I’m Back – Review of 2009 Goals

A lot has happened since my last post! Looking back on this blog and seeing how much time has passed makes me realize how easily we get distracted by everyday life and get knocked off track of what we truly want to accomplish. I never forgot what my goals were for 2009, but I did let everyday life get in the way of doing the necessary things to accomplish my long-term goals. Let’s review 2009 to see if I was able to accomplish the goals I set for myself:

Personal Financial Goal

Become DEBT FREE by October 30th, 2009. At the beginning of 2009 I had $25,932.16 worth of debt.

Goal Reached? NO. I was well on my way to achieving this until I decided to make a few rather large purchases.

Purchase One: A house With home prices down, interest rates at historic lows, and the government handing out a $8,000 tax credit we couldn’t pass up the opportunity to get out of renting and start acquiring a real asset.

Purchase Two: An engagement ring! I popped the big question and she apparently likes me enough to want to stick around.

The good news? I made two life-changing purchases all while reducing my debt from $25,932.16 down to…………$9,770.62 (As of 12/5/09). This figure obviously does not include my mortgage, but I was able to purchase a nice diamond ring without taking on any more debt.

The bad news? I have set things in motion for another large cash purchase. If you said “Wedding” then you are following along nicely. It isn’t the wedding that is the bad news, it is the fact that they grow on trees as well as cash does. Saving for the wedding is now top priority over eliminating the remainder of my debt. It wouldn’t make much sense to pay off my debt just to take out loans for a wedding.

Overall: Even though I fell short of my goal of paying off all debt, I view the year as a HUGE success from a personal finance standpoint. I greatly reduced my non-mortgage debt, put an end to throwing away money to rent, and am getting the girl I love to marry me while being able to pay for it with “straight cash homey.”

Business Goals for 2009:

1. Increase number of suppliers from 2 to 8. NOT ACCOMPLISHED. I was able to bring on more suppliers but only have three that make me any money.
2. Increase eBay feedback from 33 to 100. ACCOMPLISHED! Absolutely crushed this goal with my feedback currently sitting at 244!
3. Keep feedback score at 100% positive feedback. ACCOMPLISHED! Still have yet to receive my first negative feedback.

Overall: My eBay business took off much faster than I anticipated. I have since changed the name from Deserving Deals to The Golf Competitor. Unfortunately I took down all listings when moving into our new house and have yet to put them back up. Since the supplies won’t sell themselves I guess I should get them up for sale again.

Revised 2009 Goals

Here we are in mid-February and I am already completely changing my goals for the year. However, the reason for my goal changing isn’t because I don’t feel like I can acheive my old goals, it is because I read a book that has completely rocked my outlook on my financial goals. That book, The Total Money Makeoverby Dave Ramsey, has inspired me to become debt free before moving on to other financial tasks.

I have also included some business goals for 2009. On an extremely part-time basis I operate an eBay business named Deserving Deals, LLC. I started Deserving Deals last year and decided to sell golf equipment online. This has proven rather difficult because it is not easy finding golf suppliers or manufacturers that deal with online only businesses. Currently my business has only two brands of golf products. Those include HiPPO Golf and Zero Friction golf tees.

My Personal Financial Goal for 2009

1. Become Debt Free by October 30th (my birthday). Total debt as of 1/01/2009 = $25,932.16

Deserving Deals Business Goals for 2009

1. Increase number of suppliers from 2 to 8.
2. Increase eBay feedback from 33 to 100.
3. Keep feedback score at 100% positive feedback.

Selling Mindray Medical

On 1/15/2009 a trailing stop loss order was executed on my 54 shares of Mindray Medical. 

Stock Purchase Date:  11/14/2008

Stock Purchase Cost:  $1005.46  (including trading fee).  $18.49 per share without trading fee.

Stock Sell Date:  1/15/2009

Stock Proceeds:  $1087.03  (with trading fee included).  $20.26 per share without trading fee.

Short/Term Realized Gains:  8.11% or $81.57 in 2 months.

Was this investment a success or failure and what was learned from it?
SUCCESS!  Compare my 8.11% ROIC (after trading fees) to the base return of the S&P 500 from 11/14/2008 – 01/15/2009 which is only 3.72%.  On a level playing field without trading fees it looks like this:

My rate of return:  9.57%

S&P 500 rate of return:  3.72%

Difference:  Beat the S&P 500 by 5.85% over a 2 month period.

What I learned:  A trailing stop loss will execute within a day or two in this volatile of a market.  I had a trailing stop loss of 7% and the stock dropped 7% (executed the sale) and then rebounded and ended up finishing the day higher then it started.

New Mindray Medical Exit Strategy

I have adjusted my Mindray Medical exit strategy.  With the stock currently trading at $21.66 per share I had to make a decision if I was going to execute my strategy of selling half of the shares once the stock reached $21.40.  I have decided to place a trailing stop order on the stock at 7% instead of selling half and keeping half with a trailing stop loss order.  The reasoning for this is simple.  Since I only have $1004.94 invested in this stock it doesn’t make since or cents to split it and pay commissions on trades around $500 in value.  For this reason I have decided to trade this position as a whole instead of in parts. 

As of right now the worst case scenario for this investment would be if the stock fell 7% immediately and executed a sell.  That would leave me with roughly an 8% return on investment.  Not too bad of a worst case scenario given the state of the market recently.

Tip of the Week #2

Create an Emergency Fund….Now

The last tip explained the importance of creating a budget and controlling your spending.  Now that you have that under control it is time to create an emergency fund.  This is something that is difficult for many of us because we always want to do something with our money.  We either want to spend it on something now or we want to save it to spend on something specific later.  For some reason it is against our human will to just simply save money and put it away ‘just in case.’ 

Why should you create an emergency fund?

-  It gives you peace of mind and greatly reduces risk.  If you were to lose your job right now how stressful would that be?  I can promise you it would be a lot less stressful if you had 3 to 6 months worth of expenses saved away. 

-  It will prevent you from having to go deeper into debt.  Let’s say the dreaded ‘Check Engine’ light comes on in your car and you take it to the mechanic and learn that it needs $800 worth of repairs.  Almost everyone looks at this as devastating news and it is always at the worst possible time.  Now you have to scramble together a way to come up with $800 or you have to put it on a credit card.  Now if that were to happen and you had $1000 in an emergency fund then nothing in your life changes except your balance in the ‘ol reliable emergency fund. 

How do you start an emergency fund?

Most experts say that you need to have 3 to 6 months worth of expenses (not income) in your emergency fund.  While I agree, it isn’t necessary to have that much in your e-fund right away.  I personally love the approach Dave Ramsey preaches in The Total Money Makeover.  That involves saving $1000 for your e-fund and then focusing on paying off your debt.  Once your debt is paid off then it is time to create a fully funded emergency fund. 

Where should I keep my emergency fund?

It needs to be liquid.  That means keep it out of the stock market.  This money serves the purpose of protecting you, not to make you rich.  I would suggest an online savings account that earns you 3-4% interest.  However, it is better to keep it under your mattress then it would be to get fancy with it in the stock market.  Keep it simple with this money because when you need it you don’t want it to be tied up in an investment that is currently down 30% from when you bought it.  Just stick it into a savings account or keep it in a safe at home. 

When should I start my emergency fund?

This is something that you should not procrastinate on any longer.  Eventually something is going to come up that will put you back months if you don’t have an e-fund.  Either put money you already have aside for your emergency fund or start saving for one today.  Having no emergency fund is like being a quarterback with no offensive line trying to avoid a blitz from debt.  Eventually you will get sacked.

Tip of the Week #1

Every week I will be posting one tip about personal finance.  While some of the tips may seem elementary to some of you, do not let it undermine the importance of maintaining strong financial fundamentals. 

TIP #1 – Create a Budget and Track Your Spending

For those of you that have never created a budget or accurately tracked your spending before this can be a very daunting task.  Let me be very clear:  You MUST do this if you want to control your wealth. 

When I was in high school and college I made more money then most of my friends.  However, the only way I tracked my spending was by looking at how much money I had in my checking account.  When bills became due there were times that I didn’t have enough money to pay them.  Also, I was getting credit card offers and started to go on trips, go to sporting events, buy my girlfriend gifts, and basically buy anything that I wanted. 

During the year 2006 I was in way over my head and was constantly receiving phone calls from bill collectors.  I wouldn’t open my bills when they came in the mail just because of the fear of facing the problem.  It was always easier to just put it off and face the issue another day.  When the phone rang I wouldn’t answer it because I didn’t want to talk to anybody about it either.  Obviously, refusing to deal with the situation was hurting more then helping. 

That December I had asked for some Quicken software for Christmas.  Once I got the software installed I quickly started to plug in all of my bills.  This was the moment that I decided to face all of the problems that my past spending created.  Needless to say, it was one of the most stressful times of my entire life.  It didn’t take long to realize that I was in way over my head and that I didn’t have enough income coming in to even put a dent in my debt.  However, I continued to plug away and started to contact the bill collectors and determine a plan of action. 

By the end of 2007 I had paid off all of my old debt.  To this day I continue using Quicken to track my spending and compare it to my budget.  It wasn’t too long ago that I use to live off of animal crackers, popcorn, and ramen noodles.  Now I am able to save between 20-35% of my monthly income while still eating healthy meals.  It was just over two years ago that I created my first budget.  Now I couldn’t imagine living without one. 

You can create your budget on paper, using Microsoft Excel, buying Quicken software, or using the free site Mint.com.

Mindray Medical Investment

In November I opened an account with Scottrade.  My plan of attack is to take my money invested in the ESPP and move it to my scottrade account every six months.  This will allow me to invest roughly $1000 every six months.  Since I have to pay $7 per trade I think it makes since to only invest in one stock every six months.  If you start throwing around too small of dollar amounts then the trade commission really starts to eat away at your potential profits. 

In November I purchased 54 shares of Mindray Medical (MR) at $18.49 per share.  However, with the commission my actual cost per share ends up at $18.61.  The total cost of this investment was $1005.46.

Reasons for investing in MR:

• The stock passed the calculations I use from the book Rule #1 by Phil Town.  These include looking for growth in equity, EPS, sales, free cash flow, and ROIC.  Mindray Medical has shown consistent double digit growth year over year in all of these categories with the exception of free cash flow. 
• The stock appears to be on sale.  Once again using the calculations from the book Rule #1 I was able to determine what I believe this stock should be worth.  The price that I valued (MR) at was $48.08.  The strategy I use as learned from Phil Town is to buy stocks that are at least 50% off.  Taking 50% off of $48.08 puts the stocks buy price at $24.04.  With (MR) trading at $18.49 at the time this was a no brainer. 
• Given the recent economic times I wanted a stock that might be immune to the hardships.  I did a lot of research on this company and seriously looked at their market share throughout the world.  Also, Mindray Medical is a China based company that has really started to show growth worldwide.  Since their products are considered necessities to hospitals I believe Mindray Medical will not be as heavily affected by the economy as other companies. 
• Another aspect I look at when evaluating a stock is how far is it from it’s 52-week high.  I do realize that this is probably a flawed strategy.  However, if all of the company’s numbers look solid and it is showing continued growth, then I wouldn’t be scared off by it being well below the 52-week high.  Also, looking at the 52-week high let’s you know how high the market has traded that particular stock.  Which basically sets a pyschological price in traders minds.  With Mindray Medical’s 52-week high at $44.41 that just further increases my belief that this stock is on sale at $18.49. 

Exiting Strategy:

• So now that I own Mindray Medical I have to decide my exit strategy. 
• Sell half of the shares (27) when the stock gains 15%.  This would be at $21.40 if I take into affect the actual cost of $18.61 per share.
• Once half of the shares are sold create a trailing stop loss at 7%.  This way if the stock falls 7% immediately it will be sold.  However, as the stock rises in price my trailing stop loss follows with it.  So the stock will only sell when it drops 7% from whatever the highest point is.
• If things go poorly and the stock never reaches $21.40 then I will continue to monitor it and only sell once it is trading for less then my calculations from Rule #1 determine it is worth.

2008 401(k) Account Summary

One of the worst years in the US stock market is now over.  The year 2008 was one that had many people see their retirement accounts drop 40% or more.  It has been a year that has caused the likes of Jim Cramer, host of Mad Money on CNBC, to tell people to GET OUT of the stock market. The housing, financial, and auto industries have all completely fallen apart. It would be acceptable to have my 401(k) account lose a little money during a year of such horror. However, not only did I not lose any money, but I actually managed to get a 17.7% return on my investments! That has me feeling very optimistic that I can get double-digit returns year over year. Here is my Account Summary for the year:

Learning From December

Wow, December was a rough month! Looking at my Budget Reports is rather painful this month. As you can see I overspent by $837.28 compared to my budget. Not only did I overspend, but I only saved 20% of my net income compared to my goal of 35%. Missing my goals by that much leaves me with two courses of action:

1. Give up and just change my goals
2. Find out where I made mistakes and correct them going forward.

Obviously I am choosing the latter of those two options. However, before I get into what I learned from December I want to look at any positives from the month. The biggest positive from December was that I finished paying off my last credit card and that accounted for $250.51 of my overspending. The other positve was (and this is a stretch) another $431.92 of the overspending was attributed to gift giving.

Now let’s take a look at the lessons learned from the month of December:

1. Start a savings account to allow me to save for gifts year round. Also remember to budget gift expenses next year.

2. Get control of the ‘Fun’ category. While living in the moment and having fun is extremely important it still has to be controlled. This is typically the category that will seperate those that live from paycheck to paycheck from those that are rich. It is also an extreme test of self control.

3. Stop spending before having to dip into my savings account. Since all of my saving is automatically put into the correct accounts from my paycheck then the only way I can screw this up is by dipping into my savings account for expenses. Lesson learned: DON’T DO IT.

December 2008 Budget Reports

Well December is over and it is time to review the month compared to my budget.  First, let me explain what the following two reports actually detail.

Expense Report:  This report shows how much I varied from budget by category concerning expenses.  Anything in green means that I underspent compared to budget while red indicates overspending.  The reason that I use variances and percentages rather than specific dollar amounts is to maintain a certain amount of privacy. 

Savings Report:  Below the expense report you will see my savings report for December.  This report simply shows the percentage of NET income saved for the month compared to my goal.  I have included any money allocated into my 401(k), ESPP, and transferred to my savings account into this report.