Some thoughts on Bubbles and Student Loans

“The market can stay irrational longer than you can stay solvent” – John Maynard Keynes

These words from the famous economist John Maynard Keynes come to mind whenever I think I see some type of bubble in the stock market or elsewhere. The saying refers to the risk of taking a short position, or betting that a particular investment will go down in value. When you simply purchase an investment, your risk of loss is your purchase price and your potential gain is unlimited. When taking a short position, you profit as the investment loses value and lose as the investment gains in value. In shorting, your gains are limited to the point that the investment goes to $0 but your risk of loss is unlimited.

Michael Lewis’ book turned movie, The Big Short, popularized short selling by showcasing investors who won big betting against the U.S. housing market in 2008. The Greatest Trade Ever showcases other traders who made even larger gains on similar types of trades. One thing that was common between both stories was the serious risk of insolvency many of the investors faced as they continued to pay premiums waiting, and waiting, and waiting, to be proven correct. They knew that the housing market couldn’t continue rising indefinitely, yet it continued to defy their predictions almost to the point that they (and their investors) could no longer handle the continued losses.

FINDING THE NEXT BUBBLE

It seems like every week I come across an article predicting the rise of another bubble. There’s the ‘Auto Loan Bubble’, the ‘Housing Bubble’ (again), and don’t forget the ‘Student Loan Bubble’.

“An investment in knowledge pays the best interest” – Benjamin Franklin

For hundreds of years, this mantra has been repeated in this country and for the most part, I tend to agree. Education can be the key to a better life and can allow for significantly higher lifetime income. What is missed from this simple quote though, was clarified by John Adams who said:

“I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain.” – John Adams

Interpreted for our day and age, I take this to mean that education is great, but don’t study something that doesn’t have a financial return unless you don’t need a financial return. If you build a legacy sufficient to sustain the next generation, then by all means, allow them to study something they love that may not pay the bills, because you’ve got that covered for them. If you don’t have this luxury and do actually need your education to provide a return, then you need to study something that has value in the marketplace.

TOO MUCH OF A GOOD THING IS BAD

Where we run into problems is the belief that an education is worthwhile at any cost. I recently was reading about the astounding levels of debt the average dentist owes. The author of this article finds the average dentist just starting out has an average of $450,000 in student loans with an income of just $120,000 without even taking into consideration the cost of buying into a practice or other borrowing such as a mortgage. Add it all up and it’s not difficult to find a dentist with over $1,000,000 in total debt. An income of $120,000 sounds great, but it doesn’t go very far with debt levels approaching 4x annual income.

Is this a new thing? One of my favorite fiction authors, Michael Crichton, started his career going through Harvard Medical School (which later helped him as a writer for the hit TV show E.R.). While he was a student there, he wrote Five Patients where he walks through the hospital visits of 5 hospital patients in the 1960s. The book was first published in 1970 and I read it 40 years later in 2010. Even though the book was 40 years old, I was surprised how relevant some of the stories were and was shocked that some of the same problems that existed in the medical field then, persist to this day. I specifically remember that he highlighted that in order to enter the medical profession one had to either come from a well-off family or have a strong tolerance for high levels of debt.

I’ve been saying for years that it doesn’t make sense that students are able to borrow as much as they do and that reform is imminent, yet for years I’ve been proven wrong. Thankfully I haven’t made any investments based on that theory. If people have been saying this as far back as 1970 though, are we truly close to the bubble bursting?

January 2017 Net Worth Update

We’re off to a good start of the year here in the DIY$ household. We had a few large expenses come in this month, but still ended up growing our net worth by $8k to $610,843. We set an ambitious goal for 2017, and as good as this month was, we’ll need some even better future months to get to the goal. Fortunately, January is likely going to be our lowest income month of the year and we had some larger expenses that don’t happen every month. Let’s break it down:

CASH

Our cash balance basically didn’t move at all this month. We paid our normal extra towards the house, but also had some big expenses like our semi-annual car insurance ($800), and 2 new tires for my car ($200). Our insurance bill actually went down a little bit, but that’s only because I took full coverage off of my Corolla. I figured we’re at the point now that we can self-insure the cost of the car, since insurance would likely not give much more than $2,500 if it were totaled.

I don’t know about you, but whenever I have to pay for maintenance on my Corolla, it actually makes me happy. I probably shouldn’t be happy that I had to spend $200 to get 2 new tires, but I really was thrilled because I knew how cheap that was compared to what I would be paying if I drove some other cars. Not only were they cheap, but the tires I was replacing had been on for nearly 4 years and just barely could still pass the ‘penny test‘. Ever heard of it? Take a penny and stick Lincoln’s head in the tread in your tire. If his hair doesn’t get covered, you need new ones.

Just a few days prior to getting tires, I was talking to a co-worker who drives an expensive Italian sports car and lamented that he had to get new tires pretty much every year and they cost over $2,000 for a new set of tires. Hearing stories like that make me love my little cheap car and gives me additional motivation to defer an upgrade.

The coming months should boost our cash balance as we expect some bonuses to come in as well as a raise at work and our tax refund. We finished our taxes for the year and I’m pleased to report that we planned our taxes to the point where our federal refund was only about $600. I prefer to not let the government sit on my money interest free, and this was much better than in previous years when our refunds have been much higher.

INVESTMENTS

The market continues to rally, boosting our investment portfolio by nearly $8k. We didn’t do anything more than our normal monthly 401k contributions and actually decided to take a break from additional IRA contributions while we focus on paying off our house. Between my contributions and employer match we are still adding 15% of my pay to my 401k, so feel that we’ll still be on track to reach our long-term goals even with temporarily reducing our retirement contributions.

One item worth noting is that we have an HSA account that I include in the total for the investments category. It’s currently all in cash and we had some baby related expenses that we pre-paid in January out of that account and expect to use it for the rest of the labor and delivery bills we’ll get in February/March. Eventually I’d like to invest funds within the HSA and cover actual expenses out of pocket, but until the house is paid off or the balance starts to be substantial we’ll be using it for current medical expenses.

CARS

Did I mention that I love my car? Stay tuned for a special announcement when I hit 200,000 miles later this year. The value of our cars moved in the expected direction this month but part of me thinks my wife’s car is undervalued. I saw a dealer selling a very similar car to hers that only had a few more bells and whistles and they were asking more than double the value KBB assigns to her car that I use here. I’m ok using the lower value here though since we aren’t selling so it doesn’t really matter.

HOUSE/MORTGAGE

I don’t have anything special to report on this front, other than the fact that we’ll be making a big extra payment on the mortgage very soon to get the balance under $200,000. Not sure why I’m so excited to see that ‘2’ go down to a ‘1’, but it’s a fun milestone to reach. We’ve got some house projects we’re planning on doing this year but are in a holding pattern right now until the baby is born.

 

We’ve come a long way and still have a ways to go, but as always, it helps to look back and reflect on the progress we’ve made to this point.

 

 

We created our own Sabbatical

Throughout my career I have had jobs with varying degrees of schedule flexibility and work/life balance. When I first entered the workforce, I was able to take two weeks of vacation per year and am now at a point where I get 4 weeks per year. The one thing that has been consistent across any job I’ve ever had is that it has been difficult to take vacation for much longer than one week at a time. I’ve always been envious of jobs that allowed for significant amounts of time off, but always thought that type of flexibility was only for people like teachers or professors.

There are, however, several employers in a variety of industries that still offer sabbaticals. For example, Charles Schwab offers 4 week sabbaticals every five years. Intel has a program that offers any US based employee an 8-week paid sabbatical every seven years. I even know people at Intel who have combined their sabbatical with all of their vacation and turned their sabbatical into 12 weeks. These programs sound great, except I’ve never worked for an employer that had a similar benefit.

So far in my career, the longest vacation I’ve taken has been 11 days (7 work days and 2 weekends). Oh yeah, except for that one time that we created our own 8-week sabbatical…Allow me to explain.

THE SETUP

In 2012, I was in my last year of a part-time MBA and was working full-time as a financial advisor. I knew that I wanted to transition to working in corporate finance and was using the career center at my school to get interviews with big name companies that were coming on campus to recruit. Throughout Fall 2012, I interviewed with 15-20 Fortune 100 companies and ended up accepting an offer right around Thanksgiving 2012 to start in June of the following year. Most of the time you receive a job offer you would be expected to start soon, but hiring through school campuses tends to be different since students are hired contingent upon finishing their degrees. I was looking forward to the new job but wasn’t in a huge hurry to start since I would be taking a pay cut and would need to sell my house and move to another part of the country.

Over the next few months, I continued on at work like nothing had changed and outperformed expectations while making sure I did not make any promises I couldn’t keep (ie, I knew I would be leaving and didn’t want to promise anything I couldn’t fulfill). We narrowed down where we wanted to start looking for houses in the new area and listed our house for sale. My boss at the time had an idea that I would be leaving the company when I graduated the following Spring, but I hadn’t let him know the details until that end came closer as I had fears (with basis) that he would be forced to fire me if he was given formal notification I had accepted another offer even though it wasn’t from a competitor and there was no conflict of interest. If I were let go before the end of the year it would have been unpleasant as I wouldn’t get my year-end bonuses that made up a decent portion of my total annual income.

In that job, roughly 75% of my income came in the form of quarterly and annual bonuses so if I quit without working an entire quarter I would be leaving a good chunk of money on the table. Since I was expected to start the new job in June, I decided that it didn’t really make sense for me to work for April and May (meaning 25% of my normal pay), so we decided that I would give my formal notice on April 1st.

QUITTING

Leading up to that date, I think everyone in the office knew I was leaving except my actual boss. There are times when I regret not telling him, but I had seen too many people walked out when providing notice that I really didn’t want to risk it. When I finally dropped the news that I was giving two weeks’ notice, he wasn’t surprised that I was leaving but was surprised that it was then and not three months later. My fears of being walked out did not come to pass and over the next week or so was able to help transition my clients to the advisor I felt would be best for each of them individually.

Leading up to quitting, we had put our house up for sale and were under contract and timed it so that our closing date was also my last date of work. My new job came with a relocation package that provided movers who packed up all of our things and kept them in storage until we found a new place to live, which allowed us a ton of flexibility. If I ever have to move again I will definitely make sure to get a similar relocation benefit or else I’ll pay for it myself. We packed up my little Corolla with everything we would need to live for 8 weeks for me, my wife, and our two kids (ages 5 months and 2 years), and we set off on a fantastic adventure.

THE TRIP

Our first day of our trip started with a real-estate closing. All our things had been packed up so we stayed the night at a friend’s house and showed up the next morning to finalize the sale of our house. We had been aggressively paying down the mortgage so were excited to get nearly $90k of cash out. We didn’t need any of this money for our trip since we had pre-paid some of the more expensive parts and I would still be getting paid bonuses and commissions for the next two months, but it was a huge relief knowing that we had signed what we needed to sign and could embark on our massive road trip and never have to look back.

Over the next 8 weeks, we spent a week on the west coast of Florida, then a week on the east coast of Florida, then a third week at yet another beach in the Florida panhandle (we like the beach, ok?). We liked the last beach so much it has become our new favorite and we’ve been back a few times in the intervening years. Since we were travelling before school was out, most everywhere we went we were able to get good deals on places to stay and we mostly had the beaches to ourselves. After about the two week mark I started to forget what day of the week it was and it was AWESOME. I was able to catch up on my reading, exercise, and overall not be tied to any schedule for anything. The only thing that I kept track of was Sunday, where we ended up visiting a new church in a new part of the country pretty much each week for this entire time.

If you haven’t been to Miramar Beach FL (near Destin) in the off-season, you’re missing out

When our time in Florida was up, we headed across the country again to pay visits to some of our scattered extended family before ending up at a family members’ house that we made our home base for the last few weeks. At pretty much every stop we visited with cousins, parents, siblings, or grandparents and were able to see most of our extended families. By this time, I think I had also memorized the audio of at least a half dozen Disney movies that we had playing in the backseat for our kids, so it was good to have a few weeks with no long drives planned.

Our last big hurrah was a trip to Mexico where we brought some other family with us to spend a week at an all-inclusive resort near Cancun. This particular resort came highly recommended from good friends and I had never been to a resort like it so I didn’t have a reference point to know how it compared on price. I booked the trip and didn’t think much more about it until we got to the resort and realized that we had booked a huge suite with spectacular ocean views. Had I done some more research I may have downgraded our suite to something smaller without an ocean view, so for once I’m actually glad I didn’t do more research. These views made the entire trip.

Sunrise was always amazing

Sunset wasn’t bad either

The kids spent a lot of time napping, but we totally didn’t mind staying within our suite while they did so.

Many nights I just sat out on the balcony and read with the sound of the ocean in the background. It was heaven.


 

BACK TO REALITY – RECAP

Eventually we had to get back to the real world and start my new job, requiring yet another cross-country drive. I made the drive alone and my family flew to join me a month later when we closed on our new home (I lived in a hotel for that first month and visited them on the weekends).

From the time I quit my job to the time I started my new job, we drove nearly 7,000 miles in 8 weeks and were in 17 different states. We visited most of our extended family members throughout the country and spent around $7,000 on hotels and airfare, $1,600 on gas and car repairs (brakes, tires, oil changes), and $1,500 on food/groceries. Because I waited until April to give my resignation, our income for these two months was more than enough to replenish our savings for all these expenses, and the time off to rejuvenate allowed me to prepare well and start fresh at my new job.

This trip gave me a taste of what early retirement could look like and has encouraged me in the years since to continue to save aggressively towards that goal. If I didn’t have another job lined up, the trip wouldn’t have been nearly as enjoyable since we hadn’t achieved financial independence yet. We still haven’t achieved financial independence, but our net worth has more than doubled since this trip and only needs to double two more times before I’d feel comfortable retiring for real.

I’ve heard the phrase that you should ‘Retire Early and Often’ which I guess is what we did (minus the often part). As much as I loved it, I’m not sure we’ll be doing anything like it again. As time passes, I’ll just have to weigh the benefit of taking another sabbatical/mini-retirement against delaying my true full-retirement date. I’m only about 15 years away from being able to fully retire. Some days that seems farther than others, but most of the time I feel that I can ride things out until then and have made changes that will help prevent my burning out.

$233,000 to raise a child? Not mine…

CNNMoney recently posted an article stating that it costs over $233,000 to raise a child citing a report from the Department of Agriculture.

In our house, I can tell you right now that I don’t expect us to spend anywhere near that amount to get our kids raised and through high school. We have three children and the oldest is about to turn 6 and so far, we aren’t on track to spend that much for all three let alone for each one.

Just for kicks, I went back and looked at our household expenses in 2010 (the year before we started having kids) to 2016 (when we had three kids at home). Here is what I found:

  • Our total out of pocket housing costs are roughly the same. We live in a larger, more expensive home but aren’t making as much extra principal payments. Interest and taxes are around $200/mo higher. Even if we didn’t have kids, we would have upgraded houses from where we were living in 2010 so any increases really can’t be blamed on them.
  • Auto expenses are up $65/mo, mostly from having insurance on 2 vehicles instead of 1 and my longer commute increasing gas. We don’t shuttle our kids all around town to participate in every possible activity and we would have purchased a second whether or not we had children so this is also unaffected. Yes, we have an Expedition for carrying a lot of people but even if we had no kids our second vehicle would be a large SUV or pick-up truck with similar ownership costs.
  • Utilities are up ~$150/mo, mainly due to electricity, garbage, and needing pest control in our new home. We moved to a warmer climate, use the air conditioning a lot more throughout the year, and consider pest control a necessity where it wasn’t before. Garbage pickup is just plain more expensive in our new area, we aren’t paying any extra for having more trash. So again you can’t really attribute this to having kids. Are you seeing a trend here?

To be fair, there are a few areas we do spend more:

  • We now spend $375/mo more on groceries and restaurants. $125 of this is related to eating out, something we pretty much didn’t do at all before we had kids, but only because we were paying huge tuition bills for my MBA. Since whenever we do eat out our kids don’t actually eat anything (darn the pickiness), almost none of this increase can be pinned on them. The $250/mo increase in groceries is probably mostly due to having more mouths to feed (and diapers, which we file in this budget category).
  • In 2010 we lived in a house we had built just a few years earlier so our home improvement projects were mainly just cosmetic and very inexpensive. Now we live in a house that is a bit older and came with a long list of things we’re working on changing to make it our own. In 2016, we spent $12,000 more than 2010 on home repairs, maintenance, and furniture. Can we blame this on kids? Not really. Maybe $500 for the whole year was furniture for the kids’ bedrooms, but we would have furnished rooms as a guest bedroom, office, man cave, etc. if we didn’t have kids. I used to have an affinity for high-end entertainment systems that I no longer purchase/own so you could make an argument that kids are saving me money in this area since I would want to be buying much more expensive home entertainment equipment if I weren’t worried about kids destroying things.
  • We spend $575/year on life insurance now that we didn’t have before we had kids. When it was just me and my wife, no one truly depended on my income so we didn’t bother getting life insurance. As soon as we started having kids, we took out a term life insurance policy on each of us and we pay the premium annually right around the time of our oldest child’s birthday.
  • Our clothing expense is up $70/mo from 2010. A lot of this is from kids’ clothes, but we’ve increased spending on clothing for ourselves as well. We were spending very little on clothing for ourselves while we were paying grad school tuition each year.
  • Travel/Entertainment is up $4,000/yr from 2010 to 2016. We would undoubtedly travel even more if we didn’t have kids, it takes so much energy to go anywhere with our little people. So whatever we spend on travel for them, I feel like we would spend that and maybe beyond on ourselves if it were just the two of us. I like to be able to show our kids new places and to have them experience new things, but all of this definitely falls in the discretionary category and wouldn’t be what I consider a core cost required to raise a child.
  • We put $200/mo into a 529 last year. We wouldn’t do that if we didn’t have kids, but it also isn’t a cost that will help ‘raise’ them as outlined in the study since really it is intended for use after they are supposedly off on their own.
  • Our charitable giving is up $7,000 from 2010. Again, not because we have kids.

The way I see it, our expenses are up roughly $600/mo more now on things that I consider directly attributable to the (three) children. Multiply that out 18 years and you get $130,000, or roughly $43,300 a child…a fraction of the amount stated in the article. Even if you assume the costs double (as things will certainly get more expensive as they get older), it’s still nowhere near the costs they assume. Any other increases in our expenses are for things we would have done whether or not we had kids. This also ignores the substantial tax credits we receive each year for each child.

The study assumes that you need to purchase a larger home with an additional bedroom for your child but I question that logic. We owned two separate three-bedroom homes before we ever had our first child, and simply converted one room to be a nursery when we were expecting our first. We didn’t go out and buy a larger house just because we were starting a family. We wanted to own a home whether or not we had children in order to build equity and to stop sharing walls. Our current home is somewhat larger than we would buy if we had no children, but if we had a smaller home it would likely have more expensive finishes and furnishings instead of a more ‘kid-proof’ décor and more square footage.

Lastly, the author cited that one of the big expenses for raising children is child care, which averaged $37,378 per child. The way I read this, they are referring to direct costs paid for child care, something that we do not pay at all. I understand that this is a very large expense for many households and that $37k might even seem a bit low, but we are fortunate to have created the option for ourselves that my wife is able to stay home with our children. This option is not without a cost. Although we don’t pay anything out of pocket, the opportunity cost of my wife not working is substantially more than $233,000 over 18 years. If she were still in the workforce I have no doubt that her income would exceed $100,000/yr but we have made the conscious decision to allow her to stay home and raise our children.

In conclusion, I think the author and the study completely miss the point. Kids can be as expensive as you let them be, but don’t have to be very expensive at all. If you’re trying to raise kids the way you see others are doing on social media, you can easily get caught in the modern day version of keeping up with the Joneses and think that raising kids is extremely expensive. I recently read Rachel Cruze’s new book Love Your Life, Not Theirs where she talks about how to gain contentment and avoid the trap of comparing ourselves to others, and I think the concepts are extremely applicable to this.

I know people who are so intimidated at the cost of having children that they significantly delay having them, and others who go so far overboard saving for future college expenses or spending obscene amounts of money on activities that they can spend significantly more than this article alleges. I’m glad we waited a couple of years after we got married to have kids, but I’m also glad we didn’t wait much longer. It was important to us to be financial stable, but if you wait until you feel 100% ready, you’ll do nothing but wait. On the other hand, if, when you do have kids, you lavish every extravagance on them you’re not doing them any favors either. All things in moderation.

2017 Goals

With 2016 now in the rearview mirror we’re now looking forward to 2017 and have set some new goals to build upon the progress we’ve made in 2016. As I was contemplating goals, I heard Dave Ramsey’s podcast where he outlined seven areas of life to have goals that help with overall personal development. Those areas are:

  • Career
  • Personal Finances
  • Spiritual Growth
  • Physical Health
  • Intellectual Growth
  • Family
  • Social Relationships

 

I generally tend to have goals in most of the categories anyways and thought that I would share some of my 2017 goals that are relevant to the topics discussed on this site.

INTELLECTUAL GROWTH

I read 57 books in 2016, a little more than one per week. When I track my reading, I do include audiobooks but do not include books I read with my kids or my scripture study. Some books are very short and can be read in one sitting (like this one), others take several weeks (like this one) I use Goodreads to track my reading and try to read roughly 50/50 fiction and non-fiction. In years past, I have read as much as 75 books in a year and as few as 57.

My goal for 2017 is to read 52 books in the year. Given my historical trends this is not an extremely lofty goal, but that indicates my desire to continue to read a lot combined with the knowledge that I have other things I would like to take care of. I just finished book #3 for 2017 so I am well on my way. One thing I would like to do this year is to focus on reading books that are already on my ‘to-read’ list (currently over 100) instead of some more random titles that I may come across.

CAREER

At work I was promoted within the past year and would love to get another promotion, but don’t plan on that happening this year. It is typical within the company I am with to wait at least two years to be promoted to the next level from where I’m at and I certainly have aspirations to do so when the right thing becomes available. I have some things I am working on that will help me by going above and beyond and have also recently taken on some additional responsibilities that offer significant visibility within the organization and will help develop some skills that will be valuable throughout my career. I won’t get into specifics, but my goals focus around some projects at work that have the potential to save several million dollars (for the company) as well as branching out and doing well on some special projects that are outside my normal job description.

PERSONAL FINANCES

We ended 2016 with a net worth just over $600k. We’ve spent some time going over our budget and are now setting a goal to achieve a net worth of $700,000 in 2017. Just like last year some of this will depend on market gains but not as much as last year. If we don’t get there simply because the market doesn’t cooperate, I’ll still consider it a success if we stick to our plans for the amounts we earn, save, and invest. Here is a breakdown of how we think we can get there:

As you can see, we do need some growth in our investments and real estate to get to our number but other than that the numbers all seem very doable. I’d love to be able to pay more towards the house but am pleased that we will easily get the mortgage balance below $200,000 soon. Some things that could have an impact on this goal are expenses related to another baby we are expecting soon, home improvement projects planned for this spring/summer, and travel expenses. All of these things are budgeted for outside of these figures but the actual costs may vary from our estimates, which will impact the amount of cash savings or extra mortgage payments we’re able to make.

We have goals set up in other areas as well but wanted to share these publicly for additional accountability and insight into our decision making. Best of luck to all in your 2017 goals and endeavors!

December 2016 Net Worth Update – Year in Review

Wow, what a year it has been in so many ways. We travelled quite a bit, did plenty of DIY projects around the house, and still had our second best year for growing our net worth. At the beginning of 2016, we set a goal to grow our net worth from $510k to $600k. At the time, it seemed like a stretch and we weren’t 100% certain how it would happen (some of it relied on the stock market). But, it wasn’t completely unrealistic based on our income and the amounts we were saving. Tracking our net worth throughout the year has helped keep focus and motivation towards this goal and I’m pleased to report that we ended 2016 with a net worth of $602,815, our highest point ever and just barely above our goal for the year.

CASH

Our cash balance continues to creep up, and we should see some big gains in the coming months with annual bonuses and tax refunds. Throughout the year we had been trying to keep our balance close to $20k, and would throw anything extra towards the mortgage as an additional method of forced savings. Going forward into 2017, we’ll continue to pay extra on the house but have set a higher target for cash savings before going crazy on the mortgage again.

INVESTMENTS

The market was good to us this month and really was the deciding factor between whether we met our net worth goal or not. Our portfolio grew by $9k, or 2.8%, which includes our contributions. For the year, including employer contributions, we added $27,290 to our investment accounts and had market gains of $33,875, just under 13%. Most of our investments are in S&P500 index funds, with some allocation to international. Throughout the year I dabble with speculative investments, including leveraged ETFs and Options, but limit those trades to under 1% of our investible assets. Those trades did better than our overall portfolio, but not by much.

CARS

Your guess is as good as mine as to why our cars went up in value this month. They are both at the point where they really don’t have much left to depreciate but they are worth more to me than what I could sell them for. For this reason, we recently took full coverage off of my car to save ~$200/year since whatever we get from an insurance settlement wouldn’t be very much and we have the money to buy another car without any insurance settlement. We are saving for a new vehicle to replace mine but are hoping it lasts for a while still. I say that I’d like to drive it into the ground, but in reality will likely replace it before it actually dies on me. If I truly drove it into the ground I would be desperate when buying a replacement and could end up overpaying. By buying when I don’t truly need the car I maintain some leverage since I can more easily walk away from something that isn’t exactly what I’m looking for at the right price.

HOUSE/MORTGAGE

Just like every month since we bought our house, we paid extra on our mortgage this month. We’ll continue to pay extra even as we build up our cash savings, but only $600-$700 extra and not $1,500-$2,500 extra like we’ve done several months this year.

According to Zillow, our house went up in value by $14k or 3% this year. What this doesn’t take into consideration is that we spent $9,000 in home repairs, maintenance, and upgrades this year, so really our appreciation was less than $5,000. Had we not done most of the work ourselves in these projects, we easily could have spent an additional $5,000.

Home projects we tackled in 2016 included:

  • Painting the exterior of the house (we still have some trim to paint but it is mostly done and we already have the materials – I estimate that we are saving over $5,000 doing this ourselves)
  • Removed 17 trees (professionally – not worth the risk of dropping a tree through the roof doing it myself)
  • Painted our study/library
  • Replaced kitchen and bathroom cabinet hardware
  • Sanded and repainted my grill that was rusting
  • Repaired an HVAC air handler that had been malfunctioning
  • Had a company mudjack our driveway and walkways that had settled by several inches over the years (this was really neat to see and was sooo much cheaper than replacing our driveway)

    BEFORE MUDJACKING

    AFTER MUDJACKING – notice how much higher the walkway is

    What is Mudjacking?

We are in the preliminary stages of planning 2017, but potential home projects include:

  • Kitchen modifications (change out tile backsplash and replace windows)
  • Some new kitchen appliances
  • Fence in the back yard
  • Replace our deck with a ground level patio
  • Remodeling our master bathroom

Whatever we end up doing, we likely won’t spend as much in 2017 as we did in 2016.

OTHER/LOOKING FORWARD

2016 was also an expensive year for us in travel. We spent a lot, but got a lot of bang for our buck. We took a beach trip early in the year and used hotel points to stay free at the Residence Inn (the best hotel for travelling with kids IMO). We also went to Washington DC for the 4th of July and used the last of our hotel points to make that trip nearly free. Our big trip for the year was a week in London with our kids which we enjoyed a lot. We saved there by staying in an Airbnb and using the apartment kitchen to prepare many meals. In 2017 we are thinking we may not take any big international trips, but will possibly rent a beach house for a week since we have another baby coming soon and aren’t sure we want to fly 8+ hours with a newborn (even though our 20 month old did really well flying to London).

Just as in 2016, we are working on some financial goals for 2017 and will share them here when they are finalized. I’m thrilled that we achieved our 2016 goal, but can’t let that change anything since we are still less than half way towards our ultimate goal of complete financial independence and early retirement. We’ve come a long way, and tracking our progress is motivating and gives reassurance that we’re on track. I look forward to 2017 and everything it brings.

Millionaire Example

When I worked as a financial advisor my office would periodically host “client appreciation” events. Sometimes these would be seminars where a mutual fund manager would be visiting our area and give a ‘state of the market’ update and Q&A, other times there would be no set agenda just good food and some entertainment at a nearby venue. The one thing that was always consistent was that we would always try to have plenty of really good food.

The day after one of these events, a client had an appointment with a co-worker of mine. The client was a retiree in her late 60s with investment account balances of around $5M who had also attended the event the night before. The meeting was scheduled for the late morning and was a general portfolio review.

A few minutes into the appointment, the client started to pull out some food from her bag to snack on while going over her portfolio. My co-worker was floored when he recognized the food to be the same hors d’oeuvres that had been served at the client event the night before! Apparently she had filled up some Ziploc bags and brought some food home from the event. It didn’t surprise me that some of our clients would take things that weren’t intended to be taken home, but it did surprise me that she would bring it out in a meeting with the same person who had invited her to the event who clearly could recognize where it had come from. In the end, I just had to laugh and add it to my list of things I’ve seen millionaires do that you may not expect them to do.

I first read ‘The Millionaire Next Door‘ in college and one part has always stuck with me. The author had gathered a group of millionaires together and offered them $100 to participate in a focus group. Thinking that many of the participants wouldn’t want the money, the option was provided that the money could be donated to their favorite charity. Upon hearing this, one of the millionaire participants loudly proclaimed “I am my favorite charity”. After meeting and working with thousands of millionaire households, this response no longer surprises me. While it may come across as sounding greedy, the reality is that most millionaires I’ve met are actually quite generous, but don’t feel extremely wealthy. In my observation the same frugal tendencies that enable the accumulation of wealth tend to continue long after wealth has been accumulated.

November 2016 Net Worth Update

I can’t believe this year is almost over! Last week we celebrated Thanksgiving and I truly have a lot to be thankful for. I’m thankful for family and that I was able to travel and spend time with them and I’m thankful for the modern conveniences that make travel possible that we often take for granted. It’s nice to stop and think about this as things can get a bit crazy around the holidays. With November behind us, it’s also a natural point to stop and check out how we are tracking towards our financial goals and net worth.

In November, our net worth grew by $10,000 to end at $590,607. $600k is totally in sight! December tends to be one of the more expensive months, but a lot of our big gifts have already been purchased so it will be interesting to see where we end the year.

CASH

Our cash balance stayed pretty flat this month. In addition to buying some Christmas gifts we spent $1,800 on some home repairs and paid some extra towards our mortgage. This coming month we have some smaller home repair expenses coming up but should be able to increase our cash balance a tiny bit.

INVESTMENTS

This is where the real action was for November. For the first time in what seems like several months, our investments grew by more than just our regular 401k contribution amount. Most of our investments are in IVV, the iShares S&P 500 ETF, which was up 3.4% for the month. Our overall performance lagged slightly because we do have some bond investments that didn’t fare as well. I made some small allocation adjustments to move some bonds to more international stocks since we’ve been wanting to shift more to international equities but that was less than 2% of the total portfolio.

One exciting piece of news that came out this month is that my employer is improving the company 401k match starting next year! The company contribution is already very generous and there are a lot of reasons why they made the change that I won’t get into but it’s exciting to know that we’ll be able to sock away even more next year thanks to additional company contributions.

CARS

Nothing to see here, really. We are still saving for a new car and my car continues to get closer to hitting 200,000 miles. I think I may have decided to replace my car with something slightly less expensive than the upcoming Tesla Model 3, but still have plenty of time to decide. What got me thinking about this was realizing how much $35k (starting price for the new Tesla) represents when our home isn’t yet paid off and also seeing some pretty amazing used cars for sale under $15k. Nothing should be changing in our garage this next year either way, but that’s what I’m currently feeling.

HOUSE

Our home value from Zillow stayed pretty flat as well, which makes sense since this time of the year tends to be pretty slow for real estate. There are currently no homes for sale in our neighborhood and a slightly larger home just down the street just sold for $505k so the estimate of $447k still feels to be in the right range. As I mentioned earlier, we paid a little extra on our mortgage again bringing our total principal payments for the year to just over $17,000. My wife and I are still deciding on our 2017 goals but think we should easily be able to pay $20,000 in principal next year and are looking to set a stretch goal for this.

While we’ve always paid extra on the mortgage, 2016 is the first year in our current home that I feel we’ve made a decent dent in the mortgage. I’m excited to see more of our payments going towards principal as we whittle away at it and can’t wait to get the balance below $200,000. Our latest projection shows that we have just over 6 years left to pay off the mortgage but that date has been creeping forward as we continue to pay extra.

We’ve tracked our net worth for some time now, but breaking it down and reviewing in detail each month like this has been helpful to me this year. As shown above, we’ve come a long way but still have a ways to go. November was a great month in many regards and I’m looking forward to December.

Book Review – The Introvert Advantage

In our household we spent several years where we only got books from the library and hardly purchased any books. Ever since finishing my MBA, we’ve budgeted $40 a month for books, allowing each of us to buy roughly one book per month. My wife and I both just finished reading ‘The Introvert Advantage: How Quiet People Can Thrive in an Extrovert World’ by Marti Olsen Laney and think it’s worth checking out. I almost gave it four stars but settled on three since I lost interest about 2/3 of the way through the book after the main points were delivered. This is likely because the target audience for the book is introverted people and while I too have many introverted tendencies, I don’t consider myself an extreme introvert. Those with stronger introvert leanings may get a lot more out of this book.

On the other hand, Mrs. DIY$ is an extreme introvert, I am the more outgoing person in our relationship by far. We’ve found that we balance each other out well, causing each other to occasionally experience things that we may not have done on our own. I tend to be the one who wants to go to social gatherings or explore new things where she is generally content to do things she is comfortable with and already knows. Her introversion strongly contrasts with some of our friends who seem to be constantly on the go and never taking time to relax.

As a result of her introversion (and both of our disinterest in being part-time chauffeurs), our kids are not involved in pretty much any extra-curricular activities or sports. If they express interest in joining we’ll support them, but aren’t actively pushing anything other than my teaching the occasional piano lesson or a monthly, one afternoon STEAM (science, technology, engineering, art, and math) club challenge. Our home is her sanctuary and since I do most of the grocery shopping she could easily go a week without leaving the house. We’ve always joked that she is a bit of a hermit but this book helped us both recognize that some of these traits aren’t necessarily unique to her but are shared by many introverted people. It also helped me to understand her better and to understand how and why she can be ready to leave a party when I’m just starting to get into it.

Perhaps the main thing I took away from this book is how to spot an introvert and the various tips for engaging introverts or using ones’ own introversion to advantage in personal as well as professional relationships. Introversion is often confused with shyness, but they are not the same thing. Introversion is most easily identified by what types of activities are needed for someone to ‘recharge’. Introverts can be outgoing and social and many public figures are actually introverts. The key is that social activities drain energy from an introvert while they may energize their extroverted counterparts. Introverts require longer periods of rest to recover from social interactions where extroverts feel antsy if they go too long without one.

I consider a book good if I learn something new and great if it is written in such a way that I can’t put it down. This book passes the first test and is good for anyone looking to better understand introverts, either yourself or someone close to you. If I were closer to the target audience of introverts I think it could have been more engaging, as shown by my introverted wife commenting while reading that she felt that the author was writing specifically about her and some of her innermost thoughts and feelings.

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Medical Expenses

It’s open enrollment time again, and with that I’ve been starting to see lots of commentary about some big premium increases that people are facing. Our health insurance is through my employer and comes with relatively low premiums and seeing what other people pay has helped remind me how good of a benefit this is. Our family is covered for a monthly premium of $331, which will be increasing to $348/mo in 2017 with a $2,600 deductible. Overall this is a very affordable plan compared to others I’ve seen and heard about.

We’ve had a high-deductible plan now for a couple of years and it wasn’t until earlier this year that we got to see exactly what high-deductible means. We had a couple of unexpected medical expenses pop up and had to pay 100% of the roughly $2,000 bill. We had plenty of money in our HSA to cover the expenses but it was a bit of a wake-up call/reminder that our insurance had gone from something that covered a portion of all our expenses to a plan that covered absolutely nothing until we had met our deductible. In my opinion, funding an HSA is a must for anyone with a high-deductible plan.

In early 2017 we are expecting another child and are looking at the best way to cover the associated expenses for labor and delivery. This will be our first child that we’ve had with a high-deductible insurance plan and it has been difficult to say the least to get a good estimate of all the costs we’ll have pay for the birth. We’ve been adding to our HSA since depleting it earlier this year and think we should have enough

Our first two kids were born back before we had a high deductible plan or HSA’s and our out of pocket expenses were about $1,000 for the first, then $1,500 for the second ($1,000 of the $1,500 was covered by an employer HSA contribution so really only $500 out of our pocket). Our third was born after switching jobs to my current employer and our out of pocket expenses were literally zero since everything was covered by an employer funded Health Reimbursement Account (HRA). After that year, we switched to a high-deductible HSA plan and have been on that ever since. Sadly, the plan that covered nearly all expenses is no longer available.

I still don’t know enough about our expected expenses to do a full write-up, but will do so as I get more information. So far, all of our deliveries have been without any complications, and my wife has never had an epidural. Basically the doctor is just there in case something goes wrong, and our hospital bills have been about as low as it can be for having a baby in the hospital (when #3 was born we even snuck in our own Tylenol so we didn’t have to get it from the hospital – what they can get away with charging is criminal) Although we are all about natural birth, we aren’t looking into home delivery options. As we try to estimate our upcoming expenses, the lack of transparency doesn’t surprise me but it sure is frustrating.