Thursday, February 28, 2019

January 2019 Net Worth Update - Up to $858k

January was a great start to the new year for the DIY$ household net worth. The market recovered from the slump it took in 4Q and we ended up growing out net worth by $35k up to $858,726. This isn't our best month ever from a monthly increase or total net worth, but it's close for both.


Our cash balance stayed relatively flat, but still is in the range that we're comfortable with. As much as I'd like to see this higher, it's high enough that I don't worry, and I'd much rather have extra cash going towards our mortgage. 


Just like anyone who remained invested throughout January, our investments performed really well. Our allocation is still nearly 100% equities with an approximate 80/20 domestic/international split. Our gain of 8.7% was primarily market driven as we only added our normal monthly amount from 401k contributions. 


Our mortgage payment is around $1,800/mo but we are currently making payments of $4,000. After interest, taxes, and insurance this allowed us to knock another $3k off of our mortgage balance and get the balance down to just $85k. We paid off about $100k in 2018 but sadly won't be able to make the same level of reduction in 2019. We do expect to be able to get it fully paid off in 2020 and I find myself day-dreaming about making that final payment.

Tuesday, February 19, 2019

Reader Question - Pay of debt by refinancing mortgage?

I was recently asked the following question:

Over the past two years with a $120k income, I’ve paid off $40k in debt and still have $90k in credit card, student loan, and car loans left to pay off. I’ve recently gotten more serious about debt payoff and should be able to pay off the remaining $90k in the next 12-18 months as I get married and combine finances with my fiancé. I also have $120k in home equity that I’m considered cashing out through a refinance to just be done with debt. Should I refinance my home to pay off debt?

Here was my response:

Short answer: No, I don’t think you should do this.

First off, great job buckling down and getting serious about paying off debt. Your previous rate of paying off $20k/yr was pretty slow considering your income. Paying off debt in one fell swoop feels nice, but in this instance all you’d be doing is moving the debt not actually paying it off. Given your lack of debt payoff intensity to this point, I’m also not sure you won’t go back into debt again once you feel like you’re debt free (even though you’re not).

Another reason I don’t like this idea is that you’re putting your house at a greater risk of foreclosure by increasing your payment, and reducing your equity. I’m not saying that will happen, but if you default on your credit cards, there is no collateral for the banks to go after. Likewise, if your car got repossessed that’s better than not having a place to sleep. Student loans have an advantage too in that if you die, the outstanding balance is forgiven. If your student loans shifted to your mortgage, that’s like giving away a free life insurance policy.

12-18 months really isn’t that long of a time to be completely debt free, I would just make sure that you have good discussions with your fiancé to make sure you’re on the same page with this financial plan. This has the potential for a lot of backfiring if not properly communicated. After paying off debts, you’ll be shocked at how quickly you’re able to build wealth with such a high joint income and no payments. Having financial goals to work towards together makes for a great foundation in a new marriage.

Monday, January 21, 2019

December 2018 Net Worth Update - Rough Ending to a Good Year

December was an ugly month in the market, and our portfolio (primarily comprised of index funds) was not immune. We lost all of Novembers gains and more, ending the year with a net worth of $823,046.

Looking back to the overall change for the year, things were pretty good. Our net worth grew by nearly $80k, primarily due to aggressive principal reductions on our mortgage and moderate appreciation in home value. 


Our cash balance crept up again in December. We had a relatively simple Christmas, including a trip to visit family and attend a wedding. We were able to use up the last of our Marriott rewards points for a free 4 night hotel stay, so the travel part was pretty inexpensive. 

Excluding travel, we spent less than $1,000 on Christmas gifts and everyone was very pleased. I didn’t realize until after we had put all the gifts together but most of the kids gifts were books and Legos, mutual favorites of parents and kids in our home. 


Our investments were down quite a bit in December and slightly negative for the year. We withdrew ~$50k towards the end of the year to put towards our mortgage and added ~$25k throughout the year which is roughly what we lost. Our investments are still >90% in equity index funds, with a mix of US and International.  


Nothing too outside of the ordinary in December. We crossed below the $90k threshold on our mortgage balance and continue to be aggressive on future payment plans. We have a lot of big DIY home projects we’d like to do but are put on hold for the next year or two while we knock out the last of the remaining mortgage. 

In 2018, our home repairs included 2 HVAC blower replacements (different units), 1 new microwave, 3 pallets of sod, a new garage door system, and a new garbage disposal. In total we spent just under $5k on home repair/maintenance, which was actually down $5k from the previous year. For 2019, it won’t be $0, but there are definitely some big projects planned for 2020 and beyond. 

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:


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. 


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. 


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.


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.


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. 


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.