With the first year of 529 contributions under our belt, it was high time to take a look back and see how they did. The first thing I did was log into the online account and see the rate of return posted in big bold letters.
3.4%
Wow, that is terrible, especially considering that the fund we invested in returned a healthy 9.9% in 2014. Obviously something else is going on and you may have already guessed it.
That’s right, we didn’t invest everything on January 1st, instead we made contributions throughout the year. By giving Frugal Boy a big Christmas present/contribution, it effectively killed our rate of return because of the sudden influx of fresh cash that diluted previous gains. To properly calculate your return, weighted for irregular contributions, you will need to open up Microsoft Excel and use the XIRR function.
Here’s how to use the XIRR function.
In column A, enter positive contributions and negative withdrawals (or fees). In column B, use the Date function to enter in the date of that contribution. At the end of each column, enter the ending balance and date. Multiply your ending balance by (-1). So a positive ending balance would be displayed as negative (it’s just how the XIRR function works).
Finally, use XIRR(colA, colB, guess) where guess is your expected percentage return (e.g. 8%).
Here is an example:
Properly weighted, Frugal Boy’s 529 had a rate of return of 10.33%. Not too shabby 😀
Like our taxable investment account, we selected a low cost indexed fund that consists of:
70% VIIIX – Vanguard Institutional Index Fund
20% VDMIX – Vanguard Developed Markets Index Fund
10% VEXMX – Vanguard Extended Market Index Fund
The heavy equity exposure and associated risk seems appropriate for his age.
This is the last weekend before Christmas and because it was a bit chilly to walk outside with Frugal Boy I braved the mall. No, I’m not a masochist, I just know that Frugal Boy loves people watching and what better place is there to people watch than the mall before Christmas.
As I was unloading the stroller back at home, one of our neighbors came by and asked if I had finished my Christmas shopping. I told him no, I had never even started. He offered me luck on a seemingly impossible task, to save Christmas in less than a week. What I didn’t tell him, was that while I hadn’t done any traditional shopping, I was in fact done with gift giving.
The Frugal Gift For Your Spouse
Shae and I have always had an aversion to trying to find the ‘perfect’ gift for one another. The hassle of it all, shopping, buying, wrapping, keeping the secret, and hoping for a genuine positive reaction during the unveiling is all a bit more work than either of us would like to do. In something of a growing tradition, the goto token gift has become new pairs of socks, simple, practical, and fairly cheap.
Our unconventional gifts to one another are both easy to give and a joy to receive. This year we both paid off a chunk of our mortgage for a combined extra prepayment of 10%. All told, in 2014 by living frugally, we have been able to shave off 40% of our mortgage this year alone.
10% Christmas Gift to Ourselves
The quadruple mortgage payments that we started making in April have set us on track to be mortgage free in about 12 months (assuming we give ourselves the same present next year)! Yippee!
The Frugal Gift For Your Child(ren)
Frugal Boy isn’t old enough to really appreciate presents, so this year we just made a contribution to his 529, college savings, plan.
Merry Christmas Son
You can see two jumps in the chart. The first in May when we put inheritance money towards future education and another in December when we gave him his present early.
While a 100% monetary gift works well for babies, because they don’t understand the concept of a gift, it probably won’t be a smash hit with older children. In the future we will continue to spend a substantial amount of Frugal Boy’s gift budget on 529/savings contributions while spending a bit of money on a token toy. After all, as parents, it is our job to take care of the needs and necessities first. We can let his relatives spoil him with the ‘fun’ stuff. If our Christmas tree is any indication, that is exactly what is happening (100% of the presents are to Frugal Boy).
The Frugal Gift For Your Nieces and Nephews
We basically followed our standard method of operation for our own children. Babies received all cash gifts and should their parents choose to invest that money in an account that compounds that niece or nephew will receive the advantage of time. Older nieces and nephews received trinkets and a supplement of cash to round out their presents. As an uncle and an aunt, we tend to be more prone to spoiling than with our own child. Plus, what kid doesn’t want 1,000 stickers for Christmas? 😀
Wrapping Up
While we haven’t done the traditional gift giving this year, we have done a frugal edition of it. A grand total of zero items were purchased at the mall, and most gifts came from our checkbook. Sure it isn’t the picturesque Christmas that you see in the films, but then again is that even the meaning of Christmas in the first place? With that said, are you done with your Christmas shopping?
Some parents have their entire house baby proofed before they even leave for the hospital. That is not us. We take a lazier one step at a time approach. Maybe, just maybe our baby will overlook some dangers. Inevitably, that parenting style lands us into situations like the one below, where a very curious Frugal Boy explores his surroundings. We just keep a constant eye on him in ‘unsafe’ rooms.
When he reaches new milestones, we do another round of baby proofing. Our refrigerator once had magnets and pictures all the way down to the floor, now it serves as an impromptu growth chart with everything below three feet cleared off.
A trip to Menards and $5 later, we had a package of safety latches.
It was pretty obvious that someone else had installed a similar product in the past as there were already holes drilled into our kitchen cabinets.
Growing up, I remember the sink cabinet having the same style of latch installed. Eventually I figured it out, but by then I was also smart enough not to drink bleach.
With the cabinets secured our home is a little more baby resistant.
I couldn’t resist making a spoof infomercial about the safety latches. Frugal Boy was just too gosh darn cute poking his head into the cabinets to check everything out.
Later on some of the neighbor boys came over and played. It won’t be long before he is trying to run and keep up with them.
Thank you to everyone who came. Frugal Boy had a great time and loved all of the attention.
