Lots of DIY fixes going on

There always seems to be something around the house that needs fixing. Thanks again to YouTube, I was able to fix some more things at a fraction of the cost of hiring someone to do the work. I actually don’t consider myself to be very handy. There are many things that I would prefer to hire out, but I know that the more things I outsource in my life the more money I will need to support my lifestyle. I could easily have a lawn guy, a tax guy, a handyman, etc, but I purposely choose to do most of these things myself when time permits. A piece of advice that was given to me once was to limit yourself to one ‘guy’ per $50k of income. There isn’t anything magical about $50k increments, but it illustrates the fact that as your income goes up, your time becomes more and more valuable and the cost of doing things yourself goes up.

I’m not really big into camping, but recently had the need to dust off my gear for a trip with some friends. Before going out, I set up my tent to make sure everything was in order and found that one of the joints to my tent poles was busted (I learned that they’re actually called ferrules). Clearly the tent pole is a critical part and I wasn’t about to sleep outside.

 

I did some searching and found that to get a whole new tent pole, I might as well just buy a new tent! Thankfully, YouTube came to the rescue with a few videos on how to fix my part. For only about $5, I got a repair kit from Amazon and was able to take apart the pole and swap the busted ferrule for a new one and it is as good as new.

 

We also had a DIY opportunity recently with one of our A/C units that had been acting up. Neither of us had ever done any HVAC repairs and struck out trying to diagnose it ourselves. We ended up having to call a professional to come out and took a look. As it always happens, the A/C decided to work perfectly while he was here, but he was able to tell us what part might be failing based on our description of what had been happening (it’s called a relay in case you’re interested). $89 later, he was on his way and gave our A/C a clean bill of health…which lasted until that very evening when it started acting up again.

Armed with the information I thought necessary to fix the unit ourselves, we embarked on a journey to find a replacement part. I quickly learned that HVAC is not like other home repairs. Your typical home improvement store is much more interested in selling you a completely new system and doesn’t even have replacement parts in stock. I found some smaller shops that had parts like what I needed but couldn’t tell me with certainty whether what they had was compatible. Even YouTube couldn’t give me much information about what to be looking for or how to swap a part. After reading up on things, I walked away with the impression that there are likely A/C units that are fully replaced when the actual need may be something much smaller. This works because this industry has a lot more information assymetry than others and most people don’t seek out multiple opinions and simply go with the sure solution of a complete replacement.

This little thing does something to control the air handler blower to switch on and off…a good thing to have working in August.

I ended up finding a manual online for the part of the A/C unit in question and learned how to decode the part number and how to tell whether a different part number might also be compatible. This time, eBay was the winner. I got the part I needed for $13 after shipping and after only about 10 minutes the old part had been swapped out and we were back in business. We still had to pay $89 for the first guy to come out, but I’m sure it would have been a lot more than $13 for him to have swapped out the part.

In this day and age, we could literally hire out every aspect of our lives if we wanted to. I don’t begrudge people for trying to earn a living, but individually we all need to decide what’s the right level of outsourcing for us. I can’t always figure things out on my own but enjoy the sense of satisfaction and boost to self-confidence that comes with doing something myself when I can.

 

 

August 2016 Net Worth Update

Happy Labor Day weekend and belated August net worth update. I’ve been super busy the past couple of days out of town and wanted to get this posted before too much more time passes.

August was another great month for our net worth, which increased nearly $13k to an all-time high of $576,261. There are only a few more month in the year, but hitting $600,000 net worth by year-end feels within reach. Most of the increase this month was from our house, which Zillow estimates increased in value by $9k. It still feels reasonable since there have been homes selling in our neighborhood for closer to $500k, and has previously been in this price range.

Aug16

CASH: Our cash stayed about the same as last month. I’d like to keep our cash between $20-25k for the time being and we’re sitting right in the middle of that range.

INVESTMENTS: Nothing too exciting here either – we didn’t see much growth outside of our normal monthly contributions, and didn’t make any changes to investment allocations or locations.

CARS: Nothing too exciting here either. I expect our cars to go down in value a bit each month but they don’t have much more value to lose. The cars are worth more to me than Kelly Blue Book says they’re worth and we have no plans to sell or replace either in the immediate future. That being said, I just hit 190,000 miles on my car and know it will eventually need to be replaced. For now though, it is still driving fine and only requires regular maintenance. I’m hoping I can make it until 2018 or later before I need to get a new one.

MORTGAGE: We continue to make extra payments on the mortgage and have our sights set on getting the balance below $200k. Each year, we get our tax refund about the same time as my year-end bonus pays out and these lump sums are used for retirement contributions, charitable donations, and the rest towards the house. We’ve done some Roth IRA conversions this year that will reduce our tax refund, but my year-end bonuses are looking like they’ll make up for it.

I’ll end again with this historical view. Looking at this always helps me to remember how far we’ve come and to reflect back to the different stages of life and sacrifices that were made to get to this point.

I’m considering breaking one of my own rules

When I was a financial advisor, many of my clients worked for publicly traded companies and often had significant portions of their nest egg invested in their employers stock. Many companies have employee stock purchase plans (ESPP) that allow you to purchase stock (often at a discount) that accumulates similar to a 401k, but without diversification. A lot of large 401k plans also have company stock as an option for your 401k contributions. Combine these two methods of buying company stock with paternalistic companies with multi-generational histories and you end up with people who have 90+% of their net worth tied up in company stock.

My advice was always to sell off the company stock and diversify. Did no one learn anything from Enron? If you have too much of your world tied up in company stock and things go south, you have risk of losing your nest egg AND your job. It is riskier for you to own shares of your employer than it is for someone who doesn’t also work there. Trying to convince people to sell company stock was always a difficult conversation, and I likened it to telling someone their kids were ugly. Holding the same stock for decades, people often would feel that the stock was partly responsible for their financial success, even if the stock had been a terrible performer.

My current employer is a large, publicly traded company, and I have made it a point to avoid buying any shares of stock. In addition to my concerns about diversification, because I work in finance I often have access to confidential information and so am only able to trade the stock during certain times (i.e., no transactions allowed near earning release dates or other major events).

From the time I was hired, our stock is up considerably (>3x), but so far this year hasn’t really kept up with the rest of the market. I attended a leadership meeting this past week and while listening to the CEO and CFO speak, I found myself thinking “Wow, we’re doing really well and our future is bright. Why don’t I have any shares of our stock?” I came home and mentioned this to my wife thinking/hoping she’d tell me to snap out of it and don’t do something stupid, but instead she just said “if you want to buy a few shares, just keep it small.

In the not too distant future, I could be in a position where a portion of my compensation is given in the form of company stock. At that point, what I decide to do with the stock will make a larger difference in my overall plan. My current strategy for stock received from my employer is to immediately sell at least half of any stock given, but to keep a small amount to show confidence in the work I am doing. Keeping stock that was granted to me somehow feels different than proactively going out and buying shares on my own though.

So here I stand…I’m probably only talking about a couple hundred dollars, which really isn’t going to make a difference long term, it’s more about the principle and not wanting to deviate from the advice I’ve given to so many other people.

How I got an MBA without any student loans

I am frequently asked for my opinion on whether to get an MBA and things to consider when applying to business school. Now, with the benefit of hind-sight, it’s worth sharing what I’ve learned and how my opinions have developed.

When I graduated from college the first time, I was so sick of school that I remember saying that I would never again go back to school. With my bachelor’s degree in hand, I started working in a call center for a large financial services company for $35,000/year plus bonuses and overtime. It wasn’t long before I noticed a trend among senior people in the organization. I noticed that for everyone at the director level or higher had either worked their way up to that level over the course of 15-20 years at the company, or had gotten there within 5 years of completing an MBA. This realization caused me to retract my earlier statements about never going back to school and instead start to do research on MBA programs and gather a lot of information from people who had earned their MBA’s.

I decided to get an MBA part-time and was able to do so without taking out any student loans. There aren’t many things I would change in the way that I approached business school, but every situation is different. If you’re considering an MBA there are a few things you should consider that I’ll weigh in on here.

What do you want an MBA to do for you?

Make more money, right? When you apply to most business schools, they’ll typically ask you why you want to get an MBA. Let me give you a hint: Making more money is not the right answer. More money may be a natural byproduct of other decisions, but what most business schools are looking for is for you to be able to have a clear career goal and to recognize how an MBA will help you reach that career goal. In my case, I knew that I wanted to switch careers, but that it would be difficult to do so without going back to school. I wanted to either transition from the customer facing side of financial services to the investment management side of the business, or to leave the industry entirely and work in corporate finance (the route I eventually went). As you begin to grow your career, it becomes harder and harder to switch to new paths but going back to school for an MBA gives you another chance since many companies recruit at schools with the understanding that you’ve learned enough to have the foundation necessary to start working in most any business function

What is your current career path without an MBA?

Before you go and drop tens of thousands of dollars on an advanced degree, you should take time to evaluate your career. Have you advanced as you hoped you would? If not, why? What are the long-term opportunities in your chosen profession? What level of income do you need to support your ideal lifestyle and is that attainable in your field? In my case, I didn’t need to pursue an MBA to make more money, but did need it to be able to transition to a different function.

Does school choice matter?

Nowadays, an MBA from a top business school costs around $100,000 in tuition, but there are some schools where you can earn an MBA for a fraction of the cost. Is the difference worth it? There are varying opinions on this, but I generally agree that the more expensive schools can be worth the cost in certain circumstances. If you’re just interested in getting the basic education that an MBA has, then most schools can meet that criteria and you probably don’t need to shell out the money for the most expensive programs out there. If you’re looking to have an MBA help you transition to a new industry or gain a position of influence in a large organization, then you probably need to consider a school that is well known, and frequently visited by recruiters. Also, there are some companies and industries that you have almost no chance of joining unless you are a top student at a top school (i.e. consulting and investment banking).

I have multiple friends who have received MBA’s from schools with no prestige or brand recognition, expecting to graduate and get job offers similar to what you see in WSJ or US News & World Report rankings. I’m not sure how they thought that would happen, and they have since been disappointed as their MBA’s have not helped them increase their income or get promoted. From an ROI perspective, the tuition was a bad investment.

On the other hand, an MBA from a well-known or prestigious school can give you access to deep alumni networks and open doors that may not be available to you otherwise. Case in point: at work, my department hires 4-6 interns each summer from hundreds of applicants. This summer, we have had an intern from Harvard and another from Yale. They didn’t get the job based on the schools they are attending, but simply having Harvard and Yale on their resumes got them interviews, something that probably wouldn’t have happened if they were from another school we weren’t actively recruiting at.

When I was thinking about going to graduate school, I was introduced to a Harvard alumni who took me out to lunch. Over lunch, he said something that has stuck with me and highlights the power of a strong network and brand. Speaking about his job, he said “this is a pretty good job, but at the end of the day it’s just a job. Because I went to Harvard, if I lost this job today I could have another job by tomorrow paying at least $250,000 a year.” I was a bit turned off at his arrogance but have since learned that there is some truth to his statement. I didn’t end up attending Harvard, but did go to a school that was highly ranked with global brand recognition. As a result, my professional network now includes highly ranked people in companies of all industries throughout the world.

(Side note – anyone remember this commercial? Totally reminds me of how that Harvard guy might have been at work)

Full-time or part-time?

When I was looking at going back to school, I was working for an employer that had a very generous tuition reimbursement program that paid up to $10,000 per year. Even without tuition reimbursement, between my wife and I we were making about $100k per year and it seemed feasible that we could budget to pay for school as I went if I went part-time. I knew that for me, the part-time track was going to be best and so I researched the top part-time programs and was fortunate to be able to transfer across the country to the same city as my top choice for business school. Unless you’ve saved a ton of cash or land scholarships that also cover living expenses, the part-time MBA is the only way I can think of to get an MBA without student loans.

If you think a part-time MBA is right for you there are a few things to consider.

Does the school you’re looking to attend also offer a full-time MBA? Is a part-time MBA viewed as identical in rigor? You are selling yourself short if you go for a degree program that is easier, and you will not be as well prepared for a post MBA job search.

If considering an online option, what opportunities are available for group work and collaboration? Much of the value I got from business school was in the interaction with classmates in lectures and group work. Also, while online programs are gaining in popularity and are certainly attractive because of their relative cost, most recruiters I know will automatically dismiss a resume from a candidate with an online MBA (some employers will ignore part-time students even from top schools).

To what degree will you have access to on-campus recruiting? Some schools don’t allow part-time students to access the same on-campus recruiting assets as full-time students. (For example – NYU part-time students do not have access to any on-campus recruiting).

What elective courses are available in the times that you will be able to attend? Some electives may only be taught during the day, which can be challenging if you are attempting to juggle work with school.

Will you be able to finish in a reasonable amount of time so that you aren’t seen as having ‘too much experience’ by recruiters? Most recruiters on business school campuses are looking to candidates with 3-7 years of work experience. If you have too little, you’re viewed as lacking business maturity and if you have too much people think there must be something wrong with you if aren’t already at or above the pay grade and responsibility levels that they are recruiting for. I didn’t really think about this when I started my MBA, and took five years to complete my degree. When it came time for me to look for jobs, I was right on the edge of having too much experience and I had grown my career and income to the point that I would have to take a pay cut to pursue any of the on-campus recruiting opportunities available.

Student Loans

When I first started my MBA, we had a friend who was finishing up law school at the same university. He had racked up around $200,000 in debt to earn his law degree and had a fabulous offer that would pay nearly $200,000 per year. The only problem was that the entire reason for him to go to law school was to work in a part of law that would only pay around $75,000 per year. $75,000 sounds like a decent income, but is swallowed up incredibly fast if you’re trying to live in a large metro area and pay off nearly 3x your annual income in student loans. This was the first of many people I would meet throughout my time in business school where people would accumulate large amounts of debt and take jobs they knew they would hate, but do so because they could earn more.

What I’ve observed is that large student loans cloud your judgement. If you work hard and sacrifice to avoid student loans, you won’t feel as pressured to do something you may regret simply to clean up you mess. When I got my first job after business school, I wasn’t paid any more or any less than my peers who were hired with me, yet my income naturally went much farther since I didn’t have any student loans to repay.

A Debt Free MBA is possible, but not without sacrifice

To anyone who asks, I always will share that I am glad I did it, but don’t believe that for me it would have made sense to do it with student loans. Twice a year for five years we had to write checks for tuition ranging from $8,200 to $13,200, which was about 25% of our take home pay at first. Even with roughly half of the tuition being reimbursed, it took careful planning to make sure we had the cash for each semester.

To avoid student loans, we had to keep a careful watch on our expenses. Some examples of things we did to save money while in school:

  • For years my packed lunch would be PB&J
  • After selling a car to get out of debt faster, we remained a one-car family for several years and carpooled with each other every day
  • We rarely ate out. By rare, I mean really rare. For all of 2009, we spent about $300 eating out including food on vacation or even little McDonalds trips
  • We didn’t spend much on entertainment. No theme parks, maybe once a year to the movies, only one football game per year (often with a free ticket)
  • I didn’t get a smartphone until 2011, and even then it was a pre-paid phone – my wife didn’t get one until 2014
  • We had our first child while in business school and dressed him almost entirely in consignment sale clothing (our kids still wear mostly consignment sale clothes)
  • We didn’t own a television for all 5 years of business school, so no cable bill either (our old TV set didn’t make the move cross country and we never ended up buying a new one)

Personally, I wouldn’t have done things any different, but I understand that everyone’s situation is their own. Hopefully some of the things I’ve learned with the benefit of hind-sight can be helpful to you if you are facing similar decisions. I’m fortunate that I was able to attend a top business school and am just as proud of graduating without student debt as I am for graduating with honors. I initially took a pay cut to switch industries and functions, but have since recovered nearly all of the reduction now in the form of guaranteed salary instead of unpredictable commissions and bonuses. If you have any questions about business school or MBA’s, feel free to reach out at: contact@diymoneystuff dot com.

Thank you, YouTube

I’m a big advocate of do-it-yourself solutions and do most things myself around the house and with money management. Between my wife and I, there aren’t many things we can’t do or figure out how to do around the house. One skill that isn’t in my wheelhouse though is fixing cars. Growing up, I never got much experience working on cars and we didn’t really have any motorized toys on which I could have learned about engines. In recent years, I’ve had to accumulate a lot more motorized yard equipment and tools (riding lawnmower, push mower, leaf blower, weed-eater, chainsaw, pressure washer, etc), most of which have needed some type of maintenance or repair.

Whenever something has needed to be fixed, I’ve learned that I can find out how to fix pretty much anything on YouTube. I found the knowhow there to take apart my riding lawnmower and change some pulleys and belts, repair the carburetor of my push mower, and more. When it comes to fixing cars, I’ve always been reluctant to do anything serious myself since the risk/reward doesn’t seem to be worth it. If my lawnmower doesn’t get fixed quickly, my grass gets long. Not too big of a thing in the big picture.

If my car breaks down though, I need it fixed pretty quickly to not disrupt my work schedule. If it isn’t done properly, I could put myself or other drivers in danger. Add to equation that I live 25 miles from work and you can see how I rely on my vehicles much more than anything else I own with a motor.

As I pulled my wife’s car into the garage tonight, the engine mysteriously died just before I could turn the ignition off. It seemed odd, so I tried to start it back up, but it wouldn’t start. Luckily I was already home when this happened, but it was still troublesome. Then when I opened the door I smelled gas. Not good. To be safe, I put it in neutral and pushed it back out into the driveway (surprisingly easy for a truck that weighs around 6,000 pounds). When I tried to start it again with the door open, I heard fuel dripping onto the driveway as soon as I turned the key. Again, not good. At this time, I started to go through my options. I figured I could get it towed to a nearby mechanic, where I’d pay ~$90 for diagnostics and then at least $50 for a repair if it was as simple as reconnecting something that had come loose, but potentially a lot more if the problem were larger. Option two was to do a little bit of my own investigating to see if it was something I could fix myself and only go to a mechanic as a last resort. Naturally, I went with option 2.

With just a few minutes of Google and YouTube searching, I found a few possible solutions and went back out to look underneath the car to see where the leak was coming from. Sure enough, the fuel line connection to the fuel filter had come loose (see the following picture) and in just a few minutes I was able to reconnect everything and we were back in business. I’ll want to keep my eye on it and, if it starts to reoccur, look into replacing the part since it’s not acceptable for it to come loose, but from what I’ve researched we should be good to go.

I love that we’re in a spot financially that if I did need to take the car to the shop it wouldn’t be a financial burden, but really didn’t want to deal with the hassle of getting it to the shop, picking it up, etc. We definitely live in an incredible day and age with so much information at our fingertips, thanks to YouTube and some random people posting videos of themselves fixing their vehicles.

July 2016 Net Worth Update – up to $563k!

Even though this month has been really expensive for us, our net worth increased over $15k to $563,304. We made some progress on some home projects including tree removal and exterior painting. We also took a one week trip to London that had been planned for a while. The fear of Brexit caused the stock market to go into a frenzy several weeks back, but the currency was conveniently at historic lows for our trip. While we benefited from favorable exchange rates and did our best to travel on the cheap, there is only so much you can do to cut costs when visiting one of the more expensive cities in the world. We rented a 2BR apartment through Airbnb that was about 1 mile from most of the main sites and relied heavily on public transportation. (Side note, if you’re travelling in London with small children do your best to learn the bus routes – they were way more prevalent and much easier to navigate with a stroller than the tube).

Here’s an updated look at our numbers.

CASH: Our cash balance is down a bit, mainly from paying $3,500 for tree removal (it ended up being 17 trees). I hate paying other people to do work on my house, but the crew did in one day what would have taken me years to do on my own so it was worth it (plus some of the trees were close to the house and I don’t trust my chainsaw skills enough to risk damaging the house). For our trip to London, we had already paid for our airfare and accommodations in a previous month so this month we really only had to pay for our food and some sightseeing.

INVESTMENTS: Up $13k – we’ll take it! Not that it means anything, but it is fun to see that number over $300k for the first time. We haven’t made any changes to our allocations and keep contributing to my 401k. I like to keep this pretty boring, if you haven’t noticed.

CARS/HOUSE: Nothing really to report here – over time, I expect cars to depreciate and real estate to appreciate and they both moved in the expected directions this month.

Speaking of real estate – while letting the kids get some energy out at a playground near our London apartment, I struck up a conversation with some teenagers who lived nearby and were hanging out at the park. They found me to be a novelty (an American staying in their neighborhood instead of a more ‘posh’ part of town), and I found them to be pretty remarkable too (teenagers who were incredibly informed about the world around them, including the American political system and even the platforms of our current candidates). The topic of real estate came up and they asked me how much I thought a particular nearby house would cost if it were located in my home town. It was a smallish condominium similar to the one we were renting and I guessed that it would be worth a few hundred thousand dollars in an expensive part of town. I just about lost my lunch when they told me that it had recently sold for 1.5 million pounds! That’s like $2 million and we were nowhere near the ‘posh’ part of town. I seriously don’t understand how families can afford to live there.

MORTGAGE: We still paid a little extra on our mortgage this month but reduced the extra to make sure we didn’t have to dip into savings for some of the other large expenses. Our current expected payoff for the mortgage is June 2022, but that has been creeping forward as we continue to increase the extra payments we are making.

It’s nice to back on this side of the pond and back to reality. We are blessed to be able to have experiences like our recent trip while still working towards our other financial goals and not at their expense as I’m afraid is more common. We’ve come a long way but still have a ways to go for full financial freedom.

June 2016 Net Worth Update – $547,669

This month, our net worth went down by $3,900, but not for the reasons you would think if you’ve been watching the news.

Even with the panic related to ‘Brexit’, our investment accounts ended up about where they started at the beginning of the month. The day after the Brexit vote, I checked our accounts and think it may have been the worst one day drop we’ve ever seen in our investments (a loss of more than $7,500). Thankfully, I sat tight and the market has now recovered almost everything that was lost. I didn’t get the chance to buy more stocks during the decline, but I was able to convert some money from a traditional IRA to Roth while values were slightly lower. So far this year, I’ve converted about $7,500 to Roth, and that’s probably as much as I’ll do this year.

I’m not sure what to think about the values of our cars going up, but I did change the oil and air filters on both this month, so there’s that.

We made another extra-large mortgage payment in June, paying nearly $1,300 more than our minimum payment. We’ve got some large expenses planned for July that may make it hard to pay quite as much extra, but we will continue to pay more than the minimum. I spoke this month to a mortgage banker who was trying to get me to re-finance our mortgage. We currently have a 30-year mortgage at 3.75% and he offered a 15-year at 3.25% and very low fees. It sounded good, but when I plugged it into our projected payoff amounts, it only saved us one month and we decided it wasn’t worth messing with. Either way, we should be done around 2022.

As for our cash, the big reason for the decline is that we pre-paid some expenses for a big vacation we’re planning. Our cash will likely go down again in July related to that vacation as well as some work we’re doing around the house.

Work around the house is never-ending, but satisfying. We’ve started painting the outside of the house and should have all the materials we need to get that job done. We picked up 13 gallons of paint at Sherwin Williams when they had their recent 40% off sale and still ended up spending around $500. My boss recently hired someone to paint his house, and paid nearly $10,000(!), so I won’t complain. I’ve cut down several trees since we bought this house, but we’ve reached the point where the ones we now need to take out are bigger than my chainsaw can handle and close enough to the house that they could cause some serious damage if I mess something up. We’re biting the bullet and hiring someone to come take out 12 trees for about $3,500. Our last big house project for the year will be to install a backyard fence. We don’t have the materials yet, but estimate this will be around $2,500.

Some of the work we’re doing around the house is upgrades but a lot of it is just plain maintenance. It certainly can add up, but the way I think about maintenance is that it is necessary if I want our house to actually be worth what any of the online estimates (Zillow, Trulia, Redfin, etc) say its worth. If we neglect home maintenance, small problems can become large problems, and eventually become a reason for a buyer to negotiate a lower price from us if/when we ever sell this house.

All in all, we’ve got a lot going on and continue to plug away at our goals. Looking at our net worth on a monthly basis is helpful to make sure we’re staying on course, but the real motivation comes from seeing how far we’ve come.

Here’s the breakdown of where we’re at:

 

And here’s where we’ve come from:

May 2016 Net Worth Update

What a month! The markets continued to make some small gains and we kept plodding along towards our financial goals. We’ve been doing a lot of outdoor home maintenance and have limited our inside house projects to painting a bathroom (a project that was planned for later but accelerated when my young daughter ripped off a large patch of the old wallpaper that will not be missed). Our net worth crept up ever so slightly (percentage-wise) and crossed over the $550k mark to end at $551,578.

Our cash balance continues to stay around the level we’ve planned on. Our normal emergency fund level is $20,000 but we have it temporarily higher as we wait to pull the trigger on some larger purchases. Other than home projects, we are also planning a large vacation this summer. One reason our cash balance hasn’t grown is that we again decided to make an extra-large mortgage payment. We still can’t see the light at the end of the tunnel for paying off the mortgage entirely, but it is satisfying each month to see the balance get knocked down a lot quicker than if we only made the minimum payment. I’d love to see us knock the balance below $200,000 this year, but it doesn’t look likely unless we cancel our summer vacation plans and forego any large purchases. We are 3 years into a 30-year mortgage, and are planning to pay it off in around 7 more years.

There really isn’t much to report on our investments. We haven’t changed any of our investments allocations or contribution levels, so yet again our investment growth is roughly 1/3 from our normal contributions and the rest from actual market appreciation. If it ain’t broke, don’t fix it.

Interestingly enough, both our cars and house values went down this month (according to kbb.com and Zillow.com). The cars going down in value is largely irrelevant since I don’t plan to ever sell either vehicle. When we got my wife’s current car, we kept her old car for a few months before we found a family member we could give it to (it had originally been gifted to us and we wanted to pay it forward). The nice thing about both of our vehicles is that they are old enough that their values really don’t change all that much and this is the first time either of them have changed values in several months. I don’t know quite what to think about the home value going down, other than it is good to see that the estimates are not just up, up, and up every month.

April 2016 Net Worth Update

April was a busy month. I’ve gotten comfortable in my new position at work, flown cross country three times, and as I write this my son is inexplicably singing a made up song about budgets to the tune of Lady Gaga’s Poker Face (I think he learned the tune from some kids show, but the excessive use of the word budget is probably my fault).

Despite tepid growth in the stock market, April was another pretty good month for our net worth. We finished April at $549k, or up just over $9k.

Our cash went up slightly, and we’re trying to decide on whether and when to make some large purchases we’ve been thinking about. We’re considering things like new kitchen appliances or a fence for the backyard, each of which would be several thousand dollars. As far as kitchen appliances go, the only reason we haven’t acted yet is because the purchase falls squarely in the ‘want’ category and not the ‘need’ column. All of the appliances are working, but if we replace anything we feel like we’d need to replace them all so that they match. More to come on this, but it’s in interesting conundrum to be in where we have the cash to buy something but our desire to keep the cash is, at some times, greater than the enjoyment we’d get from the purchases.

In the investments arena, nothing has really changed. Including employer match, we add 14% of my gross income to 401k each month. About one third of our investment growth this month was really just our regular contributions with the other two thirds being actual gains in the market. We continue to be primarily invested in stock index funds but did not make any reallocation changes in the month.

Our cars seem to be pretty much fully depreciated as the KBB value hasn’t changed in quite a while. My wife doesn’t put very many miles on her car, but I’m approaching an exciting milestone on my car (200,000 miles!). I’m thrilled that my car has lasted as long as it has and that it seems to have plenty of life left. It’s sad, but I do realize that my car is not immortal and will need to be replaced at some point. We’ve discussed a plan where we’ll be setting some money aside to replace it, but hopefully not for at least another two years or so. Naturally whatever we decide to replace it with will be bought with cash, I’m just hoping it lasts long enough that I’ll have the cash for the new Tesla that is supposed to come out next year.

Basically half of our increased net worth this month came from the real estate department. Houses have been selling quickly in our neighborhood, many for much higher prices than the estimate I’m using here, so this increase in property value seems justified. Ever since we got our mortgage, we’ve paid a little extra. Each time I’ve received a raise, part of the raise was allocated to the mortgage. My most recent raise has allowed us to pay a lot more than the minimum each month. This month and last month, we were able to pay ~$1,200 more than the minimum. We haven’t decided whether we’ll continue paying the mortgage at that level or not, but seeing the balance go down by noticeable amounts makes me happy, so we probably will until there is another specific need for the cash.

All in all, a great month and a great year so far. I feel that we’re on track to hit our goal of $600,000 net worth this year. We’ve come a long way…

Shoulda, Woulda, Coulda

I have a small brokerage account at Robinhood that I use occasionally for very small stock trades. I like it for small trades because it wouldn’t make sense to buy just a few shares of a stock if I had to pay $7-10 to buy it and then again when I sell. I don’t like that I can only manage the account from my phone and not a regular computer and I have noticed some delays in trades being executed, so I don’t intend on using the account for anything other than small trades where I don’t want to pay brokerage fees.

A few weeks ago, I noticed that Tesla Motors ($TSLA) had dropped a lot and I decided to buy. They had dropped from around $200/share down to under $150/share in a matter of weeks. I’ve been following the company for a while and am a big fan of what they are doing, I even have some friends who work there. I only had enough cash in my Robinhood account to buy 1 share and bought it at $151.00.

Now, let met say that I would NEVER have bought 1 share of ANYTHING in my normal brokerage account (okay, maybe $BRKA, but I don’t have that much money yet). Because I would pay ~$16 to buy and sell, the stock would have to go up by $16/share just for me to break even. Not only that, but because our investments total several hundred thousand dollars, I would need to invest several thousand dollars in anything for it to make a meaningful impact on our overall portfolio. I treat this Robinhood account as a teeny tiny play account. If I lost everything it would not be the end of the world, and my long-term goals don’t depend on the account in the slightest.

So, I bought a single share of stock. Now, just a few weeks later, the stock is up almost $100/share! The only problem is, I already sold it for $202.50. I didn’t need the cash for anything and I didn’t buy anything else, it just felt like I had a good gain and figured, why not lock it in. Sure, it could have gone either way after I sold, so I’m still pleased with the 34% gain I made in less than a month, but it’s sometimes hard to keep that in mind when I see it continue to climb and climb.

It’s not the end of the world that I am missing out on more gains, but I learned some interesting lessons about my own behavior.

I learned that:

  1. I behave differently with my money when the amount of money I’m dealing with is relatively small
  2. Even though trading commissions are low, when they are eliminated I think less before acting

I also find it interesting what I mentally consider a ‘small amount’ of money. When I think about investing money, $150 doesn’t feel like much. When it comes to spending money though, $150 seems like a lot more. I’m guilty of letting things sit in my Amazon cart for days or weeks deciding whether something is a want or a need and whether I feel I can delay the purchase. At the same time, I don’t think twice investing thousands of dollars where I could make or lose $150 in an instant.

Numerous studies have come out and shown that the more active an investor is in trading, the worse their long-term results. Critics of Robinhood argue that just because they’ve found a way to eliminate trading costs, doesn’t necessarily mean that it is a win for the consumer, and I tend to agree. Even though trading costs aren’t dragging down investor performance, poor investor behavior is amplified. I’m glad I have my fun little account and it’s enjoyable to play around with, but I know I wouldn’t have been able to amass the funds we have so far if I were constantly churning my account and hoping to find the ‘next big thing’. Instead, my real investments are primarily in much more boring index funds that I rarely touch. Having a big win like this may seem tempting to allocate more of my account to risky trades, but I have no plans of doing so since I know that I won’t be able to replicate this type of trade on a regular basis (and neither can you, so please don’t try with anything you can’t afford to lose).