Flow breakdown and budget

Via Tim Ferriss’s website via guest post from Ramit Sethi of IWTYTBR.

Above is a picture of Ramit’s basic finance system.  Last year I spent most of my money building up some liquid cash for emergencies, and now I’m finally able to buckle down and lay down the framework for my financial system. Here’s my breakdown:

Salary: 70k before travel bonuses.  Shooting for 100k with 50% travel

401k: 6% pre tax, with 3% match from company (match goes straight to company stock if I’m reading correctly).  My 6% goes to 20% large, medium, and small cap index funds and 40% international index funds with about a 70 30 split between developed and developing countries.

Roth IRA: Just set it up with 2k for last year (adding another 3k when I can later this month), and 500 auto deposit from checking on the first of the month, starting next month (5500 total which is the max).  It is unlikely I will reach the 110k max income for depositing into a roth ira.  Roth IRA directly invests in a retirement lifecycle fund (VFIFX).

The rest of my budget is (aka credit card/miscellaneous bills in the above picture):

250 on shopping (also absorbs miscellaneous costs such as motor oil)

162 on gas (includes 1 trip to OC per month)

250 toward entertainment (mostly bars, can also absorb unforseen expenses)

480 for food and dining (high because I eat out a lot due to travel, trying to cut back).

Plus 360 going toward minimum payment on student loans.

Travel decreases how much I spend, but I keep a fixed budget which means I can spend my food/entertainment budget on more shopping or more extravagance.

That covers about 70% of my non bonus budget.  Everything else goes to building my liquid cash/emergency fund (currently low), and once those are full, toward paying off my college loans ASAP.

Account breakdown

Checking:

Bank of America normal no fee account: standing balance of 1k, just as a backup.

Schwab High Yield Investor Checking: Holds entire emergency fund of 5k to 10k, primary account that receives money and pays out to credit cards, etc.  Earns a ridiculously small amount of interest, but I need to stay liquid due to large expenses for work, otherwise I’d keep 2k in it.

Savings:

ING Orange Savings Account: Only holds 1k, earns so little money, much better to put my money toward my loans which cost me a guaranteed 7%.

Retirement:

401k: Mostly using for match, when I change jobs I can roll it into my Roth IRA.  Also using to decrease my taxable income.

Roth IRA: Used to shelter money from future taxes.  I was planning to wait until after I paid off my debt, but realized I can withdraw money for my first house when it is needed, so this doesn’t keep me from being too liquid.  If I’m buying a second house, I doubt the money in here would matter much to me.

Credit:

Starwood Preferred Guest AMEX: Primary credit card, used to earn points!

BOA Power Rewards card: Used to keep credit line for credit score purposes, and is my primary backup for when AMEX isn’t accepted.  AKA my In ‘n Out card.

Citi Thank You card: Kept almost purely for credit score purposes, will be kept alive with a small charge every other month, and acts as a buffer to absorb unforeseen costs (covered a hospital bill for me for a few days).

Loans:

UCI Grad School Loans: 27,000 ish owed at 6%

Outlook

Before I opened my retirement accounts, I had hoped to pay off my student loans by August, but now December 31st seems a worthy goal.  My new goal: By December 31st, 2013, owe no money to anyone, have $15,000 principal invested in retirement accounts, and have roughly $10,000 liquid cash emergency fund.

All that’s left to do is change all my billing dates to the first of the month (amex and citi card), contribute 3k to my roth ira for last year. Oh, and get started on travelling 120 days this year 🙂

Happy New Year!  Finally, the year and the month can no  longer be confused (19 years until the year and the day can’t be).

I was in Louisiana on work travel from 12-19-12 to 12-27-12, then was up in orange county with my family for the rest of the holidays, finally back in San Diego!  Super excited to have a chance to settle back in, but I’m hoping to head right back out on travel, to pay off all those college loans, haha.

I finally feel like my finances are settled.  Got my real credit card finally (AMEX Starwood Preferred Guest), and can start racking up miles.  I’m mostly set up as outlined by Ramit Sethi (http://www.fourhourworkweek.com/blog/2009/03/26/the-psychology-of-automation-building-a-bulletproof-personal-finance-system/), just working on paying down my college loans, then I will be free to do whatever I want in life (working on figuring out what it is I want to do).  I need to set up retirement accounts (well, mainly the 401k for match, put 0% starting to quickly build an emergency fund), but other than that everything is set up nicely.  Time to grind it out at work and focus on improving myself in other ways.

In other news, my primary goal for now is to read through Four Hour Chef.  I want to focus for a bit on learning to learn, but I need to do some thinking on what to apply it to.  The only way I am likely to learn it, is to apply it, an interesting thought since I’m trying to learn to learn.

Minor goals include sticking to my budget (1600 of 2000 last month, yay), continuing to improve at work, sticking to my habit building schedule, continuing to socialize, working out when at home/small workouts while on travel, and perhaps minimalizing a bit more.

My tagline for 2013: Live Deliberately.

Current loan debt: 27,908.84

Currently I am debating how to handle my finances over the next year.  If I put all my extra money towards my loan debt, I will easily pay it off by next Christmas, ideally by August, or as late as September.  The earliest I can pay it off is June, assuming I stick to my  budget (minus 50% for travel), travel 50%, and put all my extra money toward my debt.  However, recently I’ve been thinking of purchasing a condo or house next year, living in the smallest room, and renting out the other room(s).  This would mean I need all that loan money for a down payment instead putting it toward my loans.

Buying a house, I never really wanted to once I learned more about personal finance, but I can see the benefits of renting out the extra rooms.  I currently pay about 550$ a month for rent and utilities.  That money could go instead toward a house.  Rent money from renters would be doing the same.  And of course, if I continue budgeting and saving a lot, the house would be paid off in a few years, at which point I would have my very own rental property, earning money to pay off taxes/miscellaneous costs on itself, and some pocket money for myself.  Assuming I could rent the house out for 2k and it was worth 400k, that’d mean I earn 6% a year, not bad considering.

However, I think I want to pay off my loans first, so I can be FREE!!!!  I also will be more liquid, so I can start my own company, and more mobile, not having to worry about selling my house or finding full time tenants if I move.

In the short term, I have enough time to think more about it.  I am currently saving up a 10k emergency fund, just in case I lose my job or some such, that should take about another month.  After that, I can think more about where to put my money.  I wish I could find an even cheaper place to live so that I can save faster, lol, but I guess we’ll see.