How will the new tax bill affect you if you live in the US?

There has been a great deal of conversation and writing on the new tax bill, and its effect on individuals and families. Some have spoken about it being as consequential as the 1986 tax reform bill (which dramatically changed the tax landscape right as I was graduating from college). I wanted to take the time to discuss some key points, and then to provide some links for deeper analysis if folks are interested in “getting in the weeds”

The biggest part of this tax reform, in my opinion, was the dropping of the business tax rate from 35% to 21%. While this won’t affect folks in the FIRE community directly (for the most part) it will have a dramatic effect on the country and its business climate. States in the US have been dropping their own business taxes for the last decade, in an attempt to be more competitive and to bring businesses into their states. Now the US federal government has clued in that its 35% rate (vs a typical 20% rate for most of the developed world) has been seriously impeding the maintenance of business in the US.

What this will do, in my opinion, is lead to more business and job growth in the US, as companies evaluate their costs to offshore (cheaper labor, more transportation expense, higher inventories due to longer lead times, etc.) versus keeping some or all of the business in the US. I’m in the logistics industry, and I know the cost of shipping stuff by boat from China/Vietnam/Europe – and it is significant. If you live outside the US, be prepared for your companies to get additional business pressure due to this.

For folks in the FIRE community working on hitting their goal, this should translate eventually into higher wages and benefits, as companies grow, and the competition for labor (especially skilled labor) increases. I’m already seeing this in the logistics industry, and typical warehouse workers & forklift operators have seen their starting wages rise by 20% over the last 2 years. Competition for these folks is tight, especially in key markets (So. Cal, Northeast PA, etc.)

For individuals, the rates for FIRE folks have remained at 10% for the first bit of money, but the individual rates have dropped 2% – 3% for all levels beyond that. It should result in some tax savings. One of the key items is the increase of the standard deduction to $24,000 for couples, with the exclusion of the individual deduction. This will dramatically change how some folks do their taxes, specifically those who itemize.

  • For those families in the lowest income level (under $44,050) the 10% rate didn’t go down, but the standard deduction raise to $24K may cut their taxes somewhat.
  • For the next level, those married couples claiming income up to $96,400, the 15% rate dropped to 12%, so there are savings there.
  • Those with higher income levels saw reductions of 2% – 4% in their tax rates.

The cap/elimination of some property tax deductions, state income tax and mortgage will cause a lot of heartburn in high-tax/high cost-of-living states (CA, NJ, NY, and Northeast US). I live in New Jersey, and it looks like it will definitely cause issues here. Still, the folks affected by this are the typical big-house/expensive car kind of people, not the FIRE-type of folks who want to save money and get out of the rat race.

For Mrs. 39 Months and I, our deductions for next year (including the soon-to-be-extinct personal exemption) look like they were going to be around $23K, so the $24K standard deduction appears to be where we would end up, saving us a little. The reduction in rates looks like it will save us $2K – $3K a year i total taxes.

If you’d like to see how it might affect you, there is a good Tax reform calculator at CalcXML. 

Some further analysis:

  1. Go Curry Cracker: Good general analysis
  2. Nerd’s Eye View: Great In-depth analysis
  3. Physician on Fire: How self-employed are affected:

So what are your thoughts on the new tax reform, and how will it affect you?

 

Mr. 39 Months

Excellent article on preparing for the next downturn at Get Rich Slowly

In an article at Get Rich Slowly, JD Roth goes through some analysis on the potential for a pending recession (we’re overdue) and what we should be doing to prepare for it.

Some of his simple steps include:

  1. Bolstering your emergency fund
  2. Balancing your budget (don’t succumb to lifestyle inflation when times are good)
  3. Double-down at work, rather than seeking a new job (since recent hires might be the first ones let go at your new company)
  4. Make sure your asset allocation matches your risk tolerance (I rebalance every 6 months, and I’m due to relook at it Jan 1)

Overall, its an excellent read, with some good points.

Mr. 39 Months

Book review: The Simple Dollar

One of the earliest FIRE books, written by a Trent Hamm, a Gen Xer who found himself buried under a boatload of debt and without a real plan for where to go (sound familiar to so many). Trent’s book goes through his initial struggles to get a handle on his debt and start a new plan, and then sequences into a series of “how to” and short idea chapters to help the reader identify numerous ways to save money, invest, reduce debt and move towards financial independence.

I’ve read some financial advisor reviews that really critique the book, because it is full of short, simple ideas for saving money and practicing frugality. Still, that is a key part of what we FIRE people have sought for, and many of his ideas are mirrored on the blog postings and podcasts that form the community. Each of his chapters concludes with a list of steps for how to put the ideas of the chapter into practice and move forward.

Some highlights:

  • Chapter 1: Trent finds himself with a new child, a wife, and under a mountain of debt. The chapter goes through his realization that there is a better way, and concludes with the steps he used to work his way out.
  • Chapter 4: Good chapter on goal setting, identifying to real dreams, and making plans to achieve them
  • Chapter 7&8: Chapters on Frugality, budgeting, and “minding the gap” between income and expense. A good start for folks just starting out trying to get a handle on their spending and to budget
  • Chapter 13: Dealing with friends, family and your newfound money situation
  • Chapter 17: What is holding you back, and preventing you from moving forward on the path towards financial independence and life tranquility.

Overall, the book had a lot of “conventional wisdom” that the FIRE community already knows. I believe it’s an excellent book to give to new people who are first getting interested in our ideas, and want to gain additional knowledge. For that purpose, I believe it’s an excellent book.

What books have you read that you’d recommend?

 

Mr. 39 Months

Losing the battle with Mrs. 39 Months about Christmas Decorations

It’s the holiday season, and as everyone knows, the world is full of companies trying to commercialize everything and sell you bunch of stuff you don’t really need. I wrote about how we try to resist this, and how others can as well.

Unfortunately, I can’t say we are doing everything right in the 39 Month household. Mrs. 39 Months plays at being cynical, but she really does seem to love this season, and goes out of her way to purchase additional decorations for the inside of the house (the outside is pretty much in place now, with few additions over the last 5 years). Call it the Christmas spirit, call it “nesting” call it whatever – she enjoys adding to our interior decoration.

While I could complain about it, or question why she is spending the money on the items, after 31 years of marriage, I have learned a few things – and after multiple years pursuing FIRE, I have learned others. The key is living deliberately, and deciding what you want to spend your money on. If something truly does give you joy, and you are spending cash on it (instead of going into debt) then you should feel free to spend the money on it!

Why go through 10 years of misery just to say you are financially free, and can start living like you want. This sounds an awful lot like the old retirement plan (work till 65, then live it up). That isn’t the way the FIRE community is working their plan, as evidenced by all the folks whose blogs and podcasts I take in.

We are already fully funding our retirement accounts to the max, and putting away more funds. In fact, in 2018, we are going to go from 35% to 50%+ of our pre-tax money going towards achieving financial independence. Smiley faces all around.

So go “splurge” on something you would like, especially if it’s not going to come anywhere near breaking the bank. Enjoy life now, and enjoy it once you reach FIRE.

 

Happy Holidays to everyone.

 

Mr. 39 Months

Christmas Gift Hacking

A lot of folks in the FIRE community have talked about how they work hard to keep it a frugal holiday season – either cutting down amounts given, reducing gifts, or just eliminating them altogether. It’s a difficult task in this world of rampant consumerism, especially with kids.

 At the same time, many of us have hobbies that we greatly enjoy (otherwise we would go nuts now that we are financially independent retirees, or on the cusp). For those working on FIRE, hobbies are one of the things we seek out, knowing we will need to find ways to keep ourselves occupied once we retire – after we have spent the first 24 months doing all the travel and other activities we dreamed of doing.

 So one of the Christmas hacks you can do is to use your hobby to make gifts for folks. They don’t have to be extravagant (most people as they age don’t want a lot of extravagant gifts, because then they’ll feel they have to respond in kind). We have a friend who is an artist, so she does hand painted Christmas cards – which most of us end up framing and using in the house. My brother is an accomplished photographer (he did it for newspapers and for his business’ marketing efforts), and one of his gifts is to get photos together of the family over the past year and create a calendar for each of us with photos.

 Me, I’m an amateur woodworker. The woodworking websites and magazines are full, come around September, with easy gift ideas, and I’ve mined them for the last several years for ideas. Instead of spending $100s on family, I find that with $50 of materials I can create some nice stuff, and people appreciate the hand-made gifts more. This year, its oriental themed, desk frames for photographs. There are two-sided, so each frame shows two pictures. They are held in place with small dowels (the tops come off) so the photos can be replaced if necessary.

 

It’s a great chance to do something for those you love, which is personal, and I think more appreciated than something you just get off the shelf.

 What have you guys made for friends and family for Christmas?

 

Mr. 39 Months

 

Yay! I just did my first travel hack (sort of)…..

Well, I’ve been doing the research, reading the blogs, and listening to the podcasts on it. Figured it was time to start using some of that knowledge to help out.

I’ve spoken in the past to my students and the engineers under me about the need to join rewards programs for the travel they do for business (airline, rental car, hotel, etc.). Even if they go to a “one off” hotel (regularly go to a Hilton, but stay this time at a holiday inn) sign up for the program. The points add up, and you can use them for your own personal travel (most of the time – some companies keep them for their own use).

I also suggest to the students that they write “Willing to travel” on the bottom of their resumes. Businesses know that travel sucks, and often they are willing to pay folks extra for their willingness to travel.

Well, I’ve accumulated some significant mileage in the air, which I have used in the past on personal trips (Hawaii, Alaska, etc.) but I never really looked at the hotels. To my surprise, I found I had a significant number of points in both Hilton and Mariott from travel. I figured it was time to try this out.

Mrs. 39 Months wants to attend a Dulcimer Festival in the Poconos the 2nd weekend in January. So I went on both Hilton and Mariott’s sites, and found a nice one-night stay within less than an hour of the site, for only 20,000 points (the lowest point total you can have for Hilton rooms on the weekends). Score!

I know that I’m going to be visiting North Carolina in March to take a woodworking class, so I went to look for rooms there. It turns out its pretty dead at that time in NC, in that area, so I got a five night stay for only 40,000 points (10,000 pts a night, with 5th night free!). Score again!

Finally, I did my first credit card as part of the hack (see info on travel hacking in the links to the right). I applied for the Southwest Rapid Rewards Premier card. If I can charge $1,000 dollars in the first 3 months, I can get 40,000 Southwest points. I’ll try and get the Southwest Rapid Rewards Premier Business card next, in order to get 60,000 Southwest points if I charge $2,000 on it. Thus, I’ll be 103,000 points in towards the 110,000 necessary to get the infamous Southwest Airlines Companion Pass. I just have to charge the remaining $7,000 by the end of 3 months.

I actually am enjoying this a bit. I’ll let you know how I’m doing as we go forward.

 

Mr. 39 Months

Monthly update – Dec 2017

Keeping it rolling, only 31 months from Financial Independence!

Much better month in November (+1.32% gain) than October (+0.47%), especially at the end, where the market really jumped up. I started the month with $952K of invested assets, put in $4,108 into my various accounts (401K, Roth IRA, brokerage), and ended with $969K (almost to $1M, yay!). For the year, all total, I am still up around 9.6%, and that is with a 70% stock/REIT and 30% bond mix.

Bonds continue to not perform very well (up only about 0.1% for the month) but they are providing the stability that I want (in case of a market downturn). Surprisingly, the REITs were up (about 3.0% for the month) – maybe they are just returning to where they should have been after a pretty bad year. The International was OK for the month (up 0.8% for month), and the S&P 500 and small cap indexes really did well (around 3.1% for the month).

My dividend portfolio (from my dad’s inherited IRA) is up about 3.0%, primarily due to REITS, though the Chevron and
Verizon stocks did great (Chevron was up 9.2% in November). That at the same time that they are due to pump out some end-of-year dividends to help out (this may be the reason they are up – folks are buying them to get the dividend).

In the value portfolio

  • CSS Industries stock was down almost 10% for the month, and went into negative territory for the year. I’ll go through my 6-month stock analysis in a later post, as I try and determine whether to keep a stock
  • Gilead was down 0.2% for the month, but still up 10% for the year
  • Taho continues to underperform, down another  8.1%, and over 20% for the year. Legal troubles in Central America continue to be a drag
  • For December, I plan on continuing to put my investment money into my bond mutual fund. I want to get my allocation more in line there with a 33% REITS/ 33% bonds/33% stocks plan. This will call on me to probably buy bonds each month for the rest of the year
  • The big lesson for the value portfolio continues to be that I’m not a very good stock picker, or that I need to be patient (i.e. 3-5 years patient) in order for it to pay off.

I continue to make progress towards my FIRE goal. While I expect a market correction at some point, I think we will be able to weather it, provided the Zombie Apocalypse doesn’t come.

How did your November go? How are your plans for the year going?

 

Mr. 39 Months.

 

Putting up with Put-downs: Dealing with Trolls, haters and other miscreants while FIRE blogging

While recently reading through some of the FIRE blogs I regularly go through, I came across and article by ThinkSaveRetire, in which he was discussing the Facebook blowback he was getting after an interview for CNBC on retiring early. Apparently there are a lot of people out there that don’t like it when someone gets of the treadmill – and demonstrates that they could do it to, if they chose to.

The Stoic philosophers (Seneca, Marcus Aurelius, etc.) actually had a few things to say about the “haters” in their day and how to deal with them.  I guess the Roman empire had their share of trolls.

Remember that the ancient Stoics were very concerned about maintaining a sense of tranquility in their lives, and the anger that insults could bring up was unwanted. They wrote extensively about dealing with slights and insults, in order to maintain their “frame.” Some of their ideas:

  1. Pause when insulted, and see if there if the insult is true. If it is, there is little reason to be upset. As Seneca said “Why is it an insult to be told what is self-evident.”
  2. Pause to consider how well-informed the insulter is. He may be saying something bad about us because he sincerely believes what he is saying. Rather than get angry with the person, talk calmly with them to set them straight.
  3. Consider the source of the insult. If it is someone who you respect, then the critical marks shouldn’t upset you – it should make you reevaluate you ideas. If it is someone you don’t respect, then you should feel glad at the insult because “if they think I am wrong, then I must be doing something right.”

In terms of response to insults, rather than insulting back, the Stoics ideas included:

  • Use of humor to deflect an insult, to show that we don’t take the insulter or the insults seriously
  • Don’t respond at all – again to show you we don’t have the time to waste on them

In the end, whenever you “put yourself out there” you are going to get a certain percentage of people who enjoy trying to “get a rise out of you.” Don’t waste your time with them – just keep on your journey to FIRE. After all, living well is the best revenge.

Mr. 39 Months

 

Note: A lot of these ideas I found in the book A Guide to the Good Life (Stoic Joy) by William Irvine.

Travel Hack Plan

Well, after going through a large number of podcasts and bloggers comments and articles, I’ve chosen to enter the world of travel hacking, like so many others in the FIRE community.

I’ve already provided a link to the travel 101 blog, which I think is one of the best. Other ones to look at if you are interested in travel and seeing the world are Go Curry Cracker or RetireEarlyLifestyle (both with links to right). There also prominently featured on many of the FI podcasts that I listen to. In the end, after realizing how easy it was and the opportunities it provides, I couldn’t resist.

 

Travel 101 has an excellent course on travel hacking, and its free! For those interested, I suggest you consider taking it.

I first took a look at where I was, based on an American Airlines card and business travel. I also had some hotel stays, again based on business travel.

  • American Airlines: 234,436 miles (not bad). Good for a lot of trips, especially international
  • Marriott Hotels: 37,563 points  (good for about 3 nights, depending on where)
  • Hilton:237,817 points (good for about 8 nights, depending on where)

Not a bad start.

In looking at how to get started, I reviewed the cards that Travel 101 suggested and what I already had. One of the issues is that Chase bank has a “5/24” rule, which says you can only get 5 new credit cards within the last 24 months – and that is any credit cards, not just Chase. If you apply for one of theirs after you have gotten 5 others, they will turn you down.

Early in the year, as I started exploring FIRE and looked at Credit card benefits, I got a Citi card with 2% cash back, and an Amazon card for 3% back (because I did so much shopping on Amazon). Thus, I am limited to only applying for 3 other cards. Based on the information provided by the travel hackers, I am going to proceed as follows:

  1. Southwest Airlines Rapid Rewards Premier card: Apply in Dec, put $1,000 in 3 months on it and get 40,000 miles
  2. Southwest Airlines Rapid Rewards Premier Business: Apply in Dec, put $2,000 in 3 months on it and get 60,000 points, for a total of 103,000 miles
  3. Do additional charges on Southwest Cards to reach the 110,000 mile mark and get the travel pass (hopefully as soon as possible).This would enable Mrs. 39 Months to fly with me for free on Southwest.
  4. Get a Chase Sapphire Preferred Card (the mother of all travel cards): Apply in February, after I have done a lot of my Southwest Charges. Charge $4,000 in 3 months and get 50,000 points.

With that done, by the middle of 2018, I should be sitting on a lot of miles, hotels and points. Then its trying to figure out where to go?

Plans for 2018:

  • Visit Portland Oregon (Mrs. 39 Months wants to take a class there, and then we can visit some national parks)
  • Visit Asheville, NC (I want to take some woodworking courses there)
  • Visit Vermont, where my brother lives
  • Other trips?

I’ll let folks know how this is going as I try to work stuff out.

What travel hacks have you done/are planning to do?

 

Mr. 39 Months

 

 

Excellent post at Our Next Life about fears & excitement as they approach early retirement

Excellent post about the emotions running through a couple as they are just 4 weeks from early retirement.

She runs the spectrum on the uncertainty, sadness, and physical ailments that have popped up as they close in on their final date. An excellent read when people want to understand what it will be like as they approach the frontier.

 

Mr. 39 Months