Wednesday, November 30, 2005

Work Redefined

I was listening to an Audible program this morning about "Creating you and Company" by The Stanford Channel on my way to work. As I walked the author went on about how Jobs are going to become a thing of the past, and that we're all going to be esentially freelances. Unfortunately, I didn't make it through the full hour, but it got me to thinking about "work" and how I don't think the traditional definition is applicable any longer.

That definition being "work" as "something you do that you get paid for." I think we need to re-define work as "any activity you do which creates value." This can be value for yourself or for someone else. Furthermore, for the same of my argument, let's define Efficiency as unit of work per unit of time. If you do more work in a unit of time, or you take less time to do the same work then you are working efficiently.

Why the change from "that you are paid" to "which creates value?" Because it makes your time at your job comparable to your time at home. If you wash your clothes, you have done work. If you cook dinner, you have done work. And by this definition, if you are watching you are doing work.

I don't think that this definition gives you license to watch more TV in the name of working. Far from it, thinking about your time at your job and at home in comparable units will force you to consider just how much value you are creating for yourself by sitting down and watching TV. Answer for most people, not much. People tend to be least satisfied and engaged when they are watching television. Don't believe me? Read Flow: The Psychology of Optimal Experience by Mihaly Csikszentmihal (chick sent me high). But I digress.

All time has an opportunity cost, and all work has a level of efficiency (how much value you create per unit of time). When you are evaluating tasks you do in your life, you should evaluate both the opportunity cost and the efficiency of the work you are doing at that point. Instead of watching TV what could you be doing with your time? How efficiently is TV creating value for you?

This isn't to say that you shouldn't have leisure time, far from it. This is to say that you should spend your leisure time efficiently creating value for yourself.

This also is to say that you should look for ways to streamline the non-paid non-leisure tasks that you need to perform. Depending on the person these include cooking, cleaning, personal finances, fixing things, doing your taxes, etc. If you have read The Millionaire Mind (audio), you already know that the major secrets are: live below your means, and outsource those things someone else could do more efficiently than you. In the case of the MillionaireMind, they reffer specifically to accounting and legal work. But you should also think about things like cooking and cleaning.

If bring home $50,000 a year working 60 hours a week (or $34K for 40 hours) with two weeks vacation, then you are making $17 for each hour you work. If you have a side business this rate could be far higher. But now, you know the opportunity cost of your time, $17/hour (assuming that you can increase your salary by working overtime, or taking on additional projects). If you can hire someone to clean at $20 an hour, who will do the job more efficiently than you, then you are likely to be money ahead. If you are watching TV, it is costing you $17/hour to get dumber.

Tuesday, November 29, 2005

Somebody actually read my blog

For a few days there, I thought that the only people reading my blog were vehament critics of Kiyosaki. But, alas, there are people out there who, like me, are trying to manage their money right and retire early. I got my first positive comment and link to the blog from Conservative Conservationist today.

Check out Conservative Conservationist's blog Financial Freedom For All. I particularly liked his posting about setting goals which opened with this quote: "If you do not know where you are going, every road will get you nowhere." That's exactly the kind of thinking that will get you places in life. Like to retirement before middle age.

He's trying to get to retirement in 10 years, i'm trying to do it in 7. I'd be happy to meet his goal, but I think i'm going to stick to mine. I'll definitely be keeping my eye on him to see how it goes.

Vodcasts: The a la carte cable battle - fighting Polecats when Lions are at the door

If you haven't been following the a la carte cable discussion, basically congress is debating whether they should require cable & satelite companies to allow users to pick and choose which cable channels they want. Some are even asking for this in the name of decency and making sure that parents can prevent their children from seeing unwanted materials. Others take a consumer rights approach. For whatever reason they support this, they are making a nice argument that would have been pertinent 10 or 15 years ago.

My guess is that members of congress are far more responsible than I am and spend less time watching The Daily Show clips online. If they were to spend a little more time procrastinating, then they would see that A La Carte cable almost already exists.

Comedy Central Motherload + Video Ipod + WiMax + TiVO Mobile + Vonage = A La Carte Cable, or almost. What I am talking about is TVIP, Television Over Internet Protocol. Moore's law is a fascinating thing that almost everyone in the world has come to expect and accept, with the exception of the entertainment industry. Computers Double, Hard Drives Double, Bandwidth Doubles. Traditional distribution systems of information are being suplemented and in many cases surplanted by electronic distribution.

In the not so distant future, cable companies are going to be like bus companies. They will transport information to and fro, but the decision as to what gets moved from place to place will lie largely in the hands of the consumer (I don't have to tell you that, you're reading a blog).

All economics is driven by two efficiencies: 1) efficiency of work & production - how fast you can get a given unit of work done and 2) efficiency of transportation - how fast you can move a person, product, or idea from place to place. TVIP presents a more efficient means of transporting video as compared to fixed broadcast cable and satellite. Therefore, TVIP will win out. There will be a longtail of television.

Whether this is a net gain, or will present us with a paradox of choice which will lower our overall well being I am not sure. But, we're soon going to see a day when the timing of this debate had a tragic comic element of irony to it. They're debating the rules of dinner when the world is going to end after lunch - it just doesn't make sense.

Maybe then there will be a Retire At 30 IVcast (internet video cast) or VODCast if you have to use the 'correct' name for it.

Monday, November 28, 2005

Carnival of Personal Finance #24 and Carnival of the Capitalists Nov 28 Edition

My posts have been published in The Carnival of Personal Finance #24, and The Carnival of the Capitalists Nov. 28, 2005. Welcome to everyone who has found my site from those sources.

Sunday, November 27, 2005

Plan Revisited

Ok, in my last post about my plan for financial independence at age 30 I offered what would be necessary in terms of asset growth to meet my goals. But, I didn't offer any solutions to meet those milestones beyond the first year.

So, first I thought "I didn't include yearly contributions, that's got to lower the rate of return necessary to meet my goals." So, I re-built my model - updated version available here (make sure you look at sheet 2, it has the yearly contribution model).

I put in 7 years, $1.43 million, $4,000 annual contribution growing at 15% a year for the goal, and keeping everything else the same put in $700,000 and $2.4 million for my minimum and stretch goals.


Plan: Stock Market - Nope
Not quite as insane as the first time around, but definitely not the 10% yearly return that the S&P might give if it keeps its historical return. Only about four times the returns of small caps on average.

107% compounded annually is not possible in the stock market.

Plan: Save more each year - Not likely
Even with a leveraged options based strategy, the most I can get for the risk I am willing to take would be around 22% a year pre tax- I'll go into that strategy at a later date. So, at what rate would I have to increase my contributions at 22% to make my goals? To answer this I used the Excel function Goal Seek (Tools > Goal Seek).

To meet my goal, I would have to increase my contributions at 104% a year ending at $583,000 in year 7 (Minimum 79% & $233,000, Stretch Goal 123% & 1.1 Million).

If I keep my living expenses completely flat, and my salary increases at 17% a year (starting from $55K, yeah I got a plum job out of college) and I save every penny then I could meet my minimum target if I can get 22% a year returns. Unless I can wind up CEO of a Fortune 500 company in 7 years, it is not likely that I will meet my goal by saving more.

Plan: Sell Drugs - Absolutely not
I refuse to engage in illegal activity (what good is $1,000,00 if you're in jail for 20 years even if you get the money when you get out), so I can't get these kinds of returns there. Some people might be able to, but I certainly am not going to.

Plan: ?
Right about now, it might seem that I have an insane plan that nobody could accomplish. But, this kind of return has been achieved before.

Plan: Real Estate - Perhaps
In Rich Dad Poor Dad (buy, my review), Kiyosaki says he turned $5,000 into $1,000,000 producing $5K a month in 6 years using rental properties (Ch. 10, p. 254). Assuming he stayed true to his definitions of assets and liabilities, then this is money in his pocket after paying the mortgage and expense. $5K a month is twice what I estimate I need on a monthly basis to consider myself financially independent (i.e. retired). So, it could be done in real estate.

Plan: Start a business - Probably
According to thisarticle in Forbes, the record ascent to billionaire is 18 months by Garry Winnick of Global Crossing (followed by bankruptcy, but who's counting). The Google guys did it in 7 years, Amazon was 4 years, Ebay only took 3.

I don't think I'll be able to come up with an internationally known internet brand any time soon (although the idea of a retire at 30 blog IPO is quite humorous). But, if they were able to go 0 to a billion in the time that I'm trying to do 0 to a million, then there is hope.

When you look at the Young Entrepreneurs Network, and see that their minimum standard for membership is a company with $1 million in annual sales. Then you think that the price-sales ratio of venture backed company ranges from .25 to 1 (see ventureline analysis of small business valuation techniques), and you start to think, this might be possible.

Plan: Wage slave - Never
Moral of the story: You are never going to reach financial independence at 30 if you stay as a wage slave. If you spend your spare time working on side businesses (such as real estate), then there is a fighting chance.

My Plan: Real Estate + Small Businesses + Stock Market + Work Hard + Frugal Living.
I am not going to go into the details of what my businesses are exactly. In college I ran a few, and had quite good success - they were all non-profits so I didn't keep a dime of the profits I generated, but I did learn enough about running organizations, finances, working on teams, etc. to have a lot of confidence in my ability to do this.

One of the things that I will be sharing in this blog, are the tips and tricks I come across as to how to be successful at running organizations (read businesses).

Tip 1: In college and after, do things that are going to force you to learn about running organizations not just about the esoteric substance of your major. Take over as treasurer of an organization and you will probably hate the experience, but learn more real world financial planning tricks and techniques than you could anywhere else.

Tip 2: In the same vein: what you do with your free time is up to you. You can choose to spend it becoming a more savvy investor, researching businesses, and creating a plan for financial success. Or, you can watch TV. Your choice.

I have a TV in my bedroom. I have turned it on once in the past 6 months. I am going to retire at 30.

Saturday, November 26, 2005

Rational Assumptions for Personal Financial Freedom

I want to grow my assets to financial independence at age 30. That goal aside, this blog is about personal finance and how to manage money. A lot of "what should i do with my money" depends on what you assume about the future. Most "how much do i need to retire" calculators ask you to assume a rate of return on your investments, a rate of inflation, and a yearly amount you need to live in retirement.

Those are all well and good, but those are some of the least interesting and least important assumptions that need to be made because they are assumptions that don't materially impact the way you invest your finances. How you manage your finances leads to those assumptions (bonds, assume 5% return; stocks 9 or 10%), not the other way around. The following are what I think constitute a set of rational assumptions that should be drivers of personal finance:
  1. I have no job security. My job could be outsized (outsourced or downsized or otherwise eliminated) at any time.
  2. I will never recieve a penny from social security.
  3. I will pay 35% taxes on my income, and that number will go up over my lifetime.
  4. My company's pension plan will fail.
  5. My children will not recieve one cent from financial aid.
(the post got deleted in transit here, so I'm retyping the general gist)

These are harsh assumptions, but once you come to terms with them they are quite liberating. It is antithetical to say that you are "financially independent" if you are dependent on someone else for your paychecks, retirement, or for your children's college. If these assumptions don't come true and I do end up getting something from one of these programs, great - found money. But if not, there will be nobody to blame but myself.

Financial freedom is being free regardless of what happens, so I think it is only rational in personal finance to plan for worst case scenarios.

Friday, November 25, 2005

E*Trade - Why I love and Hate it

I love Etrade. I hate Etrade. Both statements are true.

Why I love Etrade:

  • Beautiful Site Design
  • Simple Intuitive Navigation
  • No fee IRA
  • Painless and elegant funds transfers
  • They just approved me for options trading
  • Quick and attentive email customer service
  • Fee refunds for ATM fees if you use ETrade Bank

Why I hate Etrade:

  • Their mutual fund information is often wrong:
    - HENLX, wrongly told me the IRA minimum was $2000 (it really was $250). Wrote them, the fixed it.
    - FLSCX, wrongly told me the IRA minimum was $250 (it really is $10,000).
    - SEMKX, wrongly told me that it was a no-load no-transaction fee fund. They don't even offer it.
    After them telling me that these funds are open, I then did the research and decided to put money into them (5 to 10 hours per fund). That's a lot of wasted time.
  • Not buy and hold friendly for small investors. I paid about $250 over 3 years (on an account with a value at times as low as $500) to hold my account. I started with $1k, ended with $500. This was over the crash in '01 but my biggest losses weren't because of the market but because of their $40 quarterly inactivity fee.

If you're opening an IRA, E*Trade is great. If you're a small investor looking for a brokerage account - I'd say you're better off at Scottrade - $7 trades and no account or inactivity fees. Sharebuilder is interesting, but make sure you read the fine-print of their fees. Those $4 trades are cheap, but their other fees are ghastly. I have no opinion of Ameritrade.

This has been a precursory and non-scientific comparison. I use Etrade. I am happy with my IRA account, and I will be canceling my brokerage account January 1 (when I can then transfer more funds into my IRA). I'll let you know how my search for another non-retirement brokerage goes in a few years once I have enough funds to actually open a non-retirement brokerage account.

Thursday, November 24, 2005

Personal Finance, Pensions, and Politics - a simple fix

My father worked for an airline. He was a pilot for 32 years, and he was forced into retirement at age 60 by an archaic FAA regulation (although wished to keep working). Now, about 2 years later, the airline he worked for has declared bankruptcy and is trying to jettison their pension obligations. He hasn't received a penny in months and likely wont for a good long while still.

There is a pension crisis in this country, a pension guarantee corporation that is going to be running at a severe deficit, social security is in the same boat. This is largely why I operate my life with the assumption that I am not going to get one penny from social security, from financial aid for my children, or from an employer pension. These are scary if you are planning on them to be your retirement and then spending your whole paycheck; but once you accept that they aren’t going to be there for you it is liberating (if you are young).

But, I digress. The topic of this post is a way to fix the under funded pension crisis in the United States. It is a simple, market based approach: make pension and payroll obligations the most senior kind of debt that a company has (that is, the first people they have to pay if they go bankrupt and there isn’t enough money to pay everyone).

What would this do, in effect? Currently the obligation to ensure that pensions are funded is held by the company and the obligation to pay in the case of default is held by the government (read taxpayers). Under this plan you would still keep the pension guarantee corporation for complete catastrophes, but it would be needed less often. Why? Because the pain of default would be held by the owners of the company’s bonds, which are mostly sophisticated investors and other Wallstreet organizations. If a company was running a pension deficit, it would have more difficulty raising money and thereby force the company to fund their pensions.

I am not going to make the moral case for this system, too many people are already making the case that a company has a moral obligation to repay money promised to workers.

The case I am going to make is an economic and power asymmetries case. Markets work, but they are imperfect. Joe Stiglitz has done some great work to prove that asymmetries of information exist in the market and that this can be detrimental to workers. You need look no further than the difference between airline executive pensions (locked in impenetrable trusts) versus employee pensions (which only get paid after bonds, and are jettisoned to the government at a reduced rate) to find evidence of this. Executives who understand the financial markets and the likelihood of a bankruptcy protect their interests, yet the pilots, mechanics, and flight attendant’s unions didn’t. Part of this discrepancy can be attributed to differences in power (the executives largely set compensation), and part can be attributed to asymmetries in information (the powerful unions didn’t know to negotiate more solid pensions until it was too late).

Regardless of which effect was strongest, or if you even believe that information had any part in the result, the solution to the problem (if you’ll grant me that it is a problem) is the same. Make pension obligations the most senior form of debt at a company. If the company goes bankrupt and shuts down because they have excessive obligations, so be it – another more efficient company will take its place. But at least the people who are largely powerless don’t have contracts broken with them.

This is a crisis for many people, and a particularly emotional one. This means that congress is likely going to respond and pass some laws. They could create more government red tape, government guarantee programs, and decrease the efficiency of the market. OR, they could do what they are supposed to do and create a system of rules whereby their intervention is not necessary.

Quite frankly, I trust Goldman Sachs, Morgan Stanley, PIMCO, and Moudy’s (the rating and acting institutions who I’ll largely call the market in this case) to adequately judge the credit worthiness of companies pensions over the US Government’s Pension Guarantee Corporation. We need a system in which the market handles as much as possible, and the way to create that is to make Pension and Payroll obligations the most senior debt of a company as opposed to the least. Do that and all those wall street institutions I just mentioned will force companies to fully fund any pension obligations a lot more effectively than more laws and red tape ever could.

This is in everyone’s best interest. It is in the taxpayer’s interest because it will shift the burden of pensions back to where they theoretically should be – on the companies. And if a company is insolvent, the taxpayers shouldn’t have to pay the pensions while the bond holders are repaid. That is tantamount to the taxpayers repaying the bond holders. If you invest in a company who can’t pay their debts, then you as the bondholder or stockholder should bear the burden of your poor investment. This burden should not be born by the taxpayer, much less the poor sap who trusted the company to actually comply with the retirement contract they had.

Wednesday, November 23, 2005

Budgeting Made Easy

1. Pay yourself First. Set up automatic transfers from your paycheck into your savings accounts. It is very hard to frivolously spend the money you don't have. Set up auto payment for everything else you can too.
2. Buy Quicken or MS Money (having used them both I preffer Quicken).
3. Don't use cash. Use your debit or credit card and then automatically transfer your transactions into quicken to have an instant recall of what you spent your money on.
4. Read these two articles on MSN Money: The 60% Solution, Your First Budget.

I'll go into depth on these later. But for now: 4 steps to get your money under controll. Auto Transfers + Quicken + Transaction Download = financial planning in 30 minutes a month.

Budgeting Made Easy Series:
Budgeting Made Easy Overview
Budgeting Made Easy 1 - Electronically Pay Yourself First
Budgeting made Easy 2 - Buy Quicken

Friday, November 18, 2005

Portfolio Rebalancing and Asset Allocation

I just came accross an article on The Motley Fool titled "Get Smart about Asset Allocation" that is a very nice followup to my post yesterday about dollar cost averaging. They quote an AllianceBernstein survey which estimates that if people re-balanced their portfolios correctly they would add an additional 1.64% per year to their returns. Over the past 30 years that would be an additional 68% return. Not bad for just moving money around in funds/stocks that you already own. This is of course predicated upon a solid initial allocation that you are re-balancing.

Why would this work? Well, assuming that there are non-rational periods of stocks being over valued and under-valued, this is a way of taking money from your assets that are overvalued and buying those that are undervalued. Problem is, there is no way to know when your investments are over-valued and under valued. But, by re-balancing you have a pretty good chance of moving your money from a sector that is over valued to one that is undervalued. 1.64%, and missing market slumps. Not bad.

What is infrequently mentioned is that Proper Allocation Strategywill depend in very large part on 1) if you are investing in a tax advantaged account, and 2) transaction fees. Those damned taxes and transaction fees that always mess up our assumptions of a perfect, frictionless financial market. And unfortunately are usually glossed over by most personal finance articles on the subject (granted taxes less so). If you are a small investor who pays transaction fees to sell stocks or funds and to re-invest then you will likely be better off waiting longer than larger investors to rebalance.

Consider the following example.

You invest $1,000 each in stocks ABC and XYZ in 2005. In 2007 ABC has trippled in value over the time while XYZ has largely stayed flat. In 2007 you still like both ABC and XYZ, but your assets are largely out of balance. You have $3,000 in ABC and only $1,000 in XYZ but you would like to have equal amounts in both. To rebalance you would sell $1,000 worth of ABC to buy $1,000 worth of XYZ. In doing so you're likely to trigger $30 in transaction costs (assuming you pay $15 per transaction - I pay $12.99 with e*trade). Or, you'll be paying .75% of your portfolio in the transaction costs. Assuming you will make the 1.68% gain by rebalancing, then you're still .93% ahead this year and further next year.

Now, this is where tax advantaged (read IRAs) vs. normal brokerage accounts are going to make the biggest difference. To sell $1,000 ABC you'd have a long term capital gain of $666 for the sale making you liable for up to $100 in taxes (at 15% long term gains tax rate - cap gains calculator, intro article, another intro to cap gains) in addition to the $30 in transaction costs. That takes the cost of rebalancing up to 3.25% just about two years worth of rebalancing gains.

However, if you were adding to your investments steadily over time (dollar cost averaging ideally, even better if you use a payroll or automatic withdrawl to force yourself to pay yourself first) you could decrease the cost of rebalancing by practicing a strategy I call "looser gets attention." This means that you quarterly contribute a set amount of money to either A) the part of your portfolio that has performed the worst over the past quarter - "looser gets attention" or B) the part of your portfolio that is most under represented because it has not performed as well as the others - "total looser gets attention." Say you are contributing $1,000 a quarter to your fund - this would still keep the cost of a stock transaction at $30 to bring your portfolio into balance if you did it over two quarters, or $15 if you did it over one quarter. Saving you the $100 in taxes, plus you would have to pay those transaction costs to buy any other stock so your stock opportunity cost is actually 0.

This works even better if you invest in no-load, no-transaction fee funds. Aside from the 3 month minimum holding to avoid a 2% charge that most funds use to discourage market timing you won't be paying any transaction fees. You may, however, still trigger capital gains if the investments aren't in a tax advantaged account.

Thus a few simple rules:
When you can, rebalance with additional investments. Especially if it is a taxable account.
Rebalance in your IRA as much as possible.
Don't do it too frequently - there can be taxes, fees, and you could sell rising stocks to quickly.

When you are rebalancing it is helpfull to ask the following questions:
What will my tax liabilities be if I do this?
What will the transaction costs be?
Can I rebalance in a tax advantaged account instead?

Thursday, November 17, 2005

Dollar Cost Averaging

I was investigating an emerging market bond fund tonight and I came across a great article on the Scudder Funds website about Dollar Cost Averaging. If you are new to investing and have heard that dollar cost averaging is advantageous but haven't really gotten your mind around the topic I highly suggest taking a look at this article. They assume no previous experience and present the topic very clearly. Take a look, it is worth it.

Scudder Funds Article on Dollar Cost Averaging

Oh, I'm also very excited about the fund of theirs that I was evaluating. Scudder Emerging Markets Income morningstar snapshot. Their mean return over the past 3 years was 19% annually with a standard deviation of only 9% (if you're not a stats person this article explains why standard deviation is important for investing). Granted a number of other funds in the emerging market bond category beat this one, but I've only got $500 to put into emerging market bonds in my IRA. Compared to the rest of the funds that I can invest in this with those constraings, fund is a superstar. It is even offered transaction free by my brokerage (E*Trade).

Wednesday, November 16, 2005

Rich Dad Poor Dad - mixed feelings but overall a very solid book

I jut finished re-reading Rich Dad Poor Dad. I had read it two years ago over a school vacation but couldn't for the life of me remember if I had even finished it. Upon finishing it a second time, I remembered I had finished it the first time. I have a memory like swiss cheese.

Anyways, the book on whole is very good. If you read with a healthy bit of skepticism and a grain of salt, it is a very valuable action plan for successful financial management. In particular I am very taken by the books simple, unique definition of assets as something that passively creates income. The definition of a liability on the other hand is something that creates expenses. The traditional definitions are: asset - anything owned that has cash value; and a liability more or less as a debt.

I think that for someone who is trying to build wealth at an accelerating rate Rich Dad's definition of assets is more useful. If you, like me, want to amass a sizeable net worth in a relatively short period of time then the most traditional asset, a house, is not really going to help you that much. A house is going to obligate you to pay taxes, interest on the mortgage, and maintenance creating a very small amount of net worth each month as a percentage of the payment. This doesn't say don't buy a house, but recognize it as both an asset (in the traditional sense) and a liability (in more ways than just the mortgage). The genius of Rich Dad Poor Dad is the simplicity in which this concept is conveyed using common sense diagrams.

This is just a small fraction of the things in the book that I wish my parents had taught me. But the book does have cons as well. The macroeconomic commentary is painfully oversimplified and in some cases completely wrong - inflation is caused by the quantity of money in an economy not by doctors and lawyers raising their rates.

If you're looking to become financially savvy, it is a great place to start. I bought a third copy and sent it to my little brother. If you're already fairly savvy it is an interesting not altogether traditional take on personal finance and building wealth. It is an easy read far disproportionate to how much you will learn from reading it.

UPDATE: I at first didn't think this warning was necessary, but after reading this, i feel it is pertinent to say: Take Kiyosaki's advice with a grain of salt. He has some great points, but (if it wasn't obvious from his writing style) John Reed provides more than sufficient evidence that Kiyosaki can be a pedantic blowhard.

Tuesday, November 15, 2005


Rules for reaching my Goal:
  1. Inherited money does not count. Not that I expect to get too much, but in case I do, that does not count towards my goal.
  2. Lotteries and other games of chance do not count. I am not going to pay the stupidity tax to begin with, so there isn't even a chance that I would win a regular lottery. If I am the 1,000,000th shopper, that doesn't count either.
  3. I must provide monthly updates.
  4. I have until December 31 of the year I turn 30 to meet my goal. I'm doing this so that the Retire at 30 fiscal year matches the calendar year. It gives me about 1 extra month to meet my goal.

Rules for the blog in general:
  1. When I talk about a product and when feasible, I will add a link to that product.
  2. Product reviews must be done to add value for readers and will always contain my honest opinions. If I am asked by a product owner to review their product (should this blog ever reach that level of popularity) then I will do so under full disclosure (being paid, how much). I repeat, I will not bias my opinions or plug products that I think are junk.
As I go along and find other points that need clarification, I may add to this post.

Monday, November 14, 2005


This is my current plan for reaching my goal:

I created an excel file to run these kinds of calculations. You can download this file here. Once you download the file you can enter Goal, Years to Goal (could also be months, up to 100), Starting Amount, and Starting Year. The file then calculates the amount needed each year to meet your goal, and the anualized rate of return needed to meet the goal without additional contributions.

For my goal of $1.43 Million in 7 years (plus the minimum and stretch goals), this is what I came up with:

Min Goal Stretch
1 $ 8,400 $ 9,300 $ 10,000
2 17,500 21,500 24,900
3 36,600 49,700 62,000
4 76,500 115,100 154,700
5 160,000 266,600 385,900
6 334,700 617,400 962,300
7 700,000 1,430,000 2,400,000

To meet my goal I need to increase net worth by 130% a year; to meet my minimum goal I need to increase my net worth by 110% a year; to meet my stretch goal I need a 150% increase in net worth each year.

The first year will not be difficult to meet. I already have a little over $4,000 in my IRA and other accounts and I can contribute an additional $4,000 next year. That puts me just at the goal for the year, minus any bonus or employee match for my 401k contributions. But after that, I don't know exactly how I'm going to meet the goal.

My first balance sheet update is comming on December 1.


So, I want to retire to financial independence at the age of 30.

How much will I need to meet that goal? Using Bankrate's Retirement Calculator, and assuming I don't mind living out of the country (yearly income of $15,000 to live comfortably in south america). I would need $700,000 at age 30 to retire and live to 100. But, that's not my definition of retirement. I like south america, but I don't want to have to live there full time.

Assuming a modest upper middle class lifestyle in the US ($50,000 a year, which is much more modest if you have kids) I would need $2.4 Million at age 30 to retire and not work again.

But that isn't very much fun. I don't want to not work again, I want to have financial independence. I like working, and would get pretty bored living at home all day. So $700K isn't enough and $2.4 million, while not being too much, is a stretch goal.

To get $30,000 yearly for 70 years I would need $1.43 Million. I like that, it is a nice non round, not $1,000,000 number.

Thus: my goal is $1.43 million in net worth in 7 years. My Minimum acceptable limit is $.7 Million, and my stretch goal is $2.4 Million.

If anybody has any ideas as to how I can accomplish this, I'd love to hear them.

Next time: A plan to meet that goal.

Sunday, November 13, 2005

Topics I'll Cover

I still can't sleep, so what more will I be talking about. In addition to talking about making financial decisions, I love to make excel models, and so I will be posting a number of these which I have used to make decisions in my own personal finances. If you have any other topics you would like discussed, please feel free to email me at

Forthcomming Topics:

  • The goal: how much do I need to retire at 30?
  • Updates: each month i will update you with my progress towards financial independence.
  • Assupmtions and rational ground rules.
  • Resources - where to get more information, how to stay up to date.
  • The Me Inc. Theory of personal finance.
  • Buy Quicken.
  • Build a budget - it's easier than you think.
  • Don't spend cash.
  • Setting up a ROTH IRA.
  • The Economics of Retirement savigns and IRA contributions - will post excel file.
  • Student Loans - consolitation
  • Student Loans - which repayment option should you choose - will post excel file.
  • Loser gets attention - strategy for getting the most out of your long term investments.
  • Buy an older car.
  • Who am I?
  • College for our children - man that's going to cost a lot.
  • Podcasts I like

Topics I am going to cover:

  • Investing
  • Budgeting
  • Planning for retirement
  • Taxes & Government Incentives
  • Cars & Insurance
  • Housing - renting, buying, etc.

Saturday, November 12, 2005

I will retire at 30

I am turning 23 this month. I would like to retire in 7 years, and this blog is created to chronicle that effort.

First, a bit about the goal of retiring at 30. I don't mean I want to stop working at 30, I plan on doing that some time closer to 80. Rather, I want to have financial independence at 30. That is, on my 30th birthday I want to be able to do what I want in the world without having to worry about the financial implications. If I want to travel, golf, ski, or start companies; and I can do so without worrying about the financial implications of my actions; then I will declare myself retired.

Do I think I can make this goal? Not completely, not unless I get extremely lucky. Then why start a blog that says I will? Because this blog is about working towards the goal of financial independence. I would like to be well on my way to financial independence at the age of 30, and I'm setting out to learn as much about businesses, financial markets, budgeting, investing, and the like on my way to that goal.

I just graduated college in June of this year, and as I am finally starting to be a productive member of society there is a lot I don't know. Like any good ivy-league graduate, not knowing anything about a topic that is likely to impact me heavily, I've started researching the topics of personal finance. I've found many of the topics (IRAs and anything else the IRS touches) to be nearly impenetrable at the beginning and painfully simple once you realize what they are trying to say. I've started this blog to put as much processed information into the blogosphere as possible in the hopes that it might be useful to someone.

I was never very good at sports, can't dance to save my life, have no musical talent, and am very bad at a large number of other things (still trying to bowl above 100); but I do understand economics almost intuitively. So if anybody out there is interested in trading dance lessons for personal financial advice, I would gladly accept the exchange. Oh, and another weakness: I can't spell. Apologies in advance for that.