Wednesday, January 24, 2018

The little things become the big things

Our society tries to convince you that it’s perfectly normal to spend as much money as you earn.  It’s considered routine to upgrade your lifestyle as your income improves.  And it’s not uncommon for people of all incomes to end up living paycheck to paycheck.  Poor financial choices can progressively lead you towards a lifetime of poor wealth.

You don’t have to get stuck in this sick cycle of spending everything that you earn, necessitating a lifetime of working for a paycheck.  There is a way to break free. 

“Cutting your spending rate is much more powerful than increasing your income.  The reason is that every permanent drop in your spending has a double effect: it increases the amount of money you have left over to save each month and it permanently decreases the amount you’ll need every month for the rest of your life.” - Mr. Money Mustache

To many people in today’s consumer society, it may feel like saving money is about depriving yourself of the things that you want.  To me, saving money is about gaining freedom.  Financial problems can be a huge source of stress.  It’s also one of the leading causes of divorce.

Having a sufficient amount of money saved can be liberating.  A financial emergency or setback can either be devastating, or it can be just an annoyance.  Not wanting something is just as good as having it.
Pursuing financial freedom is a goal for my family.  Life is too short to spend all of my time away from them.
Focus on the big wins first
When people come to me asking for advice on how to save more money, I always start by recommending that they first focus on their biggest expenses.  Housing, transportation, and food generally have the highest costs.  Cutting those expenses yields the biggest payoff. 

You can save some money by cutting back on your daily Starbucks, however you can improve your finances much more if you get rid of your car payment.  The average car payment in the United States is $479 a month, and the average car loan term is 68 months (longer than 5 and a half years)!  If you can pay off the car loan, you can save an extra $479 a month.  Better yet, ditch the car and drive a cheap and reliable used vehicle.  Paying for a new car every few years can really put a drag on your wealth accumulation.

Improving your finances little by little
Ideally, you want to focus on saving on both the large and small expenses in your life.  After focusing on your biggest expenses, making small reductions in your discretionary spending can make a huge difference.  Remember that frugality is a muscle that gets stronger over time with every good financial decision you make.   

In our household, we are constantly working on ways to improve our finances.  Saving and investing has become pretty routine and boring for us.  But it wasn’t always this way.  We used to live for the next paycheck so we could spend it.  Now we look forward to the next paycheck so we can invest more money. 

Expenses that we have reduced or cut out
I get all of my haircuts at home.  My wife has been cutting my hair since 2013, and this week I decided to try to do it myself.  I did pretty well on cutting my hair on the sides and top, but I had difficulty cutting the hair on the back of my head.  My wife had to help me clean up my backside.  This saves me at least $50 a month in haircuts.  

Many years ago, we started eating IN for lunch instead of going out.  Bringing our lunch into the office during the work week saves $7 per day in expenses, not counting time and fuel costs.  This saves $140 a month, hours of time driving to get food, and reduces gas and vehicle wear.

We do not subscribe to cable or satellite television.  We stream Netflix and Amazon Prime videos with our Roku.  The average cable bill for Americans is $100 a month.

We do not dry cleaning any of our regular clothing.  We simply use a clothing steamer to get the wrinkles out.  I used to spend $75 a month on getting my dress shirts and slacks dry cleaned.

We don’t pay for our daily coffee or lattes.  We make our own coffee and lattes at home.  While at work, we drink the free coffee provided by the office.  This saves us $4 a day, or about $120 a month.

We do our dog grooming at home.  Abby gets a haircut once a month.  She gets her nails trimmed once every 2 weeks.  She gets her teeth brushed every other day.  She gets a bath once a month.  On Abby’s last vet checkup, she was told that her teeth look pristine for a 4 year old.  Sadly, many small dogs suffer from gum disease and chronic pain in their teeth – not to mention stinky breath.  Unchecked gum disease in dogs can increase their risk for heart, kidney and liver disease.  This saves us at least $40 a month. 
Let’s add up everything from above.  That’s $525 saved a month, or $6,300 a year!  Invest this amount yearly for 30 years compounded at 7%, and you will have $684,717.37!  That’s enough to have a lean retirement.

Things we have never considered spending money on
My wife has never gone for a manicure or pedicure; she does it herself at home.  I know people who pay for these services every 2 weeks.

We have never hired a housekeeper.  It’s pretty easy to clean up after ourselves and we wouldn’t think of hiring out for it.  I don’t want to be so lazy that I need someone to clean up after me.  Plus, I would hate to have our children grow up without knowing the basic struggles of keeping a home clean.  What kind of example would we be setting for our children if they grow up knowing that they can always pay someone to clean up after their mess?  We know people who pay for housekeeping services every month.  Strange thing is that many of them always complain about needing to tidy up and clean up the place, so it doesn’t look too messy when the housekeepers arrive.  It boggles the mind.  We listen to podcasts when we are cleaning and it feels like we are getting more than one thing done at a time.

Since we now have 2 children at home, many of our friends ask why we don’t hire a nanny.  I know friends who have live in nannies that help prepare food, bathe the children, change diapers, and clean the house.  When we are home, we can take care of our own children.  While things can get hectic at times, it’s manageable.  We send our toddler to daycare, where he gets to socialize with other kids his age.  His sister will also start attending daycare when she turns 6 months old and my wife returns to work. 

We try to avoid all monthly subscriptions.  Nowadays there is a monthly subscription for everything from shavers to dog treats to clothing outfits.  Every company is trying to get a piece of your money.  Instead of subscribing to pay for monthly services, consider paying a la carte when you actually need a service.  After a few months, you can determine whether it really makes sense to subscribe or not.  One thing we do pay for is Netflix, which runs $10.99.  To keep things easy, I just buy a Netflix gift card at Staples, earn 5x on the purchase with my Chase Ink Cash card, and then load our Netflix account.      

We try to avoid buying random crap.  Everywhere you look, you will find random trinkets and knick knacks for sale.  We used to buy fun looking souvenirs from gift shops of places that we have visited.  We would also buy random decorations for our home.  Now we try to avoid making purchases that usually end up gathering dust and cluttering up our home.  

Ways we save on purchases
We love travel hacking with credit cards.  With a combination of normal spending and and sign up bonuses, we earn enough points to cover most of our flight and hotel expenses.  This way, we never have to worry about saving up for our next vacation.  Our points accrue automatically.  While this may change in the future, we are enjoying travel hacking for now.  Free travel allows us to continue to save and have fun along the way.    
Cathay Pacific First Class: where each seat can comfortably fit two.
When it comes to furniture, we always try to buy used from Craigslist, Facebook Marketplace, Nextdoor, Letgo, 5miles, and OfferUp.  We recently purchased this great IKEA bookshelf for $10 from someone on Nextdoor.    
Bottom line
Good habits with your money and health can easily start to compound over time.  We didn’t start saving 50% of our income overnight.  It took several years to get to a 50% savings rate.  We started by reducing our biggest expenses, such as our car insurance.  Then we started looking at our smaller expenses.  One by one, we tried to see which expenses we could cut out completely (such as paying for a barber to cut my hair) or reduce.  Look for things in your life that you can focus on improving, even if it’s just a 1 percent improvement.  While individually, these small changes may not seem like much, the compounding effect of these decisions over time can add up to make a powerful impact.  Good money habits build upon each other and lead to better financial decisions.  Next thing you know, saving and investing will come naturally.

We still have plenty of room for improvement.  I recently cleaned out a pantry of expired food and we still occasionally have to throw out uneaten food that has gone bad.  This year, our big focus is getting our grocery spending down, and not letting food go to waste.

Always take action, even if the actions seem tiny.  On your journey towards financial freedom, small things added up eventually become the big things.  
We still have a way to go before reaching financial freedom

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. 
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