Saturday, November 3, 2018

September 2018 Net Worth - up to $860k

In September, we reached another all-time-high net worth, growing another $7k to $860,846


Our cash balance stayed pretty flat again as expected. Mrs DIY$ took a trip towards the end of the month leaving me home alone with all the kids for a weekend, but It ended up being a really inexpensive trip since we travel hacked her flight and the the rest of her trip cost about the same as it would have if she were home. 

We’re still shooting to get this closer to $25k, but it will be a few more months before we’re there. I’m getting a raise in October and we’ll allocate some of it to build up savings.


Our investments went up, but not by much more than what we added during the month. I still haven’t switched to have more of the zero cost index funds but do plan to do so at some point. 

One of the components in our investments category is our HSA. By the end of this year, we’ll have enough in our HSA to cover more than our annual out-of-pocket maximum, so are considering stopping additional contributions and shifting to even larger extra principal payments on our mortgage. My employer will still add to my HSA, but we just don’t think we need to since it is now large enough to cover any medical emergency we could have. 


September was the last month before we are increase what we pay as our new normal mortgage payment. We’re so close to dropping below $150k, and while that’s still a lot it feels like an exciting milestone.

Not too long ago, our upstairs air conditioner went out and we had to get a new blower motor. Several hundred dollars later, we were back in business. Fast forward a few weeks when I was putting one of my kids to bed and noticed his bedroom floor was wet. He swore he hadn’t spilled anything, and just as I was about to call him out for lying I noticed that the ceiling was dripping. Oops. 

I went into the attic and found that the air conditioner drip tray had filled up and was overflowing into the ceiling. I used the shop-vac to suck up all the water and threw out the insulation and tried to trouble shoot. I couldn’t figure it out, so we had the same company come out that had just fixed the unit to see if it was because they disconnected something and they determined that it was just a clogged drain. They didn’t charge us for fixing the clog, but it’s all fixed now and all we had to do was repaint the ceiling. Oh, the joys of homeownership. 

Tuesday, September 18, 2018

August 2018 Net Worth Update - up to $854k

August was another great month for the DIY$ household net worth. We didn’t do anything out of the ordinary, but thanks for a continued strong market and disciplined mortgage payoff, our net worth increased by $18k to $853,952


Our cash balance crept up as I figured it would since we didn’t have any trips or large bills pop up in the month. With kids back in school, it should be easier to keep boosting our cash balance for the rest of the year since we don’t travel as much during the school year. 


Our investment balances went up in-line with the markets since we are invested primarily in index funds that track the market. One big change that I did make in August though, was to switch some of our investments into some of the new Fidelity 0% expense ratio index funds. 

We were already in index funds tracking that had very low expense ratios, but every 0.01% we save is $10 per $100k per year. We now have nearly $200k shifted from IVV with an expense ratio of 0.07% to the zero cost index funds and will continue to move over more in the coming months. That amounts to around $140/year in lower expenses for practically the same investment.  

The only reason we haven’t switched 100% immediately is since that we are mostly in ETF’s and since I can’t time the sell and the buy exactly at the same time/price I do it when I can watch the market at the close and sell the ETF when the last part of the trading day is not very volatile since mutual funds can only be bought at the market closing price.


Have I mentioned before how much I hate having a mortgage? Not so bad to sell our house and live somewhere significantly smaller/cheaper, but certainly enough that I am ok making significant extra principal payments each month instead of using that cash for other things I might want to buy.

We're on track this year to pay down our mortgage by nearly $45k and should have it completely paid off in about 3 years. Some months are harder than others to pay as much extra as we do, but we also make a conscious effort to not allow this aggressive goal to limit our ability to live life. We travel quite frequently and try to introduce our kids to the world. Our home is much larger than the one either of us grew up in, and none of our kids have to share a bedroom. We have a great life but still, make plenty of trade-offs. Many things we currently forego are only on hold until our house paid off.

Sunday, August 19, 2018

July 2018 Net Worth Update - (+$27k to $836k)

July was a great month in many ways. We were able to fit some travel in to visit both sides of our family and let the kids spend quality time with their cousins. Despite a few cross country flights and an unexpected hotel stay, we were able to boost our net worth by nearly $27k to $835,913.


January and July are the months where we pay our auto insurance, and since we also had a bit of travel thrown in, our cash balance dipped below $20k. We want to build this back up, but may not see significant progress until September or October. 

In July we spent a couple of weeks on a planned trip visiting family. My wife and kids went for two weeks and I went for the second week. This trip wasn’t extremely expensive, but since we have 4 kids and have to rent minivans or SUVs our rental car expenses can get pricey. Although this trip was planned, often our travel expenses are made spontaneously and we don’t really have a firm budget for travel every month, it just eats into the amount we’re able to save. July was a perfect example of how this happens. 

At the beginning of the July, I learned that a cousin of mine who lives far away and who I hadn’t seen in years was going to be visiting another cousin only a few hours drive away and that a bunch of other family members were also going to be there. At the last minute we decided to join in the weekend festivities and ended up spending a few hundred dollars between hotels, gas, and unplanned eating out in two days. It was totally worth it, and since I don’t have too many cousins it isn’t likely something that will happen again for a while. 


In July we made another big mortgage payment, reducing our outstanding balance by over $2,700. I’m really excited for the day that our mortgage is completely paid off and we continue to push to pay as much extra as we can. We could easily dial this back for a short while and bump up our cash, but a slightly below optimal cash balance is less dire to me than losing traction on our aggressive payoff schedule. I’m getting a raise near the end of the year and we’ll use a good chunk of that raise to increase what we’re paying towards the house to further accelerate our payoff. If we were to quit paying extra, we are currently 135 months ahead of schedule on our 30 year mortgage after paying for roughly 5 years. 

Our house price estimate feels accurate, and home sales are going quick in our area again. We really like our neighborhood and apparently we’re not the only ones. One of our neighbors put their house up for sale recently and we learned are only moving one street over (they decided they’d rather purchase a larger home in the same neighborhood versus doing a huge addition to their home).


I have someone who works for me who swears the next downturn in the market is right around the corner and is going to be really bad. I just have to smile and nod and then ask why he isn’t managing money if he’s so sure (his only evidence is his gut). Everyone has an opinion, the most dangerous ones are those that come from pursuasive people who have fully convinced themselves of something. 

July marked yet another month of us not making changes to our investment portfolio. Even if this guy is right, we have no plans of making huge adjustments to our portfolio as long as our long-term goals remain unchanged. A downturn becomes a buying opportunity, but not one that I’ll attempt to time by selling at the top and to buy at the bottom. I’ve seen enough people lose that game to know I don’t even want to play.

Monday, July 30, 2018

Retirement Q&A Sessions

In the past month, I've been approached by 3 different individuals or groups (family and co-workers) asking for some personal finance advice. Most of the requests came somewhat out of the blue, but it was interesting to me to realize that to some people I have become a trusted resource for this information. I had the chance to speak with each of these groups and was surprised to hear some of the same questions pop up, so I wanted to share those questions as well as my answers.

1. You have a great interest rate on your house (3.75%) - why pay it off when you could do better in the market? Isn't that what smart investors do?

As part of my retirement plan, I am attempting to save 25-30x my annual expenses. By eliminating my mortgage payment, I drastically reduce the amount I'll need to be able to retire. If I were only paying my minimum mortgage payment of ~$1,200/mo (principal and interest) and planned to keep that amount throughout retirement, I would need an additional ~$400k before I could retire. 

I also foresee a day when I might want to start an entrepreneurial venture and having extremely low fixed costs makes that feel more palatable. I know that I would never feel comfortable leaving a high paying job while maintaining large fixed expenses so paying off the house at least gives me the option to take other measured risks. 

Lastly, the problem with trying to 'make the spread' between debt and an investment is twofold. First, that only works over a long period of time and ignores the volatility that could wipe you out entirely. If this were such a good idea, why don't you trade stocks on margin? Same thing, right? Second, in corporate finance models for NPV or WACC, one of the underlying assumptions is that the corporate entity exists in perpetuity. Since I don't plan on having an income in perpetuity, I shouldn't use the same models lest I inadvertently extend my working years beyond my desired retirement date. 

Other ways of building wealth could possibly work, but the approach I'm taking with my mortgage always works. 

2. I know everyone says that I can't time the market but hypothetically if I could, what types of investments could I use to avoid downturns in stocks?

I shouldn't be surprised to be asked this so much, but I still am. After nearly going blue in the face explaining how it is impossible to successfully time the market, multiple people came back with a response along the lines of: 
"That's nice, and I get what you're trying to say. But I really think this time is different. I can't really explain why, but I just feel like I'll be able to tell before the next downturn happens, since I've read a couple of books about the 2008 crash, or have a different perspective than most people, or ..."
When faced with someone who can't be convinced of their own naivete, the best that I can do is to have them answer a few questions (which they generally hadn't thought of before), then recommend they read Simple Wealth, Inevitable Wealth

One of the main arguments I have with this question is this:

- If you sell and go into cash, when will you get back into the market? If you are relying on your gut for signals to buy and sell, you will more than likely not feel right getting back into the market until after the market is higher than it was when you sold out. Sitting in cash while others around you are 'losing' is like being wrapped in a warm blanket. It's very comfortable, but that same comfort can also smother your returns as you lose purchasing power to inflation or the inability to ever get back into the market. 

If none of that works, we'll just have to agree to disagree.  

3. Should I be investing in Roth or Traditional 401k?

Even though I am personally investing in a traditional pre-tax 401k right now, I suggest using Roth in nearly all situations. The reason I'm not doing Roth right now is to maximize my take-home pay for the short-term while we finish paying off our house. Once we're done with that goal (less than three years from now), we'll switch back to Roth and increase our contributions and even do some additional Roth conversions. 

For me, this argument really boils down to having more money in retirement. Given the choice between $1M in Traditional IRA's and $1M in Roth IRA's, the Roth is the obvious choice. Sure, you have to pay the taxes early but once I'm done paying off my home, the only thing left for me to do is to build wealth. The more I can contribute or convert to Roth IRA's the more I'll have in retirement. 

Since my plan is to max out all retirement savings accounts possible after my home is paid off, by choosing the Roth option, I am effectively saving more towards retirement. If I invest $18,500 today, it will grow to the same amount whether it is in a Roth or a Traditional, but if it's Roth I get to keep it all versus having an unknown percentage as 'phantom money' that will be taxes due. Our own human nature is such that when we look at account balances of $100k we think 'Hey, I've got $100k' whether it is Roth or Traditional. In reality the only way $100k in a retirement account is actually $100k is if it is in a Roth.


Overall, it was fun to have these chats as it's a topic I'm passionate about and something I genuinely want people to do well in. Hopefully, those who seek me out will at least glean a little from our talks, but it would be really awesome (and entirely possible) if it changes their course in a larger way. 

Monday, July 23, 2018

June 2018 Net Worth Update - Up to $809k

June was a pretty quiet month for us. We didn’t travel anywhere and also didn't do any major home repairs (just a little bit of paint). With the kids out of school, it has been nice to just spend time together. Financially we continued our normal cadence of investing and paying extra on our mortgage, allowing our net worth to increase to $809,000


In June, our cash balance crept up over $21k. The majority of this is in a savings account where we like to keep at least $20k. I also net out our cash with credit card balances since we pay them in full every month.  


In June we made another big mortgage payment, reducing our outstanding balance by over $2,700. We should be completely done paying off the mortgage within 3 years, and to stay motivated I try to celebrate the small wins like when we hit new increments of $10k, $25k, or $50k. Homes in our neighborhood are now selling for well over $500k, so the estimate here feels conservative.


Our investments have not changed, shocker right? I met with some co-workers recently and compared investing styles and returns and they were surprised that even though I spend much less time than many of them on researching investments and trading, our returns are very similar (in some cases, mine were better). 

I have a demanding job and rarely have time during market hours to focus on my portfolio. Since I don’t want to delegate portfolio management, a passive investing approach works best. I’ve used many different trading strategies but so far have not yet found a positive correlation between returns and the time I spend managing my accounts. 

Thursday, July 5, 2018

May 2018 Net Worth Update

May was a great month in many different ways. We went on a long-awaited European cruise from Barcelona to Venice, I finished reading 11 books (!), and our net worth increased by over $22k to $801,743.


Our cash balance in May was pretty flat, which was a little surprising considering that this included our hotels in Europe and all our food/souvenirs. Most of our trip was on a cruise ship and those expenses we paid way before May, but we still spent more than a normal month. We don't have any expensive trips planned for a while, so shouldn't have any problems keeping our cash in the $20-25k range.


We continue to make big extra payments on our mortgage and knocked another $2,700 off the balance in May. This was roughly $2,000 more than the minimum payment, so we're still on track to have the house paid off in 2021. The extra payments we make are manageable in our budget, but can be a stretch during some of our more expensive months. Some similar houses in our neighborhood have been selling for over $500k, so this house value sounds reasonable even though the jump in home price from one month earlier looks big.


Talking about our investments sometimes feels like a bit of a broken record. Yet again, we are sticking to our plan. Why fix something that isn't broken though, right? I add regularly to my 401k, which remains 100% invested in stocks. Our other investments are nearly 100% stocks, with small amounts in bonds and REITs. More than 99% of our investments are in retirement accounts that won't be touched for over 10 years and we are comfortable with the volatility that comes with stocks. 

Monday, June 25, 2018

In Praise of Simple Entertainment

We recently had some houseguests and while getting to know each other the typical conversation topics emerged of what each of our families do for fun and the types of vacations we enjoy.

I think I gagged a little when, after some slight complaining about not earning/having enough money, the father told us how great of a deal they got by spending just over $5,000 to take their kids to Disney.

Don’t get me wrong, I don’t mind spending money on vacations (heck, we just got back from over a week in Europe!). But where I do have a problem is when people spend so much on vacation or other entertainment that it limits their ability to achieve any financial goals beyond keeping afloat, and when there is such an obvious contradiction between their words (“life is so hard”, “bills”) and actions (“I love Disney”).

On top of that, what ever happened to simple forms of entertainment? It seems like I am increasingly in the minority of not indulging in frequent costly entertainment for myself or my kids. If we don’t go to an amusement park every week of the summer (or at all), we’ll be fine. To a 5-year-old, playing in the backyard sprinkler is just as enjoyable as going to a waterpark.

Our lives are by no means devoid of entertainment, but we do try to keep our day-to-day lives simple. In no particular order, here are some of the simple things that we do for entertainment:


Last year we added a backyard playground and fence, and some of our kids are old enough to just send outside by themselves. They make great sidewalk chalk art, play ball, and climb all over a play set we recently got from a neighbor whose kids outgrew it.

I know several parents who feel the need to constantly take their kids to play at places that cost money like those indoor trampoline parks, amusement parks, or arcades. What I’ve learned is that if I take my kids places like that often, it’s no longer special and becomes harder for them to appreciate more simple forms of entertainment like playing at home. If they never have the opportunity to be bored and to practice using their imagination, paid entertainment can be something of a dependency, always looking for the next thing.


Our neighborhood HOA dues include access to a neighborhood pool, tennis courts, playgrounds, and more. Of course, we pay around $700 per year for this, but we have to pay that whether or not we use it. We aren’t there every day, but we get our money’s worth. Even if you don’t have a neighborhood with something similar, communities have parks, splash pads, and many other things that we all pay for in some way like through property taxes or rent.


Every so often, I’ll pick up a 500 piece jigsaw puzzle from the dollar store. When the weather outside  is gross and we need to stay inside, working on a puzzle as a family is a great way to spend time together.

While on vacation a few years ago, we brought home a small chess set for my son as a souvenir. He has really enjoyed playing with that small set, so on a more recent trip we brought him home a much nicer set. In addition to chess, we play a few different board and card games together (Phase 10 anyone?).


Most Saturday mornings, you can find me with some or all of my kids out for a a trip to the library. I’ve mentioned here before that I read a lot, and most of what I read I get from the library. So far, we’ve done pretty good at instilling a love of reading in our children. I’m sure it doesn’t hurt that I pay my son for every book he finishes, but I never have to force any of my kids to read. I’d probably post here more often if I read less, but that’s a topic for another day.

That’s just a few quick ideas that come to mind, and honestly this is how much of our free time is spent. It’s a mindset that has to consciously sought to not automatically associate entertainment with costly activities. If you have additional ideas, I’d love to hear them.