Debt to Dreams

August has come and gone and our net worth continues to tumble. There is hope that we will soon be able to slow the loss thanks to some new help. I have officially handed over the reigns of budgeting and expense management to my wife! She has embraced this role and done a spectacular job, much better than I have been doing.

In our small family it made perfect sense for her to assume official control over these issues because she is dealing with them 90% of the time. With her in control of the budget, our actual expenses came within $50 of our budgeted expenses for the month which is a record for me.

Here is the carnage for the month ending August 31st, 2008:

We continue to watch as our net worth has continued to tumble each month since April of this year. The confluence of factors contributing to this decline are largely self inflicted and not unexpected.

• The birth of our child and my wife’s gradual withdrawal from the workplace are an obvious contributor to this gradual decline. The majority of the time you remove a breadwinner from the workplace and you add a new family member your household financials will feel a bit of a pinch.

• My decision to pursue additional(again) training in my career, in a new city(yet again!) only delays what I hope will be the eventual raise I will get as an independent fully trained physician. My fellowship has been great, thus far a busy, yet very rewarding year. In financial terms however, it could prove to be a very expensive year since the fellowship I have chosen to purse will not immediately improve my financial outlook.

  The move and reestablishment of our household in a new city has been slightly more than I expected. It has given me some insight on what to expect in 9 more short months when we get to do this all over again.

• The final and largest factor in the decline in our net worth has been my participation in a new business venture. This new business venture will likely consume all of our cash savings before it becomes profitable.

With the confluence of those factors working against us, it is very likely that we will see our net worth falling to close to -$90,000 by July 2009. This is a far cry from what we were expecting when I laid our our goals for 2008.

We are almost at my worst case scenario with our family’s most financially difficult quarter left to go.

I have finally managed to update our financial records after doing little more than paying bills for almost 4 months. The reason behind this delay is that I have managed to complicate our financial life in the name of being more orgainzed.

If you too want to complicate your financial life, here are my suggestions:

Step 1: Open up multiple accounts of every form of finacial product available in order to save a few bucks. To do this right will need multiple

• credit card accounts
• checking accounts
• savings accounts
• Investment accounts

Step 2: Borrow money from as many different institutions as possible Student loans, car loans, credit cards, mortagaes, HELOCs, personal loans, payday loans.

We haven’t done as good of a job here but the possibilities are almost endless.

Step 3: You must create multiple tracking systems to follow your infomation in the name of organization. This will make it almost impossible to keep anything up to date. You can create such a confusing situation that as soon as you get behind you will almost never catch up.

This Just a quick summary of what was going on the past few months. Life goes by fast and does not appear to be slowing down any time soon. My fellowship has been great but leaves little time for other interests. I have some time off and hope to have our finances up to date by the end of this weekend.

Thanks for following along.

After 2 months of turbulent times following our cross country move, our household has finally settled down in our new surroundings and we are now catching up with our finances.

We knew we had a difficult 2 months in June and July but I wasn’t sure just how bad it was until I ran the numbers. Here are the results for the month ending June 2008:

My Guidance to these numbers:

• Cash & Savings- I made a huge mistake in missing the closing date of my largest balance transfer. The accumulated interest for that single month was enough to wipe out most of my gains from my 0% balance transfer arbitrage for the year. We still have about $30,000 in outstanding 0% balance transfers that will come due in the next few months.
• Investments - The fall in our cash accounts was minor compared to the drop in our equity investments. June was a rough month in a rough year and there has not been much we can do about it. We have have not been able to offset these declines with new contributions due to the budget constraints of our expanded family. If we do make a contribution for 2008, it will likely be lump sum around tax time to help offset our tax burden.
• Student Loans - There have been no real changes in our student loan burden. We continue to slowly pay off two of our smaller loans and the bulk of my loans remain in forbearance, accruing interest but delaying the payments. I hope to start paying off this loan later this year if my income allows.

June was a very difficult month overall for our family. The logistics of moving our family 2800 miles to a brand new city in a period of 4 days was very challenging for us.

I had to place this blog and other non-essential pursuits on hold until our schedule became more stable and our family settled in our new environment. Now that we are more settled, I will be catching up on the past 3 months of financial data for our household.

Pardon my absence, the past month has been a busy one for our small family. We are finally getting settled in our new city and have re-established internet access.

Our June Monthly Update is to follow soon.

Here is what we have done in the past month.
1. Moved our family 2800 miles to a new city to continue my medical training and spent a small fortune in gas.
2. Started fellowship in a completely new system
3. Studied for my upcoming board exams so that I will be able to be a “board certified” physician
4. Spent way more money than we were able to take in.
5. Watched our equity accounts continue to dwindle.
6. Changed the mailing addresses on a million different accounts.

Hope everyone else has been having as much fun as we have this summer!

I have come to the realization that these posts about obscure details of our family’s personal finances are not very high yield.

They take time to organize, time to post and they are definitely overkill when we don’t have anything interesting to report with our finances.

But.. we are already halfway finished with 2008 so I’ll keep it up for this year.

Here is the data for the month ending May 2008:

The only extra charge in May was an unexpected yearly fee for a credit card.
The good news is that this meant that we were doing OK at containing our costs of borrowing money. I did drop the ball earlier this month when I let my largest balance transfer expire. That $557 charge will double the interest we have paid so far this year.

Awareness has been our biggest asset.
We are lucky that we have developed an awareness of how much any debt costs before we managed to accumulate any more debt than we currently have.

As a young professional, I am in a stage of life where many of my friends and family have begun accumulating the large sums of debt that they will be repaying for many years. Clothing, cars, furniture, and electronics are everywhere and most of these things are being bought with future earnings.

Items normally bought by prior generations in their prime earning years are being bought by our peers, setting an unrealistic example of what our standard of living should be.

The problem is that future earnings are theoretical while debt incurred is a reality. I believe that our view of the future may not be based on the economic reality that currently exists.

We will continue to show some restraint while safe, simple investing will be our path to success.

We continued to tread water again last month.

We are balanced on an edge, living within our means each month, but not investing in our future. We are able to keep our monthly bills within our normal monthly cash flow. Unexpected expenses force us to dip into our savings to pay for them.

Here are the results for the month ending May 31st:

My thoughts for the month:

If we owned our home, instead of renting, we would actually be making forward progress each month.

Most people are good at living within their means. They can pay their bills each month but they don’t have much left over to save and invest.

We rent, which means that none of the $800 that we spend each month goes towards our net worth.

If we owned our own home, our mortgage payment would be money being invested in our net worth each month without having to skimp and save extra!!

This is why for most people, the majority of their net worth is tied up in their homes. They need a roof over their heads and they are good at paying their bills but not saving extra.

The second point I noticed was that I am glad that we were able to save when we had the chance.

My wife and I were somewhat lucky to be able to place some money into savings and investments when we had two incomes and few expenses.

Now while our budget is tight, those investments are the primary source of gains in our net worth.

Try to save while you can, starting as early as you can to take advantage of compounding interest.

The final point is that those two actions; owning your home and saving for retirement are treated very favorably by the IRS. Not only are they two of the best ways to increase your net worth but they are two very good ways to keep your earnings out of the hands of the tax collectors.

Here are our April costs, 2 months late. When I ran the numbers it was nice to see that we didn’t spend any money in April on extra bank charges(late fees, finance charges, etc..)

Here is the break down for the month ending in April:

My thoughts on this category:

• My wife and I have been able to limit our banking and credit card costs until recently

  With most cities having some form of free checking available and hundreds, if not thousands of credit cards without annual fees available it is relatively simple to keep these expenses low.

  Until I started looking, I had no idea just how much money I was sending to the banks for the privilege of being their customer.

• Our student loan payments remain a reminder of the fine education we received and the good times we had in school.

  The bulk our my loans are currently in forbearance and will go into repayment this August. We were able to get a small tax break on the interest paid on these loans so we are not in a hurry to pay them off.

• I continue to be in the dark about what my investment expenses truly are.

  The finance industry definitely doesn’t want to be to clear on how much we are paying them each year for their services.

  I know that our expenses are a little on the high side because the average expense ratios for our current batch of mutual funds is around 1.6%. I also scan my quarterly reports and I will occasionally find a $50 fee assessed for various reasons.

I was pretty satisfied with these results at the time. We had spent less than $500 on borrowing money during the first 4 months of 2008. This has obviously changed in the past two months which illustrates how quickly the tides can change.

Talk about penny wise and pound foolish.

I just wiped out most of my gains from the past 10 months of 0% balance transfer abritrage!

In the process of updating my excel spreadsheets for May I was checking my email and noticed that I had received an email from Bank of America letting me know my next statement was due.

I didn’t think anything of it except that I noticed that the minimal payment had jumped from $320 to over $800. Not a good sign! I quickly logged on and pulled up the most recent statement and confirmed that they had bumped my balance transfer rate from 0% to 19.99%. OWCH!.

I keep good records and I was sure that I had not initiated these transfers until July 2007 which I quickly confirmed. When I went back and read the details of the offer it was clearly stated that the offer ended in May 2008.

Apparently I should read some of my old posts more often. If you read the last line of this post, it is pretty clear that I knew that the balance transfer expired in May.

A phone call to customer service was to no avail.

For those that are keep track at home, the 2 results of my balance transfer arbitrage:

About $500 in interest

A much lower credit score!

I guess there is some truth to the rumors of doctors being bad with their money!

For those out there still entertaining the thought of going to medical school I have run across a couple of interesting articles on the dynamics of becoming a physician in todays environment.

• Forbes ran an article last month addressing the major concerns facing most physicians right now.

• There is a large divide between the generations of physicians currently in practice and those such as myself entering the work force.

As a resident who has yet to enter the work force I am very conscious about physicians and our attitudes towards our work environment.

I personally believe that myself and many of my colleagues made an “investment Mistake” when we entered medicine.

We thought the past performance of physician salaries would guarantee future results.

From a pure investment point of view my choice to go to medical school will likely be a poor decision compared to the career choice of others.

The current trends in medicine are creating a type of job security that no-one wants: Being relatively underpaid and overworked.

If not for the satisfaction that a physician gains from developing a skill and learning to perform this skill well for the benefit of others, the future of our health care system would be bleak.

The good news for me is that I still enjoy what I have chosen to do and realize that I have the freedom to pursue better opportunities should they arise.

Not one cent from our day jobs went into savings or investments during the month of April. To complicate matters, we also did our part to spend the US out of a recession.

Here are the numbers for the month ending April 30th:

• The key number on that chart has been our monthly living expenses

  We have been unable to get our living expenses below our critical $4000 threshold since February. We have been over budget by about $2000/month in 3 out of 4 months thus far this year.

  Each month this has been due to a large “one time expense” such as car repairs, airline tickets or hospital bills.

  Unless we can get our spending under control, it will be very difficult for our family to get ahead until I am completely finished with my training.

• I have been delaying my IRA/403b contributions for 2008 until I begin my fellowship

  Although my salary will essentially the same, my benifit plans will change when I change training institutions. Although I do not anticipate being eligible for a match this will at least ensure that all my savings for the year will go to the same mutual fund company.

• We are not doing anything really well and we are not doing anything really poorly.

  We are just living and enjoying the experience of being new parents. Because we made sure we have adequate insurance coverage and a sufficient emergency fund, we are comfortable living a little above our budget for the next 14 months.

We had an unremarkable April in our alternative income endeavors. Thanks to Google Adsense, we were able to add an extra $0.97 to our alternative income earnings.

Here are the results for the month ending April 30th:

My thoughts for the month:

My quest for alternative income has slowed to a crawl as my residency training intensifies.

As someone who has spent the past 12 years studying and training for my day job it is exciting to start counting the months until I am finished instead of years. My focus and dedication at work has intensified as I draw closer to the big day when I make the transition to an independent practitioner.

The next 14 months will be spent looking for all “the low hanging fruit”, making sure that I am keeping my finances simple and doing those things well while not exerting too much time and energy in low yield endeavors.

Why should I even continue to attempt to develop an alternative source of income?

One of the most common reasons given for having multiple streams of income is the security/flexibility that it provides. As someone who stands to earn a very respectable salary in a field with a very high barrier to entry I do wonder if the time I spend on these projects are the best use of my limited time outside of work.

The good news is that currently they are something I enjoy and are a somewhat productive way to decompress after work.

However as these projects become more time intensive, it places me in a bind since I am unwilling and unable to take time away from my day job and family.

For now I plan to plug along as I have been for the past year or so and see where it leads.

We managed to blow through the first quarter of 2008 in good shape considering all the changes we have undertaken.

The slight bounce in the financial markets helped overshadow a lack of new contributions to our savings and investments. Our net worth is now above the -$50,000 level for the first time since December 2007.

Here are the results for the month ending in April:

My Guidance to these numbers is as follows:

The interest earned on our cash savings continues its fall in April.

This is no surprise as the Fed has been dropping interest rates for the benefit of the economy as a whole. The optimist in me reminds us that this is still an extra $200/month in our pockets thanks to the generosity of the credit card companies and thier 0% balance transfer offers.

In what we hope will not become a trend, we also made a small withdrawal from savings to help cover the expenses for our upcoming move.

It was nice to see some gain in our investment portfolio in April.

I don’t get too excited about these short term changes in our portfolio. They help make our net worth numbers look better but they have very little influence on our day to day finances.

I have invested very little time and effort here and used the services of an uncle who is a financial planner.

The quarterly statement for my consolidated school loans arrived

It added another ~$800 to the balance for my school loans. It has been disheartening to watch this balance grow and to not make any payments on it. That will change this fall when I begin repayment on this loan.

I am happy with our Net Worth numbers for this stage in my career

The real challenge for us over the next 12 months will be maintaining enough of a cash flow to avoid having to dip into savings.

Our family has benefited greatly from having my wife at home with our daughter. However, our lifestyle and upcoming move are likely to bring expenses that we will not be able to cover on a single salary alone.

Sorry for the delay, some of this info is a bit dated as I try to catch up with my posts.

Our savings contributions continue to be feast or famine. With both my wife and I collecting a paycheck in January, we were able to contribute a nice lump sum to savings in February.

Reality came back quickly in March and we were unable to save any of our income. The rest of 2008 is beginning to look pretty bleak as well with our big move in July and the related moving expenses.

Here are the results:

The Numbers:

Our Living expenses dropped to the $4,000/month level in March
As a young family living in a large expensive city we struggle to keep our expenses in check. We have been able to trim most of our excess fixed costs each month. There is no gym membership, no landline, minimal magazine subscriptions, etc……

The $4000/month level for our living expenses is important b/c it represents the approximate level that we can live off of with our current income level. To reach this level we need to be very conscious with our variable expenses.

My wife continues to work part time.
We have been able to avoid child care costs by having her work on the days that I am post call and able to watch our daughter.

Her supplement to my income will end in May as we prepare for our big move. Unless we are able to trim our expenses in our future locale, we will have to consider having her work part time again when we get settled.

It will be the 4th Quarter before we have a chance to turn things around.
Managing our personal finances can be frustrating because changes seem to move at a glacial pace and it is rare to be able to make large changes to our net worth very quickly. I remain optimistic that if we keep focused on the fundamentals we will be successful in the end.

Sorry for the delay, Here is the data from 2 months ago. The life of a resident may appear glamorous on TV with shows such as ER and Grey’s Anatomy embellishing the drama. However, the real reason this post is late is the combination of our 5 month old at home and lots of call at work.

When I look at this list I have to ask myself; “are these really sources of alternative income?” If you take a quick look at the list of my sources of “Alternative Income”, there isn’t much alternative about it…YET.

There isn’t anything unique about collecting interest from a savings account.

Many of us had savings accounts from a very early age. The only unique spin on our savings is that over $60,000 of the balance is in the form of 0% balance transfers from the credit card companies.

The family farm is pretty unique in America today but it’s not a reliable source of income due to the challenges associated with agriculture.

This will be interesting to follow as the generations change. Will we have a younger generation interested in farming again given the surge in commodities? Will we be able to increase our profitable without becoming a large corporate farm? How will the search for bio-fuels affect agriculture in the USA? I don’t have any answers but I do believe that I will see tremendous changes in how we feed and power our world.

My venture into the wide world web definitely would definitely qualify as alternative income.

It is a field far from my formal training and is done in my spare time. How this will turn out remains to be seen. Currently I am not covering my expenses and hosting fees but the potential for this to become a secondary source of income remains. The largest challenge for this income stream will be devoting the amount of time needed to write good original useful content.

And I haven’t won the lottery yet…..

I apologize for being late with these posts. I remain dedicated to this blog and continue to find bits of time to keep up with drafts, etc… Unfortunately/fortunately I don’t sit at a computer at work and thus I am always 24-48hrs(a week perhaps) behind the latest news of the blogsphere.

A positive tidbit about being busy is that until I sit down and fill out my spreadsheets, I don’t have an idea how we are doing each month.

From what I see here, we did well in March on containing the borrowing costs for our $197,000s worth of Debt!!!

Although having over six-figures of student loan debt will be significant financial burden for many years into the future, I choose to focus on a couple of positive points.

• The first benefit is steady work. My wife and I used our time in college(and after) to gain marketable skills in industries that had a history of having steady jobs. I actively pursued a career in health care knowing that in the future I should at least have a job if economic times got bad.
• The other positive point is that a student loan is one of the better forms of debt to have. This year my wife and I were able to reduce our taxable income through the interest paid on our student loans. It doesn’t reduce our taxes dollar for dollar like a tax credit could but it does help with the mental anguish.

Those of you who have been following along may notice that I have removed the $4,000+ of student loan interest I accumulated in 2007 from my February totals. I have been using a modified form of cash accounting with this series and do not want to account for the interest accumulated until it is actually paid.

The trap of doing this it that it visually appears to minimize the total costs of carrying these loans for a full 30 years. To keep the total costs of these loans in perspective I will total the interest paid for the life of the loan.