January was an improvement over the past 6 months:

During the start up phase of our new business, I had basically stopped following any of my family financial metrics beyond what our expenses were each month. While this is sufficient for most people, I felt like I was flying blind. Now that we are out of the start up phase I have returned to blogging and keeping a closer eye on our financial matters.

Our main goals over the next 12 to 18 months are saving as much money as possible for a down payment for a house as well as maxing out our retirement contributions.

The problem in our family is that we don’t have much cash left to get greedy with.

Here are the results for our family ending 10/10/08:

The $16,000+ fall in Net Worth is by far our families largest monthly decline in net worth.

The good news is that this was mostly a paper loss and did not affect the day to day solvency of our family. With years to go till retirement, I am confident we will more than recover from these losses.

We also managed to pay off the rest of our 0% balance transfer offers

I may have been lucky to squeeze a couple hundred dollars out of all the juggling when it is all said and done. I was really hurt in June by missing the expiration date of my largest balance transfer, One month’s interest charges at 30% wiped out a years worth of interest at 3.5%.

The recent events in the markets only underscores to me the risks associated with leverage and greed.

It is very, very difficult to separate our wants and need and this holds true even in investing. Although we all want 30% annual returns, most of us don’t NEED annual returns of 30% if we have been planning carefully. When those 30% returns come with occasional 50% declines, steady growth is difficult to achieve. Every 50% decline will need a 100% return just to get back to even.

Our time in recent months has been spent looking for jobs starting next July. I have contacted various groups of physicians and hospitals in areas of the country that my wife and I would consider living as we finalize where we want to spend the next phase of our lives.

It is very exciting to be 9 months away from the end of 13 years of education. This excitement has helped buffer the recent financial turmoil for us.

thanks for following along.

In our small family it made perfect sense for her to assume official control over these issues because she is dealing with them 90% of the time. With her in control of the budget, our actual expenses came within $50 of our budgeted expenses for the month which is a record for me.

Here is the carnage for the month ending August 31st, 2008:

We continue to watch as our net worth has continued to tumble each month since April of this year. The confluence of factors contributing to this decline are largely self inflicted and not unexpected.

• The birth of our child and my wife’s gradual withdrawal from the workplace are an obvious contributor to this gradual decline. The majority of the time you remove a breadwinner from the workplace and you add a new family member your household financials will feel a bit of a pinch.

• My decision to pursue additional(again) training in my career, in a new city(yet again!) only delays what I hope will be the eventual raise I will get as an independent fully trained physician. My fellowship has been great, thus far a busy, yet very rewarding year. In financial terms however, it could prove to be a very expensive year since the fellowship I have chosen to purse will not immediately improve my financial outlook.

  The move and reestablishment of our household in a new city has been slightly more than I expected. It has given me some insight on what to expect in 9 more short months when we get to do this all over again.

• The final and largest factor in the decline in our net worth has been my participation in a new business venture. This new business venture will likely consume all of our cash savings before it becomes profitable.

With the confluence of those factors working against us, it is very likely that we will see our net worth falling to close to -$90,000 by July 2009. This is a far cry from what we were expecting when I laid our our goals for 2008.

We are almost at my worst case scenario with our family’s most financially difficult quarter left to go.

We knew we had a difficult 2 months in June and July but I wasn’t sure just how bad it was until I ran the numbers. Here are the results for the month ending June 2008:

My Guidance to these numbers:

• Cash & Savings- I made a huge mistake in missing the closing date of my largest balance transfer. The accumulated interest for that single month was enough to wipe out most of my gains from my 0% balance transfer arbitrage for the year. We still have about $30,000 in outstanding 0% balance transfers that will come due in the next few months.
• Investments – The fall in our cash accounts was minor compared to the drop in our equity investments. June was a rough month in a rough year and there has not been much we can do about it. We have have not been able to offset these declines with new contributions due to the budget constraints of our expanded family. If we do make a contribution for 2008, it will likely be lump sum around tax time to help offset our tax burden.
• Student Loans – There have been no real changes in our student loan burden. We continue to slowly pay off two of our smaller loans and the bulk of my loans remain in forbearance, accruing interest but delaying the payments. I hope to start paying off this loan later this year if my income allows.

June was a very difficult month overall for our family. The logistics of moving our family 2800 miles to a brand new city in a period of 4 days was very challenging for us.

I had to place this blog and other non-essential pursuits on hold until our schedule became more stable and our family settled in our new environment. Now that we are more settled, I will be catching up on the past 3 months of financial data for our household.

We are balanced on an edge, living within our means each month, but not investing in our future. We are able to keep our monthly bills within our normal monthly cash flow. Unexpected expenses force us to dip into our savings to pay for them.

Here are the results for the month ending May 31st:

My thoughts for the month:

If we owned our home, instead of renting, we would actually be making forward progress each month.

Most people are good at living within their means. They can pay their bills each month but they don’t have much left over to save and invest.

We rent, which means that none of the $800 that we spend each month goes towards our net worth.

If we owned our own home, our mortgage payment would be money being invested in our net worth each month without having to skimp and save extra!!

This is why for most people, the majority of their net worth is tied up in their homes. They need a roof over their heads and they are good at paying their bills but not saving extra.

The second point I noticed was that I am glad that we were able to save when we had the chance.

My wife and I were somewhat lucky to be able to place some money into savings and investments when we had two incomes and few expenses.

Now while our budget is tight, those investments are the primary source of gains in our net worth.

Try to save while you can, starting as early as you can to take advantage of compounding interest.

The final point is that those two actions; owning your home and saving for retirement are treated very favorably by the IRS. Not only are they two of the best ways to increase your net worth but they are two very good ways to keep your earnings out of the hands of the tax collectors.

The slight bounce in the financial markets helped overshadow a lack of new contributions to our savings and investments. Our net worth is now above the -$50,000 level for the first time since December 2007.

Here are the results for the month ending in April:

My Guidance to these numbers is as follows:

The interest earned on our cash savings continues its fall in April.

This is no surprise as the Fed has been dropping interest rates for the benefit of the economy as a whole. The optimist in me reminds us that this is still an extra $200/month in our pockets thanks to the generosity of the credit card companies and thier 0% balance transfer offers.

In what we hope will not become a trend, we also made a small withdrawal from savings to help cover the expenses for our upcoming move.

It was nice to see some gain in our investment portfolio in April.

I don’t get too excited about these short term changes in our portfolio. They help make our net worth numbers look better but they have very little influence on our day to day finances.

I have invested very little time and effort here and used the services of an uncle who is a financial planner.

The quarterly statement for my consolidated school loans arrived

It added another ~$800 to the balance for my school loans. It has been disheartening to watch this balance grow and to not make any payments on it. That will change this fall when I begin repayment on this loan.

I am happy with our Net Worth numbers for this stage in my career

The real challenge for us over the next 12 months will be maintaining enough of a cash flow to avoid having to dip into savings.

Our family has benefited greatly from having my wife at home with our daughter. However, our lifestyle and upcoming move are likely to bring expenses that we will not be able to cover on a single salary alone.

This was to be expected after our family navigated the expensive holiday season and added a new family member to boot!

Voluntarily cutting your family income by 50% in the middle of a recession isn’t normally viewed as the best way to get ahead financially. However it appears like we are pulling it off and I believe that we will be able to get away with it for a couple of reasons:

1. This will not be a permanent drop in income for our family. In 3 short months I will be moving on to the next stage of my training and starting a one year Fellowship. Although my monthly salary should stay about the same, my work hours should decline somewhat and I should be able to work a little overtime.

2. The change has allowed my wife to become a more active participant in our family’s financial story. Since she is no longer able to “just work a little more overtime” to pay for a splurge here and there, she has made it a personal challenge to decrease our family’s expenses so that we can still maintain some slight growth in our net worth.

Here are the results for March:

1.Cash and Savings: As I mentioned in my Savings percentage post last month. Our savings will likely continue to see-saw throughout this year.

I refuse to return to my old habits of being penny wise but pound foolish, so we are keeping a little more slush in our checking accounts to cover our expenses each month. Once we have finished paying the bills and we are sure we won’t need the cash, we then send it to savings. With the interest rates on cash accounts falling, the incentive to maximize our cash returns isn’t there.

2. Investment Accounts: Most of our investment accounts suffered a slight decline in March. I have begun to educate myself more in this arena and hope to make some changes here over the next 2 years that will result in a more balanced portfolio.

Although I did manage to max out my contribution to an IRA for 2006 and 2007, I did so with only a rudimentary knowlege of portfolio management. As I become more knowledgable and opinionated I hope to offer some useful insights.

3. Credit Card Debt: We paid only the minimums again this month. This debt is entirely in the form of 0% balance transfers and actually makes up the majority of our cash savings.

It is costing us nothing to keep this balance on our books and is earning a dwindling but respectable cash flow each month. The return was much more attractive 6 short months ago, but it has been an easy way to earn an extra couple thousand dollars.

4. Student Loans: My wife and I continue to chip away at our educational debt. I have to admit that it is frustrating to see the balances fall so slowly. On the positive side, we did recieve a small tax benefit for the interest we paid over the past year.

While 2 out of 3 of our loans are in current repayment, we will not bear the full brunt of this debt until this fall when I begin making payments on my $114,000 loan.

In summary, March was an ordinary month in the life of a young middle class family in America.

We miss being able to place $3000 cash into savings each month but this year will help us appreciate just how hard it is for most Americans to make large financial changes quickly.

The realities; read “challenges” of our family becoming a single income household are becoming more evident at this time.

Here is the Damage for February:

Here is our guidance for February:

1. We continue to place the majority of our savings into short term, cash-equivalent savings. I am not a sophisticated investor, but right now I don’t see many bargains out there and most of the major expenses facing a young family (1st home, moving, young children) are looming ominously on the horizon for us.

2. I made a lump sum contribution of $2000 to my IRA for the 2007 tax year. I had already contributed $2000 throughout the year in monthly contributions and my wife an I both decided that this was a good use of a couple of thousand dollars to help decrease our taxes again this year.

3. I also recharacterized my Roth IRA contributions for 2007 to a Traditional IRA contribution. After much reading and deliberation I decided that less taxes this year was better than the promise for less taxes in the future. It is too easy to see congress attaching some form of income/net worth stipulations to the tax-free benefits of the Roth IRA.

4. We also had another 0% balance transfer offer fall into our laps with no fees attached. With the addition of this $5000 balance transfer, we now have over $67,000 in 0% APR balance transfers from various credit card companies. Unfortunately, the Fed is making this a less lucrative proposition each month as they cut the interest rates.

While cutting your family income in half right when the economy is going into a recession isn’t at the top of everyone’s to do list it appears as if we will be OK.

The day is fast approaching when I will finish this stage of residency and proceed to move to the next step of my training. This will bring with it a fresh set of choices once again.

About half of this loss was due to the falling market but the other half was due to the interest from my consolidated student loans for 2007 finally being capitalized.

Fundamentally our household is in good shape and should be in good position to weather a possible recession.

Here are our numbers from January:

Guidance for January:

All of our Credit Card Debt is in the form of 0% balance transfers The banking community has allowed up to borrow this money which I have placed in a FDIC insured online savings account, pocketing the interest earned. This money makes up the bulk of our cash savings. Our true cash savings is only $23,735.25 of the $87,253.25 listed.

Our Investment accounts all fell in step with the market for the month of January. Our project for this year is to take this motley mix of funds and develop a more diversified, lower cost portfolio. If this year does indeed become a recession we will have the opportunity to “buy low” into some new positions.

Once again I am waiting until I do our taxes to decide if it makes sense to invest in a Traditional IRA for 2007. By waiting until tax time last year, I managed to buy into a rather high market which has currently resulted in a slight loss. However, I still need to lose an additional $600 for this to have been the wrong decision.

I have continued to keep our vehicle listed as an asset and will continue to do so until we drive it into the ground. I will not list any additional vehicles or material goods in the future because the true value of these items are difficult to accurately assess.

In my attempt to revalue our vehicle for 2008, the Kelly Blue Book value actually Increased (likely due to low miles) which I find hard to believe. I decided to just keep the value where it is until it shows a definite decline.

I finally received my quarterly statement for my consolidated school loans which capitalized the interest for 2007. I am undecided if it makes financial sense to be paying off this interest to keep it from capitalizing. I haven’t calculated it but in essence that additional $4000 is going to cost me an additional $120/year for the next 30 years. It is too late for 2007 but it will be an option to consider for 2008 once I figure out the present and future values, etc….

I remain undecided about what to do with my Federal school loan. The interest rate remains fixed at 5% which is currently the highest interest rate of all our debt. With interest rates on my savings falling, I will wait to see how much of a tax benefit I can derive from the interest paid on this loan. If there is a minimum benefit and the economy continues to sputter along, we may allocate some capital from our savings to rid ourselves of this debt, similar to what we did last year.

Our day to day finances continue to be a challenge. My wife has decided to remain part time with the birth of our first child which has constrained our monthly cash flow. We are approaching this as a challenge and an opportunity to squeeze the excess out of our spending(due to necessity) so that in the future we will be able to use these gains to increase our savings.

Remember, focus on the process, form good habits and the results will follow!

We have eliminated all of our high interest debt on both our credit cards and school loans. We have a reasonable budget for the upcoming year and the insight to know where we need to make improvements.

Unfortunately, that is the extent of the good news. We will have an uphill battle due to 2 major changes in our lifestyle occurring in 2008.

Based on that information, I created 3 somewhat realistic scenarios of what our financial picture could look like at the end of 2008:

Some thoughts on these scenarios:

By the end of 2008 we could end up anywhere from being $20,000 further in debt to finally crossing the zero threshold of our net worth.

In our worst case scenario the major factors would include a 20% decline in the markets, that my wife will not be able to return to work and that our household expenses are slightly increased relative to 2007.

In our Reasonable scenario the major factors would include the markets being flat, that my wife returns to work part time and that we are able to make some reasonable savings in our expenses relative to 2007.

In our Great News scenario the major factors would include a slight increase in the markets, that my wife would return to work full time and that we will be able to make some dramatic savings in our expenses relative to 2007.

Depending on your level of paranoia, I realize that life does throw us curves and that things could be anywhere from drastically worse to drastically better.

This does give us a reasonable target and something to shoot for in the upcoming year. I welcome the challenge and hope you enjoy the journey.

Over the course of the past year we managed to maintain positive growth in 10 out of the 12 months.

The majority of these gains came from our ability to save our day to day income. In years to come as we are able to build our savings we will hopefully see a larger percentage of our yearly gains coming from our investments.

Here is December:

We are closing in on almost $90,000 in cash savings. While that number looks impressive, $64,000 of that is borrowed money in the form of 0% balance transfer offers. Although we started 2007 with the intention to eliminate all credit card debt, the prospect of an extra couple of thousand dollars of interest was too much to turn down.

Currently interest rates falling and balance transfer fees are rising making it a little harder to make worthwhile gains with this strategy. Our current take is that if a good offer comes by and we can make money on it then we will continue to take advantage of these offers.

Our retirement savings were mixed last month. My wife’s accounts posted some slight losses and my accounts posted some slight gains. I also made my last contribution to my Roth IRA for a while in December.

Because of the increased costs of our expanded household in 2008 I will pause my Roth IRA contributions until I am sure that we will be able to cover our living expenses with a diminished 2008 income.

We continue to slowly pay the minimum on our student loans. Our remaining education debt has a maximum interest rate of 5% with the bulk of our loans consolidated at less than 3%.

If interest rates continue to fall over 2008 we will have to reconsider paying off my federal school loan which is at 5%. We are able to write off the interest we are paying on these loans in our taxes so I am not overly anxious to pay these off even if the interest rate is slightly greater than what we are earning in savings.

All in all, 2007 was a great year for our household. We accomplished many non-financial goals and made solid progress on our journey to financial independence.

Thanks for following along during these first slow years. As I finish my training and make the transition into my career as board certified physician I hope to be able prove that pursuing higher education can be financially worthwhile.

In 2007 we were able to take advantage of having two incomes, one household and no children to pay down some debts and accumulate a comfortable cushion of cash for emergencies.

As 2007 draws to a close, those synergies are now history. Over the next 12 months our household is going to have two major changes:

The first change that will affect us the most is that our primary bread winner, my wife, will be down-shifting to part time with the addition of our first child. This is going to affect us in many ways:

• our total family income will decrease by at least 40%
• our family health insurance costs will increase as I add my wife and child to my employer’s plan
• our household costs will rise with more individuals in the household and for a longer period during the day

The next big change is that I will finish my residency on June 30th, 2008 and begin my 1st year of fellowship in July. This is a significant development for us financially because it is going to require a cross-country move… again

• We will need to find the most convenient, cost effective way to move our household back across the country
• we will need to find good housing that is close enough to the hospital to enable us to maintain our single vehicle household

Combined, these two changes will make it a challenge for us to simply balance our inflows and outflows. With that in mind: I look forward to the challenge and lessons that this year will bring.

I know that if we are able to continue to control our spending and make small increases in our net worth on a household income of $60,000, we will be able to make significant gains in the future as I find ways to increase our income.

Although at times the journey to financial freedom appears to be long and hard, I do take some solace in the fact that as a 30 year old, our long run of financial growth is going to come from a series of short runs strung together. Here is to 2008 being another positive short run.

Our balance sheet shows more outflows than inflows due to the renewal of family insurance policies and one time expenses related to the holiday season. This increase in spending made it difficult to offset out loses with savings alone.

Here is our Balance Sheet:

We continued our arbitage again last month with the addition of almost $20,000 in 0% balance transfers

Although the majority of these no longer cap the 3% balance transfer fee, there are cards out there that continue to limit these balance transfer fees at anywhere from $0 to $99. As long as these transfers continue to result in positive cash flow for our family, I will continue to take advantage of them.

The payoff of my private school loan represents a small victory for our family. The ability to remove a liability from our balance sheet and lock in a 8.27% return was a win/win for us. Although we depleted our cash reserves by almost a third by doing this, we still have enough cash on hand to cover any unexpected emergencies.

Now that we are well into December, I hope to spend some downtime over the holidays analyzing our results and formulating our plan for 2008

We have made quite a bit of progress over the past 12 months, increasing our net worth by almost $40,000.

We have been able to do this with the simple strategy of spending less than we earn and taking advantage of our limited time with dual incomes and no children.

Although our strategy thus far has been very conservative, I view these first few years as the foundation for our later growth.

By having a strong foundation of emergency funds, insurance and good financial habits we will be able to be more aggressive in the pursuit of future growth.

Most of my increase in future cash flow will come from the transition out of Residency to being a fully licensed independent practitioner.

Like most individuals who work in the service sector, I have no way to leverage my income other than working more hours. With most physicians already working close to 80 hour weeks the option of just working more hours will not be realistic.

To compensate for my lack of leverage I hope to slowly build my alternative income sources.

None of these will result in overnight success. With age on my side however, I am willing to be patient in my pursuit.

More importantly I flnally paid off the last of my consumption credit card debt marking the first time since medical school that I am free from credit card debt.

Here are the details:

For the first time readers all of my credit card debt is now in the form of 0% balance transfers which I have placed in FDIC insured online savings accounts. This results in an extra couple of thousand dollars a year after taxes and fees.

Taking advantage of these 0% balance transfers does make our finances a little more interesting but so far it has been worth the effort. The main negative side effect is that it has resulted in a significant decrease in my credit score.

Our student loan debt is real and not a typo. Our total balance is currently around $140,000 and we are currently paying off some of our smaller loans with the majority of my student loans in forbearance.

We continue to devote the majority of our positive cash flow into short term savings accounts Although the yields on these accounts are falling, most of our family needs are short term and I do not have enough confidence in the stock market right now to risk a significant downturn. Therefore a very large percentage of our assets remain in cash.

I feel slightly guilty about our low contribution rate to our retirement accounts. I realize however that the fact that we are actually contributing to these accounts right now is a step in the right direction. Neither my wife nor I are eligible for a matching contribution. Our incentive to save is low while the expenses for our young family remain high. This metric will likely become worse before it becomes better over then next two years.

The next month and a half will be very busy for us. We are quickly approaching the holiday season, our first wedding anniversary and our first year of blogging.