Book Review “No More Monday’s” by Dan Miller

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After reading and reviewing Dan Miller ‘s first book “48 Days to the Work You Love” reading his second book “No More Mondays” was the next logical step.  No More Monday’s is a great follow-up that focuses primarily on finding your unique calling and using that start your own business.  It proposes new ideas and ways of looking at things though revolutionary thinking instead of traditional thinking.

After finding and determining your unique calling you will then stop doing   J-O-B-S that we hate and instead start living with a purpose.  To find that purpose Miller writes that one must figure out their skills and abilities, personality tendencies, and values, dreams, and passions.  Miller then devolves into the perceived “risks” of staring your business which includes the question is it riskier to stay at a job you hate then to do a job that fits your unique abilities?  Also part of the risk is the risk of failing but Miller points out that you must embrace failure before you can succeed. 

The book also goes into depth on the different types of work models from freelancing, to franchising, to selling, to consulting, to traditional work.  Miller’s concept of “firing yourself” was an eye opener to me as he argues that by being in a safe “secure” job for 30 years might not be a blessing as much as it is a curse due to the potential to become comfortable and not learn as much as you can as well as losing the potential to make more money out on your own.

Overall I found this book to be a must read for anybody who has ever had the smallest desire to go out on their own and start a business.  What challenged my thinking the most was the discussion on changing from a paycheck mentality to where your time does not equal compensation but instead where results equal your compensation and where profits become better than wages.  For someone like me who has been an employee their whole life, this was a whole new way of looking at things.  The book also discusses the myth that you must have significant start-up cash to succeed, but in reality all you need is a good idea to succeed.  If you follow the advice in this book you will do well in the three “P’s”, passion, purpose, and profit.

Gauge on your middle class status

Yahoo Finance with the help of US World News had an article titled “How to gauge your Middle Class Status” It compiled a whole bunch of data and determined what the average American household earns and what they spent it on. A few things that jumped out to me:

Median Income-The Median middle class income in America is $81,000 as of 2008 with the income range between $51,000 and $123,000.

Home-The average home value is $231,000 with $17,600 a year in mortgage payments and other costs. The average mortgage payments are not that high considering an $81,000 income. After taking out taxes, that is about 25% of your take home pay.

Cars-$12,400 a year is dropped on cars with the average new car price around $45,000. YIKES! I have discussed how much a new car really costs you before and having a depreciating asset that is over half of your salary is not a way to be building wealth.

Vacation vs. Retirement-The average spent on vacations is $3,000 versus $2,600 saving for retirement assuming the 3.2 percent average savings rate. So we spend more on vacations then we do our future! Something does not seem right there.

Household Net Worth-The Average net worth is $84,000 which is down about 30% since 2007. That just tells me that most of the net worth we have as Americans was mostly tied into our home value. Yes, the stock market has fallen but it has recovered quite nicely in the past 12 months.

I recommend reading the whole article as it is interesting to see how you compare to the average American household. It was nice to see that my family has a higher savings rate and less car expense then most people though. This is a big reason why our net worth is higher than average as well and it continues to rise. Another interesting figure was that we are working more than ever before but when surveyed it was found the one thing we wanted 5.5 more times then wealth? Free time (68% vs. 12%)! Could it be that our consumption driven society based on working a lot to get more money to buy “stuff” (cars and vacations) to impress our friends is not the way to go?

Is it good to get a tax refund?

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With the deadline to file your 2009 Federal income taxes about three weeks away many people are starting to receive their much-anticipated tax refunds.  According to a recent article in USA Today, the average refund this year will be $3,036.  While it would be nice to receive such a large check in the mail, the questions needs to be asked, is it necessarily a good thing to get that much money back?

Reasons against getting a refund

The reason why it is not such a good thing is the reason why it is called a refund.  When you get a refund that means you overpaid your taxes for the year.  A refund of $1,200 means you overpaid the government an average of $100 a month! It does not mean you did anything special or good, it just means you gave the government too much money.  Worse yet is the fact that you do not get any interest on your overpayments so your refund is essentially a no interest loan to the government!  For those of us who are trying to get out of debt and budget every dollar each month that is not a good plan as it gives us less to plan with.

How to stop getting a refund

If you have consistently been getting a refund each yeah there are ways in which you can stop overpaying and keep your money in your wallet.  The most common is simply contacting HR or payroll at your work and raise the number of dependants you claim on your W-4.  Claiming more dependants will cause less money to be withheld from your paycheck and claiming more dependents on your W-4 then you actually have is not illegal as long as you are paying enough in at the end of the year.  Often claiming just the number of people in your house will not be enough because itemized deductions vary from family to family which basically renders the IRS withholding tables useless.   Typically I claim anywhere from 4-6 dependents even though it is just my wife and I on our taxes.

My opinion

My goal is not have a big refund each year.  I try to estimate my total taxes each year and usually come within a $100 or so.  But owing taxes is not something I want to have either.  By having approximately the correct taxes withheld each month it allows me to budget properly and gives me more money to save, invest, and spend each month.  If instead I just got a big refund I would be more prone to spending it on big items instead of saving or investing it.  So if you are struggling to pay the bills each month yet are getting a refund each year you probably need to put an end to it soon because you could really use your money now instead of later.    While getting a big refund once a year might seem exciting, you are better off financially using your money throughout the year.

Most Important Money Advice a Young Person Can Receive?

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An interesting question was asked recently on Cash Commons by AskaboutGadgets.com.  The question was “what is the most important money advice that a young person can get?”  I posted a brief answer but after thinking about it some more I think the real answer depends on age of the young person we are talking about. 

Up to 12 years old-I think the most important thing I would stress is the relationship between work and money.  Money is not just “created” it is earned through hard work and discipline.

Teenage years before college-Try and set goals on what you want to do career wise with your life.  If college is your goal figure out how you will pay for it and realize that the most expensive school is not always the best option.

College age-For those who go the college route the best advice I would give is to have a game plan to figure out your career and get the degree that will enable you to do that career.  Do not go to school just to “get a degree” or get the “college experience”.  Rather decide what career you want and what it will take to get you there.

Post-College-As noted in Cash Commons, my advice would be to get out of and stay out of debt.  Your greatest wealth building tool is your income and you can not become wealthy by making payments to a bank or to a credit card company.  As noted in The Millionaire Next Door and Stop Acting Rich and Start Acting Like a Real Millionaire, wealth is created by not spending luxuriously but rather living below ones means.

With that being said anybody else have good financial advice that I missed or forgot?

Tom Stanley “Stop Acting Rich” Book Review

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I just finished Dr. Tom Stanley’s book “Stop Acting Rich: And Start Living Like A Real Millionaire” and wanted to do a review of it.  This is the third book in the popular “Millionaire next Door” series in which I already reviewed the first book “The Millionaire Next Door” back in June.  Stop Acting Rich is a great follow-up with new and updated information.

Doctor Stanley’s updated research included surveying 944 millionaires.  To qualify as a millionaire one had to have cash and investments of over $1 million, as home equity was not included.  Overall the research found that the average millionaire was 57 years old, with an average income of $212,888 and a net worth of about $2.22 million.

Using the research the book provides consumption habits of millionaires in six different categories.  They are shoes, watches, alcohol, wine, cars, and homes.  The most interesting tidbits found were that millionaires are not as luxurious as we are made to believe.   Their lifestyle is not full of consumption.  As Stanley wrote, “There is no significant correlation between the make [brand] of motor vehicle you drive and your level of happiness with life.”  Similiar results were found when comparing homes and clothing.

Overall if you liked the Millionaire Next Noor or the Millionaire Mind you will enjoy reading this book.  The data and graphs are great and each chapter tells its own story.  The main point I took from this book is that even when the affluent spend on luxury items it is after they work hard and accumulate their nest egg not before.  As Stanley write “If you spend in anticipation of becoming rich, you are unlikely ever to become truly wealthy”.  I find this book a good tool and guide to use when trying to grow ones wealth.

Equity Acceleration Programs: Not needed to pay off your mortgage sooner

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From time to time, when I get my mortgage statement in the mail, attached is a pamphlet encouraging me to enroll in the Equity Accelerator Program.  It is a service provided by the bank that automatically drafts half of your mortgage payment out of your bank account every two weeks and will help cut down the length of your mortgage.  In theory it sounds good, but is it really worth it?

How it works is very simple.  Every two weeks half a mortgage payment is withdrawn from your account.  So that means that 26 half payments are withdrawn each year.  Those 26 half payments equal 13 full payments, so you are paying the equivalent of an extra payment over a full year.  Over the length of a 30 year mortgage making one additional payment per year will reduce the mortgage anywhere between four and six years and save several thousands of dollars in interest.

While that does sounds nice there are some drawbacks, being mostly the fees associated with the service.  The program offered by my mortgage holder costs $9 a month to use plus a $49 start up fee.  The estimate provided to me by my mortgage holder is that it would take 12 years 9 months to finish paying off the balance if using their program, which would cost $1,426 ($49+$9 times 153 months) in fees.  The good news is that you can pay extra on your mortgage yourself without any fees!  Simply just make an extra mortgage payment a year on your own and the pay down time will be just the same as if you used the bank—less paying them to do it for you.

So while this is a nice service provided by the bank that will get you out of debt faster, the service is simply not worth it to me.  The fees are high for something you can do by yourself.  The $49 start up fee is a lot lower then it used to be though as previous offers included a $400-$500 start up fee!  But by simply being disciplined in creating and sticking to a budget you can pay down your mortgage faster by yourself.  I have a created a mortgage amortization spreadsheet that will track how soon your mortgage will be paid off if you make additional payments at any point in time in your mortgage.  My wife and I are using our own accelerated mortgage plan and are scheduled to have our mortgage paid off in just over 3 years!  Bottom line is that you do not have to pay the bank extra to pay down your mortgage, just do it yourself!

Mortgage Amortization schedule

As I promised in the Standard Deduction post, here is another spreadsheet.  This one is a mortgage amortization schedule spreadsheet.  Ever wonder how much sooner your mortgage would get paid off if you paid $50.00 a month extra?  Or how about a $2,000 one time extra payment because of a big tax refund?  You will be able to find out by inputting just numbers into four different cells.

Mortgage Amortization Schedule

1.)    Current Loan balance-In cell F1 input your current loan balance.  Note that this is your current balance not the original amount you paid for the house but rather how much is owed currently.

2.)    Payment-In cell F2 enter your principal and interest payment per month.  This does not include any taxes or insurance that is included in your payment just the principal and interest.

3.)    Interest rate-In cell F3 enter your interest rate.

4.)    Current month-Enter the number of the current month (IE January=1, February=2, March=3, etc).  For example since the current month is March, I would enter the number “3” in the spreadsheet.

5.)    Extra Principal-Enter any extra principal payments made in the month in the “Extra Principal” row for the month(s) that you made the extra payment.

Also remember that this spreadsheet will only work for those who have a fixed rate mortgage.  I hope those of you who are trying to pay off their mortgage early will find this spreadsheet helpful.  Feel free to comment if you have any questions or suggestions and please let me know if you find this helpful.

How much does a new car really cost you?

While thinking at work the other day my thoughts turned to cars, especially new cars. Having a new car would be fun and nice to show people but I got to wondering how much does a new car really cost? I keep reading articles on the average new car price, the average car payments, and how much a new car depreciates, but after doing some research I now have a clearer picture.

After digging around and doing some research, I came across some recent data from Automotive Digest. The average new car purchase price is $24,265 with an average payment of $453 over 64.4 months. Finding depreciation rates was a little difficult as it varies from car to car, but the consensus is that a new car loses 25% of its value in the first year alone and then anywhere from 15%-20% each year for the next 4 years and by the end of the 5th year the total depreciation is approx 65%! Assuming a $24,265 purchase price with $453 a month payments over 64 months, I made a graph showing the car value v. car loan balance as well as a chart breaking down the payments.

 

As you can see from the graph above, with the big depreciation hit in the first few years the car is actually “underwater” for the first 2 and half years, meaning you owe more on the car than what is it worth. The chart on the right shows the total loss with the car in the last two bottom columns. At the end of the 6th year you will have paid nearly $29,000 in payments and the value will only be about $7,300 for a total loss of ~$21,700 or $300 a month!

What if you instead invested the payment monthly into a mutual fund? I did the math using a 10% annual rate of return and calculated the following:

After six years the $29,000 paid into the mutual fund would be approximately worth $44,000 or a $15,000 gain. That is about a $36,000, or $500 a month, difference over buying a car. Just for fun, what if you decided to not buy a new car for your working lifetime (40 years). What would you have?

After 30 years you would be a millionaire and after 40 years you could retire with over $2.8 million! Hope you find the car enjoyable. I think then you would be able to drive any car you wanted to.

As you can see, over time the new car with a payment will cost you big time. Obviously you need a car, but what if instead of buying a new car every 5-6 years you instead decided to buy a used car paid for in cash? In our simulation the average car is approximately worth $10,000 after the fourth year. That is still a lot of car for a fraction of the original cost. Basically by driving a used car, you are driving a nice car while investing for your future and letting someone else take the initial beating in the depreciation, how can you go wrong with that? Sure it is not the cool thing to do and it might not be the most convenient thing to do and your friends and family will probably make fun of you, but in the long run you will be better off financially.

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Do you know your Tax Freedom Day?

After spending some time this weekend doing our income taxes for 2009 I am finally ready to update a post I made back in September on how much do I really pay in taxes relative to my gross income.

In comparing my final calculation to my September estimate, little has changed.  The main increase was in state taxes, which was caused when the State of Ohio postponed their scheduled tax cuts for 2009 late last year due to budget problems.  After accounting for that my wife and I paid about $617 this year in marriage penalty to Ohio.  Yippee!

Still overall our tax freedom day for 2009 remained on March 23^rd.  Your tax freedom day is the day when you are done working for the year to pay all our taxes.  According to the Tax Foundation the average tax freedom day in the US was April 13^th.  Ohio’s is April 11^th meaning we beat both days! 

Do you know your tax freedom day?  It is kind of interesting to figure our how much of you gross income goes to taxes, but it can also be a little depressing knowing you still might have to work one more month just to pay your taxes.

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Thank you!

Recently while doing some administrative work for the blog, I noticed that The Balanced Spreadsheet statistically is off to a really good start in 2010!  January saw the best month ever in terms of blog views with a 162% increase over December.  This was then followed up by an even better February was a 58% increase in sites views over January!  All I have to say is Thank You very much.  It has been a blast doing this blog for the past 9 months.  I have enjoyed deeply posting news reviews, examples with spreadsheets, and monthly net worth updates as well as series of posts like “The Financial how to . . .” and “My experience in . . .”

There are two ways to help. First is by sending feedback either in the comment section or by emailing me at white.833ATosuDOTedu. Comments on whether you like the content or not, something I need to do more or less of, or simply want me to do a financial post on a topic are all welcome.  Feedback gives me a chance to find out what my readers think and want.  Second, if you have not already and want to receive the blog via email please enter your email in the tab on the right side of the blog, or if you want to share with Facebook, twitter, or any other social media feel free using the addthis tool bar on the right side of this blog.

Thanks again to all my readers, a lot of good stuff is planned for the spring to keep coming back for updates and new posts.  I greatly appreciate all of you and remember you are the reason I write this blog.

The Balanced Spreadsheet