Well, there goes that travel card…..

I think a lot of folks in the FIRE community who engage in “travel hacking” feel a little guilty over exploiting the credit card companies and their free offers. We sign up, charge, pay them off immediately, get the bonus points/miles and then drop them like a “hot potato.” It almost feels like stealing. We comfort ourselves with the fact that the credit companies must be making money offering this, and our small percentage of “hackers” is just a drop in the bucket to their massive profits. Still…..

Well, in August, I added another card to my bank of cards, the Hilton Am. Express card. I stay in Hilton’s a lot for my company, and the offer was a card with no annual fee, and 60,000 points if you spent $1,000 in the first month. With a lot of my business trips causing me to spend that in one week, it was a no-brainer. Sign up and go!

Well in late August I went on a business trip, and had some business expenses. I tend to pay my credit cards off several times a month. When I get my travel reimbursement back, I transfer that exact amount onto the card (so I can track what got paid for business and what still needs to get paid for personal). It’s just the way I keep work.

Unfortunately, American Express wouldn’t let me do this for the first 30 days of the card. They told me that it was an issue at the beginning, but would end after the first 30 days. I was OK because I had gotten the money back for my travel reimbursement and paid the $1K bill for that on Sep 12th. The date for the new bill was Sep 16th. I also tried to finish paying the card off entirely on Sep 15th (even though these charged had happened on Sep 10th). Again, as a travel hacker, I knew I wanted to pay the card off as soon as possible, even if I could have let it “ride” for another couple of weeks.

Well, I finally get to the point where its past 30 days, and I can pay a second time within the 30-day period, and I see a charge for $14.29 on a remaining balance of under $200. What the heck? Turns out that I needed to pay my bill by Sep 11th, not the 16th (when the printed the bill) and because they wouldn’t let me pay twice in the first 30 days, I had extra funds still on the card – funds I could have paid off but they wouldn’t let me.

Well, that was “outside of enough” for me. I had the bonus points already to my Hilton account, so I called them up and asked to cancel the card. They said they’d pull the interest rate charge out and apologized, but I believe that if they played these games in the first 30 days, they’d keep playing them. I may have been at fault for not reading all the fine print (i.e. knowing that I had to pay the bill by the 11th) but not being able to pay the bill multiple times a month and track my spending really irritated me. Best to be done with them.

So I did the good travel hacking thing, got the points and cancelled the card – and I don’t feel any guilt about this one.

Other posts of interest

 

Mr. 39 Months

Addicted to Saving….

One of the big “kicks” I got from joining the FIRE community was ideas on how to improve my savings and accelerate my timeline to reaching financial independence. For over a decade I thought that my mid 20% savings rate was very good – until I started reading articles and realizing what I was letting sit on the table. By paying off the house and making a few adjustments, I was able to have my savings rate shoot up to almost 47% in 2017, and it’s definitely going to be over 60% for 2018!

As you may remember, if we counted in Social Security, I would already be at FI; I am still concerned about counting that in, as the trust fund is due to run out in 2034 (when I am 70). At that point, they would only be able to fund 75% of expenditures. My bet is that they’ll fund folks who have lower numbers at 100% (since that is all a lot of those folks have to retire on) and “cap” the higher folks. This would mean a much lower amount for us (or none at all).

One of the aspects of hitting FI is that you don’t necessarily have to retire. You can keep working, but now use the opportunity to work on stuff you enjoy. You often see blog folks in our community who continue to work at their jobs after hitting FI, because they enjoy what they are doing. There are a parts of my job that I really enjoy (the engineering part) and parts I do not (the management part). So I’m thinking of going to my boss in April next year (after bonuses are paid) and requesting a job change. This would hopefully enable me to continue to work on what I enjoy, while allowing others to get promotions and manage people.

If I do that, one of the issues would be a significant cut in my pay (about 25%). That money has obviously been almost entirely devoted to increasing my savings rate. When I went through my numbers, I saw that my rate would drop down to around 50% (still pretty respectable) and it gave me pause. The question comes down to continuing in a job I dislike somewhat to keep the rate up, or try to rearrange my lifestyle to be more in line with my life goals. My FI date wouldn’t really change much.

I know what you all are saying and what you would all suggest. I thought I would share the decision criteria with everyone so you could see some of the issues that pop up occasionally.

Mr. 30 Months

 

Related Posts

 

Book Review – The Power of Zero by David McKnight (revised and updated)

An excellent book that starts from the basis that taxes will be increasing. The book is short, but full of good information and ideas for the reader. This book has been revised from the original 2013 edition, to take into account the new tax law changes that are coming into effect in 2018.

The author talks about the all the underfunded mandates of the federal government (Social Security, Medicare, etc.) and how the future must see a rise in tax rates in order to help fund these costs. He jokes about a CPA on a national radio show who talked about the grim financial situation of the country and asked listed to come up with a four-letter word to explain the problem. After shooting down “debt”, “wars” and “kids, he finally gave the answer – “Its Math.” The key question of the book is “are you prepared?”

The first part of the book, the author goes into some detail of our current financial situation in the US, the history that led us to it, and how politicians have tried to deal with it (or not deal with it) over the last hundred years. He states that due to these issues, the tax rates are due to rise, in some cases dramatically. He then posits and answer – do what you can to get your tax rate to zero, so that even if the tax rates double, it won’t affect you. The method involves using the historically low tax rates now, to put you in the driver’s seat in the future.

The Author then goes into the three primary buckets that people have their retirement finances in:

  1. The taxable bucket (brokerage accounts, savings accounts, etc.)
  2. The tax-deferred bucket (401Ks, 403Bs, Regular IRAs, etc.)
  3. The Tax-Free bucket (mostly Roth IRAs, non-deductible IRA, )

For each of these, he discusses their strengths, weaknesses, optimum uses, and optimum amounts to have in at retirement, based on the current tax code. He doesn’t discuss asset allocation (% of stocks vs. bonds, etc.), just the amount that should be in each, based on the 2018 law. For example, with 401K/IRAs, if you can keep your RMD (required minimum distribution) under the standard tax deduction ($24K for 2018) then that money comes to you tax free.

The author also covers a Life Insurance Retirement Plan (LIRP) which is a method of using a life insurance policy to put away money tax free, and then withdraw it tax free in the years ahead. It’s a complicated product, and doing it incorrectly can cause you to have tax penalties. Depending on the policy, it also can be used to help pay for Long-term care. The author lays out its advantages, but also urges the reader to get professional assistance in setting it up.

The author closes out by going through a case study, and showing how an individual can take advantage of today’s tax rates to set themselves up for being tax free in the future. Some of the methods include:

  • Using money in bucket 1 (taxable) to pay the taxes for assets in bucket 2 (tax-deferred) into bucket 3 (tax free)
  • Shifting the deposits from your paycheck from a tax-deferred item (like a regular 401k) into a tax-free item (Roth 401K or Roth IRA)
  • Using LIRPs to save tax-free money and prepare for potential costs for Long-Term care
  • Using the rule 72(t) to begin accessing your 401K/IRA before age 59-1/2
  • Using the standard deduction to be able to access some of your tax-deferred money in retirement
  • Dealing with Social Security and Pension payments as you seek to remain at a 0% tax rate

I’d rate it an A, and a must read for any FIRE person who wants to learn about how to handle their money going into retirement.

  • MinaFI walks through how he is going to use a similar strategy to pay $0 in income tax

Mr. 39 Months

Keeping your professional knowledge up to date while working on FI

As I spoken about before, I’m an engineer in the supply chain field. My primary role is to design warehouse operations and equipment, so that the operation can operate as efficiently as possible and be successful. In order to do this, I need to continue to learn new methods of work, as well as work to better understand existing equipment and work methods.

As part of that, I took a trip the first half of this week to a racking manufacturer in Wisconsin.  This company takes spools of steel in long runs and bends them into rectangular tubes (after which they weld them). From there they either punch holes at regular intervals (for uprights) or weld hangers on the end of these rectangular lengths (for horizontal beams).

Once this is done, the run them through an oven to burn off the impurities, let it cool a bit, and then powder coat/paint them prior to running them through an oven again (to set the paint). Once that is done, they stack them up and prepare them for shipment.

These are the storage systems that we are all used to seeing in the big box stores, Ikea, and many retail establishments. They can be setup to hold cases below and full pallets of merchandise above. Depending on how you want to set it up, they can be very complicated, or very simple.

The operation we visited had two sides, one that had been in operation for 30 years, and one recent addition with more modern equipment (5 years). What was fascinating was that the basic processes were the same, but the more modern operation had only 40% of the workers. A lot more of the work (especially the welding) was being done by robots and more of the product movement was done by overhead conveyors and automation.

As an engineer, watching this manufacturing operation, where raw materials come in and finished goods go out, is thrilling for an engineer. I could tour sites like this all day.

So what do you do to keep yourself “up to date” in your profession?

 

Mr. 39 Months

As an older FI blogger, do you ever get the feeling that technology is passing you by?

While I’d like to consider myself technologically adept, I have to admit that over the last five years, I’ve fallen further and further behind. The pace of technology (especially communication tech) is mind-boggling, and the numerous ways that people and business communicate. Just when I think I’ve got the latest tech down, it gets superseded by some other form.

This is happening at work as well. I hate to be the “old fuddy duddy” but there are a lot of new engineers being hired with a lot of tech savvy (and a desire to do robotics and computer simulation) but who don’t have much hand-on experience in the field. My boss, and our customers, are enamored with potential for this (because we are all having a hard time finding labor) so I sometimes feel like I am the odd man out, and becoming obsolete.

The reason I bring this up is that we had the annual “icebreaker” for my professional society this weekend, which was at a distillery in Philadelphia. It was a great time, with a lot of good fellowship, good food, and some drinking. Some of the members there were older (like me) and some were younger (late 20s, early 30s) and the topics eventually settled into our engineering profession. A lot of what was discussed was basic engineer and leadership “blocking and tackling” but some of it was the effect that technology was having on their business and their work. It’s exciting, but also troubling (am I obsolete?).

In the end, one of the concepts of FI is never stop learning, so if I choose to stay in this profession, I need to dedicate myself to continued work in the field. You never stop learning.

 

Mr. 39 Months.

 

Book Review – A Random Walk Down Wall street by Burton Malkiel

This classic book was originally published in 1973, and has been updated every few years to reflect updated data (the version I purchased was from 2003, so it had the dot.com bust in it, but not the 2008 meltdown). The general theme of the book in 1973 was that “an investor would be far better off buying and holding an index fund than attempting to buy and sell individual securities.” Over thirty years later, the data still bears out this lesson – one that most FIRE folks agree with.

Why follow-up editions over the last 30 years? The author states that there have been enormous changes in the variety of new financial instruments over that period, and these will need to be evaluated against the basic thesis of the book. Overall, it’s a very “readable” book, especially for those with an interest in investing and financial instruments.

The first part of the book is a history course of investing down the years, starting all the way back with the Tulip Craze of the 17th century and moving through the great depression, the 60s, 80s, and all the way up to the dot.com bust. In each era, the author points out the prevailing investment theories and provides data on how they performed. It’s a great read for those who want to understand how people have been investing throughout the centuries.

The second part of the book describes the current state of the investing world, and describes, in detail, the two main theories of stock analysis (Technical and Fundamental analysis). He again goes into some detail of the methods of each, their strengths, weaknesses, and effectiveness based on history. In the end, the author uses the findings to state that “investors might want to reconsider their faith in professional advisors.” He notes that most do not beat the market average – although some do, and some do consistently. His final conclusion is that the historical evidence does not support a theory that professionals can do better than the individual investor.

The third part of the book goes through more of the modern investing theory (Efficient Market Theory, Modern Portfolio Theory, etc.). Again, the author provides a wealth of data and comparisons so that the reader can make his own judgements. In the end, the data points to a very efficient market that is difficult for a professional to manage successfully and beat the market.

So what do you do then? The author provides a road map of exercises to follow to build your financial plan, including determining your objectives, insurance, tax avoidance, bond and other investments (real estate, precious metals, etc.). It’s a great read on how to diversify, plan for your life cycle, and winning the investment game. Just for the last quarter of the book alone it’s a valuable read.

I’d rate it an A, and a must read for any FIRE person who wants to learn about the Wall Street Game.

 

Mr. 39 Months

Frugal Fail

Well, I was hit with the frugal “bug” and tried something out. Our old washing machine’s transmission went, and the repair guy said he could fix it for $400 + parts. That’s pretty close to the cost for a new machine, with not guarantee that other parts wouldn’t start breaking as well.

So Mrs. 39 Months started doing research to find a replacement. She likes’ top loaders, so that is what we were going to go with. However, article after article kept coming back with how bad the new machines are. The government regulations on water use forced the manufacturers to come up with “innovative” ways to clean the clothes with about 1/3 the amount of water that used to be used. The result has been a lot of dissatisfied customers and poor ratings.

So I thought I’d look on you tube and see how hard it would be to change out a washer transmission. It didn’t look too difficult, and the part was $270 complete. So the frugal Mr. 39 Months said “hey, why don’t I try and do this to prove to myself that I can fix something significant.” A nice win.

So part ordered, arrives, date set (this last weekend), and Mrs. 39 Months out of the house to meet with a friend. Here we go! Yet once I started pulling the machine apart in order to replace the transmission, I found that one of the components had fused/frozen to the main transmission shaft – and I had to get them apart in order to do the replacement.

For the next 6+ hours I tried everything to get these two parts to come loose (bought some additional tools along the way). After much cursing, struggle, and cuts/bruises – no luck. By Saturday night I was very grumpy (and exchanged some harsh, undeserved words with Mrs. 39 Months when she just asked me “are you done yet”). So, we ended up going out on Sunday and ordering a new washer. Luckily it was in stock, so we were able to get it delivered today (Monday).

I hope to be able to get my money back on the new transmission (just opened the box, never used any of the parts, most are still in their packaging). I don’t regret making the attempt (other than being cross with Mrs. 39 Months) – it’s all part of the learning cycle in life, and I’ll know better next time.

So that was my adventure this last weekend.

 

Mr. 39 Months

Investment update for Sep 1, 2018

Things went well again, with another month of gains which pushed me further into the black for 2018. Still have some ground to makeup after the Feb/Mar meltdown, but its trending well. I am now up 2.24% for the year, with a 1.68% bump in August. An old investment saying was “sell in May and go away!” where you sell everything on Memorial Day (late May) and walk away till Labor Day (Sep). If you did this in 2018, you lost out on some significant gains (about 4% for those 3 months or the equivalent of 15.7% annual). Stick with the plan!

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

I ended up being about 1.6% up here for August, so they have continued steady increases for a while now. US Small caps continued to surge, and S&P500 and REITS did well. Bonds gained a little and International got hit. See my July post on this to look how each segment did for the first half of the year. Note that these returns include reinvesting dividends.

My 401K/Deferred account at work was up 1.7% for August, with the same general results on each segment. Remember that this account doesn’t have REITs, so it benefits more than above when REITs drop (but doesn’t do as well when REITs surge).

Dividend Income Account: Allocation:

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

This account was up 2.2%, so up a bit (in July it dropped -1.6%). For the year, it is a little down, even counting in the dividends. I think this is primarily due to drops in bond index funds. Overall, it continues sending me dividends, but not growing much.

Value Investing Account: Allocation (remember I refocused this at the beginning of February):

  • 40% in individual value stocks I picked myself (2 each, 20% for each) – SBS and GILD
  • 20% USAA Market Index (my brokerage is USAA)
  • 40% in Vanguard Value Index fund

My losing streak starts back up again here, primarily due to my value stock picks. The leader, Cia Saneamento, suffers from the problems that all the international stock funds have (see above). My other value stock, Gilead, was down -2.7%. Meanwhile, my two mutual funds were both up (average of 2.7%). This continues to show me that I am not a good stock picker.

Again, another up month. Let’s hope we can keep this momentum going for the rest of the year, so we can rescue this one.

 

How did you do in August?

 

Mr. 39 Months

Labor Day Weekend with the family

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

 

The first governmental recognition came through municipal ordinances passed in 1885 and 1886. From these, a movement developed to secure state legislation. The first state bill was introduced into the New York legislature, but the first to become law was passed by Oregon on February 21, 1887. During 1887 four more states — Colorado, Massachusetts, New Jersey, and New York — created the Labor Day holiday by legislative enactment. By the end of the decade Connecticut, Nebraska, and Pennsylvania had followed suit. By 1894, 23 more states had adopted the holiday, and on June 28, 1884, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories.

From US Debt of Labor website

Labor Day is often celebrated as the last day of summer. Many companies change company policy (dress codes, work hours, etc.) after Labor Day.  For many places, kids go back to school after Labor Day (after enjoying their summers off). There is a fashion rule that says you never where white after Labor Day. All of these point to the same thing; the day is a transition time, between one parts of the annual cycle to another.

Like many times of change in your life, folks tend to want to experience it with family and close friends. It’s a time of barbeques, picnics, and dinner conversation. Sometimes the conversations are serious, but most of the times the talk is light and enjoyable.

This week Mrs. 39 Months and I are traveling north to New York to spend time with her family (hence the rest area picture). Her sister is closing in on retirement, and since the two of them are very close, where she ends up relocating (she doesn’t plan to stay in NY) will have some impact on our plans.

I hope all of you have a pleasant and enjoyable weekend!

 

Mr. 39 Months