The other day I figured if I could retire or not and how much income we'd have. That plan depended on moving to a cheaper city and cutting our spending level a fair amount. But what if we wanted to stay in our current house and didn't cut our spending? How far away are we from being able to hit that target?
To retire yet not change our current standard of living would require a higher income target. We'd have to pay off our house and have about $67,000 of income to cover our current spending levels. That would cover health insurance and out of pocket costs of $10,000 since with that income level we wouldn't get a subsidy. Our property tax and other expenses would be a lot higher if we stay where we are as well. Plus right now we do spend a fair amount and this wouldn't include any cut backs in spending or additional frugality.
Our current retirement funds would get us $12,000 towards the goal. The rentals we own out of state generate about $6000 of profit. That leaves us $49,000 short of the goal.
Our current rental properties don't have a great return on capital. Profit after expenses is only about 4% of the total capital. If we paid off our mortgages and bought more rentals in this area with similar return it would take roughly $1.1 M total more than what we've got now to get to the point that we could stay where we are and maintain our current spending level as well as pay for health insurance.
Don't move or cut spending = $1.1M short of target
Another option would be to move back to my home city yet keep our current level of spending. This would be cheaper since housing, taxes and overall cost of living are cheaper there plus you can get better returns on rentals. That route would probably cost around $670k more than what we've got now. That would cover the cost of more expensive and nicer house as well as more rental properties to provide higher income level.
Move but don't cut spending = $670k short
One last way to go would be to stay where we are yet cut back on spending. This option would require an income of about $43k and a bit cheaper paid off house. TO hit that level I think we'd need about $300k more than we've got now. The difference with this option is that I'd get a lower return on our rental properties in our current city since cost of real estate is higher here.
Cut spending but stay in current city= $300k short
These figures are all very rough estimates.
--
August 17, 2014
What Would it Take For Me to Retire Without Moving and/or Cutting Spending?
August 14, 2014
Could I Retire Today?
This blog is about my eventual goal of retiring early at the age of 50. I'm now 43 years old. Every year I get closer and closer to being able to retire. I figured it would be a good exercise to check in and do a rough estimate of my ability to retire right now. My original stated goal for retirement was $50,000 income and a paid off house. How close am I to maybe hitting that goal?
First off... when I say 'retire', I mean that I would quit my day job and then manage some rental properties. I'd still be working on those rentals but I'd otherwise be retired in the true sense of not working for an employer. Maybe you could call it semi-retired if you want.
We own rental properties and our own primary home. I
figure if we retired, then we'd sell some and keep others. Some of the
rentals are in my home city where I grew up and my family all still
lives. It would be financially better to move back to my home city since its cheaper to live there and the rental investment returns are better there too. If we stayed here in my current town housing would cost more, taxes are higher and rentals would return less. A very quick estimate in my head tells me we probably couldn't really afford to live in our current city with our current assets so I'm really only looking at moving to the cheaper home town. Note that we're not planning to move and this really isn't a preferred option but this is just a 'what if' exercise to see how or if we might be able to retire now with our current asset level.
We jointly own two properties with my dad in my home city. We would keep those properties.
We could sell our properties here and generate around $300,000 total. We could use that money along with most of our cash on hand to buy a home to live in and more rental investment properties. Using 1031 exchanges we could also avoid paying taxes on the sale of our current property. We've also got a lot of assets in retirement accounts right now and we could tap that using a 72t distribution.
New rental purchases :
We could buy a couple single family homes and rent them out and net around $16,000 a year after expenses roughly. We could probably get closer to $18,000 or $20,000 profit off of multi-units. Thats pretty rough estimating on my part based on quick search of whats for sale now on Realtor, and skimming over current rent rates on Craigslist. I'd also assume ~40% expense rate on multi-units and about 25% on single family. Generally I'd say something in the $15,000 to $20,000 is a reasonable guess with margin built in.
Existing rentals in home town:
The rentals we currently own generate about $6000 a year in profit right now. But if I were living there I could help my dad and we could renovate some units and increase that a lot actually. I think it is realistic to expect that we could increase the profit from those properties up to $9,000 a year or maybe $10,000.
Retirement accounts : $300,000
This amount would generate approximately $1000 a month in income using a 72t distribution. I figured this with the 72t distribution calculator and a current 'reasonable interest rate' figure of 2.25% based on recent AFR
In summary the retirement plan would be :
1. start taking ~3.7% distributions from retirement accounts via 72t
2. sell properties in our current city
3. buy a home to live in free and clear in my home town
4. buy a couple more SFH to use as rentals
5. keep rentals in home town
This would net us annual income of about :
Retirement = $12,000
Current rentals = $6000 to $10,000
New Rentals = $15,000 to $20,000
Total estimated income = $33,000 to $42,000
We would then own a home free and clear and have around $33,000 to $42,000 of income. I have high confidence I could get it up to $36,000. This is short of my original old retirement goal of a house and $50k.
Expenses:
To know if we can retire on that kind of income I have to have an idea of a rough budget. I'm going to run down the various expense categories we'd have and then try to ballpark some estimates on what we'd spend. The numbers I'm using here are very rough and this is not meant to be too precise.
Housing While we'd own the home outright we would of course have to pay property taxes, insurance and budget some money for repairs and maintenance. I'd put this number around $3,500 a year. Of course thats a rough guess and I might want to allocate more for future repairs to be safer.
Our taxes would be very low if not zero. Given a relatively low income and deductions for the rentals our income tax rate would be close to zero if not zero. We would not have to pay for SS/Medicare taxes since that isn't required on rental income. I'm going to figure taxes as negligible. Note this is a pretty big assumption on my part and of course it would be subject to change if tax rates went up in the future. If I were doing this for real I'd probably build in some margin in the budget somewhere to account for potential future tax changes.
Healthcare would be a potentially high cost but with the new ACA law (Obamacare) we'd be capped at around 10% of our income in expenses so I could just assume spending roughly 10% of our income on health insurance. I'd also want to allocate some money towards out of pocket costs since the insurance plans generally have high deductibles. I could be conservative and figure 10% of income plus $4000 out of pocket annually. Though I don't think we'd average $4k a year out of pocket. I'm going to guess a total of $8,000 year assuming we get ACA subsidies.
Utilities would cost us a fair amount for electricity, natural gas, water, garbage. I'd estimate those to add up to something in the ballpark of $4000. Could be more or less.
Food would be a large expense for us I'd guess. We have always tended to spend more on food. I'm not analyzing this one much but I think a reasonable guess on a food budget would be around $5,000 a year.
Transportation. We'd need car insurance, money for gasoline, repairs and maintenance. Plus I'd want to set aside some more money to buy replacement cars down the road. All in I think we'd be spending around $4,000 on cars per year assuming about half of that would go to a fund to buy new replacement cars. This is also based on owning two cars so if we wanted we could easily cut this figure in half by owning just one car. We could also cut the spending down by having one nicer car and one backup beater. I could do that for closer to $3,000.
Other items I'm not listing. There are other spending categories that I'm not listing as expenses as I figure them mostly in the discretionary / luxury pile. Things like vacations, cable television, gifts, etc.
Very rough estimate of basic expenses :
Home : $3500
Taxes : $0
Healthcare : $8000
Utilities : $4000
Food $5,000
Cars : $4000
The sum of these expenses are just shy of $25,000 at $24,500.
Based on the income range of $33,000 to $42,000 we'd be left with somewhere between $700 and $1,450 a month to spend on other things like clothing and entertainment and travel. We could also give us more room in the budget by being more frugal on the expenses I estimated above. With the high confidence income level of $36,000 and expenses of $25,000 that would give us over $900 a month of margin or to spend on luxuries.
Comparing the expenses I'm figuring now versus what I budgeted for retirement 6 years ago there are some big differences. Back then I had nearly $10,000 a year for food between groceries and eating out. I also had nearly $10,000 for health insurance. Between those two categories I've dropped my spending estimates by nearly $6000. I also assume that I had some assumption of taxes costing me more previously.
If I retired now our assets could generate roughly $33,000 to $42,000 of income based on investing in rental properties and buying a home outright. A rough guess at basic expenses would be in the neighborhood of $25,000.
There are a lot of unknowns not accounted for here and most of my numbers are very rough estimates so the figuring here is all pretty inexact.
Bottom Line : I feel that I could retire today and we could do pretty well. If we were more frugal I don't think it would be bad at all to make ends meet.
--
April 8, 2014
Can I Cut Cable and Watch All MY Sports?
One of the common themes in personal finance is the idea of cutting cable. Cable is expensive and a luxury expense so its a natural candidate for cost cutting. I've said before that I'm happy to spend a lot of money on cable. We enjoy watching TV and even though it is pricey cable is really a pretty reasonable cost considering the amount of entertainment you can get from it. Even though I have certainly looked at ways to cut that cost by going to cheaper alternatives like Netflix and Hulu. One of the key reasons we don't cut cable is sports. Live sports are hard to find anywhere but cable.
Any time this discussion plays out on the net it seems that someone will step in and argue that you can cut cable and still watch all the sports you want. The arguments go like this :
Just get an antennae and watch it over the air!
Why don't you go to a friends house and watch the game there?
I'm sure you can see those games at a local bar.
You can use MLB.com or EPSN3 online to see all the games.
Now those can all be reasonably good solutions for some people. But they really don't work for me or a lot of other sports fans. My wife and I watch two teams : a football team and a basketball team. The football team has 13 games a year and basket ball is 82 or more.
Over the air - We could actually see 2 football games & 18 basketball games on the local networks over the air. Thats actually quite a lot of games. However I'd be missing 11 football games and 64 basketball games.
Friends house - Its an imposition on my friends. I don't always want to spend evenings and afternoons at a friends house away from my own home to catch games. While I certainly do find watching sports with my friends its not always convenient and sometimes I simply prefer to stay in the comfort of my own home. None of my friends are basketball fans so theres nowhere to watch those games. Its also not totally free. I'd have to travel to my friends house and to be a good guest I should bring snacks and/or beverage.
Local bars - I could absolutely see every basketball game at a local bar. My football team is not a local team and doesn't get much if any playtime in local bars. Bars generally expect you to spend money so I'd have to buy stuff. Bars are not always convenient or comfortable. I'd also have to travel to the bar and back which is extra time. This is not a free option. If I spend just $3 per game on a beverage to watch 64 games then thats $192. If I travel 10 minutes to the bar each way then that ads up to 21 hours of travel time. At $10 an hour thats $210. Gasoline would cost me about $90 in total, not to mention the wear and tear on my car. Altogether I'd be spending $300 - $500 in time and money to go to a bar and watch the 64 games.
Online games - There are NO ways to see our teams online. None. Trust me on this.. Yes you can often view many sports teams online, but our teams are simply not online. NBA league pass online version would work if we weren't in the local market but since we watch the local team we can not see our games online. My football team has no online viewing options. If online options were available they generally wouldn't be free. NBA's online pass is $65.
Honestly I could watch games over the air, impose on my friend to watch football at his house then spend dozens of evenings sitting in a bar nursing a drink like a cheapskate and catch all the games for our teams. But I do not want to.
--
February 27, 2014
Credit Card Rewards for 2013 = $817
In 2013 we made $817.70 in rewards and bonuses from our card cards.
Our main credit card has been the American Express TrueEarnings card through Costco. Most of the rewards and spending was through that Amex card. However the Amex card barely earned over 1% overall and our better rewards where through promotional 5% deals and a $200 signup bonus with a new Chase card. I've been trying to watch for and better use the 5% promotional rebates with our cards. We used our Citibank and Discover cards some mostly to take advantage of 5% deals. I also got that new Chase card and we used it some both to meet the minimum purchase requirement to earn the $200 sign up bonus and to take advantage of their 5% deals.
Here is how our rewards were earned per card :
American Express :$439.21
1-3% cash back on various purchase categories. Mostly 1%
+$25 credit from a Amazon.com promotion
Citibank : $25.57
Mostly 1% bonus but also $1.84 from 5% bonus at Home Depot
Discover Card : $80.43
Almost all 5% bonus for online shopping in Q4.
Chase Freedom : 27,249 points = $272.49 cash
I got a $200 sign up bonus and the rest was primarily shopping at Amazon for the 5% bonus.
The amount we earned was pretty good in total. I'm happy with $817 in extra money for sure. However I am sure we can increase this through use of other cards. I've been considering getting the Amex card through Fidelity which pays 2% into a Fidelity account. That would nearly double the $439 + $25 we earned on our Amex Costco and Citibank cards since that was mostly all 1% spending. I've also decided to watch for and sign up for more promotional deals like that $200 bonus from the Chase card. I figure it would be no problem to sign up for 1-2 new cards a year just to cash in sign up bonuses. My credit score is over 800 and can easily withstand a hard pull once in a while.
--
February 18, 2014
My Roth IRA returns for 2013
In 2013 my Roth IRA had investment return of 28.0%. The S&P500 returned 32.39% with dividends reinvested. So I saw great growth but not as good as simply betting on 'average'. And from that perspective I did poorly. Its easy to feel happy about getting 28% but I could have gotten 4.39% more by simply buying a generic index fund.
Apparently I didn't figure my return for 2012 so I'm not sure how I did that year. I don't have good records for that period but I've got one data point captured in Dec. 2011 and then I know how much I had in Dec 2012 so I can at least estimate based on that period. At least from Dec to Dec I was up about 10%. The S&P500 was up 16% for the year total. Thats not perfect but close enough. So it looks like I underperformed the S&P that year by 6%.
In 2011 I beat the S&P by1-2% so that wasn't bad.
Back in 2010 I doubled the performance of the S&P500 by getting 30.1% versus 15.06%
So for 4 years I'm at +15%, +1%, -6% and -4%. That puts be about 10% above the S&P500 in total for the 4 years. Not bad I guess. But the latest trend in the past 2 years isn't good and I'm really just riding the success of 2010.
| Me | S&P500 | |
| 2010 | 30.10% | 15.06% |
| 2011 | 3.70% | 2.11% |
| 2012 | 10% | 16% |
| 2013 | 28% | 32.39% |
| net | 90% | 80% |
I've gotten away from my old dividend stock investing strategy due to lack of time and attention and I've now mostly switched over to investing in general index ETFs. However I do have a preference for dividend focused ETFs. Over 85% of my Roth account is now split between DVY, VTI and VYM. DVY and VYM are dividend focused and VTI is just the total stock market.
--
January 21, 2014
How Would My Projected Retirement Income Change If We Bought More Rentals?
I recently wrote the article Estimating My Future Retirement Income Based on Age of Retirement in which I figured a rough estimate of our future income at retirement for different ages from 51 to 70. That estimate was based on the status quo situation for our finances. However my wife and I do plan to buy more rentals in the future. So, how would the future retirement income change if we had more rentals?
I figured the numbers for a basic rental in our area. And then reran the calculation to refigure the retirement income estimates. I then added more rentals to see how 1, 2, 3 or 4 additional rentals would add up. [note : I am assuming that we finance the purchase of the rentals and then make mortgage payments while gradually building equity over time. Bear in mind these are very rough calculations with some assumptions and variables that can change over time.]
Here is how the income projection changes based on adding more rentals:
Pretty roughly speaking once I get to around age 55 I could possibly plan to retire 1 year earlier for each additional rental we buy.
So for example, say I wanted a retirement income of $100,000. With our current assets I am projecting that I might hit that amount around age 59. If I add one more rental then I project I'd have $100k income at age 58. Two more rentals would help me hit the goal at age 57. Three more rentals and I'd hit it a few months after age 56 and finally with four more rentals I'd hit it at about age 55.5.
--
January 16, 2014
Estimating My Future Retirement Income Based on Age of Retirement
I wanted to estimate my expected retirement income if I retired at varying ages. How would our income differ if I retired at 51 or 62 or 67? The longer I wait to retire the higher income I can expect. I'd like to retire early if possible but if working a bit longer will ensure us a better standard of living then it could be worth it.
My figuring below is pretty rough and has a lot of assumptions built into it. I don't know how well my investments will perform over the next 10-30 years nor do I know how our real estate assets will appreciate so I have to assume some conservative average figures. I'm also assuming that we don't save extra amounts in retirement or otherwise above the minimal amounts we save now. Right now I automatically get about 11% of my salary in my pension and 401k accounts between my contribution and my employers. But we can and do save more cash in other ways in normal years so our actual retirement picture should potentially be better than the estimates here.
First I figured the annuity I'd get from my company's retirement pension account. The pension website has a tool that will estimate pension benefits at various ages. I figured the pension amount at given ages and then figured out how much of my salary that would represent as a %. The results are :
Pension income:
| age | % income |
| 51 | 11% |
| 55 | 15% |
| 60 | 21% |
| 62 | 24% |
| 65 | 29% |
| 67 | 33% |
| 70 | 41% |
I then used the social security estimator to figure the amount of social security my wife and I would get assuming she gets 50% of my benefit. I took that amount and figured out what % of income it would represent. Those figures are :
Social Security Income:
| age | % income |
| 62 | 26% |
| 67 | 38% |
| 70 | 47% |
Lastly I figured out how much I might have in cash assets between our IRA, 401k accounts and the net cash value of our rental assets. For the retirement accounts I just projected over time with a generic assumption of 7% annual growth rate. For the rentals I assumed I'd sell them all with 10% overhead, 20% taxes and pay off any outstanding mortgage balances. For all real estate I assumed 3% annual growth in market value. I then turned the cash assets into joint life annuity using payout rates estimated from immediateannuities.com
For years before age 62 I subtracted some of the cash on hand to pay 26% of our given income for the year to equate to the value of social security at age 62.
I did not figure the tax rate for our retirement income and the income figures are in pre-tax amounts. However a good share of the income would be tax protected either by being social security or from Roth IRAs so our tax situation should be better post retirement in general.
I created a chart showing the income for different ages from 51 years to 70 years.
The figures above are in 2013 dollars. The figures jump from 66 to 67 due to me only having estimates for a few years of social security. If I had better granularity on the social security then the graph would be smoother.
As you can see if I were to retire early at age 51 then we could expect an income a bit over $50k. $50k a year is the target I had aimed for at retirement of age 50 back when I started this blog. I picked age 51 since that is the first year I'd be officially eligible for my company's early retirement program so the soonest I could get a valid estimate for my pension benefit. Then every extra year I work after that our projected retirement income just goes up steadily. That is just common sense since we'll have more money saved and fewer retirement years to plan for. On average the expected income goes up about 7% for each extra year I work.
--
December 29, 2013
Go Buy Some Ear Plugs
This topic has nothing really to do with personal finance.
If you don't own some ear plugs then I'd recommend you pick some up next time you have the chance.
You can get a 20 pack of Howard Leight disposable ear plugs
A good pair of earplugs like this will get rid of a LOT of noise. Ear plugs have a NRR spec. which is the Noise Reduction Rating. So an NRR of 33 would cut the noise level by 33 decibels. 30 decibels is the difference between a vacuum cleaner and a quiet room.
I really wish I'd considered buying ear plugs a long time ago. There have been several times in my life which I recall where I really could have used ear plugs but simply hadn't thought to buy them ...
- Sleepless nights being tortured by the "plip" ... "plip" ... "plip" ... "plip" ... ... .... "plip"... "plip" ... sound of the dripping rain spout right outside of my bedroom after a rainy/snowy night.
- That one night in that one hotel that hosted a wedding party that lasted till around midnight or 1AM the night before I had to catch an early morning over seas flight. I distinctly remember trying to shove rolled up tissues into my ears and ear plugs would have done the trick perfectly.
- Half of the airplane rides I've been on in my life.
- Very loud sporting events, especially in door arenas.
Oh, and in case you are objecting because you've heard “You shouldn’t put anything smaller than your elbow in your ear” You should rest assured that ear plugs are safely designed and will not damage your ears.
Well anyway thats my pitch for buying some ear plugs. I'd wished someone had told me about something as simple as buhing ear plugs years ago so I could have slept well those nights when the down spout went "plip" ... "plip" ... "plip" ... "plip-plip" ... ... "plip" and drove me insane at 2AM.
--This article may contain referral links which pay this site a commission for purchases made at the sites.
October 15, 2013
Preparing Our House To Rent It - Lessons Learned
We recently went through the work of cleaning out and fixing up our old house to turn it into a rental.
At first look the short list of things we needed to do were :
- Haul off some stuff
- Clean house
- Cut down two trees
I figured that would be easy enough. Shouldn't take long right? We'll have this place ready and rented in a couple weeks. No problem!
We set about getting the place ready. We hired the guy to cut down the trees and decided to hire a service to clean the house. The trees in question were 20-30' high so I could not cut down those trees myself and we had to hire that work out. Hiring a cleaning service was a choice we made because we wanted to get the place ready to rent quickly and honestly neither my wife nor myself wanted to do the work ourselves. The last time we did a rental prep from my wife's old house we did ALL the work ourselves. We found from that experience that things took longer than we thought and doing everything ourselves ended up losing us more in lost rental income than we saved if we'd simply hired people to do a lot of the work. So this time we vowed to not make the same mistake and hire work out in order to get it turned over quickly and making us rental income.
Unfortunately our quick and easy plan wasn't as easy as we'd hoped.
In reality the list of things we had to do was (in no particular order) :
- Haul off some stuff
- Clean house
- Cut down two trees
- Make a couple trips to charity to donate items
- Haul an old couch to the dump
- Clean interior walls
- Paint most of the interior walls
- Mow the lawn
- Replace the burner pans on stove
- Swap out old dishwasher for another dishwasher
- Replace the mini blinds in one bedroom
- Repair portion of gutter that was lose
- Replace some worn out electrical outlets
- Replace a few light bulbs
- Fix broken gate
- Clean the gutters
- Fix latch on shed in backyard
- Shampoo the carpet
- Fix nail holes in walls
- Mow the lawn again
- Fix up the flower beds, pull weeds and add bark dust
- Haul away the wood from trees Clean up the back yard after tree removal
- Sweep up front porch
I am undoubtedly forgetting some minor items I had to do but I think that covers most of it.
I did most of that work myself. This is contrary to the idea we had about hiring people to do everything.
First, here's the list of things I hired people to do and what it cost:
Clean gutter = $75
Shampoo carpets = $140
Clean up front yard and mow = $300
Cut down trees = $1000
Clean interior of house $350
Total spent to hire people : $1,865
List of items I did myself and how much I probably saved us :
Hauling away stuff = $150 - $30 paid to dump for old couch = $120 saved
Painting interior = $1000 to hire painter (?) - $200 in paint = $800 saved
Replacing dishwasher = $150 saved
Clean up back yard = $100 saved (?)
Various other misc. fixes = $300+ saved (?)
I got quotes on hauling the stuff and replacing the dishwasher. I'm making estimated guesses on the cost of painting, cleaning backyard and the various other fixes.
Altogether I figure I probably saved around $1500 or more by doing that work myself. Not bad at all for the time I put in. I did not keep track of exactly how much time I spent working on the house. I guess it was probably around 20 to 40 hours.
But ...
In the end it took a month longer than we hoped to rent the place. That means we effectively lost at most a months worth of rent. The rent for a month is $1100. I also had to pay roughly $100 to carry the utility service at the house for that month. Thats the minimal charges for electric, water, sewer and garbage. That extra month also cost me $50 more to have the lawn guy mow the lawn while it was vacant. Saving that $1500 doing the work myself took me a month and that lost month cost me $1250. So if you figure in that lost month then the net savings of doing all the work myself is about $250. Taxes also differ either way. Doing it myself I've got write offs of about $100 for the utilities and around $300 for materials or $400 total. If I'd paid someone else I'd be in for $1650 out of pocket expenses for the work but I'd be up $1100 in rent so I'd have a $550 deduction. Thats about $150 more in deduction of which would save me approximately $50 in taxes between state and fed. Bottom line after taxes I saved $200.
Based on a net savings of $200 that is not a great return at all. I made in the vicinity of $5-$10 per hour after taxes for my time.
Now that makes it sound pretty bad. That does assume that I would have been able to get all the work done and completed within a two week period. In fact I don't think we even got the tree cut down and cleared out in that time. The guy we use for tree work is not fast but he is good and and he's cheap. Other quotes we've had are around double what he charged. So going with the cheaper tree guy saved us about $1000 which is certainly worth doing as worst case we lost $1100 rent from his slower work. I'm also making estimates on how much the painting and misc. work would cost and usually my estimates on such things are half of what the costs end up being. So its quite possible that I would have taken 2-4 weeks to do the work even if hiring people and I might have paid $2000-$2500 to do that work. Worst case if I'd hired everything it might have taken just as long and could have cost me $3000 more than I spent.
Its hard to know what would have happened exactly, and I can really only guess. I can say that I didn't do a very good job of planning the work out and I'm sure I could have gotten everything done faster if I'd planned it better and hired more work done. Given the demand we had for the property when we did rent it, I'm sure we could have made some more rent if we'd gotten it ready faster.
But ideally if I'd planned everything and just hired reasonably priced contractors then I could have saved a lot of my own labor and only spent a few hundred dollar more net.
Lessons I've learned for next time :
1. Be more willing to have work done even if its work I know I can easily do myself. This is a lesson I need to beat into myself since my first inclination is always to do everything myself. I told myself after the last big project for my wife's house that I would pay for more work this time but then I lapsed into doing half of the work myself.
2. Start with a complete and accurate assessment of all the work that needs to get done. One of the bigger problems I ran into this project was due to poor planning. I started out with the perception that I really only had a couple main things to do : cut down two trees and clean the interior. I hired people to do those items. But then the project grew and grew and I realized all the other various things that needed to be done.
- -
July 29, 2013
My Student Loans
I was sorting through some old papers and I found the statements from my college loans. I had a few subsidized Stafford loans and a Perkins loan.
Three individual Stafford loans serviced by Sallie Mae:
$1,081 @ 8%
$1,712 @ 8%
$1,191 @ 8.25%
One Perkins loan :
$1,871.4 @ 5%
The total debt was : $5,855.40
That was all back about 20 years ago. If I adjust to inflation it would be like having about $9,461 in loans in today's dollars. It wasn't a burden for me. When I started working full time the total debt load amounted about 15% of my annual salary. I think I could have handled as much as 6 times as much.
Note the interest rates on my Stafford loans were 8% and 8.25% while the Perkins was just 5%. The Perkins loans were subsidized more substantially. Of course this was many years ago when interest rates are higher than today's very low rates.
Looks like it took me a few years before I paid off all my loans. I have a final statement that is about 4 years after I started working full time. I don't recall for sure but I think I made minimum payments most of the time and then finally just paid them off in full at some point before the end of the loan term.
--
May 21, 2013
My Family's Track Record with College
My generation is the first generation in my family to really go to college. We've had mixed levels of success.
In my parents generation only one person went to college. My mother got a two year degree from a bible college. My mother was mostly a stay at home mom but she did work later when my sister and I left the nest. I'm not sure if that degree helped my mom in her jobs or not. Nobody on my fathers side went to college at all so my mother was the lone exception.
In my generation myself and four others went to college. Here's our history with college success or non-success (I won't label them with names, but just refer to them by numbers) :
#1. Did not do well in high school and did not go to college. = high school diploma
#2. Went to college on a merit scholarship for maybe a year but she did not apply herself and then dropped out. = maybe 1/2 to 1 year of college
#3. Went to college full or part time over one or three years and eventually dropped out to work full time and get married. = probably 2-3 years of college
#4. Obtained a professional degree in the health care field and has had a good job ever since then = professional degree
#5. Got a bachelors in a very competitive field and then realized there were
zero job opportunities out there and then later got a masters. She is
marginally self employed in her field. = graduate degree
#6 Then for myself, I have two bachelors degrees in STEM majors and I'm employed with a good job. = bachelors degree
5 out of 6 of us went to college.
Among the 5 who did go to college :
2 out of 5 who went to college dropped out
2 out of 5 of us who went to college benefited with good paying jobs
1 out of 5 went to grad school but hasn't substantially benefited financially from college
Thats not a very good track record.
HALF of my generation in my family made a financial mistake in going to college and either dropping out or picking a major with far too much competition and too few jobs.
Of course this is just a very small group of six people and its entirely anecdotal. However I think the experience of my family is relatively common.
What lessons are there here?
First for #5 they did not pick a good major. They ended up in college for around 6 years total and are not making a great income after the fact. Overall college has not helped them financially and they'd have been better off picking a career that didn't require college or a trade that only requires a two year degree.
The #2 example was someone who simply screwed around too much and did not apply themselves. I'm not sure what the lesson to learn from there is other than don't screw around too much in college.
For #3, I'm not sure what the solution there was either. I think the solution may have been not to go to college in the first place. It was not however that they weren't qualified, but it just didn't work out for them due to a combination of factors. Sometimes things just don't work out as you planned them.
Of course anecdotal data like this doesn't really mean all that much. But I think theres good examples of how college may be a poor choice. Whether you're not mature enough to work hard, or if you pick a bad major choice or if life simply takes you another direction. WE also have examples of where college has been a great choice for myself and one other. WE obtained high demand degrees and have had gainful employment with good incomes ever since.
--
May 30, 2012
STILL House Shopping 18 months later
My wife and I started house shopping in Sept 2010. We were still shopping in March 2011. Our home search continued in Sept. 2011. We're still looking after about 18 months.
The market was fairly slow over the winter months and the house shopping slowed down since nothing much appealing came up for sale. There were a few houses that came by that were interesting but not a lot. In the past month or so the market has really started to get more active and we're seeing several homes put up for sale each week.
One failed offer
After many months of searching we actually finally made an offer on one house only to end up being outbid by a competting offer. That experience was a little frustrating. We actually looked at the house then didn't make an offer fast enough before someone else made an offer and a sale went pending. Losing it disappointed us, but then a few days later that deal fell through and we were able to put in our offer. But the day after our offer the original deal was back on and we lost out. It was a nice house in a great neighborhood. The price was around $450,000 and I don't recall exactly how much we offered. Since it was priced pretty low, I don't think we offered much lower than asking.
Loan pre-approval
This week we finally gathered up all the documentation required to get a pre-approval on a loan. I submitted the documents to our mortgage broker earlier this week and I'm waiting on the results. We have had a pre-qualification for a long time but thats not the same as a real pre-approval. The pre-qualification is more of a 'rough estimate' on our qualifications. At least thats my view of it. The pre-approval however is an actual approved mortgage amount. We wanted to get pre-approved for a couple good reasons. First it will help us make a quicker purchase. Second, having the pre-approval already done will also tell us how much of a mortgage we can actually qualify for. The broker indicated we'd qualify for a loan much larger than we really want, so I don't expect a problem.
More cash, cheaper houses, lower interest rates
The whole time we've been looking our cash balance has gradually grown. At the same time the prices of homes have gone up and down a little bit. Today interest rates are at 30 year lows at around 3.7% level. Combined these trends have made a house more affordable as far as impact to our bank balance and in terms of the monthly mortgage payment.
Here's the trend in finances over the period we've been looking :
| Feb-11 | Mar-11 | May-12 | |
| Cash on hand | $120,000 | $150,000 | $175,000 |
| Cost/ sq ft | $164 | $166 | $161 |
| Cost for 2500 sq ft | $410,000 | $415,000 | $402,500 |
| Mortgage rates | 5.10% | 4.00% | 3.75% |
| Down payment | $82,000 | $83,000 | $80,500 |
| Mortgage payment | $1,780 | $1,585 | $1,514 |
| Cash left | $38,000 | $67,000 | $94,500 |
The cost / sq. ft. figure quoted above is the median for the ZIP code we're looking in. The actual homes we've looked at vary quite a bit. In the past coule weeks we've seen homes that would come in at $148 / sqft versus $193/ sqft. The first was a foreclosure that needed some work and the other was a pretty nicely updated home in a nice neighborhood that was probably over priced.
Looking for 2700 sq ft up to $500,000
Right now we've mostly settled on a home of around 2700 sq. ft. in size. It seems that what we want in a home fits at that size roughly. We've also gradually increased the price of homes we've looked at up to the $500,000 level. As we looked at more and more homes and failed to find what we want, we gradually looked upwards in price. This is of course not a great trend, I'd of course much prefer that we could find a home we want for dirt cheap. But we're found that the kind of homes we want are closer to $450,000 to $500,000 range. The lower interest rates and more cash in our bank account has made it feasible for us to consider spending a bit more.
--
February 2, 2012
Don't Let 'Tacky' Run Your Life
The article Let Go of the Spatula: Reconsidering Wedding Registries on Get Rich Slowly recently discussed wedding registries. I bring up the article only because there were several comments from readers that used the word 'tacky' to describe what they thought of registries or other ways of wedding gift giving. These people objected to the registry or other things about weddings and labeled it 'tacky'.
Tacky is basically just a way to say you find someone elses behavior to be objectionable. If I look up tacky in the dictionary it says it is 'not tasteful or fashionable'. It also gives alternate definitions using words like : crass; cheaply vulgar; tasteless; crude. Generally using the word 'tacky' is just a way to say you dislike something based on your opinion on how things should be.
When people are talking about manners and etiquette then 'tacky' gets used to disapprove of what is 'wrong' or 'not acceptable'. If someone quotes Miss Manners as saying that it is 'tacky' to do something then this is cited as some sort of authoritative and official stamp of disapproval. Its basically like saying "no that doesn't follow the rules of our society and is not acceptable behavior". We aren't allowed to be 'tacky' when it comes to the rules of etiquette. You of course don't want your wedding to be 'tacky' right? That would be abhorrent to modern society.
Why should we let rules of etiquette dictate our behavior to this degree? Other peoples views about my behavior are really only their opinion. I'm not hurting them in any way so they shouldn't have a problem with how I conduct my life.
Think of it this way lets compare two scenarios :
1) Lets say that you were organizing your wedding and you decided you would prefer everyone to bring their own food and make it a 'pot luck' instead of hiring catering. Then disapproving Aunt Betty let it be known through the family gossip grape vine that this clearly 'tacky' thing to do. Would you go ahead with your pot luck idea or reconsider it?
2) You are sitting in your house watching TV and wearing sweat pants. Aunt Betty comes to visit and she is wearing a $500 designer outfit. Betty declares that your sweat pants are 'tacky' and you should dress appropriately like she does. Would you start wearing $500 designer outfits to lounge around your home and watch TV?
We're probably more likely to put more weight on Aunt Betty's opinions about our own wedding in scenario #1 and feel more embarrassed by our tacky pot luck idea. But is it really much different than Aunt Betty's opinions about how we should dress when we watch TV in our own home?
In both cases Betty is really just voicing her own opinion about how she thinks things should be done. Betty is not the elected representative of the world view every topic. Its tacky because Betty says she thinks it is tacky.
Now clearly most of the people have strong opinions on the 'right' way that a traditional wedding should be done. If you did poll everyone then you might find the majority of people do agree that a pot luck wedding is 'tacky'. People are much more likely to follow the societal norm when talking about a traditional activity. Thats a lot of what tradition is about: Doing something the same way every time. You can't have a tradition if everyone does it completely differently every year. This I think adds weight to someone elses use of the word 'tacky' to describe your ideas about a traditional activity. Hearing its 'tacky' means we're doing it 'wrong' and we don't want to do the tradition 'wrong'.
When you add 'tacky' to 'tradition' it can cause people to do things and act in a way they wouldn't otherwise. I don't care if Aunt Betty likes how I dress but I may listen to her opinion on how to hold my wedding. Thats simply because its a tradition.
You don't have to follow tradition unless you want to. I don't have to put up a Christmas tree and I don't have to buy flowers on St. Valentines day. Those are traditions but its OK if I don't do those things. If someone else thinks my plastic Christmas tree is 'tacky' or they think my Valentines day balloon bouquet is 'tacky' then that is simply their opinion. I didn't ask for their opinion and I frankly don't care. On the other hand of course if you value tradition and want to do things the traditional way then thats perfectly fine too.
--
January 12, 2012
2011 Year End FInancial Summary
For the 2011 year we're up about $20,000 total in our net worth. It would be up considerably more but our real estate continued to lose a lot of value. We own rental properties as well as our home so a lot of our assets are in real estate.
Here is the trend in our assets showing 2009, 2010 and 2011 year end totals :
As you can see our cash assets went up a fair amount over 2011. I normally wouldn't want to have that much of our money sitting in cash but we've been home shopping so we've had a large amount of cash set aside for a down payment. In addition our debt levels went down about $16,000 due to paying down our mortgages through the year.
--
January 4, 2012
2011 Total Returns for my Stock / Retirement Investments
My stock investments are all in my retirement accounts. In total my retirement accounts are up 3.9% for the year 2011. Thats not bad.
I have retirement spread over 3 accounts :
Roth IRA +3.7%
401k -7.6%
Company retirement +6.9%
The Roth IRA and the 401k are controlled by myself and the company retirement money is managed by my employer.
I did fair with my Roth IRA money but I didn't do very well with my 401k investments for the year. Combined the Roth & 401k are up 2.3% total. I didn't have much of a strategy for my 401k. Much of the year I wasn't paying a lot of attention to my Roth or 401k investments.
Most of the money is in the company retirement account. I'm fortunate that my employer did a pretty good job of handling that investment on my behalf.
If I had put all my money in the Vanguard S&P 500 ETF (VOO) then it would be up about 1.3% for the year total.
--
September 23, 2011
My TransRisk Credit Score is 820
One of my credit cards has a free feature where I can see my TransRisk credit score. The TransRisk score is from the TransUnion credit bureau. Its not the same as a FICO, but its supposed to be similar. The TransRisk has a different formula and range of scores than the FICO scores. As you can see it maxes over 900 which is higheer than the FICO max so 820 on TransUnion is not equal to 820 on a FICO, but its still good.
Suffice it to say my score is pretty high and I'm happy with that. I am not generally worried about my credit score as long as its in the 700+ range. However I do want to make sure the score stays fairly high cause that will help us keep our insurance rates lower and help us get the best % rate on a mortgage if when we do buy our next home.
September 22, 2011
Our Home Search Continues
Back in March I mentioned that my wife and I were home shopping. At that time we'd already looked at over a dozen homes. Since then I've lost track of the houses we've looked at. Our home shopping has been on and off over the past few months. We put the shopping on hold at the start of summer since we were simply too busy to look for houses or buy a house and move. The market here has been pretty stale in the last month or so. There are few houses coming up for sale. Unfortunately we still haven't found any homes that really fit our needs.
Prices up marginally
The average sales price in the ZIP code we're looking at has gone up from $164 / sq ft to $166 / sq ft. We're looking at homes around 2500 sq ft so that equates to a $5000 increase. Not much of a change for homes in the $400,000 range really especially given that the summer is the high season for home buying and selling.
Interest rates dropped considerably
Interest rates have dropped a full point since we started looking. I have an old quote from our mortgage broker back in February listing a mortgage rate of 5.1% and today it should be easy to get 4% rate.
Our cash savings have grown
We've saved up about $30,000 more cash compared to when we first started looking at houses back in February. Thats more money we could use towards a downpayment and/or keep in our emergency fund.
Lets look at buying a 2500 sq ft house at average sales price.
February 2011 :
Cash on hand $120,000
Home cost = $164 x 2500 = $410,000
Mortgage rate 5.1%
Down Payment = 20% of $410,000 = $82,000
Mortgage payment = $1,780
Cash left = $38,000
Today :
Cash on hand $150,000
Home cost = $166 x 2500 = $415,000
Mortgage rate 4%
Down Payment = 20% of $415,000 = $83,000
Mortgage payment = $1,585
Cash left = $67,000
The drop in mortgage rates means that buying a similar home today would give us a mortgage payment that is $195 less per month compared to back in February. Thats a big deal.
Plus since we've saved up more money over that time period in cash we could buy a house now and have a lot more left in our savings account. Thats a big deal.
Its actually a good thing for us financially that we haven't found a house yet since the mortgage rates have dropped so much. We can now buy a lot more home for the same money or buy the same home for less money.
We do not 'need' to buy a bigger home now. Thats given us a lot of flexibility to be picky in our house hunting and wait for a home that we really like rather than settle for the best home available.
May 29, 2011
My Salary History
I'm very happy to have a good paying job and to have remained gainfully employed for the past 14 years.
I previously told my own personal financial story in a 4 part series. In part 4 of that I shared how my salary started at around $42,000 a year in 1997 and then grew to over $100,000 by 2009.
Here is the trend in my salary & total W2 earnings over the years:
My W2 earnings are a bit more than my salary due to profit sharing bonuses and stock benefits that I also get from my employer. Those extra benefits are above my normal base salary. The salary is fixed but the bonuses vary based on how well the company does.
I've gotten pretty good raises over the years. Three times in 1999, 2000 and 2008 I received promotions and in those years I got large pay raises. The percentage increase in my pay annually looks like this :
The promotions made a huge difference in the growth of my pay over the years. If you remove those big raises and replace them with a more standard raise level of 3% then my pay would be about 2/3 of what it is today. Similarly if my pay had only grown with the rate of inflation then the $42,700 I made in 1997 would be equivalent to making about $59,800 today. My pay has grown about twice as fast as the rate of inflation.
May 3, 2011
Sign up for email + wait 13 years = Make $652 from Travelzoo
Remember the wild west of the Internet tech boom? Remember how any company with .com in their name could IPO and make themselves instant gazillionaires even thought they hadn't made a single cent of revenue much less profit? OK maybe I'm exaggerating a little but it really did seem like the Internet boom was simply a crazed money grab with no sense of reality. It was in that era that Internet related companies gave away lots of free promotional deals in order to get their company some publicity and customers. Their promotions didn't really have to be cost effective as far as gaining actual business since the real goal was to get some buzz and increase the value of their IPO. Plus companies seemed to be banking on future gains since everyone seemed to assume 200% annual growth for anything Internet related.
 |
| Free money! |
I set that stage to tell you the story of how I came to make $652.70 off of Travelzoo stock.
Travelzoo is a company that sends out email newsletters about travel discounts and sales. When Travelzoo first started business back in 1998 they had an innovative marketing strategy. Travelzoo decided they would give you free shares of stock in their company as a promotional deal for signing up to get on their email list. This old CNN article discusses the free stock giveaway. Initially Travelzoo was private company and not publicly traded. So the value of the stock at the time was debatable at that time. Free stock? Sounded like a good deal to me. I signed up for the email and shared it with some friends. I ended up getting 8 shares of Travelzoo stock for free with little effort.
Time went by and I pretty much forgot about my 8 shares of Travelzoo stock. I was still on their email list for a while and then eventually I must have canceled the email subscription. In the mean time Travelzoo went public in 2003 and has been traded as TZOO on the NASDAQ since then. It IPO'd at $6.50 a share. It had some ups and downs. At one point in December 2005 the stock hit $110 a share. It spent the next few years trading between $15 and $40. In the midst of the recent recession the stock crashed down to under $4 at the start of 2009.
Have you heard of Groupon? You probably have. You may also know that its business is growing like gangbusters and the company is worth a ton of money. Groupon is a Internet discount coupon kinda deal. Why am I talking about Groupon all the sudden? Well Travelzoo and Opentable are internet sign up kinda deals sort of vaguely like Groupon. This vague relationship between Groupon and companies like Travelzoo and Opentable have caused the stocks of Travelzoo and Opentable to go up a lot lately because they are riding the coattails of Groupon. At least that is my interpretation of what is going on. People want to cash in on the Groupon bonanza and are looking for other ways to take advantage of what they think might be a trend in that category of businesses.
 |
| Travelzoo stock history, Source Yahoo.com |
Because of this Groupon effect that is pumping up interest in Travelzoo the share values of Travelzoo have climbed considerably lately. I sat amazed recently watching the stock go up and up and up. First it hit $40.... then $60... $70... From October 2010 to April 2011 the stock tripled in value from $25 level to $75 range and it wasn't done yet. So now my 8 shares of Travelzoo are worth several hundred dollars.
I decided it was time to cash out. The problem with selling the shares however was that they were not in a brokerage account. The shares were being held by Travelzoo themselves as custodian. I couldn't just hit a 'sell' button. In order to get those Travelzoo shares sold I had to do a few things. Another complication on the matter was that Travelzoo had spelled my name wrong. So first I had to fix that. To fix my name I had to print a form, have it notarized and then mail the form in. Then I had to sit and wait for them to fix my name. Thankfully that didn't take too long, I think they got it fixed within a couple weeks. For the next step I had to request that they send me a physical stock certificate so I could transfer the shares to my brokerage account at Scottrade. That meant filling out another form and this time I had to get it signed and then get it "medallion signature guaranteed". That medallion signature guarantee is similar to a notary but only done by banks and stock brokers. I found out that our local bank branch in our grocery store does that thankfully. So it wasn't too much of a task to get the medallion signature guarantee. We just stopped in at the bank while doing grocery shopping one Saturday afternoon. Then we mailed in that form and waited. I think it took another couple weeks till we finally got the shares in the mail. Last I had to go to the local Scottrade branch office and give them the certificate to deposit into my account.
While this was happening recently Travelzoo issued their Q1 report and after that on April 21st the stock rocketed up over $20 in just one day. Crazy! Unfortunately my shares had not yet arrived in the mail or I would have sold them that day or the day after. My shares arrived around the weekend if I recall right. I was a little busy so I didn't get around to depositing them right away. In the meantime the stock was up even more and peaked over $103 on Monday April 25th.
Finally on Thursday I found time to drop by a local Scottrade office and handed them the paper certificate. I signed the stock certificate on the back and they gave me a receipt. They said it would show up in my account Friday by around Noon sometime. By Noon time Friday the shares were in my account and I entered a sell order.
 |
| Success! |
I sold the 8 shares at $83.34 for a total of $659.70. The commission on Scottrade was $7 so my total profit was $652.70. All for free. I will of course have to pay long term capital gains taxes on the stock sale, but since I've owned the shares for over a year the tax rate is 15%. After taxes I'll be left with $554.79.
All I had to do was : Sign up for an email subscription and share the link with some friends. Wait 13 years. Fill out a form and have it notarized and mail it in. Fill out another form and have it stamped with a signature medallion guarantee at the local bank office. Make a trip to my brokerage office to give them my stock certificate. And then finally issue a sell order to cash in my $652 of free money.
Side note: The fact that Scottrade has convenient local offices is one very nice benefit of Scottrade that I like. They have a local office just a few miles from my house where I can quickly stop by during business hours to do stuff like this rather than having to deal with it all online or via mail.
March 18, 2011
We're House Shopping
Last Fall I was first Thinking About Buying a Foreclosure as Investment but then we scrapped that idea and instead started Looking at Buying a House for ourselves. We continued to look at houses online for a while after that through the winder. Then last month we found a house listed that looked really nice so I called up our Realtor and we went and saw the house. The house was indeed pretty nice but it had an offer already and was snatched up. We weren't ready to put in an offer much less get in a bidding war.
Since then we've looked at over a dozen houses. We've been looking at 2-3 houses each week usually on the weekend. As we look at more houses we get a better idea of what we like and what is out there.
Finances
Initially we started with a budget in the $350,000 to $400,000 range. Now our budget is up to $450,000. I got pre-qualified for a loan but we're not yet pre-approved. We do plan to get pre-approved but just haven't gotten around to doing so yet. We have a lot of documents to gather and I need to get some things from my father about the rentals we jointly own with him.
Key things we've learned in our search so far :
1. We don't like bedrooms that are smaller than 10' x 10'. It seems rooms smaller then that are just 'too small' for our tastes. 9' x 10' is too small. 10' x 11' is OK.
2. The right yard is hard to find. Finding a newer house with a good size yard in our area is hard. Most of the newer houses around here are built on small lots. At least the homes in our price range. If we look at older houses then we could get a bigger yard, but then you're dealing with out of date interior, awkward floor plans etc.
3. Some houses we've looked at were adjacent to major streets. We've decided against these houses due to the amount of noise you get from the traffic.
4. We've also decided against homes that back to major electrical power lines.
The things we want :
Our basic 'wants' list in rough priority order are :
1. More room, 2. Better School district. 3. Key amenities, 4. Nice yard, 5. Good neighborhood, 6. Upgraded interior, 7 Closer to city / not too far from work.
1 & 7. We're only looking at houses of a certain size and in a particular area, so that narrows the search to homes that give us more room and are closer to the city. Being closer to the city is not really a priority its more of a nice side benefit of the better school district. But I'd prefer not to be too far from work, so theres a balance between those two.
2. The school district can be a little tricky. We're probably over analyzing this but we've looked at the test scores for the local schools and we really want to stick to the very best schools. If we're going to move and spend tons of money on a new house then we don't want to settle for 2nd best schools.
3, 4, 5 & 6 : All these items fall into finding the right combination of home for the price. We can usually find 3 of the 4, but most every home we've looked is lacking something.
Here's the quick history of the houses we've looked at so far :
#1 nice but it sold
#2 We liked the look and floor plan. Bad : smallish, not great neighborhood
#3 Very big house that had a pool. Bad : busy street behind it
#4 Generally OK house, Bad: busy road, small yard
#5 Again decent house, Bad : tiny tiny yard, looked ok in picture but in person it was like 8' x 10'
#6 OK but Bad : backed to road
#7 Very nice house recently remodelled in good neighborhood. Bad : slightly small and sold quickly
decided to increase prices
#8 My wife loved the way this house looked in the pictures. It was large and looked awesome. Bad on a bad road, the interior finishes were not nearly as nice as pictures seemed. That really disappointed my wife.
#9 Great house. Bad : No backyard
#10 Generally OK house for a good price : Bad : smallish yard, needed work, short sale, had an offer in
#11 Good house. Bad : incorrect school, bit overpriced
#12 Generally nice house in good neighborhood. Bad : smallish, busy road
#13 Nice new construction house. Bad : yard was too small
#14 Good size house in good neighborhood. Bad : over priced and a little worn and dated
Posts
