For the past few months, I've been moving toward a system of paperless personal finance. In this guest post from Paul Lussier, he explains his own automated system.
Lately J.D. has been talking a lot about automating his finances. In my world (that of high-tech, software, and large computer systems), we strive to automate as much as possible. By doing this, we hope to minimize error by reducing human interaction, leveraging the power of the computer for what it's good at, leveraging the power of people for what we're good at.
In other words, we emphasize the strengths of both the computer and the human. Computers are really good at doing the tedious, mind-numbing, soul-sucking repetitive tasks which humans hate. Humans are far better at reasoning, logic, and creative thinking than computers.
Yesterday I made a sales call to a local business, a nursery owned by one of my former high school classmates. Keith and I didn't move in the same circles and were never friends, but I always appreciated his good nature and quick wit. In just twenty minutes yesterday morning, I got to know him better than I had the entire time we were kids.
Like my father, Keith's dad ran his own business. Both men passed a sense of entrepreneurship on to their sons. Keith runs a successful nursery; I help run my family's box factory.
Business with friends
After discussing the boxes Keith needed for shipping his plants, we began to talk about business in general, and then about the 20-year high school reunion last summer. "You should have been there," Keith said. "It was great to see everyone, even the people I never really knew."
Twenty years ago, I was a freshman in college. I was a poor kid from a poor family, but my roommates came from wealth. In order to fit in, I went out and picked up a department store credit card. I bought some new clothes, an electric shaver, and a bottle of cologne. From that day on, I've been in debt.
My debt grew slowly at first. The department store credit card had a $500 limit. I knew that I shouldn't come close to the limit, and that I should pay the card off, but within a year I'd maxed it out and was only making minimum payments.
By the time I graduated from college in 1991, I had acquired two additional credit cards. I was glad I had them, too — when my job plans fell through, the credit cards became my emergency fund. I lived off them for months. I also bought a brand-new Geo Storm. Within six months of graduating from college, I was unemployed and carrying $20,000 in debt. Continue reading...
For three years I've had a single goal directing my actions: I wanted to get out of debt. Now that my consumer debt is nearly gone, I've spent a lot of time wondering what to do next. I was worried that I'd lose focus, lose direction. That's not going to be the case. I've set three major financial goals for 2008. After I pay off the last of my final loan next Tuesday, I intend to:
- Max out my retirement plan for 2007 and 2008.
- Pay taxes.
- Bolster my savings.
These goals are ambitious, but I think I can achieve them. In fact, I hope to do even more.
I got a late start on my retirement savings. The box company has been setting aside a pension for me, but I only began my self-directed retirement savings last year. I managed to make the full contribution to my 2006 Roth IRA. I've contributed $2,000 so far this year, and intend to max out my plan by the middle of December. In 2008, the contribution limits on Roth IRAs increase to $5,000/year — I hope to invest this amount. Continue reading...
Earlier today I wrote that I like to prepay my monthly bills. I acknowledged that some people might think this was dumb, but that I liked to do it anyhow. It's not often that I share something with which GRS readers vehemently disagree. This is one of those rare cases.
Because there's so much opposition to this idea, and because each of these points is valid, I've combed the comments to compile a list of reasons you should not prepay your monthly bills:
- When you pay your bills monthly, you're more likely to review your statements to be sure there's nothing amiss. If you prepay your bills, you may not even bother to open the statements.
- Some companies refuse to accept prepayment, and may even charge a processing fee to issue a refund check.
- It's up to you to keep track of when the prepayment is up. As I mentioned in the comments on the previous post, I have a co-worker who often forgets when the prepayment period is over (because he doesn't check his statements), and he ends up with late fees.
- By prepaying, a person may be tempted to spend the money on other things. For example, if you prepay your cable bill, you may be tempted to purchase a pay-per-view show that you otherwise would ignore.
- What happens if you prepay a bill and suddenly discover you need the money for some other obligation? Or what happens if you are forced to move? Or your house burns down? You've already prepaid, so there's no way to get your money back.
- By prepaying bills, you create an artificial cost-of-living. Because you're not dealing with monthly cable or phone bills, it's easy to forget that they need to be accounted for.
- Setting up automatic billpay from your checking account would accomplish the same thing, but you'd get to keep the money in an interest-bearing account before it was needed.
- And the most popular reason to avoid prepaying your bills: When you do so, you're essentially providing an interest-free loan to the company you've paid.
These are all excellent points. But are these arguments strong enough to make me change my mind? Only one. Before I next prepay my monthly bills, I'm going to do more research into automatic billpay. The last time I checked, my credit union wanted $5/month to do this.
Note: While I think this is a good idea, it's clear that many readers strongly disagree. Before deciding whether to try this, please read the arguments in opposition.
Earlier this year, on a whim, I did something a little odd: instead of just paying my monthly cable and internet bills, I wrote large checks, pre-paying for several months of service. I didn't have a reason for doing it at the time. I had a momentary surplus of cash, and it seemed like a good way to use it. Maybe I ought to have tucked it into a high-yield savings account, but it seemed just as good to me to pay five or six months ahead on these bills.
As it turns out, I love this. I know I'm not paying any less money than I normally would, but by pre-paying my bills, I feel as if I don't have them. I feel as if I'm getting my cable and internet for free. In fact, I'm probably going to write checks at the end of December to cover each of these bills for all of 2008.
Think you need to spend a fortune to tie the knot? It's just not so. Kris and I got hitched for a couple grand in 1993. In this guest post from JerichoHill, he explains how he kept costs down for his wedding last summer.
Weddings are expensive affairs. Couples often spend tens of thousands of dollars for an event that lasts only a day or two. I know, I know — the memories last a lifetime. But that's the catch-phrase of the industry that's sprung up around this occasion. In economics, this is called conspicuous consumption.
Ramit at I Will Teach You to Be Rich recently wrote an article about the cost of weddings. On average, a wedding costs $28,000. That's more than half what the typical American household earns in an entire year! Continue reading...
It's that spooky haunted time of year — my annual post about estate planning! Last year I shared a brief guide to creating a will. Today I'm going to look at a recent New York Times article by Christine Larson that provides an overview of will preparation software.
Larson writes, "Recently, the increasing sophistication of software and services for estate planning, combined with growing consumer comfort with online financial management, has led to a boom in homegrown estate planning." Here's a list of the products and services she mentions (along with the canned spiel from the corresponding web site or Amazon page):
- LegalZoom: "Save time and money on common legal matters! Created by top attorneys, LegalZoom helps you create reliable legal documents from your home or office. Simply answer a few questions online and your documents will be prepared within 48 hours. We even review your answers and guarantee your satisfaction."
- Suze Orman's Will & Trust Kit: "This is an easy-to-use and fast way for you and other members of your household to create your own will, living revocable trust, and all the other must-have documents you need to protect you and your family. It's as easy as 1-2-3—simply personalize, print, and protect."
- Quicken WillMaker Plus: "Help protect your family and your assets, and save on legal fees! Quicken WillMaker Plus 2008 provides the legal forms you need. So comprehensive, the software assembles your forms from among 40,000 document possibilities—but so easy to use, you'll have them finished in minutes."
- Living Trusts on the Web: "We only do one thing, Living Trusts, and we do it better than anyone else! Remember, with our program you are getting all of the documents an attorney would prepare for you, with all of the detail an attorney would provide, without paying an attorney fee."
Based on my research, these sorts of software and services are excellent choices for people with uncomplicated needs. In her article, Larson warns that estate planning software isn't for everyone:<
I recently mentioned two Liz Pulliam Weston articles in passing. They're good enough to merit closer attention. Both articles profile couples who found the courage to save money when they were young so that they could enjoy the freedom of early retirement. Weston writes:
Think it's impossible to retire in your 40s? I'd like you to meet some ordinary folks who have done it. "Ordinary" may be a misnomer, because retiring after just 20 years or so in the workplace is an extraordinary act, and most took extraordinary measures to get where they are. But they're ordinary in the sense that they were working people with pretty regular jobs. They didn't strike it rich with stock options, inheritances or the lottery.
What if you've reviewed the compromises required to pay your mortgage early and the idea still appeals to you? You might pay a bank to set up a bi-weekly payment plan or a money merge account. But you can do just as well by taking mortgage acceleration into your own hands. Here are three options I've considered:
- Rather than pay my mortgage, I could deposit my money into a high-yield savings account earning roughly 5% interest. Though this earns the lowest possible rate of return on my money, it gives me the greatest flexibility. I could withdraw the money to pay down the mortgage at any time. Or I could save for other goals.
- On the other hand, I might make extra payments on my mortgage each month. This would effectively earn me a guaranteed rate of return equal to my mortgage interest rate (6.25%). This would also help me spend less on interest. Doing this, however, ties up my money, making it difficult to access if I decide I want it for something else.
- My third choice is to invest the money in low-cost index funds. This would, in theory, provide the highest possible rate of return for my money, but as with any stock market investment, there's an element of risk. If my goal is to pay off my mortgage, a bear market is going to make me sweat.
Kris and I will decide what we intend to do by early next year. Initially, I thought we'd make payments directly on the loan, but after previous discussions here at Get Rich Slowly, I'm leaning toward placing the money in a high-yield savings account until we know better what our long-term financial goals are.
HELOC Payment Calculator for Excel
Meanwhile, I was curious: How long would it take to pay off my mortgage using the HELOC I already have? Would using the HELOC actually save time over applying the payment directly to the mortgage itself? To play with the numbers, I developed a mortgage amortization spreadsheet. (This spreadsheet doesn't account for inflation — that's beyond my Excel acumen.) Continue reading...