Frugal Flannel

Budget Review for the Second Half of 2025

Sat, 10 Jan 2026 00:00:00 UTC

It’s been a year and a half since I’ve done a full and formal spending and budget review. And I really need to get my ducks in a row because we’re expecting our first child in spring 2026! And with that, many more expenses, both foreseen and surprises I’m sure.

I pretty much need to completely overhaul my budget from the mid-year 2024 review; it’s almost comical how off target I’ve been. Some of that has been strategically accelerated spending to get out of the way before we have a daycare bill and other associated expenses for keeping a tiny human alive. I recently took two weeks off work to renovate our kitchen, and that’s hopefully the last big housing expense coming our way for a while. Our fixer-upper is nearly fixed up, and most remaining tasks will demand more in labor than materials.

So, let’s take a look at the numbers, sorted highest to lowest by actual spending in each category:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Mortgage/Utilities	1,900.00	2,019.78
Add’l Housing Expenses	500.00	1,093.55
Car Payment	0.00	577.04
Child Expenses	0.00	348.06
Flannelcat	80.00	330.59
Groceries	250.00	306.08
Consumer Goods	75.00	227.02
Phone	20.00	206.29
Restaurants	100.00	196.32
Clothing/Shoes	75.00	155.95
Homebrewing	0.00	149.20
Car/Home Insurance	150.00	129.89
Alcohol/Bars	75.00	93.98
Misc. Entertainment	35.00	63.26
Gasoline	75.00	57.80
Student Loans	59.00	29.70
Coffee/Tea	50.00	28.65
Uncategorized	10.00	17.33
Misc. Taxes	35.00	14.16
Car Maintenance	50.00	11.49
Travel	200.00	0.00
Total Monthly Expenses	3,489.00	6,056.14
Net Monthly Income	5,200.00	6,635.56
Free Cash Flow/Month	1,711.00	579.42

I’m not surprised to see my housing expenses so high, after all we did renovate an entire kitchen, and I was able to offset a respectable percentage of our new cabinets by selling the old cabinets and countertops. That said, I had a lot of moderate purchases add up over the last six months, some of which I forgot about until summarizing it all here.

Unexpected vet bills. An unexpected phone upgrade (my Google Pixel 7a battery swelled up and it was out of warranty with a battery replacement costing more than the phone value, so I bought an iPhone Pro outright and hoping to use it for at least 5 years). I bought some home workout equipment. I also bought some homebrewing equipment since my brewing activities have been relocated out of the new kitchen. Probably one major purchase every month really bloated my budget; nominally this is the most I’ve ever spent during a six month average, just beating out my year-end 2023 spending. Inflation-adjusted, it’s the second highest (essentially tied with my six month spending average from December 2025):

One thing is clear, with an average of only $579.42 in monthly free cash flow, I need to pare my expenses back. Otherwise I will have to reduce my 401k contributions to fit in a daycare bill next fall, and I’d really rather not reduce my 401k. I value the tax-advantaged space it offers, and maxing it out has been the primary engine for most of my FIRE portfolio growth over the past decade. A few of my recent expenditures I believe were driven by the thought of buying something I’ve been thinking of getting now, before baby comes along and money gets tighter. I will definitely need to strongly evaluate any luxury consumerist purchases going forward, since I really don’t want to “bust my budget” in 2026 and end up with a negative free cash flow.

Budget Update, Net Changes, and Future Goals

I tried to take this information and distill it into an updated but more realistic budget; baby will bring more expenses (likely some of which I am overlooking) but I’m hoping we can avoid going crazy on baby gear through hand-me-downs and baby shower gifts. My dreams of going back to a lean, post-college budget are definitely over, however. Here’s the changes I made and the budget I’m hoping to stick to for the first half of 2026:

Expense	Budgeted Amount	Net Change
Mortgage/Utilities	2,000.00	+100
Car Payment	559.54	+559.54
Child Expenses	500.00	+500
Add’l Housing Expenses	300.00	-200
Groceries	300.00	+50
Travel	200.00	–
Car/Rental Insurance	150.00	–
Flannelcat	150.00	+70
Consumer Goods	150.00	+75
Restaurants	100.00	–
Gasoline	75.00	–
Clothing/Shoes	75.00	–
Alcohol/Bars	75.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Homebrewing*	50.00	+50
Misc. Entertainment	35.00	–
Misc. Taxes	35.00	–
Phone	15.94	-6.06
Uncategorized	10.00	–
Student Loans**	0.00	-59
Total Monthly Expenses	4,880.48	+1139.48
Net Monthly Income	6,000.00	+800
Free Cash Flow/Month	1,119.52	-339.48

* : New budget line item

** : Removed budget line item

Here’s the rationale for all of the changes I made, in sequential order:

While my mortgage payment is the same, utilities in Massachusetts are up since I last revised my budget, especially natural gas for heating.
I never formally updated my budget to include my new car payment after my old one was totaled.
I’ve guesstimated a baseline initial child cost of $500/month, so we will see how this shakes out and I know it will be increasing in fall 2026 when we start daycare.
Groceries definitely seem to be increasing faster than the stated inflation rate of 2%; meat is up nearly 5% over the past 12 months according to BLS.
Our cat is requiring more vet care and more prescriptions as he gets up there in age.
I’ve been consistently over-budget in “Consumer Goods” for a long time, which is probably due to the fact that I use this as a catchall category for buying “stuff” (especially from Amazon) that doesn’t neatly fit into any other category. I’m increasing the budget amount, but I’ll try to stay mindful of every purchase.
I broke out “Homebrewing” into its own category since it’s a consistent and recurring hobby expense. This may reduce “Alcohol/Bars” but probably not. I’m actually barely drinking alcohol, I’m both buying and brewing mainly non-alcoholic beer which I suppose while better for health, is worse for the wallet because it’s more expensive than regular beer, and one can drink more of it with no ill effects.
My phone spending has been updated to the cost of my new prepaid T-Mobile plan. This new iPhone had better last me a long time.
My student loans are paid off! This expense is eliminated and will be deleted from future budgets.
I’ve adjusted my net income to reflect my current income, and the free cash flow calculation flows as expected from net income minus expenses.

If I’m successful in sticking to this budget, it will represent a 19.4% reduction in spending from this end of year review, as well as leave me enough free cash flow to max out my IRA in the first half of the year. I’ve also made myself a note to start contributing to a dependent care FSA when baby is born, so we can get some pre-tax dollars contributed and use the tax savings to offset some daycare spending.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$3,476.52
401k	$14,367.03
Pension	$2,435.84
HSA	$500.00
Roth IRA	$0.00
Taxable Brokerage	$0.00
Total Saved	$20,779.39

Despite my high expenses I still managed some respectable savings, although it’s more on par with how much I was saving when I started this blog in 2019 than some of the recent years where I managed to save over $30k in some six month periods. Happy to have my 401k maxed out through automatic paycheck deductions so this budget bust did not turn into a savings bust!

To close out 2025, I had $48,800 in total annual savings when adding in what I saved during the first half of the year. A lot of my portfolio growth is still coming from contributions at this stage.

Net Worth Check-up


June 30, 2025 Net Worth	$644,274
December 31, 2025 Net Worth	$713,634
6 Month Change	$69,360

Wow, apparently I rocketed over a $700k net worth for the first time ever! My net worth has doubled in two and a half years — it was $355k at the 2023 mid-year check in. A lot of this was savings, but I just checked and the S&P 500 is up 56% over that same period.

I haven’t bothered looking at the stock market in so long that I had zero clue the S&P 500 index was close to hitting 7,000 points. I also must have slept through that ~20% pullback from 6,150 to 5,000 points in the spring of 2025, because I didn’t notice that either until just checking the chart. Sometimes it’s beneficial to disconnect, but I think the overall lesson of this budget review is that I need to find a good balance of autopilot with my savings and investments, and conscious management of my spending and budget.

Time to leave 2025’s finances in the past — aside from filing taxes in a few weeks — and I’m looking forward to everything 2026 will bring!

My FIRE Projection Update for 2025

Mon, 06 Oct 2025 00:00:00 UTC

I’ve made a habit of updating my projections towards hitting financial independence every two years since starting this blog. This is the fourth entry in this series.

When I started this blog in July 2019, my FIRE target was an even $1 million and my goal was to retire by age 40. Inflated to August 2025, the latest month for which the BLS has inflation data, that’s $1.26M in today’s dollars. However, my expenses have gone up over time, especially since buying a home, which means my required retirement portfolio balance has gone up as well. I’m now 32 and been in the work force for a decade, so I’d like to check up how my financial trajectory is looking.

Looking at the past six months of my spending for some recent data, I spent an average of $5,108.83 per month. This is much higher than last time I did a FIRE projection update — my fall 2023 average monthly spend was $3,756 per month — and it includes the very large expense of redoing the roof on my house, however large expenses like that will be part of early retirement as well so I’m going to roll with it rather than cook the data.

Using the oft-quoted “four percent rule”, essentially multiplying my projected annual expenses by 25, results in an estimated required retirement portfolio balance of $1.532M.

For the purposes of calculating my total retirement savings, I need to exclude my home equity. I essentially just subtract out the home equity component from my net worth of $678,631 to obtain the total value of my liquid investable assets: $528,744.

I can now use a compound interest calculation to project my investment value forward while accounting for continuing to save $4,676 per month (an average taken from my past six months of data), along with my expected average rate of investment return, for which I like to use a 5% real return.

Calculating out this data until I hit my required FIRE portfolio balance of $1.532M, and then graphing it on the same graph I’ve been collecting the previous six years of data on, using purple for 2025’s projection, I get the following neat visual:

My FIRE date has pushed back to around 42 years old in this projection which would occur in the year 2035. This shift is clearly due to my high recent expenses; we can see that I currently have a higher FIRE portfolio balance than expected at any previous projection, and the 2025 projection accelerates away from the other lines, indicating that I’m also saving more than expected during any previous projection.

If I am able to reduce my average expenses over time, that will help slide my early retirement date to the left again. To be back on track to retire at 40, I’d need to reduce my expenses to around $4,300 per month, which seems like a reasonable reduction especially once the big home renovation projects have been completed.

Another consideration, where am I in terms of “coast FIRE” i.e. if I never saved another penny, how long would it take my investments to grow to hit my FIRE number in real terms? About 22 years, assuming a 5% real return! Assuming I can find work that is enough just to pay my living expenses, I’d still be able to retire comfortably at age 54, which is certainly still early by average American standards.

One final interesting way to look at my progress — my current liquid investable assets of $528,744 would support at a 4% withdrawal rate a monthly expenditure of $1,762. That’s some pretty respectable passive income, although certainly not enough to live off of with my current lifestyle!

Dusting Off, Over A Year Later

Wed, 03 Sep 2025 00:00:00 UTC

My last post here on Frugal Flannel was July 3rd, 2024, over one year ago! The internet is interesting in that people (or at least their personas) tend to completely fall off of it with no explanation. Did I just lose interest in writing here? Did I gamble my FIRE portfolio away in Vegas? Was I even still alive? Sorry to say, nobody came looking for me, or at least this version of me.

One contributor to my absence is that I’ve just grown so tired of the modern internet. I complained last June about Google deranking and removing this blog for no apparent reason despite my posts having a good Click-Through Rate from their search engine and an increasing number of visitors over time. I’ve attempted a few things including patience to see if I can get back in Google’s good graces, but two years after whatever algorithm change they made that nuked traffic to my blog, the path forward isn’t any less opaque.

Since then it’s clear the internet is only growing worse over time, with countless pages of GPT-generated slop flooding onto the web every minute. I swear that whenever I search for finance-related topics, no matter what search engine I use I almost never find independent blogs anymore. The results are instead mostly the same dozen boring but established financial-adjacent tabloids like Forbes, The Motley Fool, CNBC Money, and their ilk (despite having low relevance to the keywords I input) with a few AI slop blogspam articles thrown in for good measure. These AI articles are just pages and pages of textual nonsense formatted and designed in a way that they’ll match a long-tail query exactly by random chance, with the odds of clickthrough rising by the sheer number of pages of AI vomit that can be nearly instantly generated and published. Where did the humans go?

I also realized semi-recently that due to the lack of discovery mechanisms, I don’t interact with FIRE content at all anymore. Most of the FIRE blogs I used to follow have stopped posting, and a few even sold out to content farmers. I’m not on Reddit or any other forums, the value proposition of those having gone to nearly zero for me several years ago. I do read books about general finance and economics for my own enjoyment and education, but that’s a few shades removed from the personal finance category. The result is that FIRE for me has entirely lost the community feel that it once had, solidifying as a solo journey.

I’m sure there’s tons of good FIRE content out there that I haven’t discovered! But it’s just so difficult to find anything decent without investing an inordinate amount of time filtering out junk, AI slop, scams, and low quality information. The internet is rotting. Pragmatically, I usually choose not to even bother wasting my time. Often the last thing I want to do after staring at a screen all day at work is to come home and do the same (I make an exception for E-Ink screens, which I simply adore reading on, and seem to have none of the eye strain of traditional displays).

Anyway, that’s enough whining. So where have I been since I abandoned this blog?

Financially, it’s mostly been business as usual. Work, save, invest, repeat. I won’t go back and create budget review posts for the check-ins I missed, but I was absolutely continuing to track my expenses, savings, and net worth every single month.

My expenses have continued to remain higher than ideal due to ongoing home renovation expenses, and the fact that I was forced into getting a new car far sooner than I would have otherwise. My car was totaled by an elderly driver just shy of it turning 10 years old. I was originally hoping to drive it for a total of 12-15 years, and I was really enjoying not having a car payment, but my hand was forced by factors beyond my control. So I now have a $559 per month car payment after putting the $11,500 I was paid out by insurance for my totaled car as a down payment on a new one. Side note, I paid $26,500 for that car brand new in 2015, so to drive it for almost a decade and put shy of 200k miles on it, while only losing $15k in depreciation is pretty amazing, and given the prices of new cars nowadays, probably an unlikely event to reoccur.

My financial stats on this blog were frozen at my previous most recent update in June 2024, where I reported a net worth of $479,211. I’m happy to report that a little over a year later I’m at a net worth of $670,279! Obviously both US and international total stock market indices are at all-time-highs, which has catalyzed my continued net worth growth as I continue to sock away my savings.

As of my budget and expenses review for the first half of 2025, my average spending YTD remains over $5,000 per month, chalking up as my third highest six-month average spend ever, both in nominal and inflation-adjusted terms:

Buying a fixer-upper house (even DIYing as much as I can) has proven to be quite expensive when contrasted with my apartment life where I consistently spent $3,000 per month or less on average. We have just a couple of major renovation projects remaining, then this should taper off. I’m hoping to do the kitchen this fall/winter, which should be the most expensive of the remaining renovations.

Honestly, home renovations have been how I’ve been spending a lot of my free time on the weekends. I enjoy the physical labor, saving money by doing the renovations myself, and the peacefulness of time spent offline.

I plan to keep the blog alive with ad-hoc posts when they come to mind, and sharing my financial milestones. Next up, I plan to update my FIRE projection and see if I’m on track to retire by 40, which was my original goal when I started this blog. It’s been two years since my last projection (and six years since the first one!) so it will be nice to find out quantitatively just how close I am to early retirement.

Budget Review for the First Half of 2024

Wed, 03 Jul 2024 00:00:00 UTC

It’s once again time to check in and document my progress! Besides my post last week I’ve been pretty quiet. And honestly, I’m not thinking about money or FIRE much these days. The months come and go, I try to save more than I spend, and most months my net worth goes up.

Some people call this the “boring middle.” I don’t like to think that way. Looking at my finances regularly might be boring, other than when I zoom out and realize that net worth curve is starting to look an awful lot like an exponential function, because I’ve been at this FIRE thing for over nine years now.

Besides that I’m out there somewhere, living and enjoying life. The money stuff is second nature at this point. I’m lucky I don’t have to spend too much mental energy focusing on it.

I didn’t set any particular goals for myself last time, other than the ever-present goal to try and keep my spending on target. Let’s see how I did:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Mortgage/Utilities	1,850.00	1,968.20
Add’l Housing Expenses	500.00	1,172.18
Groceries	200.00	268.66
Travel	200.00	200.00
Consumer Goods	75.00	173.61
Alcohol/Bars	50.00	125.31
Car/Home Insurance	150.00	123.65
Student Loans	59.00	59.39
Restaurants	150.00	50.65
Coffee/Tea	50.00	45.81
Gasoline	75.00	38.05
Flannelcat	80.00	26.48
Phone	20.00	20.00
Clothing/Shoes	75.00	19.80
Misc. Entertainment	35.00	18.31
Misc. Taxes	35.00	12.33
Car Maintenance	50.00	4.21
Uncategorized	10.00	0.00
Car Payment	0.00	0.00
Total Monthly Expenses	3,664.00	4,326.64
Net Monthly Income	5,200.00	5,995.87
Free Cash Flow/Month	1,536.00	1,669.23

After crunching the numbers it’s obvious I went over budget by quite a bit — $662.64, or about 18% of my target spending.

Notably, a large overage was in my fairly new Additional Housing Expenses category in which I spent $1,172.18, or $672.18 over budget. We ended up doing a few home renovation projects ahead of schedule due to getting good prices on the labor. I think this wraps up all of the most expensive things we will do in the near future besides a kitchen update.

It is certainly easier to budget in an apartment. If we isolate the overspending on housing, I would have been right on target; the overspending in some categories balanced out with underspending in others. Other categories of particular interest this time are all food-related.

I overspent by quite a bit on alcohol and bars; $75 per month over budget. Ironic since I track my drinking and I consumed about 1/3 less alcohol during these recent six months than the latter half of 2023. I tried out a bunch of non-alcoholic beers and “spirit alternatives” which I guess added up. I’m torn on this because I found non-alcoholic alternatives a great way to cut down on drinking, but they’re more expensive than regular beer and liquor. Overall it seems a small price to pay for a healthier lifestyle.

I also wasted probably around $200 in failed attempts to homebrew non-alcoholic beer, which I’ve learned is much more difficult to make than regular beer. There are a lot more variables to consider especially food safety related.

In other news I have barely been going out to eat at restaurants, spending on average just $50 per month to eat out. I wrote a couple of years ago how I felt that inflation was eroding the value proposition of restaurants and although inflation has mostly subsided it feels like the slow decline in restaurant quality has not. Nothing bothers me quite like going out to eat and paying exorbitant prices for food that I could have made better myself at home.

Budget Update, Net Changes, and Future Goals

I updated my permanent budget with adjusted numbers to try and create something I can stick to during the second half of this year:

Expense	Budgeted Amount	Net Change
Mortgage/Utilities	1,900.00	+50
Add’l Housing Expenses	500.00	–
Groceries	250.00	+50
Travel	200.00	–
Car/Rental Insurance	150.00	–
Restaurants	100.00	-50
Flannelcat	80.00	–
Consumer Goods	75.00	–
Gasoline	75.00	–
Clothing/Shoes	75.00	–
Alcohol/Bars	75.00	+25
Student Loans	59.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Misc. Entertainment	35.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Uncategorized	10.00	–
Car Payment	0.00	–
Total Monthly Expenses	3,739.00	+75
Net Monthly Income	5,400.00	+200
Free Cash Flow/Month	1,661.00	+125

Here’s the rationale for every value change explained in sequential order:

Property tax increases.
I both added money to my Groceries budget, and subtracted the same amount from my Restaurants budget to try and more accurately tune how I’m spending my money on food.
I added more money to Alcohol/Bars to accommodate spending a bit more for non-alcoholic alternatives to reduce my alcohol consumption.
A small raise at my job has me earning a bit more in monthly income.

I think that an average total monthly expenditure of $3,739 per month is something that I can stick to this time around, especially with no big home renovation projects planned for the near future. I will keep plugging along with labor-intensive but inexpensive DIY projects such as painting.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$50.82
401k	$14,585.28
Pension	$2,710.66
HSA	$450.00
Roth IRA	$7,000.00
Taxable Brokerage	$2,773.28
Total Saved	$27,570.04

Overall, quite pleased to see this number. Automatic deductions to max out one’s 401(k) sure can do a lot of heavy lifting when it comes to saving!

I will be trying to focus a bit more on bank account opening bonuses to increase my savings, currently I am doing the $900 targeted offer from Chase. I have apparently churned too many credit cards recently as I have been difficulty getting approved for new cards with welcome bonuses, so I’m going to focus on jumping between bank offers as those are easier to get approved for.

I have already maxed out my Roth IRA for the year, so I should be contributing more towards my taxable brokerage during the rest of the year.

Net Worth Check-up


December 31, 2023 Net Worth	$410,711
June 30, 2024 Net Worth	$479,211
6 Month Change	$68,500

The stock market has obviously been doing well this year and my wealth continues to compound. I may be halfway to millionaire status some time very soon, which is a very exciting milestone.

Google Hates Small, Independent Websites

Tue, 25 Jun 2024 00:00:00 UTC

I long ago gave up on the idea of making any money from this blog. I inherently dislike advertisements anyway, and this site has never had enough traffic to make it worth compromising a clean interface to enable something like Google Adsense in order to make a couple hundred bucks per year. I’ve posted a few referral links over the years to credit cards and products that I actually use and those were a bust.

Not caring about monetization in itself is nice, because I only post here when I have something to say. But I’m also posting on the internet for the potential of other people discovering and reading what I’ve written — otherwise I’d just keep it offline on my local machine.

As many people know Google is the largest driver of internet traffic by far. For many people, it is their primary gateway to discovering content around the web. Google regularly updates their proprietary search engine algorithm, tweaking different hidden factors to change what content is displayed to searchers. And over the past couple of years these changes have decimated organic search traffic to Frugal Flannel.

Heck, look what happens when I Google the name of my own darn blog:

The top 3 results are:

Reddit, possibly influenced by searchers increasingly appending “reddit” to searches in a bid to find discussion between real humans in a sea of GPT-generated SEO spam. Also possibly influenced by the $60M per year Google is paying Reddit to use their data for AI training, which gives them a vested interest in getting more people using Reddit.
A user of the free WordPress blog service that also named their blog Frugal Flannel. They started their blog after I did, and have not posted a single thing in over four years. But they get to hitchhike on WordPress.com’s domain authority.
Google overriding my autonomy and thinking they know better what I mean to search for than what I typed, decides the best match for my query is “cheap flannel shirts” on Amazon.

I click through many more pages of links to flannel shirts, and my blog is nowhere to be found. Okay, maybe Amazon and Reddit have more domain authority than I do. But a defunct blog on the free subdomain of WordPress, that couldn’t have gotten www.frugalflannel.com if they wanted to pay for a dedicated domain, because I had it registered when they started their blog?

Going back to Google’s algorithm updates, here’s how traffic referred to this site from Google has changed over the years, as reported in Jetpack:

Year	Clicks referred from Google Search
2019 (site launched in July)	14
2020	142
2021	539
2022	1,020
2023	620
2024 (YTD)	30

Everything was working as expected until early 2023. “Expected” being how bloggers are told it should work:

I add novel and interesting content to my website over time, which increases the amount of total information on my site and the chances it will collide with a search someone is performing.
My domain stays registered for years, which should increase my domain authority.
I try to create high quality content that people will find useful. My click-through rate (CTR) averages around 2%, which means for every 100 people seeing my website in a search result, 2 of them clicked it. As far as I can tell this is a decent CTR for a blog. Some of my articles had CTRs of 10% or even 20% and used to rank on the first page of Google.

Did I violate some policy and offend the overlords at Google? Not as far as I can tell. My content is tame and on-topic. Everything I write is original and written by me (or otherwise properly cited), nothing I write about is illegal, and I don’t think I’ve even used profanity anywhere on this site.

I even use the Google Search Console tool (and have for years), which allows webmasters to upload a sitemap to make it easier for Google to crawl their sites, as well as shows what pages are appearing in search for specific terms and how many clicks they have generated. The graph it presents shows a steady decay since early 2023 in the number of users being shown any content from Frugal Flannel in search results, and although my CTR remained about the same this obviously leads to less total clicks.

At least Bing, DuckDuckGo, Yahoo, and Baidu still like me. But combined, they’re a fraction of the organic search traffic that Google is capable of generating. When one runs afoul of Google — or, more accurately, runs afoul of its algorithms — clicks to their website can evaporate overnight, and they may have no idea why, or what they can do to get back in its good graces. I’m glad that I’m not making a living off online content, each and every day relying on Google’s continued benevolence.

Dear Mr. Sundar Pichai, would I get off the naughty list if I enable Google AdSense on my site?

Does a Toaster Oven Save Money on Utility Bills?

Thu, 25 Jan 2024 00:00:00 UTC

Occasionally I make toast, and it seems wasteful to heat the entire oven to toast a few pieces of bread. We’ve had people look at us funny when we use the full-size oven to make toast. Intuitively, one may think that a toaster or toaster oven would be more efficient to operate. On the other hand, counter space is sacred and I don’t want to waste it on a redundant appliance, so it warrants an in-depth investigation.

Search engines are becoming increasingly useless for these types of queries. So I figured I’d take a quick look at whether a toaster oven has a positive return on investment within a reasonable time span.

My oven uses natural gas and according to the manufacturer, the bake function uses 16,000 BTU per hour. A BTU is 1.0E-5 therms, so this converts to 0.16 therms per hour. If we assume it takes 5 minutes to toast bread (you really don’t have to wait for it to preheat), this becomes 0.0133 therms per toasting event.

In reality, the consumption is likely higher for short cooking times as the manufacturer only provides an average per hour, and the stove uses the most energy when first heating up, then much less to maintain the target temperature.

I was charged $2.17 per therm on my most recent natural gas bill. So it costs about 35 cents to run the stove for an hour, and 2.8 cents to make toast.

A mid-sized $90 toaster oven I looked up on Amazon, the Black and Decker TO3215SS model which handles 6 slices, uses 1500 Watts. If we assume the element is on the whole time it’s making toast this becomes an easy conversion of 1.5kWh to run the toaster oven. (Side note, a traditional standing 4 slice toaster looks to use around 1300 Watts, so a similar level of consumption.)

My electricity costs 32.9 cents per kWh. So running the toaster oven for an hour would cost 49.35 cents, assuming the heating element is on the whole time. Which it may very well be at higher temperatures as these toaster ovens are poorly insulated with only a glass pane for the door. To run for 5 minutes to make toast, this would be 4.11 cents.

Using averages over an hour, running the full-size gas oven is cheaper than running an electric toaster oven. Which is likely just a quirk of utility arbitrage; natural gas consistently tends to be cheaper than electricity per equivalent unit of energy.

However, we can do a thought exercise and say that even if the gas oven used 300% more fuel than the manufacturer’s stated average consumption while heating up, this would be 8.68 cents to make toast, costing about 4.5 cents more per toasting event than the electric toaster. You would need to make toast 2,000 times for the $90 toaster oven to pay for itself, which is about 5.5 years of daily morning toast. The toaster oven may break before then, as I’ve had a couple in the past that only lasted a few years each.

What about an electric oven for an apples to apples comparison?

The manufacturer of my oven offers a “dual fuel” version with an electrical oven component, a perfect comparison point. This uses 2850 Watts for the bake function, 1.9x more power than the toaster oven. Again, if we assume the elements are running at maximum power for the short 5 minute toasting event, we have 7.8 cents to use the full-size oven versus 4.11 cents for the toaster oven. Similar to the above example, we’re at over 2,400 toasting events to break even on the initial $90 cost of the toaster oven.

For longer baking events, it’s even possible for the full-size oven to be more economical than a toaster oven. It’s plausible that the better insulation it offers would result in the element running less than 50% of the time once it reaches operating temperature, whereas the toaster oven element may have to be running at full bore.

Conclusion: a toaster oven is a waste of money and counter space

Regardless of the fuel source of your full-size oven, it doesn’t seem realistic for a toaster oven to pay for itself with utility savings, as most owners seem to report them breaking in five years or less. Keep in mind that I live in Massachusetts with some of the highest utility prices in the US, comparable to across the pond in the UK. So for those who live where electricity is cheaper, it pushes the break-even point for the toaster oven out further and makes it even worse of a financial proposal.

It could certainly be reasonable and frugal for a single person or a couple to skip purchasing a full-size oven (thus pocketing the appliance cost) and do all of their cooking in one of the larger toaster ovens, but that’s a very niche use case.

As for myself I’ll continue toasting bread in my full-size natural gas oven now that logic has proven this to be a reasonable and possibly even the more frugal approach.

Budget Review for the Second Half of 2023

Fri, 05 Jan 2024 00:00:00 UTC

Happy New Year! It’s been a while since I’ve written on this blog. But, 2023 is done and I wouldn’t miss a budget review for anything.

It’s been a busy (and expensive) end to the year. We got married, attended several other weddings, and continued to work on repairing and updating our house.

Here’s the goals that I set for myself in July:

Control spending as much as possible during this period of high expenses to prevent another budget blowout.
Make sure to max out my Roth IRA before the end of the year.
Ratchet my 401k contributions back up now that I have rebuilt my emergency fund, in preparation for maxing it out next year.

I’m glad to say that I hit my savings goals, my Roth IRA is maxed for the year and a couple paychecks ago I increased my 401k contributions to a level that will allow me to max it out in 2024.

My budget, however, was another matter after accounting for my half of the wedding expenses:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Wedding Planning*	500.00	1,893.16
Mortgage/Utilities	1,800.00	1,837.68
Add’l Housing Expenses	300.00	565.56
Alcohol/Bars	50.00	327.83
Groceries	200.00	215.81
Travel	200.00	200.00
Car Maintenance	50.00	168.89
Clothing/Shoes	75.00	131.46
Consumer Goods	75.00	127.94
Restaurants	150.00	94.99
Car/Home Insurance	150.00	85.81
Misc. Entertainment	35.00	75.12
Coffee/Tea	50.00	68.37
Flannelcat	80.00	63.56
Gasoline	75.00	58.65
Phone	20.00	50.00
Student Loans	59.00	29.70
Misc. Taxes	35.00	20.67
Uncategorized	10.00	0.00
Car Payment	0.00	0.00
Total Monthly Expenses	3,914.00	6,015.20
Net Monthly Income	5,100.00	8,953.39
Free Cash Flow/Month	1,186.00	2,938.19

* : Temporary budget category

A budget blowout, and an income extravaganza? Our wedding really threw off my budget in a way that I couldn’t predict. I was estimating it would cost us each about $3k net out of pocket, but we ended up making far more than we spent back in gifts.

Clearly, home ownership is expensive, and while buying a fixer upper allowed us to save a lot on the purchase price and monthly mortgage, I’ve been paying an average of $565 per month for hardware supplies, tools, and other maintenance in addition to the mortgage PITI.

In the alcohol and bars category, I spent about $1400 building a custom kegerator so I can carbonate my homebrewed beer and make my own seltzer. I’ve (halfway jokingly) calculated that it will pay for itself if I can drink about 400 gallons of seltzer water.

I also had to get new tires for my car, but beyond that it’s clear there’s just some general overspending across the board in many categories. I’m confident that I can mark off this average spending of $6k per month as the highest period of expenses for many years to come. But, the theme of 2024 will be taking a more conscious look at each and every purchase as to where it falls between the wants versus needs.

Budget Update, Net Changes, and Future Goals

Expense	Budgeted Amount	Net Change
Mortgage/Utilities	1,850.00	+50
Add’l Housing Expenses	500.00	+200
Groceries	200.00	–
Travel	200.00	–
Restaurants	150.00	–
Car/Rental Insurance	150.00	–
Flannelcat	80.00	–
Consumer Goods	75.00	–
Gasoline	75.00	–
Clothing/Shoes	75.00	–
Student Loans	59.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Misc. Entertainment	35.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Uncategorized	10.00	–
Wedding Planning*	0.00	-500
Car Payment	0.00	–
Total Monthly Expenses	3,664.00	-250
Net Monthly Income	5,200.00	+100
Free Cash Flow/Month	1,536.00	+350

Here’s the rationale for every value change explained in sequential order:

I apparently underestimated how much more expensive it is to heat a whole house compared to an apartment, so my mortgage/utilities category has been revised up $50 per month.
I also underestimated how much we would be spending on home improvements, so this category has been revised up $200 per month. I expect this to drop sharply in a couple years or so when we’ve finished most major projects.
The wedding planning category is no longer needed and will be deleted.
I expect to earn about $100 more per month due to a cost of living adjustment for my salary.

All in all, my budget is decreasing by an estimated $250 per month. It will be really great to get back on track spending-wise with this target in mind.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$11,129.14
401k	$10,925.32
Pension	$2,541.58
HSA	$450.00
Roth IRA	$6,500.00
Taxable Brokerage	$0.00
Total Saved	$31,546.04

An all-time high for savings, by about $180! So despite the wedding expenses, all remained well in the land of building wealth.

Net Worth Check-up


June 30, 2023 Net Worth	$355,832
December 31, 2023 Net Worth	$410,711
6 Month Change	$54,879

Onward and upward thanks to my savings and a rising stock market. The momentum is obvious, and I occasionally need to remind myself to just stick to the plan and that only fine-tuning is needed.

My FIRE Projection Update for September 2023

Fri, 15 Sep 2023 00:00:00 UTC

Two years ago I made a post celebrating hitting the milestone of reaching a net worth of a quarter-million dollars, which itself came two years after one of my first posts on the blog in August 2019, laying out my plan to retire by age 40. This seems like a great time to take another look at my personal journey towards financial independence and see if I am still on track to hit my early retirement target.

Inflation-adjusted, my $1M target portfolio value when I started this blog now requires a cool $1.2M in today’s dollars, which I learned using the BLS’s CPI Inflation Calculator.

My most recent budget review saw me spending an average of $3,756 per month, or $44.4k in annual expenses. This would amount to a 3.7% withdrawal rate from a $1.2M portfolio, slightly more conservative than the oft-quoted “four percent rule” in the FIRE community. So my target portfolio value still seems reasonable relative to my expenses.

Now I’m 30 years old and only a decade out from my early retirement goal. To take a look at how I’m doing I’ll need my current FIRE portfolio balance, and project it forward assuming a 5% annual real return while accounting for additional savings contributions — an average of $4,050 per month, also taken from my recent budget review.

Here’s my results:

I am still projected to reach FIRE by around 40.5 years old. At a first look this is slightly disappointing compared to my 2021 projection, where I was ahead of the curve and my FIRE date actually appeared to be moving closer.

I attribute this mainly to a single factor, which is our recent home purchase. While I include home equity in my net worth, I am not counting it towards my FIRE portfolio balance, because it shouldn’t be drawn down to pay for living expenses like one’s liquid investments.

Previously as a renter, the entirety of my net worth consisted of liquid investments such as stocks, bonds, and cash. Thus my net worth and FIRE portfolio value were equivalent. However when buying the house, my portion of the down payment was converted from cash to home equity and it could no longer be counted as part of my FIRE portfolio.

On the other hand, a few positive notes:

Despite the large down payment and closing costs (about $60k) that I laid out, my FIRE portfolio balance at age 30 is still slightly higher than I predicted it would be at this point in 2019. Most reassuringly, this was a one-time setback in the projection. Additionally, since my largest (housing) expense is now fairly fixed, if I can increase the amount I am saving it will continue to inch up my FIRE date moving forward.

A mortgage payment eventually goes away if one plans and acts responsibly, which is a massive boon for retirement compared to renting. If I never saved another dime beyond making mortgage payments and just let my current portfolio continue growing, my “worst case” situation for retirement is somewhere in my early 50’s. Our mortgage will be paid off at age 60 at the latest leading to a huge drop in monthly expenses, and Social Security kicks in at some point in the near future after that.

Brick by brick

Month-to-month, and even year-to-year, financial progress can feel slow. It’s like adding a single brick at a time to a wall. But after a bit you take a step back and from that wider perspective you can see the project coming together. As I reflect on eight accumulated years of data in my FIRE journey, I end up being really impressed with my progress. That’s the real source of motivation to keep grinding, at least for me.

The goal is coming more clearly into focus. I’m sure that life will throw me several curveballs over the next decade, but as always I’ll keep adapting, optimizing, and continuing to do what works. I’ll revisit this graph in another two years.

As we head into yet another fall season up here in New England, I’m eagerly anticipating breaking out my flannel shirts. Life is good and always getting better!

Beware the Traditional IRA, It Just Might Backfire

Thu, 31 Aug 2023 00:00:00 UTC

When I first started learning about personal finance, the default advice pretty much everywhere was for people to roll their 401(k) into a Traditional IRA (TIRA) for greater flexibility of investment choices and low fees whenever they left a job.

I never did this (thankfully!), but I did contribute to a TIRA earlier on in my career when I had maxed out my 401(k) but was looking for an extra place to stash some retirement savings. I’m not sure exactly why I chose the TIRA over the Roth IRA at the time. I think it was a combination of feeling like I should max out the tax-deferred space before my income rose too high to contribute to a TIRA, and the early on snowball effect of getting an extra $1k or so in a tax refund to then invest elsewhere.

Now it’s 7 or so years later and I’m preparing to do a Backdoor Roth IRA for the first time, which has led to me wondering why the heck I ever contributed to a TIRA to begin with. I probably would not have, if I had known about the Pro Rata Rule.

The Pro Rata Rule and the Backdoor Roth

Pro rata simply means proportional. If an account contains both pre-tax and post-tax contributions, the Pro Rata Rule comes into effect when determining what percentage of a distribution from that account is taxable. Since the IRS considers IRA conversions to be a distribution, this is relevant when doing a Backdoor Roth IRA.

For example, say you have $93,500 in tax-deferred money in an existing Traditional IRA and want to do the Backdoor Roth in 2023. You make a $6,500 non-deductible contribution to the TIRA and want to convert it to a Roth IRA.

But you can’t convert “just” that $6,500. You need to determine the percentage of non-deductible dollars in the account as a whole, and pay a proportional share of tax on the remaining pre-tax dollars. In this example that would be $6,500 out of $100k, or 6.5% of the dollars being non-deductible post-tax dollars. So when you convert your $6,500 to a Roth IRA you need to pay ordinary income tax on 93.5% of it, or $6,078.

This also means that $6,078 of your non-deductible dollars are still in the TIRA, so you have to track this total balance year-to-year, which could get messy as you add new non-deductible contributions and re-calculate every year.

You can’t dodge the Pro Rata Rule by opening a new TIRA with a different brokerage and depositing only non-deductible contributions in it. You must consider all of your IRAs to be the “same” account, so this includes Traditional IRAs, Rollover IRAs, SEP IRAs, and SIMPLE IRAs factoring into your total pre-tax dollars calculation.

You might be doing a Backdoor Roth IRA sooner than you think

In 2023, single income filers begin phasing out of being able to directly contribute to a Roth IRA at a Modified Adjusted Gross Income (MAGI) of $138,000, and therefore will have to use the Backdoor Roth IRA in order to get the full contribution amount for the year.

I figured I might never reasonably hit that MAGI figure (it’s adjusted for inflation every year) with my projected salary growth over the next 10 years, when I hope to retire early.

This year though, I’ll be Married Filing Jointly (MFJ) for the first time. And direct Roth IRA contributions begin phasing out for MFJ at a MAGI of $218k. This is only 79% of the total income threshold available to 2 people filing as single status. Oddities like this — where the MFJ limits are not twice those available to single filers — contribute to the existence of a “Marriage Tax Penalty” in certain situations.

It’s easiest to just have $0 in Tax-Deferred IRA accounts

That is, unless you know for certain that you will never need to do the Backdoor Roth IRA. But who knows how your income will develop over time (you might surprise yourself), and those reduced MFJ brackets might sneak up on low six-figure-earners who get married.

I have $6,600 or so in my TIRA. I’m just going to convert it all this year and take the tax hit (nearly $2k between federal and state taxes) so I don’t have to deal with carrying an ever-shrinking chunk of tax-deferred dollars forward every year. Then next year, I can just do the Backdoor Roth IRA with no hitch since my TIRA will have a balance of $0.

Whoops, guess it wasn’t so smart to contribute to a TIRA and reduce my taxable income when I was earning less money and in a lower tax bracket earlier in my career.

So think twice before rolling your workplace 401(k) out into an IRA. It would suck to have a six figure tax-deferred balance in a Rollover IRA that will haunt you while doing Backdoor Roth IRA conversions for the rest of your working career.

One potential saving grace: if your workplace retirement plan offers a reverse rollover, you can roll the IRA into your 401(k) plan or equivalent before doing the Backdoor Roth IRA. According to the Plan Sponsor Council of America, 69% of employer-sponsored 401(k) plans offer a reverse rollover feature. But this leaves nearly 1 in 3 that don’t, so it’s not a guaranteed get out of jail free card.

A friend of mine put himself in this situation and regrets it. He rolled out an old 401(k) that had access to low-fee Vanguard funds into an IRA, and now that that he’s in a situation to do the Backdoor Roth IRA he found out that his new job’s 401(k) doesn’t offer a reverse rollover. Unfortunately, he trusted the overly-simplified financial advice on Reddit and now suffers from a minor annual tax bill and a headache every year when contributing to his Roth IRA.

Final thoughts

While this isn’t something that will make or break your FIRE plan — if you’re in the income range to do a Backdoor Roth IRA, you can afford an annual tax hit of $1500+ per person to satisfy the Pro Rata Rule — it seems to be something that most people don’t find out about until later on in their investing journey, which might have caused them to make different decisions earlier had they known.

It’s also a good idea to keep your taxes as simple as possible, so you can save money by filing them yourself. If you have too many complexities you might resort to paying for a tax professional to figure it out; of course I’m a stubborn DIYer to a fault, so I’ll instead sit for hours reading tax law on the IRS website so I can continue to do my own taxes.

If I had known in my early 20s what I know now, I would have just contributed to a Roth IRA back then instead of a Traditional IRA. It was a slightly less optimal financial decision; I contributed to my TIRA in the 15% federal tax bracket (prior to the TCJA taking effect in 2018), and now I’m converting those contributions and the gains to a Roth IRA in the 24% federal bracket.

It’s not all bad since I’ll have extra money in my Roth IRA that will grow tax-free going forward, but I could have put that money into the Roth IRA cheaper in the past and made my taxes a little bit less annoying this year.

This is just some nuance for Americans to weigh in the decision of which type of IRA to contribute to early in their career, or to consider before doing a 401(k) rollover. The Traditional IRA could cause an unexpected tax surprise for some investors.

On the Misleading Nature of the "Budget Wedding" Community

Tue, 22 Aug 2023 00:00:00 UTC

I got married recently! Obviously I was interested in controlling costs and getting the most value for our money at this event. So like most people do when faced with collecting information on an unfamiliar topic, I took to the internet for research. This was mostly last year, but in the process of finalizing our wedding financials it reminded me of how misleading almost everything on the internet seems to be about this topic. So here’s a little bit of truth amidst it all, partially a rant.

Reddit’s wedding liars

Most people who have done online research for a wedding have likely stumbled across posts from Reddit’s /r/WeddingsUnder10k community. I’m not even going to bother hyperlinking it since it was such a worthless resource. Some people post their final budget after their wedding, however many of these posts are dishonest by omission. For example, one user posted in May 2023 a “list of tips and tricks we used to keep our costs down” which included the following:

Their venue was free — a friend provided access to their land, which most importantly had restroom access.
The alcohol was a gift, and all of it was provided by her husband’s boss.
The photographer, videographer, and officiant were free, performed by friends with experience.
Cake was made by a friend for, you guessed it, free.

Many of these caveats were not even explained in the user’s original post, and were revealed only by probing questions from commenters. It seems like everyone wants to be part of the “cheap wedding club” in a similar affectation to how nearly every American considers themselves to be middle class.

The user included a few genuinely good money saving tips, such as buying their flowers at Aldi and preparing them herself. And don’t get me wrong, bartering favors with skilled friends is a great win-win situation — you get a free or heavily discounted service, and they provide that as their gift to you in lieu of a monetary or physical gift.

But to me, getting all of the biggest cost drivers for free, then acting like you have some knowledge to share about having a cheap wedding is disingenuous. If you were provided thousands of dollars worth of free services from friends and family, this is about as useful as a post about “how I got married for free” where the big reveal is that your parents offered to pay for everything.

With mental accounting it’s nice to think about the “net cost” to yourself, but it’s not reproducible for someone else who doesn’t have the connections to get so many things provided for free. If it cost them $20k for the same wedding and they received $11k in gifts for a cost of $9k out of pocket, do they also get to join the club and brag about their cheap wedding?

Bloggers that are disconnected from reality

My search also turned up several blog results. “Cool, personal experiences from other like-minded people!” I thought as I clicked on them.

One article titled “The Only Advice You’ll Ever Need for a Cheap-Ass Wedding” — which again, I won’t link due to containing an unnecessary amount of unfunny profanity, cringey reaction GIFs and a general lack of useful information — reveals that the author spent $19k on their wedding in 2018, which adjusted for inflation is $23k today.

Is that “cheap” or is the author delusionally out of touch with what is within most peoples’ financial ability to spend on a wedding? You decide.

The truth is, you can’t have a “traditional wedding” for under $10k

Yeah, I said it. You’re not getting a traditional wedding ceremony with a classy dinner in a room full of your extended family and friends for under $10k. It’s just not happening. The only way to have a cheap wedding is to make sacrifices when it comes to the big ticket items:

Venue
Food/alcohol
Guest list count

The only completely truthful posts on /r/WeddingsUnder10k are those where the user fully admits to having a non-traditional wedding, for example hosting it at a restaurant, a community center, or in a local park with buffet-style food. Or the small, intimate weddings with 10-20 attendees. That’s fine if that’s what a couple wants or all they can afford. But if you want a traditional wedding and are not willing to compromise, it’s a waste of time to read these communities because many of these posters do not provide enough context to make it clear that they sacrificed in these areas.

One Redditor on a since-deleted account commented about how they spent $5k on their wedding, held at the county fairground. Their mom provided pulled pork sandwiches and potato salad for food, and they had a cash bar.

Personally, I would not feel right about asking my family and friends to travel for hours, spend their money on transportation and hotel rooms, and feel obligated to give us gifts, only to provide them with backyard barbeque food and making them pay for any drinks that they wanted on top of that. So that narrowed it down to a decision between eloping at the courthouse for $50 by ourselves, or having a traditional wedding and inviting about 120 guests.

We did price out getting married at a vineyard that had a ceremony fee of only $500 and provided their own alcohol for reasonable prices, however we quickly realized that a majority of the cost would be having the food catered. Once we accounted for table/chairs rental, linens, and plates/eating utensils the cost quickly became comparable to some venues that did all of this in-house, the latter of which offered far less of a headache than coordinating multiple vendors.

Just to estimate the food cost of a traditional wedding, think about how much it would cost to go out to a restaurant for a decent sit-down dinner and a drink or two: probably at least $50-60 per person. Now add additional costs for appetizers and dessert if desired, don’t forget to account for the “wedding tax,” and multiply this by your expected guest count, and unless you have a small guest list this exercise quickly makes it clear that $10,000 is an absurdly unrealistic budget for a traditional wedding.

How we made a “profit” from our wedding

If I were a less scrupulous writer, I might create an article with such a headline and pretend to be some mystical wizard of wedding cost-cutting and money-conjuring. But I’m not, so here’s the truth:

We spent $25,247.67 on our wedding with around 100 guests because we wanted a traditional wedding experience with all of our family and friends, and we could afford it. Longtime followers of the blog can trust that this is a highly accurate accounting figure that includes everything from the photographer, clothing, and our hotel room, down to the markers for signing our guest book. We spent about $140 per person for food and an open bar which includes all administrative fees and mandatory gratuities, so food and alcohol alone accounted for just a hair over half of the total cost.

The Knot reported that in 2022, the average cost of a wedding in Massachusetts was $46k, which is significantly higher than their reported national average of $30k. Massachusetts is tied for second place in the list of most expensive states to get married in. It would be nice if figures for the median were available, as the average is almost certainly skewed higher by a small handful of outliers.

In terms of gifts, we received $34,700 in cash gifts plus an additional $3,000 in value of items purchased from our registry. In total a net of over $12k more than we spent on the wedding. We honestly weren’t expecting this, and were really touched by the generosity of our family and friends. There’s not much useful advice to give here for replicating this, as the gifts we received are mostly a function of growing up in upper middle class families.

The only practical tip I have is to be generous when giving to friends and family at their weddings, as most people seem to remember and reciprocate. We typically give between $300–500 for weddings, and we noticed that couples who got married in the past few years mostly gifted us the same amount that we gave them previously.

Frugality via… privilege?

For the most part, making optimal financial decisions is a set of behaviors that’s accessible to everybody. It’s interesting that weddings are one of the few areas where this is untrue. If most of your family and friends are better off financially than average, you could potentially make more in gifts than you spend on your wedding. If your family is from a disadvantaged background and you spend $30k on a wedding, you will be eating most of that cost.

In a world where we had far less income and far fewer assets, we would have opted for eloping. I couldn’t imagine taking out a wedding loan, or spending a potential down payment for a house on a one day party. However, it’s an interesting thought exercise that if we opted for that route we would likely have received far fewer gifts, and that hosting an expensive, traditional wedding might actually have been the optimal financial decision.

Why did I write this post? Mostly out of hope for a little bit of truth to make its way into internet search results. And also for some honest accounting — my expenses for the second half of this year are going to be crazy. There’s a long list of FIRE bloggers who have fudged their numbers and hidden expenses to appear to spend less than they truly did, but that’s not how I roll here at Frugal Flannel.

Overall, I’m grateful that through our hard work of saving money over the past decade we were in a position to spend this much on a wedding without worrying beforehand about how much of that we would make back, and that luck of our family circumstances led to a better-than-expected financial outcome. We now have some amazing memories to show for it.

Mow Your Own Damn Lawn

Thu, 10 Aug 2023 00:00:00 UTC

As a kid, I recall that weekends when I was trying to sleep in would be interrupted by the sound of gas-powered lawnmowers whirring to life around 8 AM. For the next few hours on Saturday and Sunday mornings it would be uncommon not to hear the sound of some sort of lawn equipment being used somewhere up or down the street. Just the normal background noise of suburban American life.

Queue my surprise moving into a neighborhood of roughly the same income strata as the one that I grew up in (but slightly more densely populated) and weekend mornings are… almost completely silent? It didn’t take me too long to figure out what was going on; I was working from home one Monday and noticed that a landscaping company came in the late afternoon; they swept through most of my neighbors’ yards in about five minutes each. Their mower with a four foot cutting width made quick work of each lawn.

Curious at how many of my neighbors were paying someone else to cut their grass, I started looking a bit more closely. Out of our dozen closest neighbors, only two others mowed their own lawns. A single anecdote is not data, but in my neighborhood 75% of the homeowners are outsourcing their yard work.

Thinking of our family and friends who have lawns, I realized a similar majority of them pay someone to do their yard work. I can’t help but feel like there’s been some cultural shift during the past decade when I was in college and renting apartments. Unfortunately, I was unable to find any reliable statistics on how the percentage of people who perform their own lawn maintenance has changed over the years.

The landscaping company that hits all of our neighbors put a flyer in the mailbox advertising prices for various sized lawns. $50 for a quarter acre. Fifty dollars to cut the grass. Could I afford to pay? Absolutely. Will I? Not as long as I have functional knees, or my net worth is under $10 million or so.

The lawn service mainly bugs me when looked at in terms of the cost per hour. It takes me 40 minutes to mow our lawn, and in the process I save $50. That’s an effective hourly rate of $75 per hour. I don’t even get paid that much at my job, and I certainly don’t know of any activities to monetize my free time to that degree.

My neighbors buying the lawn service are implicitly pricing their free time at $75 per hour, which is about three times the median per capita hourly income in our town. Let’s be honest, most people are not that busy. 40 minutes less of scrolling social media, watching TV, or doing whatever most people do these days to save 50 bucks seems like a no-brainer to me. I will make time to avoid the recurring expense of paying for a lawn service.

Is lawn care just another victim of the growing subscription economy? At a time when the savings rates of Americans are once again hovering near record lows — in June 2023, the St. Louis Fed reports the personal savings rate was just 4.3% — it seems like a little bit of extra financial cushion would make more difference than ever to a lot of people.

I’m a sucker for Return on Investment (ROI) calculations to determine the payback period for various purchases. I really just like to know, “if I buy this item, when will it have paid for itself?”

A few months ago I purchased a brand new SKIL electric lawnmower on sale at Lowe’s for $250. It also came with a Massachusetts state rebate of $75 for electric-powered lawn equipment, for a net cost to me of $175. I can’t speak to its longevity yet, but the 40V mower seemed to do a solid job of cutting through thick tufts of grass that wasn’t touched for several weeks at the start of summer. The ROI period for a lawnmower is apparently just 4 uses based on the $50 per visit cost of the local landscaping company! That may be one of the fastest ROI periods of any consumer purchase that I have looked at.

It’s interesting that even without the state incentives, the cheapest electric mowers are now less expensive than the cheapest gas mowers. Which is probably mostly a function of the price of batteries, as the mower is otherwise just a cheap plastic shell with a few wires and a blade mount. Factoring in the lower cost of operation and maintenance of an electric mower (no engine means less parts to break), going electric is clearly the frugal move.

How much does it cost in electricity to mow the lawn? My battery has a capacity of 200 Watt-hours and uses about 75% of the charge to mow a quarter acre. So that’s 0.15 kW, and at my current electric rate of 23.6 cents per kWh, it costs just 3.5 cents to mow our lawn! This is about 25x cheaper to operate than a gas-powered mower that consumes 0.25 gallons of gasoline per hour.

Other benefits of electric includes significantly less emissions, as well as quieter operation. Since the decibel scale is logarithmic, an electric mower that is 10–20 dBa quieter than a gas-powered mower is actually half to one quarter as loud.

I saved an additional $100 by purchasing a push mower over a self-propelled one. It’s really not much more effort than pushing a shopping cart, due to the weight reduction from losing the engine. Another huge benefit of an electric push mower is that the battery charge will last longer, since the self-propelled mower would otherwise be expending some of the charge to spin the wheels.

I’m on a quest to DIY as much as I can to limit our total cost of home ownership and keep as much money in our pockets as possible. Low-skill activities that are high-cost when paying for other peoples’ labor — like yard work — are the lowest hanging fruit around.

Next time you see someone out mowing their own grass, they might just also be a fellow practitioner of stealth wealth!

Budget Review for the First Half of 2023

Sat, 01 Jul 2023 00:00:00 UTC

We’re halfway through the year already! It’s time for another one of my biannual spending, budgeting, and savings reviews, and this time we’ll be taking a look at how I did in the first half of 2023.

Six months ago I set only one goal for myself:

Hit the ever-present budgeting goal to stay on or under my new budget of $2,744 per month.

However, I think many of you can likely guess that I did not hit that goal due to buying a house three months ago. That was my renter budget, and buying a home has brought both a higher monthly housing payment along with other expenses — both expected, and unexpected. My Personal Capital account reveals that I made 25 trips to Lowe’s within the past 90 days.

One hard decision that I had to make was reducing my 401k contribution from the annual maximum of $22,500 down to the 5% required to get my full employer match. I did this so that I could rebuild my emergency fund after paying for my share of the down payment, closing costs, and initial home maintenance items, as well as building a cushion for our wedding which will be another big upcoming expense.

Let’s dive in and take a look at my actual spending compared to my budget during the first half of this year. I am still using an asterisk to denote a temporary category for our wedding expenses, which will fall off of my budget after the next review since we are getting married in the second half of this year:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,300.00	1,543.77
Add’l Housing Expenses	0.00	637.46
Car/Rental Insurance	105.00	350.63
Groceries	200.00	208.02
Travel	200.00	200.00
Restaurants	150.00	141.93
Wedding Planning*	200.00	115.32
Flannelcat	80.00	106.22
Alcohol/Bars	50.00	86.80
Clothing/Shoes	50.00	75.00
Coffee/Tea	50.00	73.99
Consumer Goods	75.00	73.59
Gasoline	75.00	48.16
Misc. Entertainment	35.00	41.10
Phone	20.00	20.00
Misc. Taxes	35.00	17.51
Uncategorized	10.00	16.72
Car Maintenance	50.00	0.00
Student Loans	59.00	0.00
Car Payment	0.00	0.00
Total Monthly Expenses	2,744.00	3,756.22
Net Monthly Income	5,100.00	5,823.42
Free Cash Flow/Month	2,356.00	2,067.20

At $1,012.22 over budget per month, this is the biggest budget blowout in my entire life! What we’re looking at here is 3 months of renting, then our first 3 months of home ownership.

Moving to a house was rather expensive! In addition to the cost of materials and tools for the renovations that we’re slowly doing, there was a whole bunch of stuff to buy that we never needed as renters, such as window air conditioners (still, much cheaper than installing central air or ductless mini splits) and lawn maintenance equipment. Then there was the cost to move itself, and our mortgage lender also required us to pay a whole year of home insurance up front.

That’s a very inefficient conversion of financial resources to gain about $1,500 in home equity from paying down the principal on our mortgage. But I think we’ve put a lot of those initial one-off home ownership expenses behind us, and this category for extra money that we’re putting into the house should drop and stabilize at a lower level going forward.

With our wedding coming up in the second half of this year, this is shaping up to be my highest year of expenses by far. We can clearly afford both the house and the wedding, but it’s still a lot all at once!

Besides the housing-related expenses, nearly all of the other categories in my budget were in line with expectations. With some quick mental math, I would have hit my budget goal for this period if we were still renting, but so far I am considering the house to be a worthy endeavor. I am enjoying the additional space and freedom, and staying quite busy with home repair tasks that are satisfying to complete.

I did buy some new homebrewing equipment which accounts for the overage in that category. Wait, I thought this hobby was supposed to save me money?

My net income appears higher due to reducing my 401k contribution, so this will be only a temporary boost.

Budget Update, Net Changes, and Future Goals

I took this new data and updated my permanent budget with it. In the net change column, red indicates an increase in monthly spending in that category, whereas green indicates a decrease in monthly spending in that category. I’m using the asterisk to denote a temporary category which will fall off of my budget in the near future.

Expense	Budgeted Amount	Net Change
Mortgage/Utilities	1,800.00	+500
Add’l Housing Expenses	300.00	+300
Groceries	200.00	–
Travel	200.00	–
Wedding Planning*	500.00	+300
Restaurants	150.00	–
Car/Rental Insurance	150.00	+45
Flannelcat	80.00	–
Consumer Goods	75.00	–
Gasoline	75.00	–
Clothing/Shoes	75.00	+25
Student Loans	59.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Misc. Entertainment	35.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Uncategorized	10.00	–
Car Payment	0.00	–
Total Monthly Expenses	3,914.00	+1170
Net Monthly Income	5,100.00	–
Free Cash Flow/Month	1,186.00	-1170

Here’s the rationale for every value change explained in sequential order:

Our mortgage and utilities are more expensive than rent by around $1,000 per month, so this accounts for my half of the increase.
I have added a category to track additional housing expenses for things like maintenance, upgrades, and other associated costs of home ownership.
For Wedding Planning, I’m really struggling to come up with a number for what our out-of-pocket wedding costs will be, as it’s nearly impossible to estimate what you might receive in gifts. This is my best guess, though I could see it being wildly inaccurate in either direction.
Insurance costs are increasing as home insurance is more expensive than renter’s insurance.
After several times of going over-budget on Clothing/Shoes, it’s finally time to accept that this is a category that I need to budget more for.

All in all I’m estimating an increase in my expected budget by $1,170 per month on average compared to the budget I put together at the start of the year when we were renting. The good news is that this is just for the next six months, and my spending will drop at the next budget review once the wedding category falls off.

Setting my financial goals for the second half of 2023, I’m aiming to:

Control spending as much as possible during this period of high expenses to prevent another budget blowout.
Make sure to max out my Roth IRA before the end of the year.
Ratchet my 401k contributions back up now that I have rebuilt my emergency fund, in preparation for maxing it out next year.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$12,403.20
401k	$8,928.04
Pension	$2,501.45
HSA	$450.00
Roth IRA	$0.00
Taxable Brokerage	$0.00
Total Saved	$24,282.69

About 20% less dollars saved than at my last budget review, which is less damage than I expected given my increased expenses. Saving $4,000 on average per month will still get me to financial independence at a respectable pace, but I’m hoping to bump this figure back above $30,000 saved per six months in 2024.

Net Worth Check-up


December 31, 2022 Net Worth	$301,720
June 30, 2023 Net Worth	$355,832
6 Month Change	$54,112

It has certainly been a good few months to be a stock market investor. Some claim a recession is just around the corner while others claim it’s cancelled. I have ignored both sides and my net worth has continued marching slowly upwards.

In the near future I need to begin differentiating between my investment portfolio for FIRE purposes, versus my net worth. A primary residence contributes to one’s net worth, but I don’t consider it part of a portfolio since it can’t be drawn down to pay for living expenses. Previously my entire net worth was essentially stocks, cash, and a small amount of fixed income so the two were synonymous. I will add a task to begin working on revamping the net worth tracker on the “My Finances” page of the blog.

Happy summer! I’m off to get some painting and other house tasks done.

Gold & Silver Don't Have a Home in Your FIRE Portfolio

Thu, 18 May 2023 00:00:00 UTC

Precious metals have been getting a lot of attention lately — inflation is still running at a moderate pace and there’s once again talks about the debt ceiling. This background noise of fearmongering provides a conducive environment for proponents of gold and silver to try and sell others on their investment. Some meme stock investors have even been trying to convince themselves they can create a short squeeze in physical silver since 2021.

Claimed benefits of holding precious metals are that they’re a hedge against inflation, can improve the returns of your portfolio through diversification, and provide a fallback store of value during a potential failure of fiat currencies like the US Dollar.

However, it’s my belief that precious metals are overrated and at times dishonestly misrepresented, and that there is no good reason to include them in your FIRE portfolio or investment strategy — in fact, they will slow down your progress towards building wealth!

Misleading backtesting by goldbugs overstates investment returns

A common claim is that gold is uncorrelated with stocks and bonds, and therefore adding a small amount to one’s portfolio has historically improved total returns by allowing for rebalancing over time. To test this, I headed over to Portfolio Visualizer and constructed 3 portfolios starting with $10k each in 1972 (the furthest historical data point they offer in their free data set).

Portfolio #1 (blue) contains 100% US Total Stock. Portfolio #2 (red) is 95% US Total Stock and 5% gold. Portfolio #3 (yellow) holds 100% gold:

At first glance this claim would appear to be true; Portfolio #2 with 5% gold had the highest ending balance of $1.636 million, versus $1.554 million for Portfolio #1 which contained only stocks. From just this chart, it looks like rebalancing a mostly-stocks portfolio into a small amount of gold improved an investor’s compound annual returns.

The truth, however, requires some historical context. It was actually illegal for US citizens to own more than $100 worth of gold until January 1, 1975 (ending the ban that began in 1933, when President Franklin D. Roosevelt nationalized the gold holdings of private citizens). Many individuals who tried to hold onto their gold were prosecuted. Therefore it is dishonest to include this period of performance in historical backtests of gold, as investors were unable to hold it in their portfolios prior to 1975. So let’s see what happens when we start the comparison in 1975:

Portfolio #2 containing 5% gold now underperforms, resulting in a final balance of $2.067 million versus $2.237 million for Portfolio #1 containing only US Total Equities.

There is no long-term period since 1975 when adding any amount of gold to a portfolio of equities improved returns compared to a pure equities portfolio. Gold had a short period of excess performance in the early 1970’s after President Nixon closed the gold window in 1971, announcing that the United States would no longer exchange currency for a fixed amount of gold. There is some evidence that the gold standard artificially suppressed the price of gold, which was partially causative for the ensuing decline in the valuation of US dollars in international markets and fiat money printing in the 1970’s.

From 1972 through 1974, gold quadrupled in price! This is why proponents of gold love starting their historical backtests from 1971 or 1972. That short period of excess returns in the early 1970’s when gold was depegged from the US Dollar was so incredible that it can muddy backtest results even 50 years later! But again, private citizens could not own gold during this time period, so investors missed out unless they had successfully hidden their gold from the feds for the previous four decades since The Great Depression.

The yellow metal does a pretty mediocre job at preserving wealth, and mainly provides this benefit over very long periods of time. Adjusted for inflation, $10k invested in gold in January 1975 would be worth about $100k today, or nearly $17k in 1975 purchasing power. However, there was a period in the late 1990’s and early 2000’s where the 1975 gold investor would have been down between 40–60% on their initial investment adjusted for inflation. Waiting several decades for your gold to come back to par value isn’t my idea of a stable investment, so it’s more accurate to say that gold preserves wealth over very long periods of time like generations as opposed to individual lifetimes.

Note that Short Term US Treasury Bonds are far less volatile and have arguably done a better job preserving wealth from year to year than gold has over the past 5 decades. Intermediate or Total Bond funds have provided superior returns to gold over most time periods, especially when examining an investor who dollar cost averages into these funds rather than investing a lump sum and letting it sit.

I’m looking to grow wealth, not stagnantly preserve it, and an investment in the Total US Stock Market in 1975 would have grown to an over 22x larger ending balance than gold!

Silver has performed even worse than gold!

Thanks to SilverPrice.org for this chart, showing historical silver prices since 1975:

Nominal silver prices are about 5x higher than they were in 1975, compared to about 10x for gold prices. This means that silver is actually worth slightly less today in inflation-adjusted terms than it was 48 years ago!

Much more of the silver supply (approximately 50%) goes towards manufacturing uses than gold, so “investing” in silver is mostly just a bet on increasing industrial demand for this commodity outpacing the supply-side driven by advances in mining technology and discovery of new deposits.

Less efficient tax treatment of precious metals

For American investors, precious metals are currently considered collectibles by the IRS. This means that long-term capital gains are taxed at 28% for both physical metals and ETFs that hold them. This is an extra tax drag compared to investing in stocks and bonds with a long-term capital gains tax of 0%, 15%, or 20% depending on the investor’s tax bracket.

Additionally, some states charge sales tax on the sale of precious metals. Currently, 12 states always charge sales tax on precious metals. 9 states only charge sales tax on purchases of precious metals below a certain threshold, commonly $1,000. The remaining 29 states never or rarely charge sales tax on precious metals. The list can be found here.

This less efficient tax treatment of precious metals simply adds insult to injury when their historical returns have already been quite poor compared to alternatives.

Holding precious metals for “insurance”

By now we’ve learned that silver and gold are bad investments, but gold at least does an okay job of preserving wealth over generations and acting as a store of value as its fans claim. What about holding it for insurance against a societal crisis such as a potential failure of the US dollar or complete societal collapse?

Precious metals investors are fond of saying “if you don’t hold it, you don’t own it” and this is one area where I fully agree with them. Good luck selling your gold or silver ETF if the world descends into anarchy. Holding the physical metal seems more logical as insurance for this unlikely situation, but I still won’t do so for a variety of reasons.

Downside #1: Premiums are a ripoff

It takes energy to refine ore and form it into bullion, and the distributors selling these products need to make a profit to stay in business. For this reason you will never be able to buy silver or gold for the commodity spot price, and the amount over this that buyers of physical bullion pay is referred to as a premium. The smaller an amount of bullion you are purchasing, the more ridiculous the premium will be.

For example, the spot price of silver at the time of this writing is $23.76 per oz. The cheapest way I can find to purchase 1 oz of silver bullion costs $27.81. If you sell it back to a dealer or local coin shop, they will pay around the spot price. So $4.05, or 14.5% of your investment just evaporated during a single round-trip transaction.

The premiums on a troy ounce of gold are lower, around 4–5%, but that requires ponying up around $2k.

Imagine if when you bought an index fund you paid $100 and got only $85–95 worth of shares? That’s quite a bit of growth required just to break even on one’s initial investment!

Downside #2: Physical fiat money is still better in a lot of scenarios

I can imagine a lot of mild or moderate crises that are far more likely to happen than a complete collapse of society. Maybe hackers compromise the major credit card payment networks and those go offline for a day or two. Maybe there’s a huge blizzard or storm that knocks out power to your area for a week.

In those situations, having a stash of cash will be better than having silver or gold. Most people don’t know what precious metals are worth and aren’t interested in them, and a temporary crisis won’t change that.

Downside #3: Opportunity cost of preparedness

Let’s say I have $2,000 right now to prepare for the collapse of society. I can buy one troy ounce of gold. Or I can buy a gun, ammunition, several months of non-perishable food rations, water storage, and basic gardening tools and supplies. Even if I was convinced society might collapse in my lifetime, the latter seems far more valuable for survival than betting that silver and gold will become the bartering currency of choice in such a situation.

I bet I could even trade a few bricks of coffee, some fresh vegetables, and a couple bottles of alcohol for some sucker’s gold coin!

Final thoughts

Don’t get distracted by the shine of silver and gold. It’s very likely that they’ll do nothing other than weigh down your portfolio returns and cause you to accumulate wealth more slowly. Silver in particular has performed worse than cash in a high yield savings account. Even if you’re interested in prepping, there are far more practical ways to spend your money.

Remember that financial independence and early retirement are enabled by assets that build wealth, combined with an overall portfolio strategy that supports one’s withdrawal rate of a steady income stream. Stocks of course blow gold out of the water when it comes to building wealth, and bonds do a better job of reducing portfolio volatility. This leaves no place for silver or gold in your FIRE portfolio, both during accumulation and retirement.

How to Deflate Your Budget Over Time for More Transparent Tracking

Tue, 09 May 2023 00:00:00 UTC

Deflating your historical spending using inflation data makes it easier to interpret over time, especially during times like these when inflation is in flux. Central banks’ policies of maintaining a low level of inflation over time means that you should expect your budget to slowly increase over time as well, but this compounding effect is not easy to mentally estimate over longer periods of time.

If one is able to spend less over time in real (inflation-adjusted) terms, this indicates progress towards reducing expenses and retaining more of their wealth, assuming that their wages roughly track inflation.

How to adjust your historical spending for inflation

The first thing that you will need is a collection of various data points of your budget over time. Since I’ve done a full spending and budget review of my average monthly expenses every 6 months starting in 2019, I now have a few years of data collected. Here are my initial inputs:

Date	Average Monthly Spending, Past 6 Months
June 2019	$3,162.00
December 2019	No Data
June 2020	$2,677.86
December 2020	$2,879.06
June 2021	$3,073.97
December 2021	$2,479.02
June 2022	$2,554.60
December 2022	$2,609.69

It’s clear that even in nominal terms, my spending is lower than when I first started this blog, showing some of my success in reducing my expenses. I expect to see even better results after deflating these numbers!

The second thing that you will need is a reliable source of historical inflation data. For Americans, the Bureau of Labor Statistics maintains the Consumer Price Index as a measure of inflation.

The simplest approach here is to just use the BLS’s own CPI Inflation Calculator. Since June 2019 is my earliest data point, I will be comparing all of my other spending data to June 2019 buying power as my baseline. For example, $2,609.69 in December 2022 had the same buying power as $2,252.23 in June 2019. I will maintain this June 2019 reference point to assess the cumulative effects of inflation over time.

If you’re looking for more of a challenge and want to calculate inflation manually, you can set up a present value calculation for that purpose. The BLS maintains historical CPI data tables here, and by clicking the “more formatting options” link on that page you have several options for customizing the CPI data prior to downloading.

The nerdiest and most accurate method would be downloading CPI data for each major group of consumer expenditures (e.g. food, fuel, shelter) and prorating these to your personal spending, effectively creating your own personal inflation index. If you don’t do this, you’re just accepting the category weights from the typical urban consumer as representative of your spending, which is probably a good enough assumption for most of us.

Since I’m short on time and only have a handful of data points, I’m just going to use the calculator.

My results and interpretation

After deflating my historical spending data back to June 2019 buying power, I collected the data in another column on my spreadsheet and created a graph containing both data series:

Cool! We can see that the gap between my nominal and inflation-adjusted spending grows over time, which is an expected result due to the compounding nature of inflation. The cumulative rate of inflation between June 2019 and December 2022 was 15.87%.

It’s also interesting to me that the final 3 data points (representing my most recent 18 months of collected spending data) are within a rather tight spread of just 3% deviation after adjusting for inflation, indicating that my spending was fairly consistent over this time period. When one has reduced their expenses to the maximum amount reasonably possible or desirable, holding a budget steady in real terms should be the next goal.

Now that I have this spreadsheet and chart set up, I can come back and update it every so often when I want to visualize my historical spending in the context of inflation. I might actually add this chart to my twice-annual budget review to give each post some historical context, since it won’t take me more than a couple of minutes to update it.

I know that my expenses will be rising at the next budget review due to our recent home purchase, but if I can keep the inflation-adjusted figure below $3,162 per month that will mean that I’m still spending less in real terms than when I started this blog! Since my income growth has slightly outpaced inflation over that period as well, that’s a second factor accelerating my FIRE progress.

Since many of us pursuing financial independence love collecting data and metrics over time to evaluate our progress, I think that this is a useful one to add to your spreadsheet!

My Week of Manual Labor: Saving Money Via DIY Home Renovations

Wed, 12 Apr 2023 00:00:00 UTC

About 20% of the ancient carpet that I ripped out of our new home

We closed on our first home at the end of March, and I took off the entirety of last week from my job to get the house ready for us to move into by mid-April. That ended up being 9 days in a row investing 8 or more hours per day, and a “half day” on Sunday.

I pretty much recovered physically after taking it easy on Sunday. But wow, what a juxtaposition from my regular office job to be working the equivalent of a manual labor job for over a week straight. By the end of day four or so, it’s just a different kind of tiredness at the end of the day.

Most of that time was spent removing wallpaper, ripping out a bunch of carpet, and starting on painting. My suspicions that the carpet was older than we are was confirmed when I found a newspaper fragment from the 1980’s under the padding!

Getting those gross carpets out of the house was a huge improvement. The 80 year old hardwood floors underneath need to be refinished but are otherwise in good shape. There’s a bunch more to do, but it’s already beginning to look like a new house.

We would have spent several thousand dollars if we hired contractors to rip all of that old junk out of the house. Which isn’t even skilled labor; anyone who is able-bodied can get it done after watching a couple YouTube videos.

I’m going to DIY as much stuff as is practical, which probably doesn’t come as a surprise since I’m always preaching frugality and self-sufficiency. The one thing we’re going to be paying contractors for in the immediate future is to patch where needed and refinish the hardwood floors, since we’d like to get that done before moving in and there’s no way that we can get that done ourselves this week.

We mostly knew what we were getting into by buying a fixer-upper. I’m glad that we’ll get to make it ours instead of paying a premium for someone’s gray, soulless, vinyl-planked home flipper special. But I foresee myself dedicating many weekends and evenings before the project is done and we’re simply in “maintenance mode.”

The tradeoff between time and money is common wisdom in society. We saved on the purchase price of the house because the previous owner didn’t put time or money into updating it (although he did maintain it quite well, which is one of the things I liked about this home). Now we need to invest our time into doing those improvements if we don’t want to pay for other people to do them.

Still, the cost of materials and tools even for DIY jobs can be significant compared to renting. We spent about $800 on tools, materials, and paint for last week’s adventures. Garbage removal was free after we hauled it back to our apartment complex dumpsters, which I don’t feel bad about because the dumpsters at the rear of the trash area are usually nearly empty.

There’s definitely a rewarding feeling of tangible accomplishment inherent to hands-on activities, something that I often feel is missing from contributing a small part to a massive project in a knowledge field at work. So I’m actually looking forward to more home improvement projects because I really enjoy that aspect of it.

Financially, it’s not clear yet what the recurring maintenance portion of home ownership will cost us. I know that my half of the monthly PITI (principal, interest, taxes, and insurance) will run about $560 per month more than renting our apartment. A common rule of thumb is to budget 1% of the home’s purchase price for maintenance, but that seems very high to me for a DIYer, so more data is needed.

A semi-related thing that I’m excited about is getting back into the credit card churning game. I’ve done a couple of credit card bonus offers over the past few years, but I wanted to be careful about the number of new accounts and inquiries that I was adding to my credit report while we were looking for a house. Now that our mortgage is funded, I don’t have to worry about my credit score too much and can be more aggressive with opening cards. My goal for this year is to collect $1,000 in credit card bonuses to make up for some of the cash flow that I’ve lost by taking on a bigger housing payment.

If I only end up posting once per month on the blog for the next few months (rather than my goal of 2–3 posts per month), it’s probably because I’m spending a bunch of time doing house stuff. I’m going to try and keep a good balance with divvying up my personal time between home repairs and hobbies, but I also know that I have a tendency to get sucked into projects like this.

One thing I’m really liking about having a mortgage is the ability to see the remaining balance; it’s a quantitative measure of how much money we would have to put towards the loan to get rid of our housing payment (sans property taxes) forever. I’m not sure yet what my long-term plan will be to mesh the mortgage in with my FIRE plans; I think that’s pretty dependent on what interest rates do and whether we’re able to refinance the 5.875% mortgage anytime soon.

Can A $55 Raspberry Pi Serve As Your Primary Computer?

Mon, 13 Mar 2023 00:00:00 UTC

Debit card for scale!

The Raspberry Pi is a cheap, credit card sized Single Board Computer (SBC) that can run various flavors of Linux. Frequently they are used by makers for DIY projects that require a microprocessor, or recommended for people learning basic electronics or programming. I’ve had an old one running the open-source “pi-hole” software on my home network to block ads and trackers for a couple of years.

The Raspberry Pi 4B is the latest model, and brought some impressive advances in processor speed and RAM offerings. The Raspberry Pi Foundation even sells a model integrated into a keyboard, indicating that they believe it can be used as a basic desktop computer.

I have a Pi 4B that I’m intending to make into a thermal camera, and a friend who is working on the same project forwarded me some “challenges” where people attempted to use the Pi as their only computer for a week or more. I thought that it would be interesting to try out myself.

I’m always interested in saving money, and the Raspberry Pi allows one to save on two fronts: the low initial purchase price, as well as the ridiculously low power consumption of between 3 and 5 watts. Could I use it as my only PC?

Setting expectations

I was prudently expecting not to be blown away by the performance of the Pi when running a desktop environment. My 4B has a quad-core ARM processor with a maximum clock rate of 1.8 GHz, and 4 GB of RAM. That’s weaker than most smartphones produced in the past five years.

For example, it’s not going to play any games (other than emulating stuff like old NES titles), but I was curious if it could provide an acceptable experience for basic productivity tasks. Things like using the web browser, checking email, and some light office work, which I suspect would fit the use case of the vast majority of people.

Generally, it seems like many people buy way more computing power than they need for their use case. I know a ton of people who spend $2k+ on a MacBook Pro and don’t do any photo editing, video editing, or gaming on it, using it only to surf the web and edit office documents. It’s like buying a Porsche but never pressing the accelerator more than a quarter of the way down or going over 65 MPH.

My day-by-day with the Pi 4B

Day 1: Setup

In the evening, I flashed the 64-bit version of Raspberry Pi OS (based on Debian Linux) to my microSD card using Raspberry Pi Imager. It’s an easy task and I’ve done this several times in the past.

I plugged in my mouse, keyboard, monitor, and power supply and the Pi booted within 20 seconds. I clicked through the prompts to set my time zone and language preferences, and was then sent to the desktop environment. Basic software was already installed, including the Chromium web browser.

The web browser launched in a couple of seconds and was a bit slower when rendering pages than my desktop. But it was by no means a bad experience.

I watched a YouTube video to test the Pi’s media capabilities. The video played perfectly at 720p, but when I pushed the resolution to 1080p the Pi started dropping about a third of the frames. The video was watchable, but not enjoyable. I poked around online and it seemed to be a common observation of the Pi’s limitations, with no real solution offered. Users who overclocked the Pi’s GPU reported little improvement.

Day 2: Syncing my files

Many cloud providers don’t have native Linux apps, so users must use the open-source rclone software in order to mount and sync their cloud storage. It’s a must-have for my files to sync across my desktop, laptop, and phone, and provides great insurance against a hard drive failure.

After some tinkering I got my Google Drive to mount automatically on system start, and I made a bash script to sync any changed files before logging off. Checking 1200 files took about 20 seconds.

It took me about an hour to get rclone working and replicate the functionality that one obtains in a minute or two from running the Google Drive installer on Windows or MacOS.

Day 3: Web-embedded Unity overwhelms the Pi

A training course that I had to do for work had a Unity player embedded in a webpage. The loading bar slowly inched along, then crashed my browser right before rendering the environment, multiple times. Oops. I had to swap to my desktop tower to get this done.

Later in the evening, I was able to install and configure the ARM64 version of Obsidian and get some writing done, then sync my files back to the cloud.

Day 4: My eyes hurt

Last night I noticed that my eyes were irritated when using my computer after dark. I normally use f.lux on my desktop to automatically shift my screen to a warmer color palette at night, creating less blue light and reducing eye strain. It’s one of those nice quality of life things that you hardly notice until it’s gone.

F.lux isn’t available for ARM64. A similar program called Redshift is, which I installed. Redshift appeared to install successfully, however the command to adjust the color temperature of my display was failing. Apparently the display driver on Raspberry Pi OS does not support gamma correction, so I was out of luck unless I wanted to mess around with trying to install my own display driver.

Also irritating me was that my 1440p 144Hz monitor appeared to be capped to a 60Hz refresh rate. This was primarily evident when scrolling on webpages, which was much less smooth than I was accustomed to. I tried a few suggestions for forcing a higher refresh rate and none of them were successful.

Day 5: I’ve reached the end of my patience with the Pi

This morning I needed to print something and leave the house with it on a one hour notice. Was the Pi up to the task? Apparently I would need to install and configure a program called CUPS to get my printer working. I didn’t really feel like spending the time to do that, and it was reasonable that if I had to troubleshoot the installation that it might take more than an hour to print my document.

Instead I unplugged the Pi, swapped to my desktop and had my document printed in a minute, and used the rest of the time I saved to go do something else.

So could you use the Raspberry Pi as your only computer?

Probably, if you were forced to by financial circumstances, or are in some off-grid situation where every watt counts.

My desktop computer consumes about 70 watts on average doing typical tasks, and the Pi was consuming about 4 watts. This is a cost difference of 1.65 cents per hour at my electricity rates. I would have to use the Pi as my primary computer for over 3,000 hours just to have it pay for itself via the electricity savings.

There’s probably a way to bend most of your workflow to fit the Pi’s limitations; after all it’s not that I couldn’t get my printer set up, but rather that spending a bunch of time tinkering to get simple things working had already stopped being fun.

But it would by no means be an enjoyable computing experience to be a full-time Raspberry Pi user. And I believe that’s primarily because…

Desktop Linux is still a chore in 2023

I ran Linux as my primary operating system for a couple of years in college. Eventually I got annoyed with it and went back to Windows. Oftentimes, doing something that would be incredibly quick in Windows or MacOS just becomes a time-consuming chore in Linux.

I could wipe my Windows desktop right now and have mostly everything reinstalled and reconfigured the way I like it in 45 minutes. Meanwhile, on Linux it feels as though I’m spending most of my time figuring out how to set up or troubleshoot my workflow, when that time could have been spent actually getting things done.

Every couple of years I get annoyed with something in Windows and go install a Linux distro again to see if the user experience has improved. The free and open-source nature of Linux really appeals to me philosophically. But all of those experiments have resulted in me slinking back to Windows and telling myself “at least I can finally get something done today instead of spending two hours troubleshooting drivers or configurations.”

For my Raspberry Pi, it’s back to the project drawer. There’s something to be said for efficiency of time and quality of life features — rather than just resource efficiency — and it’s mainly for those reasons that the Pi won’t be replacing my desktop.

We Bought A House (Again)! Do I Still Believe in A Housing Bubble?

Sat, 25 Feb 2023 00:00:00 UTC

It’s been a busy couple of months! Between trying to finish up my book and recently getting an offer accepted on a house, I haven’t had time to actually finish a blog post. Part of me still doesn’t believe it’s real after our previous attempt to buy a home exactly a year ago ended with us walking away from a money pit.

I’ve been posting quite a bit for over two years about how I thought there was a housing bubble in the United States:

November 2020: “Don’t Fall for Home Ownership FOMO During the Pandemic”
January 2022: “Investing During the Everything Bubble”
March 2022: “The Honest History of Home Prices and Mortgage Rates”
April 2022: “The Best Method for Saving a Down Payment Amid High Inflation”
July 2022: “How Lagging, Selectively Represented Data Hides A Shifting Housing Market”
October 2022: “Fall 2022 Housing Affordability Update: Looking Worse Than 2008”

I wrote the following in the April 2022 article:

I’m going on the record calling a top in the housing market in the coming weeks. That is the conclusion that all data analysis and rational thinking has led me toward since I started researching and heavily investigating The Everything Bubble. It’s not going to be a 2008-tier crash, but it’s not going to be the “soft landing” that The Fed wants people to believe they can engineer after they poured octane on the fire for two years straight. Also, it will be fun to make an official “market timing” declaration and come back to revisit and reflect on this article in the future.

The above ended up being true — the median home sale price in my area peaked in June 2022 according to Redfin’s data, and fell 13.2% from that point to close out the year. However, because 30 year mortgage rates also increased from the mid-5’s to the mid-6’s, effectively zero affordability was gained by people waiting on the sidelines, as shown by this chart from Redfin of the average monthly mortgage payment:

Source: Redfin

These mortgage rates have definitely reduced demand somewhat, as the number of weeks of inventory in our market has been steadily increasing, but still remains below 2020 (pre-pandemic) levels. Additionally, the number of active listings is lower than any year except for 2022. The percentage of active listings with price drops has also fallen though, to around half of what it was during last summer and fall, indicating that the vast majority of sellers are getting what they ask for (or more) when they list their home.

Poking around at open houses in early February, we noted that it seemed a lot of buyers had come back out to get an early start on the spring market. The open houses were mobbed, especially four bedroom homes, and even in price ranges up to $700k — a price bracket that I originally thought would have been heavily crippled by these mortgage rates.

Essentially it seems that the 13% price reduction from the peak in our market was due to the combination of a return to winter seasonality and higher mortgage rates. However without a surge of inventory, my best guess is that our market will stagnate around this level, with a few people willing and able to pay these prices even at nearly 7% mortgage rates. There’s really no chance of Greater Boston building their way out of an inventory slump, so really the only hope of more inventory seems to be a bunch of people motivated to sell by things such as widespread layoffs.

Seeing the activity at open houses that was reminiscent of spring 2021 and spring 2022 — which both saw prices climb over 20% in our area before hitting their summer peak — we were faced with the decision that the housing correction we’ve been hoping for may not materialize in our area. We’ve been wrong for over two years thinking the top is just around the corner, and the risk of being wrong for another year could mean paying even more for a home a year or two down the road.

So when a potential forever home came on the market that we thought was underpriced, we did what we had to do to buy it. There ended up being nearly 20 other offers and we had to bid about 10% over and waive everything to “win.” Even bidding over though, we got an excellent price per square foot. I think if the sellers listed higher, they could have gotten even more for the house from somebody else, and we definitely got a lower price than the home would have sold for in summer 2022.

I previously declared that I would never waive an inspection but the market has really ground my principles down. It’s nearly impossible to compete against a multitude of offers waiving inspections; in the past we’ve tried things like offering to waive the first $10,000 of any inspection findings to protect ourselves only from catastrophic situations, but the majority of times we offered on homes we would lose out to people doing an “info only” inspection or waiving it entirely. At least this house doesn’t have a crawlspace like the one we backed out of. We did our best to make sure the basement and attic looked dry and free of rot or mold.

The financials of our decision

In the end, the purchase price of the home is about 2.25 times our gross income, and we ended up with a mortgage rate about 1% below prevailing 30 year mortgage rates by going with a local credit union that will service our loan versus selling it. So I think in the worst case, this could turn out to be a dumb decision, but not a financially reckless one.

Since we are putting 20% down and have low debt-to-income, the underwriter waived the appraisal on behalf of the bank. So this eliminated any immediate financial risk of needing to bring extra cash to the table to make up for a potential appraisal gap at closing, allowing us to waive it in our offer to compete with other people doing the same thing.

Our PITI (principal, interest, taxes, and insurance) for the home will be around $3,500 per month. This is a significant increase in housing costs over our one bedroom apartment for $2,370 per month. However we have been wanting more space for several years, and if we were to upgrade to a 2 bedroom apartment it would cost $3,000 per month in rent.

Using an amortization calculator shows that our first mortgage payment will generate about $500 going towards the principal of the loan. However, this does not bring the cost of home ownership on par with renting the 2 bedroom apartment due to the numerous other costs that come with home ownership such as:

Maintenance
Higher utility bills for a larger space
Cost for upgrades and improvements, if desired or needed
Opportunity cost of not investing your down payment

I’m under no illusions that owning a home won’t be significantly more expensive than renting, especially for the first couple of years as we seek to slowly update the very outdated finishes. And obviously we’ve exposed ourselves to quite a bit of financial risk by waiving the inspection, since as a layman armed with the knowledge from just one previous home inspection I’m only able to spot a few of the egregious issues we had pop up on our last offer. We do have a trusted family member who is an inspector, so after we close he’ll be able to come in and tell us whether we’re idiots or not.

We do want to stay in this area long-term, so I’m hopeful that time and inflation will dull any negative impacts of our decision. It’s possible we could look back in 5 years and realize that our mortgage is now the same or lower than rent on a smaller 2 bedroom apartment, especially if mortgage rates drop at some point and we’re able to refinance.

Sometimes you just have to take a calculated risk in life.

Final thoughts

My personal experience has now confirmed that one cannot successfully time any asset market, no matter how nonsensical and overvalued it may seem.

I’m reminded of the famous “irrational exuberance” comment proclaimed by former Fed Chair Alan Greenspan in a speech on December 5, 1996:

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

— Alan Greenspan, “The Challenge of Central Banking in a Democratic Society"

The day of his speech, the S&P 500 index had a value of 744. However, we all know that the market continued to steadily climb upwards until 2000, when the tech bubble burst. The lowest point in the ensuing collapse was on October 9, 2002, when the index had a value of 776, still higher than when Greenspan made his comments nearly 4 years earlier.

Greenspan saw the dot-com bubble brewing, but being right at the wrong time is just a padded euphemism for being wrong. I still believe that the housing market is overvalued from an affordability (or lack thereof) perspective as affordability is empirically worse for the median household than 2008, but it’s clear to me now that I was wrong thinking that alone is a sufficient reason for an impending housing correction.

In traditionally desirable markets like Greater Boston, it’s unclear where the simultaneous surge of supply and destruction of buyer demand would come from, besides a recession. And that could take years to develop and correct the housing market. Meanwhile someone who just buys now will be 10% of the way towards paying off their mortgage in 3 years.

Good luck out there to those who are still looking for a house, or waiting to see what happens. I’m not convinced that buying now is the optimal decision, but I’m also not sure that I would have ever had the requisite information to make a completely optimal decision. We’ve always wanted a live-in fixer-upper so we can make a house exactly to our tastes over a couple of years, and as we’re both pushing 30 it didn’t really seem right to keep putting our life milestones on hold indefinitely.

Budget Review for the Second Half of 2022

Sun, 01 Jan 2023 00:00:00 UTC

I can’t believe that another six months has flown by (or that another year is turning over on the calendar), but here we are again! It’s already time for my biannual spending, budgeting, and savings review, and we’ll be taking a look at how I did over the past six months to close out 2022.

Inflation continued to be the main theme through the remainder of the year both in peoples’ personal budgets and more broadly in financial markets; the CPI-U measurement for November showed a 7.1% increase compared to a year prior. This means that a household purchasing the same basket of goods as the CPI-U attempts to capture would be paying 7.1% more for the same than a year ago. Our “personal” inflation experience may differ based on how our individual consumption tendencies vary compared to the theoretical CPI-U consumer.

Six months ago I set the following two goals for myself during this latter part of the year:

Hit the ever-present budgeting goal of staying on or under my new budget of $2,544 per month.
Hopefully buy a house to get some more space and lock in our cost of living.

Let’s start with the second one; it’s probably obvious to those of you who have been keeping up with the blog that we did not end up buying a home. To the contrary I reported in October that we had stopped looking at homes completely due to affordability now being worse than 2008 and demonstrated that by normalized affordability metrics, it’s definitively the worst time in American history to buy a home for anybody under 60 years old.

According to Redfin’s data center, the median home price nationally has now gone negative in real terms year-over-year (the median sale price for the week ending 12/18/2022 was $352k, up 1% YOY, however with 7% inflation that is an inflation-adjusted YOY change of -6%). Our local housing market is in line with these percentages (albeit with higher nominal prices) but home prices have not softened nearly enough to counteract the effect of high mortgage rates.

We’re not willing to compromise on our other financial goals such as building wealth and retiring early in order to own a home, so that’s that. Renting is the wisest move for now, unless the housing market corrects (which I still think is inevitable) or unless mortgage rates fall drastically (which is not likely to happen within the next 1.5 years, listening to Fed chair Powell’s signaling and the expectations of bond markets). So that goal is shelved for now, unless something unexpected occurs in the real estate market or otherwise in our lives.

Next let’s turn to my ever-present budgeting goal. Six months ago I set a budget of $2,544 per month for myself. To see whether I met my goal, we will have to take a look at my actual spending over this period:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,300.00	1,292.46
Groceries	200.00	223.84
Travel	200.00	200.00
Clothing/Shoes	50.00	139.33
Wedding Planning*	0.00	135.65
Restaurants	150.00	108.36
Car/Rental Insurance	105.00	102.58
Flannelcat	80.00	89.43
Consumer Goods	75.00	76.25
Gasoline	75.00	64.17
Alcohol/Bars	50.00	55.87
Misc. Entertainment	35.00	34.46
Car Maintenance	50.00	27.86
Coffee/Tea	50.00	26.43
Phone	20.00	20.00
Misc. Taxes	35.00	10.83
Uncategorized	10.00	2.17
Student Loans	59.00	0.00
Car Payment	0.00	0.00
Total Monthly Expenses	2,544.00	2,609.69
Net Monthly Income	4,870.00	5,010.67
Free Cash Flow/Month	2,326.00	2,400.98

I denoted the expenses for our upcoming wedding with an asterisk because that’s a category where I had some sizeable spending but hadn’t budgeted for. I like the idea of creating a temporary category for this outflow rather than leaving it under the Uncategorized catch-all.

Unfortunately I was once again over budget, this time by $65.69 per month or 2.6% of my spending goal. But I consider this past 6 months to be a huge financial win. I’m definitely not going to beat myself up over missing my goal by such a small amount when considered in the broader context of my financial picture which is looking great thanks to the compounding effect of many years of diligent effort.

As I mentioned earlier the name of the game recently has been inflation, and one thing that I don’t do is try to build inflation expectations into my budget — really that would be quite silly and my prediction would mostly be wrong anyway. It is fun to look at in hindsight though especially in periods like this. Interestingly over the past 6 months of available data (June to November 2022) from BLS, the CPI-U increased by 2.3%, which was very close to my 2.6% overage. I could calculate my personal inflation rate which is likely an interesting topic for a future article, but using the CPI-U as a rough measure it’s clear that my expenses rose about in line with inflation.

The standout category this time was Clothing/Shoes, because I remember writing about a similar overspend in this category during my previous budget review. This time it is mainly because I ended up having to buy a new suit which I have already on several occasions needed to wear; at this point it has nearly “paid for itself” in comparison to the cost of rentals, and I’m sure fits much better. This category continues to be frustratingly lumpy over time, and I will wait for another data point before I decide whether to increase my budget for Clothing/Shoes, because I know that I have historically gone long stretches without buying any new items.

Everything else is looking really good, besides a small overage in Groceries. I did spend under budget in several categories which helped me to still come close to meeting my overall spending goal despite not initially accounting for any pre-wedding expenses.

I’m very happy with my monthly cash flow figures. Even after maxing out my 401k, I’m only spending barely over half of the net pay that hits my bank account and saving the rest.

Budget Update, Net Changes, and Future Goals

Expense	Budgeted Amount	Net Change
Rent/Utilities	1,300.00	–
Groceries	200.00	–
Travel	200.00	–
Wedding Planning*	200.00	+200
Restaurants	150.00	–
Car/Rental Insurance	105.00	–
Flannelcat	80.00	–
Consumer Goods	75.00	–
Gasoline	75.00	–
Student Loans	59.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Clothing/Shoes	50.00	–
Misc. Entertainment	35.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Uncategorized	10.00	–
Car Payment	0.00	–
Total Monthly Expenses	2,744.00	–
Net Monthly Income	5,100.00	+30
Free Cash Flow/Month	2,326.00	+30

Here’s the rationale for every value change explained in sequential order:

I included a temporary budget line for additional wedding planning expenses for deposits and other related expenses leading up to our wedding. We are getting married in the second half of 2023 so that will be when the largest capital outflow will occur — expect some articles related to wedding planning, and the financials of marriage coming at some point this year.
Factoring in my upcoming raise for 2023. I’ll be making some more money to help offset the impact of inflation on my finances.

I didn’t change any other existing categories because I think I did a great job of sticking to my budget for the past six months, and I’d like a challenge to do it again. The fun part about keeping your budget the same over time is that if you do meet your goal, you’re actually spending less in real terms thanks to inflation (and hopefully your pay is creeping up at the same time, which effectively means you’re reducing expenses).

Setting my financial goals for the first half of 2023, I’m aiming to:

Hit the ever-present budgeting goal to stay on or under my new budget of $2,744 per month.

Honestly that’s all I can think of for goals, as I’m happy with my overall spending. I’m firmly in financial “coast mode” yet appreciate these budget reviews twice per year to make sure that my spending isn’t drifting wildly off-course.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$1,805.88
401k	$12,910.04
Pension	$2,346.09
HSA	$450.00
Roth IRA	$2,600.00
Taxable Brokerage	$0.00
Series I Bonds	$10,000.00
Total Saved	$30,112.01

Again a number that I am very happy with. This puts me at about $61.5k total saved into my various financial accounts during 2022.

For 2023 I think I will be turning more attention towards my taxable brokerage account, now that my down payment fund is established I have little need for more cash on hand.

Net Worth Check-up


June 30, 2022 Net Worth	$266,915
December 31, 2022 Net Worth	$301,720
6 Month Change	$34,805

As usual this is just a fun exercise and I don’t stress over changes in my net worth over such short periods; they’re mostly just a function of market volatility. Over the past six months markets have been up some, down some, and back up a little to mostly end where they were at the start of July. So the majority of the gain in my net worth is mostly attributable to my own contributions.

I did take advantage of the market volatility to do some tax-loss harvesting of the investments that I hold in my (small) normal brokerage account with Vanguard. I swapped VTSAX for VLCAX, and VTIAX for VFWAX. I realized about $1,700 of losses which I will use to offset against my income when I file my taxes and net a nice little windfall of several hundred dollars.

Happy New Year! As always, thanks for reading and here’s hoping that each of us hit whatever financial goals that we choose to work towards in 2023.

Money Savings and ROI Analysis of Homebrewing Beer

Tue, 20 Dec 2022 00:00:00 UTC

My homebrewed holiday red ale

I’ve had more free time on my hands recently and with inflation hitting my favorite alcoholic beverage (the CPI release for November 2022 shows a 7.7% increase over the previous 12 months for “beer, ale, and other malt beverages at home”) I started making my own beer again earlier this year. I already had some gear on hand due to previous experiments including a couple failed attempts to make hard cider in college, and several successful beer batches using concentrated malt extracts. Wanting to nerd out a bit more over the process I decided to dive into all-grain brewing which is the traditional method where the brewer starts with a big pile of crushed grains and needs to extract all the fermentable sugars themselves.

Some mental math shows a decent savings from homebrewing — the recipe I’m brewing right now resulted in 5 gallons of beer from $40 worth of grains and yeast. 5 gallons yields about 50 twelve ounce bottles, so for a quick estimate that recipe cost me around 80 cents per bottle which is clearly much cheaper than one can purchase beer at the store for. I was curious what a full Return on Investment (ROI) analysis would look like for homebrewing though, given the start-up costs required and also considering one’s own time as an input to the process.

Some brewers go crazy acquiring a bunch of fancy gear, but I’m more interested in doing things the frugal way, especially when seeing if a hobby will stick or not. Additionally I don’t have space in my apartment for a bunch of specialized brewing equipment, so I’m making do with as minimal of a setup as I can.

The minimalist all-grain brewing equipment setup

Here’s what I think is an all-inclusive gear list of the bare minimum a homebrewer would need for all-grain brewing (prices compared between two popular homebrewing gear sites):

Equipment	Cost
10 gallon brewing pot	$109.98
Food-safe grain bag*	$33.99
6 gallon glass carboy	$56.99
Bottling bucket	$14.99
Stainless steel spoon**	$9.99
Auto-siphon	$14.99
Digital thermometer**	$11.99
Rubber stopper, 6.5 drilled	$1.00
Bubbler airlock	$1.99
Star-San sanitizer	$14.99
Bottle capper	$16.99
Funnel	$8.99
Carboy cleaning brush	$4.99
Total	$301.87

* : Not required for extract brewing

** : Most people likely own already

You can actually likely brew one or two gallon extract batches with whatever soup pot you already have in your kitchen. But there’s not much if any cost savings there compared to buying beer at the store, for example a 2 gallon extract kit costs $30.99 from Northern Brewer. For all-grain brewing it’s probably not worth the time investment to make less than 2.5 or 3 gallons at a time, which requires a 5 gallon pot for the initial mash volume. A 10 gallon pot will accommodate 5 gallon batches of any beer style you’d ever want to make.

A frugal tip, you can get one gallon glass carboys for “free” by purchasing various products that come in them such as Whole Foods apple juice or Carlo Rossi wine. If you were going to use a gallon of apple juice or mediocre wine anyway, you just scored a reusable one gallon carboy. Some people prefer to brew with multiple smaller carboys instead of one huge one due to the comparative ease of lifting and cleaning the smaller vessels.

The minimalist all-grain equipment setup using the “brew in a bag” (BIAB) method would cost a total of $301.87 at the time I gathered this pricing data. We will need to accumulate at least that amount of savings from homebrewing beer to pay off that initial investment.

Calculating the homebrew savings

There are some pretty fairly priced all-grain homebrew recipe kits out there which cost in line with what you’d pay just buying the grains and yeast piecemeal. I’ve been using those while I get my feet wet. For enough ingredients to make a 5 gallon yield these kits range from $22 to $90, comparing across some popular websites and my local homebrew store.

Generally the prices of these kits are correlated with the price of that style of beer at the store, which makes sense because commercial breweries need to buy roughly the same ingredients to brew that style. The cheapest kits tend to make wheat beers and brown ales, while the more expensive end of the spectrum is where you find the hop-heavy beers, imperial stouts, and barleywines. The latter cost more due to including more hops and/or specialty grains, and in turn you’d pay more to buy these off the shelf at the liquor store.

What I’ve currently got brewing below my desk is a holiday red ale for which the kit cost me $40. Using the 1 gallon to roughly ten 12 oz bottles conversion, my 5 gallon kit is about 80 cents per 12 oz bottle for the raw ingredients. We now need to consider the other costs.

What about glass bottles? Well I consider those “free” if you buy beer from the store and save the pry-top bottles, which can be re-used an infinite number of times. Bottle caps cost $5.49 for 144, which adds 3.8 cents to each bottle of homebrew.

Utilities? My largest stove burner is about 2500 watts, and I’ve got it cranking on full for an hour during the wort boiling step (plus an additional 20 mins just to get that volume of water to a boil). I’ll round up to 1.5 hours for the time I’m pulsing the burner on and off during mashing. At 25.6 cents per kWh, that’s 96 cents in electricity, an additional 1.9 cents per bottle. Water use is such a negligible cost that I’ve declined to include it for simplicity.

I’m at 85.7 cents per 12 oz bottle to produce this particular homebrewed beer. For the cost savings comparison I need to compare with buying commercial beer off the shelf. For that I’ll choose Sam Adams which offers a holiday beer and is about the most affordable tier of craft beer, which I can get a 12 pack of for $17.49. This comes out to $1.458 per 12 oz bottle.

Homebrewing this style creates a savings of about 60 cents per 12 oz bottle of beer.

If you like big IPAs like the ones that cost $15 or more for a 6 pack, you’d be saving even more money with homebrewing. A New England IPA would save over $1.50 per 12 oz beer compared to buying a similar style at the store. IPAs require a couple extra steps so I’m going to be taking a look at those soon now that I’ve got some experience with all-grain brewing under my belt and am comfortable with the general process.

Homebrewing equipment ROI period

Everyone drinks at different rates, so retaining the volumetric basis in these calculations makes the most sense.

Dividing my $301.87 worth of equipment by the 60 cents per beer savings I calculated above, the result is 503 twelve ounce bottles of beer to break even. This is about 50 gallons of beer, so if one brews 5 gallon recipes just 10 times, the minimalist brewing equipment setup will have paid for itself. I tend to rotate through slowly trying out a bunch of hobbies and only a fraction of them last for the long-term, so that’s good news for people like me.

I try to stick to about 10 standard drinks per week, in addition to sharing some homebrews (which is really one of the most fun aspects of the hobby). So for me this means brewing about once per month which would reach break-even with the above equipment list in under a year.

The break-even period could be shifted even earlier by brewing more complex beers which offer a greater potential for savings. However, even sticking to basic beers, brewing just 10 times to pay for all of the equipment is a very good ROI for a hobby.

Is it worth homebrewing for purely financial reasons when considering time/labor?

Astute readers may have noticed that I have not mentioned time inputs yet, and in any ROI analysis the value of one’s labor is a fair and critical consideration. Brewing day and cleanup takes me about 5 hours, and bottling day is an additional 2 hours. So that’s 7 hours of my own labor to turn grain and yeast into beer.

Brewing a 5 gallon beer kit, one is looking at a total savings in the range of $30–100 (depending on the style brewed) compared to buying an equivalent volume of a similar beer at the liquor store.

Divided by 7 hours of labor per batch, that comes out to $4.29 to $14.26 per hour saved by homebrewing. Clearly that is below the US minimum wage on the lower bound, but towards the middle and upper of the range when brewing more difficult beers is actually a decent financial hourly return for a hobby.

I like to multitask and listen to podcasts when brewing to get even more value from my time.

Clearly there’s a decent savings potential from homebrewing, but it’s a big time commitment and having other reasons for getting into it is wise such as being interested in picking up a new skill, wanting to learn about the art of making beer, or having a tendency towards self-sufficiency. When you can combine at least one of those aspects with the financial savings that homebrewing brings, it’s a no-brainer.

Homebrewing resources

This article is purely a financial analysis and I don’t have room or time to write a guide on getting started with homebrewing. Thankfully, better resources than anything that I could assemble already exist. For anyone looking to get into the hobby I recommend checking out the following:

John Palmer’s book How to Brew, the first edition of which he has uploaded for free online.
The American Homebrewer’s Association has a primer on the “brew in a bag” (BIAB) method which is an approach to all-grain brewing in a single vessel, minimizing the amount of equipment required compared to traditional approaches using techniques such as sparging.
The Basic Brewing Radio podcast which has hundreds of episodes starting from 2005, most of which are packed with information and still relevant today.
Your local homebrewing store, if you have one. Chances are the owner and employees are helpful sources of knowledge.

Happy brewing and happy holidays! I will be back writing on the blog in a couple of weeks to do my spending and budget analysis for the end of 2022.

The Best Approach to Minimizing Holiday Gift-Giving

Mon, 12 Dec 2022 00:00:00 UTC

There’s a lot of good reasons to cut down on holiday gift-giving: it reduces stress, it fights back against the commercialization of this time of year and puts the focus back on family, it’s better for the planet, and according to economist Joel Waldfogel, it’s just darn inefficient! Back in 1993 he wrote a paper titled “The Deadweight Loss of Christmas” wherein he estimates that holiday gift giving “destroys between ten percent and a third of the value of gifts.” In December 2011 he appeared on the NPR podcast Planet Money in the episode “Why Economists Hate Gifts” to again present his thesis.

Waldfogel’s general reasoning makes sense — often a gift is not exactly what a recipient wanted or needed (and sometimes doesn’t get used at all) therefore if they just had the cash the gifter would have spent, they’d be able to realize the full value by purchasing exactly what they want. The difference between what a gift cost and what the recipient values it at is the deadweight loss.

Since it’s boring to tell people exactly what you want and receive that item (unless you’re a kid), and giving each other cash is obviously silly given that it would be a net-neutral transaction between people trying to exchange gifts of equivalent value, Waldfogel’s argument provides a quantitative backing that we’d all be financially better off if we significantly reformed our gifting traditions.

Personally I lean towards minimizing gifting rather than eliminating it altogether. There’s still a nice aspect about giving and receiving something around the holidays that many people enjoy, but it doesn’t have to get out of control.

I think most people would agree that you still want to buy presents for kids, they don’t have much if any disposable income and seem to look forward to gifts the most. Where gifting gets silly in my opinion is when adult extended family members feel obligated to buy each other “something” and everyone just ends up with a trunk full of things which probably won’t get used to cart back home with them.

Anything I really want I just end up buying myself, which I think makes it harder to shop effectively for other adults; even if you know someone has a particular hobby you likely aren’t knowledgeable enough about it to pick out a related item for them that meets all of their needs and isn’t just a worse version of something they already have. I also still live in an apartment so I don’t have room for stuff.

It can be difficult and awkward to be “that person” who singularly announces that they’re not purchasing gifts anymore but then receives several, so the best approach is to try to drive a change in the gifting culture of your family.

We’ve found a good middle ground with agreeing on doing a Secret Santa instead of every adult exchanging gifts. That way everyone gets the fun of receiving one gift, people who like shopping for gifts get to put as much creative energy into it as they like, and everyone gets to save some money and stress during the holiday season. For even a $50 limit you can still assemble an interesting gift these days.

This has enabled me to simplify my holiday shopping to the following people:

Gifts for one’s significant other.
Gifts for any kid relatives.
One gift for another adult via the Secret Santa.

I’m a procrastinator and last-minute shopper, but I’m sure some people have already bought all of their gifts weeks weeks ago, making it impractical for most families to shift course at this point. However the day of a holiday gathering is a great time to bring up trying a more minimal gifting strategy for next year. Prepare to accept the administrative task of setting up a Secret Santa if you’re the one proposing it.

I try to give gifts that I’d want to receive, which usually involves consumable items that won’t permanently take up space, unless I have a pretty good idea of exactly what physical item someone would like. Quality chocolates or candies, fancy soaps, or nice teas are all things I’ve enjoyed getting, then it gets used up eventually and leaves your house.

Honestly one of the best Christmas gifts that I have received in recent memory was a couple pairs of Smartwool socks. I would have never thought that a $20 pair of socks was worth it until wearing those and realizing how comfortable they were. The Darn Tough brand is good too, both them and Smartwool make wool-based socks in Vermont, they come in a variety of weights for activewear (marketed at hikers and to a lesser extent runners and cyclists) or everyday use. I stole that idea and throw a pair of those socks in with gifts occasionally and people love them.

Maybe I’m boringly pragmatic at this point but the “premium version people probably wouldn’t buy for themselves of an object everyone uses” is probably my favorite gift category.

And if I get a gift that misses the mark and can’t be returned, I won’t feel bad about donating it so someone else can hopefully get some use out of it.

When Will Compound Interest Really Start Working for Your Portfolio?

Wed, 30 Nov 2022 00:00:00 UTC

The Internet is a funny place sometimes. There’s a claim that has been floating around for years that Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” There’s no evidence that Einstein ever made a foray into commenting on finance, and it’s likely his name was falsely attributed to these words for an appeal to authority. The quote is great though — whoever came up with it should have taken the credit for themselves.

Most people can intuitively picture the shape of a compounding curve, and know that compound interest is when one’s accumulated interest on an investment itself earns further interest. In the context of a graph we probably define someone who has “made it” financially (or is at least very close to doing so) as being when the line representing their portfolio balance starts to go parabolic, compounding on itself at a rapidly accelerating rate.

My net worth (and assets, since I have nearly no debt) is now around $300k and the growth over time still looks very linear. There is a slight upward curve visible during the massive market surge following the March and April 2020 coronavirus crash but that was a period of abnormally high returns, and the stagnation this past year or so means that a linear line is still the best fit for my net worth graph over the roughly seven years that I have been investing. Early on, most portfolio growth will be from one’s own contributions.

The other day I was wondering, how does one know at what point they’ve done enough heavy lifting with their own savings such that compound interest will begin to become the dominant force in their wealth growth? We can see in the simple example chart above that both the compound and simple interest lines are overlapping each other for a time, but then the compound interest line accelerates up and away, gaining that characteristic shape. When will this occur for an individual investor’s portfolio?

I came up with this quick and simple comparison to figure that out:

Annual Savings ⩻ Portfolio Balance * Expected Avg Nominal Return

I like to use an 8% expected annual nominal return for equities. For bonds you can use the yield to maturity, and cash is easy enough with the stated rate on your savings account. Previously I’ve been close to 100% stocks and could just apply that 8% number to my whole portfolio for a quick estimate, but with my down payment fund I’ve got a significant cash drag on my portfolio earning currently only 3%. I calculated a weighted annual return of 6.6% for my current asset allocation.

So on my $300k portfolio, that’s $19,800 in annual interest earned. My annual savings I summed from my most recent two biannual budget reviews:

$58,200 ≮ $19,800

Clearly I’m still nowhere close to that holy grail of compounding, as my annual contributions are nearly 3x larger than the interest I would expect my portfolio to earn in an average year. You can figure out what portfolio balance will be required for the compound interest to surpass your savings by dividing your annual contributions by your expected average nominal return. I came up with $882k for my numbers.

You can play around with this popup compound interest calculator from MoneyChimp to see how long it will take you to reach that requisite balance. My result was about 6 years.

The usual obvious caveat with all things personal finance — using averages doesn’t result in a super accurate forecast. Market returns in any given year are highly volatile, so uncertainty rises over shorter timeframes.

For those starting from zero, how would the path to reaching “critical mass” of portfolio compounding look like, dependent on their savings rate and different annual returns?

That’s actually a bit of a trick question! If you increase your savings rate, you are also increasing the corresponding amount of interest that your portfolio needs to throw off before that variable can be greater than your annual contribution value. Saving more will of course increase the final value of your portfolio and allow you to retire earlier, but the relative ratio at which the compounding curve develops will remain the same (assuming equivalent investments).

This is of course also the reason why compound interest is so powerful over long timeframes of several decades. Even for people only saving 10% of their income, that snowball will start rolling after about a decade.

Theoretically if one’s savings rate is high enough, they could achieve financial independence prior to hitting the point where compound interest becomes the dominant force in their wealth growth. For example we see above for an 8% nominal return that this will occur after about 9 years. I’ve calculated in the past that an investor earning a 5% real return (subtracting the historical average of 3% inflation) would need a savings rate of 70% or higher to achieve FIRE in under 9 years. So this metric is completely irrelevant for “super savers.”

The conclusion that I took from this exercise is that there is nothing you can do to accelerate the development of that compounding curve other than earning a higher rate of return on your investments. And besides setting an asset allocation, that is mostly out of our control because the market is going to do what it’s going to do. This is one of the reasons I’ve historically maximized my allocation to stocks for all money which doesn’t have a near-term use. I want that potential maximum growth rate and I’m willing to take the downside risk of working a bit longer.

I think this is why a lot of people fall prey to get-rich-quick schemes like crypto, meme stocks, and trading courses. Investing in stocks the “optimal” way as suggested by game theory involves purchasing diversified index funds and accepting the market average return. This can be a slow slog towards building real wealth.

It can be frustrating watching your net worth grow linearly — or worse, stagnate or decline. What happens month-to-month is truly inconsequential, and there’s no reason to monitor it that closely unless you just enjoy the data collection aspect. I log into Personal Capital exactly once per month to gather the data that I end up presenting on this blog.

If you want to achieve financial independence faster, focus on the things within your control — mostly what you spend, but also increasing your income where possible and choosing the best asset allocation for your goals and risk tolerance.

The Lazy Path to FIRE, Reconsidered

Fri, 11 Nov 2022 00:00:00 UTC

I’ll confess that my approach to financial independence has hitherto been overwhelmingly lazy, driven by the pursuit of maximizing my leisure time along the way as well as once I cross that finish line. After setting up a reasonable budget and maximizing my savings rate, I’ve just been on financial autopilot for several years. The savings get invested, my portfolio grows, and I’ll be able to retire early in another decade if all goes according to plan. Some people refer to it as “the boring middle” and while your personal life doesn’t have to (and shouldn’t) be that way, it’s felt pretty apt at times in terms of grinding away at my career.

I posted six months ago about how monthly work travel was causing dissatisfaction with my job. It took me longer than expected but I did find a new job, one which so far seems more engaging and with more opportunities for long-term development. This new gig is actively encouraging the use of work time for developing relevant technical skills which I think is important for engineers as we tend to love the process of learning. This will be my 5th job in seven years and I didn’t even last a full year at the previous job, but I absolutely don’t feel bad about hopping around to find something more sustainable.

I have a few coworkers around the same age as myself who are really into real estate investing. Each of them have a couple investment properties already, with three to five year plans to exit the workforce and sustain themselves off of their real estate portfolio while they continue to grow it. Part of me thinks their plans are the irrational exuberance of first-time millennial real estate investors after experiencing the unsustainable real estate market gains since March 2020. On the other hand I admire their aggressive approach towards planning an exit from the traditional workforce.

I’ve always tended towards being risk averse. I would for example choose a guaranteed 10 year FIRE plan over one with a 50/50 chance of taking either five or 15 years. Obviously the nature of investments, risk, and volatility being what they are nobody can predict such timelines with any certainty. But as a general rule I will try to avoid being in the left tail of a distribution (i.e. a statistical loser) whenever possible. That’s just my personal preference.

My shifting thoughts on spending my free time wisely

When I was younger, the thought of spending all of my free time playing video games sounded amazing. I considered it one of my main hobbies as a teenager through my mid-20’s. Now at 29, I’ve slowly tapered off my playing of video games over the past few years due to naturally losing interest in them. Everything feels like a stale and rehashed version of something I’ve already played, and accomplishing things in the virtual world is no longer fulfilling.

Recently I’ve found a lot more satisfaction investing my free time towards ventures that build a particular skill I want to have or creates a tangible product that benefits myself and others. The title of a blog post by Darius Foroux that I read a while back says it best: “The Purpose of Life Is Not Happiness, It’s Usefulness”.

Entrepreneurship for the risk averse

First of all I would like to state that despite its rising popularity, I find the term “side hustle” to be stupid and juvenile. Maybe I’m just not in touch with the popular culture any longer, but “entrepreneurship,” “my business,” or even “experimental venture” sound a heck of a lot cooler to me.

These thoughts on reconsidering the lazy path to FIRE are coalescing into a potential approach to accelerating FIRE that I’m thinking of as a type of entrepreneurship for the risk averse. Personally, I don’t think I’d risk tens of thousands of dollars on building a side business. But what if we could attempt a potentially profitable venture for little or no financial investment?

For example, this blog costs me just a few dollars per month to host. I’m also about 75% of the way towards a first draft of my first book, which will cost me no money out of my own pocket if I self-publish digitally and use a print-on-demand service for physical copies. I enjoy writing in these mediums, and it could potentially make me money, but more importantly if it doesn’t I’ve lost nothing financially while still gaining the inherent satisfaction and enjoyment of the process.

As they say, you can’t win if you don’t play. And I feel that oftentimes the risk averse types like myself choose not to play to avoid left-tailed outcomes, rather than carefully selecting a playing field where left-tailed outcomes don’t carry a tangible risk.

What type of things are you doing in your spare time for free or low cost that you enjoy doing, find challenging, and that could potentially lead to a FIRE-accelerating payoff?

Final Week to Buy Series I Bonds Yielding 9.62% — A Great Investment?

Tue, 25 Oct 2022 00:00:00 UTC

This business week is the final chance to purchase Series I savings bonds from the US Treasury that yield 9.62%. The TreasuryDirect site instructs users to complete their purchase by October 28 to ensure issuance by October 31 prior to the new rate taking effect in November.

A lot of people are raving about I Bonds right now. After all, 9.62% is an amazing interest rate. Investors in US Treasury Bonds of any type haven’t seen a rate like that since the late 1980’s.

Are I Bonds a great investment that should have everyone running to max out their $10,000 per person purchase limit (or whatever they can afford) prior to the end of the week when that 9.62% rate slips away? I purchased $10k for myself a couple weeks ago, but I don’t think I Bonds are necessarily the best move for everyone.

First, what are Series I Bonds?

As described on the TreasuryDirect site (the official US government website to purchase bonds on), “Series I savings bonds protect you from inflation.” The bonds earn interest for 30 years unless they are cashed out before then, but they cannot be sold before one year.

The interest rate for I Bonds is computed from two components: a fixed rate, plus a variable inflation rate.

The inflation rate is re-calculated for all Series I Bonds every six months based on the Consumer Price Index for all Urban Consumers (CPI-U) change over the prior six month period. The floor is 0%, so even if we experience deflation the bonds won’t have a negative interest rate meaning they cannot lose value.

You won’t earn 9.62% forever

Series I Bonds are slightly more complex than bonds like the US 10 Year Treasury, where the investor earns the interest rate at the time of purchase for the bond’s duration. This is due to the fact that 10Y Treasury bonds pay a fixed rate, whereas I Bonds pay a combined rate which includes the variable inflation component as described above.

The fixed rate for Series I Bonds issued today is 0%. So any I Bonds you buy today, the combined rate is completely comprised of that adjustable inflation component.

The inflation component will change to 6.48% in November. So Series I Bonds purchased before the end of the week will yield 9.62% for six months, then 6.48% for six months — an average return of 8.05% over the next year. Where the rate goes after that will depend on what happens with inflation over the coming six months.

The purchase limits aren’t really limits

Some articles claim that you can buy $10,000 worth of I Bonds from the TreasuryDirect site and up to $5,000 using your federal tax return, limiting any individual to only $15k in Series I Bond purchases per calendar year.

That’s true but incomplete; the limits are actually per entity and not per person. Sole proprietorships, trusts, and Limited Liability Corporations (LLCs) are all examples of entities that a person could own multiple of and utilize them to purchase many times the individual limit in Series I Bonds.

Additionally one can purchase as many Series I Bonds as they wish as gifts for other people. For example, in a single year one spouse could purchase a gift of $50k in I Bonds intended for their partner, thus locking in today’s 9.62% rate on a larger invested amount. The catch is that the bonds can only be delivered in increments of $10k per year and count towards the recipient’s annual purchase limit. So it would take five years to fully unwind a $50k gift, which may not be a wise move if inflation drops which will take the Series I Bond combined rate right down with it.

Essentially, anyone who is truly determined to load up on many times the colloquially-believed purchase limit per calendar year of I Bonds can easily do so, making them not as restricted and rare as some believe.

Series I Bonds today aren’t an amazing investment because by definition the real return is 0%

As addressed earlier the fixed rate for I Bonds issued today is 0%. Essentially the fixed rate of a Series I Bond at purchase is its real return, since adjusting for inflation requires us to subtract out the adjustable inflation component. So the expected real return of I Bonds purchased today is 0%.

Now this isn’t exact because the inflation adjustment is lagging, for example if you buy the 9.62% I Bonds today (a rate based off older inflation data) and hold them during the next six months where inflation ends up being lower, your real return would be positive. But the longer you hold the I Bonds for, the closer your real return will converge towards the fixed rate of 0%.

Theoretically it would not be wise for example to sell a chunk of your stock investments to purchase I Bonds. You may get lucky in the short-term with timing the market and selling the I Bonds later to buy back into stocks at a lower price. But for a long-term investor this is a suboptimal move on average since stocks have a positive expected real return of 5–7% compared to 0% for I Bonds.

Who should be buying Series I Bonds as part of their portfolio?

The short answer is, anyone who sees a place in their asset allocation for an inflation-protected pseudo-cash-equivalent with a one year lockup. I Bonds will preserve purchasing power over time but with a real return of 0% they are not a tool for building wealth.

If you are holding extra cash in your savings account that you don’t plan to spend in the next year, then I Bonds could be a good option to not lose as much money to inflation with a chunk of your cash.

This is why I purchased $10k in Series I Bonds recently. We had the money we saved for a house down payment sitting in our savings accounts. However with the rising mortgage rates we are waiting for the housing market to price those in so figured it was unlikely we would buy in the immediate future, as well as what we would be willing to spend on a home is lower now that higher mortgage rates make the monthly payment larger.

What we had saved for 20% down plus closing costs was now larger than what we might potentially need. But I still like the idea of having a bit of extra cash sitting around in case we buy a fixer-upper, so the stock market is a bit too risky for that over a time horizon to buy in the next couple of years.

Moving $10k into Series I Bonds will earn me 8.05% over the next year versus 2.35% in my Ally savings account. The savings account is losing money to inflation, so this is a way to lose a bit less on $10k of that which isn’t immediately needed. It’s a difference of over $500 that I wouldn’t have next year if I didn’t buy I Bonds.

Some personal finance hyper-optimizers keep the majority of their emergency fund in I Bonds that have passed the one year lock-up to preserve purchasing power but retain the ability to access the funds in a few days. You can slowly ladder into I Bonds over a year to reduce the risk of the lock-up period impacting your ability to live off of your emergency funds if needed.

When will I sell my I Bonds?

I have already mentioned the one year lock-up period for I Bonds. The other caveat is that if you cash in I Bonds before 5 years, you sacrifice the most recent 3 months of interest.

I probably won’t sell immediately in one year because that would mean losing the final 3 months of 6.48% interest. As long as the I Bonds are yielding more than my savings account, it would make sense to just keep them as part of my emergency fund.

If we end up buying a house that needs some updating I could also sell the I Bonds to finance those renovations, once the lost 3 months of interest felt like a small enough amount to me.

Overall I think I Bonds are a useful tool right now for anyone who has a lot of cash on hand, doesn’t need all of it within the next year, but might need it within the next few years. Otherwise, investors in the accumulation stage should just keep dumping money into index funds for higher expected long-term growth.

Fall 2022 Housing Affordability Update: Looking Worse Than 2008

Mon, 10 Oct 2022 00:00:00 UTC

Back in March I wrote an article titled “The Honest History of Home Prices and Mortgage Rates,” demonstrating why the most recent great inflationary period in the 1970’s is not relevant to today’s housing market. In that article I came up with a graph that I thought — despite being a bit ugly — provided some great historical context for the relationship between mortgage rates and home prices. At the time 30 year mortgage rates were around 5%. Seven months later, 30 year mortgage rates have climbed over 7% according to the benchmark index provided by Mortgage News Daily, so I thought it was a great time to revisit that graph.

The honest history of home prices and mortgage rates in one chart, updated

The latest data point was added using median home price data for September 2022 from Realtor.com, and 30Y mortgage rates as of the Friday close from the MND index. Click to enlarge the graph:

Data Sources: [1] [2] [3] [4] [5]

First, what is this graph? It is a way to reduce the three most important variables governing housing affordability — home price, income, and prevailing mortgage rates — into a two-dimensional chart. Taking a ratio between the median home sale price and the median household income inherently abstracts away inflation while maintaining the relevance of both variables for comparisons over time.

Note, since 1982, the graph’s general trend of “up and to the left.” This occurs because as interest rates fall, borrowers can take out a larger loan for the exact same monthly payment. For example comparing two 30 year loans, a $400k loan at 7% interest has the exact same monthly payment as a $444k loan at a 6% rate. So for the same income level, home buyers are able to borrow a larger mortgage, thus influencing the Y-axis variable to grow as the X-axis variable shrinks.

Also note there are several “loop-the-loops” in the graph. We see one occurring at the data points for 1981, 1994, 2006, and 2018. What is happening here is that during the period from 1981–2021, mortgage rates steadily fell from around 18% to below 3% following general Federal Reserve policy. This four-decade trend was briefly interrupted by shorter periods of monetary tightening and rising interest rates which generally causes a cooling in the broader economy, and coincident with increasing the cost to borrow on a mortgage, puts downward pressure on the prices of homes (or causes them to appreciate less than the rate of wage growth) because home buyers primarily “buy the monthly payment” rather than the nominal home price.

There were of course other factors in 2008 specific to the mortgage market which deepened that crisis’ impact on home prices, but home prices had already stagnated and declined slightly from their 2005 record prices prior to the September 2007 implosion of Lehman Brothers. Hence why that loop-the-loop is the most stretched in the Y-axis than any other.

Obviously the history in all of these cases is already written, so we know that in each of these cases The Fed has followed up with rate cuts which were greater in magnitude than the hikes, juicing home prices to continue growing relative to median household incomes and continuing the “up and to the left” trend.

The Fall 2022 housing market in historical perspective

From the updated chart we can draw two conclusions:

The median home sale price to median household income ratio is higher today than during the 2008 bubble, and higher than at any point in this 50 year data set.
Mortgage rates are now officially higher than they were at their peak during 2006, and are at the same level as around 2001 when the median home cost ~4x the median income compared to ~6x today.

This can be consolidated into the single conclusion that for the median household, affordability in today’s housing market is undeniably worse than it was during the 2008 housing bubble.

Notably, mortgage rates have never relatively risen this much, this quickly, ever. We’ve seen about a 4% increase in 30Y mortgage rates since the start of the year. While 1979 and 1980 posted similar increases in absolute terms, rates were in the double digits already in those years so this year’s 4% rise in relative terms starting from around 3% is multiple times larger.

Almost everyone agrees in hindsight that 2008 was a housing bubble. If this situation today is worse, how is it not also widely considered a bubble?

Around 2014, the usual permabears began sounding the alarm because the median sale price of homes had finally reached once again the previous high set in the mid-2000’s. Of course, nobody took them seriously because they didn’t even adjust for inflation and mortgage rates were lower in 2014 than in the mid-2000’s, so affordability was much better at the time.

In inflation-adjusted terms, homes finally hit the same price point as the peak of the 2008 bubble in Q3 of 2021:

Data Source

However, in late 2021, 30Y mortgage rates were around 3% compared to over 6% in 2006, so affordability-wise it was still a better situation than the mid-2000’s bubble even though home prices had reached that lofty peak once again in real terms.

Now the Federal Reserve’s tightening actions have sent mortgage rates above their mid-2000’s levels all while prices are higher both in real terms and relative to median incomes. Year-to-date, the principal and interest payment portion of a mortgage on the median home at prevailing interest rates with 20% down has increased nearly $1,000 per month, comparing the median $392k home with a 2.95% interest rate at the end of 2021 to the median $427k home with a 7.12% interest rate today. Many municipalities are additionally hammering home large property tax increases to capture their share of the pie. Buyers in higher-than-median cost of living areas and/or those who cannot muster 20% down have seen their potential payments skyrocket even further.

The low interest rates argument against this being a housing bubble has been torpedoed. Affordability is officially worse than at any time during the 2008 run-up for the median household.

The last two arguments being trotted out as to why home prices will not decline significantly is low housing inventory levels, as well as some variation of 2008 being a once-in-a-lifetime event where the conditions such as toxic loan products are not present today. Let’s take a look at both of those.

The housing shortage myth

Realtor.com’s data shows the number of actively listed homes for sale in September 2022 as 732k. This is a historically low number; for context some pre-pandemic data points from 2017–2019 show the number of active listings in September of those years around 1.2-1.3 million:

Source: Realtor.com

Some people like to say that low levels of housing supply is the new normal, we have underbuilt since The Great Recession and therefore since supply is restricted with continuing millennial demand, home prices will stay flat or continue to rise. They claim that it’s a paradigm shift where median home price to income ratios can stay elevated since median income households are not the ones buying homes anymore and have likely been priced out of the market forever.

However that is easily disproven by looking at transaction volume. By doing so, we can see that there is not a housing supply problem, rather it was a temporary demand problem which I believe was primarily caused by government and Federal Reserve stimulus injecting trillions of dollars into the economy including purchasing $1.5 trillion in Mortgage Backed Securities which artificially reduced mortgage rates. People had more money in their pockets than ever and mortgage rates were lower than ever, meaning Americans could borrow more than ever relative to their incomes to buy a home — and American consumers as usual spent like sailors at port. Additionally, the pandemic accelerated many households’ plans to buy a home, which is clearly a one-time effect of pulled-forward demand.

Let’s take a look at that transaction volume:

Source: NAR (via Statista)

We can clearly see that in both 2020 and 2021, more existing homes were sold than any year since 2006. About 1 million extra homes total were sold in 2020 and 2021 compared to what would be expected based on transaction volume from the prior 5 years.

Those million homes were pulled-forward demand that ate into the supply of active listings, leading to the myth of a housing shortage. We have already seen the number of active listings increase 26.9% year-over-year, so as continued Federal Reserve tightening actions crush the demand side even harder for houses at these prices and mortgage rates, the number of active listings will continue to grow.

That domino is already falling, and perhaps when the number of active listings surpasses 1 million again we can stop hearing this myth of a housing shortage.

“2008 was a once-in-a-lifetime event” faces off with the reality that today is probably the worst time in your lifetime to buy a home

Finally, let’s take a look at the argument of 2008 being a once-in-a-lifetime event where the conditions such as toxic loan products are not present today, therefore a crash in home prices will not occur.

This type of thinking exhibits characteristics of recency bias and selection bias. 2008 was not that long ago and is still forefront in many peoples’ memories when they think of the word “recession.” It was also the first time since the Great Depression where home prices declined in nominal terms, so it is also most peoples’ foremost example of what a housing correction or crash looks like.

As a singular data point, it gets conflated that the symptoms that caused the 2008 bust are the symptoms of a housing bubble, therefore if we do not have things like toxic CDO products and “No Income No Job” (NINJA) loans present today, there can be no housing bubble in 2022.

Obviously the above thinking is wrong for a multitude of reasons but the most important one is that no two financial market events are the same. Every market shock has different causes and varying degrees of negative outcomes. As the saying goes, history does not repeat but it does rhyme.

Perhaps 2008 was actually a “first-of-its-kind” event caused by the increasing financial commoditization of real estate loan products and Americans’ psychological shift around the 1990’s toward viewing their primary residence as an investment rather than a commodity? Regardless, it’s correct that this isn’t 2008 all over again. This is 2022, under a wholly different set of circumstances, and for anyone under 60 years old this definitively the worst time in their lifetime to buy a home.

Generally I am a proponent of the common wisdom that “time in the market is better than timing the market.” But for a couple of reasons, I do not think that this applies to real estate today:

The first is that unlike stocks, you cannot dollar cost average into a house. The price you pay today is the price you paid, and you cannot average down the cost you paid for your primary residence by purchasing more shares. Refinancing should not be counted on to bail you out of a high monthly payment as nobody knows when or if mortgage rates will go down again, and it’s also important to point out that you cannot refinance if home prices decline and you have negative equity (unless you bring more cash to the table to pay the difference between your loan value and the home value).

Secondly, I’m a firm believer that there are very rare times where markets simply break beyond any rationalization. While studying Japan’s financial crisis of the 1990’s, I noted that approaching the peak of the bubble during the late 1980’s, their Nikkei 225 index was trading around a 1% earnings yield. At the same time, one could buy 10 year Japanese Government Bonds yielding 6% interest, while inflation was between 1–3%. The suggested equity risk premium was massively negative but this strange situation persisted for several years before the irrational exuberance dissolved and the Nikkei 225 was slowly crushed by nearly 80% between late 1989 and 2002.

I know the housing market is broken because it has become nonsensical; while we were searching during 2020 and 2021 and putting in bids on homes we figured we’d be overpaying a bit, but that was a price we were willing to pay for the benefits of having a house. The numbers don’t even come close to adding up anymore. Compared to other households in our county we’re around the 90th percentile for household income; we also have huge savings rates and nearly no debt. Rising mortgage rates have caused us to stop looking at homes completely until prices in our area soften. Financially, the premium over renting makes no sense and doubling our housing cost just to get into a mediocre starter home is not an expense we are willing to incur. Who is even left to buy in this market?

I predicted earlier this year that The Fed’s impending tightening actions would cause a housing correction in a vacuum. In the past few weeks, Chair Powell said that the housing market needs a “difficult correction” to get affordability back into balance (note that Powell used the term “reset” in reference to housing in June; the shift in vocabulary seems like intentional jawboning). Additionally Fed Governor Waller said in a speech on Thursday, “while this market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes.”

And that’s a price they’re willing to pay to get inflation under control. Potential homebuyers, sit tight and don’t fight the Fed.

Shaving Companies Don't Want You to Use a Safety Razor

Sun, 02 Oct 2022 00:00:00 UTC

For over seven years I have been shaving with an old-fashioned double-edge (DE) safety razor to save money and get a more comfortable shave. Both men and women who have body hair they want to remove can enjoy the savings from shaving like their grandfather did. Unfortunately due to the massive marketing budgets of disposable razor companies, safety razors are simultaneously interpreted as obsolete and inferior while also being forced into obscurity on store shelves.

Technologically, modern cartridge razors are often marketed as presenting a great shave due to having multiple blades, often somewhere from three to six blades. This is arguably overkill as one only needs so many blade passes to cut down the hair in a specific area depending on density, so the excess blades will be dragging along over the skin behind and creating unnecessary friction and irritation.

Additionally I have noticed that safety razors are almost always misleadingly presented as a terrible deal at in-person stores. At my local CVS, a pack of ten double-edge razor blades is offered for $9.99 and I have seen roughly the same at Target and Walmart. It is possible to find 100 packs of DE razor blades online for cheaper, so these are being sold for over a 10x markup! Often no actual safety razor to put the blades in is even sold at the store, leaving people to puzzle over how this ancient relic is even used.

Contrast this with the remainder of the wall filled with “fancy” modern cartridge razors where you can often get the handle with 2 or 3 cartridges for $9.99 to $12.99, and extra cartridges which promise a better shave can be had for $2 to $3.50 a pop. Disposable razor manufacturers and retailers seem to be colluding to keep consumers ignorant of safety razors so that they can both continue to make massive profits from selling overpriced cartridges. Naturally any product which is targeted by entities seeking to profit from you should elicit immediate interest.

Over seven years ago I purchased a safety razor, badger hair brush, a stand, five pucks of shaving soap, and 100 razor blades for a total of $103.98. I still have about 20% of the consumable supplies (blades and soap) remaining from that initial purchase. Admittedly I don’t shave every day or even regularly; I will go through periods of growing a beard for two or three months where I only shave my neck area, then periods of shaving clean one to three times per week for a while. Still, this is dirt cheap over the years compared to what I would have spent on cartridge razors.

Cost comparison

There’s no denying that the startup costs for double-edge (DE) safety razor shaving are higher — they’re made of metal as opposed to the plastic cartridge razor handles that are sold as a loss leader to get customers buying their proprietary cartridges, which is where the real money is. However, the blades for DE razors are so cheap that the initial cost for the razor and supplies quickly closes the gap to pay for itself and start stacking up the savings.

My assumptions for this analysis will be as follows:

For the safety razor: $55 for the razor, $15 for a shaving brush, and $15 for a stand. Replacement blades are $10.99 per 100 count (or 11 cents each), the current price for Astra Superior Platinum blades from a reputable vendor. I will assume blades are thrown out after 3 shaves which is my experience across multiple brands shaving my thick and coarse beard.

For the cartridge razor: $12.99 for the handle and 2 cartridges, the current price for the very popular Gillette Fusion 5 at Target. Replacement cartridges are $33.97 per 12 count (or $2.83 each) from Amazon, the cheapest per-unit cost I could find. We will assume the user gets 6 shaves per cartridge, not because I believe the blades are higher quality than DE razor blades but because users tend to use them long past the point where they start to get dull due to the high cost.

For both cases we will assume the user shaves 3 times per week on average. The cost of shaving soap or cream will be ignored since this is fairly comparable in both cases.

In this analysis the total cost of shaving with the cartridge razor becomes more expensive than the safety razor in a little over a year, by week 58. After 10 years, assuming no new equipment is purchased, the safety razor shaver has saved over $600 compared to the cartridge razor shaver.

Obviously the exact break-even point will vary depending on how frequently one shaves, whether a more premium blade is used (the most expensive DE blades are about 40 cents each), and how quickly one’s hair tends to dull razor blades. The general conclusion still stands though that over the long-term, using a safety razor is a frugal choice to save hundreds of dollars per decade and get a better shave while doing so.

Pros of double-edge (DE) safety razor shaving

There are several benefits to switching to this more old-fashioned method of shaving:

Saves you money: as we just examined!

Less irritation: cartridge razors are designed to “tug” the hair and then cut it, which can cut the hair below the surface of the skin and result in more ingrown hairs. I got many fewer ingrown hairs after switching to a safety razor. Additionally cartridge users likely continue to use the cartridge long after the blades have started to go dull due to the high cost which can be another factor in skin irritation; DE razor blades are so cheap that they can be replaced at the slightest sign of an uncomfortable shave with no guilt.

Much lower environmental impact: Cartridge razors create both plastic and metal waste and are not recyclable in most areas (although Gillette has partnered with TerraCycle to offer cartridge recycling in specific locations). Some areas allow you to drop off DE razor blades in the metal collection area at the recycling center, but even if this is not possible in your area the thin metal blades create a fraction of the volume of trash that cartridges do.

Cons of double-edge (DE) safety razor shaving

There are also a couple downsides to using safety razors:

Improper technique can lead to worse cuts: It’s no secret that razor blades are sharp. The pivoting heads of modern cartridge razors serve as an idiot-proof method of maintaining the blade at the proper angle to cut hair while minimizing the potential for cutting yourself. Safety razors have a fixed blade and the user must maintain the proper angle (generally about a 30 degree angle to the face). Improper technique can lead to a greater potential for cutting yourself than cartridge razors, and beginners especially will likely suffer a few minor cuts on the path to learning proper technique.

It takes more time: Shaving with a safety razor is more time consuming, especially for beginners. Lathering the soap with a brush takes longer than spraying canned shaving gel into your hands, and taking the shaving process a bit more cautiously to avoid cuts is generally wise. Many DE shavers also do a 3-pass shave (with, across, and against the grain) for a super smooth shave.

Personally I feel the benefits far outweigh the downsides, especially for a non-daily shaver like myself. The monetary savings and reduced irritation is worth spending an extra few minutes on the days that I shave, and proper technique is able to be learned quickly.

A note on razor materials

Many entry-level safety razors these days are made out of a chrome-plated zinc alloy or pot metal. The chrome plating has a tendency to flake off over time; if this occurs in the area that contacts your skin it would probably be uncomfortable enough that you would toss the razor. As such I cannot recommend modern chrome-plated razors as a “buy it for life” product. Below is an example of this occurring in multiple areas on my 7 year old Merkur 38c razor:

I would recommend stainless steel for a razor that will truly last forever. I recently purchased a Rockwell 6S razor made in the USA from 316L stainless steel for $96 (the razor retails for $120 but they frequently offer 20% off coupons). One thing I like about the Rockwell 6S is it comes with 6 different base plate options which have varying levels of blade exposure, allowing the user to choose a more mild or aggressive shave.

The company RazoRock also sells stainless steel razors starting at $55 for their “Game Changer” model which I have not personally tried; their razors are made in Canada. This price point is competitive with many of the Merkur chrome-plated razors which are often recommended to beginners, so it’s definitely worth looking into a stainless steel razor for a product that will truly last a lifetime.

Getting started shaving with a DE safety razor

There are many great articles and videos directed at beginners just getting started with safety razor shaving which go over the basics of lathering and shaving technique. I’d definitely recommend watching the below tutorial video by Executive Shaving:

https://www.youtube.com/watch?v=ps88RU_BXlA

An equivalent or superior tool for a fraction of the cost, now that’s frugal

It doesn’t seem like a conspiracy that disposable razor manufacturers and retailers are colluding to keep consumers ignorant of safety razors — I’ve seen the proof on store shelves. The motive of course is billions of dollars in annual revenue generated by disposable razors and cartridge system sales, which would be slashed by 80% or 90% if every consumer used the old-fashioned safety razor.

I highly recommend double-edge safety razors to both men and women looking to save a few bucks each month on shaving, and I’ve found that it’s especially worth a try for those who are prone to skin irritation.

When to Obtain (Then Drop) Life Insurance on Your FIRE Journey

Fri, 16 Sep 2022 00:00:00 UTC

Pursuing financial independence is quite the non-traditional path, so it necessitates some differences in financial planning from what most other people are doing. Life insurance is yet another one of those areas.

Why get life insurance?

The most basic purpose of insurance is to protect against a particular potential risk being realized. In the case of life insurance it is to protect against the early and unexpected death of someone who has dependents who rely partially or wholly on their income.

As such, single people with no children generally don’t need life insurance. Since I will be getting married next year it is responsible to look into life insurance coverage.

Term life insurance is generally the only type you should consider

FINRA identifies the five most common types of life insurance as:

Term Life Insurance
Whole Life Insurance
Universal Life Insurance
Variable Life Insurance
Variable Universal Life Insurance

All of the latter four products are permanent policies, meaning that your policy does not expire: your heirs are guaranteed to receive a payout upon your death (as long as you continue to pay your premiums). Some of these policies feature a savings component wherein a portion of the premiums are deposited into a cash savings account, which can be withdrawn or loaned to the beneficiary while living.

Variable policies are actually more akin to financial securities than insurance. Companies offering these products must register them with the SEC, and they can only be sold by licensed brokers.

Term Life Insurance is called as such because it is not a permanent policy, and only lasts as long as you opt for; commonly terms are offered between 10 and 30 years, although five and 40 year policies can be found. It can be cancelled at any time if no longer needed or wanted. If you die within the term period, your beneficiaries get the payout amount they are obligated. If you outlast the TLI policy it expires with no value, though you can easily purchase a new one if desired (likely for a higher payment, as you will then be older). Term Life Insurance coverage is cheap and straightforward.

By contrast, many types of permanent policies are expensive and convoluted. For example, PolicyGenius estimated a Whole Life Insurance payment average of $437 per month for me, a healthy 29 year old male, to get a $500k policy. The truth is that Whole and Universal Life Insurance are products that are often sold by slick-talking salesmen to earn them commissions, and generate big profits for the insurance company. These products are borderline scams except in a very specific minority of fringe cases for complex estate planning.

Consider this: PolicyGenius also quotes me a 30 year $500k Term Life Insurance policy for an average of $45 per month. If I invest the difference between the whole and term policies — $392 per month — into an investment yielding a 5% annual real return, that results in $312.5k after 30 years. If I die during that time frame, my beneficiaries get $500k either way, but in addition with the term policy they also get whatever the invested monthly savings have amounted to by that point. If I’m alive in 30 years, I have an extra $312.5k to my name than I would have if I purchased whole life insurance.

Somewhat interestingly, for a healthy 29 year old male, saving and investing the difference between the cost of a $500k whole life policy versus a $500k 40 year term policy at a 5% annual real return is nearly the exact amount of time required for the savings to compound into enough money ($529k) to offset the entire cost of the coverage. Thus if I select the 40 year term policy and survive to age 69 I now have on hand the $500k the policy would have paid out — making whole life irrelevant — and if I die before then, the term policy pays out $500k to my beneficiaries.

The above of course ignores tax treatments, but it does demonstrate the massive amount of wealth drag created by permanent life insurance products like whole and universal life. The math shows that Term Life Insurance is absolutely the way to go!

Life insurance and financial independence: when to drop it

The interesting caveat of FIRE is that at some point, your assets provide enough passive income to sustain your family’s lifestyle and thus even if one partner died, the portfolio would presumably be inherited by the remaining family members where it would continue to provide this income.

This presents a different approach towards life insurance planning than those pursuing a traditional retirement, the vast majority of whom should be carrying life insurance at least until they are eligible to collect Social Security benefits, and many beyond that as well if both partners are drawing an income from Social Security and the loss of one of those checks would cause financial hardship for the surviving spouse.

If you have achieved financial independence and have a portfolio of at least 25 times your household’s annual expenses, it is likely no longer necessary to carry life insurance, as long as the household’s expenses will stay the same or go down upon the death of one partner. Make sure to factor in any expected cost increase in outsourcing household burden tasks (cleaning, maintenance, child care, etc.) if those cannot all be assumed by the surviving partner.

If you do need life insurance, how much coverage to purchase?

There are several different courses of action when determining how much term life insurance coverage to purchase, based on several different desired outcomes:

Make your remaining family members immediately achieve FIRE upon your death (25-33x projected annual expenses, minus existing assets).
Provide enough of an investment boost in present value to make your remaining family members achieve FIRE at your original goal ages.
Provide only enough of an investment boost in present value to allow the surviving partner to retire comfortably at a standard retirement age.
Accept the risk and skip any life insurance coverage to save a few hundred dollars per year.

The specific amount of coverage needed will depend on your existing assets, and may differ per partner if there is an income disparity. You’ll have to pull out that compound interest calculator and get to work. For investment growth projections, I always assume an average annual real return of 5%. Calculating based on an inflation-adjusted return additionally makes it easier since it puts future balances in present value terms which is useful for comparing against your expenses today.

The length of the term in years will also vary depending on your circumstances. For example, if you expect to achieve financial independence in ten years, then a ten year term life insurance policy is probably a great option. Try not to over-purchase a longer term or more coverage than you need — while you can always edit or cancel the plan later, the payments are averaged out over the term length, meaning you’re paying more than the market value of the plan in the early years, and less than the market value in the later years.

Also note that the amount of coverage that you require over time will change as your assets grow. For example if you are $1.5M away from your FIRE goal and expect to retire in 20 years, it doesn’t necessarily make sense to purchase a $1.5M 20 year term policy. It will almost certainly be cheaper to “ladder” multiple insurance policies, or to simply purchase a shorter term policy like ten years and re-evaluate your needs in the future when that policy gets close to expiration.

Personally, I settled on a 10 year $600k term policy. Added to our combined assets this would provide my fiancée with a large enough portfolio to be instantly financially independent at a low level of expenses, or after a few more years of accumulation would provide a stream of passive income for a comfortable early retirement. The ten year term also lines up nicely with my projected FIRE date, at which point I may no longer require life insurance.

Where to price out the options for term life insurance

I clicked onto a few marketplace sites and thought Quotacy was decent, if only for the fact that they don’t require you to enter contact information prior to viewing quotes like several of the other sites I investigated. They have a couple dozen different carriers and the quoted rates seem competitive, though it’s probably worth just heading to the insurance provider’s own site after getting your quote to compare.

For what it’s worth, a 10 year $600k policy from Lincoln Financial was quoted to me at $14.43 per month on Quotacy and when I called Lincoln Financial they quoted the exact same price. The guy did spend a minute trying to upsell me on a 30 or 35 year term policy but when I told him I had already calculated my coverage needs needs based on my current assets and expected future growth over time he dropped the pitch and said I sounded much more informed on my needs than his average client.

Final thoughts

If you have not yet achieved FIRE and you have dependents or simply a committed partner working towards FI with you, then term life insurance is probably worth getting by following the guidance in this article. In general everyone should review their insurance coverage when they have changes in life circumstances such as marital status or the birth of a child. Those pursuing financial independence should additionally review if their coverage is still appropriate as they make progress towards their “FI number.” If your assets have grown faster than expected it may allow you to reduce your term life insurance coverage.

The Unfair Economics of Jury Duty

Sat, 27 Aug 2022 00:00:00 UTC

Last week I had to show up at the local court house for my jury duty summons. 15 out of 80 people would be selected to serve, suggesting that any individual had an 18.75% chance of being selected to sit as a juror on a trial. Those odds being what they are, I fully expected to be sent home by lunch time.

Instead, I watched those odds slowly increase and found myself empaneled on a trial. After five days, I had $100 in gross compensation, minus $35.50 in incurred expenses, for a net of $64.50 in taxable income. While I found it rewarding to complete my civic duty, this experience also got me thinking about how the unfair economics of jury duty contributes to an implicit bias among jurors selected to sit on a trial. Two main factors are at play here.

Employer compensation

Currently only eight US states have laws requiring employers to pay employees for at least some portion of jury duty. Those states are Alabama, Colorado, Connecticut, Louisiana, Massachusetts, Nebraska, New York, and Tennessee.

In Massachusetts for example, employers are required to pay employees their regular wages for the first three days of juror service. After that, state compensation rates take over, unless one’s employer offers leave benefits for jury duty above and beyond those required by state law.

According to a BLS survey from March 2021 (see Table 33), 57% of US civilian workers were provided paid jury duty leave by their employers.

State compensation

Among US states, jury duty pay ranges from a low of $5 per day in Mississippi and New Jersey, to a high of $50 per day in Arkansas, Colorado, Connecticut, Georgia, Massachusetts, and South Dakota according to JuryDuty101. Some states reimburse for expenses incurred such as mileage, tolls, and parking, whereas others do not.

Clearly, these rates of compensation are subpar to say the least. An eight hour workday at the federal minimum wage of $7.25 per hour results in $58. All states are compensating jurors at less than the rate of minimum wage.

My financial experience as a Massachusetts juror

Thankfully my employer provides paid jury duty leave for the duration of service.

Massachusetts provides no reimbursement for expenses, so I did have to pay out of pocket for parking in the city that I was summoned to.

Since compensation at the state rate of $50 per day kicks in on day four in Massachusetts, the worst case scenario financially would have been if the trial lasted 3 days. I would have paid $30 out of pocket for parking, essentially costing me money beyond what I would have otherwise spent those days to attend jury duty.

For days four and five I received a total of $100 in juror pay. I paid $35.50 total in parking fees (the garage ticketing system was broken on my final day, giving me a freebie) for a net of $64.50 in taxable income. My commute was about the same to the court house as to my job, so I didn’t count mileage.

These factors combine into an economic pressure which creates biased juries

If my job did not provide paid jury duty leave beyond the state-required three days, netting $64.50 in gross pay for the fourth and fifth days of jury service — an average of $32.25 per day — is clearly untenable as far as that being a living wage. Any employed person who can pick up at least an eight hour shift at the federal minimum wage can make more money at work than they could at jury duty in every state.

There is a financial incentive for anybody whose employer does not provide paid jury duty leave to try and get out of it. However, the consequences of being empaneled as a juror for people earning lower incomes and those living paycheck-to-paycheck are especially pronounced.

Going back to the BLS survey on employee benefits that I cited earlier, the fact that 57% of US civilian workers were provided paid jury duty leave by their employers is not granular enough to demonstrate this. There is a remarkably clear positive correlation between those who earn higher wages and the likelihood of working for an employer that offers paid jury duty leave:

Average Wage Within the Following Categories	Percent of Workers Receiving Paid Jury Duty Leave
Lowest 10%	21%
Lowest 25%	30%
Second 25%	57%
Third 25%	66%
Highest 25%	80%
Highest 10%	83%

Source: BLS (see Table 33)

Ergo, in most cases, juries likely do not represent a cross-section of the community as they are intended to. Those in lower income strata are the most likely to lose income by being empaneled as a juror, and I suspect it’s not controversial to speculate that they would be the most likely to attempt to get out of it. Who can blame them? Nobody wants to take home less money than they expected to that month.

During voir dire, the preliminary questioning of the jurors, pretty much nobody raised their hands for the line of questioning related to conflicts of interest such as knowing the plaintiff, defendant, or their lawyers. However, when asked if anybody had any other reason for why they should be excused from the jury, about half of the pool raised their hands.

I didn’t get to hear their individual reasons so I’m not sure how many were claiming financial hardship versus other reasons. That particular judge didn’t seem interested in keeping any jurors who didn’t want to be there though, so in the end our jury consisted of the first eight people that didn’t try to get out of serving. There were a couple retired people, but everyone else had some sort of office job that offered paid jury duty leave.

I’m sure there are several implications and outcomes from juries having an economic pressure to bias towards selecting for higher income individuals. Since this does not meet the stated intent of juries, it should be examined and rectified.

One of the simplest and most obvious ways to fix this is to make it so serving on a jury is not an economic disincentive. If all jurors were guaranteed their normal work pay plus reimbursement of any additional expenses they incurred to get to the court house for the duration of however long their service might be, that would go a long way towards creating juries which are more representative cross-sections of their communities.

Target RedCard: 5% Back, No Fee, $40 Bonus. Better Than Amazon?

Tue, 16 Aug 2022 00:00:00 UTC

My favorite new rewards card isn’t even a credit card — it’s a debit card. Target’s RedCard seems like an attempt by the department store to take the fight to Amazon, and in my opinion they’ve laid out a pretty sweet deal which is superior to Prime.

I canceled my Amazon Prime membership shortly after starting this blog in July of 2019 upon reviewing my budget for the first time in several years and noting how much money I was spending at Amazon. Most of that spending was frivolous and probably in a way subconsciously justified by me having the Prime membership. Since then we’ve shifted purchasing most of of our household supplies to Target (at the physical store), finding that their prices were less volatile than Amazon. Extra discounts off these products was a great reason for me to get the RedCard.

Free $40 bonus coupon for opening a RedCard

A promo that they’re running right now will send you a coupon for $40 off your next purchase of $40 or more, as long as you sign up for the RedCard before August 27th, 2022. The coupon will be valid until September 17th, 2022. Note that if you miss this specific promotion, just make a calendar reminder to check Target’s website again in a few weeks; chances are the welcome bonus offer will be back. Both myself and a friend missed the offer window at separate times this year as life got away from us, then checked back a few weeks later and were able to snag it.

As far as credit card bonuses go, $40 isn’t anything worth bragging about or opening a new credit card for. However it’s interesting that RedCard has a debit card variant which comes with all the perks of their credit card, except it can only be used at Target. So no credit report inquiry, new account, or credit score hit to deal with, and you get all the same great perks at Target which is the entire point of the card.

Features and benefits of RedCard

Here’s the main features of the RedCard debit card:

5% off at Target and Target.com (note that this is an immediate 5% discount, not cash back)
No annual fee
Free two-day shipping on “hundreds of thousands of items”
An additional 30 days for returns and exchanges

The credit card version additionally offers 2% cash back on dining and gas purchases, and 1% everywhere else. These features aren’t great compared to other credit cards, so again I don’t particularly feel the card is worth using outside of Target in which case one might as well go with the debit version.

A better deal than Amazon Prime?

In my opinion, the Target RedCard is better than Prime because it offers the same benefits for shoppers that Amazon Prime members pay a $139 yearly membership fee for. Everyone knows Prime offers two-day shipping, and Prime members with the Amazon Rewards Visa Signature Card get 5% cash back on every Amazon purchase (non-Prime shoppers get 3% cash back). So it’s quite the clever play for Target to match the 5% back and free two-day shipping all with no fee, which could incentivize some Prime subscribers to switch their loyalty to save on the annual membership fee.

Of course, if you use some of the other benefits offered by Prime such as the video streaming and not just the shopping benefits that may shift this equation. However, the RedCard’s existence should cause Amazon fans to take a good look at whether they’re truly getting their money’s worth for the Prime membership fee. A recurring $139 per year (which will probably continue to increase in the future) for Amazon Prime isn’t chump change.

No need to carry yet another physical card

Usually I detest how every store and brand wants you to download their own app onto your phone. However, the Target app for iOS and Android actually offers one interesting benefit. The app has a feature called Wallet, where users can add their RedCard to the Target app and generate a barcode to scan at checkout to transmit their payment details. Ergo, no need to carry your physical RedCard on you when shopping in store.

This feature is fairly redundant with digital wallets using NFC such as Apple Pay, Google Pay, and Samsung Pay, however the RedCard specifically cannot be added to these digital wallets, and perhaps this feature was restricted to encourage more people to download their app. I will give them a pass since users can also add coupons from Target Circle to the barcode, transmitting all of their discounts and payment information in one scan when shopping in store.

Obviously, not much difference here for solely online shoppers. But with these niche rewards cards, it’s always nice not to have to carry the card on you “just in case” you end up in a situation to use it.

Debit downsides?

One of the main areas where debit cards differ from credit cards is in the handling of fraud. Since debit cards withdraw money from your checking account immediately, in the US they are governed by the Electronic Funds Transfer Act (EFTA). For credit cards, the Fair Credit Billing Act (FCBA) applies.

For credit cards, your maximum liability for fraud under the FCBA is $50 if you report the transaction within 60 days of receiving a bill, and zero if you report the card lost or stolen before any transactions occur. Many credit card companies offer zero liability in the absence of personal negligence, waiving the $50 maximum liability.

Since the rules for debit cards are set by the EFTA, the minimum required fraud protection is a bit different. If you report it lost or stolen before any fraudulent transactions, your liability is zero. You can be liable for up to $50 if you report it within 2 days after fraudulent transactions occur, and up to $500 if you report it within 59 days. After 60 days, there is no financial protection against fraud.

However, the above is for physical cards. If your card is not physically lost or stolen, you have up to 60 days to report transactions with zero liability. So if your card number was skimmed or hacked from a database and used in an online transaction (where no PIN is required) you would not be liable for transactions made as long as you noticed within 60 days.

Thankfully Target has gone far above and beyond the minimum required fraud protection for debit cards under the EFTA. The RedCard debit card agreement reads “You will not be held responsible for unauthorized use of your Card, Card number, or PIN if you have exercised reasonable care in safeguarding your Card, Card number, and PIN from loss or theft.”

Generally, the best way to financially protect yourself when using a debit card is to never put your physical card in a situation where it could be lost or stolen. Leave it at home (ideally in a safe) and only use digital payment methods. This strategy will always effectively make the debit card fraud protections offered under EFTA as strong as those given to credit cards under FCBA — zero liability for any fraud you notice within 60 days.

Final thoughts

I’m enjoying RedCard as a way to save a little more money on household supplies that we need to purchase anyway. We canceled our Prime membership three years ago and haven’t missed it — in fact my spending on consumer goods is down over 50% since that point.

Unfortunately most of us have few to no options for shopping local when it comes to household supplies like toilet paper, cleaning products, and trash bags, so some sort of large retailer usually must be relied on for these types of purchases. I don’t hold any illusions about Target being more ethical than Amazon as a company.

With 5% back and no membership fee though, Target is challenging Amazon and in my opinion has created a superior financial incentive for consumers with RedCard, as Prime members need to sign up for the Amazon Rewards Visa Signature Card and pay $139 yearly to get 5% cash back. At this point, I would wager that most Prime members aren’t getting their money’s worth out of the membership fee and are simply coasting along in that ecosystem out of habit. Consumers looking to save some money need to be flexible with their shopping habits, and membership fees can counteract this by instead getting shoppers to think in terms of sunk costs.

If you’re interested in getting a Target RedCard, you can head to their site here to apply. There’s no extra code or anything to enter to get the $40 bonus coupon, as long as you sign up before August 27th you’ll receive that in the mail. RedCard doesn’t have a referral program; I’m recommending this card simply because I think it’s worth checking out to save some money on retail shopping.

Inflation Accelerates The Declining Value Proposition of Restaurants

Thu, 04 Aug 2022 00:00:00 UTC

One of the most basic tips for personal finance beginners getting a handle on their monthly spending is to cook more meals at home. Still, many of us enjoy the occasional meal out, perhaps once a week or so. It provides a break from cooking, a bit of entertainment, and maybe a date night.

A month or so ago we sat down for lunch at a restaurant we were passing by and ended up leaving upon seeing the prices on the menu. No, I’m not paying you $18 for a burger or $22 for a chicken sandwich. And I’m certainly not paying $10 for a pint of draft beer from a brewery a few towns over, when a larger 19.2 oz can of the same stuff retails for $3.29 at my local liquor store.

I understand that restaurants are businesses seeking to make a profit and their input costs including food and labor have risen, so the price they need to charge for their product has also gone up. I don’t expect charity or at-cost food prepared with slave labor. As a consumer I just have to vote with my wallet if I don’t feel that an exchange of goods or services is worth the cost to me. Ultimately this means eating somewhere else that still feels reasonably priced, or using my personal (free) labor as an input to make my own food more often.

In the conditions of our current inflationary environment, the price inflation for food purchased at grocery stores is worse than at restaurants. For the one year period ending in June 2022 as measured by the Consumer Price Index, the percentage increase in price for “food at home” was 12.2%, whereas for “food away from home it was 7.7%.”

Initially, one may think this larger increase in grocery prices would narrow the gap and make restaurants more of a deal compared to preparing food at home. That’s the argument that articles like one from TastingTable titled “It May Soon Be Cheaper To Eat Out Than At Home. Here’s Why” have attempted to present. However as we will see that is not correct.

Even with today’s grocery prices I could easily make a pub style burger at home for $5 or less:

Ingredient	Cost
1/2 lb ground beef	$2.50
Bun	$0.50
Cheese	$0.33
Tomato slices	$0.30
Lettuce	$0.10
Giant pile of fries	$0.75
Total	$4.48

The cheapest (non fast food) restaurant by me that sells a similar burger is $13. As I complained about earlier, the worst I have seen is $18 and most places seem to be in the middle of those figures at $15. Let’s go with the cheapest $13 restaurant burger to be as generous as possible. After a 20% tip and sales tax that’s $16.41. Well over three times the cost of the homemade burger.

Let’s apply our June 2022 CPI numbers to these current prices for the sake of a quick illustration:

An additional 12.2% inflation on our homemade burger would be 55 cents.

An additional 7.7% inflation on the total price of the restaurant burger would be $1.26.

It’s this large delta between eating out costing multiple times the price of cooking at home which has caused restaurant prices to quickly seem so absurd, despite the price of groceries inflating faster in percentage terms. A small percentage of a large number can be greater than a larger percentage of a small number.

Sure, restaurants can exercise economies of scale and purchase ingredients for cheaper than individual consumers can at the grocery store. However, as we can see, raw ingredients are clearly only a small portion of a restaurant’s costs. Even if they were paying retail grocery prices, $4.48 is only about a third of the menu price of the $13 burger, and they’d be paying even less than this via restaurant supply services.

The remaining vast majority of the price must cover things such as the cost of the retail space, utilities, workers’ pay, business insurance, and profit for the owner. While all of these items inflate at different rates, they’ll always make up the majority of the price of a restaurant meal, regardless of what happens with grocery prices.

Food prices don’t move in a vacuum, and it’s likely that increasing food prices would put inflationary pressure on wages as well. Rising rents in an area would increase the commercial space cost at lease renewal time, and likely also pull wages up with it.

Mathematically, it’s simply unlikely for inflation in food prices to ever narrow this gap and make restaurants marginally more economical than cooking at home. For this to happen, the ratio of the cost between a meal at a restaurant and one prepared at home needs to be less than than the ratio of the inflation rate between “food at home” versus “food away from home.”

For example, in June 2022 we saw a 12.2% / 7.7%, or 1.58x ratio between the inflation rates of food at home versus away from home. Unless restaurant menu items cost 1.58x or less what it would cost to make the same item at home, restaurant meals are increasing in dollar-denominated price faster than groceries.

Going back to my $4.48 homemade burger and fries example, that would have to cost only $7.08 at a restaurant to bring the dollar value increase on par with grocery inflation (55 cents applying both respective inflation rates). I don’t think it’s possible to get even a low quality fast food burger for that price anymore, and I am not aware of any restaurant items which cost only 1.58x the price of their component ingredients, let alone less than that.

The takeaway from this analysis is that in our current inflationary environment, the value proposition of restaurants is declining. In terms of saving money, it has actually become more worth it on average to prepare your own food over the past year. The total cost for eating out has inflated by a larger dollar amount, and therefore one can capture even more savings than a year ago by cooking at home.

My shifting perspective on restaurants

I’ve definitely been making a conscious decision to eat out less than our usual once per week. Also, while I’ve been consuming less alcohol in general, I haven’t bought any drinks out in the past couple of months because I feel the prices have just become too extortionate.

I also haven’t had any work travel trips for the past couple of months, so this shift in my monthly restaurant spending is quite obvious; in June and July of this year it was $86.32 and $57.61 respectively.

Still, it’s nice to go out every now and then. When I do, I’m more conscious about ordering things which I don’t have much practice making at home. For example, it’s quick and easy to make a decent burger, so it’s silly to pay a premium for one, and there’s nothing more disappointing than getting a meal out and ending up with the same or worse product than you could have crafted at home for a fraction of the cost.

Another thing I’ve been doing recently is making sure to support local restaurants that have had smaller price increases. In my area it seems there were a lot of menu redesigns this year, which came with around 25% price hikes across the board (often you can find user-submitted photos of the old menus on Google Maps to compare prices). This has meant cutting some of our “regular” spots out of the rotation. Providing higher sales volume to the businesses that have tried to keep their prices under control is doing my little part to hopefully help them continue doing so.

How Lagging, Selectively Represented Data Hides A Shifting Housing Market

Thu, 14 Jul 2022 00:00:00 UTC

July 15th Update: Redfin trickled out an extra two weeks worth of data today, so this article has been updated accordingly since it was written yesterday.

Today is the Thursday following the second Saturday of the month! For those that don’t watch housing market data for fun, that means it’s Redfin’s data release day, which used to occur once per month but is temporarily being released more frequently to track the latest developments in the housing market. After taking a look at the data, I realized that it did not reflect as much of what I feel like I’m seeing in my market (Greater Boston Area) which is rapidly climbing levels of inventory and an increasing number of price cuts compared to the spring market.

Housing market data represents lagging transactions. The median time to close on a home in my market is about 38 days according to Redfin. What today’s housing market data release by Redfin through July 10th represents then, is homes which went under contract around the last week of May and the first week of June.

The above is something I’ve talked about in the past when writing about housing. What I haven’t explored yet is how selective representation of that lagging housing data can even further hide the reality of what is happening in the housing market right now.

Today I am going to take a look at Middlesex County, Massachusetts. Middlesex County is an excellent representation of the Greater Boston Area — it excludes the city of Boston itself, but includes some close-in urban areas like Somerville and Cambridge, suburban towns between I-95 and I-495, and some further flung towns bordering on being rural up by the New Hampshire state line. It is the most populous county in both Massachusetts and New England and thus represents the experience of the modal New Englander.

If the housing market is going to plateau, correct, or crash, one indicator would be a massive increase in the number of price cuts by home sellers, indicative of large scale demand destruction on the part of buyers. So let’s take a look at this metric in Redfin’s Data Center for our area of interest, which includes today’s July 10th data point:

Source: Redfin

On the surface, this data release does not look good for those predicting a housing bubble! Under 6% of active listings have seen price drops, a small increase from the pandemic FOMO frenzy of 2020 and 2021. But we can also infer from this graph that price cuts have just barely inched above the levels seen at the same time of year in 2019, the earliest year for which Redfin provides data.

In July 2019, 30 year mortgage rates were around 3.90% according to Mortgage News Daily. So when contrasted with the environment facing today’s buyers with 30 year mortgage rates around 5.70%, price cuts being at the same level as 2019 rates would indicate that sellers still hold much more power over buyers in today’s market than they did pre-pandemic, and that the vast majority of buyers are still giving sellers exactly what they want.

Well, that’s what it would indicate, to people who don’t dig into how this data is calculated. You see, the lowest frequency that Redfin offers to calculate their data on is a rolling 4 week average. For the record, I’m not necessarily saying that it’s an intentionally malicious exercise in lying with statistics. But it is strange that these iBuyers are data-driven companies, yet their presentation and analysis of said data is incredibly juvenile.

Rolling averages can help to visually present trends in data which are otherwise disguised by short-term fluctuations. The downside is that one loses fidelity in the data. Thus, sudden, volatile moves within the data which should otherwise be flashing alarm bells will end up looking not so threatening when averaged in with the normalized data in the remainder of the period. For example, the most recent four data points that Redfin presents in this price drop dataset for Middlesex County, MA are:

Date	Percent Active Listings with Price Drops (4 Week Average)
6/19/2022	5%
6/26/2022	5.9%
7/3/2022	5.7%
7/10/2022	5.8%

Note that when calculating one of these four week rolling averages, the new weekly data point pushes the old one out of the set. So we can’t, for example, take the 0.9% increase in the rolling average the week of June 26th and multiply it by the duration to conclude that week had a 3.6% increase in the week-over-week percentage of homes with price drops. What we can conclude is that the four week period ending June 26th summed to a total which was 3.6% higher than the week of June 19th.

The rolling average can serve to dampen what may be a significant data point in comparison to historical data if weekly fidelity remained available. These weekly measurements themselves used to derive the rolling average are not publicized.

You can further verify the dampening effect of a rolling average by switching the chart to the 12 week duration, where Redfin’s data point for July 10th is 4.5%, in comparison to 5.8% for the 4 week average.

Is price cut data measured on a weekly basis really so volatile that it needs to be smoothed with a rolling average for an effective presentation? Doubtful.

Instantaneous Weekly Percent of Active Listings with Price Drops Measurement

Ready to learn how much uglier today’s housing market actually is than Redfin’s data would suggest? Let’s take a look at the total number of active listings in Middlesex County, MA:

For context, active listings is the number of homes available for sale. It excludes listings which are under contract (contingent or pending) as well as Redfin’s “coming soon” listings. We see that there are 2,298 homes for sale in all of Middlesex County.

Next we can apply a useful filter to dial in on only the listings which have price drops. To do this, head to the All Filters button, then scroll down to the Cost/Finance section and enable the Price Reduced filter, choosing one of the available time periods. We’ll do one week for our purposes:

After doing this for Middlesex County, I’m left with the following filtered results:

192 active listings in Middlesex County have had a price reduction over the past 7 days. Out of 2,298 active listings in the county, that means the percent of active listings with price drops in the past week is 8.4%!

The disparity between the instantaneous data in the market versus what Redfin’s lagging data smoothed out with a rolling average purports to report is pretty large. 1.44 times as many active listings today have price drops as compared to what the four week rolling average reports.

Just for fun, what if I download Redfin’s data and create an updated graph with today’s instantaneous measurement included, ignoring the rolling averages?

Data source: Redfin

If today’s instantaneous measurement of the percent of active listings with price cuts is at all representative of the rolling average for July — and I have no reason to believe it’s an outlier based on the frequency with which I’ve been receiving price cut emails recently — Redfin’s data releases in a couple of weeks will look something like the above graph.

The instantaneous weekly data allows us to get a more accurate pulse on the market than the rolling average. Using it, we can conclude that the percentage of listings which cut their price in the past week is already higher than at any point in 2019.

Total Percent of Active Listings with Price Drops

When I first drafted this article I was confused by Redfin’s data presentation. I took the title of their graph to mean that they were measuring the percentage of active homes for sale which had a price cut at any point in their history, and just recording that data once per week. But no, I was wrong and they were just measuring the percentage of active listings which had a price drop in the past week, then smoothing that out with the rolling average. This error on my part did lead to an interesting metric to look at though, which we can dive into below.

Unfortunately, Redfin doesn’t allow us to filter “all listings with price drops” despite reporting this metric in their blog posts, however we can create a replica of this data set by filtering for homes which reduced their asking price over 30 days ago, then adding it to the number of homes which reduced their asking price within the past 30 days. First we filter by price drops within the past 30 days:

We see that 469 homes in Middlesex County have cut their prices in the past 30 days. When I change the filter to look at price drops which occurred greater than 30 days ago, the result is 172 homes.

Now we add the two figures together, and we end up with the total number of listings which remain active for sale that have had a price cut at any point in their listing history. That is 641 homes, a whopping 27.9% of the active listings in Middlesex County, MA which have seen a price cut.

This is an interesting metric because it shows that over a quarter of the homes on the market have reduced their listing price at some point, but still remain without buyers. Even if the weekly price cut percentages plateau, if this backlog of the total percentage of active listings with price drops continues to grow, it will represent a continuing shift toward potential favorable conditions for buyers.

We’re finally seeing the effects of quantitative tightening coming through in the data

As recently as March of 2022, home buyers could still get 30 year mortgages around the high 3.x% to low and middling 4.x% range. But March 2022 is also when the US Federal Reserve approved the first increase in their benchmark rate, officially kicking off quantitative tightening. Since then, several factors have masked what would be an obvious — to anyone with a crumb of understanding of economic theory, at least — impending correction in home prices.

Such factors included a final gasp of FOMO buyers rushing to lock in record high home prices at whatever interest rate they could get, fearing that home prices would plateau at best and the rising rates would permanently price them out. Stack on top of that the lagging nature of home sales data points while transactions are pending. Then add further obscurity with the use of rolling averages by real estate data providers like Redfin, even in data sets where it is not necessary.

The summary effect of all of these factors resulted in many months delay until the official data would reflect the new reality for home prices. At least for this month, those who can be tricked by statistics (and those motivated to fool them) have Redfin’s data to point to and proclaim that there’s no evidence of a housing price correction.

“Don’t fight the Fed” is solid advice. Unfortunately, many people have forgotten that it works both ways, during easing and tightening.

Budget Review for the First Half of 2022

Fri, 01 Jul 2022 00:00:00 UTC

We’re already at the halfway point of the year, and it’s been an interesting ride so far. We’ve seen some turmoil in financial markets as inflation has been running rampant. How did these factors impact my spending, saving, and net worth over the past six months? It’s time to crunch the numbers and find out.

At the year-end 2021 review, I set a couple of goals for myself heading into 2022:

Stay on or under my new budget of $2,454 per month on average.
See out my Dry January commitment and re-evaluate the place of alcohol in my life and my budget (I later committed to a 30% reduction in alcohol consumption, which should put my spending on alcohol back in line with my budgeted $50 per month).

We’ll have to dive right into the spending review to see whether I met my goals:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,170.00	1,210.34
Restaurants	150.00	267.26
Travel	200.00	200.00
Groceries	235.00	179.21
Clothing/Shoes	50.00	138.36
Car/Rental Insurance	100.00	104.24
Flannelcat	70.00	87.55
Gasoline	60.00	76.42
Consumer Goods	75.00	74.28
Car Maintenance	50.00	51.33
Uncategorized	10.00	50.20
Alcohol/Bars	50.00	34.88
Misc. Taxes	35.00	30.08
Misc. Entertainment	50.00	22.22
Phone	20.00	20.00
Coffee/Tea	50.00	8.23
Student Loans	59.00	0.00
Car Payment	0.00	0.00
Total Monthly Expenses	2,434.00	2,554.60
Net Monthly Income	4,570.00	5,176.65
Free Cash Flow/Month	2,136.00	2,622.05

Unfortunately, I overspent my budget goal by an average of $120.60 per month. Thankfully (and as usual) this was more than compensated for by earning about $600 more in net income per month than I expected, due to receiving a small bonus at work as well as pocketing some left over per diem meal allowances from the work travel I have been doing recently.

One change that I’ve made to my budget is that I have stopped tracking the “Cash Withdrawals” line item. This was kind of a hold over from my earliest days of budgeting, in that I was only tracking electronic expenses because it was easier. Recently I have been meticulous with noting down cash transactions for maximum accuracy when I do my monthly financial ritual, so I’m no longer tracking cash withdrawals to avoid double counting errors.

The most over-budget category was Restaurants, mainly due to me taking six work trips so far this year. As I alluded to earlier I add my provided meal allowances to my income, since I get to pocket the difference. With work trips subtracted, Restaurant spending would have averaged $186.74 per month, only slightly over-budget.

Clothing/Shoes is a frustrating category to budget for on a 6 month time scale; my spending here tends to be lumpy with large expenditures every few years rather than gradually acquiring items. For example, going from the 2019 budget reviews to the present day, my six month expenditure on Clothing/Shoes has been $118, $0, $7.50, $0, $25.72, and $138.36. Interestingly when averaged over the long-term, that comes out to an average of $48.26 per month which is nearly exactly on budget.

Uncategorized was also larger than I like it to be. This is where I put my half of the home inspection that we paid for on the house that we backed out of buying because it would have been a money pit, which accounts for 87% of Uncategorized. Overall I am doing a good job putting nearly every transaction into my array of categories, only having to explain the odd one-off during these budget review posts.

Elsewhere we can see how price inflation of inelastic goods such as gasoline and rent has caused some overspending in those categories which is hard to avoid.

Last but not least, celebrating some wins — despite the June CPI release showing a 10.1% increase in the cost of groceries over the past year, my spending on groceries has decreased 23.6% since the previous budget review. We have been shopping smarter by regularly switching grocery stores every week to hit the one with the best deals, and buying things like meat in bulk when it’s on sale, vacuum sealing and freezing it to use during weeks when no good sales are to be found.

Finally, I exceeded my goal to reduce my spending on alcohol! When I set that goal at the budget review for the latter half of 2021 I had spent $72.17 on average per month on alcohol. During the first half of 2022 I have reduced that to $34.88 per month, over a 50% reduction! I have been drinking less and less as of late since I find it gets in the way of using my free time for satisfying productive activities such as writing and other side projects.

Budget Update, Net Changes, and Future Goals

Expense	Budgeted Amount	Net Change
Rent/Utilities	1,300.00	+130
Groceries	200.00	-35
Travel	200.00	–
Restaurants	150.00	–
Car/Rental Insurance	105.00	+5
Flannelcat	80.00	+10
Consumer Goods	75.00	–
Gasoline	75.00	+15
Student Loans	59.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Clothing/Shoes	50.00	–
Misc. Entertainment	35.00	-15
Misc. Taxes	35.00	–
Phone	20.00	–
Uncategorized	10.00	–
Car Payment	0.00	–
Total Monthly Expenses	2,544.00	+110
Net Monthly Income	4,870.00	+300
Free Cash Flow/Month	2,326.00	+190

Here’s the rationale for every value change explained in sequential order:

We went month-to-month on our apartment rent instead of signing a one year lease. Month-to-month is more expensive (on top of general rent increases this year), but will allow us to walk away penalty-free at any time when we eventually find a house. As the housing market appears to be continuing to cool in our area (inventory and days on market are both rising, leading to many delightful price cuts) I have hopes for that happening later this summer or in the fall.
I reduced my Groceries budget back to $200 per month. I had bumped it up from $200 per month at the end of 2020, however my recent shopping habits as reflected in this current budget review have proven that one person can still eat most of their meals at home for $200 or less per month by shopping wisely, cooking healthy meals from scratch, and being flexible.
Insurance prices went up a bit come policy renewal time.
Cat food has seen some price increases too!
We’re all seeing sticker shock at the gas pump due to ongoing geopolitical events. Thankfully, my trusty and fully paid-off Prius helps limit the damage to my wallet.
I had previously bumped up my Misc. Entertainment budget in 2020 to make room for some pandemic lockdown video game purchases. I am rarely playing video games these days and current spending in this category shows some overhead.
For Net Monthly Income, I have taken roughly the midpoint between what I budgeted for last time, and what I actually earned over the past six months. I always seem to underestimate my income which is definitely not a bad thing, but I am trying to see if I can get more on the nose next time.

Overall, I have budgeted for an increase of $110 per month, or 4.5%. Interestingly, this is exactly in line with the cumulative CPI-U change over the most recent six months of available data (December 2021–May 2022) which was 4.6%. My personal budget appears to be experiencing inflation at about the same rate as the theoretical CPI-U household.

Setting my goals for the latter half of 2022, I’d like to:

Hit the ever-present budgeting goal of staying on or under my new budget of $2,544 per month.
Hopefully buy a house to get some more space and lock in our cost of living.

I’m not setting a hard date on the house, but it’s looking more and more possible that we could get a home for a reasonable payment in the near future now that the housing market is showing some cracks. We recently achieved setting aside enough cash to have 20% down on our target price range, meaning no more PMI, ergo rising rates will not damage us nearly as much as the average first time buyer.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$12,332.30
401k	$12,870.40
Pension	$2,311.20
HSA	$450.00
Roth IRA	$3,400.00
Taxable Brokerage	$0.00
Total Saved	$31,363.90

Wow, yet another all time high for savings! This beats what I put away at the previous budget review by nearly $4,500.

I just calculated my savings rate for the past six months and the result was 67.3%! Thanks to limiting lifestyle inflation by trying to live frugally while gradually increasing my income, my savings rate is starting to hit numbers that I never thought I would see when I first started learning about FIRE over a decade ago.

Net Worth Check-up


December 31, 2021 Net Worth	$278,963
June 30, 2022 Net Worth	$266,915
6 Month Change	-$12,048

Ouch, my first ever loss of net worth over a six month period! This can be viewed in two ways:

Not only did my net worth fall by $12k, but in addition the $31k that I managed to save over the past six months has completely vaporized, resulting in a total loss of over $43k.
My high savings rate was able to stem most of the bleeding of my small portfolio; in a time when stock market indices are down a little over 20% year-to-date, my net worth is only down 4.3%.

I prefer the latter. We’re officially in a bear market, but truly I am not stressed in the least about it. My asset allocation across different “buckets” in my portfolio accurately reflects my risk tolerance and time horizon — my emergency fund is in cash, our home down payment is in cash and could double as a massive extra emergency fund if needed, and everything else is in stocks which won’t need to start being sold for a decade or more when I eventually retire early.

I’ll be keeping my head down and continuing to steadily sock away the majority of my earnings, putting those dollars to work for me so that one day working for money will become optional. If the market marches lower, it just means better entry points for my regular purchases of diversified index funds.

Best of luck out there with whatever this financial turmoil develops into, and to my fellow American readers I hope that you enjoy the upcoming holiday weekend. I’ve got some great ideas for articles queued up, so stay tuned!

A Successful Hunt to Slay the Electricity Vampires

Fri, 24 Jun 2022 00:00:00 UTC

New Englanders like myself are used to having some of the highest electricity rates in the continental United States. The Energy Information Administration is predicting that electricity prices in the region could spike a further 16% this summer compared to last as the war in Ukraine continues to affect global fuel prices, including natural gas.

I recently got an email blast from my electric utility company advising several ways in which households can save on their electricity bills. One of the tips was to unplug devices that we are not actively using. These devices, the email claimed, were energy vampires — appliances that continue to use power even when they are turned off or in standby mode — and they could be responsible for a decent portion of our electricity bill.

Curious, I started doing a bit of research. The Berkeley Lab claims that standby power accounts for 10% of American residential electricity use. The National Resources Defense Council claimed that inactive devices represented a whopping 23% of electricity usage in the northern Californian homes that they studied in 2015, which would add hundreds of dollars to the annual electricity bill of the typical household.

Our electricity bill is usually not too offensive for our apartment; our most recent monthly bill was for $78.36, but the weather was pretty temperate for May. Based on our historical usage trends, I expect this to push to over $120 as the AC needs to work harder heading into the hotter portions of summer at the same time as those predicted electricity price spikes hit our area.

If the cited figures were correct, I could stand to save $12–$27 per month off my summer electricity bills by slaying (unplugging) our energy vampires. Were these monsters any more real than the ones in children’s stories? I set out to get to the bottom of it.

The weapon of choice for energy vampire hunters: an electricity usage monitor

The only way to know for sure how much electricity various devices in your home are using is to measure what they are pulling from the wall. An electricity usage monitor can collect this information by serving as an intermediary between your device and the outlet. I got one which can display both instantaneous wattage, as well as monitor the total kilowatt-hours that a device has consumed over time.

The meter that I bought is the Poniie P1500. I spent $16.99 on it, reasoning that the information that I gain from the meter should more than pay for the cost of it. I tested the rough accuracy of the P1500 by plugging it into my lamp which has a 23 W bulb and it measured 24.2 W, indicating that the meter is at least reasonably accurate and potentially highly accurate depending on the manufacturing tolerances of that bulb. If you’d like to pick up your own electricity monitor, you can use the referral link below to support my blog at the same time!

Side note, I did try another slightly cheaper product, the SwitchBot Plug Mini, which has a smaller form factor, smart plug features, and claims to be able to monitor electricity consumption. My testing found it laughably inaccurate, for example it said my 23 W bulb was using only 6.5 W, and that my desktop gaming computer was pulling only 50 W at maximum load when the CPU and GPU are rated for a combined TDP of around 300 W. I returned the SwitchBot Plug Mini and I would especially not recommend that product in particular.

The search for culprits begins

Once I received my electricity usage monitor I began measuring various devices around the house in three main states: active use, standby/sleep, or powered off. This obviously isn’t everything in my house, just a sample of 10 items. I collected the data in a spreadsheet.

By far the biggest energy vampire that I found was our Vizio 55" smart TV. In what we thought was “off,” this TV was using 15.3 watts around the clock. Apparently the default power setting for this TV was “Quick Start” which puts it into more of a standby mode when you press the power button so the TV can boot up a few seconds quicker. I tried the “Eco” setting and the TV’s vampire draw dropped to 0.55 Watts, over a 25x reduction.

An interesting finding was that most devices, even when fully powered down but left plugged in use about half a watt. Does this add up over time? We’ll find out!

Calculating the cost of my electricity use

On my electric bill I have a supply charge of about 10 cents per kWh for electricity, and then I have several different delivery charges per kWh (which amusingly, add up to cost more than the supplied electricity). The easiest way to determine your cost per kWh is to just divide the total cost of your bill by the total electricity consumption. So I have my $78.36 bill divided by 306 kWh, which leads to a cost of 25.6 cents per kWh.

If you need to know how to convert your device usage into kWh, it’s pretty simple. Start by multiplying the watts consumed by the device by how long it’s running for. For example, a 100 watt device running for 5 hours would consume 500 watt-hours. Then divide by 1000 to get kilowatt-hours, in this case 0.5 kWh.

You can then just multiply the kWh total by your electricity cost. The above theoretical 100 watt device would cost me 12.8 cents to run for 5 hours.

Savings from tackling my biggest 3 energy vampires

First, I was able to save 14.75 watts by changing the power settings on our TV. Since this item is plugged in 24 hours per day, this amounted to a savings of 10.62 kWh over 30 days, or $2.72 per month at my electricity rates.

Second, I started shutting down my work laptop at the end of the day rather than just closing the lid and letting it go into sleep mode. This saves 6.6 watts during the 128 hours per week that I am not working, reducing my electricity consumption by 3.62 kWh, or 90 cents per month. Note that if your laptop has a spinning hard disk, the time spent waiting for it to boot up may not be worth the minor savings here. Since mine has an SSD, the difference between waking from sleep versus a cold boot is only a few seconds.

Finally, this exercise made me more conscious of whether I am actively using items which are on. For example, I have dual monitors on my desktop computer, but I rarely put anything on the second monitor because my primary monitor is large enough for two side-by-side windows. Whenever I am using my computer, that second monitor is sitting there consuming an extra 24.1 watts to mostly just display my desktop background. While this is not exactly an energy vampire, I’m going to include it because without buying the electricity monitor and doing this exercise I would have just left it running all the time. For 6 hours of use per day, that’s 4.34 kWh over 30 days, or $1.08 per month.

Fun tip on Windows: Win+P allows you to easily switch between a single monitor display and extending to multiple monitors, so you can just leave a second monitor in standby and have it quickly turn on only when you need it.

So my total estimated savings just from tackling my biggest three electricity wastes is $4.70 per month, or $56.40 per year. The electricity monitor will have paid for itself after just four months.

Are the smaller energy vampires even worth tackling?

Most of my devices used only around 0.5 watts when off, but this is being consumed 24 hours per day, 365 days per year. Honestly, most devices were far more efficient when off than I expected them to be. It’s worth noting that essentially every device in my apartment is modern, made within the last decade. It seems to me that most manufacturers are pretty good at keeping vampire power draw under a single watt. This may be due to the One Watt Initiative which has led to regulations mandating maximum standby power use in several countries around the world.

To determine if these smaller energy vampires are worth tackling, we need to calculate what a constant 0.5 watt electricity draw costs. Running for 24 hours a day for 30 days, this would use 0.36 kWh. At my electricity rate of 25.6 cents per kWh, a 0.5 watt energy vampire running for an entire year straight would cost $1.12.

To me these smaller energy vampire devices seem to be the point where it’s not worth taking action. Am I really going to bend under my desk to unplug my computer when I’m done using it to save 9 cents per month? Absolutely not. I just counted 20 things plugged in around my entire apartment, and obsessively running around unplugging things when we’re done using them isn’t worth the effort to save 20 bucks per year.

Final thoughts

Overall, I would recommend getting an electricity usage monitor like the PN1500 simply for checking if any of your devices are energy vampires like my TV was. Electricity usage per device is otherwise invisible, and it’s likely the monitor will at least pay for itself while also providing some confidence that your electricity bill is as low as you can reasonably get it without inconveniencing yourself.

There’s probably a lot of easier ways I could have saved 5 bucks a month, but as a data nerd I found this exercise enjoyable for its own sake. Happy hunting!

Impending Economic Meltdown, or Overhyped Financial Media Circus?

Tue, 14 Jun 2022 00:00:00 UTC

As longtime readers will know, I am not a fan of most forms of financial media — the majority of the sector has been bastardized into sensationalist journalism at its very worst. At its core this is driven by the motivation to profit off viewers’ attention utterly dwarfing what should be by far the primary professional and personal responsibility of financial commentators: to inform. Which should be done by providing information that is as accurate and in-depth as possible, giving actionable advice which is in the clear best interests of their viewers, and drawing a clear distinction between facts, educated speculation, and pure conjecture.

Unfortunately, the end result of this near-complete degradation of integrity is that most financial media has devolved into something akin to sports coverage. Just as you can tune into ESPN and watch commentators break down every little play on the field, so too can you tune into financial pundits on a variety of platforms who break down every little move in the markets. Both would like to convince you that they know exactly what happened in the past and why, and also can convincingly tease out what will happen in the future. The material impact to somebody listening to each respective commentator couldn’t be more lopsided; the outcome of a sports game versus one’s life savings.

It’s primarily entertainment, meant to keep peoples’ eyeballs on the screen (read: generate ad revenue). 24/7 media coverage is completely unnecessary for financial news, as the majority of daily events in financial markets can be digested with a handful of numbers. This needs to be padded with a lot of filler to stretch it into hours of video content or dozens of articles streaming out of the same outlet per day. The public’s interaction with actual economists and financial experts in this system is always controlled through the “official mediators,” which for the most part consists of journalists who just happen to speak or write about finance.

Sometimes we get a sentence or three from actual economists, but the main purpose of this is to build authority on behalf of the uncredentialed journalist who then uses their own shallow understanding of the topic to spew several paragraphs of tangential, overly simplified nonsense. These financial media mouthpieces are never required to share their own personal finances when giving advice, to show their own portfolio performance when advising on investments, or forced to have their claims held to any real argumentative rigor. It’s a walled garden where detractors on the outside can only occasionally get through a muffled shout. The mainstream financial media has been very careful not to give a soapbox to anybody who will tell their viewers just how little attention that they should be paying to these platforms.

So it follows that those who find their way to several branching schools of thought centered on buy-and-hold index fund investing often choose to ignore financial media altogether. This of course started with Jack Bogle, founder of Vanguard and inventor of the index fund. In The Little Book of Common Sense Investing, Bogle writes, “My advice to investors is to ignore the short-term noise of the emotions reflected in our financial markets and focus on the productive long-term economics of our corporate businesses.”

Fans of Bogle and followers of his investment philosophy are known as Bogleheads, who collectively boiled this quote down into a simple mantra to “ignore the noise.” The Bogleheads group was informally established in 1998 when Morningstar created the Vanguard Diehards Forum, and the group later migrated to bogleheads.org. While the Bogleheads mostly believe in a traditional, conservative retirement, their general investing philosophy of buying and holding low cost index funds would form the core of the FIRE movement’s investment advice.

These buy-and-hold investors are sufficiently convinced that attempting to actively trade in the stock market has historically led to underperformance even by the vast majority of fund manager “professionals,” and furthermore understand that index fund investors mathematically must achieve above-average returns compared to the average investor. Armed with this knowledge, game theory dictates that the rational investor should never attempt to time the market.

Ignoring financial media serves two purposes — avoiding whatever temptations to act on one’s portfolio that this constant stream of emotional news may impart, and also simply freeing up one’s time from an activity that amounts to low-value entertainment at best. So they don’t see headlines like today’s selection:

“Dow craters 875 points, S&P closes in bear market amid rate hike jitters”
“Bitcoin drops as much as 17%, falling below $23,000 as $200 billion wiped off crypto market over the weekend”
“Tightening of financial conditions accelerates, recession fears grow as May CPI report becomes multi-day trading event”

Forbes, Fortune, CNBC, Fox Business, and that whole cabal of mainstream media outlets are guilty of constantly churning out low-value content like that on a daily basis. You can find even worse stuff on YouTube cranked out by some channels at breakneck speed, complete with a thumbnail of a chart overlaid with the creator’s face, his mouth more often than not agape in surprise.

It’s fairly low effort to recycle these silly templates which connect market movements to other events of the day and fill several paragraphs with similar speculative conclusions. Comparatively, writing an article about how 30 year mortgage rates surged to 6.18% (which happened today but zero major outlets have reported on) may impact the housing market likely requires the author to have at least a basic understanding of economics, making it a harder topic for some random journalist to convincingly stumble through.

Assume for a second that these commentators were mostly accurate at sussing out the reason for why the market moved the way it did on any given day, which is a dubious assumption for many of them. That event has already happened, and market participants have likely priced in most of the expected impact. If you decide to sell out of your investments because of today’s negative news, or a few weeks of cumulative negative news, you’re trading off old information.

Historical performance of active traders indicates that it’s unlikely that the retail trader at home in their pajamas sells out before the big crash, buying back in at a lower price to protect their wealth and multiply their number of shares. Such a trader is far more likely to be shaken out regularly at small dips which appear to precede a large negative event, which then resolves as the market continues climbing, leaving them on the sidelines. If one of these market timers does get a bite, they will of course rush to brag about how they sold out when the market was 20% higher, conveniently leaving out the fact that due to all of their failed trades over the past decade, their portfolio is still smaller than if they had just bought and held.

That’s not to say that one should abstain from all financial media (though you could after learning the basics and still do just as well), and if I honestly thought that I might as well just shut this blog down right now. Rather, if one has an interest in personal finance, investing, and economics they should curate their attention towards high quality sources that have proven themselves to be particularly interesting, valuable, or insightful.

It’s wise to be cautious right now. A measured balance between the fearful who are selling all of their investments, and the greedy who may have prematurely dumped their entire emergency fund into the market to “buy stocks on sale.” Take the time to check your actual spending against your budget. Make small tweaks if you feel they are prudent for peace of mind and risk mitigation, like choosing to increase the size of your emergency fund from six to twelve months. Delay large purchases like a car or home if possible until it’s more clear how your own financial situation will play out if this does continue to worsen.

A year from now we will be anywhere along the spectrum from this dip recovering while most people forget about it and it’s referred to in financial circles as the “Quantitative Tightening Panic,” to a full blown recession with major markets declining double digit percentages. The speculative human in me thinks that the latter is more likely, but as always the rational move is simply to stay the course with my buy-and-hold investment strategy.

The Best FREE Cross-Platform Software for Writing a Book

Thu, 26 May 2022 00:00:00 UTC

A few weeks ago I started writing a book on a whim. I spent about 90 minutes researching and experimenting with different solutions. As I knew all too well from my office job, word processing programs can be finicky and frustrating when it comes to layout and formatting. Google Docs in particular really bogs down with documents over a few dozen pages. On the other hand, many of the software specifically tailored towards book authors charged a subscription fee — if there’s one thing I hate, it’s recurring fees — or didn’t work on all of the platforms that I wanted to be able to write on. My requirements were:

Cross-platform between Windows, Linux, and Android so I can write on all of my devices
Free, or a reasonable one-time cost justified by value-added versus free alternatives
Flexible export options into a variety of formats including .epub, .docx, and .pdf
Ability to work offline

I’ve now written about 12,000 words, which is approximately 40 pages in a 6" x 9" book. For comparison, the longest article of all 43 on this blog to date is 3,650 words. I can’t understate the importance of just getting started with writing, rather than spending countless hours trying to research the absolute ideal setup. As they say, perfect is the enemy of good. Still, I did invest a small amount of time up front to ensure that I wasn’t incurring technical debt which would need a larger time investment to rectify later. Through my tinkering, I discovered what is perhaps the best cross-platform software setup for writing a book which has allowed me to add to to my book at my desktop PC, on my laptop on the couch, and even on my phone 36,000 feet in the air — all for free!

Obsidian is the ultimate free writing app

Obsidian has it all: it’s free, cross-platform to the maximum degree (Windows, macOS, Linux, Android, iOS), lightweight but powerful, and maximizes functionality while minimizing distractions.

The organization system uses a combination of folders which can nest indefinitely, and “notes” which is where you actually do your writing. I found it useful to create a parent folder for the book, containing sub-folders for major parts of the book, and then having one note file per chapter, starting with 01 and counting up to keep the sort order tidy.

Obsidian uses Markdown, a lightweight markup language that you can use to add formatting elements to plaintext text documents. The syntax is incredibly simple and designed to be human-readable. For example, adding a number sign before a line creates a heading (e.g. # Heading) and adding an asterisk on either side of a text string creates italics (e.g. *this would be italics*). It’s easy to learn and offers a number of benefits over word processing programs and proprietary file formats, such as being future-proof and maintaining incredibly small file sizes.

You can find a guide to basic Markdown syntax here. Probably the best approach is to spend only a few minutes learning the very basics that are present in most books at some point (paragraphs, italics, bold, headings) and then just start writing. Anything else can be figured out later if needed — you may never require anything beyond the most basic functions.

Make your own cloud sync service for free

Obsidian offers a cross-platform cloud synchronization service for $8 per month. But why pay for that when we can set up our own free alternative?

First, download the Google Drive application to whichever computer you will be doing most of your writing on. I then used the “open another vault” option in the left Obsidian sidebar to create a new vault in my Google Drive folder, simply called “Obsidian.” If all of your desired devices are PCs, then just download the Google Drive application on those as well and you’re all set to get working from your vault folder inside Google Drive.

My Android phone and Chromebook were a little bit more work. I found the AutoSync for Google Drive app which solved this. I created a new folder at [Internal Storage]/Documents/Obsidian on my phone. In the DriveSync app, I then created a folder pair with this new folder and the Obsidian folder in my Google Drive. Make sure the sync method is set to two-way.

The sync has always worked flawlessly for me with zero issues. Worst case, if something does go wrong your files will simply be moved to the trash folder on your Google Drive and you can restore them. Nothing will be lost forever unless it sits in the trash for 30 days.

Because I occasionally switch between devices very quickly and continue writing, I disabled the auto-sync option. I just manually go into the DriveSync app and “pull” the latest files from the cloud when I start writing on my Android or Chromebook. When I am finished with a writing session on that device, I simply do another manual sync to “push” the latest updates back out. Maybe I’m a dinosaur, but I’d rather take a few seconds to press that sync button than deal with merge conflicts.

2026 Update: I used the above method successfully for several years, but I’ve since heavily de-Googled my life and no longer use Google Drive. I now self-host my own file-sharing cloud at home on a NAS (Network Attached Storage) and use WireGuard VPN to securely connect back into my home network and transfer files. I specifically sync Obsidian notes with a self-hosted Gitea instance and the Obsidian Git plugin. This is a more technically complex setup, but not reliant on 3rd party cloud services.

Alternatively, if you’re a heavy user and want to support Obsidian, you can pay $4/month for Obsidian sync for an easy end-to-end solution.

Assembling Markdown into a book using Pandoc

This is where one advantage of Markdown being one of the world’s most popular markup languages comes into play, as there are a plethora of free and open-source tools to cleanly convert your .md files into whatever format your heart desires. For example, you cannot natively export from Microsoft Word to the popular .epub ebook format, and the third party conversion tools available seem to frequently run into formatting conflicts. With Markdown, you have a plethora of options.

Pandoc is a universal document converter which converts between dozens of different markup formats. Most importantly for our uses, you can input a Markdown (.md) file, and output an electronic publication (.epub) file for self-publishing, or a Word document (.docx) which is the format most publishers require for manuscripts. There’s a guide here on how to create an ebook from markdown files.

Don’t spend too much time dorking around with file conversion early on — just know it’s here, and that it will be easy enough to figure out later. Until and unless you have a completed book, you do not have anything to convert.

Final thoughts

Writing a book is completely free and more convenient now than at any point in human history, so there are almost no barriers to entry remaining. I’ve presented a free, cross-platform and very effective setup using Obsidian, Autosync for Google Drive, and Pandoc. I believe this is one of the best software stacks available for writing, but I can’t be certain because once I discovered this setup which met all of my requirements I simply hunkered down and began typing. I’d recommend you do the same — don’t get caught in the “research mode” trap where you spend so long looking for the perfect setup that you never actually get started on writing, which is the most important part.

I set a somewhat arbitrary goal for myself to be a published author before age 30, so I’ve got a little over a year to get my book drafted, edited, and published. At 12,000 words written with 5 chapters complete and another 16 in various stages of outlining, I’d estimate I’m about 20–25% of the way towards an initial manuscript.

The topic of my book is not related to personal finance, investing, or FIRE. That’s a very crowded field for books already, and I also want to make sure I don’t burn myself out such that I can continue writing here at least twice per month. I actually managed to find an interesting and unique niche topic to write about where there appears to be no direct competing titles, so to keep it that way I’m just going to hold the specifics under wraps.

I’ll be sure to share my book here when I’m done, for any readers of this blog who might happen to find it of interest and like my writing. I love finding the lowest cost method of doing things, and I’m challenging myself to DIY this whole process, including things such as cover design and publication. But much of that is farther down the line, and for now I need to just focus on writing. Back to the grind!

Nothing Quite Like Work Travel to Reignite Dreams of FIRE

Thu, 12 May 2022 00:00:00 UTC

Last week I had to attend probably the most pointless work meeting of this year to date. I had seen probably 80% of the slide decks presented at a virtual conference with a similar topic the week prior. Delivered by the same non-charismatic presenters, interrupted by the same people asking tangential, barely relevant questions at every opportunity, what I got out of the first day’s 8 hours of presentations could have been condensed into a three sentence email.

What I was sitting through wasn’t just any old pointless work conference though. I had to travel across the country and attend this one in person. An entire week of my man-hours was delegated to this — 9 hours of travel each way, sandwiching a 3 day conference — all because my boss thought it was “a good opportunity to network in person.” I had already met about half of the attendees at prior in-person events, and a good amount of the remainder I recognized from their photo or webcam appearance in previous virtual meetings. In a world with a dozen pretty decent online meetings platforms, this just felt so wasteful for a simple handshake.

Sure, I got paid for it. But I also had to give up four evenings at home, where there’s much more effective ways to be productive or entertain myself than in a hotel room, and where there’s people I’d rather be spending my time with than the vast majority of my current coworkers. I’ve long been discontented with every engineering job I had held to date feeling uninteresting, non-engaging, and ultimately completely inconsequential to anything important to myself or out in the wider world. I’m truly just doing it for the money and as a means to an end in pursuing FIRE, but also because I haven’t yet conceived of a way to make ends meet if I were to quit and dedicate all of my time towards something I’m actually passionate about.

You know one thing I am passionate about? Efficiency. So I couldn’t help but sit in that meeting and think of all the waste that was generated by myself and everyone else attending. 5,700 miles on an airplane round-trip. $1400 paid out by my employer for all related travel expenses. Around one ton of CO2 emitted into the atmosphere, which would have otherwise taken about two months for my lifestyle to produce. A forty hour work week during which I created nothing of real value to anybody yet was paid a little over $2,000 in gross salary.

When I first learned about FIRE in college over a decade ago I was obsessed with the concept, devouring any material I could find on the topic. And as I began my career and started receiving actual income, there was a couple of years there where I was incessantly crunching numbers to figure out where to optimize. Constantly calculating and re-projecting.

I mellowed out with that a bit as I settled into my career. I was doing pretty well at saving and as a lowly (non-software) engineer it wasn’t like my income was going to head into the stratosphere at any point if I stuck with my day job. Eventually, you’ve done most of the optimizing that you can, and your early retirement date just becomes something you have to put your head down and grind towards.

On the positive side, these worthless multi-day conferences provide the absolute best times for personal reflection. I always alternate through a range of thoughts and emotions in these scenarios. Utter amazement that I’m actually being paid to sit here. Scheming if there’s any way that I could reach financial independence more quickly. Fantasies of quitting on the spot and just figuring my life out — surely by applying myself I could create more value than whatever the hell is happening here.

Practicality and rationality has won out every time to date, thus far. Trying to create something from nothing is far more difficult than scaling up a side venture that’s already profitable. Unless I find a way to build something like that, I’m stuck in the rat race for another decade until I hit financial independence.

The travel has been stacking up in my job, on average one trip per month in 2022 so far. All of them except one could have been done just as well virtually. The amount of travel also wasn’t disclosed to me when I took this job 7 months ago.

Not to mention that if the past two years have proven anything, it’s that many meetings and conferences did not need to occur in person, and that the work still gets done just as well from home using video chat. The only way that white collar workers will keep these quality of life gains is to refuse to cede them back to employers.

So yesterday I interviewed for a new job. And before I even agreed to the interview, I verified that travel would be 2–3 times per year at most, and that I would get to work from home for most of the week. Engineers are in demand in my field right now, and if my boss won’t work with me to reduce travel after voicing my concerns twice, well then I’ll just find a new gig that fits my desired lifestyle.

I also realized that I really need to up my game with side ventures to increase my chances of breaking out of the corporate rat race sooner than expected. This blog is slowly gaining traffic, but thus far has cost me more money to host than it has made. That’s okay though, I’ll keep doing it for the love of the craft, and to further the FIRE community, even if this project never returns a dime. But I think it’s also worth brainstorming some other ideas for side projects and then giving them a fair shake.

Stoicism and the Virtuous Path to Financial Independence

Wed, 27 Apr 2022 00:00:00 UTC

For the first time in a decade, this past week I started and finished reading a book. I was a voracious reader in high school, but when I hit college I completely stopped and just haven’t had the desire to read a book since.

After seeing the umpteenth reference to how impactful someone found Meditations, the series of personal writings by the Roman emperor Marcus Aurelius nearly 2,000 years ago, I finally decided to give it a read myself. Meditations is a classic of stoic literature. It’s divided into twelve books of no particular organizational structure, which are further divided into passages varying in length from a sentence to a few paragraphs.

The passages are written by the emperor as a series of notes to himself of actionable advice and his ideas on Stoic philosophy. Historians think it’s almost certain that the book was a sort of private journal and was never intended for publication.

It’s worth noting that this isn’t simply a book that you read at a traditional pace. Stopping frequently to digest the meaning and impact of a particular passage is essential.

I liked Meditations, so I then went on to read another recommended (and shorter) stoic classic, The Enchiridion by Epictetus. Throughout both of these books I found concepts which tie nicely into financial independence. There’s a huge overlap between pursuing FIRE and deciding to live more intentionally.

I’m definitely not claiming to be the first person to discover this connection, and in fact I remember reading about Stoicism on Mr. Money Mustache’s blog just over a decade ago. Of course I was around 18 years old at the time, so I’m pretty sure my reaction was something like “philosophy-shmilosophy, whatever man.” MMM read some other, more modern summary book on Stoicism and not the original works, so I thought it would be interesting to take a look at the primary sources.

A brief summary of Stoic philosophy

Mostly copied from Wikipedia:

Stoicism is a philosophy of personal virtue ethics informed by its system of logic and its views on the natural world, asserting that the practice of virtue is both necessary and sufficient to achieve eudaimonia (happiness). The Stoics identified the path to eudaimonia with a life spent practicing the cardinal virtues (wisdom, courage, justice, and moderation) and living in accordance with nature.

The Stoics are especially known for teaching that “virtue is the only good” for human beings, and those external things—such as health, wealth, and pleasure—are not good nor bad in themselves but have value as “material for virtue to act upon.” The Stoics also held that certain destructive emotions resulted from errors of judgment, and they believed people should aim to maintain a will that is “in accordance with nature”. Because of this, the Stoics thought the best indication of an individual’s philosophy was not what a person said but how a person behaved.

Connections between Stoicism and FIRE

I’ve been involved in the FIRE community for a decade, and it’s such a large part of my life that it has changed not only how I think about my personal finances, but also shaped my feelings about broader things including the value of my finite time on this planet, consumerism, and social norms regarding money. I think this happens to a lot of people pursuing financial independence, and the overlap with some aspects of stoicism is interesting given the 2,000 year gap. While reading Meditations and The Enchiridion I noted several areas where it seemed stoicism had provided inspiration for FIRE philosophy.

Example 1: On living more simply

And if you can’t stop prizing a lot of other things? Then you’ll never be free — free, independent, imperturbable. Because you’ll always be envious and jealous, afraid that people might come and take it all away from you. Plotting against those who have them — those things you prize. People who need those things are bound to be a mess — and bound to take out their frustrations on the gods. Whereas to respect your own mind — to prize it — will leave you satisfied with your own self, well integrated into your community and in tune with the gods as well — embracing what they allot you, and what they ordain.

— Marcus Aurelius, Meditations 6.16 (translation by Gregory Hays)

Marcus Aurelius’ commitment to a simple lifestyle in line with the stoic virtue of moderation was clear. Arguably the most powerful man in the world during his time, the Roman emperor eschewed the luxuries that his position could have provided to him. He was reported to have slept on a cot with animal skins rather than a plush bed and wore simple clothing.

The argument presented by Aurelius is that people who prize things like fame and material goods are unlikely to find self-satisfaction due to the all-consuming nature of these pursuits and the mental burden that they create. Someone who has achieved total control over their rational faculties would not desire such things, and would find contentment with what they have in life.

Aristotle called moderation “the golden mean” where virtue is found precisely in the middle between excess and deficiency, hence the source of moderation in all things as a stoic virtue.

Those on the path to FIRE must necessarily live quite a bit below their means in order to save and invest quickly enough to retire early. Many of us opt for a frugal yet comfortable lifestyle, optimizing to get the most value out of each dollar and cutting off spending when the marginal returns no longer make sense. This hits two of the stoic virtues: moderation, as well as wisdom (the good sense of keeping one’s affairs in order).

Example 2: On hedonic adaptation and consumerism

The body is to everyone the measure of the possessions proper for it, just as the foot is of the shoe. If, therefore, you stop at this, you will keep the measure; but if you move beyond it, you must necessarily be carried forward, as down a cliff; as in the case of a shoe, if you go beyond its fitness to the foot, it comes first to be gilded, then purple, and then studded with jewels. For to that which once exceeds a due measure, there is no bound.

— Epictetus, The Enchiridion XXXIX (translation by Elizabeth Carter)

This was conveyed by Epictetus as a rebuke to Hedonism, a competing philosophy in the same time period which argued individuals should seek to maximize pleasure above all else.

Hedonic adaptation references the tendency of humans to return to a baseline level of happiness despite major positive or negative life changes. Because we adapt to our circumstances, short-term gains or losses in happiness do not translate to long-term changes in our happiness set point.

Think of the last major purchase you made, maybe a new car, maybe a phone, or some sort of fancy electronic toy. The joy you get from acquiring these items slowly fades over a week or two, and before you know it you are back at the same level of happiness in life as before you bought the item.

This phenomenon has also been referred to as the “hedonic treadmill.” Although people may increase their consumption over time in search of spending their way to increased happiness, for example by purchasing progressively nicer cars as their salary increases, they never truly make any progress towards a happier life.

Epictetus is warning us of the slippery slope that can occur when we look past the functions of our possessions and instead focus on the form.

Example 3: On making the most of our limited time

Do external things distract you? Then make time for yourself to learn something worthwhile; stop letting yourself be pulled in all directions. But make sure you guard against the other kind of confusion. People who labor all their lives but have no purpose to direct every thought and impulse toward are wasting their time — even when hard at work.

— Marcus Aurelius, Meditations 2.7 (translation by Gregory Hays)

In Stoicism, “externals” are anything that we do not have control over. It is considered foolish to spend your time and mental effort worrying about externals. Rather, we could have spent that time improving ourselves, our communities, or working towards something of value to us.

Almost everyone pursuing financial independence is doing so to have more freedom over how we spend our time. On the path there we have some varying degrees of control over how much we save, which jobs we work, and how much we earn. Though many of us choose to work jobs we aren’t passionate about in order to reach FIRE more quickly, this is still a decision that we choose to make.

This is a nice motivational passage to remind us to focus our limited time on the things that are truly valuable to us.

Can Stoicism add value to your life?

Overall I found my read of these two introductory stoic texts to be valuable far beyond the FIRE connection. It gave me some things to think about applying as broader life philosophies. In many cases the passages struck me as more eloquent reminders along the lines of things that I’ve previously considered that I “should be” doing.

There are some valid criticisms of Stoicism, such as it being a deterministic belief system in which people have no free will. However for being nearly 2 millennia old, many of the texts hold up very well. Meditations can get a tad repetitive, but I think this is due to the nature of the text where Marcus Aurelius is writing these things as reminders for himself, and some of the reflections seem like drafts for other passages. The sheer number of passages related to death may indicate that the emperor spent more time worrying about that topic than his writings would have prescribed.

I think the best course of action here is the same as with most things philosophical — pick and choose the parts which you feel have value. You don’t have to become a dogmatic follower of anything just because you read a book or two on the subject.

Which translations of these texts to read?

Due to the age of these texts, several translations are in the public domain.

For Meditations by Marcus Aurelius, I tried a couple of the public domain translations which were apparently in Early Modern English and honestly could not get through all the “thee/thou.” I did some research and went with a more modern translation of Meditations by Gregory Hays and I’m glad that I did as it was a lot more readable. For a free option, the translation by A. S. L. Farquharson appears to be the least obtuse one in the public domain, however comparing passages directly I find it much more difficult to decipher in places than the Hays translation.

For The Enchiridion by Epictetus, I went with the public domain version translated by Elizabeth Carter. Free! For a translation done in the mid-1700’s it has held up amazingly well in terms of modern readability.

I’d definitely recommend that you read both Meditations and The Enchiridion. Bring an open mind, your thinking cap, and a highlighter.

Sorry, TSP Investors, the Mutual Fund Window Sucks

Tue, 19 Apr 2022 00:00:00 UTC

The Thrift Savings Plan (TSP) is the largest defined contribution 401(k)-style retirement plan in the world with millions of US government employees and armed services personnel participating. The TSP started in 1986 and slowly added a few investment options over the years, but since 2001 it has been chugging along with just five core fund options. This limited selection has earned the TSP praise for its simplicity and low fees rivaling passive indexing giants like Vanguard, as well as criticism for not allowing participants more control over their retirement funds.

The board that manages the Thrift Savings Plan has been slowly moving along with a plan to implement a “mutual fund window” into the TSP, which is effectively a pass-through to a self-directed brokerage account that will unlock access to thousands of new mutual fund options. Any fund you can find in your IRA or brokerage accounts, you’ll now be able to buy in your TSP! I received an email a few days ago telling me the mutual fund window would be going live in June 2022.

As far as 401(k) plans go, the TSP gets a lot more right than it gets wrong. My biggest criticism of the TSP is that the international fund (I Fund) offering is pretty terrible, covering less than 60% of the total international stock market due to tracking the MSCI EAFE index. My primary goal is that of the ultra-passive, globally diversified index investor — I want to own every publicly traded company in the world at its respective market capitalized weight. To achieve this with the I Fund, it means I need to buy additional funds outside of the TSP which track international small cap stocks and emerging markets in order to “complete” the missing pieces of the I Fund.

When I first heard rumblings of the mutual fund window a couple years ago, I was excited for the potential of buying a fund like Vanguard’s Total International Stock Index Fund (VTIAX) using it. No longer would I need the complexity of buying and rebalancing extra funds outside of my TSP to approximate a total international fund!

A few days ago when I got an email telling me the TSP mutual fund window was finally coming in June 2022, I went to check out the details. I quickly realized that the mutual fund window absolutely sucks, and concluded that nobody should use it.

Fees and expenses in the TSP mutual fund window

Several fees and expenses will be placed on those who choose to use the mutual fund window. Let’s take a quick look at all of them:

Fees and expenses imposed by the specific mutual fund(s) in which the participant chooses to invest.
An annual maintenance fee of $95.
An administrative fee designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window. This fee will start at $55 per year, but will be re-calculated every three years based on actual expenses.
A per-trade fee of $28.75.

Obviously the first rule is completely fair — one would expect to pay the same expense ratio advertised by their chosen investment fund which is borne by all investors in the fund regardless of where they purchased it.

How terrible the second and third fees are (which sum to $150 annually) completely depends on the size of your TSP. If you’re investing just $10,000 through the mutual fund window, this is equivalent to an additional expense ratio of 1.5%, which is quite ridiculous; if you’re investing $250,000 through the window, the $150 fee is an additional expense ratio of 0.06%. The late Jack Bogle was fond of saying, “In investing, you get what you don’t pay for. Costs matter,” referencing the fact that investment fees are directly eating into the compounding returns achieved by investors.

The final fee is the worst of all, the charge of $28.75 per trade! There is zero reason to pay this in an era with many brokerages like Vanguard and Fidelity offering commission-free trades on their own low cost passive index funds. This trading fee essentially makes it impossible to Dollar Cost Average into any investment in the mutual fund window with your biweekly TSP contribution without racking up huge costs, as this would cost you $747.50 in trading fees per year, per fund.

Min/max investment restrictions in the TSP mutual fund window

If the fees weren’t bad enough, the TSP will additionally place several restrictions on both the minimum and maximum investment balance of participants who choose to utilize the mutual fund window. They claim this is done because it “will allow access to funds that are not as diversified as the TSP core funds and therefore may expose participants to greater market risk.” Here are those restrictions:

The initial amount transferred into the mutual fund window must be at least $10,000.
The portion of a participant’s account invested through the mutual fund window may not exceed 25% of their total TSP account balance.
The combination of the above two restrictions requires a minimum TSP balance of $40,000 before an investor can utilize the mutual fund window.

These restrictions make my desired use case for the mutual fund window totally impossible. I can’t mirror a total world stock portfolio by purchasing a total international stock market fund through the mutual fund window, as currently international (ex-US) stocks make up 40% of the world market capitalization.

The mutual fund window sucks, and you shouldn’t use it

Regardless of your investing philosophy, there is zero reason for using the TSP mutual fund window simply because the fees are a ludicrous rip-off. You can purchase the same mutual funds or ETFs outside the TSP for free at Vanguard, Fidelity, Charles Schwab, and probably a dozen other brokerages. Why would anybody spend $28.75 of their hard-earned money each and every time they want to add money to their investment funds or re-balance their portfolio?

I think the board implemented these fees and restrictions to discourage people from day-trading their TSP, or betting their entire retirement on a single risky investment like a cryptocurrency ETF. They describe the window as being “intended for TSP participants who are experienced investors.” However, the end result of treating investors like children is a completely kneecapped, rip-off feature that nobody should use. Ironically, experienced investors know not to touch fees like that with a 10 foot pole!

The mutual fund window gets ONE thing right!

The only good part about the mutual fund window is that a guiding principle of its development was that no costs should be incurred by TSP investors who choose not to utilize it. We get to continue enjoying low expense ratios of between 0.043% and 0.059% on our core investment funds.

My TSP investing strategy going forward

Since the mutual fund window is terrible, my TSP investing strategy remains the same as it was prior. My TSP is one piece in my wider investment objective for my portfolio which is to own every publicly traded company in the world at its respective market capitalized weight, similar to a total world equity fund like Vanguard’s VTWAX. Currently I hold 46% C Fund, 16% S Fund, and 38% I Fund. To meet my investment objectives, I need to emulate a total international fund by using the I Fund as my core international holding, and adding back the missing components in their proper ratios with my other investments outside of the TSP.

If you want to follow the same strategy as me, luckily I’ve previously done all of the math required on which funds to hold outside the TSP and in which percentages to complete your I Fund Holdings. That article also includes a link to a spreadsheet tool that I made which makes the process much simpler! A little bit of arithmetic to save big on fees is a no-brainer to me.

The Best Method for Saving a Down Payment Amid High Inflation

Mon, 11 Apr 2022 00:00:00 UTC

Today’s article was inspired by a recent blog subscriber, Justin, who reached out with some questions regarding home down payments. Like myself, Justin is a potential first time home buyer who has been in the market for many months, and submitted and lost several offers. He was wondering how I’m handling losing money keeping all that cash on hand rather than adding it to the FIRE fund. Honestly, inflation eating away at my down payment is something I think about a lot, so thanks for the article idea, Justin!

We’re going to take a look at some of the classical economic theory framing how you should view your down payment funds, examine a “secret” investment that outperforms your savings account and cannot lose value but is not often mentioned in the context of saving for a down payment, and revisit the state of the housing market.

The most recent Consumer Price Index (CPI) release for the 12 month period ending February 2022 printed a 7.9% increase. Without getting too far into the debate of the validity of the CPI, I think every American consumer can agree from firsthand experience that inflation is moderately high right now, and our dollars are losing purchasing power more quickly than any time in recent memory. It just so happens that using the CPI as an inflation gauge, it’s been exactly 40 years since we have last seen levels this high.

Our down payments’ lost opportunity cost

Many of us have heard the catchphrase “cash is trash” before. If you’re looking to build or even maintain wealth over time this is often true — cash loses value over time to inflation. Inflation is negative compound interest, putting that magic little formula to work against you. What is the proper baseline to assess that opportunity cost against though?

The CPI is simply “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” This includes things such as food, vehicles, fuel, and medical care. So if you were going to spend your down payment money instead on this same basket of goods meant to represent the average urban American, then from February 2021–February 2022, you lost 7.9% of your purchasing power.

If you’re reading this blog, you’re probably a stock market investor like me, shooting for financial independence. I’ve previously made the case for why my favorite investment is the Vanguard Total World Stock Market Index Fund (VTWAX). Over the same February 2021–February 2022 period as our CPI print, my favorite index fund went from a value of $33.59 to $35.29. It also threw off 68 cents in dividends over that period, for a total return of 7.1%. An investor in this fund lost only 0.8% of their purchasing power relative to CPI over the period.

Finally we have perhaps the most appropriate baseline of all, exactly what our down payments are earmarked for — a home! Using the Case-Shiller Boston Home Price Index to dial down to my specific area, the most recent 12 months of data is the January 2021–January 2022 period, where this index of existing homes increased by 13.3%. Skyrocketing home values have destroyed even more of my down payment’s purchasing power than the worst CPI number in four decades.

Understanding time horizons and risk

An investment time horizon is how long you expect to hold a particular investment before needing to sell it and take your money back. This could be within days for someone actively bidding on homes and needing to deploy their down payment fund should they win an offer. Or it could be decades before you need to sell the shares you are purchasing for your retirement, perhaps even longer if you save more than you need and create generational wealth.

There are many ways to define risk in investing, but for our purposes we can say it is the likelihood of loss of value on our investment relative to the expected return over our time horizon. It is a level of uncertainty as to whether your money will be worth more or less when you need to spend it.

As you probably already know, cash in a savings account is generally regarded as low risk. Your money will always be sitting there when you need it, plus a small pittance in interest payments. Even if the bank goes out of business, your money is protected by insurance in most countries, such as the FDIC in the US. However, consider the long-term: money kept in a savings account is practically guaranteed to be rendered virtually worthless over the span of multiple decades due to inflation. Does this make savings accounts risky over the long-term? No, because you should not have expected anything else given the interminable historical trend of interest rates on savings accounts not keeping up with inflation, therefore this outcome was nearly certain.

On the other hand, consider the stock market. Generally investors in a diversified stock market index fund expect to capture an average 8–10% annual return over the long-term. However returns in any single year can be highly volatile. Over the past 100 years, the worst single-year return for the S&P 500 was -43%, and the best year posted a 54% gain. If you invest in the stock market for just five years or less, whatever you expect the return to be, chances are incredibly high that you will be wrong, and by a larger margin the shorter your time horizon becomes.

Learn to stop worrying and accept the sunk costs

A sunk cost is a cost that has been incurred and cannot be recovered.

For two years now I have been stacking up cash for a down payment on a home, and still do not have a house to show for it after several lost offers and a single won offer with structural and mold issues that caused us to walk away.

But there is nothing I can do about the fact that my down payment has been sitting there losing relative purchasing power with skyrocketing home values over the past two years. There’s no use wondering about the extra money I could have made had I invested my down payment into stocks as I saved it up, using the hindsight bias that stock market values have risen during our home search.

Since we have been actively trying to buy a home for the past two years, the rational decision at the time was to keep our down payment in a savings account, since we could have needed it at any time. Investing it in any asset class did not make sense, since we were not willing to potentially lose some of it and have our plans to buy a home delayed even further.

Going forward, given that we still want to buy a home in the near future, the optimal decision is still to continue saving our down payment in cash. According to classical economic theory, the sunk costs are irrelevant as they cannot be recovered. Therefore only current information on our time horizon and risk appetite should be considered.

Even amid high inflation, the age old advice still holds — if you’re shopping for a home or actively saving for one, a savings account is the best option for your down payment, with the exception of…

I Bonds: an infrequently discussed “secret” investment if you’re a year or more out from purchasing a home

An interesting question posed by Justin is if your strategy changes if you’re over a year from purchasing a home, either due to needing more time to save, dropping out of the market for a bit to sign a rental lease, or any other factor. And the answer is yes, the advice does change in one small way for US citizens or residents which I don’t often see discussed in the context of saving for a home!

Series I Savings Bonds! If you buy some before the end of April 2022, these are paying a 7.12% interest rate for the next six months, and (unlike other bonds) the present value can’t go down. That’s right, you cannot possibly lose money with this investment.

Sounds too good to be true? Well, there’s a few caveats to be aware of:

Each individual may only purchase a maximum of $10,000 of electronic I Bonds per calendar year, and up to $5,000 in paper I Bonds using their Federal Tax Return.
You are not able to sell I Bonds sooner than one year after purchase.
If you sell before 5 years, you sacrifice the last 3 months of interest.
The interest rate adjusts every 6 months, based on CPI inflation.

Even with these caveats, I Bonds are still a great option for a portion of your down payment if you have at least a year until you are going to buy a home. A couple could protect $20k–30k each year from inflation by purchasing I Bonds. Even accounting for the 3 month interest penalty, I Bonds with their yield based on CPI are nearly guaranteed to far outperform a savings account. My Ally “high yield savings” is paying a pathetic 0.5% right now.

If you’re planning several years in advance to save for a down payment, you could amass a pretty formidable stack of I Bonds!

Learn more and purchase electronic I Bonds at the official US government site TreasuryDirect!

The best solution to rising rates is to save faster and save smarter

Buying a house is a competition with other households in your local area. Everything is relative to the financial picture of the median home buyer (which is a higher income tier than the median earning household). Over the long run I firmly believe that if you can save and build wealth more quickly than the median home buyer in your local area, logically you cannot be priced out.

Our frustration with the housing market over the past couple years is primarily due to the realization that statistically, many of the homes we liked and have lost out on probably went to people making half of what we do and saving a hell of a lot less, but who were simply more reckless than us in being willing to max out their debt-to-income ratio or gamble on an appraisal gap.

For the past several years the mainstream financial wisdom has shifted to scoffing at putting 20% down, with statements like “OK Boomer, you don’t need 20% down” (yes, this is a real article title). While usually true in the context of opportunity cost of otherwise investing the cash if someone is lending you money at a 3% interest rate, the calculus shifts as interest rates rise. How many potential buyers are poorly positioned to shift their strategy financially and can’t quickly increase their down payments?

Every financially conscious individual has a mental threshold of an interest rate that they’re comfortable holding onto for the life of the loan rather than paying it off early, and choosing to invest their excess cash flow into stocks to attempt to capture arbitrage. My comfort level for carrying debt has historically been somewhere between a 4–5% rate depending on the macroeconomic environment.

Let’s take a look at the financial damage that is done to your theoretical monthly mortgage payment as rates rise:

Nothing ground breaking here; borrowing more money gets more expensive as interest rates rise. I picked a $550k home as that is the median for my area. Note that the above figures do not include property taxes and insurance as they’re not relevant to finding the delta, so total monthly payments will be higher than the values in that table.

The pendulum on down payment percentage advice is going to swing back the other way, so get in front of it and prepare to save 20% down if you’re not already on that path.

The housing market will appear to get worse for buyers before it gets better, but it’s an illusion

If nothing else this table highlights the utter absurdity of those people who are trying to argue that home prices will stay flat or even continue to rise as mortgage rates rise. In my previous article analyzing the recent history of home prices and mortgage rates, I speculated that The Federal Reserve’s continued tightening actions will cause a housing price correction, and that they could make a decision as soon as May on rolling Mortgage Backed Securities (MBS) off their balance sheet. Well well, just look at what the March meeting minutes released 1.5 weeks after I wrote that article revealed they had previously plotted behind closed doors!

From a data perspective the housing market will appear to get worse for first time buyers before it gets better. This is due to the lagging nature of home sales data, where the sales you see today went under contract 1.5–2 months ago at lower mortgage rates.

Another incredibly important factor I am not seeing discussed anywhere is the “final FOMO wave” of those buyers who did lock-and-shop pre-approvals offered by some lenders which allows you to pay to lock your rate before shopping for a home. Typically offered as a 60 or 90 day lock, these products will give buyers 30 or 60 days respectively to search and get under contract for a home, allowing the last 30 days for the lender to close.

Depending on the popularity of these products in your area, there will probably still be home shoppers floating around for a few more weeks who have 3.875–4.25% rate locks. Many of these buyers will be desperate to get into any house they can before their rate lock expires and they’d have to swallow a 5% mortgage rate. This could give the illusion for the rest of April that there’s far more demand for homes at these prices in a 5% mortgage rate environment than there truly will be going forward!

I’m going on the record calling a top in the housing market in the coming weeks. That is the conclusion that all data analysis and rational thinking has led me toward since I started researching and heavily investigating The Everything Bubble. It’s not going to be a 2008-tier crash, but it’s not going to be the “soft landing” that The Fed wants people to believe they can engineer after they poured octane on the fire for two years straight. Also, it will be fun to make an official “market timing” declaration and come back to revisit and reflect on this article in the future.

My fellow first time buyers, keep on saving and stay patient a bit longer. As I wrote this article today, Mortgage News Daily updated their benchmark 30 year fixed rate index. The rate for today, April 11th, 2022 is up 0.19% since last Friday, now sitting at 5.25% with 0.4 points. This whole thing may very well implode in a spectacular fashion…

The Honest History of Home Prices and Mortgage Rates

Mon, 28 Mar 2022 00:00:00 UTC

30 year mortgage rates have absolutely skyrocketed this year. Mortgage News Daily’s index tracking 30 year mortgage rates hit 4.95% on Friday, March 25th, up nearly a full percentage point since the start of the month. Affordability is cratering for first time buyers, as each 1% increase in mortgage rates causes a 12.5% increase in the monthly principal and interest payment on a 30 year note.

iBuyers, real estate agents, and individual home owners obsessed with their fake ZestimateTM are out in full damage control mode, trying to shape the narrative. “Why The Housing Market Won’t Crash Any Time Soon,” “No, The Housing Market Isn’t In A Bubble,” and “Is It True That High Interest Rates Will Cause Housing Prices to Drop?” are just a few of the intellectually dishonest articles and blog posts that I’ve read recently, on top of forecasts that home prices will rise an additional 15–20% or so this year even in the face of rising interest rates. Many of these articles seem convincing on the surface because they cite historical data. However economics is rife with multivariable systems, and in these cases proper identification and presentation of all variables is key to creating proper context.

Let’s set aside for a second the foolishness of trying to find historical precedent in a market that has no precedent; wherein The Federal Reserve purchased nearly $1.5 trillion in Mortgage Backed Securities (MBS) over the past two years; wherein poorly targeted fiscal stimulus programs put more spending money than ever in the pockets of average Americans; wherein a global pandemic accelerated many Americans’ plan to buy a home while causing others to delay plans to move.

Usually the data in these articles that I am complaining about is presented something like this:

Data Sources: [1] [2] [3]

The narrative presented is that mortgage interest rates skyrocketed to over 16% during the course of stagflation in the 1970’s, and home prices continued to rise over this period. Therefore there is no historical precedent for rising interest rates leading to a fall in nominal home prices, and the same situation will occur today.

If the housing market were a single variable system, then this conclusion may be accurate. However to even attempt to present the housing market as such a simple model is misleading. There are so many variables here that PhDs in economics and data science rightfully spend entire careers attempting to develop the most accurate predictive models.

Proper analysis for our purposes in this article will simply attempt to define additional important variables which are convincing enough to disprove the common wisdom and the prevalent narrative, and present an explanation for why the economic theory of an inverse relationship between asset prices and interest rates was not observed in the 1970’s.

“Buying the Monthly Payment,” a practical model based on the median American home buyer’s approach

Cash offers tend to float around 20–30% as a share of total home purchases. The percentage of these that are “real” cash offers is up for debate, as many cash buyers end up using delayed financing or doing a refinance immediately after purchasing. Additionally there is a crop of companies popping up (whom I will give no free advertising to) which put in a cash offer on the buyer’s behalf for a fee of 2–3% of the purchase price of the home, then the buyer gets a loan and buys the home back from them. This is an aside and the important takeaway here should not be controversial, which is that the vast majority of American home buyers need to take out a mortgage to finance their purchase.

How do people determine the price range for homes that they can purchase? The more financially literate ones set a budget for their desired monthly mortgage payment as a percentage of their income, and note what home price range they can shop in based on their down payment and prevailing mortgage rates. The less financially literate ones simply shop in the home price range that their mortgage lender pre-approves them for, however the variables are the same, just in this case the buyer is effectively letting their lender set their debt-to-income ratio. Which does not change that the three constraints in this equation are still their household income, down payment, and prevailing mortgage rates.

Let’s take a look at average down payments over time:

Source

As we can see average down payments have maintained a pretty tight range and low volatility from year to year. This will not have a significant effect on monthly payments over time. For simplicity we can remove the down payment from consideration in our “buying the monthly payment” model and instead focus on interest rates and median household income, which will be by far the dominant factors affecting the home price a buyer can afford.

The honest history of home prices and mortgage rates, in one chart

We’ve now got three data sets over time to contend with, but we can actually reduce that to two data sets and make our graph easier to interpret by creating a ratio between the median annual home price and the median annual household income. The result is not a pretty chart at first glance, but with a bit of study is really quite enlightening:

Data Sources: [1] [2] [3] [4]

First off, using this chart we can quite easily disprove that the rising rate scenario in the 1970’s is at all analogous to today. That decade started where a median household could purchase the median home for under 3x their household income. This ratio grew to around 4x the median household income over the 1970’s, and hovered around that multiple as mortgage rates were in the double digit percentages between 1979 and 1990.

Today of course, we see the median home sells for nearly 6x the median household income! For the 1970’s stagflation environment to be a good precedent for today, the median home today would have to sell for around $200k USD, rather than the current median price of just over $400k. As a thought exercise, let’s imagine this was true today.

We take our fictitious $200k home, put 10% down, pay 1.28% in property taxes (just the figure in my local area), and add on a little for home insurance and PMI. At a 3.5% mortgage rate, the monthly payment on this fictitious home of 3x the median income would be about $1,080. That’s nothing, chump change. Imagine if you could buy a home for that payment?

Now we take the interest rate dial and crank it… how far do we need to go to double the monthly payment of this theoretical home? To get a payment of $2,160 per month, we needed to go all the way to a 12.25% mortgage rate! A $2,160 payment is nothing crazy by today’s standards, and is in fact very closely in line with the payment today’s buyers would end up with based on the median asking price, according to Redfin:

Source

Today’s housing market is not the 1970s all over again

The simple conclusion as evidenced by the data I have presented, is that home prices did not fall (and in fact rose) in nominal terms as interest rates rose in the 1970’s because the median home was so cheap in relative terms to the median household’s income that buyers had ample extra financial cushion to absorb all of these rate increases, as well as absorb the median home price climbing from 3x to 4x of the median household income.

The “worst case scenario” was for 1981 home buyers, where a median earning family would have paid 3.9x their income for the median house, but at a staggering 16.5% mortgage rate, roughly tripling the total monthly cost to own a home compared to a decade earlier. Of course, with the benefit of hindsight we can state that anybody who did purchase at those levels was not financially stressed for long as they were quickly able to refinance their way into a smaller payment over and over again in the ensuing years.

Affordability metrics as calculated by the total monthly payment based on the median home price to median income ratio and the prevailing 30 year mortgage rate at the time, means that if today is analogous to any time in the 1970’s, it is somewhere between 1978 and 1979.

And, well, just take a look at what happened to real home prices starting in 1979:

Data Source

Honestly, the bullish position for housing should be arguing as their best case scenario that nominal prices stay flat while rates rise. Don’t get me wrong, there’s still potential room for monthly mortgage payments to grow before we eclipse the historical worst case scenarios. But unless real incomes grow substantially, at present housing price to income ratios, we seem to be within a stone’s toss of the mortgage rates that would be required to meet that threshold.

It’s pure hubris and greed from these recent home buyers who think now that they’ve locked in their 3% interest rate, their home equity is going to continue to rocket up and away in this environment. Many of these people would gleefully pull the ladder up behind them and lock future generations out of home ownership if only for their own self-enrichment if they were given the option.

That’s a whole lot of words to essentially say, don’t take economic postulating seriously from anybody (even myself), but especially not someone who thinks they can boil the housing market down to a single variable model based on something like historical interest rates.

Where do we go from here?

As I’ve already alluded to, this market has no precedent. This time is well and truly different as it is every time, because history does not repeat but it does rhyme.

Obviously if you can buy today within your financial comfort level, then go for it. I’m not quite sure how many people are left that can comfortably buy at today’s prices with mortgage rates kissing 5%, but there’s bound to be a few.

Personally I find it incredibly difficult to justify pulling the trigger on someone’s poorly maintained dumpster of a home last updated in 1980 — which needs a ton of sweat equity and money in updates and fixes poured into it — for over $3,000 per month in my local area when I can rent a “luxury apartment” for $2,200 per month. Could I afford the total cost of ownership, sure. We’re the furthest thing from priced out as far as lenders are concerned. Is it financially wise? That’s the question I ask myself with every home showing, and probably why we’ve only found seven homes we even cared to offer on in the past two years.

It’s important to note the lagging nature of home sale data. The closed sales you see today, likely went under contract 1.5–2 months ago when mortgage rates were in the 3.7–4% range. On a constant monthly payment basis, these sales are not comps in a 5% rate environment unless you discount the selling price by 10% or more.

As I visited yet another packed open house today I wondered how quickly information diffuses through buyers. How many potential buyers there today were still under the impression they would be getting a 3.x% interest rate if they went through with the purchase? Lower information buyers would certainly be more willing to overbid on a property, and therefore this iteration of the pandemic real estate market may be the strangest yet. Once you’ve won the bid you either stretch financially to make the loan work at prevailing interest rates or you sacrifice your earnest money deposit. I suspect we will see an increase in “Back on Market” properties in the coming weeks as some of these sales fall through.

Furthermore I speculate that inventory will slowly build over April and May due to reduced affordability as mortgage rates continue to climb higher. Inventory is really the key to this whole equation, regardless of whether it is acquired through increased supply, reduced demand, or some combination of both. Once nearly every home that hits the market isn’t selling in under a week, buyer sentiment will cool further and bidding wars will disappear within weeks, as quickly as they appeared at the start of the pandemic. The rush to “buy before you are priced out forever” will abate once people see options of homes sitting on the market untouched that they could purchase for the list price if they cared to. A shift to a more balanced market between buyers and sellers will be a boon for financially conscious buyers who are not willing to waive every contingency to win a bid on a home.

I think it’s likely that Federal Reserve tightening actions would cause a housing market price correction in a vacuum, as they continue to raise their target rates as well as make decisions as soon as May on allowing Mortgage Backed Securities (MBS) and Treasuries to begin to roll off their balance sheet. Housing prices decreasing commensurately with increases in mortgage rates to maintain relatively constant monthly payments is my bet. What happens in the broader economy and whether we slide into a recession in the near future will determine whether this will be a “healthy correction” versus another housing crisis, as the Fed may end up with their hands tied in terms of policy response in the face of still-raging inflation.

The good news is that regardless of what happens with the housing market, those who make a conscious effort to live far below their means, save, and build liquid assets will come out better than fine in the long run. If your income tracks with nominal wage gains, and you are building wealth more quickly than the vast majority of people in your local area, it does not make logical sense that you can be permanently priced out of your local housing market.

Good luck out there if you’re shopping for a home in this market — keep your ear to the ground on activity levels and closing prices in your local area, keep saving, and remain ready to pull the trigger once you’ve found the right home and the rent versus buying calculation comes out to an acceptable number for your personal situation.

Update: Check out my follow-up article on Fall 2022 housing affordability and the state of the market.

A Vehicle Dash Camera Is Valuable Financial Protection

Mon, 21 Mar 2022 00:00:00 UTC

You know what they say, a picture is worth a thousand words. A video clip must be worth a magnitude more then, since it’s just a bunch of sequential pictures.

A vehicle dashboard camera (henceforth referred to as a dash cam) allows you to have indisputable recorded proof of what events occurred around your vehicle should you ever get into an accident. It could save you your insurance deductible and a potential increase in insurance coverage costs. Even if you have accident forgiveness, you want to make sure you save that for an accident where you’re actually at fault.

Both times I have been in a car accident where the other party was at fault, they lied through their teeth. In both cases they lied to the insurance company, and in one they lied to the police. My first accident, the officer believed the other driver’s story of events at first and the only thing that saved me was a witness who circled back around. Since then I vowed to protect myself better and not count on a good Samaritan. After that I installed a dash cam in my car and I’ve been driving around for years with it quietly recording video and audio.

A dash cam is truly one of those things that everyone should have, but people don’t tend to get one until after they’ve had an incident where it would have been valuable. In some countries like Russia dash cams are incredibly common, but in many countries like the US they are nearly non-existent. I have never met anyone else in real life that has a dash cam, other than a couple people I have convinced to get one.

A few weeks ago my dash cam finally proved its value. I was driving on the highway the day after a snowstorm and a sheet of ice came off another driver’s roof as they merged in front of me, striking my vehicle. Check this out:

I actually didn’t expect there to be any damage. The other driver didn’t stop, and I’m not even sure they noticed the ice coming off their car. But just to cover all of my bases I caught up to the car and read the license plate off so the audio would pick it up. It was a bright day and I wasn’t sure if all the light reflecting from the snow would wash out the video. This ended up being a good decision, because when I stopped later I realized there was indeed some damage to my car, and the license plate wasn’t easily discernible from the video.

My turn signal, daytime running light, and front grille were all damaged from the ice. The next day I found out it had cracked my washer fluid tank as well when it drained completely empty. The parts alone would be over $800.

I tried to file a report with the State Highway Patrol and they didn’t care, even though I had the video. I just kept getting bounced around between “that’s not our jurisdiction” and “we can’t do anything unless we witnessed it.”

Luckily I had my trusty video evidence. So I went right to my insurance company and they found the guy based on the license plate and vehicle match. He tried his best to deny it.

Lie #1 was that his car was garaged all the time so the snow couldn’t have come from his car. Lie #2 was that his wife was driving at the time (I looked over and it was definitely a dude). The first lie was easily disproved by my footage and the second lie was irrelevant to me; as best I can tell maybe the wife had less claim history so they wanted the mark on her record instead of his.

After a week of this guy painfully slowly providing the required information to his insurance they admitted fault and are paying out to fix my vehicle. My car is currently being repaired by a shop of my choice and they’re paying for a rental car during the process.

The opportunity cost of NOT having a dash cam

If I didn’t have the footage I would have been out my $1,000 deductible for a comprehensive coverage claim to have a shop do the work. Or been out over $800 in parts, plus several hours of my time to have done the work myself. And the whole time I would have been ridiculously pissed that someone damaged my car, got away without paying, and I had to pay out of pocket to fix it.

I spent $75 on my dash cam and memory card several years ago, so it just paid for itself more than 10 times over.

A dash cam is essentially “insurance for your insurance.” Imagine someone backs into you and then says you rear ended them — it’s your word against theirs, and the rear driver will almost always be deemed at fault in this scenario. Saving your deductible is one thing, but keeping an at fault claim off your record could be worth even more.

If you own a car, you are going to get into some sort of accident eventually, and unfortunately many people out there these days are dishonest. So protect your finances preemptively and get yourself a dash cam.

Must-have features to consider when purchasing a dash cam

Don’t just head to Amazon and grab the first thing that you see. While there’s many reliable dash cams out there, there is also a lot of junk. I did a bit of research back when I was figuring out what to buy, and there are two big features to absolutely ensure that you get.

Must-have #1: A capacitor, not a battery

This is an important factor for long-term reliability of the dash cam. Lithium-ion batteries do not handle high heat well. After a summer or two of being exposed to the heat inside your car the battery will likely fail and swell due to the heat expanding the gas byproducts of the chemical reactions occurring in the battery.

Capacitors on the other hand store static charge, so they are much better suited to long-term reliability in a fluctuating temperature environment.

Any serious or reputable dash cam manufacturer uses a capacitor in their products, because the ones with Li-ion batteries are essentially disposable after a year or two. So spend your money on the product that will last.

Must-have #2: A high endurance microSD card

Writing and erasing data are the harshest actions on storage devices. And recording video causes a lot of writing and erasing. A 64 GB storage device can hold about 6–8 hours of 1080p footage recorded at 30 frames per second. Higher resolution cameras obviously create larger files. There’s many variables here, but suffice it to say, a microSD card in a dash cam will be completely filling up its storage and re-writing the old footage quite frequently.

“High endurance” microSD cards are designed with more resilient memory cells rated for far more read/write cycles than standard SD cards. They also have wear-leveling algorithms which essentially track the use of the storage sectors and distribute the read/write operations evenly across them which prolongs its life.

High endurance microSD cards are a little bit more expensive, but over the long run you will save money by not having to replace several failed standard microSD cards. Additionally, the last thing you want to do when you need to pull footage from the camera is find out that your storage device was corrupted and there’s no footage of the event.

I recommend the Samsung PRO Endurance microSD cards. Sandisk is another popular high endurance microSD manufacturer, however users seem to report more premature failures of those cards compared to the Samsung brand.

Some recommended dash cams at various price points

Once you’ve filtered exclusively to capacitor-based dash cams, various additional features come down to what you’re willing to spend. Factors like video resolution, whether it is front-facing only or a dual-cam front and rear setup, and brand name recognition will all influence price points. My first dashcam, the BlueSkySea B1W, is no longer sold, but it was a pretty good value for $50, offering 1080p front-facing recording, a capacitor, and a (slightly buggy) smartphone app. So I’d look for something like that if I was on an extreme budget.

2025 Update: Best value dual-cam option: Viofo A229 Plus, ~$199

If you want to record what’s going on behind you as well, then a dual dash cam makes that convenient. Viofo is a pretty respected brand in the dash cam world, and this is the most highly recommended entry-level dual cam setup on dash cam forums. This has 2k 60 fps front camera, and a 2k 30 fps rear camera. I’ve been using it for nearly a year now with zero issues or missing footage.

Personally I’m not hugely sold on the necessity of a rear camera. Even if you get rear-ended, a front camera will show you minding your own business before the impact. So I think one of the few cases where a rear camera is necessary, would be if someone rear-ends you, then makes a U-turn to flee. Or for a parking lot mishap.

The front dash cam should cover the vast majority of events, so it’s up to the individual buyer to determine if the marginal benefit of the rear camera is worth the extra cost to them. Now that I’ve got more disposable income than when I bought my dash cam several years ago, I opted for the A229 Plus when I got a new vehicle, because I figured amortized over the cost of the car, it’s really peanuts.

To hardwire or not to hardwire…

There are two methods to power a dash cam. The first and most simple is to connect it to the 12V DC “cigarette lighter” power outlet, which will power it whenever the car is running.

The second is to hardwire it into your car’s fuse box. This is a bit more challenging but will allow the camera to receive power even if the car is off. Many dash cams come with a “parking mode” where if the G-force sensor in the camera detects an impact, it will turn on and record a clip. Or you could even have it record 24/7 if you wanted.

It’s up to you to determine the likelihood of parking lot mishaps where you tend to park your vehicle, and then whether you’re able to hardwire it yourself or if you’re willing to pay someone to do it. Personally I think the vast majority of people should be able to figure it out while following along with a YouTube video.

Keep in mind that even if you don’t hardwire your dash cam, you’re still getting quite a big benefit from having it running when you’re driving your car, which is when most accidents will occur. So even if hardwiring it sounds too difficult and you’re just going power it using the 12V DC plug, it’s still super worthwhile to get a dash cam.

Reputable dash cam manufacturers sell specific hardwire kits for their specific camera models. Just make sure the camera comes with a low-voltage cutoff, which will prevent it from draining your car’s battery too low.

My first dashcam was not hardwired, but I opted for it on my second one, because I figured I was only going to do the install once and I was more comfortable with electrical work after gaining a bit of experience doing home renovation projects. It really was quite simple with Viofo’s official hardwiring kit.

How to install a dash cam

Installation is pretty easy. The “wedge” shaped cameras stick to the top of your windshield near the center, and the “pod” shaped cameras stick behind your rearview mirror so they’re hidden from your field of view. You can then run the cable up to the headliner and begin stuffing it behind the trim pieces, following it around the side and down until you reach your power source.

Really the best method is to just head to YouTube and search for a dash cam installation video for your particular vehicle. I was done with mine in 25 minutes.

Just make sure once it’s in place you verify that the camera isn’t pointed at the sky. You can manually adjust the lens angle on most of them.

Maintaining your dash cam

Once your dash cam is installed and plugged in, it’s generally pretty set-and-forget. However you should make a habit of connecting to it on the included app every now and then and verifying that it’s recording videos and the timestamp is correct.

**Conclusion: get a dash cam before you wish you had gotten one!**

Now that you’ve read my whole article, you’ll really feel quite silly if you pass up on getting a dash cam and then have an incident where it would have come in handy to indisputably prove that you were not at fault in an accident. As personal experience has shown to me more than once, not everybody is honest and plenty of people will lie after getting into an accident to try and prevent their premiums from going up.

For the equivalent cost of a month or two of your car insurance payment, buying a dash cam for additional protection simply makes sense. In a “he said, she said” situation it could save you your deductible and a potential increase in insurance premiums. It’s not if you get into a car accident, but when, so take a step to preemptively protect your financial interests by investing in a dash cam.

Web Browser Dark Mode Compatibility Update

Sun, 13 Mar 2022 00:00:00 UTC

Frugal Flannel now looks great in dark mode! I spent some time this weekend tweaking settings, images, and reviewing past articles to ensure that everything on the blog is providing a great user experience for those who browse in both light (i.e. “regular”) and dark modes.

I remember trying browser dark mode extensions around a year ago and wasn’t impressed. Earlier iterations simply inverted the colors on the whole page to display white text on a black background. This meant the images were inverted too, so everything except text-only pages tended to look terrible. This was a disappointment for someone like me who occasionally likes a less bright screen experience to reduce eye strain at night.

I tried dark mode when web browsing again a few days ago and was pleasantly surprised by how far it has come. It’s not great on every website, but it works well on sites that put a bit of effort into checking out their site in dark mode and tweaking as needed.

Here’s an example of what Frugal Flannel now looks like in dark mode:

I played around with the idea of adding a dark mode toggle button to the site itself. There’s a few WordPress plugins that enable this, however I decided against it for a few reasons. Although it looked good on desktop, the toggle button was in the way for mobile users, and the best dark mode WordPress plugins locked movement of that button’s position behind a subscription fee. Additionally I like to keep my blog simple and clean for fast load times. Adding more and more plugins is antithetical to that.

Ultimately, readers who care about dark mode, probably care about it enough that they want to use it on multiple sites that they visit. For all of the above reasons, a client-side implementation makes more sense than server-side.

Browsers with built-in dark mode features don’t appear to be quite ready yet

Among all browsers, Chrome appears to be the only one currently playing with a built-in feature for dark mode. It’s an experimental feature, so unless you’re comfortable messing around with that stuff you probably want to steer clear. You can turn it on by typing chrome://flags/#enable-force-dark into your URL bar and enabling the feature. The actual dark mode feature itself looks very nice, however there’s no easy toggle button to turn it on and off outside of the flags list, and not everyone uses Chrome.

Personally I’m a Firefox guy, and I like a quick toggle since I prefer to browse in light mode most of the time (especially on my desktop) so that led me down the browser extension path.

Dark Reader: the best dark mode extension for every browser

The Dark Reader browser extension is the best way to implement dark mode that I have found. It is compatible with all major web browsers, renders content as well or better than Google Chrome’s experimental dark mode, and has an easy toggle switch. Best of all it is completely free.

Dark Reader for Chrome

Dark Reader for Firefox

Dark Reader for Firefox Android

Dark Reader for Safari and iOS

Dark Reader for Edge

Please let me know in the comments below if anybody notices something I overlooked that doesn’t look quite right in dark mode. Happy reading — now in light-on-dark, or dark-on-light!

Why You NEVER Waive A Home Inspection

Sat, 26 Feb 2022 00:00:00 UTC

My fiancée and I thought that we were so close to home ownership. After nearly two years of house hunting, countless home tours and six rejected offers, last week we were finally first time home buyers under contract. 15 months ago I expressed my frustrations with the state of the housing market when I wrote a reminder to myself and others not to fall for the home ownership FOMO that the pandemic brought. The real estate market has only gotten less hospitable since then, as mortgage rates recently breached 4% and prices are still at all-time-highs, denting affordability. But we exercised patience, kept our cool, and slowly submitted offers for what we thought homes were worth to us, knowing all it took was one to stick.

This real estate market since coronavirus hit has been defined by a new paradigm of behaviors from buyers desperate to make their offer stand out. Bidding above asking price with escalation clauses. Completely waiving their inspection and taking on the financial, health, and safety risks of whatever issues the house may have. Completely waiving the appraisal, in which case a buyer must bring as much cash to the table as is needed between what they paid for the house, and what the lender thinks it’s worth. Huge earnest money deposits to show your serious commitment to the seller by putting some skin in the game — break the contract and it’s forfeited.

One thing we’ve never been willing to do is fully waive any of these contingencies. As a result of that we lost bids time and time again to people who paid a little bit higher than comparable homes would suggest, completely waived their appraisal, and lastly (but also most importantly for sellers of the 70 to 120 year old homes common in my area) waived their inspection. These contingencies exist to protect buyers from information asymmetry; the seller knows a lot more about their home than you do after a 30 minute tour. Those people waiving contingencies and offering huge amounts over asking make their offer stand out to sellers, since they’re either definitely buying that house, or if they can’t perform and have to walk away the seller gets to keep their earnest money deposit due to the buyer waiving all options to cleanly exit the contract.

We’ve walked the line with some of these, knowing that it’s a complete waste of time to submit offers for homes in our area at asking price with full contingencies. You will never win over the 6 to 32 other offers (which is the actual minimum and maximum number of offers on the table in all seven homes we have offered on). So we’ve done things like offering over list price when we can find comparable sales to support the number, offering a $20–30k appraisal gap when we’re pretty sure it will appraise (but fully prepared to pay up if it doesn’t), and offering to cover the first $5–10k of inspection repairs out of pocket before asking the seller for a credit.

In the end this behavior degrades the integrity of the real estate market for all buyers, but we tried to find a balance between submitting competitive offers for what we felt a home was worth, while trying to make that offer fully define the risks on our end. We knew we’d probably lose offer after offer because we weren’t waiving everything, but hoping it was a numbers game and one would break through eventually.

Our winning offer

The home was priced far below comps so I mainly used price per square foot plus some other adjustments to arrive at what I thought was a fair market value, but wouldn’t make it the most expensive home in its market segment. This ended up being about 11.7% over the asking price, and we also offered an appraisal gap of $30,000. For a sanity check I compared the monthly mortgage payment and opportunity cost of the down payment plus worst case appraisal gap and it came out to a similar figure to comparable rental prices in the area. In our local market, renting is typically cheaper than owning so getting a par value deal is actually quite good, despite this offer sounding utterly insane at face value.

We also offered $20,000 in earnest money, half to be delivered upon acceptance of the offer and the rest to be delivered when signing the purchase and sales agreement.

Most importantly we kept our inspection contingency, promising to cover up to a maximum of $10,000 in total estimated repair costs potentially found during the inspection.

I was sure that since this offer made complete mathematical sense to me as a fair value and risk mitigation strategy that some other irrational market participant would come completely blow it out. To both of our surprise on Valentine’s Day 2021, we finally got the notice that our 7th offer on a home was accepted. We scheduled our home inspection for that Friday morning, trying not to get too attached to the house because it wasn’t a sure thing yet.

The home inspector reveals all

We were recommended a great inspector, this guy was seriously awesome. He explained to us everything he was doing, let us ask questions, and taught us a lot of stuff to look out for next time we tour a house. He spent 3 hours inspecting a small starter home.

The inspection started out okay in the interior spaces and then gradually got worse as he moved to the exterior and finally the crawlspace under the home. Here’s most of the big issues we encountered:

The house had newer cedar clapboard siding, but someone had installed the new siding over the old siding rather than removing it, leading to loose boards and other potential issues.
The gutter fascia boards were in the early stages of rotting, likely leading to moisture in the attic.
Chimney leaking into the attic.
Likely mold in the attic, probably from aforementioned moisture issues.
In the crawlspace, someone had installed the insulation backwards so the vapor barrier was trapping moisture against the structure of the house.
Rotting joists in several areas and rotting subfloor under the bathroom, requiring structural repairs and a complete tear-out of the bathroom to remediate.
The seller lied about the age of the furnace and it was actually six years older than they claimed and very close to end of life.
More mold in the crawlspace; inspector recommended installing a vapor barrier and pouring a foundation under there after remediating the mold to address the root cause.
Temporary jacks appeared to have been adopted as permanent support to hold up the home in several areas, but were not properly installed for the job and just sinking into the dirt.

We’re not savvy when it comes to houses but not oblivious either. None of these issues are things we picked up on during the home tour (although half of the issues were in the crawlspace which we weren’t about to crawl around in during the tour).

Assembling quotes from the internet and from general contractors we know, we estimated around $50,000 to address all of these issues minus the siding. And this isn’t stuff like a kitchen upgrade where you can generally wait until you have the money and are ready to get around to it. Mold is a serious health risk and would need to be addressed immediately. And if you notice, all of the issues are generally related to moisture, so proper remediation of the mold involves correcting the root moisture issues at the same time. Essentially we’d be looking at paying most of that $50k bill right off the bat just to make the home habitable and structurally sound.

Imagine if we had waived inspection like so many people are doing in this market?!? $50,000 simply evaporated into thin air! Instead we were out $500 for a home inspection, cancelled the contract and walked away.

The opportunity cost of paying for somebody else’s deferred maintenance

In my mind it didn’t particularly make sense to negotiate, since money spent out of pocket today isn’t financially equivalent to a 1:1 discount of the repairs off the price of the home. We would have had to get a much better deal on that home, lower than the list price to justify sinking that kind of cash into a starter home.

Say the seller discounts the loan by the cost of the $50k repairs: we’re saving that amount plus interest amortized over 30 years, plus a few thousand dollars from the slightly smaller down payment required to hit an equivalent loan-to-value (LTV). At a 4% mortgage rate that’s $86k less in total payments over the life of the loan, plus $10k savings for what you would have put down on that additional $50k balance at an 80% LTV. You invest your $10k into an index fund yielding 5% real return which becomes $43k after 30 years. Total savings of $129k in this scenario.

We got our discount from the seller, so now we go spend $50k out of our own pockets to do the repairs when we move in. But the opportunity cost of spending that money today (compared to an equivalently priced home that doesn’t need repairs) is far higher. $50,000 invested for 30 years at a 5% real return results in $216k. If you end up getting 6% or even 7% real returns over the long-term, the gap widens even further compared to the fixed 4% mortgage rate. But let’s just use 5% for a conservative assumption.

For these $50,000 worth of repairs, we would actually need about an $84k discount on the price of the home, which results in a $144k savings in mortgage payments and interest plus the result of $16,800 in reduced down payment savings invested at 5% interest for 30 years which comes out to $72k. These two savings figures sum to the $216k opportunity cost of spending that $50k in repairs out of pocket today.

We could make the model more complex by investing and compounding the monthly mortgage savings as they are received, which would make the required home price discount slightly smaller. More simply however we can condense this down and assert that as long as one expects the real return of a stock market index fund to be larger than the interest rate on a fixed rate mortgage, logically the fair price discount on a home needing repairs is larger than the nominal cost of those repairs when compared to the price of a home which does not need such repairs.

We backed out, and someone else is probably getting screwed big time

Since our offer on the home was based on assuming it did not need significant repairs, logically we should have requested this $84k discount, minus the $10k in repairs we promised to cover. However that would have taken us about 6% below list price, and since they already had 5 other offers at or above list price (one or two of which waived inspection, their agent had slipped to ours earlier in the bidding process) we knew they’d never negotiate for even the full price of the repairs, let alone the opportunity cost premium that we should have logically demanded.

So rather than waste our time we cancelled the contract, requested the return of our first earnest money deposit and walked away. It’s been four days since we cancelled, and the property never went back listed on the MLS to solicit more offers; it’s still pending. Which makes me almost certain they went back to another bidder slightly lower than us who waived the inspection. I doubt that they have any clue what they’re in for, but that’s the risk you take when you waive a home inspection.

The housing market still sucks for first time buyers

Right now the housing market is in a weird place. Data points from sales that went under contract two months ago are coming through as comps, but those buyers got 3.25% interest rates, whereas mortgages today are around 4.15%. On a monthly payment basis, that difference is about a 10% reduction in buying power. So if you’re buying a home today based on the price of comps over the last 3 months, you’ll have about a 10% larger mortgage payment than if you had bought the same home in December 2021.

There’s a well-established inverse relationship between asset prices and interest rates. With real estate, most buyers are primarily “buying the monthly payment,” which then determines the price of the homes they can afford. When interest rates drop as they have pretty steadily for the last 4 decades, this provides a huge tailwind to home price appreciation since for the same monthly payment, buyers now have more purchasing power. Conversely for each 1% increase in interest rates, buyers have about 13% less purchasing power with a 30 year fixed rate mortgage. Servicing a $400k loan at 3% rates, has the same monthly payment as a $350k loan at 4% rates.

This graph that I plucked from a Redfin article is quite poignant:

Looks sustainable! I don’t advocate timing the stock market, but the housing market is in such a bad place for first time buyers that it’s hard to believe it can get much worse. In addition we’re seeing the winding down of an unprecedented stimulus and asset inflation program from the government and Federal reserve, much of which was either directly targeted at, or in a roundabout way ended up in housing.

Mortgage forbearance and rental eviction moratoriums artificially restricted the supply of homes. At the same time the Federal Reserve bought nearly $1.5 trillion in mortgage backed securities (MBS) since the pandemic hit, juicing lower mortgage rates than even a 0% Federal Funds Rate would support. People were getting sub-3% mortgages at the height of this scheme, and now as the MBS purchases are tapering off (though still occurring to the tune of $45B in January) we are seeing the true rate that the market will pay for these loans right now is well over 4%. Maybe even close to 5%, which is where mortgage rates peaked in mid-2018 when the Fed engaged in their short-lived balance sheet reduction and were overall net sellers of MBS.

There’s further anecdotal evidence all over housing forums right now that quite a few couples under forbearance on their student loans who remained employed during the pandemic used those savings to craft a down payment and dumped it into the housing market out of desperation that it would be their only shot. I’m no expert, just a layman economics enthusiast, but I’d have to bet that this “preemptive stimulus” play will go down as a great blunder in Federal Reserve policy.

Perhaps the biggest indicator that this housing market is overheated is a deep look at our own financial situation — we are top 10% household earners for our area and far above average (obsessive even) with saving money. Financially speaking, we shouldn’t have to think twice about buying a home that meets our goals. But here we are, and it makes little sense to me.

Waiting for home prices to decrease isn’t the right play if you can afford to buy now and it makes financial sense to do so compared to renting. But taking on huge financial risks like waiving a home inspection to win an offer isn’t the play either, unless you’ve got some particular professional expertise in evaluating the condition of homes.

We’re continuing to save up cash for a down payment in addition to our normal investing regimen of maxing out our 401k’s and Roth IRAs. We are closing in on having 20% down plus closing costs. Even if higher mortgage rates don’t cause home prices to fall as I theorize they should, having a higher down payment is one way to brute force a desired lower mortgage payment. I’m confident that with continued frugality, efforts to save, and attempting to make smart financial decisions we will come out just fine in all financial areas in the long run, including home ownership. For now, patience will have to suffice.

Finding the Balance With Alcohol: Dry January Follow-up

Mon, 14 Feb 2022 00:00:00 UTC

At the end of December, I committed to doing dry January this year to isolate any effects of my moderate drinking habit and try to make a decision on what level of alcohol consumption fits into my ideal life. Your holistic health picture is an important piece of the FIRE journey — what’s wealth and time without health? My monthly spending on alcohol for the second half of 2021 was $72.17 per month on average, and I was also curious to evaluate the value proposition of this, if it was money “well spent” or not.

I went from about 14 standard drinks per week to zero for this experiment. But I failed in finishing out the whole month. On January 29th, we were blasted with over a foot of snow and I just couldn’t resist the temptation of my regular tradition to enjoy a beer from the comfort of indoors while watching the snow come down. So I completed 28 days without drinking, or 90% of Dry January. I’m not too broken up about it as I certainly went long enough for the purposes of evaluation and experimentation.

I did set up a very simple experiment with a sample size of one to attempt to measure any immediate benefits of a sober lifestyle, so let’s take a look at my results.

Results of my barely scientific self-experiment

Workout performance

This was an interesting semi-quantitative metric. I have a rotating calisthenics upper body routine involving chin ups, push ups, and dips. I do six sets of each to maximum effort and recorded my repetitions per set at both the end of December and the end of January to compare. Over the month of January I gained 1 total chin up across all six sets, 2 push ups, and 1 dip. Which translates to a 1.5–2% increase. I had anecdotally noted my progress plateaued for many months prior, though I wasn’t tracking statistics before. Of course this apparent improvement could also be traced to minor factors like the first workouts occurring on off days such as when I was overly tired.

I additionally tracked my statistics on our Peloton bike and found a neat tool to visualize my data over at peloton.lutterloh.dev. All data points were within the normal distribution when compared with historical trendlines. No apparent effect with aerobic workout performance between “had a couple beers the night before” and being sober for nearly a month.

Weight

I averaged a couple data points of my weight both at the end of December and the end of January, taking measurements at the same time each day. I really changed nothing about my diet, just cut out beer. As a result I lost 3 pounds over Dry January.

A quick estimate shows I avoided consuming about 9,000 calories worth of alcohol over the month, so this lines up with the oft-quoted 3,500 calorie deficit to lose one pound of fat. It’s nice to know that if I ever seriously need to diet, I could just cut out the alcohol and be patient to see results.

General daily feeling

Major anecdotal subjectivity here. Before starting Dry January, I noted “most days I wake up with a slight headache, lay in bed for 20–30 minutes before getting up, and do a bad job focusing at work (especially in the mornings).”

I didn’t notice much change, so I think I can declare that alcohol isn’t to blame here. I sleep pretty soundly and I think I can chalk the morning headache up to dehydration from not drinking water during the night, and absent drinking a ton of alcohol to the point of having a hangover, having a couple beers really doesn’t seem to make a noticeable difference in the morning headache phenomenon. I did notice the faster I drink a cup of water in the morning, the faster I’m ready to get up and go, so I’ve been making that addition to my morning routine as soon as I wake up.

As far as focusing at work, no improvement there. This isn’t a big surprise as I’m truly not passionate about my job in engineering. It’s not engaging work, not in a subject that I particularly care about either way, and not difficult for me to put forth a minimum amount of effort to be an average performer. It pays well compared to the low amount of effort and little stress, and at this point is little more than a means to an end in reaching my FIRE goals.

Overall experiment conclusion

As I expected, cutting out alcohol isn’t the silver bullet to a vastly improved life. My workout gains were inconclusive, and I didn’t become a superstar at work who jumps out of bed in the morning to take on the entire office. I did lose a few pounds which was cool, but essentially guaranteed by thermodynamics since alcohol is calorie dense.

Overall I think it was a good opportunity to step back and take a conscious look at my relationship with alcohol, but I’ve concluded that the long-term sober lifestyle is not for me.

The cost/benefit proposition of alcohol

Obviously there’s a myriad of reasons why people who drink choose to do so. Believing that it improves those fun nights out with friends. That enhanced zone of creativity in a slightly buzzed state. Relaxation after work.

We accept those things in return for a trade off with the negative health effects of alcohol, some of which may not be fully quantifiable by the research. Trying to avoid all risks in life would lead to a pretty boring existence, so instead we must determine if the trade off is worth it, and mitigate risk where practical.

There’s also obviously bad reasons why people choose to drink, such as coping with negative emotions and physical dependency. Many of us know someone who has fallen into the negative spiral of alcoholism.

However, most people very clearly can walk the fine line of moderate consumption without slipping towards alcoholism. The data on self-reported drinks per week clearly supports this. 28% of men and 38% of women do not drink at all. Only about 10% of men and women drink at levels that the CDC and NIAAA define as heavy drinking (more than 14 drinks per week for men, and more than 7 for women). Most people float along in the middle there, though more heavily weighted towards the lower end — 3 drinks per week is the 66th percentile for men, and 80th percentile for women.

Consumption monitoring

As I noted prior to Dry January, conscious monitoring of one’s consumption habits may be needed here (even if informally) as I had noticed a trend of slowly increasing my alcohol consumption over the past several years. Effective and honest monitoring requires the knowledge that a “standard drink” for the purposes of measurement consists of either:

12 ounces of 5% ABV beer
5 ounces of 12% ABV wine
1.5 ounces of 40% ABV liquor or spirits

So drinking a pint (16 oz) of a 7.5% ABV IPA isn’t “one beer,” it’s actually two full standard drinks.

For easy conversion to standard drinks and logging consumption over time, there’s some neat phone apps out there. Android users can check out AlcoDroid on the Play Store, while iPhone users may want to take a look at DrinkControl on the App Store.

My rules for alcohol consumption going forward

For self-discipline, accountability, and establishing a healthier relationship with alcohol consumption moving forward I wanted to create a few general drinking guidelines:

Target an average weekly consumption of no more than 10 standard drinks.
At least 2 days of zero alcohol per week.
Each excess drink over 10 per week, adds one extra non-drinking day during the following week.
No more than 3 drinks in any given day.
If my BMI hits overweight territory (25 or higher) I’m limited to 3 beers per week until I’ve lost 8 pounds.

I think this is a good set of rules with some flexibility for special occasions while still maintaining a lower risk level of alcohol intake. A daily maximum of three drinks ensures that bad hangovers will be nonexistent. For example if I had 12 standard drinks one week, the next week I would need to complete 4 zero alcohol days. Ergo I would only have 3 drinking days, but be able to consume no more than 3 drinks each day for a total of 9. 13 drinks in one week leads to a maximum of 6 the following week, and 15 drinks in one week forces an entire week of sobriety.

Targeting 10 standard drinks per week would be about a 30% reduction compared to how much I was drinking prior to Dry January, and a commensurate 30% reduction in my alcohol spending.

I’ve been testing out the AlcoDroid app for the past couple weeks. It’s super easy to log drinks using the app (it converts for you from volume and ABV to standard drinks) and consumption trends over time are visible for daily, weekly, monthly, and all-time histories. I’ll be making use of the app so I can be sure I stay on track with implementing my new rules.

I’ll come back after a few months and add a section to this article with some updated thoughts on how these rules for moderate drinking have worked out for me!

Cryptocurrency is Overvalued Vaporware. Here's the Proof.

Wed, 19 Jan 2022 00:00:00 UTC

I’m quite frankly tired of hearing people rave about cryptocurrency. You’re not going to get rich off this crap. Chances are you’re going to lose most of the money you put into it. Because it’s overvalued, overhyped vaporware. And in this article I will prove it.

This isn’t a post out of jealousy or anything. I’m genuinely happy for the people that got lucky, made life changing money from this stuff, and cashed out. But also sad and frustrated at the same time, because the gains of those who cashed out are financed by the suckers buying in today who think the performance of the early buyers will repeat for themselves. A poll by cryptocurrency exchange Huobi of over 3,000 people discovered that 68% had only begun buying cryptocurrencies in 2021. Now what does that remind you of…?

As I wrote in my last article on the “Everything Bubble,” 31% of U.S. adults (including 46% of millennials and 59% of Gen Z) believe that they will become millionaires off of their cryptocurrency investments, according to a survey by Big Village. That’s over half of adults age 40 and under. In the context of that statistic, it sounds utterly ridiculous when people buying in today try to claim that they’re early adopters.

Remember economist Robert Shiller’s definition of asset bubbles and how they “spread by psychological contagion from person to person”? Well, what happens to viruses when they’ve already infected the majority of people? Fires when they run out of oxygen or fuel to consume? They burn themselves out.

A similar phenomenon occurs with asset bubbles. Massively overvalued assets (low or no intrinsic value relative to very high prices) exist in a fragile state, for no rational investor would buy for example, stock in a company with a market capitalization of 2,000 times its annual earnings. Markets love mean reversion. At some point the collective mass delusion will be lifted by an external event, or it will continue until it can no longer spread fast enough to engulf enough money to continue fighting reality, and burn itself out.

Cryptocurrency may have already reached the point of burnout, or it may have another leg up if enough people can convince their grandma to buy their digital ledger entry for more than they paid for it. But one thing is blatantly clear, and it’s that the 31% of surveyed U.S. adults who think they’re going to become millionaires off this crap are running out of greater fools to convince.

Of course, a number of people believing they’ll profit off of something doesn’t necessarily mean that they’re wrong: the majority of stock market investors make a profit. However, the stock market over the long-term is a positive-sum game — real companies backed by real assets, with real earnings are deploying capital and resources to produce more value over time. This effect compounding over years and decades creates many millionaires.

So I’m not going to attack crypto only from a philosophical standpoint in this article. We’re going to give it the benefit of the doubt, and assume that it’s not a zero or negative-sum game, but that it does have the potential to create value. Instead, we will prove that it is so laughably overvalued and overhyped as to be fundamentally equivalent to an asset with zero intrinsic value. This distinction is nuanced but important to fend off detractors who may want to lump this article in with the attacks from many of the cryptocurrency critics who are not educated on the space.

But enough words for now, I said I’d prove that this stuff was overvalued. So let’s start setting up some numbers.

A simple valuation model for Proof of Stake (PoS) cryptocurrencies

Most everyone who has heard of cryptocurrency has heard of mining. I’ve mined at home myself using my GPU. This is the Proof of Work (PoW) model, wherein participants contribute their computing power to securing the network and validating transactions. Miners are rewarded with cryptocurrency tokens when they successfully solve a cryptographic problem and mint a block to add to the blockchain.

Many of the new and rising cryptocurrencies today use a Proof of Stake (PoS) consensus mechanism, and some existing PoW coins like Ethereum are planning on making the shift to PoS in the future. In this model, transaction validators stake their tokens as collateral. Malicious behavior is discouraged, since bad actors will have their tokens confiscated. In return for their participation in the network, validators receive:

A proportion of new tokens created as part of a network’s built-in inflation mechanism.
A commensurate portion of network fees generated by users transacting on the network.

The first one is to encourage holders to participate in the network. Those who don’t, will effectively have their tokens “diluted” over time. Likewise, if every single user staked their tokens, each users’ buying power would remain the same relative to each other. Obviously the staking percentage will not be 100%, since then there would be no tokens remaining to transact on the network. It’s also not zero percent for obvious reasons, and probably also not a very low percentage as a minority of participants capturing, for example, a 3% token supply inflation would be a massive return and thus encourage other participants to stake.

Token inflation is similar enough to money creation and inflation of fiat currency that we’re going to ignore the specifics here (as they vary by network and change over time) to focus on the real measure of network usage — and thus value — exemplified by our second factor.

Users on cryptocurrency networks pay a fee when they send transactions, or initialize or interact with smart contracts and decentralized apps. The sum of this over time could be described as the “earnings” of the network which will be distributed to network validators.

A simple valuation model for PoS cryptocurrencies then would look very similar to the Price-to-Earnings (P/E) ratio that’s used in the stock market, which is:

Adapting our model to fit the PoS cryptocurrency framework, we end up with the following:

Each token therefore represents a potential claim of ownership on a fractional share of a cryptocurrency network’s earnings distributed among network validators. Just as a share of stock represents a claim on the assets and earnings of a corporation distributed among shareholders. Cryptocurrency investors who do not understand this relationship do not have much comprehension of what they are actually investing in when they purchase tokens in a Proof of Stake network.

Applying our model: Cardano (ADA)

Above statistics taken 17 January 2022. Source: CoinGecko

Let’s evaluate Cardano (ADA), the 5th most valuable cryptocurrency by market capitalization. Cardano describes itself as “a decentralized third-generation proof-of-stake blockchain platform and home to the ADA cryptocurrency. It is the first blockchain platform to evolve out of a scientific philosophy and a research-first driven approach.”

Market capitalization is easy enough to find on many sites. We see above that this project has a market cap of $48.845 billion.

I found some data on messari.io which provides the total daily transaction fees and revenue for the Cardano blockchain, then verified it with a couple other sources. I downloaded the data for the past year and summed it. The result is $8.605 million in fees and revenue.

Thanks to Staking Rewards, we’ve got our final variable, the percentage of Cardano tokens staked:

Now we can just plug in the variables into our valuation model:

The complete and utter absurdity of this number should be obvious to anybody that’s spent a bit of time examining basic stock market metrics. For some context, the P/E of the S&P 500 is currently 25.85. This is considered high by historical averages. In other words, to purchase $1 of trailing 12 month earnings in a market cap weighted fund of the 500 largest publicly traded companies in America, it will cost you $25.85. To purchase $1 of trailing 12 month earnings in the Cardano network, it will cost you $3,931.

So for Cardano to reach a similar relative valuation to the S&P 500, the price must stay constant while the network sees activity and fees increase by over 15,000%. Except, uh oh, the network is already nearly at maximum capacity:

Source: pool.pm

So is Cardano worth $1.52 per token? No, it’s worth more like a penny per token, and in all honesty probably zero, because nothing of any real value to the world occurs on the Cardano blockchain (or on most blockchains, for that matter). Most activity is just a further layer of speculation, such as users purchasing NFTs that they hope will increase in price, or using a decentralized exchange like SundaeSwap to trade for other cryptocurrency tokens that they hope will increase in price. Once the speculative fervor surrounding cryptocurrency evaporates, so too will the majority of Cardano’s network revenue.

In conclusion, Cardano’s P/E ratio of 3,931 represents a speculative bubble of utterly massive proportions. Investors in this token should expect to lose all or most of the money they’ve put into it.

Applying our model: Algorand (ALGO)

Above statistics taken 17 January 2022. Source: CoinGecko

Let’s do another example. Algorand (ALGO) is a newer PoS crypto on the block, having started 2.5 years ago. It’s got the 24th largest market cap of cryptocurrencies, and has risen up the ranks quickly. I picked ALGO for a couple reasons. It’s still viewed as an “up and comer” in the crypto community due to its low fees, high transaction volume, and fast speed. ALGO claims to have “transaction throughput on par with large payment and financial networks.” Second, I’ve actually used it myself. I think ALGO is a cool technology, but does it deserve its $8.7 billion valuation?

Like our last example, I downloaded the total daily ALGO transaction fees and network revenue. A year’s worth of data wasn’t available, so I took the last month’s worth and multiplied by 12, which will almost certainly end up being an overestimate in ALGO’s favor as network usage has trended upwards over the past year. My result was $1,773,024.92 in total network revenue projected over a year. Here’s the proof of network activity trending upward over time to validate this claim:

Source: AlgoExplorer

According to the Algorand Developer Portal, 2.1 billion ALGO tokens are currently staked and participating in consensus out of a total circulating supply of 6.47 billion, a 32.46% staking rate.

Once again we can plug these variables into our valuation model:

And once again we end up with an absurd valuation, though slightly less so than our Cardano example. More evidence that cryptocurrencies are ridiculously overvalued and in a huge speculative bubble. Algorand investors should similarly expect to lose most or all of their money.

Implications for Bitcoin and other Proof of Work (PoW) cryptocurrencies

Obviously, my PoS valuation model does not directly apply to PoW coins, which currently includes the two largest cryptocurrencies by market cap, Bitcoin and Ethereum. A different, more complex and less quantitative model would be needed for PoW cryptos. Bitcoin enthusiasts love to claim that it’s “digital gold,” so the nebulosity of gold valuation models compared to stock valuation models is a suitable comparison here.

Rampant speculative fervor has infected the entire cryptoasset class. There’s no evidence that market participants in aggregate are making discerning decisions regarding Proof of Work versus Proof of Stake cryptocurrencies when they invest. Based on this, I think it’s fair to extrapolate and assume that the valuations of PoW cryptocurrencies are similarly distorted to grotesque levels just like my model indicated that PoS cryptos are.

You are not early.

There’s a common trope that floats around the cryptocurrency community. They like to repeat obsessively, “we are still early,” trying to convince themselves that they’re early adopters of the next big technological revolution. They fancy investing in cryptocurrency today akin to investing in Amazon or Google shortly after those companies went public.

Past returns are constantly trotted out to lure in new suckers. “Imagine if you invested in Bitcoin a decade ago, you’d be up a million percent!” Throw to the wind the fact that one of the first things that novice investors used to learn was that past returns do not indicate future results. Or that assets which don’t produce new value over time (like gold) usually turn out to be not-so-great for building wealth after all.

Full disclosure, I hold a very small amount of cryptocurrency that I earned through mining with my GPU, folding proteins for medical research, and playing the game Coin Hunt World. It’s a few hundred bucks out of my $278,000 net worth. I’ve never put a dime of my own money into this stuff (other than some electricity), and I’ve cashed out more for beer money than I currently hold. It’s a free slot machine spin and little more to me. I fully expect it to go to zero, or very close to it at some point.

Are there some cool, useful projects out there using blockchain? Absolutely. Brave Browser and their Basic Attention Token (BAT) is an example of a super interesting, consumer-friendly and potentially disruptive application, and I have used it. But the few crypto projects out there with actual use cases does not mean that they’re worth valuations in the billions.

Furthermore, the potential success and “adoption” of blockchain as a technology does not necessarily guarantee the success of cryptocurrency. Blockchain networks do not inherently require a token or coin to operate for those willing to trade off on decentralization. Shipping logistics and medical records are two examples where blockchain may be useful, but a cryptocurrency isn’t required.

By the way, if you truly believe blockchain adoption is inevitable, simply holding a total market index fund will accrue those benefits to you as the companies within your index fund adopt it and use it to create value in their businesses.

One thing is clear, and that is that the fundamentals of cryptocurrency as an investment make zero sense to any investor with a shred of rationality. As I’ve proven in this article, valuations are off the charts, way above what is reasonable for even a highly speculative growth investment. Your investment is backed by such a relatively small amount of earnings that it may as well not exist — the term vaporware is indeed apt here.

If you invest in cryptocurrencies, you are not early. You are incredibly late to what may be the first decentralized Ponzi scheme in history.

Investing During the "Everything Bubble"

Thu, 13 Jan 2022 00:00:00 UTC

Financial markets have been on a tear recently. Most everyone you talk to, even people who weren’t investors prior to the pandemic, seems to have a story about how they’re making money hand over fist right now. The stock market, housing, cryptocurrency… pretty much anywhere that you can deploy your money did incredibly well last year. Other than poor old boring bonds — a total bond fund like Vanguard’s BND offering dropped 5% last year. But investors who took more risk than a savings account or bonds were rewarded very handsomely.

Of course, high returns in the past correspond with high asset prices today. And everything certainly feels expensive. More than that though, it feels like a bubble. There’s an irrational exuberance among investors, especially novice investors. I’m far from a seasoned investor myself, going on a little under seven years that I’ve actually been able to put serious money into the markets. But some of the things I’ve been hearing on the street are just so unrealistic, and the number of people saying these things growing so fast as to be concerning.

For some historical perspective, take a few seconds to recall one of the most notorious fraudsters in Wall Street history, Bernie Madoff. As many now know, Madoff ran what is currently the largest Ponzi scheme in history. Thousands of investors in his fund were ultimately ripped off to the tune of tens of billions of dollars spanning over two decades. The bait for his unsustainable scam? A claimed annual return of just under 11%, delivered steadily and with little volatility.

Feeling bubbly

Today, we live in interesting times. 31% of U.S. adults (including 46% of millennials and 59% of Gen Z) believe that they will become millionaires off of their cryptocurrency investments, according to a survey by Big Village. That’s over half of adults age 40 and under.

In the real estate world, Redfin reports that a record 18.2% of U.S. homes sold during the 3rd quarter of 2021 were purchased by investors. This during a period where capitalization rates are at record lows after a decade during which home prices grew 1.92 times faster than rents, according to home price and rent index data that I analyzed from the St. Louis Fed. In my area, rents on a single family home don’t even seem to cover the landlord’s total monthly costs if they put 20% down. Many of these investors are clearly banking on continued price appreciation as they jump in after the housing market posted double digit price gains in 2020 and 2021.

And stocks, what a fabulous year it was, including for my own portfolio. The S&P 500 increased 26.89% in 2021, according to Macrotrends. In context, this really isn’t that remarkable, as that’s well within the standard deviation of returns that the index usually throws off which has averaged out to about 10% over the long-term. Of course, how could we forget the meme stock frenzy earlier in 2021, during which over a quarter of American adults reported buying shares in viral, overhyped companies like GameStop and AMC after being driven by a social media frenzy.

There’s debate among economists about whether “bubbles” even exist. One group is exemplified by Nobel Prize winner Eugene Fama, who claims that the term bubble is meaningless, that they’re unpredictable, and can only be defined with 20/20 hindsight. Another Nobel Prize winning economist, Robert Shiller, took a crack at defining the term bubble back in 2005, in the midst of the housing bubble run-up:

A situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases and bringing in a larger and larger class of investors, who, despite doubts about the real value of an investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement.

— Robert J. Shiller, Irrational Exuberance (2005)

The Fed holds a golden pin

High valuations compared to historical norms can at least partially be explained by low interest rates. Borrowing money becomes cheaper for consumers and businesses. As rates fall, bonds become a worse proposition, so investors seeking yield are pushed into tilting towards riskier assets to achieve their desired expected return. On Wall Street, this phenomenon is known as TINA — There Is No Alternative — to describe how investors are piling money into stocks primarily because every other option is far worse.

Real estate likewise soars in a low interest rate environment for a couple reasons. Buyers are mainly “buying the monthly payment,” not the total price of the house, which causes home prices to have an inverse relationship with interest rates. Each 1% decrease in mortgage rates is about a 12% decrease in monthly payments, so on paper buyers can afford more even though they end up just paying a higher sticker price for the same home. Additionally, investors are willing to accept lower capitalization rates as they compare their risk premium with bonds, causing price:rent ratios to rise.

As inflation continues to rage with today’s Consumer Price Index data release revealing a 7% inflation rate over the past 12 months, this low interest rate environment we’ve experienced for over a decade may be coming to an end. Federal Reserve Chair Jerome Powell has recently pivoted sharply on inflation. No longer is he claiming it is transitory, and now it’s clear that The Fed will be breaking out their toolbox to fight inflation and prevent it from becoming “entrenched.” Which will include tapering of bond and Mortgage Backed Security (MBS) purchases, balance sheet run-off, and three or four interest rate hikes this year.

Look what has happened to mortgage rates over the past two weeks just as a result of The Fed publicly changing their stance on inflation, combined with purchasing less MBS over the past few months. They haven’t even touched the Federal Funds Rate yet!

Source: Mortgage News Daily

We’re seeing a remarkable shift in monetary policy. The inverse relationship between interest rates and risk assets is a widely known correlation. The big unknown going forward is whether The Fed can tame inflation without deflating, or even crashing these inflated asset prices.

What is an investor to do in this environment?

Are bubbles real, and how should we respond to them? Between the noted economists Fama and Shiller, who is correct?

I believe the correct answer is somewhere in the middle, maybe leaning ever so slightly towards Shiller. That bubbles exist and are driven by human psychology. But to Fama’s credit, I don’t believe that they can be timed predictably or accurately.

One big counterpoint to hysterically selling all of your investments in the face of this Federal Reserve pivot is that this information is freely available to market participants. If markets are even partially efficient, three or four rate hikes this year should already be priced in to the stock market. The market hasn’t tanked and is sitting near all-time-highs, so maybe investors overall see this as fairly neutral.

On the other hand, maybe TINA has fully taken hold and irrational investors have just decided to collectively run off the cliff at the last second when the rate hikes actually become reality. Seriously, what are you going to do, sell out of risk assets and sit in cash in this 7% annualized inflation environment?

Given all of this information, the optimal decision is to… do precisely nothing! Continue investing in low cost, passively managed index funds to grow long-term wealth. I’ve written about this in the past — statistically (and somewhat paradoxically) buy and hold index fund investors undeniably achieve above average returns when compared to market participants in aggregate. This is the optimal strategy, and temporary distortions in market valuations or changes in Federal Reserve policy do not change the math.

I have a couple coworkers who tried to time the market in 2020 at the start of the pandemic. They sold out of stocks in their retirement funds in early March when prices started dropping, convinced COVID was going to tank the world economy and markets were going to go down with it. They were patting themselves on the back as markets continued to drop 20% beyond where they sold out… then the whipsaw recovery came along with government intervention, and they were left in the dust.

Last I talked to both of them a few months ago, they were still sitting on the sidelines waiting for a crash. Only now they need the market to crash 30–40% just to get back to the point where they sold out, let alone buying back in lower than that. They’ve both lost a lot of potential growth in their retirement funds, probably permanently.

So just ignore the noise, and continue piling your money into total US and international stock market funds like Vanguard’s VTSAX and VTIAX offerings. Or go with a total world equity fund like VTWAX for an even simpler portfolio. Pay attention to financial news only if it’s something that interests you, not because you’re looking for actionable portfolio advice.

Don’t try to time the stock market. Don’t speculate on individual stocks. Don’t buy an investment property with a poorly thought out plan like counting on price appreciation to carry you to prosperity. And please, don’t put a penny more than you’d be willing to lose at the casino into cryptocurrency.

Budget Review for the Second Half of 2021

Tue, 04 Jan 2022 00:00:00 UTC

Another year is in the bag! It’s time to review, reflect, and set my sights on crushing 2022. The past six months were a great time for me personally — I got engaged to an amazing woman and also got a promotion at work. But let’s crunch the numbers to see how I did financially.

I couldn’t think of many specific financial goals to set when I did my mid-year review in July. Mainly because I felt that I was well on track in terms of savings and building wealth, “staying the course” feels like what’s just expected of me rather than a goal to reach for. Last time my monthly budget was completely blown out by my engagement ring purchase, so I did set my main (and only) goal for the second half of the year to stay on or under my budget of $2,379 per month.

I also had set a mini goal to bring my alcohol spending back in line with my budgeted $50 per month. If you’ve read my article from a few days ago where I commit to doing “Dry January” this year, there was a spoiler in there that I failed at this goal. While I was successful in slightly reducing my spending on alcohol from the average of $88.15 per month that I spent over the first half of this year, I was still $22.17 per month over the goal. That was one small motivating factor for doing Dry January, and you can go read that article if you’re interested in my other initial thoughts on how alcohol fits in with FIRE.

So, let’s dive in to reviewing the ever-present budgeting goal! Last time I was over-budget by nearly $700 per month. Did I do better at hitting my spending goal during the latter half of 2021? Let’s crunch the numbers and find out:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,145.00	1,168.89
Groceries	225.00	234.44
Restaurants	150.00	219.53
Travel	200.00	200.00
Consumer Goods	50.00	140.19
Car/Rental Insurance	100.00	95.87
Flannelcat	70.00	77.87
Alcohol/Bars	50.00	72.17
Gasoline	50.00	65.20
Misc. Entertainment	50.00	50.78
Coffee/Tea	50.00	49.56
Clothing/Shoes	50.00	25.72
Car Maintenance	50.00	25.24
Uncategorized	5.00	20.23
Phone	20.00	20.00
Misc. Taxes	35.00	10.00
Cash Withdrawals	20.00	3.33
Student Loans	59.00	0.00
Car Payment	0.00	0.00
Total Monthly Expenses	2,379.00	2,479.02
Net Monthly Income	4,000.00	4,442.13
Free Cash Flow/Month	1,621.00	1,963.11

Close, but not quite! Over budget by $100 per month, or a 4.2% overshoot. Looks like the primary culprits are Consumer Goods and Restaurants this time. Under spending in several other categories across the board helped bring my overall spending back closer in line with my goal. Of course, I also earned over 10% more than I expected over the period which certainly doesn’t hurt.

For the Consumer Goods discrepancy, a big one here was that I was forced to buy a new phone by my carrier. My previous phone was actually going to be kicked off the network for being too old, as they will be very shortly shutting down their 3G infrastructure. Extra frugality points for keeping a phone until it’s not supported anymore? I bought a $500 mid-range phone outright as a replacement which will hopefully last me at least four years.

In Restaurants, I had to take a couple trips for work, which means dinner out every night. I do get a stipend for this when traveling, which ended up being more than I spent, and I get to keep the difference! The easiest accounting method for this was to just add the stipend to my income, and keep the restaurant expenses in my personal budget. A quick estimation shows I was still over budget by about $20 if I try to filter out the work travel spending.

Everything else is looking pretty good in terms of variance from the budget goal. We can see the effects of consumer price inflation and rising gas prices in my groceries, utilities and gasoline expenditures. Now I’m wondering if anybody out there indexes their budget to inflation! A cool concept, but it probably helps you to save more in real terms every year if you only adjust spending upward as needed in each area.

Budget Update, Net Changes, and Future Goals

Expense	Budgeted Amount	Net Change
Rent/Utilities	1,170.00	+25
Groceries	235.00	+10
Travel	200.00	–
Restaurants	150.00	–
Car/Rental Insurance	100.00	–
Consumer Goods	75.00	+25
Flannelcat	70.00	–
Gasoline	60.00	+10
Student Loans	59.00	–
Misc. Entertainment	50.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Car Maintenance	50.00	–
Clothing/Shoes	50.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Cash Withdrawals	20.00	–
Uncategorized	10.00	+5
Car Payment	0.00	–
Total Monthly Expenses	2,454.00	+75
Net Monthly Income	4,570.00	+570
Free Cash Flow/Month	2,116.00	+495

Here’s the rationale for every value change explained in sequential order:

Utilities in my area are up in price. As far as I can tell we are still using the same amount of utilities, just the price went up, particularly for electricity compared to last year. Not much I can do about that.
Groceries are more expensive thanks to inflation. A $10 per month bump here to follow closely along with the CPI.
Consumer Goods got a bump due to my second budget review in a row blowing out this category. I’ve long struggled with how to represent the occasional, larger purchases with this category, for example like a phone or engagement ring. I’ll be paying close attention to this category going forward to try and figure out the best middle ground.
Uncategorized gets a slight bump, while still being small enough to encourage me to categorize over 99.6% of my expenses into the existing categories.
Net Monthly Income is on the rise, baby! Factoring in my higher paycheck from the promotion I got in November, I’ll be taking home an extra $570 per month on average.

So it looks like we’ve got a 3.2% budget increase, which was far, far more than compensated for by my increase in income. I’m fine with spending a little more, as long as I’m earning much more.

Setting my goals for the first half of 2021, I’d like to:

Stay on or under my new budget of $2,454 per month on average.
See out my Dry January commitment and re-evaluate the place of alcohol in my life and my budget.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the past 6 months:

Account	6 Month Contributions ($)
Cash Savings	$5,328.66
401k	$12,188.56
Pension	$2,456.38
HSA	$450.00
Roth IRA	$0.00
Taxable Brokerage	$6,450.00
Total Saved	$26,873.60

My highest amount saved to date in a budget review! I’m at just over $51,000 total saved this year. Not bad for someone who didn’t even earn six figures until a couple months ago!

Net Worth Check-up


June 30, 2021 Net Worth	$244,621
December 31, 2021 Net Worth	$278,963
6 Month Change	$34,342

Alright, onward and upward! I don’t put too much emphasis on net worth change over such a short time period, as the larger your portfolio grows, it just becomes more a direct function of stock market gains or losses over the period. Which obviously are out of my control, as we’ve already established that index investors on average see superior returns to active investors which clearly makes it the optimal strategy.

Still, we can see that my savings are by far the largest contributor to the growth of my portfolio over time, indicating just how important the ability and discipline to live below your means and stash cash away is on the journey to financial independence.

My Upcoming Self-Experiment: Dry January

Thu, 30 Dec 2021 00:00:00 UTC

I’ve never been a heavy drinker. But for most of my adult life I’ve been a moderate drinker. A couple beers a night some weeknights, maybe three on weekend nights. I’m now 28 and over the past decade I’ve slowly increased my alcohol consumption to the point where I’m getting close to the 15 drinks per week that the CDC defines as heavy drinking for men.

While I’m certainly not “old” yet, I am aging. Sometimes on a special occasion like hanging out with friends or a holiday, I’ll have four or five drinks — and the consequences the next day seem to be getting worse and more prolonged with each passing year. Gone are the days in college and my early 20’s where a quick breakfast was all that I needed to bounce back with a full recovery.

A week ago on Christmas Eve for example, I think I had 4 beers and a glass of wine while celebrating with family. I didn’t get sloppy or embarrass myself or anything. But despite all attempts at sufficient hydration, a nice headache followed me around for most of the following day.

We all know about the outcomes of heavy drinking and alcoholism. But recently I’ve wondered about the long-term effects of moderate, “responsible” drinking. I remember reading and hearing many years ago that moderate alcohol consumption of one to two drinks per day was supposedly healthy for you. It turns out that may just be a common myth from a poorly designed scientific study. Another study which challenged that claim found that moderate drinkers were simply more likely to be of a higher socioeconomic status than non-drinkers or heavy drinkers, and that wealth was the primary driver of these positive health outcomes. When controlling for socioeconomic status, any perceived health benefit of moderate drinking was completely eliminated in men and substantially reduced in women.

What I’m more curious about though is the less easily measurable effects. Not like, did this person get liver or heart disease which are some of the factors the above study looked at to determine health outcomes. But more of the day-to-day quality of life things like, reduction in productivity the following day after having a couple drinks, reduction in exercise performance, brain fog — all claimed effects of moderate alcohol use but ones which are more subjective. So I’ve decided to do this little experiment on myself to try and figure some of that out. And ultimately try to make a decision on what level of alcohol consumption fits into my ideal life.

Where alcohol fits in with FIRE

On the surface this article may seem like it’s out of left field, but I think the connection is pretty relevant.

First and most obviously we’ve got financial benefits to reduced alcohol consumption. During my budget review for the first half of the year I noted that my alcohol consumption was getting too high at an average of $88.15 per month over that six month period. I was successful in reducing this slightly to an average of $72.17 per month over the second half of this year, which will be published in my next budget review coming out in a few days. I still feel that’s a bit high as I rarely drink at bars, so most of this spending is at the liquor store. It’s also not hard to argue that saving an extra $800 per year compounded over decades would end up being quite a bit of money. That’s $10,000 over a decade, and $54,000 over 30 years if the savings were invested at a 5% annual return.

Clearly that sum of money when put in perspective with where I’m at is not going to make or break my retirement plan. But as I’ve experienced myself I think there’s a trend to both slowly drink a bit more over time as your tolerance builds, as well as to increase the quality of the stuff you’re drinking which can work in tandem to raise your monthly alcohol expenditures. So it’s definitely a good thing to be conscious of, and ask yourself if it’s money well spent.

The less obvious connection to FIRE is that of your holistic health picture. Maintaining your physical and mental health is a close second behind financial success to having a long, high quality life. Even if you retire early, you want to maintain your health for as long as possible into old age to maintain your independence. I exercise five times per week and consider myself pretty fit, I’ve got a decent diet, and my mental health is solid. But could I be even better with reduced alcohol consumption?

There’s also kind of this, I guess you’d call it general attitude of self-improvement rooted in stoicism that tends to be present in people that end up in the financial independence movement. Maybe it’s a correlation in personality types, or maybe it’s something with worrying less about money giving you time to focus on other issues. Regardless of the source I think that people who are attracted to optimizing their finances, tend to be attracted to optimization, improvement, and self-discipline in other areas of life as well.

Variables of interest for my self-experiment

Clearly with a sample size of one, this isn’t really an experiment rich in scientific rigor. Many of my observations will be subjective. Still, as an engineer myself I’d like to collect measurable data where practical. Here are some things that I’d like to look at for a before versus after snapshot:

Workout Performance

For a couple of years now I feel like my physical fitness has plateaued. I have maintained the same regular workout and my number of repetitions in each exercise has stayed constant for quite some time. I have recorded my current number of repetitions for each exercise in my routine and will see if I have made any gains by the end of Dry January. Our exercise bike also provides a bunch of metrics on things such as power output so if I can find an easy tool to visualize this over time, it would be interesting to look for any obvious trend changes.

Weight

I’m a healthy weight, but I’ve been very slowly drifting upwards a few pounds every year since college. Another five pounds would put me on the cusp of overweight category by BMI. I’m sure that the extra calories from craft beer are mostly to blame here. I’ve averaged a few data points of my weight over the last few days and we’ll see if not drinking for a month causes me to lose a couple pounds.

General daily feeling

This is where the subjectivity comes in. For example, I’d say that right now I feel like most days I wake up with a slight headache, lay in bed for 20–30 minutes before getting up, and do a bad job focusing at work (especially in the mornings). This is the type of anecdotal evidence that I don’t have hard data for but would still like to consider in the before-and-after picture.

Dry January begins in T-minus 2 days!

I’m excited for this challenge of self-discipline. Though I’ve definitely done a week or two here and there, I don’t think that I’ve gone an entire month without alcohol since graduating college. I think it’s good to question established societal habits, much in the same manner that I question the common American financial behaviors.

Now that I’ve publicly written it down on my blog, there’s no going back and I’m committed. I’ll be writing another post with what I’ve learned and how I plan to structure my drinking habits going forward in early February once this self-experiment has concluded.

The Pandemic-Induced Savings Boom is Officially Over

Tue, 16 Nov 2021 00:00:00 UTC

…to the surprise of absolutely nobody even remotely in touch with the financial lives of average Americans. The Federal Reserve Bank of St. Louis recently released the September 2021 data point in their series tracking personal savings rates. It reveals that Americans saved on average just 7.5% of their gross income two months ago:

We’re now back on par with savings rates from the pre-pandemic period. Which means that the boom in personal savings during the pandemic period is officially over in the worst kind of way ― it indicates that on average, Americans made no strides to adopt permanent changes to their financial lives or reduce their consumerist ways.

Many people got a taste of what it was like to be cash flush with a massive monthly surplus. Both through government stimulus, but also due to forced spending reductions during lockdowns. The latter was essentially a roadmap for how to maintain at least a portion of that higher savings as the world began to open back up. We were all forced to eat out less, go to less bars, and make less shopping trips (meaning less impulse purchases).

Those spikes in the graph clearly correspond to the direct stimulus checks sent by the government. Perhaps the simplest way to filter out the stimulus and get a rough idea of what portion of the pandemic savings boost was due to forced reductions in spending is to look at the data points between the stimulus checks being spent down. And the most common value or mode of these data points appears to be around 13–14%.

So even if we totally discount the stimulus, the average American nearly doubled what they were saving pre-pandemic simply due to a forced reduction in their consumption. This is actually pretty impressive when you consider that everyone still had the ability to funnel infinite money to online shopping sites like Amazon.

Interestingly this appears to have spurred the largest nominal drop in non-housing debt since The Great Recession. Between Q1 and Q2 in 2020, non-housing debt fell by approximately $80 billion:

However, in context that’s really quite small. Divided among 210 million adults in the US, this corresponds to an average of just $381 in non-housing debt reduction per adult. Truly a minor portion of the excess cash that the average household raked in during the pandemic. One could argue that the cash was intended to be spent on essentials, but I would counter that it was not targeted well enough, and many people (including myself) received it who did not truly need it. In those cases it should have followed the normal order for an unexpected windfall: prioritize debt reduction, then emergency funds, then investing.

It’s apparent from the chart how short-lived this debt reduction mentality was. In fact, we’ve recently powered to an all-time high in total household debt, further indicating that the pandemic spurred absolutely no financial behavior changes in the American population at large. Consumerists heroically loaded up on new debt to do their part in “stimulating the economy” with money that they’ve borrowed from their own futures.

Apparently old habits die hard. I remember reading several articles earlier in the pandemic which claimed that these increases in savings and debt reduction would become the new normal. I thought that would be great, but I also had massive doubts at the time. According to a September 2020 study by CIT, 53% of Americans had reported saving more than they usually did over the prior three months. What’s more, 76% of Americans said they were either very likely or somewhat likely to save more each month in the future. That was from a year ago.

What the hell happened? Not only was the supermajority of ambitious future savers proven to be complete liars, but Americans on average lost all the efforts of those who actually did manage to save more. Is the siren song of consumerism really that strong? Is it truly that difficult for people to eschew a product or service today in favor of saving and investing toward tomorrow?

Obviously everyone is free to make their own decisions. But one has to wonder if the proper financial literacy is even there for each and every person to compare the opportunity cost of spending now versus saving and investing. Education may be at the root of the issue. Schools in the US mostly provide no education on the topic, and those seeking to self-educate have to contend with a massive pile of misinformation on the web that they may not have the tools or experience to recognize.

Overall I’m sad to see that the pandemic did not create lasting positive changes in financial habits for the average American citizen. I’m still hopeful that my small blog can help create positive impacts in this area, even if just for a few people.

The Rat Race Career Ladder, FIRE, and Having "Enough"

Tue, 02 Nov 2021 00:00:00 UTC

When I started this blog in 2019, one of my motivating points was that I had reached a net worth of $100k USD at age 25 without ever making a six figure salary. Last month when I wrote “Thoughts of a 28 Year Old Quarter-Millionaire,” that accomplishment too was earned without a six figure salary. It’s time to update my shtick though, because as of last Friday I’ve accepted an internal promotion which will push me just over that milestone. I got about a 10% raise which will bump me to a salary of about $103,000, and bring larger potential annual increases going forward.

I’ve now nearly exactly doubled my starting salary of $56k out of college. Not a bad trajectory in a little over 6 years. Pretty typical progression for an engineer in a high cost area.

Unfortunately, it brings me to a sort of crossroads on the career ladder. I’m now at the highest position I can be at in my organization as a technical worker. In about 5 years, I will start slowing down and topping out in the pay band, and to get a bump into the next one I would need to move into a supervisory role at or before that time. Maybe I could change employers and squeeze out another decent bump while staying as a technical worker. But in my industry, the progression path is clear — if you want to progress your career and compensation past a certain point, a move into middle management is very often necessary.

Anyone motivated to play the rat race game would start gunning for the next rung almost as soon as they got a promotion, positioning themselves to prove to their boss and their boss’s boss that they’ll be ready to take on their boss’s responsibilities in just a couple short years.

Only, I have no desire to supervise people. I don’t care to be the one reporting issues to senior level leadership. I don’t want any of the added stress and responsibilities that come with middle management. For the commensurate salary increase, the trade-off seems laughable, especially for an introvert like myself.

As I calculated in my previous post, I’m ahead of schedule on my goal to retire by age 40. Conservative assumptions had me pegged to reach my inflation-adjusted FIRE goal by 39. And that wasn’t counting my new 10% raise which will allow me to save, invest, and retire even faster since all of that is going to go to added savings rather than increased consumption to pad my lifestyle. A quick back-of-the-envelope calculation shows that my new salary will help me hit this goal by age 38. Another year knocked off!

Where’s the motivation to continue climbing the career ladder? Is it really worthwhile to go any further and do a job that I don’t want to do for years in order to knock another additional year off my early retirement date?

For the average American, who last month saved just 7.5% of their income according to the St. Louis Fed, it must truly feel like a trap. Chase that promotion to get that raise so maybe you can save more and get ahead. Spend more on consumerist stuff to reward yourself for working hard at a stressful job and show off your success. Crap, now your spending is close to your income, better go hunt that next raise…

But it’s possible to break out of the rat race for those with the right combination of discipline, financial knowledge, and income. The biggest piece is to reject consumerism, live frugally, and make sure most of your spending is on needs rather than wants. I don’t care what my friends, family, or random people think that my income is when I drive or walk by them. I’m spending under $30,000 per year, and I couldn’t care less whether people think that’s all I earn. Because I’m living comfortably and thriving, and the reward of that sacrifice — having a $266,000 net worth at age 28 while being on track to retire early — is worth far more to me than the opinions of others or the fleeting dopamine hit from excessive luxury consumption.

The biggest mindset shift needed to break the cycle of the rat race is how you view that potential next raise. Is it more money to spend? Or is it more money to save, either by paying down debt or investing? If the former, you’ll always be stuck on that wheel. If the latter, you’re somewhere along the path to making the “rat race career ladder” game optional.

At a certain point the consideration becomes, is the extra savings worth the extra work and stress? My savings rate is now well over 60% factoring in this new raise. Juicing a couple extra percentage points will not make or break my FIRE plans. And the further along you get on your journey, the larger your portfolio grows, the less time those marginal increases in savings rate will slice off of your early retirement date.

I think I’m at the career level where I’m just going to coast it out for the rest of my time in the work force. Maybe I’ll change my mind in a few years, when I’ve gotten enough experience to potentially climb up. But right now I emphatically believe the added stress and responsibilities of a move into middle management are not worth the marginal financial benefits to me. I think it would take something pretty big to change that.

Intentionally torpedoing one’s own career advancement is not a decision that should be made lightly. But for those pursuing financial independence, the power to make that decision at all is put squarely in your hands.

Thoughts of a 28 Year Old Quarter-Millionaire

Mon, 13 Sep 2021 00:00:00 UTC

When pursuing a long-term goal, what keeps me focused is tracking and celebrating the little milestones along the way. It’s about acknowledging and rewarding your efforts, and putting the rest of the journey in perspective. Last month, I finally hit what I’ve been eyeing as a huge milestone in my path to financial independence and early retirement. We were on vacation for about half of August, and when we got back I realized my net worth had finally ticked over $250k USD. At 28 years old, I am officially a “quarter-millionare.”

I started this journey 6 years ago with a net worth of approximately negative $15,000. I had spent most of my college years reading blogs like Mr. Money Mustache. I knew I wanted to retire early someday, and I had the knowledge that I needed to hit the ground running and start saving and investing as much of my income as I could. When I first started diving into FIRE about a decade ago, I think I had $650k in mind as my early retirement portfolio to support me indefinitely.

Over the following few years, I realized I wanted both a more conservative withdrawal rate to decrease the risk of portfolio failure, as well as a larger budget with more discretionary spending. The relatively spartan lifestyle that I’ve lived in my 20’s probably wasn’t something I wanted to set in stone for the rest of my life. Two years ago, one of my first articles on this blog codified that new plan and helped me arrive at my number of $1M USD. Due to a combination of low spending and high savings during my working years, I postulated that I should be able to quit the workforce forever and live off my portfolio indefinitely once I hit that $1M mark, which I estimated to occur slightly before I turn 40.

When I wrote that article, I realized that 14 years is a long time out to try and plan for. But now we’re two years closer, and my FIRE plan is looking even better. Of course, inflation being what it is, a million bucks two years ago buys less than a million bucks today. Online calculators have informed me that I’ll need $1.068M today to maintain the same purchasing power that I want at retirement. But, it’s clear that I’m now ahead of my projected FIRE target from two years ago:

I used the same assumptions as last time, the main one being a 5% annual real return. Portfolio contributions were pulled from my most recent budget review, where I managed to save about $4k per month on average. These numbers were then plugged into a compound interest calculator, starting with my current portfolio value. I’m well ahead of where I predicted, despite my income being about the same as it was back in 2019 in real terms. This new projection has me hitting my inflation-adjusted $1.068M FIRE target before I turn 39. A year ahead of schedule!

I attribute this to two main factors:

Over the past two years, my money has grown much faster than expected. Recent stock market returns have been much higher than the historical average, which in turn is higher than the 5% real return that I use for a conservative estimate.
I have gotten better at spending less, which in turn means I am saving more despite making about the same salary. In 2019 when I started this blog, I was spending close to $3,200 per month on average. My current budget is around $2,400 per month, so that $800 difference is all savings. Frugality is a powerful tool.

Of course, stock market volatility is a double-edged sword. We could just as easily suffer a major stock market crash in the next couple years which wipes out half of my investments and has my projections looking like I won’t retire until I’m 45. I’ve only ever really invested in a bull market, so I’m not going to confidently declare that I actually get to retire at 39 instead of 40. Rather, every year that I manage to slip this earlier by outperforming my assumptions, I will simply assume is a cushion to be absorbed in some future, inevitable eventual recession and keep me on track for my goal of retiring at 40.

Other than the numbers though, how do I actually feel about this?

I never worry about retirement, because I don’t need to save another dime to get there.

It’s estimated that about 2/3 of Americans are financially unprepared for retirement. And we’re talking about a traditional retirement here, where people roll right from the workforce into collecting Social Security at age 62. Many of my millennial peers facetiously joke about never being able to retire, or having to work until they die. And most of my friends are people who earn good money, $80k per year or more. In most cases they’re perfectly capable of saving, but they make the choice to blow all of their money on consumerist items like luxury cars, frequent extravagant vacations, and ridiculously large homes. Sure, many are saddled with large student loan debts. The issue is that they don’t just start somewhere, anywhere, on the process of buckling down, delaying gratification, and reining in their spending to dig out of the pit of debt and bad decisions.

It’s a self-reinforcing, destructive cycle. I think people almost take solace in how many other people are in the same boat as themselves, and figure something must have to happen to bail them out at the last second. Personally, I don’t trust that politicians will come to my rescue in 4 decades. Don’t get me wrong, there’s some systemic issues in our economy and a decent contingent of low-wage workers that need to spend everything they earn on necessities to get by. In my opinion though, the number of people that do have the capability to save and just don’t is far larger.

I don’t worry about retirement at all though. Thanks to the past work I’ve put in saving and investing, even in the worst case event, I’m still fine to retire at a standard age even if I never save another dime. Taking my current net worth of $253,925 and projecting that forward at 5% annual real returns, by age 62 I would end up with a balance of $1.33 million in today’s dollars. That allows for $53k in annual spending at a 4% withdrawal rate. Probably more than I need, so I don’t need to factor in Social Security since that’s just a bonus.

The above concept is known as “Coast FIRE.” You’ve saved enough that as long as you get a job that cover your living expenses, your investments will compound and grow to support you for a traditional retirement with no additional contributions.

Financial stability breeds flexibility

Six years into a journey of attempting to save and invest at least half of my income, I have options. I could quit my job and go back to school. I could risk some of my capital to try and start a business without going into debt. I could switch to a job that pays less, but is more personally satisfying.

When you have enough money to cover many years of living expenses, that opens doors. I’ve mentioned before that financial independence is not black and white — it’s a spectrum. And somewhere between living paycheck to paycheck, and early retirement, lies an increasing amount of life flexibility simply afforded by having a chunk of money available.

I’ll probably just keep grinding it out in my current career, shooting for my goal to retire by 40. But it’s nice to know there’s options available which are afforded to me due to the financial situation I’ve created for myself.

The $4k Engagement Ring: An Acceptable Indulgence?

Thu, 22 Jul 2021 00:00:00 UTC

In a rather uncharacteristic twist, I recently decided to spend about $4,000 on a custom engagement ring. How does someone who is obsessed with saving money end up spending almost two months of my living expenses on a shiny rock? Was this my least frugal purchase ever, or an acceptable indulgence?

I thought it could be valuable to write an article to justify my rationale, and maybe provide a helpful framework for other people who are approaching this milestone. I’ll try to rank these reasons in order of importance, starting with…

#1: We can easily afford it.

The most important factor of all, as you should never buy something you can’t afford. I am earning just under $100k from my job. But the bigger financial factor weighing in here for me is my net worth was nearing $250k at the time I made the decision. A $4k ring then, represented 1.6% of my assets. In terms of how quickly I am saving money, it would set me back about 5 weeks to replace that amount of my net worth.

The wedding industry would have you think in terms of X months of gross salary. I prefer to look at large, discretionary expenses in terms of cash flow. For example if you make $5k in gross income per month but only save $500 per month, claiming to spend 1 month’s salary on a ring isn’t setting you back one month financially — it’s setting you back 10 months. All of your gross income is never available to spend. It’s only what’s left over after keeping yourself housed and fed that was ever available to save or to spend on discretionary items.

Another angle I was looking at it from was that if we’re committing to getting married and combining finances, at this point it’s not just spending my money, but what will very shortly be our money. Having listened to years and years of blather from me about personal finance and investing, my girlfriend has a net worth which is rapidly approaching my own. From the perspective of our collective assets, the $4k ring represents less than 1% of our combined net worth.

So here’s the Frugal Flannel rule of engagement ring shopping, if she really wants a fancy ring. No more than 1–2% of your combined assets as a couple, or no more than one month of total savings between the two of you. I added the latter one in for younger couples who may have high incomes, but haven’t had time to build assets yet. You won’t be hearing these rules from the ring salesperson. If you’re both on board with spending less, more power to you. It’s a depreciating asset that will lose 50% or more of its value instantly.

#2: We wanted to be 100% sure it was ethically sourced.

After doing some research about conflict-free and ethically sourced gemstones, numerous pieces of evidence indicated that these terms may just be a form of marketing and little more than a lie. I saw sellers using terms such as “from a family-owned mine” to justify why their sapphires from some Tanzanian mine were ethical. Words like that may sound appealing at first glance but truly mean nothing. How do we know the working conditions in the mine? How do we know if they are employing child labor? How can we trust anything that we are told from salespeople in an industry historically rife with corruption, monopolies, and conflicts of interest, when none of the information seems personally verifiable?

At the end of the day, I concluded that there were only two ways to guarantee a gemstone was ethically sourced:

It was made in a lab.
It was mined in a developed country, with a history of acceptably strong labor and safety laws being enforced on the local mining industry.

My girlfriend ended up wanting a sapphire, and the lab sapphires just weren’t as impressive when it came to matching the shade that she wanted. We settled on a natural Montana sapphire to ensure that she got what she wanted and that it was from a region with strong regulations and a traceable supply chain.

#3: After putting up with several years of scrimping early on, she deserves something a bit nicer.

For several years after college we lived a pretty bare bones lifestyle in order to pay down debt and start building up a base of investments. Six years out from college, we’re at the point where we’re nearly debt-free, our salaries have doubled, and we both have a healthy amount of assets that are starting to show early evidence of compound growth. Our financial situation right now is mostly due to that early work and sacrificing to live below our means. Cashing in some of that delayed gratification for something that she really wants and will wear every day, I think is reasonable and a well-deserved thanks for the early financial sacrifices.

#4: We’re not going to do a big wedding.

We are both on the same page that we’re not interested in the massive cost or fanfare of a traditional wedding. Because we’ve agreed that we won’t have some crazy cost for a wedding ceremony shortly down the road, I’m happy to spend a bit more on the ring.

The final verdict

So, my least frugal purchase ever, or an acceptable indulgence? Both, I think. I could have spent a fraction of what I did, and the ring would have served the same purpose. It seems like with jewelry, there’s huge diminishing returns for every extra bit you spend.

On the other hand, purchases like these have intangible emotional components, and part of committing to a relationship is recognizing that your partner likely has different areas that they value spending in, and you need to come to an agreement in these areas where you differ, but in a manner which still helps to meet your collective financial goals.

Budget Review for the First Half of 2021

Thu, 01 Jul 2021 00:00:00 UTC

In a big win for continuous data collection, I came back to the blog just in time to do my twice-annual spending review and financial health checkup!

To start, let’s rehash the goals I set for myself at the year-end 2020 review:

Hit my down payment goal of $30k cash set aside, which is a goal that has been eating the brunt of my free cash flow for roughly a year now.
Start scaling back into fully maxing out my 401k contributions by the time I hit my down payment goal.
Stay on or under my new budget of $2,379 per month on average.

Goal number one was easily met by mid-February, by which point in the year I had managed to add approximately $7,500 to my down payment fund to achieve my $30k goal. As I mentioned in my previous post, we’ve mostly backed off from the home search for now after losing several offers. It’s not possible to make a rational financial decision on such a large purchase when you’re competing against a dozen totally irrational FOMO buyers. I’ve been watching local real estate data closely: inventory is on the rise, and we’re starting to see price cuts roll in on some of the most laughably overpriced listings with moderate drawbacks (which a few months ago, would have sold anyway for $30-50k over asking). If that trend continues for another couple weeks we may dip our toes into the market again. Nevertheless we’ve got a decent cash stockpile of $30k each to throw at a house when that time does come.

My second goal was almost a gimme, but it was a good reminder that when you’re not making an insane salary, different financial goals require trade-offs. It wasn’t really possible for me to save for a down payment at a reasonable rate and max out my 401k at the same time, so I had to reduce my 401k contribution for most of 2020. I didn’t really end up “scaling in” here and I’m not sure why I wrote that out in the goal. I just immediately went from contributing 5% of my paycheck to the biweekly amount required to hit the $19.5k annual maximum.

Bonus goal: I didn’t think I would manage it when I was setting these goals six months ago, but I was able to max out my Roth IRA contributions for 2021 already which comes to $6k invested in that account. An additional two stimulus checks and an unexpected bonus from work certainly helped here.

And now for the third goal, the ever-present budgeting goal! What kind of personal finance blogger would I be, preaching to spend less and save more, if I didn’t try to do so myself and then share those numbers? After adjusting my budget at the last review, I ended up with a goal of spending $2,379 per month or less. So how did I do? Let’s take a look at my average monthly spending over the past six months:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,145.00	1,156.72
Consumer Goods	50.00	876.72
Groceries	225.00	223.76
Travel	200.00	200.00
Restaurants	150.00	117.96
Alcohol/Bars	50.00	88.15
Misc. Entertainment	50.00	87.75
Car/Rental Insurance	100.00	86.87
Flannelcat	70.00	82.65
Uncategorized	5.00	36.97
Misc. Taxes	35.00	30.07
Gasoline	50.00	28.24
Coffee/Tea	50.00	20.96
Phone	20.00	20.00
Cash Withdrawals	20.00	16.67
Car Maintenance	50.00	0.48
Car Payment	0.00	0.00
Clothing/Shoes	50.00	0.00
Student Loans	59.00	0.00
Total Monthly Expenses	2,379.00	3,073.97
Net Monthly Income	4,770.05	4,992.55
Free Cash Flow/Month	2,391.05	1,918.58

Whoops, not even close! I knew this would happen though. If you’ve read my last post you’d know that we’ve been in the engagement ring shopping process. For various reasons worthy of its own post, I ended up spending around $4k on a custom engagement ring. So obviously the budget goal was blown out. Sorry, “Consumer Goods” category. It’s weird, it’s a lot of money and also… not a lot of money at this stage of the journey. More thoughts and reasoning on my decisions here in a future post.

Just because I’m curious about the numbers, if we ignore the ring I would have spent $2,443.13 per month on average over the past 6 months. Slightly over, but within striking distance of my budget goal of $2,379 per month. This indicates to me that although there was slight overages and under-spending in many categories across the board, these mostly balanced out with each other, minus the ring of course.

Other categories with the biggest overages are Alcohol/Bars, Misc. Entertainment, and Uncategorized. For the first one, maybe I’ve been drinking a bit too much to both get through and celebrate the end of the pandemic. I’ll blame the case of beer I bought at Treehouse Brewery (expensive but worth it!) but probably an area I should be cutting back on for long-term health reasons more so than financials. For Misc. Entertainment, as I already revealed in my last post I bought a guitar, so really a one-off here. I generally try to keep Uncategorized pretty minuscule; I made a charitable donation and didn’t know where else to put it and didn’t think it should be a recurring category, so that accounts for most of that category.

Budget Update, Net Changes, and Future Goals

Expense	Budgeted Amount	Net Change
Rent/Utilities	1,145.00	–
Groceries	225.00	–
Travel	200.00	–
Restaurants	150.00	–
Car/Rental Insurance	100.00	–
Flannelcat	70.00	–
Student Loans	59.00	–
Misc. Entertainment	50.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Gasoline	50.00	–
Car Maintenance	50.00	–
Clothing/Shoes	50.00	–
Consumer Goods	50.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Cash Withdrawals	20.00	–
Uncategorized	5.00	–
Car Payment	0.00	–
Total Monthly Expenses	2,379.00	–
Net Monthly Income	4,000.00	-770.05
Free Cash Flow/Month	1,621.00	-770.05

In the end I decided to make no real changes to my categories this time around. I think this is a fine budget, and my recent spending was more indicative of a couple very consciously made one-off expenses. The one thing I did change was to reduce my expected net income (and by extension, free cash flow) since I went back to maxing out my 401k, I’ll be expecting my net income to drop commensurately.

In terms of tweaking my spending in any particular categories, as I alluded to earlier I’d like to bring my spending on alcohol back in line with the budget of $50 per month.

Setting my goals for the second half of the year, I’d like to:

Make another attempt to meet the goal that I failed this time around of staying on or under my budget of $2,379 per month.

Honestly, that’s all I can think of this time around for goals! Things such as “max out my 401k” just feels like a gimme at this point, and stuff like “continue to save as much as reasonably possible” is no longer a goal at this stage of the journey, but rather just something that I feel is expected of me. The most important part of these twice annual reviews is making sure that I don’t subconsciously grow comfortable with slowly slipping my spending higher over time.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the period.

Account	6 Month Contributions ($)
Cash Savings	$2,511.50
401k	$10,318.88
Pension	$2,016.44
HSA	$450.00
Roth IRA	$6,000.00
Taxable Brokerage	$3,000.00
Total Saved	$24,296.82

Nice! I still managed to save more in total than the last budget review, despite my massive engagement ring set purchase. I’m very happy with this number as it’s over 50% of my gross income over the period. Saving 50 cents of each pre-tax dollar earned is certainly a tipping point in accelerating my journey towards early retirement.

Net Worth Check-up


December 31 2020 Net Worth	$200,141
June 30 2021 Net Worth	$244,621
6 Month Change	$44,480

Who doesn’t love to see their net worth increase by 22% in just 6 months? Most interesting to me is that despite the stock market’s spectacular performance of 12% returns in just 6 months, my savings still represented only about half of my net worth growth over the period. Compound interest has certainly shown its power already, but I am still a long way from the point we all aspire to reach, where compounding takes over as the main engine of portfolio growth.

And We're Back Again!

Fri, 25 Jun 2021 00:00:00 UTC

My second unannounced hiatus from the blog has concluded, and over 5 months after my last activity here I’m dusting off the Frugal Flannel servers. Life has been a bit busier than the last time I disappeared for half a year. One of the first things I did upon getting the desire to start this blog back up was to go read the post I made last time I disappeared. I was happy to see that all my reasons for recommitting to the project back then still felt right, but also disappointed in my own lack of discipline to uphold those commitments.

Let’s reverse the order this time though. I’d like to start by catching you up with what I’ve been up to in 2021. Then I’d like to take another look at examining my own mentality as it relates to running a blog — my motivations, self-discipline (or lack thereof), and goals — which also apply to other pursuits and projects in life.

Jake’s 2021 to date

In January I bought myself a guitar. I was one of those teenagers who had a guitar and always dreamed of being able to play it. But I never got anywhere despite taking lessons, because I never set aside time to practice. I’m still not commuting to work which saves an hour of time per day, so I figured I had no excuse to keep pushing it off as something I’ll do “later” or once I retire early and have all the time in the world. So I bought a guitar, a Yamaha FG830 acoustic, and I’ve been practicing an hour per day, at least 5 days per week. It’s been 5 months so I’m obviously no pro, but I’m happily in the advanced beginner stage where I can play a variety of chords and assemble them into songs that people recognize. Huge shout out to Justin Sandercoe who offers what must be hundreds of free lessons over at www.justinguitar.com.

We’ve also spent a lot of time looking at houses this year. Several hours per week in total spent driving to open houses and showings, waiting in line, doing research on comparable properties if we wanted to put an offer in, and working with our agent to do so. I think we put in four offers in total, most of which were over asking price and offering appraisal gap coverage, though carefully researched and never waiving our inspection contingency. We were blown out by insane offers each and every time. We’re actually taking a step back from trying to buy a house until something fundamentally changes in the market. These winning bidders don’t seem to care about pricing in factors like proximity to highways or flood zones. It’s just been too much time and emotional investment, and there’s so many irrational FOMO buyers out there that it feels nonsensical to even bother if you’re not going to join them and do something stupid.

In possibly the most exciting news that occurred, we’ve started the engagement ring shopping process. I selected the stone just last week, and we’ve still got to design her setting with the jeweler. I’m going to end up spending quite a bit on this, and it will certainly go down as my biggest expense of 2021. Frugal or not? Certainly a question worthy of its own article in the coming weeks.

Financially I’m doing excellently. I began 2021 with a net worth of $200k, and today it sits at $241k. I’m continuing to save and invest as per the plans I’ve previously laid out on the blog, and a 12% YTD stock market gain certainly helps. I’m a ways off from FIRE, but it feels nice to have worked my way to the point where I could leave my job and not have to worry about money for many years. A quarter million net worth is coming up fast and feels like a huge milestone.

I wish I could say that I’ve been too busy with life to write for the blog, as that’s certainly a valid excuse. Unfortunately I think that’s only half the story, and for the other half I’ve got to take a look inward.

Why I stopped blogging

Shortly before I stopped posting here, I broke my “sobriety” with posting on Reddit. My account on the site had been dormant since May 2020, when I ended my first hiatus from Frugal Flannel. In December 2020, I re-engaged with several of the finance, investing, and FIRE boards that I used to hang out on. I started off slowly at first, and it didn’t take more than a couple of weeks before I was back to my old habits, probably spending an average of over an hour per day on those sites.

Social media (and I include Reddit in this definition) can be an insidious time suck. I feel like my usage of sites like that has reached problematic levels. And despite me recognizing over a year ago that the value of these sites has declined to the point where I personally feel that the negatives outweigh the positives, I still went back. There’s quite a bit of research out there on social media addiction and how these platforms take advantage of our psychology to both hold our attention and keep us coming back for more. Some aspects of Reddit that I feel really draw me in is the gamification aspect with the voting system (other users upvoting your comments makes you feel like your contribution was valuable), and the infinite scrolling: there’s really no end to your feed, so you will be served content for as long as you want to stay on the platform.

They’re a business of course, and eyeballs on the page equals more revenue for them. But it doesn’t take long for the time that we spent on these platforms to add up to the point where it’s pushing other activities that we’d rather be doing out of our lives, but which require more activation energy than opening an app on your phone. 15 minutes spent on Reddit before getting out of bed. 10 minutes here or there throughout the day just three times. Another 15 minutes before bed. You’ve lost an hour per day to one social media platform. And it’s not just one hour out of a 24 hour day. If you work full-time, sleep, eat, shower, commute, it’s more like one hour out of your 3–6 hours of free time each weekday. If you drastically increase your usage of social media on weekends like I do, maybe you’ve lost 20% of your valuable weekend waking hours to these platforms.

And honestly, I felt happier and more satisfied with my life during the period that I wasn’t on Reddit or other forums at all. But I still keep going back for more, like a self-aware addict to mindless digital consumption and shallow pseudo-anonymous interactions with other users.

I guess my cognitive dissonance here is that I feel like I’m not receiving a fair exchange of value from these platforms for the time spent on them, but I still feel this compulsion to continue using them once I get involved. I don’t feel like I’m learning, growing, or developing from my time spent reading and commenting on Reddit like I do after finishing my guitar practice, or writing a good article for this site. I’m not one of those productivity-obsessed freaks, so I’ve got no issue with downtime or entertainment. But I now realize that I never close social media feeling satisfyingly entertained like I do after listening to one of my favorite podcasts or watching a good television show. It’s all superficial, bite-sized content, distilled down to the lowest common denominator to capture your attention for a few seconds before you scroll to the next one. Utterly forgettable, rinse and repeat.

So the short and truthful answer to why I stopped blogging: lack of self-discipline.

What I’m doing about my Reddit addiction

Last time I committed to spending less time on Reddit and other forums, I just walked away. That was that, for about 7 months. The downside of that method was it made it quite easy to go back, and I was surprised at just how quickly I fell back into old habits once I re-engaged with the site.

This time I’m going to take a scorched earth approach. I want to quit Reddit for good. I’d like to break the mental link between wanting to procrastinate another task, and picking up my phone or opening a new tab on my desktop and navigating right to Reddit. So I deleted my account. I can no longer comment, vote on other users’ content, or even subscribe to boards to create my own custom feed. My years worth of comment contributions and meaningless “karma” points are all gone.

I will admit there is some useful content buried on Reddit. Particularly when you’re trying to research a product or troubleshoot something, the Reddit pages that come up in search results can be treasure troves of first-hand experiences and solutions. That use case is the difference between using the site as a tool versus a distraction, so I want to leave that open.

I found a nifty little browser extension called LeechBlock, which blocks any sites that you specify. Either fully preventing the site from loading, or with a countdown delay before you can access the site. I found the latter to fit my use case and I’ve set it up with a 30 second delay. This will still allow me to access Reddit pages for research or troubleshooting fairly easily, but give me time to realize what I’m doing and redirect my attention if I mindlessly navigate to the site. I’ve got LeechBlock for Firefox installed on all of my devices, so here’s to reclaiming my time from social media!

Why I’m back to the blog, again (and hopefully for good!)

As I’ve already noted, after a review of my reasons for recommitting to this project following my last hiatus (which in turn echoed my reasons for starting Frugal Flannel in the first place) I’ve found that they’re all still valid. Enjoyment of the art of writing. Ownership of my own content, on my own platform. Creating the type of content that I want to see in the financial independence and early retirement niche.

Forums and social media may feel like they fulfill the desire to write, but they don’t completely satisfy it. If you submit effortful content to Reddit, you’re working for free for their platform and earning them advertising revenue. And your ideas, thoughts, or advice are often not judged on their own merit, but rather by how well they conform to the existing views of the community in which you’ve shared them.

Reading articles and posts on small, independent sites seems like a throwback to the early days of the web, before everything became so loud and commercialized. But more importantly, writing for a small, independent site helps keep that portion of the web alive. I can write about what I want to write about; what I think you, or any of the other few hundred people that stumble onto this site each month will find helpful or valuable in some way. While making some beer money eventually would be nice, that was never the primary motivator here. Web hosting is cheap enough these days that I don’t mind floating the cost out of my own pocket.

This website is my own little zen corner of the internet. It’s the kind of thing I need more of in my life. It’s one of those activities that requires a bit more effort than the alternatives, but is many times more satisfying and rewarding in the end.

Budget Review for the Second Half of 2020

Sat, 09 Jan 2021 00:00:00 UTC

One thing is for sure, 2020 will be a memorable year! Now that we’re putting it in the rearview mirror, it’s time for my twice-annual spending review and financial health checkup!

To rehash the goals I set for myself at the mid-2020 review:

Continue setting aside as much cash as possible into a savings account to put towards my down payment.
Max out my Roth IRA (hadn’t gotten around to contributing anything yet for the year at that time).
Under-spend a little bit here and a little bit there across the board, hopefully coming in slightly under budget just like we did last time!

I’d call goal number one a success, as I added over $8,000 to my down payment fund over the past six months. This could’ve been substantially higher, but my next $6,000 of cashflow went to maxing out my Roth IRA limit for the year. Which means that goal number two was also knocked out of the park! I thought those two paths were a nice compromise between saving for current wants (a house) versus investing for retirement to hit my FIRE goals.

Unfortunately I wasn’t batting perfectly this time, since I did not accomplish my final goal to spend under budget. I missed by an inch! Let’s get into the review and see what happened.

There’s just one small change to my budget from the format I presented in my last review. The only thing I’ve done is change the category “Online Shopping” to be called “Consumer Goods” instead. Way back in July of 2019 when I created that category, it was mostly comprised of frivolous spending on Amazon. At the time I canceled my Prime membership to help curb that, and to this day I’m ordering almost nothing from Amazon, preferring to buy local or at least order directly from manufacturers so they get to avoid paying a cut to Amazon. Anyway this is mostly a change for semantics so that if I buy the same products in person that I used to order online, I have somewhere that feels fair to put it.

I had budgeted for $2,864 in monthly spending back in July. So how did I do? Here’s my average monthly spending over the past six months:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,130.00	1,143.72
Car Payment	525.00	436.24
Car Maintenance	50.00	253.17
Groceries	200.00	215.28
Travel	200.00	200.00
Consumer Goods	50.00	178.48
Restaurants	150.00	101.08
Car/Rental Insurance	100.00	88.81
Misc. Entertainment	50.00	53.25
Flannelcat	70.00	46.18
Coffee/Tea	50.00	44.56
Alcohol/Bars	50.00	36.76
Gasoline	50.00	30.74
Phone	20.00	20.00
Uncategorized	5.00	14.96
Misc. Taxes	35.00	8.33
Clothing/Shoes	50.00	7.50
Student Loans	59.00	0.00
Cash Withdrawals	20.00	0.00
Total Monthly Expenses	2,864.00	2,879.06
Net Monthly Income	4,634.50	5,288.97
Free Cash Flow/Month	1,770.50	2,409.91

So close! I went over budget by an average of just $15.06 per month! That’s okay though, we were within half a percentage point of error. It’s not a huge win, but it’s still a win.

In fact I know exactly what caused this; just two large (but not totally unexpected) expenses.

The first was a big maintenance bill of $1,500 on my trusty Prius. This was all wear items and preventative maintenance, so she’s still running solidly and hopefully will for years to come. After five years and 160,000 miles it was about time to change out nearly every fluid in my car. Us hybrid folks have the pleasure of needing a coolant system not just for the engine, but for the inverter as well. That balances out with the fact that this also coincided with my first brake job (and probably the only one for the life of the vehicle) thanks to regenerative braking. I’m certainly not going to complain about getting 160k miles out of a pair of brake pads. Like I said, this bill was large but not unexpected, since I regularly monitor my car’s wear items and maintenance schedule.

The second large expense was a deposit on a new couch, which blew out the consumer goods category in my budget. Unfortunately the crappy discount furniture store couch that we bought after college just isn’t cutting it anymore. It’s degraded to the point where it’s a saggy, uncomfortable mess. We were trying to hold out until we bought a house to get a new couch, but given the crazy state of the housing market it’s looking like we’ll be renting for at least another year. The couch is our consolation prize… might as well make it comfortable here!

Budget Update, Net Changes, and Future Goals

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,145.00	+15
Groceries	225.00	+25
Travel	200.00	–
Restaurants	150.00	–
Car/Rental Insurance	100.00	–
Flannelcat	70.00	–
Student Loans	59.00	–
Misc. Entertainment	50.00	–
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Gasoline	50.00	–
Car Maintenance	50.00	–
Clothing/Shoes	50.00	–
Consumer Goods	50.00	–
Misc. Taxes	35.00	–
Phone	20.00	–
Cash Withdrawals	20.00	–
Uncategorized	5.00	–
Car Payment	0.00	-525
Total Monthly Expenses	2,379.00	-485
Net Monthly Income	4,770.05	+135.5
Free Cash Flow/Month	2,391.05	+620.5

Here’s the rationale for every value change explained in sequential order:

Spending on utilities is up a tad since we’ve both been working from home nearly full-time.
After two budget reviews in a row spending over on groceries, I think it’s just time to increase the budget. I will never feel bad about spending a reasonable amount of money on quality ingredients — nearly any meal cooked at home is cheaper than eating out!
Those who have been following the blog will recall that I recently paid off my car, which represents an absolutely huge cost savings going forward.

I’m pretty excited about the prospect of sticking to this new budget, which is a whole 17% lower than my previous spending. This just goes to show the power of getting out of debt, not having a car payment, and living below your means. My journey to financial independence and early retirement by age 40 is accelerating since I’ll now be able to save and invest an additional $6k each year.

Once again, I’m pretty happy with where my budget line items are at right now, so I’m not going to set any goals to reduce specific categories. I think these figures are still reasonable after factoring in the expected infrequency of the two large expenses that I already addressed.

Setting my goals for the first half of 2021, I’d like to:

Hit my down payment goal of $30k cash set aside, which is a goal that has been eating the brunt of my free cash flow for roughly a year now.
Start scaling back into fully maxing out my 401k contributions by the time I hit my down payment goal.
Stay on or under my new budget of $2,379 per month on average.

Savings Check-up

Let’s take a look at my total cash inflows to savings and investment accounts over the period.

Account	6 Month Contributions ($)
Cash Savings	8,459.56
401k	4,540.64
Pension	1,844.16
HSA	450.00
Roth IRA	6,000.00
Taxable Brokerage	0.00
Total Saved	21,294.36

Very happy with my work here. I managed to save over $21k during the past six months.

Adding in my savings results from the July review, I’ve managed to sock away over $43k for the year. Not bad for someone that doesn’t even make six figures!

Net Worth Check-up


June 30 2020 Net Worth	$152,718
December 31 2020 Net Worth	$200,141
6 Month Change	$47,423

First of all, let me just brag about being (barely) a two-hundred-thousand-aire. I honestly did not expect to hit that milestone so soon (and certainly not before the end of 2020).

Of course, the stock market has been doing great since the March dip, and market returns boosted my net worth by more than my savings did over this period. This was an unexpected, but obviously not unwelcome performance.

It’s just crazy to me that 5.5 years ago I had a net worth of about negative $15,000. And now I’m approaching the point where compound interest is doing some heavy lifting in my investment portfolio. I’m excited yet cautious, and ready to stay the course with my long-term strategy no matter what happens.

My Monthly Financial Ritual: 15 Minutes to Build Wealth

Sat, 12 Dec 2020 00:00:00 UTC

There’s been a big trend in the personal finance community the past few years towards fully automating your finances. Many people seem to think being as hands-off as possible when it comes to your money is the best way to go. I really don’t think that’s true — I’ve seen firsthand the amount of slippage in my budget when I was lax with checking in on it regularly. Likewise, I’ve seen an immense benefit since I started this blog a year and a half ago and began paying attention to my finances on a monthly basis.

That’s not to say you need to spend as much time thinking about money as a personal finance blogger like myself. Most things in life are about balance. It’s not good to pay zero mind to your finances, and it’s also not healthy to spend all of your time thinking about money and FIRE. The good news is, taking care of my essential personal finance tasks only costs me 15 minutes per month.

Obviously I’m ignoring all the other time I spend on this topic, like writing for this blog or reading to expand my knowledge base (and if you’re a beginner, you’ve got dozens of hours of reading, planning, and tweaking ahead of you). But the fact that now that I’ve got my plan laid out to retire by age 40, the essential tasks to keep on track only costing 15 minutes of my time each month means that I have no excuse not to find that time, even during life’s busiest periods.

Before I share my monthly ritual though, I want to set the groundwork for how and why I’ve settled on this system after many years of managing my finances.

The importance of planning, structure, and habit

Some people who have taken business classes or seminars may recognize the Deming cycle, or PDCA (Plan-Do-Check-Act) chart. This is an iterative management method used for continuous improvement of a process. This is the perfect analogy for how we should treat our personal finances!

The PDCA method obviously consists of the four steps in its name. But it’s iterative, meaning it’s meant to be repeated over and over, making further improvements to your process each time. To quickly explain all the steps involved:

Plan: Establish goals, and actions required to meet those goals.

Do: Implement the actions from the previous step.

Check: Analyze data and outcomes to quantify the effect that your actions had.

Act: Make process changes based on what you learned. If the change did not work, repeat the cycle with a different plan. Implement changes if they had the desired effect, then plan new improvements and repeat the cycle.

To give a simple example of applying the PDCA method to your finances, you could plan to cut your restaurant spending by limiting the amount of times you eat out to once per week. After implementing that action, you check your spending at the end of the next month. If your restaurant spending was not reduced enough, develop a new plan to meet that goal. Or if you’re happy with the results, keep the change, then create a plan of action for a goal to reduce your spending in other areas.

Following a process like this is important because it provides a structure for continuous improvement. And without seeking improvement, we risk stagnation or even regression.

There’s all sorts of research out there about how long it takes to form new habits. Some sources are claiming three weeks, some say two months, but those are for actions performed daily. So that would be the “Act” step, or the everyday decisions ensuring our actions are in line with our plan. Planning daily seems rather excessive, and if you can guess from the article title, I like to plan monthly. I’m not sure how long it takes to form a habit out of a monthly action and it’s probably different for all of us, but turning managing your finances into a recurring habit (rather than a chore or a neglected afterthought) should be the ultimate goal here.

It makes sense that in today’s busy world, one would be tempted to automate this entire monthly process to save as much of your precious personal time and mental energy as possible. But I’m here to tell you I’ve tried that, and it’s probably not the way to go.

A warning against “over-automating” your finances

First, let me say that I love automation for several things. 401k deductions coming straight out of my paycheck. Paying bills without having to log into ten different websites each month. It’s great for those mindless actions.

But I’ve heard a lot of people claim that they don’t need to follow a strict budget, because they can keep their spending in line mentally. Some people may genuinely be able to do this, but I suspect that many who claim to are not as on track with their budget as they think they are. Going back to our PDCA cycle, this is the equivalent of starting at step one to “Plan” and then never doing any of the other steps or iterating over the cycle in search of continuous improvements.

Such people might be like me, where I initially set a half-baked budget missing several line items, then failed to hold myself accountable or update my budget for several years. I thought I could be one of the “mental budgeters” too. But last August when I sought a more effective way to set a budget, I learned that I was actually spending over $800 per month more than my budget would have suggested. Clearly I wasn’t so great at it — my budget wasn’t realistic from the start, but I also believe trying to mentally track my spending allowed it to slowly creep up over time.

The good news is that a year and a half later, thanks to regular monthly budget check-ups, my spending is significantly lower. I was still able to save a bunch of money during my mental budgeting phase, so it didn’t totally blow out my FIRE plans. But quantifying the impact to my potential early retirement date by squeezing an extra few percent into my savings rate, why wouldn’t I trade off some blatantly frivolous spending for a faster timeline to early retirement?

Sure, there’s a point where your spending is as bare-bones as you’d like it to be, and you don’t see any areas to trim more fat in the budget. But that doesn’t mean you should stop monitoring your spending regularly. Unless you’re taking the lazy route of not caring what age you retire at, 15 minutes per month is a small price to pay to ensure you’re on track. Small amounts of creep in your spending could compound to years of slip in your early retirement date!

My 15 minute monthly ritual

Now that I’ve gone through why I think you need to review your finances regularly, let’s get to the how — how can we do this both efficiently and effectively?

My biggest time saver is using a financial aggregator service like Mint or Personal Capital. I’m not going to shill for either of them; Mint has better budgeting tools and Personal Capital has better investment monitoring tools. If you’re wary of linking all of your financial accounts to these services, you can leave off investment accounts and just add credit cards and any checking accounts you pay bills from. You’ll still be able to summarize your spending, but they won’t get a complete picture of your financial life or any clue what your net worth is.

Around the third day of each month (to give any pending credit card transactions from the end of last month time to settle and show up) it’s time for my monthly check-up. The first thing I do is log into Personal Capital, head on over to the Budgeting tab, and switch the sort range to “Last Month.” I then scroll through each transaction that occurred over the month and ensure they’re all categorized properly.

Personal Capital budgeting tool summary window

Now confident in the accuracy of my categories, I copy the total spending in each category over into a spreadsheet, adjusting for any split expenses like rent and utilities. I do the same for my monthly income from the Cash Flow tab of Personal Capital. I have a page in my spreadsheet called “Historical Expenses” which is just a copy of my budget where I add new columns for each month of data. I also note any cash transactions in here shortly after they occur so I don’t forget about them later in the month.

Example of my spreadsheet for tracking historical monthly expenses

Now that I’ve got my entire month of expenses laid out before me, this is where our PDCA chart from earlier comes in. Here’s a few questions I ask myself to trigger any potential improvement plans for next month:

Am I happy with my overall spending?
If I went over budget, was it justified?
Was my spending in each category reasonable?
Do I need to cut back on spending in any particular area?

Next I grab my net worth from Personal Capital on the last day of the previous month, and toss it into a different page of my spreadsheet so I can track net worth growth over time. That’s the same net worth data you can find on the My Finances page of the blog.

And as a very last step, I take my free cash flow for the month and transfer that all off to various accounts, ensuring that I both put my cash to work for me, and my emergency fund always stays at 6 months worth of expenses. Usually the first destination is my Roth IRA, and once that’s filled up to the yearly maximum, my taxable investment account at Vanguard. This year I’ve been socking away cash for a down payment on a house, so that’s been kind of a temporary re-allocation of my cash flow until I hit my goal amount.

Everyone can find 15 minutes each month to master their finances

I hope I’ve made a convincing argument for why paying regular attention to your finances is the key to building a strong foundation on the path to FIRE. Whether you’re just starting out or you’ve been pursuing FIRE for years, this really isn’t an exercise you should try to waive away or automate. Never forget that small, marginal increases in your savings rate can compound into huge sums of money for your future self. And the fact that you can do this entire process in about 15 minutes per month means there’s really no excuse.

If you haven’t laid out a budget already or started setting up a financial spreadsheet, you’ll have to invest a couple hours up front to do so. And if you need some help with that, you can even read about my method for the most effective way to set a budget. But once you make that one-time investment and get your process in place, every month after is super quick. Personally, I feel that 15 minutes monthly is a small ask for the thousands of dollars I’ve saved this year alone just by cultivating a habit to pay regular attention to my money.

I also do a more in-depth budget review post on the blog twice annually, but a lot of that is just a summary of all the small decisions I’ve made during my monthly reviews over that period, posted for accountability and financial transparency. My advice is to start with a monthly review as outlined above, and as long as you’re honest with reporting your spending and committing to your goals each month, 15 minutes per month is probably all you need.

Don't Fall for Home Ownership FOMO During the Pandemic

Sun, 22 Nov 2020 00:00:00 UTC

Anyone who is searching for a house, knows somebody who is, or even reads financial news probably knows that the current state of the real estate market is absolutely bonkers. Home prices in my area are up over 14% since the start of the pandemic. That’s right, a house that sold for $440k before March 2020 would now be expected to sell for over $500k just eight months later. It’s a similar (or even crazier) story across many regions of the US and Canada, and I’d imagine other countries as well.

Record low inventory, record low interest rates, and peoples’ desire for more space while working from home have created a perfect storm to push housing prices to astronomical levels. Anyone who thought homes were overpriced before COVID-19 likely had their head sent spinning by the surge in prices. Potential buyers who were teetering on the edge of affordability are now looking at what seems to be an insurmountable financial cliff.

For a lot of Americans, home ownership is a big deal. And as some watch the dream slip away in real time while others now find themselves just on the new edge of affordability, it generates some very pressing concerns. One specific such emotion is known as FOMO, or Fear of Missing Out. It’s a type of anxiety caused by the knowledge that one is currently not experiencing some event, or may never experience it in the future.

It’s easy to see how those shopping for their first home, or hoping to do so in the future could be experiencing FOMO right now. Here’s just a few paraphrased examples of things that I’ve actually heard over the past few months which perfectly capture that anxiety:

“Buy now while you can afford it, or get priced out forever!”

“Buy while interest rates are low, you can afford so much more house and rates are only going to go up!”

“Renting is throwing money away, you need to buy a house so you can start building equity!”

All of these statements are either exaggerated or completely false. We’ll come back to a couple of those later. For now, let’s consider the sources. These were either direct quotes from real estate agents, the media, or individual home buyers/owners (who are likely just parroting what they heard from the prior two sources).

What many people fail to consider is that real estate agents are salespeople first and foremost. Most everyone seems to have a healthy distrust of car salesmen. I don’t see why this isn’t extended to real estate agents. They’re paid on a commission that’s typically a percentage of the sale, so of course they have a vested interest in trying to pump the housing market. Unless the agent you’re talking to is a highly trusted friend or family member, give their words no more credence than you would provide to a car dealership.

Of course, the major consequence of falling for this particular type of FOMO is making a regrettable decision; to eschew rational decision making and fall victim to making a choice rooted in emotion. You might feel pressured to buy a house that’s not “the one”, or a house in a cheaper area with a much worse commute, or a house that’s way over budget. And you might do so because you’re afraid if you don’t buy now you won’t be able to afford any house at all in the future, or you’re simply fatigued after searching for many months with no results.

As a potential first time home buyer myself, I understand these frustrations on a deeply personal level. We made the decision that we were ready to start seriously considering home ownership in January, just a couple short months before the coronavirus pandemic hit the US. So we made our primary financial goal setting aside enough cash for a 10% down payment. After hitting that goal we started house hunting in earnest in July, hoping we’d have a house to call our own by late fall or even early spring of 2021.

Now fall is on its way out, and based on our experiences over the past five months or so of house hunting, it’s not looking likely that we’ll find “the one” anytime soon. I can count on one hand the number of open houses we’ve gone to where the property ticked off nearly every box on our checklist. They all sold for at least $50k over the list price (the list price itself often being highly inflated when referencing comparable properties that sold before the pandemic).

That’s fine, the rabid overbidders can have those houses — I’m not willing to buy a house if the numbers don’t make sense. Housing is most peoples’ biggest monthly expense, so overspending here can absolutely wreck your chances at financial independence and early retirement. The average American spends nearly a third of their post-tax income on housing, so that’s probably a good measuring stick for what not to do unless you want to end up being financially mediocre. But if you want to FIRE, your entire budget needs to be built from the foundation of your required savings rate to reach early retirement at your desired age.

Figure out your budget for a house

Unless you live in a rural area, chances are that buying a house right now would result in a higher monthly payment than your rent. Buying a house may mean trading off a bit of your savings rate and impacting your FIRE goals, so it’s important to quantify that impact. Be honest and try to calculate the total cost of home ownership. Your mortgage payment is only part of that cost.

You’ve got to consider:

Mortgage payment (principal and interest).
Property taxes.
Home insurance.
Private Mortgage Insurance (PMI) if you don’t have 20% down.
Maintenance (budget 1% of home cost per year).
The opportunity cost of not investing your down payment in the stock market (estimate 5% of your down payment per year in lost returns).
Higher utilities costs if you’re moving into a larger space.
What you’re going to spend to furnish your house.

A lot of people only seem to consider the first four. If you’re not honest with the total cost of ownership, all of those hidden costs will sneak up on you and you’ll be spending a lot more on your house than you thought.

Next figure out the trade off: what additional percentage of your budget would you be willing to spend for the benefits that come with owning a home? Feel free to use a mortgage amortization calculator to understand what portion of your payment goes towards equity, since that’s technically “savings” assuming your home at least holds it’s value against inflation.

For me, I determined that spending a maximum of $1,600 per month beyond the cost of our rent would decrease my savings rate by about 5% of my income. That’s where it felt like a fair trade off for me, but you’ll have to make your own personal decision here.

Working backwards to determine the price of a house which supports what I considered to be an acceptable budget for total cost of ownership put the home price at 2.5x our annual gross household income. Around 2x our gross income is when the house started to flip towards actually being financially advantageous to own. Interestingly, this lines up with many different sources I’ve seen over the years which claim that buying a house at 2x to 2.5x your annual gross income ensures that you’ll be able to comfortably afford it. So that’s cool, I just independently proved that old rule of thumb is pretty solid after all!

Then, stick to your budget!

On the other hand, banks will allow you to buy a house up to 4x your annual income fairly easily, and sometimes even beyond that! Apparently we’d qualify for a monthly PITI (Principal, Interest, Taxes, Insurance) payment of nearly $5,000. I can’t overstate how devastating such a payment would be to my financial goals like early retirement, even though we could certainly afford it from a cash flow perspective. That would mean nearly half of our take home pay just going to housing! Buying anywhere close to the maximum the banks will lend you is a one-way ticket to being house poor.

It’s easy to give in to the frustrations of today’s housing market and increase your budget beyond the 2.5x income rule (or whatever you’ve decided is a fair budget). List prices are much higher than at the start of this year. People are overbidding by 10% or more beyond the already inflated list price in many areas. It’s a cutthroat market for buyers out there, and for those buyers like myself trying to stick to a budget and avoid getting sucked into the wanton frenzy, it may feel hopeless that they will ever secure a home.

Possibly the worst part is that if we had started looking a year prior, we would have been able to buy a pretty nice house for 2x our income, or an absolutely gorgeous house for 2.5x our income. Ever since the pandemic, it’s more like 2.5x our income gets us a dumpy fixer upper that needs tens of thousands in renovations, and the perfect turnkey houses have been pushed to selling for over 3x our income.

During our home search, I’d be lying if I said I hadn’t considered “if you can’t beat ’em, join em” at least a few times. We certainly have the means to participate in bidding wars and probably come out on top. But I quickly snap out of it when I calculate the impact that raising my housing budget would have on my FIRE goal. Am I really willing to spend 3-5 more years of my life working just to own a house in the Boston area?

Certainly not. It seems far more efficient to just rent until I’m financially independent, and then move to one of the many areas of the United States (or even internationally) where I can buy a house for less than my $2,000 monthly rent.

In defense of renting

And speaking of renting, I’ve heard people claim that renting is “flushing money down the toilet” or some similar statement over and over. It’s this kind of ridiculous hyperbole that makes everyone think they need to own a house to get ahead financially, when that’s simply not true. I rent, and look at me. I’m 27 years old, I don’t even have a six figure income, and my net worth is over $180,000 USD. At the rate I’m going, I will retire by age 40.

Renting is exchanging money for shelter. Yes, it’s true that at the end of a 30 year mortgage you own a house, and after 30 years of renting you own nothing. But guess what — property taxes never go away, nor do home maintenance costs. In fact, both of these expenses tend to go up over time. So it’s not like you get to live for free once your mortgage is gone. Assuming that I owned an average house in my area free and clear, I’d still be paying $1,000 to $1,500 per month in taxes, maintenance, and home insurance. That’s 50–75% of my monthly rent.

Sure, in this hypothetical scenario I’d also have nearly half a million in home equity. But equity is dead money. You can’t touch it or invest it in anything else without paying a bank interest on a HELOC, which almost always makes no financial sense. The best way to access it is to sell your house, upon which you lose 6% in commission to your agent. Obviously you still need shelter, so now you get to either rent alongside the people you’ve been making fun of for 30 years, or buy another house to live in. Basically the only scenario in which you sell your house and end up with a huge pile of cash is one in which your house was mostly or fully paid off, and you exchange it for one in a cheaper locale.

At the end of the day, every single portion of your mortgage payment that doesn’t go towards principle is a waste of money in the same manner that renting is a waste. If you buy a house with a PITI payment equal to 150% or more of your rent, chances are good that you’re coming out behind compared to if you stayed renting and just invested the difference in stocks.

Actually, that’s a big reason that I believe home ownership is so overrated by the average American — most people don’t have the self-discipline to “invest the difference.” Anything in their bank account beyond their monthly bills each month will get spent. Home ownership is essentially a type of forced savings plan, whereby after 30 years of paying their bills and not particularly caring about saving or investing, people will end up with an asset worth a few hundred thousand dollars. The alternative outcome here is they rent for 30 years and spend everything else on consumer goods, ending up with nothing for retirement besides Social Security and maybe a tiny 401k balance. I think that’s part of the reason older people in particular claim that you “need” to buy a house, because they couldn’t possibly have conceived of making retirement work out if they hadn’t done so.

Don’t get me wrong, I’m not saying home ownership is a bad choice. It’s just probably not the financial slam dunk that American culture makes it out to be. There’s definitely ways to come out ahead financially by buying a house, as long as you’re buying well below your means. Likewise, there’s ways to come out ahead by renting instead if it means avoiding buying a house that would stretch your budget.

Maybe you’re like me, where you feel like you can’t find a house that makes financial sense among the current real estate market insanity. And that’s perfectly fine if you can rent for significantly cheaper than the total cost of home ownership, all while continuing to shovel your free cash flow into savings and investments. Keep your eye on the prize of your overall financial picture and building your financial independence nest egg.

There’s no shame in renting, and you can certainly still get rich by doing so.

What’s the best course of action moving forward for potential first time buyers?

What will happen in the future is unknowable. Will the FOMO peddlers be right, that if you don’t buy now and get on the property ladder, you will be priced out of the housing market forever? Potentially, but probably not. On the other hand, the people calling for a 2008-style housing crash are probably similarly off-base. The truth is almost certainly somewhere in between those two extremes. Exaggeration and pretending to have all the answers drives news headlines.

While I’d love to see prices come down a bit, I recognize that’s just my bias coming into play as a potential first time home buyer myself. Just as the statistics show that almost nobody can consistently predict the direction of the stock market beyond random chance, so too must we apply that logic to the real estate market.

Buy if the numbers make sense to you, and only if you fully understand the trade off that you’re making with your other financial goals in order to own a home. Otherwise, be content to rent. The market could change, your financial situation could change, or maybe you plan to FIRE and move elsewhere so you simply don’t need a forever home in your current location.

As for myself, I’m going to take a break from house hunting until at least after the holidays. I’ve filtered the MLS notifications that I get for new homes so they go straight to another e-mail folder that I can check whenever I remember to, and I don’t have to see the inbox notifications multiple times per day. It’s a nice separation from that false sense of urgency. After all, browsing Redfin and Zillow in this current market is just a constant alternating sense of disappointment and wry amusement — “they want $600k for that?!”

Heading to packed open houses every weekend has been getting a bit hectic, so I need some time to recharge and reflect. I know what’s important to me, and that’s having the financials make sense for a home that’s up to my personal standards for quality and potential. I am not willing to compromise when it comes to my largest monthly expense.

Rent or own, I’ll achieve financial independence either way. And you can too, if you’re smart, methodical, and intentional with your personal finances.

Is a 3D Printer an Investment That Saves You Money?

Tue, 20 Oct 2020 00:00:00 UTC

The original Prusa i3 MK3S, my personal 3D printer

A couple weeks ago I decided that I was tired of my soap in the shower staying wet, getting soggy, and then melting away. I needed a soap dish. To solve my issue, I spent a few minutes browsing 3D models, sent the file I downloaded to my 3D printer, and then went to do something else. Two hours later and for about 39 cents I had this:

A functional, vertical soap dish to help my soap dry out after using it! Some quick research reveals that I could’ve gotten a soap dish elsewhere for $5-10, so if we take the average price, I probably saved about $7 by making my own. Awesome, my 3D printer saved me money!

We also recently switched to solid shampoo and conditioner bars to try and reduce the amount of plastic waste coming out of our household. That gave me another opportunity to put my printer to work making something to keep those bars dry and prolong their lives. I downloaded a model that another user had created, spent 20 minutes modifying it in my free 3D modeling software, and $1.45 of materials and electricity later I had a pair of nice containers with a hinged lid:

It appears I would have to spend about $15 to purchase items of the same functionality. This time I saved $13.50! Combined with my previous project, my 3D printer has saved me over $20 in the past couple weeks. This thing must be a money saving machine, right?

So is a 3D printer a good investment? Possibly, but it depends on a few factors!

For an item to be a good investment, it has to have a positive return of value over the cost of alternatives (or just not buying it at all). It has to at least pay for itself. While it’s true that my 3D printer has saved me $20 over the past couple of weeks, that barely puts a dent in the $800 that I paid for it. After two years of ownership, I’d estimate the lifetime cost savings of things I’ve made to be $100 or less — ergo, my Prusa 3D printer will never pay for itself.

That’s not to say my printer wasn’t a worthwhile purchase. It’s a fun hobby that provides entertainment, and potentially a creative outlet. It also provides a sense of self-sufficiency: I can manufacture things in my own home. Rather than buying and shipping some plastic piece from China, in most cases I can download and print a functionally equivalent piece for a fraction of the time and cost. If nobody else has modeled the piece yet, I can do so and then share it back to the community.

Purely from a financial perspective though, I do think it’s possible for a 3D printer to at least pay for itself and maybe net a small profit in savings, provided you meet a few criteria.

Limit your initial purchase price

The less you spend up front, the quicker you’ll be able to make up for that initial purchase price. Luckily there’s some very capable entry-level printers out there, like the Creality Ender 3 for just $200. If I had that one, my projects from the past couple of weeks would have already gone 10% of the way towards paying for the printer!

I’ve used printers on the cheaper end like that, and while you can usually get them working very well, it takes quite a bit of tinkering. On the other hand, tinkering is a great way to develop technical knowledge. I’ve been through that learning process already, and my personal time is valuable to me, hence why I went for a unit with more bells and whistles such as automatic bed leveling.

I’d definitely recommend the Ender 3 as the most frugal option for getting into 3D printing. It’s the most capable printer in its price range, and the low price means that the bar for recouping your initial cost is feasible to hurdle.

Account for all potential income streams

Offsetting the cost of things that you were going to purchase by making them yourself is an effective, but slow method of making your 3D printer pay for itself. Other avenues of monetization include selling the actual items you produce, as well as selling “print on demand” services.

I’m not sure how effective selling 3D printed items in an online marketplace like Etsy would be. From a brief look, the site is overwhelmed with people trying to sell models they downloaded for free from sharing sites like Thingiverse. There’s dozens of people selling the same exact things that they didn’t design, regardless of whether the model was uploaded under a non-commercial license. I think that it would be difficult to stand out in this space even if you had a unique design that you made yourself, simply due to the sheer volume of items for sale.

There’s also “print on demand” services, where the idea is that you’re printing other peoples’ models for a fee, which can be picked up locally or shipped. You’re effectively leasing time on your printer. There’s several websites where you can list your printer on a map for customers to find. From what I’ve read this was an effective source of income several years ago, but due to how accessible 3D printing at home has become, these services are flooded with printing hubs. In most geographic areas, you won’t stand out unless you have fancy printers that can print obscure materials. So I wouldn’t count on making any income from print on demand online.

I have had friends and coworkers ask me if I can print stuff for them, usually something I made for myself that they thought was cool and wanted one of their own. Or a model they’ve drawn up themselves. Nobody’s asked me for anything crazy, and I’m not one to try and make money off my friends, so I’m happy to just give that type of stuff away for free. For more enterprising individuals, your personal network could represent a small source of localized print on demand income.

Do you want or need it as a tool?

Consider the value of a 3D printer as a tool for furthering your other hobbies and interests. Maybe you’ve been getting into board game design, and cardboard pieces just aren’t cutting it for your prototypes anymore. Maybe you’re like me, an engineering nerd interested in self-sufficiency and home manufacturing.

In many cases (and especially if you buy a higher end printer) you’re not going to be able to make it pay for itself. That’s totally fine, as long as you can justify the unsubsidized cost to yourself as the price of acquiring a tool. Or the cost of getting into a new hobby to spend your time on. This is much easier if you actually use it than if you just bought it as an impulse purchase. Which brings me to my last point…

Don’t buy a 3D printer if you’re just going to make junk

As evidenced by the most common content on 3D model sharing sites and 3D printing forums, many people who buy these machines seem to exclusively use them to print useless garbage like this:

Print of Baby Yoda by fsulprizio on Thingiverse

Or this foot-tall waste of plastic:

Print of Thanos from ‘The Avengers’ by Mayday13 on Thingiverse

Please don’t buy a 3D printer if this is your main use case for it. The model above uses over half a pound of plastic filament, and takes nearly a full day to print. The world creates enough plastic waste as it is. We don’t need to add to it by creating a bunch of pop culture crap with zero functional use cases. If that weren’t bad enough, it’s a waste of your money too. That Thanos bust would cost about $6 to make out of PLA filament.

I hear some people say printing stuff like that is okay, because they claim that PLA (or polylactic acid) plastic is biodegradable. While this is technically true — PLA will degrade given the right environmental conditions — those conditions will almost never occur outside of specialized composting facilities. The 3D printed items that you send to a landfill will be there for an incredibly long time. And if you try to put it in the recycling bin, they’ll just toss it in the garbage since it’s unmarked.

My opinion is that all makers have a responsibility of environmental stewardship. To use resources consciously, and create items with an eye towards their end of life. Chances are high that unless you specifically find a specialized recycling facility to send your printed plastic items to, they will outlast you and countless generations of your family. Don’t get me wrong, I’m not saying “don’t make anything.” Just try to ensure that what you create has sufficient value or usefulness to justify its environmental impact.

The final verdict

Is a 3D printer for your home an investment that saves you money? Quite possibly for a maker who purchases a frugal machine like the $200 Creality Ender 3. But let’s be honest: without a defined, well-thought-out, and thoroughly researched business plan, your 3D printer will not be a cash cow.

For most people, the best case scenario is the 3D printer paying for itself in one to three years by making cheaper substitutes of items that they would otherwise buy. It will certainly save money over time for a diligent maker, but in most cases we’re just talking about a few dollars here and there.

If you buy a fancy machine like my Prusa i3 MK3S, it’s unreasonable to expect it to come anywhere close to paying for itself for the vast majority of consumers. In my experience, the key to avoiding buyer’s remorse with a more expensive machine is to buy one that’s well within your budget and to view it as the cost of acquiring a needed tool, or a new hobby to invest time into.

While it’s possible for a 3D printer to save you money, it’s nothing worth running out and buying one over if you’ve got no interest in 3D printing. Rather, it’s mainly a way for those who already have an interest in getting into 3D printing to justify the start-up costs.

For Financial Success, Train Your Brain to Love Saving Money

Thu, 01 Oct 2020 00:00:00 UTC

Is it possible to turn the act of saving money from a chore into an enjoyable activity? Much like how a “shopaholic” can become addicted to spending money due to the psychological thrill, can we instead re-wire those neurological pathways towards a more constructive goal? I think so; if there’s such a thing as a “save-oholic” that might just be me!

I took a look at my bank account the other day and it was absolutely stuffed, to the tune of about $5,000 beyond what I keep on-hand for my emergency fund. I sent $3,000 off to my down payment fund, then bought $2,000 worth of stocks in my Roth IRA. And it made me feel good.

There’s evidence that shopping and spending money stimulates the dopamine reward pathways in our brains. Dopamine is responsible for reinforcing behaviors by acting as a feel-good teaching signal. Of course, in terms of building wealth, excessive spending is a destructive behavior and the exact opposite of what I’d advocate for. So is there a way to hijack your brain’s circuitry and train yourself to love saving money instead?

In my experience, yes. It’s not too much of a stretch to view what you’re saving as spending instead, if you just shift your perspective a bit. And I don’t just mean something like, “well, you’re technically buying stocks and bonds in your investment accounts.” That’s hardly a tip worth writing about, so I’ve got a bit more of a paradigm shift for you today.

Change your perspective on how you define saving

When you save and invest — especially with the goal of early retirement in mind — you are quite literally buying your time back. You are trading cash flows today in exchange for controlling more of your own time in the future. Someone with a 40% savings rate for example would need to work just under 22 years before they could retire and live off their investments. Compared to a typical 40 year career, our hypothetical saver is buying back nearly two decades of freedom.

Compound interest makes all of this possible. $100 invested at 5% real interest for 30 years becomes $432 in today’s dollars. Would you “spend” $100 today to receive $432 in 30 years? What about $702 in 40 years? It’s almost a no-brainer if you’ve got the cash to spare.

Completely anecdotal experience: I’ve found that thinking of saving money as me buying my future freedom in early retirement delivers a similar physiological response to that of making a satisfying consumer purchase. For me at least, it’s been an effective way to train my brain to love saving, and it’s something I’ve been doing for the past several years of my FIRE journey. At this point, it’s a subconscious reaction: when I make a positive financial decision, it makes me feel good too.

The flip side, effecting thoughts on discretionary spending

After making an effort to change my perspective on saving, there was a less-intentional side effect in that I noticed my reaction to spending shifted as well. More specifically I’m talking about discretionary spending, or everything other than your necessary living expenses.

I often feel regretful or guilty when I’ve spent money on something that wasn’t a good value or a worthwhile purchase. A restaurant meal that I could have made better myself at home? Frustrating. A new gadget or electronic device that doesn’t live up to the hype? Regret. Going far over budget for the month? Guilt.

I think the root cause of feelings like that is once you know the opportunity cost that you’re losing out on by not investing and compounding your discretionary income, it just doesn’t sit right to waste it on purchases that don’t feel worthwhile. It’s important to recognize that while these negative feelings can offer learning experiences too, you shouldn’t dwell too much on them.

Don’t let it overwhelm you to the point of becoming a miser. Some discretionary spending is necessary to enjoy life along the journey to FIRE. As always I advocate for finding a balance; absolutely do not feel bad about discretionary spending as long as you’re meeting your savings goals. Similarly, set your budget in such a way that you’re leaving room for the discretionary expenses that truly bring value to your life. Finding this balance is part of the self-discovery on your own personal path towards financial independence.

Keeping sight of the long-term view

There’s also something to be said for the fleeting nature of the feeling from those small hits of dopamine, when compared to the omnipresent, general feeling of contentment that comes with financial security. The former are simply your building blocks and training tools along the road to the latter. It took me about two years into my own journey towards financial independence to finally feel like I was making headway. And another two years after that to start feeling some semblance of security in my financial situation.

Changing your behavior is just one step — though likely the biggest one — in the marathon that leads to financial success. To that end, training your brain to love saving money seems both possible and highly beneficial. As always, mindfulness and intention are the keys to self-improvement. This method may be exactly the tool that you need to jump-start your FIRE journey, or give you the motivation that you need to stay the course.

DIY Total International Fund From MSCI EAFE/TSP I Fund

Sun, 20 Sep 2020 00:00:00 UTC

2025 Update: This post is no longer relevant for TSP investors, as the I Fund has completed its transition to track a total international index. I’m leaving it up for anyone who might have a retirement plan that only offers an MSCI EAFE international fund.

Over my entire career, the only international equity fund offered in my retirement plan has been a fund that tracks the MSCI EAFE. For those of us wishing to invest for maximum diversification, this represents a problem — that index covers less than 60% of the total international stock market! Perhaps the most prominent example of this issue is the “I Fund” offered in the Thrift Savings Plan (TSP). The TSP is a 401k-like plan available to US federal employees, and the largest defined contribution plan in the world.

Recently, the TSP was on a path to shift the I Fund to track a more complete international index later this year, but that move was delayed indefinitely. So for now, TSP investors (or anyone else with a retirement plan that has similarly restricted offerings) will need to approximate a total international fund by purchasing the missing components in their other investment accounts. This involves a bit of research and a dive into index fund compositions, so I figured that I’d share my findings and methodology to help anyone facing a similar issue.

What is the MSCI EAFE?

From index-maker MSCI, the EAFE index is an abbreviation for “Europe, Australasia, and the Far East.” It includes stocks domiciled in 21 different countries from the aforementioned regions. Here’s what the constituent countries look like on a map:

Made using https://mapchart.net/world.html

Clearly there’s a lot missing in terms of the number of countries represented in this index. Of course, that sounds more sensational than it really is due to the fact that said countries represent the majority of the international market capitalization, but there’s a good reason to care about what’s missing from the EAFE. For starters, it only includes large and mid-cap companies from those 21 countries.

Why you should care about total international

As I already mentioned, the MSCI EAFE covers less than 60% of the total international stock market. Since the US is about half the world market capitalization, a portfolio using the MSCI EAFE as its only international holding is missing out on roughly 20% of the world market cap. Missing components from the MSCI EAFE include:

Emerging markets
All small-cap stocks from the countries included in the EAFE
Canada
South Korea

Previously, I’ve stated that I firmly believe that the most reliable investment strategy is to own a small piece of every publicly traded company in the world. While you can get very close to this with a total world equity fund like VTWAX (or a total US fund plus a total international fund), using the MSCI EAFE as your only international fund does not provide as much diversification. You’re missing over 40% of the international market cap — maybe not even knowingly.

To meet my investment objectives, I need to emulate a total international fund by using an MSCI EAFE fund as the core holding, and adding back the missing components in their proper ratios. Let’s do some research and a bit of math first, and later I’ll share a couple tips that can help make your life easier if you have to implement this strategy in your portfolio.

Have enough assets outside of your 401k/TSP? You probably don’t need this article.

I am a firm believer of not adding complexity to investing where it isn’t warranted. My goal is to hold US and international equities at world market capitalization weights, which is roughly 55% US and 45% international. If I had half of my assets outside of my 401k, I would simply invest only in a total US stock fund in my 401k, and a total international fund in my IRA and brokerage accounts. If you can ignore the MSCI EAFE fund completely and still meet your desired asset allocation, that’s clearly preferable.

However, for many people on the path to FIRE and especially those just starting out, their 401k represents the majority of their savings capacity. Currently my 401k balance is about 80% of my entire invested portfolio. Until very recently, I simply wasn’t saving enough to do anything other than max out my 401k and IRA. So for situations like that, this strategy is certainly warranted.

Finding the ratios for our component funds

We’re potentially looking at holding five funds to emulate total international — the four missing components, plus the MSCI EAFE (or I Fund) itself. That’s a lot of added complexity to deal with, since in an ideal world I’d hold just two or three funds to include US and international equities, and maybe a total bond fund.

I believe that adding back just emerging markets and small-cap stocks for a three-fund international approach is “good enough” for most people. However, in the interest of completeness I’ll detail the full methodology so you can decide to implement whichever you’d like.

Small-cap stocks

Because there’s many different definitions of what constitutes a “small cap” stock, your results for this question may vary. Each index provider seems to use a different yardstick. Since our foundation will be built from the MSCI EAFE, let’s use their methodology.

The MSCI EAFE is a large and mid-cap index which covers approximately 85% of the market cap in its constituent countries. It’s reasonable to assume that the leftover 15% is our desired allocation to small cap stocks. Indeed, this number is close to what a couple other sources that I checked came up with.

My preferred investment choice here is the Vanguard FTSE All-World ex-US Small-Cap Index Fund (VFSAX).

Emerging markets

This is the largest missing component. Looking at the composition of a flagship total international fund like the one Vanguard offers, we can see that emerging markets accounts for 24.7% of the fund. Since this is a total international fund, it’s reasonable to assume that percentage is very close to the international market capitalization of emerging markets.

My preferred investment choice here is the Vanguard Emerging Markets Stock Index Fund (VEMAX). However, we’ve got our first issue related to overlapping exposure. The ex-US small cap stock fund we selected above already has some emerging markets exposure, 22.2% of it.

22.2% of our small cap allocation (15%) is 3.33%. If we subtract 3.33% from the 24.7% allocation we were going to use for emerging markets, that mitigates some of the overlap. We’re left with a desired allocation of 21.37% to emerging markets.

Canada

Again taking a look at the composition of Vanguard’s Total International Stock Index (VTIAX), we see that Canada accounts for 6.5% of the fund, and thus 6.5% of the total international market cap.

Once again though, we’ve got some overlap. Canadian stocks are 14.2% of my selected small cap fund. So we’ll subtract that overlap from Canada’s market cap percentage to attempt to mitigate this. 14.2% of 15% is 2.13%, leaving a further 4.37% recommended allocation to Canada.

Here’s where the “good enough” cutoff that I was mentioning comes in. If you’re 100% equities at world market cap weight, 45% of those are international. This means that at most, adding an additional fund for Canada would account for 2% of your total portfolio. Hardly enough to make a difference.

For those who do want to pursue the completionist approach, my recommended investment is the SPDR Solactive Canada ETF (ZCAN). It has a reasonable expense ratio of 0.14% and covers 85% of the Canadian stock market via large and mid-cap stocks, perfectly completing our small-cap fund.

South Korea

For this one, it depends which emerging markets index you choose. MSCI classifies South Korea as an emerging market. FTSE classifies it as a developed market. Which means that if you invest in an emerging markets fund that tracks an MSCI index (like the Fidelity Emerging Markets Index (FPADX)), you’ve already got exposure to South Korea and can skip this step.

If your emerging markets fund tracks a FTSE index (like the Vanguard Emerging Markets Stock Index (VEMAX)), you’re missing South Korea from your portfolio. Once again returning to the Vanguard Total International Stock Index (VTIAX), we see that South Korea represents 3.4% of the international market cap.

We again see some overlap with our small-cap fund, which is 4.8% invested in South Korea. Using the same methodology as before, 4.8% of 15% is 0.72%. Any South Korea fund then should comprise 2.68% of our international allocation. Since this is smaller than the Canada portion which I already claimed was negligible, the “good enough” approach would simply ignore it.

The only South Korean fund that I can find with a reasonable expense ratio is the Franklin FTSE South Korea ETF (FLKR). It has a 0.09% expense ratio, while the other options are at 0.60% or higher for what seems to be the same exposure.

The MSCI EAFE (or I Fund) itself

The good news is that this is the easy part. Since we’ve already determined all of our missing components, the MSCI EAFE is just whatever is left over after subtracting those out. 100 - (15 + 21.37 + 4.37 + 2.68) = 56.58%. The MSCI EAFE only covers 56.58% of the total international stock market.

Putting it all together

An investor is now left with two choices: be a completionist, or take the “good enough” approach. For reference, ignoring Canada and South Korea completely means you’re missing out on only about 3% of the world stock market capitalization (versus 7% of the international market cap). Personally, I don’t consider a 3% diversification benefit worth the effort of buying and rebalancing those additional two funds at this stage of my investing career.

Unless you’ve got a mid-7-figure portfolio, the Canada and South Korea funds in those percentages aren’t going to amount to much worth caring about. Our small-cap and emerging markets funds provided most of the diversification from this exercise, so it’s reasonable to just add those. Regardless, I will detail both methods in the interests of catering to those who may be of a different opinion to myself.

The completionist five-fund approach

Just invest in all of the funds (or similar equivalents) at the following percentages that we’ve already determined together:

56.58% MSCI EAFE (or TSP I Fund)
21.37% Emerging Markets Index (such as VEMAX)
15% Small Cap Ex-US Stock Index (such as VFSAX)
4.37% Canada Index (such as ZCAN)
2.68% South Korea Index (such as FLKR)

The sum of the dollar amount held in all of these funds, divided by your total equity balance in your portfolio should equal your desired allocation to international stocks. Feel free to round off and clean up the percentages however you’d like — it is your portfolio after all!

Tip: If your chosen emerging markets fund tracks an MSCI index (and thus includes South Korea) you can just add the 2.68% from South Korea into your emerging markets allocation for simplicity.

The simpler three-fund approach

This method ignores the Canada and South Korea funds, and is the approach that I personally use, mainly because it’s easier to implement and maintain. The international equities chunk of your portfolio should be allocated as follows:

60% MSCI EAFE (or TSP I Fund)
24% Emerging Markets Index (such as VEMAX)
16% Small Cap Ex-US Stock Index (such as VFSAX)

If you’re investing in US and international equities at roughly world market cap weights (55% US and 45% international), your 401k or TSP can comprise slightly over 80% of your assets and this method will still work. I hold both VEMAX and VFSAX in the appropriate ratios in my Vanguard Roth IRA.

A couple tips

Don’t hold the MSCI EAFE (or I Fund) itself at your preferred international percentage!

It took me quite a while of implementing this strategy in my own portfolio to figure this one out. Think about what happens if your desired US/international ratio is 55/45, so in your 401k or TSP you hold 55% US stocks and 45% MSCI EAFE/I Fund. You then have to go into your Roth IRA or other brokerage account and add the emerging markets and small-cap ex-US funds, which then boosts international stocks higher as a percentage of your portfolio. Now you’re holding more international than you wanted!

You could just invest in more US stocks outside of your 401k/TSP to balance it out, but the entire point of this strategy is to make it accessible to people like myself who don’t have a ton of assets outside of their main retirement account.

The absolute simplest solution then, for those of us stuck having to implement this strategy, is to hold as much MSCI EAFE/I Fund as you need to make that your core international holding across your entire portfolio balance. And then figure out what percentage of your 401k or TSP that represents. (If you don’t want the MSCI EAFE/I Fund to be your core international holding and want to hold as little of it as possible, check out Option 2 in the below section!)

For example, say that my desired US/international allocation is 55/45. I’m following the simple three-fund total international approach outlined above, so I need 60% of my international holdings to be MSCI EAFE. In my 401k/TSP then, I should actually only be holding 27% of my total equity allocation (not 401k/TSP account balance) in the MSCI EAFE/I Fund (0.45 x 0.60 = 27%).

What percentage of your 401k/TSP to allocate to the MSCI EAFE/I Fund to reach that 27% total — or whatever equivalent number you arrive at for your own desired allocation — will depend on what percentage of your assets that account makes up. For a $100k portfolio with 80% of your assets in the 401k/TSP, that comes out to a 33.8% allocation to the MSCI EAFE/I Fund within the 401k/TSP ($27k total desired in the MSCI EAFE, divided by $80k account balance).

If you hold an allocation to bonds, just determine what you want that to be first in dollar terms, and then subtract it from your total portfolio balance before doing these calculations. That will get you the correct percentages for your desired equity allocation. Sometimes I get carried away when writing and forget that not everybody is 100% equities like myself, so here’s my effort to accommodate!

These numbers will shift slowly over time, and you will need to rebalance your portfolio and contribution percentages every so often to stay on track. But it’s certainly not something you need to obsessively check. I peek at it every 6 months to a year and see if any tweaks are needed.

Invest all of your excess funds as simply as possible to maintain your asset allocation.

Option 1: MSCI EAFE Off Total Portfolio Balance

My first thought experiment on this topic was investing in the MSCI EAFE based on your total portfolio balance (and not just 401k/TSP balance). Once you’ve also bought the emerging markets and small-cap ex-US funds, you’ll be at your desired international allocation across your whole portfolio. All of your other money, across all accounts, then needs to go into US stocks to complete the remainder of your asset allocation. Every dime in your Roth IRA and other brokerage accounts that is not specifically invested in the emerging markets and small-cap ex-US stock funds that are needed to follow this strategy should go into a total US stock market fund. One of the best out there is the Vanguard Total US Stock Market Fund (VTSAX).

Option 2: Two Buckets Strategy

There’s a second option here too which is to split your portfolio into two “buckets” of money. The first bucket would contain your 401k/TSP, plus just enough money in a Roth IRA or taxable account to purchase the completing funds (about a quarter of your 401k/TSP balance). The second bucket would include all other invested monies, and just be invested in something like VTWAX, a total world equity fund. Since each bucket is approximating (or directly invested in) a total world equity fund, your overall portfolio averages out to do just that as well.

How to decide between Options 1 and 2?

So between Option 1 and Option 2, the main differences are that Option 2 will result in the minimum amount of MSCI EAFE/I Fund that you need to get a total world portfolio across all accounts, whereas with Option 1 you will also get a total world portfolio, but you’ll have to hold more MSCI EAFE/I Fund to get there. Option 1 is easier to deal with accounting-wise. Option 2 may be worth the squeeze if for example you’re slowly adding a lot of assets to taxable accounts, plan to roll your money out of the TSP at some point, and in the future you don’t want to balance your portfolio around a taxable account filled with US stocks which would be the result of Option 1.

When I started following this strategy, Option 1 worked well for me since I only had a 401k and Roth IRA. As my portfolio has grown enough to include a taxable investment account and I began to consider future tax implications, I now implement Option 2.

There’s really no reason not to just go with Option 2, since math can be automated, especially if someone else has already done the work, namely making…

A free spreadsheet tool to help you out!

Here’s a quick spreadsheet that I threw together for the simple three-fund approach to approximating a total international fund using the MSCI EAFE. Enter your investment balance information in the orange cells (and modify the yellow allocation percentage cells if desired) and it will spit out results. Specifically, the minimum assets required outside of your 401k/TSP to implement the strategy, what percentage of your 401k/TSP assets to invest in the MSCI EAFE or I Fund, and finally the dollar amount of the completing funds to hold in your external accounts.

Again, if you’re a bond holder make sure to subtract your bond allocation (in dollar terms) from your account balance, and note that the resulting percentage of MSCI EAFE or I Fund to hold will be properly adjusted based on your bonds percentage input! If you have no bonds, just leave this at zero.

If you’re choosing Option 1, all of your remaining funds in your 401k and external accounts (other than the emerging markets and small cap ex-US stock amounts as calculated by the spreadsheet) will need to be invested in US stocks to complete your asset allocation and mirror a total world stock portfolio.

The spreadsheet by default is set up for Option 2: Two Buckets Strategy as outlined in the above section since this is what I use and recommend. All of your remaining funds in your 401k/TSP should go into US stocks. Outside of your TSP, excess funds beyond the required amounts of emerging markets and small cap ex-US stocks as calculated by the spreadsheet should be invested in a total world equity fund!

Access it here on Google Sheets. Anyone can download it as an .xlsx or .ods to edit locally on their machine. Or if you have a Google account, you can go to File → Make a copy to add it to your Drive and edit in the cloud.

I Paid Off My Car!

Sat, 05 Sep 2020 00:00:00 UTC

Just a small update on achieving a personal milestone… at 27 years old, I am free from a monthly car payment for the first time in my adult life! My car loan only having a few payments remaining was the motivation last week for writing “Cars: My Biggest Financial Mistakes and Lessons Learned”. Well, my third-to-last payment posted on the first of this month, and today I made the decision to kill off the remaining balance of $1,046.88.

As I’ve stated in the past my car loan was at 0% interest, so mathematically the best choice was not to pay it off early. However, I decided to do a quick calculation to figure out the opportunity cost of front-loading those last two payments… a whopping $1.04 in interest earned in my savings account. I’ll take that hit to celebrate an early victory.

I now own a 2015 Toyota Prius (with approximately 155k miles) free and clear. Here’s hoping she lasts several more years without any major issues so that I can enjoy a juiced savings rate for quite a while. So far so good, as I’ve only had to do preventative maintenance!

In my updated monthly budget from my latest biannual review, I budgeted for $2844 in monthly spending. Getting rid of this $523.51 car payment represents an absolutely massive 18.4% reduction in expenses. I can’t wait to see the effects of this on my savings rate and the growth of my investment portfolio!

Additionally, I’m so close to being completely debt free! My only remaining debt is one student loan with a balance of $3,453.61 at an interest rate of 3.30%. Unfortunately I don’t think I’ll get to that one until next year, since most of my cash flow went towards saving for a down payment this year. Also, it’s already September and I still have to contribute $6,000 to max out my Roth IRA for the year. I imagine that it’s a great feeling not to owe a dime to creditors, so paying off that last student loan is definitely on the goal list for early 2021.

As for the upcoming holiday weekend, I’m going to take some time to celebrate hitting this financial milestone. Maybe I’ll have some further thoughts to share on this matter in a few months, after I’ve actually had a chance to experience life without a monthly car payment hanging over me. Stay tuned!

I'm Trying Out Churning: Chase Freedom's $200 Bonus

Wed, 02 Sep 2020 00:00:00 UTC

The introductory offer for the Chase Freedom Unlimited credit card was too good to pass up. A $200 cash bonus when you spend $500 within the first 3 months of opening the card, plus 5% cash back on grocery store purchases within the first year. I’ve heard about churning for several years but had yet to try it out. This offer seemed like one of the best ones to get my feet wet with, since it has a high payout with easy requirements.

What is churning?

For those unfamiliar with the terminology, churning refers to the practice of opening credit cards, bank accounts, or financial accounts specifically to take advantage of their welcome offers. Once the churner has met the minimum requirements and received their payout, they’ll typically abandon or close the account and find a new offer to pursue. Rinse and repeat. It’s this rapid turnover of accounts that inspired the term churning.

A word of warning: anyone with poor credit or a history of issues with credit card spending should proceed with extreme caution, and likely avoid churning altogether until they’ve gotten their finances under control.

Why I decided to try out churning

Achieving financial success boils down to two simple concepts: spend less, and earn more. To that end, getting paid a decent chunk of change to do something that I was already going to do just makes sense. My typical credit card bill ranges from $400-1,000 per month, so there’s no question that I’ll meet the minimum spend requirements just by shifting my usage towards this new card.

As we’ve been tentatively considering buying a house recently, I’ve been hesitant to open any new accounts for the past few months. Doing so means both a hard inquiry on my credit report, as well as reducing the average age of my accounts. However, my “middle score” that the mortgage lender uses is already 800, and two different credit monitoring tools that I use predicted opening a new card had a -1 to +1 impact on my credit score. That reassured me that it was hardly anything worth worrying about.

Why I specifically went with Chase Freedom Unlimited

As I already mentioned, the $200 bonus when you spend $500 within the first 3 months of opening the card was the main draw. According to Chase, this $200 bonus should post to the account within 6 to 8 weeks of meeting the requirements. Interestingly the rewards can either be withdrawn to a bank account, or applied as cash back to your card balance.

The 5% cash back on groceries for the first year was another great perk. Groceries are typically my third biggest budget line item behind rent and my car. My current credit card earns 2% back on groceries, so the additional 3% that I’ll earn with the Chase Freedom Unlimited is around $75 extra that I expect to earn over the next year.

There’s a 0% introductory APR for 15 months, but this wasn’t a factor that I care about since I pay my statements in full every month.

My girlfriend also already has this card, so she was able to get an easy $100 incentive when I signed up using her referral link.

My future churning plans

Since I want to be able to purchase a house in the near future, I’m definitely not going to go crazy with churning credit cards. First and foremost I need to ensure that my credit report continues to qualify me for the best mortgage rates. To that end, I will have to carefully weigh the impact of any new credit card accounts that I choose to open.

I’ll probably check out some bank account welcome offers next. Thanks to saving for a down payment, I’ve got a decent chunk of cash that can be moved around to meet any deposit requirements. These offers also become more tempting as interest rates on savings accounts continue to drop across the industry. I need to keep these down payment funds liquid and low-risk, so churning bank accounts could be an alternative method of putting my cash to work. And it won’t impact my credit!

One of my main ground rules with side income activities like this is ensuring that the effective hourly earnings rate is acceptably high. This means considering all of my personal time spent from start to finish on each offer. For the Chase Freedom Unlimited offer, I spent 15 minutes filling out the application and setting up the online dashboard for the card. I’ll probably spend another 5 minutes validating that I met the minimum spend requirements and redeeming my rewards. 20 minutes for $200? Absolutely worth it. But definitely something to keep in mind for each and every offer.

I’m definitely going to start out slow with churning, and probably wait until I complete each offer before starting a new one. If I find any other no-brainer churning offers (high reward with easy requirements) like the Chase Freedom Unlimited, I will be sure to share them!

Cars: My Biggest Financial Mistakes and Lessons Learned

Fri, 28 Aug 2020 00:00:00 UTC

As my car loan has whittled down to a paltry three payments remaining, I can see the light at the end of the tunnel. Once that’s gone, it will essentially be my first time experiencing adult life without the financial burden of a monthly car payment. But getting rid of that 5 year loan represents a bigger milestone to me, because to this day it shows the lingering effects of what I consider to be my greatest financial mistake. It’s the story of how I paid $31,410.46 for a $23,831 car, despite having a 0% interest loan.

This tale actually goes all the way back to the summer following my sophomore year of college, when I was 19 years old. Living on campus I previously had no need for a vehicle for most of the year. However that summer I managed to land an internship that paid pretty well at $18 an hour, much better than my retail job where I earned $10 an hour. The money combined with the relevance to my chosen field of study in engineering made it a no-brainer to accept. The only issue was it was 40 minutes away, and the 20 year old hand-me-down Saturn that I shared with my sibling over the summers was barely running at that point.

I needed a reliable car with a payment that fit a college budget. And for some ungodly reason, I thought the Smart ForTwo was the coolest thing around. So I did what I thought made sense: I leased one for $1,000 down with a $169 monthly payment, with a term of 3 years and 15,000 miles per year. It was kind of fun to blast around town in my little go kart and park it in places where nothing else could fit. All things considered, it was a fairly decent minimalist car that suited my needs for the last two years of college. And it had heated seats for those New England winters!

Unfortunately as I graduated college with a year of lease payments remaining and got my first post-college job, I learned that my car really wasn’t that great for long highway commutes. The short wheelbase meant that every bump in the road was a jarring thud. And after the umpteenth time of nearly being hit or run off the road because someone didn’t see my tiny car in their blind spot (I’m sure that motorcycle riders and Miata drivers can relate), I realized that I needed a more practical commuter vehicle.

I decided to break my lease early and buy a used 2014 Ford Focus for $14,000. I lost about $2,000 by turning the lease in early, but the dealership gave me a check for the balance and added it to the loan. I was happy with the new car as a much more comfortable commuting option… for two months, until I started having transmission problems. Yup, a car that wasn’t even 2 years old, with 35,000 miles or so having transmission problems. The clutch was replaced under warranty, and I thought that was the end of it. Yet 5,000 miles later my transmission was shuddering and grinding once again. After some research on the internet, I found forums with dozens of Focus owners reporting they were on their 4th or 5th clutch replacement; the fixes never lasted and the warranty coverage ran out at 50k miles, at which time they had to start paying out of pocket for repairs at over $1,000 per occurrence.

I checked out the maintenance records and saw that the previous owner had replaced the clutch as well. Unfortunately, other than performing the repairs under warranty, Ford wasn’t admitting that there was a systemic problem with these vehicles. It actually took until a few months ago in February 2020 for a lawsuit against Ford to settle and force them to take action.

Needless to say, I was terrified that I had accidentally purchased a lemon. I was so anxious about it that I ended up trading in the Focus just 4 months later. After being burned by that unreliable used car, I went right for the opposite end of the spectrum: new and reliable. I did my research this time and went for one of the top-rated cars for reliability, a 2015 Toyota Prius. I managed to negotiate about $4,500 off the MSRP, but got absolutely hosed on the trade-in — that only fetched $8,000, which laughably was rated as a “good” price for dealership trade in. Unfortunately private sale wasn’t even an option, since being fresh out of college I had nowhere near the amount of money required to pay off the loan and get the title.

Add that all together: roughly $2,000 from breaking my first lease, plus nearly $6,000 lost on the Focus in the span of a few months, plus $23,831 for the purchase of the new Prius, and the total balance of my new loan was $31,410.46. That’s the story of how I lost $7,539.46 in less than half a year, making this my biggest financial mistake ever.

I have to cut my past self a little bit of slack seeing as I was only 22 at the time, but I’d be a fool if I didn’t learn from those mistakes. As much as I’d like to claim that I’m an infallible personal finance master, that’s simply not true. Mistakes are all part of the learning process. I’d like to share some of my lessons learned from this experience that shaped my philosophy around car ownership and money in general, in case anybody finds it valuable.

For most people, cars are their second biggest expense

According to the BLS in their Consumer Expenditures Report, transportation consistently ranks as the second highest expense category for US consumers. I’ve found that to be true for myself as well in my past budget reviews. The benefits of finding ways to spend less in such a large budget category are obvious. Next to housing, spending too much on a car is the surest way to wreck your budget and hurt your chances of building real wealth so that you can retire early.

Be assertive and willing to walk away

It look me too long to figure this one out. Nobody is looking out for you and your money except for you. Possibly nowhere is this more obvious than when buying a car: the dealership has an incentive to sell you the most expensive car they can, while getting you to sign the worst deal that you’d be willing to accept.

A common thread in those first two dealership experiences of my adult life was that I was afraid to say “no” after they’d already drawn up a contract, which as is typical for most dealerships, always included some unexpected expenses in their favor. You can be assertive and polite at the same time. If you’re not firmly standing up for your own interests in this scenario, nobody is.

Leasing is almost always a bad deal

Mathematically, it’s a bum deal. You’re essentially just paying for the depreciation of the vehicle over the lease term. And since depreciation is highest as soon as the car is driven off the lot, all you’re doing with a two to three year lease is paying off the highest window of depreciation. It’s just buying a new car and trading it in every few years, with one less step.

At the end of the lease term, you’re left with nothing. Sure, you can take out another lease, and look, the payment is lower than buying the car outright! But this is just a recipe to get you into a perpetual cycle of payments. We could run through some actual numbers, but I figured out a way to save some time with one simple question. Let’s be honest, if leasing didn’t make more money for the dealerships over the long-term, would they even offer it as an option?

View your car primarily as an appliance

Obviously this piece of advice doesn’t work that well if you’re a diehard “car guy” (or gal!) who views vehicles as a hobby and is able to responsibly budget for it as such. I’m never going to rag on someone who buys a performance car but can still manage a respectable savings rate. That’s what finding a balance is all about.

For me though, I’m not big into cars and I’ve learned to view mine like a tool or appliance. Does it get me from point A to point B safely, economically, and relatively comfortably? If so, then there’s no sense in spending money on a newer model to do essentially the same job but with a few more bells and whistles.

My Prius may be boring and slow, but it does the job that I need it to do dependably, and it’s got a surprising amount of cargo room when I need it.

Only buy from highly reliable manufacturers

This was a lesson I learned the hard way with my Ford. The surest way to make sure you spend less on vehicles is to buy one that lasts a long time with no major issues. Vehicle manufacturers are certainly not created equally in this regard! My 2014 Focus had a reliability rating of 2 out of 5 from JD Power. By contrast, my 2015 Prius has a perfect 5 star rating for reliability.

My Prius is sitting pretty at over 150,000 miles (I used to have a really long commute) and I’ve had zero issues. So far I just do the preventative maintenance and that’s been enough to keep it running smoothly. After my experience with that Ford Focus, I have my doubts it would have even survived into the six digits without becoming a money pit.

There’s a reason that you can buy a 5 year old BMW 3 series for about the same price as a 5 year old Toyota Prius, despite the MSRP on the BMW being $15k higher. The maintenance costs will eat you alive. No matter what type of vehicle you’re shopping for, go for reliability above all else — your wallet (and your sanity) will thank you.

One big tip, always search the web to try and find a dedicated forum for the specific model of car you’re considering and see if the owners are having any big issues. I could have saved myself a lot of trouble if I did some reading on the “Focus Fanatics” forum before making my purchase, instead of stumbling upon it later when researching my transmission issues.

Always skip the extended warranty

Don’t be fooled by the back room scare tactics from the finance guy. I remember when I bought my Prius, the guy trying to sell me the extended warranty went on some spiel about how the car had four transmissions, motor generators, the hybrid battery… Basically trying to scare me that the car was high tech and had a lot of components that would be expensive to replace if they broke. And also, blatantly lying: 5 years later, I’m still trying to find my other three transmissions.

Besides, wasn’t the salesman talking up the reliability and factory warranty just an hour ago? Quite simply, dealers and manufacturers would not offer extended warranties if it didn’t make them money on average. It’s expensive insurance, and most people who buy extended warranties either never use them, or get nowhere close to their money’s worth. That’s all by design.

Buying new can actually be okay

Many prominent personal finance gurus act as if buying a brand new car is the worst possible thing that you can do, and say that you should only ever shop used. I don’t think it’s valuable to speak in absolutes.

Looking at reliable manufacturers like Honda and Toyota, my research indicates that those vehicles depreciate in a more linear fashion, and tend to hold closer to 60% of their value after 5 years with an average amount of mileage. So yes, you’re getting a discount by purchasing used, but you’re also getting 5 less years of vehicle lifespan. The calculation to find the break-even point is complex with many factors. But based on my figures, if you’re buying a new reliable car with low depreciation like a Honda or Toyota, the premium for buying new versus a 2 to 5 year old used model is essentially negligible after 8 years when amortized over the period of ownership.

As the depreciation rate increases, the break-even point pushes out further and further to where buying new makes no sense, because it exceeds the expected lifespan of the vehicle. For our 5 year old BMW 3 series maintaining about 40% of its MSRP, we’re out around a 13 year break-even to amortize the premium for buying new to a negligible amount. Good luck keeping a Bimmer on the road for anywhere close to that amount of time without breaking the bank in maintenance costs. Obviously this is an extreme example based on a vehicle with one of the higher depreciation rates on the market, but it’s good for framing expectations.

Buying a new car isn’t the cardinal sin that some financial gurus try to make it out to be, as long as you follow these simple rules:

Make sure that both the manufacturer and the vehicle model have a demonstrated history of above-average reliability for the auto industry.
Buy only as much car as you need. Chances are good that your vehicle needs can be met with a $20-25k econobox hatchback. Unless you’ve got a crazy high income or a net worth in excess of a quarter million, you’re probably not at the point where a more expensive car should be on your radar.
At a minimum, aim to drive your car for a decade. Ideally, keep it until the wheels fall off.

On frugality versus cheapness

Is my strategy to buy a brand new car every 10+ years the method to save the most money? Absolutely not. You can get a decade old Toyota Corolla for $5,000 and probably get at least another decade of life out of it if you take care of it. That’s the cheap way to do it. And for those who do so out of necessity or out of stoicism, more respect to them. But that’s not for me, as I’m trying to find a balanced path between saving for the future and enjoying myself now.

To me frugality is about getting the best value for my money and not necessarily the absolute lowest cost. In that regard I’d like to be comfortable during the 50-60 total minutes I spend commuting per workday. I’d also prefer to have relatively modern safety features on my vehicle. Spending $20-25k on a car every decade or so to meet those desires seems reasonable to me.

It also helps to know where to draw the line — and to do that I like to compare differences at the margin. Say you bump your price range up to $35k. That gets you more luxury, more power, a bigger vehicle, or a bit of all those categories. But are those marginal differences worth an extra $10,000 over the features you’d get on the $25k vehicle? Does a Toyota Camry Hybrid, an Avalon, or a Highlander (all ~$35k cars) do anything that my Prius doesn’t to justify their higher price? Not to me at my current income ($90k) and net worth ($166k).

Final thoughts

With only three car payments remaining, I’m almost done paying for my past car buying mistakes that resulted in $7,539.46 of losses. I’m hopeful that I’ll get another 5 years out of my car after that. I imagine that it will be hard to justify replacing it early once I finally get a taste of adult life without a monthly car payment.

I’ve written this article so that others can learn from my past mistakes, as well as to have my thoughts written down for my own future reference. It will be interesting to see if and how my opinions change over the coming years as my net worth and income march steadily upward.

Don't Let Old Electronics Gather Dust... Sell Them!

Sat, 22 Aug 2020 00:00:00 UTC

Shortly after finishing my previous post on planned obsolescence, I tried to account for all the old and rarely used electronics in our apartment. I was determined to mitigate some of the guilt stemming from my contribution to the growing global e-waste problem. Of course, these items had already been bought so my only options left to reduce my impact were to re-use or recycle them (and as I learned from my research for the last article, e-waste recycling can be deceptively not as green as it sounds).

What I came to realize was that the re-user doesn’t have to be only me in order to accomplish the goal of mitigating my environmental impact. If other people are willing to use these devices (and better, willing to pay for them) rather than buying a brand new version for themselves, then that makes it a win-win scenario.

For whatever reason, I’ve never been one to sell old items. Usually I would let old electronics just sit unused in a drawer until they were virtually worthless, then drop them in the recycling boxes that some stores offer. I guess I underestimated the second-hand market, because I thought it would be a much bigger hassle to sell things.

I’m happy to admit that I was totally wrong. While Craigslist was kind of dead, every item I posted on Facebook Marketplace had a deal ironed out within hours. I only had to dodge one attempted scammer and politely reject offers from a dozen lowballers. The longest that I had to wait for someone to meet up and complete a deal in person was 15 minutes.

My main strategy for pricing was to look up identical items on Swappa (an online used electronics marketplace), but I didn’t list on this site because I didn’t want to deal with shipping things. I tried to match the condition of my item to the site descriptors like “fair” or “good”, and averaged the prices for items that were the closest match and had recently sold. I then cross-referenced with Facebook Marketplace prices in my area and subtracted up to 10% from my list price if necessary to ensure I had the best price for those items. I was more concerned with selling stuff relatively quickly as opposed to having listings sit for a while to try and squeeze another $5-10 out of an item.

Another tip is to clean up the devices and take good pictures. I cleaned everything up as best as practical and if the item had a screen, I wiped it down with a microfiber cloth. I saw a bunch of listings of grungy phones covered in fingerprints photographed in low lighting, with no photographic proof that they even turned on. I can’t imagine those sell as well compared to the cleaned-up devices that someone put even two minutes of effort into staging the photos for.

I accepted nothing other than cash in hand for my items, as digital payment apps like PayPal, Venmo, and Zelle all have various scams associated with them in which the transactions are reversed a couple days later once the scammer has your item in hand.

My sales results

Item #1, Amazon Kindle Fire HD 10 Tablet:

The inspiration for my musings on planned obsolescence. The original price was $123.23 including the case. I was able to sell it quickly for $60 cash, recovering almost half of what I spent! I’m surprised it sold for that much given my experience that it was a laggy device prone to crashing due to only having 1 GB of RAM, but I’m definitely not going to argue if someone thinks it’s worth more than I would personally pay.

Item #2, Oculus Rift Virtual Reality Headset:

Another poor purchase from my past, as I must have only used this thing for 25 hours in the two years that I owned it. This was an impulse buy after trying VR at a friend’s house and getting blown away; unfortunately the novelty quickly wore off. Originally purchased for $333.73, I was able to get $175 cash for it, recovering just over half of the original price. The effective cost came out to roughly $6.35 per hour of VR gaming entertainment, so it doesn’t seem like too big of a waste in those terms.

Item #3, Samsung Galaxy S6 Edge Plus:

This was my previous cellphone that I bought in 2015, and replaced after only two years because the battery could barely make it half a day of light use by that point. The glass on the back panel was completely shattered from a drop, but I still managed to get $40 cash, a laughably small fraction of the $720 purchase price.

I’m very happy with my current phone, a OnePlus 5T, as the battery is still quite healthy after 3 years of use. I feel like we’ve reached the point where the tech in even mid-level phones is powerful enough to last for many years longer than the battery tends to. I really don’t need it to do much more than texting, web browsing, email, and music streaming. I’m hoping to get at least another year (preferably two years) of use out of my phone before I consider replacing it.

Item #4, Microsoft Surface RT Tablet:

After seeing my rousing success selling my old electronics, my girlfriend offered me a 1/3 cut to list and sell some of her items. I was skeptical that this tablet was worth anything at all — it’s from 2012, and it runs a weird orphaned offshoot of Windows 8 called Windows RT on which you can’t install any programs. The tablet comes with Office 2013 and an outdated version of Internet Explorer that most sites don’t even support anymore, and that’s really all you can use it for.

As far as I can tell the original retail price was $499, and I was very surprised that I was able to quickly sell this tablet for $60 cash, of which I got $20 for my cut.

Item #5, iPhone 7:

Another of my girlfriend’s items that I was commissioned to sell. The secondhand iPhone market appears to be extremely healthy. Unlocked phones sell for a bit more, but if they’re locked to a popular carrier it shouldn’t be an issue. Hers was locked to Verizon and I sold it within 12 hours of posting.

This iPhone 7 had a retail price of $650 in 2016, and despite the screen being moderately scratched I was able to sell it for $125. That’s over twice what Verizon was offering to buy this phone back when she upgraded. I was given a $40 cut for my efforts.

Totaling my earnings

Adding up the value of my three items, plus the cut I received from selling her two devices comes out to $335! That’s a crazy return for the amount of effort that this took. I’d estimate that I spent 3 cumulative hours getting these devices ready to sell, photographing them and creating listings, negotiating with potential buyers, and meeting to make the exchange. That’s over $100 per hour, more than twice what I make from my day job.

A little bit more than just the money

Other than the obvious monetary gains, there were several other benefits to this exercise, such as:

De-cluttering these items from our cramped 800 square foot apartment.
Mitigating some guilt over our contribution to the massive amounts of e-waste produced annually, in that someone else will extend the useful lifespan of these devices.
Being forced to physically confront my past purchasing history rather than hiding these items at the bottom of a drawer or closet was a good reminder to be more mindful of my future consumption habits.

I’m not planning to do anything special with this $335 windfall. I briefly thought about spending it on something frivolous, as I’ve already saved over $25,000 so far this year, but that doesn’t sit right with the anti-consumption spirit of these past couple articles. In the end I exercised self-discipline and made the frugal, responsible decision to just save it. Every chunk of change saved is a few steps further along the journey to financial freedom.

Do you have any old, unused electronics sitting around your house? You might be surprised how much they’re worth, and how easy it is to sell them!

Being More Conscious of Planned Obsolescence

Sun, 16 Aug 2020 00:00:00 UTC

Less than two years ago, I was on the hunt for a device to use for those times when I didn’t feel like sitting at my desktop computer, but wanted something with a bit more screen real estate than my phone. My use case was basically for lounging on the couch or in bed, and when I was traveling.

In the interests of frugality I was obviously concerned about price. My “could afford” price is much higher than that voice in the back of my head telling me what I should actually spend. With how high my monthly free cash flow is these days, I could buy an iPad Pro or some crazy high-end laptop and it might not even register as a blip on my net worth graph. But I’ve trained myself not to think in that manner, because that mindset is a slippery slope towards unbridled consumerism and financial mediocrity.

As usual, I decided to responsibly buy only what I needed (or wanted in this case), trying to hit that value sweet spot and get the best utility per dollar. I purchased an Amazon Fire HD 10 tablet for $99.99. After adding a $15 case and tax, my total came to $123.23.

My new toy was a little sluggish out of the box, which I realized was likely due to only having 1 GB of RAM. Amazon Fire tablets run a modified version of Android, so I found some advice online to go into the settings and restrict the number of background processes to make more memory available for the apps I wanted to run. Cool, it was fairly snappy now. I was also able to get around Amazon’s limited app selection by side-loading the Google Play Store. I was pretty satisfied that I now had a fully-fledged Android tablet for barely over $100.

Well, it wasn’t perfect. If I opened more than 10 tabs it would crash my web browser, I assume due to maxing out the 1 GB of RAM. I figured it was something that I could live with and made an effort to be more conscious of my tab hoarding. That worked for a bit. But over time (and with updates taking more system resources) my device got slower, and slower, and slower. A year after my purchase it was hardly usable, even after wiping it with a factory reset.

In hindsight I should have done enough due diligence to see this coming. My 3 year old Android phone has 6 GB of RAM to work with! I had to go back nearly a decade to find phones or tablets that released with only 1 GB of RAM. Clearly, spec-wise my Fire HD 10 tablet was years outdated before the first unit had even left the production line.

A philosophical dilemma

Some people might say something like, “well you got a year of use out of a $100 device. So even if you throw it out and buy the upgraded equivalent every year you’re still coming out ahead compared to someone who got 8 years of use out of their expensive MacBook.” And while that’s completely true in a financial sense, it falls flat from an anti-consumption perspective.

This year, the amount of global electronic waste (or e-waste) produced annually is expected to exceed 50 million tons, and continue growing at a steady clip. Even when we attempt to recycle these items, an overwhelming amount just ends up being illegally dumped in third world nations anyway. In some cases it just sits there, where the toxic compounds in e-waste slowly leach into the soil and water. In other cases it’s sent to derelict recycling dumps with nonexistent worker protections, where items burned in the open air create respiratory issues and other health hazards for workers and their surrounding communities.

To that end, a $500 tablet that lasts for 5 years creates a fraction of the e-waste compared to buying a new $100 device every year. Something I’ve been considering a lot lately though is, what are the price of my values? Would I be willing to spend $800 for that device that lasts for 5 years, effectively personally paying a premium as a consumer to reduce my environmental impact on the world? Hypothetically, would I be willing to spend $1000 for the same device that is guaranteed to be fully recycled at its end of life? These questions aren’t easy to answer, but at this stage of my life I’d lean towards saying yes.

We live in a throw-away society

It’s not reasonable to expect anything to last forever, especially electronics where Moore’s Law states that processor speeds will double roughly every two years. But I do think it’s reasonable that consumers have a “Right to Repair”, both for the benefit of their wallet and the environment.

When you feel like you need to buy a new phone after two years because it barely holds a charge for half the day and you can’t easily replace the battery as an end user, that’s planned obsolescence. When my tablet became useless because the 1 GB of RAM is soldered to the motherboard and can’t be upgraded, that’s part cost-cutting in the manufacturing process and part planned obsolescence.

If I need more RAM in my desktop computer, all I need to do is pop the side panel off and install two more sticks directly on the motherboard. When that time comes it will buy me several more years with this machine, and I guarantee that the small waste footprint of those RAM sticks outweighs the impact of replacing the whole machine dozens of times over.

While companies share some of the blame for planned obsolescence, consumers are the sustaining force. Some people just want the best technology at the lowest prices (which in turn drives cost-cutting practices like soldering components in mobile devices), and some want that new phone as a status symbol every two years like clockwork.

Vote with your wallet

What would happen if consumers collectively refused to buy phones without replaceable batteries, flocking to the few phones sold today that still offer this feature like the Samsung Galaxy Xcover Pro or the Motorola Moto E6 Plus? Companies would be forced to adapt their product offerings to what the market demands or go the way of the dinosaur.

Even if you share my cynicism about a majority of the population ever thinking in such terms, it’s not so pointless that you should give up and join them in wanton consumerism. Every time you spend money on a good or service, you’re adding one more vote to tally up for the provider of that product that says “this is what consumers want me to produce more of.” And that goes for everything behind the product too: the design, the cost, whether it’s repairable, where the materials were sourced from, how the workers that make it are treated, and many more factors.

Furthermore, it probably doesn’t take 100% of consumers to change their habits to force the market to start changing. Maybe the number is 50%, or 30%. But not all votes are created equal. This isn’t like a political election where everyone gets one vote — based on our income, here in the Frugal Flannel household we’ve got over 3x as many votes in our wallet as the median household in our state. And choosing to consume less overall is perhaps an equally powerful statement as what you choose to buy with the money that you do spend.

Striving to do better

At 27 I’m still making mistakes, learning new things, and refining my worldview and personal beliefs. I view my Amazon Fire tablet purchase as primarily an ethical mistake, and a financial mistake secondly. It really wasn’t enough money to get broken up about. The best thing that I can do is to commit to making better purchasing decisions in the future that are more in line with my beliefs.

Last fall I needed a coffee grinder. I opted for a manual, hand-turned conical burr grinder, the Orphan Espresso Lido 3, over one of the fancy (and more expensive) electric options. With no electronic components or motors to burn out, my coffee grinder should last for decades at the price of a bit of sweat equity. As long as the manufacturer stays in business, they sell each individual part for a fair price on their website, and it can be fully disassembled with common tools should I ever need to make a repair.

Supporting business models like that feels like the right thing to do. As does reducing my environmental impact as much as is practical. As does striving for increased levels of self-sufficiency. In an ideal world, I’d feel good about where every dollar that I spend ends up. Progress down this road can only be achieved through being a more conscious consumer and scrutinizing every spending decision.

Why I Love Ally Bank's "Buckets"

Thu, 23 Jul 2020 00:00:00 UTC

I’ve been using Ally Bank since January, when we decided to start setting aside cash for a potential down payment on a home. For many years prior, my only bank account was with a local credit union yielding nearly 0%, in which I keep my $12k emergency fund. I figured if I was going to expand my cash pile, it was finally time to stop procrastinating and open a High Yield Savings Account (HYSA). Other than their consistently above-average interest rates on savings accounts, one thing that attracted me to Ally was their “Buckets” system.

Here at Frugal Flannel, I’m always on the lookout for ways to improve my financial life, and a product being free is a great initial qualifier to merit a closer look. Arguably, I’m even getting paid to use Ally compared to the low interest rate that my credit union has been providing. (Speaking of getting paid, this article is not sponsored in any way. This is my honest, unbiased review.)

Overall I’ve found Buckets to be very useful. It’s not a life-changing widget by any means, but I think the real value here is in automating and simplifying my finances even further, and I certainly plan to continue using it. Read on for an overview of Buckets, how I use it, and a discussion of Ally’s interest rates in general.

What is Buckets?

Essentially, Buckets is a digital version of the “envelope system”. The envelope system is an old-school budgeting method where people keep physical cash inside of individual envelopes, each one labeled with an expense category. The envelopes are filled up with your budgeted amount of cash per category at the beginning of the month. This method is still in use by a few people today, particularly those who have issues with digital spending like credit cards, as the physical act of going into the envelope to remove cash can help them to control their spending more consciously.

In my opinion the ability to create and label various sub-accounts in your savings account shouldn’t exactly be a ground-breaking feature, but here we are over 2 decades from the advent of online banking and it’s finally a thing! For what it’s worth, you could always do something similar with Ally and a few other online banks by creating multiple savings accounts (each with a different account number) and renaming them, but this was more of a workaround than a fully-integrated account partitioning solution.

Enter Buckets! Under the “Organize” tab of your Ally Bank savings account details screen, you’ll see an option to start using Buckets. Clicking this brings up the following menu:

You can have a total of up to 10 different buckets, which can be a combination of Ally’s preset categories plus any custom categories that you’d like to create. You also get a “Core Savings” bucket, which is where any money not already allocated to another bucket goes by default.

How do I personally use Buckets?

I don’t really care to use this feature for a complete digital implementation of the envelope system, though you could certainly do that. I’m disciplined enough that I don’t need that, and my spreadsheet budget is generally sufficient to keep me in line.

What I do use Buckets for is a replacement of external accounting for earmarked money. Previously I was updating a spreadsheet with this info; for example I’d have “Down Payment Fund, $18.3k” recorded somewhere to help keep track of how much I stashed away for that particular goal. This was necessary to differentiate those funds from the generic, single pile of cash in my bank account. At the end of every single month when I pay bills and update my financial records, I’d have to remember to go into my spreadsheet and manually update these categories too.

Buckets helped me to automate and simplify the process of earmarking funds. Now I don’t need that spreadsheet section, because my Ally account looks like this:

Nice and tidy! I haven’t gotten around to moving my emergency fund from my credit union to Ally yet, but that will be my next bucket.

A cool feature is that you can set recurring transfers into a specific bucket, not just your general savings account. Since I budget $200 per month for travel, I just set that up as a recurring monthly transfer from my checking account into my vacations bucket:

I find it helpful to use a system like this for those costs that occur rarely, but are large enough that you definitely still want to budget for them. I’m really only withdrawing from my travel fund once or twice per year, so the bucket makes it easy to see how much I have available to spend, and removes the need to track that manually. When I eventually spend money on a vacation, I just transfer it from the bucket back to my checking account, and let the recurring transfers slowly refill my travel fund.

I don’t bother with the “Surprise Savings” feature

To use Surprise Savings, you link a checking account (which doesn’t even have to be an Ally account), and they analyze your spending to automatically transfer “safe-to-save” money to your savings account. If I understand correctly, they transfer any additional cash flow above your average monthly expenditures. But they’ll never move more than $100, and will initiate transfers no more than 3 times per week.

Personally I have no desire to use this feature. Part of my monthly financial ritual is to copy my spending in each budgeted category from Personal Capital into my spreadsheet. This spreadsheet then feeds into the budget reviews that I do every 6 months. I actually enjoy manually filling out my spreadsheet with my income and expenses, seeing my hard work materialize into a monthly free cash flow, and then transferring all of that away from my checking account into savings and investment accounts. That part of budgeting I actually like doing manually, because to me seeing $2000+ in monthly free cash flow is validation that I’m doing a great job with meeting my financial goals.

Which brings me to my other issue with Surprise Savings, apparently I just save too darn much and have more money than they can transfer! I know, what a First World problem to have! With the maximum transfer limit of $300/week, or roughly $1200/month, that’s well under my current average monthly cash flow, so I’d have to go in and initiate manual transfers whether I use this feature or not.

Thankfully Surprise Savings is completely optional, so I just leave it turned off. I could definitely see it being useful for people who don’t care enough to take a deep dive into their personal finances and want a fully-automated solution.

How do Ally Bank’s interest rates stack up?

At the time of writing, my Ally savings account pays 1.00% APY. I think it was 1.60% when I signed up at the start of the year. Unfortunately rates have been slowly dropping at all banks over the past few months in response to the Federal Reserve lowering the federal funds rate in an attempt to stimulate the economy.

May 2023 Update: Interest rates are finally back on the rise again; Ally’s savings account now pays 3.85% and I am regularly getting emails notifying me of further small increases. I am seeing some banks like PNC offering up to 4.50%, so if getting the absolute highest savings rate is your primary concern, you will have to do some research and regularly move your money around to chase these offers.

What I do know is that Ally has consistently appeared near the top of the list for years, so they’ve got a track record of offering competitive interest rates. They seem to quickly raise and lower their rates in response to market forces, always staying near the front of the pack if not necessarily number one. I’ve been monitoring savings accounts rates regularly for years, and the list is always shuffling around as to who is offering the highest rates in any given month.

What I also know is that I’m not moving my money around multiple banks to chase an extra tiny bit of yield that may not even be offered any longer by the time an ACH transfer processes. I’ve got better things to do, like write for this blog!

Overall I’ve been very happy with Ally Bank’s interest rates compared to their competitors, and the utility of their Buckets system makes them my top choice among savings accounts. Hopefully widgets like Buckets become standard fare in online banking, maybe even providing that first step in helping more people to get a handle on their finances.

How to Calculate Your Savings Rate (And Years Until FIRE)

Sun, 19 Jul 2020 00:00:00 UTC

Your savings rate (commonly abbreviated as SR) is arguably the single most important variable on your quest for financial independence. It may seem obvious that the more that you save, the earlier you can retire, but the first time I saw just how early I could retire by saving a third or more of my income, I was completely blown away. Likewise, seeing how much shorter my career would be by squeezing an extra 5-10% into my SR really helped motivate me to be more frugal.

Once you know how important it is, it’s almost like a game to regularly crunch the numbers and try to see how high you can push your savings rate, especially in those first few years of pursuing financial independence. Who doesn’t want to retire even earlier? It’s also a great metric to gauge your own progress as you learn how to keep more of your money, and a bit of a bragging point in the FIRE community (though be careful not to go overboard with comparing yourself to others)!

That’s enough of a teaser introduction — why don’t I just show you how important your savings rate is? To that end, I created this fancy graph in Python which compares your savings rate to how many years you’ll have to work until reaching financial independence. I ran the numbers at several different rates of annual real returns to help visualize a range of expectations. Since stock market returns are highly volatile, the shorter your career is, the more likely it is that returns over that period will deviate from the average return.

I’m also assuming a starting point of $0, and defining financial independence as the point where your portfolio becomes large enough to sustain a 4% Safe Withdrawal Rate (SWR). That is, it’s very likely that if you only sell 4% of your portfolio value each year to cover your expenses, it will grow equal to or faster than this rate, allowing you to sustain such withdrawals indefinitely without running out of money. A 4% SWR also translates into a portfolio value of 25x your annual expenses.

Isn’t that totally insane? If you could figure out how to save and invest 1/3 of your income at a 5% annual real return, you’d only need to work for just under 26 years before reaching financial independence and having the option to retire early. Even crazier, if you could save exactly half of your income, you’d only need to work for 16.6 years! And if you’ve got the right combination of income and frugality to save 2/3 of your earnings, you’d only need to work for 10 years.

Using the graph we can see the range of expectations that I alluded to earlier. I think defining a 0% real return (i.e. your money only keeps up with inflation, but otherwise sees no growth) as a worst case scenario is fair. Conversely, a 10% return could be used as a proxy for your working years occurring in an outstandingly good period for equity investors.

To explore this example, let’s take someone who saves 50% of their income. Our absolute worst case scenario still has them retiring in 25 years, and in our best case scenario they retire after just 13.1 years. Additionally, we can see that the higher your savings rate gets, the tighter your projected outcome range becomes! For example, moving from a 50% to a 66% savings rate, the difference between the best and worst case scenarios roughly halves, to only 6 years. I would definitely plan for the average here, but it’s helpful to look at best and worst case scenarios so we can frame our expectations.

If you’ve read some of my previous posts, you’ll know that I like to use 5% annual real returns for my projections. This is slightly less than the historical annual real return of a globally diversified equity portfolio like I hold, so it’s mildly conservative in that it assumes the future will be no better or only slightly worse than the past (a period which includes 2 World Wars, The Great Depression, many smaller recessions, and several “flash crashes” but still produced great returns for equity investors).

Based on that assumption, I went ahead and tabulated some data points for the 5% real returns curve to use as a quick reference guide. Like I said, these are the numbers that I’ve concluded are the best to use for projections:

Savings Rate	Working Years Until FI
0%	∞
5%	65.8
10%	51.4
15%	42.8
20%	36.7
25%	31.9
30%	28
35%	24.6
40%	21.6
45%	19
50%	16.6
55%	14.4
60%	12.4
65%	10.5
70%	8.8
75%	7.1
80%	5.6
85%	4.1
90%	2.7
95%	1.3
100%	0

So how do you calculate your savings rate?

Now that you’ve seen how a high savings rate enables you to reach financial independence and have the option to retire early, how do you calculate your SR to see where you fall in the table above? At first glance it may seem like an easy thing to calculate, and most people would come up with something like this:

Unfortunately, that’s wrong. There’s some mistakes in that calculation that will compound as your savings rate grows larger, making it unsuitable for people pursuing FIRE. Notice that, excluding the recent spike in personal savings rates due to the coronavirus lockdown, the average savings rate in the US has mostly been bouncing between 4 – 8% for the past several decades. Even a 20% error in such a small number doesn’t make much difference, because the average American does not save anywhere close to enough money to retire on their own without Social Security.

Because FIRE is such a niche topic with (if I had to guess) likely well under 1% of the population actively pursuing it, nobody calls out all of those articles and resources telling you how to calculate your savings rate the wrong way. So you can have a deeper understanding of the final numbers, I’m going to walk through all of the ways that I’ve seen people do the math wrong, then show why and how you can calculate your savings rate the correct way.

Mistake #1: Not subtracting taxes from your gross income

Once you’ve maxed out your tax-deferred accounts, there’s simply no way to pay less taxes. If we didn’t subtract out taxes from the denominator of our calculation, your savings rate would probably max out in the 65 – 80% range, depending on your personal situation and total tax burden. If you think about it, this is money that you never even had a chance to save, so my school of thought is that it’s not fair to penalize your savings rate by including it.

Another good reason not to include taxes is that I plan to pay none or very few of them in early retirement! If your annual expenses are less than $40k for a single person, or less than $80k for a married couple, you can easily pay no taxes in early retirement with little work on your part. I’ve even seen couples push it to slightly over $100k in annual expenses with no taxes paid using some more careful planning. This method is worthy of an entire article which I plan to write in the future, however the general gist is that if you have a variety of accounts with different tax treatment (tax-deferred like a 401k, tax-advantaged like a Roth IRA, and regular taxable brokerage investments) you can cleverly take withdrawals from each such that you end up with a substantial sum of money to cover your expenses with no tax bill.

Since frugality is usually a necessity to achieving financial independence, it’s probably safe to assume that most people who aspire to FIRE have annual expenses in the above ranges. Thus, removing taxes from your savings rate calculation helps standardize the comparison between your current situation and your post-early-retirement situation.

Don’t forget to subtract smaller tax line items like OASDI (Social Security) and Medicare, too!

Mistake #2: Not properly accounting for retirement matching

If you get matching contributions in a 401k or similar account, most people remember to add this to their savings column. However, don’t forget that your matching also counts as income! Consider the impact of accounting for this in your savings, but not your income — your savings rate would be incorrectly inflated, and have an upper bound above 100%. So make sure that you’re adding your match to both the numerator and denominator!

Mistake #3: Overlooking some of the smaller or non-obvious savings categories

I’ve definitely had to go back and re-crunch some of my own numbers in the past after forgetting about a small account like my HSA, which only gets $900/year deposited into it. That’s another reason to love spreadsheets though, they can easily be edited and grow over time! Here’s a list of line items that you should consider when summing up your savings:

Net inflows to retirement accounts (401k, 403b, 457b, IRA, etc.)
Employer matching contributions to retirement accounts
Net cash flow into a savings account
Net inflows into a taxable brokerage account
Contributions to a Health Savings Account or similar
Contributions to a workplace pension plan, as long as those contributions belong to you and can be claimed upon separation

This section likely isn’t an exhaustive list and you may very well have an additional savings category not listed, but I think that list should cover everything for 95% of people!

Mistake #4: Handling of mortgage payments

The portion of your mortgage payment that goes towards principal is technically savings in that it increases your net worth. However, homes are an illiquid asset and cannot be drawn down to pay for living expenses like you can do with your invested retirement portfolio. For that reason and for the purposes of determining your working years until FIRE, I would exclude principal paydown of your base mortgage payment from your savings rate calculation.

However, if you make extra payments towards your mortgage to pay it off faster, I think it’s fair to include these in your SR. The reasoning being that you can choose to stop making these additional payments at any time and re-deploy that cash into your investment portfolio going forward.

Home ownership can add another layer of complications to your FIRE calculations. If you pay your home off early, you’ve permanently reduced your living expenses for the rest of your life — and thus reduced the required size of your FIRE portfolio! So the recommended guidelines above aren’t a catch-all for everyone, but rather what I believe are the best methods for those newly initiated into the FIRE movement to get the most accurate estimation of their potential early retirement date.

The best way to calculate your savings rate

Now that we’ve examined all of the big mistakes that you can make when calculating your savings rate and how to avoid them, we’re left with the following formula:

I firmly believe that this is the best and most accurate way for the majority of people pursuing FIRE to calculate their SR.

An example, using Jake’s real numbers

What better way to learn than by following along with a detailed example? And keeping with the blog’s policy of as much financial transparency as possible, I’m going to be using my real financial data for this calculation. Since I recently did my budget review for the first half of 2020, I’ve already got plenty of data gathered from that 6 month time period, so I’m going to go ahead and use that. You can use any time period you’d like, but be careful to adjust your line items appropriately to your chosen time scale.

Since the earliest days when I began pursuing FIRE, my targeted savings rate has always been a 50% SR to support my goal of retiring by age 40. Full disclosure, I actually haven’t re-calculated my savings rate in at least a year, so while I have a general idea around where it’ll be, I’ll be finding out the true updated number as I write this article. Last time I checked it was around 55%, but since then I’ve reduced my 401k contribution in order to stack up cash for a down payment on a home.

Anyway, let’s start gathering the data we need, starting with my total savings amount:

Account	6 Month Contributions ($)
Cash Savings	13,129.68
401k Contributions	4,522.80
401k Matching	2,194.24
Pension	1,786.80
HSA	450.00
Roth IRA	0.00
Taxable Brokerage	0.00
Total Saved	22,083.52

Nothing groundbreaking here; these are the same numbers from my recent budget review. I did split my 401k line item into two rows to differentiate between contributions and matching. On to figuring out taxes:

Tax Paid	6 Month Total
Federal Tax	5,624.11
OASDI	2,709.72
State Tax	1,749.08
Medicare	633.72
Total Paid	10,716.63

A quick tip here, if you’re using tax data from your pay stub, your savings rate calculation will be easiest if you’ve adjusted your withholding amounts on your Form W-4 such that your end of year tax liability is as close to zero as possible (that is, you neither owe money nor expect a refund). Unfortunately, I didn’t remember to do this when switching jobs late last year so I ended up getting a refund. Let’s look at my total income:

Income Earned	6 Month Total
Gross Salary	44,514.80
401k Matching	2,194.24
Stimulus Check	1,200.00
Tax Refunds	1,024.00
Total Income	48,933.04

Here we’ll see the flip side consideration of that tax scenario I was just talking about, where my tax refund has to be counted as income because it’s one of the cash inflows that I counted as savings earlier. It doesn’t really make a difference as long as you’re accurate with your accounting and your situations are similar from year to year. To elaborate, adjusting your withholding would remove this amount from both the income and taxes variables but not your savings, making the net effect zero.

That’s also where the “be careful to adjust your line items appropriately to your chosen time scale” advice comes in. A tax refund is an annual event, whereas I’m working with a 6 month time frame here. In my case it only makes half a percent of difference either way; I already counted the full refund in my savings amount from my budget review a couple weeks earlier, so I’m going to proceed as is and just round down my final SR to compensate.

The sanity check

If you’ve done everything right, your savings, taxes, and expenses should sum up to your total income. Otherwise you’ve likely forgotten or double-counted something. From my recent budget review we had average monthly expenses of $2677.86 over this six month period, for a total of $16,067.16 in expenses.

Now add to that my taxes and total savings from the tables above, and we end up with $48,867.31. That’s pretty darn close to my total income of $48,933.04! Only $65.73 went “missing” in my finances over the first 6 months of the year, a 0.13% tracking error. If you’re off by around 1% or higher, you probably want to go back and try to look for mistakes.

My savings rate revealed!

Now that I’ve got high confidence in the accuracy of my numbers, let’s plug them back into our better savings rate calculation method:

The result, 0.578 or 57.8%! If I choose not to include my stimulus check in the calculation (in case anybody claims this is unfair), the result is 56.4%. Also accounting for the half a percent error or so due to the tax refund situation described a few paragraphs above, I’m going to round to a nice, clean integer value and say my savings rate is 56%!

Going back to my fancy graph and table to compare savings rates to expected working years, we can see that at a 5% real return, someone starting from $0 today would on average only need to work for a little over 14 years at my current savings rate before hitting financial independence! Of course, since I’m not starting from zero (I’ve already built a net worth of over $150,000 at 26 years old), we can infer that I will likely reach FIRE before my goal of age 40.

Really, you can do it too

The above math is great news for tens of millions of people, because if I can make huge progress towards financial independence, then you can too. The reason I say that is because while I do make a good income, I’ve still never made 6 figures. 20% of individuals in America earn more than I do.

Additionally, I live a very comfortable upper middle class lifestyle even with budgeted spending of under $34k per year. While I’m always seeking out ways to spend less, and spend smarter which is one of the main goals of this blog, it’s proof that you don’t need to make a ton of money to start saving. Any income above that $34k per year (plus taxes) for me is pure savings. Even if my income was halved tomorrow — putting me around the 50th percentile for individual income in America — I guarantee that I could easily slash my spending to maintain at least a 35% savings rate.

One final tip, something I found hugely motivating in the beginning of my journey was figuring out how getting my budget into shape would affect my savings rate. I’d do the math and figure out that things like paying off a student loan would increase my SR by 3%, or how cutting my spending in an unnecessary category would get me another 2% boost. The point is, Rome wasn’t built in a day. I started around a 30% savings rate and have progressed my way up to today’s 56% SR. Nearly a decade after being introduced to the FIRE movement, I’m still learning new things and still tweaking my plans.

FIRE is a radical concept to the uninitiated, but the math doesn’t lie… in fact, it shows just how possible it is! What’s your savings rate, and how early will it let you retire?

The Most Reliable Investment Strategy for Getting Rich

Mon, 13 Jul 2020 00:00:00 UTC

We’ve all heard the stories about how everyday people we know, or a friend of a friend has gotten rich. Maybe not filthy rich like the billionaires in pop culture. Most of the billionaires have similar stories to each other, in that they created a company which in turn sold a product or service that millions of people want or need. While these stories are inspirational, we intuitively understand that they’re not reproducible. You or I will not be the next Bill Gates, Elon Musk, or Jeff Bezos.

So it’s with a fond ear that we listen to tales of people with “regular jobs” just like us who became comfortably wealthy. Millionaires at the very least. Maybe they’re a lawyer, or an accountant, or a carpenter, or an engineer. Either way, the general trend of these stories seems to be that they turned a small trickle of savings from their day job into a respectable pile of cash through their investment savvy.

You know the stories that I’m talking about. Your uncle, who bought a vacation home in the Jersey Shore for $80k a few decades ago, and recently sold it for over a million dollars. Your brother-in-law, who was smart enough to buy Apple stock in the mid-90’s with all the money to his name and made 2,000 times his initial investment. That coworker who follows some fancy “seasonal investment strategy” in his 401k, and is always bragging about his 20% returns.

But you know what? These stories are useless too. None of them are reproducible either. Most of those people just got lucky on a one-off event. And worse, for every “big winner” you hear about, there’s a loser whose story you never heard. What if your uncle bought in Detroit, and his home was now worth pennies on the dollar? What if your brother-in-law invested in GT Advanced Technologies in 2014 instead and lost everything when they went bankrupt, just like these poor souls? What if your coworker only tells you about his winning 401k trades, and actually has less money than if he just followed a buy and hold strategy, never making a single trade?

How would one define the best investment strategy for getting rich then?

For me, the answer is easy. It would be the most reliable, reproducible path. Consider the following: I offer you an investment opportunity. I have a special fund that will produce the same rate of return, steadily, forever. The only catch is that if you accept the offer, you have to invest your life savings into it, and you cannot ever invest your money in any other way. I offer a choice of one of these options:

A guaranteed 10% annual return.
A coin flip… If heads, you get 20% annual returns, but if tails, you get a 0% return, forever. (Interestingly, the average performance among the group of people who choose this option is still 10%, but that says nothing about their individual performance.)

I’d wager most people would choose the first option. Sure, you won’t perform the best, like anyone who was lucky enough to get the 20% return. But you’re also guaranteed to not perform the worst, like half of the people who chose option 2, who are cursed for the rest of their life to have a return lower than that of my savings account. What’s more, this strategy is reproducible. If I told a friend about it, all they’d have to do to replicate my results is to choose the first option, and not be arrogant and try to beat the odds of the coin. To just accept the average, because it’s good enough to meet their goals, and recognize that trying to outperform simply isn’t worth it when there’s an equal chance that you perform commensurately worse.

So why, then, do so many people not apply this same logic to their real investment portfolios? One is hypothetical, and one is your hard-earned cash that you traded your labor and finite time for. The analogy here is certainly appropriate. Don’t believe me? Let’s take it from Nobel Prize winning economist William Sharpe:

Over any specified time period, the market return will be a weighted average of the returns on the securities within the market, using beginning market values as weights. Each passive manager will obtain precisely the market return, before costs. From this, it follows (as the night from the day) that the return on the average actively managed dollar must equal the market return. Why? Because the market return must equal a weighted average of the returns on the passive and active segments of the market. If the first two returns are the same, the third must be also.

— William F. Sharpe, The Arithmetic of Active Management (1991)

I encourage you to read the whole (short) article by clicking the title in the citation above. It is a complete logical proof behind the quote above, which is absolutely a truth. Conflate our prior example with this new knowledge, and we now have the following choices:

Be a passive investor. Invest in globally diversified, low-cost index funds and receive exactly the average stock market return minus a small fee (0.15% or less).
Be an active investor. Individually return more or less than the average stock market return. On average, this group will receive exactly the average stock market return minus a medium to large fee. For active fund investors, these fees are typically between 0.50-1.50% depending on the fund. For self-managed retail portfolios, these fees are trading costs plus any additional tax drag incurred while implementing their strategy.

If you choose active investing, the deck is already stacked against you! Active funds have high fees. Or if your strategy involves trading frequently, holding positions for less than a year incurs much higher short-term capital gains tax rates (at least in the US). So it’s not even a 50/50 chance for you to beat the market, since you also have to account for these additional costs just to get back to even with the market return.

And in fact, this was Mr. Sharpe’s main point. As he explains much more eloquently, “after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar.” So again, why do so many people invest in this manner if, on average, they would be better served by holding a passive index fund?

People might just not know any better.

Clearly the most forgivable reason, as you simply don’t know what you don’t know! Personally, I think the glorification of stock investing in the media is to blame for this one. The talking heads on cable news are always going on about which stock skyrocketed during the day’s trading session, and they always talk about it in a manner as if there was some sort of methodology to see it coming. Ironically, when a company beats expectations so well that their stock pops, this is a direct result of the average market participant not seeing that coming. The big move is the market pricing in the new information.

Financial news on the internet is just as bad. Every stock market movement has a reason assigned to it in the headlines. We’ve all seen articles like “Dow Jones SURGES on Positive Jobs Report” or “Stocks Continue to Crater on Coronavirus Fears”. It’s sensationalist journalism at its worst. The stock market is such a complex thing that (with a few exceptions) it’s laughable to try and boil the day’s events down to a headline, much less a single article. If stuff like this is a person’s main exposure and education on the market, it’s no wonder they’d be misguided.

Going back to our earlier real estate example, you’ll often hear “so-and-so bought their house 30 years ago for [small number], and today it’s worth [really big number]!” It’s a super simplified statement that has a wow factor, but is completely useless when determining how good of an investment their house really was. There’s so many factors that need to be considered to make an accurate analysis, like:

Adjusting for inflation
Total interest paid on the mortgage
Total amount of property tax paid
Total cost of maintenance
The opportunity cost of your down payment, i.e. how much money did you miss out on by not investing that money into stocks
Imputed rent, i.e. how much did you save by living in your house compared to renting elsewhere

All of the above but the last one are factors that cost the homeowner money, and would reduce their claimed return to a much smaller number. So take such stories with a grain of salt, because many times the person telling them doesn’t even know that they need to consider such factors to make a fair evaluation of their home’s performance as an investment.

Add to this list the people that have positive returns from picking stocks or trading, but they don’t know how to benchmark their returns to an appropriate index. For example, if you’re attempting to pick winners among large cap US stocks while reinvesting your dividends for maximum growth, the S&P 500 is likely an appropriate benchmark. If during June 2020, this person brags that their portfolio has had a return of 200% over the past decade, that certainly sounds impressive — they’ve tripled their money! However, when we compare to their benchmark index over the same period, we’ll see that the S&P 500 actually returned 250%. The index investor had higher returns, likely with less risk, and certainly with less time spent managing their portfolio!

They know the odds, but still think they’re smarter than the market.

This one seems very common among engineers, computer scientists and programmers, and people in other math-based fields. They typically think that they can discern a pattern of behavior from the stock market (after all it’s just numbers, right), and develop some sort of “system” to exploit it and beat the market. I’ll be the first to admit that I used to think this way. I spent several years in college trading Forex (i.e. trading currencies on the foreign exchange market). I was convinced that if I spent enough time studying the markets, I could eventually learn — either intuitively or through a technical indicator system — how to exploit them for insanely high returns.

It’s undeniable that some people like Warren Buffett have outperformed the market consistently for decades. It’s up for debate the degree to which raw skill, sheer luck and survivorship bias, insider advantage, or some combination of those played a role in their results. Regardless, most people don’t seem to realize exactly what they’re up against when they embark on the quest to become the next Buffett.

Remember, when you move your chips into the active management pile, more dollars (not necessarily people) playing this game will lose than win, if losing is defined as under-performing the average market return. Who else is entering the ring with you? Multi-billion dollar hedge fund managers. The legions of Ivy League PhD students, people much smarter than you or I, in their employ. Market analysts who spend their entire 60 hour work week following every move of a small selection of companies. People trading unfairly with insider information who might never get caught.

They’re all acting with the singular purpose to try and make sure that they end up on the winning side of that bet. I’d say it’s unlikely that a retail investor who probably only spends a few hours per week managing their portfolio after working their full-time job would emerge from the ring victorious. If you’re lucky, you’ll just get a few bruises like when I was trying to play the Forex market. I didn’t have much money to throw around then, so I think I only lost about $500 total before learning my lesson.

Or maybe you’ll just under-perform by 1-2% per year. After all, not everybody that loses the active bet goes completely broke. It’s not total financial destruction and you’re still making money, but over the long-term, that would certainly compound into a huge lost opportunity cost compared to just accepting the average market return.

Seriously, even the pros can’t do it.

Source: SPIVA US Year-End 2019 Scorecard

The above figure comes from S&P Dow Jones Indices, “the de facto scorekeeper of the active versus passive debate.” Their Scorecard report is full of tables and tables of data comparing the results of active funds in many different categories of US stocks, international stocks, and bonds to their respective appropriate benchmarks. They even account for survivorship bias in the data set, as many of these active funds close due to poor performance, sometimes in an attempt to mislead investors. If you open 10 funds and close the worst half after a decade, purging them from your catalog of fund offerings, your track record will certainly look more impressive.

The track record of these active funds on average is nothing short of abysmal. After 10 years, over 80% of active funds which invest in either large cap, mid cap, or small cap US stocks have under-performed their respective benchmarks after accounting for fees. At the 15 year mark, it’s close to 90% under-performance across the board!

Of the 10% or so who do beat the market, there’s no guarantee that they will be able to sustain that performance in the future. Would you rather…

Have your personal portfolio beat the long-term performance of nearly 90% of paid, professional active money managers by doing almost no work.
Do the research of identifying those fund managers who have outperformed in the past, and accept the risk that they’ll be one of the big losers in the next SPIVA Scorecard report.

What if accepting the so-called average… actually made you above average?

It may sound counter-intuitive, but as we can see from the evidence presented thus far, it’s clearly true! As long as there is some pool of actively managed money in the stock market — and thus bringing down the average return across the pool of all invested money, net of fees — all that you have to do to be an above average investor is to invest passively, with minimal fees.

So what kind of stock index funds do I buy then?

Successful investing is about owning businesses and reaping the huge rewards provided by the dividends and earnings growth of our nation’s – and, for that matter, the world’s – corporations.

— John C. Bogle, Founder of The Vanguard Group and “Father of the Index Fund”

This is actually the easy part, because we’ve already laid out all the groundwork. We’ve already concluded that active management and picking stocks is a loser’s game. It then stands to reason that picking individual sectors, or even countries also qualifies as active management. What is the most passive portfolio that one can have? I’d imagine it would own a small chunk of every company in the world. Since that’s not technically possible, as some companies are privately owned, the next-best thing in my eyes would be to own a chunk of every publicly-traded company in the world.

Thankfully, there’s index funds that do just that! Take for example, the Vanguard Total World Stock Index Fund (VTWAX). This fund holds market cap weighted stocks in over 8,000 companies, all for a low 0.10% expense ratio. VTWAX is my preferred equity investment. I think this fund is so good, that it should be the default stock fund recommended to all investors. The only reason that my stock holdings aren’t 100% in this fund is because it isn’t offered in my 401k, but I do try to emulate it as closely as possible using other low-cost funds in the appropriate ratios.

If your brokerage doesn’t offer a similar fund, you can emulate a total world stock portfolio by holding 60% of your equities in a Total US Stock Market Fund (like VTSAX at Vanguard) and 40% of your equities in a Total International Stock Market Fund (like VTIAX at Vanguard). Note that the market capitalizations of countries change over time, so while this is accurate as of an update in April 2022 it may be prudent to double-check these market caps if you happen upon this article in the future.

What about bonds?

Many investors like to add a portion of bonds to their portfolio for capital preservation and to help smooth out stock market volatility. Make no mistake that historically, stocks have been the true engine of portfolio growth over the long-term, and that the relative security of bonds has come with the commensurate trade-off of lower returns. However, don’t confuse that with thinking bonds are bad, as they certainly have their place.

Personally I hold no bonds due to several reasons. My portfolio size is small, so I’m comfortable with the unfettered day-to-day volatility of the stock market. I believe that I could act rationally and not sell during the occasional large market crash. I’m still over a decade from early retirement, so I don’t need to start preparing yet to mitigate sequence of returns risk (the risk that a few bad years of stock returns right at the start of your retirement may drastically reduce portfolio survivability).

Based on my prior research, I’m inclined to suggest that during portfolio accumulation in your working years, anywhere from 0 - 40% of your total portfolio value held in bonds would be reasonable. During the years leading up to and through early retirement, I’d suggest 10 - 40% as a reasonable range. That is, early retirees should have at least a small chunk of bonds for liability matching and to mitigate sequence of returns risk. However, stocks will provide the long-term growth that enables your portfolio to sustain withdrawals (and thus provide you income) for decades to come, so it’s a balancing act to find the sweet spot between all of these factors.

As far as fund recommendations for bonds, my top choice is the Vanguard Total World Bond ETF (BNDW), with a 0.06% expense ratio. Similar to how we chose a stock fund, this recommendation is based on simplicity and broad diversification at a low cost. VBTLX holds nearly 16,000 different bonds and aims to track the global investment-grade bond market, while being currency hedged to the US dollar to reduce foreign exchange risk. Currently BNDW is not available as a mutual fund, but I believe that Vanguard will add one soon given that their Total World Stock Market Fund was previously only offered as an ETF, and a mutual fund was recently created to track that fund based on popular demand.

This article is already pretty long, so I’m thinking we’ll get more into bonds and their benefits at a later time, especially as I consider adding them to my personal portfolio as my net worth grows. Bond allocation is a highly personal decision based on one’s own risk tolerance and needs, so there is no one right answer for what percentage of bonds to hold.

Don’t even worry about bonds early in your journey.

If you’re early along on your journey, the majority of your portfolio growth will be due to contributions rather than investment growth, so your asset allocation isn’t super important. Similarly, any stock market volatility will be smoothed out by your regular additions to your portfolio. I’d posit that such an investor actually doesn’t need bonds at all, and can direct all of their investments towards a fund like Vanguard’s Total World Stock Index Fund (VTWAX).

Everyone has a different savings rate, so I’ve come up with a handy rule of thumb to give you a frame of reference as to whether you should consider starting to add bonds to your portfolio!

As your portfolio grows, your MGFC will become smaller over time. Mine is a little over 3% at the time of writing this article. Let’s consider a 2% MGFC; at this point you’re still growing your portfolio by 24% per year just by contributions, which goes a long way towards recovering to your peak value after a market crash. I think only the most risk-averse investors should consider adding bonds this early.

Conversely, a 1% MGFC seems like a good time for even the most aggressive investors to start adding some bonds to their portfolio. At this point you’re approaching the rate where average nominal returns on your portfolio will soon eclipse your contributions. An investor who describes their risk tolerance as “moderate” may then want to take the midpoint of the prior two guidelines, and start adding some bonds around 1.5% MGFC.

That’s it. Two funds is all you need.

It’s my strong opinion that the most reliable method to get rich is to invest the majority of your assets in a diversified, low-cost equity index fund like Vanguard’s Total World Stock Index Fund (VTWAX). Learn to accept the (historical) average annual return of 8.5% nominal, because by doing so you are guaranteed to be an above average investor.

Knowing that trying to beat the market is a losing game, tweak the variables that are within your direct control instead. Pay yourself first. Live below your means, so you can spend less and save more. Always focus on improving your frugality. Pursue long-term strategies like increasing your income.

Stocks alone are enough to ensure you get rich. However, once you’re well on your way to building a respectable nest egg, slowly adding a second fund like the Vanguard Total World Bond ETF (BNDW) using the guidelines a couple paragraphs above is recommended. The ultimate goal is to slowly shift your portfolio from an aggressive growth model, to one that is optimized for sustaining withdrawals to provide you with income for the rest of your life. Expect articles that explore bonds and withdrawal optimization in more detail in the future!

Budget Review for the First Half of 2020

Mon, 06 Jul 2020 00:00:00 UTC

Now that we’re already halfway through the year, it’s time for another budget review to see how well I flexed my frugality in the first 6 months of 2020. I actually never did a budget review for the latter half of 2019 since that was during the time when I was lax in updating the blog. So I’ll be going back to compare to the budget and goals I set after the mid-2019 review, and commit to not missing another one in the future. To rehash those goals:

Reduce my spending in online shopping to $75/month by curbing impulse purchases of crap that I don’t need and only buying household goods and other necessities. Savings of $93/month.
Reduce my spending on clothing to $50/month since my wardrobe is pretty established with high quality clothing at this point. Savings of $78/month.
Pay off one of my two remaining student loans before the end of 2019. The loan has a current balance of $3,277. Savings of $51.53/month.

Alright! I actually did hit all of those goals before the end of 2019. I killed off one of my student loans, and I managed to cut down my spending on clothing and online shopping, as well as keep it down through today.

After going through all of my expenses, I’ve realized that I need to make a few changes to my budget in terms of adding additional line items for more accurate tracking. I ended up splitting all my car-related expenses back into individual line items; initially I thought that combining them looked cleaner but I think that was a mistake since it’s harder to see each category at a glance, and loses fidelity with tracking over time.

The single asterisks represent new items in the budget compared to the last review, and double asterisks represent ones that will be deleted moving forward. One of the new line items is to track expenses for our cat. Last time I did a budget he was a new enough addition that I left these costs mixed into other categories and wasn’t really thinking about it. I also added an uncategorized line for stuff that doesn’t fit anywhere else, but doesn’t merit a new category of its own since it won’t be even a semi-regular expense. Finally, I will be deleting the tolls category as my new commute no longer has me regularly paying tolls like the route to my old job did.

Anyway, here’s my spending for the first half of 2020, compared with the budget I set a year ago:

Expense	Budgeted Amount	Actual Spending, 6 Month Avg
Rent/Utilities	1,100.00	1,126.98
Car Payment	525.00	523.51
Groceries	200.00	250.09
Travel	200.00	200.00
Restaurants	150.00	112.45
Car/Rental Insurance	100.00	89.62
Misc. Entertainment	35.00	83.89
Flannelcat*	N/A	70.78
Alcohol/Bars	50.00	47.27
Coffee/Tea	50.00	39.12
Misc. Taxes	31.00	32.94
Student Loans	111.00	29.50
Gasoline	175.00	27.90
Phone	20.00	20.00
Online Shopping	75.00	18.67
Uncategorized*	N/A	5.15
Car Maintenance	50.00	0.00
Clothing/Shoes	50.00	0.00
Cash Withdrawals	33.00	0.00
Tolls**	50.00	0.00
Total Monthly Expenses	3,005.00	2,677.86
Net Monthly Income	4,033.00	4,866.13
Free Cash Flow/Month	1,028.00	2,188.28

* : New budget line item

** : Removed budget line item

I’m actually pretty impressed with my average monthly expenditure of $2,677.86, since this represents a 15% decrease in average monthly expenses since my last budget evaluation, where I spent an average of $3,162 per month. This seems to mostly be the effect of reaching the goals I set during the last budget review (which amounted to a 7% reduction in spending), and the savings from my new, shorter commute.

There’s definitely also some impact from the coronavirus lockdown here, which manifested as a decrease in restaurant spending, and an increase in entertainment spending (primarily video games and home gym equipment to stay busy during the lockdown). My last remaining student loan also went on deferment for 6 months some time in March.

My net income went up due to decreasing my 401k contribution to save for a down payment on a house. Last year I contributed the $19,000 maximum to my 401k, but I’ve reduced it to just a 5% contribution to get the full employer match so I can maximize my cash flow towards the down payment. I also received a $1,200 stimulus check.

Budget Update, Net Changes, and Future Goals

I took this data and updated my permanent budget with it, trying to filter out the temporary COVID-19 effects (for example, I didn’t adjust restaurant spending down, and I removed the stimulus check from my net income). In the net change column, red indicates an increase in monthly spending in that category, whereas green indicates a decrease in monthly spending in that category.

Expense	Budgeted Amount	Net Change
Rent/Utilities	1,130.00	+30
Car Payment	525.00	–
Groceries	200.00	–
Travel	200.00	–
Restaurants	150.00	–
Car/Rental Insurance	100.00	–
Flannelcat	70.00	+70
Student Loans	59.00	-52
Misc. Entertainment	50.00	+15
Alcohol/Bars	50.00	–
Coffee/Tea	50.00	–
Gasoline	50.00	-125
Car Maintenance	50.00	–
Clothing/Shoes	50.00	–
Online Shopping	50.00	-25
Misc. Taxes	35.00	+4
Phone	20.00	–
Cash Withdrawals	20.00	-13
Uncategorized	5.00	+5
Tolls	0.00	-50
Total Monthly Expenses	2,864.00	-141
Net Monthly Income	4,634.50	+601.5
Free Cash Flow/Month	1,770.50	+742.5

Here’s the rationale for every value change explained in sequential order:

My rent has gone up slightly with a lease renewal since my last budget review.
The budget for my cat is a new line item, so it’s an increase by default. During this period I learned firsthand what an unexpected vet bill can cost, so I’ll be basing my budget off my spending during this period as a worst case example.
My student loan payment went down due to paying off one of the loans last year.
I’m bumping up the entertainment spending due to some newly acquired subscription services, but I’ll make sure not to go too crazy here.
I lowered my budgeted amount on gas to account for my new, shorter commute.
I decreased the budget for online shopping even further after the massive success I’ve had in cutting this category down over the past year.
Miscellaneous taxes was increased a tiny bit (inflation adjustment).
Cash withdrawals was decreased due to me withdrawing cash less and less frequently these days.
Uncategorized was added for things that are too small to justify their own category. It’s my intention that this category stays almost imperceptibly small.
Tolls will be deleted as I no longer pay them on my new commute route.

Looks pretty good! As far as my net cash flow goes, I’ve been saving all of that for a future down payment. I’m shooting for $50k in cash set aside for a down payment, of which I have $18k set aside right now, so I don’t expect to be there by the end of the year. After I get close to this goal, I’ll bump my 401k contribution back up to the max.

The future is looking even more golden — I’ve got just 4 car payments left, which will free up $525 in free cash flow every month. This is the equivalent of maxing out my Roth IRA for “free” every year ($6000 max split over 12 months). The loan is at 0%, but I’m tempted to just pay it all off now and just move on with my life financially. Waiting for the normal schedule will make me all of $5 in interest over the next 4 months. Either way, my car payment is guaranteed to be gone by the end of the year! Which reminds me, I’ve been intending to write a post about my foolishness with car purchases that led to this situation, hopefully so others can learn from my mistakes.

As far as my last student loan goes, hanging out there with a balance of $3454.61, it would be nice to get rid of the $59 monthly payment. On the other hand, paying this off would take a decent chunk out of my down payment savings, so I’m thinking this will probably sit around until early next year when I’m closer to my $50k down payment goal.

I’m pretty happy with where my budget line items are at right now, so I’m not going to set any goals to reduce specific categories. But going forward for the rest of the year, I’d like to:

Continue setting aside as much cash as possible into a savings account to put towards my down payment.
Max out my Roth IRA (haven’t gotten around to contributing anything yet for this year).
Under-spend a little bit here and a little bit there across the board, hopefully coming in slightly under budget just like we did for this review!

Savings Check-up

I’d like to add another section to these bi-annual budget reviews, in which I look at my total cash inflows to savings and investment accounts. And since I love spreadsheets…

Account	6 Month Contributions ($)
Cash Savings	13,129.68
401k Contributions	4,522.80
401k Matching	2,194.24
Pension	1,786.80
HSA	450.00
Roth IRA	0.00
Taxable Brokerage	0.00
Total Saved	22,083.52

I was actually surprised when I saw that I’ve already saved $22k only halfway through the year!

Net Worth Check-up

We’re actually going to add another section too; comparing my net worth on either end of the period. This will help show how much of my net worth growth is due to raw savings versus investment growth (or losses!).


January 1, 2020 Net Worth	$136,004
June 30, 2020 Net Worth	$152,718
6 Month Change	$16,714

Due to the market turmoil the past few months, my net worth grew by less than my total savings amount. It actually hit a low of $115k in mid-March, so compared to that I’m happy to see positive net worth growth overall. The market is still about 10% off its all-time high, so it’s not surprising at all to see this result.

Nobody knows exactly where it will go from here over the coming months or even years, but hopefully over the long-term the answer is a steady march upwards. All that we can do is live below our means, save, invest wisely, and hope for the best!

Working from Home in the Age of Coronavirus: A Small Taste of FIRE

Sun, 21 Jun 2020 00:00:00 UTC

My last day in the office was 3 months and 8 days ago. On March 12th, everyone at my employer was told that we’d be working from home indefinitely. Right now it’s looking like mid-July (though potentially a bit longer, I’ve heard) when we’ll go back to working in the office at least part-time.

I’ve only been in the post-college workforce for 5 years, but I can confidently say that this period of working from home has by far been the best work-life balance of my career to date. In some ways I feel like it’s given me a small taste of early retirement. Sure, I’m still working for 40 hours per week but that’s it. 40 hours and done. No time has to be spent getting to and from work, or those multiple small tasks we do in order to get ready for the next work day that add up. There’s so many upsides, like…

A break from commuting!

My normal commute is usually exactly an hour per day — 25 minutes in the morning, and 35 minutes in the afternoon. That’s a huge increase in personal time. I’d be lying if I said I hadn’t spent some of it relaxing, but I’ve taken the initiative to use it productively by taking an introductory programming course among other things. Financially speaking I’m not saving a ton on gas (maybe $50 per month) but for those with longer commutes or less fuel-efficient vehicles, the savings could be a substantial bonus.

No more alarms!

I’ve kind of just been waking up naturally most days, usually around 6:30 or 7:00, but some days as late as 8:00. I used to wake up at 5:00 to get into the office for 6:00. Nobody has really been keeping tabs on my login times, but I’m honest in that I always put in my 9 hours regardless of what time I start at. I noticed that after a few days of waking up naturally, I felt more refreshed and rested than I remembered feeling in a while. Brain fog has become a thing of the past. I imagine that early retirees experience something quite similar!

Working out before lunch!

I must admit that I was always a home workout aficionado, long before the pandemic shut down public gyms. I just get in the zone at home, and removing that extra step of getting myself to the gym helps me stay disciplined. Usually I worked out after getting home from work around 4:00 PM. Some days it was a struggle to initiate, especially if I was feeling tired by that point in the day. These days, I’m working out before eating lunch when I still have plenty of energy. And since it’s now part of my lunch hour (when I’d usually just be “stuck” in the office), I’m actually saving time compared to my normal schedule.

Not doing all those small tasks to get ready for work!

Getting dressed to whatever standard your office requires. Caring what your hair looks like. Making sure lunches are packed for tomorrow. Eating breakfast before work, instead of during work. These are just a few of the random small tasks we do to ensure we’re ready for another day at the office. I’m sure there’s many I’ve forgotten, and one thing is for sure: they can add up!

Final thoughts…

Work from home has been a nice increase in personal time, and also a small increase in autonomy throughout the day. I imagine this is only a hint of what awaits in early retirement, when one has the ability to dictate the structure and flow of their entire day. This feels like a mental break to recharge from the working grind routine, but to a more relaxed and balanced state than you can ever reach on those one week vacations here and there.

I could certainly get used to this, but alas the days of full-time work from home are certainly limited, so I’ll just have to enjoy it while I’ve got it. I do hope that leadership across corporate America sees that most white collar workers can accomplish the same quality of work regardless of whether we’re in the office or at home. Even one or two days per week of this would be a huge increase in work-life balance for so many people.

And now that it’s nearly July, I think I sense a budget review for the first half of 2020 coming up soon! Stay tuned.

Start Today, Not Tomorrow

Tue, 26 May 2020 00:00:00 UTC

If procrastinators across the globe had a universal anthem, it would likely be “I’ll do it tomorrow.” And because it takes one to know one, I am guilty as charged: I’ve been a procrastinator all of my life. At 26, I’m only just now committing to improving my self-discipline so that I can live with intention. But for those who are delaying getting their financial lives in order, you simply cannot afford to wait.

To start off I want to share a personal win that inspired me to write this article, where the connection to money may not be immediately obvious. Since graduating college in 2015 I’ve been intending to teach myself computer programming. Somewhat for the intellectual pursuit, somewhat because I feel I need a “productive” hobby, and somewhat to expand my professional tool set. This is a goal I’ve had the intention to work on for nearly five years and I never made any progress.

Until recently. This weekend I’ve officially reached the halfway point in Harvard University’s CS50: Introduction to Computer Science course. Ever since I committed the time to sit down and watch that first lecture, continuing with the course has been an easy recurring habit. And since I’m now setting aside time every week for programming, I am positive that I will finish the course. (As a bonus frugal tip, this course and many others from top-tier institutions are completely free over at edX).

I think that there was a collection of reasons behind my procrastination. And I state these all because I think they apply perfectly to getting started on your personal finance journey as well:

The “I’ll do it tomorrow” phenomenon. It’s so easy to say this every day, and before you know it weeks, months, or years have gone by and you’ve made no progress towards your goal.
Attempting to research where the best place to start was, and getting analysis paralysis from the sheer amount of information out there. Every programmer seems to have a different opinion on whether one should start with this language or that language; this resource or that resource. Rather than just picking a reasonable starting point and getting going, some people including myself seem to have a tendency to get stuck in “research mode”, looking for the absolute perfect answer. In many cases, I think the benefits of just starting somewhere on a task and building some positively reinforcing habits outweighs spending hours and hours trying to find that optimal starting point right off the bat. Find that 80% solution, and optimize later.
It can be almost a Herculean effort to find motivation to do productive tasks with the limited time left in our days after accomplishing all of the mandatory functions to keep a roof over your head and stay alive. After accounting for time spent at work, commuting, preparing food, household chores, caring for children or pets, exercising, and sleeping, some people may have just an hour of personal time left on an average weekday. Those with four to five hours per weekday to use however they wish are truly fortunate. In all cases, it’s much easier to spend that time relaxing with enjoyable, low-effort activities like watching television or playing video games. Dedicating your limited free time towards endeavors that require real focus and energy is a true hallmark of the disciplined.

Remember that personal finance is a topic that the vast majority of Americans (and I’d guess the rest of the world, too) receive little to no formal education on. To make matters worse most of it is based in math — which while it comes easily to those like me with an engineering degree, most people seem to struggle with. According to the NAEP, just 34% of American 8th graders who took their standardized test performed at the proficient level or above in math.

However, in an age of automated tools and freely available information this stuff doesn’t have to be hard. Creating a budget only requires addition and subtraction, which a free spreadsheet tool can abstract away for you. You don’t need to know how to calculate compound interest by hand since again, it can be done with a spreadsheet or one of the dozens of free calculators online. Just start, today. Now.

The best time to plant a tree was 20 years ago. The second best time is now.

— Chinese Proverb

And now that I’ve gotten the cheesy quote out of my system, here are some ideas for small places to start today (and NOT tomorrow) if you are suffering from analysis paralysis when it comes to your finances. You only have to pick one for now. These are written roughly in the order that I’d accomplish them:

If you don’t have a budget, make one. It doesn’t have to be perfect right off the bat. Start with a rough draft so you can get an idea of your monthly free cash flow. I’ve already written a post on how I developed my budget. If yours just looks like the draft in my first image, that’s a totally acceptable starting point! You can use a free spreadsheet program like LibreOffice Calc or Google Sheets.
If you don’t have a basic emergency fund set up in a savings account yet, start one! Even if you’re not sure how much money you can afford to set aside, start small. Even $25 per week transferred to a savings account is better than nothing. And if you set up an automatic transfer, it prevents you from spending it on other things. Build those good habits and get used to the concept of saving. You can always increase it later.
Commit to permanently reducing your monthly expenses by eliminating an unnecessary budget line item. If your spending towards discretionary items (vehicles, restaurants, coffee, expensive hobbies, etc) is hurting your ability to save as much as you’d like, it’s time to get disciplined and make some cuts. If you do make cuts, ensure that money gets saved and not put towards increased spending in another discretionary category.
If you have high-interest debt (my rule is to pay down anything over 4% interest ASAP) and extra cash flow, go increase the amount you’re paying towards this debt to get rid of it faster. Your debt is compound interest working against you, instead of working for you!
If you have a good amount of cash saved beyond an emergency fund but haven’t started investing, go open a Roth IRA. My preferred brokerage is Vanguard since they are fully owned by the shareholders of their funds (i.e. as an investor in several Vanguard funds, I actually own a tiny piece of the company). My preferred “default” investment for long-term wealth growth is the Vanguard Total World Equity Fund (VTWAX). This fund seeks to essentially track the performance of a basket of every publicly traded stock across the world, and as a results holds shares in over 8,000 companies. If you don’t have the $3,000 minimum to invest in the fund, they have an ETF version of the fund (the ticker is VT) of which individual shares can be purchased commission-free. At the time of writing this article, a share of VT is $70.41 which represents the minimum investment amount.
If you have a 401k, go increase your contribution amount by 1%. You probably won’t even notice. When I was maxing out my 401k (I have recently scaled back to accommodate saving cash for a down payment) I used a similar strategy. I’d bump it up by 1% or 2% whenever I got a raise or felt there was extra cash flow in the budget. Before I knew it, I was maxing out my 401k contributions and saving nearly $20k per year automatically.

And We're Back!

Sun, 03 May 2020 00:00:00 UTC

It’s been over 7 months since I’ve written anything on this blog. It’s not for lack of time — I certainly haven’t been so busy that writing one or two posts per month would have been a burden.

For a variety of reasons I’ve decided to recommit myself to this project. Being locked down and working from home for the past 7 weeks has certainly allowed the time for some introspection. Here’s a few of my thoughts:

I’ve decided to drastically cut back on the amount of time that I spend posting on Reddit and another financial forum. For many years I’ve spent several hours per week mainly offering detailed FIRE/personal finance advice and reading the thoughts of other members. I’m not going to air all my grievances here, but in a nutshell I simply feel like the value proposition of spending time on Reddit and similar sites has declined to the point where it’s almost as low as other forms of social media. It’s good for memes and beginner level discussions about topics, but frustrating to attempt to use for serious or in-depth discussions.
I enjoy writing, and I’ve always liked it as far back as I can remember. I’m not sure exactly why, but a big part of it is I feel like putting my thoughts down on paper (or a screen in this case) helps me organize those thoughts. I think participating on Reddit and other forums mostly satisfied my desire to write, but now that I’m cutting back my time spent in those communities I’m still going to need an outlet.
I might as well write for myself rather than being a content creator on other sites. I put effort into starting this blog, so let’s make use of it!
My original intent in creating this site was to create the type of content that I want to see in this niche, to provide a “living diary” of my own journey to FIRE, and to provide a free resource for sharing the knowledge that I’ve gained on this topic over the past decade. All of those reasons are still valid.

As far as personal updates go, there haven’t been too many big changes in my life over the past 7 months. Just gonna list off the main events rapid-fire:

November 2019: Started my new job, still in engineering, which was the offer in question for my previous post regarding the savings I’d see from a shorter commute. So far it’s going well, and I’m absolutely loving spending less time in the car and less money on commuting.
January 2020: My girlfriend and I made the decision that we may want to buy a house in the near future, but lack liquid assets for a down payment due to most of our money being in tax-advantaged retirement accounts. I dropped my 401k from maxing out to the minimum contribution for the full matching amount, with a goal of saving at least $1500 per month in cash towards my portion of a down payment.
February - April 2020: The stock market took roughly a 30% dip, then recovered a bit such that it’s now only down 15% from the peak. So far this is the biggest market dip I’ve experienced. I viewed it as a mini litmus test of my risk tolerance that I passed successfully. To quote the late Jack Bogle, founder of Vanguard, “The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.”
May 2020: Despite the market volatility, my net worth is still up around $19,000 since the end of September 2019, when I last posted here. Sitting pretty around $135k USD at the time of writing.

That’s about the gist of it. I’m back, with a goal of writing a post every two to three weeks. Quality over quantity!

My New Commute Will Save Me $60,000

Mon, 16 Sep 2019 00:00:00 UTC

It’s no secret that long commutes suck, especially in the car. Perhaps the worst aspect is that it’s a waste of your free time and a waste of your money. But commuting farther also increases your carbon footprint and can even take a toll on your health — personally I find myself mentally exhausted on those days where I spend an hour and a half sitting in traffic to get home.

My current commute is over 50 miles each way. My morning drive takes just under an hour, but the ride home is typically an hour and 15 minutes. This frequently stretches to as long as an hour and a half during the summer months. Annually I am racking up a minimum of 26,000 miles and spending over 500 hours in my car just to get myself to work. That’s insanity.

Fortunately my days of long commuting are numbered. I just accepted an offer for a job that is 12 miles away from home and will be about a half hour drive each way. This new job will save me about 20,000 miles of driving and allow me to reclaim over 300 hours of my personal time each year. I know that this new commute will save me a fair amount of money, but being a personal finance nerd, I wanted to figure out exactly how much.

In my budget breakdown from the first half of 2019, I discovered that my car expenses comprise five categories: car payment, gas, insurance, tolls, and maintenance. My insurance payment won’t change based on mileage, so we have four other categories to look at.

Depreciation: I think this is a better variable to look at than a car payment for this exercise since car payments are fixed for a certain number of months and then drop to zero. Depreciation is essentially a way to look at what you’re spending simply for the privilege of owning the vehicle. I do about 4,000 miles of “other” driving per year, bringing my new annual total to 10k miles, down from 30k miles. I’ll assume that a car has a useable lifespan of 250k miles or 12 years (typical for our salty winters), at which point in time I will say the car is worth $0 for simplicity. My car cost me $22,000 out the door new.

Although cars depreciate exponentially, I’m going to use a straight line depreciation here. Since I like to drive cars until the wheels fall off I don’t care about the resale value after a few years, and it simplifies the math. A straight line depreciation is calculated by dividing the cost of an asset (minus its resale value) over the lifespan of the asset.

My current commute will have me hitting 250k miles in 8.33 years, or 100 months. If we depreciate the original $22k cost of the car linearly over those 100 months, it’s an average monthly cost of $220. My new commute will kill my cars from rust long before mileage. A straight line deprecation of the car over 12 years leads to an average monthly cost of $152, a monthly savings of $68.
Tolls: This one is easy. My new route will no longer take me through a toll road, instantly saving me $58 per month with no effort.
Gas: Another pretty simple one. I’m currently spending $145 per month on gasoline. Since my annual mileage will be reduced by 2/3rds (10k versus 30k miles), I will save $96/month on gas.
Maintenance: According to several sources the average annual maintenance cost of a Toyota Prius is $450. I’ll go with that number, since the average driver puts about 13,000 miles per year on their vehicle which is close enough to my new commute. This comes out to $37 per month, a monthly savings of $20 over what I am spending now.

Adding all of that up yields a total monthly savings of $242. Of that amount, $174 per month (tolls, gas, and maintenance) will be realized immediately to the effect of a respectable 5.5% reduction in expenses. The savings on vehicle depreciation - having to purchase a new car less frequently - will not change my current monthly budget but will have an impact on my spending over the long-term.

Now that’s a healthy boost to my savings rate! Check out what happens if I save and invest that $242 per month towards my financial independence nest egg over the remainder of my working career, until I expect to retire at 40:

Awesome! If I work until 40, the compounded savings from reducing my commute will add nearly $60,000 to my portfolio over that period. That money could be used to either reach my $1 million net worth goal sooner and allow me to retire earlier, or to keep on track to retire at 40 but reduce my withdrawal rate for added safety.

I’m looking forward to spending less time on the road, reducing my carbon footprint, and getting an effort-free boost to my savings once I start my new position. Just waiting on a starting date after accepting the formal offer!

How I Will Retire By 40

Sun, 25 Aug 2019 00:00:00 UTC

Financial independence in a nutshell is a pretty simple concept. If you regularly invest your money into income-producing assets, at some point in the future the income generated by those investments will grow larger than your living expenses. You are no longer required to show up at a job to earn money, since you can sustain your current lifestyle indefinitely by spending the income earned by your nest egg.

I believe that I can retire by age 40 with one million dollars, and it will cover my expenses for the rest of my life. Both of those claims may sound dubious to most people, but the math will prove them out. Rather than give some theoretical numbers I am going to share my actual monthly finances, using data averaged over the first 6 months of 2019. Check it out:

As you can see, I spent $3,161 per month on average. You can see a detailed breakdown of my expenses in my previous post, The Most Effective Way to Set a Budget. This comes out to $38,000 per year. I believe that I can actually spend much less than this in retirement by cutting in two key areas:

Housing: By moving from our current high cost of living area to almost anywhere else in the US, we could drastically reduce our housing expenses. Housing represents roughly a third of my monthly average expenditure.
Car: I won’t be commuting to work every day, which will save hundreds per month on gas and maintenance. I will also have to buy a new car less frequently due to reduced wear and tear.

However for a conservative estimate and to prove that I could really retire by 40 while changing absolutely nothing about my life, we’re going to move forward with $38,000 in annual expenses for our example.

What about taxes? While I pay a decent amount of them now, I don’t plan to pay too many taxes in early retirement. Did you know that for a single person with income under $39,375 in 2019 (or $78,750 for married couples) your long-term capital gains are taxed at zero percent?

If your expenses are low and you have a good mix of tax-advantaged accounts like a 401k and Roth IRA, in addition to a regular brokerage account you can optimize your strategy to avoid the early withdrawal penalties on those accounts, and pay almost no taxes in retirement. I’ll write much more on tax planning later. For now, I will go with an overestimate and say I will pay $2,000 in taxes to bring my annual withdrawals to an even $40,000.

How will I get passive income to cover my expenses in retirement?

Easy. I will click a few buttons to sell 4% of my million dollar stock/bond portfolio to get my required $40,000 in expenses. Every year I will slightly increase my withdrawals in line with inflation. There is a very high chance (remember, nothing in investing is guaranteed) that my portfolio will grow faster than my withdrawals, allowing it to sustain paying for my living expenses indefinitely. Don’t worry, I’m not just making this stuff up. Financial advisor Bill Bengen first prescribed a 4% portfolio withdrawal rate in 1994:

Assuming a minimum requirement of 30 years of portfolio longevity, a first- year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe. In no past case has it caused a portfolio to be exhausted before 33 years, and in most cases it will lead to portfolio lives of 50 years or longer.

— William P. Bengen, Determining Withdrawal Rates Using Historical Data (1994)

He laid the groundwork for further research into what has become colloquially known as “the 4% rule.” The data set he used for US stocks went all the way back to 1926, and included every financial catastrophe along the way starting with The Great Depression in 1929, where stocks lost nearly 90% of their value. Although I take a bit of issue with calling it a “rule” (in many historical cases, the flexibility to reduce withdrawals during bad years would have vastly increased portfolio survival rates) a 4% withdrawal rate is nevertheless a great guideline for financial independence. Expect much more on withdrawal rates in future posts.

So how will I get my million?

As of writing this post, I am 26 with $119,000 in investable assets. As you can see from my breakdown chart above, I save $3097 per month. We’re going to assume my portfolio generates a 5% annual real return over the next 14 years. After plugging all those variables into a compound interest calculation, it puts me at just over one million dollars by age 40:

Actually, I fully expect to hit that milestone before then. All of my assumptions for this calculation were fairly conservative. Let’s take a look at those assumptions:

I assumed a 5% annual real return (i.e. accounting for inflation) on my invested assets. This is less than the historical return for a globally diversified equity portfolio, which has averaged out to a 5.2-6% real return annually, depending on the source of the data. I used the Credit Suisse Global Investment Returns Yearbook 2018 as well as the Portfolio Visualizer Backtest Asset Allocation tool to verify these returns.
This assumes that my income will stay exactly the same over the remainder of my career, and that I will never again get a raise beyond the value of inflation. Since I am still early in my career, I’d like to think that this is unlikely.
I also haven’t accounted for my quest to improve my frugality skills and decrease my expenses going forward. For example, in my previous budget review post I set specific goals that — if I am successful in implementing them — would immediately cut over $200 per month from my average monthly expenses. As the data I used for this post was backwards-looking, these cuts are not reflected yet. I’m definitely hopeful that I will be able to reduce my expenses even further to juice my savings rate.

I don’t think the math lies. Thanks to conservative planning, I am comfortable asserting that I will be financially independent and have the option to retire by age 40 as long as I keep on track with my plan.

The Most Effective Way to Set a Budget

Mon, 05 Aug 2019 00:00:00 UTC

My first budget is now an inaccurate disaster. I created it right out of college and hadn’t really modified it in years, other than updating big line items like rent and income. Looking at it now, it doesn’t line up at all with what I am actually spending. Although it was a good starting point, I really should have taken a second look a lot sooner. Here it is:

Expense	Amount (USD $)
Rent	1002.5
Car	525
Groceries	200
Gas	161
Student Loans	112
Car Insurance	92
Electricity	50
Car Maintenance Budget	50
Tolls	50
Internet	35
Gas (Heating)	20
Water	20
Phone	20
Renter’s Insurance	10
Total Monthly Expenses	2347.5
Net Monthly Income	3614
Free Cash Flow/Month	1266.5

The most glaring issue here is that I budgeted for nothing other than the essentials to keep myself housed, fed and employed. I didn’t budget any “fun money” for things like hobbies, travel, going out to eat, or even some nice flannel shirts. Something like the above is a great rough draft if you’ve never made a budget before, since when you’re starting from zero it can be hard to think of all the smaller categories that add up. As with all rough drafts though, revision and editing is an absolute necessity.

I wasn’t honest or realistic with my discretionary expenses, which meant that my budget was not accurate. I decided to fix that by taking another look at my budget today, several years into my journey to financial independence.

To refine your budget, start with what you actually spend

In order to make a better budget I decided to set my starting point using my actual spending from the past 6 months (January through June 2019). I’ve been using Personal Capital for a couple years so I already have all my financial data aggregated there. I scrolled through over 400 transactions which occurred during those 6 months and made sure each was categorized correctly. If you’re not already using a similar aggregator service, you can manually gather the data from credit card and bank statements. I then averaged my spending in each category and ended up with the following:

Expense	Amount (USD $)
Rent/Utilities	1098
Car	893
Groceries	251
Travel	192
Online Shopping	168
Clothing/Shoes	118
Student Loans	111
Restaurants	104
Alcohol/Bars	56
Coffee/Tea	52
Other Entertainment	35
Cash Withdrawals	33
Miscellaneous Taxes	31
Phone	20
Total Monthly Expenses	3162
Net Monthly Income	4033
Free Cash Flow/Month	871

Note: Net Monthly Income is what actually gets deposited into my bank account. You can’t tell from this figure that I actually contribute the $19,000 maximum to my 401k via automatic deductions each month.

Oops… I actually spent over $800 more per month on average than my first budget would suggest. Thankfully I also made about $400 more per month on average than I had budgeted for due to recently receiving a raise, which helped offset some of the damage. I cleaned things up a bit here by condensing some of the categories; I consolidated all car-related expenses under “Car” instead of having my car payment, gas, insurance, maintenance, and tolls as five separate line items. You can insert a comment to the cell to keep track of the individual values which comprise the sum, so they don’t get lost for ease of updating in the future.

Committing to cut spending where you can

Now that we’ve got a realistic budget based on my actual spending habits, I can take a look at where I can make cuts to save some extra money. Reviewing each and every expense, one at a time is really the best way to go here. Let’s go line by line to find that fluff (I bolded the top 3 offenders):

Rent/Utilities: We live in a fairly high cost of living area, so expensive rent is just a fact of life here. What we’re paying is on-par with comparable apartments. Short of moving to a different state, there isn’t much we can do here.

Car: I’m bleeding money. Seriously, all-in I’m paying nearly as much to own and operate my car as I’m paying for my apartment. The main culprit is a $523 monthly car payment, thankfully at 0% interest with only a year of payments remaining. I am still paying for my past financial mistakes here, as I made a series of poor financial decisions related to car ownership several years ago.

It’s a long story and definitely deserving of its own post in the near future. (Update: read all about my past financial folly with cars!) Once I get rid of that payment it will free up $6,000 per year in cash flow, and I’m hoping to drive the car for at least another 5 years beyond that.

Groceries: Not a concern of mine right now, we don’t throw too much food away. I’d rather spend a bit more on groceries than eating out more frequently since your money goes much further here.

Travel: I actually took the cost of my share of our Costa Rica trip in March and divided it over 12 months instead of 6 months like the other categories, simply because we only do a trip like that once per year and I didn’t want it distorting the budget. I’m fine spending $200/month on travel at this point, although we did spend nothing here for a few years after college.

Online Shopping: Wow. I should have just called this category “Amazon,” since that’s what accounted for nearly all the spending in this category. I scrolled through my recent orders and although I have bought some essentials like shampoo and body wash at good prices, a large portion of my spending appears to be junk that I really could have gone without. My Prime membership just ran out and I will definitely not renew it after seeing this.

Clothing/Shoes: I bought new sneakers, hiking shoes, work boots, and snow boots all at once since most of my shoes were on their last legs. I also got four new flannels on sale from LL Bean! I spent a little bit more to get stuff that will last for years, so I don’t foresee myself spending too much on clothing in the near future.

Student Loans: I consider this a top offender because it’s such low hanging fruit. I have $7,124 in student loans remaining at an average of 3.9% interest. I kind of stopped worrying about these once I paid off the loans at 5-7% interest, but getting rid of that payment will provide a permanent boost to my cash flow.

Restaurants: I honestly expected my spending here to be a bit higher. I’m not too concerned here since we enjoy going out to eat roughly once per week. I will bump up the budget a bit to $150 per month and see how that goes.

Alcohol/Bars: I do quite like my craft beer, but I could probably stand to cut back a little here.

Coffee/Tea: Don’t worry, I’m not spending money at Starbucks every day. I enjoy making my own loose leaf tea or whole bean coffee every morning. I consider buying the high quality stuff to be money pretty well spent.

Update your budget to reflect your new goals

Once you’ve gone line by line and found where you can make cuts to reach your savings goals, update your budget. Feel free to round out some numbers to make it a bit prettier. Going forward into the remainder of the year, my main goals are:

Reduce my spending in online shopping to $75/month by curbing impulse purchases of crap that I don’t need and only buying household goods and other necessities. Savings of $93/month.
Reduce my spending on clothing to $50/month since my wardrobe is pretty established with high quality clothing at this point. Savings of $68/month.
Pay off one of my two remaining student loans before the end of 2019. The loan has a current balance of $3,277. Savings of $51.53/month. Note that I left the student loan payment the same in my budget, since this reduction won’t take effect until I actually pay off the loan.

If I am successful in implementing these three goals my budget will be reduced by $212.53 per month, a respectable 7% decrease in spending. Here’s the final product of all my tinkering, and the budget that I intend to hold myself to:

Expense	Amount (USD $)
Rent/Utilities	1100
Car	900
Groceries	200
Travel	200
Restaurants	150
Student Loans	111
Online Shopping	75
Clothing/Shoes	50
Alcohol/Bars	50
Coffee/Tea	50
Other Entertainment	35
Cash Withdrawals	33
Miscellaneous Taxes	31
Phone	20
Total Monthly Expenses	3005
Net Monthly Income	4033
Free Cash Flow/Month	1028

Final thoughts and future commitments

The magic of decreasing your spending is that it has a two-pronged effect. It not only increases your savings rate to accelerate your path to financial independence, but also decreases the amount of passive income (and portfolio size) that you’d need to support yourself in early retirement.

Now you know why I believe that building your budget by starting from your actual spending habits is the most effective way to create a realistic budget. This is an absolutely essential exercise if you are new to learning about personal finance since it will help you get your spending under control and give you a good idea of how much money you can start socking away each month. And if you’ve been at it for a few years like me, there’s also immense value here in making sure that you don’t drift off course.

I really enjoyed this six month spending review and feel like I learned a lot. I think that I will continue doing twice-yearly reviews moving forward in order to ensure that I’m staying on track. I’d recommend adopting a similar interval to review your own budget — don’t go several years without really looking at it like I did!

Does the World Really Need Another Personal Finance Blog?

Wed, 24 Jul 2019 00:00:00 UTC

I’ve played around with the idea of starting this blog for a few years. A quick look at any search engine reveals that there must be hundreds, if not thousands of personal finance blogs out there.

Surely we are approaching an overload of information on personal finance, where everything to be said on this topic has already been said? I don’t think so. According to the Federal Reserve Economic Data (FRED), the most recent monthly average personal savings rate for Americans was just 6.1%. In other words, the average American put just 6.1 cents of every dollar they earned to work for them in the month of May 2019.

What gives? Are people just not smart enough to realize how easily they can cut excess expenses, beef up their savings, and achieve financial independence even if they don’t make a huge salary? Again, I don’t think so.

It comes down to the simple fact that you don’t know what you don’t know. I was never offered any sort of education related to personal finance. No wisdom passed on from my parents. No relevant classes offered in school. Everything I know about personal finance and investing I learned through self-education starting in 2010. My discovery of the FIRE (Financial Independence/Retire Early) movement in 2012 was mostly due to stumbling across it randomly while browsing the web. I think the first article I read was about someone planning to retire by 40. As I dove deeper, my attitude changed from utter disbelief, to cautious skepticism, to realizing “hey, I could actually do this myself.”

The more resources that are available for people to educate themselves about financial literacy, the better. However, I’ve noticed that many of the blogs that I used to foster my learning now post infrequently or have been dormant for years.

After reaching a milestone of $100,000 net worth at age 25 this prompted me to re-evaluate if I had some valuable input in this space. Almost exactly four years prior to hitting this milestone I had just graduated college with over $30,000 in student loan debt; needless to say my net worth started out in the negative. I didn’t get lucky with some hot stock tips and I don’t have a “get rich quick” scam to sell you. What’s more, I haven’t ever made a six figure salary. All I ever did was recognize:

The power of the “savings rate” and aiming to save a large percentage of your income (regardless of your actual salary).
The power of frugality in reducing unnecessary expenses.
The magic of compound interest and putting my money to work for me to generate passive income, so one day I won’t have to work for money.
That low-cost, broadly diversified index funds are likely your best investment when striving to build wealth.
The dangers of debt, our modern culture of consumerism, and other pitfalls which can prevent you from achieving financial independence.

These five subjects will be the main focus of my blog posts as I aim to share my knowledge and my journey towards financial freedom with you.