Sunday, August 6, 2017

How much is your time worth?

You know what?  I love getting paychecks: regular paychecks, bonuses, overtime, side gig paychecks, checks in the mail, direct deposits...  I love them all.  It's easy to take for granted that another one will be coming...  We keep working; checks keep coming. Every time I get one I have this burning realization of how long it took me to get that paycheck.  How much of my life I sold in order to receive it...  Don't get me wrong, I like what I do for a living.  I don't make a practice of doing things that I don't like for money; that seems like a terrible way to live your life, and I choose not to live that way.

Regardless, I feel hyper-aware of the amount of time each dollar takes me to earn.  I earn about $0.75 per minute.  If I go somewhere to sit down for a cup of coffee or a glass of wine with my friends, I know that a $9 glass of wine costs me 12 minutes of my time to earn; a $5 glass costs me about 7 minutes..

My point is not that you need to sit around and figure out how many cents per minute you earn and compare it to the things you pay for, but it is an eye-opening experience.  While I don't typically spend my time calculating how many minutes it takes me to earn each of the things I pay for, I do know how much money I earn per minute (roughly...I am a salaried employee, not hourly).  It's a bit of a strange thing when you really think about it, trading my time for money.  While I can always get more money, time is a commodity I will inevitably run out of, and I can't really earn more of it.

This is why I am so meticulous about my money moves.  I traded something I can never get back in exchange fore each dollar I earn.  I have no plans on squandering any of my dollars because it seems like wasting time, literally.  All of my dollars have a job because eventually, I will have used my money so wisely that I can stop trading in my time...

Double My Money!

I was talking with my mother recently, and the conversation at hand was money and our investments.  She was in the process of doing a little bit of financial housekeeping, and make some decisions in the process.  What I would like to share with you, is a little trick that she was able to use to give her some clarity on a few of the decisions she was facing.  This trick is called The Rule of 72.

The Rule of 72

Let me start by saying that I did NOT invent the Rule of 72, but I do use it for my own quick figuring.  The Rule of 72 is a quick-math method of being able to figure out how long it will take your money to double.  The exact formula for the exact calculation is pretty complex, and requires a calculator.  This will easily get you in the ballpark using simple mental math.

All you have to do is take 72 and divide by the compound annual rate of interest.  The answer is the number of years it will take for your money to double.

72/rate = # of years

For example, I have a retirement account with a guaranteed 7%.  Using the rule of 72, I know that it will take 10.28 years for my money to double (about 10 years and 3 months).  I know this because 72/7=10.28 roughly.

Why do I want to know when my money will double?

This information is pretty valuable when trying to decide where to invest your money. Let's use that retirement account of mine as an example.  I've been looking a some of the other funds that are options in my retirement plan, and am considering moving into one of those instead.  The rate isn't guaranteed, but I'm seeing that they have a track record of about 10% over the last five years.  While there's no certainty that it will stay at 10%, if it does, my money will double in 7.2 years (72/10=7.2).  On the other end of the spectrum, I have a savings account at my local credit union.  I use that account for my emergency savings, but not at all for investing.  It hasn't made more than about 1% in years.  At 1%, it would take 72 years to double my money.  Hmmm... Not sure I want to wait that long.  So, that's why I only have my emergency savings in that account.

So, while you can get more exact using a more precise formula and a calculator, The Rule of 72 should also do the trick!

Wednesday, August 2, 2017

The Landlord Files: Emergency Savings

We've talked about our own emergency funds, but haven't really discussed the specifics of being a landlord and having an emergency fund.  As you probably know from a previous post, I keep a completely separate account for my rental property, and it has it's own emergency fund.

How much do you really need to have in it?  I have to be honest, that isn't as simple as a straightforward number.  The first thing you need to consider is: What possible scenarios could come up, and how much would they cost me?  Let me give you a few that we've encountered:

  • Break-In (While it was empty):  setback $6000
  • Vacancy (Between renters):  setback of 1+ month's mortgage plus cleaning and maintenance fees.
  • Plumber:  setback $100+
  • Electrician:  setback $700+
  • Roof Repair (small repair):  $300+
  • Roof Replacement:  $5000+
This list goes on and on.  The numbers I've listed are approximations based on experiences that I have actually had.  These figures can vary hugely depending on the nature of the problem, and where you are, etc.  My point is that the last thing you need/want is to need to take out a loan to fix any of these kinds of issues.  The purpose of having a rental is to make money, not borrow more of it.  

All things considered, I've settled on 6-8 months worth of the mortgage payment.  In my situation, that is enough to cover pretty much all of the above listed items.  It would even cover a combination of those items.  

If you are considering getting a rental property, and have never done so before, you might want to make your own list of possible expenses and dollar figures to go with it.  That way you can decide safely whether 6-8 months of the value of the mortgage would suit your emergency savings needs, or if you need more than that.  Remember:  vacancies, repairs, and maintenance are all very real needs.  They don't need to be stressful if you're prepared.

For further reading, see also:

Wednesday, July 26, 2017

The Landlord Files: A Financial Life of it's Own

As you might recall, my partner and I have a rental property in Portland, Oregon.  It's been almost three years since we "placed it into service" as a rental, and I have to say that this rental has been a really great financial move for us.  That being said, it could have been a real disaster in terms of financial organization.

In addition to your regular bills: mortgage/rent, utilities, etc., you'll find an entire additional set of expenses that need to be tracked.  Your rental property will likely have it's own mortgage (unless you bought it outright), taxes, insurance, maintenance, and certain utilities that you'll still be responsible for paying.  Sounds like a tracking nightmare, right?  Well, it doesn't have to be...

I have a completely separate account for the financial life of my rental property. That's right, your rental property has pretty much developed a life of it's own, so it really needs an account of it's own.  I opened a separate savings and checking at the same institution that holds the mortgage for my rental property.  I also set up online banking and a direct deposit into that account.

Every month, my property management company direct deposits my rental income into the rental
checking account. From there I set up an automatic transfers to the mortgage payment.  That way, no matter how crazy my world gets, I know the payment will occur on time.

The next thing I do to keep this all organized is to log in once each month.  First I check that the payment was made.  Then I transfer a portion of what remains into the savings account.  That savings account is for "Rental Emergency Fund/Maintenance Needs."  Just like your regular financial life has emergency needs and maintenance needs, so does your rental.

In many ways I've personified my rental property.  It's got a financial life of it's own, and I've done my best to set it up to be financially independent.  It earns it's own paycheck, has it's own direct deposit, has it's own emergency savings, and occasionally has it's own emergencies.  I personally, don't use any of the money from the house's account for my own world if I feel that it's savings account is underfunded.

Another area of "financial organization" that you need to be mindful of, is taxes.  Your tax professional will be able to help you with the specifics, but being organized from the start is key.  Every dollar that is spend with regards to the house is going to impact a certain part of your return.  So, I personally only pay for things involving the house out of the house account, or via my management company.  That way, at the end of the tax year, all of those expenses are easy to locate.  They are either on the house's bank statement, or the statement that the management company sends.

By keeping a completely separate account for your rental property, you will save yourself a lot of work organizing later!

For further reading with regards to rental properties, please check out the following:

The Landlord Files: Location is Key
The Landlord Files: How do I know if this house will get a good return?

Taking Care of Me

When I think about the last 12 months in our lives (mine and my partner's lives), I realize that I feel tired.  Accomplished, but tired.  I worked 6 days a week for the majority of the year.  My partner worked full time all year, prepared taxes during tax season, had a few side gigs, and completed half of her Master's Degree.  I know that she is tired too.

We had a huge checklist of items that we wished to accomplish by the end of June: a personal savings goal, a loan payoff goal, paid for a new roof, and saved for retirement.  We got all of these items checked off the list.  It was thrilling, but exhausting.

Now we have two months off.  Well, technically, she is taking a class this summer, but neither of us are reporting to work.  By the top of September, we will have established a new set of goals for the next 10-12 months.  Until then, my goals are a bit different from what you might expect.

I am spending two months taking care of myself. It's hard to be healthy in one part of your life, but not in others.  While I can compartmentalize a great many things, I don't really believe all things can be separated.  How can I keep my financial world in order, if my house isn't?  How can I be super caring about my financial health, but ignore the health of my body, mind, and spirit?  While I would say that I am well in all aspects of my life, I feel like it is really important to take a time-out and address some things that have been on the back-burner.

My space feels neglected, so we are doing a 30 Day De-Cluttering Challenge.  I didn't create it; I've just modified one I've seen online.  I'm not working extremely hard at it.  I'm just doing one task per day, and recycling, donating, throwing away, anything that seems to make sense.  As I see things come into order in my home, I notice that there is more clarity in my mind.  I am very aware the physical clutter, clutters my mind.  I don't tend to get rid of a ton of things at once, but I do like to  selectively pare down periodically.  Seeing a few things float out of my world makes me feel somehow lighter, just like eliminating my debt makes me feel lighter.

I have scheduled all of those appointments that I've neglected over the past nine months: doctor, dentist, DMV are all on my list.  The appointments are all made and I'm checking them off one-by-one.  I mean seriously, how can I rationalize being "on top of" every financial money move, but ignore my dental exam or the renewal of my license.  While I don't enjoy most of these things, I do feel like my stress levels reduce greatly after I've completed them.  Having things left hanging over my head causes me a lot of stress, and if I can cut that off at the pass, I will.

I am doing all of those "quiet things" that fill me up and make me feel good.  I watch marathons of movies and old tv reruns of things that make me happy or feel inspired.  I am sleeping in, meditating, exercising, cooking, getting a massage, and spending time outside.  I try to do these things all year long, with somewhat patchy results.

Lastly, I am planning vacation.  Sometimes, the anticipation of travel is part of enjoyable part of the experience.  I am always careful to get a good deal, and not to spend any money that I don't have, but travel is honestly important to me.  If I had credit card debt, I would not be going anywhere, but I haven't had credit card debt in a number of years.  The major trip that is on the horizon for us, is to Stockholm, Sweden with a stopover in Reykjavik, Iceland.  The idea of this vacation brings me so much joy.  I also know that part of the satisfaction (for me) comes from knowing that it's all paid for in advance (with the exception of paying as we go for food and attractions).  There are some smaller day trips and long weekends in the words as well.  I am aware that I could save more money or pay something off by skipping the vacation.  I'm not skipping it.  I purposely worked this into our financial plan for the year.

Those of us who consider ourselves to be personal finance warriors can go months upon months without buying new clothing, or going out to dinner.  We take great pleasure in seeing our financial worlds flourish.  That being said, we need to make sure we are looking at our lives holistically.   Don't be afraid to hit the reset button. My little "me break" isn't going to undo any of the great things I've accomplished.  In fact, it will likely give me the fuel I need to go even further in the next year.

Thursday, July 20, 2017

Is a penny saved really a penny earned?

"A penny saved is a penny earned," as the saying goes.  But what does that mean?  This proverb's intent is to highlight the value of saving by suggest that the value of saving money is equal in power to that of earning it. But is it really true?

Recently, I've been combing through our budget looking for places to save money without causing any added difficulty to our lives.  I just spend one hour of my life to get a $20 monthly savings on our cell phone bill.  Can we really say that this $20 savings is the same as earning $20?

If I spent one  hour working and earned $20, I would make $20 one time and one time only.  I've really done quite a bit better than that.  I spent one hour of my time, and now I am going to reap a $20 benefit every single month.  When comparing this savings to work (aka earning), there is really no comparison.  Let's follow this example through.  This one hour I spent working to get $20 off my cell phone bill is going to benefit me to the tune of $20 every single month. Over the course of the next year, I will have reaped a $240 benefit because of this one hour spent creating the savings.  If I also spent 1 hour today earning $20 in cash, in order to make that same $20 next month, I will have to work another hour.  Over the course of the year, I would have to work 12 hours to gain the same $240 benefit that I got through one hour of time spent finding a savings.

This doesn't even begin to consider the influence Uncle Sam has on the scenario.  While everyone's tax situation is different, I typically only take home 70% of what I've earned.  So, while my $20 monthly savings really is $20 a month, the earnings might look a little different.  In order for me to take home $20, I really have to earn $28.58.

This is quite the philosophical rabbit-hole we've explored; however, I think the point is entirely clear.  Never underestimate the power of savings, especially if you can create a reoccurring savings.  If you can spend might spend less time saving money then you would otherwise spend earning it!

6 Ways To Save On Your Cell Phone Bill

Lately, I've been feeling pretty eager to find some places to save money in our monthly budget.  The difficulty is that we don't really have any nonessential categories.  While we could both stand to spend a little time and money on things just for ourselves, the truth is that we don't really have a manicure budget, or a coffee out budget.  We really tend to avoid lifestyle inflation and the unnecessary categories that go with it.  That being said, we don't have any obvious categories that we can take a chainsaw to...

...except maybe our cell phone plan...

1.  Check for Updated & Less Expensive Plans
In order to remain competitive, cell phone carriers change their plans on a semi-regular basis.  New plan offerings could provide a savings compared to what you currently have.

2.  Check for Employee Discounts
Cell phone carriers offer deals to a lot of companies to entice their employees to utilize that particular carriers services.  They even have deals with small companies.  So, don't assume because you don't work for a huge corporation that there's no discount until you've asked.  Either your carrier or your HR department should be able to tell you if their is a discount available.

3.  Don't Upgrade Your Phone
If you still have the kind of plan that offers a free phone (or highly discounted one) once your contract is up, find out what happens if you don't order a new phone right away.  I was credited $15 per month that I didn't upgrade my phone.  That being said, I went an extra year without upgrading, and saved a ton!

4.  Share A Family Plan
Find a friend (or multiple people) that are responsible and share a plan.  Plenty of people save a lot of money by having a shared plan rather than one for only their household.

5.  Ask for a Discount
I literally just did this.  I put the pressure on them.  I told them that if I couldn't find a savings with their company, I would let another company buy out my contract so that I could find the savings I needed.  Needless to say, they found me a discount.  In fact, I think they might have just created one for me, but that's neither here nor there.

6.  Don't Be Afraid To Walk
If they can't or won't get your costs down, go somewhere that will.  Carriers offer to buy out contracts all the time. Either look for an offer that will do just that, or make your move when your contract is up.

What have you done to save money on your cell phone bill?