February 2008 Networth Update
Usually my networth updates are posted on the 10th of each month. The update is early this time since 10th comes on a weekend and the probability that I would write a post this weekend is pretty low. My husband is going on a trip next week and would be away for a month 
.
So here goes the update…
No major damages. We did everything right except we haven’t sent a check to our parents yet. That is why the assets are up and the debts are not as low as we projected it to be. We will be sending the check next week. So the numbers would adjust next month.
Carnivals in Dec 2007
My post on Roth IRA vs Debt Reduction made it to the 117th carnival of debt reduction at plonkee money.
My post on The Before and After of Closing made it to the Carnival of Homeowners #21 at Homeowners Insurance Lowdown.
My post on Emergency Fund made it to the Investment Basics Carnival #3 at Personal Financier and the Carnival of Financial Planning – Dec 27 2007 Edition at The Skilled Investor.
For my first month, I feel pretty good about these results. Thanks to all the hosts of the carnivals and thanks to all my readers.
Emergency Fund
Why do you need an emergency fund?
An article at bankrate.com outlines in great detail as to why an emergency fund is required. A few of the unexpected financial cracks are
1) Car breakdowns / repairs
You never know when your car is going to breakdown. You cannot anticipate this. Though you might have car insurance, you might have to pay a minimum deductible before your insurance covers the rest. This minimum can range from $100 to $2500.
2) Losing a job
Both me and my husband hold high tech jobs. So there is always a chance of losing our job with the market fluctuations. We need to have a reserve that totals to atleast 6 months of our household monthly budget.
3) Last minute travel emergencies or vacations
We don’t put aside money for travel. So when we plan our vacations, it would come out of that month’s income. We would try as much not to touch our emergency fund.
4) Medical emergencies
I haven’t faced one. But I would like to have about $10,000 for medical emergencies.
5) Safe feeling
I personally look at investing in stocks and mutual funds as a long term investment. So when the market fluctuates and goes south, the emergency fund would keep me from making any impulsive decisions to buy or sell any stocks.
How much money in an emergency fund?
Including the above categories, the amount that we are comfortable for the emergency funds is $50000.
Where should you have the emergency fund?
1) 3-month CD : I do not prefer this one because I will not have access to the account for 3 months. For me this is not ideal for an emergency fund. Also online savings account offer almost the same interest rate as those of 3-month CDs.
2) short term bond fund : Same as the 3-month CD
3) High yield savings account : I pick this because of the ease with which I can access the money and also because of the competitive interest rates.
When to use the emergency fund?
This is a habit I want to emulate from my father. He saves money for a future event expected and unexpected. But when the event occurs, he tries as much not to use the emergency fund. He tries to cover it with that current months income. I think this is the best way because it is very hard to set aside money. I would prefer not saving anything for one month than touching what I have already saved.
My goal for year 2008 looks at filling 80% of our emergency fund. The rest would go towards reducing our debt. It is a conscious choice that we made. Any extra income that we receive would be funneled into our emergency fund. So if everything goes better than we estimate, we should have our emergency fund completely funded by end of year 2008.
The Millionaire Next Door
I have been reading ‘The Millionaire Next Door’ by Stanley and Danko for the past couple of days. I am a slow reader. And this book is probably one of my first few non-fiction books and definitely my first personal finance books. This book was recommended by most of the personal finance bloggers I read every day. Some of their reviews are here:
I have probably completed the first couple of chapters in the book. It reminds me so much about how my dad earned and saved money. He went to work in a very early age because he had to take care of his family. Though my grandfather had not left the family in a bad shape, I can say that it was not enough to sustain a family. My dad joined a small company as a worker and he owns the company today. He has never used a credit card and he has never had a car. He plans for every major event in the family. He paid for our tuition till we completed college and paid for our wedding. He is 60+ and still works everyday. He wakes up early at 5am and goes over the accounts. He owns 4 houses, a lot of agricultural land and his company without owing anything to anybody.
The book is also true about how my dad gave us whatever we wanted. He wanted us to have those things that he did not have growing up. This probably made me a spend-thrift for a few years in my life. I do not regret a second of those times. I spent then and so I am ready to save now.
For such an aspiration, I can probably say that I have started this journey rather late compared to him. Every now and then when I think about how I should handle our finances, I try to think how my father would have handled this. This book has increased the respect I had for my dad and for those first generation PAWs.
Being Financially Organized
We are fairly organized when it comes to bills. But I don’t clearly understand what it means to be financially organized.
There are various things we do to stay on track
1) Monthly bill payments – We use a simple excel sheet. It contains a list of bills that we would need to pay on a monthly basis. We look at the sheet twice a month and pay the bills that are due. Most of our bills are online. We update the sheet with the payment date, the amount, confirmation numbers for online payments or check numbers. We calculate the total bill amount paid and make sure our bank balance has money for this plus an allotted monthly spending amount. We have been doing it for almost 3 years now and it has helped us to avoid late payments.
2) Analyze monthly spending – Until recently, we used a tool provided by my online bank account to categorize my spending and compare with an allotted budget. Last week, I went and bought Quicken and we have just started using it. Will update you later on my experience with Quicken.
3) Taxes – For most part, I let my husband do the taxes. But this year, I am going to be involved. This year is crucial because we need to itemize our deductions. We are expecting that we would owe some money to IRS. We need to be more careful about this for the year 2008.
4) Documents – We are very careful about our documents. They are pretty well organized. But we do not file our account statements or receipts. I don’t know the pros and cons of doing it. Any information with regards to this would be helpful. How long to store statements and receipts? Why do we need to store these? Is it okay if we scan and store soft copies? etc.
What are the ways in which you keep your finances organized?
