A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Saturday, April 30, 2005

Where's a Good Place to Put Your Cash - May Update

On March 15th, I listed several banks that paid some of the highest interest rates on savings accounts. Here's the updated list along with links to the banks.
      Bank Money-Market Accounts
UFB Direct 3.30% $ 1
Emigrant Bank 3.25% 1
Capital One FSB 3.15% 100
Resource Bank 3.04% 10,000
National InterBank 3.00% 200
Taxable Money-Market Funds
Scudder Money Market Series Premium S 2.86% 2,500
PayPal Money Market Fund 2.80% 1
Scudder Money Market P.S.R - AARP 2.21% 10,000
Transamerica Premier Cash Reserve Inv. 2.15% 1,000
Vanguard Prime Money Market Fund 2.13% 3,000
Tax-Exempt Money Market Funds
Alpine Municipal Money Market Fund Inv. 2.86% 2,500
Vanguard Tax-Exempt Money Market Fund 2.65% 3,000
Strong Tax-Free Money Fund 2.12% 2,500
Scudder Tax Exempt Money Fund 2.34% 1,000

Fidelity Municipal Money Market Fund 1.47% 5,000

Some of these funds may have sales loads. Be sure to thoroughly read the fine print before you send them your money.
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Friday, April 29, 2005

Here's a Money Market Resource

Here's a pretty cool website called iMoneynet that is great for those who are looking for money market funds. Money market funds are gaining popularity due to the fact that the Fed has raised interest rates seven consecutive times, which has caused the yeild on low-risk savings accounts to an average of 2.23% from .51%.

The Fed is also expected to raise rates to 3% from 2.75%, making money market accounts even more attractive.

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Thursday, April 28, 2005

Don't Keep Too Much Employer Stock in Your 401(k)

Most financial planners say that a person should have no more than 10% of their total assets in employer stock. But, according to the Retirement Confidence Survey, nearly 25% of 401(k) participants whose plans offer an employer stock option have at least half of their assets in that option. Here's another startling observation: more than 10% of workers have 90% to 100% of their account in employer stock.

In some cases the employer's matching contributions are paid in company stock, making the employee responsible for rebalancing their 401(k). Not rebalancing leaves them facing a huge amount of risk. According to an article entitled "Too Much of a Good Thing," in the May issue of Kiplinger's Magazine, an account balance of $200,000 in insurer Marsh & McLennan before their bid-rigging allegations would be worth $132,000 today. That's a 34% DECREASE! Nobody should have to go through that!

The point of all this is the importance of having a balanced approach when saving for retirement. Don't fall in love with your company's stock. It could end up being a fatal mistake for your retirement plans!

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Learn to Read those Footnotes!

Yesterday I was cruising the internet when I came across a pretty cool blog/website (I think it is a little of both) called, written by Michelle Leder. Michelle is the author of the book Financial Fine Print. Anyway, this site is all about learning how to read the fine print in a company's financial statements. Check it out!

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Wednesday, April 27, 2005

Google & Yahoo vs. GM and Ford

Ken over at the Blogging About Blogs site, has an interesting tidbit about Google and Yahoo vs. GM and Ford. Here's the link.
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Online "Social Networking" Sites

Here's a list I saw in today's Wall Street Journal of Social Networking sites. Two of them (Friendster and My Space) will let anybody join. The others in the list will not. Good luck. I don't belong to any of them. Here's the list:

A Small World

Catch 27

Closed Society



Linked In

My Space


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The 13 Absolutely Unbreakable Laws of Money by Brian Tracy

I found this on the internet several years ago and thought I would share it. I can't find the source for the information but I will tell you that it is written by Brian Tracy and that I received permission to reprint it here. This is worth printing and posting on your refrigerator.

1. The Law of Abundance: We live in an abundant universe in which there is sufficient money for all who really want it and are willing to obey the laws governing its acquisition.

2. The Law of Exchange: Money is the medium through which people exchange their labor in the production of goods and services for the goods and services of others.

3. The Law of Capital: Your most valuable asset, in terms of cash flow, is your physical and mental capital, your earning ability.

4. The Law of Time Perspective: the most successful people in any society are those who take the longest time period into consideration when making their day-to-day decisions.

5. The Law of Saving: Financial freedom comes to the person who saves ten percent of more of his income throughout his lifetime.

6. The Law of Conservation: It's not how much you make, but how much you keep, that determines your financial future.

7. Parkinson's Law: Expenses always rise to meet income.

8. The Law of Three: There are three legs to the stool of financial freedom: savings, insurance and investment.

9. The Law of Investing: Investigate before you invest.

10. The Law of Compound Interest: You become financially independent by investing your money carefully and allowing it to grow at compound interest.

11. The Law of Accumulation: Every great financial achievement is an accumulation of hundreds of small efforts and sacrifices that no one ever sees or appreciates.

12. The Law of Attraction: The more money you save and accumulate, the more money you attract into your life.

13. The Law of Acceleration: The faster you move toward financial freedom, the faster it moves toward you.
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Tuesday, April 26, 2005

The Time Value of Money - Part II

In my last post in the "Financial Planning Basics" Series, I introduced the concept of the time value of money. Today we'll take it a bit further by talking about some of the formulas involved in making different calculations. None of these formulas are hard to understand, however, you may have to get used to them if you haven't seen them before.

Future Value of a Single Sum

Future value = amount X (1 + i)n

amount = lump sum amount invested today
i = expected interest rate or growth rate
n = number of periods (years) that the money will grow

Here's an example:

Say you have $1,000 and you want to invest it. You expect to get a 10% rate of return on this money and expect to invest it for 10 years. How much can you expect it be worth in 10 years?

Future value = $1,000 X (1 + .10)10

Future value = $1,000 X (1.10)10

Future value = $1,000 X 2.593

Future value = $2,593

amount = $10,000
i = .10 (10% expressed as a decimal)
n = 10 years

This example shows us that if you invest $1,000 for 10 years at a 10% rate of return, it will grow to $2,593.

Now, there is a flaw with this formula. Can you figure out what it is? The problem is that it assumes a straight line growth rate of 10%. That is not reality. So, it is important to keep in mind when using this calculation is that it is only an estimate.

That's it for now. Next time we will take this formula a bit further when we talk about future value of multiple cash flows. Ooooh, how exciting!

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Man on a Mission Update

For those who are interested, I have another blog called Man on a Mission, that is dedicated to mission statements. I created this blog because I thought it would be cool to have one place where people could go to study mission statements. The blog also has an RSS feed ( so that you can track it if you choose.

I'm also looking for mission statements to add to the blog. If you have a personal mission statement that you would like to share, please email it to me and I will add it.

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Monday, April 25, 2005

Common Sense Economics

If you are looking for a small book to help you brush up on economics, "Common Sense Economics" by James Gwartney is that book. It is written in an easy to understand and enjoyable manner.

The book is divided into four parts:

Part I: Ten Key elements of Economics

PartII: Seven Major Sources of Economic Progress

Part III: Economic Progress and the Role of Government

Part IV: Twelve Key Elements of Practical Personal Finance

I like the arrangement because it is easy to follow and is to the point. I think it is a great read.

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Sunday, April 24, 2005

Site Updates

I'm currently trying to update AllThingsFinancial to make it easier to use. On the sidebar, I have started arranging my blog links by the type of blog that they are. If your blog is listed over there and you think it needs to be in a different category, please send me an email and I'll fix you up.

Also, if you came across this blog for the first time and you also have a personal finance blog that you would like me to link to, let me know. I'm happy to add links. I would also appreciate any links to my blog!
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Saturday, April 23, 2005

College Saving Reading List

Todd over at the 800-CEO-READ blog has a list of books for those who are currently saving for college.

Also, for those interested, you may also want to check out thisarticle on the Wall Street Journal Website.
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Friday, April 22, 2005

Financial Planning Basics - The Time Value of Money

Chances are, if you are out reading personal finance blogs, you probably already understand the concept of the time value of money. For those of you who don't, read on!

If someone were to offer you $100 today or $100 one year from now, which one would you take? If you are like most people, you'd take the money NOW. Why? Because you can take it now and spend it now. In other words, why wait a whole year for something that you can have now? From a financial viewpoint, $100 now is worth more than $100 a year from now. This is the concept of the time value of money: A dollar today is worth more than a dollar in the future.

Why is this so? Two things: inflation and uncertainty. We all know that prices rise over time. At a 3% inflation rate, $100 will only buy you $97 worth of stuff a year from now. Uncertainty is a factor because we don't know what things will be like a year from. Therefore, we need some form of compensation to adjust for uncertainty.

Now, what if someone offered you $100 today or $200 one year from now? Which one would you take? If you waited a year, you would be receiving 100% return on your money. Is it likely that you could take the $100 now and invest it in a manner that would double your money in one year? Not likely! You would do best to wait for a year and take the $200.

So, why am I talking about all this? Because this is one of the most important concepts for you to understand when it comes to personal finance. I'm here to tell you that there really is a rational way to deal with your finances. Life is all about decisions. Knowing how to analyze your situation will help you to make the right decisions.

My next post, I'll give you some more information on the concept of time value of money. Keep coming back and PLEASE tell your friends!

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Another Business Week Blog:

Check out, a new Business Week Blog by Stephen Baker and Heather Green. Interesting stuff!

There is one problem with their blog. I tried to leave a comment and it sent me to this page. I have NEVER had this happen before. I hope they get it fixed.
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Business Week on Blogs

There's an interesting article in the latest Business Week called "Blogs Will Change Your Business." It is worth the read.

One other thing, Well Spent, a Business Week Blog written by Amey Stone, is worth checking out. They recently redesigned it and made it more user-friendly.
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Thursday, April 21, 2005

Buying a New Car - Some Good Advice

The Big Money Tips blog has some great tips on buying a car.

One suggestion I have is to buy a used car if at all possible. One other tip: be sure and check out the 0% financing deals! Just because you can get 0% does NOT mean you should take it. Why? Because they may offer cash back instead! Do the math before you buy.
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Starting an Investment Club

I found a link to this article, So You Want to Start an Investment Club? on the Handwriting on the Wall blog. Anyway, this is a very well-written article on how to start an investment club.

If you do decide to start an investment club, please remember NOT to include your contributions as part of your investment performance like the Beardstown Ladies did. What a scam that was! I'm glad I never bought their book!
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Baby Boom Generation Numbers

Nick Murray posted an interesting article in the April edition of Financial Advisor Magazine (sorry, Nick doesn't allow FA to publish his articles on their website!). Anyway, the purpose of his article was to show financial planners just how big the Baby Boom market is.

I've always known that the Baby Boom Generation was huge. I just didn't realize how huge it really was. For instance, take a look at the number of births that occured annually during the Baby Boom.
           No. of
1947 3,817,000
1948 3,637,000
1949 3,649,000
1950 3,632,000
1951 3,820,000
1952 3,909,000
1953 3,959,000
1954 4,071,000
1955 4,097,000
1956 4,210,000
1957 4,300,000
1958 4,246,000
1959 4,244,796
1960 4,257,850
1961 4,268,326
1962 4,167,362
1963 4,098,020
1964 4,027,490
Total 75,821,844

Granted, not all of these people are still alive, but, it is said that 46 million of these people will be retiring in the next 10-20 years. FORTY-SIX MILLION! From a financial planner's viewpoint, this is a huge market in need of financial planning services. Time to get to work!
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Wednesday, April 20, 2005

Proposed Changes for 529 Plans

I saw an article in the newest issue of Financial Advisor Magazine regarding proposed changes to 529 Plans. According to the article, some of the proposed changes are:

  • Third-party contributions to 529 accounts would be prohibited.
  • The penalty on nonqualified withdrawals would be increased from 10% to 20% when the withdrawal is made for the contributor 20 years after establishing the 529 account.
  • Beneficiaries who are not the plan's original ones would be subject to a 35% excise tax on nonqualified distributions over $50,000. The tax would increase to 50% on distributions of $150,000 or more.
  • Only trustee-to-trustee rollovers would be permitted.
  • A plan contributor could not transfer account ownership to another person, although an administrator could be named to administer the account.
  • All 529 plans created before the regulations are enacted would not be affected if they stop taking contributions. If contributions continue, the new rules would apply.

These are some significant changes. My guess is that if these are enacted 529 Plans will become less popular.

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The Price of Milk

Does anyone know why the price of milk is still high? I remember the price of milk went up like a dollar per gallon (from $2.59 to $3.50) early last summer. The price increase was supposedly due to supply and demand. Although the price has dropped some, it is still A LOT HIGHER than it was a year ago. What gives? Were we duped? I'd like to know what my readers think. I have tried to read up on this on the internet but so far have not come up with much. I'd be interested to hear any comments.
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Freakonomics Update

Well, I broke down and bought Freakonomics today. I normally order through my BooksAMillion account but they said it was out of stock for 3 to 5 weeks. Anyway, I am looking forward to reading it. It should be an interesting read. For those interested, check it out:

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Analyzing Your Financial Statements with Ratios - Part III

Today we will wrap up ratio analysis. In parts I & II, we talked about liquidity and debt ratios. Today we will talk about savings and growth ratios.

Savings Rate Ratios

The only way to build financial security is to save and invest income rather than use it for current consumption. Savings rate ratios tell us how much much is being saved and invested.

Investment-Assets-to-Net-Worth Ratio (IANW Ratio)

IANW Ratio = investment assets ÷ net worth

We find this information on the Net Worth Statement. Looking at the net worth statement, we see that the total investments are $335,000 and the net worth is $393,000. Plugging these numbers into the formula we get the following:

IANW Ratio = $335,000 ÷ $393,000

IANW Ratio = .8524 or 85.24%

This ratio tells us that this couple's investment assets make up over 85% of their net worth. This is a very good percentage. The closer you get to retirement, the higher this number should be. It is important to remember NOT to include investments that may be set aside to meet a certain goal (like a college education or new car or something like that). The more conservative and truthful you are in valuing your assets, the better.

Savings-to-Income Ratio

How much of your income are you allocating to savings? This ratio will help you gauge that.

Savings-to-income Ratio = amount saved ÷ annual income

This information is located on the Cash Flow Statement. We can see that this couple puts $12,000 per year in their 401(K) and another $6,000 per year away in investment plans. We will assume that the $4,500 going into education is funding education expenses and is not considered "savings." The annual income for this couple is $107,000, for the following equation:

Savings-to-income Ratio = ($12,000 + $6,000) ÷ $107,000

Savings-to-income Ratio = $18,000 ÷ $107,000

Savings-to-income Ratio = .1682 or 16.82%

This couple is currently saving nearly 17% of their income. This is a good amount to be saving, especially when you consider the fact that they are paying off their mortgage and student loans. Once these two obligations are taken care of, this couple should be able to save an even higher percentage.

Real Growth Ratios

"Real Growth" is growth adjusted for inflation. When people talk about real returns on investments, they are talking about the investment's return minus the inflation rate.

Growth of Income Ratio

Did your income keep pace with inflation? This ratio will tell you:

Growth of income ratio = [(income this year - income last year) ÷ income last year] - inflation rate

Since this is a hypothetical example, we'll have to make a couple of assumptions. First, we'll say that last year's income was $103,000 and that the inflation rate was 3.5% (.035 as a decimal). We saw from above that this year's income was $107,000.

Growth of income ratio = [($107,000 - $103,000) ÷ $103,000] - .035

Growth of income ratio = [$4,000 ÷ $103,000] - .035

Growth of income ratio = .0388 - .035

Growth of income ratio = .0038 or .38%

This couple's growth in income narrowly beat the inflation rate.

Growth of Net Worth Ratio

Is the growth in your net worth keeping pace (hopefully BEATING) inflation?
Growth of net worth ratio = [(net worth this year - net worth last year) ÷ net worth last year] - inflation rate

Once again, we will have to make a couple of assumptions. We will assume that last year's net worth was $340,000 and that the inflation rate was again 3.5%.

Growth of net worth ratio = [($393,000 - $340,000) ÷ $340,000] - .035

Growth of net worth ratio = [$53,000 ÷ $340,000] - .035

Growth of net worth ratio = .1559 - .035

Growth of net worth ratio = .1209 or 12.1%

This couple's net worth had a real growth rate of 12.1% last year. This is a very good growth rate. Maybe this couple is taking on too much risk? We can't know that without further analysis.

So, there you have it! That's it for the ratio analysis of financial statements. Where do we go from here? You'll have to check back and see!

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Tuesday, April 19, 2005

Eliot Spitzer

There's an interesting editorial about Eliot Spitzer on the Opinion Journal website. Personally, I am not a fan of Mr. Spitzer. I think he started out with the right intentions by going after the mutual fund companies and brokerages but is now overstepping his boundaries. Read this editorial and you'll see what I mean.
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The other day, I read an Opinion Journal review of a new book called Freakonomics. It is written

by Steven Levitt and Stephen Dubner. Anyway, the review was so interesting that I decided to pick up the book. I'll let you know what I think. Oh, for those interested, the authors have a blog. You can check it out at the Freakonomics Blog
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Monday, April 18, 2005

Monday Night Football Moving to ESPN in 2006!

This irritates the heck out of me. I don't have cable and I don't want it. But, I have always loved Monday Night Football. Now I find out it is moving to ESPN in 2006! Now what am I supposed to do?
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Sunday, April 17, 2005

Free Gulliver!

Today we have the priveledge of having the first ever guest blogger on AllThingsFinancial! Feel free to post comments and questions. Tripp will check in and answer any questions you have. To read an excerpt from the book, click here.

First I would like to thank JLP for allowing me to be a guest host. I appreciate another planner allowing me some air time.

For those of you who do not know about my book, it is a little book for big people. I have done many things over my career (restauranteur, record producer,fashion photographer) but for the last 15 years I have been involved in financial consulting. I have worked with numerous clients and I began to notice that they all had the same basic issues. They were focusing so much on accumulating wealth, they were forgetting about having fun. My book is about getting rich but it has very little to do with money.

One issue most relevant to many of my clients is retirement. Somehow in our society retirement has become a good thing. In fact, many people today will stayin jobs they hate just to be able to save for retirement. In some ways this islike getting married, coming back from the honeymoon, and stating that you cannot wait for the divorce.

If we look at really successful people, they do not "retire." In fact, SuzeOrman who preaches about retirement is herself not retiring. She has plenty of money yet continues to work. She understands that when you do what you love you never want to stop.

I know many people will say," Easier said than done. I hate my job but at least it pays well." My question is; what is the appropriate trade off between a job you hate that pays well and one you enjoy doing that pays less?

I would like to end with the following question; Do you think it is smarter to do work you love and save very little or work you do not like and save a lot?
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Way Off Topic: 80's Commercials

I found this website and just had to share it with everyone. My readers who grew up in the 80s will probably remember most of these old commercials. Here's the link: 80's Commercials.
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Saturday, April 16, 2005

Free Gulliver Blog Tour on Monday!

On Monday, April 18th, AllThingsFinancial will be one of three blogs hosting a blog tour for Tripp Friedler's book Free Gulliver. Tripp will appear as a guest blogger. Readers can read his post and then leave comments. Tripp will then check in and respond to any comments.

I'm excited and looking forward to Monday. I'll post my thoughts on his book later today or tomorrow.
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Here's a cool website I found this morning. It is called MoneyChimp. Here's what they say in their "About Us" section:

"MoneyChimp seeks to be the most coherent, logical, useful and accessible financial education resource on the face of the earth. (We're about halfway there.)

The name comes from that old joke about the dart-throwing, stock-picking monkeys. A second reason for the name is that it carries a built-in disclaimer: this site is obviously not claiming to be an authority on anything. We try hard to be accurate, but you should always double check whatever you see here with additional sources. (We try to provide links to help you do that.)"

Anyway, go check them out.
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Friday, April 15, 2005

Analyzing Your Financial Statements with Ratios - Part II

With my last post in this series, I talked about the Basic Liquidity Ratio (BLR). Today we will look at three Debt Ratios.

To be able to follow along with the calculations, you might want to have a copy of the net worth statement and the cash flow statement, which can be found in these two posts:

Net Worth Statement

Cash Flow Statement

Although ratios aren't the end-all to financial analysis, they can be a big help in pointing out trouble areas of a financial plan. They are also beneficial in looking at year-to-year numbers in order to look at trends.

Debt Ratios

Debt-to-Assets Ratio

Debt-to-assets ratio = total debt ÷ total assets

Looking on the net worth statement, we see that the total debt (total liabilities) is $225,000 and the total assets are $618,300. Therefore, the math looks like this:

Debt-to-assets ratio = $225,000 ÷ $618,300

Debt-to-assets ratio = .3639 or 36.4%

This number shows us that this couple owes a little over 36 cents for each dollar in assets. This couples' goal should be to substantially reduce this number as they near retirement. If they were able to pay off their student loans, their ratio would improve to 31.5%.

Debt-to-Gross-Income Ratio

Debt-to-gross-income ratio = annual debt repayments ÷ annual gross income

From the cash flow statement, we see that this couple has mortgage payments of $8,000 per year and loan payments of $4,000 per year for a total of $12,000. Their annual income is $107,000. The math looks like this:

Debt-to-gross-income ratio = $12,000 ÷ $107,000

Debt-to-gross-income ratio = .1121 or 11.2%

Anything under .30 or 30% is considered enough income to meet debt repayments. At 11.2%, this couple's debt-to-gross-income ratio is acceptable.

Debt Service Ratio

Debt service ratio = annual debt repayments ÷ annual net income

For this calculation we use the same $12,000 of annual debt repayments as above and net income after all deductions ($107,000 - $44,580 = $62,420).

Debt-to-gross-income ratio = $12,000 ÷ $62,420

Debt-to-gross-income ratio = .1922 or 19.2%

For this ratio, anything under 40% is considered adequate. A ratio of .1922 is well within the adequate range.

So, there are three useful debt ratios to help you analyze your personal financial statements. We will continue with ratios next time. Please email me if you have any questions.

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It's Good to be Back!

It was kind of nice to get a break from blogging. Although my traffic slowed down quite a bit, it was nice to take a few days away from the computer.

Anyhow, I got back home yesterday afternoon and plan on posting something substantial later today. I'll start where I left off with ratio analysis of personal financial statements. I noticed that I got a comment stating that ratio analysis is a waste of time. I don't think so at all. Hopefully that will come out once we have studied all the ratios.

NOTE: Be sure and tune in on Monday as I will be having a guest blogger. His name is Tripp Friedler and he's the author of Free Gulliver. I'll post more about this later today.

Oh, and if you haven't purchased or read Jeremy Siegel's newest book yet, I strongly urge you to do so. You will not be disappointed.
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Saturday, April 09, 2005

Taking a Trip

Just to let everyone know, I'll be in Atlanta through Thursday and most likely will not be able to update this blog. I hope to be back to blogging on Friday. If you are new to AllThingsFinancial, please take some time and go through the archives.

See everyone Friday.

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Friday, April 08, 2005

Analyzing Your Financial Statements with Ratios

Now that we have a couple of model financial statements to look at, it is time to use ratios to analyze those statements. You may want to print out the posts with the model statements so that you can look at them while studying the ratios.

Here are links to the two posts:

Net Worth Statement

Cash Flow Statement

Liquidity Ratios

When an asset is "liquid" it means it can be turned into cash quickly. Cash is the most liquid asset. Real estate, on the other hand, is illiquid.

Basic Liquidity Ratio (BLR)

BLR = liquid monetary assets ÷ average monthly expenses

From the Net Worth Statement, the liquid monetary assets would be:
  • Cash - $200
  • Checking - $3,000
  • Money Market Accounts - $7,000
  • Savings - $6,000

From the Cash Flow Statement, the average montly expenses would be the sum of the fixed and variable expenses:

  • Total Fixed Expenses - $30,500
  • Total Variable Expenses - $31,700

The sum of the fixed and variable expenses is $62,200.

Here's what the BLR would look like:

BLR = $16,200 ÷ ($62,200 ÷ 12)
BLR = $16,200 ÷ $5,183
BLR = 3.1 months

This ratio tells us that this couple could live on their liquid assets for 3.1 months based on the average monthly expenses and their liquid assets. Since it is common knowledge that a person should have 3 to 6 months worth of living expenses in liquid assets, the ratio of 3.1 months is on the lower end of acceptability.

With my next post, I'll go into more detail regarding liquid ratios.
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It Feels Good to be Able to Post Again

For the past 24 hours, Blogger has been royally messing up. I have been trying to post since yesterday afternoon. Anyway, hopefully they have the problem all cleared up. For those of you out there who are Blogger users, there's a cool RSS feed that Ken Leebow over on the Blogging About Blogs website told me about. It will keep you informed on what is going on with Blogger.
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Cash Flow Statement - Part II

With my last post in this series, I introduced the cash flow statement. Today we will look at a model cash flow statement so that we can see how it is arranged and what information we can glean from it.

Before we get started, I want to mention a couple of things about cash flow statements in general. Cash flow statements are used to track the sources and uses of income. And, although it doesn't seem to make sense, investing in a 401(k) or other investment account is considered a "use" of funds. Your cash flow statement should be prepared once a year at least and then updated monthly to reflect changes in your situation.

Below is a model cash flow statement that I put together. I meant for it to coincide with the net worth statement.
          Sources of Cash             
Wages/Salary 105,000
Interest 2,000
Mutual Fund Distributions 0
Other 0
Total Financial Assets $107,000

Payroll Deductions
Federal Income Tax 23,000
Social Security & Medicare Tax 7,103
State Income Tax 0
Medical Insurance Premiums 2,000
401(k) Plan 12,000
Total Payroll Deductions $44,103

Fixed Expenses
Mortgage 11,600
Loan Payments 2,000
Utilities 6,000
Insurance 3,000
Property Taxes 3,500
Investment Plans 4,000
Total Fixed Expenses $30,100

Variable Expenses
Charitable Contributions 10,500
Clothing 2,500
Education 4,000
Food 6,000
Gasoline 3,200
Gifts 2,000
Travel/Vacation 2,500
Total Variable Expenses $30,700
Total Expenses $104,903
Positive/(negative) Yearly Cash Flow $2,098

With my next post, I'll give you some useful calculations using the information from the net worth and cash flow statements that will give you an idea of how you are doing.In the meantime, feel free to check out my other posts from the Financial Planning Basics Series:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

Net Worth Statement - Part III

Net Worth Statement - Part IV

Net Worth Statement - Part V

Financial Planning Basics - The Cash Flow Statement

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Thursday, April 07, 2005

A Few New Links

The world of personal finance bloggers seems to be growing daily. When I started AllThingsFinancial back in October of last year, there were only a handful of personal finance blogs. Now there seems to be at least 30 quality blogs dealing with finance and investing. Today I have two more blogs that I would like to add to my list.

The first one is WealthJunkie. It is a nicely written blog by Alex Barbara. I urge my readers to check it out and add it to their Bloglines or other RSS reader.

The other blog I'd like to mention is WeissBlog, written by a Christian blogger. He has some interesting material on his blog.

I'll add both of these blog to my sidebar.
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Wednesday, April 06, 2005

Gasoline Prices

Down where I live, the average price of regular gas is $2.11, which seems really high based on the fact that we are so used to paying $1.20 -$1.50 per gallon in my area (I can't speak for other parts of the country). Yet, everywhere I look I still see SUVs driving around.
This of course got me to thinking about how much an SUV owner could expect to spend on annual basis for gas. So, I built a handy little spreadsheet and punched in some numbers and this is what I came up with:
Miles        Gallons  Cost Per  Total
Driven MPG Used Gallon Cost
15,000 40 375 $2.11 $791
15,000 34 441 $2.11 $931
15,000 32 469 $2.11 $989
15,000 30 500 $2.11 $1,055
15,000 28 536 $2.11 $1,130
15,000 26 577 $2.11 $1,217
15,000 25 600 $2.11 $1,266
15,000 24 625 $2.11 $1,319
15,000 22 682 $2.11 $1,439
15,000 20 750 $2.11 $1,583
15,000 17 882 $2.11 $1,862
15,000 15 1000 $2.11 $2,110
15,000 12 1250 $2.11 $2,638
15,000 10 1500 $2.11 $3,165

Now lets compare these numbers with the price of gas when it was $1.30 per gallon:
Miles        Gallons  Cost Per  Total
Driven MPG Used Gallon Cost
15,000 40 375 $1.30 $488
15,000 34 441 $1.30 $574
15,000 32 469 $1.30 $609
15,000 30 500 $1.30 $650
15,000 28 536 $1.30 $696
15,000 26 577 $1.30 $750
15,000 25 600 $1.30 $780
15,000 24 625 $1.30 $813
15,000 22 682 $1.30 $886
15,000 20 750 $1.30 $975
15,000 17 882 $1.30 $1,147
15,000 15 1000 $1.30 $1,300
15,000 12 1250 $1.30 $1,625
15,000 10 1500 $1.30 $1,950

That's quite a difference. I'm glad I get reasonable performance from our two cars (a Civic and a Buick Rendezvous). My guess is that sales of SUVs will fall further. This isn't good news for Detriot.

As a side note, there's a pretty good piece regarding gas prices over on Weissblog. Go check it out.
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Tuesday, April 05, 2005

Workers Aren't Saving Enough for Retirement

According to the Retirement Confidence Survey released today by the Employee Benefit Research Institute, while two-thirds of employees believe they will reach their retirement-savings goal by the time they stop working, fewer than half said they are on schedule to do so.

The 51% who say they are falling behind in their retirement savings blame high expenses for items like everyday bills, child-rearing, and medical costs.

It is an interesting and alarming report. You can read it by clicking on the above link.
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IRAs are Now Protected from Creditors

The Supreme Court ruled that IRAs cannot be seized by creditors in bankruptcy proceedings. What the ruling didn't say though, is whether or not large IRAs would be protected. The bankruptcy code says that certain assets "reasonably necessary" to support the debtor and any dependents may be protected from creditors. To me, this leaves the door open to raiding a large IRA if need be.

Up until now, IRA protection was left up to the individual states, which varied widely.
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Crown Financial Ministries

I saw a segment on today's Early Show about Crown Financial Ministries and thought I'd share it with my readers.

Although I have never been to a Crown presentation, I do like their take on personal finances (except for the part of not using debt as a tool). Anyway, feel free to check them out for a Christian's view of personal finance.
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Monday, April 04, 2005

Financial Planning Basics - The Cash Flow Statement

Do you want to gain control of your spending? If so, the first step is to develop a cash flow statement. It doesn't have to be all that detailed unless you have major spending problems.

So, what does a cash flow statement do for you? It tracks all your sources of income and all your uses of income. If it is done properly, a cash flow statement will give you an idea of what you are spending your money on and also show you areas where you can improve.

The first part of the cash flow statement is the sources of cash, which typically are:

  • Wages/salary
  • Interest
  • Mutual fund distributions
  • Other

The second part of the cash flow statement is the expenses section. Expenses can be divided into three categories:

  • Payroll deductions - We are all familiar with these!
  • Fixed expenses - These are expenses like a mortgage payment or car note that doesn't change from month-to-month.
  • Variable expenses - These expenses vary (hence the name "Variable expenses") from month to month.

This will make much more sense once I post a model of a cash flow statement. I'll do that with my next post.

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Mark Your Calendars

Two weeks from today on Monday, April 18th, I will be hosting a guest blogger (now there's a term that hasn't been in existence very long!). I will announce who this guest blogger is on Friday, April 15th. The only hint I'll give you is that he is an author. More details to come later!
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Sunday, April 03, 2005

Net Worth Statement - Part V

As promised, here is an example of a net worth statement. I modeled this after one that I found in an out-of-print book called The Fast Forward MBA in Financial Planning by Ed McCarthy.

Financial Assets
Cash 200
Checking 3,000
Money Market Accounts 7,000
Savings 6,000
CDs 6,000
Payments Receivable 10,000
Total Financial Assets $32,200

Personal Assets
Clothing 5,000
Furnishings 15,000
Autos 30,000
Home 200,000
Other 1,100
Total Personal Assets $251,100

Stocks 25,000
Bonds 0
Mutual Funds 35,000
Retirement Plans 250,000
Life Insurance Cash Values 0
Business Interests 25,000
Real Estate 0
Total Investments $335,000
Total Assets $618,300

Utilities 500
Credit Cards 3,000
Other 1,500
Total Short-Term Liabilities $5,000

Auto Loans 15,000
Student Loans 30,000
Mortgage 175,000
Total Long-Term Liabilities
Total Liabilities $225,000
NET WORTH* $393,300
*($618,300 - $225,000 = $393,300)

As you can see, it is a pretty straight-forward exercise. Notice that this couple's net worth is a positive $393,300. Had their liabilities been greater than their total assets of $618,300, they would have had a negative net worth.

Tomorrow's post will be about the cash flow statement. YIPPY!

Other posts in this series:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

Net Worth Statement - Part III

Net Worth Statement - Part IV

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Saturday, April 02, 2005

Interview with Jeremy Siegel, Author of The Future for Investors

I came across an interview with Jeremy Siegel on the Motley Fool radio program and thought I'd share it. You can listen to it here. In case you haven't heard about it yet, Jeremy Siegel's new book is a really good read and probably one of the best books for investors for 2005. I highly recommend it! Check it out for yourself: The Future for Investors
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Net Worth Statement - Part IV

My last post finished up the assets side of the net worth statement. Now it is time to look at liabilities.
A liability is something you owe, either now or later. A liability takes away from your net worth.

Liabilities are usually classified as either short-term or long-term. Examples of short-term liabilities are:
  • Credit card debt
  • Utilities
  • and any other debt that must be paid off in less than a year

Long-term debt is debt that is usually paid off in more than a year. These include items such as:

  • Auto loans
  • Student loans
  • Home mortgage
  • and any other large purchase

For the most part, the less debt you have, the better. However, there are times when debt is necessary. I don't know a whole lot of people who can pay cash for a home!

Next time I'll put this all together in a model net worth statement so that you can see how it all works together. Until next time, feel free to familiarize yourself with the other related posts:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

Net Worth Statement - Part III

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Friday, April 01, 2005

Model Portfolios

NOTICE: I will not be able to update the portfolios this weekend. The computer with the spreadsheet on it is being repaired. I will update the portfolios as soon as I can.

UPDATED MARCH 29, 2005 (Friday, March 25 closing prices)

Here are the final portfolios. Like I said in an earlier post, these are generic "model" portfolios.
I'm also working on a dollar-cost-averaging portfolio since a lot of my readers are in the accumulation phase.

ASSUMPTIONS: $1,000,000 on December 31,2004. I used December 31 because I have been following the portfolios that long. All dividends and income from the portfolio will be deposited into the cash account. Fees (my fee and the brokerage fee) will be deducted on a quarterly basis. The MOST the fee will be is 1.05% or .2625% per quarter. For a portfolio of this size, the total fee should be around .72% or .18% per quarter.

Here are the portfolios:

                  Percent    Current        YTD
Allocation Value Performance
US Stocks 39.9% $394,519
International 20.1% $198,806
Bonds 39.6% $391,660
Cash 0.4% $3,967
Totals 100.0% $988,953 -1.10%

50+ PORTFOLIO - (For those getting ready for retirement)
                  Percent    Current        YTD
Allocation Value Performance
Large Cap 18.6% $185,509
Mid Cap 22.0% $219,770
Small Cap 19.6% $196,082
International 19.9% $198,656
Bonds 19.6% $195,725
Cash 0.2% $2,443
Totals 100.0% $998,186 -0.18%

                  Percent    Current        YTD
Allocation Value Performance
Large Cap 18.6% $185,509
Mid Cap 22.0% $219,770
Small Cap 19.6% $196,082
International 39.7% $397,311
Cash 0.1% $1,056
Totals 100.0% $999,729 -0.03%
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Student Loan Interest is on the Rise

Aleksandra Todorova over at wrote an excellent article entitled Student Loans Get More Expensive.

In the article she does an excellent job explaining how the interest rate on student loans in calculated and why it is expected to rise this summer by as much as 1.5 to 2%. Here's an excerpt:

"Interest rates for Stafford and PLUS loans are reset each July 1, based on the 91-day T-Bill rate determined at its last auction in May. Last year, the T-bill hit a rock-bottom 1.07%. Stafford loans for students in repayment were at 3.37%. After a series of Federal Reserve interest rate hikes since then, however, the T-bill is expected to approach 3% in May. At its latest auction in March, it traded at 2.84%. The Stafford loan rate, were it to be set today, would be 5.14%."

The bottom line to this: if you have student loans that you want to consolidate, you better do it now.
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Jeremy Siegel on the Future for Investors

I saw a link to this story on the Thinking Bull website and thought I'd post a link to it also. It is an article about Jeremy Siegel's newest book The Future for Investors. It is a must read.

Related posts:

The Future for Investors - Part 2

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Net Worth Statement - Part III

This is the third installment on the net worth statement.

I received a comment regarding yesterday's post. The question was about what is considered an asset. An asset is anything you own. For personal financial planning purposes, I like to use three categories for dividing up assets:

Financial Assets - These are usually liquid assets (things that can be sold quickly and used for purchases). Assets that typically fit into this category are:

  • Cash
  • Checking Accounts
  • Money Market Accounts
  • Savings
  • Certificates of Deposit (CDs)
  • Payments Receivable

Personal Assets - Assets that are personal to you, which can include:

  • Clothing
  • Furnishings
  • Autos
  • Home (much debate about this one because a lot of people consider a home an investment)
  • Other


  • Stocks
  • Bonds
  • Mutual Funds
  • Retirement Plans (401(k), IRAs, Annuities, Pension,...)
  • Life Insurance Cash Values
  • Business Interests
  • Real Estate

It is also important to note that some assets depreciate (also known as "use" assets). This means that the asset becomes less and less valuable as time passes. Assets that are included in this catergory are:

  • Autos
  • Computers
  • Clothing
  • Household Appliances
  • Children's Toys
  • and any other asset that gets "used up."

One important thing to remember when valuing your assets is to make sure you use realistic values on your assets. This exercise won't do you any good if you are too optimistic in your valuations. The goal of this exercise is to find out what you are financially worth.

That's it for now. My next post will address liabilities.

Related Posts:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

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