Cross Over Point Calculator

The cross-over point is the point at which your passive income exceeds the income you generate from working. For many it marks the point of transition into financial independence. But... how soon can you get there?

To make things a bit easier to calculate and to facilitate dreams of financial freedom and white sandy beaches, I have created a little cross-over calculator below. To use it, simply enter your annual income, your annual expenses (don't forget to include taxes), and your current savings. Then use the sliders to manipulate your rate of return as well as the growth of your income and your expenses.

Your anticipated date of financial freedom will be displayed by the gauges and your road to riches will be displayed in the line chart. Incidentally, my calculator tells me that we are 15 years from covering our expenses from passive income & 19 years will pass before our passive income surpasses our income from work. Of course, this is assuming everything goes according to plan.

Remember, this calculator should only be used for entertainment purposes. Don't use it to plan your financial future.

Enjoy and tell your friends...

Stock Options Millionaires, Beware!

If I needed more proof that investing in your company stock is a bad idea, I got some last night over dinner. Shadox is (once again) traveling on business and last night I went out to dinner with some of my colleagues. It turns out that three of the five people sitting around the table are former stock option millionaires... yes, you heard right.

Two of my colleagues who are former Nortel Networks employees worked for the company when its stock was a Wall Street darling. At the time each of them owned stock options worth millions of Dollars on paper. My colleagues held onto their stock options while Nortel's stock price tanked. One of them still owns the stock, now worth dramatically less.

Another of my colleagues worked for a small private company which received an acquisition offer from a large tech firm. My colleague exercised a large number of stock options, which were anticipated to be worth millions. While the deal ultimately fell through, my friend only spent a few thousands of Dollars to exercise his options. All in all, a very smart bet.

If your stock options are worth millions of Dollars, or if you otherwise have a sizable investment in your own company's stock, do yourself a favor and sell, sell, sell...

For more about the perils of investing in your own company's stock, check out this previous post.

Can You Stand the Heat?

Today the stock market broke a five day losing streak. When speaking with my colleagues and friends about personal finance, I hear and see a lot of fear. People are getting scared that we are facing a very long economic recession and an extended bear market. In fact, one of my colleagues today went as far as predicting a depression... He was so glum I had only one question for him: "seriously?!"

My opinion is that we are definitely facing an extended economic downturn. I think that the real estate market is not going to start recovering before the end of 2009. I also think that we are already in the midst of a recession, and yes, we will see the stock market continue to decline and unemployment rise. However, a depression? I am not looking for a place in the soup kitchen line quite yet.

We are holding firm to our stock positions. Moreover, I have decided to slowly move money from our money market account and into the stock market over the next few months. In fact, after cancelling a stock purchase order before the market opened two days ago, I reinstated that order the next morning, following the Fed Fund Rate cut.

Yes, volatility will continue, and it is likely that we will continue to see the equity markets decline for a while, but if the recent declines are enough to scare you into selling your stocks and mutual funds, you should probably not be investing in the market in the first place. When the going gets tough the right strategy is to stick to your guns, and keep a well diversified portfolio. Panic and sell at your peril.

Cold Investment Feet

Yes... it was bound to happen sooner or later. This evening I got cold investment feet. On Saturday I gave a "buy" order for 100 shares of VFH (a Vanguard index that covers the financial sector). I figured financial companies have taken such a huge hit in recent months, that they are bound to be over sold. The markets were closed today, and following dramatic declines in overseas markets the S&P futures are pointing in the direction of a brutal sell-off when the U.S. markets open on Tuesday morning. So, with all due respect, this evening I cancelled my purchase order...

I still think that the financial sector is a good buy. I am an avid index investor, but I do think that the market over-corrects on occasion. While I am not in the habit of actively trading, I just couldn't resist the urge to follow my hunch in this case. Well, at least until I saw the S&P 500 futures down about 4% this evening.

I will probably re-instate my buy order in a couple of days, but I don't intend to run head-on into the brick wall which is a full market route, thank you very much. I would like to point out that even though our portfolio is down dramatically in the past month or so, I have not sold any of our existing positions, nor do I intend to do so in the future.

Calculate the Value of Saving for Tomorrow

I have written a lot about the value of saving for the future. This time I thought I would take a different approach: I thought I would show it to you. This financial calculator does all the heavy lifting for you. Simply move the sliders and watch your savings grow over 30 years. Already have some money set aside? Simply input your current savings in the designated field. Enjoy.

I really enjoyed creating this calculator, so expect more calculators and tools in the near future... stay tuned.

By the way, from left to right, the sliders are:

Rate of Return = the return you expect to generate on your money each year.
Annual Contribution = how much money you set aside each year.
Annual Contribution Increase = how much more money you set aside each year. If you intend to save the same amount of money each year, set this slider to zero.