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My savings account is now bigger than my home mortgage.

My savings account is now bigger than my home mortgage.

Kind of a weird scenario happened last month. The amount of money that my wife and I have saved up for building our next house has actually surpassed the amount of the mortgage on our existing house. We have been living in our first house now for a little under 6.5 years which also ironically is pretty close to how long I have been writing this blog and now I am to the point if I wanted to could have my house paid off free and clear with a couple clicks of a mouse button.

My wife and I have never paid extra on our mortgage and currently have it locked into an 5 year ARM at 4.0% that I think has three years before it adjusts. Our savings is currently sitting in an ING checking account earning us a paltry 1%. So even while our mortgage is tax deductible even a 1st grader can probably figure out that I am losing money every single day I do not pay off my mortgage free and clear.

So why haven’t I done it? Well the main reason I have not made the smart financial move is that if I were to pay off my home mortgage I lose the flexibility I may need if a piece of land comes available that I need to purchase. Most lenders require a significant amount of money down to by vacant land and the rates for vacant land are likely to be quite a bit higher than the interest rate I currently have my mortgage locked in at. So as soon as I make the purchase I am then losing money on the higher interest rate between my existing mortgage and the land loan.

If I were to pay off my house I would also possibly need to wait to sell my house before I could purchase the land which would put a big kink in things and potentially cost me losing out on a piece of property and while it didn’t seem quite so obvious when I originally wrote this post during the housing boom – its pretty obvious now that you might have trouble just turning around and selling your house right away. So I am willing to take a 3% hit on a pretty significant chunk of money every day for the flexibility it is affording me in my pursuit for a large chunk of land to build a house on.

Another ironic note is that even if paid off my mortgage it would save me my $589 mortgage payment each month but I as I pointed out in the post referenced above I still have to drop about $400-$500 a month on taxes, insurance, heating/cooling each month so its not like you write the check and live for free the rest of your life. The cost of a home goes far beyond your mortgage payment and for some of these dufusses who build extravagant houses their tax bill is the biggest liability they have on their balance sheet going forward.

When we purchase our property and build our next house I will have two big financial considerations on the forefront of our decision making process – property taxes and heating/cooling costs. These are two costs that can be significant and are guaranteed to go up exponentially every year for the rest of your life. The mortgage itself does not scare me because that is a fixed cost at a fixed rate that eventually over time inflation will eat away at and it costs you less and less each year and is also potentially offset by a gradual increase in real estate value. Taxes and energy costs on the other hand go up hand in hand or exceed the cost of inflation in many cases so every year you own that house it costs you more and more.

So you might be asking MFJ what is the deal man – you talk like some frugal dude that thinks owning a house is a waste of money and you’d be a dufus to build an extravagant house – yet here you are with a 6 figure savings account “downpayment” for your next house are you a crazy hyporcit? The answer is maybe.

First things first we are going to spend a crapload on our next house compared to what we would really need. We could live in our current house forever and it would be more than adequate. For the record we currently live in a less than 10 year old 1800 sq ft ranch house in a nice subdivision with an unfinished basement that could easily house our family of 5 even with some incremental family growth.

However life is all about balance and we need to balance between saving for tomorrow as we are with our retirement nestegg and enjoying some of our financial blessings now. It’s always important to give myself a reality check and making sure I’m being frugal and not being cheap – there is a big difference. So is a big fancy house going to make me and my wife anymore happy or our lives any better – the answer is no. We don’t need shiny new things to make us feel more important or make our lives more exciting. We enjoy living relatively simple lives and don’t spend much of any money at shopping malls, on new cars, or on other things that seem to excite other people.

The main reason we are saving so much money for our next house is that we want to purchase a large chunk of property (20+ acres) out in the country to build a house and start a fruit orchard. All in all I expect the cost of the land to be pretty close to the cost of the actual house which explains the large price tag for the combined purchase.

Overall I don’t expect our house to be that extravagant and one could actually view the additional land and fruit orchard as an investment, but to be honest I’m not even sure if I can grow anything so I’m not going to mix the two. This will be strictly for personal enjoyment and some place where my family will grow and where my wife and I will live for the rest of our lives. Because the land will be put to agricultural use the taxes will be very affordable and like I said if I’m able to grow a few things there could be the opportunity where the land could actually pay some dividends back to me.

Now off to find some land…

Retirement Nestegg Report – November 2011

Retirement Nestegg Report – November 2011

Well another month where I trailed the SP500 (3 in a row). This does not give me cause for concern as over the long term I have been beating the market and up until the last three months I had a really good string of wins on my side – again broken horse but Netflix was one of my largest positions and has taken a serious hair cut here in the short term. While my portfolio was relatively flat up until a few days ago I was down about $15-$20k from last month but the market has been rallying a lot in recent days and brought me back near last months total. Goes to show you that short term gyrations (days, weeks, months, years) really mean nothing and you should not react to them or fear them.

Traditional Rollover IRA – $14,875.70 (-2.14%)
My Roth IRA – $46,604.10 (-2.80%)
Wife Roth IRA – $22,131.60 (+2.42%)
Current Traditional 401k – $88,818.48 (-0.47%)

Roth/Traditional % = 39.86 % (tax free)

Total Retirement Nest Egg $172,429.88 (-0.89%)

Monthly Contributions $693.10 (401k)
SPY Performance -0.27%
My Monthly Investment Performance -1.29% (-1.02%)
My Monthly Individual Stocks Performance -1.34% (-1.07%)

Retirement Nestegg Report – October 2011

Retirement Nestegg Report – October 2011

Well for the second month in a row my investments have lost out to the SP 500 index and for the second month in a row I am going to blame Reed Hastings 🙂

Traditional Rollover IRA – $15,201.22 (+15.08%)
My Roth IRA – $47,947.32 (+6.71%)
Wife Roth IRA – $21,609.15 (+11.21%)
Current Traditional 401k – $89,233.16 (+11.13%)

Roth/Traditional % = 39.98 % (tax free)

Total Retirement Nest Egg $173,980.85 (+10.21%)

Monthly Contributions $693.10 (401k)
SPY Performance +10.92%
My Monthly Investment Performance +9.77% (-1.15%)
My Monthly Individual Stocks Performance +9.25% (-1.67%)

Retirement Nestegg Report – September 2011

Retirement Nestegg Report – September 2011

Well I had a hunch this month was going to be ugly and well I was right. Overall the market fell 7.42% on top of the 7.79% that it fell last month so things are getting pretty exciting as far as being able to invest money at lower cost basis, but the bad news is this month I broke my streak of of seven straight months of besting the SP500 index and well I broke it in stunning fashion losing by 3.48% overall this month and my stock portfolio losing by 5.60% just this month. There is a pretty logical explanation for all of this and his name is Reed Hastings 🙂 My best performing stock and also my largest individual stock holding Netflix fell about 50% just in the last month which has has a significant impact on my portfolio’s performance this month.

The good news I think is that I believe I have come a somewhat seasoned investor and having my largest single stock investment fall by 62% in a few short months and my overall retirement nestegg fall by nearly 20% from its all time high in April really gets no other reaction out of me other than a slight chuckle and some excitement that I might get the chance to make some very attractive investments in the next few months. I still very much feel like I am on the exact right track and I have kind of dealt with a somewhat worst case scenario (not saying thing won’t go lower), but things are sort of hitting the fan again in the market, my largest stock holding by far gets cut in half in a single month, and my retirement nestegg is still $100k larger than it was the last time things went to pot just a little over two years ago.

Also while Netflix was my largest stock holding it never really accounted for much more than 10% of my individual stock portfolio and maybe roughly 5-6% of my overall retirement nestegg so while I certainly felt things it didn’t permanently wreck my portfolio which I think is a good experience to go through and now going forward I will have a better understanding of how to handle diversification. And while it sucks to be down 60%+ on a stock in just 2 months its hard to get too upset when I’m still up nearly 450% on all of my Netflix investments and I personally feel the sky is not falling and Netflix still has a lot going for it and will very likely be a good performer moving forward.

So as to what I am going to do – I will probably follow the market a little closer than I did when it was constantly going up and will look to contribute more funds as the market is falling. I do have a stash of about $10k in cash in my 401k account kind of waiting for an opportunity like this and well I may put my house/land savings on hold if the market presents me with some attractive prices as I currently have $112k saved up for our next house so feel I can probably start diverting more money back towards our retirement nestegg going forward and still have the flexibility to jump on a land purchase if it presents itself. Overall with the worsening stock market and worsening real estate market I feel like I have put myself in real good shape over the last 5+ years to put myself in an even better position 5+ years from now.

Traditional Rollover IRA – $13,209.23 (-8.80%)
My Roth IRA – $44,930.66 (-10.54%)
Wife Roth IRA – $19,431.03 (-20.60%)
Current Traditional 401k – $80,286.67 (7.93%)

Roth/Traditional % = 40.77 % (tax free)

Total Retirement Nest Egg $157,857.59 (-10.50%)

Monthly Contributions $693.10 (401k)
SPY Performance -7.42%
My Monthly Investment Performance -10.90% (-3.48%)
My Monthly Individual Stocks Performance -13.02% (-5.60%)

Retirement Nestegg Report – August 2011

Retirement Nestegg Report – August 2011

Well a pretty exciting month for my retirement nestegg – though it ended up not finishing up quite as exciting as it looked like it might. I think at one point this month my retirement nestegg was down almost $40,000 from its overall high, but ended up making most of it back as stocks rallied the second half of the month. What does this mean for me? Well nothing really – other than I thought I might have some magical power over the stock market as the last time I mentioned about wanting to stocks to fall we had the crash of 08/09 and two months ago I wrote something similar and down we headed.

But anyway I will say it again I’m very glad I started tracking my performance against the SP500 as even in a down month like this where most people would be like oh crap my accounts shrunk by $11,000 – life sucks. I can be like awesome I beat the market by well over 1% again just this month. Certainly gives you a different perspective on things even though you shouldn’t even be looking at things in such a short period of time – it makes me feel good and makes me feel like I’m making progress and is 7 months in a row my performance has bested the SP500.

Here is my report

Traditional Rollover IRA – $14,485.30 (-4.44%)
My Roth IRA – $50,224.67 (-4.80%)
Wife Roth IRA – $24,469.87 (-9.48%)
Current Traditional 401k – $87,206.08 (-6.48%)

Roth/Traditional % = 42.47 % (tax free)

Total Retirement Nest Egg $176,385.92 (-6.27%)

Monthly Contributions $693.10 (401k)
SPY Performance -7.79%
My Monthly Investment Performance -6.64% (+1.15%)
My Monthly Individual Stocks Performance -6.08% (+1.71%)

Retirement Nestegg Report – July 2011

Retirement Nestegg Report – July 2011

Well another negative month for my retirement nestegg total, but again another month where my investment performance easily outpaced the SP500. These month to month results really mean nothing but all of these individual monthly one ups on the SP500 are really starting to translate into long term outperformance of the SP500 which is every investors benchmark and one that most investors fail to beat so I feel pretty good about that and makes me kind of glad that I didn’t follow my own advice by investing strictly in index funds (which is the smart thing that essentially everyone should do).

Traditional Rollover IRA – $15,157.54 (-2.47%)
My Roth IRA – $52,758.36 (-0.19%)
Wife Roth IRA – $27,032.05 (-1.52%)
Current Traditional 401k – $93,247.13 (-1.46%)

Roth/Traditional % = 42.40 % (tax free)

Total Retirement Nest Egg $188,195.08 (-1.09%)

Monthly Contributions $693.10 (401k)
SPY Performance -2.00%
My Monthly Investment Performance -1.46% (+0.54%)
My Monthly Individual Stocks Performance -0.73% (+1.27%)

Retirement Nestegg Report – June 2011

Retirement Nestegg Report – June 2011

Another negative month for my retirement nestegg report, but my investments beat the market pretty handily again this month. Heading the wrong direction from the $200,000 milestone but like I said last month I really don’t mind that at all as long as it means the market as a whole is headed south it will give me an opportunity to pick up some additional investments at less expensive values, but doubt we will get an opportunity like the crash of 2007-2009 anytime soon – though one can only hope. Here is my monthly report.

Traditional Rollover IRA – $15,541.70 (-0.46%)
My Roth IRA – $52,657.43 (-0.21%)
Wife Roth IRA – $27,449.60 (-2.97%)
Current Traditional 401k – $94,629.51 (-1.06%)

Roth/Traditional % = 42.10 % (tax free)

Total Retirement Nest Egg $190,278.24 (-1.06%)

Monthly Contributions $693.10 (401k)
SPY Performance -2.17%
My Monthly Investment Performance -1.42% (+0.75%)
My Monthly Individual Stocks Performance -1.05% (+1.12%)