How Personal Finance is like Baseball

My high school baseball coach always used to preach about how simple of a game baseball is.

“It’s a simple game.  Throw the ball.  Catch the ball.  Hit the ball. Simple game.”

Thinking about personal finance, just like baseball, it too is a simple game.  Let’s consider the simplicity of personal finance.  The goal really is to have money left over after you spend for your needs each month.

So Income – Expenses = Net Profit.  Each month one should strive to have a net profit.  In baseball, we talked a lot about winning innings.  Each inning we wanted to score more runs than the other team.  If you win more innings, chances are you’d win the game.  We basically broke the game into little games during the game.  So how I approach personal finance is I try to win each month.  Each month I want to make more money than I spend.  Most months I would prefer to have the mercy rule in effect, meaning I made WAY more than I spent!

It is a simple game…maximize the income side and minimize the expense side.  Invest the difference to get it working for you!

My Financial Background

It would probably be helpful to write a little bit about where I am coming from.  I plan to stay anonymous, mainly for career reasons, however I hesitate to discuss actual numbers in case one day I do reveal my identity (or I am found out).  Oh, the mystery!

Anyways, let’s start with income.  As said in the previous post, my wife and I are both in marketing, focused on the web.  Combined, our pre-tax income is in the $75k to $100k bracket.  At the moment, this is all the income we have.

Debt is manageable.  We do not have any student loan debt.  My wife recently paid off her car and I will have my car paid off late this year.  In addition to my car loan, we also have a mortgage.  Our mortgage is within our means.  We have a reasonable rate at 6% and put 20% down when we bought it.  With the rate being low and my wife and I being relatively young, we do not plan on paying any extra on the mortgage at this time.  First, I feel like I can get a better than 6% (our interest rate) return anyways.  Second, we get a pretty good tax deduction from the mortgage interest.  Also, we aren’t sure if we want to stay in this house forever, so we pay what we owe each month.

We are doing average in the savings department.  My wife and I keep separate savings accounts plus we have a joint savings account and an emergency fund.  All together, we probably have between 20k and 30k in liquid cash.  My wife has a 401(k) with a company match.  Right now she has between 5k and 10k in that.  I just recently started a job with a 401(k) and have under 1k in it right now.  I also have a Roth IRA invested in various dividend stocks.  I have between 10k and 20k in that account.

Our plan moving forward is to maintain our expenses where they are, perhaps reducing them some, especially once my car is paid for.  Our income, I expect, will increase over the next few years, as I will be eligible for raises and bonuses and my wife will be eligible for raises and perhaps bonuses.  With rising income and stable expenses we will be able to ratchet up our savings.  The plan is to maintain our 401(k) contributions, which are set at 4%.  My wife gets 50% of her contribution matched.  I do not have a match right now.  I also plan to contribute the full amount to my Roth IRA, which is 5k.  The rest of our money I would like to plow into long-term savings.  Eventually, some of the long-term savings will be invested in dividend stocks to begin producing income outside of retirement accounts.  I’d like to be able to tap that income source, perhaps in the next 10 years if we can develop it and invest it well.

So that is my financial history and a little bit about my plans going forward.  I will update this post maybe 2 or 3 times per year to get down any changes and update any alterations to the plan.

Welcome to my personal finance blog!

Welcome to my personal finance blog.  This blog will be dedicated to my (and my wife’s) journey towards financial freedom.

First, let me define for you financial freedom.  To me, financial freedom to me means having the choice of what it is you work on.  So that is a pretty broad-based definition to start and is semi-ambiguous.  Let me explain a little further.  I think that financial freedom involves having money coming in from multiple sources, passive and active.  The active sources involve projects or work that I actually enjoy doing.  So being able to pick and choose what it is I spend my time doing in what financial freedom means to me.  Financial freedom IS NOT spending 40 hours a week in my cube doing someone else’s bidding.  This is my current definition, it is certainly subject to change.

Next, let’s briefly talk about who I am.  My wife and I are mid to late 20 somethings living in the Midwest.  We are both in the business world, more specifically the Internet in a marketing capacity.  We are both college graduates and make decent money.

That said, let me talk a little bit about my philosophy when it comes to money and wealth.  I firmly believe in controlling what you can control.  So my wife and I focus on the expense side of the cash flow equation.  Income – Expenses = Profit.  We have some control over the income side in that we can increase earnings from our jobs, start businesses, invest, etc.  But we have more control over the expense side and focus a lot on keeping expenses down.  The lower our expenses the less money it will take monthly to cover them.  So a big part of our philosophy is to keep expenses down.

In our household, I handle all of our investing since I love doing it and my wife doesn’t.  Since we try to save most of the dollars we earn, we will have some money to invest.  Right now our focus, however, is on building an emergency fund.  But my investing philosophy (for my Roth IRA and soon a taxable account) really is a value based approach.  I prefer to buy well-known brands that have a history of paying dividends and increasing the dividend.  I prefer to buy these companies when they are low-priced and are yielding a historically large percentage.  I sometimes will invest in the special situation such as a deep value, spin-off, merger, etc.  I have been a student of investing for quite some time (relatively speaking), probably the last 7 years, which is why I feel qualified to invest in individual stocks.

The last thing I will mention is that I think it is important that my wife and I develop some additional sources of income.  Obviously, dividend income could be one source, but I’d like another source or two as well.  I like to write and think that I could perhaps eventually publish some things.  My wife likes to bake and decorate cakes, so that could also be a source of income.  The ideas for income are still under development at this time, so right now we are relying on our jobs.

My goal for this blog is to just detail the journey I am talking.  Talk about what is working, what is not, ideas I have, investments I make (or am thinking about making) etc.  I to share ideas with others and also learn a lot from those who are interested in the same things that I am interested in.