Path to a Million: 2017 Q3

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Another quarter, another net worth update. This time is no different. My laser focus on keeping a tight budget has ensured continuous success with my net worth slowly but surely climbing through a combination of debt reduction and asset appreciation. I’m adding more to liquid savings, increasing retirement contributions in addition to accelerating my debt payments.

The importance of both sides of my balance sheet moving in the right direction at the same time is that it’s an indicator of the fact that I am finding ways to increase my household income. Whether it is a special project, a real estate transaction, a consult or even a travel stipend, our income has not remained stagnant. Often times, you may find yourself only able to move one side of your balance sheet. You can pay debt faster or you can save more but not both. That’s often a sign that there isn’t more income coming in and it takes one set back to undo all your hard work. Incremental changes matter but never miss an opportunity to accelerate your goals.

In any event, I am up nearly $22k for this quarter, a pace which could put me well over the 1/2 million mark this time next year and it motivates me even more. Updating this spreadsheet is borderline therapeutic. It is the balm that soothes any sting I may feel from not buying a new purse, packing a lunch or passing on that watch I’ve been coveting. It reminds me that there’s a greater purpose: seeing that ‘Student Loan’ line item say $0.

 

NW

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Solar Update – September 2017

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It’s time for another usual event: getting excited over receiving my utility bill. This year was my first full summer with the panels and I am pleased to report that they are performing as expected. I’ve had negative balances consistently since May which means not only do I not have to pay for the electricity, I’m producing more than I am using and thus I am accumulating credits for the colder shorter winter days. While our electricity usage spikes in the winter due to the continuous use of the heating system and we will not have enough credits to cover the entire winter, we are still likely to cover at least one full month of electricity with the credits we have accumulated since spring.

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Actual electricity bill for August 2017

If you’re curious what a full year of panel use looks like financially, take a look at the image below. For context, my house is 3,100 square feet and all of my appliances including clothes dryer and stove are electric. We also have central AC and the heating system is powered by electricity. We have 2 refrigerators and well water which uses an electric pump. This is not a typo. Between August 2016 and September 2017, we paid less than $500 in electric costs. That’s not even 2 months of cable in my house. How much would you save if you were powered by the sun?

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One year of usage

What Can you do with $1,400 a Month?

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I don’t know about you, but for me, not much. But according to the Social Security Administration, that is approximately the average monthly benefits that retired seniors were receiving as of December of 2016. This highlights the importance of having limited reliance on Social Security income later in life. It is no longer enough to have something to supplement Social Security, but it is looking more and more like Social Security itself is the supplement rather than the main source of income. Currently, we spend a third of that amount in my household for food per month. It is imperative that we plan appropriately if we want to maintain a decent standard of living. We do not have to live lavish lifestyles, while that would be nice, but it would also be rather unfortunate if we worked for 40+ years and ended up living in squalor in our old age.

Although I am relatively young, I place great value in planning for retirement. After all, due to the effects of compounding, time is not only of the essence, time is our friend, so we must start early. The more time we have, the more opportunities there are both for growth and for recovery in the event of a downturn. The time is now to build that solid nest egg. Barring an accident or illness, I have at least another 30 years of work left in me, 31 to be exact. I have been actively saving for retirement since June 2007. That is 41 years of full time work where wise lifestyle choices and prudent investments will come together to ensure that I live the life that I earned throughout my working career. Note that I didn’t say the life that I wanted. Because when it comes to being retired, you don’t get the life you want, you get the life you deserve. As harsh as it sounds, it is our reality.

Different practices both as a result of changes in our political landscape and employers’ decreased willingness to contribute to their employees lifestyle, has drastically modified retirement outcomes. There are fewer and fewer pension options for people who dedicate their lives to serving the public or helping advance companies. Most of our futures now depend on market volatility. Even those with pensions are now beginning to supplement their defined benefits with additional investments in 401ks or 403bs.

I know there is an older segment of our population that reasonably had expectations for a pension since that was the practice at the time. Unfortunately, things started changing later in their careers and they did not have the time to save enough to bridge the unanticipated gap. There are also changing factors like longer life expectancy that plays a significant role in the “nasty surprise” our seniors face when they began to outlive their funds. For example my former roommate actually told me that her grandmother outlived her retirement funds by 14 years. While she may have planned, she didn’t necessary plan to live to be 90 because back when she was in the working world, that was unheard of.

So we’ve identified the problem, but what steps are we taking to make sure we don’t fall victim to a lack of planning? Here’s what I’m doing:

Traditional IRA: I rolled over my 401k into a traditional IRA from a previous job approximately 3 years ago and today I contribute to it monthly.

401k: Unfortunately, this new job no longer offers a match but I can still save pre-tax so I started out by contributing $25 a pay period and increased it gradually until it reached 10% of my income.

Pension: I am eligible for a pension at age 55 if I work at least 10 years and the amount I am eligible to receive increases every year I work past the 10 years. I will most likely work at least the 10 years to ensure that I become eligible.

Real Estate Sales (Today): Selling real estate is a way of boosting my Social Security Income because the Self-Employment Tax that I pay out of my real estate income contributes to my social security payments.

Real Estate Sales (Later): I also plan to continue doing part time real estate sales a few years after I retire from my regular job. This will supplement my retirement income for the first 5-7 years delaying any distributions I will have to take to allow my investments to grow further.

Rental Properties: They are the gift that keep on giving. They don’t require much effort. As I get older, I will probably spend more money to outsource some of the services so I will no longer have to deal with tenants, but by then, my mortgage will be gone and my rents will likely increase so I don’t anticipate a significant drop in my margins.

Reduce Expenses: I will be doing my best to avoid debt, I will consider downsizing to one car, and my living expenses should decrease significantly as the mortgage on our primary residence will be gone.

What are you doing?

Lil’ Ugly: Driving my Way to Financial Freedom

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Actual car, not pictured

That’s my mom’s nickname for my car: Lil’ Ugly. She came up with that a few weeks ago. I don’t know if she’s just sick of the multiple dents and scrapes peppering the body of my beloved 2008 Honda Accord, but she has been on a pretty aggressive campaign to sow discord between me and my road buddy.

I am what you call a road warrior. I easily put 20,000 miles a year on my car. In my day job as well as my work with real estate, I do a lot of driving. While Massachusetts isn’t a very big state, it’s not that hard to hit the 20k club both a a real estate agent and a landlord running to and from properties. In all of these years and miles, my faithful commuting partner has remained loyal, offering great gas mileage and reliability.

I haven’t had a car note in 10 years and that has allowed me to save a tremendous amount of money. My husband’s car which is more recent (and in much better shape than mine) was paid off a year and a half early. So I am in no rush to jump into another car note situation, even though my car is becoming a topic of conversation every time I pull up. Instead of allowing it to stress me out, I revel in telling the stories of how I got each dent, scrape, chip and rust:

“This one is from when I was pulling out of the garage while steering with one hand and holding a water bottle in the other.”

“Picture it, Museum of Fine Arts, 2011. Hit and run.”

“I came out of the mall one day and I had this dent. Someone must have opened their door a little too hard.”

But how do I manage to not let the gentle teasing get to me? Well, it does get to me. I just dry my tears with the stack of thousands I save every year from having a reliable paid off car. I sob in my stock portfolio and wipe snot bubbles with my early retirement fund. Devastating…

Here’s what my car has cost me (besides gas) since I’ve owned it:

New tail lights: $15

New wipers: $30

New Tires: $500 x 2 = $1,000

Quarterly oil change (includes filter change, fluid top off and tire rotation): $40 x 4 = $160 annually

New brakes: $300 x 3 = $900

Service every 35k miles (currently at 137k so approximately 4x) averaging $500 each: $500 x 4 =  $2,000

That’s a total of just over $5,000, which means my car has cost me less than $75/month to maintain it. Meanwhile, others continue to pay $300-600/month on a car note, plus higher insurance premiums and excise taxes for those who lives in states with personal property tax (nearly 10 times my maintenance costs) just to be seen in a nice car. Now, in all honesty my husband’s car is much nicer and we do have that as a back up in the event that we need to go somewhere that my car is not respectable enough, so maybe that’s where my complacency comes from. If you are single or are in a one-vehicle household, you might want to have something nice in case there is an important affair to attend. But that’s still not a good enough reason to buy the most expensive car you will get approved for.

Just because the dealer says you can, doesn’t mean you should. If the key to success is living well below your means, it doesn’t make any sense to live at, or even above your means. Sure, I could afford a $500/month payment, but by refurbishing my old girl at the cost of $75/month, I’m saving close to $5,000 a year which I can put towards other ventures.

I do have to acknowledge though that I made a good decision early on that continues to pay dividends years later. Honda vehicles are known to be reliable and for that reason tend to have low cost of ownership as well as maintaining their values better than other cars. Although I can’t escape a new car for ever, I think there are enough Accords on the road with 200k+ miles to give me hope that my homie and I might be together at least another year if not longer.

Keeping Up with Social Media Millionaires

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In my Facebook circle, there were some serious allegations that a married couple who have portrayed themselves as being rich and successful may actually be faking the funk. Their claims were outlandish: customized helicopters, several cars worth 6 figures each, multi-million dollar deals, being worth 9 figures, John Legend as wedding singer in an upcoming $300k+ wedding.

If you watch TV shows like “Lives of the Super Rich” or even observe the average celebrity on TV, these claims of living the high life don’t seem too extraordinary. However, the people in question were a young black couple, both under the age of 30. The husband who was allegedly the source of the wealth, somehow managed to break into the commodities business 10 years ago at the age of 19. Yet, no one had heard of him. And I mean no one. Not my journalist friend who worked for a well-respected news publication, not people who actually work in the commodities market on Wall Street. Not. A. Soul. Young black multi-millionaire on the verge of being a billionaire, breaks into the competitive commodities business fresh out of high school with no college degree and he is never spotlighted. If this story is not adding up to you, you’re not alone. It was the outlandish nature of these claims that raised suspicion and prompted some people to contact acquaintances from their past to verify the claims. It turned out, they weren’t true. There are no millions, no private jets, no Bentleys. Hell, word on the street is there’s not even food in the fridge unless hard liquor is now categorized as food group. They are not home because they are retired millionaires. According to someone who knows them well, they are home because they are both unemployed. Apparently, even the credit card scams have not been enough to prevent multiple evictions.

You’re probably wondering why I’m discussing social media gossip on a blog that primarily deals with personal finances. However, in a way, this particular strain of “gossip” is related to personal finance. I wanted to show that we sometimes fall into the trap of believing and subsequently envying the carefully crafted lives and lies of internet posers. Evidently because we don’t know they are lies. We allow them to tap into our most primal instincts: our competitive nature. There were lots of pictures of Rolex watches and fancy cars. Now that we know that most of the pictures were lifted from Instagram, some were taken in the jewelry store and others were of rented or test-driven cars, I can’t help but wonder: How many of their Facebook “friends” ran up a credit card trying to buy a nice watch? How many people are going to blow their tax refund checks on an expensive purse that she claimed she owned because they wanted to be like her?

Although I was briefly in that circle of virtual friends who considered her husband’s (fake) success story of  an average black man to be “life goals”, I personally did not fall into the trap of keeping up with the Internet Great Value Kardashians. I may have believed (most of) their claims, but it is not in my nature to compete with other people’s wallets. I did what I was raised to do which was clap for their (fake) success but worry about my own coin purse. I remained focus on my goals of aggressively paying down my debts. However, not everyone has that resolve. My ability to resist any temptation is firmly rooted in the many years I’ve spent learning the necessary discipline that taught me to value freedom over image, peace of mind over glitz and long term goals over material things.

If you’ve ever fallen for a fake internet success story, you are not alone. We’ve all been there. But keep your eyes on your own finances. You never know which of those luxury cars are being taken for a test drive, which 5 carat “diamonds” are actually lab created white sapphires or which mental illness is fueling outlandish claims of financial success because someone confused their monopoly money for real cash after they stopped taking their medication.

Path to a Million: 2017 Q2

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I have a lot to be excited about! Slowly but surely, my net worth is going up…up…UP! I’ve done nothing but CRUSH debt so far this year and an trickle of additional sources of income has helped increase our savings while I fought tooth and nail to keep our household expenses down. I’ll let the numbers speak for themselves… Discipline pays off. Watching the assets increase and watching the total debt decrease at an even faster rate is what keeps me motivated.

The goal is for the student line item to be gone by December 31, 2017. Think I can do it?

NW

 

Solar Update – April 2017

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My favorite time of year has come! The days are longer, the snow seems to be gone for good, and birds are chirping on my way to work. Spring is upon us. I’ve always loved spring and summer, but now I have even more reasons to embrace the seasons. No, not just because the kids are out of school and there will be less traffic. Because it’s sun season! As you know, we got some solar panels last summer and we enjoyed many months of free electricity. It was truly a sad day when I had to pay for my first electric bill in months after the start of a frigid winter. These things will spoil you…

But the sun always shine eventually and, boy is it shining! My March 2017 electric bill was $38. We are retiring the heating for the season and thus expecting a much lower utility usage, until late June when we have to kick on the AC. Even then, I’m thinking that the 12-13 hours of sunlight that summers in New England graces us with should be sufficient to offset the worse of the damage. I might have reached the electric bill break even point. If so, I am looking forward to negative balances (I don’t say that very often) for many months to come so I can run my heat for free in November.

Let’s raise our glasses to sunny days, tax credits, and free electricity.