Thursday, July 28, 2005

First Home

I am buying a house next year. I am using the word house loosely in that I am looking at houses, townhomes, condos, boathouses. My first preference would be a condo because I like urban living. I like being able to look out of my window and see cars and stores and to be able to walk down the street and get a newspaper and a cup of coffee on a Sunday morning. Houses on the other hand do better in a hard economy and appreciate in value more quickly relative to condos so they seem like better investments. Plus, there are condo association fees and those can be steep. But then with houses there's maintenance, yard work, roofing and so forth.

First home buying can be intimidating to the novice buyer. Should I go for a condo or a house with a yard? Should I get a fixed-rate mortage or an ARM? How does my credit score affect my chances and how much mortgage payment will I be making a month? What kind of maintenance fees can I expect? How much house do I want? How much house can I afford? And what are those co-ops anyway?

I started looking at houses at the end of June. (Seems like I started everything at the end of June - new investments, new apartment lease, new goals, this blog) At that time I had a vague idea that I wanted to move out of the rent-trap but nothing more. Since then I have gone a step farther. I have started, what the French like to call, a dossier. It's a lot less impressive than it sounds really. My home-buying dossier consists of a few torn sheets from a notebook that I have scribbled all over and some cuttings of real estate articles for the Seattle metro area.

Turns out downtown Seattle condos are going for $5-6 million. Since when did Seattle become New York? A 2 bedroom house out in the boonies is still $500,000 and a 1 bed/1 bath condo with a waterview in downtown Kirkland is $315,000. The $500k house seems like a veritable mansion at 2200 sq ft compared to the Kirkland condo but apparently there have been incidents of mountain lion attacks in the neighborhood (acc. to a community article I dug up). Lovely isn't it?

And thus begins my home buying adventure. I am not daunted in the least. I mean to make this happen. My timeline is second half of next year which gives me plenty of time to get ready. Problem is knowing where to start. :)

Wednesday, July 27, 2005

Rules of Spending

Imagine congratulating yourself on your newly found sense of fiscal savvy only to turn around and find that you have spent over $200 on non-essentials in a week. That's kind of how I felt on Sunday after I posted this.

Little things add up real fast and before you know it a magazine here and a book there can seriously deplete your resources. And if you are anything like me your first impulse on realizing that is to console yourself by going out and buying something nice. Only that completely defies the purpose of having a budget in the first place. So I have been thinking for the last few days about how I can do better. Having financial goals and a budget are good first steps but I think I need to go beyond that and set up some spending rules:

Rule #1 - Know how much you can spend: After you've set up a budget calculate how much you can afford to spend a week on non-essentials. Everyone's needs are different. For me the non-essentials are everything after rent, utilities, phone, car, insurance, food, emergencies like car repairs & medical/dental and the money I send to my parents. After crunching the budget #s this works out to $370/week. That's my spending cap.

Rule #2 - Know how much you will spend: Just because you can spend $100/$200/$300 whatever doesn't mean you have to. There may be special occasions during the year when you know you will spend more. For me one such occasion is my trip to India this October. I don't want anything, particularly frivolous spending, to get in the way of that. And then there are other things I would like to set money aside for like Christmas shopping & home decor stuff for the new apartment. I am also determined to get to my 45k saving goal but I am currently only up 31k through deductions & employer match. I could get another 10k from interest & bonus which still leaves me 4k short of goal and I'd like to make up for that. With all these factored in my spending goal is now $370 - $(1700+1000+1000+1600+4000)/52 = $191/week.

Rule #3 - Plan ahead: It may never be possible to plan every last thing in your life but you can plan for certain things. My cousin's coming to visit and I want to make the stay fun for her. There are other things too. I know some weeks I will get hit with bigger amounts than others. If I plan for it then I can maintain my $191/week average and still do everything I want to do.

Rule #4 - Shop before you go out: By that I don't mean online but literally treat your home as your personal department store. Look in your closet, your cupboards, your dresser. Do this before you go out. Chances are there are things you forgot you bought or haven't used in a while that you may rediscover and you will be less tempted to buy more when you get to the store. After I wrote Sunday's post I did just this. I found several brand new lipsticks and lipglosses that were still in their boxes.

Rule #5 - Use cash in stores: Credit cards are great because you get points but unless you are really disciplined this can also be a drawback. Sometimes I'll buy something that's a few dollars more than I wanted to spend thinking "Oh, but I am getting points." Yes, but how much? I get 1 cent per dollar. Doesn't make sense to spend $10 more just for a 10 cent discount does it? So starting this week I am going with cash. It's a lot harder to peel off 2 twenty dollar bills than to sign a $40 receipt.

Rule #6 - Take advantage of discount bookstores and the library: After I bought Mutual Funds for Dummies I found out my library carries it. I like books. I want to buy them all. But that was dumb. A good rule of thumb (I came across this on someone's blog but can't remember whose) is to buy books that you would reference often. Otherwise, you are better off renting it from the library. Just make sure to return in time so you don't end up paying in fines. Even if you are buying try an online store like Books A Million (thanks jlp) or or check out local used book stores for fabulous bargains.

And finally - reward yourself. This is not so much a rule as an incentive. Whatever I can save from my $191 per week will go into my piggie bank. Every three months I will take it out and do whatever I want with it. I can put it back, buy something, throw it over the balcony, invest it...whatever I feel like doing.

Sunday, July 24, 2005

What I spent this week

I am trying to be more vigilant about how much I spend on discretionary items. So here's what I spent my hard earned $$ on this week:

ice cream - $3.79
cute jelly roll makeup bags (small) - $9 (1 turquoise, 1 hot pink)
the new Harry Potter book - $16.19
4 Pillars of Investing by William Bernstein - $26.95
The Millionaire Next Door - $15
Mutual Fund for Dummies - $17.99
Coldplay CD X&Y - $14.39
Lynyrd Skynrd All Time Greatest Hits - $9.99
notebook - $1.65
Milky Way Midnight bar- $0.69
Money magazine - $3.99
cute little piggy bank from container store - $5
scented candle at Target - $8
card at Target - $3.50 (for coworker going on maternity leave)
file-folders at Target - $2.50
the cutest water bottle at Target - $9.99
MAC shadestick in sharkskin - $15
MAC lipgloss in pink grapefruit - $14
dinner with friends last night - $17 + $9 drinks (I didn't drink though but we always split the bill 5 ways. I figure I still saved a couple bucks by not drinking myself)

Total before tax = $203.62
Total after tax & tips = $225.25 (tax calculated on $177.62)

Damn, these things add up!

Wednesday, July 20, 2005

Saving Strategy - Brownbag it

I feel great today. In less than 3 weeks I have set up a brokerage account, started a Roth IRA, maxed out my 401k, enrolled in my employer's stock purchase plan, balanced my portfolio, calculated my net worth and set up a budget. A small step for more financially savvy people I am sure but a giant leap for me. Hey, it's more than I have done in the last 7 years.

Of course, with this financial awareness and maturity comes additional responsibilities. e.g because of all these changes and direct payroll deductions my take home per month has been reduced from $4800 to $3580. I am also still almost $18k short of my $45k net worth increase target. My direct deductions only come up to $27k which means I have to save what I can from my take home and invest wisely to meet that goal.

So, I have been thinking about how and where I can cut costs. The two areas where I tend to overspend are Food and Shopping & Entertainment which means these are the two areas where I can save the most. Last month I spent over $600 on food. I remember when I was a student my entire month's food bill came to about $80. While $80 may not be realistic today, $250 might be. Here are some ways I plan to reduce my food bill without completely giving up the things I enjoy:

- Every Friday & Sunday I go down to Starbucks for a tall caramel frappuccino. Cost: $2.50 each. I am going to limit it to 1 per week or try to make my own at home for an estimated savings of $10/month.

- During the week I eat breakfast and lunch at work. Cost: $3-4 for breakfast and $6-7 for lunch. If I get up 15 minutes early every morning I can make some toast and coffee and pack a quick sandwich for an estimated savings of $150/month.

- At least three nights a week I either dine out or order in. Cost: $20-30 per meal. I am going to limit this to once a week for an average savings of $160/month.

- I spend about $15/week on soda, candy, ice cream and other junk food. If I cut back to $5 a week I can save another $40/month.

Total savings = $10 + $150 + $160 + $40 = $360/month

Tuesday, July 19, 2005

Net Worth & FY06 Budget

Net Worth as of 7/18/2005

FY06 Budget (Goal)

A couple of notes:

The Rent is adjusted down from my actual monthly rent of $1100. I got a 1-time $1200 off for early renewal which I am taking spread out over 8 months. After 8 months my rent goes back up to $1100 but I will cross that bridge when I come to it.

Both my Phone & Insurance budget goals are lower than what I am paying right now but I am planning to go deal shopping soon so I think those numbers are reasonable targets.

The Clothes & Shopping category includes all kinds of shopping - shoes, handbags, furniture and home improvement stuff as well as clothes.

My biggest adjustment would be Food as I cut my usual expense by a lot in setting the target but by eating in and brownbagging lunch most days I think I can come in on target.

Cash left over = $42,960 - $42,620 = $340.

Monday, July 18, 2005

Spider Clock

I had to post a picture of the spider clock. I mean, come on, you have to admit it's super cool. For anyone who doesn't know, the spider clock was originally created by George Nelson in 1947 and is considered one of the icons of design of this century. Mine's actually a knockoff that set me back $20. Considering the original costs around $280 I consider it a steal.

What I didn't buy:

Cool green chair from West Elm

This Vogue print, framed and ready to hang

Once I crunch the numbers I am hoping there will be place in my budget for the chair and the picture. The chair I need for my new balcony (my last apartment didn't have one and consequently I don't have any suitable chairs) and the picture -- well I just happen to like it.

Back on the Wagon

So, I have blown some serious money this week. I ordered a pair of living room chairs, a pair of bar stools, bought a new milk shake maker (very retro, very cool), some silk cushions, a fabulous orange spider wall clock and a tall reading lamp. I also bought a full length mirror that I have been wanting for a long time. All this got me thinking. I tend to feel guilty about my purchases, no matter what I buy, but truth be told most of these were necessary. Ok so I didn't exactly "need" the spider clock or the tall mirror but the rest were either replacements or new stuff I needed for the home. I think the reason I feel guilty is because I don't have a budget so I don't know if I am spending too much or not.

My goal this week is to tally up my current net worth and set up a budget for the rest of the year.

Thursday, July 14, 2005

Master of Disaster

Does spending trigger more spending? I just gave in and bought the new John Hiatt cd, Master of Disaster. This day has turned out to be a bit of a disaster for me, spending-wise so it seems highly appropriate. In addition to the two Milano chairs I also ordered a couple of gorgeous bar stools for my new apartment. That was another $225.

More shopping

Just ordered 2 of these chairs from Target. In my defense, my old seating does need an upgrade so this falls under the "almost-essential shopping" category. :)

Edited 7/18 - Just realized I had the wrong picture up.

Bad habits die hard

Spent $253 at Target last night. And I was doing so well! Went to Target at around 9 pm to pick up some file folders (so I can get all my financial documents in order) and came with $250+ worth of stuff. One thing I didn't buy? File folders!

On the other hand, I have made amazing strides in the world of personal finance. By my own standards that is. I have maxed out my 401k, started putting money into ESPP and set up a Roth IRA. I also rebalanced my portfolio and my return is up by almost 2%. Of course, these things go up and down all the time but it's extremely validating to see positive results.

Other than the Target binge last night I have actually been really, really disciplined. I even passed up on the new MAC stuff at Nordstrom! Woo hoo?