Gather Little by Little

I am a numbers guy . . . a little obsessive compulsive . . . I like organization and strategic planning. I understand if some of you might think this kind of information is a little “wonky”, but I thought I would lay out our bank set-up for you and see what you think. This is the bank set-up that Mrs. Stew and I have used for almost four years now:

Every year, we each open a new Chase checking account with $125 bonus coupons. Chase allows for one coupon per customer, per calendar year and an extra $250 every spring is nice to have. So far this year, I have yet to find one of the coupons, though. A bonus coupon would sure come in handy right about now. Of course, in order to qualify for the bonus, we have to set up direct deposit, but that is a small inconvenience in return for the extra cash. The majority of my work check is deposited into my account and the rest is direct deposited into Mrs. Stew’s account.

Our primary family savings account is held at First National Bank of Omaha or FNBO Direct. Back when I opened the account, FNBO had the best savings APR. Now their interest rate is not much better than any other bank, but they pay a little interest in their online billpay account and I do not feel like moving the money somewhere else and having to re-enter all of our bill information again. The cash flow in this account is pretty much in one month and out the next. No long term savings or even designated savings, just day to day operations.

My favorite bank is ING Direct. Here we have our children’s savings accounts and designated savings accounts – I really like ING’s sub account feature. The main thing that I use our ING Direct accounts for is keeping track of alternate income. I have three categories: professional freelancing (related to my job), Mrs. Stew’s childcare income and my blogging income. I deposit revenue from each of these sources and then directly deposit a portion of this money into our Chase accounts regularly during the month. Income from these sources comes in fits and starts, so this allows us to budget according to regular cash flow and build up a surplus over time. The sub accounts also make it easy to keep track of revenue and spending for tax purposes.

Our Chase accounts are kind of the base of operations. We make deposits into our local Chase branches and then transfer the money to its proper destination. I do not automate any area of my finances. I like to control when bills are paid and when transfers take place. After all, I’m a little OCD and I like to tinker . . .

Article by Stew

Photo by Hannaford

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As you have, no doubt,  already read, I am trying to teach my 4 year old son lessons about money. It is hard to teach them everything about money at this age, but I can tell you that children can learn a lot more than we think! It’s only a matter of repeating clear and easy to understand concepts. In fact, most personal finance concepts are pretty easy to understand and this is why I am trying to teach them to my son at this tender age.

By starting his financial education so young, I just hope he won’t have to struggle with credit card debt or having trouble plugging his income and expenses into a budget. I hope that if he understands the true value of money before he starts earning it, he will be more careful and make the best financial decisions for himself.

Today’s money lesson is about the limited power of money. While I have described all the good money can bring in one’s life during the second money lesson, money can also be a weapon of massi destruction when it is not respected or properly controlled. This is why I want to talk about sacrifice.

Think that you can afford just about everything because you have easy access to credit, Whoa! This will only last so long. This is why it is so important to understand how to fit your lifestyle within your budget. But how do you teach a child to stay within a budget? You can do it with practical examples.

Daddy has to go to work this morning

My son sometimes tells me that he misses me when I go to work all day. He doesn’t like when I come home late (about once every two weeks). As I mentioned in my first post about teaching money lessons to children, I explained to him that this is the price to pay in order to live in our house, do activities and play with so many toys!

I tell him that while my job is to go to the bank every morning, his is to listen to his mother and behave like a big boy. This is his job and this is how he participates at his young age in our household. I tell him that I need to leave the house to earn an income during the day so he can play soccer and skate on the weekends, so we can all go on vacations and to afford ordering out dinner on Friday evenings. I am trying to show him that by making sacrifices, he is also rewarded.

You can only have one toy at the store

When you go to a toy store with a kid, it’s like Christmas each and every time! My son starts out by looking at all the toys with his sparkling wide-eyes and he keeps saying “Hey dad! Look at this one! This is cooooool!”. But I one point, I tell him he can chose only one. He usually asks why and I explain that with the money I have in my pocket, I can buy one toy, pay for the gas and pay for groceries (so the family can eat).

Then, I offer him the choice of walking 3 hours to get home, not eating or having only one toy. Luckily for me, he has never picked the first two options

If you wait long enough, we will be able to pay for it

My son has been asking for a Wii for about 18 months. He played at a friend’s house when he was 3 and since then, he “really” wants one. I told him that a Wii is very expensive. But instead of telling him that we can’t afford it, I told him that we have to wait several months so we can buy one.

So month after month, I told him that we were putting money aside so we can buy the Wii and play. We ended-up buying the console for Christmas. While Santa Clause brought him the Wii, we told him that we used the money we put aside to buy the video games. Each time that we have a big purchase (like going on vacation once a year), we tell him that we put money aside each month in order to get by after a large purchase.

The limited concept of money possibilities

I think that the most important thing to learn about money is that while it can help you achieve great projects, you are always limited by what you have in your pockets. Overspending or taking for granted that you will earn more money later on to pay off a debt is not the best way (contrary to many).

Sacrifices and planning your expenses ahead of time is a much healthier way to plan your personal finances. In the end, I just hope that my son realizes that. If I take the time to explain to him how many months we have to save before we can afford specific purchases, I hope he’ll do the same in the future!

Author: Mike.

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Our family finances get a lot of attention this time of year. I clean up the Christmas mess, every year we get better at handling Christmas expenses, but we are still not where we would like to be. I start to review my files to make sure I am ready to finish our taxes. Finally, January is “budget month”, the time of year that we review our budget. By the beginning of February, I have a really good grasp on all the numbers. Not so much meaning that I have control of the numbers, but that I can recite them at a moment’s notice.

Our budget is an Excel spreadsheet with the columns assigned to months and the rows assigned to budget items. I keep track of everything – health insurance premium, social security taxes, medicare, gasoline purchases, everything. I am a little obsessive compulsive at times and when I work with spreadsheets, that side of me comes out in full force. Every major category is color-coded:

• Income – Dark Green
• Giving – Purple
• Saving – Light Aqua
• Taxes – Pink
• Debt – Orange
• Insurance – Tan
• Living Expenses – Light Blue
• Mrs. Stew’s Budget – Light Green

I stare at the budget, I tweak stuff, I add and remove formulas, I play “what if”. It is all great fun.

Except for that Orange patch. Boy, do I hate that section. All the money that we owe. In many cases we spent that money years ago and the stuff we bought with that money . . . well, I cannot even remember what we bought with that money sometimes. What were we thinking?!

Do you know the debt that bothers me the most? It is our car loan. We still owe around $11,000 and we are paying right around 9% in interest. Every month, I send in a payment of $306.68, with a lot of muttering under my breath. We overpaid for that car, the interest rate is too high and when we finally pay it off in three years or so, it will probably quit the next day.

If it even makes it that long.

What is your worst debt? Which one irritates you the most? Or maybe you do not have any debt, in which case, you irritate me. But I am happy for you.

But you still kind of irritate me.

Article by Stew

Photo by AlishaV

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Lots of tax tips from other bloggers:

Lynnae at Being Frugal, prepares her own taxes. I do too and mine are pretty complicated this year.

If you purchased a home in 2009, Debt Free Adventure lists Tax Credits for Home Buyers and Owners. I sold a home in 2009, which will just complicate my taxes. Sigh.

Mrs. Micah listed the 2009 Tax Credit & Deduction List. Thankfully, I have lots and lots of deductions, but again, they complicate things.

If you do not know the IRS tax deadline, seriously? You do not know when your taxes are due? Even Canadians know stuff like that. April 15th is not complicated.

Prime Time Money posted Tax Preparation Checklist – A quick, uncomplicated list of things you may need to file your taxes.

Jeff Rose lists some of the ways in which our taxes have grown more complicated this year: 2010 Tax Tips to Take Advantage Of – 2010 brings on a slew of new tax tips to be aware of. I hope Turbo Tax will sort them all out for me.

Have a great weekend! If you can get a break from doing your taxes, remember not to spend money, spend time with family.

Article by Stew

Photo by Alan Cleaver 2000

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According to your investor profile, you might want to take a different route for investing. Forget what your neighbour or your brother-in-law told you about “the next big thing”. If they were that good, they would be calling you from their yacht in the Bahamas to give your stock tips… not over the fence while pushing their lawnmower  ;-)

In my last post about investing baby steps, I was talking about finding your investor profile. I think this step is omniimportant if you want to succeed as an investor. And succeeding doesn’t mean making millions, it does mean building a solid investment strategy that you will be able to follow that allows you to sleep well at night .

When I started to write this series, it was actually meant to be one post about a general way to approach your investment strategy. While writing it, I realized the quantity of information to consider prior to the start of your investment journey. That said, I will keep writing for this series and I won’t put all the posts in a row (imagine how boring this would be if you are already set?). So today, I am explaining investment strategies starting with beginners up to more experienced investors (in part 2).

The bulldozer (100% fixed income):

Steady as a rock, the bulldozer doesn’t go fast but it will get to destination regardless if the road is slippery or not. This is often the first type of investment you make as a beginner. If you look at 100% fixed income, you are probably withdrawing money from your investment account for retirement or planning a withdrawal though the home buyers’ or lifelong learning plan for the near future. One thing is for sure, you do not want to  risk this money regardless of the upside potential.

- Your first option is definitely looking toward high interest savings accounts (such as SmartyPig giving 2.01%). This money is available at any time and insured up to $250,000.

- Another great idea would be short term certificates of deposit if you plan on making a purchase even a bond  or CD ladder if you are about to retire or there already.

- Money market funds are another investment possibility. However you will need quite an amount (more than 100K) if you are looking for decent yields. As interest rates are at historically low levels, you are probably better off with online high interest savings accounts instead of money market funds.

The  trailer truck (80%-70% fixed income / 20%-30% equity)

Strong and steady, the tractor trailer can go long distances and go faster than the bulldozer. I like this asset allocation for investing beginners since most of your portfolio is secure, but you initiate yourself to the stock market. Therefore, you may experience market fluctuations without risking too much.

- There are already prepackaged mutual funds with bonds and stocks invested according to this allocation. This is a great start to begin your investing adventure as you don’t have to manage the portfolio yourself. However, those packaged investing solutions cost more in the form of higher management fees.

- Another solution would be to split your fixed income portion via a bond ladder and buy balanced funds (more aggressive funds) or Exchange Traded Funds (ETFs are for more experienced investors). Therefore, you would save on fees (bond and CD ladders don’t cost a thing to manage) and you will only pay management fees to a portfolio manager to trade the small stock portion. However, you must follow-up on the portfolio and rebalance it every six months to make sure you keep the same asset allocation.

So that’s it for today, next Thursday, we will explore investment suggestions for 3 other types of investors. The best stuff is yet to come !

Author: Mike.

Image source: hoyasmeg, 91RS

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