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Archive for June, 2014

When it rains, it pours

June 26th, 2014 at 12:05 am

Back in the beginning of May, during a particularly heavy storm, water seeped into the basement of our raised ranch, and a small patch of carpet got wet.

I'm not home much at all (I work out of state so the only person at home during the week is the SO), and we don't spend much time downstairs in the basement, but as far as we're aware, this was the first time water had gotten into the house.

All right, it's confession time. I'm a few different things, but handy is not one of them. I grew up in city apartments with my nose buried in books, and I'm lucky if I can identify -- much less wield -- a screwdriver. The SO is also very mechanically/manually challenged. He is utterly flummoxed by wonton wrappers and never learned how to ride a bike.

Suffice it to say -- neither of us had any clue what to do. How big of a deal was this leak? Is it a sign of progressively bigger problems to come? Or was it a one-time fluke due to extraordinarily heavy rainfall? I wasn't there to see it happen, so I don't even have a sold conception of how much water there was, although the SO claimed he blotted through an entire roll of paper towels. (But have you also seen boys with paper towels? Do they ever use less than an entire roll on a spill?)

So we try to investigate what might be wrong. There might be a small crack in the foundation where the leak was, but maybe it's been there all along and is just superficial. The gutters weren't quite sloped right and were dripping a bit. The ground near the house has settled a bit, so some water is running/pooling against the side of the house.

Any or all of these could be plausible explanations for the water, but given our lack of expertise in these matters and the number of 'horror stories' one finds on the internet, I feel like I have the housing equivalent of medical students' disease.

First, the SO called some "dry basement" people. It turns out that they all want to tear up the floor of the basement, drill holes in the foundation, let all the water in to relieve the hydraulic pressure, and pump it out with a sump pump and generator -- all to the price tag of $3000 to $10,000. Um, WTF? No thanks, it was a bit of wet carpet, not a full on flood.

Then he called some gutter people, thinking that it's fairly low-hanging fruit, since the gutters shouldn't be dripping anyway, even if the drip is unlikely to be the sole cause of the water. Their offers ranged from a basic repair/tune-up to fancy patented proprietary systems.

Shortly after the initial leak, the SO dug a trench that re-routed most of the runoff around the house. It was kind of hideous looking, but it was definitely catching the water, and there hasn't been another leak since. He wasn't sure if the amateur trench would hold, so he called professional landscapers. Those proposals ranged from "Why are you wasting my time with something so minor? Call me back when you have a real problem to fix" to multi-thousand dollar projects.

If I'm being totally honest, I'm not sure we need most of these services, for a problem that may not even recur. However, the SO is kind of insecure about his lack of home maintenance expertise, as well as a fair bit more paranoid than me (his mind always goes to the worst-case scenario, which is great motivation for saving money, but fairly harrowing for everything else in life), so he feels better about being a bit more proactive rather than waiting and seeing and risking additional water damage.

He hired a gutter guy to replace the leaking gutters and add an extra downspout ($300). He also hired a landscaper to replace his hand-dug drainage ditch with a rock-lined dry creek bed ($900). He's also contracted with another landscaper to reslope the yard ($500) and reseed the lawn (that got torn up by the creek bed installation).

In addition to all of the above, he also wants to take down a dead tree that he's been eyeing for the past few years ($1000), and exterminate some carpenter bees ($200). Now he's also looking at window guys, because one of the windows seems to be rotting out a bit, and he's also considering hiring an asphalt guy to reseal the driveway ($850).

I am trying really hard to stay calm about this, because these are, by far, the largest expenses I've seen. On the other hand, I don't want the house to fall into disrepair, and I'm fine with hiring professionals to handle jobs we can't do on our own.

But we are feeling a little overwhelmed and in over our heads when it comes to dealing with the expense of home ownership and maintenance. I know we can technically afford everything, but is getting all this work done the right course of action? I guess you live and learn. This might be the one area where we will suck at conserving resources.

Fuel efficiency this week

June 20th, 2014 at 08:12 pm

Snapped a photo of my mpg gauge after this week's driving --



This is one of my best figures yet. Sometimes I feel like I over-purchased on my car, but fuel efficiency was my single most important criteria, and I've gotta say -- I'm pretty pleased that I can pull off gas mileages that are practically on par with hybrids.

Not only does it save on gas, but it also saves the planet!

Financial Snapshot and Review

June 18th, 2014 at 09:00 pm

Here's an overview and analysis of all my financial accounts as of Wednesday, 18 June 2014 in excruciating detail.

CASH - $64,345

Yes, I know. I cringe when I look at this, because I know this is an absurd amount to hold in cash, but right now, I have $14,581 in my personal checking account, $7,873 in a joint checking account (the SO contributes his share of the mortgage here), $1,268 in a joint savings account, and $40,622 in my personal savings.

This is a somewhat hilarious "problem" to have, but I cannot get my cash levels down because I am hardwired to keep inflows greater than outflows, and it just keeps accumulating. I've been trying to move some of this cash into investments, but I wanted to dollar cost average rather than throw in a large lump sum (although I tried the latter too when I dumped $11K into an international stock fund last November). So I'm drawing down my checking account with weekly $400 automatic investments, but even with all of my other regular expenses (mortgage, Roth IRA, student loan and credit card payments) coming out of the same account, the balance isn't coming down. Actually, it's still going up. Sigh.

INVESTMENTS - $430,442

Here lie the bulk of my assets. My investments are primarily in retirement vehicles, but now that retirement is maxed, I'm redirecting excess cash to non-retirement brokerage accounts.

- 401(k)/403(b). My currently active 401(k) is at $82,419, and the 403(b) from my first job is at $13,847. The 403(b) is invested in the Vanguard Target Retirement 2050 Fund. The 401(k) is split 86.3% in Vanguard Institutional Index Fund Institutional Shares and 13.7% in company stock. I still need one more year to fully vest in the company stock match.

- Rollover IRA. The 401(k) from my second job is in a rollover IRA worth $42,250. I also have $8121 in stock match that's in a rollover IRA brokerage account. The non-stock portion is invested in Vanguard Target Retirement 2050.

- Roth IRA. The balance on my Roth IRA is $104,410. This includes a bit of rolled over Roth 401(k) from job #2. This is also invested in Vanguard Target Retirement 2050 (I'm apparently not very creative, okay??).

- Brokerage. I've got $47,766 in Vanguard 500 Index Fund Admiral Shares, $14,802 in Vanguard Total International Stock Index Fund Admiral Shares, and $14,265 in Vanguard Prime Money Market Fund, for a grand total of $76,834 in non-retirement investments. And yes, I know that Money Market is basically more cash. Ooops.

- Stock options. I have $102,296 in vested and exercisable stock options with my current company. I really don't know what to do with these. And here's the doozy -- I have an additional $142,396 in UNVESTED shares which is not included in this total. I feel like this portion of my net worth is actually cheating.

STUDENT LOANS - ($7274)

I still owe a little over $7K on my 3.5% Stafford loan. It started out at $17,125 in 2006, and I've got about seven years left on it. I've been known to chuck an extra hundred dollars at it every so often, but I'm not really in a hurry to pay it off.

MORTGAGE/HOUSE - ($1,516)

This one is a bit painful and not a success story. I paid $205K for my house in 2008, but it's current value on Zillow is only $136,621. I still owe $138,137 on the mortgage, which means that not only has it lost one-third of its value, I'm actually slightly underwater on the loan -- hence the negative sign. The one piece of good news was that I was able to refinance it through HARP last September to from a 30-year fixed rate of 5.875% down to a 15-year fixed rate of 3.875%.

My only other property is my car. It's a 2012 Civic that I bought last year to replace my dead 1999 Toyota Camry that I inherited from my dad. It was a bit more than I'd wanted, but I was on a short timeline because I needed a car to commute, and I was tired of having Roadside Assistance on speed dial. It's not financed so I own it outright, but I don't like counting it among the assets column because it depreciates, but Mint includes it under assets, so I guess it counts.

So that's everything. Here's what's on the to-do list for the moment.

Action item #1 - Fix the excess cash situation. Holy moly, this is clearly one area where I fail, and when I fail, I fail hard.

Action item #2 - Should I move the stock portion of the rollover IRA out? It's irritating to me for some reason. I guess I just don't like holding a single stock.

Action item #3 - Oy, how does one deal with all those stock options? They make the "you must diversify!" part of my brain hurt, but they're worth SO MUCH and WHAT IF IT KEEPS GOING UP. Should I buy them out and hold them for capital gains? I know nothing about stock options.

Action item #4 - The one constructive comment that I received from a consultation with two financial advisors two years ago was that my diversification is awful. Well, I had (and still have) no idea what I'm doing, so they're probably right. I really ought to figure out proper diversification and asset allocation.

Action item #5 - Should we accelerate mortgage payoff? I'm vaguely embarrassed that I'm underwater, but we do like the house and have no plans to sell. A paid-off house is still a paid-off house, right?

'O Capitalism' relaunched -- Welcome to Catching FIRE!

June 17th, 2014 at 03:55 pm

In honor of the relaunch of this blog, I am rechristening it! It's new name is Catching FIRE.

"FIRE" was an unknown term to me until recently. It all started when I was listening to an episode of Marketplace Money, and heard an interview with the man who runs the website, Mr. Money Mustache. That interview caught my attention because he described the simplest way I've ever heard to determine whether one can retire.

Take your annual spending, and multiple it by 25. If your retirement fund is worth at least that, then you're good to go. If not, you need to either save more or cut spending until you reach that magical 25 times or 4% ratio.

Curious, I tried it. Our current annual household spending is around $40K. Multiply it by 25, and you get one million dollars. With my net worth sitting at around half a million, and the SO's at around $400K...

Wait, what? Is it true that we're that close?! That can't possibly be! I know we're very good savers, but to be 90% of the way to retirement by age 30 is simply absurd. As they say in The Princess Bride, "INCONCEIVABLE!"

I've been saving for retirement since my first job out of college, but actual retirement has always been a very abstract concept because it was such a long way off. I knew that theoretically I should front-load retirement savings while time and the power of compounding was on my side, but I never thought I'd actually reap the fruits until decades later.

In The Millionaire Next Door, financial independence was defined as the ability to maintain one's lifestyle without working for a wage. While that sounded like an awesomely powerful achievement, most of the millionaires in that book were self-employed entrepreneurs. I knew that entrepreneurship wasn't really my style, so I figured that particular brand of financial independence was out of my reach. I'd have to run the traditional rat race, and just do the best that I can in that arena.

So I put my head down and plugged along, and resigned to continue plodding for the next three decades... until this 4% rule blew my mind out of the water. And after browsing on the MMM forums, I was introduced to the concept of FIRE -- Financially Independent, Retired Early -- and it all started to come together. You don't have to be a small business owner to achieve financial independence. All you need is to grow enough assets to generate the cashflow required to support your living expenses. That's not rocket science. I mean, I can do that.

All of a sudden, financial independence and retirement went from a dreamy and remote "someday" to concretely achievable in the not-so-distant future. And what an awesome, dream-come-true achievement that would be. Rather than some abstract and impossibly far away concept, I have a solid goal to plan and strive for now.

We're gonna catch some FIRE.

My net worth: 2006 vs. 2014

June 16th, 2014 at 09:27 pm

I was reading back over some of my old entries, and discovered that in 2006, my net worth was $5K.

Today, my net worth is around half a million.

That's two orders of magnitude increase in eight years. Whoa.

Granted, my salary did almost triple between then and now, which is very helpful. And I've always tried to keep expenses low, so I can save more of my income. And I've had help -- ever since my SO moved in, we share expenses and live very efficiently.

But I must also point out that I haven't actually been trying to grow my wealth. All I've been doing is maxing out my retirement accounts, and auto-investing in some index funds. It's all very passive, autopilot, set-it-and-forget-it style investing. Aside from logging into my checking account to pay off my credit cards every month, I can go months without checking my other financial accounts.

A few months back, though, I logged into mint.com, and noticed that my net worth topped half a million. I was in total shock. That was a huge milestone.

I am well-aware that in recent years, the stock market has been going gangbusters, which obviously contributed to the exponential growth of my net worth -- a pattern which will likely not hold forever.

But it also made me acutely aware that the playing field has now fundamentally changed.

Instead of generating wealth by saving income and watching those savings accumulate in a linear fashion, I now release those savings into the market, for it to do what it will. Instead of having savings be the main driver of increases in wealth, market appreciation is now the primary source of the (exponential) increases (or decreases!) in wealth. It's an entirely new paradigm, and it is a little frightening.

This is why I need to learn more than just how to play good defense -- or even offense; my salary is not going to triple again. I need to learn how to manage and balance investments, because that is the only path forward. I guess I'm in the big leagues now. Gotta step up and own it. Or at least try.

Flash Forward

June 16th, 2014 at 05:00 pm

It's been a while, but I am back, and I am rebooting O Capitalism!

When I started this blog back in 2006, I had just graduated from college, and was starting to work through the ins and outs of being on my own. After figuring out the basics of frugal living and financial management (including the magic of compounding interest), and especially after landing a terrific new job, I sort of went on autopilot for a while, and stopped thinking about and working at personal finance.

However, a lot has happened over the past six years, and here's the whirlwind cliff notes version. After changing jobs, I bought a house (2008), my SO moved in (2009), we got some cats (2009, 2010), I lost my job (2011), I earned a Master's degree (2011), I found a new job out of state (2011), I paid off one of my student loans (2011), I replaced the 14-year-old car I inherited from my parents (2013), I refinanced my mortgage (2013), and that brings me to now.

This year, 2014, I am turning 30. It's hard to believe that time has flown so fast, but I am officially bidding good-bye to my 20s and young adulthood. I feel like I need to reassess where I've been, where I'm going, and plot a fresh new course for the next decade. After all, this is a long game.

Let's play.