Finance Travels

We eeked out an unexpected gain this month thanks to some back pay from January and February that was paid from my wife’s employer.  As has been mentioned here, we have been in the process of saving up for a home entertainment room upgrade consisting of two pieces of furniture, a HDTV, and a new computer.  The trigger was pulled last weekend and we purchased all of the items.  We went over budget by about $300, mainly because I under budgeted the cost of the HDTV.  No excuses to make, I just found a size that I liked and it was a bit more than anticipated.

Now, we are planning on sitting in a “cruise control” mode over the next 6 months where we’ll be saving 15% of my salary in our Roth IRAs and placing $150 monthly for each child in their college funds.  Any money saved above that will be used to knock items off of our check list of home improvements.  We’ve prioritized and budgeted the list of about eight items and they range from pretty small and inexpensive jobs to some pretty sizable.  Additionally, we’re going to find a way to pay at least $1,000 towards our mortgage before the year lets out.  In the fall, we’ll look back and analyze how we are doing and make any needed adjustments at that time.

I expect May 2010 to be a pretty normal month, I don’t think we’ll have any expenditures or income that is out of the ordinary.

As I mentioned in February, I am going to begin tracking my investment portfolio and comparing it to a benchmark index stock so that I can determine how my investments are performing.  For now, I’m only going to track our holdings in our Roth IRAs.  The stock that I’m going to use as my benchmark is the Vanguard Total Stock Market ETF (VTI), as I feel that this gives a good snapshot of the entire stock market.

Before going any further, I have to thank the 2Million Personal Finance Blog for giving me the idea and methodology.

Our positions in these accounts was $38,340 on March 1st and by March 31st, they had grown to $39,760 which is a 4.82% increase over the month (unfortunately I forgot to take a screen shot and save it on the 31st, so I’ll start doing that with next month’s report).  VTI gained 5.98% over the same time period, which means that I underperformed the market by 1.16%.

My plan is to watch these numbers over the next three months and then begin to make adjustments to my positions if the under performance trend continues.

Despite some concern at the beginning of the month, March actually panned out quite nicely.  March’s stock market gains translated into over $7,800 of net worth increase for us and even though we had to write down $600 in vehicle depreciation and more than tripled our credit card debt, we are able to report almost $8,000 gained.

Other items of note:

• Our yearly whole life insurance statements arrived and those balances increased a total of $800 over the previous year (this balance is added in the “Cash & Savings” category in the table below).
• I opened our third $5,000 CD on March 1st.  In June, I’ll be opening up our final one in our quarterly CD ladder.
• The increase of credit card debt is due to a new clothes dryer (old one broke) and part of our home improvement project.  This debt is non-revolving and will be paid off before any interest is charged.

Expenses for April will likely be high, as our local income taxes will be due and we will be prepaying our auto insurance bill for six months.

Our home improvement project involves purchasing furniture & equipment for a home entertainment room.  We expect the project to run about $4,320 and we’ve already saved/spent $1,200 of that.  The remaining portion will be saved for over the next few months before we continue any work on it.

As you may or may not now, I started an experiment with micro lender Prosper.com in March, 2006, about three months after Prosper opened to the public.  Prosper billed itself as a site where folks could perform peer-to-peer lending – folks looking for money would post a listing on the the site, and folks like me would fill the loan one at a time until the loan was completely filled.  The interest rate was calculated on the borrower’s credit score, debt levels, etc… and was bid down by lenders once a loan was fulfilled.

Between March 2006 and May 2007, I deposited $1,580 into my Prosper account.  I placed successful bids on a total of 51 loans.  In most cases, I funded a loan for $50, as I felt this was an acceptable amount of risk on each loan, and I wanted to reduce my risk by funding as many loans as I could.

Here is a breakdown of how the 51 loans performed (to date):

• Charge-Offs – 12 (23.5%) notes -I didn’t receive full payment in these loans and Prosper has written them off.  I basically won’t get any payments beyond what I’ve already received on these loans.  Prosper does not do a good job of telling you why these loans have been charged off other than they haven’t received payment in 4+ months or the borrower has declared bankruptcy.  Of these 12 loans, I actually did make money on 3 of them (borrower defaulted after I received more than their loan amount in principle+interest).
• Paid – 28 (54.9%) – Over half of the notes I funded were paid in full.  These loans ranged from 8% to 26% interest.  My best case loan (the 26% interest) netted me about $20 in the course of its life.
• Active – 11 (21.5%) – I still have 11 active notes.  Of these, the last is due to be paid in September 2011.

In July of 2007, it became clear to me that Prosper was having some serious financial issues.  I had been following several forums dedicated to discussing borrowing & lending from Prosper.com and many of the “big players” were expressing concern, experiencing extremely high charge-offs, etc…  It was at this point that I decided to bow out and began systematically withdrawing money from my Prosper account as it became available.  It was a good thing that I did, because in October of 2008, the SEC mandated that Prosper no longer fill loan requests until further action was taken (Prosper “reopened” in 2009, but at a much lower activity level than they had been functioning at).

To date, I have managed to withdraw $1,591 from my Prosper account.  I still have loans worth $124 sitting within the system, so assuming no more defaults, I should be able to withdraw at least $1,715.  This represents $135 (8.5% over 5+ years) more than what I had deposited into Prosper.

So was it a success?  I guess it depends on what you mean by success.  I didn’t actually lose money (and a lot of people did), so that’s always good.  However, I could have made the same amount by opening a CD at 1.75% and letting it sit risk free for 5 years.

This has been an interesting experiment, and it was kind of fun picking and choosing loans to fund.  Apparently, I did do an above average job picking loans, as Fred93 reports that 45.3% of Prosper’s loans have gone bad.  I’m glad that I was smart enough to recognize the warning signs early and pulled out of the marketplace when I did.  From here on out, I’ll leave the loan funding to the pros

Finally, from what I have read, it appears as though Prosper is pretty much on the verge of bankruptcy.  I’m not sure what this will mean to the money that I still have in the system.

March is turning out to be one of those months I dread.  Several unexpected expenses have manifested themselves:

• Wife broke off part of a tooth: $280 for dentist visit and new filling
• Clothes dryer just stopped working: $50 for repairman visit to tell us we need a new clothes dryer.  $490 for new clothes dryer.
• Medical procedure for dog: $180

So, combine those with the $125+ we’re paying for a weekend vacation (which wasn’t unexpected, but previously committed to), and we’re up to $1,125 over what we typically spend in any given month.

Fortunately, we have our well endowed emergency fund to handle these expenditures, but it is still frustrating when we’re trying to save up for home improvements.

The one piece of good news is that the new clothes dryer should be more efficient than the ten year old dryer that it replaced.  I really need a Kill-A-Watt for 220V outlets .

Update:  Just found out that our van needs new brakes… Sigh

February ended up being a pretty significant month for us.  Not only do we have a pretty decent net worth increase for the month, but we also hit our emergency savings goal of $20,000.  We did the calculations, and the $20K should give us at least 6 months of emergency funds should one of us lose our job.  In the unlikely event that both my wife and I lose our source of income at the same time, this emergency fund will get us through 3 months easily.  While Dave Ramsey suggests that this money sit in a savings account earning a pittance of interest, we’ll be keeping it in four CDs, each spaced 3 months apart.  Granted CDs aren’t providing a whole lot more interest right now, but they are better than just a standard savings account, and we’ll have enough liquid money in other accounts to handle real emergencies (dead appliance, car repairs, etc…).

Part of the February increase was due to a$3,400 tax rebate check.

Starting from here on out, I’m going to start tracking my investment performance on this blog as well.  I’ll start with our Roth IRAs and start to include other accounts once I determine how successful I’m doing.  I’ll be taking a cue from 2million’s personal finance blog and be comparing my monthly gains or losses with the Vanguard Total Stock Market Index.

I’ve done some initial analysis, and I”m not happy with how my investments have been performing as a whole.  Hopefully this extra step will provide some guidance in how I can start to rebalance my portfolio and begin to beat this index.

Finally, now that we have reached our emergency fund goal, we are going to do a bit of home improvement once we save up the cash.  We are looking at replacing our 11 year old tube television with one of those “fancy” LCDs or plasmas, as well as some furniture upgrades.  My wife has been getting on me about replacing the desk that I bought in college (from Lowes) and while I love that desk, I can see her point.  We are going about setting a budget for the project and we will save up so that we can pay it all in cash.

In a frustrating turn of events, January ended up being one of our least expensive months over the past 12, but we still ended up down almost $2,000 due to market conditions.  I’m pretty much conditioned to losing months in the stock market, but it’s never pleasurable to report.

The good news is that we are on target for opening our next $5,000 emergency fund CD at the beginning of March.  We’ll probably have to sell a few of our more liquid stock investments, but nothing too big.

We did have a few unexpected expenses in January, including a new vacuum ($200) and a new iPod Touch ($265).  The original items malfunctioned over the month and needed replaced.  The iPod Touch is the one gadget that I use daily and the original 1st generation device that I had purchased almost 3 years ago broke in the middle of the month.  The audio stopped playing for some odd reason, and I’ll recycle it by giving it to the kids to use (the don’t usually use the headphones, but rather play games).

February should be another fairly cheap month.  Hopefully the market can turn around and continue its recovery.

Yesterday I had the chance to run our 2008 vs. 2009 expense report.  There were a few surprises, but overall I was happy with the numbers.  The bottom line was that we saved about $2,000 more in 2009 than we did in 2008.  I know that number isn’t terribly impressive, but when you consider the following, it looks better:

• Purchases of major household items – We replaced both our refrigerator and hot water heater in ’09.  Those two items account for about $3,500 worth of expenses.
• We purchased and paid off a new (used) car in ’09.

I always enjoy looking at this report, as I can always find some interesting trends:

• Our vehicle fuel expenses decreased by nearly $1,000 due to the lower prices we experienced in ’09 vs. ’08.
• Our grocery expenses increased about $500, which I guess is to be expected with a growing family.
• Expenses in my “generic” cash and miscellaneous categories increased a fair amount.  This means that I’m not doing a good enough job categorizing expenses.
• One thing that I”m proud of is that our charitable donations increased by nearly 33% when compared to ’08.
• Finally, our childcare expenses decreased about 10% over ’08.  This number will continue to decrease as our middle child starts kindergarten next year.

The money-sucking months of November and December are now complete, and I couldn’t be happier.  In addition to all of the gifts, we’ve traveled to extreme ends of four states, resulting in increased fuel & lodging expenses.

This December report includes a $1,525 write down on the value of our vehicles.  We also opened our second in a series of four $5,000 CDs representing our emergency fund.

I’m now looking forward to two of our traditionally cheaper months – January and February.  The goal is to get enough saved up so that we can open up our final two emergency CDs and then move on to saving more for retirement and college funds.

I’ll post a year-end write up to see if we met our 2009 goals soon.

DEBT FREE!!! (except for the house of course).

As expected, we made our final car payment and are now debt free (except for the house and some non-revolving credit card debt).  I’m pretty impressed that we were able to buckle down and pay over $4,000 in debt between September and late November.

Our investments did well again this month, however I am stalled with our “fun” investments.  I purchased Citigroup (C) at $4.27 thinking that it would bounce back up to around the $4.75+ that it had been at.  Obviously that hasn’t happened and I’m stuck holding it until it at least makes a modest rebound.

As always, November will likely be our most expensive spending month, as we try to complete Christmas gifts before the real craziness begins.  I’ve learned to just shut my mouth and let my wife do what she “needs” to do during November and then start reeling her back on December 1st.

Our next step is to double our emergency fund over the next six months.  I’ve started the process of “laddering” our CDs so that I have four CDs come due over the course of a year (3 months apart) rather than one big one once a year.