The American Dollar
OUR FAMILY. OUR MONEY. ONE PERSONAL FINANCE BLOG.
One industrious American family's focus on a financial goal of freedom. Through worldly personal finance education, here is our story.
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Our Story: Both my wife and I are 27 years old and have gone through financial hell and back. Now we are on track to financial freedom, however we are not financial advisors or professionals, just everyday people. Share our journey from a negative networth and email us if you have questions or comments! :)



RECENT POSTS

Monday, November 28, 2005

The Car

Signifying the American Dream, the car (or truck) has been the barrier breaking freedom of the consumer's identity since the Model T. When you first recieve your license from the DMV, there has been a pride of ownership aspect associated with actually OWNING your car.
Today, a car is more than just transportation. It can define someone. THAT is the pitfall in itself and it goes back to the greenER-grass growing on your neighbors lawn theory.

Why should a car define you? It shouldn't. Flashy rims or high end gas guzzling SUV's definately dont make you who you are as a person. Sure its cool and all your friends and family envy you, but those payments on your $5000 rims look horrible coming out of your pocket every month too.

This goes back to my whole debt theory which is, if you cant afford to pay for it with cash, you shouldnt have it at all. My wife and I drive very sensible foreign cars. If the car needs to be repaired, we repair it. A car should be driven into the ground and not traded every so often for the newest model. After we are done running it 200,000 miles, we will sell them privately and pay cash for our next car. For our hard work and saving for the car, we will try to get something that each of us LIKES, without going too far from the sensibility or reason for having a car. Overall its a good choice to stick with a clunker if it works, and SAVE SAVE SAVE for the next vehicle purchase that you have in mind. NEVER let the bank or especially the dealership finance the car for you and ALWAYS buy used. PERIOD

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Debt: The Story.

We've been dodging it left and right and its time to face it. I'm talking about those little things that crawl up your skin every month and eat at your income; Yes, DEBT. Debt is the single most hated item on the list by many Americans. Not to be confused with expenses, debt can be defined by the items on your expense list that are considered OWED.

When your monthly monies go out to other people because you owe them, this is debt. Here are just a few examples of common debt: Car Payment, Mortgage, Credit card payment, Student loans, etc.

Here are our numbers:
Our Cars - $0.00
Credit Cards - $0.00
Student Loans - (1) $5793.49 (2) $16,233.69
Mortgage - $82,553.93 (some people consider their home an asset, I don't)
Total owed debt: $104,581.11

This debt comes to a monthly amount of : $715.24
Each one of these will be discussed in detail and my feelings on each of them, but for now lets consider the overall picture.

Our income is approximately $4,400.00/monthly
Meaning our debt to income (debt divided by income): 16.25%

Debt is NOT good. Currently we are in the progress of clearing all our debt. Some may argue that your mortgage is not debt but a forced savings because the outcome is establishing equity in your home. I find that the less you pay monthly in debt towards your mortgage, the more it can be utilized for FORCED savings (more on forced savings later).

Nonetheless if you are a homeowner and carry a mortgage, get it paid off just as fast as you would a credit card. Frankly, I'm deathly afraid of credit cards and anything that I would pay INTEREST on every month. Just an example, a $200,000 mortgage loan for 30 years at an average 6.5% rate would equal to approximately $255,088.98 FOR INTEREST!!!! THATS MORE THAN THE LOAN! and I HATE spending any extra money when I dont have to. The lesson today boys and girls: PAY CASH FOR EVERYTHING! PERIOD. If you dont have the money to pay for something, dont go into debt to get it. Its immature and an embarrassment to you and your family to let that money be wasted on something like debt interest!

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Sunday, November 27, 2005

Tax bracket


courtesy of www.cartoonstock.com

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Taxes, Taxes, and Taxes

The last rant was enough for me to dive into our personal tax bracket.
According to the document http://www.irs.gov/pub/irs-pdf/i1040tt.pdf ;
My spouse and I have gross taxable income currently at ~$76,000.00
Since more than half of my pay is based off commissions, I can only speculate, but to date we have earned $75,000.

This would fall a married filing jointly at: $12,086

The question is what have we done to avoid paying all those taxes.
Well for starters, we have diligently been paying portions of that amount to the IRS every month through federal taxes taken out of our paycheck.
At the end of the year we will calculate what we have paid in FEDERAL taxes this year on our paychecks. Also we will look at deductions to reduce our taxes even further.

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Interest-ing!

Does the government tax savings interest?

Heres my thought of the day... The ultimate goal for myself and family is to have approximately $4 MIL net for the simple reason that we can live off the interest (here for example 4%- an industry standard and could be alot higher) of $160,000/ year or ~$13,300/ month. That would be fairly substantial in a retirement age. If it falls short, and we only are able to obtain half, ie. $80,000/year (6,600/mo) it still would be livable. However is this interest taxed??? We all know that Roth IRAs are tax-free so the government doesnt get a cent of it, but what about a regular savings account. Is that taxable? I went to the IRS website to find out as well as a tax advisor for the answer.

Yes, the monies obtained through interest whether savings, mutual funds, stocks, is taxed at the regular income percentage that the interest is earned. For example, in our above scenerio, $160,000 gained every year will be taxed as if you earned that income and you will have to pay Uncle Sam in that tax bracket. However throughout the year, you can use several tax shelters, discussed in a later table, to help you keep as much as you can.

Here is a link to check the IRS 2005 tax bracket (this is an Adobe PDF file) :
http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

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Friday, November 25, 2005

Fico vs. Risk


Here is a chart showing credit scores versus the percentile of credit risk; meaning I'm currently at a 5% credit risk to the creditor evaluating the score. Lower scores obviously mean higher risk.


all rights reserved to the Fair Isaac Corp. http://www.myfico.com

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THE FICO SCORE

Its extremely important to make certain that the all financial information that follows you is accurate. Of course, Im talking about your CREDIT! Credit can be a huge advantage or disadvantage depending on who's holding it. Here is a look at our recent scores and items on our credit reports (**Also wanted to mention that, I myself will always be referred to as (1) and my spouse as (2)).

the site I get all my FICO info from. http://www.myfico.com

(1) Credit score: 739
I was fortunate enough to work hard at rebuilding my credit by reducing my debt owed and making sure all my revolving accounts were paid off in full every month for the past 4 years. I only have my student loans and mortgage left with ONE credit card ($0 of $5000 limit used)
Here is a history this year brought to you by Fico's scorewatch(1):
2/6/05 - 687
8/26/05 - 695
9/26/05 - 724
10/10/05 - 731
10/28/05 - 730
11/6/05 - 732
11/25/05 - 739

(2) Credit score: 765
My spouse has always kept the credit score squeaky clean. There was a time before our marriage when we both signed for a single car loan, which pulled it slightly down, but it has rebounded in the past year.
Here is a history this year (2):
2/6/05 - 741
9/12/05 - 745
10/10/05 - 752
11/4/05 - 765

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Friday, November 18, 2005

11/18/2005

Current Financials as of 3:00pm:

Joint Checking Account = $416.37

Roth IRA (1) Index fund = $3,742.43
Roth IRA (2) Growth fund = $3,425.49

Savings = $13,585.23

401k = $10,776.37


My monthly expenses coming soon!!

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Introduction

I created this blog in hopes of inspiring and educating others to embrace the American dollar through financial analysis and reflection. What I will post here is a generalization of myself, however I will use actual numbers and specific facts of my financial situation. Here is a brief introduction of myself.

Background:

  • Born, raised and living in the Eastern US.
  • Im currently 25 years old.
  • Im married with no children.
  • We work 40 hours a week.

Throughout this process I realize sometimes it will involve personal specifics, but it is to benefit the understanding of the analysis process. Let life begin.


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www.AMDOLLAR.com is here!

Emergency Fund
40%
$25,000
2007 Roth Contributions
$8,000 Total




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