FINAL POST HERE - PLEASE UPDATE YOUR BOOKMARKS

This is the final post here.  I have settled on an easy name, set up a domain and gotten hosting for the blog.

The final name: "Financial Understanding"

The URL: http://financialunderstanding.com

Please allow up to 48 hours from 10:00 AM EST today (January 26, 2008), to allow for the DNS information to propogate.  Before 10:00 AM EST Monday, January 28, you may or may not have access.  I have imported all posts, except this one, from this blog into Financial Understanding, for historical purposes.

Ok, I'm an Idiot

I've promised to get up the last few posts on the future value of money, but have failed to do so.  I've been a bit busier than expected, so I will try to get them up in the next few days.

Name And URL Change.

Ok, I have changed the name to Pecuniary Foundations and the URL to pecuniaryfoundations.blogspot.com.  Expect up to 5 weeks (1-2 weeks hopefully) for the server move.

Later today, yesterday's topic and today's topic.

How Much Do I Need To Invest To Save $X?

Monday I discussed the future value of money, given a known principal, interest and time.  This is all well and good, but what happens if you want to have a certain amount within a specified time at a known interest?

For today, we'll say that you want to have a $5,000 emergency fund in 18 months and you will be putting the money into a savings account earning 5%.

Now, just like Monday, you have the same two options, either put the initial principal in once, or add it as an annuity.

For a single deposit, use this equation:

For an annuity, use this equation:

So, how much do we have to put in to achieve our goal?

For a single deposit, we need to deposit only $4639.44, but for an annuity, we'd have to deposit $268.07 per month for a grand total of $4,825.25.

At this point, we've investigated the future value of money in terms of a fixed total going in, and a fixed future value.  It would appear from these two cases that annuities are a weaker choice given a fixed period and rate for both a fixed input and a fixed output, but what about when period or rate becomes the variable?  

We shall see what happens with these two as variables in the next two posts (tomorrow and Friday), finishing up the week (Saturday) with a complex example.

Eventual Name Change and Server Move

Some of you probably have come by my post in the MBN Forums, but for those of you who haven't, here's the deal.

The name of this blog is "Nathanial Conant" right now, but that has really been a temporary name until I could come up with one that would better describe what this blog will be about.

Currently I list this blog as being "A blog about my financial goals, successes, failures and discoveries."  Well, that will definitely change at the same time.  While those topics will show up from time to time, I have decided that I want to discuss the basic building blocks of personal financial success.  These building blocks will not only include concrete things like equations, but more abstract ideas as well.

To that end, please expect a name change in the next couple days and a server change in 2-4 weeks.  When the change occurs, I will be moving all current posts to the new server and will no longer be updating here after that.

I'll keep you updated on the process as I go.

Sincerely,

Nathan.

Now back to your irregular updates (a more relevant post later today).

A New Take on the "Coffee Savings Plan"

You all have seen the savings of cutting out that one cup of Starbucks per day, but I haven't seen anyone plug this savings into an annuity equation, so I give you here what could happen.

Here are the assumptions:
$5 per cup of coffee (Latte with flavor),

Purchases are made only Monday through Friday, at 1 cup per day.
5% APY (I'm assuming a high yield savings account).

An estimate of the future value (fv) of money can be easily calculated in two ways:

For a single deposit, earning interest at a constant rate, use this equation:

For an annuity, that is a fixed amount deposited at regular intervals (derived from annual, but can be used for smaller intervals), can be calculated with the equation:

So, what do those letters mean?  Well, P is your deposit or principal, R is the rate of return and N is the number of times it's compounded.

In this case, the total principal to be deposited is $5/day * 5 days/week * 52 weeks = $1300, an average of $108.33 per month.  The rate is about 0.42%... Wait I said the APY is 5%, so where'd this 0.42% come from... It's the approximate monthly rate or MPY.  And of course, since we're working with months and want to see the results from 1 year, the number of times compounded is 12.

So, with all this in hand, how much are we REALLY saving?

Let's say for the sake of argument that the full $1300 was available at the beginning of the year and we deposited it all at once, then we'd have about $1366.51 (give or take a few cents, since these equations are only estimates).

Realistically, those of us trying to get out of debt can't really afford to dump the full $1300 in at the beginning of the year, so we'd probably budget the $108.33 per month as an annuity for the year, netting $1330.21 by year end.

Converting either the annuity or single amount for partial or multiple years is as easy as changing N, but what about putting $1300 in once per year for X years?  Or just putting the $108.33 in for one year and then letting it sit?  Well, there is no simple equation, though you could plug the result of the annuity into the single time equation.  But converting the $1300 into an annual annuity with monthly compounding, not so easy.  To solve these and other problems, I WILL work on deriving equations that will make it possible, though it may take me some time and they won't necessarily be pretty.

So, the moral of this exercise, don't just cut the coffee, put the money into your high-yield savings account or for better potential returns, invest it.

Mini-Update on This Weeks Mini-Goals

While I will give full updates next weekend, I will also provide mini-updates, such as this one as my mini-goals are completed.

One mini-goal complete and one half done.  During the school year our local library is open for a short time on Sundays, so I went and paid off my overdue fines and checked out not one, but two books.  The books checked out are A Million Bucks By 30 by Alan Corey and The ABC's of Getting Out of Debt by Garrett Sutton.

In Million Bucks, Mr. Corey describes how he worked a 9-to-5 job for six years and achieved a seven-digit net worth.  This book is copyright 2008 and was just added to my library's collection this past Wednesday.

ABC's is part of the Rich Dad's Advisors series and claims to describe how to "Turn Bad Debt into Good Debt and Bad Credit into Good Credit," we shall see.  This book is copyrighted 2004.

For more information or to purchase either of these books, please click on the appropriate Amazon affiliate link below.

This Week's Mini Goals

Starting today, I will post 1 to 2 weekly mini-goals every Saturday or Sunday.  These goals will generally have something to do with my financial education and/or ability to attain higher net worth.  The following weekend, I will post what I did to achieve the goals and the results of those attempts.

So, without ado, I present this weeks goals (3 this week):

1. Call the company of the credit card for which I have the lowest limit & balance, but have had the longest, and negotiate a lower rate (preferably in the 10-15% range).
2. Pay off my overdue fines at the library ($20), so I can begin checking out books again.
3. Check out a recent (2003 or newer) personal finance book (TBD) and begin reading it.

More For My Rant

I've seen people estimate how much they would or do save by cutting out the Starbucks coffee.  But how about those who won't do it?

We offer a punch card that allows customers to purchase 9 brewed coffees (not espresso based or other specialty drinks) and get the 10th brewed coffee free.  I've had regulars refuse the card despite the savings.  Just as an example, we sell a 16 0z brewed coffee for about $2, including tax.  Now, without the card, you'd pay $20 for 10 cups of coffee, but you'd save 10% ($2) by using the card.  Taking this out to the full academic year (3 quarters with 10 weeks of class and a week of exams, 33 weeks [32 for calculations]), and assuming 5 cups/week, that's 160 cups, 16 of which can be free, a savings of $32, next years note taking supplies (during back-to-school sales).

The moral: If you go someplace, and there's a chance of going back, take any punch cards they offer.

On a side note, unless you plan to buy more than $250 worth of books, DON'T get Barnes and Noble's membership card ($25 membership fee, 10% savings on the "cheap" books [soft cover, older books, etc.]), go with Border's Rewards (free, e-mail every week or two with upwards of 20% off [sometimes 50%], and offers printed at checkout).  Of course, your best bet is your local library, returning/renewing on-time (our libraries are tax [in my particular town, part of school taxes/budget] & fine funded).

Great Idea

I've had a wonderful idea... For a small fee (to be negotiated), I will take donation buttons for legitimate charities.

First Rant/Tip

Ok, I know that I'm not the best person when it comes to money, but in my job, I see people who might be even worse than me...

Let me start with what I do...I am a cashier at a dining location on a college campus.

Here's the 3 biggest things I see on a daily basis:

1. Some people who pay cash, can't seem to figure out that if they have $5, then they can't afford $5 worth of food before TAX.  Our tax rate is 8% in food prepared for immediate consumption, candy, drinks with less than 70% juice, sodas and non-food items.
2. This college, like many others, has accounts linked to ID cards (3 for students, 1 for staff).  Students have a meal account (Meal), a monetized meal account (Debit) and flexible spending account (Flex).  Staff have a different flexible spending account (FSFlex, usable only at dining services locations). The Meal and Debit accounts are tax FREE (except candy and non-food items) and FSFlex has a 10% discount attached to it, yet some students insist on using their Flex accounts and some community members insist on using Cash or, GAWD, Credit Cards (third item deals with this).
3. Thankfully, most of the Credit Cards I see are Check Cards, but two things get to me about this.  FIRST, despite VISA's commercials (I could write a good rant on this), credit cards ARE SLOW, another good reason for these people to use the college provided accounts.  SECOND (and last), RECEIPTS, about 5% of all customer copies don't make it away from the register, and probably another 10-15% end up in the trash on the way out the door, without these, HOW CAN YOU RECONCILE YOUR ACCOUNT!!!!

So, now that I've got that out of my system, here're my tips...

1. Figure out how much you can afford (How much do you have (A)?  What's the tax rate (B)?  How much you can afford is A divided by the sum of 1 and B).
2. If you have access to an account where you can save money, and your only cost to have it is how much you put on at any one time, USE it, it'll add up.
3. Save your receipts, especially receipts from the use of plastic, one you've reconciled them with the associated account, then you can get rid of them (unless they can be used for tax purposes).

Long Term Goal Achievement

So, how will I achieve my 5 year goals of $250k net worth with $10k easily liquidable?

Take small steps.

1. Achieve 2008 Goals.
   
1. Pick up a new/second job.
2. Eliminate credit card debt.
3. Eliminate other debt.
4. Increase cash reserves to $1,000.
5. Increase stock investments to $400.
6. Purchase $200 in US Savings Bonds.
7. Increase retirement to $3,768.
8. Join a bank sponsored home purchase savings club ($5,000 total towards purchase, bank pays $2 for every $1 put in) (I failed to mention this earlier and takes precedence over investments and savings bonds.)
2. Achieve 2009 Goals:
1. Eliminate remaining debt
2. Complete contributions to bank sponsored home purchase savings club.
3. Others to be determined.
3. Invest in retirement (Expected annual long-term average return of about 6-10%).
4. Invest in more stocks (Expected annual long-term average return of about 8-10%).
5. Invest in bonds (Expected annual return of about 4%).
6. Invest in profitable properties, becoming a land-lord, more details eventually, but foreclosures are a distinct possibility (low cost, thus low mortgage, on potentially high rental income).
7. Invest in a personal property to live in, preferably sufficiently large to allow me to start operating a horse farm (not listed in my long-term goals, since I am undecided as to how to approach it).  When I've decided on my approach, expect this to show up in my long-term goals.

Update for 2008 Goals

As expected, I found out about the job I had applied and interviewed for...

Unfortunately, I didn't get it.

This puts a wrench in the works, slowing me down, but I WILL continue to find additional income to allow me to operate at my desired speed.