Thursday, January 31, 2013

Becoming Financially Independent

It took years to get to the point where I could even begin to consider breaking free from my regular job. Getting to where I was financially independent enough to consider such a move took a lot of time, effort, and sacrifice. Even then, it was a tough move to make since I realized that there were a variety of fantastic advantages of working for a regular employer; however, someone like me, who enjoys independence, sometimes needs a little more control over their working world. This is how I managed to gain that control.

Combining Incomes and Living off Half of One
Back when my wife and I were both working regular jobs, and both had decent incomes, we made a conscious decision. In an effort to achieve our financial goals, and in hopes of one day becoming financially independent from those jobs, we lived off of about one half of one income.

This did several things for us. First off, it taught us just how little money we needed in order to maintain a reasonable lifestyle. This meant that when we decided to move into careers that gave us more freedom but paid less, it didn’t come as a shock and our lifestyle wasn’t significantly altered. Second, it allowed us to save a large portion of our income as a financial reserve in the event that living financially independent from a regular employer didn’t pan out the way we’d hoped.

Getting Debt Free and Staying that Way
We’ve been in debt a total of three times in our lives. Two of these times were for student loans, both of which we paid off in under three years, and the third was for our first mortgage, which we held for about three years before downsizing and becoming mortgage free.

Otherwise, we have kept debt virtually non-existent. Doing so has allowed me as a self-employed individual to save more of a lowered income and avoid extra expenses in the form of debt interest payments. By eliminating such costs from our lives, it minimizes the number of bills coming in on a regular basis and maximizes the opportunities for the income we make, thereby making it easier to maintain a financially independent lifestyle.

Tracking All Expenses
I track all my expenses. And when I say “all” I mean all. From the monthly utility bills and condo association fee, all the way down to our five-year-old son’s .25 cent weekly allowance, I put it on a spreadsheet. This has provided me with the information necessary not only to cut costs but to know how and where I’m spending, giving me the data to make financial planning decisions and know just how much I need to earn to maintain an independent status.

Forecasting Well in Advance
When it comes to forecasting, I don’t just forecast months in advance, but years. This forecasting is important in both the income and expense realms as it can help me get a general idea for longer-term planning when it comes to items such as college for the kids and retirement for me and the wife.

Understanding not only the individual sides of these two financial elements, but the variance between the two is essential for me to gauge our financial progress. In essence, it tells me whether I can sustain my financial independence and how successful I’m being in doing so. Forecasting acts as my financial gauge for the past, the present, as well as for the future, and it helps me pinpoint where and ways to change as well as success rates.

Sunday, January 27, 2013

Staging Adjustments We Made When Selling Our Home

The nearly 18 months that our home sat on the market gave us plenty of time to consider and enact changes to they way we were staging it. As we pondered ways that we could make changes to our home, we came up with several areas in which we thought we could do a better job of marketing our home to buyers, and that maybe we hadn’t been quite on target with in our initial staging efforts.

While making such adjustments sometimes came as a tough call for us since we sometimes weren’t certain if they would help or hurt the home sale cause, we gave them a shot nonetheless in an effort to make our home more appealing to potential buyers.

Upstairs Adjustment
One of the biggest adjustments came with our upstairs area. It was a space that was a finished attic and that comprised one small room and one larger room (nearly double the size of the smaller), each with a closet.

This space presented us with a dilemma when we put our home on the market. When we had first seen the home -- before we bought it -- the smaller space was an office, and the larger space was a kid’s room/playroom, with toys and a bed in it.

When we decided to put our home on the market, we felt that presenting the space as two bedrooms would be the way to go, since this would make our home a four-bedroom, two-bath home, instead of three bedrooms and an office. However, as time went by, we wondered if this was the correct call, since there was no bathroom on that floor, and most families that actually needed four bedrooms, they would likely want a bathroom on a floor where two bedrooms were located.

Therefore, we decided to switch our listing to three-bedrooms, keeping the smaller attic bedroom as a guest room, and converting (as our predecessors had done) the bigger space into a playroom/bedroom area, putting some toys, as well as a single bed in the space to help illustrate the space’s optional uses.

Television Swap
Another staging adjustment we made after our home had been on the market for a while was that of the television in our finished basement. This area had a large sofa sectional, and was an obvious living space. However the television we had in the area was an older, boxier unit that certainly didn’t do much to impress prospective buyers.

Our in-laws had a flatscreen (that no longer worked) though that we borrowed to stage the space, making it look a tad more modern. We didn’t care that the television didn’t work since it was just for staging purposes anyway.

Master Bedroom Color Change
Shortly into our listing, we decided to change our master bedroom’s paint color. We had tried earlier in our homeownership stint to change it from a beige color to a lime, almost “sherbet” green. Unfortunately, in my opinion it came out looking more like “insane asylum” green. Therefore, we decided to switch it to a more forest green, and although it came out a bit darker than we would have liked, I think it still showed better than the previous color choice.

Pantry Re-do
I tend to like to keep well-stocked when it comes to food and emergency supplies. In our home, we therefore used the downstairs laundry room closet (underneath the stairs) to keep excess food items. We had a nicely organized shelving unit that fit against one wall of this space and didn’t take up too much room.

Several months into our listing though, I began to question the idea of keeping our extra food in this location. I wondered if people might see these supplies and begin to wonder if it was a lack of kitchen cabinet space that was forcing us to keep these items in the basement.

While there was plenty of room in the kitchen area, and we just wanted to keep these food stuffs in an out of the way area, we just weren’t sure what potential buyers might be thinking; and I really didn’t want to even take the risk that they might assume the kitchen was too small for our food needs. Therefore, we cleared our shelving unit and brought the majority of the food (we kept sodas and bottled waters down there since we had another refrigerator there for such items) up to the kitchen, just in case.

Monday, January 21, 2013

How We Could Have Made Our Home More Sellable

Having had our home on the market for nearly 18 months before it sold, we were given plenty of time to guess, second-guess, and guess again at the repairs, upgrades, and decorative adjustments we made to our home in an effort to make it more sellable. We found it hard to know what sorts of things to try, what might help, what might hurt the presentation of our home to prospective homebuyers, and how far to go with our adjustments.

After everything was said and done, and now that we’ve had time to review and contemplate how our moves may have worked (or more likely backfired since we sold for $65,000 less than we bought), we’ve come to some conclusions regarding where we missed the mark on making our home more sellable or at least expanding its appeal to a broader market.

Kitchen Appliance Update
With prospective buyers entering our home by way of the kitchen, this space -- typically known in many homes as a focal point for buyers anyway -- was made even more important in creating that valuable first impression. Unfortunately, while we painted our cabinets, added new hardware to them, and had an all-around good looking kitchen; it wasn’t a great looking kitchen.

Why wasn’t it great? Because of the appliances.

No, it wasn’t that they didn’t work. It wasn’t even that they looked that bad. But, unfortunately for us, they were far from new, with the newest items (the microwave and dishwasher) being installed around the late-90s; and they certainly weren’t anything close to stainless steel.

I think that if we had spent the money to upgrade them to stainless, our kitchen would have really “popped” and made a great first impression as potential buyers entered the home, and we might have saved a lot of time and lost money through this investment.

A More Livable Living Room
We never really used our living room much, preferring our finished basement instead as our lounging area. We even went so far as to remove the cable line into our living room, since we never used it.

Again, I think that this was a mistake, since not everyone might want to utilize this area as more of a formal space as we did. I think that if nothing else, we should at least have kept a television in the space just to make it a little more personable. The way we had it set up, I think it made the space just a little too stuffy and non-functional for what many people might like.

A More Neutral Master Bedroom
In hindsight, I definitely think we should have gone a different, more neutral route when it came to a paint color for our master bedroom. However, after changing it from a beige color when we moved in, to a lime (although I called it more of an “asylum”) green, to two coats of a darker forest (although I thought it looked more like an “army tent”) green, we were just tired of repainting and somewhat disillusioned the space.

We should have gone back to the beige or at least a more neutral color, but we knew that it would likely take another two coats, and with home showings and open houses in between, and not being sure how great the re-paint would come out anyway, we decided to leave it. Unfortunately, while the darker green did tend to match with our darkly varnished furniture and hardwood floors in the space, in our opinion, it just made the room too dark overall and not as inviting as it could have been.

Sunday, January 13, 2013

Key Elements to Our Retirement Planning

We still have at least 30 years before we hit full retirement age, but this doesn’t mean that we aren’t planning for our golden years now. Sure, there are plenty of things that can happen between now and retirement, and which could affect our retirement situation, but this doesn’t mean we can’t plan and prepare in the meantime. Therefore, I’ve laid out a list of items that are key elements to our retirement preparations.

Understanding Income vs. Expenses
I’ve made a real effort to better understand both our income and expenses, as having a good grasp upon these elements can be critical to successfully planning for our retirement future. I’ve been tracking my expenses for over 15 years now, and more recently, I’ve made a further effort to get a handle on my wife’s side of discretionary spending as well.

When it comes to income, as a self-employed individual, I’m pretty much forced to track these numbers since I’m responsible for reporting taxes on this element of my finances. My wife’s income is easy to follow since it derives from a single employer at a fixed hourly rate.

Determining Annual Savings
By comparing income to expenses and noting the differential on a regular basis, I can determine whether we’re heading in the right direction when it comes to our retirement savings. With my tracking for both these areas in place, it become quite simple to subtract annual expenses from income and get a grasp upon whether we’re putting enough away each year to successfully fund our retirement.

Watching Asset Growth and Gauging Investment Returns
I also use an asset tracking sheet that I update monthly to watch asset growth (or decline) and gauge our investment returns over time. Seeing our overall progress toward retirement is important as it can not only tell me whether we’re on track or not, but I can see what our assets are returning. This information can be a critical gauge in deciding how we will use these assets in retirement, the kind of income they can provide, and whether their returns will be enough to provide amounts that will be able to sustain us in retirement.

Knowing Inflation and Our Inflation
I know what the government reports to us as our national inflation rate, but that doesn’t mean that this rate correlates exactly with our personal inflation rate. Since I’ve been gauging expenses for some time now, I can get a better feel for what our own family’s true rate of inflation is upon the products that we pay for and the things that we utilize regularly.

Over time, this rate runs at about 3 percent, but more recently it has been higher compared to where the government is quoting inflation at around 2 to 2.5 percent in 2012 due to things like tax hikes and health insurance premium increases.

Knowing this rate helps provide us with a more exact picture of what our future expenses will be when it comes to our personal situation as opposed to just using a national average that may incorporate or leave out critical elements of our regular spending.

Tuesday, January 8, 2013

Income Tracking Add-ons

I’ve been tracking my income ever since I became self-employed nearly five years ago. When I was working a regular job with a set salary, I really didn’t find it all that necessary to watch my income, as it was relatively set in stone with the exception of my retirement account and a few other minor assets. However, now that I’m my own boss and in charge of handling my own income streams as well as income and self-employment taxes, I find that tracking my income is an important aspect of my financial life. But there’s more to it than just the tax aspect.

My Setup
I don’t get overly complex when it comes to tracking my income. A relatively simple spreadsheet that I can easily add to, update, or make changes to, suffices. In a column along the left-hand side of this spreadsheet, I list out all 12 months of the year (as I break my income into monthly totals). In the columns to the right of this, I begin to list my amounts for various income streams that are noted at the tops of these columns.

Last year I had nine such columns, but the number changes from year to year as I add or delete income streams that may or may not be worthwhile. Currently, this year I’m only at six such columns. My income tracker follows not only employer paid sources of income, but interest on savings, interest on bonds, retirement account earnings (or losses), and similar such items…pretty much anything that could be considered additions to my income.

Accounts Payable
The accounts payable section to my income tracker is a more recent addition. I found that since we write checks and use a credit card, it’s nice to have a feel of how much money we owe at any given time. And since the checkbook often gets stashed safely away between uses, and the credit card is only used occasionally, we weren’t reviewing them as much as we should to stay on top of cleared checks and credit card activity.

By adding in a section to my income tracker that is devoted to outstanding checks and charges placed on our credit card, I can better ensure that I’m seeing and checking upon the payment and accuracy of the amounts owed on a regular and more frequent basis.

Taxes Owed
For those people with an employer who handles their deductions for items like state and federal taxes owed, and Medicare and social security withholdings, this may not be a necessary aspect of their income tracker. As a self-employed individual however, I find that it’s a pertinent aspect to my financial life.

By adding up my taxable income amounts from my tracker and applying an equation that factors in federal, self-employment and state tax withholding, I can better stay apprised of my current tax situation and taxes owed at all times.

At the bottom of my income tracker, I’ve recently added another new tool to help me in better staying on top of my personal finances. I’ve put in 12 monthly mini-budgets upon which I can keep running totals so that I can compare expenses (and estimated expenses) with income.

I update each budget as the month progresses, adding in actual expenses in place of estimated ones as I go. While in the past, I’ve tended to do this on an actual ledger book, this recent addition has made the process even easier and has provided me with an accurate snapshot of amounts and up-to-the-minute totals at a glance.