Quick and Dirty Rule of Thumb - Calculating Your Hourly Rate

Knowing what your time is worth is crucial when you are strapped for time and you are trying to determine if an activity is worth your effort. As they say in the working world...Time is Money.

According to Tim Ferris, author of The Four Hour Work Week there is a quick and easy way to calculate what your time is worth. I will use myself as an example.

1. Take your annual salary ($75,000)

2. Remove the last three zeros ($75).

3. Divide that number in half ($37.50).

Unless you are "making" or "saving" that much with the given activity then it may not be worth your time.

If you are interested in drilling down deeper to get a more detailed look at what your "true hourly rate" is, then take a look at Trent's post (here) on the subject.

Don't get me wrong, doing things simply because they aren't financially worth your time isn't the only consideration. I know the time that I spend consuming media like MSNBC.com, ABC News in the morning before work, and the 50+ blogs I read on a daily basis (about 1.5 hours) may not be the best financial use of my time. However, I accept this because I subscribe to a maxim that people should learn something new everyday. As such, I see this as time well spent.

Cheers,
TMac

[Photo Credit]

Five Minute Checkup - Are you in Saving a Healthy Amount for Retirement?

Thanks goes out to Mapgirl for pointing out that it is National Save For Retirement Week! Check out the NSFRW website (click here). There is a ton of good info on there about saving for retirement for both employees and employers!

According to the site:

Research has shown that more than half of all workers in the states have less than $25,000 in total savings. Even more startling is the fact that 41 percent of workers between the ages of 45 and 54 report the same amount.

With longer life expectancies and rising costs, it's critical that Americans understand the importance of saving-now.

One of my favorite parts of the site is the 5 Minute Checkup (click here). Here you can quickly estimate how much you should be saving to meet your retirement goals. I took the checkup and here is how I did...

First you must enter your current data:

(that's right, I want to retire by 55!)

Once your current data is in hit Calculate! Here are my results...

As you can see, I have a long way to go. I need to really start cranking out some big numbers related to my retirement savings. I think that will be one of my biggest goals for FY 2008. While not a comprehensive look at my retirement picture, it does spur the mind into actively thinking about how much we will actually need to retire. Retiring early will be especially challenging.

Cheers,
TMac

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Declining Social Security Trust Fund Balance Set to Begin

First boomer applies for Social Security (CNN Money)

Born one second after midnight on Jan. 1, 1946, makes Kathleen Casey-Kirschling, the first baby boomer eligible to apply for Social Security benefits. She has soaked up the media attention related to her birthday....

"She's leading the way for her generation"

Well I better stop procrastinating in my contributions towards my 401K and IRA since I am not counting on any money being left for people currently in their twenties.

I just want to provide one more semi-known stat regarding Social Security:

An estimated 10,000 people a day will become eligible for Social Security benefits over the next two decades, Astrue said. The Social Security trust fund, if left alone, is projected to go broke in 2041.

Urge your congress-person to work to fix the social security system!

Happy Saving,

- TMac


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The Envelope System - How I Leveraged It

This is a three-part series on the financial tool called the envelope system. In the series I have covered what the envelope system is (part 1, here), how to set one up (part 2, here) and, as a real world example, how I have leverage it in my finances (today!).

How have I leveraged this system in my own finances? It was easy, I just followed the instructions in my last post and now I have a fully functioning virtual envelope system.

Setup the Accounts to Act as Your Virtual Envelopes:
Once I figured out the categories that I wanted to specifically save for all I had to do was set up an account in ING for it. This is really easy and only takes a few clicks of the mouse. (If you need an ING referral drop me a comment and I will send you one.)


Setup the Automatic Transfers:
Once the accounts were set up, all I had to do was set up the automatic withdrawal from the account that my pay check is direct deposited. I have already calculated how much goes into each account/envelope during the prework so setting this process up is easy.


End Result - Watch it Work:
When I wake up in the morning of the 15th or last day of the month two glorious things have happened - 1. My company has deposited my paycheck 2. My automated envelope system has gone to work. Now when my automatic payments for my car loan and student loans come through, I will be certain that there is enough money in the account to pay for them!


When growing up, I had no problem sticking to the manual system as my checks were not direct deposited. Once my checks were being direct deposited, the convenience of the envelope system had lost its ease and effectiveness. It was a long time till I discovered the wonders of ING and even longer till I discovered the beauty of automatic savings plans.

Juan from millionster.com left a comment about the envelope system and still maintaining the flexibility to plastic in everyday shopping. Well I use the ING debit card. Like everything ING, the account resides online, but they give you a debit MasterCard that you can use for daily purchases. Everything is still linked through the same system!

Here are some other good sites with info on the envelope system:

• Beating the Joneses (1, 2, 3)
• Dave Ramsey
  

I hope you enjoyed the series. Let me know what you think.

Cheers,
TMac

The Envelope System - How to Set it Up

This is a three-part series on the financial tool called the envelope system. In the series I have covered what the envelope system is (part 1, here), how to set one up (this post) and, as a real world example, how I have leverage it in my finances (tomorrow).

Below are the general instructions on setting up a manual and electronicly automated envelope savings system.

General Envelope System Prework:

1. Itemize out all your expenses and savings goals for the year. Be sure to calculate regular expenses like car, rent/mortgage and savings goals as well as irregular expenses like once a year property taxes or semiannual car insurance payments.
   
2. Group all the expenses by category.
   
3. Total the annual amount per category.
   
4. Divide the annual amount that you calculated in step 3 by the number of times you get paid per year. This gives you the contribution amount per envelope per pay-period.
   
5. Sanity Check - Make sure the toal contribution per pay-period is less than or equal to the amount of your take-home. If your contributions are more than your take home pay then you know it is time to adjust your savings goals
   

Manual Envelope System Setup
If you are going to do the manual envelope system I would reccommend getting a fireproof box with a lock to hedge against potential fire or burglary.

1. Get some envelopes.
   
2. Write the name of the categories and the amount you plan on contributing on the envelopes.
3. Every pay-period allocate the proper amount into each envelope.
   
4. Monitor and adjust the amounts as you notice differences in your origional calulations and projections.

Electronic Envelope System Setup
I use ING Direct for the automated electronic version of the envelope system.

1. Open a bank account or several. I like having a seperate online accounts that acts as my "virtual envelope".
2. Direct your employer to deposit your check into a holding account.
   
3. Setup an automatic savings plan or automatic transfers to your different virtual envelopes in the designated amounts that we figured out in the prework above.
   
4. Monitor and adjust the amounts as you notice differences in your origional calulations and projections.

That's it! In the words of famous inventor and infomercial host, Ron Popeil, all you have to do is set it and forget it! Ok. Actually don't set it and forget it, but monitor your progress. Don't get discouraged if you aren't making gains super fast. You made the plan, thought it through, now give it time to work!

Tomorrow I will discuss how I have leveraged the power of this system in my own personal finances.

The Envelope System - What is it?

This is a three-part series on the financial tool called the envelope system. In the series I will cover what the envelope system is (this post), how to set one up and, as a real world example, how I have leverage it in my finances.

When I was a kid anytime I earned money whether it was cutting keys for my dad, washing dishes at the local pizza place or scooping popcorn at the movie theater my mom would try to extol her financial vitures and disciplines upon me - one of which was the envelope system.

The envelope system is a quite simple yet powerful method of money management that requires you to budget out most of your expenses/savings goals by category assign it an envelope and then set aside requisite money to fund each envelope. Once the money in a particular category is spent you should fight with every fiber of your being not to "borrow" from another envelope. Doing so will mess up the balances of your other envelopes and potentially result in insufficient funds when it comes time to pay certain bills.

In the most dramatic of circumstances TMac is slaving away all day cleaning pizza pans and gets paid $200 dollars at the end of the week. Mom drives him to the back to cash his paycheck and he asks for $10's and $20's in return. When he gets home, he goes up to his bedroom and pulls out his binder with different envelopes attached to it. On the envelope is written the item he is saving for and the amount he is supposed to contribute (either a % of net pay or a fixed amount). He then allocates the approiate amount into each envelope. Typically when the amount in the envelope got to be large enough he would open a savings account specifically for that envelope and once there was a couple hundred dollars stashed away he would deposit it into the bank (The bank tellers would always look at him funny when a 14 year old kid would walk into the bank with four passbook savings accounts and gangster rolls of cash to be deposited, but I digress).

Some of the main benefits of the envelope system are:

• Information - At any time you can simply look into your envelope and see exactly how much money you have and how far you go to meet your goals.
• Automation - Once the system is set up and you have decided on the contribution amounts for each envelope, there is no longer a decision to be made each time you have money to be paid. The fixed amount that you need to pay certain bills and expenses gets correctly allocated.
  
• Irregular expenses can be easily planned for - Any irregular amount payment can be easily planned for by simply annualizing the payment then dividing by the amount of times per year that you get paid the resulting number is the amount you put in the envelope each time you get paid.

Check back tomorrow when I discuss how to implement the envelope system in your own finances.


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Lent - An opportunity to renew New Years Resolutions

In Christianity, Lent is the time from Ash Wednesday to Holy Thursday. It is meant to be a time of sacrifice, fasting and alms giving. Colloquially we here people talking about what they are "giving up for Lent".

I was born and raised a Catholic, but since the end of college through today I would be best described as a doubting/dormant Catholic. My mom would be dismayed to hear my current state after my 16 years of Catholic education. Be that as it may, I am going to approach Lent this year as a means to renew my New Years commitments as well as DO things that will help me reach my personal and financial goals.

1. I have given up Dominos and Chipolte. I like Dominoes alot but at heart I am a Chipolte whore. I can't get enough. I actually order both online for the utmost in convenience. If Chipotle had a frequent eater card or other rewards program - I would be a double diamond member! Thanks to the magic of reporting in MS Money, I know that Year to Date I have spent $259 at these two places alone! That is a big outrageous! If I were to annualize this number (like a good little auditor) I am on track to spend over $1,500 on Dominos and Chipotle this year! I need to stop - (that's the first step to recovery...right?). I am TMac, and I have a problem.....

2. I am going to try to workout regularly (4-5 times/week). I have found that I am immensely more productive during the day when I have worked out in the morning. Problem is, I am terrible at waking up in the morning. I am not a morning person at all. Ask any person that has ever lived with me (they are all morning people).

In sum, I hope to save a ton of money from not frequenting my two favorite take out places as well as increase my cardiovascular health by doing cardio in the morning.

Cheers!