Goals: 2017

It’s been one year since I’ve started to budget and diligently track my finances. As mentioned previously, 2016 went by fairly smoothly, with no real surprises. While I didn’t quite meet all my financial goals, it was an impressively successful year. I received a promotion towards the end of 2016, which will make 2017 that much more interesting. The promotion  increased my income from a $65k annual salary to $80k.  Now thanks to the extra $15k in income, I have some new financial objectives that weren’t otherwise obtainable. My goals for 2017 are as follows:

  1. Maximizing 401K and Roth Contributions
  2. Building emergency fund to $5,500
  3. Planning 1-2 international trips (Asia & possibly Europe)

The plan to reach these goals is to start the year off fast and furious by doubling my emergency fund by the end of this month. January just so happens to be a month in which I’ll receive three pay checks, so this shouldn’t be hard…barring an emergency. For the first quarter of 2017 I’ll follow the saving and investing schedule below:

Date Roth IRA 401K Savings
2-Jan $212 $154 $475
16-Jan $212 $154 $475
30-Jan $212 $738 $1,000*
13-Feb $212 $738 $1,000**
27-Feb $212 $738 $125
12-Mar $212 $738 $125
26-Mar $212 $738 $125

*-three pay period month!
**-tax return

I chose this contribution schedule because it’s easier (for me) to save large lump sums  rather than small sums spread out over 26 pay periods.  The first two pay periods I will only contribute 5% of my salary towards my 401K (to obtain my employer match). The next 24 pay periods should consist of equal $738 contributions to my 401k.

These financial goals are a bit of a stretch. I spent on average ~$2,500/month in 2016.  The plan was to spend only $2,200/month and that remains the plan for 2017.  Due to the  increase in 401K contributions and the increase in deductions for items such as health insurance, my take-home pay will be $200 lower a month than in 2016. I have a lot less room to make mistakes.

I plan to use my Chase points to pay for my international travel. I have joined the league of credit card point churners.

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Open Season and Choosing a Plan

When it’s open season I’ve had several friends come and ask me which insurance plan they should choose. Obviously everyone’s health situation is different, but I’m going to briefly explain the process I use when I choose my insurance carriers. I am not going to include the pros and cons of high deductible health care plans (HDHPs) in this analysis for simplicity. So I am going to assume that this is for more risk averse individuals, or individuals who know HDHPs are not for them.

These are the points I will cover:

  1. Access to Healthcare
  2. Premiums
  3. Copays & Coinsurance
  4. Deductibles
  5. Reward Programs
  6. Medication Costs
  7. Out of Pocket Maximum
  8. Hospital Stays & Surgeries
  9. In-Network & Out-of-Network Benefits

1. Access to Healthcare

First and foremost when  considering any health insurance plan consider how much access is necessary to healthcare. I live in the DC metro area. Some plans I choose from are national, while others are regional, only allowing access to doctors in DC, Maryland and Virginia. Be sure to consider if you will experience:

  • Extended periods of time out of state. If your child or spouse has extended periods of time out of state
  • Second opinions outside of your region (Mayo Clinic, Cleveland Clinic, John Hopkins etc.)
  • Regularly seeing a doctor out of your region

 

2. Premium

The premium is pretty straight forward. It’s how much you pay for insurance every pay period.  For a single person in my area, some range from as low as $50 to as high as $150.  Multiply this by the number of pay periods in a year to get the annual cost. I have noticed a lot of people ONLY consider the premiums when determining their health insurance carrier. This is the biggest mistake! 

3. Copays

Copays is a fixed amount of money you pay for an office visit or procedure. Coinsurance is the percentage you pay for an office visit or procedure. A good rule of thumb is to:

  • Estimate number of visits to primary doctor and times it by the copay/coinsurance
    • 3 visits x $20 = $60
  • Estimate number of specialty care visits and multiply by the copay/coinsurance
    • 3 visits x $30 = $90
  • Consider testing you need. X-rays, MRIs, blood work, etc.

4. Deductible

A deductible is generally the amount of money you must pay before the insurance company will start paying your medical bills.  One thing I have learned is sometimes not everything applies towards the deductible! This is a good thing! I have a $500 deductible, but it only applies if I end up in the hospital. So other than the copay, my insurance will fully cover doctor visits, testing etc. on the very first day of coverage. This year I hit my out-of-pocket maximum without reaching my deductible.

5. Rewards Program

Some insurance programs reward you for being healthy. I get a $500 reward card if I am not overweight, diabetic or hypertensive. I can use this to pay my copays or deductible.

6. Medication Costs

Don’t forget to compare this as well!

7. Out of Pocket Maximum

This is the most you will pay out of pocket. This is important to consider, because if one plan is slightly cheaper in every way but has an out of pocket maximum that is significantly higher then it might not be the plan for you.

8. Hospital Stays & Surgeries

If you know you have a hospital stay or a surgery coming up, or that you are likely to end up needing either or. Compare these benefits. Some insurance plans bill hospitals stays each day. Others are per stay. Then there are the coinsurance plans.

9. Network Benefits

If you want to see an out of network doctor be sure to check the out of network benefits your plan has to offer. Remember if the doctor bills beyond what the insurance company is willing to pay you will owe them the copay/coinsurance plus the unpaid amount.

Simplified Example

Below is a simplified example of two health care plans. It is similar to a decision I had to make when I was choosing health care plans this open season:

Plan A Plan B Conclusions
Premium 50 85 Plan A costs $1300/year

Plan B costs $2210/year

Copays/Coinsurance 20% copay for appts

20% coinsurance for all other services

$10 copay for Primary

$30 copay for specialist

$50 Urgent Care

… various fixed copays for all other services

Plan A – 3 appts = $210

Plan B – 3 appts = $160

Deductible 0 $500
Rewards Program None $500 Reward
Medications $10 copay $5 copay Plan A – 5 meds/month = $600

Plan B – 5 meds/month = $300

Out of Pocket Maximum 3000 3000

Conclusions

The estimated costs for each plan is as follows

  • Plan A = 1300 + 210 + 600 = 2110
  • Plan B  = 2210 +160 + 300 – 460 = 2210

The most I would pay with Plan A is 1300 * (0.70) + 3000 =  3900
The most I would pay with Plan B is 2210 * (0.70) + 3000 – 500 (reward) = 4047

Where 0.70 is a multiplication factor to convert pre-tax dollars (my health care isn’t taxed by my employer) to after tax dollars.

In every way Plan A is estimated to be cheaper, but  personally I went with Plan B because I’d be able to smooth my spending. The fact that plan A has coinsurance rather than fixed copays suggests that I may be paying a large sum of money very early on in the year and hit my out of pocket maximum quickly. $147 is not enough for me to pick Plan A over Plan B unless I had a very solid emergency fund to fork over $3,000 all at once and then some in the case of a catastrophic health situation.

Recap: 2016

This year marks the beginning of my personal finance journey, which began one month after completing my PhD.  Thanks to a financially savvy friend, who was well on their way to financial independence, I quickly became motivated to do better. I also realized it would be a good idea to prepare for the unfortunate but likely scenario of disability retirement.

Liquid Assets Jan-16 Dec-16 $ Change
Cash & Savings $3,946 $2,357  ($1,589)
FSA $1,625 $0  ($1,625)
Other $0 $290 +$290
Retirement Jan-16 Dec-16 $ Change
Roth IRA $3,620 $11,749  +$8,129
401K $4,069 $11,339  +$7,270
Liabilities Oct-16 Dec-16 $ Change
Credit Cards $773 $0 +$773
Medical $0 $175 ($175)
Piano $2,893 $0 +$2,893
Net Worth $9,594 $25,749 +$16,165
% Change +286.5%

In the aspect of personal finances, 2016 went by smoothly.  My net worth almost tripled, and I surpassed  a $25,000 net worth!

Typically a bad health year is seen as a catastrophic event, but for me every year tends to not be so hot for my health. While I didn’t mention or record all of my medical expenses, they were high.  I ended up reaching my out of pocket maximum. This happened last year as well. Thankfully, my FSA cushioned a lot of the blow and I am do well at cost minimization when shopping for a health insurance plan.

Overall  I’m pleased with where I ended up.  The only thing that disappoints me is the lack of liquid assets. When I skim through my entries I can see that $2,000 in catch up IRA contributions and a $2,900 loan repayment were big contributing factors to this. With that in mind, my Cash & Savings did increase otherwise. Still this is one thing I really need to work on.

Half way through 2016 I changed the software I use to track my spending. I started off using both mint and personal capital, but after further consideration, I no longer feel comfortable having a third-party know my login/banking information. I now manually enter my transactions into Quicken, That being said,  below is my spending for the year.

spending-2017

According to Quicken, I spent $35,233.48 in 2016. There is a “Bill & Utility” payment for $2,375 to my company for over-reimbursment for my relocation. Therefore, I really only spent $32.858.48.  For reference, in 2015 I spent $37,389. A lot of this had to do with a $4,000 piano purchase, moving expenses (such as paying double rent) etc. When I lived exclusively in the midwest, I spent $22,569 in 2014, $19,409 in 2013, and $22,623 in 2012.

Net Worth Update – December 2016

There is no more spending to be had in December so it’s time for the update. December was difficult due to the holidays but my net worth still managed to increase by more than 7 percent. I’ve also officially separated out and started working on my emergency fund!

Liquid Assets Nov-16 Dec-16 $ Change
Cash & Savings $2,102 $832  ($1,220)
Emergency Fund $1,500  +$1,500
Other $240 $290 +$50
Retirement Nov-16 Dec-16 $ Change
Roth IRA $11,309 $11,756  +$447
401K $10,657 $11,521  +$864
Liabilities Oct-16 Dec-16 $ Change
Credit Cards $228 $0 +$288
Medical $75 $175 ($100)
Net Worth $24,005 $25,749 +$1,719
% Change +7.2%

Liquid Assets: Obviously the decrease in Cash & Savings is due to its transfer into the Emergency Fund.  I have a solid $1,500 emergency fund which is almost one month’s worth of living expenses. The “Other” category shows that people still owe me money and I am owed $50 more than last month.

Retirement: My retirement accounts increased nicely. I continue to make regular contributions and it appears that the markets performed well. I have not been paying attention to the markets to be honest.

Liabilities: I decided not to carry over any credit card debt this month and I would like to get into that habit. I still have medical bills to pay though.

Budget

I was pretty certain I wouldn’t meet my budget in December. I was correct, however I actually didn’t do too bad. I ate out a lot more this month than I usually do but should be able to save quite a bit next month since I now have groceries stock piled.  I live in DC and I go to restaurants semi-freely but still manage to keep my food expenditures low. For reference my food spending includes eating out at restaurants three times ($82) and eating fast food two times ($14). The rest of the money includes grocery store purchases. The Quicken software I use to track my spending doesnt properly categorize some of my spending if I buy groceries on amazon, for instance, so that explains some of why my food expenditures are low. But mostly I don’t eat much meat or buy more than 2-3 days worth of food at a time because that’s all I can carry without a car. In other words, I don’t waste much. I’m not terribly pressed on categorization as long as I don’t go over the total budget for the month.

Category Budgeted Actual Remaining
Rent $1,650 $1,650 $0 left
Fixed Expenses $100 $93 $7 left
Food $200 $263 $63 over
Health $175
Gifts $250 $250 $0 left
Everything Else $300 $293 $7 left
Total  $2,549  $2,500  $49 over

Net Worth Update – November 2016

November was a another high spend month, making for two high-spend months in a row. I did anticipate November being this way due to a vacation. Thankfully, things still seem to be moving along. As you can see in my net worth outline below, the only category that decreased was the “Pending” category, meaning I received payments for money owed to me.

Assets Oct-16 Nov-16 $ Change
Cash & Savings $1,901 $2,102 +$201
Roth IRA $10,372 $11,309 +$937
401K $9,799 $10,657 +$858
Pending $400 $240 -$160
Liabilities Oct-16 Nov-16 $ Change
Credit Cards $361 $228 +$133
Medical $75 -$75
Net Worth $22,111 $24,005 +$1,894
% Change +8.6%

Below was my budget for November vs my actual spending. I went $52 over my totaled budget, mostly because I bought a new tablet, sorry not sorry. I don’t budget for health expenses, but do like to keep them on record.

While the tablet wasn’t planned, I was so far under my vacation budget, that I purchased it anyways, plus I needed to. My current tablet is 4 years old and has been acting funny for the last few months, it should be arriving tomorrow!

Category Budgeted Actual Remaining
Rent $1,650 $1,650 $0 left
Fixed Expenses $100 $91 $9 left
Food $200 $208 $8 over
Health $190
Vacation $630 $470 $160 left
Everything Else $300 $513 $213 over
Total  $2,880  $2,932  $52 over

A Tale of Two Budgets

When I moved to this city I did so knowing that the first twelve months would be financially difficult. If I delayed my entry onto the job market, I may have been able to increase my income by $10,000-$25,000/year but I decided not to take that risk. Instead I started working 6 months early knowing that I’d more than likely get a $10,000 promotion in exactly 1 year (and I did!).

One of my friends was fortunate enough to get a higher paying job and started earning $23,000/year more than I did.  We moved to the city around the same, we are both statisticians, have comparable rents  and thus we both should have a fairly good grasp about the importance of financial planning and budgets. But what shocked me was the realization that she finds it extremely difficult to live on her income and her income equates to roughly $1,000/month more in take home pay.

From our conversations, I gathered that on a good month she was able to tuck away $600 into savings, basically the amount of money I was managing to tuck away on my income prior to promotion!  Where her money is going is beyond me, but I’m beginning to realize that intentionally starting off at a lower income for one year may actually have been a savvy financial move.

Now that I’ve received my promotion, I’ll still be earning about $10,000 less pre-taxes than my friend. But I’m already seeing this as a year in which I can max out my Roth IRA and 401K plan while tucking about $200/month into a regular savings account . I’m definitely patting myself on the back for a job well done on this one. Even though I do manage to fall short of some of my goals on some months, overall, I’m still doing very well.

Net Worth Update – October 2016

Assets Sept-16 Oct-16 $ Change
Cash & Savings $2,555 $1,901 ($654)
Roth IRA $10,090 $10,372 +$211
401K $9,467 $9,799 +$296
FSA $180 $0 ($180)
Pending $400 $400 +$0
Liabilities Sept-16 Oct-16 $ Change
Credit Cards $610 $361 +$249
Net Worth $22,082 $22,111 +$29
% Change +0.0%

I knew it was going to be a spendy month but October has been the worst month to date since I started the blog.  and I ended up having to spend even more than anticipated.

Notables for the month include:

  1. Draining my FSA
  2. Paying my Chase Sapphire Reserve Annual Fee
  3. Too many Amazon purchases
  4. Birthday gifts
  5.  Reaching $20,000 in my retirement accounts
  6.  Getting promoted!

Goals for Nov 2016- Dec 2017:

  1. Max out my retirement accounts
    • $5,500 Roth IRA
    • $18,000 in 401K
  2. Save $5,000 in liquid qssets
  3. Eventually generate $200/month in extra income

This was the first month that I saw a near loss in net worth, and ouch. I will have to get back on track next month. I am trialing YNAB for the month of November so that should be interesting, especially since I will be going on vacation at the same time. I doubt I will be buying the program, but I most likely will be making some type of excel spreadsheet to better track my budget. I honestly blame amazon prime for the ridiculous amount I went overboard.  I no longer think I can purchase amazon prime.

Net Worth Update – September 2016

Assets Aug-16 Sept-16 $ Change
Cash & Savings $2,378 $2,555 +$177
Roth IRA $9,465 $10,090 +$625
401K $8,917 $9,467 +$550
FSA $440 $180 ($260)
Pending $550 $400 ($150)
Liabilities June-16 July-16 $ Change
Credit Cards $863 $610 +$253
Net Worth $20,887 $22,082  +$1,195
% Change +5.7%

It’s a day early but I won’t be making any purchases tomorrow, so before I forget, here we go! My net worth increased by about 5.7% in September.  This month I went over budget by about $200. Exactly $140 of that can be explained by the renewal of my passport. Some months I am able to stay within the confines of my budget, others not quite. I guess it’s a good cut off point since it’s challenging yet obtainable. I’m living on a bare bones budget and even though I do go over from time to time, I’m quite pleased since I live in one of the most expensive cities in the nation.

I mentioned in my previous post there will be some changes to how I save. I will try diligently to start saving for a downpayment on a condo.  I really would like to move into a 1 bedroom place, at $2,500/month on average it makes more sense to go ahead and buy. I’ve crunched the numbers. I expect to be able to save $350 a month on my current income. After my pay raise, I expect my ability t save to be $1,000/month.

Mid-month Musings

I’m finding it increasingly difficult to stick to my budget. It’s probably because I’m actually going out and doing more. While the title suggests it’s mid-month, I am actually 2/3rds of the way through September. Some things I’d like to highlight thus far in the month:

  • I’m $110 over budget in my “Everything Else” category.
    • At first I was disappointed, but then I remembered my $140 passport. It was another unexpected expense due to my upcoming vacation.
  • I’m $20 over my food budget. 
    • I’ve been eating out more and socializing. I’m still actively trying to cut corners in certain areas to increase savings.
  • Preliminary numbers indicate a net worth of $21,500. 
    • This most likely indicates I won’t have the stellar increase in net worth I was hoping for. I still have 10 days left in the month, so there will most likely be some additional spending.
  • Promotion?
    • I sense a promotion is on the horizon. If everything goes according to plan, I’ll be earning an additional $600/month after taxes.
  • Project Downpayment
    • I’ve decided to start actively saving for a condo. I hope to be able to start the condo hunt by April of next year.

Net Worth Update – August 2016

Assets June-16 August-16 $ Change
Cash & Savings $1,374 $2,378 +$1,004
Roth IRA $8,623 $9,465 +$842
401K $8,115 $8,917 +$802
FSA $440 $440 +$0
Pending $550 +$550
Liabilities June-16 July-16 $ Change
Credit Cards $295 $863 ($568)
Net Worth $18,257 $20,887  +$2,630
% Change +14.4%

Well the goal for August was to save my entire third paycheck but then I splurged early on and then purchased a $1,200 plane ticket that I had forgotten to budget. Thankfully as a graduation gift my mom is paying half of the ticket in $50 bi-weekly installments, which explains the $550 pending category.

I did receive  an extra $175 in income from my employer. Also, something I hadn’t mentioned before was a large debt that I had been trying to pay back to my employer for relocation. Now that the debt is paid I have $725 over that I had budgeted toward the debt, I now feel comfortable counting it towards my net worth. Both explain the jump in my cash and saving.

I have roughly $200 in FSA reimbursements I need to claim.  So it will be nice to have that extra cash on hand.

Even though I blew a bit more of the paycheck than I expected, if I take into consideration the pending payments from my mom, my net worth increased 14.4% or ($2,630). Without the pending payments my net worth increased 11.4% ($2,080).  I’m thankful that all these extra expenses fell on a month in which all the stars seemed to align.

Below is a summary of my spending for the month:

Category Budgeted Actual Remaining
Rent $1,650 $1,650 $0 left
Fixed Expenses $70 $93 $23 over
Food $200 $342 $142 over
Plane Ticket $1,216
Everything Else $780 $879 $99 over
Total  $2,700  $2,964  $264 over

I went out to eat more than usual this month and that explains the overspending in the food category. I didn’t stay on budget in the everything else category. The two primary purchases that put me over at the last minute included some groceries from amazon, and travel insurance for my trip.

I went over my fixed expenses because I prepaid my internet bill.

I didn’t renew my Amazon Prime subscription.  I am going to go ahead and switch over to the monthly subscription with the hopes of renewing only 9 times (or less) throughout the calendar year.

As a side note, I do not budget for my health care spending since it is reimbursed from my FSA. I’m also trying to get into the mentality of doing everything I can to better my health rather than save money on my health care.