Financial Update Mar 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Big ERN describes why home ownership can be a good investment after properly accounting for imputed rent (link).
  • WSJ article on retirement destinations (link).
    • WSJ article on people leaving bay area due to high cost of living (link).
  • 36 year old accountant called in as emergency goalie in NHL game and kills it (link).
  • Interesting GCC article on urban farming (link).

Life

  • Gave another guest lecture in personal finance. Pretty similar to previous presentation, but I added a few new slides (link).
  • Was interviewed by the Millionaires Unveiled Podcast guys. Not sure when the episode will be released (or if they’ll throw it in the trash to save the world from my incoherent ramblings).
    • During the interview as well as during the guest lecture, I realize that I sound like a broken record: live below your means, max out tax advantaged accounts, invest in index funds. It’s sounds trivially easy, but deviating from the advice will invariably lead to financial problems down the road. Just as failing to eat healthy, exercise, getting sufficient sleep, and wearing sunscreen will invariably lead to health problems down the road. It’s not rocket science, but doing the little things day in and out is the only way I know how to accrue wealth. That or being adopted by Bill Gates.
  • Some days I forget to bring my lunch to work.
    • I blame it on my deteriorating mental capacity raising 5 kids.
    • On days when I leave my lunch at home, I don’t eat.
      • The pain of overpaying for restaurant/cafeteria food far outweighs the pain of dealing with a grumbling stomach for a few hours.
      • I generally have backup food in my office (jar of peanut butter, container of nuts, etc), but I’m usually hungry enough during the week that I eat those for non-emergency purposes, often leaving me foodless during times when I forget my lunch.
  • Continued to climb in the gym. Getting better. Took 5 kids there several times this past month. Fun family activity.
    • Climbing is a frugal activity. Initial costs for harnesses and shoes are relatively small. After that, marginal cost is close to zero. Same deal with hiking/backpacking/camping supplies.
    • Got 95% up my first 5.11b before sitting on the rope due to fatigue. Got up first bouldering V4 after 3 weeks of trying the route. Need to start lead climbing.
  • Over spring break, my folks flew us out to CA. My kids had not been there in forever as my folks and I usually meet halfway between CA and the midwest.
    • The bay area is a special place. The weather is great. It’s beautiful. It is the intellectual capital of the world. But its crowded. And real estate is absurd. I spent most of my childhood in a 2bdr 1300 square foot townhome, which (re)sold last month for a cool $1.5M (with property taxes of $20k/year).
    • Living in the bay area is like jumping on a treadmill set to full incline mode and a 6 minute mile pace. You have to sprint just to break even financially. Leaving the bay area is like getting off the treadmill, walking, and finally getting ahead in life. Sure, this walk may include days of freezing rain, but at least you’re getting ahead.
  • Lifehack: If you have kids, join ANY museum that’s part of the Association of Science Technology Centers (ASTC) (link1, link2). If you do so, you’ll have access to over 350 top-notch museums as you travel to random cities. In San Francisco, we went to the Bay Area Discovery Museum (link). It was incredible and located at the base of the Golden Gate Bridget. 10 minutes of googling museums (specifically University museums) on that ASTC list will produce some with annual memberships as low as $35 for a family. We use this museum pass when visiting the Denver Museum of Nature and Science. Please read the 90 mile radius exclusion on that first link. We’ve had a ASTC eligible pass for about 5 years now and almost always use it when we travel.

Happy midwestern family basking in the beauty of the pacific ocean.

Tide pools. Tons of hermit crabs & an occasional star fish.

Probably my favorite place to visit as a child. After a few mile hike up the Santa Cruz Mountains, you’re rewarded with a view of the silicon valley. In the background, you’ll find the headquarters of Apple, Google, Tesla, Facebook, etc. What a remarkable place.


I prefer seeing deer while hiking to seeing deer while running them over at 75MPH. Oak trees are beautiful. They remind me of my childhood.

What trip to CA is complete without a trip to In-N-Out to dine on ketchup and water?

Free oranges!


Photo op during 2 mile run across Golden Gate Bridge in rain. It’s been a life-long dream of mine to do so and I finally made it happen despite the wind and rain. My three oldest kids, my mother, and I were grinning ear to ear during entirety of the run.


Chillin’ at Bay Area Discovery Museum, at the foot of the Golden Gate Bridge.


One of the more ominous reminders of the hazards of bike riding. I’m glad that my bike commute is mostly on a dedicated bike trail.

Hitting a bucket of balls at the golf course where I worked growing up. My first job was a “range rat” where I’d pick up the balls at this range. It’s amazing to think about the passage of time when revisiting your old stomping grounds.

 

This month’s finances

  • The good:
    • Stuffed another $9.25k into 403b+457.
  • The bad:
    • $3,804 for first half of 2017 property tax payments.
      • I dry heaved as I wrote that bullet point.
    • $350 for HOA dues.
      • A smaller dry heave.
    • $400 airfare for wife to attend funeral.
      • This was a good expense, just a deviation from a typical frugal month. My wife got to hang with her family and celebrate her grandmother’s life well lived.
    • $900 water heater replacement.
      • For as much as I tried to argue “only wimps need functioning water heaters!” to my wife, she (rationally) shot me down. I guess having our kids shower at the YMCA once a week wasn’t her idea of sufficient hygiene. So we bit the bullet and replaced it.
        • The astute reader of the blog will note the reference to the YMCA here. Yes, we have a gym membership now. Yes, we also have a home gym in the basement so it’s redundant. But we decided to put our youngest in a cheap preschool there (way cheaper than other options). And the YMCA gives our family a place to go on horrible winter days. But I’m salivating at the opportunity to cancel the membership when preschool ends in a few months.
      • I’m convinced that owning a home is a constant battle in which your home is trying to decay to dirt, rust, and mold. The picture below is how I envision my home looking in a few years if I don’t continue to hemorrhage money on repair costs.

 

Full version is downloadable here (link).

 

Footnotes:

  1. Don’t lend money to friends/family.
  2. I lazily approximate home value as my historical purchase price.
  3. I have a 15Y mortgage; which results in a faster rate of repayment. The true cost of the mortgage should exclude repayment of principal, which I show above.
  4. $20 internet and $0 cell phones as described here.
  5. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
  6. I prefer Vanguard funds but my employer offers Fidelity instead.
  7. 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).
  8. 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.
  9. ETF’s are a pain to own relative to holding index funds directly. You have to 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. I am currently invested in VTI b/c it’s $10/year cheaper than VTSAX in my Saturna HSA.
  10. 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 0.30%. 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.
  11. The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital ($15 per transaction + 4*$1/dividend reinvestment).

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2 thoughts on “Financial Update Mar 2018”

  1. Living in the Midwest my whole life, I can’t imagine Bay area real estate prices. The views look tremendous and the weather certainly is an improvement. Seems your entire family enjoyed it.

    I cringed at your property tax expense, but I now understand why your monthly expenses are so lumpy.

    Why is there a negative $206 in your taxable brokerage contribution? Is this dividends you took out to invest elsewhere?

    Reply
    • Jim,

      Trip to CA was great. But I’m glad I’m not buying into the RE market now. It’s absurd. If I were gifted a home for free, I’d consider moving there.

      Property tax expense is definitely cringeworthy. Pre-2018 I’d dry heave less strongly b/c it was tax deductible. Post-2018, no longer the case. Violent dry heave.

      I’m a fan of geographic arbitrage. CO is looking really good on the property tax dimension.

      Negative $206 is indeed a dividend of VTSAX in my Merrill Edge Account. I turned off automatic reinvestment of dividends to better allow for tax loss harvesting (to not trigger the wash sale accidentally). Haven’t done TLH yet, but perhaps in the near future once retirement accounts are filled up for 2018.

      We indeed have lumpy expenditures. It’s a function of real life. We hit 1 deer last year, which was a lumpy expense. Hitting 1/12 of a deer every month would definitely have smoothed our expenditures. Same thing for water heater, new roof, etc. Self insured individuals are bound to have lumpier expenses. But if someone has the discipline to save and have a financial reserve to pay off lumpy expenditures (i.e. property tax), I’m not sure why anyone would rationally pay these expenses early (i.e. escrow) and forgo interest.

      Reply

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