Summer Time Financial Process Reflection

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Summer is a tough time for bloggers, at least if you live in a seasonal state that has a snowy winter period.

It a time to be busy with family, friends and life in general.

During the business oriented and financial slowdown for the summer, often it’s also a relaxed time to examine your current financial strategy and see if it can’t be improved upon.  I think that since a lot of us let our financial planning go on autopilot during the summer, the occasional thought about how we go about things is relatively bias-free!

Gulf of Mexico Sunset

Captiva Sunset

By bias-free thoughts about your business/financial processes, you are able to make optimizations on the processes by looking at your current processes from different perspectives.  I think it’s easier during such times to make some great discoveries and improvements on such processes.  You might be wondering why this is a great time to make improvements since you are most likely in vacation mode…  I’ll explain:

When you are your day-to-day processing of the system currently in place, you are more concerned with managing the transactions (like income and expenses) that use your system and you try to optimize the inflows and outflows of that system.  At that point in time, most likely, you are too busy working with and managing the system to take time to think about redesigning the system for the better.  And therein exists the paradox, while we are resting and enjoying your summer,we’re passively thinking about our existing system and how to make it better!

Funny how life works out that way…

Enjoy your summer my friends!

MR

Paying Off Your Mortgage Is Like Having A Second Job Income Without Working

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Last year I wrote the piece called: Paying Off Your Mortgage is Like Working a Second Job, but I think I confused some folks so I thought I’d try to explain it more thoroughly this time around.  I’m going to show off my geeky spreadsheet side which is very much a part of most of my financial calculations.

Below I’ve included some quick spreadsheet calculation:

Working a 2nd Job
weeks 52
hr/week 40
pay rate 7.50
15,600
Money Not Spend on a Mortgage
month 1,300
months/yr 12
15,600

In the spreadsheet above, I paid off my previous  $15,600 a year mortgage!  That’s works out to be $1,300 extra dollars a month that’s available for me to invest, spend, burn, whatever…  So if you look at my calculations for working full time at $7.50 per hours, it seems to be equivalent, but it’s not…  The thing is that the money from the working full-time at $7.50 is before tax is taken out versus my mortgage saving (which was paid with after tax money, which is commonly called discretionary income).

Small House

Cousin’s Dream House

So based on my own personal scenario, I’m really averaging the equivalent of working a second job at $10.50/hr (see calculation below), but obviously without working…  While this isn’t obvious at first, if you consider all of the various forms of taxes taken out of your paycheck, it makes sense.   So the calculations below is based on the number that I would have to make (gross income) to have an equal amount of discretionary income.

After Tax Calculation
Working a 2nd Job
weeks 52
hr/week 40
pay rate 10.50
21840
Money Not Spend on a Mortgage
month 1300
months/yr 12
15600
6240 40% Taxes
21840

I think some people think that once the house payment goes away, the previous mortgage owner is now only breaking even, but what really happens is the previous loan payment flips to the positive side by an equal amount that was being spend on interest and principle (all my numbers above doesn’t include my real estate tax and insurance payment since the don’t affect my calculations).

So after I paid off the house, I went from paying $15,600 on the mortgage to investing, saving and a little bit more spending of the extra $15,600!  There is no subtle transition, the jump to positive side was  immediate!

Anyway, I thought that it would be worth analyzing a bit further than I did late time.  Please leave any questions in the comments below!

Tell me if you realized all that I mentioned above,

Thanks,

MR

Why I Passed On The Facebook IPO

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Facebook is an incredible “Cinderella” like story!

They are managed by very young, intelligent people who can change direction quickly, considering their size.  I have two Facebook accounts (one personal and one for “Money Reasons”), so even while I use their service, I didn’t buy their IPO.

I have some friends that rushed in to buy the Facebook IPO (ticker symbol: FB), but I didn’t and here’s why…

  1. I figured the quick change in their interface will start to ween users off of the platform.  There is an old saying KISS – “Keep it stupid simple” (actually it’s “keep it simple stupid”, but I like the phrase “stupid simple” better because I think it’s more logical).  I think Facebook lost some participation on the site because of the change, and more importantly the fear of dramatic, complex, future changes.  The interface was simple and made sense previously, but now is a nightmare (especially for the non-tech crowd).
  2. Too many people valued it too highly, the market capitalization was at a nose-bleed valuation.  Based on the sharp declines of comparable online companies like Zynga and Groupon, why pay a premium for an internet site stock’s IPO?
  3. FB really doesn’t have that great of a moat around their business.  By moat I mean another business might come along with a better simple interface and steal facebooks thunder!  Before Facebook it was Microsoft’s MySpace.  But more importantly, I realized that if Apple decided to get into FB’s sandbox, Facebook is going to lose all the cool, hip kids…
  4. Facebook seems to be limiting its market segment to primarily females.  But the fact that they are changing their interface so quickly, many busy females and SAHMs don’t have the time to continually learn the new interface.  Hell, I’m a techie and I don’t want to learn the new interface…
  5. It’s a bad time to buy with the European crisis and the sideways movement of the stock market in the US.  Why buy when everything is sinking, all boats sink while the tide is going out.
  6. Facebook’s growth rate is slowing.  Unless the Martians start to sign up, it’s not going to improve.  While some point to China, I don’t think China will let Facebook complete…  Look at Google as an example for a reason not to believe in Facebook taking off in China.

So as you can see from my reasons, most of my basis is based on non-financial reasons.  That said, Facebook still might be a good investment if the stock get’s low enough…  They have an incredible team with a lot of potential.  I’m not sure of the price that FB would have to get at before I jump in and buy some shares, but I’m pretty sure it would have to drop below $20 a share.

I’ll be watching on the sidelines as the stock valuation plays out.

MR

Disclaimer:  Obviously I don’t own Facebook. nor do I intend to buy any in the next 72 hours.

Son Wounded – A Visit To The Hospital

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Yesterday was an unusual day!

My wife had a scheduled dinner with an old friend, my sister thought about coming up and saying the night with their kids, and my son went on a bike ride with a friend in the neighborhood that he hadn’t seen in 3 years.

I had bad feelings, and was a bit on edge, but I push my fears down thinking it’s just an odd day.  They around 7:00pm, the mom of the friend that my son was riding his bike with rang my doorbell.  I went to the door and she told me that my son was injured but she wasn’t sure to what extent.  Apparently he had fallen off his bike and got injured somehow.

At first, I thought it was just a road rash like abrasion, so I thanked her and as my son entered the house.  I told him to go to the bathroom and undress so I could see the problem area better.  At that time I thought I was going to wash him up and put some medicine and a large bandage on him.  So when I went in to check on him, that’s when I saw a gaping, deep, hole in him that went beyond the skin and appeared to be even beyond the muscle.  I freaked!

Out of the door, I yelled for my daughter to come home, check the level of bleeding from the wound (a little, but not horrible at that time) and threw the kids in the car.  We then rush to the local hospital and sat in the waiting room trying to get admitted.  Unfortunately, it was a bad day and a lot of other people were there with problems too, and the staff was wanting to say the least.

I though about packing everybody back in the car and driving 30 minutes to a larger, more respected hospital.  So I check the wound again, and this time it appeared to be bleeding again, so I went out and asked some of the hospital folks if they were too busy and if I should go somewhere else.  They said it shouldn’t be much longer.  So I went back to the room that my son was at and looked at the wound again.  That’s when I noticed the blood again, and so took the bloody bandages, went out to where there were hospital nurses and asked for some clean bandages and I said that my son was bleeding.  That prompted a doctor (or surgical assistant) to come and make sure that he wasn’t bleeding too badly.  The doctor check and said that while it is bleeding, he doesn’t believe that it’s an artery (which was my main concern).

The wound had the properties of a gun wound, and the doctor asked if my son was shot or playing around with guns.  And since my son knew that he got the injury when he crashed on his friends bike, he wasn’t sure what exactly caused the hole itself.  So the doctor’s order a x-ray, just to make sure that there wasn’t anything left inside (like a bullet).

They believe that their wasn’t much muscle damage and sewed him up.  He got three stitches (it was a bullet sided hole), and then they cleaned him up and sent him home.

Needless to say, yesterday (7/25/2012) was a bad day, but it could have been worse.

Now for the tie in with finances.  The hospital admittance, the room, the x-rays, and the treatment will probably run my over $1,500… easily.  Now most people have insurance so it’s not even worried about, but I have a HSA plan, so that money will come from my pool of savings in the HSA.  But since it’s my son, that cost associated with such an injury isn’t even considered in my head at the time, but now I’m wondering how bad the financial damage will be…   So let say I’m right and it is $1,500 for four hours of work and x-rays, that’s $375 an hour!

Ouch!  Both in my son’s case, and me financially.

What a horrible night!

MR