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.


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.

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.

EARNING

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.

GIVING

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.

SAVING

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.

SPENDING

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).

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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.

CASH

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.

INVESTMENTS

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.

CARS

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.

HOUSE/MORTGAGE

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.