Tuesday, January 8, 2019

Damage from poor maintenance isn't your insurance's fault

If your car engine dies because you didn't change the oil, should your car insurance step in a fix your engine? Of course not. Then why would homeowners insurance be any different?

Like many neighborhoods these days, ours has a neighborhood Facebook page. The most common uses are for announcing activities, alerting neighbors of suspicious activity, giving away things, or recommendations for various services. 


A recent thread started out right up my alley, with someone asking for help on how to handle a simple home repair and a picture. In this case, a couple of small tiles fall off the wall in their shower and it looked like they had a little bit of mold under where the tiles were. Nothing too serious, and to be expected in a ~20-year-old home, especially without proper maintenance. 


We have a similar shower and it was pretty clear that this and any further damage could be avoided by simply installing a bead of 100% silicone at the base of the shower pan where it meets the tile instead of relying on grout. Whenever anyone steps into the shower pan, it bounces imperceptibly. This slight movement is absorbed by silicone, but grout will crack and allow openings for water to seep in, causing damage over time. 


We shared some quick tips on how to repair (both quick fix or more thorough instructions) and felt good about helping someone out. What blew me away were the other comments that came after. No fewer than 5 other commenters saw the picture and immediately said to call their insurance to submit a claim. Really?!? 

A DIY repair for this issue would be under $100 and complete in just a few hours. Even if you hired it out, it's cheaper than your typical $1,000 deductible on homeowners insurance. This also begs the question -- "If your home is damaged due to poor maintenance, should that really be part of your insurance coverage?


I think this scenario speaks to a few things that are concerning to me: 



  1. Personal responsibility. Part of the job of being a homeowner is to take care of your property. If you don't, guess what? Stuff breaks, and it’s your fault. 

  2. Financial responsibility. You've probably read that most Americans couldn't handle an unplanned $400 expense, or that 25% of all households making over $150,000/yr are still living paycheck to paycheck. Despite being a slightly more expensive neighborhood that I thought would price out folks that couldn't afford small repairs, we're clearly not immune to this same behavior. If we have that many people saying they would call their insurance for a minor home repair, there’s a possibility that some of them would do so because they don't have the cash for a repair.

  3. It blows me away how little people are willing to even attempt to do themselves. Sure, its easy to just have ‘your guy’ take care of things like home repairs, yard work, housecleaning, etc. but this reliance on others really adds up. I once read a rule of thumb that for each major task you outsource from your life, you should have $75,000 in annual income for it to make sense. I’m not sure if this is exactly the right way to think about it, but it rings true that outsourcing comes at a cost.

Sunday, December 30, 2018

November 2018 Net Worth Update - Up to $851k

November was a big month for us in terms of progress towards our financial goals and had a slight recovery from losses in the market last month. The biggest change we made was to cash in some of our investments and throw the entire amount against our mortgage. We weren’t able to pay it off, but accelerated our payoff by more than a year had we stuck to our previous plan. 

Here’s how things now look for us:

CASH

Nothing too exciting here. I expect our cash balance to hover here until I get my annual bonus in a few weeks and we decide whether to boost our cash or put it all towards our mortgage. 


INVESTMENTS

Despite what the monthly change looks like, our investment accounts did go up in November. During the month, we cashed out around $53k of investments and put it all towards our mortgage. Our overall allocation stayed about the same since what we sold was  roughly the same allocation as everything else. This wasn’t really a market timing attempt, but December’s market is making it look like good timing. 

HOUSE/MORTGAGE

I can’t tell you how exciting it is for me to see our mortgage drop below $100k. We still won’t be able to completely pay it off until 2020 but that’s more than a year sooner than what we had been thinking. 

Our mortgage balance went down by $57k in November; $53k from moving money from our investment accounts, $3k from our normal monthly payment, and $1k that we were able to add to our normal payment from our other cash flows. Moving money from our investment accounts is something we’d considered in the past, but decided to do after talking it through during our Thanksgiving road trip to visit family. This brings our total principal reduction in 2018 to just over $99k with our new expected payoff in 2020.

Friday, December 14, 2018

The bigger your emergency fund, the fewer your emergencies

A few weeks ago my parents were in town, allowing us to go on a rare date without kids. We weren't gone for very long, but it was long enough that my parents somehow broke our microwave beyond repair. They said it just started sparking and smoking, so they turned it off and waited until we got back. 

That microwave had already exceeded life expectancy (the sticker said it was made in 1996!) so it’s not anyone’s fault, but we immediately had an unplanned expense. For a few years now we've tossed the idea around of getting all new appliances but have always delayed since everything still works and some pieces would be very expensive to replace (double wall ovens are awesome, but not cheap). 

Ultimately we decided to only replace the microwave and were able to find a much better unit that still matched our other appliances and only cost around $200. I picked it up from the store and my wife installed it (the usual distribution of labor in our household), so we only had to struggle without a microwave for a single day.

As I've reflected on this 'emergency purchase', it has struck me how little it bothered me. We had plenty of money in the bank to cover a new microwave and could have paid cash for all new appliances had we felt the need to upgrade them all at once. 

We keep an emergency fund of cash for situations like this, but didn’t actually have to dip into it for this. The frequency of unplanned ‘emergencies’ isn’t truly any different if you have a big emergency fund or not. But having a nice cash cushion sure does make it so unplanned expenses have to be much larger to really be considered an emergency.


Tuesday, November 27, 2018

October 2018 Net Worth Update - We lost the equivalent of a new car ¯\_(ツ)_/¯

October is typically the busiest month of the year for me at work. The good news is I was too busy to even really worry or know much about what the stock market was doing. The even better news is when I did see the aftermath it didn't emotionally affect me or cause me to want to deviate from our plan. Our net worth declined by $25k to $836k.


CASH

Our cash balance crept up yet again and is almost to the point where we'll quit adding to it and use any additional extra to go towards our mortgage. I also got a raise in October and we've already got a plan for the additional income to direct the extra money towards our goals instead of lifestyle inflation. We're now earning a whopping 2% on our savings so the monthly interest payments are actually noticeable.

INVESTMENTS


October was a doozy in the investment department. We didn’t change anything with our allocations or contributions and managed to see our investment balance decline by nearly $35k. My first years' salary when I graduated college was only $35k so this is probably the biggest dollar amount we've ever lost in a single month. From a percentage loss perspective though, this wasn't nearly as bad as some of the losses we saw in 2008. 

An interesting observation I've had over the years has been how my personal definition of a 'big' gain or loss has evolved. I still remember getting excited the first time I saw our accounts increase by over $100 in a single day. Now, we see swings over $1,000 pretty much every day. In October we even had one day where we 'lost' more than $10,000. 

HOUSE/MORTGAGE


I love seeing our mortgage balance go down each month. With my new pay raise, we increased the amount we're paying towards the mortgage by $200, so we should see our balance go down by ~$3k each month. We are still on track to have the house paid off in 2021 and are exploring ways to make that happen even faster. If it weren't for our mortgage balance going down and our estimated home value going up, our paper losses for the month would have been much worse.

Because we're so focused on paying off the house, we haven't done many huge home projects in a while but have plans to redo our master bathroom and kitchen. Until the house is paid off though, I find it hard to justify these projects since the current bathroom and kitchen are perfectly adequate.

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



CASH

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.

INVESTMENTS

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. 

HOUSE/MORTGAGE

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



CASH

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. 

INVESTMENTS

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.


HOUSE/MORTGAGE

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.



CASH

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. 

HOUSE/MORTGAGE

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).


INVESTMENTS

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.