MoolahMadness Challenge!

To encourage interest in the stock market we would like to formally announce the MoolahMadness 3 month Challenge. This will be a pilot of hopefully many challenges to come. Everyone who signs up receives $2000 in play money to invest. At the end of 3 months the winner will receive a $100 money order check from us! Everything is free so what have you got to lose? To join follow the instructions below, tell your friends! The game starts May 1st so you won't be able to trade until then...

Game ID: MadMoolah
Game Password: moolahmadness

1. Open this link and read the competition summary:
   http://vse.marketwatch.com/Game/StartViewGame.aspx?id=MadMoolah
2. Click on the 'Join Game' link.
3. If you are an existing Virtual Stock Exchange member, enter your Email address and Password in the login panel and get set to trade. If you are a new user, follow the link to register - it's easy!
4. Follow the instructions and start trading!

Join now, and see if you can win my Moolah Madness Challenge competition! The more participants the higher the level of competition. Let's have some fun together!

The Spread

Retirement Planning vs Wealth Building

Some quick tips...

Tip 1: Take advantage of the company match. If your company doesn't provide a pension then it should provide a 401k plan and some kind of company match. The companies we have worked for match up to 6% of what we put into our 401k, some match less, some match more. We actually contribute 10% and the companies we work for match 4% for an annual savings of 14% a year. I recently bumped my contribution from 8% to 10%, which turned out to be another $40 out of my paycheck. Some people have an easier time of saving if the $$$ never reaches their bank account.

Tip 2: Contribute to Roth if you can. We try to contribute to Roth IRA as much as possible. Why? Because it allows us to diversify our tax risk. Roth IRA withdrawals aren't taxable, so when we hit that 60+ age we can withdraw from both our 401k and our Roth. The Roth portion isn't taxable so we can use it to keep out of the higher tax brackets. For example if we take out $60,000 from our 401k and $40,000 from Roth, our taxable income is only $60,000.

Tip 3: Before you begin investing, do your homework. Figure out how much risk you are willing to take on and what kind of vehicles you like. If you are risk averse go with the CDs, on the opposite end if you love risk, play with penny stocks. Of course there is a happy medium which all the financial advisors tout called portfolio diversification but that is based on individual needs.

Tip 4: Take a look at your companies Employee stock purchase plan if it has one. Most give a standard discount of 15% when you buy it through the ESPP. For a stock thats at $50, you are buying it $42.50. That is free $$$ right off the bat.

So how do we divide our income between retirement savings and investing vehicles?

Retirement
10% of our income goes to 401k, +4% company match. I put in $250 a month to my Roth IRA and we are going to start setting up something similiar for Mel.

Cash
We have very little cash reserves because in case of emergency we would rely on our credit to get us over some hurdles while we cash in some stock.

Real Estate
We were really interested in real estate for a while and spent a lot of time at B&N reading real estate investment books. We went through on a deal for a 2br 2ba condo with some family and while it hasn't been a huge success it has been a good learning experience. We are currently working on another deal but with so many people crowding the market it takes longer to find a good deal. We've got about $15,000 locked away in the investment property...

Mutual Funds
If you don't have a lot of time or don't want to follow stocks then put some money into mutual funds. I only maintain mutual funds in my retirement accounts and my foundation account. Melanie does not follow the market as closely as I do and has 99% of her taxable portfolio invested in mutual funds. She is not willing to take on as much as risk as I am and she doesn't want to track the market...

Stocks
I contribute 10% automatically to my company's ESPP. I have not been allocating additional $ to my stock portfolio. I have been fortunate enough in the past few years to actually have positive growth(have grown from $20,000 to $30,000 and withdrawn some too). I spend a good amount of time keeping an eye on the market. I like it but at the same time I am getting tired so I am thinking about converting to mutual funds in the next year or so.

$ we never see on from our paychecks:
Retirement contributions and the ESPP.

$ from take home pay after bills and expenses:
$3k annually to Roth(trying to budget another $3k for Mel). We put the rest of our extra cash into mutual funds and we are constantly on the look out for good real estate deals.

Bottom line:
Automatically saving 10% for retirement via 401k
Automatically saving $3k in Roth
Automatically saving 10% after tax income in ESPP
Rest goes to Mel's mutual funds, if there is any.

Saving vs Investing

Dimenips asked in the previous post what our asset allocation strategy is. Before getting into the details of how we split out monthly income between IRAs, stocks, and mutual funds, I think it is important to describe our view of investing and saving. So here it is...
At a first glance saving and investing can seem like the same thing. It is important to understand the difference but utlimately it is left up to you to decide. For us, we consider saving to be the act of tucking money away for a rainy day. Some examples of ways for saving are CDs, savings accounts (held with ING or traditional commercial banks), or even burying cash in your backyard. Saving is not as risky as investing and therefore there isn't much of an additional reward other than having some money set aside for future use/emergencies. IRAs(Individual Retirement Account) are really nothing more than savings accounts. Why you ask? Let me explain my take on investing and hopefully it will become clear...
Investing is taking capital and putting it to work for you. An example of investing is owning something that generates cashflow. Rental real estate, partnerships, stakes in businesses are examples of things that can generate cashflow. Any stock or mutual fund that pays out dividends are also examples of investments, but these are a stretch because dividends are not guaranteed.
What about stocks that don't pay dividends? A lot of people would say that buying and selling stocks is investing. I agree with Robert Kiyosaki's concept that this is actually gambling. When you buy a growth stock you are betting that the price of the stock when you sell it is going to be higher than when you bought it. There are certain things you can do to minimize your gamble but ultimately no one knows for sure what tomorrow's market will bring.
Back to the IRAs... by our investing definition IRAs are not really generating cashflow. At some point in the future we will be able to withdraw from our IRAs but that $$$ isn't really being put to work. It's growing over time, hopefully faster than a savings account, but at some point the IRA will be depleted. An investment however, like a rental property, will continue to generate cash indefinitely.
I will write some more tomorrow about our overall investment/saving allocation and strategy. But at a high level we've dabbled in a number of these areas.

Mikey

Updated Net Worth

I've updated some numbers on the right along with our net worth. This is based on our Quicken calculations. Quicken is great! Whipee!

March Review

March was a great month. Why? 3 paychecks. What are we doing with our 3rd paycheck? Nope, no new handbag. We're throwing all of paycheck #3 into investments.

Here's a snapshot of our March income and expenses:

Our income for this month was higher than usual, thanks to paycheck #3. The total income you see on the left is after taxes so we were able to minus our expenses right off of the income. The great thing about this month is that, even after our monthly $1250 investments, we're still able to invest ANOTHER $2823.86! I love March! Our goal has been to invest as much as possible each month. The only way to do this is to minimize discretionary spending such as eating out, movies, entertainment, etc. (yes our discretionary spending is still a bit high). Our goal is always to reduce discretionary spending and increase investments.