Frugal Win – getting gifts out early

         

Like most folks in the US today, I’m separated from my family by some significant distance. The closest family is 1 hour away, Mrs. 39 Months is 3 hours, and mine is 10+hours. We are scattered all up & down the Eastern seaboard – and we are starting to go out West (Utah). As you can expect, sending out Christmas presents can be a daunting (and expensive) task.

Typically, we end up not assembling our gifts until last minute, so that, in order to get them to the family on time, I have to spend a lot of money to pack & ship them(hundreds of $). For the most part, I have simply acknowledged that this is the way it is.

However, this year I have a business trip the week before the holiday weekend, so if we didn’t get it out this last week, then I pretty much had to accept the fact that it was going to arrive after the holidays. Instead, both Mrs. 39 Months and I worked to get everything purchase, made, boxed up & wrapped by the middle of last week. Then I could get it shipped out before having to head out on my trip.

Surprise, if you do this, then you can use the US Post Office and cheaper UPS ground to ship out.Overall, my shipment costs were less than $100 for the year, vs. $250+ for most years. That is with a significant larger number of packages going out (family is scattering more, as the nieces/nephews leave college and start into their first jobs).

So if you can plan early (and most FIRE folks are significant planners) then you should be able to save yourself some money on shipping for the holidays!

So how are you further saving money this holiday season?

Mr. 39 Months

Budgeting for the next year – when do to it/how to do it?

Typically it is around the middle of December when I start looking at my budget for the next year. By then, I’ve got 11 months of spending under my belt and I have a pretty good idea of what my spend has been. From that, I hope to be able to predict my spending for the following year.

I start off with a short review of the current years financial goals vs. where its looks like I will end up. In this case, while my investments have not done that well (thank you market), I still was able to save over 50% of my salary – the first time I’ve ever done that much! In addition, we remain debt free, and I am 12 months closer to FI. We did dip into our savings account somewhat this year, due to some medical bills (sucks to get into your mid-50s), so our savings account isn’t where I believe it should be.

From there, I try and set my budgetary goals for 2019

  1. Continue to budget to have excess funds for the year (i.e. don’t depend on debt)
  2. Put away more for medical (got caught short this year)
  3. Continue to try and keep my savings rate in the mid-to-high 40% range
  4. Continue to fully fund Charitable spending at the rate I did last year ($400/month)

With that in mind, here is a comparison of my monthly spend for 2018, and my budget for 2019.

Revenue Base 2018 Month Jan-19
$4,543.10 $4,456.42
$0.04 $0.04
Total Revenues $4,543.14 $4,456.46
Expense
Home
Property Taxes ($515.43) ($515.43)
PSE&G ($208.42) ($208.42)
Verizon ($279.15) ($279.15)
Water Bill ($33.55) ($33.55)
Life Insurance ($43.95) ($43.95)
Home/Auto Insurance ($219.79) ($219.79)
Investments ($333.33) $0.00
Groceries ($454.03) ($454.03)
Medical ($334.70) ($334.70)
Roth IRAs ($1,166.67) ($1,166.67)
Savings ($100.00) ($100.00)
Charity ($400.00) ($400.00)
Dining Out ($160.26) ($100.00)
Home Repair ($277.93) ($150.00)
Other ($57.91) ($50.00)
Total Expense ($4,585.12) ($4,055.69)
Operating Revenue ($41.98) $400.77

You will notice a significant chunk of funds being leftover at the end of the month. This is a little misleading, as I get paid every 2 weeks, so every 6 months, I get an extra paycheck. Thus, on a real monthly basis, I’ll be a little in the black until that 6th month. My intention is to dump that extra paycheck into savings to get it back where is used to be.

You’ll also notice that my take home pay actually went down about $100/month. That is because I didn’t take enough out in taxes and didn’t realize it until over halfway through 2018. I’ve corrected it, but the result is $100 less a month in income.

I also have a personal account which I pay myself $1100/month. I use this for paying for my lunch & travel food, gas, hobbies. Etc. I follow the same method to do that one, and plan on coming in each month “in the black”.

Some of the categories may seem outside the norm for FI people (groceries, dining out,etc.) but we intend to live some of life for now. Also, you can see that property taxes are pretty expensive in NJ – and my $6K a year is actually quite low for the state (its typically 2-3 times that).

With this in line, I can now go to my banks and investment sites and set up automatic transfers. I typically track my budget monthly, and make adjustments every 3-6 months, based on how I am doing.

Other articles on budgeting

What are you doing to plan for 2019?

Mr. 39 Months

Frugal idea – use your hobby to provide presents for the holiday

I have talked before of one of my main hobbies, woodworking. As folks reach a certain age, they tend to prefer experiences and demonstrations of love/attention more than they want “stuff”.This is the perfect opportunity for the frugal FIRE enthusiast to both save money and demonstrate more attention to their loved ones than someone who just runs out and “buys something.”

One of the problems I have is to create something that would be useful to my friends & family, but not too large. I’ve done an arts & crafts bookshelf that went together with pegs (rather large) and a Japanese inspired two-sided picture frame. Both were big hits.

For this year, I chose to go with smaller items, but to expand the number of folks I gave gifts to. I chose two simple items that I could make from “scraps” of wood in the shop. For folks who don’t realize it, working in wood (or really any material)tends to leave you with lots of spare pieces of lumber/material that you don’t need, and end up taking up space. Finding ways to use this is a great idea, and another way to be frugal.

The first item is a small candle/tea light holder. It is made from a series of 1-7/8” squares of various lengths, set into a pyramid structure (see picture). A 1-1/2” whole is drilled in each of them to hold the tea lights, and then they are assembled and glued together. The build probably takes about an hour for each, but you have to break it up into small blocks of time, due to the time it takes the glue to dry.

The second item is a simple pen & pencil holder. Taking a large block of wood, cutting two deep holes in it (for the pens & pencils) and then shaping the ends into a gentle curve with a bandsaw and then sanding. These will be for the nieces and nephews.

Again, these aren’t significant projects, but they are demonstrations of love & affection,often prized more than if you went out and bought something.

What do you do for fun that you can leverage for a holiday gift?

Kevin

Investment update for December 2018

Well, despite some of the headlines we’ve seen about the market tanking again, November was an “up” month for me in comparison to how October left me. It just continues to show how the markets work (up one minute, down the next, but overall following an upward, though jerky, trend).

I believe a lot of folks don’t realize how much the Fed has an influence on the markets. For the 7-8 years after the “great recession” of 2008-2009, the Federal Reserve, or Fed, pumped a huge amount of money into the economy in order to keep deflation from happening. Due to that amazing amount of easy money, the markets responded by essentially tripling in value over that time. However, over the last year or two, the Fed has been increasing interest rates and pulling money out of the market. The result is that the markets are having a hard time, with the Fed putting the breaks on.

Many companies are enjoying strong profits, and the P/E ratio of the S&P 500 is 22.05 (est.) which is what it was back in 2015. Think about that, companies are more profitable than they were in 2016 (total return 11.96%) or 2017 (total return 21.83%) – but they can’t increase their price. There just isn’t much new money in the system, and it appears that the profits from 2016 and 2017, at least, were partially driven by easy Fed money.

So what to do? I plan on staying the course, like so many others of you. Over time, the market will increase. We will just have to weather the ups & downs.

Retirement Accounts: Remember, my allocation for these is:

  • 30% Bond Index Fund
  • 17.5% S&P500 Index Fund
  • 17.5% International Index Fund
  • 17.5% Small Cap Index Fund
  • 17.5% REIT Index Fund

So for the month, I’m up about 2%, with the big gainers kinda matching the big losers of earlier in the year.

  • S&P500: +2.8%%
  • Small Cap: +5.5%
  • International: +1.9%
  • Bonds: +0.8%
  • REITs: +3.9%

My 401K/Deferred account at work is up a similar amount

Dividend Income Account: Allocation:

  • 25% Dividend Stocks
  • 25% REITs
  • 50% Bond Index Funds

This is up about 2.3%, with several of the REITs (especially HealthCare) going up strongly. Many of the dividend stocks (Chevron, Cisco, etc.) bounced back after big loses. Bonds went up, although my total bond market index greatly outpaced by intermediate bond index fund.

Value Investing Account: I sold off my value stocks in late November to pay for my Roth IRA rollover. I rolled over about $100K from regular IRA to Roth, and paid the taxes out of this “fun money” account. Due to the losses of the stocks, I was able to “harvest the tax loss” and reduce my taxes a little for 2018.

Allocation now:

  • 39% USAA Market Index (my brokerage is USAA)
  • 61% in Vanguard Value Index fund

Both of these were up in November. USAA’s extended market was up 1.8%, but Vanguard’s value index was up 5.1%. Again, these guys both got hit last month, so for the most part, it was gaining back ground.

For the year, I am down 1.99%, so I am hoping for a strong December to at least get me into positive territory for the year. So far, it hasn’t worked out that way. I guess we will see at the year end round up.

How did you do in November?

 

Mr. 39 Months

How to stand out and excel in life

One of the things that I was talking about with Mrs. 39 Months last night was the lack of drive or inquisitiveness of many people at work or in their life. It seems that both of us have a hard time understanding why people don’t question more, ask more, attempt more as they go through life. I don’t think either of us could work on one of the old fashion assembly lines where you do the same thing, over and over, for 8+ hours.

Yet there are many people who are perfectly happy & content with that kind of work life. They have a set structure, steps 1-7 that they do over and over, and they can do it in their sleep. They don’t stress out or have to keep their minds focused because it is routine. It is only once they leave their work that they truly start to “live.” Then they get to focus on their friends, parties, hobbies, and time away. Cue Drew Cary’s funny exploration of the song “Five O’Clock World”.

I can’t tell which type of person the FI community falls into. The typical FI person is very focused and able to work towards the goal, while exploring new options for enhancing that path. Yet, so many FI folks you read are trying to get away from the current job, similar to the second class of folks.

I do see a lot more FI articles from folks who have reached early retirement prodding people to look at what their life will be afterwards, and to plan for that. We need to be moving towards something and working on being our best as we strive towards FI.

I’ll leave you with something that has stared buzzing around the interwebs lately, the writing of Coach George Raveling (who Michael Jordan just calls “Coach”).  His article “23 life choices you are in control of” is a good read.

  1. Be YOU, not them.
  2. Do more, expect less.
  3. Be positive, not negative.
  4. Be the solution, not the problem.
  5. Be a starter, not a stopper.
  6. Question more, believe less.
  7. Be a somebody, never a nobody.
  8. Love more, hate less.
  9. Give more, take less.
  10. See more, look less.
  11. Save more, spend less.
  12. Listen more, talk less.
  13. Walk more, sit less.
  14. Read more, watch less.
  15. Build more, destroy less.
  16. Praise more, criticize less.
  17. Clean more, dirty less.
  18. Live more, do not just exist.
  19. Be the answer, not the question.
  20. Be a lover, not a hater.
  21. Be a painkiller, not a pain giver.
  22. Think more, react less.
  23. Be more uncommon, less common.

 

Timing

In light of the poor performance of the US stock market in 2018, many folks are talking about the danger  of planning your retirement based on average returns (or worse, the improved returns of the last 9 years) only to run into a sustained “bear market” where their returns to match the expenses they planned for when they retire. The industry has a name for this – “Sequence of Return Risk.”

The fact is that the market returns you get in the first 10 years of retirement have a dramatic impact on the overall performance of retirement funds. If you get stuck in a bad market at the start, it is very difficult to climb out of it. For those who have recently retired, this 10 months could  be devastating, especially if this market continues. Forbes as a good article on ways to manage sequence of return risk.

We are still 19 months away from FI, and since the typical time it takes for a market to get back to where it was is 18-24 months, I think we’ll be OK. For right now, I comfort myself with the idea that right now, there are a lot of stocks “on sale” that I am dollar-cost averaging in my purchases, while I continue with the plan. Hopefully you all have the fortitude to stick with your plan as well.

Other articles about Sequence of Return Risk

Mr. 39 Month

Sorry for my light posting….

Like so many others in the United States, I’ve been busy with the Thanksgiving holiday. Mrs. 39 Months and I traveled south to visit my family for the weekend, so I’ve been offline a great deal.

For many folks, the holiday is a time to meet again with our loved ones,  to argue and revisit old feelings and emotions, and generally to eat well. Afterwards, the American tradition is to run out and spend massive amounts of money (and sometimes to go into debt) to over-consume on “sales items” that are for sale on black Friday. In the end, for a member of the FI community, it is a very interesting time.

One thing that always amazes me is the key word for the holiday, “Thanksgiving”, seems to be forgotten by so many people. One of the pillars of the Stoic philosophy, and the FI philosophy is to be grateful for what you have, and to not be envious of others.  For envy is a real killer of peace and contentment in life, and a real obstacle to achieving your FI goals.

So in the interest of readers, I’d just like to list a few of the things I am grateful for during this Thanksgiving season. I am grateful for:

  • A loving wife, Mrs. 39 Months, who has been married to me for over 32 years
  • A loving mother who still lives, who I can continue to visit and gain wisdom from
  • A great family, with brother’s, sisters-in-law, nieces and nephews that I love and care for
  • A great country that lets me take advantage of the skills and abilities I have, and to profit from my hard work
  • A chance to learn new skills and hobbies, which will enable me to grow

So what are you grateful for?

 

Mr. 39 Month

Image of Thanksgiving from EGuide Magazine

How did I build my budget?

One of the first steps to getting yourself on course, financially, is to create a budget. Aaahhhh!

I know, many people hate the idea of budgeting, can’t make one, can’t follow one, etc. There are also a large number of FI folks who have been able to move towards FI without keeping strict budgets. However, I would suggest to you that even these people started out by getting a handle on what they were making in $, what they were spending in $, and what the difference was. This is the same as going through the budgeting process and creating a base budget.

I find budgets to be very helpful, though I don’t stick to one religiously. I have an idea of what I’ve spent in the past, build a budget at the beginning of the year, and then track how I am doing against it monthly. Typically I blow past the budget on some items, and under-spend on others. I also adjust as the year goes on, to try to stay within my revenue goals.

So how I go about creating a budget? Like most folks, I started with my actual spending and my paychecks. Remember, the key thing for a budget is to get to where Revenue – Expenses = surplus (what is left over to save/invest). If you are getting a negative number, then you need to either increase your revenue (side hustle?) or decrease your expenses (ex. Cut out the expensive cable bill).

Revenue

Looked at my paychecks and determined my take home pay. I had already adjusted my W-4 (the tax withholding form) with my employer so that I was getting taken out almost exactly what needed to be taken out to not get any money back at the end of the year (i.e. I might owe a little). Why give the government an interest free loan? I also checked how much I was putting into my employee 401K, for reference in tracking my investments. So I knew what I was getting every 2 weeks in pay. I then multiplied that by 26 (# of paychecks in a year) and divided by 12 (# of months in a year) to get a monthly revenue number. After doing all this, I arrived at 3 months of revenue = $15,603.96

Expenses

For this, I turned to my bank and its electronic statements (or you could use the paper statements they can send you). My bank lets you easily download the last 3 months of your bank statements, showing you how much you spent on each transaction, as well as each deposit. With this information I had a key decision to make: How did I want to classify each expense, so that I could determine how much I was spending on it each month? It doesn’t do much good for a budget to have too many categories (it gets hard to track) but you should have enough so that you can make decisions about spending (what to cut back, what to add to, etc.)

After review, I chose the following categories:

  • Home Mortgage
  • Property Taxes
  • Home Insurance
  • Utilities (Gas, electric, water)
  • Phone/Cell Phone
  • Auto Insurance
  • Life Insurance
  • Groceries
  • Roth IRA investment
  • Charity
  • Vacation Funding
  • Dining Out
  • Home Repair
  • Other (areas that were not easily classified)

With that I created a spreadsheet and determined what I had spent on that for the last 3 months:

Category Expense
  Home Mortgage, taxes, insurance ($5,950.47)
  PSE&G ($839.45)
  Verizon ($686.20)
  Water Bill ($206.50)
  Life Insurance ($131.85)
  Auto Insurance ($366.52)
  Chiropractor $0.00
  Groceries ($1,297.86)
  Disability ($288.90)
  Roth IRAs ($2,750.01)
  Savings ($300.00)
  Charity ($300.00)
  Vacation Funding ($750.00)
  Dining Out ($140.57)
  Home Repair ($203.27)
  Other ($489.01)
Total Variable Expenses ($14,700.61)

So revenue of $15,603.96 and expenses of $14,700.61 gives me a surplus of around $900. OK, a good start. Please note that I gave myself an allowance of $1,000/month for my personal use (gas, lunches & snacks, tolls, etc). This money was already taken out of my revenue above, and I tracked it separately. That is why you don’t  don’t see that in the expenses above.

With that in mind, I created a budget for the remainder of the year that looked like this.

Revenue Budget
Salary from Work $4,733.31
Other $0.00
Total Revenues $4,733.31
Expense
Mortgage ($1,376.29)
Insurance ($83.25)
Property Taxes ($523.95)
Gas & Electric ($313.83)
Phone ($246.14)
Water Bill ($66.50)
Life Insurance ($43.95)
Auto Insurance ($120.78)
Groceries ($378.76)
Roth IRAs ($1,000.00)
Savings ($100.00)
Charity ($100.00)
Vacation Funding ($100.00)
Dining Out ($50.00)
Home Repair ($100.00)
Other ($50.00)
Total Expense (4,653.45)
Operating Revenue 79.86

Note that my revenue went down, because I put more money into my company’s 401K savings plan.

At this point, I had an idea of how much I needed to spend each month. All I had to do was track it monthly, see how I did, and make potential adjustments.

Revenue Budget Actual YTD Variance
Salary from Work $56,619.50 $62,816.57 $6,197.07
Other $0.06 $5.08 $5.02
Total Revenues $56,619.56 $62,821.65 $6,202.09
Expense
Mortgage ($16,515.48) ($16,515.48) $0.00
Insurance ($999.00) ($999.00) $0.00
Property Taxes ($6,287.40) ($7,205.47) ($918.07)
Utilities ($3,765.98) ($1,498.98) $2,267.00
Phone ($2,953.68) ($3,472.88) ($519.20)
Water Bill ($798.00) ($396.93) $401.07
Life Insurance ($527.40) ($527.40) $0.00
Auto Insurance ($1,449.36) ($1,316.59) $132.77
Groceries ($4,545.12) ($3,970.84) $574.28
Disability $0.00 ($96.30) ($96.30)
Roth IRAs ($12,000.00) ($11,995.00) $5.00
Savings ($1,200.00) ($1,200.00) $0.00
Charity ($1,200.00) ($1,824.90) ($624.90)
Vacation Funding ($1,400.00) ($2,350.00) ($950.00)
Dining Out ($600.00) ($1,343.96) ($743.96)
Home Repair ($1,200.00) ($1,318.00) ($118.00)
Other ($600.00) ($2,032.39) ($1,432.39)
Total Expense ($56,041.42) ($58,064.12) ($2,022.70)

So I ended up making about $6K more than expected (didn’t account for pay raise) and spent about $2K more than expected. I could then make additional adjustments for the new year.

Overall, it’s a fairly flexible budget. I make enough money and have a sufficient emergency fund to be able to account for the minor ups & downs, and can make adjustments as things go.

So how do you guys budget?

Other Links to budgets:

 

Well, I took the plunge….

If you remember in some of my previous posts on draw-down strategy and the Power of Zero, I talked about using money from my “fun money” value investing account to do a Roth conversion on a significant portion of my regular IRA funds. The objective would be to reduce my 401K amount and reduce my Required Minimum Distributions from them by transferring money to Roth’s now, while the tax rates are so low.

I’ve been bouncing back & forth on this because of my job situation (somewhat sketchy) and the potential impact of getting let go. If let go, I would be due a significant (six-figures) deferred payment, which would shoot me past the 24% tax rate. I’d rather not hit that.

Now that it seems secure, I traded in my two value stocks, Gilead and Cia Saneamento Basico – both of which were in negative numbers for the year. I’ll be able to offset some other stock gains, get out of the value investing business (which I apparently suck at) and convert money to the Roth. A triple win!

Mrs. 39 Months has her regular IRA & Roth at Troweprice, and I have mine at Vanguard. Both of them make it relatively easy to convert money from their regular IRA to their Roth IRA with a few clicks of the mouse. I rolled them right into the exact same index funds that they had previously, so hopefully, no harm/no foul.

The one issue for both of them is the default is that you want taxes taken out of the money you shift over (rather than paying the taxes separately). This would cause you both to lose the money from your IRA and potentially force you to pay a 10% penalty due to early withdrawal before age 59-1/2. Make sure if you do this that you pay attention to the questions you are asking and don’t pay your taxes out of the money you are transferring.

I think I may do this one more time, in 2019, based on the job situation. Then I’ll be in pretty good shape as I cruise to my FIRE date – July 2020!

Mr. 39 Months