I wanted to update you briefly on how we divided up our tax return. My wife and I had a good productive conversation about it that I think is worth sharing.
Briefly, we filed our taxes later than the April 15th deadline – don’t ask, its a long story – so we should be getting back approximately $10,600 dollars from DC and the IRS in the next couple of weeks.
Now, its not every day that we get ten grand back. So, we generally sit down and talk about what should be done with the funds. I just wanted to make a few observations about what goes through our minds when we have these sorts of conversations.
1) Goals: How we decide to allocate the money depends on a number of things. Our goals are an important consideration. For example, we plan to max out our IRAs for 2009, and will use a great deal of the funds to accomplish this. Wealth building and saving for our retirement are major goals of ours.
2) Relationship harmony: Money conversations represent an important opportunity to negotiation solutions that both partners feel are optimal for their situations. For example, my wife Miel paid our accountants fee of $850 for our taxes. In conjunction with the fact that her work has been a bit slow with direct depositing of paychecks, she has been feeling a bit strapped for cash. So, this was a good opportunity to replenish Miel’s cash situation, which will reduce our overall stress levels and keep both of us happy.
3) Quality of Life: Now that we have our emergency fund taken care of and a good cushion of stocks and bonds we’ve been allocating more of our money for household repair. Back in 2005 when we bought our apartment, a lot of the kitchen work wasn’t properly done. For example, we had a short circuit due to faulty wiring, the washing machine has broken down a couple of times, etc. etc. So, with some of the tax return funds we’ll be fixing the oven mounting. Its probably going to cost another $800, but it would be nice to know the appliance won’t keel over and dump our food on the floor at 400 degrees.
So, to quickly recap, when we have money conversations we tend to take our goals into account and balance them against maintaining the harmony of our relationship along with other considerations like quality of life issues.
There is a ton of good stuff out this morning. If you haven’t had a chance you might consider checking out the latest biography of Warren Buffet. This one is much more in depth and balanced that most.
For example it turns out that Buffet was a bit of a juvenile delinquent. He was a shoplifter as kid and sold gambling tips when he was in high school. It also details Buffet’s obsession with even small amounts of money and his strange polygamous romantic relationships.
Its a must read if you are a buffet fan. Since you are reading this blog, you are probably a Buffet fan.
For those of you interested in becoming wealthy, you know that it can sometimes be a time consuming and discouraging processes. So, you may be looking for a quick inspirational pick me up.
Well, if you are looking for a boost, here is a recent video by Loral Langemeier. If you don’t know Langemeier, she is an author and self professed wealth guru. People who spend a lot of time building wealth tend to take a dim view of Langemeier (see here), but I do find her books helpful. For example, I opened up a checking account specifically for this blog after reading her, so you might find some stimulation or inspiration from the discussion that will aid you in your own wealth building ventures.
Just got this message from a reader. It was inspiring so I wanted to share it with the rest of you.
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I have been reading your blog. I just want to encourage you to keep saving money cause it works. When I met my wife in 1985 I was 35 and she was 32 and we were both broke. We started saving about 30% of our income. I was a process engineer, she was an insurance supervisor. We put about 1/2 in stocks and the rest in safe bonds. We both retired early – at the age of 55 and 52 about 3 years ago. Last year our porfolio was $2M and today is still worth about $1.6M even after the latest recession. We travel and enjoy life and don’t even need a pension to live on.
I know I’m a little behind the curve for promoting a movie that came out in 2006, but it couldn’t be more reflective of the issues our society is facing than today. I was in grad school back when it first came out, but it was well worth a checking it out on Netflix instant movies.
Maxed Out is a documentary that takes a critical look at both consumer debt and the role that government has played in the build up of American debt. It also touches on our national debt issues that are now finally coming to the forefront after all these years.
You might want to gasp out load at parts as I did, James asking what the latest scandalous thing was about, but it is well worth the watch.
It features one of our favorite economic types, Elizabeth Warren. We are glad to see that she is helping to address this mess that we’ve gotten ourselves in to.
Today we have lessons about jewelry purchases. How where you buy can be as important as what you buy. Read on for a tale of a wedding ring.
So back when we got married, nearly three years ago, we debated about what type of rings to buy; particularly for me, as James was pretty easy going in a standard band. I love art deco jewelry, so we played around with trying to find something that was antique.
For us this solved several things, in that antique pieces have the style I love plus often the affordability as well. Some might say that they are less conflict ridden as well, but given colonialist practices I wouldn’t go so far as to believe that.
Buying just about anything is cheaper in Oregon than it is in Washington, DC. Plus there is no sales tax. It’s a great way to save money on purchases. We were headed back to Oregon just two weeks before our wedding, so we did a fair bit of research on this end, not finding anything we liked. We found one antique place in Portland and then had a back up plan of a couple of rings that I liked at a jeweler who could get anything ordered or customized within the short time frame, in case we didn’t find something antique that we liked.
So off we went to Oregon to buy rings and get married!
We went to Gilt Jewelry to see what we could find. We found a wonderful piece that we both liked a lot, and at a reasonable price. I’d have to find the receipts for sure, but I believe that it was for sale for about $1,700 and the appraisal said that it was worth $3k. Platinum art deco with nearly a karat center stone and more than a karat combined weight with the baguette diamonds. We fell in love with it and bought it. Just after the official honeymoon was over, one month after our wedding, we discovered one morning at brunch that my side diamond had fallen out. It turned out that the ring had been repaired faultily at one point, with yellow gold on a platinum setting that you could see ever so slightly if you looked up close.
We tried to look to insurance, but apparently they had somehow messed up our paperwork and the ring wasn’t covered.
So I called Gilt, just to let them know and complain a bit. In the end they said to just send the ring back and they would fix it at no charge.
Now, nearly three years later, I was back in Portland after the Congo and happened to have my ring checked. They noticed several cracks in the platinum band that I had noticed but ignored previously after the initial issues with the ring. But, they said that if it wasn’t repaired it would eventually fall apart.
Since I was in town, I went back to Gilt to see what they could do. In the end they recast the entire ring in platinum at no charge to me. They were extremely professional and friendly about it all.
Now it is even more gorgeous than it was to begin with!
I’d have to say that this is a lesson for us in many ways. First, is to pay attention to the warranties and repair policies for any jewelry you might purchase, including new and antique pieces. You don’t want to lose the value and wealth that the jewelry represents. Second, don’t be shy to come back, even some time later.
In the end the shop has gained my utmost respect and appreciation. I will recommend the place to friends and family without hesitation.
So we started thinking this morning of what we wanted our long term goals to be. After discussing for a bit, we decided to go back to our five years goals that were created about four years ago. It has been awhile since we had looked at this, and clearly things had changed quite a bit.
This reminded us right off that bat that we should look at our long term goals more often than we have been. I think the main factor that made it easier to look in the short term has been the unknown about the potential of having kids. Now that we are a bit more certain that we will consider having them in a couple of years that makes things more definitive.
Another thing that we learned is that last time around, while we were good at stating general goals, but we didn’t make them very definable. Plus, as our plans had changed, we had reached all of the earlier goals and the later goals had changed course.
For example, we had earlier been interested in saving for a round the world trip and then moving back to Portland, Oregon. With the economy and our careers where they are it looks like we’ll be staying in DC for longer than originally anticipated.
So the process for making our goals went something like this: we started out with our goals for 2009, plugged in the basics of what we are saving already, estimated when James would finish his Ph.D., considered what we wanted our various larger goals to be, and then filled it in according to a five and a half year time line.
The 5+ timeline comes from being so close in the fifth year to reaching our first million that we wanted to stretch it out a bit to see it on paper.
An interesting thing to note is that if we had used the same process detailed above, the last time we set our longer term goals, we would have well and truly blown our goals out of the water. Even having largely rely on one income we’ve managed to save considerably more than we would have imagined four years ago. So with that in mind we are hoping to surprise ourselves.
Major Goals 1) James finish Ph.D. 2) Save for house upgrade (2 bedroom +) 3) Save for kid fund 4) Save for another investment property 5) Reach $1,000,000 net worth by 40
Here are the details for our 5 year timeline: 2009 1) Pay off Miel Student Loans – $39k 2) Max out 401(k) $15,500 – Miel 3) Miel matching retirement – $6,375 4) Max out 2008 & 2009 IRAs – $5k each ($20k) 5) $17k towards investments ($5k stocks, $7k municipal bonds, $5k stocks) 6) $2,500 pay down towards residential 7) $360,000 target net worth end of 2009
2010 1) James Graduate & Get a Job – October 1st 2010 2) Max out 401(k) $15,500 – Miel 3) Miel matching retirement – $6,500 4) Max out 2010 IRAs – $5k each ($10k) 5) Pay off James Student Loans – $10k 6) $20k toward strategic savings – housing upgrade savings 7) $5,000 pay down towards residential 8) $427,000 target net worth end of 2010
2011 1) Max out 401(k) $15,500 – Miel 2) Max out 401(k) $15,500 – James 3) Miel matching retirement – $6,500 4) James matching retirement – $6,000 5) Max out 2010 IRAs – $5k each ($10k) 6) James student loans – $10k 7) $5,500 pay down towards residential 8) $20k toward strategic savings – housing upgrade savings 9) Save James Salary ($75k gross – $25k after 401k & s loans) – housing upgrade savings 10) $540,000 target net worth end of 2011
2012 1) Max out 401(k) $15,500 – Miel 2) Max out 401(k) $15,500 – James 3) Miel matching retirement – $6,500 4) James matching retirement – $6,000 5) Max out 2010 IRAs – $5k each ($10k) 6) $6,500 pay down towards residential 7) $20k toward housing upgrade 8) Save James Salary ($75k gross – $35k after 401k) a. $20k towards kid fund b. $15k towards investment property 9) $655,000 target net worth 2012
2013 1) Max out 401(k) $15,500 – Miel 2) Max out 401(k) $15,500 – James 3) Miel matching retirement – $6,500 4) James matching retirement – $6,000 5) Max out 2010 IRAs – $5k each ($10k) 6) $7,500 pay down towards residential 7) $30k towards investment property 8) $746,000 target net worth 2013
2014 1) Max out 401(k) $15,500 – Miel 2) Max out 401(k) $15,500 – James 3) Miel matching retirement – $6,500 4) James matching retirement – $6,000 5) Max out 2010 IRAs – $5k each ($10k) 6) $8,500 pay down towards residential 7) $30k towards strategic goal 8) $838,000 target net worth
2015 1) Max out 401(k) $15,500 – Miel 2) Max out 401(k) $15,500 – James 3) Miel matching retirement – $6,500 4) James matching retirement – $6,000 5) Max out 2010 IRAs – $5k each ($10k) 6) $8,500 pay down towards residential 7) $30k towards strategic goal 8) $930,000 target net worth
2016 1) Max out 401(k) $15,500 – Miel 2) Max out 401(k) $15,500 – James 3) Miel matching retirement – $6,500 4) James matching retirement – $6,000 5) Max out 2010 IRAs – $5k each ($10k) 6) $8,500 pay down towards residential 7) $30k towards strategic goal 8) $1,022,000 target net worth
Timeline 1) James finishes Ph.D. October 1st 2010 (ideally this will be a bit earlier but it gives for wiggle room) 2) 2012 saved for house upgrade and kid fund 3) 2013 move and have kid 4) 2013 saved for and bought investment property 5) 2014 continue to stretch ourselves and reach our goals 6) 2015 continue to stretch ourselves and reach our goals 7) 2016 reach the $1,000,000 net worth mark
Assumption 1) Assumes investment returns to keep up with inflation, but doesn’t calculate potential growth 2) Assumes we’d still be able to save what we are annually now 3) Assumes that we would be able to pocket most of James’ salary for the first two years 4) Assumes that there would be a large drop in savings after an upgrade in housing and having a kid 5) Conservative estimates of James’ salary 6) Doesn’t include salary increases
Given these assumption we think that these estimates are actually quite reasonable and achievable, if not even on the low side. Knowing our past history of wanting to push the envelop in terms of challenging ourselves, we wouldn’t be surprised to surpass these.
This would particularly happen if James’ salary was higher than anticipated or if there were any real growth in our portfolio. Either way we should be able to make the million dollar mark before Miel reaches 40, and with any luck, before James is 40 as well. As long as we concentrate on building our wealth, we should be fine.
We’ll continue to assess this and mark down as we’ve managed to achieve various indicators in our goals.
Well, it looks like its a twofer Friday. Yet another bank has failed. This time, the FDIC indicates that Citizens National Bank in Illinois has gone under and has been taken over by Morton Community Bank.
I won’t bother to post the press release. If you want the details, you can find them here.
Okay folks, another bank has bit the dust. This time its in Illinois. – See the press release below.
We’ve been getting these releases for a while. I’ve noticed that the FDIC tends to send them out on Friday afternoons. I think they are trying to minimize the impact of the bank failures on the news cycle. This is probably a good idea, as there is already enough bad news these days.
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Press Release
Midland States Bank, Effingham, Illinois, Assumes All of the Deposits of Strategic Capital Bank, Champaign , Illinois
FOR IMMEDIATE RELEASE May 22. 2009
Media Contact: David Barr (202) 898-6992 Cell: (703) 622-4790 E-mail: dbarr@fdic.gov
Strategic Capital Bank, Champaign, Illinois, was closed today by the Illinois Department of Financial and Professional Regulation, Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Midland States Bank, Effingham, Illinois, to assume all of the deposits of Strategic Capital Bank.
Due to the Memorial Day holiday weekend, the office of Strategic Capital Bank will reopen on Tuesday, May 26, 2009, as a branch of Midland States Bank. Depositors of Strategic Capital Bank will automatically become depositors of Midland States Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Midland States Bank can fully integrate the deposit records of Strategic Capital Bank.
Over the weekend, depositors of Strategic Capital Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
As of May 13, 2009, Strategic Capital Bank had total assets of $537 million and total deposits of approximately $471 million. In addition to assuming all of the deposits of the failed bank, Midland States Bank agreed to purchase approximately $536 million of assets. The FDIC will retain the remaining assets for later disposition.
