Category Archives: Financial Independence

Our Early Retirement Didn’t Go As Planned… Our Net Worth Went UP Half a Million Dollars!

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In contrast to early retirement modeling that looks for all the worst cases and failure modes, our actual life the past almost four years illustrates that good things can offset the bad events in life.

Financial planning for early retirement is pretty straightforward.  Figure out how much you plan on spending in early retirement then save up till you have between 25 and 33 times your annual expenses in your investment portfolio.  We initially planned on spending $32,000 per year plus a large lump sum for the three kids’ college tuition.  Using the 33x multiplier (which represents a 3% withdrawal rate), that means we needed $1,056,000 plus another $100,000 to cover tuition, or roughly $1,150,000 in total investments.  That’s about what we started with four years ago but now we have a lot more.

 

The Good:

We plan for the worst and hope for the best.  Fortunately, the past four year have been very positive.  Maybe we used our luck making machine.  Or maybe we aren’t as lucky as we think.  We’re earning more than we thought and spending about what we expected, and future expenses don’t look too bad.

More Work, More Money

When I quit working in 2013, we expected Mrs. Root of Good to join me in early retirement within six months.  Then her employer decided to be really really nice to her so she kept working longer than expected.  Her employer met her requests to take a paid five week summer sabbatical in 2014, and again agreed to a paid sabbatical of twelve weeks in 2015.  The sabbaticals were on top of a 40 hour work week with negligible overtime, four weeks paid vacation, two weeks of holidays, and unlimited sick leave.  After returning from the second sabbatical in 2015, Mrs. Root of Good submitted her resignation and tried to retire.

Unsuccessfully as it turned out.  Her employer offered a flexible work from home arrangement where she officially works from home for four 10 hour days per week.  The boss gave her a **wink wink, nod nod** and said she just needed to work enough each week to make sure nothing fell through the cracks as they worked toward replacing her.  She generally worked Monday-Wednesday for six to eight hours per day and some Thursdays, probably averaging 30 hours per week.  While still collecting full time pay!  This part-time-for-full-time lasted about six months before Mrs. Root of Good finally called it quits and promoted herself from part time work to full time retirement.

Mrs. Root of Good’s extra two years of work netted us around $120,000 after taxes and work-related costs in my estimate (she was earning $70,000 gross per year and we paid nearly zero federal income tax but we stilled owed payroll tax plus state income tax).  Toss that $120,000 on the pile and watch it grow!

Mrs. RoG enjoying her first day of sabbatical.

Mrs. RoG enjoying her first day of the flexible work from home arrangement that doesn’t include working on Fridays.

 

Who knew you could make money blogging?

I always wanted to do something “internet-y” and finance related while working but never found myself in a professional role that fit that desire.  About two weeks after retiring, I started looking into this whole blogging thing.  Mr. Money Mustache had a pretty sweet site so I figured maybe it would be fun to do something similar.  I spent the weekend reading and googling and youtubing all about how to start a blog.  How great is it to be able to jump into a new exciting project head first when you don’t have to deal with work all day?!

Two days after I started the intense blog research I figured out enough to register the Rootofgood.com domain name, set up my hosting service, and then I sat staring at that blinking cursor waiting for me to start typing.  The first couple of words I typed were “HELLO WORLD” (of course).  My little homage to all things programming/internet-y. Then I deleted it and got down to business (first ever real blog post and ALL THE BLOG POSTS EVER).

Almost four years and three million pageviews later, this blog is a little dynamo.  Root of Good currently receives an average of 50,000 to 60,000 visits per month.  In late 2015 I started offering Early Retirement Lifestyle Consulting.  Since conception, the net profit from the blog and related activities was:

  • 2013 – near zero
  • 2014 – $12,000
  • 2015 – $29,000
  • 2016 – $31,000
  • 2017 – roughly the same as 2016

Toss another $72,000 on the pile plus whatever we earn this year.

Though not all early retirees start a blog, many early retirees have a side hustle.  Some early retirees turn a hobby into something profitable.  Others retire from full time work while keeping the door open to very part time, flexible work arrangements by only accepting those projects or clients that fit into their early retired lifestyles.  I did both when I started a blog for fun that turned profitable within the first year and I started consulting an hour or two per week (less when the weather is nice outside).

When planning for early retirement many years ago, I occasionally used a “part time income in retirement” line item for forecasting purposes.  At the time I used a tiny annual income for this part time work.  In one model, I assumed I might earn $6,000 per year doing something one day per week for $15 per hour.  This was based on a little side hustle related to engineering data collection that I had some success with during college.  But more generally, $15 per hour represents a pretty broad swath of potential jobs and hustles, and eight hours per week isn’t a huge impediment to otherwise enjoying one’s leisure time throughout the week.  I could mow lawns, start a handyman business, repair appliances, run errands for the elderly and disabled, or drive for Uber (which wasn’t a thing when I was completing my early retirement models and forecasts).

The very part time work for $15/hr was more of a Plan B “what if” scenario.  Adding $6,000 income per year to supplement withdrawals from an investment portfolio means you can get by on a smaller portfolio using the four percent rule.

As fate would have it, I’m blowing that $15/hr threshold out of the water (ER Lifestyle Consulting rates are currently $125/hr and I’m considering raising those given the demand).  Total earnings from my side hustles are running in the $30,000 per year range right now.  And I don’t think I’m putting in eight hours of effort per week.  Life is good as is the financial solvency of my early retirement plans.

 

Spending is in line with budgeted amounts

We started out budgeting $32,000 per year for 2014 and increased it to $32,400 in 2015 to account for inflation.  In 2016 we bumped the budget to $40,000 in light of all the extra side hustle income and better than expected investment results.

Actual spending since 2014 remained pretty close to our annual budget:

We were over budget in 2014 by a few thousand dollars but under budget all other years so far.  That underspending comes in the face of an almost $9,000 major renovation in 2014, an $8,000 minivan purchase in 2016, and paying for the bulk of a $10,000 nine week trip to Europe in 2016 and 2017 (along with several other multi-week or multi-month trips in previous years).  In other words, we have a rather robust spending plan to fund a whole lotta living and the budget seems to be working out perfectly fine.

Four months of spending at just under $10,000 (Personal Capital screenshot).

Four months of spending in 2017 at just under $10,000 (Personal Capital screenshot).

And this is with three kids!  They are now age 5, 10, and 12 years old.  I’ll admit that we’re still a year away from the oldest starting the typically more spendy teen years, but so far we haven’t noticed a significant spike in spending as the kids get older.

Since we’ve already replaced the exterior siding and the windows, and we’re in the middle of replacing the roof right now, we don’t have a lot of major home improvement projects planned for the near future, so spending on the home should remain modest.  We just replaced the car last year, so that should last us quite a while too.  Those big house-related capital replacement costs are amortized and included in our annual budget.

Another area that can bust a budget is healthcare and dental expenses.  We’ve been fortunate to spend very little in this category other than a few doctor’s visits and routine dental checkups (plus a few minor procedures at the doc and dentist).  We haven’t used up our whole healthcare/dental budget in any year of retirement.

We track all our monthly spending in Personal Capital.  It’s a free, easy to use, and automatically pulls transaction data from credit cards and bank accounts so you don’t have to spend any time inputting transactions manually (or maintain another spreadsheet!).  Review of Personal Capital.  It’s also a great tool to consolidate and track your brokerage accounts, IRA’s, and 401k’s so you can track your asset allocation and keep an eye on mutual fund expenses automatically.  Tracking spending is in my opinion the best way to stay cognizant of where your hard earned money goes and what expense categories are dominating your budget.

 

College won’t cost as much as we initially budgeted

By most objective metrics, we are wealthy.  I assumed we wouldn’t qualify for any need-based financial aid for the kids’ college.  I was wrong.  I found out the FAFSA financial aid form doesn’t include the home value nor does it include retirement account values in determining financial aid.  As a result we look relatively poor on paper due to having over 75% of our financial assets in retirement accounts and a modest adjusted gross income around $40,000 per year.

Upon entering early retirement in 2013, I expected to pay around $100,000 in total just for tuition for 3 kids and almost triple that amount if we cover room and board, books, transportation, and other living expenses.

After crunching some numbers on college costs using a few different assumptions, it looks like the worst case scenario will have us paying around $162,000 total while the best case scenario (which isn’t that far-fetched) has us paying just $31,500.  Those are totals for all three kids.  The updated forecasts come from better assumptions about scholarships and grants our children might qualify for given their academic achievements to date, along with a better understanding of how financial aid formulas work.  When I first retired, our oldest two kids were in second and third grade, and we really didn’t know how well they would do in school once the academics grew more challenging.  Several years later and they are doing great!

yale-university-doorway

 

Great stock market returns

Since I retired early, the stock market has been on fire!  As measured by the Vanguard Total Stock Market Index Fund (VTSMX), returns including reinvestment of dividends are:

  • 2013 – 33.4%
  • 2014 – 12.4%
  • 2015 – 0.3%
  • 2016 – 12.5%
  • 2017 (year to date through May 12) – 7.0%

International investments haven’t performed quite as well over the same period.  Our portfolio still managed to swell from around $1.1 million right after I retired up to $1.65 million today.  That’s a $550,000 increase in value.  About $100,000 of that increase can be attributed to Mrs. Root of Good’s extra two years of paychecks and my blog earnings (after subtracting the roughly $100,000 spent on living expenses during early retirement).  That still leaves us with roughly $450,000 of investment gains in the past four years.  Thanks Mr. Stock Market!

The returns have been so great that since the start of 2017 I have moved $90,000 from equities into the Vanguard Total Bond Market Index Fund (VBTLX).  Those bonds plus the $30,000 we have sitting in money market accounts will provide a multi-year safety blanket should the market decide that the party is over.  A six figure low-risk fixed income portfolio will help me sleep at night regardless of market volatility.

 

Successful travel hacking continues

I’ve been scoring huge credit card sign up bonuses and collecting points and miles from credit cards for over a decade.  Upon entering retirement in 2013, I fretted over the eventual end of all these easy bonuses that translate to free trips all over the world, even for our family of five.

It turns out I had nothing to worry about after earning 1,265,000 points and miles from sign up bonus offers in the almost four years of early retirement.  This gravy train keeps rolling down the tracks and shows no signs of stopping!  Some of the rules of the game have changed (Chase’s 5/24 rule is a key example) but there are still plenty of fish in the sea. So cast your net wide and don’t let all these delicious morsels slip past you.  Our credit scores remain a killer 800-something (out of 850 points) and card issuers generally don’t bat an eye at extending us even more credit.

All these free points and miles explain how we’re able to travel the world for weeks or months each year on a modest $5,000 to $10,000 annual budget.  Without free points and miles we would be incurring an extra $5,000-$10,000 expense per trip based on the past few trips.

two-years-early-retirement-mexico

 

No more work = no more work related costs

I’m sure we save a small amount on lunches out and simpler wardrobes (shorts and polos just don’t cost that much, guys).  But the biggest work-related cost that disappeared was our second car.  We questioned whether we could cut back to one car and it turns out it’s not a problem at all with our current lifestyle.  It’s been almost a year since we dropped to one car and there have been just a few times where it would have been nice to have a second car.  But we made it work with just one car.

This one car does it all for us.

This one car does it all for us.

We walk, we can take transit, Uber is always a few clicks away (though we’ve never used it so far).  Postponing or combining trips and smartly scheduling appointments help.  We also enjoy spending time at home or within walking distance in the neighborhood, so there are multi-day stretches were our car doesn’t leave the driveway (but our feet still do!).

The money savings are unquestionable – maintaining one car costs half of what it does to maintain two cars. One set of tires, one set of oil changes, one set of routine maintenance, one set of inspections, registration/licensing, insurance, and taxes.  The time savings are even more important – fewer trips to the auto shop for repairs and maintenance.  It takes less time to check the tire pressure and fluid levels in one car versus two cars.

For us, simplifying saves time and money without being a detriment to our lifestyle.  Of course others’ experiences might differ.  We only drive about 300 miles per month (unless we’re on the road completing a multi-thousand mile road trip).  Many destinations are walking distance in the neighborhood. Our kids aren’t overloaded with after school and weekend activities (though we stay busy!).

 

The Bad:

I feel like we need a counterpoint to “The Good” so I’m sticking “The Bad” in here.

 

Health Insurance in a Post-ACA World

The future of health insurance is our biggest unknown going forward.  There’s a new sheriff in town and he’s adamant that the Affordable Care Act is horrible and must be repealed and replaced.  The replacement bill, the AHCA, recently passed the House and now sits with the Senate for further sausage-making.  What will we end up with?  Your guess is as good as mine.  The following is an excerpt from my April 2017 Financial Update article where I opine about the current health insurance situation in the US:

“Let’s look at the details of the AHCA as passed by the House.  Here’s the best summary I’ve seen of the current version of the AHCA compared to the ACA (courtesy of the non-partisan Kaiser Family Foundation).

Main takeaways:

  • ACA premium subsidies continue through 2017, 2018, and 2019 (so it’s not an immediate “repeal”). Your subsidy declines as your income increases up to 400% of the federal poverty level.
  • Starting in 2020 those buying individual coverage get a $2,000 to $4,000 tax credit per person for qualifying insurance (and policies don’t have to be purchased through the official Healthcare.gov Marketplace to qualify for the tax credit). Tax credits vary with age (older = larger credit) but not with income, however there are income limits where the tax credit phases out
  • Cost sharing reduction subsidies disappear in 2020 (currently available to those earning under 250% of the federal poverty level – it’s what makes my deductible $100, max out of pocket $1,200, and my copays $5-20)
  • In 2018, HSA contribution limits double to $13,100 for family coverage.
  • If a state chooses to allow it, insurers can charge more for pre-existing conditions for those that have a lapse in coverage. Possibly much, much more. Maintaining continuous coverage seems to be the way to go to avoid paying a lot more for pre-existing conditions.
  • Increase the age banding of premiums so that the premiums paid by older people aren’t capped at three times the premiums charged to the youngest people (under AHCA older people will pay five times what younger people pay – while only getting an extra $2,000 in tax credits)
  • No more individual mandate to have health insurance retroactive to 2016

Those are the basics but trust me, I’m leaving a lot out.  Medicaid and Medicare are tinkered with too.

The Senate will most likely make significant modifications to the AHCA, so it’s pure speculation as to what we’ll actually end up with once all the sausage is made.

My main takeaway as a 30-something early retiree that will be 40 by the time the ACA premium subsidies go away in 2020 is that I’ll be paying more for health insurance that will come with higher deductibles and copays.  Mrs. Root of Good and I will each get a $3,000 tax credit to use toward insurance that will probably cost $4,000-$5,000 per year per person for a basic plan, and possibly much more if healthy people choose to go uninsured (since the individual mandate will be gone and many people will pay more for health insurance, making it less affordable).  I don’t know what the kids’ policy pricing will look like or if they’ll end up on Medicaid (if that’s still an option given the possibility of AHCA-related changes to Medicaid), but I understand they’ll be eligible for $2,000 tax credits too (based on their age) if we purchase individual policies for them.

In conclusion, I’m mentally penciling in an extra $4,000 or so for health insurance and healthcare costs starting in 2020, but also accepting that a lot can change with the AHCA before passage (or it might fail altogether).  There might be a subsequent health care bill passed later on in 2018 or 2020 as the political winds change that could put our costs back in line with where they are currently under the ACA.” (end excerpt)

If this bill passes then the near-term damage of this law won’t be horrible.  But it’s still a lot of uncertainty in our early retirement financial plan.

A silver lining of the Republican controlled White House and both houses of Congress: tax cuts.  I’ve heard mutterings about higher child tax credits and larger standard deductions, which could save us some money on taxes to partially offset higher health insurance costs (or, rather, lower health insurance tax credits versus what we get under the Affordable Care Act).  Tax cuts can potentially benefit the economy depending on how they are structured, so it’s possible we’ll see investment gains too.

Stop and smell the roses

Stop and smell the roses

 

Have we reached the top in the stock market?

I’ll be the first to admit I have no clue but I know it’s been on a winning streak the past four years.  That’s not to say it can’t keep going up for several more years.  However, there’s a lower chance of strong continued gains year after year simply because there’s less room to grow when the market is already at high valuations compared to long term historical averages.  It’s the exact reason you would have expected big stock market gains in the long term back about 2009 when the market was valued at a third of what it is today.  From deep valleys rise tall mountains.

Our portfolio might experience several years of sideways movement or suffer a double digit percentage decline.  Either of those scenarios are fairly common in the recent history of investing and it’s most certainly not different this time around.  That’s not pessimism speaking but rather realism.  It won’t mean the end of everyone’s early retirements but it will certainly mean we will keep a closer eye on expenses and income.  However our $120,000 of bond funds plus money market funds will provide a lot of stability for several years in the event of a market downturn.

 

Spending more on travel

I roughly doubled our travel budget from $5,400 when I first retired to $10,000 today.  We didn’t really know how much we would travel since our working lives were filled with work work work and just a few weeks of vacation time each year.  Travel is our safety relief valve – when our portfolio fills up to the top, this is where we let out the monetary steam.  We spend more on travel.  If we have to tighten our belts we can cut back in this area.

We’re also taking advantage of geographic arbitrage by traveling to places where the foreign exchange rate makes everything cheaper.  In 2015 that was Mexico (though we would have saved even more by waiting till 2017!).  In 2016 that was Canada.  2017 is a perfect time to visit Europe with the euro trading at the cheapest levels of the past decade.  If foreign currencies grow significantly stronger (= overseas travel becomes more expensive) then we might knock a few US destinations off our bucket list.

And if our portfolio drops by a half million dollars, we can cut out a huge chunk of spending simply by traveling less or choosing less expensive destinations.  I’m sort of looking forward to spending a lazy summer at home at some point in the near future, and a financial reason to skip a summer filled with travel wouldn’t be entirely unwelcome.

Spending more on travel is a good thing because it’s so easy to trim this spending versus other areas of the budget that are more rigid like housing costs or transportation costs.

Wouldn't mind a summer hanging around our house at all. :)

Wouldn’t mind a summer hanging around our house at all. 🙂

 

Almost four years into retirement, where are we now?

In a few months I’ll celebrate four years of early retirement.  From a financial perspective we are doing great.  We earned close to $200,000 extra that wasn’t anticipated due to starting this blog and Mrs. Root of Good working a couple years longer than expected.  Our investments have grown by an even larger sum.  And we’re keeping our spending generally at or below budget.

Our living expenses in retirement are funded from roughly $10,000 dividends and interest per year plus $30,000 income from Root of Good.  That means we don’t really have to sell any investments on a routine basis for living expenses.  Nor do we have to worry about withdrawing investments from IRA’s, 401k’s or my 457 account.

It also means the Roth IRA Conversion Ladder I planned to set up is partially on hold for now.  I still managed to convert around $4,000 from traditional to Roth IRA in 2016, whereas my Roth IRA Conversion Ladder plan called for conversions of $24,000 per year.  However, I was able to contribute $18,000 to my solo Roth 401k and $11,000 to his and hers Roth IRAs during 2016.  Yes, I have a Root of Good 401k plan and I play a shell game by living off the income from Root of Good while shuttling taxable funds into the Roth accounts.  You could say I’m “living off my portfolio like a real early retiree” and saving the $30,000 Root of Good income, which is also a legitimate way of describing my early retirement finances if one wanted to downplay the significance of the side hustle income (I don’t).  It’s a game of semantics.

The net result is $33,000 of additional Roth assets from conversions and contributions during 2016.  In other words, I didn’t follow my original plan but I accomplished a similar goal – increase the amount of funds in the Roth space so I can withdraw the contributions/conversions penalty free and tax free well before age 59.5 should that be necessary.

The unexpected income from Root of Good also means my decision to choose the Roth IRA Conversion Ladder over the competing 72(t) Substantially Equal Periodic Payments method of withdrawal was a sound one.  The 72(t) method is extremely rigid in the amounts you must withdraw each year once you start your initial withdrawals.  However, I knew going into early retirement that my income needs would vary year to year and there was always the chance I would have earned income (or get bored and go back to some form of work).  As a result, I rejected the 72(t) withdrawal method mainly because of the lack of flexibility in withdrawals.  I would really hate to be taking $30,000 of 72(t) taxable IRA withdrawals while earning another $40,000 between this blog and dividends and interest.

 

Now where are we headed?

Things look pretty rosy.  I took my financials and dumped them into the wonderful early retirement calculator at cFIREsim.com and determined that we could spend somewhere around $65,000 per year with almost zero chance of running out of money before age 90 even when we make conservative assumptions about income from the blog and other side hustle income.  Helping shore up the forecast is roughly $25,000 of expected Social Security income that we’ll start drawing in a little less than 30 years.

I don’t know that we’ll spend $65,000 per year but it’s reassuring to know that money isn’t a real constraint to our lifestyle.  We could increase our budget by 50% to cover a lot of unknowns such as higher health care/insurance costs and higher kid-related costs during the teen years.

Four years into retirement and our potential standard of living is approximately double what it was when I quit working.  It’s not entirely surprising given the conservatism of the worst case analysis performed under the “four percent rule”.  Most of the scenarios modeled in the four percent rule (which is closer to a three percent rule for very early retirees) leave the retiree with several times their initial portfolio value.  End result: a growing net worth in real terms for most very early retirees.

However I keep in mind that we might be at the top of a stock market bubble that’s about to burst and that we might see hundreds of thousands of dollars of our net worth disappear in a short period of time.  In that case, I’ll have to revisit what we are able to spend.  Until then, I’m not gonna worry about money and I’ll keep an optimistic but flexible attitude toward the future.

 

 

Any early retirees in the audience that ended up with substantially more than they started with?  Or did early retirement lead to new ventures or interests that turned profitable?  For those planning on retiring soon, do you have any plans to hustle on the side?  Let me know!

 

 

April 2017 Financial Update

money-january-2014

This year is flying by so far! Now that we are one third of the way through 2017, our financial picture for the year is becoming clearer.  And it’s a good picture so far.  Our spending for April remained below budget at $2,981 while our income of $3,321 slightly exceeded our expenses.  Our portfolio and other assets continue their upward trajectory with a $34,000 gain bringing our total net worth to $1,805,000.

This time of year is one of the prettiest in North Carolina, with moderate temperatures perfect for exploring the outdoors. Or lounging in the hammock on the back porch.  The past month has been incredibly busy for us with school events, time with family and friends, tackling some issues around the house, and entering the final stages of planning and preparation for our nine week summer vacation in Europe (we leave in about a month).

Income

Our investment income was $241 in April.  The majority of our mutual funds and ETFs pay dividends quarterly in March, June, September, and December.  During other months investment income tends to be much smaller.  The $241 is mostly interest from our roughly $100,000 investment in our money market account and bond fund.  Also included in that total is a small dividend payment from a mutual fund.  I have no clue why they paid out in the middle of the quarter.

Blog income, shown as “other income” in the chart, returned to a more normal $2,193 in April after dropping to $508 in March. My early retirement lifestyle consulting took off during April with a half dozen clients seeking advice during the month.  Total consulting income climbed to $836 for the month.  This is busier than I would like to be long term, so if this level of interest continues I’ll probably raise rates from $125 per hour to $150 per hour in order to trim back my hours per month devoted to consulting.  It’s really cutting into my video gaming / Netflix / hammock time and I’m afraid of losing my official “Early Retired” status if I work so much.  Though the consulting continues to be a personally rewarding and intellectually stimulating pastime.

The $49 in Deposits includes cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. If you sign up for Ebates through this link and make a qualifying $25 purchase through Ebates, you’ll get a $10 gift card like I did.  When shopping online, I always check to see if I can score some extra cash back by using one of those online shopping portals (and it usually pays off!).

april-2017-income

If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.

Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).

 

Expenses

Now let’s take a look at April expenses:

april-2017-expenses

We came in just under our budgeted $3,333 per month (or $40,000 per year) during April with total spending of $2,981.  Where did the money go?

 

Utilities – $662:

In addition to paying the monthly water bill and natural gas bill, I also prepaid about $500 extra in order to meet the spending requirements on our pair of Chase Sapphire Reserve Cards.  I just received one set of 100,000 bonus Ultimate Reward points for one of the Sapphire Reserve cards and I should get the other 100,000 bonus points in a few days.  I had to spend $4,000 per card within three months, which is a stretch for us given our low spending of $1,000 to $3,000 during most months.

The 200,000 Chase Ultimate Rewards points can be redeemed for $3,000 of travel if booked through the Ultimate Rewards portal, or transferred to a ton of different airline and hotel partners, which in turn can be redeemed for a dozen or more hotel nights or several international round trip plane tickets or up to eight domestic plane tickets.  Even if you don’t travel, 200,000 UR points can be cashed in for $2,000 instant cash back.  Credit card sign up bonuses are great, aren’t they?  FYI, the 100,000 Chase Sapphire Reserve offer is gone, but there is an 80,000 point bonus for a Chase Ink business card.  Sell stuff on ebay? That’s a business!

 

Home Maintenance – $609:

This was the worst month of homeownership ever.

After noticing the electricity bill unexpectedly doubling last September, I assumed an inefficient air conditioner was the culprit.  So I planned on having the HVAC system checked out this spring.  $220 later and we have a clean set of coils on the outside compressor unit and an extra pound of R-22 refrigerant added to our system (and picked up a $17 discount for paying in cash).  I haven’t needed to run the AC much given how cool it’s been this April and May, so I’ll probably have to wait till June to see if it helped with the electricity bill.   I’ve done a bit of DIY air conditioner maintenance before but didn’t want to illegally recharge my own AC system (or blow it up accidentally).

Right around the time of the AC repair, our main sewer line completely clogged up.  Not knowing where to start with the repair, I called my trusted neighborhood plumber.  The proposed fix was a $750 installation of a cleanout near the foundation of my house (as long as I dug the two tons of dirt out of the hole myself; $100 extra if they dig it).  So I got out the shovel and started digging. I eventually struck gold – a buried cleanout cap a couple feet down!  They were able to use that cleanout to snake the main drain and remove what might have been roots from the sewer line about 50-60 feet from our house.  It’s a mystery because there aren’t any large trees anywhere near that part of the yard.  It might be that 45 year old sewer pipes clog up due to slow accumulations of gunk.  By the end of it, I was still out of pocket $389, but at least now I know I have a cleanout available if it happens again, and I might try renting an industrial drain snake to DIY the cleaning since it looks pretty straight forward (though dirty).

Dig 2 tons of dirt for $100? Sounds like a good idea to me!

Dig 2 tons of dirt for $100? Sounds like a good idea to me!

Then the lights started flickering.  I called the power company and they came out to determine the problem.  Our meter base housing was busted and their power line from the transformer also had issues, so they shut off our power for the whole day while they installed a new meter base.  They still haven’t returned to replace their line to our house, so in the meantime we have a mystery device – a “service saver” – sitting next to our electric meter that provides the neutral necessary for proper electrical service (the electrician said it was “some kind of transformer but he’s not really sure how it works”). We have power so that’s good enough for me.

I found out I could power our refrigerator and our router using a 100 foot extension cord plugged in at the neighbor’s house.  While the refrigerator was pulled away from the wall, I decided to clean the coils in the refrigerator.  So. Much. Dust.  I’m not really sure how it was able to operate, and I assume this is why many refrigerators fail prematurely.  Hopefully I’ll get around to vacuuming out the coils while brushing them clean with a toothbrush more than once a decade.

I tackled a leaking sink drain line. Unsuccessfully. So I’ll be heading to a home improvement store in May to get the parts to replace the drain line (or at least the one leaky connection).

All of this was a huge distraction in my efforts to get quotes to replace our roof.  As this post goes live I’ve received over a half dozen quotes and should be selecting a roofing contractor soon.  The costs came in exactly as expected – just over $4,000 on the lower end and just over $8,000 on the high end.  We’ll definitely end up using one of the guys that quoted under $6,000 (which includes a few upgrades like chimney repair/replacement, additional/new gutters, and redoing the roofs on the porch and shed).  Insurance already paid $3,300 and should pay another $1,100 once all the work is complete, so out of pocket costs will be limited to roughly $1,500 or less.

Although we tackled a ton of home repairs in April, and the costs are slowly mounting, it’s okay.  We explicitly budgeted for all of these major and minor home repairs with a long term capital replacement plan of roughly $1,500 per year.  The roof is listed in the plan at $4,000 on a 20 year replacement cycle.  Major plumbing repairs listed at $1,000 every 10 years.  The one big shocker will be the hot water heater since I’m planning on converting to a tankless wall-mounted installation to bring things up to code once the current 40 gallon tank water heater dies.  The plumber estimated $2,300 to do that, and I’m only carrying the water heater replacement expense at $700.  Oh well – can’t get it right every time.

This isn’t the first time everything decided to conspire against us at once.  Over three years ago I wrote about the other time all the things broke at one time.

Homeownership certainly has its share of ups and downs.

 

Taxes – $600:

State and Federal estimated income taxes (minus the 2016 tax refunds received).  Since we no longer have paychecks that withhold taxes for us, we have to make small quarterly estimated tax payments to avoid an underpayment penalty at tax filing time each year.  We owe very little tax in early retirement, but it’s still higher than the $150 per year we paid while working full time earning $150,000 per year!

 

Groceries – $476:

Another slightly below average month for grocery spending.  We’re trying not to buy more food than we’ll consume before we leave for Europe in mid-June, so our “stocking up” efforts are near zero these days.  I would like to leave the fridge and freezer as empty as practicable in case we lose power or the refrigerator dies while we are away.

We threw a birthday party for our five year old and our nephew who turned one.  We had around 30-35 guests and provided a Mexican buffet.  All those groceries plus a case of beer are included in our $476 monthly grocery budget.  The other family that joined us brought papaya salad, pad thai, and chicken wings.

Mexican taco buffet - mi favorito!

Mexican taco buffet – mi favorito! Roasted pork carnitas, beans, fajita veggies, and all the fixings.

The Asian delicacies at the birthday party.

The Asian delicacies at the birthday party.

Obligatory monthly pho-to.

Obligatory monthly pho-to.

My first attempt at making Tikka Masala from scratch. Winner!

My first attempt at making Tikka Masala from scratch. Winner!

Homemade lasagna. We invited a few FIRE friends over for a meal.

Homemade lasagna. We invited a few FIRE friends over for a meal and they didn’t leave hungry.

 

Clothing/Shoes – $226:

A new pair of shoes for all of us so our feet will be happy while vacationing in Europe.  A miscellany of shorts, shirts, and socks.  Mostly in preparation for our Europe trip but things we’ll wear day to day at home too.

After I wore my new shoes for a while and completed a five mile walk/hike, I realized the new shoe has a tiny spot that causes friction on one toe. So I went crazy and dropped another $40 (after requesting a $5 discount for a tiny imperfection in the stitching on one shoe) on a SECOND pair of new shoes that are even more comfortable.  I’ll be taking the more comfortable shoes to Europe.  We’ll be doing five miles of walking or more on some days, and I really don’t want to suffer through uncomfortable footwear.

I’m working on loosening up the purse strings (since we can afford it) and spending where it makes sense and brings value.

 

Travel – $181:

We’re slowly completing the final bookings and reservations for our big summer trip to Europe.  We finished booking the last two bus/train tickets from Munich to Prague and Prague to Berlin at the end of April but the charges posted to the credit card in May (so I’ll report on them next month).  Here’s a preview: who knew you could buy five double decker bus tickets for the 4.5 hour ride across Germany from Munich to Prague, Czech Republic for €38 (USD$41)?

I paid our quarterly estimated taxes using credit cards in order to meet minimum spending requirements and to snag some big sign up bonuses on our pair of Chase Sapphire Reserve cards, so I’m including the $34 transaction fee for credit card usage here in the “travel” expense category.

In cruise news, we booked another cruise!  As I mentioned in last month’s financial update, a very helpful Root of Good reader emailed me about an incredible deal over the 2018 Christmas holidays (yes, over a year away).  It was a price mistake but before the cruise line corrected the error, we managed to book the family on a seven night cruise out of Miami bound for the Caribbean on MSC Cruises’ new ship, the MSC Seaside.  Our total cost will be around $1,400 for two rooms to accommodate five of us.  We only had to make a $147 refundable deposit to hold our two rooms, with final payment not due until October 2018.  With two kids in middle school, the cruise over Christmas break is very helpful to avoid excessive absences from school.

 

Restaurants – $48:

$35 for a family meal at the Chinese restaurant to celebrate the kids’ excellent grades. $13 for a box of Bojangles fried chicken and biscuits for the whole family.  We also redeemed a few free pizza codes acquired during March (with no additional costs in April).

The kids' favorite Chinese restaurant. Celebrating great grades on Q3 report cards.

The kids’ favorite Chinese restaurant. Celebrating great grades on Q3 report cards.

 

Gasoline – $42:

One tank of gas for the minivan.  We don’t drive a lot.

 

Cable/Satellite (Internet) – $40:

Now that Spectrum’s done gobbling up Time Warner Cable, we’ve been given a “courtesy upgrade” to a faster, more expensive internet plan.  It’s currently $45 per month for the next 12 months at which point it reverts to the regular $65 (or some other crazy figure – but I’ll be at a different provider if that happens).  I only paid $40 in April because I paid a bit extra in March during the transition to the new plan.

 

Gifts – $28:

$15 for some action figures at Walmart for our son’s fifth birthday.  $13 at a local discount store for some small birthday gifts for our other daughter and a friend (and some glue for the birthday piñatas).

Action figure battle time!

Action figure battle time!

We welcome 30-35 people to celebrate a joint birthday with our five year old son and his one year old cousin. Another homemade piñata to smash!

We welcomed 30-35 people to celebrate a joint birthday with our five year old son and his one year old cousin. Another homemade piñata to smash!

 

Healthcare/Medical – $23:

Another dirt cheap healthcare month.  I paid a $5 copay to visit my new doctor for a routine physical and to get a prescription renewed (usually an extra charge at my old doc).  It turns out he only charged me for a routine physical so the $5 copay will be credited toward a future office visit (or refunded at my request). I had to switch doctors since my new insurance plan for 2017 doesn’t have my previous doctor in the network (but they do have several hundred other doctors within 10 miles of me).  I was pleasantly surprised with the new medical practice and might just stay with them!

I also paid $2 for a 90 day supply at the pharmacy.  This new insurance is saving us more than the old insurance so far.

The balance of the healthcare/medical spending is one month’s health insurance premiums of $16. For us, the Affordable Care Act works phenomenally well in making our health insurance premiums tiny.

Since the ACA and it’s impending demise is a popular topic right now, it’s worth addressing here.  The US House of Representatives passed the AHCA which is the promised “repeal and replace” bill that’s supposed to gut the ACA and Make America Great Again.  The US Senate will get a go at making all the changes they want and then they have to vote on the AHCA (as modified) and pass it, then it goes to the House for further sausage making.  There’s a good chance the final version of the AHCA won’t look a whole lot like the version of the AHCA just passed.

But if it does, here’s the best summary I’ve seen of the current version of the AHCA compared to the ACA (courtesy of the non-partisan Kaiser Family Foundation).  Main takeaways:

  • ACA premium subsidies continue through 2017, 2018, and 2019 (so it’s not an immediate “repeal”). Your subsidy declines as your income increases up to 400% of the federal poverty level.
  • Starting in 2020 those buying individual coverage get a $2,000 to $4,000 tax credit per person for qualifying insurance (and policies don’t have to be purchased through the official Healthcare.gov Marketplace to qualify for the tax credit). Tax credits vary with age (older = larger credit) but not with income, however there are income limits where the tax credit phases out
  • Cost sharing reduction subsidies disappear in 2020 (currently available to those earning under 250% of the federal poverty level – it’s what makes my deductible $100, max out of pocket $1,200, and my copays $5-20)
  • In 2018, HSA contribution limits double to $13,100 for family coverage.
  • If a state chooses to allow it, insurers can charge more for pre-existing conditions for those that have a lapse in coverage. Possibly much, much more. Maintaining continuous coverage seems to be the way to go to avoid paying a lot more for pre-existing conditions.
  • Increase the age banding of premiums so that the premiums paid by older people aren’t capped at three times the premiums charged to the youngest people (under AHCA older people will pay five times what younger people pay – while only getting an extra $2,000 in tax credits)
  • No more individual mandate to have health insurance retroactive to 2016

Those are the basics but trust me, I’m leaving a lot out.  Medicaid and Medicare are tinkered with too.

The Senate will most likely make significant modifications to the AHCA, so it’s pure speculation as to what we’ll actually end up with once all the sausage is made.

My main takeaway as a 30-something early retiree that will be 40 by the time the ACA premium subsidies goes away in 2020 is that I’ll be paying more for health insurance that will come with higher deductibles and copays.  Mrs. Root of Good and I will each get a $3,000 tax credit to use toward insurance that will probably cost $4,000-$5,000 per year per person for a basic plan, and possibly much more if healthy people choose to go uninsured (since the individual mandate will be gone and many people will pay more for health insurance, making it less affordable).  I don’t know what the kids’ policy pricing will look like or if they’ll end up on Medicaid (if that’s still an option given the possibility of AHCA-related changes to Medicaid), but I understand they’ll be eligible for $2,000 tax credits too (based on their age) if we purchase individual policies for them.

In conclusion, I’m mentally penciling in an extra $4,000 or so for health insurance and healthcare costs starting in 2020, but also accepting that a lot can change with the AHCA before passage (or it might fail to pass altogether).  There might be a subsequent health care bill passed later on in 2018 or 2020 as the political winds change that could put our costs back in line with where they are currently under the ACA.

 

We spend almost nothing on entertainment because there's always something free going on in the neighborhood or within a few miles in the city. Like this Big Truck and Heavy Equipment expo at the neighborhood library and community center.

We spend almost nothing on entertainment because there’s always something free going on in the neighborhood or within a few miles in the city. Like this Big Truck and Heavy Equipment expo at the neighborhood library / community center.

 

Entertainment – $22:

Is it weird that I categorize hard liquor as an entertainment expense? We bought a half gallon of vodka and a fifth of tequila (1.75 L and 750 mL, respectively, for those using the far superior metric system). All bottom shelf stuff for making cocktails, although the tequila bottle did come with a red sombrero attached to the lid, so I’m pretty sure it’s high quality stuff.  Or at least high octane.

Our favorite spot in the woods. Free entertainment (if you don't count the dollar's worth of gas to get to the city's nature park).

Our favorite spot in the woods. Free entertainment (if you don’t count the dollar’s worth of gas to get to the city’s nature park).

This snake enjoyed our favorite spot, too. Non-venomous so I let it swim underneath my feet.

This snake enjoyed our favorite spot, too. Non-venomous so I let it swim underneath my feet.  Probably 3-4 feet long.

One of the kids' favorite things to do. LAN party! Roblox and Minecraft are favorites. Fortunately we have 6 PCs so everyone gets to play.

One of the kids’ favorite things to do. LAN party with friends! Roblox and Minecraft are favorite games. Fortunately we have 6 PCs so everyone gets to play.

Education – $13:

The middle kid’s elementary school Spring Fling Carnival.  Admission included unlimited games and we bought a few raffle tickets.  This could just as easily be categorized as “charity” since it’s a huge fundraiser for the PTA.  So far our K-12 educational expenses have been very modest compared to those reported by some blog readers.  No organized sports fees nor band fees certainly helps keep education costs to a minimum.

 

Electronics – $6:

3 replacement USB cables for charging the kids’ tablets. Put this in the “getting ready for our Europe trip” category of expenses.

The tablets require heavy duty USB cables with higher amp ratings to charge the tablets quickly.  Monoprice.com offers good quality cables at a ridiculously low price, even though you do have to pay a couple bucks for shipping.  Still cheaper than Amazon (which might sell lower quality cables).

 

Year to Date Living Expenses for 2017

april-2017-ytd-expenses

Through the end of April we’ve only spent $9,857.  That’s roughly $3,500 below our annual spending target of $13,333 budgeted for the first four months of the year.  So far so good!

The two remaining big cost items for 2017 are the roof replacement and our trip to Europe.  The roofing quotes are coming in low enough that it shouldn’t cost more than $1,500 out of pocket beyond the amounts paid by the insurance company.

We’ve already booked and paid for roughly $6,000 out of our $10,000 total budget for our nine week Europe trip this summer.  The remaining $4,000 of vacation spending will be concentrated in June through August while we are overseas.  The good news is we won’t be spending much to maintain our home or car here in Raleigh while we’re traveling.

Coming up in May, I’ll pay just under $1,000 for our annual homeowner’s insurance and umbrella policy plus our six month auto insurance policy.  Even though the insurance and the roof expense will hit in May, there’s a chance we won’t exceed our $3,333 monthly budget by too much.

 

Monthly Expense Summary for 2017:

Got a mild case of geese on the roof.

Got a mild case of geese on the roof.

 

Net Worth: $1,805,000 (+$34,000)

Another $34,000 added to the pile.  This stock market thingy always goes up, right?  It’s starting to feel that way.  We broke through another $100,000 milestone now that we crossed into the $1.8 million territory.  How long will these gains last?

april-2017-net-worth

I’ll be checking our asset allocation soon to see if I need to rebalance any asset classes since the international markets have done well lately.  I’m also planning on moving another $25,000 to $50,000 from equities into bonds very soon.  That will bring our total cash/bonds position from roughly $100,000 up to $125,000-150,000.

If we get to $150,000 in cash and bonds, that will represent about four years of living expenses without any efforts to curtail spending, without collecting any dividends from the equities side of the portfolio, and without any side income earned from this blog, the early retirement lifestyle consulting, or other ventures I might stumble upon in the future.

In reality, we’ll keep collecting $8,000 or more in dividends and the blog plus consulting will probably bring in $20,000 or more without too much effort.  If we can cut spending by 25% then we won’t need to pull more than $3,000 to $5,000 from our fixed income reserves, which means the cash and bonds could get us to Social Security age (contrary to popular belief, retiring in your 30’s doesn’t mean you won’t collect a fat Social Security check at age 67).  That’s why the next stock market correction doesn’t worry me at all – we’ll be just fine for many years without needing to sell any equities at sharply reduced prices.  In other words, I don’t think we’ll ever run out of money.

 

 

Still enjoying this rising market?  Are you taking any defensive measures to protect against losses, or staying the course (as you probably should!)?  Now that tax season is over, any new tax strategies you’re implementing in 2017?  

 

 

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When is Enough Enough?

sunset-cape-lookout

How do you know when you have enough to retire early?  When is enough enough?  In a rare guest post, the Early Retirement Dude pays a visit to Root of Good to share his thoughts.  

Relatively new to the FIRE blog scene, the Early Retirement Dude is no stranger to the refined art of Early Retirement.  Now 47, he retired over a decade ago at the ripe young age of 36 (ha ha I beat him by 3 years but it’s not really a contest, is it?!).  I had the pleasure of hosting ER Dude at my house several weeks back, and can confirm he’s a legitimate ER Dude, scraggly two week beard and all.

 

=========================

 

It’s May of 2005 and I’m officially quitting my job this morning—or, technically, I’m being laid off because I’ve turned down a directed transfer—and part of the process is an exit interview with our divisional president.

I’ve just turned thirty-six.

Cliff is a good guy, and for a couple more hours I’m two tiers down from him on the org chart. I report directly to a woman who reports directly to him, so he and I have gotten to know one another and become friends. He’s also helped me out career-wise; involved me in higher-level meetings, invited me to the right cocktail parties, and been solicitous of my opinion.

So at the appointed time I show up in his office, him in his charcoal Brooks Brothers and me in my Grateful Dead t-shirt and cargo shorts and running shoes. I mean, what the hell, right? Truckin’…got my chips cashed in, etc.

Cliff checks out my outfit and grins. “I guess you’re serious.”

I chuckle. “Yeah.”

“OK. Can’t say I didn’t try. Have a seat.”

On the far side of his office he’s got two couches and two easy chairs arranged into a conversation pit. I take a couch and he comes over and sinks into a chair.

“Right,” he sighs. “Uh, Rachael filled me in somewhat. Said you were leaving the industry.”

Rachel’s an HR rep. “Sort of,” I say. “I’m getting completely out of corporate America. I’m done.”

“Done?”

“Retiring.”

“Oh.”

He shifts his gaze to the big plate-glass windows. He’s got the blinds open; it’s a bright spring day. “You know,” he muses, “I’ve heard a lot of people talk about doing what you’re doing, but nobody ever does.”

Now: Cliff is a a guy whose net worth is easily ten million dollars. I’m guesstimating, but I’d once seen the standard executive-level contract, blank, and between the perks and the stock options and the bonus floor and the wide wide empty salary line with plenty of room for zeroes; and of course his slice of the phantom equity the company originally distributed when it was a startup, I know he’s done and is still doing well for himself.

So I call him on it. “Man, I don’t get it. I mean, you. You’re worth, what, ten million bucks? And I know you’re burned out, so why are you still here?”

He replies a little too quickly, as if he often asks himself this question. “Because,” he tells me, “you get the big house and the nice cars and the toys, and your kids are in private schools and your wife gets used to the lifestyle, and that’s it.”

I nod. “OK.”

And that’s pretty much it for the personal side of the discussion. The rest of the interview is the usual formulaic bullshit about my satisfaction with career development, how I feel the company can improve employee retention, whether I have any concerns about discrimination or sexual harassment, and so forth, and within twenty minutes we’ve got the whole thing wrapped up. We stand up and shake hands, he directs me to the HR VP’s office, I sign off on my severance contract, and I’m on the train home before noon.

I never see Cliff again.

A few years later I hear through the grapevine that the company axed him after a regulatory agency found his division guilty of violating the agency’s operational standards. Not anything criminal, but sketchy enough nonetheless. The agency’s finding cost the company an eight-figure settlement, which of course resulted in several public and bloody decapitations, including Cliff’s.

Which triggered his severance agreement. And that meant he’d just thrown however many million dollars his package was worth onto his already Kilimanjaro-sized pile of money—not to mention however much that mountain had grown in the years since I’d left.

~

These days I don’t think about Cliff much, but I wonder if that layoff was the point at which he left the industry. I hope so, because how much is enough?

Maybe he started consulting, or maybe he moved on to a different field. He’s not on Facebook, or at least not the last time I checked, and I guess I could google him or search LinkedIn, but I haven’t bothered.

campfire-on-beach

That exit interview was eleven years ago. I’m forty-seven, now, and as I write this I’m sitting alone on the beach on Cape Lookout, a barrier island off the North Carolina coast. This is an undeveloped beach, a national seashore that stretches on and on for fifty miles, and at this time of year it’s deserted. I’d be surprised if there are twenty other people sharing the island with me.

When I drove off the ferry eight days ago I hit the beach and drove south through the sand for I don’t know how many miles until I got seized by The Thirst…so I pulled over onto a nice flat spot in the shelter of the dunes, cracked a beer, and set up camp.

truck-on-beach

I’ve been sun-basking and surf-fishing and beer-cracking ever since. I’ve gone running along the tideline, picked up a million seashells, watched the lighthouse’s beam endlessly circle around and around, counted shooting stars, and of course I’ve been doing some heavy thinking. You can’t help but think in places like this.

And so I thought of Cliff. I don’t know where he is; what he’s doing; how his life is going…but he’s certainly not sun-basking or surf-fishing or beer-cracking or even soul-searching on Cape Lookout.

puffer-fish-beach

This must be an allegory for Cliff – stuck on the hook and unsure how to free himself.

That thing he said about the house and cars and private schools and such. I think taking a job you hate and getting addicted to the paycheck is one of the worst ways you can screw up your life. Money can’t buy you happiness, but I guess it makes misery more enjoyable…as the old saying goes, or ought to.

So wherever Cliff is, I hope it’s someplace he wants to be. He’d be in his early fifties now, so maybe he DID get out.
Whatever the case, I wish him well.

=======================

Don’t forget to visit Early Retirement Dude!

 

 

Any Cliffs out there willing to admit it?  If so, when will you call it quits?  How do you persuade yourself that enough is in fact enough when there’s always the fear of running out of money in early retirement

 

 

February 2017 Financial Update

money-january-2014

Two months into 2017 and things are off to a great start for us.  Our income of $4,893 for the month greatly exceeded our expenses of $2,108.  Our net worth climbed another $38,000 to $1,756,000 primarily due to solid stock market gains.

Our taxes are filed and we’re due small refunds from the state and the feds totaling several hundred dollars.  My first effort at paying quarterly estimated taxes in 2016 were a huge success since I came very close to our actual tax liabilities without giving our state and federal governments unnecessarily large loans.  Our overall tax liability is higher in retirement compared to our working years thanks to the self employment tax due on blog earnings.  At least I’m increasing my future social security check slightly.

 

Income

Our investment income was $132 in February.  We get more monthly investment income since shifting $50,000 from stocks to bonds in January.  However, the majority of our mutual funds and ETFs pay dividends quarterly in March, June, September, and December.  Since the bond yield is about the same as our overall portfolio yield, our total annual investment income will remain roughly the same.

Blog income, shown as “other income” in the chart, remained strong at $3,581.  My early retirement lifestyle consulting income dropped to $465 after a very busy January.  That works out to about one hour per week which is perfect for me.

The $713 in Deposits includes cash back from my credit card (now I’m putting spending on Chase Sapphire Reserves to score 200,000 bonus points).  It also includes cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. If you sign up through this link and make a qualifying $25 purchase through Ebates, you’ll get a $10 gift card like I did.  We had a bunch of spending late last year that finally paid out the cash back bonuses in February along with some referral payments for folks signing up through the links on this blog.

february-2017-income

If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.

Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).

 

Expenses

Now let’s take a look at February expenses:

february-2017-expenses

We came in well under our budgeted $3,333 per month (or $40,000 per year) during February with total spending of just $2,108.

Utilities- $1,036:

This is mostly from the $800 I prepaid on our electric bill.  They charge a flat $2.40 fee for credit card transactions so I usually pay a large chunk at a time to avoid the $2.40 fee every month.  I prepaid enough to cover all spring and summer electric bills since I’m trying to spend $8,000 in three months to score my 200,000 Chase Ultimate Rewards points from our Chase Sapphire Reserve cards (hint: 100,000 point offer is no longer available online but the 50,000 point bonus for Chase Sapphire *Preferred* card is still available).

The utilities total also includes our regular monthly water, sewer, and trash bill from the City plus an abnormally low natural gas bill (thanks overly warm winter!!).

Groceries – $508:

We came in very close to our $500 per month average for groceries.  Not bad considering we bought several discounted gift cards for groceries at Walmart, Aldi, and Kroger during the month and still have about $150 in value remaining from those purchases.  If you haven’t checked out raise.com for discounted gift cards for places you already shop, then feel free to save an extra $5 off your first purchase at Raise.com.

They have sales a few times per month where they offer $5-10 off a $50-100 purchase or an extra 4-5% off all gift cards so it’s easy to get a discount on gift cards and score an additional discount from Raise.com’s promotions.  Since I already spend about $500 per month at stores such as Aldi, Walmart, and Kroger it’s an easy way to save 10%+ off stuff I’m routinely buying.

Homemade banh xeo Asian crepes.

Homemade banh xeo Asian crepes.

Obligatory monthly pho pic.

Obligatory monthly pho pic.

...which we enjoyed outside in the 70-80 degree weather this February.

…which we enjoyed outside in the 80 degree weather this February.  Gotta love “winter” in the South.

I tried out Instacart grocery delivery service during February.  They were offering $15 off a $35 purchase with free delivery.  How bad could it be?  Turns out it wasn’t that great.  They messed up several items by substituting other items that cost twice as much or more. And instead of the two bunches of kale I ordered, I received two partially moldy bundles of mustard greens.  The apples (sold by the pound) were huge while the lettuce (sold by the head) was tiny.  After complaining to Instacart and receiving a refund for the most egregious shortcomings I ended up spending a net of $10 for my grocery order so it wasn’t a bad deal after all.

I think the service is good enough once you learn to specify certain things like “pick small apples”, “don’t substitute”, and “kale is dark green and says k-a-l-e on it, not m-u-s-t-a-r-d g-r-e-e-n-s”.  If I were mobility impaired or without transportation this service would be 100% kick ass in terms of quality of life improvement, warts and all.

The one on the left is Instacart's choice of lettuce. The one on the right is what I usually buy. Mine is twice as heavy as the Instacart lettuce (and 5 cents cheaper).

The one on the left is Instacart’s choice of lettuce. The one on the right is what I usually buy. Mine is twice as big as the Instacart lettuce (and 5 cents cheaper).

Automotive – $165:

This represents our annual car inspection fees, licensing, registration, and taxes.  I appealed our vehicle’s tax valuation and they lowered the appraised value from just over $10,000 to $6,800, thereby saving about $35 in property taxes.  The effort required?  Emailing a scan of the Bill of Sale to the county tax assessors office.  Maybe 10 minutes including finding the Bill of Sale.  If they jack up my assessed value for 2018 I’ll be able to forward the same email in about 30 seconds and save another $35 hopefully.

A little DIY repair. The license tag lights burned out and as a result I failed the state safety inspection. $0.99 on ebay and a few days later and I had a fix. Though it took 45 minutes to install. In hindsight, I should have paid the auto shop $20 to install the new tag lights.

A little DIY repair. The license tag lights burned out and as a result I failed the state safety inspection. $0.99 on ebay for a pair of LED lights and I had a fix. Though it took 45 minutes and removal of all the back tailgate interior panels to install. In hindsight, I should have paid the auto shop $20 to install the new tag lights.

Travel – $150:

We’re still chugging away at our trip planning for our nine week trip to Europe this summer.  The $150 represents three sets of intercity bus tickets for the five of us:

  • Malaga, Spain to Granada, Spain on Alsa – USD$41
  • Granada, Spain to Seville, Spain on Alsa – USD$40
  • Venice, Italy to Ljubljana, Slovenia on Buscenter.it – USD$69

It looks like those Venice-Ljubljana tickets will be our most expensive set of bus or train tickets on the entire trip.  It’s crazy how cheap buses and trains are in Europe.  March’s expense report will include several more sets of tickets in the USD$40-50 range.

I'm hoping to see some of the great outdoors while in Europe. Slovenia looks particularly promising.

I’m hoping to see some of the great outdoors while in Europe. Slovenia looks particularly promising. This, however, is more local. A trail a couple miles from our house.

Healthcare/Medical – $114:

We paid $98 to the dentist which covers the 20% copays on two routine dental visits plus two fillings for our kids.

The balance of the healthcare/medical spending is one month’s health insurance premiums of $16. For us, the Affordable Care Act works phenomenally well in making our health insurance premiums tiny.

Will the ACA remain intact in 2017 and in the future?  Who knows.  The latest draft GOP “repeal/replace” bill didn’t look too ugly for the near term since it kept ACA premium subsidies intact through 2019, with the subsidies changing to a refundable tax credit starting in 2020.

Enjoying our free "made from pallets" balance machine

Enjoying our free “made from pallets” balance machine

Nothing like a completely empty pool and aquatic park during the weekdays for your private lap swimming. Impossible to get in here most weekends due to long lines.

Nothing like a completely empty (other than lifeguards) pool and aquatic park during the weekdays for your private lap swimming. Impossible to get in here most weekends due to long lines.

Electronics – $45:

I ponied up $80 for a new (used) smartphone in preparation for our Europe trip.  I had $35 of ebay gift cards purchased last year that brought the cost down to $45.  I went with the Samsung Galaxy S4 Active, a ruggedized version of the regular Galaxy S4.  The phone is a few years old but still a beast of a smartphone.  And if I drop it in a puddle it might survive the inundation.  If not, at least it won’t cost a lot to replace it.

I’m using a $0.99 global SIM chip purchased from Freedompop for service while in Europe.  It’ll give us 600 MB of data per month (actually x2 since I bought 2 SIMs).  Plus 200 minutes voice calling to US numbers, with 100 minutes of global calling.  I think it will work everywhere in Europe except Slovenia where they currently don’t offer service with the Global SIM.  Not bad for 2 bucks if it works like I think it will.  It’s working very well here in the US so far.

Gifts – $29:

The Samsung Galaxy S4 wasn’t the only cell phone I bought in February.  I also picked up a Kyocera Hydro Icon directly from Freedompop for $29.99.  This is going to be our oldest daughter’s birthday gift later in March, and our kid’s first entry to the world of smartphone ownership.  Scary times for sure.

The phone comes with free monthly service and includes 200 “voice” minutes, 500 texts and 900 MB of data each month.  I can set it up so overages are impossible for a one time $5 fee if that’s what my daughter prefers.  Otherwise she’ll be on the hook for monthly fees.  She has unlimited free wifi at school so hopefully the limited cell data won’t be a problem.

A commenter asked if I’ve done a review of Freedompop on my blog.  I haven’t but you can read my brief thoughts on it in my response to that comment.  Basically, I like it.  We’re on wifi most of the time and the 3G/4G data is adequate for times we’re not.  I put the “voice” minutes in quotes because it’s actually VOIP or voice over internet protocol for their voice minutes.  So if I’m in an area with bad cell data reception I can suffer degraded call quality.  Given that I only use about 5-10 minutes of call time each month it’s not a big deal.  It wouldn’t work for some, but for a light cell user like me it works perfectly. And the $0 monthly price tag is hard to beat.

Right now they have $2 US based SIMs available if you have an old inactive phone that takes SIMs and want to give it a go for a few bucks.  Or power up that old phone for Grandma or for your kids.

Gasoline – $39:

We finally refueled the minivan in February.  We’re carpooling with another family so we drive about 120 miles per month for that in addition to other routine driving around town for shopping, errands, entertainment, and recreation.

I actually refueled again on February 28th but the expense didn’t post on the credit card statement till March so you’ll see that expense next month.  I had to use up my Kroger fuel rewards set to expire at the end of February.  That should get us through March unless we take a big trip somewhere.  Though with nicer weather here we might be out and about a lot more swimming and exploring local trails and parks.  Or not, if the hammock calls my name.

Entertainment – $11:

$11 was roller skating admission for two kids.  Most other entertainment options are free or very cheap.

Who has time for expensive paid entertainment options when there's a lakeside campfire to be enjoyed?

Who has time for expensive paid entertainment options when there’s a lakeside campfire to be enjoyed?

Fire also doubles as a grill.

Along with some flame roasted steaks and sausages. Improv rock tossed in the middle to support the “grill” (aka an old oven rack).

Or things to climb on in the neighborhood?

Free things to climb on in the neighborhood?  Check.

Or more things to climb on ?

More things to climb on at a different nearby park.

Or things to build then climb on?

Things to build then climb on.

How about the state science museum coming to your neighborhood library with snakes and other assorted reptiles?

How about the state science museum coming to your neighborhood library with snakes and other assorted reptiles?

Restaurants – $6 (not shown in the expense summary graphic):

We bought takeout pizza twice during February.  Once was with gift cards bought in previous months (at a discount through Raise.com or elsewhere of course).  The second time was partially paid by us but also included some free personal sized pizzas the kids earned at school.

Not from a restaurant. $2.99 for a one pound bag of pork or chicken potsticker dumplings at Trader Joe's.

Not from a restaurant. $2.99 for a one pound bag of pork or chicken potsticker dumplings at Trader Joe’s.

Fish n green beans. Mmmm...

Fish n green beans. Mmmm…

 

Year to Date Living Expenses for 2017

february-2017-expenses-ytd

At $5,487 spending for the first two months of 2017, we are about $1,000 below our annual spending target of $6,667 budgeted for the first two months of the year.  And that’s in spite of paying the big lumpy annual home property tax bill and prepaying $800 toward the electric bill.

For the financial voyeurs, here is a full summary of our 2016 budget versus actual spending for all twelve months of last year.  In that article I make the case that we’re living a $100,000 lifestyle on roughly $40,000 per year.  Let me know what you think.

This month I plan to solicit bids from a number of contractors to replace our roof.  I expect this will cost around $4,000 to $8,000 which will probably be our largest expense all year.  Our other living expenses are usually pretty modest in March and April so we might not exceed our total annual budget even after the large roof expense.

Most of our travel expenses are already paid for our nine week trip to Europe.  By late January we finished booking 64 nights in Airbnb apartments for around $5,250 or about $82 per night.  We purchased $5,800 worth of Airbnb gift cards in December 2016 so we didn’t pay anything out of pocket in January for the Airbnb rentals (and we still have several hundred dollars left over for future travel).  The good news is that once we are in Europe in June through August most expenses will already be paid other than local transit, rental cars, food, and some attractions.  I hope to publish a big post during March outlining our nine week trip to Europe with a rough budget included!

 

Monthly Expense Summary for 2017:

 

Net Worth: $1,756,000 (+$38,000)

Deja vu! On the heels of a $38,000 net worth increase in January, we experienced another $38,000 net worth bump in February bringing our total net worth to an all time high of $1,756,000.  We didn’t celebrate breaking through another quarter million dollar milestone other than noting it, and accepting that we might get to experience breaking through that particular milestone again at some point if the market doesn’t continue going up forever (which it won’t).

February of 2016 found Mrs. Root of Good leaving full time employment for good.  One year later and our net worth is up by more than $300,000.  It’s a good feeling to have all this cushion in our portfolio but I accept that the stock market goes up and down.  We could just as easily lose $300,000 or more in the next year.  We’d still feel pretty wealthy since I know I felt wealthy one year ago at a ~$1,400,000 net worth!

 

february-2017-net-worth

A quick note on those spikes in the net worth chart.  Nothing crazy here, just hiccups from doing some asset conversions and transfers.  First, I converted my admiral class Vanguard shares to ETF class shares.  It’s a tax free conversion.  It makes the shares easier to transfer in kind to other brokerage firms.

I then transferred over $200,000 of ETF shares to Fidelity to pick up a his and hers 50,000 United Airlines mile bonus when you transfer $100,000 or more to a brokerage account.  This bonus is available once every 12 to 14 months so I’ll probably rinse and repeat in 2018 (by transferring assets back to Vanguard or elsewhere for a few months then round-tripping to Fidelity).  100,000 points equals four flights across the US or around three flights to Mexico/Central America/Caribbean.

This guy right here knows it's feeling like springtime right now!

This guy right here knows it’s feeling like springtime right now!  On a different note, why are dandelions considered a weed?

In investing moves, I maxed out our Roth IRA’s to the tune of $11,000 in February and contributed $4,050 as an employer contribution to my solo 401k.  I’m able to fund the IRAs and the 401k due to earnings from this blog.  Since I wanted to maintain my cash/bond reserve I transferred $15,050 from my money market account to fund these new IRA/401k contributions in the Vanguard Total Bond Market Index Fund.

Fixed income investments are now at roughly $65,000 bonds and $25,000 cash (in money market).  The bonds yield roughly 2.5% while the money market yields 1.0%.  I’ll suffer some cash drag on investment returns but I can sleep at night knowing I have a few years of living expenses tied up in relatively stable fixed income investments.

And when it comes to living well for the next 40 to 60 years, sleeping at night is pretty important.

 

 

Boy howdy, this stock market is on fire! Any newly minted millionaires want to out themselves publicly?  What are you sensible, frugal-minded people doing with all your newfound wealth?  

 

 

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January 2017 Financial Update

snow-january-2017-featured

January is over and what a fine January it was for our finances!  Our net worth climbed another $38,000 to $1,718,000 and in the process we broke through another $100,000 milestone.  Income for the month of January was solid at $5,068 while expenses remained roughly on budget at $3,378 in spite of a few large, lumpy quarterly or annual expenses.

After finishing 2016 about $1,000 under our $40,000 budget with total spending of $38,991, we are off to a great start in 2017.

 

Income

Our January investment income was a modest $54 since almost all of our mutual funds and ETFs pay dividends quarterly in March, June, September, and December.  I reallocated some equity mutual funds into a bond fund during January so our monthly investment income will be slightly higher going forward (but about the same over the course of an entire year due to the bond fund yielding about the same amount as our overall portfolio).  More on the portfolio moves in the “Net Worth” section of this financial update.

Blog income, shown as “other income” in the chart, was up slightly in January compared to December 2016 to $3,834.  I’m still blown away that this blogging gig actually makes money.  I guess that is what happens when you get a consistent 50,000 visitors per month (#humblebrag).  My early retirement lifestyle consulting income jumped to $952 after a slow December.  That’s about as busy as I want to get (two hours of work per week), so if business remains strong I may have to raise rates again.

Trying not to work too hard IS a full time job. Don't hire this bum.

Trying not to work too hard IS a full time job. Don’t hire this bum.

The $226 in Deposits includes cash back from my credit card thanks to high spending in December plus the proceeds from the sale of a $12 Lego cruise ship I bought while on our last cruise.  The Lego ship sold for $75.  I also received cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. If you sign up through this link and make a qualifying $25 purchase through Ebates, you’ll get a $10 gift card like I did.  Though not included in January’s Ebates cash back, January was a bright month because I finally received credit for 10% cash back on our two December cruises purchased through Expedia after clicking through Ebates.  They wait an excruciating 40 days after your cruise before crediting the 10% cash back and then pay out earned balances quarterly.

january-2017-income

If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.

Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).

 

Expenses

Now let’s take a look at January expenses:

january-2017-expense

In spite of some big lumpy quarterly or annual expenses, we still came very close to our budgeted $3,333 per month (or $40,000 per year) with total expenses of $3,378.

Taxes – $2,120:

Taxes are my least fun expense and unfortunately they top the charts for last month.  Our annual real estate bill of $1,520 was due just after the first of the year.  Of course we get a ton of value out of our local taxes (police, fire, great parks and swimming facilities, “free” public education for the kids, and pothole free streets and sidewalks).

Quarterly estimated taxes were due once again on January 15.  $300 to the State of North Carolina and $300 to the feds.

Teaching the kids how to make banana bread.

Teaching the kids how to make banana bread.

 

Finished product.

Finished product.

 

Groceries – $855:

We usually spend closer to $500 per month on groceries.  Part of the higher expense in January was refilling the kids’ lunch money accounts for $244 (the max I can fund with a credit card at one time).  We also replenished our fridge and freezer after spending just $205 on groceries during the month of December (thanks, busy travel schedule!).

Mrs. Root of Good indulged her smoked salmon habit quite a bit as well (if anyone knows where to buy decent quality smoked salmon for less than Aldi’s $3.49 for 3 ounces please let me know in the comments).  This is slightly cheaper than going on a Carnival cruise where the smoked salmon bagels flow freely and plentifully from their on-board sandwich shop.

Accidental low carb sushi with the smoked salmon on top.

Accidental low carb sushi with the smoked salmon on top.

 

Caviar and champagne don't help the grocery budget any.

Caviar and champagne don’t help the grocery budget any.

I also picked up a $100 Kroger grocery store gift card from Raise.com at a $10 discount.  So far about half that value remains on the card and I’ll spend it in the next month or two.  If you haven’t checked out raise.com for discounted gift cards for places you already shop, then feel free to save an extra $5 off your first purchase at Raise.com.

First time making this. Steamed banh bao char siu barbecue pork rolls.

First time making steamed banh bao char siu barbecue pork rolls.

 

Ok, last food pic I promise. Coconut curry fish and bamboo with egg and somen noodles.

Ok, last food pic I promise. Coconut curry fish and bamboo with egg and somen noodles.  We could spend WAAAY less on groceries if we stuck to rice and beans (but what fun would that be?).

 

Utilities – $155:

Since we were out of town on two cruises during December, our water bill which lags by a month was lower at $86 (hidden savings due to travel!).  Our natural gas bill was also lower than usual at $69.  Being out of town helped but the unseasonably warm weather probably played an equal role.  We didn’t pay the electricity bill in January because we prepaid many months ago using a credit card to snag some sign up bonuses.  We finally received a bill with a balance due and I just paid $800 in February which will cover electricity through the expensive summer cooling season (when we’ll set the thermostat way high when we depart for Europe for the majority of the summer).

 

Gifts – $111:

We purchased a number of small “generic” gifts during some after Christmas sales.  These will come in handy throughout the year when our kids are invited to birthday parties (and our kids might see some of these gifts as well but I can’t say more since they might read this blog post!).  The gift total also included some belated Christmas gifts.

 

Entertainment – $64:

This represents my family’s share of a shared Netflix subscription.  Our only real paid media expense during the year.  I also paid under $1 for a computer game.

One of 2016's entertainment expenses: wheels from Harbor Freight strapped to the bottom of a wood pallet for insta-pull cart fun time lakeside tomfoolery. Also doubles as a utility cart.

One of 2016’s entertainment expenses: wheels from Harbor Freight strapped to the bottom of a free wood pallet for insta-pull cart lakeside tomfoolery. Also doubles as a utility cart.

 

Cable – $34:

Our monthly internet bill for 50/5 mbit service from Time Warner Cable.  I believe my rate will reset to the normal $40 per month sometime soon so I’ll have to make my annual phone call to snag a $30 or $35 monthly rate for 12 more months.

 

Healthcare/Medical – $16:

One month’s health insurance premiums.  I can’t speak for others but the Affordable Care Act works phenomenally well in making our health insurance premiums tiny.

I’ll reprint what I posted in last month’s financial update (which went to press two weeks before the Presidential Inauguration):

“A quick note on “OMG OBAMACARE IS ENDING!!1”: Yeah, maybe.  There’s a lot of uncertainty over what the promised “repeal and replace” actually means.  I wouldn’t be surprised to see many parts of the Affordable Care Act remain in place under TrumpCare like the coverage for children on the parents’ policy through age 26, coverage of pre-existing conditions, and some form of subsidies to make insurance affordable.  Who knows, TrumpCare might actually be better for the average person than ObamaCare (though unlikely to be better for us given our $16 policy for 2017!).

In terms of timing, I expect the ACA subsidies and coverage to definitely remain through 2017 and most likely remain through 2018, and possibly later.  So now isn’t the time to panic. Yet. We’re probably good for two more years.

What will we do in 2019 should TrumpCare prove unfavorable?

  • Pay more, possibly tens of thousands per year more, and spend less elsewhere
  • Or work a little bit harder at money making endeavors and keep non-healthcare spending the same as today
  • Accept worse coverage to save money
  • Move overseas to any of the dozens of countries with reasonable health care costs
  • Move to a state with reasonable health insurance costs (that might include state-level subsidies or adult Medicaid)
  • Adapt our plans to maximize our benefit under the new TrumpCare subsidy rules
  • Throw in the towel and get a job with employer provided (and subsidized) health insurance

Fortunately we have time to see how the situation unfolds and react to new information as it becomes available.  Pay close attention in the coming weeks and months.” END QUOTE

We still don’t know much more now than we did a month ago, although the grumbling I’ve heard coming out of Washington is that a number of legislators have realized it might not be the best thing to get rid of this whole Affordable Care Act without figuring out a way to affordably insure most of those that would lose coverage with a repeal.

If you're worried about health insurance in 2017, take a deep breath and enjoy the view. Life is good.

If you’re worried about health insurance in 2017, take a deep breath and enjoy the view. Life is good.  It’ll be alright.

 

Travel – $11:

I used our credit cards to pay our quarterly North Carolina and federal taxes.  They charge a convenience fee around 2% for the privilege.  Right now I’m working on spending $8,000 on a pair of Chase Sapphire Reserve credit cards so that I can snag 200,000 Ultimate Rewards points (worth $3,000 of travel or transferable to a wide selection of airline frequent flyer programs for many thousands of free flights).  Check out current credit card offers if you like free travel as much as I do.

 

Service Charges – $8:

Mrs. Root of Good’s 401k charges small quarterly fees.  In exchange we get institutional class Vanguard funds with expense ratios as low as 0.02% which saves us a lot of money on the $300,000+ balance.

 

Restaurants – $2:

I used two free coupons for Papa John’s pizza and paid $2 to upgrade one to an extra large.  I obtained the free pizza coupons when I purchased a $25 Papa John’s gift card for $25 on Groupon last year.  We also enjoyed some takeout tacos using a previously purchased gift card.

Ok, I lied earlier. But this is the last food pic for real. We bought an extra turkey right before Thanksgiving when the grocery store practically gives them away at $0.37/lb. This bird chilled in the freezer till mid-January.

Ok, I lied earlier. But this is the last food pic for realz. We bought an extra turkey right before Thanksgiving when the grocery store practically gives them away at $0.37/lb. This bird chilled in the freezer till mid-January.  We had a little feast, turkey sandwiches and wraps for a few days, then froze the remaining meat.  We also kept the bones and meaty scraps for some soup in February.

 

Gasoline – $0: Another $0 month for gasoline purchases.  I finally had to refill the tank in early February.  We also switched up the school transportation for our oldest kid and are now carpooling with another family instead of sending our daughter on the free school bus at 5:50 am.  That will add about 120 miles per month to our routine driving, which means we’ll need to buy gas around once per month now.  Not a bad trade off for an extra one or two hours of sleep each morning.

 

In the next several months I hope to solicit bids from a number of contractors to replace our roof.  I expect this will cost around $4,000 to $8,000 which will probably be our largest expense all year.  Most of our travel expenses are already paid for our nine week trip to Europe.  By late January we finished booking 64 nights in Airbnb apartments for around $5,250 or about $82 per night.  We purchased $5,800 worth of Airbnb gift cards in December 2016 so we didn’t pay anything out of pocket in January for the Airbnb rentals (and we still have several hundred dollars left over for future travel).

 

Net Worth: $1,718,000 (+$38,000)

Another month, another massive net worth increase.  The stock market remained strong throughout January which was the primary driver behind our $38,000 net worth gain, bringing out total net worth to $1,718,000.  This represents an all time high net worth for us.

The strong increase in net worth comes at a time when we are celebrating Mrs. Root of Good’s one year retirement anniversary.  Not a bad way to end the first full year with both of us retired.

 

 

january-2017-net-worth

As I said in last month’s Financial Update:

“I don’t “fear” a market correction but know well enough they happen periodically.  Having enough cash on hand to supplement other income streams for the next several years is a comforting feeling.  If a 20% or 30% market crash occurs tomorrow, I’ll lose $300,000 to $450,000 but I won’t have to sell anything at a loss for several years.”

While some would freak out facing the loss of hundreds of thousands of dollars, I’m more of a “glass half full” kind of guy.  Even after sustaining heavy portfolio losses of 30%, we would still have over a million dollars in our investment portfolio above what we are setting aside for the kids’ college costs.  While we will feel a little poorer, it’s still a pretty sweet spot to be in.

What we REALLY focus on. Enjoying those sunny 70F+ days in the middle of January.

What we REALLY focus on. Enjoying those sunny 70F+ days in the middle of January.

 

...and dipping our toes in the water.

…and dipping our toes in the water.

Of course I have to disclose a big move in my portfolio during the month of January that helps me stare down huge market corrections.  I moved $50,000 worth of equity mutual funds into the Vanguard Total Bond Market Fund (VBTLX / BND for those following along at home).  Nothing more than taking some profits while the markets are at relatively high levels.  Other than the $40,000 or so sitting in a money market, we didn’t have any bond positions prior to this move.

In absolute terms it’s not a big move at roughly 3% of our total investment portfolio value.  But what it buys us is over one year of our $40,000 budget and probably closer to two years if we cut spending to 2015 levels.

Take note that this isn’t a move derived from fear or a gut reaction to current events.  I saw the market hit a new all time high and I decided to make a small shift to secure a year or two of additional relatively liquid funds to protect against a prolonged down market.  In another three to six months I might move another chunk of funds to bonds if stock market valuations continue their upward trajectory.  I’m not calling the top of the market because I really have no clue where the market is going but I know where it’s been.

To quote Warren Buffett:

“Be fearful when others are greedy and greedy when others are fearful”

 

 

Those nasty market corrections strike when least expected.  Now that we have almost $100,000 in near-liquid investments we can rest easy during all but the worst market dives.

In the meantime we spend very little mental energy thinking about investments and zero energy worrying about our investments.  Life is too short and there are too many other exciting diversions demanding our time and attention.

 

 

How did the first month of 2017 treat you?  Enjoying this rocket ship upward trajectory in the stock market?  

 

 

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Living a $100,000 lifestyle on $40,000 per year – 2016 Expenses in Review

detroit-windsor-skyline-featured

“Oh you live on $40,000 per year? Guess you like camping in the van underneath the highway bridge huh?  Still enjoying those rice and beans?  Three kids cost $40,000 per year right off the bat so it’s clearly impossible!”.  That complainer clearly doesn’t know how we spend money.

Living well on $40,000 per year is possible and I’m here to explain exactly how by going over all of our expenses during 2016.  Later in the article I’ll explain why our spending affords us a lifestyle that costs most other people $100,000 per year.  And I don’t think many would argue that a $100,000 per year lifestyle is a tough way to live.

2016 was the first time that Mrs. Root of Good and I didn’t have a full time job all year (other than that one month of full time employment in January 2016 for Mrs. RoG).  Now we have essentially a full year of early retired living expenses recorded.  At a high level I can summarize our 2016 spending by saying “We nailed it!”.  Our 2016 budget totaled $40,000 while our expenses came in just a few bucks under $39,000.  On that low budget we managed to take several international vacations and purchase a 2009 minivan for cash.

 

Where did the money go?

At the beginning of 2016 I laid out our $40,000 spending plan for the year.  We increased the 2016 budget to $40,000 after acknowledging that we could be spending a lot more than the $32,000 or $32,400 that we budgeted for 2014 and 2015, respectively.

Our spending tracked closely to our budgeted amounts in almost all categories with the only really notable deviation coming from the $8,300 we spent on the new (used) minivan.  That expense plus other regular auto-related expenses reached 369% of our budgeted amount for autos.

Education and taxes were between 100% and 120% of budgeted amounts.  All other expense categories were 100% or less than the budgeted amounts.

 

 

Housing

$8,200 budgeted vs. $6,031 actual spending

First off allow me to celebrate our complete lack of a mortgage payment.  We paid off the last small chunk of mortgage in 2015.  No more mortgage!

Our housing expenses are fairly predictable year to year.  The repairs and maintenance budget of $2,500 covers big ticket items plus smaller repairs.  It also covers lawn maintenance supplies and equipment like gas for the lawnmower, fire ant bait, and paint for the house.  We spent $866 in this category which is only 35% of the $2,500 budgeted.  I intentionally budgeted plenty for this category because I wanted the flexibility to call a repairman for tasks I don’t want to do (like plumbing).

During the year we had a few plumbing issues, some preventative like replacing all the toilet shut off vales, and some repairs (I broke a sink drain P-trap while trying to clean it; the shower faucet sprung a leak and had to be replaced).  I also did a small amount of DIY plumbing repair and saved a few hundred bucks that way.  I needed to replace the pressure regulator valve.  It was an “unscrew the old one, screw back on the new one” repair fortunately.  That is about the limit of my plumbing expertise.

Had to get a little dirty in the crawl space to replace this beauty.

Had to get a little dirty in the crawl space to replace this beauty.

For house insurance and taxes we spent $2,203 against a budget of $2,200.  If only I could get all our expense categories within $3 of budgeted amounts!

Utilities are also fairly predictable since the rates are regulated for the most part.  We spent $2,809 out of the $3,000 budget.  The almost $200 cost savings versus the budget was due to savings on the water bill thanks to that pressure regulator valve replacement and the fact that we are on vacation five to ten weeks during any given year.

Our Home Furnishings / Furniture budget of $500 was way more than enough to cover our $153 actual spending.  We’ve owned our house for over 13 years so we don’t really need to replace a lot of household items.  We picked up a new couch from the thrift shop and a few other odds and ends.  I probably make enough from random craigslist sales to cover our actual spending on furniture but I don’t keep track of craigslist sales that closely.

 

Auto

$2,900 budgeted vs. $9,428 actual spending

This is the one area where we blew up the budget with our new (used) minivan purchase.  But it’s okay because we intentionally budget for these “one time” expenses by allocating $1,000 per year to our car replacement fund to account for the depreciation over time.

Here’s an excerpt from my “$50 car payment for life” car replacement strategy:

Here’s the math behind my $50 car payment.  Buy a gently used six to eight year old car with low to moderate mileage for around $8,000-10,000.  Run the car almost into the ground and then sell it after nine or ten years when it’s 15-16 years old for $3,000.  The net depreciation (cost of new(er) car minus sale proceeds from older car) for those nine to ten years is $5,000 to $7,000 or about $50 per month ($6000 divided by 120 months = $50/month).

$50 per month is less than $1,000 per year but I wanted to keep plenty in the budget in case we need to replace the vehicle more often (and odds are we’ll be in an accident or sustain damage to the van at some point).  We are our own insurance company since we carry no comprehensive or collision coverage on our minivan.  We’re saving hundreds per year and can easily afford a sudden $8,000 to $10,000 loss.

Great for hauling lots of people and loads of stuff. And 2000+ mile road trips.

Great for hauling lots of people and loads of stuff. And 2000+ mile road trips.

I’ll probably put out a full article on it later, but so far we are eight months into owning just one car.  And there have been exactly two situations where it would have been nice to have two cars (but we managed to get by just fine with one).  No uber or public transit required so far (though I did take the bus downtown once for a day of museums with our four year old).

It’s worth mentioning that we didn’t come close to spending our $400 gas budget.  We only spent $191 during 2016.  I planned the gas budget assuming 4,000 miles of driving around town at 30 miles per gallon while paying $3 per gallon for gas.  It turns out all three assumptions were wrong.

We drove much less than 4,000 miles during the year (I count road trip related expenditures such as gas in the “Vacations/Travel” category).  We replaced the 30 mpg Honda sedans we owned at the beginning of 2016 with the minivan that probably gets 19-20 mpg in the city.  And gas prices were closer to $2 than $3 throughout 2016.

 

Food

$8,000 budgeted vs. $6,330 actual spending

We budgeted $7,000 for groceries and $1,000 for dining out.  By year end, we spent a total of $5,753 on groceries (82% of budget) and $577 on dining out (58% of budget).

We manage to save on groceries without Extreme Couponing (hint: Aldi and grocery store loss leaders are your friends).  We eat pretty well with a variety of fresh fruits and vegetables (and meat of course) plus purchase a ton of Asian and Latino ingredients throughout the year to make some tasty ethnic dishes (here’s what a month of grocery shopping looked like for us a couple of years ago).  We love cooking and enjoy the challenge of making awesome meals out of whatever random stuff is in our fridge.

IMG_9748

Pho, from scratch. Maybe a buck per bowl.

 

12-produce

(Mostly) fresh fruits and veggies mostly from Aldi. And all of that was probably under $40 (about what you would spend for a small basket of produce at a fancy pants grocery store).

 

When dining out, we tend to frequent the same few restaurants.  For those restaurants that take them, we buy discounted gift cards from Raise.com (and you can get $5 off your first gift card purchase at Raise by clicking here).  But we really don’t go out to eat very often.

 

Other Core Living Expenses

$6,300 budgeted vs. $5,378 actual spending

We spent about $1,000 less than budgeted in this catch all category that includes phone, internet, medical and dental, clothing, education, and taxes.

For phone, cell phone, and internet, we go the extremely cheap route.  The $422 per year that we pay for phone, cell, and internet is less than some households pay in one month!

Our phone is hooked up through a $50 Obihai VOIP adapter using Google Voice for free monthly service.  My smartphone service is free through Freedompop.  Each month I get 200 voice minutes, 500 texts and around a gigabyte of 3G/4G data for free.  I never come close to any of those limits.

Our internet is 50 mbit/5 mbit service through Time Warner Cable at $35 per month (and we bought our own cable modem for $30 to avoid the $10 per month cable modem rental fee).  The regular rate for internet is $40/month but I call or go online each year and snag an extra $5-10 discount by asking politely.

We have a prepaid T-mobile dumb phone on a legacy plan that costs $10 per year. We rarely use it, but keep it activated for convenience and for emergencies.  It has saved us several times while overseas since it works worldwide (for higher per-minute rates).

Our medical and dental expenses were $2,162 for the year which is 72% of the $3,000 budgeted.  Our health insurance premiums (with heavy subsidies from the Affordable Care Act) were about what we expected at $125 per month.  We planned on $440 in healthcare expenses and didn’t spend all of that.  Dental expenses were budgeted for $1,000 since Mrs. Root of Good and I don’t have dental insurance.  We were lucky and didn’t have any expensive dental procedures in 2016 (just routine cleaning and exams).

What will you do when the Affordable Care Act / Obamacare goes away?” someone will ask.  Check out my discussion and the comments in my December 2016 Financial Update post to learn more about my thoughts and our plans.

Clothing purchases totaled $452 for the year.  How do we do it with a family of five? Some hand me downs, some thrift shopping, and some retail store purchases.  Since the adults in the house are no longer working, our wardrobes are pretty basic.  Swimming attire and shoes are probably the largest clothing subcategories these days.

Marathon thrift shopping

Marathon thrift shopping

Education expenses of $267 were 107% of the $250 budgeted for 2016.  Now that our oldest child is in middle school, the field trips are getting more expensive. As are the required graphing calculators.

We paid a total of $2,075 in taxes during 2016 versus a budgeted $1,750.  This primarily comes from rounding up when paying quarterly estimated state taxes to spend in even $100 increments.  North Carolina charges $2 per $100 when paying with a credit card so I try to get as many points or miles as possible.  Paying taxes with a credit card is a great way to meet minimum spending requirements from new credit card bonus offers.  And who doesn’t love free travel?  (Check out Jeremy at Go Curry Cracker – he graciously allowed Uncle Sam to buy him a free family trip to Hawaii!).

For those curious about our tax liability in 2016, we’ll owe a couple of thousand dollars in federal tax due to the self employment tax I pay on blog income (partially offset by $3000 in child tax credits).  We are in the strange situation of paying higher taxes during early retirement than we were when working full time and earning $150,000 per year while paying only $150 in taxes.  I still think our overall 2016 tax burden is very reasonable considering I took some capital gains and converted $4,000+ from a traditional IRA to a Roth to start my Roth IRA Conversion Ladder.

 

Purely Discretionary Expenses

$14,600 budgeted vs. $11,812 actual spending

This is where the fun is.  Vacations, entertainment expenses, and electronics primarily.

I bumped our entertainment and toys budget up to $2,500 from the $1,000 in 2015 and previous years.  At $522 total entertainment spending for the year we still didn’t spend the $1,000 let alone the $2,500 “new and improved” budget.  What can I say? So many free or cheap entertainment options mean we don’t spend a lot in this category.  Most of the $522 is outdoors/sports related expenses like bike tires/tubes, rollerskating admission, and city swimming pool passes.  Liquor ($176) is included in this category.  There’s a miscellany of computer/video games, supplies to build crazy things, and half of a netflix subscription.

Boat rental - not free but worth every penny of the $4. Also cheaper and more fun than a gym membership. And we saw a bald eagle.

Boat rental – not free but worth every penny of the $4. Also cheaper and more fun than a gym membership. And we saw a bald eagle.

 

Vacations represent the bulk of our discretionary spending.  We somehow managed to come in just $43 under our $10,000 budget with $9,957 total vacation spending in 2016.

In 2016 we did some serious traveling:

We stretch a buck till it hurts.  Travel hacking helps a lot. Check out credit card sign up bonuses and get you some free travel too.  The European lodging is all through Airbnb (save $35 on your first trip!).  For cruises we usually book through Expedia but click through Ebates to get a 10% cash rebate (and you get an extra $10 when you sign up for Ebates through this link).

View of both falls from the Canadian side.

We took a quick 2 night pit stop in Niagara Falls on our drive home this past summer.

 

Our electronics budget of $1,000 was big enough to accommodate our $885 in tech gadget purchases.  The majority of the electronics spending was a pair of brand new HP ProBook 430 g3 ultralight computers for $350 each (Black Friday special pricing).  They have similar specs to macbook pros that cost 3-4 times as much (except ours came with no Apple logos).  We mainly bought them for our 9 week summer trip since we’ll be carrying nothing more than regular size bookbags for our trek across Europe.  These new toys are faster, smaller, and almost half the weight of our old 15″ laptops.

Our $1,000 gift budget went mostly unused.  We spent just $381 throughout the year on various gifts for Christmas and birthdays.  Our families aren’t huge gift givers fortunately so we get by without much financial outlay.  We’re also opportunistic gift acquirers, so if we see a nice deal on a gift for someone then we’ll purchase it months ahead of time.

A "free" gift. An art kit pulled together from random unused school supplies. Our kids love these and use them all the time.

A “free” Christmas gift. Random unused school supplies found around our house repurposed into an art kit. Our kids both loved receiving these for Christmas gifts and use them all the time.

I’m going to get some nasty comments for this, but here it goes.  We gave almost nothing away to charity in 2016 and I’m totally okay with it.  We only spent $67 out of our already scrooge-like $100 budget.  Maybe we’ll give hundreds, thousands, or millions to charity some day.  We still have three young kids to take care of and several other financial unknowns.  Health care costs in the future are uncertain.  In the meantime we are active in the community and volunteer our time in various ways.

2016 was a huge year in the Personal Finance blogging community. It was pretty awesome when Mr. Money Mustache gave away $100,000 of his loot to charity.  Then Physician on Fire did the same thing.  Newcomer to the FIRE blogging world TJ Pridonoff gave away $17,000.  I believe all of them received some decent tax breaks from making these sizable donations (in some cases to their own donor advised funds), and I hope to one day turbocharge the value of my giving by finding some tax breaks too.  That time is not today.

I’m a big fan of letting each person choose how they spend their money and not shaming others into giving it away.  I know at least one other major FIRE blogger feels the same way but I’ll never tell who!

A quick note on discretionary expenses: over one third of our annual budget falls in the discretionary category.  And that’s a great situation to be in since we can very easily slash discretionary spending if we enter a prolonged period of poor stock market returns.  Cheap vacations or skipping them altogether combined with deferred toy purchases would lower our total annual expenses to roughly $30,000.

 

Living well on less than $40,000 per year

So that’s the story of our $40,000 per year budget and how it played out in practice over the past year.  Sometimes I’ll hear from high spending folks that there is no way anyone could live on $40,000 per year, and certainly not with three kids.

However if we gross up our $40,000 per year budget to account for things we don’t pay for, it’s easy to see how we’re living a $100,000 per year lifestyle only minor sacrifices:

  • +$20,000 mortgage payment
  • +$5,000 new car payments
  • +$10,000 extra tax bill
  • +$5,000 dumb financial moves (credit card interest, extended warranties, investment management fees)
  • +$10,000 rough annual value of travel hacking free hotel rooms and free flights
  • +$10,000 work related costs (lunches out; fancier wardrobe)

So if you’re like me and spend around $40,000 per year, realize that you might be living a luxurious six figure lifestyle without even knowing it!  And welcome to the club.

 

How to track spending like a pro

When I was working I kept track of spending but never budgeted. We always had a surplus of funds and spent like we wanted to.  I used a simple spreadsheet to keep track of our expenses.

Total 2016 Spending (courtesy of Personal Capital)

Total 2016 Spending (screen cap from Personal Capital)

 

Then a few years ago I switched to Personal Capital to track all of our expenses (full review).  Personal Capital also tracks all our income (including dividends and interest), and summarizes a couple dozen investment accounts into one screen.  It is completely free to use Personal Capital whether you have $10,000 or $1,000,000 or more.  If you don’t already track expenses, try Personal Capital, since it only takes 10 minutes to sign up and link all your accounts.

 

 

How was your 2016 spending?  Who’s going to win the biggest spender award?  And the tiniest spender award?  Impress me with your numbers!

 

 

December 2016 Financial Update

two-cents-photo

Now that the year end celebrations are over, it’s time to get down to business.  Our December finances closed on a strong note with a big $29,000 boost to our net worth, bringing the total to an all time high of $1,680,000.  Our income for the month totaled $16,120 primarily due to year end dividend income while our expenses increased to $6,326 thanks to some incredible travel deals.

We closed out the year just under our $40,000 budget with total spending of $38,991.

Here’s how everything went down:

Income

In December our investment income climbed to $12,686 thanks to year end dividend payments from our investments.  Since our mutual funds pay at the end of each quarter, the months of March, June, September, and December always bring us high investment income while the other months are near zero.  Total investment income for 2016 rose to an all time high of $35,190, roughly 20% higher than the $28,527 dividend income we earned in 2015.  We aren’t dividend focused investors but the mutual funds we invest in tend to yield between 2% and 3%.  This year was no different with an overall portfolio yield of 2.52%.

Blog income, shown as “other income” in the chart, returned to a more normal $3,272 after a very slow November.  My early retirement lifestyle consulting income slowed to $125 in December after several months of much stronger results.  I was out of the country for roughly half the month without internet, which possibly led to the loss of a client or two (but it was worth it for the peacefulness and relaxation!).

What I was doing instead of helping people retire early.

Busy being early retired instead of helping other people retire early.

The $35 in Deposits includes the cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. If you sign up through this link and make a qualifying $25 purchase through Ebates, you’ll get a $10 gift card like I did.  I try to do all of my online shopping through one of these portals and the cash back adds up fast.  I made some large travel-related purchases in December (more on that below) and I expect to get over $100 cash back on those purchases.

december-2016-income

If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.

Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).

 

Expenses

Now let’s look at December expenses:

december-2016-expenses

Our core expenses remained very modest but a busy month of traveling and travel-related purchases pushed our total spending for the month to $6,326, or almost twice our normal budget of $3,333 per month (or $40,000 per year).

Travel – $5,332: Of the total travel expense, we spent $697 on all cruise costs beyond our cruise fares for the two cruises that we took in December.  The $697 includes mandatory gratuities of $12-13 per person per day (half that for children on MSC Cruises), gas for the minivan, and a week of parking at the Miami light rail station.  $36 for parking at the South Miami rail station parking deck was the cheapest way to get Port of Miami parking for a week at 80% less than the port charges.  However it took much longer than I expected to park the car and get back to the cruise terminal due to downtown construction and related transit detours.  The upside is I spent a few hours wandering around downtown Miami.

We travel-hacked this free two bedroom, two bathroom two story hotel suite (with full kitchen) that sleeps six for 10,000 Marriott points (= 3,333 Starwood points).

We travel-hacked this free two bedroom, two bathroom two story hotel suite (with full kitchen) that sleeps six for 10,000 Marriott points (= 3,333 Starwood points).

And it came with free breakfast. Incredible waffles and yes, that is brie (first time seeing that on a hotel's free breakfast buffet).

And the suite came with free breakfast. Incredible waffles, hot goodies like eggs and sausage (and tortillas!) and yes, that is brie (first time seeing that on a hotel’s free breakfast buffet!).

The bulk of the travel spending was for Airbnb gift cards.  I spent $4,635 to purchase $5,800 worth of Airbnb gift cards, which equates to a 20% discount.  I also bought them through an online shopping portal to snag another $100+ in cash back.

I estimated the cost of nine weeks of Airbnb rentals in Europe at roughly $90 per night and bought enough gift cards to cover what I expect to spend for this summer’s lodging.  We might stay in hotels for short stays of a night or two, and some airbnb’s will cost more than $90 per night, but overall I figure I’ll use up most of the $5,800 Airbnb credit.  If not, it never expires so I can use it on a future vacation.

If you have never tried Airbnb, it’s worth checking out.  We just booked a two bedroom, two bath high rise apartment (with a view!) in Lisbon, Portugal for five nights at USD$76 per night.  Get $35 off your first reservation using this link.  In our experience, we pay about half the rate of similar hotels and gain access to a living room and kitchen which makes family vacations go more smoothly (especially by week seven or eight).

For those following along with last month’s saga of the Cardcash.com disaster where many of us bought $500 to $1,000 worth of Aldi gift cards and they all turned out bogus (but we all got our money back as far as I know!), these Airbnb gift cards don’t have the same risk.  I bought them through GiftCardMall which is a “new” seller of gift cards and not a reseller, so there is no risk of shady fly by night sellers trying to pull one over on unsuspecting buyers through Cardcash.com (which is really a marketplace to connect buyers and sellers).

I still think places like Cardcash.com present a great way to save 5-20% off of places you plan on shopping anyway.  And I continue to think they are generally reliable due to several previous successful purchases and the 45 day cash back guarantee actually working in this most recent case.  Another alternative site I used more recently is Raise.com which is a gift card reseller just like Cardcash.com.  Raise.com offers a 100 day money back guarantee so there’s even less risk involved.  You can snag $5 off your first purchase at Cardcash or at Raise when you click through those links (I get $5 too!).  Just don’t buy more gift cards than you plan on using within the money back guarantee period.

Healthcare/Medical – $308: The majority of the healthcare spending for December was dental care.  Four of us had checkups and we have to pay for part or all of the dental visits out of pocket.  Also included in December’s medical expenses were prescription drugs.

We paid for the first month of insurance premiums on our new ACA-subsidized insurance plan.  It’s a slightly worse plan than what we had in 2016 and requires us to switch doctors.  We usually go to the doctor’s office once or twice per year so it’s not a huge deal to switch.  I can’t complain too much since we are only out of pocket $16 per month.  The $100 deductible and $1,200 out of pocket maximum means our medical costs will remain fairly minimal.  The $16 per month is also significantly less than the $125 per month we paid in 2016.

I guess we are the only ones in the nation paying less in 2017 than in 2016 for health insurance and generally happy with it?  The Healthcare.gov application process this year took no time at all as (amazingly) almost all of my information was pre-filled from last year’s application.  If this is evil commie government health care I’d like some more, please.

2017-health-insurance-costs

Since we carefully manage our Adjusted Gross Income to fall just over the poverty line, we get a large ACA subsidy.  We picked the cheapest silver plan.  The more expensive Blue Cross plan would cost about $125 per month (and that’s the cost the ACA uses to calculate the $856 per month subsidy).  We get to use the $856 per month subsidy on any Marketplace plan of our choosing, so we opted for a cheaper plan.

As of press time in early January, our two oldest children have “pending” applications with the North Carolina Children’s Health Insurance Program / Medicaid.  They qualify for this “free” coverage based on our low AGI and it’s pretty decent coverage from what we can tell (though not as flexible as some private insurance).  If one of the kids develops a significant medical issue and we need private insurance, we can always re-apply to the healthcare.gov Marketplace based on changed circumstances (our income could significantly increase, for example) and obtain heavily subsidized private insurance for the kids, too.

A quick note on “OMG OBAMACARE IS ENDING!!1”: Yeah, maybe.  There’s a lot of uncertainty over what the promised “repeal and replace” actually means.  I wouldn’t be surprised to see many parts of the Affordable Care Act remain in place under TrumpCare like the coverage for children on the parents’ policy through age 26, coverage of pre-existing conditions, and some form of subsidies to make insurance affordable.  Who knows, TrumpCare might actually be better for the average person than ObamaCare (though unlikely to be better for us given our $16 policy for 2017!).

In terms of timing, I expect the ACA subsidies and coverage to definitely remain through 2017 and most likely remain through 2018, and possibly later.  So now isn’t the time to panic. Yet. We’re probably good for two more years.

What will we do in 2019 should TrumpCare prove unfavorable?

  • Pay more, possibly tens of thousands per year more, and spend less elsewhere
  • Or work a little bit harder at money making endeavors and keep non-healthcare spending the same as today
  • Accept worse coverage to save money
  • Move overseas to any of the dozens of countries with reasonable health care costs
  • Move to a state with reasonable health insurance costs (that might include state-level subsidies or adult Medicaid)
  • Adapt our plans to maximize our benefit under the new TrumpCare subsidy rules
  • Throw in the towel and get a job with employer provided (and subsidized) health insurance

Fortunately we have time to see how the situation unfolds and react to new information as it becomes available.  Pay close attention in the coming weeks and months.

This is the special place I'd like to return to so that I can properly ponder future Affordable Care Act questions.

This is the special place I’d like to return to so that I can properly ponder future Affordable Care Act questions.

Groceries – $205:  We spent a lot less than normal on groceries in December because we weren’t at home for half the month and we enjoyed several nice meals at other peoples’ houses for the various winter holidays.

Shrimp and grits. And ham and cheese. (grits = ground up corn meal, popular in southern USA)

Shrimp and grits. And ham and cheese. (grits = ground up corn meal, popular in southern USA)

10 pounds of barbeque. We buy whole pork shoulders (also called boston butts), roast them all day, let it fall off the bone and serve it.

10 pounds of Eastern North Carolina style barbeque. We buy whole pork shoulders (also called boston butts) for about a buck per pound, roast them all day, let it fall off the bone and serve it.

Cruise ship desserts. Mmmmm flan.

Cruise ship desserts. Mmmmm flan.

Utilities – $156: The city water, sewer, and trash bill plus the natural gas bill.  In a previous month I prepaid the electric bill by applying an extra $250 toward my account balance – more credit card travel hacking.  January will see me paying the electric bill once again.

Education – $150: An overnight school field trip for one kid. Now that she’s attending the fancy middle school instead of the worst elementary school in the district we can no longer count on $20-60 per year in field trip costs. It’s still about $10,000 cheaper than private school and probably better.

One of our Christmas traditions - candy cane reindeer

One of our Christmas traditions – candy cane reindeer

The finished product. Nothing celebrates America and Baby Jesus better than candy cane reindeer.

The finished product. Nothing celebrates America and Baby Jesus better than candy cane reindeer.

 

Restaurants – $76: I bought some Taco Bell gift cards (my fast food weakness) through Raise.com for approximately 30% off (after factoring in the new account $5 discount).  I suppose I should allocate part of the expense to “Travel” because we had to stop for a bite on the drive back from Miami and I used up part of the card balance.

Gifts – $51: Picked up a few birthday and Christmas gifts.  Some of these included superheroes with superpowers. Because four year olds love superheroes with superpowers.  And Pikachu piggy banks.

Kaboom!

Kaboom! Wrapping paper everywhere!

I wish I could figure out Pinterest so I could put this pic on there.

I wish I could figure out Pinterest so I could put this pic on there.

Cable – $34: This is internet from the cable company.  Yes, it’s pretty cheap for 50 mbit service.  I call or go online annually to get this rate after a little finessing.

Home maintenance – $10: Donation for our neighborhood’s luminaria display along all the neighborhood streets on Christmas Eve.  This single annual payment is much cheaper than an HOA and provides more pleasure (and NEVER tells you your grass is unkempt).

Neighborhood luminarias (white paper bags filled with candles line all the streets - it helps Santa Claus find us)

Neighborhood luminarias (white paper bags filled with candles line all the streets – it helps Santa Claus find us)

Service Charges – $1: I pay a buck per month for my credit union checking account.  They pay me decent interest with no account minimums which usually offsets this buck.

Gasoline – $0: Other than the gas we used to get to and from the cruises, we haven’t had to purchase any gas locally.  We can go for a couple months between refills when we’re strictly staying around home (our feet are good at taking us places and almost everything is just a couple miles away if we’re driving). Gas purchased while on road trips is included in “Travel”.

Other than pre-paying $4,635 for our summer 2017 European lodging, we only spent $1,691 for our routine expenses in December.  Another great low cost month!

Root of Good's abode all lit up

Root of Good’s abode all lit up.  We’re gentrifying this joint!

 

Total Living Expenses for 2016

december-2016-ytd-expenses

At $38,991 total spending for 2016, we remained about $1,000 below our annual spending target of $40,000 budgeted for the entire year.  I can’t believe we actually came so close to our spending target.  The $8,000+ minivan purchase would blow our budget for sure, I thought.  But as the year wore on and we spent less than the monthly budget most months we eventually got back on track for our annual spending target.

Here is a full summary of our 2016 budget versus actual spending for all twelve months of the year.

Big expenses for 2017 include replacing the roof early in 2017.  The budget for the roof replacement is somewhere around $4,000 to $8,000.

Nine weeks in Europe in the summer of 2017 won’t be cheap either.  Now that all flights and most lodging expenses are already paid, I think I can easily fit in ground transportation, food, and entertainment for nine weeks within our $10,000 travel budget for 2017.

There’s also the chance for higher than average dental expenses to take care of some issues that the dentist noticed during 2016 that may need attention eventually.

Living the good life on under $40,000 per year!

Living the good life on less than $40,000 per year!

If we give ourselves an inflationary raise based on the 1.7% CPI inflation for 2016, then our $40,000 2016 budget becomes $40,680 for 2017.  I’m pretty sure we can fit all our desired spending into that budget.  Our investment portfolio is over $1.5 million, so a $40,680 annual expenditure represents a 2.7% withdrawal rate from our portfolio (ignoring other income sources).  We could spend more from the portfolio if we wanted, plus we have the income from this blog and my consulting income if we find a worthwhile way to spend more money.

Monthly Expense Summary:

Free gingerbread house event at the public library.

Free gingerbread house event at the public library.

 

Net Worth: $1,680,000 (+$29,000)

Year end 2016 brings us another all time high net worth.  With $29,000 in net worth gains during December, we were closing in on the magical $1.7 million mark by year end (and have since surpassed it a few days into the new year).

We are $177,000 wealthier compared to one year ago when our net worth was $1,503,000.   That one year jump in net worth comes in a year with Mrs. Root of Good’s retirement, Brexit, a surprising upset in the US presidential election, civil war(s), scary geopolitics, and continuing terrorist attacks around the world. Even though the world we live in seems turbulent at times, it doesn’t mean you can’t make money with long term investments.

Skip the worries over market turbulence. Focus on the important things in life.

Skip the worries over market turbulence. Focus on the important things in life.

Most of this year’s net worth increase came from investment growth.  This blog and my Early Retirement Lifestyle Consulting generated enough income during the year to almost offset all of our living expenses, so we haven’t touched our investments during the year other than withdrawing the dividends from our taxable portfolio.

In fact, I plowed $18,000 into my Roth solo 401k from Root of Good earnings.  In other year end tax moves, I started climbing a baby step up my Roth IRA Conversion Ladder with the conversion of $4,300 from my traditional IRA to my Roth IRA.  Before the April 2017 tax filing deadline I plan to invest another $11,000 into his and hers Roth IRAs as well.  This means I’ll be expanding my Roth account balances by $18,000 + $4,300 + $11,000 = $33,300 for tax year 2016.  That translates to almost one full year of tax free withdrawals at some point in the future as I continue to climb the Roth IRA Ladder.

Here's our Design On A Dime foyer makeover. Classic video game systems like Nintendo, Super Nintendo, and Playstation 2 along with a 32" CRT TV.

Here’s our Design On A Dime foyer makeover. Classic video game systems like Nintendo, Super Nintendo, and Playstation 2 along with a 32″ CRT TV.  Bean bags and Mexican woven blanket/rug for 100% crash pad authenticity.  Foyers are pretty much a waste of space unless you put video games in them.

From a cash flow perspective, we’re hovering between $40,000 and $50,000 in money market accounts.  I’m considering selling a few taxable investments that have roughly zero capital gains to shore up the cash position (or at the least, use the sales proceeds to fund the $11,000 Roth IRA 2016 contributions coming up soon).

I don’t “fear” a market correction but know well enough they happen periodically.  Having enough cash on hand to supplement other income streams for the next several years is a comforting feeling.  If a 20% or 30% market crash occurs tomorrow, I’ll lose $300,000 to $450,000 but I won’t have to sell anything at a loss for several years.

december-2016-net-worth

Overall, we had a great 2016 and look forward to more good times in 2017. Financially things are looking good.  We made it through our first year of both of us being retired and profited nicely (but may give away all of the gains and then some in the coming years!).

As for the blog, in the next couple of months I’ll be posting about the family cruise in December, our summer 2017 European vacation, our 2016 budget vs. actual spending, and, as it evolves politically, health insurance for early retirees.

Happy new year!

Happy new year and best wishes for 2017!

 

Did you enjoy Christmas and New Year’s?  Any juicy family gossip you heard? Any good money talks with family and friends?  What’s your plan for 2017?

 

 

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November 2016 Financial Update

two-cents-photo

November was a busy month for us!  We ate a lot of turkey then packed up the minivan and set out for a five night Caribbean cruise.  Now that we are back, it’s time to take a look at our financials for last month.  Income looks tiny at $785 for the month (but I’ll explain why) while expenses remained moderate at $2,774 $1,884.  A strong stock market propelled our net worth $33,000 higher to $1,651,000.  All in all, November was a great month financially and otherwise.

Here’s the details:

Income

November investment income dropped to $39.  Since our mutual funds pay at the end of each quarter, the months of March, June, September, and December always bring us high investment income while the other months are near zero.  December should be a huge month of dividends, hopefully pushing our 2016 dividends over last year’s total of $28,527 in dividend income.

Blog income, shown as “other income” in the chart, shrunk to $276, down from $7,253 in October.  The stark difference is a matter of timing of deposits.  I received some checks in the mail while we were on vacation and didn’t get them deposited till the first few days of December.  November’s numbers were bad but December’s income will make up for it.  My early retirement lifestyle consulting also declined from October to $242.  After a month of spotty income like November, I’m very glad I don’t rely on my blog and consulting income to support our living expenses!

My full time job now.

My full time job now.

The $227 in Deposits includes the cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. If you sign up through this link and make a qualifying $25 purchase through Ebates, you’ll get a $10 gift card like I did.  I try to do all of my online shopping through one of these portals and the cash back adds up fast. We spent over $800 on the cruise through the Ebates portal and we’ll be getting 10% of that back soon.

Not shown in the income chart is the $10 per day our middle child earns as a tutor.  She was just getting started with tutoring at the time of my last monthly financial update and now she’s steadily earning $10 two or three days per week.

november-2016-income

If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.

Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).

 

Expenses

Now let’s look at November expenses:

november-2016-expenses

Even though we went on a Black Friday spending spree, at $2,774 $1,884* for the month, we still spent almost $1,500 less than our budget of $3,333 per month (or $40,000 per year).

Groceries – $1,273 $383*:  No, we didn’t dine on wagyu beef and caviar for every meal.  I spent $890 on $1,000 worth of Aldi gift cards (my largest Black Friday purchase).  The other $383 was our actual grocery bill for the month, which was less than we usually spend because we didn’t want to buy many perishable goods then head out of town for a week on our cruise.

1/4/2017 note: since getting a quick refund of $890 on the Aldi gift card purchase, our revised spending total for November 2016 was $1,884 total, and $383 on groceries

Mrs. Root of Good's killer pho. It's pho real.

Mrs. Root of Good’s killer pho. It’s pho real.

Enchiladas hot from the oven.

Enchiladas hot from the oven.

More Mexican food (from the cruise). Here's a whole post on cruise food!

More Mexican food (from the cruise). Here’s a whole post on cruise food!

I’ll probably blow through those Aldi gift cards in the next three or four months since I spend more on groceries at Aldi than other grocery stores.  I bought them at Cardcash.com, a gift card reseller that buys and sells gift cards, for 11% off of face value which saved me $110.  If you want to browse their inventory and save $5 on your first gift card purchase, click on over!  That’s my go-to site before I make any major purchases.  They offer gift cards for hundreds of different retailers like Lowe’s, Home Depot, grocery stores, gas stations, restaurants, even hotels.  Some are discounted just a percent or two while others routinely sell at double digit discounts.  They also run sales for an extra 5-10% off select gift cards (like the Black Friday 5% off everything sale).

*** 12/14/2016 Update: A couple of readers bought the Aldi gift cards from Cardcash and they turned out to be empty or invalid (and it turns out my $1000 of gift cards are duds too).  Cardcash will almost certainly refund the money we paid since it’s within their 45 day guaranteed refund period. If not a credit card charge back will do the trick!

After reading similar complaints online about Cardcash (maybe it’s only certain stores’ gift cards bought through Cardcash??) I think I’m switching my gift card buying to Raise.com (get a $5 discount off your first purchase through that link).  They have very similar offerings and not as much negative feedback AND offer a 100 day money back guarantee.  I’m also learning it’s a good idea to buy just what you plan on spending within the guarantee period so you can ensure you won’t lose money.

12/15/2016 Update: Cardcash approved my refund claim and I received the full $890 value paid. ***

Electronics – $759: I’ve been looking for a smaller, lightweight laptop for our Europe trip next summer.  I finally found an almost perfect laptop on a Black Friday sale for $349.  Mrs. Root of Good said she needed one too so we got matching his and hers laptops.  I went with the HP ProBook 430 G3 13.3″.  It’s like a 70% cheaper version of the Macbook Pro but with a crappier LCD screen and worse battery life.  It came with a SSD hard drive, Intel i3-6100U CPU, and 8 GB of RAM.  I have to say I’m impressed so far given the $349 price tag. It weighs just over 3 pounds and it’s lightning fast for most tasks (but could only run my Heroes of the Storm graphic-intensive game at medium settings).  The keyboard feels a tiny bit cramped but I think it will be fine once I get used to the slightly different key layout.

I also bought the HP X3000 wireless mouse for $8 to accompany the new laptop.

Mrs. Root of Good indulged her photography habit with the purchase of a Canon EF 75-300mm f/4-5.6 III zoom lens for $53.  Now she can take really close up pretty pictures of birds and stuff from far away.

Insurance – $213: 6 months of auto insurance for the two of us.  $500,000 liability limits.

Healthcare/Medical – $135: Health insurance premiums of $125 for our very impressive gold plated silver plan obtained through Healthcare.gov with some very sizable ACA subsidies.  $10 for a prescription.

Utilities – $124: Mainly the city water, sewer, and trash bill plus a small natural gas bill (before we turned the heat on in November).  In a previous month I prepaid the electric bill by applying an extra $250 toward my account balance – more credit card travel hacking.  This month I’ll have to start paying the electric bill once again.

Home improvement – $87: A run to Home Depot for miscellaneous home improvement and yard maintenance stuff.  Ant killer, some blue paint, wood stain for a furniture project, primer/stain block for some water stains, and HVAC vent covers.  Sadly, I didn’t have any discounted Home Depot gift cards on hand nor did I have any coupons so I HAD TO PAY RETAIL (and it breaks my heart a little).  But we knocked out several projects so there’s that.

One of those projects. Repurposing some random lumber from our storage shed to build a new shelf in our pantry.

One of those projects. Repurposing some random lumber from our storage shed to build a new shelf in our pantry.  Check out those safety goggles and steel toe sandals.

Travel – $63: Gas on the way to the cruise terminal in Jacksonville – $22.  Parking right across the street from the cruise terminal for six days – $41 (way better than $75 for parking at the port).

Crystal clear water. Fine white sand. Minimal waves. Perfect temperature. Other than the risk of sunburn, I can't complain.

Crystal clear water. Fine white sand. Minimal waves. Perfect temperature. Other than the risk of sunburn, I can’t complain.

I love Mexican buffets. I love them slightly less when they occur at 11 pm. That's what mid-day siestas are for though, right?

I love Mexican buffets on cruise ships. I love them slightly less when they occur at 11 pm. That’s what mid-day siestas are for though, right? (The kid is awake, just goofy all the time as most four year olds are)

Cruises are a great place to buy cheap liquor too. USD$79 for 7 liters of mid-shelf and top shelf goodies!

Cruises are a great place to buy cheap liquor too. USD$79 for 7 liters of middle shelf and top shelf goodness!

Restaurants – $62: This includes one meal for the whole family at the Chinese restaurant and a $25 Groupon deal for a $25 Papa John’s gift card plus two free large pizzas.  Using coupons and promotions, I’ll turn that $25 Groupon deal into six or seven large pizzas.  I’m not a huge Groupon fan because we don’t go out to eat very often, but there are certainly some killer deals to be had if you dine out often.  Check out Groupon if you haven’t already (they offer 25% off your first purchase through that link).

Not a restaurant purchase exactly because it cost $0. Half a dozen free Krispy Kreme donuts for getting A's on her report card.

Not a restaurant purchase exactly because it cost $0. Half a dozen free Krispy Kreme donuts for getting A’s on her report card.  Little guy on the right says “I promise I won’t eat any while you’re at school”.

Gasoline – $28: I finally had to buy two thirds of a tank of gas.  This was at the beginning of November when the east coast gasoline pipeline blew up (again) and we feared gasoline shortages.  Nothing ever happened here and prices didn’t even go up.  I topped off the tank at the very end of November while driving to the Jacksonville, Florida cruise port but I classify any gas purchased while on vacation as a “travel” expense and not a routine driving-around-town gasoline expense.

Cable – $24: This is internet from the cable company.  It’s usually $35 but I had a small credit from the previous bill.

Overall we had a very frugal month.  When I pull out the Aldi gift card purchase, the big electronics purchases, and the six months of auto insurance, our routine monthly expenses were only about $1,000.  Even when we include all those big lumpy expenses we were still several hundred dollars below our monthly budget of $3,333.

 

Year to Date Living Expenses

november-2016-ytd-expenses

At $33,554 $32,664 (see note under “groceries”) year to date spending, we remain below our annual spending target of $36,667 budgeted for the first eleven months of the year by a few thousand dollars.

With only a few weeks left in the year, it looks like we’ll have a budget surplus of at least four or five thousand dollars.  I’ll mentally carry that balance forward into 2017 because we will need it.  Nine weeks in Europe in the summer of 2017 won’t be cheap.  I doubt I can pull it off for less than our 2016 travel budget of $10,000.

We also need to replace the roof early in 2017.  The budget for the roof replacement is somewhere around $4,000 to $8,000.

Of course we won’t be spending over $8,000 on a new vehicle in 2017, so things might work themselves out naturally.

Monthly Expense Summary:

 

Net Worth: $1,651,000 (+$33,000)

The $33,000 net worth increase in November more than erases the $29,000 we lost in October.  Our net worth reached a new high water mark in November at $1,651,000, and things are holding steady about a week into December as I publish this post.  It certainly looks like we’ll close out 2016 with a much higher net worth than 2015, when we ended the year at $1,503,000.

Most of this year’s net worth increase came from investment growth.  Mrs. Root of Good only worked about one month in 2016 before joining me in early retirement, so her salary this year was minimal.  This blog and my Early Retirement Lifestyle Consulting generated enough income during the year to roughly offset all of our living expenses, so we haven’t touched our investments during the year other than withdrawing the dividends from our taxable portfolio.

In November, I finally bumped up the value of our house from $140,000 to $145,000 in Personal Capital after reading some reader comments in my article on the gentrification of our neighborhood.  I don’t really update our home’s value on a regular basis because we have no plans of selling it any time soon, and I’m not sure I could get the $185,000 that Zillow says our home is worth.  But I figure after paying for some minor fixes, landscaping upgrades, and a 5-6% realtor commission, I could get a net of $145,000 with an easy sale.  Personal Capital has a neat tool where you can keep your home’s value updated in real time by linking to Zillow’s value estimate, but that seems like overkill for an illiquid asset.  I like to have manual control over how I value our house since spikes in value might be fleeting.

The view from our bedroom window. Fall is here!

The view from our bedroom window. Fall is here!

On the investing front, I dumped $18,000 into my Roth solo 401k.  Since my federal income tax (not including the self employment tax I owe) remains around zero in early retirement, I don’t need the tax deduction of a traditional 401k contribution, so I chose the Roth this time around.  Later in the year or in early 2017 I’ll be making another contribution to the traditional 401k for my “employer” contribution since it isn’t possible to contribute to a Roth out of employer earnings.  I’ll also max out two Roth IRAs (assuming our earned income is high enough for all these contributions).

november-2016-net-worth

Our cash position continued to climb throughout 2016.  After the $18,000 solo 401k contribution, we still have close to $40,000 in cash right now.  It’s a nice spot to be in since that will cover more than a year of living expenses given the stream of dividend income routinely flowing into our checking account plus the hit and miss blog and consulting income.

Thanksgiving spread. I was conscripted to help with kitchen duty.

Thanksgiving spread. I was conscripted to help with kitchen duty.

If markets remain high, I might take some capital gains in taxable accounts in 2017 to shore up our cash position a little more.  I’m also looking closer at bonds as rates increase.  The Vanguard Total Bond Index Fund, BND, has dropped a lot since the election and I’ve had my eye on it for a while.

Aside from the year end financial moves, December is a very busy month for the Root of Good family.  We just returned from a Caribbean cruise and we are driving to Miami for another cruise next week heading to the central and eastern Caribbean.  Then there’s Christmas and New Year’s right after we get back from Miami.  Good thing we’re retired because we would have a hard time fitting in all this leisure with a full time work schedule.

This happened.

This happened.

Someone on Twitter suggested I block off an hour on the Monday morning after I get back from vacation to catch up on emails.  I gently reminded him that I was retired and no longer needed those kind of time/stress management tips!  I still get a lot of blog related emails and comments on the articles here which I promise I’ll respond to (eventually).

This is my Monday morning routine now.

This is my Monday morning routine now.

Given our hectic schedule for December, this will likely be my last blog post of the year.  I hope everyone has a profitable and enjoyable remainder of the year!

I’ve been posting a lot less frequently in 2016 and that will probably be the trend in 2017 as well.  Looking forward to 2017, I’ll be posting more about next summer’s nine week European vacation as well as the non-financial aspects of early retirement.

Nothing like a nice sunset at sea.

Nothing like a nice sunset at sea.

 

Did you have a good Thanksgiving?  Looking forward to Christmas/holidays?  Or dreading it?  Any big year end financial moves in the works?

 

 

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The Role of Luck in Early Retirement

luck-girl-cards1

We’re celebrating Thanksgiving here in America in a few days, and that means two things: eating massive quantities of turkey and reflecting on all the beautifully awesome parts of life!  Last year I mentioned how thankful I was for cool affordable tech gadgets, the ease of growing wealth, and lastly, economic and political stability.

I’m still a big fan of all of those! But in this post, I want to express my gratitude for all the good luck experienced throughout my life.

First up, I’m glad I was born in the United States of America.  It’s one of the richest countries in the world as measured by per capita gross domestic product, consistently ranking in the top 10 or 15 countries of the world.  In the good ole US of A, we speak English which is the lingua franca of business and culture worldwide.  Speaking English as a first language boosts one’s career prospects and allows conversation with around a quarter of the world’s population.  That also translates to a huge marketplace if you’re in the idea biz (such as writing a blog).

Even the poorest Americans are almost guaranteed:

  • clean drinking water (the embarrassment of Flint notwithstanding)
  • some modicum of a safe environment (disregarding the worst pockets of gang warfare in some inner cities)
  • twelve or more years of free public education (we can quibble over the quality in some places)
  • and a basic social safety net (Social Security old age pension, survivors and disability benefits, Earned Income Tax Credit, Affordable Care Act/Medicaid at least through 2017 or 2018, TANF, Food Stamps/WIC, Unemployment Insurance, just to name a few)

This isn’t to say the US is without problems but I’ll posit that it’s still the land of opportunity for the vast majority of Americans.

 

My Lucky Start

In my case, I discerningly selected a good set of parents to be born to.  When I was born, my parents lived in a house trailer in rural Appalachia but several years and one valuable college degree later, we upgraded our standard of living and joined the ranks of the comfortable middle class (loosely defined as a house, a car, and plenty of food).

Coming from a somewhat humble background exposed me to others working hard at blue collar jobs.  It made me realize 40 hours per week in an air conditioned office wasn’t such a bad life after all.  At varying times in my childhood I enjoyed the pleasure of hanging out at my grandfather’s auto shop, collecting eggs in the chicken house with my other grandfather (he even let me drive the shit truck after we scraped the manure pits!).  Growing up with rural, working class roots has its advantages.  Not many other kids can say they helped dig up and move an outhouse while growing up (those things are HEAVY).

The one downside was having to learn to speak “city” once we moved to Raleigh.  You may know this “city” dialect as plain old, regular American English that doesn’t require subtitles in the way that Appalachian English does.

Being born a white male certainly helped me statistically since racism and sexism generally weren’t issues, and us white dudes tend to earn some of the highest salaries, playing second fiddle only to Asians.  But there’s at least one confounding variable at work – family wealth.  Those with family money do much better on average compared to those born in more austere circumstances.  The cultural inheritance of social networks and connections plus access to better educational opportunities give the children of the wealthy a big step up (regardless of race, I might add).

I’ll offer as an example my own experience in deciding on a college to attend.  Although I grew up a dozen miles away from Duke University, I had no clue it was a top ranked university and that I might want to consider dangling my near-perfect SAT scores in front of the admissions staff to see if any financial aid might be forthcoming.  My lackluster high school GPA (yeah, I was a slacker, but a smart slacker) probably would have precluded any meaningful merit based scholarships, but I didn’t even think about attending an elite university instead of a “good enough” state university regardless of financial considerations.  It just didn’t cross my mind to apply.  Things still turned out okay (guess I got lucky).

Though I didn’t grow up rich, I did observe first hand how to manage money responsibly.  We never had any houses foreclosed on nor cars repossessed.  We never suffered eviction for non-payment of rent.  No one blew all the grocery money on drugs or alcohol, nor did they fail to pay the utility bill due to an unlucky night at the poker table.  When I started college I knew it would be paid for somehow (and I was fortunate to actually make money during college).

Education was important.  Good grades meant good things.

My father was into computers back in the early 1980’s back when they were cumbersome and expensive.  I grew up in a household awash in the monochromatic green glow of those early computers (this was WAY before internet, kiddos).  This translated to familiarity and success using computers during high school, college, and in my career.  It also led to a lifelong love of computer and video games!

I noticed my parents invested routinely while growing up.  They contributed to 401k’s.  My dad watched the Nightly Business Report on PBS.  Though I didn’t fully grasp exactly what a stock or mutual fund was, I understood they were valuable and usually grew in value over time.  And wealthy people liked to buy them.  Sounds like something I might like to own, too.

In our household, frugality got the job done.  Don’t waste stuff.  Fix it instead of tossing and buying new.  You can’t always have the nicest stuff, and “good enough” is usually okay.  In a perverse way, modest living growing up benefited me as an adult.  Since I never experienced an upper middle class or upper class lifestyle, I never had inflated expectations of what I “deserved” when I graduated college.  “You can have it when you earn it” was the way things had always worked in my experience.

Contrast that with the expectations of some college graduates who expect to make a fat salary with cushy benefits right out of school just because they stumbled through four years of higher education and miraculously picked up a bachelor’s degree somehow.

All of these cultural inheritances proved to be a lucky acquisition on my part.

Another stroke of luck is being born able bodied.  My arms, legs, heart, and brain all work (on most days).  I’ve never experienced hospitalization or suffered from mental health issues (other than undiagnosed kid-induced temporary insanity).  I was able to go to school while young, get a good job right out of school, save, and invest to achieve financial independence and early retirement.

We were even more lucky that all three of our children were born perfectly able-bodied so that our child-related expenses have remained modest so far.

 

Separating Luck From Effort

It’s easy to start on third base and think you hit a triple (to borrow a baseball analogy).  Then when you score that home run, you take credit for your success without acknowledging how fortunate you were to start on third, or recognize the fact that you’re playing on a team that is also responsible for part of your success.  Your effort is still required because you still have to make the run from third to home plate, possibly making a hard slide home.

For those that don’t start on base and have to, you know, actually pick up a bat and hit the ball, there’s some help available.  Enter the social safety nets for food, housing, medical care, disability, and social security I mentioned earlier.  Not everyone can start on third base, but at least most of us get bats and balls and a flat field to take a shot at getting on base.  Some do well, others founder.  Those that start on base tend to get a lot farther in the game.

Mrs. Root of Good didn’t have the sagacity and good fortune to be born in the US.  In contrast, her family barely escaped from the genocidal dictatorship in one of the world’s least developed nations at the time, Cambodia.  After spending the first six years of her life in refugee camps in Asia, she arrived in the US with not much more than the shirt on her back and the flip flops on her feet.  Once settled in America, her family was able to take advantage of all the social goodies on offer to vastly improve their lot in life.

Instead of farming rice in Cambodia or hustling her way into a good “high paying” sweatshop job, here in the US she finished high school, then college, then graduate school and landed a reasonably high paying job that made us millionaires after ten years of working.  We had to do the heavy lifting of saving and investing, but on a scale unimaginable for the daughter of your average Cambodian laborer and rice farmer.

Mrs. Root of Good’s greatest stroke of luck manifested itself in a one way plane ticket to a developed nation with plenty of opportunity coupled with proper immigration status to make her official in the system.  There was a lot of luck involved in landing in Raleigh where the cost of living is relatively low, the economy is strong, and even the worst elementary, middle, and high schools are still pretty good.

Then came the hard part.  Catching up with her classmates by learning English.  Learning new social customs and traditions.  Making friends in a foreign land.  Knowing you didn’t have as much as many of your wealthier classmates, but succeeding in spite of that (because of that?).

Kristy, the blogger behind Millennial Revolution, shared a similar path when she immigrated from China to Canada as a kid.  She started with very little, made the most of her new life and created a lot of wealth and success which led to early retirement.

 

Keeping my Luck Making Machine in Perspective

In a piece I wrote several years ago, I poked fun at our Luck Making Machine that got us to where we are today.  The idea is that we have some magical device that catapulted us to the top of the socioeconomic ladder.  In reality, our relative success of retiring in our 30’s came from a combination of lucky starts in life, smart choices along the way, and persistent effort throughout.

I’m very thankful for all the luck I’ve had in the past and hope to keep that Luck Making Machine running for several more decades.

 

 

How much of your success today came from luck, and how much came from skill, hard work, and effort?  Does your starting point in life determine how you view luck and success?  

 

 

October 2016 Financial Update

two-cents-photo

Now that the trick or treating is over and October is gone, I’m ready to share the good and bad financial data from last month.  Our income, mostly derived from this blog, remained very strong at $8,365 while our expenses ended the month at $1,460 which left us with a large cash surplus.  If I make much more money, I’m afraid I might be “unretired”!

I can’t say I paid any attention to the stock market in October but apparently it declined.  In spite of income exceeding expenses by about $7,000, our net worth still dropped by $29,000 to $1,618,000.  Since this is significantly more money than we had a year or two ago, I continue to feel safe and secure at our current net worth levels.

Here’s the straight dope on our October financials:

 

Income

October investment income dropped to $31 after a much stouter September with $4,160.  That’s the nature of the beast since most of our funds pay at the end of each quarter which means March, June, September, and December always bring us high investment income while the other months are near zero.  We are still on pace for matching or exceeding the total of $28,527 in dividend income received in 2015.  Although I’m no dividend-focused investor, dividends still figure significantly into our annual cash flow by helping provide the funds we need for living expenses.

No October post would be valid without the obligatory pumpkin pic. Neighborhood event in the park.

No October post would be valid without the obligatory pumpkin pic. Neighborhood event in the park.

Blog income, shown as “other income” in the chart, ballooned to $7,253 while my early retirement lifestyle consulting also increased healthily to $1,076.  Blog income was higher than normal because I received both September and October payments from one advertiser during the month of October.  The consulting income remained very strong even though I raised rates last month.  As one client mentioned, it’s hard to find good, competent professionals that understand taxes and investments with a focus on very early retirement at any price point, and particularly at the relative pittance I’m charging (though I don’t claim to be a professional or anything more than “a guy that writes stuff on the internet and retired at 33”).

The $4 in Deposits includes the cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. If you sign up through this link and make a qualifying $25 purchase through Ebates, you’ll get a $10 gift card like I did.  I try to do all of my online shopping through one of these portals and the cash back adds up fast. I recently booked an $857 cruise for next month through Expedia by clicking through Ebates to get to Expedia.  I’ll be getting $85.70 in cash back once we return home from the cruise in December.  Ebates is a nice way to get a 10% discount on every cruise from a booking site we already use.  I’ll also be using one of those shopping portals later in the month if I see any good deals on Black Friday / Cyber Monday.

On a slightly different note, our ten year old just landed her first job!  Someone asked us if one of our kids would be interested in making some cash as a tutor for their kid.  Now our little gal makes $10 per hour as a tutor.  She will be working one hour after school Monday through Thursday.  If this gig continues, she might make enough to fund a Roth IRA like Go Curry Cracker’s kid!  This also supports my notion that mom and dad won’t be on the hook for very much during the kids’ college years.

october-2016-income

If you’re interested in tracking your income and expenses like I do, then check out Personal Capital (it’s free!). All of our savings and spending accounts (including checking, money market, and five credit cards) are all linked and updated in real time through Personal Capital. We have accounts all over the place, and Personal Capital makes it really easy to check on everything at one time.

Personal Capital is also a solid tool for investment management. Keeping track of our entire investment portfolio takes two clicks. If you haven’t signed up for the free Personal Capital service, check it out today (review here).

 

Expenses

Now let’s look at October expenses:

october-2016-expenses

While some consider $1,460 to be a mind blowing monthly expense total for a family of five, I consider it just another routine month where we didn’t have any huge lumpy annual expenses (like property taxes or insurance).  We spent almost $2,000 less than our budget of $3,333 per month (or $40,000 per year).  For the second month in a row, travel spending topped the expense report (and I like it that way!).

Travel – $579:  In September it was cruises. In October it was plane tickets for the five of us to, from, and around Europe.  We booked tickets from Raleigh to Lisbon, Portugal for June, 2017 with the return from Amsterdam to Raleigh in August, 2017.  Even though we used United Airline miles to score “free” tickets, we still had to pay tax on the tickets which was almost $400 for the five of us.

For those in the points/miles game, we spent 60,000 miles per ticket, or 300,000 total to fly economy between Raleigh and Europe.  By booking so far ahead of time we scored some great flights that are only 10 hours to Europe and 13 hours back home including connection times.

With United’s new redemption rules, you get a free one way flight anywhere within the region you’re flying to (in this case, Europe).  We used the free flight for a short hop from Lisbon to Malaga, Spain.  We could have flown all the way across Europe to some distant corner (Estonia?) but instead chose to take a relatively short flight to coastal Spain since we wanted to visit that area and it’s cooler in June than it is later in the summer.  We’re slowly making our way north across the continent as the temperature rises throughout the summer.

All of those 300,000 United miles came from sign up bonuses for credit cards, so if you’re interested in free flights to Europe don’t forget to check out my credit card page.

We also jumped on a luke warm Ryanair deal from Seville, Spain to Milan, Italy for $194 total for the five of us.  There might be some extra checked bag fees later on if we can’t pack extremely light like we did for our 7 weeks in Mexico last summer.

All of our gear for seven weeks in Mexico.

All of our gear for seven weeks in Mexico.

So far, we spent $579 for our 9 week trip to Europe and managed to buy all the flights for our trip (20 one way tickets in all).  Hopefully this is prelude to a nice low cost, high value summer in Europe!

After visiting Portugal, Spain, and Italy, we will continue through Slovenia, Austria, Hungary, Czech Republic, and Germany before flying back home from Amsterdam.  It won’t be cheap even with my travel hacking skillz.  I’ll feel really proud if we can pull it off for less than $10,000, and content with a total under $15,000.  In rough terms, we’ll probably spend around $6,000-7,000 on lodging ($100/day), $3,500 ($50/day) on food, $2,000 ($30/day) on ground transportation between and within cities, and $1,000 on various admission fees, attractions, and entertainment.

Sound off in the comments if I’m being completely ridiculous about prices but keep in mind we have hotel points for free nights and will rely heavily on airbnb (click for $35 off your first rental), and will probably dine out once per day and buy groceries for the other meals.  Trains and buses are stupid cheap in most places (goeuro.com is amazing for cost comparisons) and often come with kids ride cheap or free promotions.

I’ll probably ramp up the hotel/airbnb reservations in the early spring and book those advance purchase train tickets that come with discounts for booking early as the reservation windows open up.  Anyone have experience booking airbnb apartments six or eight months before their stay?

I’ll publish a more in depth article on the trip at some point.

Groceries – $366: Another modest month buying groceries.  Some of the savings came from “shopping in our freezer and pantry” instead of buying stuff at the store.  Here’s a typical month of groceries for us.

We enjoy good food cooked from scratch.  Somehow we find these incredible deals on groceries including some high end, “fancy” ingredients.  At Kroger, we scored about $80 worth of imported Italian goodies like cheeses, pasta sauce, prosciutto, and olives at 75-95% off retail prices.

We also shop at the ethnic grocery stores in our neighborhood.  After walking to the kid’s school for morning drop off, we continued walking to the neighborhood Latino supermarket and picked up three pounds of poblano peppers (on clearance but still perfectly good), a bunch of cilantro, two and a half pounds of fresh tortillas, and two bottles of imported Guatemalan hot sauce for $6.  These goodies combined with some large hunks of meat led to incredible fajitas for under $1 per meal.  “Reminds me of those street tacos in Mexico” one of our kids remarked.  ¡Que rico!

Some of that prosciutto and mascarpone gracing the tops of some day old ciabatta bread. Mmm... discount good eats.

Some of that prosciutto and mascarpone gracing the tops of some day old ciabatta bread. Mmm… discount good eats.

Clothing – $134: Fall and winter clothes for the kids.  One pair of shoes.  A combo of Walmart and the thrift store.  The thrift store offered all girls/women’s apparel at 40% off.  How incredible is that?  A steep discount on top of already low prices.  As usual, the thrift store haul included some articles of clothing with price tags still attached.

Healthcare/Medical – $129: Health insurance premiums of $125 for our very impressive gold plated silver plan obtained through Healthcare.gov with some very sizable ACA subsidies. $4 for some random lab tests at the doctor.

For those looking for insurance in early retirement, on November 1st the Healthcare.gov marketplace started open enrollment for 2017.  You can price out plans based on your income and household size.  Even though North Carolina was one of those states that lost a few insurers, we picked up one new insurer (Cigna) bringing the total number of companies offering insurance in Raleigh to two, with Blue Cross Blue Shield being the other one.

The two cheapest silver plans look like reasonably good options for our family.  I’m debating between the $50 per month plan with $200 deductible, no kid dental coverage and limited network and the $125 per month plan with $800 deductible, kid dental, and nationwide network plus out of network coverage.  Those costs are after the very generous premium tax credit/subsidy and include large cost sharing subsidies since our MAGI is less than 150% of the federal poverty level.

Utilities – $103: Water, sewer, trash.  In a previous month I prepaid the electric bill by applying an extra $250 toward my account balance – more credit card travel hacking.

October is a cheap time of year for utilities since we don’t need to use the heat or the air conditioning.  Winter is coming (like the Game of Thrones reference?).  A few minutes before pressing “publish”, I had to turn on the heat.  It was 62 inside the house and the forecast for the week calls for brisk mornings in the 40’s and cool afternoons topping out in the upper 60’s.  I appreciate thriftiness, but don’t mind dropping a few bucks to keep it 68 degrees during the day and 63 at night.

Hurricane Matthew blew through in October. Culvert underneath our property almost topped out. That plus 4-5 more feet of water equals a flooded crawlspace.

Hurricane Matthew blew through in October. Culvert underneath our property almost topped out. That plus 4-5 more feet of water equals a flooded crawlspace.

On the bright side, the kids got to play in a hurricane!

On the bright side, the kids got to play in a hurricane!

Education – $66: Field trips for the year for the elementary school kid.

Free education: troubleshooting a freebie TV given to us by some family. Looks like a $4 fuse will fix it.

Free education: troubleshooting a freebie TV given to us by some family. Looks like a $4 fuse will fix it.

Restaurants – $38: Dinner at a pizza place for the whole family and a clandestine lunch at the Chinese restaurant for Mrs. Root of Good and I (we brought home some fortune cookies and mints for the kids).

Internet (“Cable”) – $34: 50/5 mbit service.

Entertainment – $4: One hour boat rental on the city lake.  Small price to pay for a beautiful morning paddling on the water.  My first bald eagle sighting was included at no additional charge.

Most of our entertainment is free.  Tennis or other sports/recreation at neighborhood parks.  Walking/hiking on the trails.  Hanging out with friends at the park or at our house.  Campfires in the back yard.  A seemingly endless string of birthday parties.  Visits to the art museum, science museum, and children’s museum.  After all that, it’s time to kick back and relax with some video games, Netflix (which actually costs us a tiny bit), and library books (like European travel guides).

Free visit to the children's museum. I'm strapped in with the little dude at the flight stick. HELP!!

Free visit to the children’s museum. I’m strapped in with the little dude at the flight stick. HELP!!

Special huge inflatable bunny week at the Art Museum. Free, of course.

Special huge inflatable bunny week at the Art Museum. Free, of course.

Boat rental - not free but worth every penny of the $4. Also cheaper and more fun than a gym membership. And bald eagles.

Boat rental – not free but worth every penny of the $4. Also cheaper and more fun than a gym membership. And bald eagles. And look at that grin.

Home Maintenance – $2: A gallon of gas for the lawn mower. Colder weather = no more mowing (soon).

Gas – $0: Nope, not for the car. But I did get a full tank in early November which you can read all about next month.

 

Year to Date Living Expenses

october-2016-ytd-expenses

That should read “through 10/31/2016”

At $30,780 year to date spending, we remain below our annual spending target of $33,333 budgeted for the first ten months of the year by a few thousand dollars.

Other than paying for gas, parking, and tips on our two cruises in December, we won’t have a lot of expenses out of the ordinary.  I’m planning on replacing the roof sometime in the next year but I don’t think I have time to get bids, research those bids, schedule an installation time, and deal with any unexpected delays before we leave for our first cruise in less than three weeks.  And there’s a huge Thanksgiving feast we’ll be throwing somewhere in that schedule.  Otherwise, I would go ahead and tackle this project in November.

The budget for the roof replacement is somewhere around $4,000 to $8,000.  I could probably fit it in the $40,000 annual budget this year, or underspend 2016’s budget by a bit, then go over slightly in 2017 if we do the roof replacement in the spring.

 

Monthly Expense Summary:

 

Net Worth: $1,618,000 (-$29,000)

After several good months we experienced a slight reversal of fortune in October as $29,000 disappeared from our net worth statement.  It’s to be expected.  The market goes up, it goes down.  October happened to be a down month.  So far November is following in October’s footsteps.

october-2016-net-worth

From last month’s financial update:

We’re still sitting on over $50,000 in cash in our credit union money market account right now.  I’ll be moving some of that cash around for year end tax planning, like a large solo 401k contribution, but I will also hang on to part of that cash in order to provide a buffer against severe market downturns.

My procrastination paid off since we’re sitting on even more cash right now and I still haven’t pulled the trigger on the IRA or solo 401k contributions and the market is lower now than it was a month ago.  I’m either the wisest or laziest investor ever.

This pretty much sums it up right here. Didn't cost a penny but worth a million bucks.

This pretty much sums it up right here. Didn’t cost a penny but worth a million bucks.

 

Looking for year end tips to get your finances in order? Check out these 11 tips to finish the year strong.

 

 

How was your October?  Any big year end financial moves?  Ready to end the year on a high note?

 

 

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