Monday, January 8, 2018

Where is your money going?

How much are you saving each month?  How much are you spending each month?  Do you have any idea?

“I want to save more money in 2018”
With the start of 2018, many people are looking forward to earning and saving more money this year.  The problem is, many people have no idea where their money goes.  Those that make New Years resolutions to save more often don’t set any specific, achievable goals.  If one of your 2018 goals is to “save more money” and you’re not intentionally planning on how to do that, you’re probably not going to save more money.   

As Benjamin Franklin once said: “Failing to plan is planning to fail.”

Why do you want to save more money?
When it comes to saving more money, ask yourself what the purpose of saving more money will be for.  Setting specific goals will give you a better chance of achieving it.  You might want to save money for your emergency fund, a new home, a new rental property, your next vacation, or your financial freedom.  You probably want to save for more than one financial goal at a time.  If you don’t plan out what you want to save money for, you may be tempted to raid your savings for temporary pleasures such as concert tickets, a new iPhone or a new luxury purse.  

When do you hope to achieve your financial goal?
Once you list out your specific financial goals, then next step is to determine when you want that goal met.  By setting a timeline, you can plan ahead on how much you need to save monthly to reach your savings target.  After determining your set goal and timeline, it’s time to plan out the moves necessary to meet your savings. 

Let’s look at a financial goal like saving for a $12,000 home renovation or used vehicle purchase.  If you want to save enough by this time next year, you’ll need to set aside $1,000 every month.

Let’s look at the big goal of reaching financial freedom and optional retirement.  Mr. Money Mustache has written an epic post titled The Shockingly Simple Math Behind Early Retirement.  He has explained the math in easy to understand terms.  If you can save 50% of your income, you only need to work for 17 years to be able to retire.  This includes conservative estimates with 5% investment returns after inflation and a 4% safe withdrawal rate of your portfolio.  If your goal is retire after 17 years of work, you need to make the savings changes necessary to save 50% of your income.

Tracking your spending
Tracking your spending is one of the first steps in taking control of your finances.  Whenever people come to me to ask for advice or tips on how to save money, the first thing that I recommend is to track your expenses.  If you don’t track where your money is going, you can’t improve your savings rate.  I’ve had a few people just tell me that they just don’t have any time or patience to track their spending.  Years later, they are still struggling with debt and stressed with making ends meet.  I guess they’ll just have to set aside enough time to keep working forever.

The most important number when it comes to financial freedom is determining what one’s yearly expenses are.  If you don’t bother to figure that out, you’ll never know when you can reach financial independence with the option of retiring early.  With any other savings goal such as buying a rental property, paying for your next vehicle with cash, or maxing out your 401K, you will need to make and follow through with a savings plan.  In order to ensure that your savings plan is attainable, you need to know what’s going on with your money.

We manage our money like a business.  We use many tools available to us to help us track our spending, monitor our savings goals, and keep an eye on our investment progress.  We automatically track our spending with Mint.  We automatically track our investments and asset allocation with Personal Capital.  We manually track our spending with ClearCheckbook.        

Mint is hands down the easiest way to keep track of your spending.  I’ve been using Mint since 2007, over 10 years now.  To use the service, you simply input a login of all of your accounts: checking, savings, credit cards, investment accounts, and mortgage.  Mint will automatically categorize how much you're spending in various categories such as: bills, shopping, gas, groceries, dining, travel, medical expenses, and more.  
These are our spending categories for 2017.  Food & Dining (restaurants and groceries), Taxes (property taxes for our home and rental property), Fuel, and Pet expenses (our dog's medical problems) make up the largest portion of our spending.
Mint does require some fine-tuning of your spending categories every now and then. Mint also categorizes your sources of income such as paycheck, rental income, or bank bonuses.  You can also add any assets that you have such as real estate and vehicles.  Mint will approximate the values of your property with Zillow, or you can manually enter any value.  This allows you to see your entire net worth (assets minus liabilities).  As a bonus, Mint also provides you with a free credit score from TransUnion. 
Personal Capital
Personal Capital is the best financial tool to monitor your investment portfolio and asset allocation.  Managing your overall asset allocation of US stocks, international stocks, US bonds, international bonds, investment sector weighting, and alternative investments can be confusing.  Personal Capital makes it easy to keep track of your asset allocation and investment fees.  Personal Capital also has an easy to use retirement planner that calculates your likelihood of successfully retiring when you want to.  The planner provides feedback on how adjusting your savings rate and annual expenses can affect your retirement.  Personal Capital offers all of this for free.
Once you hit 100K of investable assets, a licensed financial advisor from Personal Capital will call you and see if they can schedule a free telephone consultation.  The advisor will take the time to discuss your financial goals and questions.  They will also discuss ways to improve your portfolio, reduce your fees, reduce your risks and optimize your taxes.  There is no obligation to speak with them and the phone call is free.  In addition to a telephone consultation, Personal Capital does offer professional investment management if you are interested or don’t want to manage your portfolio on your own.  You can sign up for your free Personal Capital account here
For those looking for a manual way to balance accounts, ClearCheckbook is the way to go.  ClearCheckbook is a free online web based application that allows you to enter all of your accounts and expenses manually. 
ClearCheckbook does not store any of your bank or credit card information.  
ClearCheckbook can keep track of all your checking, savings, credit cards, investment accounts, and more.  This helps me quickly monitor which categories I spend the most money on over time.  You can access the web application any time you have internet access.  There is an iPhone app, but I find the webpage much easier to use. 
While Mint and Personal Capital can automatically track expenses that have cleared, ClearCheckbook allows me to keep track of which checks have cleared as well as total restaurant expenses including tip.  I’ve caught a few instances of fraud such as when a waiter deliberately modified my tip amount and overcharges my credit card.  When comparing my bank statements, I can track down which checks haven’t been cashed yet.  It still amazes me how people can wait over 2 to 3 months to cash a check!  
If you haven’t started yet, make 2018 the year you start tracking your expenses
It’s time to start taking control of your finances.  If saving money is one of your biggest goals this year, it all starts by documenting your expenses.  Once you start tracking your money, you can work on improving your savings rate.  You may be shocked to find out where your money is going.  While tracking your spending won’t automatically save you money, (just like tracking your caloric intake won’t automatically help you lose weight), it’s a starting point.
Looking back at my expenses, I used to be incredibly wasteful.  I used to spend $75 a month ($900 a year) on dry cleaning.  I would spend an average of $900 a month eating out for lunch and dinner ($10,800 a year).  I would spend an average of $307 a month on gas.  If I kept my DirecTV satellite television service, it would have cost $68 a month.  Without tracking my spending, I had absolutely no idea why I kept living paycheck to paycheck every month. 
After I started tracking our spending, I could easily see what I was wasting money on and then begin to cut back spending on things that really weren’t that important to me. I switched to a garment steamer and stopped taking dress shirts and pants to the cleaners.  We bring our lunches to work and have reduced our eating out expenses by over 50%.  This is an expense we are looking to further reduce in 2018.  Without tracking our expenses, there would be no measurable way to improve our savings rate.  We haven’t lived paycheck to paycheck for a long time, and never wish to live that sort of existence again.    
Our monthly finances are now completely optimized and mostly automated.  I track all of our spending with Mint and ClearCheckbook.  I track all of our investments with Personal Capital.  Bills get paid, money gets saved, and contributions steadily flow into our investment accounts.  Once you have your finances in order, financial freedom is inevitable; it’s only a matter of time.          

Monday, January 1, 2018

2018: Happy New Year, December side hustles and year end summary

Welcome to January 2018, Happy New Year!  Did you have a fun time ringing in the start of 2018?  We spent the last few days of 2017 at our hospital, welcoming the birth of our second child, Naomi.  Labor and delivery went very well, much faster and smoother than with our son.  Within 10 minutes of pushing, my wife gave birth to our daughter!
Shortly after delivery, it was discovered that our daughter’s bilirubin levels were high.  Newborn jaundice is fairly common, and our son had it.  It pained us to see our baby girl spend several hours a day undergoing phototherapy - a light treatment used to lower bilirubin levels in a baby’s blood.  
Thankfully, she only needed treatment for 2 days.
We spent the last few days of 2017 at the hospital, anxiously waiting to be discharged to return home.  Going out to a party was the last thing on our minds.  Now all we want to do is get enough sleep.   

A big year of financial milestones
I’m still slightly in shock that we are now a family of four.  Now more than ever, we continue to strive towards our financial freedom.  I shared in a post last year about how I wanted to make our motto for 2017: “work hard, invest hard” and this past year has not disappointed. 
Net worth summary from
2017 was a big year of financial milestones for us.  We continued to contribute to all of our investment accounts including our: 401Ks, IRAs, taxable account and 529 for our son.  We will be opening another 529 for our daughter soon.  This past year, my 401K investments surpassed 200K.  Our non real estate total investments surpassed 300K.  And our net worth surpassed 1 million dollars!  We continue to focus on growing the gap between our income earned and money saved.  We track all of our spending and budgets with Mint and our investments with Personal Capital.  Our financial habits have grown pretty strong and I know we will continue to save and invest over this next year.    

Travel booked with points in 2017
Travel hacking our trips allows us to spend very little money, and yet live a rich life as we continue to save and invest for our future.  Here is a list of travel we booked (or saved money on) with points in 2017.
$550 off Airbnb stay in Tokyo, Japan by redeeming 55,000 Barclaycard Arrival Plus miles.
$300 off JR high speed rail pass in Japan from my wife’s Chase Sapphire Reserve $300 travel credit.
$274.30 off of a hotel stay in Taipei, Taiwan from my Chase Sapphire Reserve $300 travel credit.
$119.99 statement credit for a free hotel stay in Narita, Japan covered with Barclaycard Arrival Plus miles.  I wrote about our stay in Narita here.
$150 off hotel stay in Las Vegas, Nevada by redeeming 15,000 Barclaycard Arrival Plus miles.
$460.31 for a free hotel stay in Carlsbad by redeeming 30,687 Ultimate Rewards points.  I wrote about our 2 days at Legoland and Sea Life Aquarium here.

In March 2017, we enjoyed a 15-day trip to visit Japan and Taiwan.  Our then 21-month-old son had a blast exploring everything. 
Thanks to miles and points, our son was able to experience his first international flight – in round trip Singapore Airlines Business Class! 
We expect to go on many more family vacations in the future once our daughter gets a little older.  This gives us plenty of time to save up more miles and points for future use.

Another great year with our son
Raising our son continues to give us so much joy.  I wasn’t sure I would enjoy parenting so much.  It’s been fun watching our son grow and develop.  He loves to dance to music.  He loves to use his imagination while playing with his toys. 
He still loves running around outside, exploring our walking paths, pointing out all the different colors of flowers, and collecting limes and pinecones.  
And recently he’s been enjoying coloring with crayons and markers.  He’s becoming quite the artist!  We hope he becomes a good big brother to his new sister.      
December side hustles 2017
Here’s our monthly summary of side income that we have generated in the previous month of December.
Survey Income
On 12.4, I received 2 checks for $10 each from M3 Global Research totaling $20 of survey income.
On 12.18, I received a check for $35 from E-Rewards Medical.
I’ve been doing a ton of medical surveys lately.  They are mostly pretty easy and they pay much better than any other type of survey.
On 12.22, I received a check for $25 from M3 Global Research for completing a medical survey.

Rental Income
On 12.10, we received a net profit of $515 from our rental property.  Our tenants paid $85 worth of late fees.

Points Programs
On 12.18, I received a $50 gift card by redeeming 17,000 IHG points.  While this wasn’t the best redemption of IHG points, we haven’t stayed at an IHG property for several years, with no intention of staying at one anytime soon. 
On 12.16, I redeemed 2,370 MyPoints rewards for a $15 Amazon gift card. 
On 12.30 I redeemed 790 MyPoints rewards for a $5 Amazon gift card. 
I earn MyPoints pretty slowly at 5 points per email click.

Side Job
On 12.26, I received a check for $162.50 for teaching at the local university.

Website Income
On 12.24, I received a $20 direct deposit into our checking account for income generated by the website. 

December Monthly Totals:
We earned $50 cash back
I earned $80 from paid surveys
We earned $515 from rental income
I earned $70 from points programs
I earned $162.50 from teaching
We earned $20 from income generated by this website

All of this totals $897.50 from our side hustles for the month of December.

Side hustle totals
For 2017, we brought in a total of $15,307.76 worth of side income!
It’s now been 4 years since I’ve been tracking our side hustle income. 
In 2017, we earned $15,307.76
In 2016, we earned $24,195.44
In 2015, we earned $19,178.54
In 2014, we earned $28,633.42

All this extra side hustle income is in addition to our regular paychecks and most of these hustles hardly required any difficult work.  One of our best side hustles over the last few years was house hacking, or renting out one or two of our bedrooms.  That was a great way to keep our housing expenses down.  With a family of 4 now, we don’t see house hacking again in our immediate future, but would definitely consider it again as the kids get older.  Our rental property continues to steadily bring in monthly income with very few headaches, thank goodness.   
We finally got discharged from the hospital to make it home before 2018!
As 2017 ends, it’s nice to reflect on all of our accomplishments and look towards improvements for the next year.  I can't believe I've already been blogging for 6 years.  Thank you all for your support and joining us on our financial journey.  This New Year I want to focus on eating healthy while keeping our grocery costs down.  2018 is another year to relentlessly improve every aspect of your life.  Let’s make it another great year together. 

Wednesday, December 20, 2017

It’s the season for gift giving: how should you participate?

Is everyone ready for Christmas?  This is the happiest time of the year, when friends and family gather together to celebrate the birth of Christ and look forward to the coming of the New Year.  There are family dinners and holiday parties filled with cheer.  I love the magic of Christmas time.  I love seeing lights and decorations.  I love hearing holiday music.  I love seeing people share kindness. 

Underneath the cheerful surface of Christmas, there is stress, anxiety and sadness.  Common traditions and the media will have you believe that Christmas is less a religious holiday, and more of a gift-buying and gift-giving holiday.  Our consumerism society has ingrained into our minds from childhood that giving gifts is the best way to show how much you love someone.  There seems to be tremendous social, marital, and family pressure to shop for and give gifts to everyone that you care about.  Gift giving is even considered one of the “five love languages” of commitment to your relationship.  Many people feel obliged to buy for others just to keep up with the status quo.

Millions of dollars in advertisements will have you believe that you have to purchase a gift for every special occasion: Christmas, birthdays, anniversaries, Valentine’s day, Mother’s Day, Father’s Day, graduation, work promotions, milestones, etc.  The list goes on and on.  

Many people around me find December to be the most stressful time of the year.  A great deal of that stress revolves around money, or not having enough of it.  There is also a great deal of anxiety finding the perfect gift for important people in their lives. 

People end up spending way too much money when they aren’t financially qualified to be buying expensive things.  I know people with significant credit card debt hidden from their spouse, yet still looking to buy an expensive Christmas gift way over their budget.  I’ve already heard several coworkers talk about how “money is so tight right now.”  Some of these individuals are making between $50,000 to over $100,000 a year.

In the past, I’ve been guilty of overspending and stressing out over finding the perfect gift.  I remember the year that I got my first decent paying job.  I really went all out and bought nice gifts for all of my family members: a digital camera for my dad ($500), a Playstation ($400) for my cousins, a Louis Vuitton luxury purse for my mom ($1,800), and much more.  I felt proud to give them such nice things.  Then I received my credit card statement and started the New Year heavy in debt. 

In the past, I’ve felt the heavy weight of gift giving obligation on my back.  I’ve gone to the mall and battled the crowds trying to make last minute gift purchases a few days before Christmas.  I’ve experienced the disappointment of receiving gifts that I had no interest in: clothes that don’t fit or random knick-knacks that go straight into the trash bin.  Looking back, this was all extremely stressful and pointless. 

One of the best decisions that my wife and I have made regarding gifts was to just agree not to shop for surprises for each other.  If we really need or want something, we just agree to go and buy it – no need to connect the purchase to a random “gift giving” holiday.  We already have almost everything we could possibly want.  We are trying to minimize the junk we own.  Anything else would just clutter our home.   

Sometimes it is hard for people to understand why I don’t buy an anniversary gift for my wife, or why she doesn’t get me anything for my birthday.  Our attitudes go against common consumerism culture.  Once you are in a committed relationship with your significant other, your finances are linked.  You are now saving for financial freedom together.  Spending money from our same bank account doesn’t benefit our financial future in any way.  Our best gift to each other is sharing the common goal of reaching financial freedom together. 

Every year, I struggle with the gift giving traditions of our society.  My in-laws love to give us gifts, even though we tell them that we are happy just to be in their presence.  They know that I don’t need any material things, but it truly makes them happy to be able to give me a gift.  And if it makes them happy, all I can do is accept their gifts with a big smile.

Gift giving is not necessarily a bad thing.  We still participate in group Secret Santa or White Elephant gift exchanges.  Buying one gift instead of several doesn’t break the bank.  When thinking about gifts for others, we try to put thought into purchasing a gift that the recipient will find value in.  Consumables can be a great gift because it won’t end up in some landfill.  Experiences can also be a memorable gift that lasts.  We recently gifted my father business class flights on Japan Airlines and Singapore Airlines by redeeming some of our credit card points.  My dad has only flown in economy all of his life and these flights will be a real treat for him.  This year, the partners in my group all pitched in to treat all of the staff out to dinner.  We gave speeches of appreciation to our team, praising them for all of their hard work.  They all valued our kind words and the good food.  

Gift giving holidays can motivate people to be generous in donating to charities.  Others can be motivated to give the gift of their time in volunteering for those less fortunate.  There is a shortage of these kinds of gifts.

We will celebrate the season by spending time with our families, sharing joy.  Our health, and the meaningful relationships we have with each other, family, and friends are the most important things in our lives.  We are going to start a new tradition with our kids.  They will never have to worry about getting the perfect gifts for mommy and daddy.  They will grow up knowing that they don’t need to give gifts to show their love.  Their love will show through their attitudes and actions.

Yesterday, we took a family stroll through our neighborhood to enjoy all of the festive Christmas decorations.  Our son was mesmerized by all of the vibrant colors.  This cost us nothing and he had an amazing experience.  

Did you find yourself spending way too much money (and time) on the perfect gift this month?  Did it stress you out?  Remember that Christmas is not about plentiful gifts under a decorated tree.  The best present you can give someone is your presence and your time.  
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