2018 Market Flat….That’s okay!

What’s wrong with the market? It’s been flat and it’s April 2018.  All our contributions and gain thus far have been wiped out thus far.  But we have a long way to retirement and to pull out this market would be illogical.

Some people say, its “market correction” stupid! So the best thing; do nothing.  Leave your investment alone. We’d had the best 10-year bull market after 2008.  And to just leave the market now, would be foolish! “why take the risk?”  I’d say, Why not?  This market has been good for a long time.  We see the occasional market declined along the way, that’s okay.  That’s what the market does. It supposed too!

If you don’t like the current market condition, reduce your exposure to stocks.  Our allocation is 80/20.  We are comfortable at this level.  In about 5 years, I might start a glide path towards 60/40.

How to Pay for College

Most of you parents are probably thinking, “how in the heck I can send my kids to college?”.

It’s daunting question to answer, especially if you have not thought about paying for your child college education. Maybe you have but have not spent the time to research nor thought about not having to save. You are not alone in thinking this way.

I thought about college since my freshman year in high school. My parents certainly aren’t wealthy nor had the money and had told me, “We’re not paying for my college.” And so I never fully realised how that was a life-changing word. I simply accepted it. After all, I was a “C” student who did not pay attention.

In my senior year in high school and I began to question my future. Will I go to college? That answer was “Heck NO!” I had no money nor saved any of it.

My friends didn’t talk much about college, and so didn’t get onboard, and whenever the topic of ‘college’ came up in a discussion, I was quite.

I guess in some ways, when a Navy recruiter called me one day, “hey do you want to join the Navy?” I felt obligated to at least hear him out and some way was “relieved” the idea that I have a way to pay for college.

Let’s get back to the question, “how to pay for college?”

1) Think of joining the Military.

The military is not for everyone. But for me, it was the only right choice to make. I spent my early teens growing up in the military base-Travis AFB California, and Plattsburgh AFB in New York. Military bases became my familiar environment.

When I enlisted the military, I had several goals that I wanted to achieve other than how to pay for college. I wanted to see the world and eventually return to California.  https://www.benefits.va.gov/gibill/

2) Just Work

No IF or BUTs, I worked a lot. And yes, sometimes, I had three jobs, while taking on 12 units of college courses. It wasn’t easy but helped pay for college. Having served in the Navy, I took the mindset that of a “warrior student”. I remember making more money working on multiple part-time jobs than I ever made in the entire three years I served.

3) Attend Community College – It’s cheaper

Believe or not, it saved me a lot of money. I remember I paid $120 a year in tuition. If I went straight to a University, I had to pay about $1,200 a year in tuition plus books. Besides, I was never a good student academically. I had to take many prerequisites classes the first few years in order to take on the more advanced courses like Calculus and business accounting that were transferable to a four-year university.

4) Find a roommate share cost

The biggest house hack I recommend. I was fortunate enough to meet a friend, a fellow “Navy veteran.” I remember paying him about $250 a month including utilities. Where in today’s dollar that would cost me about $700 to $900 a month.

It’s important to find roommates that you share the same values, and that can relate to you.

5) Find an employer that will help bare the cost of college.

If you ever decide to attend a graduate school, find a job first. Believe or not, many companies offer a benefit that helps pay its employee college cost or even graduate school while earning a full-time salary.

I was able to find a company that provided that benefit to help pay for an online graduate program, except before I could to finish my program, the company profit took a dive, and I got laid off as a result.

Actionable Tips.

  1. Join the military
  2. Work
  3. Find a roommate
  4. Attend low-cost Community College
  5. Find an employer that offers benefits to help to pay for college.

 

 

Increase Saving through Tax Optimization

If you want to increase your savings rate lower your taxes

I’ve been thinking of ways to reduce our taxes every year. For the past couple of years, we’ve slowly increased our tax-advantaged accounts to divert as much our paychecks. In return, we’ve reduced our federal and state taxes combined on average of $3265 a year. Of course the more money we put away in retirements, the less we receive in paychecks. I can solve this problem to couple of ways,

  1.  Continue to reduce monthly expenses.
  2.  Have enough cash reserve for equal to a year of expenses

For us, we have enough cash reserve to fully fund our yearly expenses, thanks for the house we sold last year.

For 2017 we are halfway there and scheduled to sock away close to $50K in retirements with $5500 contribution in ROTH. In 2018, it will creep up slowly to $58K. That’s over 108K in retirement contributions in two years.

His Her
401K 457 403B 457 Total
$4,000 $18,000 $27,500
 Year 2017   $18,000 $3,900 $21,900
His Her
401K 457 403B 457 Total
$7,200 $24,000 $36,700
 Year 2018   $4,000 $18,000 $22,000

It is possible to eliminate your taxes altogether if you have access to 457 & 403b for most public sector employees.  That’s combined of $36K a year in contributions amount. If your marginal tax rate is 25% that’s $9000 tax savings that you are savings extra (I’m no tax expert so please check my math) that’s a lot of money!

One thing I would caution, you need a budget to determine your monthly expense to front load your expenses for the year. We follow a monthly budget that allows us to stay within our budget. I do recommend personal capital or mint.com to track your monthly expenses for free.

I also recommend that you have no debt, no car payments to implement this strategy.

Why would we do this? One reason is we want to keep as much money we make as possible while paying as little taxes.  If you live in the high tax state California with a growing income every year. It becomes even more important to optimize your taxes. Keep investing in the market.   Consider this. The S&P 500 has risen over 9.5% annually. While the market gyrates every day and historical returns are not a predictor of future returns. The overwhelming trend is upwards.

Tax-Free-Growth protects most of your investment earnings from tax-protected account sooner. Another benefit of front-loading is that you defer your taxes (of course contributing to retirement accounts doesn’t affect your FICA taxes, so you’ll still have to pay the full amount for Social Security and Medicare each month) but the amount you saved in taxes are invested in your portfolio and can grow faster.

Savings Boost towards Early Retirement – The more we saved the sooner we can achieve “early retirement.” That’s ultimate goal.

In the next few years, we hope to achieve in 2019 and 2020 $69K and $89K retirement + ROTH max contributions respectively.

His Her
401K 457 403B 457 Total
$18,000 $24,000 $47,500
Year 2019  4000 18000 $22,000
His Her
401K 457 403B 457 Total
$24,000 $24,000 $53,500
Year 2020 $18,000 $18,000 $36,000

Buying a car can be a Hassle Free!

For years we needed a third car. We have been driving an old used car with a lot of mileage, and I hate it. It gets me where I need to go, but I’m tired of fixing leaks and broken parts all the time. It’s annoying that I have to take it to the mechanic every time. We end up with only one good car which my wife and I share together. Even when the repairs take care of everything, I know in a week or two it just ends up going back to the shop.

I have finally decided that I am not going to do it anymore. We’ve decided to buy a new car! Fortunately, I have been researching Nissan Sentra for quite sometimes. Sure, it’s slow car but who cares. I only need this car to commute and to give me great mileage. I don’t want something fast that eat too much gas. I kept asking myself, do I want something stylish? Do I want something big? Something economical? Each time I think those things, all I see is a dollar sign flashing in front of my eyes. Finally, my wife and I decided to stay economical. We did!

After I had done some more research online, I knew that I would need some expert advice. Eventually, we went to a local dealership to check out some new models and discussed the quote I received. We talked to the salesman, and we listened to him carefully. He was honest and treated with professionalism were impressive. He had a lot of very helpful suggestions and showed us some nice features like Bluetooth and push-started button.

After a lengthy discussion, we finally decided which model and color. I was expecting this purchase to be a serious hassle, but the experience was almost painless. Everything went smoothly, and now I have a brand new car!

It would be unfortunate if we got a ticket the moment we drove off the lot. So we drove it very slowly with big smiles on our face 🙂

.

2016 Nissan Sentra SV

 

Zero based Budgeting works

Make your Budget simple.

Before writing this story, I have to look back on my life in the 20s and early 30s why it was hard for me to save. One of the reasons I joined the US Navy is to help pay for college. And when I became a college student, I worked three jobs to help pay my living expenses. Even with all that, I still accumulated $13,000 in student loan debt in 1996 after graduating from college. It may not be a lot in comparison to today’s student loan balance, but to me that’s huge! Last year, the average college student debt had $37,172 in student loan debt.

How about if you add the credit card debts?

I remember I roughly had a credit card of $4000 balance spread across 5 to 6 credit card accounts. To avoid accumulating lots of interest cost, I’d transfer balances into a new card every 18 months with zero interest rate and pay the minimum. I played this game for years.

It didn’t have to be this way.

We realized debt was our biggest obstacle if we want to live a comfortable life with doing whatever as we please.

We created a zero-based budget in 2015. By having a budget, it gave us the blueprint a road map to pay off our consumer debt. It also gave us permission to spend on other things that were important.

The most important thing we had to do as a couple and making sure we follow the budget works is the constant communication with one another. We have to be on the same page all the time. We tweaked and changed it for months until we agreed on every category. We tracked our budget weekly, and I became a total spreadsheet nerd.

Our typical budget categories breakdown;

  • Housing
  • Transportation
  • Clothing
  • Medical Health
  • Savings
  • Discretionary

There are times our budget category can be way off from the actual expenses. That’s okay. In fact, it happens a lot. As long we are close enough, that’s good enough. I can’t always remember our utilities due dates and amount vary month to month, while others are due on every other month. As long we put an amount for every category, we come pretty close. We like to give ourselves plenty of money to keep us under budget. Any remaining balance we carry forward to the next month’s budget. By having extra cash remaining add another layer of safety net that we might not anticipate on next month budget like unexpected repairs without having to tap into the emergency fund. It helps when you don’t have any consumer debt to service we can allocate where in need the most, mainly the mortgage and savings and some cases towards the vacation fund. That gives us comfort.

Automate your Savings! Automate your Life!

 

Think about some of the biggest financial mistakes…

It’s easy and automatic. Trust me! It works looking back now:-)

I didn’t pay attention much to savings my money in my early 20s. And when I started working full time every paycheck I earned went straight to paying my student loans, credit card bills, car notes, rent, restaurant, gas. By the time, I paid off my bills; I had a very little disposable income to put towards savings, let alone towards an IRA account. I contributed to my 401K, but I made probably small contributions around 3%. All I remember are my stupid mistakes, perhaps laziness on my part. It cost me, and I see it now. When I had extra money, in the end, I spend on eating out with friends.

So when I run a calculation in trying to re-living my 20s assuming I consistently saved $200 a month invested in the S&P 500 Index starting at the end of 1996 to end of 2006. During that period, the S&P averaged return about 10%. So my annual investment of $2,400 a year for ten years would have grown to $43,419 minus inflation.

And if I run that same number ($43,419) beginning of 2007 to early March 2017 that original investment would grow to $127,920 at 8.75% averaged return over that period.

I know…Bummer!

Dec. 31, 2006 15.79%
Dec. 31, 2005 4.91%
Dec. 31, 2004 10.88%
Dec. 31, 2003 28.68%
Dec. 31, 2002 -22.10%
Dec. 31, 2001 -11.89%
Dec. 31, 2000 -9.10%
Dec. 31, 1999 21.04%
Dec. 31, 1998 28.58%
Dec. 31, 1997 33.36%
Average 10 year return  

10.02%

 

(Source)

How we saved of 50% of our income…You can do it too!

 

Background

We reached a total savings rate on average in 2016 of 52%. We achieved this savings rate in the combination of Pre-tax savings & Post-tax savings. For example, in January 2016 our take home pay was $8,625.67 and saved $3,323.67 after expenses.

PRETAX SAVINGS AFTER TAX SAVINGS 2016
Contributions % Saved Net Pay $avings Rate % Saved
$2,280.90 16% $8,625.67 $3,323.71 39% 56%
$3,438.69 23% $13,594.64 $2,500.00 18% 54%
$3,426.46 23% $7,882.19 $1,700.00 22% 49%
$2,681.96 18% $8,556.31 $3,600.00 42% 57%
$3,754.47 25% $7,651.61 $2,100.00 27% 54%
$4,962.09 25% $9,911.40 $1,641.66 17% 45%
$4,860.28 32% $6,799.50 $1,600.00 24% 60%
$4,147.68 27% $7,536.64 $2,200.00 29% 56%
$3,155.88 21% $8,233.88 $2,500.00 30% 52%
$3,193.37 21% $8,183.00 $2,500.00 31% 52%
$3,504.38 23% $11,539.23 $2,500.00 22% 53%
$2,803.86 18% $9,078.15 $1,050.00 12% 34%
**$42,210.02 23% $107,592.22 $27,215.37 26% 52%

**I could not fit in the table above the monthly gross income ($184,793.01)

We would like to continue savings at this rate for 2017, but we know the ebbs and flow of life can be challenging at times. For instance, December savings rate was 34% that’s because of we cash flow all our spending and Christmas.

How did we do it?

Our savings rate also jumps exponentially with no debt. By tracking your spending, every budget items has a name and a purpose. By automating the savings, makes it easier to save even more. We never see the money going into the checking account. Our taxable and Roth contributions are automatically taken out and invested.

New Home

We sold our home last year in September and moved into a new home in October. This home has more in square footage, bedroom, bathroom, and higher mortgage payment with Mello-Roos tax. Our goal is to pay down in 15 years or less. This amount represents about 25% to 50% of our income. We can throw more payments towards principle reductions. It just depends on income coming each month. At the minimum, our mortgage payment is $2,700, but we pay an extra $500 each month to $3,200 or more. In January & February we put an extra mortgage $1,410 & $1,428 extra principle payment. We probably won’t be making large payment until January of 2018.

Expenses

Our total monthly budget expenses with a mortgage are about $6,500 at a minimum. In reality that numbers are much higher since we also have discretionary spending. This part of our budget needs improving. I know we can do MUCH better to try by not adding additional expenses whenever possible.

In 2016, our net pay average about $8,966 a month. That’s $2,466 extra spending in discretionary spending but varies on a monthly basis. We cash flow all of our discretionary spending like; birthdays, vacation, gifts, Christmas, etc. That’s why we carry no consumer debt. We pay everything in cash.

Incidentally, this is when people tells us;

“Oh, why don’t you try to earn points/travel?”

Our reply, “Why don’t we?” No, not really.

I think our biggest fear is not to be able to trust or control ourselves once we start using credit again. We are a Dave Ramsey fans and viewed as “hypocrite.” Many of our friends know who Dave Ramsey is (since we gave them his books “The Total Money Make Over” last year and are familiar with Dave Ramsey 7 baby steps approach.

I admit it’s very hard to change “habit.” Change is difficult once you develop a good habit of paying your bills on-time and complete avoidance of credit card. That just make sense to us. After all, it was our careless used of credit cards that put us in bad financial shape. We’ve done a great job over the years. Because of that our family finance is 180 degrees better that it was ten years ago. Our Net Worth has shot up over the last 4-5 years because of our intentionality towards savings and debt avoidance.

Overcome Fear – Pay your credit card balance every month.

That’s exactly we are going to do.

Our new plan is to challenge ourselves and to overcome our fear. As long as we pay off our credit balance on a monthly basis, we should be okay. We’ll approach it with caution. It’s a start to travel hacking.

 

Monthly Budget – February Update

Summary

Housing 4128.28
Food 386.75
Utilities 654.73
Discretionary 1210.49
Transportation 351.48
Clothing 149.69
Medical & Health 230.2
Savings 3010.91
Total Expenses  $10,122.53

February month was a good month.  We reduced the mortgage principle by paying extra of $1,427.95.  That bring our mortgage balance down to $455,500.  That’s a huge mortgage balance.  But we are intent to follow our goal of paying it down in 15 years or less.

We filed our taxes and received about $3,600.  We saved most of that towards our daughter’s private tuition due in the summer for next school year.

Once again, our taxable savings is phenomenal!

The breakdown looks like this:

Vanguard VWENX 400
Saving 0 2009.09
529 Plan 100
ROTH Vanguard 440
Acorns 61.82
Total Savings 3010.91

We used Personal Capital to track our finances for free. We received a tax refund, as Other income. We also rebalanced and reinvested into other asset class with my wife’s retirement account as Investment Income.

Monthly Budget – January Update

Category EXPENSES
Housing 4198.79
Food 2153.21
Utilities 2078.12
Discretionary 4052.46
Transportation 381.92
Clothing 0
Medical & Health 702.59
Savings 2662.28
Total Expenses  $16,229.37

 

Summary

Our income came to $14,900.54 in January. It exceeded our budget. We had a deficit of about -$1,328.83. Again, that’s mainly due to the water system. We live below our means. So January there was a one-time event that we spent that cause our to go over budget.

Our continued goal is to spend less than what we make every month to build our wealth towards Financial Independence.

Housing

I spent the most towards the extra mortgage payment. Back in October, we bought a four br, three bath model home. We are paying this aggressively with $1433.91 of the extra mortgage payment. I know it a lot, but I am planning to retire at age 55, we’d like to rid of this debt, sooner the better. Hopefully, once we build our taxable account, we hope to make a lump sum payment. With PITI, its comes to $2700.33 a month. Anything above that its peachy!

Discretionary

We spent on a new water system softener with reverse osmosis that cost $5K with installation; hence a big amount. It’s rare we spend this much except if we do it’s usually a one-time thing. The next time, it will be a vacation this summer.

The food was high that’s because we took out $1600 to set aside for January and February. Our food budget normally is $800 for on monthly, and yes we go over that amount by few hundred occasionally. Eating out is $183.01 of that.

Utilities

We included the child care cost of $800 under this category since this amount does not change much. We paid two months in advance for child care cost that normally be around $1200 monthly.

Medical & Health

My wife and I subscribe to a diet program. It’s all about protein and the shakes. You know:-) Together that usually cost us between $63 to $259 a month based on what we need. This price will be steady to around $122 starting in March since we found a cheaper protein shake somewhere else. We also have a gym membership for the family that we pay for $89 a month. Not sure if we plan to continue paying this, but we may not renew it this year.

Transportation

Of the $381, $349 spent on fuel cost; the remaining were for repairs. We own three cars, two used, and new 2016 Nissan Sentra Sentra used as my daily commuter car. We do have any car payment or any consumer debt.

Savings

Here’s the breakdown of our savings for January.

SAVING SPENT
Emergency Fund 100
Savings 0 1428.07
Vanguard VWEAN 700
529 Plan 100
ROTH Vanguard 220
Acorns 114.21
2662.28

 

I don’t plan to keep adding more towards our EF. Our goal is always adding to one of these buckets on a monthly basis. Our goal this year is to max the ROTH account. I’m putting at least $110 a week (weekly deduction from Checking to Vanguard VTSAX & VTHR). The savings account is what we used to set aside money for direct future spending; vacation, private tuition, gift, and Xmas fund. We started with $5000 in the account in January. After buying the water system, it’s now $500 balance.

It’s time to refill the bucket once again!

The goal is to have at least $5k saved before the tuition due in July. I just became a member of Acorn last December, so we saved an additional $60 a month. I like the concept, so I hope to keep this for at least a year see how much we can save through rounding.

I found out, I have Sleep Apnea!

In late December, I found out I have severe sleep apnea.  Sleep apnea is common disorder in which you have one or more pauses in breathing or shallow breaths while you sleep. In my case, I’m consider “severe” where I stop breathing every minute.  This explains it all why I have been so tired during the day lately which include taking a nap during my lunch hour at work almost everyday. This has been going on for over a year.

Apnea means “not breathing”. My doctor told me, “I could die in my sleep” if not treated.  At that point, I gasped for more air to breath in trying to understand this diagnosis.  Anyone who has this condition have to have a machine CPAP to help them breath at night–to achieve a well rested night.  That’s what I have been lacking for years, a well-rested at night.  The only problem is most people with CPAP machine use it very little at night because of how uncomfortable they are to wear at night. Most of them give up.  At first, I was anxious to use the very first night. After a week of wearing them, I felt more tired the next day.  That’s because I keep waking up in the middle of the night and have to constantly adjust the strap in my face in order to breath properly (inhale/exhale) Only to take them off most nights.  It’s seems–it hopeless to keep using it if it meant I get more tired the next day.  So I stop using it for a week now.  But then my doctor recommended that I keep using it for at least 5 hours a day, 5 days a week until surgery.

For now, I have to wear it–in case my health insurance wants to know, how often I use it daily. Otherwise, they might not approve my surgery.

What type of surgery?

It’s called Maxillomandibular advancement MMA.  It’s basically cutting  my jaw (top and lower) to move it forward.  It’s a major surgery which will take months to fully heal.

I began researching this procedure and trying to find out more about it, it terms of the negative side effect post surgery and recovery.  It appears there about 80% success rate to cure apnea. Some website have it in 90% range.  I’m cautious, but optimistic.