Tuesday, December 20, 2016

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.

Wednesday, November 30, 2016

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.


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.


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.


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.


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.

Monday, November 14, 2016

Book Review – The Introvert Advantage

Image result for 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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Saturday, November 12, 2016

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.

Sunday, November 6, 2016

Kids and Money

Over the past several months, we've been working on teaching our 5-year-old more about money and work and it has been fun to see him grow and to have him pitch in more around the house. Much of our approach is based on principles taught in Smart Money Smart Kids by Dave Ramsey and Rachel Cruze, the main one being the give/save/spend approach. Just like we do as adults, we encourage our children that every time they earn money, some of it should be given away, some saved for the future, and some spent.


Throughout the week, our kids can do a variety of chores that they know will result in various amounts of income. We try to keep the chores age appropriate but our younger daughter has surprised me by stepping up and doing chores that I intended to be for our older son. It's been a learning experience for us all. Some of the chores include:

  • Emptying the dishwasher
  • Folding/putting away clean clothes
  • Filling up a toy box in the play room
  • Filling up a bucket with pine cones to burn in the fire pit
  • Taking out trash / recycling
  • Get good behavior reports for a whole week at school

This list isn't an exhaustive list of everything our kids are expected to do around the house. As they get older, more difficult chores with more earning potential will be added (when is a kid too young to use a riding lawnmower?). As of now our 5-year-old has been averaging $2 in weekly earnings.


For us, the principle of tithing is something we strongly believe in and each week when we pay our kids it is an opportunity to teach about it. I make sure that when they are paid, we have sufficient change to carve out 10% (and for convenience sake all of the chores they can do are paid in amounts that divide by 10 evenly – no $0.75 chores around here!). One of the great conveniences of the internet is that we actually make most of our donations online and have done so since before our kids were born. The downside to this is that our kids never see us physically giving a donation at church and we wanted to be able to teach by example. Now that our kids have their own money this allows them to be the ones taking that action at church.


Once money has been set aside for tithing, we split the rest in half and put the first half in savings. I actually keep the money in the 'Bank of Dad', and we review a spreadsheet that I use to keep track of how much money they have in savings and how much they are adding to the total. I worried that it would be too abstract for them, but they seem to be just fine with knowing that they have money in savings somewhere. Plus, there's no way they can do better than the interest rates we pay.

In an effort to teach about interest, and for it to actually be something worthwhile, we pay them 1% interest per month (12% per year). On the first of each month, we'll pull out the spreadsheet and make a big deal about adding 1% interest to the month-ending balance. Some books I've read recommend lending your kids money at a similar interest rate to teach about debt but we have no plans to loan our kids money. I'd rather our kids learn to hear no and to tell themselves no than to go into debt. They already know that mommy and daddy don't borrow money and I don't want them to start thinking that it's ok for them to do so.

We haven't quite figured out what he is saving for yet, but the only rule I've made is that it has to be something that costs more than $20 since anything cheaper than that can be saved for relatively quickly. The topic of saving for college and cars will come up soon enough but 5 years old feels too young for that to sink in and we are saving to help with college separately.


After giving and saving are done, the remaining 45% of earnings can be spent however and whenever he wants. So far, most of the spending money has been spent at his school on ice cream. This isn't my first choice of how I would spend money but there haven't been any issues with him not having money for other small things he also wants so it's worked for now. I've been reminding myself that his preferences don't necessarily need to be the same as mine and so long as he's not spending money on something I actively oppose then there's no need for me to step in. For now his preferences are somewhat simple and he's been easy to please, but we're laying the groundwork to respond to desires for more and more expensive tastes.

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Thursday, November 3, 2016

Book Review – Hillbilly Elegy

Image result for hillbilly elegy

I just finished reading Hillbilly Elegy, by J.D. Vance and highly recommend it. Although the author is only in his early 30s he has a gift for self-reflection and has analyzed his upbringing in such a way that I felt I was able to more easily understand some of the real struggles facing America's poor.

I've noticed that one of the interesting consequences of the internet is that in general we tend to be more aware of poverty around the world than we are the poverty that exists in our own communities. When I worked as a financial advisor I felt fortunate that outside of work I was involved with my church and lived in an area with a congregation that spanned the gamut of economic demographics. I feel that these interactions helped keep me grounded since at work I only really interacted with people who had over $1 million in investments and could easily have lost touch with the economic realities facing most people. This book took me even further into the lives of Americans that struggle financially and helped connect the other life decisions that are made and how they affect the rest of their lives.

In this book, the author shares stories from his life growing up in a poor household in the Midwest, in a city with many similarities to a place I once lived. Middletown Ohio was once a promising company town that is now a shell of what it once was as manufacturing jobs have been automated or exported. J.D. grew up in a poor white family in Middletown and provides some very well thought out analysis of the problems facing his home town, friends, and family members. I've read a lot of news articles and stories about the decline of rural America but this story is different because these are stories from the authors' actual life and family, not something he experienced while trying to investigate for a story.

This book is not necessarily a finance book, but I will just highlight two interesting things related to finance from the story.

  1. Throughout college and his time in the marines, the author periodically used payday loans as a way to bridge the gap for short-term needs. While I will never recommend anyone take out a payday loan, this book is worth reading simply to read his compelling defense of the industry. While there are certainly abuses within this industry, I have read that many users of payday loans can accurately predict how long it will take them to pay off debt and how much they are paying in fees and they enter into these agreements fully aware of the costs.

  2. As the holidays approach, it broke my heart somewhat to read about Christmas in a poor household and how common it is to make bad financial decisions just to provide what the parents consider a good Christmas even when the kids may not care or appreciate it. Our children are young enough that they still haven't asked for a lot of things for Christmas, and while we can often provide most things for our children we have made it a point to not be extravagant in our gift giving. This book helped me understand some of the thinking that goes on in households that feel the need to splurge on Christmas even if it they're just hoping to hang on and pay for the gifts with their tax refund at the beginning of the new year, crossing their fingers that it will be enough.

I highly recommend you pick up a copy of this book. It kept me engaged and interested throughout the story and my wife and I both read it within a week. I consider books to be worth recommending if I feel that after reading it I have learned something new, developed empathy for others, and feel a call to change something I have been doing. For me, I find that there are times when I may be too quick to judge those in poor economic conditions as victims of their own decisions. While I still believe this to be somewhat true, this story helped me recognize that there are many instances where people may not know any better (some of the things he didn't know until very recent in life are things I take for granted, such as that one should wear a suit to a job interview or that finance is an industry that people work in).

*Post contains affiliate links

Tuesday, November 1, 2016

October 2016 Net Worth Update

I hope you all had a happy Halloween and aren't too far into a sugar induced coma. This year we had three rounds of trick or treating between school, church, and neighborhood and I wouldn't be surprised if we ended up throwing out some of the candy. Yes, we are those parents. The first of the month means it is a good time to reflect on how we are tracking towards our wealth building goals.
During the month of October, we lost a little bit of ground, but not because of any actions we took. Our net worth declined $4k to $580,516. Let's dive in to see what happened.


Our cash balance increased by $1,900 but this is mostly timing. Going forward though, you should expect to see our cash balance increase. For a little while now, we've tried to keep our cash balance in the $20-25k range and put anything above that towards paying off the house. Back in April, we decided that we wanted to save up for the new Tesla as my next replacement car, but haven't really started saving towards that goal yet. Since we are opposed to borrowing money for purchasing cars and still want to buy a nice car, we are planning to start adding to our savings account each month earmarking anything over $20k for the purchase of my next car.
Between now and the end of the year, we'll have a few thousand in home repair related expenses (driveway leveling and hiring someone to paint the highest parts of the house we aren't comfortable reaching ourselves). We have some travel plans for the holidays as well, but shouldn't see very large expenses for them.


Nothing to see here – the S&P 500 was down nearly 2% for the month and our largest holding is IVV, the iShares S&P 500 ETF. We continued to add to 401k and haven't made any changes to our allocations. I do have a small Robinhood account that I occasionally use for small trades but sometimes I question the benefit of using it for such small trades when I need to enter all my trades into TurboTax when I do my taxes.


My little Corolla is still chugging along and getting closer every day to 200,000 miles. I'll need to get new tires here in the next few months but other than that there really isn't much excitement in our garage at the moment. I expect the cars to depreciate and a $225 reduction for the month sounds about right.


I'm not surprised to see the house value come down this month. Not because anything had changed for the worse, but rather because the value had gone up so much in recent months. We're only 2.9% higher than the value at the end of last year, and that feels like a pretty conservative growth rate for what we've been hearing. We also made the same extra mortgage payment amount this month as last month and were able to reduce the amount of our payment that went towards interest by a whopping $6! (What, that isn't motivating?) Last year when we did our taxes it was a bit frustrating to see how much we had paid in mortgage interest and it will still be a huge amount this year even though we will have paid off over $15k during the same time period. The milestones that we can get excited about are each time we pay off $10,000 increments and we've got another one of those coming up soon. One of our 2017 goals will be to get the balance below $200k. This should be a very easy goal, so we'll need to see how quickly we think we'll be able to do it and set a more ambitious goal for the full year. As of now, we are tracking ahead of where I thought we would be in paying down the house for 2016.

Monday, October 3, 2016

September 2016 Net Worth Update

Fall is in the air and we're in that sweet spot where we don't need to use the air conditioner or heater, it's a beautiful thing. September was another good month for net worth building, too. We had planned on taking a small trip during the month but ended up cancelling at the last minute, which helped us to be able to make a larger mortgage payment without drawing down savings. We also bought some new furniture that we've planned on for a while but hadn't found the right thing until now. Overall, our net worth is up another $8k to be $584,517. Getting to $600k by the end of the year continues to feel doable.


Nothing too exciting here – we are purposefully trying to keep our cash balance between $20-25k. Our savings account balance hovers around $20k and the rest is in our checking account. We've been averaging just $10-15 in monthly interest, which is hard to get too excited about.


Yet another month where our investment balances increased mainly because of what was contributed and hardly any market movement. There haven't been any real changes to our allocations or contribution amounts.


I'm super excited that my car is getting close to the 200,000 mile mark. I just hit 193,000 and should get to 200,000 within the next 6 months. The value of a car is a funny thing. KBB says our cars are worth less than $10k combined but I feel like they mean a lot more than that to me. I love my car and the fact that I haven't ever had any major repairs to it other than regular maintenance (knock on wood). It's hard to think that I'd be able to find another car for a similar amount that is in as good of condition.


We paid a near double mortgage payment this month and it's nice to see the mortgage balance knocked down a bunch. We should be able to make similar sized payments for most of the rest of the year but won't quite be able to cross below $200,000 by the end of the year. Zillow has our house continuing to climb in value and now is at $450k.
It's psychological, and perhaps counter-intuitive, but when I see the value of our house this high the thought crosses my mind to downsize and get something we can afford to pay cash for. There are plenty of houses that we could buy for not much more than our current home equity that are looking extremely tempting once we finish up some of our home improvement projects we've got going on (there's always something, isn't there?). Stay tuned for more on that front, we'll likely decide something in the next few months as we finish painting the outside of the house and making some minor improvements to the landscaping.
As always, I'll end with a look back at where we've come from. This helps me to put things into perspective and also continue to look forward.

Tuesday, September 20, 2016

Lots of DIY fixes going on

There always seems to be something around the house that needs fixing. Thanks again to YouTube, I was able to fix some more things at a fraction of the cost of hiring someone to do the work. I actually don't consider myself to be very handy. There are many things that I would prefer to hire out, but I know that the more things I outsource in my life the more money I will need to support my lifestyle. I could easily have a lawn guy, a tax guy, a handyman, etc, but I purposely choose to do most of these things myself when time permits. A piece of advice that was given to me once was to limit yourself to one 'guy' per $50k of income. There isn't anything magical about $50k increments, but it illustrates the fact that as your income goes up, your time becomes more and more valuable and the cost of doing things yourself goes up.
I'm not really big into camping, but recently had the need to dust off my gear for a trip with some friends. Before going out, I set up my tent to make sure everything was in order and found that one of the joints to my tent poles was busted (I learned that they're actually called ferrules). Clearly the tent pole is a critical part and I wasn't about to sleep outside.

I did some searching and found that to get a whole new tent pole, I might as well just buy a new tent! Thankfully, YouTube came to the rescue with a few videos on how to fix my part. For only about $5, I got a repair kit from Amazon and was able to take apart the pole and swap the busted ferrule for a new one and it is as good as new.

We also had a DIY opportunity recently with one of our A/C units that had been acting up. Neither of us had ever done any HVAC repairs and struck out trying to diagnose it ourselves. We ended up having to call a professional to come out and took a look. As it always happens, the A/C decided to work perfectly while he was here, but he was able to tell us what part might be failing based on our description of what had been happening (it's called a relay in case you're interested). $89 later, he was on his way and gave our A/C a clean bill of health…which lasted until that very evening when it started acting up again.
Armed with the information I thought necessary to fix the unit ourselves, we embarked on a journey to find a replacement part. I quickly learned that HVAC is not like other home repairs. Your typical home improvement store is much more interested in selling you a completely new system and doesn't even have replacement parts in stock. I found some smaller shops that had parts like what I needed but couldn't tell me with certainty whether what they had was compatible. Even YouTube couldn't give me much information about what to be looking for or how to swap a part. After reading up on things, I walked away with the impression that there are likely A/C units that are fully replaced when the actual need may be something much smaller. This works because this industry has a lot more information assymetry than others and most people don't seek out multiple opinions and simply go with the sure solution of a complete replacement.
This little thing does something to control the air handler blower to switch on and off…a good thing to have working in August.
I ended up finding a manual online for the part of the A/C unit in question and learned how to decode the part number and how to tell whether a different part number might also be compatible. This time, eBay was the winner. I got the part I needed for $13 after shipping and after only about 10 minutes the old part had been swapped out and we were back in business. We still had to pay $89 for the first guy to come out, but I'm sure it would have been a lot more than $13 for him to have swapped out the part.
In this day and age, we could literally hire out every aspect of our lives if we wanted to. I don't begrudge people for trying to earn a living, but individually we all need to decide what's the right level of outsourcing for us. I can't always figure things out on my own but enjoy the sense of satisfaction and boost to self-confidence that comes with doing something myself when I can.

Monday, September 5, 2016

August 2016 Net Worth Update

Happy Labor Day weekend and belated August net worth update. I've been super busy the past couple of days out of town and wanted to get this posted before too much more time passes.

August was another great month for our net worth, which increased nearly $13k to an all-time high of $576,261. There are only a few more month in the year, but hitting $600,000 net worth by year-end feels within reach. Most of the increase this month was from our house, which Zillow estimates increased in value by $9k. It still feels reasonable since there have been homes selling in our neighborhood for closer to $500k, and has previously been in this price range.


CASH: Our cash stayed about the same as last month. I'd like to keep our cash between $20-25k for the time being and we're sitting right in the middle of that range.

INVESTMENTS: Nothing too exciting here either – we didn't see much growth outside of our normal monthly contributions, and didn't make any changes to investment allocations or locations.

CARS: Nothing too exciting here either. I expect our cars to go down in value a bit each month but they don't have much more value to lose. The cars are worth more to me than Kelly Blue Book says they're worth and we have no plans to sell or replace either in the immediate future. That being said, I just hit 190,000 miles on my car and know it will eventually need to be replaced. For now though, it is still driving fine and only requires regular maintenance. I'm hoping I can make it until 2018 or later before I need to get a new one.

MORTGAGE: We continue to make extra payments on the mortgage and have our sights set on getting the balance below $200k. Each year, we get our tax refund about the same time as my year-end bonus pays out and these lump sums are used for retirement contributions, charitable donations, and the rest towards the house. We've done some Roth IRA conversions this year that will reduce our tax refund, but my year-end bonuses are looking like they'll make up for it.

I'll end again with this historical view. Looking at this always helps me to remember how far we've come and to reflect back to the different stages of life and sacrifices that were made to get to this point.

Saturday, August 20, 2016

I’m considering breaking one of my own rules

When I was a financial advisor, many of my clients worked for publicly traded companies and often had significant portions of their nest egg invested in their employers stock. Many companies have employee stock purchase plans (ESPP) that allow you to purchase stock (often at a discount) that accumulates similar to a 401k, but without diversification. A lot of large 401k plans also have company stock as an option for your 401k contributions. Combine these two methods of buying company stock with paternalistic companies with multi-generational histories and you end up with people who have 90+% of their net worth tied up in company stock.

My advice was always to sell off the company stock and diversify. Did no one learn anything from Enron? If you have too much of your world tied up in company stock and things go south, you have risk of losing your nest egg AND your job. It is riskier for you to own shares of your employer than it is for someone who doesn't also work there. Trying to convince people to sell company stock was always a difficult conversation, and I likened it to telling someone their kids were ugly. Holding the same stock for decades, people often would feel that the stock was partly responsible for their financial success, even if the stock had been a terrible performer.

My current employer is a large, publicly traded company, and I have made it a point to avoid buying any shares of stock. In addition to my concerns about diversification, because I work in finance I often have access to confidential information and so am only able to trade the stock during certain times (i.e., no transactions allowed near earning release dates or other major events).

From the time I was hired, our stock is up considerably (>3x), but so far this year hasn't really kept up with the rest of the market. I attended a leadership meeting this past week and while listening to the CEO and CFO speak, I found myself thinking "Wow, we're doing really well and our future is bright. Why don't I have any shares of our stock?" I came home and mentioned this to my wife thinking/hoping she'd tell me to snap out of it and don't do something stupid, but instead she just said "if you want to buy a few shares, just keep it small.

In the not too distant future, I could be in a position where a portion of my compensation is given in the form of company stock. At that point, what I decide to do with the stock will make a larger difference in my overall plan. My current strategy for stock received from my employer is to immediately sell at least half of any stock given, but to keep a small amount to show confidence in the work I am doing. Keeping stock that was granted to me somehow feels different than proactively going out and buying shares on my own though.

So here I stand…I'm probably only talking about a couple hundred dollars, which really isn't going to make a difference long term, it's more about the principle and not wanting to deviate from the advice I've given to so many other people.

Wednesday, August 17, 2016

How I got an MBA without any student loans

I am frequently asked for my opinion on whether to get an MBA and things to consider when applying to business school. Now, with the benefit of hind-sight, it's worth sharing what I've learned and how my opinions have developed.

When I graduated from college the first time, I was so sick of school that I remember saying that I would never again go back to school. With my bachelor's degree in hand, I started working in a call center for a large financial services company for $35,000/year plus bonuses and overtime. It wasn't long before I noticed a trend among senior people in the organization. I noticed that for everyone at the director level or higher had either worked their way up to that level over the course of 15-20 years at the company, or had gotten there within 5 years of completing an MBA. This realization caused me to retract my earlier statements about never going back to school and instead start to do research on MBA programs and gather a lot of information from people who had earned their MBA's.

I decided to get an MBA part-time and was able to do so without taking out any student loans. There aren't many things I would change in the way that I approached business school, but every situation is different. If you're considering an MBA there are a few things you should consider that I'll weigh in on here.

What do you want an MBA to do for you?

Make more money, right? When you apply to most business schools, they'll typically ask you why you want to get an MBA. Let me give you a hint: Making more money is not the right answer. More money may be a natural byproduct of other decisions, but what most business schools are looking for is for you to be able to have a clear career goal and to recognize how an MBA will help you reach that career goal. In my case, I knew that I wanted to switch careers, but that it would be difficult to do so without going back to school. I wanted to either transition from the customer facing side of financial services to the investment management side of the business, or to leave the industry entirely and work in corporate finance (the route I eventually went). As you begin to grow your career, it becomes harder and harder to switch to new paths but going back to school for an MBA gives you another chance since many companies recruit at schools with the understanding that you've learned enough to have the foundation necessary to start working in most any business function

What is your current career path without an MBA?

Before you go and drop tens of thousands of dollars on an advanced degree, you should take time to evaluate your career. Have you advanced as you hoped you would? If not, why? What are the long-term opportunities in your chosen profession? What level of income do you need to support your ideal lifestyle and is that attainable in your field? In my case, I didn't need to pursue an MBA to make more money, but did need it to be able to transition to a different function.

Does school choice matter?

Nowadays, an MBA from a top business school costs around $100,000 in tuition, but there are some schools where you can earn an MBA for a fraction of the cost. Is the difference worth it? There are varying opinions on this, but I generally agree that the more expensive schools can be worth the cost in certain circumstances. If you're just interested in getting the basic education that an MBA has, then most schools can meet that criteria and you probably don't need to shell out the money for the most expensive programs out there. If you're looking to have an MBA help you transition to a new industry or gain a position of influence in a large organization, then you probably need to consider a school that is well known, and frequently visited by recruiters. Also, there are some companies and industries that you have almost no chance of joining unless you are a top student at a top school (i.e. consulting and investment banking).

I have multiple friends who have received MBA's from schools with no prestige or brand recognition, expecting to graduate and get job offers similar to what you see in WSJ or US News & World Report rankings. I'm not sure how they thought that would happen, and they have since been disappointed as their MBA's have not helped them increase their income or get promoted. From an ROI perspective, the tuition was a bad investment.

On the other hand, an MBA from a well-known or prestigious school can give you access to deep alumni networks and open doors that may not be available to you otherwise. Case in point: at work, my department hires 4-6 interns each summer from hundreds of applicants. This summer, we have had an intern from Harvard and another from Yale. They didn't get the job based on the schools they are attending, but simply having Harvard and Yale on their resumes got them interviews, something that probably wouldn't have happened if they were from another school we weren't actively recruiting at.

When I was thinking about going to graduate school, I was introduced to a Harvard alumni who took me out to lunch. Over lunch, he said something that has stuck with me and highlights the power of a strong network and brand. Speaking about his job, he said "this is a pretty good job, but at the end of the day it's just a job. Because I went to Harvard, if I lost this job today I could have another job by tomorrow paying at least $250,000 a year." I was a bit turned off at his arrogance but have since learned that there is some truth to his statement. I didn't end up attending Harvard, but did go to a school that was highly ranked with global brand recognition. As a result, my professional network now includes highly ranked people in companies of all industries throughout the world.

(Side note – anyone remember this commercial? Totally reminds me of how that Harvard guy might have been at work)


Full-time or part-time?

When I was looking at going back to school, I was working for an employer that had a very generous tuition reimbursement program that paid up to $10,000 per year. Even without tuition reimbursement, between my wife and I we were making about $100k per year and it seemed feasible that we could budget to pay for school as I went if I went part-time. I knew that for me, the part-time track was going to be best and so I researched the top part-time programs and was fortunate to be able to transfer across the country to the same city as my top choice for business school. Unless you've saved a ton of cash or land scholarships that also cover living expenses, the part-time MBA is the only way I can think of to get an MBA without student loans.

If you think a part-time MBA is right for you there are a few things to consider.

Does the school you're looking to attend also offer a full-time MBA? Is a part-time MBA viewed as identical in rigor? You are selling yourself short if you go for a degree program that is easier, and you will not be as well prepared for a post MBA job search.

If considering an online option, what opportunities are available for group work and collaboration? Much of the value I got from business school was in the interaction with classmates in lectures and group work. Also, while online programs are gaining in popularity and are certainly attractive because of their relative cost, most recruiters I know will automatically dismiss a resume from a candidate with an online MBA (some employers will ignore part-time students even from top schools).

To what degree will you have access to on-campus recruiting? Some schools don't allow part-time students to access the same on-campus recruiting assets as full-time students. (For example - NYU part-time students do not have access to any on-campus recruiting).

What elective courses are available in the times that you will be able to attend? Some electives may only be taught during the day, which can be challenging if you are attempting to juggle work with school.

Will you be able to finish in a reasonable amount of time so that you aren't seen as having 'too much experience' by recruiters? Most recruiters on business school campuses are looking to candidates with 3-7 years of work experience. If you have too little, you're viewed as lacking business maturity and if you have too much people think there must be something wrong with you if aren't already at or above the pay grade and responsibility levels that they are recruiting for. I didn't really think about this when I started my MBA, and took five years to complete my degree. When it came time for me to look for jobs, I was right on the edge of having too much experience and I had grown my career and income to the point that I would have to take a pay cut to pursue any of the on-campus recruiting opportunities available.

Student Loans

When I first started my MBA, we had a friend who was finishing up law school at the same university. He had racked up around $200,000 in debt to earn his law degree and had a fabulous offer that would pay nearly $200,000 per year. The only problem was that the entire reason for him to go to law school was to work in a part of law that would only pay around $75,000 per year. $75,000 sounds like a decent income, but is swallowed up incredibly fast if you're trying to live in a large metro area and pay off nearly 3x your annual income in student loans. This was the first of many people I would meet throughout my time in business school where people would accumulate large amounts of debt and take jobs they knew they would hate, but do so because they could earn more.

What I've observed is that large student loans cloud your judgement. If you work hard and sacrifice to avoid student loans, you won't feel as pressured to do something you may regret simply to clean up you mess. When I got my first job after business school, I wasn't paid any more or any less than my peers who were hired with me, yet my income naturally went much farther since I didn't have any student loans to repay.

A Debt Free MBA is possible, but not without sacrifice

To anyone who asks, I always will share that I am glad I did it, but don't believe that for me it would have made sense to do it with student loans. Twice a year for five years we had to write checks for tuition ranging from $8,200 to $13,200, which was about 25% of our take home pay at first. Even with roughly half of the tuition being reimbursed, it took careful planning to make sure we had the cash for each semester.

To avoid student loans, we had to keep a careful watch on our expenses. Some examples of things we did to save money while in school:

  • For years my packed lunch would be PB&J

  • After selling a car to get out of debt faster, we remained a one-car family for several years and carpooled with each other every day

  • We rarely ate out. By rare, I mean really rare. For all of 2009, we spent about $300 eating out including food on vacation or even little McDonalds trips

  • We didn't spend much on entertainment. No theme parks, maybe once a year to the movies, only one football game per year (often with a free ticket)

  • I didn't get a smartphone until 2011, and even then it was a pre-paid phone – my wife didn't get one until 2014

  • We had our first child while in business school and dressed him almost entirely in consignment sale clothing (our kids still wear mostly consignment sale clothes)

  • We didn't own a television for all 5 years of business school, so no cable bill either (our old TV set didn't make the move cross country and we never ended up buying a new one)

Personally, I wouldn't have done things any different, but I understand that everyone's situation is their own. Hopefully some of the things I've learned with the benefit of hind-sight can be helpful to you if you are facing similar decisions. I'm fortunate that I was able to attend a top business school and am just as proud of graduating without student debt as I am for graduating with honors. I initially took a pay cut to switch industries and functions, but have since recovered nearly all of the reduction now in the form of guaranteed salary instead of unpredictable commissions and bonuses. If you have any questions about business school or MBA's, feel free to reach out at: contact@diymoneystuff dot com.

Sunday, August 7, 2016

Thank you, YouTube

I'm a big advocate of do-it-yourself solutions and do most things myself around the house and with money management. Between my wife and I, there aren't many things we can't do or figure out how to do around the house. One skill that isn't in my wheelhouse though is fixing cars. Growing up, I never got much experience working on cars and we didn't really have any motorized toys on which I could have learned about engines. In recent years, I've had to accumulate a lot more motorized yard equipment and tools (riding lawnmower, push mower, leaf blower, weed-eater, chainsaw, pressure washer, etc), most of which have needed some type of maintenance or repair.

Whenever something has needed to be fixed, I've learned that I can find out how to fix pretty much anything on YouTube. I found the knowhow there to take apart my riding lawnmower and change some pulleys and belts, repair the carburetor of my push mower, and more. When it comes to fixing cars, I've always been reluctant to do anything serious myself since the risk/reward doesn't seem to be worth it. If my lawnmower doesn't get fixed quickly, my grass gets long. Not too big of a thing in the big picture.

If my car breaks down though, I need it fixed pretty quickly to not disrupt my work schedule. If it isn't done properly, I could put myself or other drivers in danger. Add to equation that I live 25 miles from work and you can see how I rely on my vehicles much more than anything else I own with a motor.

As I pulled my wife's car into the garage tonight, the engine mysteriously died just before I could turn the ignition off. It seemed odd, so I tried to start it back up, but it wouldn't start. Luckily I was already home when this happened, but it was still troublesome. Then when I opened the door I smelled gas. Not good. To be safe, I put it in neutral and pushed it back out into the driveway (surprisingly easy for a truck that weighs around 6,000 pounds). When I tried to start it again with the door open, I heard fuel dripping onto the driveway as soon as I turned the key. Again, not good. At this time, I started to go through my options. I figured I could get it towed to a nearby mechanic, where I'd pay ~$90 for diagnostics and then at least $50 for a repair if it was as simple as reconnecting something that had come loose, but potentially a lot more if the problem were larger. Option two was to do a little bit of my own investigating to see if it was something I could fix myself and only go to a mechanic as a last resort. Naturally, I went with option 2.

With just a few minutes of Google and YouTube searching, I found a few possible solutions and went back out to look underneath the car to see where the leak was coming from. Sure enough, the fuel line connection to the fuel filter had come loose (see the following picture) and in just a few minutes I was able to reconnect everything and we were back in business. I'll want to keep my eye on it and, if it starts to reoccur, look into replacing the part since it's not acceptable for it to come loose, but from what I've researched we should be good to go.

I love that we're in a spot financially that if I did need to take the car to the shop it wouldn't be a financial burden, but really didn't want to deal with the hassle of getting it to the shop, picking it up, etc. We definitely live in an incredible day and age with so much information at our fingertips, thanks to YouTube and some random people posting videos of themselves fixing their vehicles.

Tuesday, August 2, 2016

July 2016 Net Worth Update – up to $563k!

Even though this month has been really expensive for us, our net worth increased over $15k to $563,304. We made some progress on some home projects including tree removal and exterior painting. We also took a one week trip to London that had been planned for a while. The fear of Brexit caused the stock market to go into a frenzy several weeks back, but the currency was conveniently at historic lows for our trip. While we benefited from favorable exchange rates and did our best to travel on the cheap, there is only so much you can do to cut costs when visiting one of the more expensive cities in the world. We rented a 2BR apartment through Airbnb that was about 1 mile from most of the main sites and relied heavily on public transportation. (Side note, if you're travelling in London with small children do your best to learn the bus routes – they were way more prevalent and much easier to navigate with a stroller than the tube).
Here's an updated look at our numbers.
CASH: Our cash balance is down a bit, mainly from paying $3,500 for tree removal (it ended up being 17 trees). I hate paying other people to do work on my house, but the crew did in one day what would have taken me years to do on my own so it was worth it (plus some of the trees were close to the house and I don't trust my chainsaw skills enough to risk damaging the house). For our trip to London, we had already paid for our airfare and accommodations in a previous month so this month we really only had to pay for our food and some sightseeing.

INVESTMENTS: Up $13k – we'll take it! Not that it means anything, but it is fun to see that number over $300k for the first time. We haven't made any changes to our allocations and keep contributing to my 401k. I like to keep this pretty boring, if you haven't noticed.

CARS/HOUSE: Nothing really to report here – over time, I expect cars to depreciate and real estate to appreciate and they both moved in the expected directions this month.
Speaking of real estate – while letting the kids get some energy out at a playground near our London apartment, I struck up a conversation with some teenagers who lived nearby and were hanging out at the park. They found me to be a novelty (an American staying in their neighborhood instead of a more 'posh' part of town), and I found them to be pretty remarkable too (teenagers who were incredibly informed about the world around them, including the American political system and even the platforms of our current candidates). The topic of real estate came up and they asked me how much I thought a particular nearby house would cost if it were located in my home town. It was a smallish condominium similar to the one we were renting and I guessed that it would be worth a few hundred thousand dollars in an expensive part of town. I just about lost my lunch when they told me that it had recently sold for 1.5 million pounds! That's like $2 million and we were nowhere near the 'posh' part of town. I seriously don't understand how families can afford to live there.

MORTGAGE: We still paid a little extra on our mortgage this month but reduced the extra to make sure we didn't have to dip into savings for some of the other large expenses. Our current expected payoff for the mortgage is June 2022, but that has been creeping forward as we continue to increase the extra payments we are making.
It's nice to back on this side of the pond and back to reality. We are blessed to be able to have experiences like our recent trip while still working towards our other financial goals and not at their expense as I'm afraid is more common. We've come a long way but still have a ways to go for full financial freedom.

Friday, July 1, 2016

June 2016 Net Worth Update – $547,669

This month, our net worth went down by $3,900, but not for the reasons you would think if you've been watching the news.

Even with the panic related to 'Brexit', our investment accounts ended up about where they started at the beginning of the month. The day after the Brexit vote, I checked our accounts and think it may have been the worst one day drop we've ever seen in our investments (a loss of more than $7,500). Thankfully, I sat tight and the market has now recovered almost everything that was lost. I didn't get the chance to buy more stocks during the decline, but I was able to convert some money from a traditional IRA to Roth while values were slightly lower. So far this year, I've converted about $7,500 to Roth, and that's probably as much as I'll do this year.

I'm not sure what to think about the values of our cars going up, but I did change the oil and air filters on both this month, so there's that.

We made another extra-large mortgage payment in June, paying nearly $1,300 more than our minimum payment. We've got some large expenses planned for July that may make it hard to pay quite as much extra, but we will continue to pay more than the minimum. I spoke this month to a mortgage banker who was trying to get me to re-finance our mortgage. We currently have a 30-year mortgage at 3.75% and he offered a 15-year at 3.25% and very low fees. It sounded good, but when I plugged it into our projected payoff amounts, it only saved us one month and we decided it wasn't worth messing with. Either way, we should be done around 2022.

As for our cash, the big reason for the decline is that we pre-paid some expenses for a big vacation we're planning. Our cash will likely go down again in July related to that vacation as well as some work we're doing around the house.

Work around the house is never-ending, but satisfying. We've started painting the outside of the house and should have all the materials we need to get that job done. We picked up 13 gallons of paint at Sherwin Williams when they had their recent 40% off sale and still ended up spending around $500. My boss recently hired someone to paint his house, and paid nearly $10,000(!), so I won't complain. I've cut down several trees since we bought this house, but we've reached the point where the ones we now need to take out are bigger than my chainsaw can handle and close enough to the house that they could cause some serious damage if I mess something up. We're biting the bullet and hiring someone to come take out 12 trees for about $3,500. Our last big house project for the year will be to install a backyard fence. We don't have the materials yet, but estimate this will be around $2,500.

Some of the work we're doing around the house is upgrades but a lot of it is just plain maintenance. It certainly can add up, but the way I think about maintenance is that it is necessary if I want our house to actually be worth what any of the online estimates (Zillow, Trulia, Redfin, etc) say its worth. If we neglect home maintenance, small problems can become large problems, and eventually become a reason for a buyer to negotiate a lower price from us if/when we ever sell this house.

All in all, we've got a lot going on and continue to plug away at our goals. Looking at our net worth on a monthly basis is helpful to make sure we're staying on course, but the real motivation comes from seeing how far we've come.

Here's the breakdown of where we're at:

And here's where we've come from:

Thursday, June 2, 2016

May 2016 Net Worth Update

What a month! The markets continued to make some small gains and we kept plodding along towards our financial goals. We've been doing a lot of outdoor home maintenance and have limited our inside house projects to painting a bathroom (a project that was planned for later but accelerated when my young daughter ripped off a large patch of the old wallpaper that will not be missed). Our net worth crept up ever so slightly (percentage-wise) and crossed over the $550k mark to end at $551,578.
Our cash balance continues to stay around the level we've planned on. Our normal emergency fund level is $20,000 but we have it temporarily higher as we wait to pull the trigger on some larger purchases. Other than home projects, we are also planning a large vacation this summer. One reason our cash balance hasn't grown is that we again decided to make an extra-large mortgage payment. We still can't see the light at the end of the tunnel for paying off the mortgage entirely, but it is satisfying each month to see the balance get knocked down a lot quicker than if we only made the minimum payment. I'd love to see us knock the balance below $200,000 this year, but it doesn't look likely unless we cancel our summer vacation plans and forego any large purchases. We are 3 years into a 30-year mortgage, and are planning to pay it off in around 7 more years.
There really isn't much to report on our investments. We haven't changed any of our investments allocations or contribution levels, so yet again our investment growth is roughly 1/3 from our normal contributions and the rest from actual market appreciation. If it ain't broke, don't fix it.
Interestingly enough, both our cars and house values went down this month (according to kbb.com and Zillow.com). The cars going down in value is largely irrelevant since I don't plan to ever sell either vehicle. When we got my wife's current car, we kept her old car for a few months before we found a family member we could give it to (it had originally been gifted to us and we wanted to pay it forward). The nice thing about both of our vehicles is that they are old enough that their values really don't change all that much and this is the first time either of them have changed values in several months. I don't know quite what to think about the home value going down, other than it is good to see that the estimates are not just up, up, and up every month.

Sunday, May 1, 2016

April 2016 Net Worth Update

April was a busy month. I've gotten comfortable in my new position at work, flown cross country three times, and as I write this my son is inexplicably singing a made up song about budgets to the tune of Lady Gaga's Poker Face (I think he learned the tune from some kids show, but the excessive use of the word budget is probably my fault).

Despite tepid growth in the stock market, April was another pretty good month for our net worth. We finished April at $549k, or up just over $9k.

Our cash went up slightly, and we're trying to decide on whether and when to make some large purchases we've been thinking about. We're considering things like new kitchen appliances or a fence for the backyard, each of which would be several thousand dollars. As far as kitchen appliances go, the only reason we haven't acted yet is because the purchase falls squarely in the 'want' category and not the 'need' column. All of the appliances are working, but if we replace anything we feel like we'd need to replace them all so that they match. More to come on this, but it's in interesting conundrum to be in where we have the cash to buy something but our desire to keep the cash is, at some times, greater than the enjoyment we'd get from the purchases.

In the investments arena, nothing has really changed. Including employer match, we add 14% of my gross income to 401k each month. About one third of our investment growth this month was really just our regular contributions with the other two thirds being actual gains in the market. We continue to be primarily invested in stock index funds but did not make any reallocation changes in the month.

Our cars seem to be pretty much fully depreciated as the KBB value hasn't changed in quite a while. My wife doesn't put very many miles on her car, but I'm approaching an exciting milestone on my car (200,000 miles!). I'm thrilled that my car has lasted as long as it has and that it seems to have plenty of life left. It's sad, but I do realize that my car is not immortal and will need to be replaced at some point. We've discussed a plan where we'll be setting some money aside to replace it, but hopefully not for at least another two years or so. Naturally whatever we decide to replace it with will be bought with cash, I'm just hoping it lasts long enough that I'll have the cash for the new Tesla that is supposed to come out next year.

Basically half of our increased net worth this month came from the real estate department. Houses have been selling quickly in our neighborhood, many for much higher prices than the estimate I'm using here, so this increase in property value seems justified. Ever since we got our mortgage, we've paid a little extra. Each time I've received a raise, part of the raise was allocated to the mortgage. My most recent raise has allowed us to pay a lot more than the minimum each month. This month and last month, we were able to pay ~$1,200 more than the minimum. We haven't decided whether we'll continue paying the mortgage at that level or not, but seeing the balance go down by noticeable amounts makes me happy, so we probably will until there is another specific need for the cash.

All in all, a great month and a great year so far. I feel that we're on track to hit our goal of $600,000 net worth this year. We've come a long way…