Financial Update – June 2019

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Chernobyl, a new five-episode miniseries by HBO, is fantastic (link).
  • Thought provoking article from GoCurryCracker on the rent-vs-buy decision (link).
    • He makes a compelling argument that the cult-of-homeownership is wrong for many people (especially those in which the price/rent ratio is out of whack).
    • The article inspired me to run the numbers for my personal situation, which embarrassingly I hadn’t done before. If you’re curious, you can download my spreadsheet here.
      • When I ran my numbers, it said if I could rent my home for less (more) than $1,625/month, then renting (buying) would be superior.
      • Craigslist informs me that there isn’t an abundance of single family homes in our neck of the woods, which is consistent with my experience in other states. Of the few listings I did find, rents for SFHs were in the neighborhood of $1,800 for homes worth 30% less than ours.
        • Looking at the numbers, I think that we’ll conservatively come out $30k ahead (in today’s dollars) by owning.
    • Sal Khan, at KhanAcademy, has a great series of videos on the topic. They are worth checking out if you’re interested.
  • Wisdom from Mr 1500 (link).
    • If you think about FIRE in this way, money isn’t the end, it’s just the beginning. It’s a tool that allows you to move on to something else. Nothing more than a stepping stone on our journey.
    • Instead of running to a big number, run towards life. And don’t wait for that big number to do it. Every moment counts. Live mindfully. Find purpose, meaning, and beauty in every day. Make it count.
  • The Finance Buff on Saving Early vs Experiencing Early (link).
    • If you take up backpacking as a hobby (or other freeish outdoor activity), I think you can do both.
  • Given that our tax-advantaged accounts are filled up for the 2019, I spent a few hours agonizing over the “529 vs taxable brokerage” decision, an annual tradition I face this time each year.
    • Go Curry Cracker and Root of Good have some really good posts on the topic.
    • Despite the hours of deliberation on the topic, it was still a tough decision. I can make compelling arguments for both sides.
    • What I’ll probably do going forward is to continue to fund the 529 up to the max state tax deduction ($10k) and dump the rest in taxable brokerage. 
    • What made me most comfortable with this strategy (i.e. to not superfund the 529 now) is the following realization:
      • If I’m still gainfully employed when my kids are in college, I’ll pay a portion of my kids college via cash flow.
      • If I’m not gainfully employed when my kids are in college, I’ll harvest dividends at LTCG from my taxable brokerage account for free (assuming no changes to the US tax code from now until then, admittedly a strong assumption).
  • Bill & Melinda Gates Foundation’s 2019 annual letter (link).
    • Bill & Melinda Gates have a pretty cool job…to prolong the existence and increase the quality of life of humanity.
  • Interesting Econtalk interview on the utilization of artificial intelligence in medicine (link).

Life

  • FC2 and I took a quick trip to the Bay Area, CA. It was fun but unseasonably hot (> 100°F).
    • California is not ugly. When driving along the coast on Highway 1 on our way home from the beach, we were stopped in heavy traffic. I looked out my window to see a whale flopping around in the ocean. It was incredible; the first time I’ve seen a whale in the wild.
    • I remain happy to periodically visit CA and not have to pay to live there.
  • A bunch of thunderstorms blew threw town. We were awoken one morning at 6am to a big storm. One lightening strike, in particular, landed extremely close to our home. Later that day we learned that it had struck a home about 300 feet away from ours, putting a hole in their roof and starting a fire which had to be put out by the fire department. $50k of damage according to a news article in the local paper.
    • Another datapoint (followed by last month’s tornado touching down 2 miles away) causing me to re-question the wisdom of our $10k homeowners insurance deductible.
    • Another datapoint telling me not to retire in the Midwest.
  • Mrs FP and I had our normal dentist cleanings. I’ve been an avid flosser for the past 15 years or so, yet despite the diligence my gums would hurt & occasionally bleed when the dentist would probe my gums to measure gum pocketing.  About 2 years ago I picked up a simply designed water-flosser that attaches to our sink. Gum health has measurably improved for both Mrs FP and myself after using it daily. It has quickly become one of my favorite contraptions and I miss it a lot while when travelling.
    • Sorry to interrupt the regularly scheduled programming of incoherent ranting about my financial & personal life to provide you an unsolicited commercial for a water flosser.
  • In preparation for a road trip, we spent $60 on a 12-month RedPocket prepaid plan (each month provides: 100 min, 100 texts which we’ll never use b/c we use google voice instead, 500 mb which is about 480 mb more than we use in a typical month) for Mrs Frugal Professor. We’ve been really pleased with Tello, which runs on Sprint’s network, but frequently have service issues while driving across Wyoming. While part of me died inside by increasing our monthly cell phone spend from $1 to $5 (an increase of 400%), I’m hopeful that the switch to Verizon’s network will provide us more connectivity during the trip.

 

As per our usual SF routine, we hit up the Bay Area Discovery Museum (for free) after our walk/jog across the bridge.

The main support cables are touchable at the midpoint of the bridge.


Tide pools & ocean hike at Fitzgerald Marine Reserve.


Photo credit to FC2.


Dropped by Google headquarters in Mountain View.

Parked right in the middle of Google’s headquarters is a hair-cutting bus. Google’s mission is to ensure their employees never leave its campus.

Google is taking over the world with their new campus.


We forced FC3 to wear his sister’s old cleats for soccer camp because that’s what we had in inventory (we stocked up a few years back when pink cleats were around $7/pair; half of the price of a reasonable unisex color). He took it like a champ, though he successfully negotiated for a popsicle after seeing the recent success of FC5’s pink life jacket negotiations.


And obligatory free summer bowling pics, since we we practically live there during the summer. High scores this year are in the neighborhood of 180 for both Mrs FP and myself, far below where I wanted to be.

Pumped after 4th consecutive strike (unfortunately at the tail end of a crappy game).


The patented controlling-the-ball-by-balancing-on-one-leg trick.






We also had some fun at the children’s museum where they have a ninja warrior course.

This month’s finances

  • The good:
    • No catastrophes.
    • Redeemed $310 Costco executive rewards for cash at the front counter.
      • This simple act, rather than redeeming the check for merchandise at checkout, earned us another $16.28 in credit card rewards (=5.25%*310).
      • $310/0.02 = $15.5k spent at Costco (excluding gas & food court, neither of which are eligible for the 2% rewards) over the past 12 months = $1,292/month. Not all of this is our spend since some family members have used our membership for their purchases during family reunions.
      • It’s now abundantly clear to me that the 5.25% BoA Online => Costco Cash card strategy does not preclude the accrual of 2% executive rewards.
  • The bad/abnormal:
    • The healthcare hemorrhaging continues with $480 in payments to doctors.
    • $700 on Mrs FP’s upcoming second Disney Cruise + airfare with her sister and parents.
    • $367 in airfare for upcoming 2019 Wind River backpacking trip. Same route as last time. 5 roommates from freshman year of college in 1999. Crazy!!!!!
      • Aside from a couple bucks of trail mix, this should be the entirety of the expenses for the trip.
    • $86 in swim lessons for FC4 & FC5.
    • $59 to appliance repairman to drive to our house and cycle the circuit breaker after our stove tripped it. Yes, we are this inept at home ownership (we tried to cycle the breaker but apparently suck at doing so).
      • There is a reason that we are not real estate tycoons; we are inept at owning and maintaining stuff….so much for  the utility of that mechanical engineering degree I earned. I turns out that being decent at math & physics & programming does not directly translate into being able to fix stuff in real life.
    • $19.46 date with Mrs FP at a Mongolian grill after using her buy-one-get-one-free coupon. It’s perhaps the second time in the past decade we’ve gone out to eat together (the last time was for our 10 year anniversary a few years back in which we spent $20). It was kind of enjoyable but I remain convinced that regularly eating out is entirely irrational (overpaying by an order of magnitude for unhealthy food). I’m amazed at how freely others do so.

Full version is downloadable here (link). 

Footnotes:

  1. I lazily approximate home value as my historical purchase price.
  2. I have a 15Y mortgage which results in much larger principal payments than a 30Y mortgage. Since principal payments are simply transfers from one pocket (assets) to another (debt reduction), I treat such cash flows as savings.
  3. ~$0 cell phones described here.
  4. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, medicine, toys, etc).
  5. Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link).
  6. My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 1%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
  7. ETF’s are slightly more annoying to hold relative to index funds. With ETF’s, you must deal with bid-ask spreads as well as the inability to buy partial shares. With a simple index fund, you don’t have to deal with either of these issues. Bogleheads discussion here (link).
  8. I continue to own VTSAX rather than FZROX and in my taxable brokerage account because it is more tax efficient due to lower capital gains distributions. Bogleheads discussion here (link).
  9. The one blight in my expense ratio analysis is my 529 plan. The underlying Vanguard fund is almost free to hold (0.02%), but the high administrative fees bring the total cost of holding the fund to 0.29%. I abhor fees and would likely avoid 529 plans if I didn’t get to deduct up to $10k of contributions per year on my state return, saving myself $700/year in state income taxes.
  10. CA’s 529 plan has the lowest expense ratio US equity index fund of any in the US (link). I’d have 100% of my money here if not for the state tax deduction I receive in my own state.
  11. I own one share of Berkshire Hathaway (B Class) for the sole purpose of getting 4 free tickets/year to Berkshire’s annual meeting.
  12. I bought 100 shares MoviePass for $0.0127/share to be able to tell my students that I held a stock that went to zero. So far, the stock price stubbornly remains above zero.

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9 thoughts on “Financial Update – June 2019”

  1. >>If I’m not gainfully employed when my kids are in college, I’ll harvest dividends at LTCG from my taxable brokerage account for free (assuming no changes to the US tax code from now until then, admittedly a strong assumption).<<

    If you're not working while your kids are in college, they might qualify for a decent amount of need-based aid, even if you have a sizeable net worth (assuming the bulk of that amount is home equity and tax-deferred retirement accounts). For now, at least, it seems like the college aid formulas have a tough time accounting for FIRE families, those with sizeable taxable-deferred assets but relatively low post-retirement incomes. I know that some folks might be outraged at the idea that parents with a seven-figure net worth could receive need-based college aid for their kids, but given current tuition rates, I'm not one of them!

    You might find this tool useful — it made clear to me just how much I'll be paying each year if I don't retire before my kids start college:

    https://myintuition.org/

    Reply
    • David,

      I appreciate the insights That website looks great. I now have it bookmarked. Thanks for sending.

      There are a bunch of bogleheads & MMM forum threads discussing the “not working” thing while kids are in college. It’s definitely an interesting angle – one that severely distorts incentives to work. As my kids get older, I’ll put a lot more thought into this….

      Thanks again for the insightful comments. It has certainly given me a lot more to ponder.

      Reply
  2. Really enjoy reading this blog. Great content and recommendations.

    On a completely non financial related topic I’m curious what you do for fitness beyond riding your bike to work. I need to get on the regimen.

    Reply
    • Thanks for the comment. Glad you found the incoherent ramblings interesting.

      On the fitness front, I bike to work year round (about 12-15 miles per day depending on the route I take). What’s really helped my strength as of late is climbing in the gym 3x/week. I usually spend around 90 minutes per session. What I love about climbing is the combination of technique, problem solving, risk management, whole-body strength, cardio, and the cool community of like-minded individuals (dirt-bagger types). It is so much fun for me that it doesn’t even seem like exercise. I end the climbing session by doing pushups & pullups to failure. I try to do squats in my basement (I bought a squat rack a few years ago) but have been lazy as of late.

      My boss is an avid cyclist and has the body of a man half his age. I’m convinced it’s the fountain of youth, provided you don’t crash and ruin your body in the process (like just happened to the wife of a colleague of mine).

      Reply
      • Appreciate the info. That is very motivating that you are able to fit in that much exercise despite having 5 kids, a blog, and a full-time job. No more excuses for me.

        I took up your recommendations on Free Solo and Dawn Wall. Both great films. Going to check out Chernobyl next.

        I think a lot of people have similar concerns regarding paying for college. Would be interesting to hear your thoughts in a post. I went to a top 50 university that allowed all employees children to get free tuition if their kids were accepted. I knew two families of three and four children respectively who all went for free. Might be something for you to look into when that time comes. I personally am going the 529 plan route for now as I don’t plan on being retired when my two kids go 15 and 18 years from now. I think two years community college is the way to go then transfer into four year which is a program in my state.

        Reply
        • Glad you liked free solo & dawn wall. If you liked them, you have to see Meru (https://reelgood.com/movie/meru-2015) and Valley Uprising (https://reelgood.com/movie/valley-uprising-2014). Meru is better but Valley Uprising gives a good history of the sport. Both are frequently free on streaming services.

          I’m also in agreement that 2 years of community college is a great financial decision. However, it delays by two years my kids leaving the house (I’m really looking forward to them getting out of the house).

          My current university is pretty anemic in regard to tuition assistance for children, but I’ve heard others are fantastic (U Chicago, Notre Dame, etc).

          Regarding the congratulations for exercise….I’m not sure what to say. I tend to feel guilty doing so because it inherently takes away from other responsibilities (family, etc). That said, it makes me a happier person so I hope it’s worth it. But life is definitely a juggling act and I often feel like I’m dropping balls.

          Bike commuting is magical because it’s essentially a free (time-wise) exercise. I’m simply reallocating time I would have spent in the car to time on the bike, given that the two are roughly similar time-wise. It’s a great life hack provided you have a safe-ish route.

          Reply
          • Meru is great as well. Those guys are crazy (though not as crazy as Alex Honnold). Will check out Valley Uprising.

            My college was right on that competitiveness level with ND etc. so certainly not easy to get into and utilize the benefit, however I surmise with ND there is an affiliation with other Christian schools were if you don’t get accepted there the benefit transfers over to other such schools. Also I believe with my school there was a requirement where you had to work there five years before becoming eligible for the benefit so would need to plan ahead if pursuing that strategy.

            I agree on feeling torn about exercise but I think taking care of your health and well-being is more important than anything. I can’t bike because I do childcare drop off but am committing to getting back into jogging/body-weight exercises.

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