We had to evict tenants that had been at one of our rentals for more than four years, and it has made me realize I may want to get out of the rental business altogether. We have never had to evict a tenant before and it is a very unpleasant experience even though I am not directly involved. It is especially distressing to me because the tenants had two young children and I feel very badly about the impact on the children.

In June we employed a property manager who is a "no nonsense" type of person. The tenants had been late paying their rent for the last year and a half, but they eventually paid. We even let them pay in two installments to help them but things only continued to deteriorate. Long story short, the tenants were three weeks late in June and did not pay in their July rent, so our manager gave them their three-day notice at the end of July and proceeded to evict them.

What is mind-boggling is that when the manager went to collect the rent, he found a person living there who was not on the lease (she said she was the sister of one of the tenants). This woman told the manager the tenants were on vacation on the Oregon coast. Beats me how you would go on vacation when you haven't even paid the rent. This was the straw that broke the camel's back, so we agreed to the eviction.

Well, the tenants are out and it looks as if we will need the entire month of August and possibly September to get the property rentable again. So far, the house needs new floors throughout, complete painting, major cleaning, and lots of minor repairs. The tenants left tons of garbage and unwanted items, not to mention they lived in filth.

Words cannot describe the stench and the dirt we encountered when we went to see for ourselves today. Their pets (unauthorized) soiled the carpets right down to the sub-floors. This environment is hazardous for children! The once-beautiful back yard is a weed patch and there are oil/grease stains in the garage and driveway.

Believe it or not, this backyard was once pristine and well-manicured with a lush lawn.


This is the sub-floor after the carpets were removed. The stains are from dog urine. The floors have to be treated and sealed before we can replace the carpets. All linoleum also has to be replaced due to gouges.


This is the space next to the refrigerator. The entire house is this dirty.


I am hoping we can get through this nightmare for under $10,000 including the two months of lost rent (assuming we get it rented by September 1). The security deposit will not even cover the cost of hauling the tenant's trash to the dump (broken washer, 12 tires, old CPU, broken desk, dog house, car parts, swing set, toys, etc.). Even if we decide to sell this house, we still have to clean and repair it. We DO NOT need the headache and expense!! To make matters worse, owning rentals gives us no tax advantage due to income limits, so why are we doing this?

Last week my WAMU/Chase CD matured. It had been earning a rate of 4.17% and now that rates are much lower, I knew I'd be lucky to get even 2%... and Chase is currently offering 1.75% for a 12-month CD. It never hurts to ask, so about a week before the maturity date I met with the manager and asked about the best rate Chase could offer. I told her I would invest the funds with the bank that gave me the best rate. She said to give her a day or two to look into the options. When she called me the next day, she said Chase could offer me a "promotional" rate of 2.25% for 12 months. I like the convenience and proximity of this branch, so I accepted.

Not too long ago BA posted a graphic about savings buckets and it made me think about mine. "Pay myself first" has long been my motto and a deposit to my savings is always the first "bill" to get paid each month. Over the years, to manage my savings, I've experimented with different strategies and eventually settled on keeping separate accounts (buckets) for different purposes. Some people might think it's a lot to keep track of, but it works for me and that's what matters. To eliminate paper clutter, I access my statements online.

Here is the current situation with my savings buckets:

Reserve Account #1: Used for periodic expenses such as taxes, insurance, HOA and timeshare dues, ID home expenses, etc. I deposit a predetermined amount from our income (my pension and dh's job) to this account each month. I use a "moneylink" feature that enables easy transfers to and from my checking account.

Reserve Account #2: Used for rental property expenses. I deposit a small amount to this account monthly in addition to a small but consistent net rental income. The savings account is linked to a dedicated checking account used only for rental expenses. The purpose is to have a reserve to offset any vacancies and to pay for maintenance and repairs.

Emergency Fund: This account contains ~2 years of "no-frills" living expenses, to be used in the unlikely event that a major economic meltdown results in our state teachers' pension funds being frozen, reduced, or eliminated. In this economy, you just can't count on anything being constant, so I believe in being prepared. These funds are in staggered CDs earning 3.75-4.17%.

Tax Sheltered Retirement Accounts: Now that I'm retired I can no longer contribute to these accounts, but dh will contribute to his until he retires in June, 2009. I am not sure when we will draw from these, but we'd like to hold off until the mandatory age of 70 1/2. The financial planner I've used for many years has invested my 403b and IRA funds in various products that preserve the principal and earn a return of 2-5%. I have always opted for a "conservative" approach with my retirement funds, even when we've been in a bull market, something I'm now happy about given the state of the economy.

Personal Savings: Dh and I each have our own personal savings account that is our sole and separate property. Mine is with WAMU/Chase and his is with a credit union. We are free to use these funds as we please. For example, we draw from these accounts when we need to subsidize travel, a new laptop, or anything else. We each deposit equal amounts into these accounts each month, ~15-20% of our income.

My Fun Fund: Dh and I have a goal of traveling more in our retirement. So, I've decided to dedicate my small ING savings account for travel. The money saved in this travel account will include net earnings from consulting or part-time work and other misc. sources (e.g., recycling, rebates, etc.). Travel can be expensive, so having this dedicated account will motivated me to save in small ways that add up over time.

So, not including the retirement accounts, I have two "reserve" accounts, an emergency fund, our two personal savings accounts, and the ING Fun Fund, for a total of SIX accounts. It is a lot to track, but going online for balances and using a spreadsheet fore record-keeping makes the management easy. Especially now that I am retired, my savings gives me peace of mind, not to mention some welcome passive income.

Note: Stock dividends also provide passive income, but it is automatically reinvested. I don't consider the brokerage account as a "savings" account but rather an investment account that is liquid.

Once a year, I analyze our net worth to get a current picture of our financial position. To keep things simple, I don't include the value of autos or personal property. I use information from end-of-year statements and assessed values for real estate.

At the moment, fluctuations in our net worth do not have a significant impact on our lives. It helps that we live below our means and our income provides for our needs. In the future we will need to use assets to generate some income, but for now we are able to hold off. For example, we will draw from our assets if our pensions fail to keep pace with inflation (likely) or some other unexpected life event requires it. At 70 1/2 we will begin the mandatory Required Minimum Distributions from the tax-sheltered accounts.

Now that I've completed our net worth analysis for 2008, I know my goal of increasing our net worth by 5% in 2009 is very ambitious (see sidebar). Factors that could help: if real estate values bottom out and interest rates start to creep up... both possible, albeit not likely until the latter part of 2009, if at all. So we will see how things stand a year from now. Check out the page on my sidebar for my 2008 Net Worth Analysis if you are interested.

If you're curious how your own net worth stacks up against others your age and income bracket, use this calculator to compare. I did, and I learned our net worth is above the median for people our age and income bracket... reassuring given that our net worth took a drop in 2008.

Here's another interesting idea: net worth vs. wealth. According to the calculator from The Millionaire Next Door, I am a PAW and my dh is an AAW. Authors Stanley and Danko argue that total net worth alone does not tell a good enough picture of one's wealth. What matters is how much worth you can accumulate on your income considering your own age. Therefore, a 30 year old making $25,000 who has a net worth of $80,000 has more relative wealth than a 50 year-old doctor making $200,000 a year who is only worth $500,000.

Both of the above calculators were borrowed from the Millionaire Mommy Next Door blog. She has a post with 110 calculators... a very handy resource.

My daughter asked me why we would carry a mortgage if we could pay it off. Why not pay off the loan and not have a PI payment at all? Well to start with, my dh and I have different financial positions. While I could come up with my 50% of the loan, it would strain dh's resources to do likewise (it's complicated). So we will continue to have a mortgage on our CA house. And, thanks to a tip from monkeymama, we are now in the process of refinancing to 4.875% and this will save about $225 a month from the current payment. But assuming we could simply pay off the loan, would it be a good idea?

To answer this question using the new 4.875% numbers, I started with a calculator that weighs various aspects of home ownership including the impact of property taxes, your standard deduction, and your tax rate. I also calculated the interest portion of our payment and what we could reasonably earn if we left the money in the bank. Here are the figures:

Annual payment (interest): $9263
Tax benefit by having a loan (per calculator above): $1936

Amount of interest earned on $190000 invested @ 4% = $7600
Minus 30% in taxes = $2280
Net investment income = $5320

Amount saved if we paid off mortgage: $9263 minus (5320+1936) = $2007

Bottom line: We could save ~$2000 a year we paid off the $190,000 loan, assuming my calculations are not flawed in some way. But we have decided not to for several reasons. Primarily, dh feels contributing his 50% of the payoff would deplete his cash reserves. We plan to live here only 5-6 more years, then we will sell our townhouse or rent it if we cannot sell. By not paying off the loan, we have access to larger cash reserves for future plans that include travel and possibly buying property in a foreign country. So, this compromise works for our situation.

In general, I think it is a good strategy to pay off your mortgage but everyone should assess their individual situation before doing so.

Wall Street gave us a roller coaster ride we won't soon forget and now my bank (WAMU) is faltering! Where will it end... or is this just the beginning of the end? Don't answer that... I really don't want to think about things getting worse right now, especially since I just broke down and checked my stocks, even though I'm trying to get into the habit of checking just once or twice a month (vs. my previous obsession of checking daily). Here's a recap of my battered stock portfolio:

Monday, September 15th - Down 3.72%
Tuesday, September 16th - Up 2.95%
Wednesday, September 17th - Down 4.67%
Thursday, September 18th - Up 3.73%
Friday, September 19th - Up 3.42%

Surprisingly, this week my portfolio fared better than expected considering the havoc in the market. But the bigger picture is bleaker: I'm down 6.1% for the month (from the previous month) and down 14.3% for the year. I'm not too alarmed (yet), but it's definitely disappointing for someone like me who just retired. Well, at least I'm not depending on this money to live on right now, but it sure would be nice for it to be there when I'm 85. I made the decision not to buy long-term care insurance because I thought I had enough assets and we also have good health insurance but I may have to rethink this.

In other money matters, I've been super-busy and this is a good thing because it kept my mind off the stock market. Here's how I've saved money this week:

1) Called my TV satellite company to complain about the high cost of their service. To me keep me as a happy customer, they gave me a credit of $10 a month for a year, gave me the high definition channels free for a year (another $10). I canceled HBO that we rarely watch and saved another $14. Total monthly savings: $34

2) Called the phone company about my landline because I wasn't happy with my rate plan. They reduced my plan to the rate they offer new customers. Monthly savings: $20 and no change to services.

3) Saved $3,000+ by buying airline tickets with miles for a family celebration we're going to in December. See yesterday's post for details.

4) Took an inventory of the pantry and freezer and stocked upon staples to last at least 3-4 months. Spent $192.58 but saved $39.73 by shopping carefully. I stocked up on chicken, ground turkey, pork roast (to be frozen), canned tuna, pasta, marinara sauce, coffee, green tea, 16#s assorted dry beans (red, black, lentils, garbanzos, green peas, and pinto), EV olive oil, salad dressing, canned tomatoes, popcorn, canned corn, cream of mushroom soup (I use it in various recipes), and a large bottle my favorite sake (yes, it's a staple!).

5) Bought a Brita "smart" water pitcher for filtering tap water to use for drinking. (We need to reduce our copious bottled water consumption and be more "green" consumers.) Used a $10 off coupon at BBB and will send for a $4 rebate on the extra filters. Final cost $45 for the large size plus filters for a year. We will also save about $30 a month by not buying as much bottled water. My DD uses a Brita pitcher and they have well water. She says it does a great job filtering.

6) Took a free online defensive driving class sponsored by my employer (my PT job). Not only will my auto insurance company reduce the annual premium by $40, but now I'm also eligible to get reimbursed for my mileage by my employer.

7) I was able to find a solid tenant for the rental that will be available on October 1. Since I leased the house without using a property manager, the monthly savings will be $119.50. I also raised the rent by $45 a month because I was told the previous rent was way under market (I've kept it the same for five years because I had really great tenants). Finding a tenant for this house is a huge load off my mind... a vacancy can suck a reserve account dry in no time.

On top of all this, I worked six hours on on Monday and spent Wednesday in beautiful Monterey at a workshop. My room was paid for, we had excellent meals, and the presenters did a decent job... not the best but better than some I've suffered through. Now, I'm ready to relax for a while. After all, I AM retired!

I have three more paychecks before I retire: June, July, and a smaller one is August. Due to my retirement, I will not be able to contribute to my 457 or 403b after August, thus falling short of the maximum allowed contributions for the calendar year.

To remedy this, yesterday I arranged with the payroll department to deduct more from my last three paychecks so that I will meet the maximum allowances for the calendar year. This will result in much smaller paychecks but I will make up the shortfall by eliminating any deposits to my regular savings, and if need be, making withdrawals from my savings.

Most of my tax-sheltered accounts will earn interest until I am 70 ½ and then I will have to begin mandatory withdrawals. One investment is a Roth and another is a non-qualified annuity, and these can continue to earn interest without concern about mandatory withdrawals. One of my goals in retirement will be to monitor these accounts more closely to ensure I get the best interest rates available to me.

Yesterday I analyzed my portfolio, which consists mostly of individual stocks and a few mutual funds. So far for 2008, I am seriously in the red:

January = down - $25,676
February = down - $7,764
March = up + $7,109
April = up + $11,674
May = up + $6,817

Calendar YTD = down - $7,840

I bought most of my stocks around 1996-2000 and then stopped when the market started going haywire. To date, I’ve never sold anything but know I should do some culling... if only I had more understanding and confidence about what to do and why.

Since January of ‘06, when I started keeping a spreadsheet I update on the last day of the month, my portfolio increased by 9.37% a year. I’m not sure how this compares to indices like the Dow or Nasdaq… all I know is that my portfolio’s produced a better return than anything I’ve gotten from a CD or money fund. To be honest, I do not review my statements from Schwab that are available online. I like to keep track using my own spreadsheet.

While the mutual funds have done OK overall, I have tech stocks that dropped significantly, have never recovered, and possibly never will. Some of these dropped as much as 50-60%, yet I hang on to them. I did get lucky with a couple of stocks bought solely because I liked/used their products or did business with the company (e.g., Apple and Walmart).

My plan is to educate myself more about intelligent investment strategies once I retire and actually have more time, but I’ll probably stick to mutual funds…and maybe I’ll even sell some of my dogs of the Dow. Can anyone recommend a good book/web site on mutual fund investing or portfolio management? I want to get more actively involved in managing my portfolio but don't want to obsess over it, either. There's got to be a better strategy than "ignore and check once a month."