How Long Should I Keep My Bank Statements?

I keep all of my files in labeled folders in one of those file box contraptions. If you have a job, you're in school, or you have some credit cards or similar accounts, I recommend getting yourself one of these to keep everything straight. I've had something like this for years now and i put all of my important papers in there. Right now I have folders for my car (title, bill of sale, maintenance records etc...), my wife's car, my auto insurance, my renter's insurance, my school records (transcripts etc...), a big file on my current job info, a smaller file with my previous job info (pay stubs, offer letters etc...), my last seven tax returns, my phone bill, my cable bill, my gas and electric bill, my wife's employment records, my retirement accounts, my bank accounts, and my investment account. Plus a few "misc" folders for random things. I also keep a big fat manilla envelope stuffed with reciepts for higher priced merchandise and manuals/warranty info.

I went to take the box out from under my desk the other day and realized that I could barely lift it. I realized that I needed to take two drastic steps. First, work out more, and second, clean out that box. I haven't been very good at getting rid of old stuff, so I reviewed Bankrate.com's list of what financial records to keep, and how long to keep them. I realized that I could shred a bunch of my old bank statements, phone bills, expired auto insurance policies and things like that, so I fired up one of my favorite machines, the Fellowes PowerShred I bought a few months ago and reviewed here.

By the way, this shredder is still cranking through papers like it's nobody's business. There are few things in life as satisfying as dropping a credit card offer (complete with immitation credit card inside) directly into the shredder without even bothering to open it.

So anyway, I spent a good half hour going through everything, and I ended up filling the entire seven gallon container with the shredded remains of my ageing and useless statements and financial records. February 2004 was a great period in my life, but I will never need my Chase WorkPlace Savings Account statement from back then ever again.

Yes it is good to keep records, but at a certain point it becomes overkill, and your March 2003 phone bill, while interesting, only makes it more difficult to get to the records you really need.

Keep those file boxes clean!

How I Got Through Graduate School Debt-Free

I graduated from college with a BS in Business at the tender age of 20 years old. I'd taken advanced courses in highschool and that allowed me to lop a year off of the end of my undergrad experience. It wasn't an easy decision- I gave up on another year of fun living away from home with a bunch of friends (including my future wife), but I had a longer-term view in mind.

I remember my first year on my first job. It was a pretty big adjustment, and I was the youngest person in the office. I wasn't even old enough to legally drink at my first company Christmas party. However, I was also one of the most interested in what I did, interested in improving how I did my work, and my salary went from $33,000 to $50,000 in about a year and a half.

Did I buy a flashy car? Did I buy fancy clothes and go out drinking every night? No. I socked most of this money away. I had my fun every now and then, but I ate peanut butter and jelly sandwiches almost every day.

I really wanted to do more than my entry level job, so as soon as I got settled, I started planning for my MBA. I got as much information as I could on starting salaries, tuition and board costs, GMAT scores needed, attributes the admissions folks looked for, school rankings etc...

My commute home from work was about an hour, and I remember entire train rides spent looking at my savings balances, forecasting when I would have enough cash to be able to support myself through school, and determining how much I would need to save out of each paycheck to make it happen. I filled legal pads with plans and ideas.

I got really lucky in a few ways. My job was pretty well suited to my abilities, and it was something I was interested in, so I stood out as one of the better performers. I was able to live in my parents house, paying low rent. Most of my friends were still away in college for that first year, so I didn't have as many offers to go away for the weekend, or do other things like that. In short, I was able to focus, probably more than I ever have in my life.

My savings grew little by little. I discovered high-yielding online banks. I remember my first CD had a 7% yield. I opened a small "play money" Ameritrade account (it was Datek back then). I learned all I could about business and finance. I read books, I got to work early, I volunteered to do extra projects, and before I knew it, I had a pretty healthy amount in my savings account.

Then the company I worked for folded. It was a very difficult time for me in many respects but after some time, I regained my focus and I was still ahead of the game. I used my extra free time to study for the GMAT. I put a sign above my desk that said "1290690 or burst." I scored exactly 1290 690 on the exam. I wrote my admissions essays, I got recommendations from former professors and coworkers, and I sent in my applications. I took a paycut, but found a new job where I worked for six months, at the end of which I found out I was accepted into graduate school. I had about $40,000 in my bank account at that point.

I went to a state school, I worked as a graduate assistant to earn some extra cash, as well as a reduced tuition rate. I lived in a modest apartment. I brought peanut butter and jelly sandwiches for lunch. I worked a paid internship during the summer between my first and second years of school. When I graduated, my savings account had just about $1,000 left in it. However, I had an MBA, and the starting salary at my next job was much higher than it was at my previous job. I think I came out ahead.

That was how I did it.

It seems like many people have resigned themselves to the mountains of debt they think they need to incur to go to graduate school. If you plan ahead and discipline yourself to do it, you can save enough money to either avoid debt alltogether, or at least keep it to a minimum.

I was inspired to write this after reading a Think Like the Rich post about about another strategy for avoiding debt in graduate school. A graduate degree is starting to seem like a prerequisite for getting some of the more interesting, higher-paying jobs out there right now. There are many approaches to getting one without going into a ton of debt.

Mid Year Review

I like to sit back and reassess my savings and investment goals every now and then. Today being the first of July, I did my mid-year review of my house savings, retirement accounts etc...

Looking back at my year end review - the markets had extremely solid returns in 2006 (the S&P returned about 15.8% last year) and these returns have slowed just a little in 2007, although the year isn't over yet. The bulk of my retirement assets are in an S&P Index fund, which is up just a bit more than 9.3% on the year. Amazingly, my emerging markets fund is up 22% so far this year. This compares with a 30% return last year. If I had put all of my money in this fund (instead of only 5%), I would be a very happy man today. However, I stuck to what I consider to be a more prudent long-term allocation scheme, and I'm sitting around the same percentages as I was at year end.

Some people have asked me for some specific numbers...I do track them, but I don't publish them very regularly. I now have $50,000 in my 401(k) account, and I contribute 15% out of every paycheck (pretax) into the account.

I have also been saving for a home down payment, and that has been progressing nicely. Since we live off my wife's paycheck, I have been fortunate to be able to deposit my entire paycheck into a separate account we have earmarked for a home purchase. Currently we have about $125,000 in that account, which puts us very near our goal of $150,000. We plan on purchasing a home for $300-$400k, and in addition to a down payment, I want to have a good cash safety net, as well as some extra cash for incidentals such as furnishing and repair.

The news on the housing front has been very positive for me lately. Sales are down, foreclosures are up, and hopefully this will lead to a more meaningful price correction. Bad news for homeowners and sellers is usually good news for potential buyers. However, interest rates have been climbing lately, which almost cancels out price declines. I wrote a post about this recently.

I work in finance and I consider myself to be pretty good with numbers. If conditions don't seem favorable to me (home prices and mortgage interest rates), I am happy to sit on the sidelines until some normalcy returns to the market. I think this is beginning to happen, but I am not convinced yet.

My home savings are now in an ING Direct Electric Orange checking account earning 5.25% APY, or about $440 a month in interest. You might recall a previous article where I decided against opening up an electric orange account. However, given the favorable rate of 5.25% for balances above $100k, and the fact that I have been able to get my balance above $100k, I decided it was too good (and too liquid) to pass up. My previous objections mainly centered around a suspicion that the rates were just "teasers" that would go away quickly, however they have remained high for a while. Also, even though I have been trying to keep fewer accounts outstanding, the electric orange account integrates nicely into my ING Direct accounts page, so it is not much work to keep track of it. Finally, I'm only using my Electric Orange account as a savings account so I am keeping my Chase accounts to make bill payments and write checks out of.

So to sum it all up, I've been able to add about $15k to my down payment fund in the first six months of 2007, and $10k to my retirement accounts (these figures include both mine and my wife's accounts). I hope to be able to top this and add $20k and $15k over the remaining six months of the year. We had some large expenses in the first half of the year, including a large charitable donation, car repairs, a hefty tax bill and some generally wasteful spending. I hope to be able to cut down on these things over the rest of the year!

Markets Head South

We haven't seen market declines like this since February. As I noted recently, interest rates are rising. This has pushed treasuries up to 5%, and as a result will or has already pushed up rates on everything else that is based off of treasuries (mortgages, car loans, personal loans etc...).

In theory, this makes people sit back and say to themselves "Self, the stock market has been going gangbusters for a while, maybe that guaranteed 5% yield is a good deal for now. I'm going to sell my stocks and buy me a bond instead."

Should you do this with your 401(k)?

My answer is no. If you have at least 5-10 years before you retire, you have a long term outlook and you should own some stocks. If you have only 5-10 years, you shouldnt be heavily weighted in stocks, but I don't see the current weakness as a reason to sell.

If you have like 30 years before you retire (like me), just keep your contributions pouring in. You won't regret it as your money compounds over the next 30 years.

Stock prices and bond yields both currently reflect a ton of optimism. A bit of pessimism every now and then is a healthy thing.

Tips for Buying a Car

I read this a while back, but it was one of the best pieces of investigative journalism I've ever read so I feel the need to pass it along to you. If you have a few moments, I suggest you read this before buying your next car.

It's called "Confessions of a Car Salesman," and was written by a guy who went undercover as a car salesman in order to report back to Edmunds.com.

Enjoy!

Finance Bloggers - Stop Whining about Financial Education/Literacy

Ok, occasionally I go off on a rant about hackneyed posts I see popping up again and again on financial blogs. I even created a "PF Blog Rants" tag for the explicit purpose of letting me vent. See this post on boring financial advice to get an idea of the kinds of things I hate, yet see repeated over and over again.

I need to add something else to this list. I need to add it now.

Financial Education.

Financial Education.

Financial Education.

Financial Literacy.

Teaching financial literacy in school.

Think I've repeated that enough? It doesn't compare to the number of times I've seen this theme repeated by two bit hack financial bloggers. Honestly these people write about finance, but they know practically nothing about the subject. They just repeat what they've read in three or four popular books (Rich Dad/Poor Dad, The Millionaire Mind and all of that other trash), they link to ideas put forth by other people and they agree with them. They have never had an original thought in their lives.

Yes, I don't post very frequently. Mea culpa. But at the very least, I try to be original. I try to avoid linking to something and saying it is a good idea. I try to avoid repeating all of the BORING FINANCIAL ADVICE we have been seeing everywhere for years. I try to assume that you can read these books on your own.

So anyway, sorry to go off on a rant, but to give you a concrete example (and you know how I hate calling out other bloggers), take a look at this post and this post by a financial blogger who shall remain nameless :)

Teaching financial literacy in schools is not your idea. Robert Kyosaki has been writing about this for years. So has everybody else. Unless you want to bore me, stop writing about it. Frankly, I'm sick of it.

Please, stop.

I feel the need to add another disclaimer here. It's not like I dislike any of the bloggers I call out here. In fact, I would need to actually read their blog in order to go off on a rant about it, so you can be sure I've read their blog if I mention them here. And if I've read their blog, that means there are some things on their blog that I've liked. However, there are also some things that drive me crazy, and I have no qualms about writing about them. If that makes me the Simon Cowell of the blog world, so be it.

Mortgage Rates Are Rising - How Will This Affect Home Prices?

Check this out... back in 2002, the yield on the 10 year treasury was about 3.5%. Mortgage rates, which are based off of that rate, were in the neighborhood of 4.6%.

So your monthly payment if you took out a $200,000 mortgage in 2002 would have been something like $1025.29 per month.

Fast forward to today. The yield on the 10 year treasury is about 5% (bloomberg.com) and rising. Mortgage rates are about 6.1%. Your monthly payment for the same $200,000 mortgage would be $1,211.99 per month. $187 dollars more per month purely in interest. Thats $2,240 more every year, or $67,212 dollars over the life of the mortgage, just because of the change in interest rates.

Can you see why so many people bought so many houses back in 2002? The monthly payments were pretty darn cheap.

It's impossible to predict where rates will go but it is easier to see them going higher rather than lower over the next couple years. Rates are another factor that affects demand for buying houses.

As many of you know, I'm hoping to buy a house within the next few years. I'm also hoping that increases in interest rates hopefully lead to more housing price reductions, because fewer people will be able to afford those higher monthly payments.