Tuesday, March 25, 2014

Taxes 2013

It's nearly April 2014--not that you'd know it from the weather that we're having. It is supposed to snow in the next day or so. But when I really consider the amount of work we're doing here, it makes sense to get the taxes done earlier than this.....but I say that every year.

For some reason, despite a refund, I still find myself delaying the tax filing process; I don't know if that will ever change. (And yes, I am one of those people who is giving uncle sam a 'free loan'; I justify this only to say that if I didn't do that, I'd probably never file and then be in jail :) )

When it comes to filing this year, things are getting tricky since I have recently started the process of becoming single. For tax purposes, it wasn't enough time to matter in terms of the dependents etc, but it certainly was enough time for me to realize that I don't want to file a joint return if I am not going to be with the person next year.

Separately, determining who is going to get which amount out of the tax return is also difficult. Thankfully in my case, everything is pretty friendly, but in many cases it is not. While previously I had said that I would go to a professional for filing the taxes, this year I again decided to do it myself since that was much easier than figuring out when/how/where we could all meet and spend several hours filing everything.

So, now it is done, and the last vestiges of 2013 are firmly sent on their way. It is a good thing too, I think. I know that there's a ton going on for other people too, so I am guessing that this is not terribly novel an issue for people, but I am just glad that mine are done! :)

Sunday, January 26, 2014

Parental Home Sales motivate me to Save


Selling your house sucks. At least that is my view after seeing my parents struggle in various situations to sell their house. I work with someone who is very smart. He doesn't believe in real estate personally because he has also come to the same conclusion independently -- selling your home sucks. And in short, I agree with him now.

That said, they need to sell. Why?

Many baby boomers are in a similar situation where for many many years, they paid their bills dutifully and then continued to pay and live a nice lifestyle until they realized at the end of their working years that there was not all that much money available to handle things that needed to be paid for, particularly if they stopped working.

Social Security to the Rescue?

So, we'll just bank on social security? Not a great plan in my option. So at this point, we're back to more traditional methods of handling your retirement. Trading up in houses over and over and paying off an expensive house with hopes of cashing out later is not a great option. The other option of having investment accounts is good, but even if my parents had done this, I don't think that they could have afforded to maintain the large house into retirement.

Mortgage Pay-Off

Thankfully, all of the parents in my family who are in the process of selling homes have significant equity in the home that will allow them to basically sell it and walk away with a nontrivial amount of profit. However, during the time that they are selling it, they spend large amounts of money on getting it ready, redecorating, and all sorts of other things.

When I have seen the struggle for the people in my life around selling their homes I have paid attention. And life will be a good teacher if you pay attention, I think. And I have. I have a mortgage on a small 2 bedroom condo. Do I wish it were bigger? Yes. But in the end, I plan to pay it off a full 25 years before I plan to retire. And I think that will make a huge difference for me because all of that money that would have otherwise gone into maintenance/repairs etc will now go into retirement and other investments to generate income for me later in life.

What's more, if I choose to slow down, I can. I am not obligated to pay a mortgage.When things look more and more tenuous with respect to the country's long-term fiscal outlook, the GAO has even said the following: "The window of opportunity for putting federal health and retirement programs on a sound footing without disruptive effects on the large population of near retirees is closing." Read more about the GAO report.

Sustainable Living

One of the things that I feared as I grew up is seeing people in my family who were a burden on each other. I don't want to involve myself in this kind of a situation. I don't think that being a burden is a good outcome. Similarly, I don't want to be in a position where I am forced to be someone else's caretaker/caregiver. So for me, the golden outcome I struggle to achieve all around in my life is one of sustainable living.

Achieving Critical Mass is a critical part of that sustainability. Once that is achieved, it no longer matters what you do with respect to your money and then one of the two most precious commodities that we have in life that constrains us (the other being time) is forever taken care of. And you're no longer worried about trading one for the other. You just live life as best you can without worrying about the outcome.




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Sunday, January 12, 2014

Blogging Wealthtrack

For those of you who follow this blog you will know that I have long been a fan of the show Consuelo Mack: Wealthtrack. This morning, with my dog on my lap, I decided to clear out some recent episodes off of my DVR. I thought that the show was interesting and it was also somewhat surprising how much more I noticed about each of the guests as I was working on getting the ideas of the guests and the shows all at once when I was just trying to get through the episodes.

I generally think that Saturday is a good time for me to watch these shows and I think that this is one of the most interesting things I can watch that will not be too much for me to work on in terms of actual work -- something that I really strive to avoid on my weekends where possible since there is enough of that during the week -- and also something that makes me very interested and engaged but at the same time is relaxing. It sounds strange but listening to the show and also reading and writing about money more generally really gives me a lot of comfort and relaxation. I realize that this is not the impact for everyone.

For me this mornings shows were all fairly pedestrian with the exception of a little bit that I picked up on a show with Tom Russo and Wallace Weitz. The thrust of this show is the fact that there were some real impacts that were made by the Chinese crisis and Nestle S.A. took this opportunity to really deploy some capital, buying three separate businesses. Both guests run funds similar in porformance, about 12 percent I think since inception. That is remarkable in itself, but what is more interesting, at least to me is that the tactics to do it vary, even though the both consider themselves value investors and very much likc warren buffet, they recognize that Warren Buffett enjoys fantastic returns largely through the use of leverage. Perhaps I am just projecting, but I even think I sensed a hint of dispise at this fact

So, in reviewing this episode, one thing became very clear: the biggest impact you can have is whether or not you stay invested during the bad times if you were in the market when it went down. If you weren't, then fine, buy in, says Weitz, but otherwise you're following Russo and just trying to stay fully invested but be positioned. Hey, either way is fine with me, as long as I could walk away with that 12 percent return!

Sunday, January 05, 2014

Mortgage Payoff Challenge - Starts 1/1/2014

So, with a ton of time behind me on this blog I have decided that it is time to finally take the last plunge toward becoming debt free in 5 years. I know that this is not a terribly new idea in terms of personal finance but I think that it is a good thing to think about and a good goal to have.

At this time, I continue to have a car payment which is a result of driving my old toyota corolla for about 10 years and then finally junking it this past summer at about 180K miles when the A/C stopped working and the expected repair bill would top 1000 dollars. Since there was some money in the checking account, I decided to buy a new car.

One major theme that I would like to discuss this coming year is managing cash flow. I have always been conscious of this topic but I was especially conscious of it this year because I wanted to make sure that adding the car payment would not impact me too much. So, with a small downpayment, I took a loan at zero percent interest for 5 years. At this point, I have no plans to pay it off early since the mortgage interest rate is at 5 percent currently.

Separately, at the end of this past summer, several changes happened for me at work where I was put into some very uncomfortable positions. And the end result is that I was unable to provide stability for myself and realized two key things:
1. You're never really stable if you're working at a job, depending on that money to pay bills.
2. You cannot live freely/happily if you are in state #1 above.

For me, just acknowledging these things has made me examine my life differently. I have learned how to be more mindful in my life. There is a whole series of things I could write about here on that topic, but I'll save that. Learning some of these techniques has been life changing for me though.

This car loan made me realize that I basically need to get serious about paying off my debt. And the situation at work made me realize that my health was in severe jeopardy if I deferred this process over 20 years which is the remaining time on my mortgage.

If you are a regular reader of this blog you probably know some of my personal finance history and I think that all of that history has finally come to crystallize as something for me and I plan to write short posts about all of these topics in more detail over the coming weeks to describe the latest information and progress.

At this point, the mortgage is at 184,500. The strategy will be to pay at least an additional 1000/month on the principal. Many months it will be more than that. If it was just 1000 additional on principal, that would reduce it by 60K. However, additionally, on months where there are bonuses or other income, some of that will also go toward the mortgage.

In addition to wanting the freedom mentioned in #1 and #2, there are several life circumstances that are happening that make me realize that this is an important step:

1. Parents are unable to sell their homes.
2. Parents are trapped with large amounts of debt.
3. Parents are sick/have health issues.
4. Age is starting to catch up, where I am now in my thirties and retirement doesn't seem so far away.
5. I have spent significant amounts of money on travel and home renovations; I don't need to be so extravagant for a while.
6. Investment Income is down and while my Home will never really be mine, I think it is still a better alternative to parking all of the money in the bank, simply because of the interest.

Tuesday, November 19, 2013

New Year, Payoff Mortgage Plan

I have decided to pay my mortgage off early. There. I said it. I wrote it down. After having several at-home discussions, I have finally become comfortable with the idea. Thankfully over the past few years at my job I have been very fortunate and this has translated into a significant amount of disposable income that can be funneled into prepayments on the mortgage.

Explaining why this is a good idea has been done in many other places like FiveCentNickel and I know that there are not really any huge advantages to be gained from making the right call for me in either direction. Here's how I think about it. At my current mortgage rate of 5%, and assuming a steady return in the Stock Market of 7%, I am losing about 2% yearly by prepaying my mortgage. That is the simple math and for each 100K of mortgage, this is 2000 dollars. It is certainly not a small sum, but it is a finite sum.

Here's the problem with the "keep the mortgage" argument in my view. Of course you can consider the emotional gains of a paid off mortgage and I think that those are real. But I have a serious issue with counting on the stock market; the stock market, even when invested with mutual funds, involves risk. If I pay off that mortgage early, I never had to risk that money. And the issues with that stock market risk are highly correlated to other issues: employment, retirement account balances, and overall economic health. In short, each dollar I have prepaid will feel great if the market goes down and I lose my job.

This leads us to the next point. People always consider that the money put into the mortgage is lost. It isn't. First off, the house will appreciate in value, if for no other reason, than inflation, which has been, shockingly around 2%. So in a bad situation, I could tap that accumulated equity and effectively reverse the decision to prepay. It is not lost money.

When all is said and done, I am scheduling the paydown with a high upfront monthly prepayment and then gradually decreasing it over time. The schedule I have set calls for more than double payments on the mortgage and although it sounds like a lot, I am hopeful that this will create a 5 year timeline to pay it off. And it seems doable for us, which for me is the most important criteria.