Financial Steps to Navigate an Emergency

Living Almost Large has a couple of very thought provoking posts about when to use your emergency fund and what you would do in an emergency if you had no emergency fund.

In a true emergency such as a job loss, would you dip into your emergency funds to make ends meet? Or would you immediately cut every possible service and utility, start selling your possessions, and/or break your lease and move in with your parents to avoid having to raid your savings?

If I really think about it, I'd be surprisingly reluctant to use my emergency fund in a true emergency. This is even more interesting when you consider the fact that I don't generally hesitate before dipping into it for travel or shopping sprees when the urge strikes.

Here are all the things I would do in an emergency before resorting to my emergency fund.

Take Government Help
My dad would kill me if he read this, but I pay lots of taxes so that all these government programs can be available, and I don't think I'd have any qualms about participating if and when I were to ever qualify. I would apply for unemployment benefits immediately.

Cut Out Excess
Obviously, I would immediately cut all giving and saving from my budget, along with shopping, travel, eating out, and other obvious excess. I'd put my gym membership on hold, but I probably wouldn't cut cable/Internet at first since they could keep me sane and aid in my job search.

Then Cut More
I think I could wholly live off unemployment by making those budget cuts - I've set up my lifestyle where my basic committed costs each month including groceries and gas are only $2,000 a month (and $400 of that is property tax/insurance that is paid annually so it's not really a monthly outlay).

But if I couldn't, then I'd cut cable/Internet and limit all luxury food items from my budget in order to try - I wouldn't dip into savings to pay for that stuff.

Sell Some Stuff
No matter what I'd probably use the opportunity (and free time) to purge my life of things I no longer need. I'd sell books and appliances on Amazon; I'd sell shoes and purses on eBay; I'd consign clothing. I might even sell non-sentimental jewelry (gifts from old boyfriends, etc).

Use Credit Cards
If I only had a small shortfall between unemployment checks (and sales from the section above) and my bare bones budget, then I might use credit cards to get by rather than dip into savings. The reason is partly psychological - I'd rather accumulate some debt (not a lot, and only at low or 0% interest rates) than deplete my savings.

But realistically there are some things that can't be put on credit - my mortgage for instance - and in a worst case situation I'd rather have some credit card debt than default on my mortgage. Naturally credit should only be for basic living essentials, not going out or other luxuries.

Emergency Fund - Other Investments
After exhausting the above options, I would at this point have no problem dipping into savings to cover any shortfall between my budget and my unemployment income (including any side income from Prosper, Amazon, eBay, etc).

However before my cash ran out I would sell some of my Total US Stock Market index funds to cover my expenses.

[As an aside, to be quite honest, if I were laid off I might just jump straight to this step and take $5,000 or so and take that Mediterranean tour of Europe I planned when I graduated college but never got to take (6 weeks through the south of Spain, France, Italy, and ending up in Greece).]

Get A Job, Any Job
At this point - after resorting to actually dipping into my funds to cover my living expenses (and/or a brief sabbatical), and assuming I had no immediate leads on a new full time job, I would seek out a part time gig at Starbucks, in retail, as a waitress or hostess, or any other job I could get in order to limit having to dip into savings any further. I would only work part time in order to leave time to search for a new full time job - or else you risk making your part time job your new career.

Liquidate All Investments
If I couldn't find a job (or a second job) and I was seriously dipping into reserves to make ends meet then I would sell a chunk of stock index funds to last a few months. If there were any vacancies or if I had a negative cash flow, I would also put up my rental properties for sale (other wise that rental income might actually help me out).

Ask Family for Financial Aid
I have a lot of investments to go through before I'd get to this step, but my parents would loan (or give) me money if I asked for it. So would my grandparents. So would my other grandparents. In fact my grandfather loaned me money simply to make an investment so I wouldn't have to liquidate stocks at a market low - you can bet he'd lend me money if I lost my job and needed help to pay the bills (as long as they felt I was doing everything I could to try to get a job).

And in a real bind I've got sisters with assets I coud appeal to as well - not to even mention the plethora of aunts and uncles and cousins who would certainly pitch in if I had a medical emergency or anything of that nature.

Move Home With Family
If I had a serious medical emergency or extended job loss, I'd simply move home with my parents and start over. They live states away, and I own real estate in Texas, so that would truly have to be a last resort since I'd have to sell my property.

Other Options
If you don't have any assets or family with any money to spare, some people resort to payday loans to deal with emergencies (never a good idea but I've actually had friends who found it useful - like one guy whose car was towed and he was being charged over $100 a day until he could come up with the cash to get it out).

After that there are government programs like food stamps and welfare and public housing; there are also community groups that will provide goods and services like food banks and shelters and job programs.

Cities Pay to Send Away Homeless

New York City has a fantastic public program (I can't believe I just said that) which I think more cities could adopt with success. In fact, I think they should expand upon it to serve others who may not currently qualify (I really can't believe I said that!).

Here's the story: New York City has a $500M per year program to aid people who show up at shelters but have living options in other areas. The city of New York pays for them to get out of town.

This is brilliant, especially for a city which pays $36,000 per year per family in each homeless shelter. What's $6,332 to fly them back to Paris when it saves the city $30K?

That's right, they'll fly you anywhere in the world and even pay for you to get visas and passports so long as they can verify that you have family there who will take you in (a smart move to prevent "homeless" from lining up to fly back "home" to Hawaii or Las Vegas).

What do you think of this program?

Explaining Gambling

This past weekend I spent four days in Las Vegas with my entire immediate family, plus a grandmother, plus four cousins. It was great fun as usual - lots of relaxing, eating, drinking, bonding and - of course - gambling.

My younger sister who has been living with me this summer hadn't been to Vegas since she turned 21 and had never gambled before. I was excited about the prospect of teaching her - and perhaps piggy-backing on any beginners' luck she might have.

Slots
As soon as we arrived my grandmother wanted to teach her how to play slots. I know, I rolled my eyes too, but one can devise all sorts of strategies involving which machines to pick, how long to play them, and how much to bet based on how you've been winning or losing.

My grandmother only plays slots. For 12 hours a day for 4 days straight, five times a year. I can't imagine. Allegedly she more or less breaks even over the years, especially if you take into account all the free suites and limo and food and drink we all consume on her behalf.

I felt obligated to sit and play next to them, even though I knew I'd simply lose that $20 - whether quickly or slowly was the only question. Most people play until they lose all their money at slots, even if at some point they are up are up.

Black jack
Of course my sister doubled her money and decided she "loves" slots. I drug her to the blackjack table while she was still ahead though, which is what I play mostly. I like getting to know the dealers and meeting other interesting people. If you follow the rules, you can almost always put down $100, play for hours, and leave with around $60-$140 (I sit at $10 tables). Even if you're not doing well though, blackjack can be exciting to play with others (especially if the whole table consists of your family memebers!).

She watched while my cousin and I played and explained everything we did. "You always assume the dealer has a 10 not showing." "You always split aces." "You have to decide whether or not you hit 16 and be consistent about your choice." Which cards are bust cards and why, when to split and when to double down, the difference between single deck and the shoo - turns out there is a lot to explain.

She concentrated hard, but mastering strategy on top of how to simply sit at the table (only touch the cards with one hand, NO cell phones even to check the time, scratch if you want to hit, place your bet here and your tip there) intimidated her a little bit, even though I'd let her to a dealer I knew was nice and easy and would tell you what to do.

After awhile though she announced that she would go back to slots because they are "easy." My cousin and I smiled, knowing that the only "easy" thing about slots was how they take your money - the possible exception being if you are willing to put out a lot of cash and spend a lot of time waiting for the big payoff, like our grandmother does.

Roulette
She was itching to play roulette, and several times she and I and mom and another sister or two would gather around and take over a table. In my opinion the trick to roulette is picking some numbers and sticking with them. The people who sprinkle their chips randomly every turn rarely stay in the game long.

I rarely bet just on a single number, preferring sides and corners. So if I want to slant towards red or black I can shift my bets around but still always be touching the 6 or 8 numbers I've chosen.

I never bet on the outside - black or red or odd or even or columns, etc. I always split 0 and 00 if it's not showing on the board - or if there's a long string of red or black (and I quit the bet once it hits). And I never take a winning bet off the board.

I always start with 100 in $1 chips and usually leave with at least $80 after playing for an hour or so. Once or twice (once being this past weekend) I left with less than $50. My sister had very good luck each time we played it, which is nice. Whether or not your first roulette game goes well will pretty much determine if you like the game or not - an inclination which I've found will stay no matter how often you win or lose subsequently!

Craps
Craps is fun to watch, but I don't really know how to play. My cousin and grandfather love it and play it almost exclusively, but I haven't played in years (since I dated a guy who played and would tell me what to bet). It's great for those who want a chance to win big and don't mind losing it all. I prefer the games where you can play for awhile with relatively little and more or less breakeven.

Video poker
This one is great if you're tired or shy or you only have a little bit of money to play with. It's simple (you hardly even have to know poker rules since the machine tells you when you have a good hand and what beats what) and easy (you just touch what cards you want and then hit the deal/draw button). I doubled my money playing it this past trip, after being dealt 5 four-of-a-kinds in one sitting. Plus you're sitting right at the bar and don't have to wait for a cocktail waitress!

Why Real Estate Still Beats Other Investments

I'm so tired of financial journalists, bloggers, and so-called experts claiming that real estate cannot make you rich, that it costs much more than renting over time, that your home is not an investment, and so on and so forth.

Their argument is always rooted in the fact that over time real estate appreciation barely outpaces inflation. "Historical market returns are only just over 3%!" they shout, as if we didn't know this. "The last 10 years have been an abberation!" they exclaim, as though they've won their argument.

WHY REAL ESTATE STILL WINS
Yes, real estate market returns are not very high - just over inflation over long periods of history. Yes, stocks and even bonds often outpace real estate returns over time.

But guess what? Until you can get a 30 year low fixed rate tax advantaged loan to purchase other investments, owning real estate will always be the best financial investment you can make! (And by "best" I mean the simplest way to achieve the highest real returns for the lowest amount of risk).

It's called LEVERAGE, people! It's one of the most basic elements of owning real estate, and yet it's consistently overlooked by the media and experts as they race to denigrate owning real estate as an investment.

In a recent WSJ columnCheapskate jumps on the media bandwagon and claims that "homeownership was never a road to riches." He goes on to chronicle his own home purchases through the years and how he "only" made annualized returns of 3.5%, 7% and so on.

But herein lies the problem. His formula is a cash flow model which accounts for "selling price minus purchase price, renovations and repairs." Which makes perfect sense - if he bought his homes in cash.

But predictably, he forgets to account for leverage, that little variable used by the vast majority of homeowners which happens to make the difference between a 3.5% return and a 44% annualized return.

HOW TO FIND YOUR REAL RETURN
A better model for calculating your real return is to take your net sales proceeds (after commissions and mortgage payoff) and subtract your closing costs at purchase (including any downpayment you put in).

I emailed Cheapskate and, using his own example, showed how his annual return was really more like 44% a year, assuming he purchased his home with a 10% downpayment (for simplicity's sake I only used one example rather than accounting for all 3 that he described in the article).

AN EXAMPLE
So let's just assume that he purchased a $100,000 home in 1991 with 10% down, and that he obtained a 30 year fixed rate loan for the remaining 90%. Including closing costs, his initial investment was probably around $13,000.

We'll assume a return of 3.5% a year (based on his personal figures which take into account repairs and renovations) which means that when he sold in 2008 he'd have gotten just over $180,000. After 6% in realtor commissions and paying off the remainder on the mortgage - which would have been paid down to $61K assuming a 7% interest rate - he'd be left with right about $111K.

So he put in $13K and walked away with $111K. That's a 754% total return - an average of 44% a year over the 17 year period of ownership. Try beating that in the stock market!

Other Variables
You can tweak the figures to include other variables to really compare owning and renting - such as how much more it costs per year to own as opposed to rent a comparable property in your area (but don't forget to include rent increases) and the tax deductions you got to takeby owning.

No matter how you slice it though, you would be extremelly hard pressed to find a better investment than owning real estate if you're using leverage to do so.

Gender and Income Level Affect Family Life Satisfaction

Men and women react very differently to being the breadwinner as it relates to career and family-life satisfaction. This may seem obvious, but a new study highlighted in WSJ Blog The Juggle documents the findings:.

Men who earn a lot more than their wives report significantly higher career satisfaction than men who earn about the same as their spouses...

But, interestingly, although pay levels affect husbands’ career satisfaction, money doesn’t seem to matter much when it comes to the home-front. Whether men earn less, the same or more than their wives has little effect on their reported level of family satisfaction, which tends to be high, the researchers found.

Meanwhile, women who earn the same as their husbands report significantly higher levels of career satisfaction than do women in traditional couples, but significantly lower family satisfaction.

Do these findings surprise you? I think it's interesting that men's family satisfaction doesn't change much no matter their career circumstances - and that they generally rate it as high no matter what.

Why Your Finances Are Never In Perfect Order

No matter how much time and effort you put into financial planning, there is always another item on the to-do list, another concept to research, another change to be made in the budget.

Not only do regulations and tax laws change, but our career paths and income levels and personal lives change as well - and sometimes all at once! Nothing is constant. A new career, marriage, layoff, divorce, raise, child, medical problem, or inheritance and and often does require changes to your budget, insurance policy, estate plan, retirement contributions, and so on.

This is obvious I suppose, and should be expected. But it can still be a bit frustrating if you're a perfectionist (like me). Here is a list of things in my financial plan which are causing angst, despite the fact that I read and write about personal finance every single day:

• I feel guilty for spending so much money on shopping and restaurants.


• I worry about whether my tenant will pay rent on time or whether I'll have to dip into reserves to pay the mortgage.


• I struggle to get my vacant rental unit leased.


• I know I should have more cash reserves.


• I wonder whether I should be saving for future goals that I don't really have yet (new car, wedding, kids, vacations)


• I don't know what kind of monthly bonus I'll get, so budgeting is now and endless task.


• I'm dipping into savings to pay off my credit card again???


• I haven't reviewed my home insurance policy in awhile, and I have this nagging feeling that if something were to happen I wouldn't be covered. I assume auto is OK, and that the disability coverage I get through my company is sufficient...


• Surely I don't need a will or an estate plan...I'll do that after I'm married. But what if that never happens? I should at least update my beneficiaries and write up a holographic will...


• I should probably talk to a CPA about some tax planning...that's been on the to do list for awhile.


• I should do some research about putting my rentals into an LLC. Or getting an umbrella insurance policy. Or both.

Retirement Plan Brings Peace of Mind

There's a lot of angst surrounding my personal financial plan in general. Despite this, one area of my financial plan is a happy, confident, closed book: My Retirement Plan.

Why you ask? How can I be so content with my retirement plan when the markets are uncertain and social security is strapped and soon there will be fewer workers paying more retirees?

Because first of all I know what to do. This is key. Budgeting and investing in rental properties requires constant analysis and management and all the variables are constantly changing.

But for all practical purposes, retirement planning is pretty simple. I started early, it's all automatic, and if I keep on keeping on I should end up in great shape (unless the whole system fails, in which case I'll have bigger problems and everybody will be in the same boat anyway!).

Get this:

• I opened a Roth IRA when I was 18 years old, and each January since then I've contributed the maximum allowed. Current Balance is around $21,000.


• I opened a Roth 401k the day I became eligible when I was 22 years old and since then I have contributed 10% of my gross income each and every month. Current balance is around $15,000.


• My employer kicks in another 3% to my 401k (and next year that will bump up to 6%!!).


• All retirement funds are invested in very low cost broadly diversified index funds.


• I intend to keep this up for as long as I'm eligible for those accounts (otherwise I'll save at least 10% of my income in a taxable account).

Between my employer and me, this year I'll invest $12,800 into retirement accounts, and I plan to increase that annually until I contribute $22,000 at age 35. At that point I should have $325K in retirement funds assuming an annual return of 8% between now and then.

Even if I stop investing altogether at that point, my retirement funds would grow to be over 10 times that amount by the time I'm 65 (assumes 8% annual return). Of course that's before inflation is factored in, but it's still pretty amazing. Best of all, that money is in tax free accounts from which (unless laws change) I'll be able to withdraw 100% tax and penalty free. And even if I go bankrupt that money will be protected (again, unless laws change).

I intend to keep saving after 35, and I intend to have rental properties paid off and generating additional income - but you never know what can happen. The fact is that my "retirement" is so far off I can't even begin to try to plan or imagine it. But no matter - I'm saving now so that I'll have flexibilty to make plans later. And I'm sleeping soundly as a result.

Model Employee vs Model Parent

In my last post I quoted Jack Welsh as asserting that "There's No Such Thing as Work-Life Balance."

Trying to "balance" work and life is very difficult, which is why the topic generates so much discussion. Doing both at once requires constant effort and calculation: "Thursday I'll leave the office early and catch Timmy's soccer game, but Saturday I'll play golf with my colleagues...I'll go on the business trip next week, but I'll make sure to leave early and get home in time for dinner the week after that..."

You might be able to strike a balance that works for you - and that's the whole point of course - but being a model employee in a traditional professional setting just isn't compatible with being a model parent. Don't believe me? Consider the following profiles:

Being A Great Employee
Those who are model employees (and future executives) are those who are dedicated, reliable, hard working and well connected. This means that you are the one in at 7am and still in at 7pm, doing anything and everything that needs doing. You are the one who can be counted on to come in on the weekend to finish a big project. You take time to train and mentor others. You are always trying to improve, always excelling - and you are continually on the lookout for ways to minimize costs or increase revenue.

You never turn down an invitation to socialize with colleagues. You are spending time after work and on weekends networking, attending industry events, sitting on boards, playing golf with colleagues or the competition. You are constantly on the lookout for ways to impress and get friendly with your boss. You grab any opportunity to get more development or training even if it's an out of town seminar; you plan your social life around rubbing elbows with important people in your field;

Being A Great Parent
Those who are model parents are a constant reliable presence in their kids lives, consciously monitoring and assisting their development. They never miss a teaching moment, have the time and patience to properly discipline their kids, and keep their children engaged and stimulated.

They're scouring the internet for the safest, best, most cost effective crib/stroller/bike. They're analyzing the household budget to trim excess and make room for extracurriculars and college savings plans. They prepare three balanced meals a day for their kids. They somehow manage to keep their kids and homes clean and safe.

With small kids they play games so their brains develop properly, shower them with attention so they don't develop emotional attachment disorders, take them to parks and activities to get exercise, supervise play dates so they learn proper social interaction and read to them.

Older kids need help with homework so they maintain a decent GPA and get shuttled to as many valuable extracurriculars as possible so maybe they can get into a decent college one day. They need supervision so they don't end up pregnant or on drugs. They may be resentful and rebellious but you persevere, enforcing rules and checking in and meeting their friends' parents and not being afraid to embarass them - or yourself - in the process.

Comparison
To me the Model Employee sounds like the much easier job! Both can consume 100% of your attention and energy, but the Employee has more tangible rewards - respect at work, recognition in the way of bonuses and promotions, and the security of a benefits plan and salary.

The Model Parent doesn't have as much control along the way or security in the outcome of his or her efforts. Of course you CAN be a parent and work at the same time - millions of people do. But I think we can all agree that it's impossible to reach your full potential in either capacity when trying to balance your time and focus in both areas at once.

No Such Thing As Work-Life Balance?

A generational catch phrase if there ever was one, the "work-life balance" is currently discussed at length in books, articles, seminars, universities, and even in company policies themselves.

Men and women alike are beginning to recognize the importance of creating a "work-life balance," but appreciating the concept and implementing it on a daily basis are two very different things, especially if you are pursuing a traditional corporate or professional career which requires you to be away from home for 8+ hours a day.

Consider these words from former General Electric Co. Chief Executive Jack Welch in a recent Wall Street Journal article:

Welsh has some blunt words for women climbing the corporate ladder: you may have to choose between taking time off to raise children and reaching the corner office.

"There's no such thing as work-life balance," Mr. Welch told the Society for Human Resource Management's annual conference in New Orleans on June 28. "There are work-life choices, and you make them, and they have consequences."

Mr. Welch said those who take time off for family could be passed over for promotions if "you're not there in the clutch."

First of all, we should recognize that Welsh's comments apply to both men and women - she OR he who chooses family over work on a regular basis is not likely to be the one promoted fastest or farthest.

The hard truth of the matter is that you CANNOT be a model employee and a model parent at the same time. You can't be fully present and dedicated and engaged to your job AND to your kids at the same time. You can't plan appropriately and put in enough time and dedicate your best energy to your job AND to your kids at the same time.

IT IS RENTED! New Tenants Moving In

FINALLY, after two long months of toiling, I have officially leased the vacant unit in my duplex. Technically I only toiled to rent it for about 6 weeks, but I lost out on two solid months of rental income (May 15 - July 15).

I am really excited about the couple who finally rented it, and I think they will be a much better fit than the other folks who showed interest along the way.

It's a husband and wife, middle aged, steadily employed, and very excited about living in my place. They've been in an apartment and miss having a yard and a garage. The woman has taken to giving me big hugs, which seems weird but fits her big shining personality. I'm sure they'll get along well with the neighbors.

The woman teared up when she told me the story of how they toiled for years and finally bought a house and then lost it when her husband fell ill and couldn't work last year.

Their credit was ruined and she was so afraid they wouldn't qualify to rent my place. I kept assuring her that bad credit scores alone wouldn't disqualify them (past evictions and unverified income are the main red flags I look for). She hopefully gave me a deposit check anyway when I met her this morning to take her application.

When I called to tell her they'd been accepted she exploded with delight and said I was like her own little angel (a description she later repeated when meeting my other tenants). When I met her just now to sign the lease and hand over the keys he gave me another huge hug and kept gushing about how wonderful and "compassionate" I am.

I was a bit bemused, but I couldn't help being flattered. I'm just really glad they love it and are happy to call it home. And that they seem very willing and able to pay me RENT.

Why I Should Pass the CFP Exam

In my last post I discussed some of the frantic warnings I'm beginning to hear about how difficult the CFP Exam is, how low the pass rates are (53-56%), and how much preparation is required (300 hours recommended).

To cheer myself up, I decided to come up with a list of reasons why I should pass the exam - keeping in mind that I have yet to begin to prepare for it in earnest.

1. I am taking the educational courses in one year leading up to my exam. Most CFP hopefuls take two or more years to complete the educational component, putting them at a disadvantage as concepts fade from memory. In addition, many facts and figures change from year to year (particularly with regard to tax and estate planning), so what was learned 2 years ago may no longer be relevant.

2. I will take an Exam Preparation course (probably from Kaplan). Those who take review courses have a much better pass rate on the exam (companies admit there is no unbiased way to calculate their pass rates, but averages exceeding 80% have been reported). These prep courses teach specific strategies for taking the exam, in addition to providing a study plan for pointedly reviewing the actual information to be tested.

3. I'm taking the required educational courses at a well renowned university. The University Program at which I am completing the educational component boasts that over 85% of their graduates have passed the exam on the first try (although they don't have very many years worth of data yet, and most of their graduates take a review course as well). Many exam takers do their review courses online or at institutions which don't offer great professors or a strong guided curriculum.

4. I am a good test taker. I have no excuses along the lines of "I have ADD" or "I have dyslexia" or "I'm just not good at taking tests." I have always been a good test taker, the kind who was irritated to have her concentration broken with the mandatory short break during the SAT exam. I can sit and focus and read quickly and analyze swiftly and generally score higher on standardized tests than my general academic performance would otherwise warrant.

5. I have plenty of time to prepare. I have always been prone to cramming for tests and procrastinating, but I have 4.5 months before the CFP exam. If I start now I have more than enough time to establish a thorough study plan and execute it.

CFP Exam Looms as Courses Near Completion

I will be taking the CFP Exam in November, and I'm starting to dread the preparations I'll need to make between now and then.

In order to sit for the 2 day long CFP exam, you first have to complete 7 required courses. Some universities offer a 2 year program, but I enrolled for an accelerated track so I could have all the courses done in one year. It's been quite a time commitment, but the months have flown by. I can't believe it's already been nearly 10 months since I began my CFP program.

Last fall I enrolled in my first two classes - Fundamentals of Financial Planning and Investments. In the first quarter of this year I completed two more - Principles of Risk and Insurance and Retirement Planning and Employee Benefits. In the first part of the summer I completed Tax Planning.

Now I've begun my last two 11 week courses - Estate Planning and Financial Planning Strategies & Case Study, in which I assume we'll learn to put together all that we've allegedly learned.

The time commitment has been a drag (and I still can't figure out when/how to eat dinner when I have class from 6pm to 9pm after work), but the classes haven't been that difficult. I quit doing all of the required readings during my first quarter and barely commit any time to studying outside the 6 hours a week of class time.

I have managed to make an A or B in each course so far, and I'm sure these last two will be no exception. But that doesn't mean I'm prepared for the CFP exam.

As we near the end of our courses, the professors and other students have begun spreading horror stories and warnings and tips and rumors about how hard the exam is, how low the pass rate, how many hours must be committed to exam prep outside of course study (300 is the going recommendation), and so on.

"Have NO LIFE outside the CFP!" seems to be the mantra. Forget your social life, forget your family, put everything on hold, you will have no life for the next four months. One professor kindly assured us that with the proper preparation we could all pass it the first time just like he did - then he told us that he completed over 4,000 practice problems in preparation.

I am wearily concerned in the face of all this. I am certainly not ready yet for the exam, and I hadn't really planned to start the intense study part until the month or so before the exam. Now I'm thinking I might need to reconsider my strategy...

I Have Two Years of Mint Data!

I finally have two solid years of financial data recorded on Mint, which means I can compare year over year data and more thoroughly analyze and understand my spending.

The data is not pleasant. I DID have a significant increase in income over the last two years, but it hardly justifies the nineteen percent increase in overall spending in Year 2 (see below for details).

I actually decreased spending in a couple of categories (travel, giving, utilities, and "other"), but every other category increased - and shopping and entertainment both more than doubled! I already wrote about my horrifying food and dining spending, which increased 41% in Year 2 on Mint.

The worst part is that I was spending freely in Year One and should have decreased my spending from there - my Year 2 spending was just outrageous!

A few highlights:

• Home (incl utilities/cable/internet) increased from $17,686 to $18,051.


• Food & Dining (incl bars & alcohol) increased from $6,577 to $9,297.


• Shopping increased from $4,191 to $8,260.


• Travel decreased from $4,907 to $4,587.


• Giving decreased from $3,854 to $3,559


• Health & Beauty increased from $2,058 to $3.243.


• TOTAL SPENDING increased from $44,319 to $52,792.

The Good News-
Despite my reckless spending, I have managed (thankfully) to continually contribute at least 10% of my gross income into my Roth 401k. I've only been with my company for three years, and my 401k is worth almost $15,000 today, despite the steep market declines over the past year.

I also picked up 2 rental properties in the past two years (none of my investment real estate spending is reflected in the Mint figures).

-But It's Not Good Enough
While my savings have not decreased in spite of real estate start up costs, they also have certainly not increased - despite my best laid plans year after year. With 2 rental properties I need liquid reserves more than I need retirement savings at this point. I put a big chunk into it every month, but over the course of the year I dip into it to pay for shopping sprees and vacations.

The Plan
Obviously some of my current spending needs to be redirected to my EF. "Shopping" and "Travel" (which averages nearly $11,000 a year) should be slashed by a third. Food and dining will be cut by 20% (read about my food and dining budget here).

That should free up $6,000 for my emergency fund over Year Three, putting me comfortably into the "6 months of expenses" savings zone.

Oh What A Beautiful Morning...

This morning I had my clothes laid out, my bags packed, and everything ready to start the day right. I just have to get through one client meeting, and then I'm free as a bird on vacation!

The first hour went by smoothly as I got ready, humming along with my iTunes. I didn't have the heart to make breakfast though, because my sister had thoroughly cleaned the kitchen the night before in preparation for her BF to visit this weekend while I'm away (I'd planned to saute mushrooms and tomatoes and put in an omelet).

Then I couldn't find my keys and had to drag her out of bed to help; she'd taken my car to run to the store the night before. It took us 10 minutes to find them, and I was starting to sweat with anxiety - and because it was already 87 degrees before 9am.

I raced to work in great traffic conditions, and even remembered to deposit a check from one of my tenants - the lone payment so far this month. While I was at the teller stand one of my coworkers came up behind me and pointed out that I have a rip in the back of my shirt. My $185 shirt that I love and that I just bought earlier this year.

I was impressed with myself as I nonchalantly reached back to feel it, thanked him for letting me know, and joked that it was a good thing I have my whole suitcase in my car! Incidentally, in this situation it also paid off that this married man is always checking me out. I even muttered that my sister had worn this last and I'd have to get on her about it (a lie, which I have no idea why I told).

So there I am in the 90 degree heat, standing over my open trunk and suitcase and realizing that - surprise! - I have not packed any work appropriate shirts for my long weekend in Florida. I settled finally on a black Lacoste tee (paired with my yellow and white skirt and white flecked with charcoal python heels).

I looked good, but it's not exactly the kind of look I needed to go meet a new elderly lady client in her home. I breezed back into work and, in response to the receptionist's smile / raised eyebrows, started belaboring my situation. Should I go home to change? Tell the client what happened? Just act cool like I dressed casual on purpose?

Then she pulled out a zip up black cardigan from behind her desk! I hesitated only for a second and then accepted it graciously. It fit me perfectly and although I might literally die in the 93 degree heat, I am very grateful. In fact, when I popped in to say hi to my boss, she exclaimed "you look so cute!" I laughed as I told her how I managed to throw the outfit together between what was in the trunk of my car and what I could borrow from coworkers.

Crisis averted. Now if I can just get through a totally unnecessary meeting with a woman who is not even my client and make it to the airport on time without melting in the now 95 degree heat (which will very shortly rise above 100 as it does every day now) I will be home free!

To Florida for Five Days

I will be out of town and far away from any computer screen for the next five days, so I apologize in advance for a slight lull in blog posts.

I plan to come back with a tan and slightly enhanced tennis skills.

In addition I hope to be well rested, to have read at least one whole book, and to have somehow balanced some quality time with all of my family and friends who will be in the vicinity.

On a financial note, there will be a $5,000 shift in my balance sheet during this trip; I'll be making a $5,000 loan payment to my grandfather in person.

Other than that the trip shouldn't affect my finances much. I paid for my flight months ago, and between mooching off family for the majority of my meals and not spending any more money than usual going out, it shouldn't affect my budget at all.

Happy 4th of July!!!

Time to Slash Outrageous Food & Dining Spending

I am hereby officially attempting to limit my food and dining spending - which includes fast food, coffee shops, restaurants, bars & alcohol and groceries - to $600 a month.

This might seem like an easy feat (and it should be), but during the first half of this year I have spent an embarrassing $893 per month on average in that category. $893 a month! On consumption. How can this be?!

My restaurant sub-category accounts for 44% the total. After estimating that half of that is really going towards alcoholic beverages and adding in the "bars and alcohol" subcategory, I calculate that exactly 40% of my food and dining spending has been on alcoholic beverages alone!

Now I don't consider myself a lush (all evidence to the contrary), but I have allowed myself to get used to much too expensive habits. A $20 bottle of wine here, an afternoon of $10 margaritas there, and suddenly I'm spending over $350 a month on alcohol!

Absurd. I'm way to cheap to accept that kind of data. So my total consumption of all food and beverages shall not cost more than $600 a month from this day forward!

Incidentally, this new consumption budget correlates nicely with my goal to lose a few pounds.

It should be relatively easy to slim down my spending and my waistline without even really changing my lifestyle. I plan to:

• Simply pass on that third $10 martini or $8 glass of wine whenever I go out. If I do that three times a week I've saved $120 and over 1200 calories with virtually no effort!


• Eat at home two extra nights per week rather than picking up a $10 salad on the way home from the gym. Yes I'm tired, but if I plan ahead I can have a dinner ready to easily prepare at home and save $12 a week or $50 a month.


• Order appetizer portions whenever I dine out. I'll save roughly 30% on calories and on the bill. Estimated savings $65 a month.


• Suggest cheaper dining options when I go out. There's no reason to have a midweek lunch at Palomino's when Cafe Express will just as easily suffice. And choosing Tex Mex over sushi once a month will save me $15 right there!

There are a dozen other ways I could cut my consumption spending, but these simple actions should get me under the $600 a month mark with very little effort. Once I master this I can move on to more advanced food planning budget ideas.

Tenant Offers to Pawn Items for Rent Money

I got a phone call this morning from a tenant who owes rent as of today. I told him earlier this week that I wanted to meet him today to collect the rent before I leave town, and he said he would "work on it," which made me wearily suspicious that he may not have the money.

Naturally, I was right. He told me today with a shaking voice that he was doing his very best but that he can only give me $300 today (he owes $1,125). He started to ramble about how he asked his boss for an advance to no avail, how he could try to "pawn some stuff" today to get the rest...

At that point I cut him off. I told him my concern is that if he's talking about pawning stuff to pay this month's rent, then I am worried about their long term viability as tenants. How are you going to pay next month if you have to sell your possessions to pay this month?

He explained that his wife goes back to work this month so going forward it should be no problem. He also reminded me that they have never paid late and used to pay early when she was working (which is true, which I appreciated). I know his wife has had some serious medical problems in the last few months (she was pregnant, she miscarried, and there were complications that had her in the hospital for nearly a week), and I was very relieved to hear that she's going back to work.

He went on about how he gets paid again the 10th and will drive the money right to me, and I interrupted his panicky ramble again to tell him that would be fine just this once since they've always paid on time before, and that the late fee is $50. He said I can expect him to pay $100, and I was touched but told him not to worry - the fee is $50 and as long as I get the rent by the 10th I'll be happy.

I've never been thanked so earnestly for anything in my life. You'd think I just saved the guy's first born child. *Sigh* What a lot to deal with before 9am in the morning.

Obesity Continues to Rise, Medicare Braces for Cost

The latest obesity rankings are in, and "not a single state shows signs of slimming," according to the Associated Press. The percentage of obese adults rose in 23 states and declined in none.

What's worse, in every single state "the rate of obesity is higher among 55- to 64-year-olds — the oldest boomers — than among today's 65-and-beyond." That means a big increase in obese Medicare patients is looming, which could spell disaster for the already financially crippled program.

According to the article, the average obese person costs Medicare an additional $1,400 to $6,000 per year. And contrary to previous studies which suggested that obese people may actually die sooner and cost the system less over their lives, new data indicates that "they live nearly as long but are much sicker for longer," requiring much more costly treatments along the way.

It seems to me that our "health care crisis" is really a "health crisis" - and more specifically it may be a "fat crisis" since being obese (or even overweight) can be a root cause of the myriad of health problems that plague Americans and our health care system.

To be sure, being fat isn't technically the problem - many fat people are healthy just as many thin people get sick - but the fact is that obesity is a direct cause of a myriad of health conditions and other problems, and there are quite frankly better things our tax dollars could be going towards besides dialysis treatments and knee replacements for millions of obese seniors.

If Americans as a group would shape up a little bit, our health care crisis may just solve itself. There is more than one way to lower health care costs - we can authorize the government to take control and use its massive scale to force doctors and drug companies to lower their prices (like the insurance companies and Medicare currently do), or we can all just get a bit healthier and require fewer treatments and drugs.

Of course that is much easier said than done. Any ideas?