Personal Finance Management Software

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If you are serious about tracking your finances you almost certainly need to invest in a Personal Finance Management software (PFM). I started using PFM in the late 90’s however I lost a number of years due to some technical issues so my official records start in 2002. Originally, I used Microsoft Money and had a difficult time due to how it was setup and my ever growing set of accounts. I won’t bore you with the details but let’s just say I was not a big fan of how it works and had a lot of headaches with it. At the time though (late 90’s) it was either Microsoft Money or Quicken and they both had limitations. Nonetheless, I made it work and started tracking everything up until 2002 when my PC hard drive decided to die and as a result I lost the license key to my Microsoft Money software. Not the data mind you, I lost the stupid license key to “activate” the software when you purchase software from Microsoft. When I tried to reinstall the application I couldn’t “activate” the software because I lost the key. I had purchased the license several years before all of this and Microsoft stopped supporting Money right at this time…. so that meant I couldn’t purchase a new license anymore and I couldn’t figure out a way to get my existing version of Microsoft Money to activate. Thus, I became a free agent in search of a new PFM.

I did the usual searches that we all do and read all the reviews. In 2002 there were more options hitting the internet so the choice expanded beyond Quicken which I gave a long look. Ultimately, I decided to try my luck with MoneyDance and I couldn’t be happier. At the time I had a net worth of about $70k and 75% of that was my 401k. The rest was a personal brokerage account I had on eTrade with $2500 split across 4 stocks I purchased in March of 2002 and then ~$20k in cash. The $20k was used as my down payment on the Condo which I purchased at in March of 2002 for $239k. So it all came together in 2002 as I converted to MoneyDance and really started the journey to Paycheck-Free Living!!

Since that time I have tracked almost every transaction over the last 12 plus years. With the advent of debit cards being accepted EVERYWHERE, the level of tracking is ridiculous as well. I have it down to a science now and spend about 10 minutes every other week updating the data. MoneyDance let’s you customize just about everything and so I can see all my income and expenses, my assets and liabilities, my net worth, investment performance, reminders, budgets, and on and on. I have several customized reports covering just about anything you can think of from Net Worth to Investment Performance to Asset Allocations. It even works great for our side business (rentals) as it allows me to categorize all those transactions separately.

I could go on and on about the power of Personal Finance Management software… and I am sure I will in the future. I can’t say enough about how much it helps me make sound financial decisions. On top that it really provides proof to me that if you keep doing the right things, maxing out your 401k from day one, paying down debt, balancing your portfolio, and diversifying your assets, that it does work!! I see that when I run a net worth report or when I look at 2008 and how we managed to eke out ahead. It gives me motivation to keep at it because Paycheck-Free Living is on the horizon.

Investment Diversity

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With the recent ups and downs of the stock market, I got to wondering how the performance of our investments compare to the overall market. I track all of our finances using an application called MoneyDance and I am a huge fan of personal finance management software in general. I have kept track of my own finances since 2002 and added Mrs. PFL along the way. The best part of MoneyDance is the ability to run reports and with the time I have put into managing the data I can easily do comparisons. So this morning I decided to take a look how the DJIA (Dow Jones Industrial Average) performed as compared to our various stock investments for 2014.

First a couple (randomish) thoughts…

  • The DJIA in just the last month has been CRAZY!! By my quick analysis.. the DJIA closed at a high of 17,280 on Sept. 19th, dropped to 16,117 at the close on Oct. 16th and then peaked again just this week by closing at 17,391 on Oct. 31. That is some volatility.
  • Our stock investments are comprised of several different portfolio’s. I basically manage these and more can be found on my Assets Explained post. For a quick recap, our investments consist of my 401k, my Roth IRA, my ESPP (employee stock purchases), my personal brokerage account, Mrs. PFL Roth IRA, her SEP IRA, and her 529 account.
  • Because I use MoneyDance I can easily see how all of my assets are split across all of these. I can tell my market cap size (large cap, small cap, etc), by type (individual stocks, mutual funds, ETF’s), by portfolio (401k, SEP, Roth) and I can look at all of this by individual accounts.
  • Any graph that involves my 401k tend to have big jumps and big drops. The reason for this is due to the fact that those assets are only purchased the 1st and 15th of each month when I get my paycheck. That means the prices for those assets are only updated when these transactions occur and because my 401k is by far the biggest piece of the investment pie, when the market drops/rises over two weeks it looks more like one big drop/jump on the 401k.

So here are the results as shown in graph form. I find this to be pretty interesting myself but I am a nerd. It looks like we are fairly well diversified if I do say so myself. I also like to see that even with those big dips it seems to continue trudging it’s way forward.

Assets Explained

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So my original plan was to keep this short and concise. Once I got going I realized that was not going to be the case. With that being said, below is a bit more detail on our assets and some random thoughts about each. I’m sure I will explore each of these further at some point. Because I have used financial management software for over 13 years now I can retrace a ton of my progress (and believe me, I have). If you have any questions, comments, suggestions or whatever feel free to leave me a comment.

Note: As of 10/13 I am still finishing details on the Real Estate… tomorrow perhaps or the next day after that…

Assets

  • Cash - Everyone’s favorite as Ca$h is King.
    • Bank - Usually the easiest and most liquid of all assets. For the PFL’s we have individual deposit accounts, joint deposit accounts, and business deposit accounts. We typically will have between $10,000 to $15,000 spread across these accounts. That may seem like a lot at first glance but with the ebb and flow of our income and expenses I like to have a little wiggle room.
    • Pension - I was not exactly sure how to group my pension as I don’t actually have the cash in hand. This is part of my work package and at the end of my employment I’ll have options as to how I want to receive the accumulated cash. This is really a nice deal and a benefit I get for working within a giant corporate machine (although at the cost of my job sucking the life out of me). I don’t exactly count on this for the future but I track it and look forward to the day I cash in. Since I just passed 10 years of service I now get a 4% pay credit of my eligible compensation up to $100,000 annually, which is basically like saying I would get a $4000 credit if I make $100k per year (1-9 years of service is a 3% pay credit). On top of this the account balance also grows by receiving interest credits each month. The rate of the interest credit is based on a one-year Treasury Bill rate for the month of October of the prior year plus 1% - with a minimum interest credit rate of 4.5%. All in all this account grows at about $5000 a year and I don’t have to do a thing.
  • Investments - These are the mostly retirement accounts with the exception of my personal brokerage account.
    • eTrade Account - This account holds a special place in my heart as it was my first real investment outside of my 401k. I started this with my first real bonus of $2500 in March of 2002 and I purchased 16 shares of CAT, 12 shares of DD, 11 shares of EK, and 21 shares of IP. The stocks I purchased were 100% based off of a formula I read about (think Dogs of Dow) and I split the $2500 evenly across all 4 stocks, so around $750 per asset. I honestly had little idea about the fundamentals of the actual companies. I’ve added to this account over the years but only after all my pre-tax investments (401k, Roth) where taken care of first. I’ve also sold some of this to help fund other investments. To this day I still own CAT and have bought and sold various denominations several times (full disclosure, I love CAT as they’ve done good for me over the years). I always tell Mrs. PFL that the initial $2500 was my cost to going to school and it was well spent as I have learned a ton managing this account. Like, who would invest in EK, as in Eastman Kodak, as in the Polaroid Camera and IP, as in International PAPER, in 2002? 1990 maybe but not sure about 2002.
    • ESPP (Mr. PFL) - This is my Employee Stock Purchase Program and another nice benefit of working for a corporate machine. Especially if they are a profitable company and their stock performs well. I get to purchase stock with pre-tax dollars and at a 5% discount. I was buying $100 each pay period for most of the last 7 years but we recently stopped that and used some of this cash to finance our rental units. Much like you will see with my 401k philosophy, I recommend you try to take out something each pay period, even if it is just $25. Then adjust your living style to match your actual take home income. In other words, out of sight out of mind. Eventually it will grow to a nice little sum of money and you can sell the stocks and put the money to work for you in other ways.
    • 401K (Mr. PFL) - The foundation of the whole castle. My first job out of college was a real small (4 employee) IT consultant company and there was no such thing as a 401K. After about two years of that I took a job with a much larger company that offered a 401K and I was in from day one at maximum contributions. This is the first thing I would tell ANYONE to do -> Contribute the MAX amount to your 401K from day one. My philosophy is if they take that out of my paycheck from day one and I adjust my cost of living to my actual take home pay, then it’s auto pilot from there. I decide how much I can spend after that is out of the equation. That’s not to mention the inherent benefits of contributing in your 20’s or 30’s vs. your 40’s or 50’s. That alone should be the reason for you to start from day one.
    • Roth IRA (Mr. PFL) - This took until 2004 before I could contribute but since that year I have contributed the max each year. I manage this myself via an online brokerage and I try to keep it simple. Usually looking for dividend paying stocks, which are not usually very sexy but neither is a Roth IRA. I picked a Roth IRA over a Traditional IRA because we expect to “need” this before 70 1/2. I see it as bridge income to get me to our 401k and with Mrs. PFL’s retirement accounts we have options.
    • SEP IRA (Mrs. PFL) - Admittedly, I don’t know a ton about SEP IRA’s other than the fact that Mrs. PFL has one. All I really do here and with her Roth IRA is make sure she contributes as much as she can each year. I also give her general oversight on the type of stocks to buy so that we keep our portfolio balanced. We keep it simple by having it split across two ETF’s that provide diversity (international etf, small cap etf).
    • Roth IRA (Mrs. PFL) - Similar to the my Roth IRA we do max out Mrs. PFL’s Roth each year. This account is newer and like the SEP IRA we keep it basic and use it to balance out our portfolio. I have to give Mrs. PFL credit as she’s done a rather nifty job of creating all this net worth herself. She uses her income to fund these accounts and she has managed to add over $100k to our net worth.
    • 529 Account - Mrs. PFL is always thinking and started this a while back just in case. I don’t know all the details for how the 529 plans work myself. They seem fairly flexible and at this point we don’t contribute anything. We can if we decided to go back to school or maybe for a niece or nephew… who knows. For now we’ll just hold onto it.
  • Real Estate
    • House - Primary Residence
    • Condo - Rental Unit 1
    • Black Diamond - Rental Unit 2-7
    • Other Rental - Rental Unit 8
  • Precious Metal - GOLD!! Why not? This is really more of a “doomsday prepper” asset. The history of gold in society is rather interesting and it seems like gold has always been valued by mankind. So a while back we figured it’s better safe than sorry and we purchased some gold.