May New Worth Review

It's been one month since we've taken a 5,000 ft fly-by of our financial progress.  So, let's review:

Cash - $27,930  (+$1,835)
Investments - $66,612 (-$4,460)
Home Value - $180,000 ($0)
Personal Assets - $23,250 (-$5,000)
Less: Liabilities - $172,060 (-$3,350)

Here's how it breaks down:

Assets -
Cash - An increase to cash as we received money upon selling the Prof's Passat!  We received $4,500 for the car.  Side Hustlin ($850) and selling items online ($100) should help build or keep steady this balance as we continue to pay down debt and build our savings for the Prof's next car.
Investments - Ouch.  Well, the stock market experienced its worst month in two years as the S&P and DJIA fell over 6% in May 2012, which is right in line with my 6.2% reduction in investment assets!  The losses were consistent across the board, and there's nothing too critical to take from it.  Sometimes the market bounces like it did in April, sometimes it falls flat.  There is a lot of pending crisis going on in Europe and China, and the U.S. isn't bouncing back as well as everyone hoped, but I believe the markets will move in the right direction.  Anyway - that's why I'm concentrating more on debt reduction than trying to play the market.  Interest expense is very real and I do not get that back.  The market should bounce back.
Personal Assets - No Change to the Home Value.  No sales in the area and aside from the back-splash in the kitchen, no major improvements to it.  However, we did sell a car!!  We sold Prof's car for $4,500.  We had it set around $5,000, but with the new tire, trunk latch, and possible oil changes due - I felt it was best to get rid of it and move on.  Besides, with taxes, insurance, and title transfer - the young couple paid over $5,000 for the car.  No other changes to personal assets.  The Sonata is pimping along!!
Liabilities -
Mortgage - $131,511 - Another small incremental change.  I considered refinancing it to a 15 year fixed rate, but ultimately don't think we will live in the house long enough to recoup closing costs.
Student Loans - $36,303 - As discussed earlier, I paid nearly $300 in interest this month so the overall balance is pretty good.
Home Depot Credit Card - $3,598 - Backsplashing costs were about $250 for the entire project.  In addition, to a calendar issue, we actually made 2 payments in May (on the 1st and 31st).  Three months to debt free on this one.
Anniversary Gift - 2nd to last payment on the Anniversary gift.  Again, it's not July and I don't want her to receive it until closer to the actually greatest day of my live (July 16th)!  Otherwise, no need to panic here.
Total Joint Net Worth - $125,732...

Ouch.  The stock market definitely affected our growth here.  While cash increased and debts decreased, we still lost over $4k in Net Worth due to the loss on our investment accounts.  It stings to that, but I'm really happy with our debt paydown.  $3,350 debt reduction is nothing to snooze at and if we keep up the attitude we should be able to buy the new car without having to finance it.  It won't be easy and would require a lot of discipline, but is defiinitely doable, especially if the markets keep struggling!

Home Brewery

I brewed my own beer!

After a month of preparation and waiting, I tasted my home-brewed beer for the first time last night.  Not to brag - but it was darn good!  It tasted much like a light lager brewed in the U.S. (Miller Lite, Bud Light)  I received the entire home brew kit for Christmas and had been waiting (or procrastinating) to make the first batch.  So, not only do I save money on beers for the next month or so, I can get to brag and call myself a brewmaker!

Will I continue to brew my own beer? 

I would really like to.  Mr Beer provided the ingredients pre-measured and partially mixed.  So, the entire process was incredibly simple using their system.  That being said, I'd like to have more creative in the brewing process to make different types of beers.  I'd like to brew a Stout, an IPA, a Hefeweizen.  So, I'm going to research ingredients and the brew process more to better understand my options. 

Brewing was a great way to spend an afternoon on the weekend and will help save money in the short term.  Two great things! 

I can't wait to share my first batch with others.  I wonder what else I do in-house to save money?  Distill my own Bourbon!!!!!

Coach

Student Loan Battle

Me and the Federal Government had a misunderstanding this past weekend.

So, as I've stated before, I'm on a major student loan paydown plan even while they are currently in deferment.  So, since I started my Side Hustle, I decided to make a second payment this May for $275.  When I checked my account balance on Friday (because I'm anal and check balances at least once a week) - Nothing Happened!

The balance was unchanged.  They had taken the entire payment and allocated among all 7 loans and only deducted the amount of interest owed.  I was disappointed.  I had hoped to see a big decrease in principal balance this month, since that is how the past payments had been deducted.  I am guessing that since undergrad loan consolidation, something got lost in translation.

After an email and a call, the primary $500 payment was allocated correctly to one individual loan as wanted.  So, the balance was attacked and some interest was paid down this month.  So, the principal balance didn't fall as far as I had hoped, but overall I reduced my debt in a major way.  This will in no way impact my desire to lower my student loan debt, but was just annoying!

I could have made them re-allocate the original payment, but that would have been simply reclassifying debt.  No reason to do that.  It just means I need to keep after the Side Hustle!

So, Student Loans due are now - $36,303.46!  Gotta Keep on Keeping On!!

Housing Projects

Happy Memorial Day! 

I realize I am a day late, but I wanted to get it out there because I had such an interesting few days.  The three day weekend was a great re-charge and thoroughly enjoyed by the Professor and I. 

However, there was one moment that bears discussing.

Our house does not have Central Air.  We use window units to attempt to keep the house cool during the summer.  However, on Saturday, it was 90 degrees and humid.  The AC units were not doing a very effective job.  The Professor was NOT happy. 

The trouble isn't sleeping or lounging around the house.  It's when she is getting ready and moving from bedroom to bathroom to TV room.  The circulation isn't great in the hallways and the upstairs is always hotter than the downstairs.  So - Meltdown insued!

Which brings me to our dilemma?  We obviously don't plan on living in our current house forever, but how much should we invest in it while we live in it.  Off the top of my head the projects that COULD be undertaken are:

1.  Renovate the Basement.  A major project which would include drywalling, installing ceiling, renovating a bathroom, and adjusting electricity (knob and tube wiring).  However, we would be likely to recoup the investment upon sale as it would be a major improvement to the single family home.

2.  Installing Central Air.  Having an estimate done this week.  Not sure the ROI would be worth it, but it would exponentially increase our (wife's) happiness levels.

3.  New Windows.  Most of the windows have already been put in place, but many in the Sun Room could be replaced.  This job isn't a high priority and would only happen with major lottery winnings.

Now - we've already updated the kitchen and done some pretty sweet landscaping.  My hesitation is around 1) ROI and 2) necessity.  I worry that a $10,000 Central Air installation or $30,000 Basement would not recoup the cost and we would not get the proper use out of it if we only live in the house for 2 more years.  We may live in the house for 5 years, but it's not definitive.  Perhaps these amenities would entice us to live in the house longer - even when children are in the picture.  I would not object to it while in the middle of student loan paydown and Net Worth build-up.  If I could get another great deal like we did for the kitchen, I'll seriously consider these projects.  However, I'm still nervous with the new car coming towards the end of year about new debt.  I may need to increase the Side Hustles!

Coach

Reality TV Economics

My wife loves Reality TV.  She loves the Real Housewives (all of them), the Sister Wives, the Bachelors & Bachelorettes, and the Teen Moms.  My DVR is jam packed with more trashy television than we know what to do with.  Seriously - she can't keep up with it all.  She has to speed through episodes or delete them because the allotment fills up daily.

Anyway, while studying for classes one night, she had an episode of the Real Housewives on from Jersey which discussed the pending bankruptcy of a show member.  The immediate reaction every person has is "How did she blow all her money? She must make millions from the show!"  I believe that's probably the reaction most people have about all people on TV.  They must be making loads of money on this.  So, I decided to look into it.

The Real Housewives:  On average they make anywhere from $50k to $100k per episode per season.  Within an 11 episode season, that can be $550k to $1.1 Million.  Certainly not chump change.  Not included in this is the likely additional $50k for season wrap-up and possible premiere party.  So, the cast member are not hurting.  However, let's look into what makes this show popular:  The Lavish Lifestyle.  So, I calculated the average home price in Beverly Hills (from Zillow) sold in past 30 days to be $4,667,300 for a 4 Bed, 4 Bath home.  It's a rough estimate and likely low but gives us a baseline.  Total principal, interest, taxes, and insurance payment would $25,782 a month, or $309,384 for the year, which if the cast member was making $100k an ep would equal 28% of gross income.  Right at the standard.  Now, housing is only part of the equation as the daily catered lunch parties and shopping trips have not been calculated.  So, while the cast members certainly make a pretty penny, they are not set for life based upon the lifestyle.

Teen Moms:  On average, the Teen Moms make $60k per season.  Again, a very nice salary for doing nothing (not demeaning labor or child care).  However, these individuals are as the show title suggests, only teenagers.  They have no college education and most have no high school equivalency.  Plus, they have a baby to care for and provide for.  So, a one-time lottery winning of $60k will definitely help, but in the long-run is a blip on the radar for these girls.

Sister Wives:  This was hard to find but a found an unverified amount of $75k per adult per season.  So, with 5 adults, that equates to $375k per season.  It's noted that this family lives a relatively modest lifestyle compared to the previous examples, but feeding 16 or so kids will obviously take a toll.  I haven't seen any of the adults work, but perhaps they also earn some supplementary income to help support the family.  Again, that would be a major difference compared to first examples.

Lastly, The Jersey Shore:  This is the outlier.  In Season 2, the cast members made $10k per episode.  In a 13 episode season, that was $130k to party and have a good time.  Ironically, the Jersey members are the outliers because of how they have been able to stretch their "brand".  They have almost all signed endorsement deals, spin-offs, or appearance fees.  They used the TV show to become celebrities and then capitalize on that. 

The Shore is the main reason people get into reality TV.  The oppurtunity to become a celebrity.  However, it's this 15 minutes that keeps the person coming back and trying to keep the fame going.  For example, Kate Gosselin's 15 minutes are up.  Her kids are adorable and they've experienced things they never would have if not for TV.  However, it also ruined her marriage and got them accustomed to a lifestyle that was unsustainable.  I have no doubt she is trying to set her kids up for life, however, it's a harsh "reality" to go through.  She has to become normal like the rest of us.  Perhaps, that's the problem with reality TV.  It's no more a reality than your average sitcom.  People on TV are portraying themselves as they want others to perceive them.  Eventually, the cameras will stop and money will not come.  Too many of these contestants are not prepared for the immediate success of the show and the immediate fall from it.

It's entertainment.

Educational Degrees of Separation

It's funny how the value of an education can be so different for different people.  Take the following three examples:

Sibling A:  Graduated from a superior University with a Bachelor's in Science and then went and got a PhD from a highly regarded research facility.  Wrote a post-doctorate thesis that had a title longer than some books I've read!  He is living a extremely happy life in Utah researching and doing what he loves.  He earns $40k a year.

Sibling B:  Graduated from the same University with a Bachelor's in History and Psychology, then received a Master's in Education.  Currently working as a teacher in the inner-city charter school system making $49k.

Sibling C:  Graduated from the same University with a Bachelor's of Arts degree.  He decided to forego Graduate or Law School and is entering the business environment as a Consultant.  He'll be making $60k.

It's interesting that the most educationally regarded, is earning the least, while the least educated will be earnign the most.  Obviously, the chosen professional work has a lot to do with it as consultants are well paid for lifestyle they lead.  Research professionals are not paid as much unless they find the cure the cancer.  I just think it's this is an interesting look at what society values and what we should be thinking about as National Student Loan Debt approaches or passes $1 Trillion.

Luckily, the siblings in this example graduated debt free, so they were able to think about their careers and the life that would provide the most enjoyment.  However, many people do not have this luxury.  Which is why I think that it is important to talk about a career after college with kids.  It may be tough for a 18 or 19 year old person to think about the rest of their life, but it's irresponsible for a child to take out $50k to $100k loans just to go to college, receive a philosophy degree and then have ZERO idea what to do afterwards.  As much as college has become the next step for nearly every student, Americans need to stop treating it as a 4 year vacation from the real world and bring it back to real preparation for a future.

I hope to be able to pay for my kids college education, but I'm not sure I'm willing to pay for them unless they are willing to work for it and have a life path.  College is fun and should be enjoyed - but the preparation must be there or it's a wasted investment.  Did I get an Accounting degree because I love it?  No.  I knew that a job would be waiting for me and it provided an entrance into the business environment I both enjoyed and did well in.  It would have been foolish of me to graduate with a Math degree even though I've always excelled in Math classes throughout my life.  What substance would that have provided? 

Value of Compounding Interest

I started the Finance portion of my MBA Degree last week.  After sitting through 8 classes of Marketing, Economics, Human Resources, and other pre-requisites, I finally had the necessary requirements to sit for Financial Management.  Finance is the most popular concentration in the MBA program - however, in order to take ANY other Finance related course, the introductory course was required.  So, as frustrating as it was to wait 4 semesters, I'm glad I can finally concentrate on this area and not have to worry about Leadership qualities or Marketing decisions.

To get started - the course started with a discussion on Discounted Cash Flows.  Basically, for anyone not familiar with the idea, the calculations necessary to determine how much money you should invest NOW, to have a specified amount in the future.  For example:  I'd like to pay for my kid's college.  If I estimate that I need at least $100,000 (probably light based upon tuition increase rates), how much should I set aside each year for the next 20 years to have $100,000.

The idea centers around a common investing mantra:  A penny saved is a penny earned.  So, obviously, I do not need to invest $100,000 over 20 years to achieve that amount.  In actuality, if I assume a 5% annual return on my investments (it seems crazy in current market volatility, but its actually pretty conservative), I would only need to invest $37,688.95 today to have $100,000 twenty years from now! 

That's insane.  That's the value of compounding interest!

I truly believe that most Americans have no clue what I just talked about.  That's really where the problem with debt and savings come from (aside from the refusal to live below our means).  The general public does not understand that you can make money off of money made!  The $37,688 investment will grow at 5% a year up to $100,000.  It takes time and patience, but the money will be there.  That's why it's so depressing that 49% of Americans are not saving for retirement.  EVERY LITTLE BIT COUNTS!  $200 a month for 30 years will turn into - $159,453.23!!  $20 a month still earns $15,945.32!

It's incredible to me.  With social security likely to be non-existent in 30 years - not taking advantage of 401(k), IRA, or personal investment accounts is just stupid.  I realize times are tough and some people struggle to find an extra $20 a month - however, if your life was on the line, would you be able to give up that iPhone?  I'd like to think so.