What would you do with $100,000?

Early last year sold equities to pay down my HELOC. At that time the interest rate was still fairly high.

The HELOC interest rate now is much lower (as are returns for deposit accounts).

I'm wondering if I should pull the cash out of the HELOC and put it into various accounts (depository, investment, etc...). The number isn't exactly $100k, but it's close enough for this kind of thinking.

Why am I thinking this way?

I've heard rumors that some banks have been freezing lines of credit in some areas - though nothing specific in Chicago. I assume the coasts were hit more heavily as the value of home equity dropped there much more severely than in the Midwest.

I need some or much of this money as emergency funds in case I lose my job. (it's not my only potential cash source, but an important one).

Also, considering that the market is quite low, maybe it's time to put some or all of it back into the market.

What would you do? I'm really chewing on this issue right now. If you pulled it out, where would you put it?

To feel more comfortable about my legal situation with the HELOC, I may ask a real estate attorney his opinion on whether the bank can freeze my HELOC. How would you confirm it?

Regards,
makingourway

next steps for 2009

In addition to aggressively filing documents and papers to assure they'll be available for tax filing, here are some next steps for 2009:

1. Define our family goals for the year and post them (we lapsed in 2008).
2. Assess our financial performance for 2008 (should be very interesting).
3. Elaborate a strategy for reaching these goals.
4. Review and create a budget for 2009.
5. Identify any short term activities that should happen right away.

I'll be working on these items and posting them as they're completed.

Regards, makingourway

Some strategies for 2008

1. Refinance both homes if possible.
2. Accelerate paydown of HELOC on new home.
3. Sell old home (if possible - bad market).
4. Get raises (expect to be disappointed for his job).
5. Help relatives reorganize expenses to reduce cost of assistance.
6. Possible get new job to either reduce travel and/or incease his income.
7. Have at least two special family vacations.
8. Retirement contributions for children employees.
9. Identify domestic expense reductions (eliminate subscriptions, release nanny)

The overall theme is to reduce costs.
Right now the second house isn't selling and it's hurting our cash position.

We've hit many of the new home expenses with some potential big ones coming up:

1. Possible replacement of house infrastructure (hvac, water heaters) - too old.
2. Windows - very high quality, but I'm seeing frosting on the inside.
3. Network cabling - whole house (this is really optional).

I'll probably post next on our expense reduction.

Regards,
makingourway

checkout livingoffdividends - a journey in passive income generation

ND has created a new blog - it seems to be a relaunch of his previous blog, adventures in money making.
LivingoffDividends is more focussed and a great idead.
ND's goal is $3000 a month in passive income.
Got me thinking what my passive monthly income is.
He's halfway there - congratulations!!

I'll have to post what my passive income is.

Regards, makingourway

Russian investment options

I recently talked with a gentleman from Russia.
He indicated he used Citicorp as his investment manager.
Oh, I asked him, what are your fees. Fees, they don't charge me anything, he replied.
Oh really, how do they pay your advisor? Hmmm... we both said.
Sounds like they're charging embedded commissions.

I quickly explained conflict of interest, issues regarding commissions and referred him to William Bernstein's works.

Oddly, his investment options are quite limited. There really are few if any domestic mutual funds. He invests in equities in what is essentially a fast growing commodity extraction (oil) economy. Although he may diversify specific equity holdings, he doesn't have any real diversification.

I asked if he had any non-equity assets. He did:

Real estate development bonds - capital is protected and earnings are less aggressive than equities.

It was unclear if he has the equivalent of treasury bonds.

Standard asset allocation models as we construct in the USA would be very difficult.

Domestically, Russians do not hae 401k plans. They have social service pensions that are highly taxed. I imagine they are more comprehensive than the USA's Social Security plan, but would you really trust either to be around in 25 years?

My thoughts and recommendations were for him to open brokerage accounts external to Russia. For stability either in Switzerland or the UK and invest at least half of his assets through such channels. I'm assuming he'd have access to many ETFs, but am unsure what mutual funds - especially Vanguard products, he'd have access to.

This information verified what I had learned from several central european colleagues who have little structured external retirement plans other than official government pensions. Actually, these were very senior executives. It really seems they'll be living off what they could save personally with few if any government endorsed programs (like 401ks, etc...).

Regards, makingourway

Thoughts on networth as of 9/30/2007 ~$717,500

A quick assessment by my not quite up-to date entries in Quicken indicate a networth very close to $717.5k - excluding $5k in expense on the company credit card.

My currently projected year end n/w is $709.5k, anticipating a $10k tax expense before year end. In October I'll need to pre-test my tax returns to see what I'll actually owe. It should be interesting as Big Company tries to equalize local state tax obligations. Apparently they will help pay for accounting services to address this. I wonder how it will really work.

It's about $30k more than I had expected before our relocation to Chicago. I suspect the following items to have contributed:

1. delayed decorating expenditures - the sellers left their window treatments behind
2. delayed purchase of furniture - we bought less expensive family room furniture and have delayed purchasing anything new for our living room, master bedroom, kitchen and finished basement.
3. we have delayed wiring the house for ethernet, except for a connection to the kitchen.

We have made some additional expenses, unplanned for:

1. outside decorative lighting and outside electrical sockets - about $600.
2. extended natural gas for outside bbq / grill - included in basement estimates.
3. extensive basement waterproofing - we had foundation cracks filled - some were behind finished walls - expensive to fix. The waterproofing work seems to have held well - about $3000 (high estimate).
4. family visits and unexpected travel - about $1600.
5. swimming pool repair and larger than expected maintenance expenses - about $1600.
6. repair of our roof - about $3,600.

Another interesting tax obligation will be relocation reimbursement. Some of my reimbursements, such as association fees are taxable, but big company is supposed to gross up for those. Once again, I wonder how it really works.

I expect another $3000 - $4000 in expenses to refurnish my office and purchase bookshelves for our extensive collection. I anticipate my office becoming something of a family library. Only $1500 or so is included in our projected cash flow. We'll see how things work out by year end.

As to thoughts on end of year projections:

a. They don't included September interest payments.
b. They don't include projected interest payments.
c. They exclude any forcasted market performance.
d. They estimate an outstanding tax obligation.
e. They assume I'll manage to remain employed - my performance has been exemplory year to date, but my immediate leadership has changed, one wonders if they'll appreciate or feel threatened by what has happened.
f. They assume I won't break down and buy several flat screen TVs - something I'm dying to get, but feel too uncomfortable doing.

Until we either sell the old house or receive raises, our overall cash flow is about -$1500 per month. This is extremely distressing to me. The thought perhaps limits our interest in home improvements and certainly inhibits our planned investments. My wife's contract does provide for an automatic raise, which would cover this gap, however, we'd have to wait a year for it to effectuate. We certainly have the cash to weather the difference, however, I'm hoping my employers recognize a shred of my contribution and give me a reasonable raise - I am skeptical - I fear political obfuscation will lead to others successfully claiming credit for my accomplishments. If this happens, I will look elsewhere.

One thing to note, we were very successful in increasing our investments this year - mostly due to savings: maxing out our 401k contributions, plus a nice match from my wife's employer +$40k; extra cash invested +25k. About 12% return on investments (estimated), put us at over $516k in invested assets.

I still have to correctly enter our real estate transactions into quicken as well as my wife's 401k roll-over. I'm not sure there should be a significant difference, but we'll find out soon enough.

Regards, makingourway

The two house crunch and negative cash flow

It's quite challenging waiting for our other home to sell while at the same time paying a hefty mortgage in Chicago.

Something quite painful - eats up all of our savings and then costs us a bit extra.
I'm still working out our monthly run rate, with so many one time, move in expenses occuring it's hard to separate the one timers from ongoing. I think we're at a negateive $1300 per month.

The current situation makes it very difficult to:

a. think about future investing plans
b. look positively about future savings

I had been expecting a decent raise this summer, especially after the fantastic performance i had in my current job - a management change seems to have removed that possibility. Substantial raises at our firm seem more realisticly grounded in promotions than performance - frustrating for me.

I've analyzed our reserves and we can go a very long time if we need to do so (at negative $1300 per month) however, it also means that improvements and capital expenditures are put off or minimized. That is also very frustrating. My wife would really like to furnish the house.

One thing for sure, she has a raise contractually scheduled for next September that will cover our hole (after taxes too), however, I'd like to think that we'll have something sooner. I just hope it doesn't require changing jobs.

It seems in the world of big corporations your performance matters less than 'paying your time'. It's very demotivating.

Although we can justify the negative cash flow (as something that's temporary and will see an increase in income to cover it), I hate being in this position.

Regards, makingourway

a guestimate of future cash flows and networth

Reviewed our networth update. Still looks good - better than I thought - close to $100k gain by end of month (4/30). This summer will eat a good amount of that if markets are static or negative. I'll post the monthly tomorrow.

Yesterday was the first day where most of my advanced transactions were available for September. I accelerated entry of a few and finished out the month.

June through August will be a challenging period as I'll be the only one working, we'll be in a new house and my wife will be travelling on holiday. Bad combination for the cash conscious. Especially after the few months my wife took off 2006. We just came back and now it's going back out!

I've put in an expected monthly outflow for two mortgages. The current house is easy - I'm already paying that. The new house is more challenging as the closing hasn't occurred yet - so I'm estimating.

I estimate my tax benefit for the mortage interest to be about 1/3 of the mortgage payment - 10% (buffer). I expect the tax benefit for the property tax to be about 1/3. I reduced the estimated mortgage payment by the resulting benefit numbers to understand the net monthly outgoing cash flow, but this ONLY WORKS, if I talk with my accountant and reduce withholding accordingly.

I will attempt to do that tomorrow. Better to make the adjustment as soon as possiblee.

The bottom line:

If I get the tax breaks I expect:
$1,600 per month saved while making two mortgage payments
$4,400 per month saved when making only one mortgage payment (after original house sold)

The challenge:

My cash reserve will take a huge hit and be converted to illiquid home equity.
It will further be depleted by $25,000 to cover expense gaps while I'm the sole provider.

The reserve:

I'll still have about $46k in backup accounts and about $89k in non-retirement equity, but will try as hard as possible to touch very little of it, as the expenditures will not be converted to equity.

New expenses:

New expenses will be interesting. We'll have to gate off an access area to the swimming pool, open it for the season and maintain it weekly.

Not sure what other expenses will hit us, but some decorations always do, like window treatements. Lots of windows in this house...makes me worry.

I have a few potential avenues for additional tax, such as old business expenses reimbursement, flex spending accounts, etc.... I also have an old insurance claim being resolved. These can add to our situation. Am wondering what effect they have.

I could completely skimp on meals while travelling to save the per diem, big quality of life hit, but might do it. Maybe, I'll lose weight? It would suck to work as hard as I do (12 hours plus) to save $38 - $58 per day, but it does add up.

The good news is that:

a. We can cover both our mortgages
b. We have a chance to still save money
c. Once we sell the old house, we'll save a decent amount per month

Regards,
makingourway

thoughts on our financial situation

My wife and I have been reviewing our imminent financial situation.

As mentioned, we'll be moving to Chicago to a much more expensive house.
My wife will take a few months off before returning to work - one income for a while.

Understanding our pending finances is still a bit of a mystery:

* my wife's salary will be different after taxes
* we'll have substantial mortgage interest, which may increase our take home pay
* we'll have new expenses for the new house - the actuality of these expenses are tbd
* we'll have maintenance expenses for the old house - uncertain what that will be or how much matinenance costs will be

Our current house is on the market, but moving very slowly. I'm expecting the mortgage for the old house to eat substantially into our monthly savings.

The real challenge will be understanding our actual monthly net once tax adjustments and new living expenses are factored in.

I've set Quicken to enter repeating expenses (and placeholder expenses)for several months in advance, however, I'll need to wait a bit longer before I can see the actual cashflow impact of the new mortgage once my wife returns to work.

Later this month I'll request that our accountant analyze our tax situation to determine withholding adjustments. I assume both mortgages will be fully deductible, but I have a sneaking subscription there will be only a partial deduction.

With our significant tax obligations this year and the downpayment for the new home pending, I'm fairly uncomfortable with our diminished cash reserve. Once I have a better understanding of our monthly overhead I can calculate how long the new reserve will last.

With such uncertainty regarding our reserves, my wife and I have agreed to delay spending money decorating the new house. The most I expect is to install venetian blinds, if necessary.

I'm very tempted to install a computer network, however, I'll have to put it off until our cash situation is measurable and we're comfortable with it.

At this point, I'm fairly certain we're over-paying income tax. We should be able to reduce future withholdings to offset the over payment. I suppose we'll see where things are at in a few weeks.

Regards, makingourway

$100k net worth increase in 6 months! unbelievable

Being on the road so much, I've found it very difficult to update our finances, especially those that require significant manual data entry. My wife's 401k is a great example. The thieve's that manage it deduct quite a few basis points every month as an administrative fee - I'd love to see them hit by a class action suite!

After catching up with data entry I was quite amazed.

Our Networth has increase nearly $100k since November.

Now a good amount came from aggressive savings - but was essentially driven by my increased earnings. Another nice percentage have been solid investment returns.

We've already maxed out our 401ks, my wife receives a nice match and my extra income allows us to save more. However, most of our investments have done fairly well - even the foreign and emerging market equities bounced back. My target allocation is almost 50% foreign equities, we'll see how market cycles and investor fads effect us.

One very curious issue will be how much money we have left after we close on the new house. It will dig into our cash reserve (the one everyone asks me why do you keep so much on hand). My wife taking a few months off will help shave it down, but I agree with her that she needs the time - especially to spend with our children while I travel so much.

By Sept. I think we'll have lopped out 30-45% of our networth gain, depending upon:

1. when the old house sells
2. unexpected costs for the new house
3. how extravangently my wife spends while not working
4. how accurately we manage our budgets
5. how effectively we resist decorating the new house
6. our actual income tax obligation for 2006

At the moment, I was concerned that $50,000 of unexpected income would create a massive tax obligation. First peak from my accountant seems like it won't be as bad as expected - we'll have to see. If the unofficial number is anywhere near right, we'll feel the hit, but move forward. Otherwise it will significantly influence our plans.

I'll try to post our networth data in a few days so you can see for yourself. If possible I'll put some six month side by side information.

We're at a very interesting point in time. We should still be able to exceed average market returns with our ability to save, however, as we save and compound our principal, or when we see extraordinary rates of return, investment earnings can exceed (or losses wipe out) our annual savings.

Eventually, it will be wonderful to have such large principal that the gains exceed potential savings, however, our income potential has not been capped so is most likely between 5-10 years away.

Regards, makingourway

looking at houses in Chicago

My wife is driving the real estate search.

We have about 40 houses to look at. Some are tier 1 (most interested), tier 2 (interested), and tier 3 (maybe). Our realtor has offered to review the tier 3's to see if we should spend time looking at them.

We'll visit Chicago this coming week and look at the houses over 3 days. We've planned to take our eldest, however, my wife is worried the rapid pace will be too much for him. I know he'll be disappointed and I'll miss him horribly, but it might not be fair to drag him around through such an aggressive schedule.

I'm expecting a Chicagoland house will cost about $850,000 - $1,050,000. Somehow I just don't feel comfortable spending more than $1M. I've heard there are formulas you can use to calculate how much house you should own. Some say never buy more than twice your income; i.e. a salary of $100k should buy a $200k or less house. Others say limit mortgage and related payments to 25% of your income (or less).

One of the questions is whether we should look for a larger lot - perhaps in a less densely populated neighborhood with 1-2 acres OR a smaller lot - about 1/4 acre - in a more densely populated area. The smaller lot approach assumes neighbors would have children in adjacent back yards, etc.... Would more neighbors in closer proximity increase the number of playmates for our young children?

I doubt our house in North Carolina will sell for much of a profit, if any. It's probably worth about $500k +/- $20k. We've barely lived in it for a year. The greatest challenge will be absorbing the broker's commission cost. The rule of thumb seems to be about 7% for commissions, transfer taxes, etc.... I'm skeptical we'll arrive where we need to be to break even - though we might get lucky. I need to budget for several months duplicate mortgages - the thought is very depressing. We may also be in a situation where our buyers in NC ask for a contingency on the sale of their home - I really don't like that - it locks up our house without a buyer's commitment.

We need to find the new house by May and would hope to move into it in June. That will be a truely interesting experience. Big Company and my wife's employer will both help with the move. I wonder how much we'll have to personally throw in after it happens.

Regards, makingourway

the move is on

My wife gave notice. She's working until May/June - exact date unclear.
It should extend our income for a while since her current job pays better than the new one.

We now have to begin planning the move and managing our cash flow - she'll be off for at least two months, possibly two and a half. That means three months without her contributions.

On top of that it will probably take 5-10 months to sell the new house.

I'm planning on creating a cash flow forecast through year end to see where we'll end up.

Obviously alot will depend upon me keeping my job with Big Company. Hopefully they will be pleased with my current activities on the joint venture. Managing so many people is certainly a handful. Actually I only have about 6 reporting to me directly and another two for special projects. There's another 180 that report to them (I though it was more, but it's not). It's possible I've met people who work for my management team and I never knew they were part of our group. I don't like that. What's the expression: a good general should know his troops?

With such a high risk role, I hope I can hang in there. My alternative approach is to create a strategy and help find a permament person for the role - either someone reporting to me or a hand-off. Obviously I'm not comfortable being in a high risk position while the sole bread winner during a move.

Another consideration is how long the old house will take to sell and how long it will take to find a new one. I'm guessing about five months, but it could be longer, maybe ten months. That's $30k I'll reserve.

Plus expenses for setting up the new house - I'd like to limit that to $30k as well. $60k is alot to pull out of our savings. If an emergency should strike, we'll be screwed. Need to rethink all this. Any recommendations?

Regards, makingourway

Not a moment to coast

My wife and I just had an interesting conversation, it wasn't so much about the decisions before us (career, location, where we raise our children, etc...), as a review of the last 10 years (about as long as we've been married).

There really hasn't been a single year where we didn't have a plan to make major changes, whether they were job changes, reaction to job instability, graduate schools, new houses, major house rennovations, having children, etc....

We thought how nice it would be to have a year to coast - no major change in process or pending.

One thought came up - haven't our lives improved and our family grown from all the changes? Are we happy with our wonderful children, state of our carreers, savings, income and home (just not location)? We couldn't have accomplished all of it without the changes we made.

However, my wife pointed out, there has always been so much uncertainty and lack of predictability. It's true. For so much of these major one year campaigns, we've never really had much visibility beyond two years - and the second year was always spent preparing for the next step - usually a huge step.

Look at our current situtuation:

1. We stay and my wife gets promoted. My employer, Big Company, may or may not work out - especially when I'm not spending so much time in our main offices. Wife's job is secure for now - can she assume leadership of the enterprise - some insecurity and doubts of the future, but a four to five year time frame.
2. We move to Chicago. Will either of our jobs work out? Uncertainty as to what next year will be like for both of us. Big change. New schools, etc.... Little future certainty or predictability until at least one year has passed.
3. We move to Atlanta. Same issues as #1 plus #2. Again, little future certainty or predictability until at least one year has passed.

I'm not sure if the lack of predictability is a result of:

• inconfidence
• doing things we haven't done before (reaches)
• the same for everyone else
• discomfort with very large assumptions

What are your thoughts? Do you know what you'll be doing or expect to be doing