Keeping The Reins Tight….

May was a busy month; it flew by and on Thursday, I’ll be able to catch my breath!

I spent the whole month utterly frustrated and ran a whopping ZERO miles. A serious calf and a chunk of scar tissue floating around your knee will do that . On the flipside, my net worth increased from -$20,442 to -$18,560. The increase was in my retirement accounts; a so-so month in the market and regular contributions moved the balances upward. A few big expenses (tires and an emergency room visit) hindered my ability to save; I’ll need to penny pinch in June to stay on my savings schedule.

How did I do with my May Goals?

A whole lot of FAIL!

1. Sell the mountain Bike - Fail - I’m lazy. There’s nothing else to be said.
2. $650 in alternative income - Success! - Thanks to my tutoring clients, meeting this goal was easy.
3. $100 in groceries - Fail! - See goal #5.
4. No more plants - Wash - I couldn’t resist the urge to plant two more trays of green peppers. I’ll recuperate my money (+ extra) when the plants flower.
5. Track my expenses - Fail! - Whoops!

During June, I plan to:

1. Track my expenses - I should be doing this, I have a budget and the tools. I’m sick of failing month after month.
2. $26 in Restaurant Spending - A quick meal and one sit-down dinner with friends should be enough eating out.
3. Snowflake Immediately - Even if it’s only a three dollar check from Pinecone Research, I need to send it immediately into my savings account.

I’ll be spending two weeks in California for a conference with all expenses being reimbursed. Thus, I should be able to save substantiality during June!

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Life went crazy and for a few weeks, I quit updating my budget spreadsheet; however, I was able to stay within my budget. Because of this, I’m switching to a less complicated version. The new version will simply track my total spending for important categories.

My new budget is as follows:

$1700 is much more than I was expecting; but, I’ve never figured out my monthly expenses with Roth Contributions and contributions to the car/medical funds . When I reach the respective totals for the car / medical fund, I’ll send another $100 into savings.

I’m trying to max out the Roth by the end of the summer, this will then let me sock away $5000 in contributions for 2009 by the end of 2008. All of my savings are going towards Roth Contributions and into a house fund. Since I won’t be buying a home any time in the next 10 years, it doesn’t matter when in the year I make the contributions into the house fund.

Dollar Cost Averaging (on a yearly basis) into my Roth IRA will give the market more time to work it’s magic. These yearly contributions will create a set schedule for rebalancing my asset allocation and remove any inkling of trying to time the market.

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It’s simple!

It’s easy!

A simple Roth transfer from T.Rowe Price to Vanguard should do the trick!

Arrgggh! 3 funds transfered for a $10.00 fee + the $3.50 quarterly account maintenance per fund.

A hefty expense for being a impatient grasshopper and opening up the account at T.Price with the full intention of transferring the funds to Vanguard within the year.

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I just raided $2,000 from my emergency fund for Roth contributions.

The raid increased my federal tax return by $400. A quick, easy and guaranteed 20% return on the investment!

Unfortunately, this is a one time deal.

Some unique circumstances made this situation possible. Based on my 2007 income, I qualify for the saver’s credit, I have a sizable emergency fund, my job is secure, and I plan on maxing out my 2008 IRA contributions. I will still contribute $5,000 to the IRA,  the contributions will be split between the 2007 and 2008 tax years.

Despite the possible ‘recession’, my recent car troubles, and not having a full six months in the emergency fund, there was no way I could pass on this opportunity.

A guaranteed 20% return is unreal and I doubt I’ll ever have this opportunity again.

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Photo Credit: Arjun

In The Way of the Weasel, Scott Adams lays out a one page list to managing your finances. The list (below) is rather simplistic but covers the same reoccurring themes you see in the 300+ page long person finance books. Adams believes life will be okay if you:

1. Make A Will.
2. Pay off Your Credit Debt
3. Get term life insurance if you have dependents.
4. Fund your 401(k) to the maximum
5. Fund your IRA to the maximum.
6. Buy a house if you want to live in it and can afford it.
7. Put six months’ worth of expenses into a savings account.
8. Invest 70% into a stock market index fund and 30% into a bond index fund.
9. If this confuses you, talk to an advisor.

Of the items on the list, I have #1,2,3,6, and 9 covered. Item #7 will be knocked out by July. Thus by Dilberts standard’s, I’m batting a solid .666.

Item #8 caught my attention as the 70 / 30 stock-to-bond ratio seems very conservative. Vanguard’s 2020 LIfecycle Fund uses the same ratio; so for those of you retiring in about eleven years, this is great advice.

As a young work-a-holic, I will not be retiring at any point during the next 30+ years. While a 70 / 30 portfolio would yield solid and safe results, I’d like something much more aggressive.

Do I go with a 90/10 ratio similar to Vanguard’s 2050 Lifecycle Fund, or with my strong tolerance for risk, ratchet the ratio to 95 / 5 or even 100 / 0?

Unfortunately, if a book mentions allocations for 20-something’s, it is usually only in passing. As a demographic, we have to the most to gain / lose with our portfolio selections. An unwise investment that yields 2% less over 30 years could drastically alter my nest egg.

How did you arrive at your asset allocation? What is your stock-to-bond ratio?

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