August, 2007

Two income trap narrowly avoided

Categories: Financial | August 29th, 2007 | by Dave | one comments

I’ve read plenty of times about the two income trap. Basically, if you make two incomes, you are taxed at a higher level. Then because you’re both working, you need to pay for child care, lawn service, accountant, maid, etc. Of course you don’t “need” to pay for these things, but it becomes more likely if you don’t have someone sitting at home all day.

While we’ve certainly been hit by this trap, we’ve avoided the real trap for a few reasons:

1. We both make almost the same salary, so we’re both heavily contributing to our financial well being. Either of us quitting would still drastically reduce our salaries.

2. We don’t have kids, so no child care costs.

3. We’re planning on drastically reducing our spending in retirement, so we don’t need to save 50% of our salary to retire early. If we had to replace our full salaries, we’d be working for a long time yet.

4. We have pretty good salaries, enough to pay for lawn services/maids/accountants/etc and still come out ahead.

So as things are, the two income trap really hasn’t hit us. I think there are plenty of others in our situation. Young professionals with no kids, where both couples work and make decent salaries. Sure, it would be nice to have one of us at home in charge of maintenance/cleaning/etc, but it just doesn’t make sense.

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Planning towards our dream early retirement

Categories: Planning | August 27th, 2007 | by Dave | no comments

I am a bit of a sucker for websites that talk about “living your dream”, “seizing the day”, etc. Anything that provides a bit of inspiration towards our goals. On this site, there was a checklist of 22 secrets to discovering your dream. I thought I’d go through them here. I’m skipping some random ones where I didn’t have anything interesting to say.

What are your hobbies? - Well, it makes sense that our dream should match our hobbies. It would be silly if we loved gardening and then decided to go sailing on the ocean (likely one of the more difficult places to raise cucumbers). We both enjoy reading and writing. Lately we’ve gone on a couple of travel vacations (driving around the U.S. randomly) which we enjoyed quite a bit. These hobbies match a vagabond lifestyle pretty well.

Who do you like to work with? - I dislike working with people in a hierarchy. Of course this is something you deal with in almost any company. It’s simply a fact of “work life” that people who have a higher rank in the company feel that their opinion is worth more than yours. I think that getting out of the workplace would get rid of those type of people. I enjoy spending time with people who are not afraid to go against the mainstream. People who have quit their jobs, who work interesting jobs, who don’t eat meat, who sleep during the day and are awake at night.. I think these people are very interesting.

When have you been happiest? - In general, I’ve always enjoyed those times when I was free to do whatever I wanted. On vacation, when we’d have nothing planned, and had all our options open.

Try online tools. - I don’t really think an online test is going to tell me what my dream is. I know in general I’m an introvert (go personality tests!), so I’ll enjoy the alone time on the boat. I know my wife is an extrovert, so she’ll enjoy meeting new people. As with most activities, we’ll each have those things we enjoy, and those things we deal with.

Create a clear vision. - That’s exactly what this website is for. I have quite a lot of data and plans, and I’m putting them all in one place. As someone said (can’t find the original author), “Failing to plan is planning to fail”. I hope that having a strong vision of where we’re going will make it more likely to happen. Now I’m well aware that the plan itself isn’t what is important. Eisenhower said: “In preparing for battle I have always found that plans are useless, but planning is indispensable.” I think the key is that you’re planning, and moving in the right direction. The exact plan is very unlikely to happen, but you’re much more likely to end up in the right ballpark. For example, looking at our finances, I’m not positive we can retire before I hit 40. But looking at the possible scenarios, it’s almost guaranteed that we could retire before age 50, because of our planning.

Create a roadmap. - The website will contain the roadmap, as detailed as possible. We already have the financial milestones laid out. Now I’m working on how to make it more likely that we’ll hit our goals, and determine what obstacles may be in our path.

Do research. - This is certainly something I’m not skimping on. I’ve read a huge number of books on the sailing lifestyle, about the Appalachian trail, and personal finances. I’m hoping that my knowledge will enable us to overcome any difficulties down the road. I might even be able to help a few people along the way.

Get motivated. - I think this website is one of those motivation factors. I also read financial and sailing forums fairly often, to keep my mind on the right track. 10 years is a long time to keep focused, but I figure I’ve been on this train of thought for around 5 years so far, so it will probably stick.

Simplify: one purpose. - Focusing on a single goal is pretty important. I am currently focused on our finances. Making certain that our savings rate does not go down, and that we get a cushion in our monthly expenses vs income. This is the goal that will make the largest difference in the long run. We have 10 years to learn guitar, figure out what boat to buy, etc.

Use a mantra. - I really do want a mantra, mainly because it would be cool to have one. I had been thinking “do better” for a long time. Mainly because I have all these good ideas, but I tend to not follow them consistently. But “do better” is awfully negative, and I imagine a positive mantra would be better. Maybe “focus on goals”. I have goals, I just don’t have focus. That seems more positive. I’ll have to think on it.

Set aside time each day. - I haven’t gotten to setting aside time each day, but I try to take a small step each day. Making a post, updating finances, checking on networth progress, etc. Something where I can say that I made progress towards our goals. I’ve been able to keep this up for a few years, so I think it’s a bit of a habit by now.

Pretend you can’t fail. - I really believe in this one. The power of positive thinking. Plus, I think that our goals are all very reasonable. If I keep an eye on our finances, we can take measures to make sure we succeed. If we start spending too much in retirement, we can cut back. We can always learn to sail, as plenty of old stupid people sail. We can walk the Appalachian trail, as 80 year old people have done it, people with fake knees, etc. It’s all a matter of determination.

Live as you want to be remembered. - I think this is about what you want out of life. When I’m sitting around at age 80, I want to say that I took advantage of life. That I did things that many people only dream about. I want people to be amazed at how far we’ve gone, the things we’ve seen, what we accomplished.

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Wesabe review, a surprisingly useful tool

Categories: Financial | August 23rd, 2007 | by Dave | 4 comments

Wesabe Explanation

There are piles of Web2.0 tools out there these days that will track your spending, help you with grocery lists, keep track of who owes you money, etc. I kept hearing about Wesabe, where people said it was growing popular, was very useful, going to change personal finance, etc. The problem was, I didn’t get a good explanation of what it actually did, just that it was “good”.

So anyway, I finally broke down and created an account to try it out. It turned out to be very useful. Here’s the basic rundown:

  1. You go to your credit card website (or bank website), and download activity. So far I haven’t found any accounts of mine that don’t have this option.
  2. You take this file you download, and go to your account in Wesabe, and upload the file.
  3. It has a record then for every purchase (or deposit) into your accounts.
  4. You go through each record, and categorize these things. So you put your Chili’s purchase under restaurants, Jewel under groceries, AT&T under utilities, etc. Once you categorize a record, Wesabe will automatically categorize other similar things (all other AT&T bills will be flagged as Utilities for example)
  5. Once you’re all done, you can look at number of months of data, and see where on average your money has gone.

Now for #4, the categories you choose don’t matter too much. I think the key is to focus your categories on certain behaviors. For example, my wife and I tend to go to restaurants instead of eating in. So I wanted a category for restaurants and one for groceries. Our cell phone bill is constant and we don’t have a land line, so there wasn’t much point in making “telephone” category. However, some people may find that useful if they have large / changing bills.

So once I was able to look at our income and expenses in their categories, I could easily see where our money goes (which is usually step #1 in budgeting). Frankly, the menus are a little confusing at times, but if you poke around you can find what I’m talking about.

Our numbers

Earnings: In the last 8 months, you’ve earned an average of $9,355.70 per month.

Expenses: In the last 8 months, you’ve spent an average of $7,455.22 per month.

First, we have our 401k and stock purchase deductions before our income ever comes in, so there’s a lot of savings beyond the numbers here. So you can see that we’re theoretically gaining almost 2k per month after expenses and savings. If you look at our expenses chart though, you can see that our expenses are somewhat random. In general, what I’ve seen is the below:

  • Mortgage: $1800 (will rise to around $2300 once our property taxes have been recalculated)
  • Extra Savings: $1200
  • Restaurants: $800
  • Fuel: $400
  • Utilities: $400
  • Auto: $450
  • Cash: $400
  • Etc

Following the 80/20 rule (which I love), I figure I should mainly focus on the above categories as they will give the most benefit if we reduce them. So Wesabe helped me filter through hundreds of expenses to see where our money drains are. I can work on these later and figure out where savings may be.

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Working on the pages

Categories: Blog | August 22nd, 2007 | by Dave | no comments

Mostly working on updating the pages, filling in some back content. I have a lot of this data scattered about bookmarks, notepads, and so on. It will take some time before this site fills out with everything I’ve gathered over the years.

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Our plans

Categories: Blog | August 21st, 2007 | by Dave | no comments

I have hopes that we can maintain this blog for a very long period of time. I want to use this blog to document the following:

  • Our financial progress towards retirement
  • Our research into retirement options
  • Our goals and interests
  • Finally as a log of our retirement travels.

View this page to learn more about us.

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