Finance Travels

The months of July and August have been frustrating in regards to our cash flow.  In addition to paying for our vacations, we’ve had all 3 kids in daycare, which is raking up weekly bills of $280.  In addition, this hot summer has led us my wife to keep the air conditioning on nearly 24/7 resulting in $125+ electric bills each month.  Additionally, we started the process of the water line installation with a $500 deposit to an excavation contractor, and will will have to save an additional $800-$1,000 from what I had originally expected because I underestimated the cost of installing the line to the house.

We’ve been faithfully saving 15% of my paycheck each month, but I’m afraid that I’m going to have to pause that plan for at least this pay period to get caught back up with things.

There is some light at the end of the tunnel though.  In 3 weeks, our middle child will begin full-day kindergarten, which means that we’ll have only one child in daycare, which hasn’t been the case in nearly 7 years.  I also finally installed an outdoor clothes line which will hopefully significantly decrease the amount of electricity we are using to do our laundry.  I’ve been trying hard to exclusively use our debit card in order to keep our credit card debt to less than $1,000 for the September billing cycle, at which point we should be pretty good shape again.

In early July, I signed up for Penelec’s Voluntary Pre-Payment Plan.  As a Pennsylvania resident, we’ve been put “on-notice” that our electric bills are going to increase dramatically in the next two years because the government’s regulation (which froze prices for a set period of time) is ending soon.  This plan offered by Penelec allows consumers to pay some extra money every month now, while rates are still low, and have that money gain 7.5% interest to be used when the rates do increase.

Unfortunately, information on this plan is hard to come by (at least for me) on the Penelec website.  Essentially, they let you sign up for the service, but don’t give you an option or tell you how much money is going to be put into this savings fund monthly.

Yesterday we received our first bill while in the program, and they put $9.58 into this prepaid account.  I’m not sure how they came up with that number, as my actual electric bill for the month was $99.39.  The best I can figure is that they are going to take roughly 10% of the electric bill each month and put it into this account.  In all honesty, I’d wish it would be at least twice that amount, as I don’t think this prepaid account is going to amount to a whole lot more than one month’s electric bill if they keep it at this rate.

I’ll post more info if I see the formula changing in the future.

Update (if only I had read the actual link that I had posted….):

Each month, customers who sign up for the plan pre-pay an
amount equal to about 9.6 percent of their electric bill
for 2009.  In 2010, that amount will increase by an
additional 9.6 percent - totaling approximately 20 percent.
Pre-payments will earn 7.5 percent interest and be used to
reduce customers' electric bills in 2011 and 2012.

An interesting read from Style Magazine:

Could you Survive Without Money?

The article details the life of a gentleman near Moab, UT who lives in a cave and basically fends for himself.  He brings up the very good point that his lifestyle reflects life for millions of years before “modern” man and that the typical American’s lifestyle just doesn’t make sense on a lot of levels.

While I certainly don’t want to go find a cave to live it, this article does make you think twice about our constant strive for material things.

We’ve decided to do things differently…

We’re saying NO to loans…

We’ve felt that we’ve been pretty financially conservative.  We’ve always lived well within our means, only have carried a credit card balance for maybe three months in the ten years that we’ve been married, and have generally been “good citizens” with the financial assets that we have.

However, we haven’t been feeling as though we’re making the progress that we need to in order to send our 3 kids to college and still retire at a decent age.  That’s why we’ve decided to switch things up a bit.

I first listened to Dave Ramsey a few months ago, shortly after I had purchased our new vehicle which happened to be equipped with XM Radio which broadcasts his show daily from 3:00 to 6:00 EST.  Other than his political views, which I feel that he throws into the show more often than is needed, I found that in general I agree with his program.  For those that don’t know, Dave is a proponent of what some would call “extreme” fiscal conservativeness.  He advocates getting out of debt (even your home mortgage) and then staying out of it.  That means no credit card loans, no car loans, no ANY loans.  The more I thought about it, the more I liked it.  I ponied up the $10 to buy his Total Money Makeover audio book, listened to it, and decided to give his program a try.

Dave plan is simple, and that’s why it works.  He has identified seven steps that one must take to achieve financial well-being:

Fortunately, we feel as though we are in a very good position to start the program.  With no credit card debt, and just $5,000 remaining on our car loan, we should be onto step 3 before the end of the 2009 (I could immediately pay off the car loan if I were to jump into our emergency fund, but that’s not something I’m comfortable with).

We sat down and established this short term timeline:

End of August 2009 – Have $3,000 on hand for connection to the water authority’s water line.  As mentioned in previous posts, we are being forced to connect to “city” water this summer.  This (unneeded but forced) expense will set us back in the plan by at least 1.5 months.  The water authority still has not given us a date as to when the bill is due, but considering they tore up my neighbor’s yard yesterday to lay down about thirty feet of pipe, I’m sure that it is sooner rather than later.

End of 2009 – Completed paying off the remaining $5,000 on the Hyundai Elantra loan.  This will give us two clear titled vehicles with under 100K miles.  The van will be the next one to replace, hopefully we are able to push that beyond 2012.

End of 1st Quarter 2010 –   At this point, I’m hoping that we will have increased our emergency fund by $9,000, giving us a total of $20,000.  We believe this total will give us 5 to 6 months of living expenses should one of us lose our jobs.

2nd Quarter 2010+ – At this point, we should be able to increase our retirement funding to 15% as well as schedule more regular college contributions.  Once we get into this step a bit further, I’ll be able to determine at what levels we can do this effectively.  We will also revisit what (if anything) we could do to pay the home off early.  While this certainly sounds appealing and I think we could definitely make headway, I want to see how the next six months pan out before we commit to anything.

Ongoing – Reduce credit card usage and do all that we can to reduce spending.  Ramsey’s plan includes shredding all credit cards and thus removing one’s ability to go into debt even if they wanted to.  However, I think that we’ve proven ourselves to be responsible with credit cards and the bonuses that they offer still make them worthwhile (for instance, just last month we received $100 in free gas just for using the credit card at particular stations).  That being said, I have committed to using our debit card for most purchases, which I believe will help decrease some of the non-essential spending that I may have been guilty of in the past.  We are currently in the process of moving the majority of our purchases from credit card to debit card and our next credit card bill should be the first in months (if not years), that I’ll have a sub-$1,000 bill.

So that’s the plan.  Please leave some comments if you’ve gone through a similiar process or think we are nuts!  I’m hoping that a side-effect of this plan will be increased postings to this site to document our progress.

Ever since I installed the new electric hot water heater and moved away from the natural gas water heater, I’ve been concerned about its operating cost.  Well, today the electric bill for February arrived.  It ended up being only about $17 more than January’s.  I have to attribute pretty much all of that to the new hot water heater.

Unfortunately, this month’s natural gas bill was an estimate, so I’m unable to tell how much my gas bill will decrease.  However, my gut feel is that I was definitely spending more than $17/month on heating the hot water based upon some of the bills that we would get during the summer months, when the house heating would have been turned off.

We’ve taken a number of steps this past month to reduce our energy costs:

• Purchased a new refrigerator.  Using my Kill-A-Watt, II ran a comparison test between our old refrigerator and our new one to determine just how much less electricity it is using.  Initial results show that the new one uses about 1/2 of the electricity than the old one.
• LED Bulbs. I purchased a 3-pack of chandelier bulbs from Sam’s Club the first week of January.  While expensive, at $15 for the 3-pack, I wanted to give them a try.  We found that they aren’t bright enough to replace all of the bulbs in our 6-light chandelier, so we replaced 3 of them and left the other 3 as normal incandescents.  Unfortunately, one of the LED bulbs died within 2 weeks and I had to send it back for a replacement.  The other two bulbs are still working, and saving (they say) 90% of the electricity used in incandescents.
• Hot Tub Modification – Probably the biggest factor in energy savings is that I set the hot tub to run at 80 degrees rather than the 96 degrees it had been set at.  We have found that we rarely use the hot tub in the winter, so setting it to 80 degrees wasn’t a big deal.  I is able to heat up to 100 degrees within 2 hours, so if we know we are going to use it, we just increase the temperature early in the morning and then turn it back down once we are done.  However, next year we will probably pay to have it winterized from November to April.

Results

While it is still too early to determine the real savings, the electricity bill that I received this month was 10% less than December 2008′s.  It’s also significant that the new refrigerator & hot tub modification was done within the past 2 weeks, and therefore the electric bill had at least 3 weeks without the hot tub modification or the new refrigerator.

Other Projects

This weekend I’ll be replacing our 14 year old hot water heater with a new one.  The energy rating on the new one is about 50% that of the old one, which should really make a difference in our natural gas bill.  We looked into a tankless system, but a number of reports show that the ROI takes well over 10 years, so we decided to go the traditional route and use the money saved to put towards our new car fund, which will go towards a much more effecient vehicle when we eventually make that decision.

Any other suggestions?

I received an email last week notifying me that my Amazon.com Prime Account would expire at the end of August.  For those of you who don’t know, Amazon Prime is a yearly subscription service that costs about $80 and entitles you to free 2-Day shipping on many (I hesitate to say most) of their items.

Before renewing for 2008-09, I did a little research on my own Amazon spending over the past 11 months.

• Past 11 month spending at Amazon: $2,489
• Previous 11 month spending at Amazon (before signing up with Amazon Prime): $959

These numbers had me a bit worried at first, because I had more than doubled the amount that I had spent at Amazon.  Was Amazon Prime making me a frivolous shopper?

I went back to look at the numbers and realized that close to 50% of my Amazon spending was due to a much needed computer upgrade.  Costs reflected in that one purchase amounted to over $1,000, which made the total Amazon spending over the past 11 months a bit more palatable.

I looked at how much I saved using Amazon.  Since Amazon isn’t charging state sales tax, I saved 6% off of the purchases right off the top ($149).  Purchasing the items online without paying for shipping also saved me a bit of gas money, but this number is a bit more difficult to quantify.  Also, being able to purchase items online without worrying about shipping time saves a ton of personal time for me.  If I realize I need to get something, I’ll check Amazon first.  If I can get free shipping and the price is comparable to what I would pay locally, I’ll generally go with the purchase from Amazon as long as it’s not an immediate-need item.  This was a big plus during the holiday season, and I suspect we purchased close to 50% of our holiday gifts from Amazon this year.

So am I going to renew?  Yes.  Am I going to spend as much at Amazon this year as I did last?  I hope not.

In June of last year, I decided that I was going to experiment with earning interest off of a 0% credit card promotional rate. Ideally, I would have liked to have found an offer where I could write a credit check to myself, cash it, and then just let that balance sit in a high-yield savings account for the full year. Unfortunately, I couldn’t find an offer that didn’t tack 3+% off of fees for the total amount cashed, so this didn’t work out.

Rather, I opened a 0% for one year credit card with Chase.  I used that card solely for daily purchases until I came to within about $1,000 of the card’s credit limit.  It took me about 5 months to reach this level, all the while paying just the monthly minimums when I received statements.

The money that I traditionally would use to pay these purchases was deposited into EmigrantDirect.com’s high yielding savings account.  Unfortunately, high yielding wasn’t so high once the Fed starting cutting rates last fall, so I didn’t make out quite as well as I would have hoped.

I’m going to pay off the card in full this month (Yes, I know I have another month to work with, but I’m playing on the side of caution here).

During this time period, the interest paid on my EmigrantDirect account was about $325.  I’m estimating that about 66% of that is from this scheme.  Therefore, I figure I’ve made about  $214 (before taxes) on this plan

All in all, it was pretty easy money.  I was able to keep up on the status of the accounts via Quicken, and I was very careful about making sure the payments were made, etc…  Once simple screw up could end up costing me money.

That being said, I don’t think I’m going to do this plan again unless rates get back up to 4.25%+.  The 2.75% that Emigrant’s offering now isn’t enough to entice me back into the game.

With all the recent market turmoil, my returns from Prosper.com are just about the only thing making money these days.  I’ve been quietly reinvesting my Prosper payments over the past six months and currently have about $1,230 invested.  I only invest in AA, A, B, or C rated lenders and I’m averaging about 13% on my loans since the beginning of the year.

I know that I’ve complained several times in this blog about late payments, but the truth is that I’ve only had one payment default in the nearly 2 years that I’ve been involved.  I ended up losing about $42 from that default, but I’m still up about $200 overall.  I’ve become a bit more selective in the listings that I bid on and I’m convinced that I wouldn’t have bid on my one default had I seen it today.

Here’s some tips on Prosper that I’ve collected to help out anyone who is interested in getting into P2P lending:

• Limit each bid to $50 – lowers your risk across the board.
• Use Prosper’s advanced search to filter out the credit grades that you don’t want to look at.
• Sort your search results by percentage filled.  This will show you the “popular” listings, which are the ones that I’ve had the best luck on.  Go with the wisdom of crowds on this one.
• Try to bid on listings ending in the next couple of hours.  One of the things that I really don’t like about Prosper is that they will take up to 7 days before funding a listing after it has ended.  This means your money is sitting around doing nothing for that time period.

I may begin infusing some more money into my Prosper account if my good luck continues.

Thanks to yesterday’s rate cuts, Emigrant Direct is now down to 3.00%. This is totally messing up my credit card arbitrage plan.