Tuesday, August 13, 2019

July 2019 Net Worth Update

Financially speaking, July was a pretty good month in the DIY$ household. We had one of our most expensive months ever, but still managed to grow our net worth to a new all-time high of $955,950. 






CASH

Our cash balance went down a bit this month but is still above our preferred minimum of $20k. We'll be recovering over the next few months since a lot of this was due to one-time expenses such as summer travel, rental cars, expensive yard work, and semi-annual insurance payments.


INVESTMENTS


Our investment portfolios continue plugging along, primarily in low-cost index funds. There should be more to report here once we pay off the house. Until then, we're contributing enough to my 401k to get my employer match and not really investing outside of retirement accounts. 

HOUSE/MORTGAGE

Since we had so many other demands on our cash last month, we weren't able to make as big of a mortgage payment as we've been doing, but still paid nearly $1,000 more than our minimum payment. Our home value is back up to where it was a few months ago before a house was sold at a really low price and threw off the online estimates at Zillow.

Last spring we got some new sod for an area of our front yard that had gotten overgrown with weeds and where the actual grass had all died. We got 4 pallets and laid it ourselves in a single afternoon/evening. Last month, we got 4 more pallets for the rest of the front yard and parts of the back yard that needed and spent our Friday evening laying it ourselves. 

As far as yard work goes, laying sod has got to be one of the most straightforward jobs. It's definitely hard work, but I never really considered hiring out that part of the job since it's something I can do myself. Coincidentally, our neighbors got sod professionally laid the same week that ours was delivered and I was really curious how much we were saving by subjecting ourselves to such hard work. 

As we were laying the sod they talked to us and without even having to ask, they let us know what they paid. It made the pain worth it to know that what ended up taking us only 4 hours to do, would have cost us $500 for someone else to do. I'm still young enough that for $60/hour I'll do the work most every time.  

Tuesday, July 30, 2019

Book Review - The Sellout by Charlie Gasparino

I’ve probably read several dozen books about the Great Financial Crisis, and just now got around to reading ‘The Sellout’ by Charlie Gasparino and really enjoyed the approach he took in telling the story.

If you were glued to CNBC for much of 2008-09 like I was (it was on all day in the lobby of my office so I could often hear it all day long whether I wanted to or not), you may recognize Charlie Gasparino. He is a reporter on CNBC often known for being the first to break major news, and was on TV a lot as the crisis unfolded given his deep connections throughout the finance industry.

A lot of other financial crisis books focus on the authors play-by-play point of view (like Hank Paulsen’s ‘On the Brink’), or that of a single company (check out ‘A Colossal Failure of Common Sense’ focusing on Lehman Brothers or 'House of Cards' for Bear Stearns). The Sellout takes a slightly different approach from any book I’ve read on the topic.

Given the authors' long tenure covering Wall Street, he already had relationships with a lot of the key players and knows them well. The CEO of Bear Stearns even reached out to him in the midst of the crisis. This unique perspective allowed the narrative in the book to start long before the crisis started and to tell the stories that lead to the CEO’s of the various firms rising to the helm of the different companies.

Personally, I think that some of the most interesting stories were those of Bear Stearns and Merrill Lynch and it was interesting to learn how interrelated they were. Since the story goes back so far, you get a good sense of how the decisions made as their last CEO's rose to the top contributed to their ultimate downfall. A key takeaway for me was that leverage is a two-edged sword, and company leaders ignore or underestimate that risk to their own peril.

If you really want to dive deep into the demise of a single company there are better books out there. This one is just right if you want to know just enough detail to know what happened leading up to and in the financial crisis and why it happened, in a style that is engaging and doesn't drag on.

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.