How Am I Doing?

It's been a while since I've updated my blog, partially due to work, and partly because of life. Now that I finally have some free time, I'd like to pick it up again. To start off with, I think this would be a good opportunity to assess how I'm doing in my life goals and priorities, a la Suze Orman style (whose show segment name I borrowed for the title of this post). To that end, I'll rate myself in the areas that I believe contribute most toward my happiness: health, career, finances, and relationships.

1. Health: A+
Physically, I've never felt better. I've remained in peak physical condition for the past four years, maintaining a body fat percentage in the 6-8% range. I've managed to achieve this result through a steady regiment of healthy diet and exercise.

2. Career: A-
I've been fortunate that my career has been pretty stable through this recession that seems to be affecting everyone else. I'm in my ninth year at my current job, and things are going well enough that I don't envision leaving my employer anytime soon unless they decide to relocate me elsewhere. While my work isn't in the pursuit of my real passions (and I have no delusions about why I'm doing this job: for the money), it remains challenging enough that I still find it interesting. My goal, though, remains to save enough so that I can quit the rat race early and do something more personally fulfilling (related to nutrition, fitness, personal finance, travel, or volunteering).

3. Finances: A
I'm very comfortable with my finances right now. Granted I make a great living, so I have no excuse to feel otherwise. Still, I think I'm doing better than the majority of my peers in this area. I'm spending approximately 1/3 of my gross income, paying 1/3 toward income taxes, and saving the remaining 1/3. The majority of my spending is related to housing related expenses and food, most of which I can (or choose to) do little about at this time. I've established my 8 month emergency fund. In addition, I have enough vacation time accrued at work that would pay out an additional 6 months of expenses should I lose my job, so I feel pretty secure about my ability to sustain my current lifestyle for a while if necessary.

I'm fairly certain, however, that the values for my real estate portfolio in my NetworthIQ profile have declined significantly since the last appraisal, but I'm still well above water even at Zillow's bargain basement estimates. My mortgage is at a reasonable 4.5% (fixed 30 year) rate, and the monthly payment is small enough that it's unlikely I would feel pressed to sell any time soon. My plan is to stay put until the market recovers, at which time I'll decide whether I want to downsize into something smaller.

My retirement accounts have continued to grow thanks to the recent bullish market and ongoing contributions. According to a few retirement calculators I've played with, I could stop contributing right now and still have enough to sustain my current lifestyle at normal retirement age (65), however I plan to keep maxing out my 401k and ROTH IRA so that I can afford to retire much sooner.

4. Relationships: C
This is one area that remains very much a work in progress for me. I've been so focused on my other priorities that I've neglected this important part of my life. While I do have some close and meaningful relationships, everyone is busy these days, and I'd like to increase the number of quality people in my life. I used to think (naively) that because I am so capable of taking care of myself, I didn't need that much from others. That attitude carried over into my personal relationships, and caused me to not be selective as I should have been in choosing partners. I've made my share of mistakes in pairing up with people who were emotionally immature, not ready to be in long term relationships, or lacked relationship integrity. However, this is one area that I am actively working on, and hope to improve upon.

Overall: B+
I feel I am doing pretty well at this point, and my life is progressing in the right direction. I'm optimistic that I will be able to address those areas where there's room for improvement, and achieve even greater happiness.

Drive Free. Retire Rich.

I found this to be a rather interesting video with a compelling argument against car payments.

http://www.daveramsey.com/etc/lms/drive_free/player.cfm

Budgeting...

Liz Pulliam Weston recently published an article in her MSN Money column titled "How much should you spend on...", which talks about the 50/30/20 budget. Basically, the idea is that you should budget 50% of your after-tax income for "needs." "Wants" should take 30%, and the remaining 20% should be allocated toward savings & debt repayment. The article clarifies what kind of expenses should fall into each category.

I think a lot of people (particularly those with lower incomes) would probably find it difficult to make it on that kind of budget. And prior to refinancing my house from a 10 year loan to a 30 year fixed mortgage, I wouldn't have been able fit my expenses into those guidelines either. However, here are what my monthly expenses look like now:

I estimated some of the above values based on historical spending, but overall it's pretty spot on (I deliberately lumped food into the "wants" category because I know I spend more than I have to in this area). So this tells me that I currently have an excess net of 29% after needs/wants/savings, which I am using to bolster my emergency fund. It also tells me that in order to meet the 50/30/20 budget and maintain my current lifestyle, I need to bring in at least $60,000 a year after-tax. This seems a bit high to me, however the good news is that I can survive on about $32,000 a year after-tax if I stop saving and cut my diet to rice & beans, before I have to start selling assets or dipping into my emergency fund.

I am definitely appreciative of the fact that a lot of families live on less than $32,000 a year, and I know I am in an extremely fortunate position. That said, the majority of my expenses are related to housing, and if I were to downsize I could live on significantly less.

Please note that I do not actively budget per se. I priortize saving by having my retirement contributions deducted from my pacheck, and most of my recurring bills are paid automatically via billpay. What's left stays in my bank account, and I make purchase decisions based on actual need and return on happiness, rather than some preset number that I've allocated beforehand. This has worked well for me in the past, and as mentioned in one of my favorite finance articles, it means that I am no longer relying on training wheels for my savings habits:

"What does that mean in terms of money management? It means I learned how to spend what I needed and save the rest. While “tricks” of money management assume that you are incapable of controlling yourself, that if you have money, you will spend it, taking off the training wheels means facing up to your own ultimate responsibility for your finances. It means facing up to the fact that you are a conscious, reasoning human being who can choose to spend or not to spend. It also means learning that once you have the true necessities covered, enjoying your life has remarkably little to do with how much money you spend." - Holly Ordway, Spending Wisely

"How I Spent My Stimulus"

I ran across howispentmystimulus.com recently. It's an interactive blog where anyone can submit an entry describing how they spent their stimulus check, and comment on other people's posts. There was a New York Magazine article about the site, and the web site's creators are even planning to publishing a book (submissions must be entered by tomorrow, June 24, to be considered for inclusion).

It's interesting--and rather voyeuristic--to see the creative & personal things that people are doing with their money, and find out what their priorities are. Spending it on necessities (gas, paying bills) seems to be a popular choice, but some individuals blew their money on entertainment, and the accompanying photos are rather interesting, even humorous at times. I of course didn't qualify for a rebate check, but if I had it wouldn't have made for an interesting story as I would have applied it toward debt retirement.

Financial aggregate sites

The Simple Dollar featured an article on financial aggregate sites yesterday, and the primary concern was regarding the issue of security. The way these sites work is that they require their users to share their login information to various financial institutions, which is then used to collect the users' financial data and present the information on one screen, with some useful analysis tools thrown in.

Now I have no problem banking online, and I feel pretty safe I as long as I exercise reasonable precautions (not saving/sharing passwords, running anti-spyware & anti-virus software, keeping my computer updated, and only using trusted/nonpublic computers). I'm pretty confident that my bank would give me my money back if a hacker steals my login data and empties my bank account.

The problem with third party aggregate sites is that I have to share my sensitive user IDs and passwords. I'm not so sure that banks would be willing to cover my losses if these sites were to become hacked, since I voluntarily gave them my login data. It's kind of like giving a friend or family member my credit card or ATM card; I am still liable for any charges and withdrawals that they incur. Also, many of these financial aggregate sites are backed only by venture capital, so I'm not super confident that they would be able to restore my losses in a timely manner--if at all. A commenter of the Simple Dollar article mentioned the lack of regulation, and we've all heard of nightmarish experiences that some users of PayPal (which is not regulated like a bank) have had to deal with, such as frozen funds, blocked accounts, etc.

If you insist on using these sites, you can minimize your risks by setting up alerts, and monitoring your accounts closely. Bank of America offers an optional feature called SafePass where sensitive transactions require a unique 6 digit code sent to your mobile phone; other financial institutions may have something similar.

To truly put my mind at ease, however, I suggest that financial aggregate sites work with financial institutions to come up with a more secure solution. For example, if I had a "view only" password from my bank that I could provide to the aggregate sites, it would make me feel much safer. To perform an actual transaction such as transferring funds or paying a bill, the aggregate site would redirect me to my financial institution's web site where I'd be required to enter my "full access" password in order to complete the transaction. This would limit the liability that the aggregate sites have to face, since they would only have the ability to look at my financial information, and not touch it. I am not sure how willing financial institutions would be to cooperate with financial aggregate sites on something like this, but I would think that they'd at least consider it in the interest of their customers, and from a loss prevention perspective.