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Monthly Archives: January 2009

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DINKs Goals for 2009

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Hello Folks,

Now that the novelty of the new year has passed and the inauguration is over, we figured it was a good time to think about the year ahead. We headed to a local diner for brunch yesterday and hashed out what our goals and objectives are for the next year.

First, we decided that given the current economy it is more productive for us to focus on savings goals rather than our net worth overall. While we general hope to not see more of a plummet in our accounts, we figure that it is better to focus our energies on the areas of our finances that we can impact.

We’ve found we accomplish our goals best when they are laid out clearly and we like to tackle our goals one at a time, rather than several goals at the same time.

Our goals for 2009 include the following in order of priority:

Buy a place in Portland. Our frequent readers will know, we already have $40k for this. We’ll also need to find the place that meets our criteria and save up a bit for the closing costs.

Max out 401(k). Miel already has this on auto pay through her work, so we should be set on that.

Max out ROTH IRAs for 2008 & 2009. James has already finished saving for his 2008 Roth and Miel still has a few thousand to go. Next we will tackle the 2009 accounts.

To estimate how much we would have to work with after those basic goals are out of the way, we did the following calculation. We took Miel’s salary and then subtracted the cost of maxing out on her 401(k) and our ROTH IRAs. Then we deducted our mortgage expenses, and general expenses. This left us with about $27k. We figured that we’d leave ten for a cushion and then assume that we’d have around $17k to contribute towards other goals for 2009.

Then comes a bit of compromise. James is interested in investing in general obligation municipal bonds and Miel is more interested in finding stocks that are under valued. The logic makes sense on both sides. On the one hand the market is rocky and it would be good to buy something steady. On the other side now is the time to get in at low prices to help make up for past losses.

The end result is that we decided to first buy $5k in stocks, then $7k in muni bonds, and then another $5k in stocks. This helps us diversify away from real estate and also spread out our general portfolios.

We also discussed what kinds of investments within those classifications we are most interested in.

Municipal bonds. we are both in agreement for the general obligation bonds and will look at Midwest states that have been relatively unaffected by the economy and retain strong balance sheets in the black.

Stocks. We will look at them very carefully to consider in they are worth their price and if we think they have a future in this market. The areas that we are specifically looking at are:

1) Alternative Energy – including wind, solar, fuel efficient cars, etc.
2) Public transportation – we will also look at who makes the various public transportation systems that are likely to come in the stimulus package and invest accordingly.
3) Consumer Necessities – we will focus more heavily on those items that are harder to go without and stay away from those things that are optional like Starbucks.
4) Computers & Electronics – despite the downturn we still see that computers and mobile phones will continue to be in demand.

We will avoid banking, oil, Detroit, and consumer cyclical needs.

Best,

Miel&James

Tip of The Day: Avoid Bottled Water

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Hi All,

Here is a quick “living frugal” tip for Saturday. Avoid bottled water. The economics make a lot of sense. Bottled water costs 89 cents to 2 dollars a gallon, but home filtered water is costs from 3 to 18 cents per gallon. Tap water is free. Also, a lot of bottled water is essentially filtered tap water, so you’re not always getting a good value. If you want a frugal home, tap water is the way to go.

Today’s tip: skip the bottled water.

Best,

James

hat tip: Thanks to the Frugal Duchess for this one.

Refinancing, Breaking Even and Saving Money

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Hi All,

Unless you’ve been living in Mars, you probably know that that the federal reserve has lowered interest rates to stimulate the economy. This means, its time to think about refinancing your mortgage. But, before you rush off to your lender, here are a few things to consider.

First, you’ve got to determine if its worth it. Doing a refinance deal can be expensive. Lenders often charge up to 3% of your loan to use their money. The way to think about if it make sense to refinance is to calculate your break even point. Lets go though an example: assume you owe $300,000 at 6.5%. At 6.5%, you’d have to pay $2,333.70 each month. But if you refinanced at 5.5%, your payments would be reduced to $2,140.87 – a savings of $193 per month. Assuming your refinancing costs are 3% of the loan, then you’d have to pay $9,000 to do the deal.

Your break even point is your cost/your monthly savings. Or, in this case, $9,000/$193, or 46.6 months. In this example, you’d break even in 3 years and 10 months. What is a good break even point? Its subjective and it depends on your own situation. However, if you do refinance you’ll probably want to lower your the overall price of the deal by reducing closing costs.

How do you save money on closing costs? There are a couple of ways to do this. First, you can shop around or you can bargain. In both situations, the consumer is at a disadvantage.

Shopping Around: Typically what happens is you’ll get on the telephone and start calling lenders to get their information on rates. However, its inherently hard to price compare loan programs. Interest rates change daily, and there are often differences in the types of loan programs that you’ll be quoted. Its not like televisions or ipods. However you can get a sense of what typical charges are if you ask enough questions.

Bargaining: Federal law dictates that lenders have to give you a good faith estimate within three days of your refinance closing. However, in reality most banks don’t get their costs to the closing company in time. This situation invites price gouging and means you usually don’t have time to gather the info you need to bargain effectively. In addition, there is often social pressure not to “rock the boat” at closing. For example, your closing agent may pressure you not to question their fees. Closing typically occurs after a lot of effort by all parties involved, so some feel obligated not to ask for a price reduction.

So, how do you save money when the social situation is structured against you? Two things, First, ask around so you know how much you should be paying in closing costs. This way you’ll be prepared to deal with last minute sticker shock. Second, ask for a discount and be prepared to walk out. Don’t forget, nobody in a refinance gets paid unless you give your signature.

Thanks,

James

What’s Up With Treasury Nominee Geithner?

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Hello All,

You’ve probably been following the controversy surrounding Treasury Secretary nominee Geithner. It came out a couple of days ago, that he underpaid his taxes by several thousand dollars for several years dating back to at least 2001.

Well, now his congressional testimony implies that he’s blaming the tax preparation software package TurboTax for the problem. The story is at the tax prof blog.

While I think most Americans want to give the new administration the benefit of the doubt, Geither’s involvement in the recent bailout policies and his seeming inability to pay his own taxes properly suggests that perhaps the Obama administration should look elsewhere for a treasury nominee. With peoples homes, jobs and livelihoods on the line, there is simply no room for silly errors, or more ineffective policies.

Best,

James

Free Download of America’s Song

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We like to share the freebies that we find with our readers. The latest is a download of the MP3 of America’ Song. This is a new patriotic song done jointly by Will.i.am, Faith Hill, David Foster, Mary J. Blige, Seal and Bono.


This free download is available on Oprah until Thursday at 10 p.m EST. 
Check it out and download for free.  If you like the song then the videos are also worthwhile to watch.
Enjoy,
Miel

Saving Money in 2009

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Hi All,

I know we’ve blogged about this before, but MoneyTalksNews has been cranking out some good stuff lately. This quick video offers you some pointers on how to save money and how much you should be saving. Check it out if you’re interested.

Cashing In On Obama

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Hi All,

We just got back from checking out the Obama related bru-ha ha in downtown DC. While the Obama inauguration has been heralded by many as a new era for the United States, if the action along the way to downtown is any indication, trade will be alive and well in the post Bush years.   Today everyone and their uncle was trying make some money peddling food, coffee and hot chocolate, Obama apparel and political buttons to the massive crowds.

Here are some of the booths selling snacks. You can see from the steam rising that its a pretty chilly day.

Coke, ZipCar and Dunkin Doughnuts got in on the action…

Here are a couple of the guys selling t-shirts. There were a ton of vendors trying to unload t-shirts on the crowd. The price dropped from 10 dollars to 5 over the course of the day so I’m thinking these two guys didn’t make that much money.

Finally, those entrepreneurs that did decide to invest some capital into the event certainly had the crowd numbers right. The newspapers are saying there were over a million people – I think that’s probably a pretty good number.  Here is a shot of the sea of people trying to get past one of the checkpoints. 

Best,

James

DINKs Update: Saving Goal Met

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Hi All,

Just wanted to update our readers with some progress on one of our personal goals. If you’ve been following the blog for a while you’ll know we are shopping for a place in Portland, Oregon. Well, we sat down and added up our accounts last night.

After some of our pending cash transfers go through, we have met our savings goal of $40,000 for the house down payment. It’s terrific to finally have the capital to make the purchase happen. The best part is that we’ve been able to do it without dipping into our emergency fund. We still have to raise a couple of grand to cover closing costs, but the saving portion of this project is mostly done.


The incredible part for us is that we only started putting away for this goal in August. This means that we managed to reach $40k in only seven months with two of those being when Miel was unemployed. Had we not had a short stint of unemployment, we did have the cash on hand to complete the goal in November but elected to keep it as an extra reserve while looking for employment. Either way it was a pretty short period of time to save that kind of money.

So where did it come from? Largely it was Miel’s hefty salary working in Afghanistan. Second to that it was blog funds for about $5k of it, and a bit from cash throw off from dividend yielding stocks. James also got a bit of a bump in salary at his university job to help cover expenses. We were also living on a relatively frugal budget with not much going out in terms of expenses.

We are happy to have reached this point in the process and are now looking for a property that meets our criteria. We had found one that we liked a lot, but we weren’t willing to pay more for it just because the seller had bought at the peak of the market. Now is the time to find deals on the market, so we are willing to wait it out. We want to make the best decision that will allow our investment to build wealth for us. If anything, the market is likely to soften further, so we are taking the patient route with money in the bank for now.

Best,

James&Miel

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