January 2011, the first full month of life without a salary, was my first opportunity to take a look at what I can do while working for only myself. The last two weeks of December were officially post-employment, but with the holidays, my routine wasn’t normal until after the new year.
I’ve discovered a few things:
- Not having to worry about what a boss wants me to do allows me to focus my energy on things that are important to me, and it’s more of a relief than I thought it would be. I expected to have less stress and be able to focus more, but I have a renewed energy that I haven’t had for a long time.
- I’m saving a lot of money by not going to the company’s cafeteria for lunch every day, but my heating costs are increasing, thanks partly to a cold and snowy January and thanks to being home during the day.
- Having an area of my apartment set aside for working is good, but I don’t mind the mobility I have my working on a laptop. This coming month, I’ll be spending more time at my girlfriend’s apartment, and I appreciate my new location independence.
- I still need to hire a cleaning service.
In the next few days, I’ll write more about the changes in my expenses due to the lack of a commute and more time spent at home. In terms of income, the month was successful, with a 33% increase over December’s income. Part of this increase is due to cyclical forces in the industry, but I believe having more time to spend on my own projects has contributed as well.
I mentioned a few days ago that I could be a millionaire just by interpreting my net worth slightly differently. I’ll continue producing these reports every month without taking into account the estimated value of my business, and focus only on my cash, investments, and debt.
Here’s the latest report followed by some commentary.
1. Cash in banks. A friend and reader asked me recently about the best place for his business’s cash. For most of my cash, like him, I’ve had a business account at ING Direct. That’s earning only 0.95% APY at the moment. While it’s still better than most brick-and-mortar savings accounts, it may not be the best option out there. I’ll spend some time researching better options.
The savings accounts I keep are generally designated for emergency savings or a big purchase, such as a house. Leaving my job, I made sure I had cash available for the unlikely even things didn’t work out and I’d need to look for something new. I could being too conservative here, so my plan for this year is to answer some of these questions.
2. Investments and retirement. I still have not completed the paperwork for my Individual 401(k) at Vanguard, but I hope to finish this by the end of the week. It will be important for me to decide what to do with my existing 401(k). I could roll over the investments into an IRA or leave the account with my former company. The mix of investments has performed well, better than the S&P 500, but that’s no indication of how it will perform in the future. Traditional financial-planner advice says I’ll be better off in the long run investing my retirement funds in a broad equity index.
As a continuation of last year, I’ve started off 2011 by investing $1,750 each month automatically into my SEP IRA. My goal for the year is to invest ten percent of my income towards retirement, so I still have more to go before reaching that mark. This may require a manual investment each month after I determine my income.
3. Accounts receivable. Accounts receivable is the line that represents the invoices I’ve sent to clients and advertisers that are still outstanding. When this number increases, it might mean more business or it might mean that companies are taking more time to pay me. Despite a larger income in January, my accounts receivable amount decreased.
The decrease is mainly due to getting payments faster, thanks to direct deposit.
4. 2004 Honda Civic. At 128,000 miles, my car is still running well. There are a few problems that require my attention. I need to replace the battery in the keyless remote, and some of the rubber protecting the bottom of the driver’s side door has fallen off. This is the most trouble I’ve had with the car since I purchased it new in June 2004. Is it crazy to buy a car new rather than used? Not if you hold onto it for a long time and drive it into the ground. Even though Hondas hold their value well, resale value is not an issue for me.
Ever often I use edmunds.com to determine an estimated value of my car for my net worth report, but for now, I’m just decreasing the value by $100 every month.
5. Accounts payable. I use credit cards for almost all of my spending, and that contributes to the accounts payable line. Those who submit invoices to me that I haven’t paid by the end of the month are included here as well. The credit card balances are all paid before they are due in order to avoid any interest charges.
Although I nearly doubled my net worth over the past year, that is a less likely target for the next year. How are your finances coming along so far this year?