Where did this rule come from? It had to have been from the diamond industry or women. According to so and so, most American’s don’t have an emergency reserve deep enough to sustain more than two months expenses. Assuming your monthly expenses are less than your monthly income, it seems safe to say that if you have a two month emergency reserve you're close too or have the two month minimum to purchase your prospective wife’s engagement ring. It seems that America is able to scrimp and save for matters of the heart but not matters of the home. I was recently at a Tiffany’s looking at engagement rings and found several lovely rings. One ring reflected two months gross salary, another ring reflected two months salary after income tax but not after-tax withholdings, and the last ring represented two months net pay. I couldn’t help but think about the opportunity costs of buying the two month gross pay ring. That kind of money is a down payment on a house or investment property in most parts of the country or can help contribute to a nice nest egg in our out years. Although the sales woman at Tiffany’s mentioned my girlfriend would look at the ring not less than 1,000,000 times in her married life (odd statistic), I think the 1 ½ month net pay ring will have to suffice for now. After this post though, I wonder what the answer will be after my girlfriend discovers I was examining opportunity costs when buying her engagement ring. She can blame socketsite.com. They're very good at examining opportunity costs.

How important is your net worth? Technically, a person’s net worth is the difference between assets and liabilities, or the value of things a person owns minus their debts. Taking a quick look at my net worth I have around $30,000 in my 401(k), $4,000.00 in savings, $2,000 in a brokerage account, and around $1,000 is physical assets (furniture, television, toys, etc.). Looking at my liabilities I owe $30,000 in student loans and have a $22,000 car loan. This gives a ballpark net worth of:

$30,000 + $4,000 + $2,000 + $1,000 - $30,000 - $22,000 = -$15,000

According to this little formula, I’m worth less than nothing. I can see the light at the end of the tunnel though. I cannot imagine what someone’s net worth looks like if they bought a home in Silicon Valley within the last few years. The median single family home price in Santa Clara County for November 2007 was published at $858,000 according to Real Estate Reports. Say a very prime borrower came along and purchased a home at the median price with a down payment of 30% or $257,000. That person would still be in the red for $601,000. Looking at an amortization schedule from Mortgage Professor, it would take around 16 years at 6.5% to build enough equity in the home that the value of the asset minus the loan amount is zero. That seems like quite a bit of time and involves a huge down payment. This also doesn’t account for appreciation. The world is free to double check my math. So, back to my original question, does net worth really mean anything since a lot of home owners will have negative net worth for a very long time? Also, what about recent home buyers whose homes are now worth less than they paid and have no equity?

Everyone seems to agree that having 401(k) is a good idea. Analysts also claim that for best results you should max out your yearly contributions. Since I’ve been on this financial kick, I’ve been swallowing just about everything I read. I took a look at my current 401(k) contributions to see where I am at compared to the maximum and if I could increase my withholdings to get to the maximum. The yearly maximum contribution for 2007 is $15,500.00. I don’t know about you guys and gals, but that’s a lot of pre-tax money to me.

At the moment I’m contributing 8% of my gross pay to my company’s 401(k) plan. The company will match 50% of the first 8% I contribute. Right now, my total contributions including employer contributions are around $180.00 a week. Over the next 52 weeks, assuming my pay rate stays the same, I will contribute around $9,500.00. I need to find another $6,000.00 a year of pre-tax dollars. Assuming I only wanted to continue contributing 8% to take advantage of the matching company contributions, I would need to make about $130,000.00 a year. $130,000.00 a year generates around $200.00 a week at 8%, which after I include the 50% contribution puts me around yearly maximum. I either need a new job or go begging for a few promotions. I am a little fish in a big pond.

What if I wanted to increase my withholdings to get up to the max? I would need to increase withholdings around $120.00 a week. Ouch. Right now, if I skimmed another $120.00 a week, I’d be bouncing checks from here to other side of the globe. I’d need to cut back on something. Right now, I’m saving $250.00 a week and putting it into an ING savings account. I have been good for a few months and saved $6,000.00. I skimmed $2,000.00 from it to fund the Schwab account. I could reduce my contributions to ING and max out my 401(k). I’m not too big on this since I’m still about $3,000.00 short on my emergency reserve target. You may notice that even with an additional $3000.00, my reserve is pretty thin. It should last about 3 months. I can take a look at my spending over the next few months using my MS Money reports to see where I’m overspending. I think once I have my credit card debt down and my emergency reserve funded, I can consider raising my 401(k)contributions. I am not ready yet. This is frustrating. I feel like my paychecks are just disappearing. At least if there were a Porsche or Ferrari in the carport, I’d know where it’s all going!!

As a Christmas present, my girlfriend’s mom gave me a copy of MS Money. My family knows that I’ve turned over a new leaf and am now trying to be fiscally responsible, which implies that I understand where my money is going. Microsoft advertises Money as personal finance program to track your spending, create budgets, manage your brokerage account, etc. Installing Money was fairly straight forward. Insert the CD and off it goes. After that, things got a little complicated as I’ve never used Quicken, Money, or any other personal finance program.

The package MS Money came in did not come with a user’s manual. Microsoft does supply a manual on-line which I used at first, but wasn’t too very helpful. I went down to Borders and bought a copy of Microsoft Money for Dummies. It took a few tries, but I was able to setup my checking and savings accounts. Washington Mutual works with MS Money to update the check register and mark which transactions have been cleared. To update my ING accounts I have to log them into the register manually or log into ING and pull an MS Money file for each account. ING claims this is for security reasons. At the moment I’m using the MS Money account register just like I would normally use the paper one in my check book. I input the day’s transactions like I normally do. Everything seems to be balanced.

Money allows you to categorize your withdrawals and deposits. This allows the tool to automatically generate reports to show you how you are spending money. It took me a few tries but I got everything categorized and was able to make a nice pie chart for my December expenses.





Before anyone attacks, the entire “Entertainment” category is not me. I am reimbursed for most of it. This chart just shows expenses. “Hobbies/Leisure” got me good this month. I ride a bicycle (road bike type) and had to replace my drive train due to a couple years of neglect. The “Savings” category will eventually disappear. Funds I set aside for my savings account are technically transfers and not expenses. For December, they are categorized as expenses since I couldn’t get Money to work with my old ING transfers. Now that I have tracking information, I can look at the data over the next few months to see where I can cut back. My monthly income vs. expenses report looked ok but not great. I’m hoping I can use the tool to help find inefficiencies.

MS Money also allows you to schedule all of your recurring bills on the days you normally pay them out. Usually I’m scribbling my cash flow on a napkin every week to see where I’ll be at after the week's bills have settled. If you use MS Money’s “Bills” feature, you can project your future cash flow and have it illustrated in a bar graph. Below is my January forecast.



I scribbled my own forecast for January on some scrap printer paper and compared it to what MS Money output. The two are fairly consistent. This will be very helpful for me so I can better plan when to pay my bills. My paper/pencil version of January didn't account for timing my bill payments. I was scheduled to overdraw in the second week. If you’re curious about the drop to about $50.00 dollars next week, I didn’t plan December very well and overpaid my Capital One Visa. For some reason I thought I was better off than I really was. I can still make rent. I’ll just be short until I get paid next Friday. Most of my bills are due around the 14th of the month which explains the other large drop.

There is a learning curve to use MS Money. The tool is not super intuitive which required me to buy a book. Setting up my credit cards and transfers to and from my checking account to my ING accounts was also tricky. The category names for transferring money seem a little misleading. I think the names are changeable though. I’m not setting up my 401(k) or Schwab accounts in MS Money yet. I made a half hearted attempt to pull my 401(k) information and gave up when it got complicated. I have my pre-tax contributions showing up in a dummy account for now until I setup MS Money for my 401(k). Transfers to Schwab are also shown in a dummy account to prevent those funds from disappearing from my net worth calculation. I'm going to setup accounts for my car and student loans eventually. I've been little hesitant to do this since I know it will show my net worth being negative. Overall I’m pretty excited about my new toy. I think this will definitely help me get my arms around my spending so I can squeeze every penny I have.

So I figured I break the rules a little and start my brokerage account now rather than later. Technically this could be considered premature since I’m still paying down high interest credit card debt. It should be paid down by mid January so I think it should be ok. I also don’t have a complete six month emergency reserve yet. I took $2000.00 from my “reserve fund” and have it sitting in cash in a Charles Schwab One brokerage account. I keep reading everywhere about the magic of compound interest and that, “you have to start early”, or “you can’t start early enough”, so I just went and did it.

There a multitude of discount brokers out there, so someone may be asking why I went with Schwab and not Zecco, Fidelity, ShareBuilder, or E-Trade etc. I went primarily on word of mouth; their fees, minimum deposits, and references looked good too. My best friend had a brokerage account with Schwab and always had positive things to say. Whenever he got into trouble, he could always call and talk to a human being. He closed the account a few years ago to use the funds to make a major purchase. If you don’t open a checking account with Schwab, the minimum deposit to open a One account is $1000.00. Trade fees are $12.95 for the first 1000 shares and drop to $9.95 if you hold a huge balance or make more than 120 trades a year. I don’t plan on day trading so $12.95 a pop seems reasonable. I’m considering closing my Washington Mutual checking account and going all Schwab. Their checking account offers all the bells and whistles of standard big bank checking accounts plus reimbursements for other bank’s ATM fees and 4% interest on balances. No minimums. Not bad. The downside is you have to mail deposits in or have them transferred from another checking account. They don’t have ATM machines on every corner like BofA or Wamu.

There were some pains in opening the account on-line. Something went wrong and I didn’t correctly create a login ID. I called up the customer service department, was on hold for less than a minute, and a human being walked me through the account setup process. I then botched up the MoneyLink setup which links my Schwab account to my ING checking account. I happened to be near a Schwab branch, called them up, made an appointment for 30 minutes later, walked in and they explained what the problem was. I setup MoneyLink then called customer service to verify my ING account really was mine, then transferred my money. It took a day and a half to transfer the funds from ING to Schwab. Schwab has a three day hold on money transferred to them through MoneyLink. I’m used to these types of holds since ING has a similar two day hold.

I’m happy so far since I’ve been in trouble twice already and there has been a person to talk too and hold my hand. The 800 number customer service and the branch representatives were very nice and helpful. I got my welcome packet in the mail yesterday and got a call from a new accounts representative to answer any more questions I have on getting started. I have a pretty good idea of where I’m going to make my first investment allocations. I’ll make the trade January 1, 2008 and post my holdings. I still have to setup recurring deposits. I’m diverting some money I was using to build my emergency reserve to fund the brokerage account. I’ll try it for a few months and reevaluate to see if I’m spreading myself too thin.

I originally wanted to go with ShareBuilder since ING just acquired them. I thought it might be nice to use the products of the bank I’m already with. For some reason ShareBuilder didn’t rub me the right way. I liked their concept and still do, but the idea of trading only on a specific day for their advertised rate seemed odd. If you’re dollar cost averaging it should not matter though. Also, if you’re not careful with ShareBuilder their fees could wind up being a significant portion of your investment. There are ways to mitigate this. Zecco scares me since I haven’t read a positive review yet and some of the other brokers had higher minimums or more expensive trade fees.

Before a person or family can get into the practice of saving money, they need to determine how much they really can save practically. I’m still in the process of determining this without depriving myself of all fun. For a long time I believed I was close to being paycheck to paycheck. It turns out I’m wasn’t. I make plenty of money for a “single” person my age. I just had/have terrible spending habits. In August 2007 I went to my check register to see what my spending habits were like and noticed the last entry was February 2006. Not good. Sadly, I’m not alone. It turns out millions of people out there don’t balance their checkbooks.

This check register is a useful little tool provided to you by your bank usually when you receive your checks in the mail. I recommend that at least once a week, you go through all your receipts and log them into your check register and balance it. It would really be best if entries were made during your purchases. I don’t usually carry my check book with me (doesn’t fit in my pockets) so I now collect any receipts from the day and log them into the register every night. I’ve become a little obsessed in that I check my bank account on-line every morning to see what has been debited and what hasn’t. I was also amazed to see how many things were being automatically debited from my account that I had forgotten about. It seems I’ve been paying Tivo twice a month. I have one Tivo. Here is a neat article from someone other than me on why you should balance your checkbook.

I’ve been good in keeping track of my purchases and deposits for a few months now. I have a good idea on how much I spend on groceries, eating out, bills, etc. I can almost make semi-informed decisions on where I can cut back and how much I really have left to save. For example, I was spending about $200.00 a month on eating out. For groceries, I would shop at Safeway, never use a list, shop after work, and not use a club card. We’ve cut back eating out a lot. We now go out maybe once a week and eat in a lot. Cooking really is cheaper than eating out, at least for us it is. I got a club card and started saving on groceries. We also always use a list and never go shopping hungry. On our last trip to the grocery store, we saved $34.00 by only buying items that were on the list and “on sale.” I also noticed that while not shopping hungry we have a lot less odd things in the refrigerator and cupboards. Our next step is to plan meals for the week in advance and shop for that. There are personal finance tools available to help track your spending. I know of Quicken and Money. I own neither but have dropped hints to certain people that MS Money would be a nice Christmas gift. We’re still working on refining and documenting our spending, but I believe we’re on the right track.

Credit cards seem to be necessities to survive in today’s world. You can’t get a car loan or mortgage without a credit history and you can’t really get a credit history without a credit card. You could use your student loan or car loan as a history of credit, but if your student loan is like mine, you wish it would just go away.

I currently have one credit card. I have a Capital One Visa Platinum card which I have had for a few years. I opened this card a few months after my Citibank Visa was charged off and was given a nice limit of $1000.00. Apparently I didn’t learn the first time. Within the first week I charged the maximum on the card out and paid the second month’s bill late. There went my 0% introductory offer. I was the proud owner of a 19.99% APR albatross. I continued to make the minimum payments for a year praying the balance would go down. It didn’t. Since I was such a good customer by paying loads in finance charges, after one year, Capital One raised my limit to $3000.00. I went out again and charged the maximum. For about a year, I carried about $2700.00 balance paying the bill roughly on time +/- 1 week.

By the way, if you didn’t know, creditors look at the ratio of how much credit you have to how much you’re using. For example, if you have a $1000.00 limit and you’re carrying a $500 balance, you’re using 50%. There is a magic range that creditors like to see when you’re applying for certain loans; 90% is not very desirable. I’ve heard it’s less than 10%. Also if you didn’t know, it seems that creditors like to talk to one another. It seems that while I was in collections for defaulting on my student loan, Capital One didn’t trust me anymore and raised my APR to 27.75%. I started paying attention to my finances around August of 2007 and just about had a heart attack when I saw my Capital One bill. And you though 19.99% was bad. This is one very small step away from loan sharking. I continued to look at the credit card statement and noticed the minimum credit card payment was less than my finance changes. I was never going to get out of debt.

Step 2: Pay Down High Interest Debt and Lower Credit Card Interest Rates

Since September, I’ve been paying about $500.00 a month to pay the bill down. My finance charges were absolutely ridiculous and I’m an idiot for not catching this sooner. I finally have my balance down to $686.00. There were some recent expenses I had to pay using the credit card and I hadn’t used my credit card in over a year. I figured some usage is better than no usage. I am working to pay it down to $0.00. My plan is to be at $0.00 balance by mid January. I then plan to use the card for only up to 10% of the limit and carry a very small balance.

I have had “on time” payments (not reportable to credit agencies) for over one year and I am no longer in default on my student loan. I finished rehabilitation in September of 2007. Most of the negative reporting has already been removed. I’m still working with TransUnion to finalize the removal of any negative statements. EdFund is cooperating. I think it’s TransUnion in that they seem to status every few months. Since my credit card APR was so high and I am going to carry a balance for a few more months, I wondered if there was anything that could be done. I read somewhere on the Internet that you can call and actually ask to have your APR lowered. I figured why not. The worst they can say is, “no.” I called Capital One and they noticed I’d been good for a year and lowered my APR to 14.9%. Now I just have to continue making on time payments forever. Hey, when you’re in my boat, 14.9% is better than 27%.

The Internet posts are true. You can call your creditors and ask to lower your APR. You just need to be a relatively good customer and have a legitimate reason to lower the APR. Since Equifax and Experian don’t show collections anymore from my student loan, I look like a normal customer with an exorbitant APR. Still, it never hurts to ask. Try it and see. Also, if you’ve had damaging remarks made to your credit you may want to have your Free Credit Report provided to you so you know what is in there. I never used to care and now wish I did. I have some remarks that will be there until 2012. I will be 35 and paying for mistakes I made in my late twenties.

Truthfully, I’m not really starting at square one. It’s more like square two or 1 1/2, if there is such a thing. I started working for my company in February 2004 and started contributing to the 401(k) plan November that year. I would have started contributing to it on day 1, but I was trying to adjust to having to live on my own wages. I was a student for many years living on Government loans and working random jobs for a local bike shop. When I got into trouble, there was always the Bank of Mom and Dad.

Part of the reason I say I’m at square one is that I did severe damage to my credit three years ago and even before while I was in school. I had my student Visa credit card charged off in 2004 and I defaulted on my student loan in 2005. I have a very good idea why my brain was in a jar for two years but that’s not really the point of this post. The point is, I royally screwed up and needed to fix it ASAP.

Step 1: Get Out of Collections

For those of you who have ever had to endure the pain or are beginning to go through the pain of loan rehabilitation, realize that you are still lucky. EdFund allows you to go through a “loan rehabilitation” program. For 9 months you will allow EdFund to make on-time payments by withdrawing directly from your checking account. After 9 months, they graciously remove the collections remarks from your credit report and you qualify for more federal aid. If anyone reading this is in default on their student loan, call EdFund now and get started fixing it. It’s a painful and pride swallowing experience but you have to do it. The last thing you want is to have paycheck withholdings or have the IRS withhold your tax refunds. Imagine how fun the conversation would be with your company’s payroll department explaining that one. Moral of the story is to pay your bills on time. I learned the hard way. Kiplinger has a good article to read for those of you in similar positions.

As of today, I’ve completed rehabilitation and am with a real lender trying to consolidate the loans. The loan period is over 10 years at 7.22% variable. If I can consolidate, I can lump the loans together at a fixed interest rate. Part of my punishment is the interest rate I have to pay. The interest rate on the loan I screwed up on was at 5%. My girlfriend graduated around the same time I did and pays 3.5%. She’s fiscally responsible by the way. Payments are setup to withdraw directly from my checking account. The lender notified me that on a certain day every month the minimum payment amount will be pulled. I account for the debit in my check register. I use one now since I actually care about my finances.

First of all, this is a test to see if this really works. As you can see, I've just started my first web log and hope to add to it as time goes on. I just turned 30 and work in Silicon Valley for a tech company doing non-techy stuff. I graduated from Cal Poly in San Luis Obispo a few years ago and went straight to work. I live in the lower peninsula in an apartment with my girlfriend and day dream of owning a house someday.

Eventually I'd like this blog to function in similar fashion with what is going on in My Money Blog. Go check out that blog if you haven't already. My Money Blog is a very informative blog which discusses a real person's financial goals and the steps being taken to reach them. I'm not even close to where he's at yet, since I've just started saving. In a few days I'll post some numbers for the world to shoot at. I am not a financial planner and do not pretend to be one. Any advice you receive here is from my own personal experience. Please don't blame me if your 401(k) has been destroyed. If you're following along with what I'm doing, then mine was destroyed also.

I'll be tweaking the first few posts for a little while until I get up and running smoothly. Thanks for the read. Questions and comments are always welcome!