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10 Year Plan, First Action

Today, I sat down with a nice spreadsheet created by tt from Retire At 30. I decided to throw in some round numbers, and make a basic financial plan. I decided that I want to start in 2006, end by 2015, and have $1,000,000. Also, I decided I would increase my annual contribution by 10%, and start out with $6,000. Here is what it looks like:

So, if I follow this plan, and get a return of 55% on my contributions, I will have just over $1,000,000 by 2015.

Now, I do not have $6,000 a year that I can contribute, yet. Once I start cutting down on some expenses, it will be no problem. But, my cars are not going to be paid off all that soon, and it looks as if I am going to have to wait a little over a year to refinance my mortgage. So, for 2006, I have to find $6,000 elsewhere. And where else can you find somewhat residual income? On the Internet. As you can see, I have Google AdSense on this blog. I do not get a lot from it currently, but there is potential. So, I am starting a new blog about mystery shopping called Mystery Money. This will allow for money in a few ways: 1) I will probably be able to get decent traffic for this blog, and get some AdSense revenue. 2) I will be able to refer people to various mystery shopping clearinghouses and make some revenue. 3) I will increase the amount of mystery shopping that I do, which will create more revenue.

So, I am going to try and create some more residual income, and hopefully put that towards my contributions.

Also, I am going to open a savings account with the credit union in my building. I have opened a savings account before, but it doesn't work out very well, because it is tied to my checking account... and with poor discipline, you know where that leads. So, this will not be attached to my checking, and it will automatically be withdrawal from my paycheck. I will only be taking about $25 from each paycheck, but it will add up, make me a member of the credit union, and give me somewhere to put my other contributions until I place them in some other higher-yeilding investment. Plus, by being a member of the credit union, I can easily refinance my vehicles at a much lower interest rate.

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Retire At 30 Has a Plan!

I was going through the carnival today, and I noticed Retire at 30. It seems that this guy and I are not to different, in our financial goals and time tables. He has got to be 22/23; I am 25. He wants to retire at 30; I want to retire at 35. He has a seven-year timetable; I have a ten-year timetable.

I am sure that we have plenty of differences. He has graduated from college; I graduate in May. He has run organizations; I am just starting. I do not know his marital status; I have been married for almost seven years. I do not know if he has kids; I have three.

What is important is that we each have similar goals. Further, we seem to have similar ideas as how to attain them. His plan, some stocks, real estate, hard work, and frugal living. That pretty much sums up mine.

I will be watching Retire at 30 to keep up to date, and I hope to share some of my secrets.


A Bit Off-Topic: Mozilla Firefox

Time is money. Having said that, being more efficient with you computer can save you time. One way to do this is to not get malicious software loaded onto your computer. Malicious software, or malware, can slow down your computer (or even make it unusable), compromise your privacy, and be a plain nusance. While no software is perfect, Mozilla Firefox can help shield you from unwanted malware better than the default web browser for Microsoft Windows, Internet Explorer.

Any time now, the Mozilla Foundation should be releasing the latest version of Mozilla Firefox. Fixes and features will be aplenty. I have a link to the side that you can use to download and try it out.


Refinancing Home Mortgage Loans

As I have stated in my 10 Year Plan, refinancing your home mortgage loan can save you a considerable amount of money each month. Currently, it looks as if home mortgage interest rates are going to remain at a moderately low level for the next few months. If you received a mortgage in the past couple of years, and your credit was not great, you may be able to qualify for a lower interest rate if you have been consistenly paying your mortgage and other bills on time. I know that my credit was not the best when I sign my mortgage at the beginning of this year. By the summer, however, I had already noticed that my credit had improved, and I was able to get a relatively new vehicle at a much better rate than I had for my last vehicle.

Refinancing you home seems like a daunting task. There are several ways that refinancing can save you money. First, and foremost, if you get a better interest rate, you can save nearly $100 per month on each $100,000 borrowed with each 1% decrease in your interest rate. This can be substantial if you can lower your rate by a couple percentage points, and especially so, if your mortgage is a over a couple hundred thousand dollars.

I, myself, put 15% down on my property when I purchased it. This allowed me to finance a little over $100,000 for my property. It is about the median home value for my state. I expect that I can refinance my property with a little over a 2% rate decrease. Unfortunately, I would have to pay a penalty if I refinance within the next 14 months (because of stipulations in my original mortgage). This means, you should certainly check into your existing mortgage to see if there are special provisions that would cost you more money. However, even if you have a penalty, it may still be in your best interest to refinance if you A) have an adjustable rate mortgage, as your rate may increase in January, or B) you stand to save a couple hundred dollars per month, as this could offset the penalties and let you lock in a lower rate than you could in another year or two.

Another way that this could save you money, each month, is if you have more equity in your home. By refinancing, you are starting the 30-year cycle over again, but with a lower principal. This does not really save you any money, it just allows you to pay it off over an extended period of time. This could actually be worse than you think, so you could refinance with a shorter term, like 20 or 15 years. Also, if you signed your last mortgage in the past couple of years, you have probably not made much of a dent in your principal, so you would not see a substantial savings from this.

Again, you must weigh your options and see if it is the best thing for you. If you have poor credit when you signed your mortgage, chances are that you will have a better rate along with the ability to receive a fixed rate. This combination could save you several hundred dollars per month, especially if your rate may increase in Janurary.

I have already received two pre-approval letters for over 2% lower. I am also going to check out some other lenders. I can say from my personal experience that was quite horrible. The caliber of lenders they provide always seem to fall short. I was promised a decent rate, and then all sorts of conditions began to crop up. I ended up bailing out of that situation after I had been working with them for six months. Within a week, I signed with a much better, local lender, and closed on my property.

I will be considering, as they seem reputable. I will follow up with an update, if I follow through with my mortgage.

Other areas to save on your monthly expenses include those that I have outlined in the past in my PMI Options post.


Carnival of Personal Finance #24

This week's carnival is on Financial Fruition. Check it out.


10 Year Plan

Yesterday my 10 Year Plan officially started. What is my 10 Year Plan? Well, it has been something that has been brewing in my mind for the past 11 months. I decided that I wanted to become financially independent by the time I turned 35. So, yesterday just happened to be my 25th birthday, hence the start of my 10 Year Plan.

Why 35? I wanted a long-term goal. You may see a trend of my being goal oriented. I have not, however, had a good long-term goal. Goals need to be measurable and realistic. 10 years seems realistic for becoming financially independent. Measurable... well, I have to first determine what financially independent means, to me. It means being able to choose what I am going to do, any given day, on that specific day. If I can wake up in the morning and decide to goof off the entire day, that means financial independence. So, what is it going to cost for me to do this? I cannot predict the future, but, I can make some educated assumptions. I think that I will be living in a different home within the next ten years. I have lived in my current home for about nine months, and I want to live in a different home already. The space is nice, the neighborhood is nice, but it isn't "me" (or my wife, for that matter). We want a decent chunk of land, we want to be creative with all aspects of the home, and we want to start a real estate. This will be much more expensive than my current home (which costs about the average home price for Indiana... $130,000. That is cheap by national standards, but the nation is not New York City or Los Angeles). So, I have decided that we must first cut our expenses and break apart our goals. First, I want to refinance my home at a better interest rate. I have about 15 months before I can do this without paying a penalty. I had pretty poor credit when I closed on my home, and it has improved dramatically since then. I have already received two pre-approvals for new mortgages that are over two points lower. So, I have to do an analysis to see if I should just pay the penalty... as this comes out to nearly a $200/mo. difference. Next, I want to pay off each of my relatively new vehicles, which comes about to about $500/mo., combined. Then, next summer, my auto insurance rate should drop by about $100/mo. since I am becoming a more mature and responsible adult. So, in total, it looks like I can drop my expenses by about $800/mo. within a year, or so.

Beyond that, I need to make more money. So, I have started a company... Reinvent Solutions, LLC. It is an IT services company. At this point, it really just used to better separate the funds I make doing side work. It also gives me a couple of tax advantages (we do not, however, do anything illegal... pigs get fat, hogs get slaughtered). My goal is to make an extra 10% with this venture, and half of this will be saved for my financial independence. If it grows, that is great.

Some real estate investment will most likely be in order, as well. I plan on getting a property, and the sooner, the better. I do not plan on flipping. I do not live in, or near, a market that would warrant flipping. I will be buying and holding. Maybe an investment property per year is a good goal.

Anyhow, here is my basic formula. I need to find out what I need to make per year in order to live the lifestyle I want. Given that I will be reducing my expenses, yet I will be moving to a larger home, I will probably need to make as much money as I do today (given I will sell my current home and have decent equity by then). Further, my wife will be working by then, and she will cover our healthcare coverage, as she will be working in the healthcare industry. So, I can really get by with making the same take home pay as I do now, adjusted for inflation. The easiest way I have seen to do this is to have 10 times the amount you need, and to get a return of 10%. These are easy numbers, and realistic. So, if you make $50,000/year, you need to have $500,000 making a 10% return. This will give you $50,000/year.

This is all very basic, and it will certainly be altered over the next 10 years. As I have learned from military conflicts, the best laid plans do not survive first contact. I am young, and I have a lot of potential left. I am married with three children, and I have not yet graduated from college (hurry up May). My earning potential should increase with that degree. I also plan on pursing a master's degree (probably an MBA), and a law degree (JD). This is all contingent on my wife getting back to school and becoming a nurse. She has always wanted to do this, but she has put it aside to raise the children. She is starting back to school next semester with one course at a time, until Fall 2007, when she will start clinicals.

Expect more updates about my 10 Year Plan, as time permits, and news occurs. Maybe you will have your own 10 Year Plan....

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