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

Not Saving Could Cost You Your Life

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I am glued to my screen, just like every other American, watching in horror as disaster after disaster ravage the Caribbean and southern states. As I see the images unfold, I watch with sadness but also with frustration as news networks routinely interview people who refuse to refuse to evacuate.

While I understand that some are not leaving because of pride and in part because they may believe that the media is overplaying the seriousness of the storm, I’m also starting to realize that some people are not leaving because they simply cannot afford to. They don’t have the extra funds to cover hotels, gas, and food on the road. While that is not an adequate excuse given that shelters are free, it doesn’t change the fact that shelters do have capacity limits and there will always be a significant number of people who have to pay for a hotel out of pocket.

Despite the glamour of South Beach, the city of Miami which is projected to be one of the most affected parts of the state has its underclass. With Florida having a sizable senior population on fixed income, the fact that it is a red state where wages are lower and the fact that there is a large immigrant population all mean that many of those in the affected areas do not have a lot of disposable income. That usually means that people are not saving like they should be. I am certain I have said this in the past, but if I have not, let me say it now: in a capitalist society, a lack of resources can be dangerous if not downright fatal. Even when hotels are $50/night, that seemingly bargain basement price can seem like an insurmountable sum for someone who is in the red every month.

This storm was announced 2 weeks ago and some people still couldn’t make it happen. The very nature of an emergency is that it is unexpected. We can’t possibly know when every tragedy is going to happen. The best we can do is to be prepared to minimize its impact. Stay out of debt, save and have a plan that fits with the risks of your specific region. Government resources are limited and we cannot anticipate that we will always get help in a timely fashion or that assistance will come at all. Stay ready so you don’t have to get ready. Let this be your wake up call.

My thoughts and prayers are with everyone affected by our recent natural disasters, including the recent earthquake in Mexico. If you are in a position to donate, do so at your local level so most of your funds can actually do some good rather than getting eaten up by large overhead at giant corporations. If you can’t afford to donate, volunteer your time. If you’re too far, please remember people always get hurt in these tragedies and you can give blood no matter where you are in the country.

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?

The Case Against Automatic Payments

Saying that you’re against automatic payment in the world of personal finance definitely makes one an outsider. Most personal finance bloggers or advisers will tell their audiences to set up automatic payments. The common argument is that you’re less likely to forget about a bill than your online banking software. If you tell your bank to pay your mortgage every 1st of the month, the bank is not going to forget. However, you can go on vacation or have a bad day and your mortgage is the last thing on your mind when the first rolls around. That is however just one perspective. I’d like to present my own case against why I oppose automatic payments and you should too.

Reviewing your bill. If your arrange your payments like an infomercial oven using the “set it and forget it” technique, you are likely not going to prioritize reviewing your bill. Which means, sneaky little charges that your providers use to nickel and dime you will get past you and that’s exactly what they want. For example, when Comcast decided to start charging me twice as much for some premium channels, I only noticed because I actively pay my bill every month and immediately saw that the total balance was different from what I was paying before. I went over my bill line by line and saw where the extra charges came from. A call to customer service revealed that my previous rate was a promotional rate and my promotion expired the month before. I got a credit for the charges and changed my bill to a new promotion so I wouldn’t have to pay the higher fee. Otherwise, this would have gone unnoticed. Not having automatic payments forces me to look at my bill and makes me remember what a normal payment looks like.

Ghost charges. Subscriptions for small items that we don’t even think about are what I call ghost charges. You don’t even know they are there. The fee is very low and it’s been so long since you’ve used it that you don’t even remember anymore. But like clockwork, $5, 10, or even $20 comes out of your bank account. In my case, I had a Planet Fitness membership for $20/month. I had it for several years but I eventually moved to a town where there was no PF. It took me 2 months to realize that I was still paying that bill. If it was something that I had to actively pay every month, I would have realized that I no longer had any use for the membership that I was still paying for. The same is likely to happen with magazines (does anyone besides doctor’s offices order those still?), subscription boxes, infomercials that will send you refills “for life” etc.

Overdrafts. When you go to pay your bills, you are aware of exactly how much money is in your account. You also know when you are about to be paid. You can set up your bill payments around your anticipated bank balances. I don’t think anyone should be living like that because it means you’re living paycheck to paycheck, but I also live in the real world and understand it’s the reality of many. If there is ever the possibility that you may not have enough money in your account, the $35 overdraft fee is not something you can afford. And even if you do have enough money, there are other risks, like the time one of my payments did not go through because my credit card had been compromised and my bank closed my card without notifying me.

How we use our Employment Benefits to Maximize Every Dollar

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There is more to your job than just your salary. Most people receive some kind of benefit at work. Whether they are non monetary like a flexible schedule or more tangible like an employee discount, we get more from our employers than our paychecks. Here are four valuable benefits that we use (or have used in the past).

401K Match: For 5 years, I worked at a company that offered a 100% match for retirement contribution up to 6% of your salary. From the first day I started working, I made sure to contribute at least the 6% that would get me the 100% company match. Anything less would seem like I am leaving free money behind. I left that firm over 4 years ago and no longer receive a match at my new place of employment. However, my husband does receive a similar benefit (100% match up to 5% of his salary) and we make sure to take advantage of it. So now, when he contributes 10% of his salary, his account is actually receiving a deposit of 15%.

Graduate School: I often discuss my journey to becoming debt free and instrumental in all of that is the elimination of my student loan debt due to the high interest rate. I graduated 2 years ago in May from a program that cost $75K. However my loans were less than $50K thanks to the tuition assistance I received when I first started the MBA program. I did switch jobs in the middle of graduate school, which contributed to the balance of my loan, however, I am $28k closer to completing my payments as a result of being able to benefit from the tuition program early on in my studies.

Cellphone Discount: We have a family plan with 3 lines for smart phones that gives all the users unlimited data and text. If that sounds pricey, it’s because it is. However, my carrier offers an 18% discount to employees of my organization. Every 2-3 years, I recertify my employment by providing a either a scanned copy of my badge, a pay stub or some other form that would indicate I still work there.

BJ’s Wholesale Club: A BJ’s membership costs $50 a year for 2 people. Given the savings opportunities that buying in bulk offers, not to mention the low gas prices, that is already a fantastic deal. However, my husband’s job offers a discount where the membership costs less and is for a longer period of time: $40 for 16 months. Per month, the discounted price is nearly 1/2 the regular advertised price.

How are you maximizing your employee benefits?

I Create my own Sales

While I have a 9-5 where someone else tells me what to do and how to do it, I like to see myself as a “boss” in every other aspect of my life. I make my own schedule with my real estate work, I set my own prices for my rental properties, I determine what stocks I want to invest in, and sometimes, I create my own sales. I can’t always wait for a retailer to decide they want to unload a product. And while I’m at the prime of my life, I am past the stage of my life where it is acceptable for me to get trampled at black Friday sales. Yet, I refuse to pay full price for anything. So how do I reconcile the two? Here’s a story…

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My husband is an Oakley fan. I don’t know if he was always partial to their sunglasses or if it’s a by-product of his military service, but Oakleys are to him what Hondas are to me: when it’s time to upgrade, you just get a better model of the exact same make and style. So when the lenses of his sunglasses were scratched beyond recognition after 3-4 years of use, we went on the hunt for a pair of lenses (since the glasses are custom built, you can just replace whatever parts are damaged without purchasing a new pair). Unfortunately, the model that he has was no longer manufactured by the company and thus, parts were not available. They had a 2.0 version that was very similar but the newer parts were too big to fit into the old glasses.

I don’t know if most people know this but Oakley offers a trade-in program where you give them your old pair and they give you 25% off any new pair you purchase. So he built a new pair of sunglasses that are very similar to the ones he wished to replaced, albeit a little bit bigger, and the total price came out to $200. With the trade-in discount of 25% off, we got $50 off the price for a total $150. We then charged that $150 to our American Express card which had a $30 cash back for Oakley in the form of a statement credit. That statement credit hit almost immediately (I got a phone alert that it had been processed as soon as the transaction posted), so we ended up paying a total of $120 for a pair of $200 sunglasses, and to top it all off, we got 150 rewards points towards our points balance that we will use as we see fit going forward. Just in case you were not keeping up with the math, that’s the equivalent of 40% off. We did not have to wait in line or get pepper sprayed like Walmart unruly shoppers.

Nothing we wanted at the store was on sale, but we got a great deal anyway because every decision we make and every time we pull out our wallet, it’s a very deliberate move. There are no impulse buys or last minute decisions. Everything is well-planned.  Do you ever hear the phrase: “If you fail to plan, you plan to fail?” It’s not just a cliche.