnings this year, I have put 35.46% into savings, paid 34.09% to taxes and other deductions, and have lived off 30.45%.

Reading and planning

Been doing a lot of reading lately. For about a year now I've known I am being way too conservative with my assets. I've slowly been making progress and trying to learn enough to go to the next level. With a positive net worth almost within my grasp, I'm very close to being ready.

I've decided to transfer most of my savings into a Vanguard Mutual Fund account. Right now it is tied up in ING for the 4.75% promotional rate. However, that ends on 4/16. So somewhere towards the end of April I'm going to open up my new MF account.

A good post I've found on different portfolio allocations really helped me narrow down my options to something that works with my risk tolerance, overall financial goals, and diversification capability. Right now, I'm leaning towards the following allocations:

Vanguard Small Cap Index (NAESX)				17.50%
Vanguard 500 Index (VFINX)				17.50%
Vanguard REIT Index (VGSIX)				15.00%
Vanguard Total Intl Stock Index (VGTSX)				32.50%
Vanguard Midcap index (VIMSX)				17.50%

Unfortunately, the minimum required amount per fund to avoid any fees is $10k. I definately don't have $50k laying around though, so I'll be stuck with some fees for a while. However, I believe that getting started now is much more prudent than trying to penny pinch over those fees.

I debated trying to leverage some ETFs in my portfolio but decided against it for several reasons. I don't have a lot to invest, so the purchase and redemption fees of an ETF would work against me. Furthermore, I'd like to DCA into my funds, which would rack up too many brokerage fees with an ETF. Also, I still want to read more on ETFs before I try them out. Perhaps once I get my mutual funds high enough I might exchange some of them for ETFs.