Category Archives: Financial Independence

August 2016 Financial Update

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Now that August is over, we are officially in the last third of the year!  It’s hard to believe the year is already winding down.  August was a decent month financially.  Our net worth crept up another $2,000 to $1,635,000.  Income totaled $5,191 while expenses were $2,817 for the month.

After spending the first part of August on our three and a half week road trip to Canada, we returned home in mid-August to a flurry of activity to get the kids ready for school.  That meant buying school supplies (including a brand new fancy pants TI-84 CE color graphing calculator) and attending two back to school orientations.  Our oldest daughter just entered middle school so now we have twice as many PTA meetings and school events to fit into our not-so-busy schedules.  She’s loving middle school so far!

Here’s what our August 2016 looks like under a financial microscope.

 

Income

August investment income was $60.  Our portfolio consists of mutual funds and ETFs that pay dividends at the end of each quarter.  September will generate a much higher level of investment returns.  We are well on our way toward matching or exceeding the total of $28,527 in dividend income received in 2015.

Blog income, shown as “other income” in the chart, ballooned to $4,279 in August while my early retirement lifestyle consulting brought in $565.  Blog income was higher than normal because I received two month’s worth of payments from a major revenue source.  The consulting income was also higher than normal and I’m not sure why other than strong traffic thanks to continued good exposure in the media (including this podcast interview with fellow 30-something early retiree blogger Brandon the MadFIentist).

$211 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.  For example, in August I booked an $810 cruise through Expedia by clicking through Ebates to get to Expedia.  I’ll be getting $81 in cash back once we return home from the cruise in December (more on the cruise later in this article!).  Ebates is a nice way to get a 10% discount on every cruise from a booking site we already use.

The $64 Insurance income is a refund of our auto insurance premiums thanks to removing the Honda Accord from our policy.  We became a one car family when we sold the 2000 Honda Accord in June (after debating whether we should be a two car or one car household for a while!).  Our auto insurance premiums are now $344 per year for a half million dollars of coverage for two drivers.  Given how little we drive on a routine basis, I’d say that’s pretty fair.

The $10 “Entertainment” income came in the form of a $10 rebate check from a liquor purchase.  We categorize hard liquor purchases as “entertainment” whereas beer and wine find themselves in the “groceries” category.  It’s an arbitrary distinction but makes sense when you consider we buy liquor at the state run ABC store whereas we buy wine and beer at the grocery store (and don’t feel like splitting the wine/beer to a separate category called “alcohol” because we simply don’t spend a ton in that area.  Burp.).

august-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 August expenses:

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After spending a measly $1,190 in July, we seem like frivolous spendthrifts in August because we spent a whopping $2,817 during the month.  That’s cool, we’re still $500 under our budget of $3,333 per month (or $40,000 per year).  The higher spending comes from booking more travel for later in the year and from taking care of business after returning home from our almost month-long vacation.

Travel – $1,144: August represents the second month in a row where travel topped our spending.  That’s no accident since it makes up our single largest expense category in our carefully crafted annual retirement budget at $10,000 per year.  Around $300 of the travel expense covered gas for the van, meals at restaurants, parking, tolls, and other travel related expenses for the nine days of August that we were on vacation.

We booked another cruise for late 2016 for $810.  They are fun.  After our annual turkey-filled Thanksgiving fiesta we will set sail in late November on a five night cruise from Jacksonville, Florida destined for Half Moon Cay, Bahamas (a private island) and Nassau, Bahamas.  On this cruise we’re only taking our four year old son and cruelly leaving our two older daughters at home with Grandma so the girls can attend school (bwahahahahaha).  Don’t worry, our two daughters will join us on an even better and longer seven night cruise later in December (should we even unpack between the two cruises?).

Fun times in the Bahamas on our January 2016 cruise.

Fun times in the Bahamas on our January 2016 cruise.

I think we are done booking cruises for 2016.  Maybe.  Unless a really good deal pops up later in the year.  We are only spending around $5,000 of our $10,000 travel budget in 2016.  The unspent funds will help cover the cost of a potential eight to nine week excursion through Europe in the summer of 2017 (more details on that at a later date!).  I hear Europe ain’t cheap like Mexico.  Or our sub-$1000 3.5 week Canada trip this year for that matter.

Groceries – $816: A few hundred dollars higher than usual in August after underspending the budget by a few hundred dollars in July.  We restocked the fridge and freezer after returning from our trip.  And restocked the pantry and wine cabinet.  We also spent a hundred bucks on massive quantities of heavily discounted toilet paper and did this with it:

At least $100 worth of fun. Plus free butt-wipe material for a six months. Or a year??

At least $100 worth of fun. Plus butt-wipe material for six months. Or a year??

Healthcare/Medical – $249: Health insurance premiums of $125 for our very impressive gold plated silver plan obtained through Healthcare.gov with some very sizable ACA subsidies. $99 for a routine cleaning, x-rays, and exam from our super awesome dentist that gives great discounts to cash/debit payers. $25 for a few prescriptions.

Home Maintenance – $225 + Home Improvement – $59: Our magical plumber earned a solid $225 this month by replumbing and installing a new shower valve, faucet and supply pipes plus installing a new kitchen faucet.  The shower developed a slow leak that appeared while we were out of town (fortunately mold wasn’t an issue!).

This is all work that I could maybe DIY but choose not to.  My track record on plumbing jobs is pretty poor so I probably saved myself a few bucks by outsourcing the task.  $59 was most of a new shower valve and faucet from Lowe’s (the remainder came from gift cards purchased over the past year and recorded as “home maintenance” expenses at the time). Of course I purchased a $15 off $50 Lowe’s coupon from ebay for a buck which saved me $14 on the purchase.

I spent the several hours of the afternoon while the plumber was here profitably researching our summer 2017 Europe trip.  I don’t regret the $225 expenditure a bit (really more like $150-175 after factoring in cost of supplies and special tools).  It’s taken me a while to get to this mindset of outsourcing tasks I really don’t enjoy or don’t excel at.  But I think I proved my mettle in this situation by putting the wrench down and picking the phone up.

Restaurants – $81: Two visits to the Chinese restaurant plus a birthday pizza party for the 10 year old and half a dozen of her friends (and a half dozen of our friends!).

Utilities – $72: Water, sewer, trash, and natural gas bill.  These bills were much lower than normal because we were out of town during most of the billing cycle.  All told, we saved about $200 on utilities during the 3.5 weeks we were out of town.  The electric bill doesn’t make a showing in this expense report because we still have a credit balance from pre-paying the electric bill in the spring to meet credit card minimum spending requirements to qualify for sign up bonuses (gotta love credit card travel hacking!).

Clothing – $56: Back to school clothes.

Education – $46: School supplies.

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

Root of Good hosting fees – $27 (not shown in the summary chart): Once per year domain name registration and privacy protection service.  I paid about $60 per year for 3 years of hosting and things are working quite well for me at Hostgator.  I like Hostgator and recommend them if you’re thinking of starting a blog.

Gas – $0: Other than refueling during our road trip (which gets included in the “travel” category), we didn’t spend anything on gas in August.  The van is below a quarter of a tank so I expect to drop $30 or $35 on a full tank in the next several days.  That should last us the remainder of September.

 

Year to Date Living Expenses

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At $26,538 year to date spending, we are once again below our annual spending target of $26,667 budgeted for the first eight months of the year by about a hundred dollars.  In spite of the $8,200 minivan purchase in March, we managed to get our year to date spending back in line with our annual target.  I guess we’ve been lucky that we haven’t suffered any large unexpected expenses.  That’s mainly because we included the routine “unexpected” stuff when we developed our first annual early retirement budget over two years ago.  Unexpected expenses are highly predictable over the course of a 40+ year retirement.

September should be a relatively low expense month other than $600 in estimated tax payments to North Carolina and the IRS.  The weather cools off here in Raleigh and almost all of our favorite outdoor activities are free or very inexpensive.  Now that the oldest two kids are back in school full time, we are back to our school year early retirement weekly routine.

Monthly Expense Summary:

 

Net Worth: $1,635,000 (+$2,000)

At +$2,000, it’s a small gain, but a gain nonetheless.  August started with a slight drop in the markets before a strong recovery that fizzled out a little toward the end of the month.  September is already shaping up to be a great month.

It’s a bit scary watching the investment portfolio climb month after month because these things rarely go up in a smooth line.  I’m expecting a dip at some point but not doing much about this “knowledge” because I don’t know when this dip will happen, how severe it will be, or when the market will recover.  If I knew any of that, then Bernie Madoff’s investors would have invested their billions with me for a guaranteed 12%+ annual return.

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In a way, I am doing something defensive during this time of perpetual market gains.  In portfolio news, I just sold $15,000 worth of a junk bond I bought many years ago at a steep discount to par.  I sold it at 99.8% of face value (the theory being “get out while the gettin’s good”).  That pushes our cash on hand to roughly $50,000.  That represents about two years of core living expenses.  Add to that the $8,000 to $10,000 in taxable dividends we get each year and we’ll be close to two years of our full-of-fluff $40,000 annual budget.  And then there is the $2,000 to $3,000 per month that this blog and my little Early Retirement Lifestyle Consulting brings in right now.

To summarize, I might need to figure out a strategy for all this cash on hand.  It’s invested at 1% in a FDIC/NCUA insured money market at my credit union right now.  I could move some of it to 1.75% four year CD’s (with 90 day interest loss for early redemptions) at the same credit union with near-zero effort.  I’m thinking that might make sense.  Bond fund yields don’t seem too exciting right now with the Vanguard Total Bond Market Index Fund yielding 1.88% for a fund with an average duration of 5.8 years (that translates to a non-negligible loss of principal if interest rates increase).

I guess this “too much cash” is a great problem to have.  At these recent market highs, we have almost $1.5 million invested in equities, which means our overall liquid net worth is 97% equities and 3% cash.  That’s very aggressive overall.  I’m in no hurry to redeploy any of the $50,000 cash because it feels nice and comfy as a security blanket since we have no bonds in the portfolio at this point.

 

 

How was your August?  Did you see big gains or a smaller steady rise in net worth?  Any big shifts in spending if you (or your kids) are headed back to school?

 

 

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Trip Report: Toronto, Mammoth Cave, and Niagara Falls Road Trip

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The Root of Good family made it back from our 3.5 week road trip a couple weeks ago.  Here’s an after action battle report on our trip including highlights from all the places we visited plus a complete cost breakdown of our trip budget.  Skip to the end for some travel hacking tips to save big bucks on your next epic vacation!

 

Trip summary

We traveled for 24 days with stays in the following cities:

  • Between Charlotte and Asheville, NC – staying with family 3 nights
  • Nashville – 1 night
  • Bowling Green, KY (Mammoth Cave) – 3 nights
  • Detroit, MI – 2 nights
  • Toronto, Canada – 12 nights
  • Niagara Falls (Canadian side) – 2 nights
  • Washington D.C. – 1 night
  • Back home in Raleigh!

When I describe this summer’s big crazy road trip to people, their first reaction is to drop their jaw, drool, and say “wow, sounds like an awesome trip!”.  Their second reaction is to scrunch their eyebrows, and ask in a puzzling way “wait, Nashville and Toronto – those… aren’t anywhere near each other are they?”.

They aren’t.  But we’re not complete geography noobs either.  We wanted to visit Nashville and Niagara Falls (near Toronto), and decided to embrace the triangular path between those two locations, with Raleigh forming the third vertex of the triangle.  And visit some cool places along the way (some of which you, dear gracious readers, suggested!).

For more detail on our trip planning, check out “The Great American Canadian Road Trip – Summer 2016 Edition“.

 

Nashville

We only spent one night in Nashville, so we had to play the role of stereotypical tourist and see what we could during our limited time in town.

Honky Tonkin' - It's what Nashville is all about, right?

Honky Tonkin’ – It’s what Nashville is all about, right?

 

Nashville riverfront

Nashville riverfront

 

Who put the Parthenon in the middle of Nashville?

Who put the Parthenon in the middle of Nashville?

 

Tennessee State Museum

Tennessee State Museum

 

World's largest iPad (at Nashville Public Library).

World’s largest iPad (at Nashville Public Library).

 

Who has time to visit places that cost money when libraries are free and come with bridges and skyscrapers?

Who has time to visit places that cost money when libraries are free and come with bridges and skyscrapers?

 

Lunch.

Was it the #1 Cheesesteak in the world?  Probably not, but it was good.

 

Grand Ole Opry Resort. One of three hotels we visited in Nashville because the interiors are mind-blowing.

Grand Ole Opry Resort. One of three hotels we visited in Nashville because the interiors are mind-blowing.  They have a boat. In a canal. Inside the hotel lobby.

 

Bowling Green, Kentucky and Mammoth Cave

We only spent one night in Nashville so that we could spend two full days exploring Mammoth Cave.  We stayed in the city of Bowling Green about 30 minutes from the Cave entrance.

Airbnb rental in Bowling Green, Kentucky. Way better than a hotel!

Airbnb rental in Bowling Green, Kentucky. Way better than a hotel!

 

The descent to Mammoth Cave

The descent to Mammoth Cave

 

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Mammoth Cave in Kentucky. The reason we only spent one night in Nashville.

 

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It’s hard to capture the scale of these rock formations but they were about 50 feet tall.

 

A rainbow wished us well as we departed Bowling Green.

A rainbow wished us well as we departed Bowling Green.  Also symbolic of post-retirement life.

 

Dayton, Ohio (Air Force Museum)

Thanks to all the commenters and Root of Good friends that suggested the Air Force Museum in Dayton, Ohio.  It was a perfect break from our seven hour drive from Bowling Green, Kentucky to Detroit, Michigan.

Before the museum we stopped for lunch at Gold Star Chili. Considering the tiny portions and food that's not that great, a more accurate name would be Bronze Star Chili.

Before the museum we stopped for lunch at Gold Star Chili. Considering the tiny portions and food that’s not that great, a more accurate name would be Bronze Star Chili.  Don’t get me wrong.  The chili itself was pretty good.  Both tablespoons of it.  My hand isn’t abnormally large in the pic.  It’s an optical illusion because the plate is tiny.

 

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"Oh, that's just a thermonuclear bomb, son. Move along."

“What’s that? Oh, that’s just a thermonuclear bomb, son. Move along.”

 

Kennedy's Air Force One.

Kennedy’s Air Force One.

 

Detroit, Michigan

Exactly zero people got excited when I mentioned that we were spending two nights in Detroit.  It’s not exactly the kind of place you visit while on vacation apparently.  My perception of the big D included active gang warfare, rounds flying overhead, and houses going up in smoke as the innocents suffered collateral damage to life and property.

We needed a place to stay half way between Toronto and Bowling Green, Kentucky, and Detroit was almost in the middle.  And they have one of the only four Category 1 Starwood Preferred Guest hotels in the nation (the Four Points By Sheraton Detroit Airport was beautiful, by the way).  So it was settled.  We would pause for two nights, rest, relax, and possibly test out the thickness of the sheet metal on the minivan as we drive through the inevitable war zones.

Sadly, there was very little going on in Detroit.  It was very quiet.  No people.  Almost eerie.  Mid-day on a Saturday and there were basically zero people in downtown.  Traffic was light.

We rolled around town to check out the blighted areas and they didn’t disappoint.  Through the window, block after block rolled by.  We saw more cleared or reforested lots than abandoned houses.  Most blocks had no more than one or two inhabited houses.  We didn’t see any crime probably because there were no people.  Zero corner boys slinging their trade.  No one running from the non-existent cops.  No gunfire.  Just a very peaceful drive around a mostly deserted part of town.

Upsides included the Renaissance Center on the waterfront and the burgeoning Mexicantown (which was booming!).

I bet this place was a beauty 50 years ago. Where did the neighbors go?

I bet this place was a beauty 50 years ago. Where did the neighbors go?

 

Looks more like a country house than what used to be densely packed center city blocks.

Looks more like a country house rather than what used to be densely packed center city blocks.

 

The Renaissance Center. The only place we saw a bunch of other people in Detroit.

The Renaissance Center. There were some people here, but not a lot.

 

Hey, look kids. It's Canada across the water! We're going there next!

Hey, look kids. It’s Canada across the water! We’re going there next!

 

A buck fifty each for some authentic chorizo street tacos from Taqueria del Rey in Mexicantown. Amazing.

A buck fifty each for some authentic al pastor street tacos from Taqueria del Rey in Mexicantown. Amazing.  Who knew you could get these in Detroit?

 

Toronto, Ontario Province, Canada

We spent 12 nights in Toronto in an Airbnb rental in the Roncevalles neighborhood a few miles west of downtown.  Since we had our van, we skipped the streetcars and subway in Toronto and chose to drive or walk everywhere.  Downtown was about 15-20 minutes away by car.

 

Very cool Airbnb rental in Toronto. Probably the nicest one we've stayed in.

Very cool Airbnb rental in Toronto. The nicest one we’ve stayed in.

 

Full kitchen and dining area.

Incredibly well appointed kitchen with eat in dining area (pic taken from the living room).

 

A second living room in the upstairs bedroom/loft area let us all have our own space at times.

A second living room in the upstairs bedroom/loft area let us all have our own space at times.

 

Enjoying the rooftop patio.

Enjoying the rooftop patio.

 

 

We made use of all that space by hosting lunch for dynamic blogging duo and fellow 30-something early retirees Kristy and Bryce of Millennial-Revolution.com fame.

We took advantage of our Airbnb’s spacious layout by hosting lunch with dynamic blogging duo and fellow 30-something early retirees Kristy and Bryce of Millennial-Revolution.com fame.  Bryce is the weird one not wearing pink.

 

A city perpetually under construction. The orange traffic cone must be the city's mascot (at least for the six weeks of summer when construction goes gangbusters).

Toronto, a city perpetually under construction. The orange traffic cone must be the city’s mascot (at least for the six weeks of summer when construction goes gangbusters).

 

You like the pretty buildings at sunset, eh?

You like the pretty buildings at sunset, eh?

 

View of downtown skyline from the Centre Islands ferry.

View of downtown skyline from the Centre Islands ferry.

 

The Lake Ontario beachfront on Centre Islands.

The Lake Ontario beachfront on Centre Islands.

 

Familia Root of Good

Familia Root of Good

 

Public art in City Hall. A sculpture made from tens of thousands of nails. Why didn't I think of something like that?

Public art in City Hall. A sculpture made from tens of thousands of nails. I don’t think you’re actually supposed to touch them though.

 

A metropolitan city, full of culture and life. The Art Gallery of Ontario proved impressive (and free on Wednesday nights).

A metropolitan city, full of culture and life. The Art Gallery of Ontario proved impressive (and free on Wednesday nights).

 

An art gallery of another breed. Graffiti Alley (a few blocks south of Chinatown) is more my style. You can see (and smell) the strong influence of the medical marijuana dispensaries located just around the corner.

An art gallery of another breed. Graffiti Alley (a few blocks south of Chinatown) is more my style. You can see (and smell) the strong influence of the medical marijuana dispensaries located just around the corner.

 

Don't worry, it's not really a pot shop for kids.

Don’t worry, it’s not really a pot shop for wee little kids.

 

The massive High Park was walking distance from our house.

The massive High Park was walking distance from our house.  We visited several times during our stay.  High Park has it all.

 

Beautiful wildlife.

Beautiful wildlife.

 

Castles for a playground.

Castle playground.

 

Comfortable park benches for weary travelers.

Comfortable park benches for weary travelers.  Possible food coma in progress (see following pics for explanation)

 

Chinese pastries from the Ding Dong Bakery (great name by the way). This mother lode was just under $15 USD.

Chinese pastries from the Ding Dong Bakery (great name by the way) in Chinatown. This mother lode was just under USD$15.  Some sweet, some savory, some meaty.  All delicious.

 

Vietnamese vermicelli noodles with pork and spring roll from Bun Saigon in Chinatown. USD$8

Vietnamese vermicelli noodles with pork and spring roll from Bun Saigon in Chinatown. USD$8

 

A heaped up plate of Korean bbq pork ribs, chicken, and beef. Plenty for two hungry people. USD$14

A heaped up plate of Korean bbq pork ribs, chicken, and beef with tempura zucchini, potsticker dumplings, and rice. Plenty for two hungry people. USD$14

 

A homemade creation. The salami bagel.

A homemade creation. The salami bagel.  One of the benefits of staying in an Airbnb is having a full kitchen so you can cook big meals (or toast a salami bagel, in this case).

 

Niagara Falls

After leaving Toronto, we headed south to spend two nights on the Canadian side of the falls.  On the way down we stopped at Welland Locks to watch a ship transit the canal up river.

Once we arrived in Niagara Falls, we planned to do the Maid of the Mist (also called Hornblower Cruises on the Canadian side) but learned that the wait to board the boat can be two hours.  Poor planning on our part because we visited during the busiest time of year on the busy weekend.  Instead, we explored the falls on foot and by bus from the US and Canadian sides.

 

Looking up river from the observation deck

Welland Locks, about 30 minutes from Niagara Falls.  Looking up river from the observation deck.  The ship in the lock to the left waits for the water level to rise even with the upstream water elevation.

 

Niagara Falls from the American side.

Niagara Falls from the American side.  We took a day trip to the US to get a different vantage point of the falls.

 

View of both falls from the Canadian side.

View of both falls from the Canadian side.

 

Falls at night.

Falls at night.

 

The Niagara River forms a massive Whirlpool a few miles downstream from the falls. Circling the Whirlpool are a number of (free) overlooks.

The Niagara River forms a massive Whirlpool a few miles downstream from the falls. Circling the Whirlpool are a number of (free) overlooks. Pictured is the not-free Aero cable car suspended above the Whirlpool where you can enjoy waiting in line and then, for a few minutes, get a slightly different vantage point compared to what we enjoyed.

 

Washington, D.C. (Smithsonian Air and Space Museum – Udvar-Hazy annex)

Washington, D.C. served as our last waypoint on the trip.  We spent the night at an Aloft hotel near the Dulles airport (free with SPG points, of course) then woke up, played some pool, and departed for our last bit of tourism of the vacation.  The Udvar-Hazy Annex of the Smithsonian Air and Space Museum.

It’s got a bunch of cool planes, missiles, rockets, and spacecraft of various types.  But the most awesome vessel in the hangar is the Space Shuttle Discovery.  This bad boy flew to outer space 39 times over the past several decades.  And we got close enough to almost touch it.

For anyone thinking of replicating our trip, the Air Force Museum and the Air and Space Museum had a lot of overlap (once you’ve seen several hundred planes from the various eras of flight, several hundred more planes don’t add a lot of marginal utility).  Air and Space is still an awesome museum because of the Space Shuttle.  The Air Force Museum stood out for having a few historic Air Force Ones that used to fly former presidents (and you can walk through the Air Force Ones).  Both museums are free except for a $15 parking fee at the Air and Space Museum.

 

The Space Shuttle up close.

The Space Shuttle up close.

 

'Merica!

‘Merica!

 

Not the space shuttle.

Not the space shuttle.

 

Something I could possibly pilot.

They let me in the cockpit.

After 2,432.3 miles and 25 days on the road we made it home in one piece.  Another great vacation on the books!

 

Trip Budget

We budgeted $2,100 for the whole trip.  We’re good at optimizing expenses on the fly and miraculously managed to spend only $954 for our 3.5 week road trip.  Of course we’re travel hackers, so that total doesn’t include several thousand dollars worth of free lodging expenses (including 4 room nights at a USD$300-400/nt hotel in Niagara Falls).  First I’ll show the travel budget with actual expenditures, then I’ll reveal some travel hacking tips so you can replicate some of my success.  All amounts in US dollars with the US to Canadian dollar exchange rate hovering around USD$1 to CDN$1.30.

Lodging – $157 (budget: $476) 

  • 12 nights Toronto Airbnb rental – $43 (after $345 airbnb referral discounts, $85 cancellation/rebooking credit and $500 Barclay Arrival Card travel rebate/bonus, plus a $56 damage charge for our kiddo breaking a fancy pants light fixture)
  • 3 nights Bowling Green, KY Airbnb rental – $47 (after $250 Airbnb gift card from Amex credit card reward bonus)
  • 1 night hotel in Nashville from Hotwire – $66
  • 2 nights x 2 rooms – Four Points by Sheraton Detroit Metro Airport – $0 (8,000 SPG points from Starwood Amex)
  • 2 nights x 2 rooms – Four Points by Sheraton Niagara Falls Fallsview – $0 (12,000 SPG points from Starwood Amex)
  • 1 night x 1 room – Aloft Dulles Airport North – $0 (4,000 SPG points from Starwood Amex)

We initially booked a two bedroom Airbnb apartment on the east side of Toronto.  The landlord cancelled a month before our trip so we had to re-book a different property.  Airbnb offers a rebooking credit of 10% of the amount you initially paid to help you find a replacement property.  The new rental was a big win because it was cheaper and nicer.

Now for the bad news.  Our four year old pretended one of the light fixtures was a steering wheel.  He drove it hard.  It broke.  We agreed to the landlord’s request for $56 in damages to replace the light fixture.  Otherwise the 12 nights in Toronto would have netted out to negative $13!

In other lodging snafus, let’s talk about the $66 Nashville hotel we purchased through Hotwire.  The room itself was okay, but the hotel had serious issues with management.  We showed up around five or six in the afternoon expecting our hotel room to be ready (check in time was three pm).  It was not ready.  We grabbed dinner nearby then checked in with the hotel.  Still not ready.  We gave up checking in at that point and decided to spend the rest of the evening touring around downtown Nashville.  Fortunately when we returned to the hotel around nine pm our room was ready.  The hotel had many cautionary reviews, but these weren’t visible until after we booked the room through Hotwire and they revealed which mystery hotel we booked.  Next time around I think we’ll either book a higher class of hotel through Hotwire or book directly with a hotel and not roll the dice.  Though at $66 for a room with clean sheets, clean bathroom and free breakfast in the morning, it wasn’t a horrible deal in spite of the six hour delay checking in.  I might be able to get a partial or full refund if I fought and fought and fought, but it’s simply not worth $66 to me.

 

Transportation $264 (budget – $500)

  • 2,432 miles – $148 (most gas was below $2/gal)
  • Tolls – $6.50 ($5 bridge crossing in Detroit; $1.50 bridge to US in Niagara Falls)
  • Parking and Transit – $110 ($18 for 24 bus pass in Niagara Falls; $92 for parking)

I used the Gasbuddy app to find the cheapest gas stations along the way.  Most were under $2 per gallon.  We filled up just before entering Canada because the average gas price north of the border is around USD$3/gal, so we only had to purchase a few gallons in Canada at those prices.

We somehow managed to avoid toll roads everywhere other than the one international bridge crossing from Detroit to Windsor, Canada (USD$5).  We also walked to the American side of Niagara Falls for the day and spent USD$1.50 for the privilege of making a pedestrian crossing on the international Rainbow Bridge.

We budgeted $200 for parking and/or transit and spent almost half that.  I used the Best Parking website to find the best deals for parking and frequently paid USD$3-5 for all day parking in downtown areas that might have been $20+ otherwise.  Except one day when there was a Drake concert and the “event rates” kicked in.  You win some, you lose some.  For us, driving proved cheaper than transit so we went with the less expensive option.

 

Food $435 (budget – $720)

  • Restaurants – dining out about once per day – $435 or ~$20 per meal
  • Groceries – slightly less than what we usually spend at home ($125-150/wk) – $0 extra (but $208 total, mostly in Toronto)

It seems like we ate out constantly, but looking at the numbers, we only ate out once per day on average.  At $19 or $20 per meal, this roughly matches our average from our Canada trip two years ago.  Some of the meals were very inexpensive at $10-15 (think fast food dollar menu or BOGO falafel wraps), other meals were closer to the $20 average (inexpensive take out from a “real” restaurant), while several meals were $35-45 at regular sit down restaurants.  We usually drink water with our meal and skip alcohol at restaurants.  That plus the weak Canadian dollar meant some really good eats for under USD$50 for our family of five.

 

Entertainment/Admission Fees $98 (budget – $400)

  • 2 days of Mammoth Cave tours – $96
  • Touristy stuff at Niagara Falls – $0
  • Bata Shoe Museum in Toronto – $2

The two days of Mammoth Cave tours was the only big museum or park admission cost during this trip.  So many other museums are free all the time (Air Force Museum; Air and Space Museum) or certain days of the week (like the outstanding Art Gallery of Ontario).

We also visited the Bata Shoe Museum in Toronto – a “name your own price” museum where I dropped two American $1 bills into the donation slot.  It was worth every penny (they had Shaq’s boot available to touch and smell!) but not a lot more.  Regular admission was crazy expensive so it’s unlikely I would have visited without the name your own price option.  The museum wasn’t crowded even on the day you can get in for free, so I imagine the regular admission days are really desolate.

 

Souvenirs $0 (budget – $0)

  • 5,024 pictures and tons of  memories – $0

I don’t like souvenirs.  Toronto’s City Hall handed out free TORONTO pins, so technically we received a few souvenirs but paid nothing for them.

 

Budget Wrap Up

  • Lodging – $157
  • Transportation – $264
  • Food – $435
  • Entertainment – $98
  • TOTAL: $954

At $954 for 3.5 weeks of life on the road for a family of five, I’d say we did okay.  Our goal wasn’t to travel this cheaply.  It just happened.  We also had several hundred dollars of Airbnb referral credit that brought costs down which might be hard to replicate if you don’t have a blog.

We saved about $200 on utilities while we were out of town primarily by setting the thermostat on 90 degrees and therefore using very little electricity.  We also consumed zero water and almost zero natural gas for the hot water heater.  Does that make our net vacation cost $754?

 

Travel hacking tips

When we plan a trip we try to leverage our existing stash of airline miles and hotel points for free flights and hotel rooms.  For stays over two nights, it’s often cost effective to stay at a short term rental located through a service like Airbnb or VRBO.

Large credit card sign up bonuses are our main source for miles and points.  Some cards entice new cardmembers by offering $400-500 reimbursement for any kind of travel expense (like the Barclay Arrival Card and the Capital One Venture card).  Other cards provide 30,000 to 50,000 hotel points or airline miles.  A third variety of cards, like the Chase Sapphire Preferred and Sapphire Reserve cards, offer points that can be transferred to a variety of hotel or airline programs or redeemed at the Chase site for 25-50% extra value (compared to redeeming for cash).

We slashed the lodging expense significantly by careful use of our credit card points.  We redeemed the $500 sign up bonus from our Barclay Arrival card on the Toronto Airbnb rental.

I picked up a $250 Airbnb gift certificate by redeeming 25,000 of the 150,000 American Express Membership Rewards points we earned when we signed up for a pair of Amex Business Gold Rewards cards in December last year.  That slashed the total price for three nights in an Airbnb rental in Bowling Green, Kentucky from $297 to $47.

We booked nine nights at Starwood Hotels (including Four Points by Sheraton and Aloft hotels) using 24,000 Starwood Preferred Guest points from a single Starwood Amex sign up bonus offer.  The most amazing redemption of the bunch was a $400 per night (in Canadian dollars) room in Niagara Falls for 3,000 points per night (and one of our rooms was upgraded to the Falls View executive room priced over $500 per night).

Overall, we slashed what would have been $3,000 in lodging expenses to under $200 using credit card reward points and hotel points.  Not a bad deal at all.

Travel hacking is how we traveled through Mexico for seven and a half weeks in 2015 for $4,500.  If you like free travel as much as we do and want to get some of these same cards, check out these credit card offers.

Airbnb is an incredible way to save money while on vacation, particularly if you’re traveling with a family.  We booked decent two bedroom apartments and houses for much less than the cost of a crappy hotel room suite.  The biggest benefit beyond having tons of space is that we get a full kitchen so we don’t have to dine out for a month straight.  If you haven’t tried Airbnb before, check them out for your next vacation and save $35 off your first stay.

Cooking at our house or apartment helps bring the food cost down.  This doesn’t mean you can’t try new restaurants and cuisines while you’re vacationing, but simple things like cereal, yogurt, fruit, and eggs for breakfast are much cheaper when prepared at “home” rather than purchased at a restaurant.  For lunch and dinner, we made a variety of wraps, sandwiches, and salads (on the easy end) while frequently delving into more complex culinary pursuits by cooking ribs, sausages, tortellini, spaghetti, and tacos during our two week stay in Toronto.

A few technological innovations helped us immensely.  The GasBuddy website/app shows the cheapest gas stations along your route.  The Best Parking website/app shows the cheapest parking for your area and time of day.  Google Maps is another great free resource and allows offline download of maps with navigation (we didn’t have data on our cell phone while “overseas” in Canada).

It’s worth mentioning the financial benefits of slow travel.  When you aren’t trying to hit all the bullet pointed sites in your travel guide within the typical American week long vacation, you can take time to relax and enjoy the trip more.  Schedule a “do nothing” day every two or three days of the vacation and spend the day strolling around the neighborhood, take the kids (or just you!) to the pool, catch up on your Netflix queue, or cook a big feast in your kitchen.  When you’re paying a weekly or monthly rental rate instead of a nightly rate at a hotel, it doesn’t cost much to take the day off from the sightseeing trail.

I also find tracking expenses and seeing where your travel dollars went to be a useful exercise.  I don’t really manage our spending against the budget while on vacation, but that could be useful if you are on a really tight budget or need to conserve cash for another upcoming trip.  Personal Capital is a great (and free!) app and website tool to track your spending automatically.  Then you can see where your travel dollars go without spending lots of time manually tracking expenses.

 

Where to next?

For 2016, we increased our travel budget to $10,000.  However we most likely won’t spend it all this year.  Year to date through August we have only spent $3,100 for travel.  That total includes our Canada road trip, $810 for a recently booked cruise in late November, partial payment toward another cruise in December, and some miscellaneous travel related expenses throughout the year.  We should spend another $1,000 to $2,000 for the remainder of the second cruise and other cruise expenses.  We will likely end the year with half of our $10,000 travel budget unspent.

Not to worry, as we are already talking about spending the summer of 2017 in Europe, so there’s a good chance we will use most of the $10,000 travel budget next year, and the $5,000 not spent in 2016 might come in handy too.

 

 

What epic trips have you taken?  Where do you want to travel next?  

 

 

July 2016 Financial Update

two-cents-photo

Thanks July, you were great.  Can you tell August to keep doing the same thing please?  Our net worth continued to climb throughout July to an all time high of $1,633,000.  Spending was very low at $1,190 while income was a bit higher for the month at $2,336.

We just returned home from our three and a half week road trip to Canada and it was a huge success!  Some of those travel expenses are included in this post, however I hope to have a separate post outlining our trip and the travel budget later in August.

Here’s what our July 2016 looked like from a (mostly) financial perspective.  And some random travel pics to prove we were actually on vacation.

Niagara Falls from the American side.

Niagara Falls from the American side.

 

Income

July investment income dropped to $78.  Our portfolio consists of mutual funds and ETFs that pay dividends at the end of each quarter, so July is typically a very slow month for investment income.  Our total investment income for the first half of the year is almost $10,000, putting us on pace to hit and possibly exceed the total of $28,527 in dividend income received in 2015.

Blog income, shown as “other income” in the chart, returned to a more normal $2,244 in July after a very low June.  My early retirement lifestyle consulting brought in $184 at the very end of July but will show up as part of my August expense report because that’s when the payment posted to my account.  August’s blog income won’t be quite as high since I didn’t publish much during July (advertising payments lag by a month).

The $13 of healthcare/medical income was a refund for the electric toothbrush heads I bought in June.  Turns out they weren’t authentic Philips Sonicare brand toothbrush heads as advertised.  They were very convincing fakes including the packaging, but I grew suspicious and noted enough differences to contact Philips to investigate.  Turns out they aren’t particularly concerned about high quality forgeries of their merchandise, so they didn’t even ask for the eBayer’s name that I bought them from.  I mentioned that the seller had hundreds of the same product listed for sale.  Still no concern from Philips.  Oh well.

I contacted the eBay seller and informed him he sold me some fakes and asked for a refund.  $13 was refunded immediately, no questions asked.  Pretty sure that’s a confirmation of my theory.  In the end I got a free two pack of generic electric toothbrush heads and a cool story to share with any intellectual property attorneys I may bump into at cocktail parties.

july-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 July expenses:

july-2016-expenses

Another month of ridiculously low (but real) spending.  At $1,190, we spent just over a third of our budget of $3,333 per month (or $40,000 per year).  Not bad considering we were on vacation for over half the month (though we paid for our two airbnb rentals in previous months).  It’s worth noting, however, that we didn’t have any large, lumpy expenses in July like taxes, insurance, or a new minivan purchase so getting close to the magical $1,000 mark is relatively easy in those kind of months.

Travel – $423: The single largest expense for the month.  This include gas for the van, meals at restaurants, parking, tolls, and other travel related expenses.  We paid for the airbnb rentals and the two days of Mammoth Cave guided tours in previous months so this number seems artificially low for 17 days of traveling.  We also stayed with family in the North Carolina foothills for three days on the way to Tennessee, which meant close to zero spending those days.

Mammoth Cave in Kentucky. The reason we only spent one night in Nashville.

Mammoth Cave in Kentucky. The reason we only spent one night in Nashville.

Groceries – $299: A few hundred dollars lower than usual.  We didn’t buy many groceries in the two weeks of July before we left for vacation.  Two thirds of the grocery spending occurred while we were on the road trip.

While visiting family, we found a discount grocery store that sells odd lots of product, some of which were slightly expired.  We scored two cases of delicious granola bars at $0.29 per box.  Great road trip food (a small step up from chips or cookies) and handy snacks while out exploring.  Part of one case made it’s way back to Raleigh.

SCORE!! FYI, that's $0.29, not $29.

SCORE!! FYI, that’s $0.29, not $29.

Utilities – $140: Water, sewer, trash, and natural gas bill.  We still have a credit balance from pre-paying the electric bill in the spring to meet credit card minimum spending requirements to qualify for sign up bonuses (gotta love credit card travel hacking!).

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

Entertainment – $55: Hard liquor.  For some reason I categorize liquor store purchases as “entertainment” while beer and wine are “groceries”.

We restocked the liquor cabinet at home before vacation, and bought a ridiculously expensive pint of Canadian whiskey at the LCBO store in Canada (LCBO = ABC store north of the border).  While at the Canadian liquor store, I cringed as I watched a guy pay USD$12 for a six pack of Coors.  South of the border that’ll almost get you a 12 pack of fancy beer or a case of 24 Coors.

Toronto skyline from the Centre Islands

Toronto skyline from the Centre Islands.  Photo credit goes to fellow 30-something retiree/blogger FIRECracker from millennial-revolution.com, who gave us a tour of the island. 

Restaurants – $49: Chinese restaurant in Raleigh for the family; a new (to us) fried seafood restaurant for fish and shrimp for the adults in the house (kids are like “ewwwww fish!” – more for us).

Clothing – $46: Thrift shopping.

Internet (“Cable”) – $34: 50/5 mbit service.  Mostly good except when it rains.  The service technician is coming in a few days to figure out why.

Telephone – $12: Our annual $10 phone bill for Mrs. Root of Good’s rarely used T-Mobile cell phone plus two SIM chips for Freedompop’s free international phone service.

Service Charges – $3: Mrs. Root of Good’s 401k.  Institutional Vanguard shares at tiny expense ratios but we pay a few bucks per quarter for that privilege.  Worth it.

The Space Shuttle. The coolest thing I've ever seen in a museum.

The Space Shuttle. The coolest thing I’ve ever seen in a museum.

 

Year to Date Living Expenses

july-2016-expenses-ytd

At $23,720 year to date spending, we have exceeded the $23,333 budgeted for the first seven months of the year by a few hundred dollars.  In spite of the minivan purchase in March, we are almost back to meeting the annual budget.  By the end of August we should be on track.

August is shaping up to be a low cost month.  I’m not certain what the rest of 2016 holds for expenses.  We are taking both of the older kids to the orthodontist at the end of August, so there is a chance we’ll start paying for $10,000 worth of braces this year.  Their insurance covers braces in cases of medical necessity, so we’ll see whether that helps us any.

In October we’ll make the final payment of several hundred dollars for our December 2016 cruise to the Caribbean.

Monthly Expense Summary:

 

Net Worth: $1,633,000 (+$67,000)

Our net worth continued to climb throughout July to an all time high of $1,633,000.  Taking a look back at 2016, we are up almost a quarter of a million dollars since Mrs. Root of Good quit working and retired early six months ago.  Quit work, make a quarter million dollars every six months. Rinse, repeat.

Well, that’s probably not how the next several years will transpire but I expect the next several decades will see us occasionally tacking on another quarter of a million dollars to our net worth given our low spending, side hustle income from this blog and my consulting, and the background growth of our portfolio.

july-2016-net-worth

Looking back at June and July, it’s clear the one day loss of $70,000 that we suffered after the Brexit vote was no more than a bump in the road.  The lasting economic impact remains to be seen, but over the short term it turned out to be nothing more than a fleeting scare that briefly interrupted the market’s growth.

Where the markets head from here is anyone’s guess.  I can’t help but feel we’re riding an old, rickety wooden roller coaster as it ratchets its way slowly up an incline.  After it gets to the top, you know what happens next.  But even if we see a sudden crash from the recent highs, odds are it’ll be back up the incline once more after a bit of a wild ride.  That’s been the long term trend.

 

 

How was your August?  Did you let your investments rise with the market?  

 

 

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June 2016 Financial Update

two-cents-photo

On a day to day basis, our net worth in June zipped around like a spooked jackrabbit chased by a wolf.  That rabbit didn’t know the wolf’s name was Brexit.  By the end of the month, nothing much changed, with our net worth increasing very slightly by $1,000 to $1,566,000.  Income remained strong at $7,614 thanks to dividend payments at the end of the second quarter.  Expenses continued to be low in spite of a hefty estimated tax bill coming due in June.  Overall, our early retirement finances are looking great and our cash buffer account keeps growing.

The start of summer was remarkably mild here in North Carolina and we have enjoyed numerous days with temperatures in the 70’s.  I expect we are escaping the heat just in time as we’re about to depart on a three and a half week road trip to Canada.

Let’s open the ledger book and take a peek at June 2016!

 

Income

June investment income spiked to $5,165.  The months of March, June, September, and December are big for dividends because our portfolio is all funds and ETFs that pay dividends quarterly or annually.  Our total investment income for the first half of the year is almost $10,000, putting us on pace to hit and possibly exceed the total of $28,527 in dividend income received in 2015.

Blog income, shown as “other income” in the chart, plummeted to $642 in June after peaking at $8,950 in May.  In May I received two months of payments from a large advertiser, which means June was much worse for blog income.  My early retirement lifestyle consulting brought in $184 in June – a few hundred less than in May.  It’ll all average out in the end.  I’m glad I don’t have to rely on blog related income to survive in early retirement!

Deposit income of $1,522 mostly came from the sale of our 2000 Honda Accord.  We are once again a one car family and don’t miss having a second car (but we are missing the ease of driving a sedan instead of the bulkier minivan).  We sold the car for $2,300 to Mrs. Root of Good’s nephew who needed basic reliable transportation to get to class and work.  $1,500 cash up front and the remaining $800 over the next few months as his financial aid comes in for the fall semester.  So far this year we spent $8,200 buying our minivan and sold our two sixteen year old cars for $5,200 total, leaving us only $3,000 poorer due to car swapping.

The other $22 of deposit income represents 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.  Last month I received the $110 cash back for booking our January cruise through Expedia (while clicking through Ebates to get to Expedia).  It’s a nice way to get a 10% discount on every cruise from a booking site we already use.

Travel income of $100 is part of the Barclay Arrival card $400 sign up bonus.  It ended up being closer to $500 cash back on travel when you meet the $3,000 minimum spending requirement (earning 6,000 more points) and get the 5% point refund when you redeem points.  To cash out the Barclay Arrival bonus reward points, I paid $394 toward our December 2016 Caribbean cruise then immediately reimbursed myself using the bonus points.  Then I charged another $100 payment for the cruise and reimbursed myself using my last 10,000 Barclay Arrival reward points.  In June we finished meeting the minimum spending requirement for Mrs. Root of Good’s Citicard American Airlines Aadvantage card for another 50,000 AA miles.  Now I’m working on earning the 50,000 mile bonus on my own Aadvantage card.  It’s a shame to pay full price for travel so don’t miss out on the credit cards that allow you to travel hack your way to a free trip.

june-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).

Lunch with the kids on the last day of school!

Lunch with the kids on the last day of school!

 

Expenses

Now let’s look at June expenses:

june-2016-expenses

Another month of modest spending.  At $2,485, we were almost $1,000 under our budget of $3,333 per month (or $40,000 per year).

The top expense for the month was income tax at $1,250.    Now that we are both retired, I’m including tax payments and refunds as expenses and income, respectively, since they are included in our $40,000 annual retirement budget.  We started making estimated tax payments this year because we no longer have income tax withheld from paychecks at work.  I asked the IRS to apply my $640 federal income tax refund for 2015 to my 2016 tax liability but they didn’t listen and instead sent me a check last month.  Going forward, I’ll pay $600 every quarter and might be entitled to a small refund once I file taxes.

All other “core” expenses in June totaled about $1,200 so we are doing a great job keeping routine expenses low.

The next largest expense for June was groceries at $673.  This is slightly higher than normal (here’s what we buy in a typical month) but includes $100 in Visa gift card purchases (to save $10 on groceries).  I’ll be using those Visa gift cards for groceries in the future.  We won’t spend nearly as much on groceries in July since we will try to clean out the fridge and freezer before departing for our almost month long road trip.  Time to get creative with leftovers.

Chipotle chorizo shrimp alfredo on penne pasta.

Chipotle chorizo shrimp alfredo on penne pasta.

Healthcare spending totaled $199.  Health insurance premiums were the bulk of that at $125 for our very impressive gold plated silver plan obtained through Healthcare.gov with some very sizable ACA subsidies.  The other $74 was a copay for a doctor’s visit, six months of prescriptions, and four Sonicare electric toothbrush head replacements.

$98 for utilities is our water/sewer/trash bill from the city.  I paid the June natural gas bill in the first few days of July.  I was a few days late paying the $24 gas bill (oops!) and they hit me with a $0.24 interest charge.  I don’t have the bill on auto-pay because I want to optimize my utility spending each month to meet minimum spending requirements on credit cards.  I prepaid our electric bill earlier in the year to meet minimum spending requirements on a credit card, so I won’t have an electric bill until the end of the summer.

Restaurant spending of $62 covered our family plus one more adult at a Father’s Day lunch (a made up holiday here in the US for all you international readers) for Mrs. Root of Good’s family.  It was a last minute event and those who set it up didn’t realize it was $15 per person until it was too late.  The restaurant’s affordable weekday lunch prices double on weekends.  Lesson learned for next time – suggest a restaurant that doesn’t double prices on weekends.  At least the food was better than expected!

Free birthday treats at Starbucks and Chik Fil A for my 36th birthday.

Free birthday treats at Starbucks and Chik Fil A for my 36th birthday.

The home maintenance expense of $60 covers gift cards for Lowe’s I bought on ebay at a $15 discount.

$58 in automotive spending covered all the replacement parts and supplies to rebuild a portion of the air conditioning system in the Honda Accord we just sold.  The expansion valve clogged and the high pressure fill valve failed leading the system to evacuate itself in a messy volcano of refrigerant and compressor oil.  I could have taken the car to the shop and paid somewhere around $700 for the repair.  Or spend $58 in parts and supplies and several hours under the hood.  You know which one I chose. After a valiant effort the air blows cold and the pressures on my manifold gauge set were in line with expectations.  I think I did it.

By the way, Autozone and other parts stores have tons of tools that you can “rent” for free by putting down a deposit.  Just “pay” for the tool and get a full refund when you return it within 90 days – it’s legit.  I borrowed a vacuum pump, leak detector and oil/dye injector gun for a deposit of $250 (since refunded).

My refrigerant refill rig.

My refrigerant refill rig.

Cable expense of $34 is our 50 mbit internet connection from the cable company.  You didn’t think we would waste money on cable, did you?

$23 in travel expenses represents the fees I paid for the privilege of paying my $1,250 tax bill by credit card.  The tax bill represents almost half of the $3,000 minimum spending required for my latest American Airlines Aadvantage card which will yield 50,000 miles (enough for a free flight to Europe in the off season or two domestic round trip flights any time).  More spending equals more free miles since there seems to be an endless flow of credit card offers with enticing sign up bonuses.

$12 in gas covered a partial refill for the Honda Accord before I delivered it to my nephew plus a gallon for our lawnmower.  I also filled up the minivan for $36 using an Exxon gift card purchased last year.

 

Year to Date Living Expenses

june-2016-ytd-expenses

At $22,530 year to date spending, we have exceeded the $20,000 budgeted for the first six months of the year by a few thousand dollars.  This includes the minivan purchase in March, so if we keep under spending our monthly $3,333 budget (like we do many months) then we’ll be back on track in a few more months.  I’m guessing by August or September we’ll be back on budget for the year.

July and August should be fairly low cost months since we’ll be traveling for half of each month on a road trip through the US and Canada and have already paid for all of our vacation lodging expenses.

Monthly Expense Summary:

Vacationing in our own town. Enjoying the free parking and free museums in downtown Raleigh.

Vacationing in our own town. Enjoying the historic buildings, free parking, and free museums in downtown Raleigh.

 

Net Worth: $1,566,000 (+$1,000)

Another month of gains (just barely).  Though the headline reads a $1,000 gain because of rounding, the exact increase was $258 for the whole month.  That’s still positive territory, right?

june-2016-net-worth

It’s hard to believe June’s finish line was so close to the starting point given the volatility throughout the month.  The day Brexit hit the markets, my portfolio was smashed particularly hard because of my asset allocation’s tilt toward 50% international investments.  The British pound dropped 7% overnight against the USD while other foreign currencies suffered fates almost as bad.  The stock indexes in the UK and Europe also dropped heavily.  Combine huge exchange rate losses with underlying market losses and your international investments hurt.  A lot.

I’m reminded how it feels to lose $70,000 in one day (almost three times what we spent in all of 2015).  I was pretty busy the day the markets crashed the most so I didn’t have time to babysit my portfolio.  It’s just as well since there’s not much to be done.  Eventual losses totaled $90,000 by day four.  In hindsight, my “do nothing” approach paid off once again since the market has mostly recovered since the Brexit crash.  Shrug, do nothing, collect dividends, and move on.

Cautioning attendees at an event in the Research Triangle Park to stick with long term investments a few days BEFORE Brexit.

Cautioning attendees at an event in the Research Triangle Park to stick with long term investments a few days BEFORE Brexit.  You would trust financial advice from a guy in shorts and sandals, right?

These market hiccups, burps, and farts are nothing more than distractions from a long term investment plan.  When they hit, the natural response is “how rude!”.  Then the gassy stink dissipates and we remember that the occasional expulsion of gaseous substances is a natural byproduct of digestion; a sign of a properly functioning system.

A new all time high net worth brought us within $500 of hitting the $1.6 million milestone earlier in June but we got knocked back a bit from that goal.  Maybe July will bring us to new territory?  In any event, I’m going back to doing nothing.

Times could be better, but they could also be a whole lot worse.  No complaints from the Root of Good family.

This guy is ready for summer 5x.

This guy is ready for a sunny summer 5x over.

 

 

Did you Brexit the market or stick it out through the slaughter?  Are you back in positive territory with your investments? 

 

 

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May 2016 Financial Update

two-cents-photo

May proved to be another good month financially for us.  Our net worth continued its upward march with a $13,000 addition, bringing total net worth to $1,565,000.  Our income ballooned to $10,826 while our spending increased slightly to $2,979 to almost match our monthly spending target.

Summer sneaked up on us this year.  The hot, humid air that just appeared in North Carolina is a reminder that spring is no longer with us.  Fortunately, we’re escaping the heat by heading north to Canada for a couple of weeks.  Our kids have four more days of school before they are out for the summer, which means us parents get to sleep in seven days per week.

Now for the May numbers!

 

Income

May investment income dropped to just $59.  Since our portfolio is all funds and ETFs that pay dividends quarterly or annually, the months of March, June, September, and December are big for dividends.  We should receive a few thousand dollars during the month of June.  In 2015 we earned a total of $28,527 in dividend income.

Blog income, shown as “other income” in the chart, was well above average at $8,950.  This represents two months of payments from a large advertiser, which means June might be an abnormally low month for blog income.  My early retirement lifestyle consulting brought in $503 in May, more than doubling the revenue from March and April.  I’m still aiming to live off of four percent of our portfolio but this month’s blog income and consulting income way more than covered our living expenses (and total year to date blog/consulting income almost equals year to date spending).  I’m still not convinced that the blog income is a reliable source of funds indefinitely, but it looks like it’ll remain strong in the near term.

Tax income of $640 is our federal income tax refund.  I asked the IRS to apply the refund toward our 2016 income tax liability and they screwed up (which might cost me a little due to underpayment penalties as I file quarterly estimated income taxes).  Before 2016 I didn’t include income tax refunds or income tax payments in these expense reports, but now that we are both retired, I’m including tax payments and refunds as expenses and income since they are included in our $40,000 annual retirement budget.

Travel income of $394 is part of the Barclay Arrival card $400 sign up bonus.  It’s actually closer to $500 cash back on travel when you meet the $3,000 minimum spending requirement (earning 6,000 more points) and get the 5% point refund when you redeem points.  To cash out the Barclay Arrival bonus reward points, I paid $394 toward our December 2016 Caribbean cruise then immediately reimbursed myself using the bonus points.  I’ll charge another $100 payment for the cruise and reimburse myself using my last 10,000 Barclay Arrival reward points.  Right now I’m working on meeting the minimum spending requirement for a Citicard American Airlines Aadvantage card for another 50,000 AA miles.  Don’t miss out on travel hacking your way to a free trip.

Deposit income of $279 comes from the cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. I’m all about sharing the wealth, so 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 finally received the $110 cash back for booking our January cruise through Expedia (while clicking through Ebates to get to Expedia).  It’s a nice way to get a 10% discount on every cruise from a booking site we already use.

may-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 May expenses:

may-2016-expenses

We almost hit our target budget of $3,333 per month (or $40,000 per year) in May with $2,979 of spending.

The biggest expense this month was our home, auto, and umbrella insurance policy premiums coming due for the year, totaling $1,022.  We pay:

  • Home policy – $589 per year
  • Auto policy – $272 every six months
  • $1 million umbrella policy – $162 per year

Grocery spending was slightly higher than average at $601 for the month.  We stocked up on some staples at the twice per year sale at our Food Lion grocery store ($0.25 off all store brand items), so that pushed our monthly grocery bill up a bit.

Pork shoulder on sale at the grocery store? Why not make eastern NC style pulled pork BBQ?

Pork shoulder on sale at the grocery store? Why not make eastern NC style pulled pork BBQ?

Home maintenance was a big spending category in May.  I had to call a plumber when a routine drain cleaning (pulling off the P-trap to remove a clog) went sour.  I twisted the pipe leading into the wall drain too hard and sheared the pipe in two.  Then I couldn’t get the pipe out of the wall drain.  Eventually I gave up and paid the $89 our neighborhood plumber charges for a house call (even though it took him all of ten minutes to remedy my botched job including going slowly and showing me how to do it right next time).  My first big DIY fail in a while.

It wasn’t a complete bust though.  He explored inside and underneath the house and provided some good tips on other plumbing issues I have (such as the busted pressure reducing valve in the crawl space).  I also got a quote for replacement of three toilet shut off valves (the joys of owning three toilets…) and the hot water shut off valve in the kitchen.  The 44 year old original valves that came with the house were worn out and wouldn’t shut off completely.  The plumber came back a few days later and charged $225 for replacement of those four shut off valves, three of which required a blow torch – something I’m not skilled at.  Not a bad price to remedy what could be a huge inconvenient mess without operational water shut off valves.

He also quoted $269 to replace the pressure reducing valve or $389 to replace the PRV and relocate the main house shutoff to the other side of the crawl space where I could shut off the main water supply by simply reaching an arm into the crawl space.  After researching the PRV assembly I realized I could easily remove the PRV and install a new one since it’s a matter of unscrewing the old PRV and screwing on the new PRV then tightening the bolts holding the PRV on.  I found an exact match for the old valve, a Watts 3/4″ Pressure Reducing Valve for only $72 at Amazon, so I saved almost $200 versus the plumber’s quote for parts and labor.  I also had to buy 12 and 18 inch adjustable wrenches for $12 total to complete the job.  Without doubt, those wrenches will come in handy the next time I work on the plumbing or the car (that’s June’s DIY project).

pressure-reducing-valve

The 44 year old pressure reducing valve I pulled out.

A quick note on pressure reducing valves.  If you are on municipal water service, you receive water at whatever the municipal system provides it.  In my case, my water pressure was 110 psi.  That’s almost double the 60 psi recommended for houses.  High water pressure can cause leaks or damage toilet fill valves, faucets, hot water heaters, and clothes washers.  High water pressure also leads to higher water use since turning on a faucet “full blast” (as my kids love to do) leads to a much higher flow rate.  The pressure reducing valve limits the pressure coming from the municipal water supply to a level that’s manageable for common household plumbing fixtures and appliances.

After installing the pressure reducing valve, we immediately noticed the extremely noisy toilet fill valves became barely audible.  We no longer hear the hiss of the ice maker refilling.  Water pressure in our sinks and showers is still adequate.  In hindsight, high water pressure explains all of our busted garden hoses that exploded or started leaking, the cracked fill valve on our dishwasher, the water hammering, and the hard to fix leaks from plumbing fixtures.

I’m glad I called the plumber since the pressure reducing valve was an issue that I didn’t know existed.  It makes perfect sense in explaining the occasional plumbing issue we’ve experienced over the years.  I’m hoping to experience a noticeable reduction in our water bill.  At the least, we’ll save money on repairs, extend the life of appliances, and enjoy quieter water throughout the house.

You don’t have to spend $89+ on a plumber to check your water pressure.  Water pressure gauges are extremely cheap.  This one is $9 at amazon.  Buy it and screw it onto your hose connection outside your house or to your clothes washer cold water connection.  If it’s over 60 psi, you may want to look into a pressure reducing valve.  You may not have one, or it may have failed over the years.  The PRV is usually located at the beginning of your clean water plumbing where the municipal supply comes into your house.  If you’re on well water you may not have a PRV (I’m guessing).

Home improvement 101 is over.  Back to my financial update.

Rounding out the home maintenance expenses was another $50 for some weed killer spray, fire ant killer, and some plumbing supplies to replace the faucet for the kitchen sink (my next plumbing DIY project).

diy-roof-repair

Another DIY project in May. Repairing the leaking roof vent pipe flashing.

The $394 travel expense was discussed under “Income”.  It’s another payment toward our December 2016 cruise and I used Barclay Arrival card reward points to pay for the $394 cruise expenditure.

$132 for utilities is our natural gas bill and our water/sewer/trash bill from the city.  I prepaid our electric bill earlier in the year to meet minimum spending requirements on a credit card, so I won’t have an electric bill until the end of the summer.  Unfortunately I haven’t figured out a cost effective way to eliminate electric bills completely without dropping tens of thousands on a solar panel array.

Healthcare spending totaled $131.  Health insurance premiums were the bulk of that at $125 for our very impressive gold plated silver plan obtained through Healthcare.gov with some very sizable ACA subsidies.  The other $6 was our share of the biopsy from Mrs. Root of Good’s minor surgery on her arm last month.  The biopsy was negative as expected, so no worries!

Gifts of $114 included $90 in cash to our son for his birthday.  That’s the main way our kids get spending money right now.  Mrs. Root of Good and the oldest daughter are assembling photo books to give to her fifth grade friends as they part ways and head off to different middle schools.  We spent $24 for photo prints for that project.

A gift for my neighbor. Assembled her Gorilla garden cart.

A gift for my neighbor. Assembled her Gorilla garden cart.

General merchandise of $52 was a run to Walmart for miscellaneous stuff around the house.

Entertainment expense of $38 includes a $1 computer game for me and $37 to pay for the rest of the year for our half of the family Netflix account shared with my parents.

Cable expense of $34 is our 50 mbit internet connection from the cable company.  You didn’t think we would waste money on cable, did you?

Not shown on the expense summary graphic (but included in total monthly expenses) are:

  • $17 on restaurants – $10 for donuts, $6 of Chinese dumpling take out, $1 Outback steakhouse blooming onion
  • $12 for automotive – 2 cans of r134a refrigerant – oops, another DIY fail – more on this next month!
  • $4 for electronics – random USB cables for the kids’ tablets; they consume cables routinely by being rough on them

And that’s how you live an okay life on just under $3,000 for one month!

Free 15 cubic yard load of white oak hardwood chips. Tree companies routinely give this away for free. Just call them.

Free 15 cubic yard load of white oak hardwood chips. Tree companies routinely give this away for free. Just call them.

 

Year to Date Living Expenses

may-2016-expenses-ytd

At $20,044 year to date spending, we have exceeded the $16,667 budgeted for the first five months of the year by a few thousand dollars.  This includes the minivan purchase in March, so if we keep under spending our monthly $3,333 budget (like we do many months) then we’ll be back on track in a few more months.  I’m guessing by August we’ll be back on budget for the year.

I don’t expect any large expenses in June, so there’s a good chance we spend well under our $3,333 monthly budget.

July and August should be fairly low cost months too since we’ll be traveling for half of each month on a road trip through the US and Canada and have already paid for all of our vacation lodging expenses.

Monthly Expense Summary:

In case you think all I do is DIY. I also "volunteer" (which is more fun than work).

In case you think all I do is DIY. I also “volunteer” (which is more fun than work).

Net Worth: $1,565,000 (+$13,000)

The headline number keeps going up and up.  Every time it does this I expect it to drop the following month because that’s how it goes – up and down, up and down, like a ride at the fair.

may-2016-net-worth

I just celebrated my 1,000th day of early retirement at the end of May.  During that nearly three year period, our net worth has increased by a few hundred thousand dollars.  I’m not expecting that to happen over the next three years since Mrs. Root of Good is no longer working.  However, if the blog and consulting income remains the same as it has been over the past year, we will only have to dip into our investment portfolio a tiny amount to fund our living expenses.

No matter what, I don’t think we will run out of money in early retirement even if my blog income dries up completely.  We’re spending a very conservative 3-4% of our portfolio value each year, which should last us indefinitely.  In the worst case we would spend most of our portfolio by the time we hit our 60’s at which time we would start drawing our $24,000 per year Social Security benefits.

Potential encore career if this whole early retirement thing doesn't work out.

Potential encore career if this whole early retirement thing doesn’t work out.

Now it’s time to get back to enjoying the freedom of early retirement.  And the carefree days of summer are a perfect symbol of that early retirement spirit!

 

 

Still riding the market up, up, and up?  How did you do financially in May?  

 

 

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One Thousand Days of Early Retirement

freeport-bahamas-oceanview

1,000 days ago I retired early without really knowing it.  When I walked in the office on the morning of August 26, 2013, I didn’t know it would be my last day of work forever (probably).  I suspected something might happen to me on that Monday because another coworker was suddenly and unexpectedly terminated the previous business day and housecleaning often happens in clusters.

I spent the first hour of that day catching up on emails from the previous week that I missed while I was on vacation in Chicago.  Then I jumped on a quick 9:00 am conference call to discuss the financial model for a new toll road proposed for the southern part of town. Then BOOM! The boss walked in the door with a fistful of bad tidings.

By 10:00 am I had my walking papers in hand along with a cardboard box containing the detritus collected over the course of a few years of office work.  Down the six flights of stairs I walked, the elevator being condemned at the moment by the Department of Labor for excessive safety violations.  Out the back door and to my car I strolled, wondering “what’s next?”.  I found the corporate Ipad in my trunk that HR forgot to ask for, briefly questioned whether they would ever miss it (probably not), then did the right thing and turned it over to my former employer.

Once out the door I messaged Mrs. Root of Good and broke the bad (at the time) news.  I got fired.  Looking back at that email chain, she didn’t seem particularly concerned. Her responses, in chronological order:

  1. “What? Are you kidding?” (getting fake fired would have been a superb prank!)
  2. “Oh well, guess you won’t be getting that interview after all huh?” (I was one of two short listed by the guy that fired me for an internal promotion)
  3. “Are you picking the kids up from school since you’re free?” (of course I had plenty of free time!)
  4. “Ok.  Well, time to collect unemployment and look for a new job.” (done with respect to unemployment and done but to no avail with respect to a new job)

That’s what the household discussions sound like when you’re FI, live on less than one income, and you get fired unexpectedly.

That afternoon I started checking The Plan – our two page outline of our early retirement financial plan.  After a summary review, I quickly realized we were FI enough that I didn’t have to go back to work (though I did make an effort to find a new job pursuant to our state’s rules on collecting unemployment benefits).

Before the sun set on that fateful Monday in August I decided I was early retired (unless a job offer I couldn’t refuse walked in the door).  Mrs. Root of Good began making plans to leave her job too.  In early September I started Root of Good since I had always wanted to “do something online and computer-y” for many years but never had time between a full time job, kids, computer games, and a hectic TV-watching schedule.

Stop and smell the roses

Stop and smell the roses

In the early days, there was still some nagging uncertainty about the whole early retirement thing.  Would it really work out okay financially?  Can a 33 year old really get by in this world without a job (hint: having a million bucks helps a lot!)?  That doubt and uncertainty is 99.9% gone today (the remaining 0.1% represents my Plan E or F – go back to full time work).

Mrs. Root of Good initially decided to stick around to take a three month paid sabbatical the following summer and pick up a raise and bonus in the meantime.  The three months paid time off didn’t happen in 2014 but she did receive five weeks paid time off and a promise that she could take the whole three month paid sabbatical the following summer in 2015.  And so began the limbo period of Mrs. Root of Good’s pre-retirement career.  Work a little longer, get a raise and bonus.  Work just a bit more than that and get a month or three paid time off.

After completing the three month’s paid time off in 2015, Mrs. Root of Good finally submitted her resignation.  She didn’t escape from limbo though.  Her employer cajoled her into staying by offering a flexible work schedule consisting of what turned out to be mostly 24-30 hours per week working from home for full time pay.  After milking that sweet set up for six months, Mrs. Root of Good finally quit for real (for really real this time!) in February of 2016.  As I celebrate my 1,000th day of early retirement, she celebrates her 107th day.  Yes, I quit working 893 days before her, but I think after all her paid maternity leave, sabbaticals, and flexible working schedule we are roughly even on the “lifetime total days worked” metric.

Mrs. Root of Good's new hobby - photography

Mrs. Root of Good’s new hobby – photography

 

 

What Early Retirement means to me

These first 1,000 days have been amazing.  Looking back at some of my old posts outlining what I was up to in the early days of early retirement, it’s clear how much fun I was having from day one.  It’s also been a very busy period of life, and not only because of our three kids.

In The Early Retiree’s Weekly Schedule I outlined what I’m up to in a generic, average week:

early-retirement-daily-schedule

One year after publishing that article, I haven’t really deviated from the bones of the schedule other than I seem to be busier volunteering at the kids’ school and spending more time on our now-four year old and his busy schedule and less time blogging (sorry, readers; life happened 🙂 ).

Staying busy volunteering at the kids' school

Staying busy volunteering at the kids’ school

When I do the occasional media interview, I usually get asked “what’s it like to be retired early?”.  I stumble and pause and then start listing off the rather mundane things I have on my weekly schedule.  Then close the answer with something like “basically everything that working folks do on the weekends except my weekend lasts seven days”.  I don’t intend to gloat or brag, but rather to be as descriptive as possible because early retirement on a regular day is very similar to the weekend while working.

Not sure where to categorize this on my schedule. Work/chores? Kid time? Fun?

Not sure where to categorize this on my schedule. Work/chores? Kid time? Fun?

And then there are the multi-week vacations made possible by early retirement.

In 2014 we spent two and a half weeks on a road trip to Canada:

During the summer of 2015 we spent seven weeks in Mexico:

two-years-early-retirement-mexico

This summer we will pack up our new (to us) minivan and head out on a 3.5 week trip west to Kentucky and Tennessee, then north to Detroit and Toronto before returning home through Niagara Falls and Washington, D.C.

Watching the kids grow up and being at home the whole time is the biggest change since retirement.  When I retired the kids were 1, 7, and 8 years old.  Now they are 4, 9, and 11.  Each one of them has grown and matured significantly in the almost three years since I quit working.  The passing of time is particularly visible with our four year old.  When I quit working he was a baby turning into a toddler.  Now he’s running around, riding a bike, surfing the web to Netflix (he knows how to type “N-E-T-enter” in the browser bar), and being generally autonomous all day.

Oatmeal. Breakfast of champions

Oatmeal. Breakfast of champions

Hiking at the local city park

Hiking at the local city park

 

Finances

When I retired in August of 2013 our net worth was around $1,250,000.  Net worth continued to climb for the next 18 months before plateauing just above $1,500,000 for the past year.  Part of the early rise in NW came from Mrs. RoG’s income and part came from increases in the stock market.  My unexpected income from this blog also contributed a small share to the net worth growth.

We tracked spending very carefully and only spent $34,000 in 2014 and $24,000 in 2015.  Not bad considering we completed a major exterior renovation project in 2014 that included all new vinyl siding, new windows, and a major roof repair.  We also took multiple international vacations each year.

Crafting a spicy chipotle alfredo sauce. Great way to keep food costs low while still enjoying good grub.

Crafting a spicy chipotle alfredo sauce. Great way to keep food costs low while still enjoying good grub.

Since our net worth increased over the past few years, we decided to try to spend more money.  The long term goal is to spend around 4% of our portfolio value each year (the “4% rule”).  After reducing our $1.5 million net worth by our home value ($150,000) and another $200,000 to cover lumpy kid costs (braces, teenager auto insurance and other added car costs, college, miscellaneous kid launching costs) and other lump sums, we have slightly more than a million dollars left in our portfolio.  Four percent of a million dollars equals spending $40,000 per year if we follow the 4% rule.  That’s exactly what we budgeted for 2016.  The biggest budget additions for 2016 are entertainment and travel spending.  However, if the past few years’ expenses are any indication, we’ll probably spend closer to 3% of our portfolio.

Spending $0 while enjoying a campfire by the lake in the backyard

Spending $0 while enjoying a campfire by the lake in the backyard

Part of our low spending strategy (particularly on travel) centers around travel hacking and credit card rewards.  On our 2015 trip to Mexico, for example, we scored free round trip tickets to Mexico for our family of five simply by signing up for two credit cards (the British Airways card and the Southwest Airlines card, both from Chase).  This year we earned a free week of apartment rental in Toronto and half off a week long Caribbean cruise by signing up for his and hers Barclay Arrival Cards.

We recently sorted out our health insurance situation after Mrs. RoG quit her job a few months ago with the final piece of coverage falling into place in the past few weeks.  The Affordable Care Act played a huge role in keeping our monthly premiums extremely low.  $125 per month is low, right?

I’ve written before why I don’t think we’ll ever run out of money in early retirement and I’m more certain of that today than I was two and a half years ago when I first published that article.  Flexibility is a big key to our security since we have to rely on our investment portfolio for the next several decades before Social Security starts.

Since more than half of our financial assets are held in tax deferred savings accounts like 401k’s and traditional IRA’s, the Roth IRA Conversion Ladder is our magical tool to avoid penalties for withdrawals made before age 59.5.

 

Regrets?

Who has time for that nonsense?

We are having a blast.  Stress is minimal.  I can always go back to work if I want.  We are financially well off and want for nothing.

We are able to travel the world subject to the constraints that come from having two, and soon to be three, children in traditional public schools.

School rocks!

School rocks when you get to play with circuits!

Every day is busy, but not like it was when working.  We choose the activities we participate in and don’t have a problem saying “no thanks” to things we don’t enjoy.

With plenty of autonomy, freedom, and flexibility, what is there to regret?  I can imagine a far-fetched scenario in 20 or 30 years where we realize we don’t have quite enough money and have to go back to work part time or full time.  I doubt that I would regret enjoying the couple of decades between now and then.  It would be like working till a traditional retirement age with a multi-decade sabbatical tossed in the middle of my career.  I’ll take that!

One of the many moments when I don't regret retiring early at all!

One of the many moments when I don’t regret retiring early at all!

 

Looking forward

A more likely reason I would return to paid employment of some kind is boredom.  I can’t foresee it happening, but the future is hard to predict.  I know I’ll have a lot more free time on my hands in another 15 years once our youngest kid is out of high school.  If travel, TV, games, books, and the outdoors don’t keep us busy, maybe I’ll find something productive that also pays.

A friend and former coworker contacted me recently to offer as much work as I wanted with a flexible schedule and 50% more compensation than I used to earn when working full time.  I gave the opportunity a lot of consideration since it would involve working with someone I enjoyed working with in the past and the work itself was engineering consulting for design and construction of our county’s public schools (sort of like volunteering while getting paid six figures).

My answer was that I was having too much fun and wouldn’t be able to fit in the work, even ten or twenty hours per week.  The weather was too nice in the spring and we’re going on vacation for almost a month this summer.  Maybe in another year when our youngest is in kindergarten?  It’s nice to have options and not need to work.

When hanging out with friends, does anyone say "I wish I was working?"

When hanging out with friends, does anyone say “I wish I was working?”

We have thought of retiring abroad but aren’t committed to the lifestyle enough to live overseas full time.  The biggest impediment is the kids’ education because we have some really great free public schools not far from our house in Raleigh.  Perhaps someday the travel bug will bite us hard enough and the resulting infection will make us crazy enough to sell or rent out everything and hop on the next plane south (or east or west or north).

Once again we find ourselves at a crossroads where all directions lead to happiness.  It’s great to have options.

 

 

How close are you to early or traditional retirement (or are you already there)?  How do you see your life changing once you enter retirement?  

 

 

April 2016 Financial Update

two-cents-photo

Now that April is over, we are one third of the way through 2016.  How are we doing?  Where are we going from here?

Financially, April was a great month on all fronts.  Our net worth increased by $23,000 to $1,552,000.  Our income remained strong at $2,471 even though it’s been a few months since we received any pay checks from employers.  Our spending dropped significantly compared to last month to $1,829 (not buying a new minivan certainly helped keep expenses low).

On the personal side, April was an incredibly busy month.  The weather was nice so we spent a lot of time outdoors.  We were busy with kids’ school events and volunteering, hanging out with friends, and enjoying the wonderful life we have built through a decade of financial butt kicking.  We capped off the month with a day trip to the beach for a wedding.

On to the numbers!

 

Income

After receiving $4,476 in dividend income in March, our investment income dropped to just $130 during April. Since our portfolio is all funds and ETFs that pay dividends quarterly or annually, the months of March, June, September, and December are big for dividends.  As this post goes live, we’re about six weeks from the start of the next dividend season in June.  In 2015 we earned a total of $28,527 in dividend income.

Blog income, shown as “other income” in the chart, was fairly normal at $2,043.  My early retirement lifestyle consulting brought in $180 in April (same as March).  I’m still aiming to live off of four percent of our portfolio, and treating the blog and consulting income as purely discretionary money that we can spend if we want (or save if we want).  The next month or two should be very good months for blog income thanks to a lot of recent attention in the media (part of what kept me busy during April!).

TV talking head - my new career?

TV talking head – my new career?

Deposit income of $117 includes $87 of ebay and craigslist sales plus $30 of cash back rebates from the Ebates.com and Mrrebates.com online shopping portals. I’m all about sharing the wealth, so 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’m not sure when I’ll actually get the cash but my Ebates account was just credited with over $100 in cash back from our January 2016 cruise I booked through Expedia (via Ebates).  Very nice and worth the wait!

april-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 April expenses:

april-2016-expenses

Monthly spending in April totaled much less than our budget of $3,333 per month (or $40,000 per year).  We didn’t buy a minivan and we didn’t have any large annual bills like property tax or insurance, so it was easy to come in well under budget for the month.

Grocery spending dropped back to a more normal $428 during April.  I thought this would be a lot higher given how well we ate and how much we shopped for groceries during the month.  I guess I’ll have to thank Aldi, Trader Joe’s, Kroger, Walmart, Food Lion, the Asian store, and the Mexican grocery store for keeping their prices low.

Spend little on groceries; make awesome food like homemade tamales? Yes, please.

Spend little on groceries; make awesome food like homemade tamales with fresh guacamole tomatillo salsa? Yes, please.

Healthcare spending increased significantly to $270.  Since we no longer have dental insurance, Mrs. Root of Good paid $105 for her routine dental visit (the cash rate for uninsured patients at our dentist).  We finally got to use our new health insurance when Mrs. RoG visited the doc to have a lump on her arm checked out.  It was diagnosed as likely being a lipoma (a lump of fat, and please note, NOT lymphoma or anything like it fortunately!).  The doc scheduled her for minor outpatient surgery the next day.  The biopsy revealed it was, in fact, just a lump of fatty tissue and totally benign.  Our insurance is working out well so far with two $20 copays paid at the time of service plus another $120 bill for the surgery (20% of the $700 price the insurance allowed for the surgery).

Health insurance premiums totaled $125 for our very impressive gold plated silver plan obtained through Healthcare.gov with some very sizable ACA subsidies.  Quick update on our health insurance situation: four of us obtained insurance through the healthcare.gov exchange very quickly.  We had to apply to the state’s medicaid/NC Health Choice program for our three year old (now four year old).  We’re currently on day 87 of waiting for our application to be approved so our four year old has been uninsured since May 1 (during March and April we had the possibility of retroactive COBRA coverage for the little dude but that option expired April 30).  He will have retroactive coverage if his NC Health Choice application is ultimately approved (which it should be).  The wheels of bureaucracy move.  Slowly.  Let’s hope they finish processing the application before he’s five.  And I think the State of North Carolina is distracted with other important issues these days, so I understand the delay.

Good thing we don’t pay state tax to fund the agency processing his paperwork.  Except we do!  Since we don’t have any tax withheld from a paycheck, we now have to make estimated tax payments.  I made the first estimated quarterly tax payment of $225 for state taxes.  We can pay online and we can even pay with a credit card for a 2% fee.  Good to know if I need to meet minimum spending requirements for my credit card travel hacking hustle!

Clothing and shoe purchases totaled $200 for the month.  Everyone but me got new shoes and the ladies got new swimsuits.  We also did a bit of thrift shopping.

Utility spending of $167 includes the water/sewer/trash and the natural gas bill.

Restaurant spending of $103 included some horribly unhealthy but delicious donuts, Chinese take out, and a fun lunch out with an old friend.  However, the bulk of the restaurant spending in April was for a meal at the restaurant where the beach wedding reception was held ($62 for okay but not great food).  We had to pay for our own meal but (1) we can afford it and (2) at least the bride and groom didn’t have to pay tens of thousands of dollars for their wedding.  Nicely done newly married couple!

donuts-bakers-dozen

Delicious. $17 for 13 of the most mouth-watering treats that aren’t Mexican food. Courtesy of Baker’s Dozen Donuts in Cary and now in Raleigh. And a Cambodian-owned business so we’re supporting Mrs. RoG’s people.

The $69 electronics purchase was an ASUS RT-N66W router.  We tried to go cheap on a router last month and it didn’t have the range that we needed to cover the whole house.  Lesson learned and $15 wasted (but we have a backup router just in case).

The uncategorized expense of $67 was mostly the purchase of our new couch at a thrift shop benefiting the homeless.  The curb sleepers of Raleigh get some of our cash to keep them off the street and we got a new couch.  Now to craigslist the old couch for more than we paid for the new(er) couch.  We also found some other ridiculous items like a brand new pair of shorts from Jos A Banks with tag still on for $3.  The only reason this expense was uncategorized is that Personal Capital couldn’t categorize the purchase correctly since it’s the first time we’ve shopped at this particular thrift store.  After I update it, it’ll be in the system correctly for good and subsequent purchases from this retailer will appear correctly too.

The minivan needed a few final touches before getting it road ready for our summer trip.  I spent $16 on some fancy windshield wiper blades at Walmart (they were on clearance) and $42 for tire rebalancing.  The tech said the wheels were way out of balance. The vibrations observed at mid to high speeds disappeared immediately after the rebalancing.  So far so good on the used car purchase.

The entertainment expense of $48 was a brand new camera lens for Mrs. RoG’s photography addiction.  I debated whether to put this in entertainment or electronics because it’s really both.

Not shown in the expense graphic because of their small dollar values were:

  • gifts – $45
  • gasoline – $40 (mostly the trip to the beach at 23 miles per gallon in our minivan with 7 passengers)
  • internet – $31
  • service charges/fees – $26 (Mrs. RoG’s 401k – I’ll have to follow these closely to see how much they total per year)

That’s a lot of consumption but we still spent at a level 30% below the poverty line.  Maybe we’ll throw in some cigarettes, alcohol, bail bonds, flashy rims, and lottery tickets to bootstrap our way up to the lofty heights of poverty level living next month (no offense to my distant kinfolk if you guys are reading this month’s edition of Lifestyles of the Rich and Boring).

Giving the little guy a taste of stardom.

Giving the little guy a taste of stardom.

 

Year to Date Living Expenses

april-2016-ytd-expenses

At $17,065 year to date spending, we have exceeded the $13,333 budgeted for the first four months of the year by a few thousand dollars.  This includes the minivan purchase in March, so if we keep under spending our monthly $3,333 budget (like we do many months) then we’ll be back on track in a few more months.

I just received the annual or semi-annual bills for about $1,000 for home, auto, and umbrella insurance policies.  July and August should be fairly low cost months too since we’ll be traveling for half of each month on a road trip through the US and Canada and have already paid for all of our vacation lodging expenses.

Our goal this year was to spend more than the $24,000 we spent last year, and so far we are on track spend a bit more than that paltry figure.  Regardless of whether we spend the whole $40,000 budgeted for 2016, we are having a good time, enjoying life, and doing the things we want to do in early retirement.  And that’s what matters the most, right?

Monthly Expense Summary:

Living like a pauper is tough but somebody's gotta do it. And do it well.

Living like a pauper is tough but somebody’s gotta do it. And do it well.

Net Worth: $1,552,000 (+$23,000)

Another month of net worth growth!  Yippee!  We are within $40,000 of our all time high net worth reached in 2015.

The net worth is just a number to me.  I don’t really get excited when I see a $23,000 increase in one month because I know the net worth figure will fluctuate by a five figure amount almost every month.  That’s just the nature of the stock market and there’s very little one can do when investing most of one’s portfolio in equities.

If volatility concerned me, I would shift into more stable asset classes like bonds and cash.  But it doesn’t so a high equities allocation is fine with me.

april-2016-net-worth

Every month we are growing more and more comfortable with our early retirement finances.  Toward the end of 2015 and beginning of 2016, we watched our investment portfolio drop almost $200,000 over a three month period.  A few months later, we have recovered all those losses and even gained a small amount.

What will the future hold?  If by future you mean the rest of 2016, I have no clue other than it will go up and it will go down.  In 2025 or 2030, I expect markets will be up.  Let’s check back in at that point and compare notes.

In the meantime, I’m ignoring the daily market vacillations.  I’m planning on enjoying a beautiful May in North Carolina (one of our best months weather-wise) and ease our way into summer when we depart for our road trip up north in mid-July.

 

 

 

And you? How was your April?  Enjoying the rising stock market?  Gearing up for summertime fun?  

 

 

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March 2016 Financial Update

two-cents-photo

I don’t know about you, but we had a wonderful March!  The weather is beautiful and life is going very well at the Root of Good household.  March represents the first full month of early retirement for Mrs. Root of Good.  Last week the kids celebrated spring break and we had a very successful week of relaxing and enjoying the complete lack of a daily schedule.

In financial terms, March was very kind to us.  Our net worth shot up $94,000 in spite of spending almost $11,000 (most of which was a used minivan purchase).  Our income was higher than normal at $7,806 thanks to quarterly dividend payments from our investments.

 

Income

In March, we received $4,476 in dividend income from our mutual funds and ETFs.  This represents almost double the $2,500 dividend income earned in March 2015.  Since our portfolio is all funds and ETFs that pay dividends quarterly or annually, the months of March, June, September, and December are big for dividends.  The $4,476 we received in March will go a long way toward helping us exceed the 2015 total of $28,527 in dividend income.

Blog income, shown as “other income” in the chart, was back to normal at $2,575 after a weak February with under $500 income.  My early retirement lifestyle consulting brought in $180 in March.  So far the blog and consulting income has remained relatively steady this year and $2,000 to $2,500 per month might be the new normal.  I’m still aiming to live off of four percent of our portfolio, and treating the blog and consulting income as purely discretionary money that we can spend if we want (or save if we want).

The $500 in “travel” income is actually a $500 cash back sign up bonus from Mrs. Root of Good’s Barclay Arrival card.  I’ll discuss this later in the “Expenses” section.

We had a $43 refund from the insurance company for canceling coverage on my Honda Civic since I sold it in February (hence the Automotive income of $43).

The $8 “Deposits” income represents two class action settlement checks from Red Bull energy drinks.

The days of earning a paycheck are over for Mrs. Root of Good, so no more paychecks in these monthly income reports!

march-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 March expenses:

march-2016-expenses2

After a record month of spending to excess, the total damage came to $10,911.  This is more than three times our budget of $3,333 per month (or $40,000 per year).

Time to haul lots of people and loads of stuff. And take a 3000 mile road trip.

Time to haul lots of people and loads of stuff. And take a 3000 mile road trip.

Most of the cash that left our hand in March went toward the $8,228 purchase of our new (used) minivan.  When you buy new things, you tend to spend even more money after the purchase.  A new car is no different.  We spent another $98 on the pre-sale vehicle inspection (didn’t want to buy an $8,228 lemon!), $108 for property taxes, and $23 for two sets of floor mats.  I still need to pick up three windshield wipers (yes, it comes with a rear wiper) that will cost another $15, and it needs the tires balanced to hopefully fix the minor vibration at highway speeds (fingers crossed it’s nothing major beyond tires out of balance).  To add the minivan, our insurance went up by $40-50, which will probably be due in April.

castle-in-minivan

Perfect for those times a neighbor is giving away a castle for free

storming-the-castle

The kids storming the castle (next to our wood pallet shack – a work in progress!)

Our $1,072 travel expense in March is for our upcoming summer road trip through Tennessee, Kentucky, Michigan, Ontario/Toronto Canada, Niagara Falls, and Washington, DC.  The $1,072 covers all of our accommodations for almost a month and two days of cave tours at Mammoth Cave National Park.  I’ll have a lot more detail on this exciting trip in a post to be released soon.

The $1,072 travel expense is actually $572 when I subtract out the $500 travel credit we received from Mrs. Root of Good’s Barclay Arrival Card.  She signed up for the card in January and we already received $500 cash back as a sign up bonus (including the extra points from spending an extra $1,000 beyond the $3,000 minimum required to get the $400 initial sign up bonus).  The Barclay Arrival Card allows you to redeem points toward any travel expenses including Airbnb or hotel stays.  $500 = a free week in a two bedroom apartment rental in Toronto.

I picked up a $250 Airbnb gift certificate by redeeming 25,000 of the 150,000 American Express Membership Rewards points we earned when we signed up for a pair of Amex Business Gold Rewards cards in December last year.  That slashed the total price for three nights in an Airbnb rental in Bowling Green, Kentucky from $297 to $47.

We booked nine nights at Starwood Hotels (including Four Points by Sheraton and Aloft hotels) using 24,000 Starwood Preferred Guest points from a single Starwood Amex sign up bonus offer.  The most amazing redemption of the bunch was a $400 per night (in Canadian dollars) room in Niagara Falls for 3,000 points.

Travel hacking is how we traveled through Mexico for seven and a half weeks for $4,500.  If you like free travel as much as we do and want to get some of these same cards, check out these credit card offers.

Airbnb is an incredible way to save money while on vacation, particularly if you’re traveling with a family.  We were able to book decent two bedroom apartments for much less than the cost of a crappy hotel room suite or two budget level hotel rooms.  The biggest benefit beyond having tons of space is that we get a full kitchen so we don’t have to dine out for a month straight.  If you haven’t tried Airbnb before, check them out for your next vacation and save $35 off your first stay.

Our grocery spending of $611 was a little higher than normal, but nothing to worry about yet.  We continue to spend money on good food so we aren’t tempted to go out and eat all the time.

But we did spend on restaurants this month.  We dropped $25 on a Groupon for Papa Johns that will end up buying us six or seven large pizzas (coupon codes will be used heavily).  It’s hard to make pizza that cheap.  We also dined at the Chinese restaurant once and got take out from a different Chinese restaurant once.  All restaurant spending totaled $59.

Utility spending of $202 included the $115 water/sewer/trash bill (slightly higher than normal) and $87 for the natural gas bill.  The gas bill will be a lot lower until November when the cooling season starts back in North Carolina.  Right now we’re enjoying free heat and air conditioning courtesy of the wonderful spring weather!

Gifts of $153 include our daughter’s birthday gift, a wedding gift for a sibling, and a few gifts for some nieces and nephews with upcoming birthdays.

Our entertainment spending of $136 includes:

  • $48 for a swimming punch pass good for 15 adult admissions to any city pool or water park
  • $31 for four new bike tires for the girls’ bikes
  • $27 for fishing gear (Mrs. RoG’s thing; not mine)
  • $29 for skating rink admission and pizza for two extra guests beyond the ten free birthday guests (nice cheap commercial birthday party thanks to winning a free birthday party for ten!)

Our healthcare expense of $125 covers the insurance premium for our sweet gold plated silver health insurance plan with heavy Affordable Care Act subsidies.  Mrs. Root of Good used the insurance for the first time today and so far it works.  It’s health insurance, so I’m sure we’ll be disappointed eventually.

We went crazy with the gas purchases this month (given we’re both retired!).  $74 gets you a tank and a half for a Honda Accord and a full tank for a Toyota Sienna minivan.  I went ahead and filled up during March to score the 5% cash back on gas purchases on my Chase Freedom card (and because gas prices at all the other stations around town had already gone up significantly).  We’re going to the beach in late April for a wedding so I imagine that will be the next time we have to pay for gas.

Rounding out the monthly purchases was $14 for two extra batteries for our new t5i DSLR camera.

I spent so much time in March shopping for things that I feel like I need a vacation from buying stuff!

Year to Date Living Expenses

march-2016-ytd-expenses2

At $15,236 year to date spending, we have far exceeded the $10,000 budgeted for the first three months of the year.  That’s okay because we won’t be buying a car every month and we actually made $2,900 from the sale of our old Civic.

Looking ahead, I expect April to be a low cost month.  In May or early June we’ll owe almost $1,000 for home, auto, and umbrella insurance policies.  July and August should be fairly low cost months too since we’ll be traveling for half of each month and have already paid for all of our vacation’s lodging expenses.

Our goal this year was to spend more than the $24,000 we spent last year, and so far we are on track to do so.  However, I know we’ll also have those months where we barely spend $1,000 so we might not spend our whole $40,000 budgeted for 2016.  Our spending philosophy hasn’t really changed, but we’re certainly open to occasional small luxury purchases since we know we can afford it.

Monthly Expense Summary:

 

Net Worth: $1,529,000 (+$94,000)

After four months in a row with a decline in net worth, we have finally turned the corner to a healthy, positive growth in wealth.  The gains came from our stock market returns – someone told international investments that we were waiting on them to perform well.

We are now as wealthy as we were during most of 2015 and much wealthier than we were during all of 2014 (and we felt wealthy back then!).  We’re still about $50,000 away from our wealth high water mark set in June of 2015, but still feeling like we are swimming in money without any real need to sacrifice quality of life to save money (of course we’re naturally frugal so thrift is easy for us).

 

I’ll reprint what I said in last month’s financial update:

[The market] goes up, it goes down.  What are you going to do?  Freak out over every movement, or let the long term growth engine of the stock market work its magic?

In hindsight I look kinda smart by holding on and letting the market swing back into the positive.  But I fail to see how “do nothing for a long time” is smart.  Nor is it dumb.  It’s just the right thing to do if you want to avoid panic selling at the low points and getting overly aggressive after huge market run ups.

march-2016-net-worth

 

After almost two months of Mrs. Root of Good not working and after spending over $8,000 on a minivan, we’re still sitting on around $24,000 in cash.  That amount of cash plus the dividends we’ll receive in our taxable brokerage account will cover our expenses over the next year so we won’t have to sell anything for living expenses if the stock market takes another big dip.

Eventually if the market stays flat or keeps going up, I’ll start to harvest some capital gains to pad the cash buffer we have on hand.  I don’t have a particular S&P 500 or Dow price target to know it’s time to take gains, but I’ll know it is time when we get there (and I’ll let you know!).

That’s it for this month’s installment of “what did we make and spend, and what are we worth?”.  I’ll leave you with this article from the end of last year that is a good summary of everything I blogged about in 2015 (for those new readers that made their way here from the recent articles featuring Root of Good in CNBC, MSN, and Yahoo Finance).

 

How was March for you?  Was your boat lifted by the rising tide?  

 

 

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How To Score a $50 Car Payment For Life

2009-toyota-sienna-featured

Our latest big ticket purchase included a free membership in the Large Family Club.  That’s right, we bought a minivan.  “Purchase a minivan by 2008” I typed in my first FIRE spreadsheet back in 2006.  Oops, eight years late but it still counts, right?

The main reason we were eight years late buying a minivan is because we didn’t need it prior to the last year or two.  It was our planned five week multi-thousand mile road trip up the East Coast into Canada that convinced us that a larger vehicle would be more comfortable for long road trips.  We are in the middle of planning our 2016 summer adventure (more details later!) and decided to upgrade to a larger car for this trip.

The minivan might not be flashy or fancy, but it’s a very effective mass transporter of people and materiel.  Our kids are getting older.  They have friends.  We don’t work.  We can take fun trips around town during the work day with our family of five and up to two (or three or four if we break seat belt laws…).  The seats fold flat and/or pop out so we can haul full size sheets of plywood if necessary.

We still own the 2000 Honda Accord for now, though we don’t use more than one vehicle at a time, and rarely use either one much (the minivan’s trip odometer reads 15.9 miles three weeks after purchasing it).  We are back to the dilemma of wondering whether we should keep two cars or drop to one.  For the month that we were a one car family, there was only one time that we actually needed two cars (to haul 12 kids to the skating rink for a birthday party) but our one car plus UberXL could have done the job for $5-6 each way.

I hope we don’t fall into the trap of the status quo cognitive bias.  From Wikipedia: “The current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss.”  Too often we assume our current state of affairs is the best way to handle something but that’s often not true.  In the context of “How many and what kind of car(s) should we own?”, I believe the correct answer is one car and the right kind of car is roughly a minivan.  I think it makes sense to sell the old Honda Accord because there is no way we would go out today and buy a second car if we only had the minivan.  Time to right size our car ownership over the next couple months if we can overcome the status quo bias.

Before I jump into the math behind our perpetual $50 car payment, let me show off our new beauty:

2009-toyota-sienna

It’s a 2009 Toyota Sienna LE with 111,000 miles.  We paid $7,900 plus a few hundred in random sales tax, property tax, and fees.  We also spent $98 on a pre-sale inspection at our trusted independent Honda/Toyota shop.  They were shocked in a good way at the condition of the car inside, under the hood, and underneath the car and figured we would pay at least a few thousand dollars more for the car in its condition.  I guess we got a good deal.  The dealer and I thought it was a lower trim level (a “CE” instead of an “LE”) while we negotiated the price, so we also scored a bonus $600 value with a higher trim level (LE = it has cruise control and radio controls on the steering wheel).

It’s amazing what $8,000 buys you in the used car market today.  This van is sweet!  Very spacious and clean, runs well, and looks decent on the outside other than a few irrelevant scratches and dings that no doubt saved us some cash on the purchase price.  The Japanese minivan is also a favorite of fellow frugal early retirement types Mr. Money Mustache (for stuff hauling in his construction hustle) and the Frugalwoods.  They both own the Honda Odyssey which is the vehicle we initially targeted in our used car search until I did some research.  The Odyssey is priced about the same as the Toyota Sienna in the used car market, however online research and the sage advice of our in the know independent mechanic confirmed that the Toyota model outshines the Honda in the age range of vehicles we were searching for (2008-2010).  Fortunately we found a nice deal on a Toyota before we found a nice deal on a Honda.

 

The $50 forever car payment

Enough bragging about my awesome new used car.  I want to share my philosophy on the perpetual $50 car payment.  Whenever I pull together an annual budget (like our 2014 and 2016 budgets), I always stick about a thousand bucks in the “auto” line item to cover a new used car purchase every seven or eight years.  That works out to $83 per month and is most likely more money than we need to spend on a new used car.  But I like to plan for the worst case and then optimize spending when it comes time to actually part with my cash.

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).

Now that we have completed one cycle of the “sell the sixteen year old car and buy the seven year old car”, I know that $50 per month is probably closer to reality based on my periodic car replacement strategy.  In my case, I sold my sixteen year old Civic for $2,900 (as reported in my February 2016 Financial Update) and bought a 2009 Toyota Sienna for $8,300 including all fees.  My net out of pocket cost for upgrading to a new(er) car (a year 2009 instead of a 2000) was $5,400.  Spread the $5,400 cost over nine years and it works out to exactly $50 per month.  My hope is that our new minivan will last for about nine years and I can sell it as a well-maintained still running low-ish mileage vehicle for about $3,000 at that point.

I don’t think this is the absolute cheapest way to keep car expenditures to a minimum but it does a good job of balancing low cost with our goals and needs.  We could buy complete POS’s for a couple thousand bucks, cross our fingers they would run for another 5-6 years and then sell them as “needs work” cars or as industrial scrap for a few hundred dollars when they die.  That might get the per month depreciation cost down to $30-40 but then again we might be eaten alive by maintenance costs and plagued by the frustrations of breakdowns in the interim.

Under our replacement strategy, we pay slightly more but we get a lightly used car with modern-ish amenities every eight to ten years, and then drive it until we expect to see troubling repair bills.  By buying a car that’s six to eight years old, we skip the steep part of the depreciation curve and pay a quarter to a third of the new price of the vehicle without losing a lot of reliability (we’re talking about Hondas and Toyotas here).  Since we’ll probably be taking a multi-thousand mile road trip every other year, reliability is important to us.  Owning a used car also saves us hundreds of dollars per year on property tax and even more on insurance (an $8,000 car is cheap enough that we don’t carry comprehensive or collision coverage since we are our own insurance company).

Instead of paying a $300-500 monthly car payment essentially forever if we followed the “buy new and replace after three to six years when the shine wears off” method, we are instead paying around $50 per month and still get to enjoy a new-ish car occasionally.  Of course I definitely appreciate the sellers of lightly used six year old cars flooding the market with inventory (so they can upgrade to a new car) because it makes it easier for me to acquire a used car at a sweet price.

 

Tips on finding a new used car

While searching for a good deal on our minivan, I employed a few basic strategies.

Do your research.  Identify the vehicles that fit your needs, then figure out which of those models are the most reliable.  In our search, I found that the Honda Odyssey often had transmission problems after seven or eight years, whereas the Toyota Sienna held up reasonably well with few complaints.

Don’t be in a rush.  Start looking for a replacement vehicle before you absolutely have to have one.  Set up automated searches at Craigslist and other used car search engines.  Narrow your search to highlight only those cars that are good to great deals based on price, year, make, model, and mileage.

But then hurry.  Once your automated searches find the right car at the right price, check it out ASAP.  We bought our car on the first day after the car lot lowered their asking price by $1,000 to an amount below Kelley Blue Book value.

Focus on the lower trim levels.  I like the cars with fewer options.  For a 6+ year old car, I consider things like moon roofs and power everything to be more of a liability than an asset.  The extra features can break and cost money or time to fix.  They also cost more in the form of a higher purchase price.  However, when you sell the car once it’s almost dead, you likely won’t recoup any of the higher purchase price.  To the buyer of a 16 year old car, “does it work?” is more important than “how fancy are the amenities?” (“runs well” IS the amenity).

Don’t be picky.  Are there a few scratches or dings on the outside of the car?  Jackpot!  You’ll pay less money and you won’t worry the next time you get another scratch or ding because the new blemish will already have a built in friend network elsewhere on the vehicle.  It also helps to not restrict yourself to a single color, trim level, or even make or model (as long as the car meets your specifications like “7+ seat vehicle with storage”).

Get a pre-sale inspection.  Our local independent shop charges $90 (plus $8 sales tax – thanks North Carolina!) for a rather in depth inspection of a vehicle that might prevent you from purchasing a car with a latent defect lurking in the inner workings of the vehicle.  It’ll also provide an objective second opinion of the quality and condition of the car.  In my case, a few small problems were uncovered that led me to ask the seller to provide the fix ($25 worth of parts from the auto parts store).  I think it’s better to “waste” $90-100 on a pre-sale inspection in order to avoid buying a dud.  In my situation, I negotiated the purchase price then asked to take it for an inspection before closing the sale.

Check out the CarFax report (or use a similar service).  The dealer I bought from pulled up the CarFax report online and let me review it before we talked price.  The CarFax report will usually uncover unexpected surprises like salvaged title, a rebuild after a wreck, collision damage, poor (or good) maintenance, and ownership history (location of ownership, number of owners).

Negotiate the price.  This should be obvious, but the asking price is never the final price.  Know what the car is worth by checking the Kelley Blue Book value and other online pricing services.  Don’t be afraid to walk away if the seller isn’t willing to agree to a reasonable price (remember, you can always find another car).  I used the “I’ll have to check with the boss” strategy when negotiations reached a stalemate and went outside for a few minutes to chat with Mrs. RoG.  Then I came back in and said “look, we’re close to a deal but not there yet.  My wife said I have to take a little more off the price and she’ll be happy, otherwise I can’t get the car.  How about drop it another $100?”.  Maybe he took pity on me, because it worked.

 

Our $50 per month car buying strategy might not work for everyone, but I’m hoping it continues to work for us.  By the time we are facing the next replacement cycle in another eight to ten years, we will likely be looking at a smaller vehicle since the oldest two kids will be starting college around that point.  We may go back to a two car household once the kids start driving in another five or six years, which could impact our new(er) car purchasing decisions.

 

 

What does your vehicle replacement plan look like?  Do you prefer new cars or used cars?

 

Trying to get ahead with your finances?  Track all your expenses and investments in one place FOR FREE with Personal Capital.

 

The Many Faces of the Four Percent Rule

four-percent-rule

If you are a fan of early retirement and financial independence, then you have probably heard of the four percent rule.  And if you haven’t, then welcome to the Club and allow me to explain more.

The four percent rule as developed in the “Trinity Study” way back in 1998 says:

a portfolio of stocks and bonds can support four percent annual withdrawals, adjusted for inflation each year, for a period of thirty years with very little chance of running out of money during that period of time.

The four percent rate of withdrawal is often called the safe withdrawal rate because the retirement portfolio didn’t run out of money in 95% to 98% of overlapping thirty year periods of past investment returns dating back almost a hundred years.

The four percent rule says that in the past, four percent was a safe amount to withdraw in almost every case.  The inference from the Trinity Study is that if the future is no worse than the past, then it’s likely that four percent will continue to be safe going forward.  The Trinity Study didn’t try to predict future returns, but rather came to a conclusion of what would have been safe in the past based on many decades of returns including some horrible periods of twentieth century financial history.

 

The Four Percent Rule – Fixed Withdrawals Plus Inflation Method

In its classical form, the four percent rule provides a level withdrawal amount each year in real terms.  As inflation goes up, your annual withdrawal goes up as well, but only enough to cover inflation.  In other words, you’ll have the same purchasing power in year one of retirement as you will in year thirty (and every year in between).

The good:

  • Consistent withdrawals year after year maintain a steady standard of living
  • No need to cut spending during an economic downturn or consider altering one’s lifestyle to reflect poor market returns

The bad:

  • No feedback mechanism in the spending rule means no upward adjustment when the portfolio value increases significantly and no downward adjustment in down markets to conserve assets
  • Not a realistic reflection of how retirees actually spend money. Who would feel comfortable spending tons in the face of a market crash?  Who wouldn’t spend more after years of sustained portfolio growth?
  • “Success” means having $1 or more left at the end of the 30 year retirement spending period (what happens if you live 31 years?).  Having only $1 to my name at any point in my retirement would be incredibly scary and I wouldn’t consider that a success in practical terms.

I have always viewed this classical statement of the four percent rule as a useful long term planning tool rather than a form of prescriptive withdrawal strategy to be used faithfully and relentlessly during retirement.

Flip the four percent rule upside down and you get a quick and dirty rule of thumb that tells how much to save for retirement.

Portfolio amount x 0.04 = annual spending/withdrawals

Rearrange the equation and solve for portfolio amount and you get:

Portfolio amount = annual spending / 0.04 = 25 x annual spending

Portfolio amount = 25 x annual spending

You need twenty five times your annual spending in your investment portfolio to have “enough” to retire using the four percent rule.  That 25x multiplier is a great way to put the four percent rule to use for planning purposes.  Want to spend $40,000 per year in retirement?  You need 25 x $40,000 = $1,000,000!

 

The Other Four Percent Rules – Percent of Portfolio or Variable Percentage Withdrawal Methods

I look at the classical four percent rule with its fixed annual withdrawals (plus inflation) as being more bad than good.

Look, I’m hard core.  I’ve got the battle hardened skin to weather a massive blizzard of hurt that the market occasionally snows down on us.  In the past year you’ve seen my stoic posts on losing $36,000, $64,000, and even $74,000 in a single month.  I just don’t care.

But if those kinds of losses showed up month after month without reprieve (as they did in the 2007-2009 period), I wouldn’t be blindly following the “spend 4% of your initial portfolio value adjusted for inflation” rule.  I would be looking for ways to cut spending in order to conserve what’s left of my portfolio.  That’s human nature.

The percent of portfolio method and the variable percentage withdrawal method are variations of the traditional 4% rule’s fixed plus inflation withdrawals.

Under the percent of portfolio method, each year you spend a certain percentage of the current value of the portfolio.  A safe percentage is 4% for this method.  A 4.5-5% withdrawal rate is also acceptable in many cases for older early retirees.  For the 4% “percent of portfolio” withdrawal on a portfolio starting at $1,000,000, the annual withdrawal would equal $40,000.  If the portfolio goes up to $1,200,000 next year, the annual withdrawal would be $48,000 ($1,200,000 x 0.04 = $48,000).  If the portfolio drops to $900,000, the annual withdrawal would be $36,000 ($900,000 x 0.04 = $36,000).  It’s simple – the market goes up and you can spend more.  The market goes down and you spend less.  Under the percent of portfolio method, the annual withdrawal is informed by the actual portfolio value each year unlike the fixed withdrawals plus inflation method which keeps the spending constant in real terms (after inflation).

The variable percentage withdrawal method, a variation on the percent of portfolio method, was developed by the geniuses (I mean that in a non-sarcastic sense) at the Bogleheads site.  Instead of using a fixed 4% or 5% withdrawal rate, the percentage withdrawal rate increases each year as you get older to account for a shortened life span (sadly enough, as you get older your life expectancy decreases).  A 35 year old’s withdrawal percentage is 4% whereas a 65 year old’s withdrawal percentage is 5% (based on a 60%/40% stock to bond asset allocation).  In the intervening years, the percentage withdrawal rate creeps up from 4% to 5% by a tenth of a percent every few years.  The variable percentage withdrawal method has the same year to year volatility that comes with the percent of portfolio method, but increases the withdrawal percentage rate over time as the retiree gets older.

There are pros and cons to these portfolio withdrawal methods that reset each year based on the then-current value of the portfolio.

The good:

  • There is a feedback mechanism to increase spending during good years and decrease spending in bad years
  • This change in spending provides psychological comfort.  You’re “doing something” to prevent running out of money in a bad market and you’re enjoying the largesse during good times.
  • Impossible to run out of money (there will always be 4% of whatever is left in your portfolio, but it might be painfully small)
  • You can withdraw a higher starting percentage (at age 35, around 4% versus perhaps 3.25% or so for the fixed plus inflation method)

The bad:

  • As a trade off for being able to spend a higher rate initially, spending may get cut in some years, perhaps drastically
  • Unpredictable.  Say goodbye to that trip around the world next year if the market tanks tomorrow.
  • Annual spending may not keep up with inflation over the intermediate term (in a weak market)

 

Comparing 4% Fixed Plus Inflation Versus 4% of Portfolio Each Year

Here’s a simple illustration of actual withdrawals someone retiring ten years ago in 2006 would have experienced.

For investment returns, I copied the Vanguard Lifestrategy Growth Fund (VASGX) annual returns.  This fund consists of a growth oriented mix of 80% US and international equities and 20% bonds.  It’s representative of a typical asset allocation chosen for those investors focused on long term growth.

The ten year period from 2006 to 2015 is a good representative sample of a typical decade of investing.  There were a couple of bad years with slightly negative returns, one year of horribly negative returns (down 34% in 2008!), with the remaining years ending in the positive.  The market returned an annual average of 5.4% during this ten year period.  Inflation was tame at an average of 1.86% per year.  In other words, not the best ten year period and not the worst ten year period, but pretty typical as far as decades go in the investing world.

We start with an initial portfolio of a million dollars.  Under the fixed plus inflation withdrawal method, the withdrawal in the first year is 4% of one million dollars, or $40,000.  In subsequent years, the withdrawal is increased by inflation each year.  The 2007 withdrawal is 2.5% higher than the 2006 withdrawal due to the 2.5% CPI-U inflation during 2006.  Mathematically, the 2007 withdrawal is $40,000 x (1+ 0.025) = $41,000.  In 2008, the portfolio withdrawal is 4.1% higher than 2007 due to the 4.1% CPI-U inflation during 2007.

It’s worth noting that in real terms (after inflation), the withdrawal remains $40,000 per year while the nominal value increases every year to match inflation, ultimately ending at $47,730 in the tenth year.  That $47,730 withdrawal in 2015 has the same purchasing power as the $40,000 withdrawal in 2006.

Under the percent of portfolio method, there is no guaranteed increase for inflation each year because the withdrawal amount resets each year based on the portfolio value each year.  The initial withdrawal in 2006 is 4% of $1,000,000 or $40,000, leaving $960,000 in the portfolio.  Since the market had a banner year in 2006, the $960,000 remaining in the portfolio generated a 16.13% return bringing the account balance to $1,114,848 at the start of 2007.

The 2007 annual withdrawal is 4% of $1,114,848, which equals $44,594.  In subsequent years, the annual withdrawal amount is 4% of whatever is left in the portfolio each year.  In the early years of 2007 and 2008, the annual withdrawal increases significantly in lock step with the rising value of the portfolio.  However after a horrible 34.39% market crash in 2008, the portfolio balance drops to $724,394 and upon calculating the 2009 annual withdrawal, we see the early retiree can only withdraw $28,976!

For the five years from 2009 to 2013 the retiree following the percent of portfolio method actually withdraws less than the $40,000 initial withdrawal back in 2006.  However, by 2015 the percent of portfolio method results in a $47,360 withdrawal which is within a few hundred dollars of the 4% fixed plus inflation withdrawal.

 

Can You Limbo?

How flexible are you?  Those middle years from 2009 to 2014 might be troubling if you absolutely have to have $40,000 (in real dollars) to survive every year.  However, if you’re okay with the concept of cutting expenses during bad years, possibly even six straight bad years, then you will be okay.

Alternatively, you might not want to cut expenses drastically but instead prefer to earn a little income on the side to support your living expenses.  For example, in the worst year of 2009, $7,000 of income from a part time gig or a hobby business will get you to within 10% of the starting $40,000 withdrawal.  That plus some minor cost cutting or spending deferral would get you through the worst parts of the recession.  I’ve talked about this concept previously when I discussed why I don’t think we’ll ever run out of money in early retirement.

When you limbo, it’s all about how low can you go.  For retirement spending, it’s all about your core expenses which is how low your spending can go.  For our household, I identified around $24,000 per year in core living expenses.  That’s not to say we would prefer to live on $24,000 per year or that we could even do it for many years in a row.  That level of spending means no vacations, no new car purchases, and no major repairs to the house (more DIY?).

When I developed my first early retirement budget, I allocated an extra $8,000 per year mainly to cover discretionary spending above the austere $24,000 per year core expenses.  In other words, I added the fun and the fun costs $8,000 per year.

More recently as our portfolio grew, I increased our 2016 retirement budget to $40,000 which gets us close to a 4% annual withdrawal rate.  Those core $24,000 in expenses are still there, but there’s even more fun in the mix mainly in the form of a fattened travel budget.  We may not spend that much this year, but it’s okay if we do.

For planning purposes, you have to establish what your core expenses are and what your ideal budget would be.  Those two numbers can help you determine how flexible your annual withdrawals can be.  If you aren’t already tracking your expenses, then consider using the free income and expense tracking tools from Personal Capital.  That’s how we keep track of our monthly spending.

february-2016-expenses

If you can cut your spending almost in half like we could, then the percent of portfolio or variable percentage withdrawal methods would probably generate higher average withdrawals over many decades without taking on too much risk of depleting your portfolio.

If, in contrast, you have a lot of fixed expenses or don’t want to cut your standard of living in down market years, then the fixed withdrawal plus inflation method would make more sense for your desired lifestyle.  It might also mean you need to save more money if you’re planning on retiring in your 30’s or 40’s and planning for five or six decades of retirement.  Remember that the classical 4% rule says you can withdraw 4% plus inflation every year for 30 years with a high probability of not running out of money.  Extend the withdrawal period to 50-60 years and you’re looking at a safe withdrawal rate closer to 3.25-3.5%.

So far I’ve presented these withdrawal methods as mutually exclusive options.  The truth about withdrawal strategies is that they are nothing more than general guidelines for what should work in the future based on past history.  In reality, you could choose the fixed plus inflation method to get you through the first five or ten years of early retirement, and then if your portfolio keeps growing, you could switch to a percent of portfolio method to convert some of that portfolio growth into spendable liquid cash and increase your standard of living.

chilling-by-the-lake-with-pizza

Me not stressing over withdrawal rates

 

How Do You Actually Withdraw 4% Per Year?

I get asked this question a lot on the blog and in my Early Retirement Lifestyle Consulting sessions, so it’s probably worth covering the mechanics of actually pulling the 4% per year from your investments.

It’s easy to say 4% of a million dollar portfolio yields $40,000 per year in withdrawals.  But how do you turn a small chunk of your portfolio into spendable cash in your hand (or checking account)?

Here’s how to create a $40,000 annual withdrawal from a $1 million portfolio that consists of $300,000 in a taxable brokerage account and $700,000 in 401k’s and IRAs:

  • $7,500 in dividends/interest from the taxable brokerage account (2.5% dividend/interest yield on the $300,000 account balance).  Have these dividends and interest pay to your cash account or transfer to your checking account.
  • $32,500 sale of investments.  Place an order to sell and transfer the sales proceeds to your checking account.

If you’re under age 59.5 then you should figure out how to access the 401k and IRA funds without paying a penalty.  The Roth IRA Conversion Ladder can help you.   In this example, the $32,500 sale of investments will probably generate somewhere around $5,000 to $20,000 of capital gains.  That amount plus your $7,500 dividend income will put your total income for the year at a level that won’t generate much of a tax bill.  You can convert traditional IRA assets to Roth assets without incurring a huge tax liability (but beware falling off the Affordable Care Act subsidy cliff!).

If you choose the Roth IRA Conversion Ladder strategy, as you spend down your $300,000 taxable brokerage account, you’ll be converting traditional IRA assets to Roth IRA assets.  Once the taxable brokerage account is substantially depleted, you should have a decent balance built up in Roth IRAs.  To fund your future $40,000 annual withdrawals after depleting the taxable brokerage account, you can initiate a withdrawal from your Roth IRA account tax free and penalty free (and keep on converting traditional to Roth).

 

More on withdrawal strategy and retirement calculators

In case I haven’t quenched your thirsty desire for knowledge of the four percent rule, I’ll refer you to Jeremy at Go Curry Cracker, Mr. Money Mustache, Mad FIentist, and JL Collins who have all done a great job exploring the four percent rule and its workings at their own blogs.

In the coming months I hope to review the major retirement calculators popular in the financial independence / retire early community.  Here are those calculators if you can’t wait:

 

 

Have you considered a withdrawal strategy for your retirement?  Are you a fan of fixed plus inflation or one of the methods based on a percentage of the portfolio balance each year?

 

 

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