Net Worth December 2015

Ice PondsPhoto: Salt Sand and Smoothies

This month was a little rough. I ended up spending a little bit more than I expected. There were a few expenses that came up that I didn’t plan for, but it seemed to work out alright.

Total Cash and Bank Accounts (+$1,900.88): I get a small amount added to my life insurance policy every month. This month it was $59.08. I also was able to get paid on a few days of vacation time and sick leave that I didn’t use this year. This was added to my monthly balance.

The extra added will be used to pay down some of the expenses that happened this month.

IRA (+$18.73): My investments did alright. I ended up getting a dividend payment from Vanguard for both my bond index and total stock market index. I look forward to seeing how the stock market will pan out now that the Federal Reserve has raised interest rates. I plan to re-balance my portfolio at the end October 2016.

Credit Cards (+$1,629.61): I had to get my car sensors repaired, and my wife needed a laptop for her business. These two expenses added up to over $1,500. I also invested in purchasing Shun Knives that I got at 65% discount of the MSRP. These knives I plan to hold on for the rest of my life.

I plan on sticking to my plan of paying down my accounts in order from highest interest to the lowest.

Tax Loan: (-$270.71): I should be done paying off this debt by the end of February at the rate I am going. I’m excited to check this debt off this list.

Car (-$235.53): Slow and steady will pay this one off in time.

Student Loan (-$129.53): This is by far the hardest thing for me to get rid of. It’s also going to be the last thing I’ll end up paying off. The interest rate on this isn’t too bad at 4.47%.

Misc Loan (-$3.27): This account isn’t a big deal for me to have sitting around. It is a loan from one of my life insurance policies, and I don’t pay any interest until my premium payment is due.

I will reveal my plan paying minimal interest on my life insurance policy in a later post.

Overall Net Worth (-11,631.57) Increase (+929.04 or 7.4%) So far so good growing my net worth with only cash. I don’t expect January to do very well with my IRA at the rate the stock market is going.

3 Reasons to Not Fund Your Adult Child’s Lifestyle

Makua BeachPhoto: Nolan K.

As the new year comes upon us, we are making resolutions to save money for ourselves and our children. Saving money and spending less is the 3rd most common New Years Resolution.

When Andrew Hallam, in his book Millionaire Teacher, says that parents are often inspired to set aside money for their children’s future when investing for the future. Setting aside money is very different than encouraging a child to earn, save and invest. He further says that giving money promotes weakness and dependence. Teaching money lessons and promoting the struggle promotes strength, independence and pride.

Thomas J. Staney and William D. Danko, in their book The Millionaire Next Door, call giving your adult children money “Economic Outpatient Care”. They state that “many parents feel compelled, even obligated, to provide economic support for their adult children and  their families.”

There are a few downfalls to giving your children money for the sake of spending.

1. It Builds Dependence

The families that give money, that is given to be used to be spent and not invested, develops financial dependence. The children who also develop this dependence have less net worth and their annual income is also less. “And, in general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.”

2. Spending Becomes an addiction.

Children who receive the money are looking for the next injection of money to maintain their lifestyle. It becomes a hamster wheel lifestyle because they continually require income to cover their needs. They are unable to buy their happiness and they are more motivated by showing off their new toys than becoming better or learn new skills to accumulate wealth.

3. They’re trapped by Mental Accounting

In behavior economics, people will create mental accounts for money. A study, stated in the book Why Smart People Make Big Money Mistakes, suggests that we will spend $50 we are given as a bonus more easily than $50 we have been told was owed to us in salary, but mistakenly withheld.

It’s the same money, same person giving them the money, but you are more like to spend one check than the other. This is the same thing that has happened to the children. If they are freely given money, they will spend it without any thought of saving.

I hope this inspires you to teach your children how to to save and invest in their future instead of having you support them financially.

 

Net Worth November 2015

Stairway to Heaven - Kyle Gendary

pc: kylegendary

Here is my first real net worth update. It feels a little intimidating putting this out to the world.

I’ve read many articles and stories saying that people would rather speak in front of crowds instead of talk about their finances openly. Maybe it’s because they have  little bit of shame hiding within themselves to let out the truth.

Being able to talk about my net worth with real numbers is tough. I feel that it will keep me accountable for where I am at, and where I want to go in the future.

Net Worth 113015

Total Cash and Bank Accounts (+$857.06): This consists of two life insurance polices that I use as banks. I am able to freely loan from it. Annually there is a dividend that is given, and it grows at 5%.

IRA(-$3.90): My investments didn’t do too well this month. I’ve invested 70% it into a Vanguard total stock index and 30% into a total bond index. I’m glad that I get a dividend every month from the bonds, and a quarterly dividend from the stocks.

Credit Cards(-$2,586.16): I ended up borrowing money from my life insurance policy to pay off a balance transfer a while back. The terms of the loan made it more costly than I had hoped.

Tax (-$267.37): I ended up having to pay some tax to the federal government a while ago, and I am deciding to pay myself back for that. It also goes into my emergency fund.

With my current payment plan, this debt will be paid of by February.

Car (-$233.59): I’m paying myself back with interest on this loan. I’m excited because this allows me to put it back into my cash account.

Do I see my car as an asset? Not really. It doesn’t appreciate in value over time, and I don’t plan on selling this car or trading it in for another car anytime soon.

Student Loan (-$172.20): This is by far the hardest thing for me to get rid of. It’s also going to be the last thing I’ll end up paying off. The interest rate on this isn’t too bad at 4.47%.

You may say that it’s kind of dumb to have my money in a life insurance policy vs paying off my student loan. After running numbers, I’m actually getting more money back by having the money compound in my life insurance policy. (I’ll explain this more in a later post)

Misc Loan (-$3.24): This consists of money that was used in a bad way. This actually has some debt I paid off because I tried to do a balance transfer to see if it would work in my favor. In a short answer, it caused more headaches than I would like to admit.

I also used some money in my cash account to pay for the balance transfer on my credit card. I’ll be paying myself back on this as well.

Overall, the progress is going in my favor. Slow and steady, and having a specific plan will help me pay down these debts.

Personal Finance in Paradise – How to develop a Financial Plan

12189114_10153151021026301_1641410872984431393_n

“If you were to show me your current financial plan, would I get so excited by it that I would go across the country and lecture on it? If the answer is no, then here’s my question: ‘Why not?’ Why wouldn’t you have a superior financial plan that is taking you to the places you want to go?” — Jim Rohn

Many of us have never been taught how to develop a financial plan, and we walk through life guessing what is the next financial move that we should make. It’s possibly the main reason why people are live paycheck to paycheck.

It took me a year or two of research and testing to figure out what I wanted in my life. One thing I recommend is the worksheet from Missouri State University which is provided in the link. The worksheet is a good start point.

The process

1. Determine your current financial situation

One of my mentors told me that your net worth is your adult report card. We lose sight of how we are doing financially, and one way is to measure how we are doing is by looking at your net worth. My financial plan started out with me being $66,500 in debt in 2007 and no savings. I started to track every purchase, and it helped me to clarify where I wanted to go in the future.

Begin with how much you have saved up (in savings accounts, Roth IRAs, and other investments), and then subtract your liabilities (all of your debt from credit cards and loans). Begin tracking your expenses and organize your financial records.

2. Develop your financial goals

I wanted to get out of it the fastest way possible and not lose any of the activities that made me happy. I asked the following questions. It helped me find out where I wanted to be in the future.

  • What do you want for the future?
  • What do you want to achieve?
  • Do you want to save a certain amount of money a month?
  • Where do you want to travel?
  • What are your financial values?

3. Identify alternative courses of action

Seeing that my purchasing behavior and spending got me into trouble, I knew that the behavior was the first thing to change. I thought to myself “there’s nothing wrong with making mistakes with money. Learn from the experience and move forward.”

Remind yourself that there is no reason to beat yourself up over the situation that you’re currently in. Your circumstances can change. It’s a learning process and it’s alright if you don’t know everything now.

4. Evaluate alternatives

Because the $66,500 price tag was looming over my head, there needed to be a major decision to be made. How much could I put toward paying down the debt. After running numbers in my budget, I decided to put $1,250 a month to the debt and that was the first thing to come out.

Of course I had to give up a few luxuries like being able to eat out often. As I learned and searched for alternatives, I gained respect for money, and relearning delayed gratification. The choices you make now get will get you closer to your goals in the future.

Weigh the costs of the choices that you make. For instance, Can I make steady payments of $650 to my debt per month? What better choices can I make with my money so I can get to the $650 goal

5. Create and implement your financial action plan

After I decided to take action, all the stress and emotion was taken out of the decision making process. It ended up becoming a game of how could I make better decisions to pay the debt down faster.

Once you have made a few decisions on what you want, and the direction you want to go, it’s time to make that plan work. This is the testing phase to see if you are able to work with your plan, and if it will work for you. The hardest part of gathering all the information and planning is complete.It will be hard at first, and the process will be worth it because you are beginning to change habits that you didn’t know you had before. You are on the road to becoming better with money.

6. Review and revise the financial plan

Your first plan isn’t going to be your last. As you move along in life, your financial situation is going to change. My financial situation changed many times over the years. Yours will too. Trust in the process, adjust when you have to, and restart from the beginning when you have to.

For more detail go to wikiHow to get deeper into the planning. Let me know if this helped you, or if you have any suggestions please let me know. See you again soon.

If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us. – Jim Rohn

Money Moves October 2015

11313485_1582758235307576_1801675540_n
Welcome to Money Moves for October. This is the section for review and to reflect on the things I have done and what could have been done better for the month. I hope you find it interesting. Hopefully it will help you make better decisions for yourself.

Let’s begin with what the end of the month with my my financial report card. It looks something like this:

Net Income from Work  $2652.99
Expenses $2652.99

Reoccurring Monthly Expenses:
Rent: $1045 1 bedroom 1 bath. It’s Hawaii, rent is expensive
Car Payment: $316.97
Student Loan $202.05
Life Insurance $187.51
Extra to debt 130.98

Assets:

Cash value in 2 life insurance policies $16,276.48
SEP IRA $11,630.85
Total: $27,907.33

Liabilities

student loan $20,023.06
Car loan $10,015.61
Chase credit card $3448.54
miscellaneous loan $6312.88
Total: ($39,800.09)

Current Net Worth: (11,892.76)

A few things to note, I had my credit card paid off, but  I had an idea a few months ago that  I could do a balance transfer and continue to use my credit card without paying interest due to the CARD Act. I wanted to continue using my credit card to take advantage of the 1% cash back, and it would benefit me as long as I continued to pay my balance off in full. I confirmed it with a representative, and he confirmed that I could use my credit card and not be charged interest.

When I got the statement the next month, I found saw that I was charged interest. I had to talk to two different managers to find out that the initial guy was wrong. I have nothing against with balance transfers, if you have a plan to pay it off and get the right information. To say the least, the idea bombed, and I get to have a nice conversation with my credit card company to reverse the interest charge.

 Another thing you might notice is that my expenses are exactly what I make in a month. I pay for all of my purchases in the same month that I charge them, and I am paying more toward the principal balance of the loan. Essentially, I am using the debt snowball method of paying down my debts.

My checking account is attached to a personal loan account where an overdraft amount is taken out to cover any charges that I make beyond what is in the account. There is no fee charged if I use the overdraft amount, which is really nice, and I am able to pay down my balances on my debts a little bit faster.

Using the debt snowball method and using all of the money in my checking account; I save a little bit on interest charged daily.

I have cash value in my whole life insurance policy (actually it’s 2 policies) that I use as a bank. Cash value life insurance has many living benefits, and being able to use the money in your policy as a “banking system” gives a person a lot of flexibility when purchasing something and being able to grow and get dividends on the amount in the policy as well.

The last thing to note is that I received income from my employelr in a retirement fund. As you can see above income, from the SEP IRA, has been into the 70% stocks and 30% into bonds. Using Fidelity as the brokerage firm, the money is invested into a few stocks of Netflix, a total stock index fund from Vanguard, and a total bond index from Vanguard. I did that so that I would have the ability to have growth in the stock market and pay the least amount of fees possible. I’ll talk about fees and how it hurts the growth of your investment in the future.

Plans for the Next Month

I’ve finalized how I am going to pay off the debt in the most efficient way. I’m going to pay off the remainder of my credit card balance with cash that is in my whole life policy. That way I won’t have to pay any interest on my credit card, and I no longer have to call my credit card company to reverse the interest charges.

Paying myself back for the loan balance I have taken out at my insurance company. The policies do not accrue interest on a daily rate like credit cards, and interest is only charged to me when my premium is due. That means that I pay my premiums in in July and October, and if there is an outstanding balance, I pay interest then. Also, I’ve got it set up where I don’t have to pay interest at all on the loan by filling up my policies before the billing statements come out.

Setting up this website and making it look presentable. I’m doing my best at getting this website started with a little mishap of setting up the domain and host of the site. As this site begins to grow, I hope that I can add more to it in the future.

Welcome to Personal Finance in Paradise – What This Site is About

Welcome to part two of my financial adventure. I’ve been wanting to heart a blog and put my thoughts out into the world so that people can learn from what I have been learning. I feel that people can learn from my mistakes and also from my victories along the journey.

I hope you get to share some thoughts with me along the way, and that we are able to learn from each other.

I’m excited to be able to go on this journey with you, and that we are able to be driven to grow your net worth, destroyed debt, be able to construct good habits around money, and change your mindset along the way to become prosperous during the journey.

I look forward to hearing from you. Thanks for joining me