Our Money

Milestone reached: net worth of over $250,000

2008-05-05T12:11:00.000-07:00

The last net worth milestone we published was back at $150,000 which was over a year ago. Since then things have been pretty much on auto pilot where we haven’t been diligently tracking our progress as we had in the past. So it feels very refreshing to get to talk about passing another milestone, this time being a quarter of a million dollars. Interestingly, it was about this day two years ago when we finally surpassed the $100,000 mark.

Husband’s 401k

2008-05-05T09:51:00.000-07:00

When I was first hired by my current employer they were not offering a 401k program. Though the position met all of our other requirements this was a big piece that was missing. However, I was told coming in that I could explore possible options for the company which they would take into consideration. And true to their word, after a rather lengthy evaluation of several providers the company went with my recommendation (Vanguard) with a plan that began this year.

The plan is what is known as a Safe Harbor 401k which allows all participants to make the maximum-allowable contributions each year regardless of income. All of the plan expenses are paid by the company and the employees are only responsible for the costs of the individual funds. There is a 4% match – dollar for dollar on the first 3% and $0.50 on the dollar for up to 5%.

Since I have been with my current employer for a year I now qualify to contribute to the plan. I have elected to defer the maximum amount for 2008 and will continue to do so in the coming years. The money will initially be invested into Vanguard Target Retirement 2050 Fund (VFIFX) for now, but this will change shortly as we begin to realign our portfolio after adding the taxable investment account last month.

Husband gets a raise

2008-05-01T09:05:00.000-07:00

It’s hard to believe that it’s been over a year since I quit my previous job and found another. My workload has increased, as you can see from the lack of blog output, since taking the new position. Today I learned that I received a 10% raise which bumps up our total salary income to $152,440. This will surely help in making our net worth goal of $350,000 by the end of the year. If we can manage to accomplish that feat we’ll still be on the aggressive path of our long-term plan even though we are currently fighting against negative investment returns.

On a side note, since I have been with my current employer for a year I now qualify to contribute to the company 401k program. I’ve already made the necessary adjustments so that I make the maximum-allowable contribution ($15,500) for this year. You may remember that earlier I made mention to the fact that my new employer did not offer any benefit programs. I’ll explain what has transpired since then in my next post.

Taxable investment account established

2008-04-29T14:51:00.000-07:00

Today I opened up a joint taxable investment account through Vanguard with an initial deposit of $10,000 to be invested in Total Stock Market Index Fund Investor Shares (VTSMX). Since we are already taking full advantage of our tax-advantaged savings (Roth IRAs, 401ks and HSA) and all of our “bad debt" is now fully paid down, this was the next logical step in our journey toward achieving financial independence.

In the next few weeks we’ll be restructuring our investment portfolio to a more "slice-n-dice" setup using an asset allocation that is more aligned with our goals and risk tolerances. Right now we’re essentially 100% invested in Target Retirement 2045 Fund (VTIVX) which has served us well up to this point. The plan is to adjust our allocation to the following:

40% TSM - Taxable, Husband's 401k ($44,000)
30% Foreign - Roths ($33,000)
20% Bonds - Husband's 401k ($22,000)
10% REIT - Roths ($11,000)

You’ll notice that the wife’s 401k isn’t included above. That’s because the options she has outside of the Target Retirement funds are quite expensive, so we’ll stick with the Target Retirement 2045 for this account for the time being.

Car purchased

2008-04-23T07:31:00.000-07:00

One of our goals for this year was to use the funds that were set aside in 2007 to purchase a reasonably used car to replace one of our existing ones. In late February we bought a used 05 Hyundai Elantra to replace the 95 Mazda Protégé LX.

Though the Mazda was still in reliable driving condition the wife felt she needed a newer car due to the fact that, with her new promotion, she would be required to drive with clients and coworkers more often and the Mazda was starting to show its age.

Going in we had just a handful of requirements (in order of priority):

Sedan or large compact

Overall cost of around $6,000

Fuel efficient

Reasonable reliability

75,000 miles or less

2001 model or later

Cloth interior

Sunroof

Power locks/windows

I was primarily concerned with getting the most car for the dollar regardless of brand. Initially, the sunroof was more of a preference and we had a lot more options to choose from. However, after doing a bit of looking around, the wife decided that the sunroof would be a requirement. This certainly helped to narrow down our search as you just don’t see many cars with cloth interior and a sunroof.

Of course, when you talk about reliability the Honda and Toyota brands are usually at the top of everyone’s list. Because of this they tend to hold on to their value much better than others. Since I wanted to get the most for our money I gravitated more toward Mazdas, Hyundais and proven domestic brands. For a while I thought we’d end up with a Chevy Malibu or another Mazda Protégé, but in the end we found ourselves deciding on a Hyundai Elantra after finding a good price with a small used-car dealer in a nearby town.

I knew little about the Hyundai Elantra beforehand, but during the course of my research I found out that since 2001, when the vehicle was redesigned, it has proven to be a very reliable car, but because of its prior poor reputation the resale values continue to be very low making it a good buy. Edmunds even ranks it as one of their Used Car Best Bets for 2007.

So, in the end we bought a 2005 Hyundai Elantra that satisfied all of our requirements for the asking price of $7,950, which was slightly lower than the Kelley Blue Book value. We were able to trade in the Mazda for $1,300 which brought the overall cost down to what we had wanted to spend. The car had just over 43,000 miles on it and the CARFAX Vehicle History indicates it sat in a State agency parking lot for much of its life.

Second mortgage paid off

2008-04-22T16:33:00.000-07:00

Today I wired the necessary funds to completely pay off our second mortgage debt, thus completing the goal we set for ourselves this year.

As you might recall, in later part of 2006 we began to make extra payments toward the principal balance which we got down to under $10,000. For 2007 we had planned to transfer this balance to a credit card offering a no fee, 0% interest rate where we'd slowly pay this debt down over the course of the offer period. For reasons explained earlier this did not happen and so this goal was reintroduced as part of our 2008 goal set.

The remaining $8,492.68 of our second mortgage is what I consider the last of our "bad debt" since the interest rate on this loan was so high (8.25%). Now that it is paid off and we have long since established an emergency reserve we can now fully concentrate on nurturing our investment growth.

Contribution made to HSA

2008-01-14T18:50:00.000-08:00

Last week I made the maximum allowable contribution of $2,900 to my health savings account. Now that we have maxed out contributions for both Roth IRAs and the HSA we only have our 401Ks remaining which we plan to max out by the end of the year as part of our 2008 goals.

We always want to contribute more aggressively at the beginning of the calendar year as to maximize our long-term returns and this has been the first year we’ve been able to max out both our Roths and HSA at the very beginning of the year.

Wife gets a promotion at work

2008-01-14T18:05:00.000-08:00

A couple of weeks ago we were excited to learn that the wife would be getting a rather big promotion at her work and a sizeable raise in pay to match.

She was initially approached to fill a recently vacated position and was offered a 10% raise which would have increased her annual salary from $53,000 to $58,300. She smartly asked for some time to consider the offer.

That night we discussed the proposal together and decided we should try to counter the offer since it appeared we had the leverage to do so and, as mentioned earlier, the wife had been toying with the idea of leaving her current employer anyway, so we had little to lose if they rejected her proposal. It was decided she’d try to negotiate a larger raise along with some additional incentives.

The next day she explained to her company that she was very appreciative of the offer, but a 10% increase in salary would not be enough for her to take the position. Again, she was very smart as to not give her hand on what the exact figure was ($60,000). Her company was very understanding and asked for some time to make a decision. Later that day the hiring manager proposed a salary of $64,000 and the fulfillment of all of her requested incentives. She gladly accepted.

With the increase our salary income now totals $144,400 which should put us back on the aggressive path of our long-term plan for 2008.

2008 financial goals

2008-01-07T09:03:00.000-08:00

In 2007 we continued our journey toward achieving financial independence by finding a more lucrative job position for the husband, maxing out our retirement accounts at an accelerated pace and setting aside enough cash to purchase a replacement for one of our existing vehicles.

For 2008 it is expected that we stay more in line with our outlined agressive savings plan while we take care of a few loose ends and begin to position ourselves so that we can start to fully concentrate on nurturing our investment gowth next year. With that said, this year we are hoping to:

Continue to make the maximum allowable contributions to our retirement accounts and the husband's health savings account as we've done in the past - both 401ks ($31,000), Roth IRAs ($10,000) and HSA ($2,900). Much like the previous years, we want to be more agressive with our contributions at the beginning of the year to maximize our long-term returns.
status: in progress

Use the funds that were set aside in the previous year to purchase a reasonably used car to replace one of our existing vehicles. It is expected that this will cost around $6,000.
status: completed

Though we failed to do so last year, we plan to completely pay off the second mortgage debt.
status: completed

After the above three goals are met, we will want to establish a taxable investment account in which we will utilize the most tax-efficient choices available to us to maximize our investment return. We will need to restructure our investment portfolio to a more "slice-n-dice" setup using an asset allocation that is more aligned with our goals and risk tolerances.
status: in progress

Reach $350,000 in net worth by year end.
status: in progress

Review of 2007 financial goals

2008-01-07T08:54:00.000-08:00

I would say we were less than satisfied with our progress made in 2007. Though we met the majority of our goals, we weren't as disciplined (especially with our spending) in the second half of the year and I know we can do a much better job. Because of this we are now slightly behind schedule according to our long-term plan - we were only able to reach around $234,000 in net worth toward the end of December which falls just short of our outlined ideal savings plan.

Below are our 2007 financial goals with comments following each:

Goal: Continue to make the maximum-allowable contributions to our retirement accounts as we've done in the past - wife’s 401k ($15,500), husband’s Simple IRA ($10,500), and both Roth IRAs ($8,000). Much like last year, we want to be more aggressive with our contributions at the beginning of the year to maximize our long-term returns.
status: completed

Comments: Each year our first order of business is to fully utilize whatever tax-advantaged savings we have access to. Just like in previous years, we were able to make the maximum-allowable contributions and were able to do so at an accelerated pace. In addition, we were able to make the maximum allowable contribution to the husband's HSA which was unplanned for going into the year.

Goal: Though we failed last year, we want to make it a top priority to find a new job for the husband who has achieved all that is possible with his current employer and is looking to make a move that will further his professional growth and better help in accomplishing our goals towards achieving financial independence. The primary requirements for the new position will be greater challenges and responsibilities, higher income and a full 401k package with an employer match which would allow us to contribute more in tax-deferred savings.
status: completed

Comments: This was a major goal I had set for myself going into the year and I'm glad we were able to make this happen. For far too long I had talked the talk about making a job change and in 2007 I finally made it a reality by making the difficult decision to quit my job so that I could focus all my energy on completing this goal.

Goal: Make the necessary contributions (around $300 per month) to our cash reserve to bring us back up to $13,000 after paying our property taxes at the end of 2006. In addition, we want to also begin saving for a car to replace one of our existing vehicles. We'll assume for now we will need roughly $6,000 by the end of the year (around $500 per month). So, total monthly contributions to our cash reserve should be around $800 per month this year.
status: completed

Comments: As I had mentioned in the Catching up post, we were not very proactive last year and pretty much did the bare minimum for much of 2007. As such, we accumulated quite a bit of cash in our savings account with EmigrantDirect (at one point we neared $40,000), so this goal was rather easily accomplished.

Goal: Transfer the second mortgage balance to a credit card offering a no-fee, 0% balance transfer and completely pay off the balance by the end of November. In order to do so we are looking at monthly payments of roughly $900.
status: failed

Comments: As I had mentioned in the Catching up post, we got so far as to request the balance transfer, but we never made the next step of actually paying off the account. Instead, the funds sat in our savings account with EmigrantDirect accruing interest while we made the necessary minimum payments on the credit card debt. Chalk this up to laziness on my part because I was never willing to dedicate the time to take the next step and send off the payoff amount to the lender. In December we paid the outstanding amount on the credit card since the 0% offer was to expire in January. We will reintroduce this as part of our goal set for 2008.

Goal: Reach $238,000 in net worth by year end.
status: failed

Comments: Below average investment returns, a full month without the husband producing income and undisciplined spending in the second half of the year were all factors that contributed to us not being able to reach our net worth goal for 2007. The first two factors were pretty much beyond our control, but the third is what disappoints me the most when looking back at the year.

Catching up

2008-01-06T17:29:00.000-08:00

Let’s see…where were we now? Well, it has been quite some time since I’ve last posted (May). At that time I had just made a job change, bought a high-deductible health plan and fully funded a Health Savings Account. Since then things have pretty much been on auto pilot while I have been busy with my new job and some other matters than needed my attention. During that time I’ve been pretty much doing the bare minimum - making sure to pay the bills on time, continue to watch our spending habits (though a bit less closely than in the past) and to funnel excess funds to our account at EmigrantDirect.

Now I feel that things are starting to settle back down I should have more time to dedicate to the blog, so to quickly get back up to speed before we move forward, here is a quick rundown of the more important events that have transpired since May:

As soon as it was possible, I rolled my Simple IRA account from my previous workplace to a Traditional IRA account held with Vanguard in which all money is still invested into Vanguard’s Target Retirement 2045 (VTIVX).

We were able to make the maximum allowable contributions to our Roth IRAs and the wife's 401k as expected. In addition, we were able to make the maximum allowable contribution to the husband's HSA.

We had plans to pay down the second mortgage debt with the help of a no-fee, 0% balance transfer offer, but never moved on paying the debt after receiving the balance transfer check (I’ll get into the reasons why later on). We got so far as to deposit the funds and transfer the amount to our account with EmigrantDirect where it sat accruing interest while we made the necessary minimum payments on the credit card debt. In December we paid the outstanding amount on the credit card since the 0% offer was to expire in January.

We paid down the balance on the American Express Blue which was the remaining balance of a personal loan we paid down back in March 2005. There was really no rush to pay this off since the interest rate was 2.99% for life, but I missed paying on time in April (by a day), so I had to quickly pay the remainder of the balance to avoid additional interest charges. That was a rather careless oversight on my part, but at least it’s one less thing to worry about going forward.

We paid property taxes last month which totaled $3,517.32 (last year we paid $3,869.48) and made an additional mortgage payment in December to get the additional tax deduction as we had done last year.

For the first time, we were able to immediately make the maximum contributions ($5,000 each) to our Roth IRAs on January 2 due to the large amount of cash that had accumulated in our EmigrantDirect account.

I believe that covers much of the bigger stuff. Next I’ll be updating our balance sheet and the about us sections. Afterward I’ll review our financial goals for 2007 and put together what we hope to accomplish in 2008.

Contribution made to Health Savings Account

2007-05-31T17:45:00.000-07:00

After much research comparing HSA custodians I decided to go with Health Savings Administrators due to their low fee structure and the opportunity to immediately invest in Vanguard Admiral Shares. I’ve elected to contribute the maximum amount this year ($2,850) that will be invested into Vanguard Wellington Fund Admiral Shares (VWENX). Yesterday I mailed the required enrollment form and my payment check.

As mentioned previously, my concern now is that the quarterly custodial fee will become rather expensive as the account grows and I will need to monitor for other options in the future to avoid excessive account expenses.

Health Savings Accounts

2007-05-16T07:03:00.000-07:00

What if I was to tell you that you could sock away as much as to $3,650 per individual this year and never have to pay a single penny of taxes on the amount? Often called the “Super IRA”, Health Savings Accounts (HSAs) allow you to do just that.

I’m probably like the majority of you, in that, I had never heard of HSAs. That is until recently when I happen to read about them while shopping around for health insurance.

HSA contributions are fully tax deductible and distributions are also tax free if used for medical expenses. That alone makes them particularly attractive, but that’s only half the story.

After you turn 65 years old withdrawals are only subject to income taxes for all other non-qualifying expenses. That’s right - the HSA essentially becomes a traditional IRA at this point with the added bonus of not having a mandatory distribution requirement. It should become immediately apparent how valuable HSAs become for those that are young and healthy with historically few medical expenses.

So what’s the catch? Only one - you need to be only covered by a qualified high deductible health plan (HDHP). As mentioned earlier, I just recently signed up for a qualifying individual health plan, so I should be able to contribute $2,850 for this year.

HSAs are relatively new, so account options are still rather limited. Most of what is currently being offered is in the form of interest-bearing accounts, but there are a few now that let you invest in mutual funds.

Here are some of the more popular choices right now:

Shawnee HSA looks particularly attractive with its low fees and investment options (DFA and American Funds). But, as many have discovered, the investment options are not yet available. I called Shawnee earlier this week and was told the deadline is now July.

Because of my uncertainty of Shawnee HSA meeting their deadline, I’m leaning towards going with Health Savings Administrators. They offer a good selection of Vanguard funds, including access to admiral shares. My only concern is that the quarterly custodial fee would become rather expensive as the account grew, but then again, I would have the option of switching providers whenever I’d like in the future.

What to learn more about HSAs?
http://www.ustreas.gov/offices/public-affairs/hsa/

Shopping for health insurance

2007-05-11T17:29:00.000-07:00

As mentioned earlier, my new employer currently does not provide any insurance benefits, so I was forced into having to look for an individual health policy to cover my own needs.

In the past I always had the luxury of being able to sign up with an employer-sponsored group policy and very rarely utilized the plan. Because of this I never really gave much thought about medical coverage options.

Initially I looked into continuing my existing coverage via COBRA or signing onto my wife’s plan at her work, but both options proved to be very expensive. I knew I could do better on my own.

Since I would be doing the necessary leg work to find the best deal I first needed to educate myself. The vast amount of information found on the Internet was more than adequate. I quickly got up to speed on all the lingo and educated myself on the different plan types.

Then I happen to stumble across a little-known hidden gem - Health Savings Accounts (HSAs). My oh my, why aren’t people talking about these? I guess they’re still relatively new, so many may not know about the incredible benefits these types of accounts provide. I’ll leave this topic to my next post.

A coworker at my new job referred me to ehealthinsurance.com which proved to be helpful for my case. Using their service I was able to narrow down my search to a low-cost, high-deductible plan which better suits my needs. I ultimately decided to go with BlueCross BlueShield’s BlueEdge Individual HSA Plan VII. The policy will cost me $74 a month and provide for the type of coverage I was seeking.

Job change complete

2007-05-06T22:30:00.000-07:00

It’s amazing how time can move so quickly. I can’t believe it’s been two whole months since I last wrote. As a matter of fact, looking back, I’ve neglected to write much about anything thus far this year which is quite disappointing.

Let it be known that nothing has changed - we’re still committed as ever toward achieving financial independence and much has happened these past few weeks. I’ll be quickly reviewing those events during the next few days and then make it a point to get two or three quality posts in a week moving forward.

Please take note that I’ve updated our balance sheet on the right and will explain the changes very soon.

The first order of business to address is that I did, in fact, find a new job. Oh, I know, I said I would keep this blog updated with my progress as I went through the job search process. Well, that obviously didn’t happen.

Truth be told, I greatly enjoyed my brief stint of retirement. I wanted to spend at least one month off before having to rejoin the workforce and I got just that - one month.

I would like to offer one bit of advice for you hungry job seekers out there - get your resume on monster.com or one of the other big job search sites. And by that I don’t mean uploading your resume and calling it a day. Take the time to build your resume using their online resume-builder tool and make sure you adequately list all of your professional skills. By doing this you will make it much easier for employers and recruiters to quickly find you.

After getting this advice from a friend I decided to give it a try and was inundated with so many phone calls and emails during the first day I had to temporarily disable the service because I wasn’t quite ready to start working again so soon. But now that I know how easy it would have been to find a job using this method, I’ll certainly utilize it again in the future. (On a side note, the wife is now thinking about making a job change and we’ve already discussed going down this avenue with her in the near future.)

But I didn’t land my new job using a job search service. It actually came by the way of a referral from an old coworker which turned out to be (almost) exactly what I was looking for.

As a brief refresher, our goal was to find something that would further my professional growth and better help in accomplishing our goals towards achieving financial independence. The primary requirements for the new position were greater challenges and responsibilities, higher income and a full 401k package with an employer match which would allow us to contribute more in tax-deferred savings.

My new position is a senior development role within a small software company and satisfies all of the above requirements, except for the 401k part (so far).

The good news is that I’ve increased my annual salary from $60,000 to $80,400 which will greatly help in accomplishing our financial goals for this year and the new position comes with much greater challenges and responsibilities than the previous.

The bad news is that the company provides no additional benefits such as a retirement savings plan and medical insurance. But there is a silver lining to this cloud – the company wants to provide these benefits and I’ve been allowed to look into retirement plan options for the company. I hope to get something in place by the middle of this year so that there will be enough time to get the maximum deferment of taxes this year.

In my next posts I’ll talk about my experiences shopping around for personal medical insurance, the wonderful world of health savings accounts and my search for the best retirement plan for the company.

Making a change

2007-02-09T10:17:00.000-08:00

These past few weeks we’ve both been incredibly busy and I haven’t found the time to write as often as I would like. I will always have the desire to keep this blog up to date, but I need to do a better job of allocating my time to do so.

I’ve been mulling over a decision to make for quite some time – whether or not to leave my current employer. One of our goals last year was for me to make a job change (for reasons explained here), but I failed to do so primarily because of two reasons:

I work for a small company where my position is relied heavily upon. I feel it would be unfair to give my current employer anything less than a 3-week notice because the transition period will be difficult for them. Practically every interview I participated in the employer was looking to fill a recently vacated or newly created position as soon as possible. I felt I disqualified myself when requesting the extended notice.

My work keeps me incredibly busy during the day and I found it increasingly difficult to get away for interviews while keeping my search in secret.

After several interviews I began to realize the only way I’d be able to move forward and make a job change in the near term (while extending my employer the courtesy of enough notice) would be for me to go ahead and cut my ties with my existing employer so that I could fully concentrate on finding a position that would best fit our primary requirements. Of course, this strategy could hurt our chances of completing a lot of our financial goals for this year – we realize it could take longer than expected to find a suitable fit, but we believe, in the long run, this would be the smart choice to make.

So my wife and I came to the conclusion that it was time to make a change and a few weeks ago I gave my letter of resignation that I would be leaving the company in March to explore other opportunities.

I’ve been with my current employer for over six years, so there is a feeling that another chapter of my life has ended – but I am excited for what is to come. Not many in this world have the luxury of being able to just decide one day to quit their job and do something else. The financial holes we dig ourselves into preclude us from doing so. Not too long ago we were in that situation, but because of the progress we have made we now have that sense of freedom.

In the coming days I’ll outline some adjustments we have made to decrease our financial risk while I am on the job hunt. I also plan to keep this blog updated with my progress as I go through the job search process.

December financial snapshot

2007-01-10T15:00:00.000-08:00

Below is a monthly snapshot of our investments, major debts and net worth for December as they compare with the previous month and some thoughts.

[Please note: checking accounts, credit cards without balance transfers and house/car values are excluded from this table for simplicity. The net worth calculation shown is based on our full balance sheet provided on the right which includes these values.]

December was a very good month for us, but we were not able to pull out another record breaker though. Our net worth gains achieved in November 2006 now stands as the mark to beat going forward. Vanguard’s Target Retirement 2045 (VTIVX), our sole investment of choice, had a return of 1.31% last month and had a 15.98% return for the year.

We saw a milestone reached - we passed the $150K mark in net worth for the first time. Shortly afterward we paid our property taxes (using funds from our cash reserve held with EmigrantDirect) and found ourselves back under that mark and still remain there for the time being.

We continued to pay down our second mortgage debt at an accelerated pace and even were able to make an extra mortgage payment before the year ended.

We paid off the last remnants of student loan #2 by making the final payment to the transferred balance on the Citi Simplicity card.

We increased our net worth by 2.96% in December by adding another $4,209.84 to the stack.

December expense review

2007-01-10T14:25:00.000-08:00

It seems like every year around this time there is just so much going on that we are unable to document everything on the blog. This is a bit late, but better late than never as was the case last year when we didn’t even do a December review.

Below are our itemized expense categories as they compare with the previous month and some quick thoughts.

Much like the previous few months, our expense total is largely inflated because we’ve been aggressively paying down the second mortgage debt. For the month of December we were able to pay an additional $5,500 on top of our normal mortgage payment. We also were able to make an extra mortgage payment last month.

Property taxes were also due last month and were paid using our cash reserve. One of our goals this year is to make the necessary contributions (around $300 per month) to our cash reserve to bring us back up to $13,000 by year end.

To conclude, just as with November, we are somewhat satisfied with our expenses again this month, but there is always room for improvement.

Attacking the second mortgage – requesting the balance transfer check

2007-01-10T13:11:00.000-08:00

One of our goals this year is to transfer the remnants of our second mortgage debt to a credit card offering a no-fee, 0% balance transfer and completely pay off the balance by the end of November.

Now, after being able to get the balance down under $10,000 last year, we are ready to transfer the remainder to one of the recently acquired credit cards.

Today we took advantage of the promotional balance transfer offer provided by the Citi Diamond Preferred Rewards American Express Card by requesting a check in the amount of $18,000.

Why $18,000 when we need only $10,000? Because we’d like to go ahead and use the other $8,000 to immediately make the maximum-allowable contributions to our Roth IRAs for 2007 which we’ll elaborate more on in the near future.

As you might recall, we only received an initial credit limit of $6,500 on the Diamond Preferred Rewards. However, we were able to reallocate some of our available credit with Citi by moving $20,000 from the now retired Citi Dividend to increase the credit line on the Diamond to $26,500.

The check should arrive in the mail sometime around this weekend. We’ll immediately deposit it into our personal checking account and contact our mortgage provider to get the final payoff amount.

Here are the steps we have taken thus far in paying down our second mortgage:

2007 financial goals

2006-12-31T07:58:00.000-08:00

In 2006 we continued our journey toward achieving financial independence by paying down a high-interest student loan, maxing out our retirement accounts at an accelerated pace, completing our cash reserve and beginning the process of aggressively paying down our second mortgage debt.

We want to continue with the same relentless pace and determination we have shown in previous years, so in 2007 we are hoping to:

Continue to make the maximum-allowable contributions to our retirement accounts as we've done in the past - wife’s 401k ($15,500), husband’s Simple IRA ($10,500), and both Roth IRAs ($8,000). Much like last year, we want to be more aggressive with our contributions at the beginning of the year to maximize our long-term returns.
status: completed

Though we failed last year, we want to make it a top priority to find a new job for the husband who has achieved all that is possible with his current employer and is looking to make a move that will further his professional growth and better help in accomplishing our goals towards achieving financial independence. The primary requirements for the new position will be greater challenges and responsibilities, higher income and a full 401k package with an employer match which would allow us to contribute more in tax-deferred savings.
status: completed

Make the necessary contributions (around $300 per month) to our cash reserve to bring us back up to $13,000 after paying our property taxes at the end of 2006. In addition, we want to also begin saving for a car to replace one of our existing vehicles. We'll assume for now we will need roughly $6,000 by the end of the year (around $500 per month). So, total monthly contributions to our cash reserve should be around $800 per month this year.
status: completed

Transfer the second mortgage balance to a credit card offering a no-fee, 0% balance transfer and completely pay off the balance by the end of November. In order to do so we are looking at monthly payments of roughly $900.
status: failed

Reach $238,000 in net worth by year end.
status: failed

Review of 2006 financial goals

2006-12-31T07:38:00.000-08:00

By and large we are quite happy with the progress we’ve made in 2006. As of right now we are slightly ahead of schedule according to our long-term plan.

However, this is the first year in which we were unable to complete all of our financial goals as set forth at the beginning of the year which was a minor disappointment. But that disappointment is quickly diminished when we look back and see our early progress in the paying off of the second mortgage debt, which was only expected to begin in 2007.

Below are our 2006 financial goals with comments following each:

Goal: Continue to make the maximum allowed contributions to our retirement accounts as we've done in the past - wife’s 401k ($15,000), husband’s Simple IRA ($10,000), and both Roth IRAs ($8,000). However, this time around we will be more aggressive in our contributions at the beginning of the year to maximize our long-term returns.
status: completed

Comments: Each year our first order of business is to take full advantage of our retirement account options. Just like in previous years, we were able to make the maximum-allowable contributions and were able to do so at an accelerated pace. In fact, we were able to max out the husband’s Simple and our Roth IRAs in record time.

Goal: Continue to contribute to our cash reserves each month until we reach a total of $13,000. The majority of this will be designated as our emergency fund (3 months of living expenses = $9,000). The remaining portion will be used to pay property tax on our home at the end of the year which will be $3,869.48 according to the bill we received in October. Last year saw us contributing $800 per month to quickly bring us up to speed; this year will be a more relaxed approach with monthly contributions closer to $450.
status: completed

Comments: It may have taken us a couple of years, but we were able to finally complete our cash reserve. Having the extra cash set aside has brought a certain level of financial comfortability we had never experienced before.

Goal: Transfer the student loan #2 balance to a 0% no-fee credit card and completely pay it off by the end of the year.
status: completed

Comments: Any time you are able to eliminate a debt it certainly brings a level of satisfaction. We could have paid this off sooner, but the balance transfer offer allowed us to max out our Roth IRAs and the husband’s SIMPLE IRA contributions earlier which turned out to be a major contributor in us reaching our net worth goal this year (bottom).

Goal: Build enough available credit to transfer the second mortgage balance to a 0% no-fee credit card(s) in 2007.
status: completed

Comments: This didn’t take as long as we had previously thought and we’re now in the position to transfer the remaining second mortgage balance to one of the recently acquired credit cards.

Goal: Find a new job for the husband who has achieved all that is possible with his current employer and is looking to make a move that will further his professional growth and better help in accomplishing our goals towards achieving financial independence. The primary requirements for the new position will be greater challenges and responsibilities, higher income and a full 401k package with an employer match.
status: failed

Comments: This is the first goal since starting this blog that we have been unsuccessful in completing. It will remain in our goal set going into next year and will be given the highest priority. Though the husband was able to garner a handful of interviews, the simple lack of commitment hindered our progress here. As we’ve mentioned just recently, we need to work extra hard in the coming years on growing our incoming revenue to reach our ultimate goal and this is an important step in doing so.

Goal: Reach $150,000 in net worth by year end.
status: completed

Comments: Back when putting together our financial goals for 2006 we honestly did not think we could reach this mark without the job change for the husband as described above. But, with the help of favorable market conditions, our investments were able to provide enough return to complete our net worth goal. This will probably mark the last time we will ever be able to double our net worth in a year’s time.

Early mortgage payment made

2006-12-30T07:56:00.000-08:00

As we mentioned before, we wanted to make one more extra payment of $2,500 to the principal balance of the second mortgage by the end of this month to get the loan under $10,000. According to the lender website we have to include this amount with a regular monthly mortgage payment, so since we had the available funds we went ahead and paid the amount due for next month early.

So, not only did we bring the balance under $10,000 as hoped for, but we will also get the additional deduction for the interest paid on our tax bill.

The outstanding loan balance now stands at $9,797.68 and we are about ready to transfer the amount to one of the recently acquired credit cards. One of our goals next year will be to completely pay off this balance by the end of November. In order to do so we are looking at monthly payments of roughly $900.

Here are the steps we have taken thus far in paying down our second mortgage:

Property taxes paid

2006-12-29T12:42:00.000-08:00

Today we put the check in the mail to pay our annual property tax bill. Instead of drawing the expected $4,000 from our cash reserve held with EmigrantDirect, we only had to transfer $3,750 to our checking account.

Next year we’ll need to make the necessary contributions (around $300 per month) to our cash reserve to bring us back up to $13,000.

Paying off a student loan – update #4

2006-12-29T12:27:00.000-08:00

Today we paid off the last remnants of student loan #2 by making the final payment to the transferred balance on the Citi Simplicity card thus completing one of our last remaining financial goals for 2006.

As you might recall, back in February, we utilized a promotional no-fee 0% balance transfer offer on the Simplicity card to facilitate the paying down of the balance throughout 2006. Each month we’ve been quietly making the necessary payments in order to remove the debt and now we are left with one less liability to worry about.

For those interested, here were the steps we took to pay off the loan in a year’s time. We are currently using a similar approach to eliminate the second mortgage next year.

Milestone reached: net worth of over $150,000

2006-12-29T11:50:00.000-08:00

It wasn’t easy, but today we finally surpassed $150K in net worth for the first time thus effectively doubling our net worth total from this time last year and completing one of our last remaining financial goals for 2006.

Back in September it looked very unlikely we’d meet this mark by the end of the year. At that time our investment returns were absolutely flat and I still needed to make a job change that would increase our incoming revenue. Even though I have yet to find a new job, a nice sustained bull run by the market during these past few months has helped us greatly in realizing our year-end goal.

We had predicted on reaching this milestone sooner, but the expected holiday bonuses were a bit of a disappointment this year.

Right now we are ahead of schedule according to our long-term plan, but we know we can’t expect the kind of investment performance we enjoyed in 2006 every year. We’ll need to work extra hard in the coming years on growing our incoming revenue to reach our ultimate goal.

Later today we’ll be publishing our financial goals for next year, one of which is to reach $238,000 in net worth by year end.

Our previous net worth milestones: