Year to date our net worth has increased 19.3% through Oct 31, 2007. Our goal for 2007 is a 21.6% increase. Currently, it looks as if we will surpass our goal before year end.

The total percent increase since we began “our dollar plan” is 1058%. A graph of the entire plan is below:

As you can see there are some points in time that stand out from the rest. In summer 2005 we began building our new house. We kept our condo while we built and used some of our taxable investments to fund the first part of the build, which explains the dip. In 2006 we both took off time after our son was born and only returned to work part-time for the remainder of the year. Read more about me.

About the plan

The starting point for the total percent increase graph is January 2003. It is somewhat arbitrary, because that was the year that I combined our Microsoft Money files into one as we were getting married. Instead of merging the files, I started fresh and imported the important accounts. There was data prior to 2003, but it is now in an outdated file that I cannot easily access.

I have already stated our 2007 goal of 21.6% increase for the year. See Our Dollar Plan for additional goals and more information on the plan.

About the graphs

I think I have come up with a decent way to illustrate our net worth increases without using dollars. The percentages should show the relative increases without distortion. You will notice the percentages are each month as of the beginning date, not the prior month.

However, without absolute dollars, you can use your imagination to determine if the starting point was $1 or $1 million. (I’ll give you a hint, it was somewhere in between.) One of the drawbacks to using percentages, is it is hard to determine if contributions still play a major role in the percentage increases.

I also refer to these graphs as net worth. They are only our investment accounts and exclude home equity and assets because I find those harder to track and much more illiquid in terms of converting them to an income stream in the future.

In addition, all of our investments do not report very timely. One account only reports earnings 6-8 weeks after a month end, so that account is as of September in the above graphs. That same account only reports contributions 4 months after year end, so every April I have to restate the prior year’s results. I base the graphs on what was last reported.

Stay tuned to see how we do on our dollar plan! I’ll do my best to provide regular updates.

 Print

 Email

Posted November 12, 2007 in Uncategorized by Madison | Comments?

CNN Money hosts a section on their website called Millionaires in the Making. Once or twice a month they highlight a family that is well on their way. (Or sometimes not so well.) The articles disclose salary, debt, savings, and budgets for the highlighted family.

What makes people want to give out all this information? Let’s take a look at the pros and cons of opening up the family books to strangers on the Internet (and friends and family that would be reading).

Pros

• It’s helpful for people to publicly state their own goals. I believe it is harder to fail once you’ve told others what your plan is.
• It builds credibility. When you can see how a family has succeeded by taking a look at their financial details, their ideas may hold more weight.
• It helps others learn, whether it be from mistakes or successes.
• People are more ready to get out of debt once they admit how much they owe and the plan of attack.

Cons

• Most of us were raised to not discuss this…. or at least I was. My parents would be appalled if I not only gave out some of this information, but worse gave it to the whole world. (So maybe I don’t have quite that many readers yet, but you get the idea).
• It takes “keeping up with the Joneses” to a new level when you know intricate details about other peoples finances.
• Personally, my husband would flip.

It appears that the cons are relatively emotional, and the pros educational. I am particularly interested in this topic, as I have been pondering how much disclosure about our own finances is appropriate here at My Dollar Plan. I want to give enough information to keep readers interested, understand my point of view, yet honor some of my family’s desire for privacy.

Each financial blog does it differently. Two that stick out are:

• My Open Wallet posts all her financial details, yet posts anonymously.
• PF Blog posts every detail of their financial net worth in dollars.

I decided my level of comfort, assumed a pen name and highlighted our net worth increases for the year.

This is the first post in a series about millionaire status. Read the second one here: Do Negative Millionaires Exist?

 Print

 Email

Posted November 11, 2007 in Uncategorized by Madison | 3 Comments

We’re off to a football game today… that could be a great future topic pitting hobbies against finances: examining the huge amounts of money we spend on sporting events…

Here’s whats going on elsewhere in Personal Finance this week:

• Free Money Finance: How to Turn $8 into Millions highlighting a teen with a website and an simple idea.
• Get Rich Slowly: Answers a reader question -Can You Have a Savings Account in a Roth IRA?
• Millionaire Mommy Next Door: Renting beats owning, even in retirement; even if your mortgage is paid off. Here’s why.

And the as the holidays approach:

• My Money Blog: He is polling readers How Do You Budget For Holiday Spending?
• All Financial Matters: Tis The Season To Be FRUGAL Do you really need a professional photographer to take your Christmas card photo? Hmmm…. I’ll have to think about this one.

 Print

 Email

Posted November 10, 2007 in Uncategorized by Madison | 2 Comments

Right now I’m driving a 2005 Mercedes Benz C230. I got it as a birthday present from my husband 2.5 years ago. I love it! And I want to keep it forever…. but there’s two things that bug me about it.

1. I want to sell it and buy something cheaper. Entering the depreciation in our books each year makes me cringe! While I know that it has already taken the biggest loss per year in the first two years, I still think we could do better.
2. Fitting two kids in carseats in the backseat is one thing. Leaving any room for the adults in the front seat is another. To fit the kiddos, the front passenger seat is almost all the way forward. Good thing I’m short.

Everybody Loves Your Money wrote an article about Money In The Bank – Cheap Cars In The Garage. He sold his 2006 car and bought a 2000 to generate some extra money.

I actually planned to do the same a few weeks ago. I don’t like the drain that cars put on our net worth as depreciating assets. I would much rather have cheaper cars and put the money into investments, however, neither one of us is good at fixing cars. Reliability is an important feature for us.

So I passed my wants on to my husband (he is the car department at our house). I want a new-to-me car with the following features: cheaper than my current car, super safe, low mileage, big enough for an expanding family, gets good gas mileage, looks “cute,” and is not a minivan.

Result: Nothing.

Trying again to meet as many categories as possible landed us in a Chrysler Pacifica. The areas that slid were the gas mileage and the price tag. So much for saving a bundle.

I determined that my car is worth $22,000 (with snow tires thrown in). I figure if I can sell it and buy a Pacifica for $20,000 I’ll be happy, I wanted to go a bit cheaper, but I’m just not willing to give on some of the other things.

The only problem…. it’s going to snow soon here. No one wants a sporty car going into winter. So I guess I’ll wait it out until spring when I can sell it. I’m not sure how the math will work out in six months, though.

So I guess my car isn’t for sale…..

 Print

 Email

Posted November 9, 2007 in Uncategorized by Madison | 4 Comments

I received a phone call earlier this week. Here’s a summary of how the conversation went:

Me: Hello.

Caller: Do I need a Roth IRA or Traditional IRA?

Me: Roth. Where are you opening it?

Caller: Scottrade.

Me: Do you know what to invest in?

Caller: No.

Me: We’ll worry about that later. Are you there right now?

Caller: Yes.

Me: Open the account, deposit your money and I’ll work on what to invest it in.

To put the call into context, the caller was from a family member, Karen. She’s 20, a college student and has never taken an interest in investing. So when she called while she was physically at the Scottrade office, I couldn’t help but be proud of her. Starting out a retirement account at such a young age is a great idea.

Let’s work through the conversation:

A Roth IRA is appropriate for her because of her age and student status. It’s likely that she is paying the lowest taxes she might ever pay right now. A Roth can be a great choice for many investors, Free Money Finance discussed it in Retirement Smackdown: Which is Better — Traditional IRA or Roth IRA?

I used to recommend Scottrade because they had access to Vanguard mutual funds for free. Since they now charge $17 per trade for the funds (and $7 for stocks and ETFs), I usually like people to open their account directly at Vanguard. To open an account using index funds at Vanguard $3,000 minimum is needed. Because Karen was at the office, I wanted to keep the momentum going. She also was opening the account with less than the $3,000 minimum. She can always transfer the account to Vanguard when she reaches the minimum.

What to invest in: Vanguard offers a set of target retirement funds that are perfect for investors that want to set it and forget it. The funds are invested in low cost index funds that are broken into total stock market, total bond market, and total international market. The funds adjust as the investor gets closer to retirement. The ideal fund for Karen is the Vanguard Target Retirement 2050 Fund. It is for investors ages 18-23 with about 45 years until retirement.According to Vanguard, as of 9/30/07, the underlying funds and asset allocation are as follows:

Because she can’t access the 2050 fund just yet, the next best option for Karen will be a total market index fund. Vanguard has two options that contain the total stock market. The ETF (VTI) and the Index fund (VTSMX). Because she opened the account at Scottrade, the lower cost option is the EFT at $7 per trade. You can run a calculator on the Vanguard site to compare the choices with different investment amounts.

My recommendations for Karen:

1. Purchase VTI with the money deposited.
2. Continue to deposit a set amount monthly, but do not buy additional shares.
3. Each time the holding account reaches $350, purchase additional shares of VTI.
4. Once the account reaches $3,000, transfer it to Vanguard and purchase the Vanguard Target Retirement 2050.

Drawbacks to this plan:

• The initial investment will not have any bond or international exposure. This is not an ideal asset allocation. However, Karen is young and has a long time until retirement so going without a bond exposure for a relatively short period of time should be OK in the long run. An international option should be added as soon as possible. Holding VTI will match approximately 72% of the 2050 plan.
• The commission will be relatively high (2%) for the ongoing purchases. Normally I am not a fan of high cost investments. However, in this instance I believe it is best for Karen to get started investing in the market rather than wait it out until she has saved up enough money.

Both of these drawbacks will be alleviated once she can transfer her account. Karen has made a great step forward toward securing her financial freedom. Starting out young makes a big difference! Way to go, Karen!

 Print

 Email

Posted November 8, 2007 in Dollar Plan News by Madison | 2 Comments