Financial Update May 2018

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Great interview with Bezos (link), found courtesy of Go Curry Cracker.
    • I honestly didn’t know much about Bezos prior to this article. Obviously, an incredible guy.
    • I enjoyed the portion of the article beginning with “I’m interested in space, because I’m passionate about it.”
      • I hadn’t heard of the problem of stasis before, but it’s a fascinating topic.
      • “Now take the scenario, where you move out into the solar system. The solar system can easily support a trillion humans. And if we had a trillion humans, we would have a thousand Einsteins and a thousand Mozarts and unlimited, for all practical purposes, resources and solar power unlimited for all practical purposes. That’s the world that I want my great-grandchildren’s great-grandchildren to live in.”
      • “The only way that I can see to deploy this much financial resource is by converting my Amazon winnings into space travel. That is basically it. Blue Origin is expensive enough to be able to use that fortune. I am liquidating about $1 billion a year of Amazon stock to fund Blue Origin. And I plan to continue to do that for a long time. Because you’re right, you’re not going to spend it on a second dinner out. That’s not what we are talking about. I am very lucky that I feel like I have a mission-driven purpose with Blue Origin that is, I think, incredibly important for civilization long term. And I am going to use my financial lottery winnings from Amazon to fund that.”
  • How Not to Die: Discover the Foods Scientifically Proven to Prevent and Reverse Disease (link).
    • TLDR: being vegan (or as close as you can tolerate) will prolong the length and quality of your life.
    • First half of the book has dramatic claims about the miracles of vegetables, fruits, seeds, and legumes.
    • The second half of the book is where the more actionable stuff comes in. He shared his personal checklist that he implements on a daily basis (page 273):
      • Beans (x3 servings)
      • Berries (x1 serving)
      • Other Fruits (x3 servings)
      • Cruciferous Vegetables (x1 serving)
      • Other Vegetables (x2 servings)
      • Flaxseeds (x1 serving)
      • Nuts (x1 serving)
      • Spices (x1 serving)
      • Whole grains (x3 serving)
      • Beverages (x5 servings)
      • Exercise (x1 serving)
    • I also like his stoplight system (page 259).
      • Green light: Unprocessed plant foods
      • Yellow light: Processed plant foods & Unprocessed animal foods
      • Red light: Ultra-processed plant foods & Processed animal foods.
      • Be liberal with greens. Easy on yellows. Avoid reds.
    • I’ve gotten back into a daily green smoothie routine since reading this book (which helps to bang out several items on the daily checklist). Who knows how long that trend will continue. It’s been nice trying to get the kids to eat healthier.
  • Related to the above, Mr Money Mustache on nutrition & food (link).
    • “Your eating choices will drastically affect your budget (especially if you are raising a family), but they also affect your health, energy levels, productivity, and happiness. The path to a great life goes directly across your dinner plate, so it is important to take this shit seriously and not mess around with your nutrition.”
  • Nolo’s Plan Your Estate (link).
    • Estate planning must be the most dreaded task in all of humanity. Nobody likes thinking about death nor drudging through the legal paperwork (& confusion & expense) to get their act together.
    • I came away from this book convinced that, rather than setting up living trusts and having to hire an attorney as well as retitling all of my assets in the name of the trust, a simple transfer on death (TOD) system will work well enough for our family. I believe this book first exposed me to the idea of a TOD title for a home. In the event of the death of my wife and I, the home would immediately be transferred to the individual listed on TOD title. I downloaded the form to do this but need to actually turn it in. I need to do the same for my brokerage accounts (IRA’s & 401ks have beneficiaries already which is the same idea as the TOD).
      • Pros to the above: Simple. Effective. Avoids probate.
      • Cons to the above: Not robust to very unlikely scenarios:
        • My wife & I are horrifically injured but don’t die. We are incapacitated for decades and assets can’t transfer until we kick the bucket.
        • My wife and I kick the bucket, our assets go to beneficiary who blows it all and leaves nothing for kids.
      • I’m convinced our beneficiary will manage assets properly. I’m not worried about a Cinderella situation.
      • Can one of my brilliant readers talk me out of the simple TOD solution for brokerage accounts + home + autos rather than the formal living trust?
        • To clarify, our kids are really little still. I want any money to go to the guardian of our children and for the guardian to use the money as how they deem appropriate.
        • I realize that as my kids age and become adults, this strategy will no longer make sense. At that point, a living trust would make the most sense.
          • I guess this begs the question that if I’m going to do it eventually, why not now?
            • Not sure that I have a great response to this other than delaying the pain of setting up the trust now.
  • A Clueless Dad’s Strange Trip to the Ultimate Tournament (link)
    • “How did our kids wind up in this stoner sport?”. Ha!
    • Ultimate is by far my favorite team sport but I haven’t played it in about 7 years. The article reminded me of how much I miss it and prompted me to sign up for a local league which starts tonight.
  • Old post from MyMoneyBlog about the importance of having umbrella insurance (link).
    • I’m pretty stingy, but I consider this money well spent.
  • MyMoneyBlog on the merits of shopping out homeowners insurance every year (link).
    • This morning I got a quote from Geico at $3.3k/year relative to my current $593/year for Esurance. I think I’ll stick with Esurance.
  • Full audio of Berkshire Hathaway meeting here (link).
    • Text transcript for those who prefer reading (link).
  • Imminent MoviePass Failure (link).
    • Who would have thought that a business that gives away unlimited movies (at full price) while only charging $8-10 a month would build an increasingly large fanatical fan base which would hasten the demise of the company?
    • Going forward, I’m interested to see if each brand of movie theaters respond with their own version of MoviePass. I think this is a viable solution long term, but I worry about long-term cannibalization of their existing customers. Movie theaters ideally want to sell this product to the marginal consumer who wouldn’t go otherwise (i.e. me), yet avoid selling it to those who would go to theaters anyway. Perhaps the way movie theaters could differentiate between the cheapskates (like me how won’t attend otherwise) and the die hards is to prohibit the usage of such a product during the first few weeks of a show’s showing.
      • Movie theaters are in decline. MoviePass has provided a life raft to them. I’m skeptical of the long run feasibility of theaters absent some creative thinking. Our local movie theaters regularly shows movies to nearly empty audiences.

Life

  • I started writing a book on personal finance, in which I try to synthesize the disorganized content of this blog, as well as a decade’s worth of thinking about the topic, into a coherent road map to wealth. Here’s what I’ve got so far (link).
    • It’s far from complete and VERY rough. Surely it has infinite typos.
    • So far, I have mostly ranted about taxes. I need to fill in the blanks on investing & frugality.
    • Let me know if I should throw it in the trash.
  • Our family finished our marathon in a month. We didn’t find any other family to do it with us but had a good time anyway. I highly recommend the activity with your family.
  • We went bowling a couple times per week. My high score was a 222. My wife’s was a 181. We’re not messing around! Our kids are getting pretty good. We joke that our frugal bowling hack may eventually lead to athletic scholarships for our daughters. Apparently, bowling scholarships are of the easiest scholarships to earn and often go unfilled.
    • I’m easily motivated by competition. My goal is to beat my brother’s lifetime best of 246 and to beat him in person this summer.
  • Chaperoned for my 7 year old son on a class trip to the children’s museum.
    • There is a crazy dance phenomenon called “the floss” that is taking over elementary schools nationwide. During the field trip I watched my son gyrate his pelvis for about 2 hours alongside his classmates.
    • It’s a magical experience to see your kid in their element interacting with their friends. It is so much easier to converse with my kids about their days at school when I actually know who they are talking about. I need to do this more often.
  • Rock climbed a bunch. Finally started lead climbing. Got up my first 5.11a (almost clean) my first day of lead climbing. 5.11a & 5.11b are now pretty doable to me. V4-V5’s in bouldering are doable as well. Amazing what a few months of consistent effort at a task can bring you.
  • Weather turned from snow to 100° in a hurry. We sought refuge from the heat at the lake.

This month’s finances

  • Cleaned up the “statement of cash flow” portion of my financial statements to a more formal statement of cash flows more typical of what you would see in a firm’s financial statements.
  • The good:
    • Dumped $196.77 into taxable brokerage to purchase 1 share of class-B Berkshire stock, entitling me to 4 tickets/year to the annual meeting.
    • Opened up a California ScholarShare 529 plan with an initial contribution of $25. This 529 plan has the cheapest index funds in the country with the domestic equity fund costing only 0.08% after all fees are accounted for.
  • The bad/abnormal:
    • $937 on insurance:
      • $593 Esurance home insurance (annual), $201 Geico auto (6 months), $143 Geico umbrella (annual; $1M).
    • $692 on summer sports camps for the kids.
      • In our defense, I think this is somewhat reasonable for 13 total camps across the 5 kids.
      • It is evident that we are not a crazy team sports family. My 7-year-old son hasn’t played baseball before, though I coached him in t-ball years ago. I bring him to camp wearing a bucket hat (better sun coverage), tennis shoes, shorts, and a t-ball glove. Everyone else in camp is wearing a full on baseball uniform, cleats, proper glove, and baseball hat. I felt like a horrible father.
    • $500.00 on a 65 inch, open box (display model), TV at Costco. It’s the first TV I’ve purchased in my life and a substantial upgrade from our current 32″ 2005 TV that we inherited from some friends during the PhD who took pity on our TV-less family.
      • It’s amazing what happens when you upgrade technology every 15 years.
      • We’ve migrated from Windows Media Center to Plex as our primary over-the-air antenna DVR software. I couldn’t be happier with the setup. I’ll have a dedicated blog post about this setup soon.
      • It’s nice to not care to be on the cutting edge of technology trends. Recall how revolutionary the first iPhone was, yet in a matter of a year or two it was obsolete. The thing that made it obsolete was not that it became less useful in absolute terms, but in relative terms. It became less cool than the iPhone 2, which in turn became less cool than the iPhone 3. I’d like to think that smart people think in absolute terms, not relative terms. My wife and I are proud owners of two $150 Moto G4s which we bought about 2 years ago. In relative terms, I’m sure they suck. But in absolute terms, they are amazing! They take pictures, have GPS capabilities, have the ability to text, surf the web, play podcasts, and email. They make my life much better (particularly the camera, GPS, and podcast functions). By thinking in absolute terms, I’m much more immune to succumbing to incremental trends in technology. No, I don’t own a smart watch like the majority of my colleagues. In the rare event that I need to check my email while in a wifi hotspot, I do so by pulling it out of my pocket, looking at it, then putting it back in my pocket. I know it’s not quite as cool as effortlessly looking at my wrist, but that’s such a hilariously incremental improvement to a 2 year old cell phone that I’ll pass on that technology.
    • $150.00 on an open box (assembled display model) portable basketball hoop from Costco.
      • We walked the hoop home on the sidewalk the 0.5 miles to our house. Reminded me of my freshman year of college where we bought a couch at a thrift shop and walked it a mile or two to the dorms.
      • I had spent many hours researching the best in-ground system, but I couldn’t justify the $1,850 price differential (after installation) between the two systems. If you’re in the market for an in-ground system, Mega Slam Hoops is the best (link1, link2).
      • I filled the base with 500 pounds of sand so it wouldn’t blow over in the wind and kill someone.
        • I thought that purchasing a portable unit would make for easy movement of the base. After filling it with sand, it’s immobile. I’m not sure how in the world we’ll ever move it from our home, and I lost an hour of sleep one night worrying about this problem. The only solution I could think of is using a shop-vac to remove portions of the sand until the unit is mobile.
      • Our kids are using it daily. We should have done it years ago. My kids have no idea there is a difference in quality between a $150 hoop and a $2k hoop.
    • $399.99 on an inflatable paddleboard at Costco.
      • Being a more savvy Costco has ruined me into never wanting to pay Costco’s normal prices on non-food items. What I’ve observed shopping there so often is that almost all seasonal items go on clearance eventually.
        • I have similar experiences buying things from Amazon. I have to check camelcamelcamel.com to see whether I’m getting a good deal. In the event that I can’t wait for the price to drop and have to buy it at historically high prices, it kills me.

Frugal child #2 being the weirdo that she is. At the age of 10, I’m pretty sure she has read more books than me, probably by a large margin. Basketball hoop shown in background.

 

Celebratory flexing and hydration (i.e. sugar ingestion) session after our final mile, completing our “marathon in a month.” $5.00 Adidas shirt purchased at Costco shown. I bought 4 of them in the same color (was the only color left). My friends & colleagues who see me in the shirt daily probably think I’m unhygienic.

 

Child #5 “dabbing” at our second home, the bowling alley, with newly purchased goggles on his head (we didn’t swim that day). Probably a third of my income goes towards purchasing kids goggles at Costco (to replace those that are lost). I, the responsible adult on the other hand, still own a pair I purchased at Costco in 2004. Note the “kids bowl free” advertisement on the TV above him. They do indeed.

 

I’m not lying about bowling. Mrs Frugal Professor bringing the heat as well!

 

Frugal child #5 (4 years old) during his first day out on a kayak. He killed it. I’m amazed at how quickly he picked up steering, etc. Those kayaks, purchased at Sams a couple years ago (I know, the blasphemy!), are among the best money I’ve spent in my life. Our kids LOVE those things. The inflatable paddleboard makes a cameo in the top left portion of the pic. Our kids played some version of “king of the hill” for hours on the thing. When you crave outdoor recreation and live in a state that is flatter than a pancake, this is as good as it gets.

 

School assignment from frugal child #2 that she brought home this week. “If I was the president, I would invite my sister to be my vice president, give food and money to the poor, and invite my friends and family to live in the White House with me. I might make more schools, and give my dad the money he needs so he can stop working, live in a van, go to all the countries he wants, hike up all the mountains he wants, and eat all the food from dumpsters he wants. I also might go to a few of those countries and on a few of the hiking trips with him if I had the time. But I would Never Ever Eat food from dumpsters with him.”

It’s true, my life’s ambition is to live in a van by the river, like these people (link1, link2, link3, link4, link5, link6, link7, link8, link9, link10). This video on van life from world class rock climber Alex Honnold is pretty great (link).

This reminds me of a recent conversation I had with this same daughter. When I asked her she was enjoying a dessert, she responded in a mocking tone: “It felt good on the way down, but surely took weeks off of my life through the clogging of my arteries. On the whole, I think it was a mistake.” I wonder who she was making fun of? For what it’s worth, I think it’s a mistake to respond that a dessert tastes good. That’s obvious; it’s the point of a dessert. The more relevant question is whether the enjoyment of the dessert is larger than the negative health consequences from eating it. I think I’ll start asking my family members “what is net (after taking account for changes to life expectancy and quality of life) enjoyment of your food?” Under this correct framework for viewing food, the disgusting nature of Kale is swamped by its positive health benefits and the great tasting nature of ice cream is swamped by its negative health consequences.

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. I own one share of Berkshire Hathaway (B Class) to get 4 free tickets/year to the Berkshire Annual meeting.
  12. 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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14 thoughts on “Financial Update May 2018”

  1. Great article frugalprofessor! I always love your style of blog posts. I definitely enjoy reading about your life hacks, deal findings, and interesting information you stumble across. Keep it up!

    Reply
  2. Who is the beneficiary if not your kids? “I’m convinced our beneficiary will manage assets properly.” Is it the named guardian? In the event you both died simultaneously a trust would be better for minor children, but otherwise the TOD designations are fine.

    Reply
    • If we kick the bucket, a family member gets the kids. That family member gets our assets. I trust the person entirely to manage the assets properly and not squander them.

      When our kids are older (my oldest is currently 11), I agree that a trust is a better long-term solution.

      I appreciate the opinion.

      Reply
  3. As one of your brilliant readers I don’t want to even try to talk you out of the TDO solution.

    But . . . understanding the visionary that you may be, I would like to apply to the position of the beneficiary you mentioned*.

    I wish no ill towards you or your wife but I would be happy to follow thru as suggested.

    Remember the name is “Gumby” , the little green fellow still looking for shoes.

    *My wife and I kick the bucket, our assets go to beneficiary who blows it all and leaves nothing for kids.

    Reply
  4. Full baseball kit for kids in elementary school seems excessive. Keep your eyes open and you may find that you are living in YouthSportsCrazyTown.

    Reply
    • Agreed. We definitely live in YouthSportsCrazyTownUSA. Parents are crazy about kid sports. I’m not sure what the point is. To live vicariously through your kids? To get them an athletic scholarship to Harvard? To win the Master’s golf tournament? I’m not sure what’s driving it.

      But I’m 100% happy with our decision to quit organized sports during the school year. With 5 kids, it’s not feasible. Today our friends are schlepping their oldest across the state to different soccer tournaments and we are having a leisurely day as a family. While our kids aren’t as good at soccer at theirs, at least we’re not slaves to our kids’ sports schedules.

      Reply
  5. Our kid has the baseball kit. He LOVES the sport and plays in the backyard every day, pitching to himself or begging someone to throw popups to him. He’s eight and just plays in our local Little League but this year for his birthday we got him real baseball shoes and baseball pants and he is in heaven. Maybe we are crazy but then again I got the shoes used for $8 and the pants on clearance. Frugal crazy sports parents are out there!

    Reply
    • Blew up the budget last year. I keep it there as a partial excuse for our high expenditures. I keep wishing our expenditures drop to $50k/year, but it’s proving hard to achieve. $8k/year in property taxes destroys the budget pretty well. Also, 7 mouths are expensive to feed.

      Reply

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