In my last post, I talked about credit card debt and lifestyle sacrifice. On a related topic, one of the real question that has always been bugging me is why does our expenditure always go up with our income?

One of the effects of the weakening of the economy is that we are going to see people and household cut back on expenditures. For example, we are now cutting back on our Starbucks Coffee, purchases of SUVs are down, we are eating out less.

But then the question becomes why do we always increase our discretionary spending when our income goes up or if things feel better? Why do we not think about always being frugal? Mrs Credit Card and myself are always wrestling on this issue. For example, one of my goals is to pay off my mortgage as fast as I can. But I would also like to fund my retirement much earlier. While I have started putting extra money aside a month to pay off principal on my house, I have also recently just bought a new Lexus. I have noticed that we each out more often when our income goes up. I think part of the problem is that deep down inside, we always have a dream as to our ideal lifestyle. So a couple of nights ago, I sat down and took down some notes as to how I want my lifestyle to be if I had all the money I wanted.

Ideal Lifestyle

1. Job - Probably volunteer for a non-profit full-time plus maybe be a full-time blogger (if I’m any good at all). - Yes, that would be my ideal lifestyle. No more having to worry about putting the bacon on the table everyday or dealing with 9 to 5 corporate politics.

2. Car - Guess after my latest car purchase, I already have my dream car. (I’m not a very huge car fan!)

3. House - Oh, the house. I don’t know where to begin. Dream kitchen, dream master bedroom, dream fireplace. Guess I would like to have a Mansion with a pool, some expensive artwork around the house, acres of space (more like acres of land).

4. Have a personal fitness trainer - I know that I should be working out everyday to keep fit. But I really lack the discipline to do this. Ideally, I would like to be able to hire a fitness coach.

5. Have a massage twice a month - How nice would that be if I can pamper and indulge myself! Good for stress management as well!

6. Hire a full-time chef - how nice would that be? Mrs Credit Card would sure love that!

Consequences of living a larger lifestyle than you can afford

Part of the reason why I think people have credit card debt is because we choose to live our ideal lifestyle before we can actually afford to.

One of the biggest culprit is the desire to “renovate our house”. I know so many cases of folks who have credit card debt (or any other debt) and still are pretty relaxed about taking out a home equity line of credit to do some home renovations!

I guess living in a nice environment is important. But a home renovation can get really expensive and so this can really put a dent on your finances.

I also know many people who are in debt and drive an even more fancy car than myself. Or doctors who pull in seven figures every year and still have a six figure credit card debt.

How much can we upgrade our lifestyle when our income increases?

Here is the six million dollar question. When you get a raise or increase in your income, how much can you “upgrade your lifestyle”? Or rather, should you even upgrade your lifestyle.

Here is how I think most of us do it. We get a raise, so we eat dinner out 2 times a week instead of once a week. We get more generous with paying for kids activities. We spend more on organic food! We get a bigger car. We take a more fancy vacation.

But if we really think about it, if we use the extra income we have and put that into our retirement account, we will probably reach our retirement goals earlier. Or perhaps you can pay off your mortgage early, or fund your kids college education.

But What’s The Point Of Being So Frugal That You Do Not Enjoy Life?

That is such a valid question. Especially when you have kids. You are always tempted to get things for them, whether it is a book or a little treat or a vacation that they will enjoy. So what gives?

Your Ability to Upgrade Your Lifestyle Depends On Your A Few Things

Specifically, I think several factors affect your ability to live it up when you get a raise or when you fortune turns for the better. It really depends on

1. How reliable is your income?
2. What is your fall back when you lose your income.
3. Your potential income growth.

Let’s take a look at some examples.

Couple are teachers

I know of friends who are teachers (both husband and wife). In this case, we have a couple who are making a decent salary, but will never really be super wealthy. Yet, they have stable jobs. Hence, when they get their salary raise (can’t imagine it being much), this couple would probably well increase their quality of lifestyle modestly.

Couple who work on Wall Street

I do have friends who both work on Wall Street. They make lots of money. Having said that, they have very high risk as they could easily be laid off at the same time and they face the same industry risk. Folks like them can probably increase their lifestyle when they get their huge increase in bonus but would be wise to set aside lots of emergency cash. Many folks on Wall Street live on their base salary and save their bonus (very wise).

Couple who are both real estate agents

Almost the same situation as the above Wall Street example. But in this case, their incomes are more unstable (at least you get a salary on Wall Street and some bonus every year). When such couple have bumper years (like the first part of this decade, they should always save for the rainy day (like now).

Couple - One is a teacher and one is a doctor! - This may be the ideal situation. Teacher has a safe job and his or her salary can be base to set their basic lifestyle standard. When doctor earns more, they could conceivable feel free to increase their standard of living as the teacher has a safe and stable job.

THE TOUGH BALANCING ACT

When we get a raise, it is easy to simply “upgrade your lifestyle”. Yet, deep down inside, we know that “delayed gratification” is probably the better path to financial freedom and security. So what gives? I think due to human nature, it requires a tough balancing act on our part. When our economic circumstances improve, it is only natural and probably sensible that we reward ourselves a little but yet at the same time take advantage of it and set aside more money for the rainy day.

Steps I have taken to help control expenditure increase when my income increases

Here are a couple of preliminary steps I have taken to help me be a little more systematic about this thought process. I have written down how I will spend if I get more money every month. So here goes.

1. Put more payment to mortgage payment - if I manage to do that then perhaps I could give ourselves a treat and having a couple of extra nights out for dinner. (already doing this).

2. Put extra money into the 529 College Savings Plan (perhaps I should be doing this before the weekly dinners!)

3. Only start our kitchen and backyard renovations when we have cash to pay for it.

4. Live my ideal lifestyle only if we had $10mm!

So what did your expenditure increase when you salary last increased?

I have been thinking about a few of my friends who have credit card debt and a couple of things spring into mind. Firstly, they seem to be living a very decent middle class American Lifestyle. By that I mean a nice house (most around $250,000 to $500,000). I also observed the following :

1. Many are in the process of some major decorations on their home - whether it be doing their yard, installing a patio. And some are certainly taking out a home equity line of credit.

2. Many have either bought or lease a new car - Here is another observation : Many of them are leasing new cars. I just wonder why don’t they buy a second hand car and take a loan? I’m sure it’s cheaper that way. And many of them are fancy foreign luxury cars as well!

3. Most take “normal vacations” like renting an apartment at the beach or shore for a month.

4. Many of them make purchases every month that goes into decorating their homes.

So here’s what I’m wondering? - If they are all have credit card debt, why don’t they make a little sacrifice and taking a less expensive vacation, get a second hand car or put off decorating or doing something with their homes?

Now, many have told me that they are embarking on a debt reduction program - AKA - they are paying more than their minimum every month on their credit card bills and at some point in the future, they will pay off their credit card debt.

So, you can’t say that they have no plan. It’s perhaps that looking at their existing lifestyle, they could perhaps be a little more aggressive in their debt reduction plan.

So how about myself? - Now firstly, I have no credit card debt. But I do have a mortgage and have just taken out an auto loan on my new lexus! And I sure do live a “normal lifestyle”, although my home is relatively new and unlike many people, I do not have many fix ups to do.

But then, I keep wondering, if I sacrifice my lifestyle, I could pay off my mortgage faster and even perhaps reach my retirement goals earlier.

Which brings us to the $6mm question: How Much Are You Willing To Sacrifice Your Lifestyle to Achieve Your Financial Goals?

After thinking about it for a while, I realize that whether you have credit card debt or not, if you have a huge mortgage or not is irrelevant, we are have some financial goals to meet whether it is debt reduction, building an emergency fund and saving for retirement.

The more sacrifice you make (in terms of lifestyle and money), the faster you will reach your goals. But having said that, I also feel that for some people, any heavy sacrifice may not be worth it. It may be the case that unless your income increases dramatically, putting too much of a crimp on one’s lifestyle may not be worth the effort (because we may end up living too frugally for our liking).

What do you folks think about this?

I have finally decided to dramatically reduce the time I take to pay off my mortgage. But first, a little background : I bought my house three years ago and took on a $439,000 mortgage. For my last statement, it turns out that I have still over $428,000 left on my mortgage. As most would know the math of mortgage, in the beginning years of your mortgage, only a fraction of your monthly mortgage payment ends up going to pay down your principal. The rest (or rather the bulk of it) goes mainly to paying the bank in the form of interests. It is only in the later stages of the life of the mortgage that more of your monthly payment goes to your principal payments.

I clearly recalled that during the closing of my house, the mortgage person said that at the end of my mortgage payments, I would have paid an amount that was almost double the price of my house. Yikes! Even if my house value doubles in 30 years, I would have actually made close to nothing.

Hence, I decided that I am going to pay off my mortgage as soon as humanly possible. I have never had any credit card debt and I really hate having a mortgage to think of every month. So I did a bit of research to find out how I could reduce the time to pay off my mortgage short of paying it off lump sum. Here are the options that were available :

1. I could increase my payments from a monthly payment to a bi-weekly payment. - By doing so, the math works out that we can take six years off our usual 30 years of mortgage payment. However, our cash flow is such that doing a bi-weekly simply does not makes sense for us.

2. Refinance - Our mortgage is presently a 30 year fixed rate at 6.25%. Presently, the 30 year rate is about 6.17% for a conforming loan. My present mortgage is considered non-conforming ie above $417,000). Hence, refinancing does not make sense even if it were for a 15 year loan.

3. Paying a principal lump sum at the end of the year - That could work but psychologically, I do not like having to pay a lump sum at any time.

4. Paying extra principal payments monthly together with my mortgage payments - I have decided to actually take this route. Because of our situation where our income has increased, we are able to make that extra payment we want towards our mortgage payment.

This is how the math works out. Presently, we are paying :

Current Monthly Payment = $3,327
Interest = $2,236
Escrow = 560
Principal = $$491

By adding an extra $1,000 to my principal every month, my mortgage will be paid off in 2022, about 13 years earlier.

But shouldn’t I invest and save for retirement instead? - Well, that may be the correct thing to do since I’m only paying 6.25% on my mortgage. Having said that, we have enough cash to actually put to work in our retirement accounts and extra savings in the taxable account as well. So we are still saving. And here is the thought process. If I am able to save and pay off my mortgage faster, why not have the best of both world. In fact, the faster I pay off the mortgage, the more disposable income we will have after we pay off the mortgage.

But as I mentioned before, I really hate having any sort of debt and while most look at their house as an “investment”, to be, it is a place to stay. In fact, if I could pay off my debt tomorrow, I would certainly do so.

This month, the Money Blog Network is having a group writing project about emergency funds. There are many many good post about this topic and you should definitely check it out. But I felt that when one is thinking about emergency funds, you should also be thinking about the following :

1. having additional access to funds (line of credit in the commercial world).

2. having access to emergency income

3. Protecting your emergency funds

While having an emergency funds is important, it is also vital to have access to funds outside of your emergency funds in your bank account. Most companies have “lines of credit” with banks. Warren Buffet used to say that you should borrow money when you can, not when you need to. Below are several sources of funds that should be set up when times are good.

1. Credit Cards Line of Credit - While credit cards can be abused and lead people into debt, they are useful to the prudent person because the credit limit you are given on your credit cards is like a line of credit. You can call upon it when you really need cash.

2. Loan Margin Account - If you have a brokerage account, you can sign up your account for a loan margin account. This means that in the event that you need cash, you can always borrow against your securities. Typically, you are allowed to borrow 50% the value of your portfolio.

3. Home Equity Line of Credit - You can actually apply for a home equity line of credit without actually drawing on it. It is a good thing to have in place just in case you need it. Presently, variable rates on HELOC are at about 4.75%.

While it is important to have emergency cash, it would be great if you had an emergency income. This could come in various forms. For example, you may get monthly cash flow from your rental real estate. Or perhaps you are making some money from your blog. If you lose your job, these emergency income will often be more handy than your emergency fund.

Dual Income Spouse - When both couples are working, this provides an even cushion in the event when one partner loses his or her income.

While an emergency fund is great when you lose your job, it cannot protect you in the event of a critical illness or disability or if you need long term care (yes, it could happen to you if you are in your forties). Hence, I feel that insurance is a vital component in your emergency fund strategy.

Disability Insurance - According to statistics, you are more likely to get temporarily disabled that die. If you should be temporarily disabled due to an accident, you can drain your emergency fund pretty quickly

Critical Health Insurance - You may have health insurance coverage through your company (or maybe not). But it is vitally important to have critical illness insurance because it is these unfortunate events that could drain away your emergency funds pretty quickly.

Well, these conclude my thoughts on additional stuff to think about when thinking about emergency funds.

I have not been blogging this week because of a couple of things. Firstly, Mrs Credit Card was involved in a car accident last friday. Our daughter and our neighbor’s daughter was in the back seat. Luckily, nobody was hurt. However, my good old Toyota Corolla (1998 model) was hit on both sides! Since I paid about $4,500 for it a few years ago, I’d figure that there was no point getting this repaired since the best I could probably get out of it is around $1,000 to $1,500 if I’m lucky.

Hence, last week was spent looking for a car. Mrs Credit Card has a second hand Honda Odyssey Minivan. Hence, I wanted to get a car or SUV type that will act as a back up. Years ago, I had a Lexus RX (can’t even remember) and I wanted to get another Lexus because I simply liked the car. But Mrs Credit Card liked the Volvo ad and asked me to check it out. Unfortunately, I did not like the feel of the european type steering and decided to stick with the Lexus.

Here was my criteria for the new vehicle that I wanted to get.

1. I wanted a navigation system - I am simple sick of driving and looking at my Yahoo Map or Mapquest in my hands all the time.

2. I wanted a blue tooth - There are several reasons why I wanted this. Firstly, I think it is dangerous to drive and talk on your cell phone at the same time. Secondly, I am always driving to see clients and I feel I could be “more productive” if I could make a few calls in my car.

3. I wanted a quiet car and a good music system - I like to listen to classical music where there is great dynamic range. Sometimes the music is soft and then becomes loud suddenly. I find that when I drive on the highway, I cannot listen to the softer passages. Hence, in my opinion, a lexus is a great fit because it is one of the quietest cars around.

4. I wanted a dealer near my house so that servicing is easy

Now the next decision :

Second Hand or New? - Financially, getting a second hand car makes sense since a steep depreciation takes place when you leave the dealers showroom. So I went to the the two closest dealers near my house, and unfortunately, they did not have a certified used model that met my criteria.

To buy or lease? - I am not going to go over the differences between buy and lease here. But in the end, I decided to buy because I did not want to be stuck with paying a penalty should I need to sell the car in a couple of years.

The negotiations

I went to the Lexus dealer last Saturday. I found out that lexus made it actually quite simple in terms of choices. There is the basic model, an intermediate one with most of the bells and whistles and the higher end one (which has some features that I did not need). I chose the intermediate one as they had the navigation system with blue tooth.

I did not buy on that day as I figured it was better to think over it. I went home as did some research on www.edmunds.com and a couple of other sites. It turns out that the factory price of the model I wanted was about $41,500 thereabouts and the MSRP was close to $46,000. The average buyer paid close to the MSRP! Yikes, guess Lexus dealers don’t discount much. Or could it be that demand is so hot that they can afford not to discount?

On Monday, I sent an email to the sales representative that I spoke to. Upon a recommendation from my friend, I wrote in the email if they would be willing to sell the model at close to invoice price. (I found out that even if they sold it at invoice price, the dealer will get a commission from the manufacturer). Since, the economy was not doing too well even in the “affluent product” segment, I thought I would give it a shot!

I also asked if they could get a model with a Mark Levinson stereo system installed since I really wanted a great music system in the car and I also read that the cost to install them is not that much more.

On Tuesday, the sales person replied my email. And I thought that the email was rather rude. Sure, I asked for the invoice price, but the reply was not polite at all!

On Wednesday, Mrs Credit Card replied to the email. We said that we were unhappy with the tone of his reply and that we wanted to speak to another rep! Furthermore, Mrs Credit Card wrote an email to the manager to complain.

On Thursday, we got an email from the Manager with an apology. He mentioned that to get a Mark Levinson stereo system installed, it has to be ordered and will take 90 days and an additional 60 days for delivery. But he said that if we could buy something that was in his inventory, he would agree to sell us at the price we wanted! We agreed to his offer as I did not want to wait 4 months for another car!

Today - yes, today I finally got my car!

To pay in full or take an auto loan?

Well, I pretty much made up my mind about this. I wanted to take a loan. In all my previous car purchases, I paid the whole amount up front. In fact for the last one, I used my credit cards! (which earned me points and cash rebates!). But I did not want to simply write a check this time. So I checked out several rates from banks and it turned out that the rate for a new car is about 5+% (if your credit score is good). I decided not to make any downpayment as well.

The other thing is that I have not checked my credit score for over a year so I was interested to see what they came up with. Well, I got a 5.25% rate (not bad) and it turns out that the Lexus dealer pulled from Experian and credit score was 792 (uh - a little shy of the magical 800!).

So when all is said and done - Buying a new car goes against the grain of prudent personal finance. As of now, my Lexus has already depreciated. I guess I voilated Trent’s rule number 20 for getting rich - which is to only buy used cars!. But here is my little history about my car ownership. My first car was a very old boxy Toyota Corolla (the really square one that was made in the 80s). I drove it for years despite Mrs Credit Card (yes, we knew each other in college!) constantly bugging me to get a “nicer new car”. The a few years back when we moved abroad, we bought a brand new lexus, but had to sell it when we left (we lost a few grand on that - but at that time, the lexus RX series was new). Then, my last car was a 1998 Toyota Corolla with 150,000 miles on it which I bought for about $4,500.

Hence, for most of my working life, I have been driving 10 year old cars! I’m sick of it and really want to enjoy my car rides since my present job requires travel! (But alas, I found out that I’m not alone - SVB also belongs to the new car camp! and at least I know there will be someone from the pf world not frowning on my purchase!)

Recently, JD Roth asked his readers what they splurged on?. He didn’t ask me, but I guess my answer is on a brand new lexus!

Jim from Bargaineering.com finally admits his limitations and decides to hire a CPA. I think this is one of the most sensible things to do. The price you pay for the peace of mind that your CPA will be talking to the IRS in the event of an audit is worth it!

Want to know what credit card skimming is? Then check out Clever Dude’s post on this topic.

With the way gas prices are these days, I always appreciate any gasoline savings and driving tips which is nicely written by Debt Free Revolution.

The Happy Rock posted a great article on the myth of bi-monthly payment. Read this if you are thinking about implementing this.

Also, while we are at it, please check out the Carnival of Personal Finance - Baby Education Edition and the Money Hacks Carnival - Haute Couture Edition

Short of cutting up your credit cards (which some people), the trick to reduce and eliminate your credit card debt really is about budgeting, spending less and using the money you save to pay off your debt. Here are some ideas to reduce your spending.

1. Cut back on eating out - It’s amazing how cheap it is to eat at home when you really look at the cost of dining out. It does not have to be boring. Dishes like pasta and salads are really easy and cheap to make. Save time and money.

2. Cut back on coffee - Despite the economic situation we are in right now, the Starbucks around the corner is still jam packed in the morning. Lots of customers park their SUVs for 5 minutes and hop off to their their morning caffeine. Getting a packet of gourmet coffee and making them for yourself at home is cheaper and very often, better than Starbucks.

3. Cut back on Sugar - Arnold Schwartzenegger called white sugar white death in his younger bodybuilding days because white sugar gets instantly converted to calories (useless ones) in your body. It’s the easiest way to put on weight. If you can’t totally cut back on your coffee, at least try cutting back on your sugar!

4. Be your own beauty salon - Yes, to all the ladies (and some guys) who like to pamper themselves. You can do your own facial - with natural ingredients (which cost much less than the $50 facial). You can do your own manicure and pedicure (hey - Mrs Credit Card makes me do it!).

5. Stop your netflix subscription - Why pay to borrow DVDs when you can borrow them free from the library? OK - you might have to wait for popular ones but let’s be honest, how many DVDs do you really watch in a weak? Perhaps, when you first subscribed, you watched a lot. Then it slowly tapers off. My theory is this is how netflix makes money. There are no late fees. So most people hang on to videos longer, which means like postage and delivery cost for netflix when you still pay a monthly fee!

6. Cancel Your HBO subscriptions - Same theory as above. Borrow DVDs from the library. In fact, most of your favorite shows appear on cable from time to time anyway.

7. Downgrade to a more fuel efficient car - Look where gas prices are. As much as you like a fancier car, a Toyota Corollo (boring as it may be) saves you more on gasoline than any SUV! This is really common sense and looking at auto sales, most are catching to this.

8. Turn on your dishwasher only when it is full - I got this tip from Mrs Credit Card. She is the expert at stacking up the dishes and finding space where none exist! If you start the dishwasher when it is not full, you are essentially wasting water and your bills.

9. Ditto for your washing machine - Needless to say, same point as above.

10. Get cash rebates - You knew this one was coming! But hey, use coupons (only for things you really want). Get coupons off the internet from sites like www.couponcabin.com. Use a cash back credit card to earn rebates

That’s it for my top 10 ideas to cut your bills.

Alright, I’ll veer a little from my usual credit card rant. But this is something I have to get off my chest.

The Wall Street earlier this week finally published an a fact that I’ve known since the end of January this year - which is the S&P index has essentially been flat this decade. YES, you’ve heard it right, it has been flat this decade.

Which brings us to an interesting question? Are index funds as great as they are made out to be? Index funds obviously have their advantages. They are low cost and tax efficient. However, the main disadvantage is that they follow the market and an investor in an index fund essentially assumes market risk.

There have been many raving fans of index funds in the pf blog world. For example, Free Money Finance wrote a few posts on why he likes index funds. Advanced Personal Finance also recently posted his IRA asset allocation on the blog. Moolanomy has also written about the virtues of having index funds as a sensible strategy. The Simple Dollar (an influential voice in the personal finance space) is also a huge fan of index funds

Supporters of index funds will insist that most (or rather the average mutual funds fails to beat the S&P index over the long run). While that may be an important statistics, they disregard the fact that most funds should never be compared to the S&P index. A large cap value fund for example, should be compared to the large cap value index (perhaps a Russell 1000 value index). But the biggest problem with index investing is that is the market is negative or flat, you perform as in line with the market. For a young person or couple, one might argue that one can ride it out in the “long term”.

However, you may not have a “long term” horizon! How is that so? Well, imagine that you were 55 years old in 2000 and you plan to retire when you are about 62 or 63 years old (2008?). Back in 2000, you did some financial planning and you decided on an asset allocation model and implicit in that model is the fact that you would expect stocks to achieve an ‘average return’ of about say 8%. Your financial planner decides to get you invested in a Vanguard S&P index fund because of its low cost. Well, the results weren’t too pretty.

Or imagine that you retired in 2000! I’m sure many folks did. Once again, let’s assume that you sat down with a financial planner and figured out an asset allocation model which should enable you to achieve your desired standard of living. But I bet that for most folks who retired in 2000, they would have to adjust their lifestyles. The S&P declined about 40% from peak to trough in the early 2000s. Now try telling these retirees that index funds are great!

The fact of the matter is this : Absolute Returns DO Matter - not relative returns. It’s no use saying that your portfolio declined 30% in the early 2000s and be happy because it outperformed the S&P!.

The other problem with indexing in general is that most indexes are weighted by market capitalization. This presents a problem because as the market rallies, you end up buying more expensive stocks! So as you were dollar cost averaging into a typical S&P index fund in early 2007, you were buying over 35% of financials (which was the weightings then - it is now lower). Or consider that in the late 80s if you bought an EAFE index (for international investing), 80% of the then EAFE composition was in Japanese stocks. And they now comprise only a fraction of that. Hence, you would have ended by buying Japan at inflated prices! But hey indexes are the way to go and they are low cost!

But can you on hindsight pick funds that will put you ahead? Well, there are funds that would have given you positive returns this decade (talking about large cap funds - since the S&P is a large cap index). And anyone could have picked these funds in 2000s. The thing they had in common even in 2000 was a 10 year track record. Here are some gems :

For those of you value believers

Eaton vance Dividend Builder A

Dodge and Cox Stock - a favourite.

American Century Equity Income

General Large Cap Stocks

American Funds Fundamental Investments - Hey - it’s American Funds.

Davis New York Venture - which is actually a value fund that has been categorized as large blend by Morningstar.

The reason I wrote this post is that I think too much credit has been given to index funds and not too many posts have been written on risk versus returns. With an index fund, you are essentially accepting market risk. But the biggest danger to long term wealth is actually the volatility of your portfolio. Obviously, you could lower the volatility of your portfolio with proper asset allocation. But most posts written on the web and even in mainstream publications always encourage a large portion of your investments to be in stocks because “in the long run”, they outperform most other asset class. Well, from the peak of the stock market in 1929, it was not until 1054 that the market was essentially at the same levels (yes more than 2 decades). From the peak of the early 70s, it wasn’t until 1985 that the indexes caught up with those levels. And now, it’s been flat for 9 years since the beginning of the new century. Like I said, if you are in your early twenties, time is on your side. But the those in their 50s or nearing retirement age, you have to think long and hard about their investment strategy.

And I suggest that one takes a long hard look at the assumption that index funds are the end all and be all. They obviously have a place in your portfolio and I’m not saying it’s bad. But too little has been written about their downsides.

I wrote a post yesterday about how Mrs Credit Card and myself spent the whole day doing our taxes. After the exhausting day, I sat down in the evening and reflected what I have done right in my finance organization and what I could have done better.

There a some things that I am pleased to have implemented. One is that our bills are automatically deducted from our bank accounts. Our utilities are charged to our credit cards so that we can earn more rewards points or cash rebates. We contribute to our retirement plans and also contribute to savings in our taxable accounts.

What we have not done so well is to budget specifically for certain items. For example, we had a basement leak early in 2007 which set us back $6,000. That was an unexpected expense. We also took a few vacations last year which we did not budget. But we still managed not to dig into our savings plan or incur any debt.

I also realized that I hate actually sitting down in front of a spreadsheet and budgeting. I have to force myself and find the right time to sit down and actually do some budgeting and monitor our finances. What also tends to happen is that occasionally, Mrs Credit Card would go on a little shopping binge.

At the beginning of last year, I asked Mrs Credit Card to take more time looking at our budget. She did not exactly take it to mean that she was in charge. She volunteered to categorize my work receipts (which I have failed to hand it to her on time). However, there were many times when she expected me to sort out our mails and I wondered my she couldn’t do it. There were also other times when I asked her how we were on the budget and she said she has not looked at it for while!

After doing our taxes almost in the last minute (not a deadline last minute), I came to realize that one of us has to take over the role of a CFO in our household. And I think that person will not be me but Mrs Credit Card. The reason is that I hate doing mundane things like filing my receipts, checking our expenses etc. I would like that to be done and presented to me! (like a CEO!). But I’m sure Mrs Credit Card will accept the role, but she also has to look after our 3 kids . And she has a couple of other sites that she runs! So what gives.

I think we might have to hire a part time book keeper. Or if we decide not to do so, one of us (more like Mrs Credit Card) has to assume the full role of our household CFO position and be in charge of everything, from budgeting, monitoring our expenses, reporting, checking our mails, filing our receipts and forms and all that stuff. I’ll let you know of the outcome of this, but I certainly feel that our present situation where we both sort of look at our finances together, but not being as engaged as we should be is not the ideal situation.

Share your thoughts on this here.

I just spent the whole day with Mrs Credit Card doing our 2007 taxes and I can say that I absolutely hate it. I thought it would ages but it turns out that all it took was a good six hours. Next year, it would be much simpler. But here were the mistakes I made.

1. Not putting everything on a spreadsheet every month - I did keep my receipts in a folder organized by month. But I had failed to write behind every receipt the purpose and name of person I had met (I’m in a sales job).

2. Not having my work calendar (which is Microsoft outlook) accessible through my home PC - This made matching the receipts to events really cumbersome.

3. Not separating my credit card expenses properly - Regular readers will know the credit cards I use. But today, I realize that I have been using my credit cards effectively (not in terms of maxing out rewards). Our present situation is that we charge almost everything to our credit cards (and pay off in full). But our expenses can be broken down into household, my work, and our web business. Reconciling our expenses with our receipts becomes a nightmare.

How I plan to improve the situation this year

1. Input all my expenses in an excel spreadsheet weekly - I really hate doing things like that but I think I’ll have to commit to this to make our lives easier. It will also be easier to monitor current expenditure.

2. Carry a small receipt file wherever I go - I will start carrying a small receipt carrier in my car wherever I go and put my receipts in there immediately.

3. Get access to my work computer from home - I do not work from home (seldom anyway). For the most parts, it is family time and writing this blog! But I’ll speak to my IT guy to get this set up so that Mrs Credit Card can also see my schedule and I can work on the expenses together with my schedule at home.

4. Use one credit card for each of my expenses - This means I will start using one credit card for my work, one for our web business and one for our household expenditure. I’ll update my strategy for this in a later post.

5. Getting EZPass - Well, at least in Pennsylvania, it’s called EZPass. Reason I want to get it is to save time as I can just drive through the toll booths rather than having to stop. But also so that I can see how much I spend a year on the road without having to keep tons of receipts.

Other things I am considering

1. Hiring a book keeper - I’m sure Mrs Credit Card is against this because she has volunteered to perform this role. But this is such a mundane role that I think we could spend out time on more enjoyable stuff. I’ll have to check and see how costly it is to hire one to come just once a week!

2. Getting NeatReceipts - Neat Receipts is a cool gadget that lets you scan in your receipts so that you can store your receipts in your computer. The IRS accepts these electronic records. A couple of my friends have them and it is totally cool and neat. No more chunks of receipts? Need to discuss with Mrs Credit Card again.

Well, those are my thoughts at the moment. How are you folks out there organizing your expenses to make your life easy during tax time?