I Got Hacked!!

Several years ago in another state, our home was broken into while we were on vacation. We filed an insurance claim and within a few weeks, most everything was back to normal. For the rest of the time we lived there though, I always got a pit in my stomach coming home.

Last week, our digital house was broken into. Somehow, someone got my login info for my investment accounts and made some unauthorized trades. Having gone through both experiences, I can tell you that neither is fun. But being the victim of a digital crime sure beats being a victim in the physical world.

This would always be a big deal, but it was a bigger deal than just having our retirement accounts hacked since we also use our brokerage account as our primary checking account. Even though they don’t accept or disburse cash or have any locations near us, this works just as good as having a local bank or credit union. We rarely use cash for anything and if we need to get any, our ATM fees are reimbursed so I never care what the charge is to use a random gas station ATM.

What Happened

One day I was in a series of all-day meetings and took the chance to check my phone during a quick break. I saw that I had a series of notifications, including two missed calls, a voicemail, and a notification that some stock orders had been executed in my IRA.

I normally would brush off the other alerts (I hate voicemail), but the stock trade didn’t seem right. We have some automatic investments set up, but it wasn’t the right time of the month for that to be happening. My wife has joint access to all of our accounts but doesn’t usually do any transactions outside of our checking account. And lastly, what the heck is USAK and why did my phone say that I was the proud new owner of 15,000 shares?!?

I quickly excused myself from the meeting and did some more research. The voicemail was from my brokerage firm letting my know that they had noticed some suspicious activity on my accounts. As a result, they proactively had frozen my account from any more online transactions. Their fraud team was already all over it before I even let them know that this was, in fact, fraud.

The suspicious activity involved selling off my S&P 500 ETF, and immediately using the proceeds to buy shares of a somewhat thinly traded stock. My first thought was that this was a part of a “pump and dump” scheme. So far, though, I haven’t seen any activity that looks like dumping. In fact, whoever placed the order got the shares for under $6.30 and they are up >6% since then. Even though that’s better than my ETF over the same period, I’m glad things are back to normal.

I’ve been primarily invested in ETFs for a while now, but this experience has gotten me to think about going back to traditional Index Mutual Funds. Since they only can be bought or sold once a day, it wouldn’t be possible for someone to do intra-day trading like this.

What If You Get Hacked

The first thing to do if you find yourself in this situation is to know your brokerage firm’s fraud policy. Most big firms will have a policy that essentially boils down to you not being responsible for fraud. Just don’t do something stupid like give a crazy ex-girlfriend your password since that could imply authorization.

Fidelity has a Customer Protection Guarantee, Schwab has a Security Guarantee, and Vanguard has an Online Fraud Pledge. Each of these pages gives some tips on how to avoid this from happening. I follow most of these steps, but no one is completely immune. If you’re with one of these firms, relax. Call them as soon as you can to get it resolved, but don’t freak out either.

When I called in, they made me answer some additional security questions before changing my username and password. Because there could be a virus on my computer, they wouldn’t allow online transactions until I told them all my computers had been professionally scrubbed.

I trust myself more than Geek Squad’s competence and they were okay with me doing my own virus scans. As it turns out, something nasty was discovered during a virus scan on one of our seldom used laptops but all our machines are now squeaky clean.

The Aftermath

Because of this fraud, I had to spend about an hour on the phone and get new account numbers. They automatically set up the new accounts like the old ones, but we had to reestablish payments for our mortgage. I also had to reconfigure the new accounts in Mint and Personal Capital. We got a new checkbook over-nighted to us and I changed my direct deposit. The only remaining inconvenience is that we still don’t have a new debit card. I primarily use a credit card (that I pay in full every month) so this is fine.

In hindsight, this could have been MUCH worse. I’ve known people that have had this happen to in the past so I knew not to worry. I was surprised at how quickly it was resolved and how little was needed to prove that it was fraud. I hope you don’t ever have to go through this. But if you do, it isn’t as bad as you might think.

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.

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.

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.

How much do I charge? Let’s see what you drive first

Not many of my co-workers live nearby, so it was nice when I met one guy from work who lives in the next neighborhood over. We both moved to the area from out of state about 3 years ago and we’ve frequently shared tips about things around town we discover. We swap restaurant recommendations, hardware store suggestions, and even suggestions on which routes to take to work.

Earlier this week, he came to me and had a horror story to share about an oil change place in town that he went to with his wife’s car over the weekend. He normally changes his own oil but in this instance was in a hurry, so he went to a national chain oil change shop. When he got there, he told them he’s just looking for the most basic oil change and they had him go inside and sit down and then shortly came to him and gave him the rundown of what they were going to do. They told him that his car required a full synthetic oil and that the oil change was going to be $129.99! Of course by the time they told him that, they were already draining his oil so he couldn’t leave and try to find a cheaper place.

They went back to work on the car and left my friend in the waiting room. He had never changed the oil on this particular car before, but knew enough to realize that $129.99 didn’t sound quite right. While they were doing the work, he hopped on the free Wi-Fi and in a few minutes found that his car did NOT in fact require what they were telling him was a requirement. He quickly got the attention of the person that had been helping him to discuss the discrepancy and was told that “Oh well, it may not be required, but we recommend it.” And of course, an oil change doesn’t take that long so they had already put the new oil in the car.

Long story short, they went back and forth about him feeling misled and they ended up charging him the price he would have paid if they had done what he originally asked them to do instead of the much more expensive service they actually did under the guise of it being ‘required’.

So my friend tells me the story and the name of the shop so that I never get ripped off. I appreciated the tip but told him that I had actually been to that exact shop previously, and had a completely different experience.

It didn’t take long for me to realize why our experiences were so different. Care to guess what I drive and what he was driving?

Yep, that 11 year old Corolla pushing 200k miles would be me (although mine could use a carwash…). My friend was driving a $50k Lexus that was bought brand new less than a year ago.

It shouldn’t happen that businesses try to take advantage of people who look like they have more money, but clearly it does happen often, and not just at oil change shops. I’ve seen subcontractors set their base rate based on how nice your neighborhood is and how much they think you can afford. I’ve seen cell phone kiosk shops not put price labels on cell phone accessories so they can charge a higher price to someone who pulls out a corporate Amex card since they are more likely to buy it at any cost. Most car dealerships these days will have their inventory and prices online, but when you go to the lot the prices are either not on the vehicle or are higher than the online price.

Even though this may feel a bit shady, it is completely legal to charge different prices to different people for the same product or service, and companies spend a lot of time and money trying to figure out how to make sure you pay the most you can for whatever it is you’re buying.

So how can we avoid being a victim of this ‘price discrimination’?

Driving a crappy car generally may send a signal that you don’t have a lot of money to spare, but you probably don’t want to do it forever.

Likewise, living in an inexpensive neighborhood would likely avoid any ‘fancy neighborhood’ markup, but this isn’t really an option if you ever want to live in a nicer part of town.

Maybe you do like a friends’ grandpa who, when shopping for used cars, would take out his dentures, wear old clothes, and borrow a beater car so that he showed up at the dealership looking broke when in reality he planned to pay cash for a car. That could work, but I probably wouldn’t do it even for a one-time purchase.

In some other countries, I have friends who will send local friends shopping for them since the ‘English speaking price’ is so much higher than the ‘Local language price’, and even if you know the local price you can’t haggle down to it if you don’t speak the language. I really like this one, but it doesn’t really apply since I live in the U.S.

All of these may sound good but what really is going to work comes down to the basics of being an informed consumer. Don’t forget to shop around and get multiple price bids, especially for larger ticket items. Evaluate your alternatives and substitutes. Be willing to walk away and wait for a later time to buy. Call ahead to get a quote. Do your research enough so that, like my friend did, you can tell when something doesn’t seem quite right.

So if you do decide to buy that fancy car, be ready to be treated differently. And not always in a good way.

 

A Cautionary Tale

Let’s start this off with a story about someone I’ll just call John. John began working for a company in his early 20s and ended up staying with his same employer for over 30 years. During this time, John managed to work his way into a position that paid him very well. To give you an idea, his co-workers with similar tenure and title have averaged $200,000 per year or more for the past decade. John and his wife stayed in the same house in a working-class neighborhood even as his income increased to where some years’ earnings would have exceeded the value of his home. While they didn’t spend a lot on their home, they did spend a lot on other things, such as vacations.

Sadly, when John was in his mid-fifties, he suffered a stroke that left him unable to work. In an instant, he went from a comfortable income and lifestyle to unplanned early retirement. Although he had been earning a good income, he and his wife didn’t have much to show for it in savings or investments. This didn’t stop them from continuing to spend like they always had though. As their savings were depleted, an additional source of cash was discovered in the form of taking out a second mortgage.

As you can imagine, this story doesn’t have a happy ending. John passed away recently, in his late 50s with next to nothing left to support his wife and family.

John happens to be the friend of a friend and this came to my attention when I saw a GoFundMe site set up for people to help donate funds to cover the cost of a funeral. John’s widow was left without even enough money to cover the cost of a $7-10,000 funeral, where just a few years earlier he had been earning more than that each month. This is always sad to see, but even more so when I know that the financial outcome didn’t have to be this way.

What can we learn from this story?

  1. Save money and plan for the future. I’ve heard people say “I’ll start saving for retirement after (fill in the blank)”. Except as soon as that event happens, something else urgent comes up that causes them to continue delaying. Saving needs to be a habit and be done intentionally.
  2. Have life insurance. Even a small amount would have helped in this situation. I currently carry life insurance worth ~6x my income and have a net worth of ~5x my income. If I were to die, my wife would be left with a net worth greater than 20x our current household expenses. We have a plan in place where if something were to happen to me, my wife would know what to do with the money and would not have to work again. John’s widow has no plan.
  3. Repeat after me, “INCOME IS NOT THE SAME AS WEALTH“. It isn’t the amount of income you earn that determines your financial success, but rather the amount that you keep. I have met several millionaires who never earned an income near that of John’s, yet John died with nothing to his name. Income is only here temporarily, whereas true wealth is here forever.

Financial Infidelity

As we are making plans to celebrate out 10th wedding anniversary in the not too distant future, I thought I’d share something that has been on my mind that relates to relationships and money.

At work, we are getting close to the time that annual raises are announced. A co-worker confided with me that whenever this happens, he changes his direct deposit to have the extra funds go to a separate account that his wife doesn’t know anything about and doesn’t tell her anything about the raise. He thought this was a clever way to be able to have some extra spending money for “guy things”. I’m afraid I wasn’t as excited as he was about his plan and rained on his parade when I pointed out that the proper term for this behavior is ‘Financial Infidelity’.

What is Financial Infidelity? Financial Infidelity is the purposeful act of hiding money or spending from a spouse/significant other. I’m not referring here to things like buying gifts to surprise them in the near future, but making financial transactions and attempting to conceal them from a spouse. It could be that one spouse has a bank account or other assets that the other spouse doesn’t know about, or perhaps one spouse opens a credit card account to run up charges without the other knowing.

Something that falls into the same category is something a friend calls spousal money laundering. This is the act of using cash to conceal transactions from a spouse who diligently tracks all debit/credit card purchases and then finding creative ways to get more cash (for example, offering to pick things up from the store for friends and get paid back in cash that could then be used for other purchases that may have been scrutinized by the other spouse).

But if I don’t hide money from my spouse, he/she will just spend it all! Not if you’re on the same page financially. I wish there were a magic bullet for how to get to that point, but the best solution I’ve come across to this challenge is still to simply sit down together with your spouse and discuss long term goals you share as a couple. This is not generally something that can happen in one session, and requires true dialogue between the partners with minimal distractions and interruptions. Often the spouse attempting to do the hiding will need to ask the other spouse a lot of questions to try to understand their feelings and resist the urge to dictate what the couple’s goals should be. Both spouses will often find themselves conceding certain points before coming to a set of goals that both can agree upon. Once goals are truly determined, deciding what to do with money should be a much easier decision. If financial decisions are made that are not in line with the jointly set goals, then the process needs to start over again to uncover preferences not revealed in previous discussions.

If you lie to your spouse about money what else would you lie about? The reason that this is such a big deal is not because of the purchases themselves but rather the lack of integrity with the person you are supposed to cherish above all things. I can say from experience that a relationship is strengthened when everything is out in the open and nothing, financial or otherwise, is concealed. Financial infidelity can conceal innocent spending, or more sinister vices such as gambling or pornography. Whatever it is, when someone feels the need to conceal something from their spouse, their own selfishness and lack of trust is revealed. This can be overcome, but may require having some difficult discussions that have been swept under the rug or ignored in the past.

If you find yourself engaging in any of these behaviors, or think you spouse may be doing so, the best thing to do is to talk about it, plain and simple. I don’t pretend to be a relationship expert, but have found that as I have had difficult discussions with my wife, our relationship has been strengthened as we get to know each other better and make ourselves vulnerable to the other. To me, this is one of the great parts of sharing your life with someone. As with many things in a relationship, this all can be simplified to trust and communication. If you can successfully master this, you will be able to achieve great things together.

New Toy

I’ve been wanting a new laptop for a while now, but have continued to tell myself that it is just a want and not a need. Since we are saving and investing for other things, most ‘wants’, especially those with hefty price tags, are put on hold. But you know how sometimes a want just won’t go away? Yeah, that’s what happened to me with this desire. I seemed to find myself dreaming up reasons that I could justify the purchase as a need. I also began to try to justify the purchase since we could easily buy it without having to dip into savings. Even with all the justification going on, the practical side of me continued to win out.

After some handwringing and thought, I brought the idea up to my wife, who again helped me realize that this was definitely a want and not a need. We continued to talk about it over the next few days though and came to the conclusion that we would buy a new laptop if I found a way to pay for it other than just reducing the amount we planned to save this month. Enter Craigslist.

As time goes on I’ve gotten more and more apprehensive about using Craigslist (there’s a lot of crazy people out there), but I figured this would be a good use of it. Like many people out there, I have several things lying around the house that I rarely, if ever, use. Curious to see how much I could potentially sell them for, I went over to eBay and searched for ‘completed listings’ of the items to see what other people have been able to successfully sell things for. Imagine my surprise when I found that by selling 4 things that I never use, I could bring in about the same amount of cash I needed for the new laptop!

Thankfully, the rest of the story is pretty boring and I don’t have any stories to share of crazy people I met up with from Craigslist who tried to rip me off, rob me, or worse. To help keep things safe, I always make sure that I meet people in public areas (this morning I met someone inside a CVS where our entire interaction would be witnessed by a cashier and security cameras), and never give out my home address.

So far, I’ve only sold two of the four items I originally identified, which together brought in around 60% of the funds needed. I still have a few things outstanding, but have now begun to think of other things I have that I could be selling to get all the way there. For now, it’s close enough that I did go ahead and make the purchase. I view it as a win-win-win situation. I got a new laptop (win!), de-cluttered the house a bit (win!), and paid for the laptop mostly with Craigslist cash (win!).

This is news somehow?

I’ve come across a few articles recently that I really hope aren’t actually news to anyone reading them.

The basic theme of the articles is that you may find it harder to qualify for a mortgage if you have a lot of student loans. Really? That’s supposed to be news? Just because your debt is a student loan doesn’t mean it all of the sudden isn’t debt. Just like you’d have a hard time buying a house if you already spent half your income on car payments, if a large portion of your income is used to cover payments on student loans, banks will be hesitant to loan you even more money for a house.

One of the authors went so far as to say you may be better off not even going to college since you can still make a decent income without a college degree and you wouldn’t be saddled with mountains of student loans.

Taking a step back, I decided I wanted to look at this problem through a finance lens. In finance, when evaluating between two decisions, an easy analysis can be done called NPV, or Net Present Value. The purpose of the analysis is to compare two alternatives, and to account for the fact that having some money today is better than having the same amount of money in the future. In this case though, the question is whether going to college is worth the extra time and energy required versus just finding a job right out of high school and skipping college.

U.S. News reported that, on average, a 25-32 year old with a college degree earns about $17,500 per year more than their peers who only have a high school diploma and the average starting salary for a college graduate is around $45,500. Assuming that each person’s income grows at 3%, you would actually expect that gap to widen over time. Looking at those numbers, it’s no wonder that most people agree that getting a college education is worth the investment. Even foregoing four years of income in order to study you can expect to earn upwards of one million
dollars more over the course of your lifetime just for having a college degree. But what about those four years of school where you aren’t earning any income? That’s where this handy little NPV analysis comes in. This allows us to judge between two decisions by discounting the income from future periods to a ‘present value’. Here’s what I came up with:

A few things stood out to me from this chart. First, how crazy is it that a college graduate could earn about $1.5M more over the course of their lifetime?

Now, when comparing alternatives with NPV analysis, a higher NPV is better. As you can see, going to college without incurring any debt is your best long term strategy. The way I think about it though, whether to go to college is not a $1.5M decision, but rather a $80,000 decision (the difference between NPVs, not the difference between lifetime incomes). This is because even though (on average), you can make more income, a lot of the extra income is later in life and so not as valuable as income today.

Lastly, it is worth noting that this analysis shows that a getting a degree with some debt is still better than not going to college at all. The average student that graduates with debt has about $28,000 in debt. What these numbers show us is that, while still a higher NPV, by taking on debt to fund education, you effectively give up 20% of the benefit of the increased income.

I’ll be honest, when I first read that the average loan balance of college graduates was $28,000, I was surprised that it was so low. Financial news sites seem to only highlight cases where people borrow $100k+ and get a degree in a low paying field and then use these extreme examples to show that college isn’t worth the investment. What’s sad is that this same analysis shows that they are probably right. If you do happen to borrow $100k to get a degree that can only help you get an average paying job, this analysis would show that the act of borrowing heavily to finance an education negates the majority of the additional earning potential.

Living up to the “DIY” name

These past few weeks have been incredibly busy and are just now calming down. I’ve mentioned before that I tend to be a big do-it-yourselfer, and this past month has been packed morning, noon, and night with wrapping up several projects around the house. Some of the projects we have done (DIY or hired out) around the house this past year include:

  • Renovating two bathrooms (including new tile, sinks, faucets, and toilets)
  • Replacing our roof
  • Getting new carpet and fixing squeaky sub-floors
  • Installing trim throughout the house
  • Installing new insulation
  • Sanding and re-staining hardwood floors and replacing carpet with hardwood floors in one room
  • Painting nearly the entire house interior
  • Removing wallpaper in two bathrooms (this was such a pain, but was soooo necessary. My bathroom glowed red into the bedroom when the bathroom lights were on)
  • Seemingly never-ending yard work on our near two acre lot, including taking down trees, pruning, mowing, and lots of pressure washing

I enjoy projects and can’t remember very many times since I became a homeowner that I haven’t had some type of project going on. Since we rarely hire work out, doing projects sometimes takes a while, so we’ve all become accustomed to living in a construction zone, but the projects are usually contained to just one or two rooms of the house at a time. This time, however, we found ourselves simultaneously involved in some type of project in most rooms of the house, and gave ourselves a deadline to finish everything that we just barely met. In some ways it feels nice to not have any projects currently going on, but of course, I look around the house and see things I’d like to do. Thankfully my wife seems to have the same strain of remodeling addiction (if not worse), but for now we’ve made a joint decision that we’re done with major home projects for a while. I’ll post more later on the line of thinking that caused us to make this decision but suffice it to say, it’s all related to the theme of this blog.