Category Archives: Finances

Detailed Financial Picture – April 2014

As of April 7 , 2014, we are $442,816.67 in debt (that includes the mortgage). Without the mortgage, we’re at $26,316.63 in debt. This includes student loans and an auto loan. We currently have $1,032,580.20 in assets (including our house). Our retirement accounts are at $365,835.09. Our Net Worth is $589,763.53 (includes house and mortgage), up from $589,707.81 last month – barely (0.51% increase).

This month was relatively flat in the investment area. We went up by about our contributions, and that’s it. Our assets went down – mostly our estimated house value (through Zillow). I updated our vehicle values, and they seem to keep increasing (just by a little, but huh?). I suspect that they will eventually decrease, but they’re Toyota and Honda, both manufacturers which tend to hold their value pretty well. I’m not sure Dad’s 14 year old Accord will change value much at all anymore.

Dad’s new paycheck deduction is leading to us contributing just over $3200/mth to our investments. Later this year, we’ll be increasing my contribution higher, so I suspect that we’ll beat our estimated contributions for 2014 rather handily. Fingers crossed!

I earned some money selling on craigslist this month – $350 for three things – and finally got my old Cobalt Flux dance pads out of the house. Next on the list is some furniture in the TV room.

Technically, our mortgage payment is decreasing next month as well (less escrow), and since I send a fixed rounded amount to the bank, we’ll end up paying about $15 more on the mortgage principal every month. Next year, I should get a handy “rebate” from our escrow analysis since I lowered our insurance payment and that new estimate was not included in the analysis.

I’m getting very excited to pay off the larger (higher interest) of the two student loans remaining. When I come across “extra”, I’ve been trying to put it towards the loans.

Debt (in the order we’re paying it down):

Line of credit (8.75%): $0.00
Chase (4.99% for life): $ 0.00
Student loans (aggregated 5.32%): $8,226.63 (-1,068.13)
Car loan (0%): $18,090 (-490.00)
Mortgage (4.125%): $ 416,500.04 (-680.74)

Total paid off in March: $2,238.87

March 2014 Early Retirement Progress

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March was good on the contributions front, but not so much on the investment increases. We only gained $1,114.75 through investment increases. But, we contributed $3,298.7 to our accounts. That includes our employer matches.

The markets were relatively flat this month, which is better than January’s decrease. This is the first month where we contributed the maximum to Dad’s account, and I’m likely to increase my contributions before the end of the year.

If we continue to contribute at this rate, we’ll add almost $40,000 to our accounts in contributions alone – more than the planned $35,000. And that’s without me increasing my contribution rate to the maximum. I’m going to wait until June to actually do it, but I suspect that I will be updating our overall plan to be slightly more aggressive – at least for our contributions for 2014.

2014 Totals

So far, for 2014, we’ve contributed $9,874.20 (28.21% of our planned total), and we’ve gained $7,169.64 in investment gains (35.39% of our planned total).

Spending Changes as You Age

Housing Choices

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Our mortgage is the single biggest monthly expense we have at about $2700/mth (P&I and escrow). Dad and I were discussing some of our options for lowering our housing costs on the drive home from Grammy’s this weekend.

We both think our house is a bit big for us, but we almost love it, so we’re in no hurry to make changes. Our biggest complaint is that we would like a larger kitchen, but smaller “rest of the house”. We bought the house planning on having two kids, but that’s not going to happen, so we have 2 virtually unused rooms in the house: the guest room and the basement. The layout is nice, but when we were looking, we hadn’t been successful in finding a smaller house with all of the key features we wanted: single-family, 2-car garage, largish kitchen, and more than spitting distance to our neighbors.

The two options that really came to mind were buying land and custom building and buying a smaller house that needs some remodeling to meet our needs. We discussed a few others, but none we thought would be feasible given the location we want to remain in (for now) and what we really want out of a house. They’re not completely off the table, but not something we’re going to spend much time on investigating.

We’ve looked at buying land in our area, and it’s pretty pricy unless we move a bit further out. I need to do some more research on the costs of building our own house to see if that’s possible. We’d have to work with a custom builder, which may increase the price significantly. We do *not* want to end up in a “planned” community, which around here means high HOA fees and extremely restrictive rules. Most of the local land and homebuilders fall into this category. I’ve looked at a few of the house plans offered nearby, and none of them would fit our needs either – we’d truly need a custom house. Most of them are bigger than our current house and we’d just be moving further out and not getting what we really want. Kitchens don’t seem to be that popular around here… We also want to make sure that the house doesn’t “feel” small, which requires a slightly different architecture than is common around here.

We also considered buying an older house (maybe a foreclosure) in an established neighborhood, and remodeling it. For example, adding space for a larger kitchen to a much smaller home. Or adding a garage. We’d be able to buy a much smaller house and use the savings to remodel to what we actually want. We’d have to be diligent in looking for homes that *could* be remodeled – as in getting permits and dealing with any HOA approvals. I know people who have done it locally, so I can pick their brains on what we need to be asking and looking for.

We’re looking for something that could save us ~$1000/mth on our mortgage payments. Anything less isn’t worth the mental and physical hassle for us really. I ran some numbers, and based on a 4.5% interest rate for 30 years, we could borrow close to $300k. We have $150k equity in our current house, giving us a little more than $400k to play with after sales costs. We could do a significant amount of remodeling on a $250-300k house with that.

As I said before, we almost love our house, and we *really* like it’s location (which in real estate is almost everything). While we’d love a smaller house with a bigger kitchen, we’re willing to sit tight until we find the “perfect” opportunity. Until then, we’ll work on purging our stuff and cleaning up the house so we’d be able to put it on the market quickly when the time comes.

If/Then in New York City

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I just spent the last few days in New York City for work, and I took advantage of the trip to see a Broadway show. I’m a huge fan of Idina Menzel, and so I looked up tickets for “If/Then”, her new musical. Dad graciously used his fun money to buy my ticket because I wasn’t going to spend “that much” money on one ticket ($101.25). Go see it if you get the chance, but take tissues!

The show is all about the choices we make and what those consequences can be, and the missed opportunities we’d have or not have based on those choices. The show starts with Elizabeth (Idina Menzel) making a choice in a park in New York City. Then the rest of the show follows the two paths that “happened” after that first choice. You follow the two paths “Liz” and “Beth” through the show, including work, love, heartbreak and friendship. I admit I bawled during the 2nd half after intermission. The central theme of the show is all about making our choices and owning them, and not constantly wondering what if.

The central theme applies to our lives as well. We made choices to get to where we are today, whether we’re happy about that or not. And we can’t keep wondering what if we had made a different choice. We have to own our choices, good and bad, and live with them. Once those choices are made, we can’t undo them, and we shouldn’t even try, but instead make our next choice to the best of our ability.

When it comes to our financial lives, most of us probably wish we made different choices in the past – living more within our means, saving more, borrowing less. But we are where we are now, and the best we can do is make the best choices we can from this moment on. So, if you borrowed money in the past – even just moments ago – start making the choices you want to make right now.

No one knows what the future holds (or we’d all be lottery winners!), so you do what you think is best at the time given what you *do* know. Don’t waste time wondering what would have happened if you had made a different choice, you didn’t – so own your choice, and make a better choice next time.

New Cash Flow

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Dad’s first paycheck which takes out the maximum retirement contribution for the year has hit our bank account. I was pretty close with my estimate, almost exactly $250 less per paycheck. It slows down our debt repayment somewhat, but not significantly, We’re still looking at July/August to have all of the student loans paid off. In the meantime, we’ll have at least one fully funded retirement account! And the amount taken out of each paycheck will be slightly more this year than on next year’s paychecks since we weren’t taking out the max for the previous 5 paychecks, the system “makes up” for it throughout the remaining paychecks.

Now, to just (impatiently) wait until July/August to increase my 401(k) contribution. Changing mine now could put us in a serious cash flow crunch while paying off debt because I’m only putting 6% in and could be putting as high as 17% in – that’s almost $1000/mth difference. But once the student loans are paid off, we’ll be able to do it easily!

Early Retirement Plan

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As we’re getting closer to paying off our non-mortgage debt, I’m plotting how and when we’re going to retire early. My goal is to replace our current expenses minus mortgage (but not insurance and taxes) and daycare plus 20%. We currently do not pay health insurance premiums (100% covered by my employer), and we’ll expect to be paying for those in retirement. I also want to travel more, since we’ll have more time. I figure 20% gives us a lot of wiggle room to reduce expenses if we need to.

I want to grow our investable assets to $1.6million, which gives us a safe withdrawal of $48,000 (at a 3% rate) – $64,000 (at a 4% rate), which will cover essential expenses plus some. At 6% interest, when we have that kind of nest egg, the interest/increases alone can cover our current costs (with mortgage).

Inspired by Mr 1500, I’ve made some estimates on what our goals are for contributions and interest accumulation and spread it out over the next few years. I used an assumed 6% interest rate, which is moderate, and may be too aggressive depending on who you ask. Also, there’s no inflation accounted for in this plan, mostly because I suck at doing interest rate calculations when they involve inflation.

I’m hoping my contribution numbers are kinda low, 60,000 is only 32% of our gross income, which is a pretty dismal savings rate. But these are the numbers I feel are realistic given our current situation and plans. If we happen to contribute more, that’s great, but these are the minimums I’d like to see. Seeing the information in table form like this will help make sure we’re on track or if we need to revise our plans (for better or worse). This table only includes our invested assets, not our savings accounts, nor our house, so it’s already a bit conservative, but Dad’s a bit conservative as well, and we’d rather not have to return to the workforce if we don’t want to.

Date	Contribution	Interest/ Increase	Balance
12/31/2013	–	–	$337,687.88
12/31/2014	$35,000.00	$20,261.27	$392,949.15
12/31/2015	$45,000.00	$23,576.95	$461,526.10
12/31/2016	$55,000.00	$27,691.57	$544,217.67
12/31/2017	$55,000.00	$32,653.06	$631,870.73
12/31/2018	$55,000.00	$37,912.24	$724,782.97
12/31/2019	$55,000.00	$43,486.98	$823,269.95
12/31/2020	$55,000.00	$49,396.20	$927,666.15
12/31/2021	$60,000.00	$55,659.97	$1,043,326.12
12/31/2022	$60,000.00	$62,599.57	$1,165,925.68
12/31/2023	$60,000.00	$69,955.54	$1,295,881.22
12/31/2024	$60,000.00	$77,752.87	$1,433,634.10
12/31/2025	$60,000.00	$86,018.05	$1,579,652.14
12/31/2026	$60,000.00	$94,779.13	$1,734,431.27

Detailed Financial Picture – March 2014

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February’s Numbers

As of March 6 , 2014, we are $445,055.54 in debt (that includes the mortgage). Without the mortgage, we’re at $27,841.81 in debt. This includes student loans and an auto loan. We currently have $1,034,763.35 in assets (including our house). Our retirement accounts are at $363,981.50. Our Net Worth is $589,707.81 (includes house and mortgage), up from $571,497.88 last month (3.19% increase).

Thanks to J Money, we’re listed on the Ultimate List of Blogger Net Worth. I was surprised that we were as high on the list as we are, but we live in a very high cost of living area, and all of our numbers reflect that. Do I wish we had as high of a net worth without our house? Sure, but our house is a significant chunk of our assets. If you count the mortgage, but not the house, we have a net worth of -$33,292.24. As our house can be sold, or we can borrow against it, we have some access to the equity in our house. In our area, just having more than 20% of your house in equity is a pretty big accomplishment (we have 33% using our last official appraisal, which is probably on the low side since it was over two years ago).

My 401(k) contribution hasn’t made its way into the account yet, so I have money “floating” around the ether until it’s deposited – have I mentioned before that I’m not a huge fan of my 401(k) plan?

Dad’s new withholding rate starts on the next paycheck, so we’ll see what it does to our cash flow. I expect to have $2-300 less per paycheck, but I won’t know for sure until the 14th. But, it will increase our investment accounts at a much faster rate.

The markets improved in February, with our investments increasing by 5.85% this month. They’re up 4.94% since the beginning of the year. I’m hoping for a modest 15% increase this year (remember, our investments increase from both the market and from our contributions), bringing us closer to our early retirement goal.

Debt (in the order we’re paying it down):

Line of credit (8.75%): $0.00
Chase (4.99% for life): $ 0.00
Student loans (aggregated 5.32%): $9,294.76 (-882.14)
Car loan (0%): $18,580 (-490.00)
Mortgage (4.125%): $ 417,180.78 (-678.41)

Total paid off in February: $2,050.55

Index Investing Small Amounts

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I have a small taxable account that I’ve slowly built up with my “fun money” – $25/month. It’s only got $550 in it at the moment – not enough to buy an index mutual fund now nor or in the near future. But, I like to invest in low cost index funds. How can I do that when I don’t have the minimum to buy into one?

Exchange Traded Funds

Enter ETFs. ETFs are sort of mutual funds, sort of stocks. They’re traded throughout the day, and so are priced “instantaneously” vs end of the day like mutual funds. They have some of the benefits of mutual funds, but some of the risks of stock trading (most notably, buy-ask spread). Some are low cost, others are very high cost – just like mutual funds. Actively managed ETFs are more expensive than passive index based ones as you’d expect.

The best part – you can buy just one share. As long as you have at least the value of the share plus any trading fees in your account, you can buy a share. Fidelity (at least) offers a lot of no trading fee (NTF) ETFs – mostly in the iShares line of ETFs – so, for the cost of a “share”, I can invest in an index ETF.

The biggest disadvantage is that I can only buy whole shares (at least at Fidelity). That means that I have some money sitting in the “Cash” bucket not really working for me like it could be in a fractional share of a mutual fund.

My Strategy

This is a taxable account, and is kind of my “playground”, even if it’s not a very big one. Every 3 months, I transfer $75 into my Fidelity account – a decent amount to be able to afford most ETFs I want. Then I buy one of ITOT, IDV or HDV. This allows me to dabble in dividend investing for less than buying stocks outright (and less research required!), yet still be primarily index investing. How did I pick those? I looked at all the ETFs Fidelity offered that had no trading fee and an expense ratio of 0.5% or lower (use their ETF picker). These looked interesting.

When I have the minimum $2500 to invest in the index mutual funds I prefer, I’ll likely sell the ETFs and buy the mutual funds, but at my current investment rate, that’s still a few years off. Once all of our tax-advantaged accounts are maxed out, this account will begin to see more cash flowing into it, but it will likely be next year at the earliest that I can consider mutual funds.

Adjusting Insurance Premiums

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March is when we owe USAA our auto insurance premium. This year, it was topping $500/6mths for our two cars (after all the discounts!), and I don’t think it should be. We have never had an at fault accident, and Dad has only had one moving violation in the last 3 years (it was adjusted from “speeding” to “failure to obey posted sign” – no points). Dad’s car still has collision on it, because it’s a difference of $1/mth, so we might as well. Mine has collision as it’s financed still. I removed the rental car option – we *can* survive on 1 car, and hopefully, it’s the “other guy” who’s paying for the rental car anyway. I also raised our deductibles to $1000 per vehicle. We have that money in our emergency fund, and it saves us about $50/6mths. It’s also the highest deductible allowed, so I can’t reduce it any further.

I also looked at our homeowner’s policy. It had us replacing the inside contents of our stuff at a 75% of home value rate – over $355k of “stuff”. I can’t imagine how we would spend that much on the interior items in our house, it’s *maybe* $100k-$150k. I was able to lower that coverage to 50% of home value or about $250k. It lowered our premium by about $50/year.

I *almost* changed our deductibles as well. We have a $2,000 deductible for both options (“wind & hail” and “other”), and I considered raising them to $4,500 – tied to home value, it will always be 1% of the home rebuild value. It would have saved us another $500/year. The only reason I didn’t do it was that our emergency fund would not be able to take two car deductibles *and* the homeowner’s deductible at the same time. We’d need another $1500 in our emergency fund to do so. By the end of this year, I hope to have a lot more than that in our emergency fund, so I will likely raise those deductibles then. We could raise them as high as $10,000, which may be a consideration as we have more and more savings to self-insure.

How often do you look at your insurance premiums and coverage to make sure you’ve got the appropriate amount of insurance for you?

Three is Plenty

Struggling with frugality, debt, parenting, and weight