Monday, July 15, 2019

June 2019 Net Worth Update

June 2019 was a great example of why you shouldn’t react to short term declines in the stock market. After having one of our personal worst months ever, we had one of our best months ever. In June, our Net worth grew by over $42k to $937,191.

CASH

We spent half of the month of June either on vacation as a family or separated so I could work while the rest of the family continued to visit family. Our summer trips are fairly inexpensive as we usually stay with family. The one travel expense we haven’t been able to avoid paying a lot for is rental cars. Since our family requires 6 seatbelts, we’ve rented a lot of SUV’s and minivans (which always makes me thankful we don’t own a minivan).

In addition to some travel in June, we also put down a deposit on a cruise we are planning for next year with the kids after we pay off the house. With all that, we managed to keep our cash at about the same amount as the previous month.


INVESTMENTS

Most retail investors don’t look at their investment balances very often, and usually look at just quarterly statements. If the quarter had ended after May when the stock market lost over 6% in a single month, I bet there would be a lot of calls from 401k customers to “get me into something better”. Not having a financial advisor to talk people out of making big emotional mistakes could mean that people sold out of the market after seeing May’s losses, and then missed out on June’s even larger gains of 6.89%.

We didn’t do anything silly after May, so were able to see our investment balances grow by $31k, our second largest monthly gains. Our largest monthly investment gains were in January of this year when our investments grew by $33k right after some big down months, a pattern we saw repeat now just a few months later.

HOUSE/MORTGAGE
As I expected, our home value continues to increase back to where Zillow had it just a few months ago. The really exciting thing about our house now is that we now have >90% equity in our home! The end is in sight, as we knocked another $3k off of our mortgage balance.

As I’ve mentioned before, this summer is going to be pretty expensive for us, so we may temporarily slow down on the mortgage payoff, but still should be able to pay it all off in the 1st quarter of 2020. Although most anything is on the table for sharing on this site, we still haven’t decided if we’ll share from other accounts with our real names when we pay off the house.      

 

Wednesday, July 10, 2019

Dealing with Golden Handcuffs

Golden Handcuffs refer to financial circumstances that keep someone tied to a career or employer when they might otherwise prefer to move on. I’ve never had a lavish executive pay package, but have still faced a small version of this dilemma and have put a lot of thought into it. It is a form of privilege to even have to worry about it, but one that I think many will face when considering retirement (early or otherwise) or other types of career changes.

While I was pursuing an MBA, I was blessed to grow my career as a financial advisor to the point where my income was greater than that of the typical newly minted MBA ($100-120k/yr at the time). When I started my degree I was making considerably less than $100k and had my sights on a post MBA career change into corporate finance. In order to avoid student loans, I took five years to complete my degree, which in turn gave time for my income to grow to substantially over $100k.

As I approached the end of my degree, I was faced with a real dilemma. If I took a job like the ones I had wanted a few years earlier, I would have to take a pay cut of more than $50k/yr. If I chose to remain in my same job/career, the income would continue to be great but I would lose a critical opportunity point where it would make sense to pivot out of the financial services industry.  

Ultimately, we did decide take a much lower paying job that has since given me opportunities and a career path that wouldn’t have been possible without making the change. My current income has also surpassed the higher paying job I left. Had we not made several deliberate decisions in our lifestyle and mindset though, the decision to leave would have been much more difficult and things may not have turned out the way they did. 

As our income grew, we didn’t allow our lifestyle to also creep up. 

A well-timed promotion blessed me with a near doubling of my income potential right at the time when my wife began staying home with our firstborn. While a great opportunity, the guaranteed portion of my pay actually slightly decreased. From day one, we made the decision to treat any of the additional variable income as a bonus and to use it to strengthen our base. Once we had a comfortable cash reserve, we began regularly making 4x or 5x our normal minimum mortgage payment such that by the time I graduated and quit my job, we were within 6 months of paying off that house.


Don’t kid yourself that you can’t make a similar income elsewhere

I took a pay cut because I was changing to a different career field, but had I wanted to leave and stay in the same industry I’m sure I would have been able to make similar income at another company. My golden handcuffs were mostly in my head...since I had never made that much money before it was hard to fathom being able to replicate it elsewhere.

Over the years, what I have learned is that switching companies can be quite lucrative and if they want you bad enough, they may even make you whole for whatever you have to leave on the table to join. I’ve seen several 6-figure cash signing bonuses, and often see folks who join a company externally do so at a higher level of pay, position, or both than if they had grown their career to that same point internally. 


Long-term incentives will always be there - Don’t count it until it’s actually yours

I recently got placed into a bonus pool where I will receive company stock grants each year that vest over multiple years. Unlike 401k match money that becomes 100% mine after I reached a specific tenure with the company, each stock grant I receive has it’s own time to vest before it will actually be ‘mine’. To prevent this from becoming golden handcuffs, we’re treating this like a bonus and will only include the vested portion in our net worth calculations. This will help to not ‘anchor’ myself on a number that at some point may become large enough to cloud my judgment.

Don’t get me wrong, I’m planning to stick with my current employer for a while, but it will be because each day I get to do work that I enjoy, with people I enjoy being around, that stimulates my mind, and that is part of a larger mission that aligns with my values. Oh, and the pay is nice too.

Tuesday, July 9, 2019

Book Review - Q&A by Vikas Swarup

I recently finished reading “Q&A” by Vikas Swarup and enjoyed it enough to mention it here. This book was the inspiration for the movie ‘Slumdog Millionaire’. Although I’ve never seen the movie, I generally find that books are better than their movie adaptations.

If you aren’t familiar with the book or the movie, the premise behind the story is that a young man in India is arrested after winning an award show ‘Who Wants to Win a Billion?” on suspicion of cheating. The show producers can’t imagine how it is possible that a poor waiter from a poor neighborhood could have known the answers to the questions they asked him, and the book narrates the life stories where he coincidentally learned the minutiae necessary to answer the questions they asked. The format was also engaging since each of the 12 questions are accompanied by a short story that is standalone, yet integrated to the rest of the story.

Whenever I read stories like this, I’m also reminded of the stark differences between the life experience of living in a developed country vs developing countries. I have spent some time living outside the US in third world countries, but haven’t yet been to Asia. This time has shaped my worldview to some degree and it helps me to recognize my privilege. If you haven’t had and don’t plan on having the opportunity to live abroad, reading stories like this can help give you a glimpse into the lives that so many millions live as their reality throughout the world (minus the winning a billion rupees part).   

Monday, June 10, 2019

May 2019 Net Worth Update - 2nd worst month ever

Just like anyone else who stayed invested through May 2019, our net worth took a few steps back. The S&P 500 was down more than 6.5% and our net worth went down by almost $28k to $894,975. 


INVESTMENTS

On a percentage basis, our investment account didn’t go down as much as the market overall. Rather than any savvy strategies, this is only because we made additional contributions during the month. Nearly all our investments continue to be in index funds, split between US and international stocks and no bonds.

This decline wasn’t quite as big as we saw in December 2018, when we had our biggest monthly loss from a dollar perspective. Our December losses are in the rear view mirror since we remained invested and even with May’s decline our accounts are all quite a bit higher than they were at the beginning of the year, even adjusted for contributions.  

HOUSE/MORTGAGE

Over the past two months, online estimates have dropped our home value by ~$25k. Since a lot of what online home value estimators use in their formulas is the same as a home appraiser, I won’t override it. However, I do think it will revert back relatively soon.

We had someone in the neighborhood sell their house to Opendoor.com, a company that makes all cash offers, then quickly resells your house. The company hopes to make a profit because they don’t pay top dollar for their inventory (enticing sellers with all-cash offers and little hassle), but meanwhile that’s the most recent house that has sold in our neighborhood so it brings down the estimate for other homes. A few houses similar to ours have since sold for $550k+ so if I am right, our home value will jump up once those sales are included in the formula.

We again made an extra large payment towards principal and knocked our mortgage balance below $50k. We have an expensive summer coming up so will dial it down just a bit while staying on track to pay it off entirely within the next year.

CASH

We managed to keep our cash balance pretty constant for the month despite having several out of the ordinary things come up. No one thing really stood out as individually large, but collectively came up to almost $1,000 (new ceiling fan, kids summer camp enrollments, car battery, etc). Over the next few months, we’ll have to continue balancing our desire to pay off the mortgage quickly with the goal of maintaining a cash balance over $20k. 

 

Sunday, June 2, 2019

Career Advice For New Grads

College graduation season is upon us and lots of new graduates are about to start their careers. As part of my job, I am heavily involved in campus recruiting for Finance jobs at my Fortune 500 employer. This gives me the opportunity to give a lot of advice and feedback to new and prospective candidates.  My advice has evolved over the years, but following it has served me well in corporate Finance. I am sharing it here for anyone who may benefit from it. So, in no particular order, here are some points of unsolicited career advice:
  1. From the outset of your career, live on a “college student budget” as long as possible. In college, I could live on $12-15k/year not counting tuition. When you all of the sudden start making $50k, $60k, or more, it will be tempting to immediately go out and buy a new car or rent a luxury condo. Technically you may be able to afford these things, but if you give in to every indulgence, you won’t be able to take advantage of the biggest tool you have in building wealth: your income.
    • Your life and goals will be different 3 years from today. The more you save between now and then, the more options you’ll have. Don’t be that person who goes into 6-figure debt for an MBA because you didn’t save anything in the years you work in between.
    • Don’t deprive yourself so much that you don’t enjoy life. Everything is a balance.
  2. Your personal brand is more important than anything that gets written up in performance reviews. When hiring managers want to know about you for potential promotions, they pick up the phone or shoot an e-mail to your boss. Rarely will anyone ever look at your performance reviews. Pay close attention to the way you may be perceived, especially to those individuals a few levels higher than you in the organization. But, no one likes a brown noser. Remember again the importance of balance.
  3. Find a mentor. This doesn’t have to be formal, but find someone higher in the organization that isn’t in your same reporting hierarchy than you can use to help navigate corporate culture and career. I’ve had several of these relationships in my career that have been helpful in receiving promotions and a >100% increase in pay over the past 6 years. I have found that most people are happy to help or mentor, but the mentee has to be the one showing the initiative to maintain the relationship. 
  4. Understand your organization’s career paths and pay standards. If you’re in an environment where you can ask for a raise any time, prove your worth and go get that money! If your employer is more old-school (like mine) and primarily gives corporate-wide pay increases annually or when an individual gets promoted, set your expectations appropriately. Hopefully you know somewhat the way your company operates prior to joining (we are very upfront about this). Don’t allow yourself to be taken advantage of, but also don’t get impatient and start asking for a raise after X months when you were told when you got hired that you’d be eligible for a raise after Y months. Expressing a sense of entitlement damages your brand which will hurt you much more in the long term.
  5. In some work environments, speed is valued over precision. In others, precision is more important. Learn the preference of your leadership and know that it may differ depending on the deliverable. As a financial advisor, getting a quick answer that was in the ballpark was usually adequate. In corporate finance I have had to retrain myself to focus on accuracy, and on being ok with analysis taking a little longer.
  6. They say that there is no such thing as a dumb question. Good questions show your interest in a topic, your desire to learn something at a deeper level. While you’re new you may be able to get away with asking questions about things you really should know already, but be careful asking the same question multiple times. If after a few months you are asking the same types of questions, you get a reputation for not paying attention. 
  7. If you work a lot with data, you may inherit some models or code that someone else built. While it’s ok to rely on someone elses work in this situation, you need to spend some time understanding how your models work to the point of being able to rebuild them. You’ll often find ways to improve them and will stave off future disaster, since you will ultimately be responsible to fix the models if they break.
 
As you get further along in your career, there are different things to pay attention to, like the importance of working at or being connected to headquarters. But get these foundational things nailed down in the first year on the job and you’ll have a great head start. 

Wednesday, May 22, 2019

April 2019 Net Worth Update - Up to $922k

We continue to make progress towards 7-figure net worth, and in April we got a little bit closer.

CASH

Every month we seem to have some out of the ordinary expenses, but do our best to spread them to future months as best we can. In April, that included a new kitchen mixer and small new TV. Even so, we were able to keep our cash balance relatively flat for the month. Our goal is to have $20-25k in cash until our house is paid off. 

INVESTMENTS

The S&P 500 was up nearly 4% for April and our investments moved in lockstep. We haven't changed our allocation or contribution amounts, but did finally get the hospital bills from February and paid them from the HSA account included in this bucket. 
Now that Fidelity offers zero cost index funds with no minimum, we also started investment accounts for each of our kids using the money they had saved. Previously they had been saving in the 'bank of Dad', a spreadsheet I had been maintaining and paying them 1% monthly interest. 
We got our kids a book to learn about investing called How to turn $100 into $1,000,000 and my oldest kid read it. Even though he seemed to understand the concept of compound interest, I wasn't quite sure he really got it until one day he came up and asked "Dad, can you show me how the companies that we own little pieces of are doing?" Naturally, it was a proud moment for me and shortly thereafter we helped him open his own investment account. I don't count the kids accounts in our balances here, but my son has a goal to get to $100 by the end of the summer. 
 

HOUSE/MORTGAGE

I can see the light at the end of the tunnel.We are on track to have the house paid off in 10 more payments, and any additional money we get goes towards that goal. While we've been making extra payments, we're not going so extreme that we deprive ourselves, only forgoing things things we feel can wait. $1,000 trip to Paris? Count me in. $20,000 bathroom remodel? That’s going to have to wait (but definitely is going to happen). Since my raise kicked in for April paychecks, we increased the amount we paid towards our mortgage to not fall into much lifestyle creep. I get paid twice a month and we have been using one paycheck for our mortgage payment and the other paycheck for everything else. We have some travel plans coming up that might have us dial down our extra payments, but we’ll still be paying ~3x the minimum.

Friday, May 17, 2019

America - We have a problem. And it’s sitting in our driveways

On a recent date with my wife, she commented that she is driving one of the oldest cars in the neighborhood. She didn’t say this from the perspective of wanting an upgrade, more of an observation about the affluence of the area that we live in (or at least the appearance of it).

At 12 years old and 150,000 miles, her Expedition has certainly been around a while, but “old” isn’t the first thing that pops into my mind when I look at it. What I think of is how great it is to have a reliable vehicle with no car payment.

A recent headline shared that the average car payment in the US is now $551 over 69 months. With average household income just over $60k/yr, that means many households have more than 10% of their entire income going towards a car payment. Many people don't even keep their cars for 69 months, resigning themselves to having a car payment as long as they live.

Over the past several years, we've been fortunate to see our net worth grow quite quickly. While a relatively high income has certainly helped, just as important has been the way in which we've controlled our expenses. Behind housing, transportation related expense is often the next largest, but by not having car payments our transportation related costs have been a fairly small percentage of total income.

I've seen some pretty crazy justifications for car loans, but nothing will convince me that it's a good idea for me. Like the friend who couldn't afford a new set of tires, so instead just traded in her vehicle for a brand new one since the monthly payment would be less than 4 new tires. Seriously.

Or how about my coworker who brings in more than $200k per year and complains about still having student loans 12 years after graduation. Might it have something to do with having 3 car loans, and a self-proclaimed inability to keep a car more than 50,000 miles? Hope you like the Mercedes, buddy.

Earlier in our financial journey (2006 and 2007), we borrowed $20k and $14k for vehicles. While we had car payments it seemed that we were only treading water financially, despite having a household income of around $100k. In 2008 we sold the more expensive of the two, opting to be a one car household, and payed off the remaining car in February of 2009. We haven't had a car payment in over 10 years, and in that time have purchased 3 cars, all with cash.

With that background, here are some of the top reasons I love living without a car payment:

1. Lower Monthly Recurring Expenses - seems obvious, but it's freeing to be able to keep more of each of my paychecks and to not be playing catch up for purchases already made. Your income is the fastest way to build wealth, if you're able to actually save/invest it.

2. Option to Pay for Collision Insurance - since no one has a lien on my vehicles, I can choose whether to pay for collision insurance (often a very expensive addition) or not. If I had a loan, I wouldn't have that choice. We keep collision on my Lexus since I drive it more often and I don't want to run the risk of using up our cash to replace it if something happened. My wife's vehicle is only driven ~5,000 miles per year and has a low replacement value, so we save several hundred dollars per year waiving collision insurance.

3. Unlimited Miles - Although my wife doesn't drive much, I drive around 20,000 miles per year. The typical car lease includes only 10,000 to 15,000 annual miles before they charge you more per mile. I have friends who rent cars for road trips since it ends up being cheaper than paying for extra miles on their lease. We used to do a lot of fairly long road trips, and never once had to think about whether we had enough miles.

4. Easier to Budget for Repairs - even though cars tend to be more reliable today than they were 20+ years ago, things still break every once in a while. If you're paying a car payment, it's sometimes difficult to have the extra expense beyond the car payment itself.

5. I'll Never be Upside Down - It's been reported that as many as 1/3 of new car purchases include a trade-in with negative equity rolled into the new purchase. With people not keeping their cars long enough to even get equity in their vehicle they are further committing themselves to having a car payment for their entire lives. If I don't have a car loan, I'll never have to worry whether I'm upside down.