This is the second part of a two-part series. Click here for part one.
As I noted in part one, over the years I have personally talked to several friends of mine who told me they would rather spend a couple hours in the dentist chair having their ...
Continue reading How to Avoid Neighbor Conflicts When It’s Time for a New Fence (Part 2)
How to Avoid Neighbor Conflicts When It’s Time for a New Fence
Being a homeowner has a lot of responsibilities that renters never have to deal with. Many of the responsibilities are no big deal; others can be extremely unpleasant. One of the most painful homeowner tasks is dealing with the neighbors when a ...
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What It Really Feels Like To Be A Millionaire
Yesterday my family and I got in the car and drove to Arizona for the day to see my beloved Los Angeles Dodgers play a Cactus League game against the Chicago White Sox at their new spring training complex known as Camelback Ranch.
The Dodgers lost ...
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My 2008 State of the Household Financial Report (Part 4)
Today at work I was a bit distracted. This was entirely due to my anticipation regarding my earlier promise to finish this four-part series with a quick summary of my net worth. I hope most of you can forgive me; it's just that I feel like the lead actor in the latest Judd Apatow movie. ;-)
Those of you who have seen Forgetting Sarah Marshall or a few of Mr. Apatow's other movies know what I am talking about here. For those who haven't, quite simply, I was rather apprehensive today about doing my financial blogger nude scene, so to speak. But after some last-minute moral support from the Honeybee and a couple of other bloggers I have come to terms with it. So let's get it on. Lights, camera, action!
Well, there it is for all the world to see. My net worth, that is. As of 31 December 2008 my net worth was approximately $660,000. As you can see I estimated our household personal property, which includes things like our two cars, furnishings, jewelry, and collections. I also estimated the value of our home at the time. I know this number is very close because we are currently refinancing and I just had the house appraised. The appraisal came back at $440,000.
Our investments are in good shape as I managed to foresee the financial meltdown coming. At the end of 2007, I pulled all of our investments out of stocks and placed them into a safe haven, avoiding the big losses that occurred in late summer and early fall of 2008. We still lost about 5% on the year, because I chose to start putting some of our money back into the market in November after the bulk of the market carnage was over. Still, as you can see, the bear is still out there.
On the liabilities side, we have no loans, credit card debt or any other obligations other than the mortgage. As the household CEO, I choose to track both our total net worth as well as net worth minus home equity. I do this as a simple reminder to myself that our house is not to be considered a piggy bank that can be tapped whenever we have an urge to scratch an itch.
Well, that's it. My scene is over. I hope I did alright.
Now, will somebody please hand me my robe? :-)
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Continue reading My 2008 State of the Household Financial Report (Part 4)
My 2008 State of the Household Financial Report (Part 3)
Welcome to Part 3 of my State of the Household financial report for 2008. I've been very serious about running my household like a business for close to 20 years now. As a result, I have managed to compile detailed data across a long time period. ...
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My 2008 State of the Household Financial Report (Part 2)
Welcome to Part 2 of my four-part State of the Household Financial Report. If you missed it, be sure to check out Part 1 first!
Once again, here is the illustrative breakdown of my "outflow", or expenses, for the year in the form of a pie chart. The money that makes up the pie chart primarily comes from my take-home pay, which excludes withheld taxes, paycheck deductions for health and other benefits such as additional life insurance, and contributions to my 401(k) plan.
The pie chart shown below, in essence, represents exactly how we chose to allocate our take-home pay for the year:
As you can see, the chart is broken up into various categories. In Part 1, I dissected and discussed the four biggest categories that consumed our annual household income. Those categories being the "Loans", "House Expenses", "Entertainment", and "Savings." I will now review of the remaining categories which, although make up a smaller percentage of the pie, are no less important. And as I stated in Part 1, this section includes the most important category of them all. Did you guess which one? (Hint: It will be the last category I address in this post).
Groceries
In pure dollar terms, my grocery bill has gone up 2.4 times since 1999; that far exceeds the rate of inflation over that same period. So why the increase? Quite simply, the main reason can be attributed to my two growing kids who are currently aged 11 and 9.
I anticipate that the annual grocery bill will really start to skyrocket once my 11 year-old son gets into his teen years. Heck, he already is eating me out of house and home! Scary. I shouldn't be surprised though. I know I am guilty of eating my mom and dad out of house and home too. I guess it's payback time! I'd be interested in hearing how big the grocery bills are for some of you with teenagers out there so I can properly prepare myself for the coming onslaught! :-)
Miscellaneous Bills
Ah, yes. The old "Miscellaneous Bills" category. This category could easily be called "Life". We spent roughly 7% of our take-home pay in 2008 on such things as association fees, life insurance, newspaper and magazine subscriptions, haircuts, stamps and other postage costs, Girl Scout cookies and cash donations to charities. It also includes Christmas, birthday, graduation and wedding gifts, and even the vet and grooming bills for our Rhodesian Ridgeback, Major.
Utility Bills
Utilities eat up 6% of our annual household take-home pay. There is really no mystery here as to what this category entails, but for the sake of completeness I'll break it out for you. In addition to natural gas, electricity, phone, sewer, trash and water, other utilities here include our Internet service, and satellite television. This category is extremely fascinating to me when I look at the 10-year numbers. I'll explain more in Part 3 when I will breakdown and focus on the long-term trends. But if you had to guess right now, how much would you say cumulative utility prices have risen over the past decade? Can you guess which utilities went up faster than the others?
Automobile
We're not free of auto expenses just because our household doesn't have a car payment or two. We still spent 5% of our annual income on auto-related items like gasoline, registration fees, car insurance, the auto club membership, and servicing and maintenance on the Honeybee's 2001 Honda Odyssey and my 1997 Honda Civic. Luckily they're Hondas, so they are extremely reliable.
Taxes
This section covers all taxes not already withheld from my paychecks by my employer, although for all intents and purposes, this consists entirely of my property taxes. In 2008, those property taxes accounted for roughly 4% of my annual take-home pay. How does that compare with you? Luckily, I live in California, where property taxes are limited by Prop 13. For those of us in California and other states with laws similar to Prop 13 who can manage to stay in their home for 20 or 30 years, the benefits can be truly substantial.
Medical Bills
This category accounted for roughly 3% of our take-home income in 2008. It does not include the small deductions that my employer takes out of my paycheck for the insurance, but it does include all of the deductibles and other non-covered expenses that we encounter each year.
Retail
This category covers retail items not covered in other categories that you might get at places like Target, Wal-Mart, K-Mart, Kohl's, etc.
ATM
To me, this is the most important category of them all; it certainly is the one category that every household should track like a hawk. In my experience helping others get their household finances in order, cash withdrawals from an automated bank teller machine are the biggest single source of what I call "income leakage." It seems like not a day goes by when I talk with someone who says they are trying so hard to make ends meet, but for the life of them they can't figure out where all their money is going. The first place I always tell these folks to look is at their ATM receipts. Why? Because cash in the wallet or purse is susceptible to impulsive spending that can bust a budget.
In 2008 we withdrew only 1.5% of our annual take-home pay from the ATM. I strongly recommend all households that have trouble keeping cash in their wallets and purses strive to keep this number to 2.5% of their take home pay or less. Basically, what this does is put a budgetary cap on your impulsive spending -- assuming you can stick to it, of course. :-)
And yes, I realize that by tracking an "ATM" category I slightly affect the accuracy of my other categories! For example, money I might spend on a movie with cash I got from the ATM doesn't get tracked in the "Entertainment" category. But as long as the amount of money in the ATM category remains relatively small, its effect on the other categories will be negligible. It's a trade I am more than willing to live with.
I hope you enjoyed going over my 2008 State of the Household Financial Report with me. Hopefully this may give you some ideas for how to track your expenses and income. Remember that there is no correct way to do this with respect to how you break out your expenses. But my philosophy is, if you want to do it right, you should be as thorough as possible.
Next, in Part 3, I will look at my long-term trends over the last ten years for these same categories as they pertain to my household expenses. I am sure you'll agree that the data, spanning from 1999 to 2008, are extremely interesting. After all, it is those long-term trends where the real insight comes into view regarding the wisdom of living within your means.
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Continue reading My 2008 State of the Household Financial Report (Part 2)
My 2008 State of the Household Financial Report
As required by our household constitution, the household CFO is required to deliver the family financial report to the household CEO each January. ;-)
As such, the ever-dependable Honeybee has painstakingly tracked and recorded our finances for over 10 years using Excel, which is a Microsoft spreadsheet tool that I highly recommend. I've reviewed the numbers and I am quite pleased.
With her report for 2008 finished I thought you, too, might like to see a detailed breakdown of my household expenses for the past year. By doing this, hopefully some of you may also be able to gain some insight by looking at exactly how we track and manage our household finances.
Since I have detailed records going back to 1999, I will also show you data that reveals longer-term trends applicable to typical households with a genuine commitment to living within their means. By observing this long-term data I hope you will be able to glean some additional insights regarding the long-term advantages and benefits of sticking to a disciplined budget. This long-term data should also provide a strong dose of encouragement to those in their twenties and thirties, who may be questioning whether early scrimping and saving is really worth it (trust me, it is)! :-)
So without further ado, here is my State of the Penzo Household financial report for 2008:
Let me start off by giving an illustrative breakdown of my "outflow", or expenses, for the year in the form of a pie chart. As the Honeybee is a hard-working but unpaid stay-at-home mom, the money that makes up the pie chart primarily comes from my take-home pay, which excludes withheld taxes, paycheck deductions for health and other benefits such as additional life insurance, and contributions to my 401(k) plan.
The pie chart, in essence, represents exactly how we chose to allocate our take-home pay for the year. Here it is:
As you can see, the chart is broken up into various categories. Let's go over the categories, shall we?
Loans
The biggest chunk of our household income (17%) falls under this category. This category is reserved for mortgage and auto loans. Since both of our cars are paid for, this category basically reflects our mortgage payment. Followers of this blog know that we are dedicated to paying off the mortgage early; in fact, the plan is to retire it by 2017. As a result, this number could have been reduced by a few percentage points if we chose to make the standard monthly payments. However, because paying-off the mortgage early is a no-brainer, our long-term household strategic plan has us making additional payments. Those who are just starting out will find that this number can be frighteningly high (sometmes as much as 40% or more), but don't depair! Over time this number will drop considerably, as you will see when I show you my ten-year data in Part 3 of this report.
House Expenses
In 2008, the next biggest chunk of the expenses pie (14%) was allocated to the house. Actually, it was a dead-heat with Entertainment percentage wise, but in dollars the house won out by a whisker this year. For this category, we include home insurance, new furniture, home improvements, and general maintenance. The biggest expenditures in this category for 2008 went to buying new front doors, repainting the exterior of the house, getting new stair balusters, and re-staining the wood cabinetry. But anything that is used to improve or maintain the home goes here -- including the two separate occasions last Spring we had to have a specialist come out (at $200 a crack) and remove bee swarms that tried to set up hives in our house. Is that the Honeybee's fault? I am still trying to figure that one out. ;-)
Entertainment
Another significant piece of the pie (14%) came from this category as well. This includes movies, vacations, trips to amusement parks, ball games, you name it. If it's fun, it probably went in this category. A good chunk of entertainment costs in 2008 were a direct result of our 10-day trip to Maui. I love Hawaii! In fact, if I wasn't writing this article I'd probably be on a plane heading back there. ;-)
Savings
Is savings an expense? Well, if you want to do it correctly then all of your income has to be tracked. Otherwise, how will you know if you have properly accounted for all of the money that passes through your hands? It's as simple as that. The "Savings" category is very important because it is a good indicator of your overall financial freedom.
This category represents money that is siphoned off to our emergency savings fund, and also any additional income that comes our way as a result of, for example, employer bonuses not part of my normal salary and income tax refunds. My goal for this number is 10% per year but, because it depends on a lot of intangibles, I never rely on this number or even use the trend data when updating my household strategic plan. For those of you just starting out or buried under a pile of debt, 10% or more may look like an impossible number to achieve. Please, let me assure you, once you commit to living within your means this number will not be hard to reach! I promise! :-)
I've been fortunate to meet this goal most every year over the last decade. My luck can't last forever though, and therefore it is important that I continue to build my emergency fund to handle the inevitable periods that will require me to greatly reduce, if not forgo completely, saving entirely.
So far I've covered the four categories that make up the biggest percentage of our pie. The most critical piece of the pie has yet to be discussed though, and I will cover that in Part 2. Can you guess which piece of the pie you should consider to be the most important of them all?
Later this week, in Part 3 of this series, we'll also look at my household expenses over the 10-year period from 1999 to 2008. We'll then close out the series in Part 4 with a look at my overall financial status and current net worth.
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What the Heck Does a Household CEO Do?
Okay, so you've heard me preach that the job of household CEO is a relatively easy one. I've already discussed the primary qualifications that every household CEO must have in hand, but just what is it that a household CEO does?
To answer that ...
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