Done To Zen

I didn’t start 2008 with any clear goals in mind, so it’s difficult to judge how well I did over the year. I want to have a focused, stress-free 2009, so I’ve spent most of December trying to figure out my goals for the coming year. Being a believer of positive peer-pressure, I’m posting my financial goals here:

Emergency Fund

The last couple of months of 2008 brought my emergency fund to its knees — I don’t even have one month of reserves anymore. I’m going to bring the balance up to $10,000.

Retirement

I’m going to fully-fund my traditional 401K ($16,500) and my Roth IRA account ($5,000). I’m also going to fund as much of a SEP IRA as possible.

Investment

I want to invest about $3,000 into ESPP. It would be nice if I could invest more, but that might not be possible in light of my other goals — unless I meet “side income” goal, in which case this I will be able to take full advantage of ESPP.

Debt

I have $7,370 on a 0% APR card that signifies the only “student loans” I’ve used to finance my MBA. I want to get rid of the debt in six months.

Sanity

To ensure my sanity (now that I have so many different bills to pay), I’m going to setup automatic payments for all recurring expenses.

Side Income

Goal is to earn $24,000 in income from side jobs. Every penny of this money will go to either a SEP IRA account or an index fund.

529 Plans

My goal is to dedicate at least $1,200 to three plans (total). If possible, I want to fund one of them with another $2,400.

Charity

My company matches the first X amount of money I donate to a non-profit org. So my goal is to donate at least that much to charity by year-end. If side income goal is met, I want to donate at least double the minimum.

Fun

I will spend $600 on fun experiences; this means that the $600 cannot become a recurring bill, cannot be used to purchase tangible products, cannot be used for food/restaurant/grocery purchases, and cannot be used for purchase of gifts.

Net Worth

I ended 2008 with a net worth of $40,000. After doing some proof-of-concept calculations, I think an attainable net worth goal is $115,000 $85,000. This is almost three times more than twice my net worth in 2008, and it partly depends on what I manage to earn and save in side income, but even without it, I should be able to come in quite close. (Screwed up with the calculations)

Expectations

Of all the goals I have set out for 2009, the side income goal is going to be the hardest. I’m afraid that I’ll fail miserably at this goal, which is probably not a very good way of going into it. I’m determined to make it, however, so we’ll so how it goes.

So, what are your goals for 2009?

Pelosi brings up, Bernanke endorses, and Bush is open to another stimulus with money we don’t have.

Market ends on a positive note for the first time in several weeks.

Tip’d — Digg for personal finance, i.e., another blog in my large arsenal of procrastination excuses. :-)

Did the housing market hit the bottom yet?.

Dollar gains .6% against the Euro going from $1.33 to $1.34.

Has US defaulted on its debt? via The Kirk Report.

Warren Buffet is buying American stock.

John Cain over at SavingAdvice listed the seven deadly sins of personal finance. I thought it might be interesting to see how I’m doing in each of the 7 areas.

7. Failure to track expenses

I have never tracked expenses until I purchased my house. But then again, I was saving 95% of my salary. I was still living with my parents, so I think my expenses were less than $100 a month. But all this changed once I bought my house. Now, my expenses are significantly larger. However, I haven’t been tracking them as I should have been. While I know where I wasted money, I don’t have the exact dollar amounts. I’m trying to get better by creating a budget and actually sticking to it. Rating: 5 out of 10.

6. Emotional shopping

The only shopping I ever do is for e-books, which cost around $6. I purchase books on the spur of the moment, but this is very rare. Rating: 9 out of 10.

5. No savings

No problem in this area, though I could get better at budgeting so I can save even more. :-) Rating: 9 out of 10.

4. Failure to comparison shop

I think I do this, but (next to my house) my biggest purchase amounted to $30, maybe, so there isn’t much comparison shopping to do. I did get to tell people about exactly what I wanted for birthday gifts, though, and I think in one case I had them spend too much for something I don’t use enough, but otherwise, I usually do OK. Rating: a tentative 8 out of 10.

3. Paying for things you don’t use

Usually, I only pay for things I use. I can think of only two cases in my entire life where I bought something that I ended up not using much, but they did cost a lot (I didn’t buy them), so: Rating: 8 out of 10.

2. Nickel and diming

I eat out a lot. Does that count? Rating: 8 out of 10.

1. Failing to set priorities

I have a big-time problem in this area. I have “goals” in the back of my mind and tend to do whichever of them suits my mood. I’m working on it though. Rating: 6 out of 10 (because all my goals are “good enough” that it doesn’t matter so much which of them I work on).

Overall Rating: I think 7.5 - 8.5 out of 10.

What about you?

Jim at Blueprint for Financial Prosperity mentions the FSA loophole. First of all, a Flexible Savings Account lets you put aside however much pre-tax amount you want that you can use for qualified medical expenses (including surgery, prescriptions, doctor appointments, vision care, dental care, and co-pays).

There is a loophole in the system though. Once you determine your FSA balance for the year, you can begin immediately spending it and be reimbursed. The amount you allocate is deducted from your paycheck each month so you could conceivably spend your entire year’s allocation before you even pay for it. If you were to leave your job, you wouldn’t have to pay the negative balance, between the amount spent and how much you’ve contributed, on your FSA. That’s the FSA loophole.

I think that people should be able to use the full (yearly) amount in their FSA account even if it doesn’t yet have the amount required — if you need a surgery in February but the FSA account won’t have the whole amount until August, what are you supposed to do? — but if they were to leave the job before fully-funding the account, then they have to pay back the difference.

The idea behind the program is that the shortfalls are balanced out by the expired overages, though I wonder if they’re designed to handle extreme cases.

Who came up with this?

Personally, I believe that if you don’t use FSA amount, then the amount should be returned to you after getting taxed.

What’s the point of forcing people to use the money before the end of the year, really? Or making employers forfeit their reimbursements if the employee leaves the job?

I put in a couple of hundred dollars in an FSA account once and had to leave the job soon thereafter. I was told that I had to use that money by the time I left the job or I would forfeit it. I ended up spending it on a new pair of glasses that I didn’t need so I didn’t “waste” the money. I never used FSA again (of course, I didn’t know until now that I could use the funds before I fully funded the account). Seems somewhat counterproductive.

Am I living beyond my means?

FreeMoneyFinance linked to an article by Glenn Curtis that talks about the five signs that you are living beyond your means.

The questions are all from the article:

1. Your credit score is below 600

Nope.

2. You are saving less than 5%

I save around 45-50% of my paycheck; this doesn’t count employer 401K match or rental income. Until I bought my home, I used to save between 90 and 95% of my take-home pay.

3. Your credit card balances are rising

Nope. I use my credit card for all purchases, but I always pay the balances off by the end of the month.

4. More than 28% of income goes to your home

Sort of. If I look just at my mortgage (i.e., don’t count whatever goes into escrow), my mortgage comes to around 29.5% of my monthly gross pay. If I count my rental income (which, admittedly, isn’t great, but it’s enough to be significant), I come in at 27% of my gross income. If I count the freelancing work I sometimes do (which, again, doesn’t bring in a lot of income but does bring in enough to count), my mortgage would be around 26% of my monthly income.

5. Your bills are spiraling out of control

Not really, but it feels like it. Somewhere between 5 - 10% of my gross pay goes towards fixed and variable expenses, but it feels like a lot.

Overall

Surprisingly — by these measures, at least — I’m doing OK. I thought that I was far worse off than I actually am. Maybe I just got used to saving 95% of my paycheck, so 50% feels like I’m wasting a ton of money…

What about you? Are you living beyond your means?