Not alot of movement in general, just the typical retirement contributions, but I did knockout the remainder of a single student loan in September – as you can see from a big drop in that category.  The ROTH account’s are getting a bit battered from two fronts.  First, the ROTH transfer occurred which resulted in some painful one time expenses to save from years of painful expenses.  Second, Strum Ruger has been a drag in value and dividends, so that isn’t helping the cumulative balance either.  October wasn’t too eventful because that is when I paid the remainder of the home deductible, not allowing for much activity in investments or debt repayments.

Not a bad few months overall, how was yours?

September

Income

• Paychecks: $4,451
• Interest & Dividends: $28
• Credit Card Rewards: $24
• Other: $0

Total Income: $4,503

Expenses

• Health Insurance: $124
• Health costs: $10
• Mortgage Interest and Escrow: $632
• Car Loan Interest: $13
• Student Loan Interest: $51
• Water & Sewer: $45
• Electric: $33
• Natural Gas: $20
• Internet: $60
• Cell Phone: $0*
• Life Insurance: $44
• Trash: $60 (this is paid every 3 months)
• Dining Out: $65
• Entertainment / Hobbies: $15
• Personal / Household: $57
• Gas: $198
• Clothing: $11
• Meals: $124
• Snacks & Beverages: $24
• Car Repairs and Maintenance: $0
• Home Repairs and Maintenance: $137
• Car Insurance and Registration: $0 (6 month insurance for 2 vehicles)
• Vacation $0
• Gifts: $0
• Misc: $0

Total Expenses: $1,723

Savings Rate 61.7%

October

Income

• Paychecks: $5,324
• Interest & Dividends: $13
• Credit Card Rewards: $24
• Other: $0

Total Income: $5,361

• Health Insurance: $124
• Health costs: $10
• Mortgage Interest and Escrow: $630
• Car Loan Interest: $24
• Student Loan Interest: $44
• Water & Sewer: $37
• Electric: $35
• Natural Gas: $38
• Internet: $30
• Cell Phone: $0*
• Life Insurance: $44
• Trash: $0 (this is paid every 3 months)
• Dining Out: $85
• Entertainment / Hobbies: $0
• Personal / Household: $18
• Gas: $200
• Clothing: $0
• Meals: $85
• Snacks & Beverages: $38
• Car Repairs and Maintenance: $24
• Home Repairs and Maintenance: $2,500**
• Car Insurance and Registration: $0 (6 month insurance for 2 vehicles)
• Vacation $0
• Gifts: $0
• Misc: $129***

Total Expenses: $4,095

Savings Rate 23.6%

September was excellent and October more than likely would have been as well if we hadn’t paid the other half of our deductible for the insurance repairs.  In fact, excluding that one time expense of $2,500 I would have achieved a 70% savings rate for the month.  Dining expenses are a bit higher than usual.  I went over to the other side of the state in October to visit some family while my wife hung out with a friend that same weekend.  So a bit more dining out expenses occurred in October due to that, September I think it was because we did the extra trip to buffalo wild wings later in the month.  On another note, food expenses in general are down as I am watching this area more closely.  Canadian Budget Binder has an excellent reoccurring series on grocery budget challenges.  I suggest you check it out if you are interested in combating this area of your budget, his most recent post can be found here.  Per usual, there are a couple of items I would like to mention in detail.

*Currently free because of a referral from Dividend Mantra.

**The remaining amount that was due to storm damage on the house.  I have a high deductible insurance plan, I should do the math to see if this is the wisest idea long term, but it is not likely another event will occur in which I would reach the deductible.  In fact growing up in this area, this is the first major storm I can remember where there was wide spread damage.  So I think I am safe maintaining this high deductible for the future.

***Misc expenses include Amazon Prime membership and some cash my wife got out while spending time with her friend.

Well that wraps up my most recent months, how did your past two months go?

Photo Credit: adamr/freedigitalphotos.net

I mentioned in my post about Loyal3 that I have added some positions in Microsoft (MSFT) and Kraft (KRFT).  I also have some small auto purchases being made, just $10 a month, into several stocks.  The purchases that occurred during September include Coca-Cola (KO), Walt Disney (DIS), Pepsico (PEP), Walmart (WMT), Unilever (UL), and McDonald’s (MCD).

The only positions that had subsistence really were the purchases of MSFT and KRFT.  Being that Loyal3 is fee free, I am able to put in just a few dollars at a time.  Also, the added bonus is this makes my financial planning easier as I now have 10 automatic purchases set up I will automatically earn interest in my checking account which is usually over $15.00 a month.  Now I don’t need to worry about the amount of times I use my debit card at the store and I can focus all of my purchases on reward credit cards while knowing I will be maximizing the return of my cash.

With that said, let’s go into a little detail about these stocks that I am purchasing.

Microsoft (MSFT)

I purchased 5.5581 shares for $250.00 in Microsoft and setup a monthly purchase of $10.00 for future months.  When this purchase was initiated, it would of added $6.23 in annual dividend income to my portfolio.  But since the purchase, Microsoft has already announced their dividend increase raising this to $0.31 a share quarterly, or $1.24 annually.  Thisis over a 10% increase from their previous dividend of $0.28 a share on a quarterly basis and will now yield $6.89 in annual dividend income.  The portfolio page still automatically reflects the old rate, possibly because it will not be updated until the new dividend is actually issued?  Not sure on when yahoo finance updates that information.

If you don’t know anything about Microsoft… well the biggest product is Microsoft windows operating system, which is pretty much that standard OS nationwide which provides a tremendous moat.  They also have other very popular products such as Microsoft office and the Xbox and related games that they create.  Other areas in which they have business in includes mobile phones and their operating systems.  I think key risks include how well they compete in cloud computing and particularly their lack of dominance in the mobile department.  Google with Android and Apple with iPhone are really kicking them down in this realm.  Who knows, there may even be more people using black berries than windows phones!

Kraft (KRFT)

I purchased 2.5675 shares of Kraft and also setup a monthly purchase plan of $10.00 with this stock.  This crafty purchase will added another $5.39 in annual dividend income.  Don’t hate on the small gains, every little bit helps towards building that passive income stream!

Kraft really isn’t the same as it used to be, they had split with Mondelez (MDLZ) and I considered grabbing a piece of both until I saw the dividend history where Mondelez had already cut from their dividend from the initial amount.  I already am experiencing a stock with cuts in Strum Ruger (RGR) and that was a bad decision… clearly the better choice would have been to stay away from that one and I intend to avoid a mistake here.  Anyways, I am a big fan of cheese and buy A LOT of kraft products.  But their lines don’t stop in the dairy, they also have big brands such as Maxwell house coffee, planter’s peanuts, and oscar meyer meats.  I do love bacon… but given my dad’s side of the family’s history with hearts clogging up, I think I am going to stay away from it for the most part…  And sadly it isn’t just my dad, my uncle, and my grandma had passed in her early 60’s.  See why I am motivated to retire early?  I might not get a retirement at the “traditional” age!

Coca-Cola (KO)

I purchased a whooping .2407 shares in Coca-Cola for $10.00 this month.  That beast of a purchase gets me another $0.29 in dividend income!  Best respect!

Another large household name type of brand, Coca-Cola is mostly known for their soft drink beverages (as us Michagander’s refer to as “pop”, don’t ask why cause I don’t know) that go by the same namesake.  They also have a line of sports drinks in their Powerade beverages, which I actually prefer over Gatorade.  They also have orange juice as well as bottled water.  So if you are thirsty and own KO, go for the knockout and boost your profits as well by sipping on one of their beverages!  But maybe stay away from Surge, I hear they are reintroducing that stuff and I am not a big fan over Mountain Dew or Mountain Dew-type-spinoffs.

Walt Disney (DIS)

Another massive purchase worth $10.00 for .1106 shares.  This being the lowest yielding stock on my portfolio…. puts out just $0.10 in annual dividend income.  Ok, I give you permission to laugh at that one if you want.  Go ahead, get it out.

Disney is mostly known for their movies, but they are great at turning their successes in the box office to successes in their cash box.  They do a great job with making sure their are kids toys for their movies, adding in the characters to their theme parks and maybe even rides.  Plus Pixar I think produces some very entertaining movies, doesn’t seem to matter what age you are!  It will be interesting to see if they are successful in monetizing their purchase of Lucas Film and Indiana Jones.  Even if they aren’t great at getting those implemented into future movies it sounds like they have plans to do so in theme parks.  That can still be a great revenue generator, get your geek on!

Pepsico (PEP)

I purchased .11 shares of Pepsico (PEP) for, you guess it, $10.00.  This company is on par with KO adding in another $0.29 in annual dividend income. I think I am out of semi-witty comments regarding these tiny purchases so I will leave it at that.

I would probably argue that Pepsi is more diversified than Coke.  Their soft drink line may be in at number two, but they are more dominant in other areas such as their sport drink line and their potato chip line.  Overall I think that they are a great company with great products, but the sad thing is my purchases are usually the third runner up in this market – Dr Pepper Snapple (DPS).  The reason is that RC Cola is consistently $1.00 at the store, so unless if Coke or Pepsi are on sale.. that is what I buy.  Plus the wifey likes Dr. Pepper and LOVES Cherry Dr. Pepper.  That said, I think Coke and Pepsi and better companies and for most customers can charge a premium.  I just thought that investing in all three was a BIT too much for the time being.

Walmart (WMT)

I purchased .1299 shares of Walmart for $10.00.  Walmart will add another $0.25 to the annual dividend total.

Walmart is the most dominant grocery chain in the United States and I really don’t see that changing any time soon.  I do find that they are often one of the best priced big box stores around.  Sure you can get a better price on some items at like Aldi, or Warehouse’s such as their own Sam’s Club or a Costco, but those stores are not as abundant as Walmart and they do have less variety.  The closest competitor that offer’s a similar style to them for me is a regional family owned chain called Meijer.  I usually shop there because it is 15 miles one way closer, but if I am going to be near a Walmart that weekend when shopping, it would be a bit foolish not to take in the savings.  With ad matching they are really hard to beat for consumers looking for the best deal.  They may not be my favorite place, but I don’t view them as bad now that I can at least benefit from the hassle of long lines.

Unilever (UL)

I purchased .2292 shares of Unilever for $10.00.  Based on the current dividend this will add $0.35 in annual dividends.

This was basically the only consumer products type company on Loyal3 and I figured it would be a solid pick to add.  Well AFTER I setup the initial purchase I was looking at their history a bit more (should have beforehand) and noticed how their dividend history is a bit sporadic.  It seems that their payout ratio is a bit high and they are probably just issuing their quarterly dividend based on cash flow.  To add to that, I thought I should check and see what types on Unilever products I have lying around.  Well… I have Colgate, Kimberly Clark, and Georgia Pacific products here, but I didn’t see any Unilever.  Maybe my wife has some of their stuff.  But it makes me wonder what kind of value are they offering their customers if I wasn’t already drawn to their products beforehand?  I think I will continue with this auto purchase until an entire share is owned and then move on to one of the other choices available on Loyal3 – possibly YUM, DPS, or HAS.

McDonald’s (MCD)

I purchased .1064 shares of McDonald’s for $10.00.  This will add another $0.34 in annual dividends!

McDonald’s is the largest fast food chain in the world.  I think I heard that YUM brands has more stores, but I don’t think they are higher on revenue and no single chain has covered the market as wide as McDonald’s has.  They sell a consistent product, that, well it works.  It isn’t my first choice, but if you are on the go and need something it sure beats gas station food.

Summary

The combined stock purchases will add a total of $13.90 in annual dividend income, after accounting for Microsoft’s dividend increase.  My forward dividend income has now broken $300 and is at $306.28!

Next month I expect to make $10 purchases to all of the stocks mentioned, plus Mattel (MAT) and Kellogg (K).  Also, it sounds like my wife’s ROTH is finally on the move out of Edward Jones once she calls the guy back to confirm we want to move that money.  That should provide an interesting month of purchases with almost $7,000 available in extra capital!

What about you, did you purchase any stocks this month?

Full Disclosure: Long MSFT, KRFT, KO, DIS, PEP, WMT, MCD.  Possibly long on UL and RGR.

Photo Credit: suphakit73 / FreeDigitalPhotos.net

First off, I had a couple new posts this week per my Tuesday – Thursday posting schedule.

Disadvantages and Advantages of Loyal3

Wondering what Loyal3 is in the first place?  Well it is a brokerage account.  But not your typical brokerage account either.  There are zero fees.

Income and Expense for August 14

August was a killer month here!  Had a HUGE savings rate which really helped build our Net Worth up in August.  Not every month will go like that, but you can dream, right?

With that out of the way, here are the highlights of the week!

Being Focused Can Improve Investment Results

I liked this post from Henry @ Living at Home, but I think it can apply to more than just investment results.  Really, focus can probably improve the results of almost anything.  The key is to make some long term goals, maybe even a road map, but use it more of a guideline and try to exceed your target.

The 4% Rule Examined

Jason from Dividend Mantra goes in to examine the 4% rule and why he believes dividend growth investing is a superior model for investing in a time frame greater than 30 years.  I happen to agree that living off of the income from your assets is the way to go, but I don’t mind having an allocation of my portfolio in the indexes.  You never know what companies will do well in the long run and at least that way you are getting a little bit of the entire market action.

The Power of the Word “No”

A very good article from Brian at Debt Discipline regarding a simple word.  Saying NO to things that don’t matter will allow you to have what truly matters.  Will a bigger house and stuff to fill it with allow you to spend more time with your family?  Probably not.

The Cost of Convenience

Do you wonder the about the things you buy because it is convenient?  Autumn at the Barefoot Budgeter has a pretty good sized list of items that people pick up or do because it is “easy”.  What things do you pay for out of convenience and do you know the long term consequences of your decisions?  I know this is an area in which I can probably improve in, so I am looking at the grocery challenge series from Canadian Budget Binder as extra motivation to stay on track here.

The Truth About Why I Can’t Afford to Stay Home

Now here is someone with a clear singular focus.  Kristen at Indebted Mom is constantly trying to find a way to make staying at home with her children possible.  She is blogging and trying to work her way into multiple streams of income through blogging, freelancing, and maybe part time exercise instructor.  Hopefully that recent raise she bargained for will give her enough breathing room to make this possible in the near future!

Well, I am glad this week is over.  It was a pretty busy week at work and it feels like I got nothing done.  And now it is cold and rainy this weekend, so I still can’t stain the deck.  On the plus side, it is good weather for having chili!  How is your weekend so far?

August overall was a grand month with extra paychecks from the daily grind.  I had expected to pay $2,500 more for my house due to storm damage in April, however that hasn’t happened as of yet.  I guess I will need to double check my paperwork to see where I stand on this, but I am holding those funds aside for now as I plan on paying it at the present time.

Income

• Paychecks: $6,387
• Interest & Dividends: $17
• Credit Card Rewards: $25
• Other: $0

Total Income: $6,429

Expenses

• Health Insurance: $124
• Health costs: $185*
• Mortgage Interest and Escrow: $635
• Car Loan Interest: $23
• Student Loan Interest: $55
• Water & Sewer: $37
• Electric: $35
• Natural Gas: $22
• Internet: $30
• Cell Phone: $0**
• Life Insurance: $44
• Trash: $0 (this is paid every 3 months)
• Dining Out: $35
• Entertainment / Hobbies: $20
• Personal / Household: $40
• Gas: $174
• Clothing: $28 (I declared sock bankruptcy plus my wife got a couple things)
• Meals: $163
• Snacks & Beverages: $21
• Car Repairs and Maintenance: $0
• Home Repairs and Maintenance: $0
• Car Insurance and Registration: $653 (6 month insurance for 2 vehicles)
• Vacation $2***
• Gifts: $36
• Misc: $272****

Total Expenses: $2,634

Savings Rate 59%

This was a very good month, although I didn’t quite reach the 60% challenge put out by the Dividend Diplomats, but I am pretty happy with the 59%.  Just $64.29 less spent would have gotten me to the 60%.  Which there was one decent sized optional purchase that if it wouldn’t have been made, would have bumped us over the 60% mark.

*Health Costs – This is mostly from a billing back in April that was all applied to a deductible.  Medical billing is pretty slow it seems.  We were over billed because they they didn’t apply any of the insurance discounts and got those applied before we paid the bill.  Fun times, but I wasn’t going to pay an extra $250 or so if I didn’t have to.

**Currently free because of a referral from Dividend Mantra.

***Well I didn’t take a vacation for $2.00.  We received a bill for $2.25 in the mail for tolls, apparently that is how they bill in Virginia?  Oh well, we drove it, they got a picture, we paid.

****This is all related to the purchase of two bicycles.

Well that wraps up my August, how was yours?

Photo Credit: adamr/freedigitalphotos.net

 Disadvantages

Not Available for Retirement Accounts

Loyal3 is a brokerage service only.  Meaning you cannot stash money away in a tax advantaged manner.  So if you are looking to grow money tax free or tax deferred they currently cannot do anything about this.

The Brokerage Account Cannot be a Joint Account

This is more of a minor hassle for me.  For some people it is nice just to have all financial assets jointly owned between you and your spouse, this being one.  However, Loyal3 is only for an individual brokerage account so make sure your trust or will reflects that the ownership transfer to your spouse upon death if this applies to you.

Limited Selection

Loyal3 is a fairly new service and only has so many stocks available to invest in.  There are alot of big name companies in the list as they seem to focus on adding companies at IPO’s and to add in companies in which are popular.  Specifically they say they want customers to be able to “Invest in the brands they know and love”.  So it is unlikely that they will be adding in too many companies that the population is unfamiliar with.

Trades Are Not Instant

If you are looking to get in or out of a stock because of recent news or events that make you rethink your investment strategy, don’t expect it to be liquidated or added moments after you click “sell” or “buy”.  That is because Loyal3 does batch processing daily on both buying and selling shares.  This is fine for a long term investor, but you need to understand this limitation particularity when trying to exit a position.  In fact if you are buying with a debit or credit card there is a few day delay before the transactions are processed.

Advantages

No Fees!

The best part of Loyal3 is that there are no trading fees.  Part of how they do this is through agreements with the companies in which you invest with.  Another part of it is through the batch processing which is primarily how they can reduce costs by trading everyone’s shares only once or twice a day.

You can Invest as Little as $10 at a Time

This is a major advantage.  If you are looking for a way to invest that coffee money that you are saving then this can be a great place.  You can put in just $10 at a time to purchase a stock that you enjoy the business of.  You no longer have to hold onto that money until you get a substantial amount to invest with.  Just $10 can invest in a partial share of a company and create an account.  It is a great way to get started investing because of the low capital requirement and no fees.

Invest With a Credit or Debit Card

When I saw Retire Before Dad investing with a Credit Card earning cash back rewards with his purchases of stock I was sold.  I don’t know any other service that allows you to get an instant 1% (or more depending on your card) return on investing.  I had signed up for a new card with a $400 signup bonus and invested all $400 (free money) into two different stocks on Loyal3.  So not only will it help me achieve my bonus, I will also get $4.00 in general rewards for getting the stock in great companies!

What I am Using Loyal3 for

 Initial Purchases

Initially I purchased shares in Microsoft (MSFT) and Kraft (KRFT).  This will use my $400 credit card signup bonus.  I like these companies long term prospects, but I don’t have the time to go through a detailed stock analysis on these companies as the focus is on Loyal3.  Loyal3 only allows you to save one credit card information in at a time.  Now that my initial purchases are over I have switched my card information to my bank account at the credit union.  Anyways, once these trades are finalized I plan on writing about their affect on my forward dividend income.  But I still have two $50 KRFT trades pending before I can do that.

Monthly Purchases

Since I need 10 purchases a month to earn interest on my checking account… I have found an easy solution with Loyal3.  Investing $10 in 10 great companies will get me my required purchases so that I can place all other spending on rewards credit cards in the future.  Now you might think it isn’t worth the hoops to jump through, but I get 3% interest and with a balance of just $4,000 in my account that is $10 a month.  So getting $100 in stock will net me $10, or more, in interest.  Not a bad deal!  My monthly purchases will start later this month and include the following:

• Coca-Cola (KO)
• Walt Disney (DIS)
• Kraft (KRFT)
• Mattel (MAT)
• Microsoft (MSFT)
• Kellogg’s (K)
• Pepsico (PEP)
• Walmart (WMT)
• Unilever (UL)
• McDonald’s (MCD)

Other stocks I considered were Yum Brands (YUM), Dr Pepper Snapple Group (DPS), Target (TGT), Hasbro (HAS), and Mondelez (MDLZ).  I was trying to diversify between sectors so I compared them to the other stocks available in the same sector.  I plan to revisit these automatic purchases in the future as Loyal3 adds more stocks and as stock prices change others may become a better value.  Also if Intel (INTC) ever decides that they want to start raising their dividend I will put them into the considerations as well and I would maybe consider Apple (AAPL) in the future if they continue to grow as a dividend stock.

What about you, have you checked into using Loyal3?  If you use it, do you like it?

Full Disclosure: Long KO, DIS, KRFT, MAT, MSFT, K, PEP, WMT, UL, MCD

UPDATE: Loyal 3 recently announced that they will be discontinuing debit and credit card purchases of stocks.  I felt that this is important to note, because it was a significant advantage of Loyal 3 at the original time of writing, but is no longer available.

Photo Credit: Stuart Miles / Freedigitalphotos.net

Anyways… my blog has made it around the inter-webs quite a bit recently.  Recent mentions include the following:

RockStar Finance

Roadmap 2 Retire

Our Big Fat Wallet

Cash Syndrome

Debt Discipline

No More Waffles (Which unfortunately still is not loading with AT&T internet)

Million Dollar Ninja

Living at Home

Indebted Mom

I think that covers the recent mentions between 4 different articles getting some love on the inter-webs.  So thank you all for the mentions!

My most recent articles this week include the following:

Net Worth Update – August

The Road to Financial Independence

Ok, time for the round up posts!

Balancing Ethics and Investing

Steve at the Kapitalust put together a very thought provoking post about the ethics of investing.  Are you against smoking or some sort of medical research?  Have a strong sense of being environmentally accountable?  Then this post may help you in your investing decisions.

You Can’t Cut Your Way to Wealth

I like this post from Grayson over at Sprout Wealth.  Earning more income really helps to build wealth… but you can get free cash flow by cutting expenses.  The key is to grow your spread between income and expenses.  Start investing or finding ways to grow that money you are saving.  If you just put it in a savings account, he is right, you won’t grow your wealth.

Wants VS Needs: House Edition

Autumn @ the Barefoot Budgeter put together a great post to remind us the difference between wants and needs in regards to housing.  My current house has ALOT more than the wife and I need.  It still would be more than we need when we start to have a family.  But the fact is once you realize the different between wants and needs you can start to value them monetarily which in theory you can then translate that to time.  So is an extra bedroom or an extra bathroom worth another $20,000 one time plus heating, cooling, property taxes annually?  Is that worth working another couple of years to acquire the extra $20,000 and have money saved up to pay the extra expenses perpetually?  If so, then go for it, but do it knowingly.

 New Game: Live Like you are Unemployed

I really liked this post from Zee at Work to Not Work.  If you could live off the money you would receive if you were unemployed you would do quite well saving your money.  Besides, if you do this regularly, it will be a great way to build up your funds and not have to work!  I guess that is the whole point of working to not work, right?

Reasons I’m Happy I’m Not Going to FinCon

Well both Debt Debs and I are not going to FinCon, along with many other’s whom commented on her article.  Hey there is also silver lining in anything!  These reasons should inspire you to be able to overcome possible disappointment.  That or give you a good way to laugh it off.  You decide!

Well I hope everyone is enjoying the weekend so far!  Busy here, but that is per the usual.

Update: I forgot to mention I updated my Liebstar Nomination page due to recent nominations from Debt Discipline and Million Dollar Ninja.  I think I need to add the picture to my side bar so people know that I have been nominated, but I have added in their questions and answers to the of the post.

I have had a vague idea of when I would become financially independent.  Somewhere between age 46-50 was the general idea.  I can’t say when it will happen for certain, circumstances change, inflation happens, or life events.  But I can say if everything cost wise and lifestyle wise were to move in the same direction as where I am today, that I know when I can retire.  The good news is I am a bit of an optimist and I hope I can create a larger spread in savings, paying off debt, and make a little more income than inflation.  Who knows, if this blog starts to make a little money a couple years into the journey that is all money that will speed up this process.

After reading a detailed post from Big Guy Money on his journey to financial independence I thought maybe I should share my thoughts on the time frame for my journey here. So this post will kind of give you an idea of where I am going now and how I plan to get there.  Kind of like a travel guide subject to changes due to unforeseen circumstances.

How do I know I am on the Right Track?

This is the main reason why I share my net worth.  It is the way in which I can measure my success over long periods of time.  While I am not overly worried about little (or big) fluctuations through the market dropping or increasing, I am concerned that each month I am making a conscious effort in my savings.  Between these two systems I should know that I am headed in the right direction to one day be financially independent.  Once I have 25 times my ordinary expenses I am free to leave my full time day job if I so choose.  That doesn’t mean I cannot work in any fashion, I can just choose whatever I want for how every many, or few, hours I choose.  Or I can even volunteer on a greater scale as I should have more free time to do so.  The fact is when 9+ hours of my day is spent working and going to work, it is hard to get value out of my time.

Where my Money is Going

Loans

I hate debt, which is one reason why I am paying it off a bit quicker.  But I also need to get rid of all my debt before I retire.  Currently I plan on paying off all my debt at age 40.  And being in debt is a pain as I must ensure that I protect my family until we have significant financial assets.  This is why I call life insurance a penalty of debt.  If we were in a more solid financial position this is one more cost that we would not need.  Currently I have a mortgage, one car loan, and student loans that I am contending with.  Once these are all gone my cash flow should greatly increase allowing me to save more in other accounts.  My plan is to first max out my ROTH as loans disappear and then put anything over that into pretax accounts.

Pre-Tax Accounts

Currently we are putting a decent amount of our savings into Pre-Tax Retirement Accounts.  Based on the current amounts about $7,400 a year as well as $2,075 going into a defined benefit pension.  Once Debt is paid off this will likely increase to about $17,000 a year, or more, as we will no longer need as much cash coming into our checking accounts to pay for bills.  Currently this money is all being invested via index funds.

Roth IRA’s

These accounts are building up income producing assets, currently all dividend growth stocks, in which I can use just the income they produce to help fund my retirement.  Currently I plan to invest approximately $5,600 a year into these funds and this amount will increase as loans are paid off upto the maximum allow by law (which currently is $11,000 between the two of us).

Taxable Investment Accounts

It may seem odd that I am putting money into taxable accounts without maxing out the tax advantaged accounts.  There are multiple reasons for me to do so, starting with I need a 5 year buffer between my ROTH IRA and brokerage accounts in order to a ROTH IRA ladder retirement strategy to be successful.  The wife and I don’t gross six figures, and even with raises during this time frame I kind of doubt that we will be grossing that high.  It could potentially be possible to reach that amount of income before we retire, but I am not planning on spreading the gap between my income and expenses more than it is now.  If our income does outpace our personal inflation then we will be able to max out our ROTH accounts sooner and possibly not need as much in our brokerage accounts.  Never the less, brokerage accounts also server as part of our emergency fund.  And investing an average of $1,200 a year into these accounts isn’t going to kill me on the lost tax benefits while still providing liquidity.

The Big Picture

Total Annual Savings and Debt Payments

Right now my plan is to in have at least a total of $27,270 each year going towards the combination of savings and debt payments.  Currently I exceed this figure, but I estimate this a bit lower so that if we have kids in the future we will be able to still reach this goal.  These accounts also do not include the savings I am putting in my HSA account which can also provide a boost for medical costs.  Eventually I desire this account to grow to be self funding where the interest and dividends can pay for the deductible in any given year and there would be no need to contribute anything further.  With a $6,000 deductible that figure right now is $150,000 so I don’t think I will reach an also guaranteed self sustaining health account by the time I retire, but it is possible to continue growing it as long as nothing would arise.

Safe Withdrawal

I plan on using dividends to provide the safe withdrawal for income based on $650,000 assets investing in today’s dollars.  Stock prices fluctuate much more than dividends so it will provide a safer stream of income in retirement.  If interest rate rise again I could consider using bonds as well in the portfolio along with some REIT’s.  I also plan to invest some still in index funds to provide some long term growth and diversity.  Although my total assets by 2030 will be about $685,000 a portion of that is locked up in my defined benefit pension program.

The Assumptions

I did a basic interest calculation for the prior year balance increasing 8% and no gains for the present year contributions.  I also am not counting any interest the pension fund may earn.  It does earn some, but nothing significant and I don’t plan on rolling those funds over the an IRA when I leave either.

Margins of Safety

My major margins of safety in this plan include:

• Social Security – all income from this program will be a bonus
• Pension – at age 60 I will qualify for a pension with my work.  Based on working at my current job for a total of 17 years with only raises matching inflation, this benefit will be worth another $8,100 in annual income once I reach at 60.
• Health Savings Account (HSA) – No figures from this were included as they are not available to withdraw, but will help offset future medical costs
• Earnings from work – if I work at all for an income past age 43 that money will all help in adding a margin of safety

Why I Might Wait to Retire

There are two main reasons why I may wait to retire once I am financially independent.  The first is I would like a larger fund for traveling.  This can be accomplished with maybe two more years of work to build up the accounts a little more to provide enough passive income for international travel on an annual basis.  This also could be supplemented by working part time to fund each vacation, however that would remove that margin of safety.

The second reason is that my wife and I eventually plan to have kids and depends on things are we may decide to earn some extra money to help fund their college educations.  The tricky thing is that systems change and the way things are right now if we could drop our income considerably before they graduate they could qualify for federal grants because our income would be below the point in which assets are counted.  If the system changes this may not be the case, but this will be something to be decided much later in the future.  But to be honest, when I get to this point I should just pull the trigger, because life is just too short.

How about you, what is your plan to reach financial independence?

A few things, I decided to start deducting $150 a month from my vehicles net worth (after this month, I had evened it off to $12,900 that way it can be reduced equally).  My ROTH accounts took a beating, mostly because of my investment with Storm Ruger where that individual stock had fallen 10% (and currently down 13% from purchase at the time of writing).  I wish I had more free cash to invest, but I have another $2,500 dedicated this month towards my deductible while also trying to get rid of a single student loan (as you can see by my aggressiveness in paying it off).  To be honest I really don’t like debt, but I feel that after this loan is gone I will be at a good spot to focus on investing while still paying a little extra on the mortgage each month to ensure it will be paid off before I reach 40.  Speaking of the house, I do not plan to move it with the market value as there is no intention of selling it when we reach financial independence.  Maybe sometime after, but those funds will not be available at that time.

How was your July?

1.) Time you spend on the necessities

In this category I would consider time sleeping, eating, working out, and the general care of our body.  We all must do these activities to survive or live a longer healthier life.  Just these basic activities easily consume a third of the entire day.  That means if you work for 8 hours (or longer once you consider the lunch break and commute) you have already consumed over two-thirds of your day.  This does not leave much time to do the things that bring you fulfillment or happiness.  Which is why I seek financial independence.

2.) Time you spend for money

This one is the most basic concepts that the majority of us adults do.  We go to work just for a paycheck.  But if we are giving up 40 hours plus a week then we better get some good money for it!  But for many people this may not be a time of their day that brings out enjoyment.  In fact, about 87% of workers are disengaged or actively disengaged in the workplace.  You may not hate your job, but you may just be there going through the motions and collecting that paycheck.  Hopefully you put that paycheck to good use and boost your savings rate, because your savings rate is key to when you can retire.

Even if you love your job, would you put in the hours that you do if you were financially independent?  I may decide that I want to continue to work until kids (when we have them) graduate from high school.  But that doesn’t mean I would want to work 40 hours every week if I don’t have to.  I would rather work a more relaxed schedule if I continue to work past financial independence.

The more you spend the longer you must be trading your time for your money.  I would just like to have the option to stop trading my time for money.

3.) Time you spend saving money or earning side income

Some side incomes can actually do very well, in fact J Money has an entire post regarding ways people have earned side income.  But we also spend time trying to reduce our expenses and find more frugal ways to do things.

Working out at home, cooking our own meals, buying in large quantities, and doing your own repairs are just some of the ways that we can enhance our frugality.

But shouldn’t we value this this against what we can earn on a side income?  If I am spending two hours a day trying money saving activities and I manage to save $5 a day, is it more effective to work part time or try to earn extra side income?  This is an area in which you must question whether or not that money saving activity is worthwhile because if you don’t really enjoy it maybe there is a better opportunity for you to earn money instead.

4.) Time you spend doing things you enjoy

These are things that you are willing to do for a small amount of money, for free, or even pay to participate in.  I enjoy personal finance so I am paying to host this blog.  You may enjoy movies and you are willing to rent, buy, or go to the theaters to watch them.  Or perhaps you really enjoy running or biking.  This category is limitless to what you enjoy.  If you love your work it could even fall into this category, maybe you love writing and moved to blogging full time such as Dividend Mantra recently has.  The trick here is that you can easily fill this time with activities that are free such as books from the library, biking, hiking, walking, etc, that you can do few things that you pay to do.  In fact, if you work full time, I would almost argue that you probably should do minimal activities that you pay to partake in as you are more than likely not financially free and why spend your limited time running from activity to activity?

The Secret to Success

I believe that the secret to success is found when combining activities in various categories, but the one that matters the cost to combine with is the 4th category (something you enjoy).  Sure I may save less money if I planted a garden than if I would spend that extra time working part time.  But if you enjoy gardening then you are doing an activity that you love AND saving money.  Or you could take a part time job that is a bit physically challenging, but you get paid and you get your exercise.  In fact if you LOVE this part time job, you have now combined three categories into one activity!  The more I think about frugality the more I realize that it is more about optimizing your life experiences to get the most out of every minute.  So money isn’t the answer to everything, but if you are able to achieve happiness in every waking moment, then you have a fulfilling life.  And this is my desire for the future, to trade my full-time work to possibly do numerous part-time gigs that all bring me enjoyment, but may also enhance my life in several ways.  Be it monetarily, physically, or happiness.

What about you, are you trying to maximize your time to its greatest potential?

Photo Credit: renjith krishnan / freedigitalphotos.net