Financial Update Feb 2017

Another month, another update. A few random comments.

  • Tax refund finally came through. I denoted this as “other income”. As expected, EITC hacking / tax optimization proved to be wildly profitable this year. All low/middle income families with several kids should be doing this. I’ve drafted a guest post on the topic on GoCurryCracker which will be published in the coming weeks. It’s not rocket science.
  • We started two new forms of recurring expenditures this month:
    • We adopted a guinea pig, our first real pet. Yeah, it’s an over-sized rat but our kids love the stupid thing. We paid about $150 for a year’s supply of food for the thing. And we spent $100 or so on a new cage. Only after adopting the thing did I realize that I’m allergic to it. Brilliant planning on my end.
    • We started piano lessons for the three oldest kids. We have a teenager teaching them, but parting with the cash still pains me. Something like $100/month is what we’re doing. Ouch.
  • I maxed out 2016 Roth IRA contributions x 2.
  • I’m sitting on a lot of cash. I need to do 2017 (backdoor) Roth IRA contributions x 2, max out HSA, max out other retirement accounts (403b, 457), pay off mortgage early. Still trying to figure out optimal timing & sequencing.
  • I had a really interesting conversation with two of my friends this past month. Both of them know that I blog (and are two of the five readers I have) and that I am totally transparent with money. Talking about money doesn’t weird me out like it does many people. As a result, a these good friends have independently opened up to me about money. One of them is a friend from undergrad. The other is a friend from my master’s program. Both are 35. One told me that he hit $1M in net worth this past month. The other told me he’s worth several million dollars. A few things strike me as interesting about these conversations:
    • As a society, we don’t talk about money in a healthy way. We hide both our problems and successes, and as a result, we don’t learn from one another. As a result, we often suck at money.
    • My friends are truly “millionaire’s next door.” You wouldn’t know it from their consumption habits. They remain frugal. They drive crappy cars and live in modest homes/apartments. But this is precisely what enabled them to accumulate masses of wealth at a young age.
    • Not even their siblings or parents or other friends know about their wealth. I guess they don’t want to come across as bragging or whatever, but to me it’s kind of weird that these great successes are hidden from view for others to learn from.
  • My safe withdrawal analysis chart is slowly but surely climbing upwards. It is amazing to me how much savings is required to move the needle on this chart at all. I hope it is a reminder to us all of how much wealth and savings are actually required to retire.
  • We currently have high deductible health plans. Several of the members of my family got sick this month. In lieu of going to the doctor for a normal visit (and bill of $150-$200), we utilized a combination of minute clinics (in CVS) and telemedicine. It was our first experience with telemedicine and I was pretty encouraged. They treat simple stuff (sinus infections, allergies, etc). You may want to check it out if you have high deductible plans. Worst case scenario you’re out $10 if they tell you to see a physical doctor. My wife was prescribed antibiotics to treat a lingering sinus infection through one of these visits. Our daughter was told to go see a physical doctor for an ear infection. Again, I’m happy to pay $10 for a consultation which will likely save me a $200 visit. If it doesn’t work out that way, then I’m only out the $10. No big deal.
  • My wife is going on a cruise with her sister and parents, without me. The prepayment of that cruise showed up on this month’s finances as well. I’ll be left on my own with 5 kids for a few days. Heaven help me. I’ll try not to over-analyze the fact that my wife going on a cruise without me.
  • My water bill (below) shows my water usage relative to my home’s previous owner (I moved in over the past summer). I use about half the water as the previous owner. How did I accomplish this? Watering lawn less often (specifically, I turned all water off and saw which portions of lawn began to die, and only watered those portions). I also installed low-flow aerators on my sinks (0.5gpm, sold on Amazon here). I assume I use about half of the other utilities as well, despite having a large family. I assume I also spend about half on groceries, 80% less on restaurants, 90% less on entertainment, etc. As a result, my wealth will increase at a substantially higher rate than my peers. But I don’t feel deprived because we are gaining great value out of the relatively few resources we consume. This, to me, is the essence of frugality and wealth accumulation. We eat healthier than others (due to cooking our own food and eating lots of fruits, vegetables, legumes, and whole grains) at a fraction of the cost of what it would take to eat out at a restaurant. Libraries are free and expand our minds relative to rotting away watching TV. Etc, etc, etc. It doesn’t take a lot of money to enjoy an incredibly enriching and fulfilling lifestyle.
    • I think the process through which I figured out what areas of the lawn needed to be watered is somewhat symbolic of best practices in frugality. Addicted to your $150/month cell phone plan? Try cancelling it for a couple of months. If you die, then reinstate the plan. If you managed to survive just fine without it, then go ahead and transition to a cheaper plan. Similar strategies could work for TV payments, restaurant behavior, etc.  Life goes on without these expenditures. But only after breaking out of the automation of consumption do we consciously think about our consumption decisions. Again, I’m all for consumption that brings value to your life, but it’s often hard to isolate which of your many expenditures are bringing you happiness until you cut stuff away and see what hurts. If you cut and it doesn’t hurt, it means that it wasn’t bringing you happiness in the first place. When talking about this, I see a lot of similarities to this book (link).



  1. Don’t lend money to friends/family.
  2. I lazily approximate home value using Yodlee’s embedded SmartZip estimator.
  3. I have a 15Y mortgage; which results in a faster rate of repayment. The true cost of the mortgage should exclude repayment of principal, which I show above.
  4. $15 internet and $0 cell phones as described here.
  5. All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, etc).
  6. I prefer Vanguard funds but my employer offers Fidelity instead. Also, Fidelity mutual funds work better at my Saturna HSA.
  7. Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link).
  8. My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 0.75%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
  9. The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital.

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14 thoughts on “Financial Update Feb 2017

  1. Your wife loves you lots. She just knows you have never wanted to go on cruise. 😉 Keep on being awesome, Frugal Professor. 🙂

  2. Glad to see a new post Professor! 40 grand increase in net worth in 3 months is impressive! You are going to be one of those millionaires next door before you know it. I will also be looking for your guest post on GCC. I am guessing your readership is going to get quite a bump from that. Just glad I will be able to say that I was one of the first 6 to follow your blog. 🙂

    I loved the lawn watering hack. When we first purchased our house in the US, we were so excited to have a nice lawn that we watered the crap out of it the first dry summer month we lived there. Needless to say, the >$200 water bill quickly ended that. Now my approach is like that big russian guy from Rocky III – If it dies, it dies..

    • Mr. Zero! Good to hear from you. I certainly can’t keep pace with your prolific publishing. At most, I can pump out one post a month with occasional random thoughts I have in a given month. Congrats again on your recent milestone. Quite the accomplishment! Hopefully the GCC post doesn’t disappoint.

  3. It’s always kinda shocked me to hear the people that are millionaires that I know and you’d never know it. If they didn’t tell me I’d never know. Although on the other hand the people that I know that are flashy are usually the people that are in financial dire that I know.

    Staying at home with 5 kiddos will definitely be a fun challenge. Or maybe just a challenege. I hope Mrs. Frugal Professor has an awesome time.

    • Thanks MMM. I hope I survive the 5 kids as well. Luckily it’s still a few months away so I can prep for it mentally.

  4. I’ve read through your blog and I’m assuming you haven’t had your current income for a year and that your taxes will look very different next year. Correct assumption?

    Curious why you have the 529s listed with nothing in them. Is it because you don’t include them in your net worth calculations or just that you intend to contribute but haven’t?

    We have enough similarities that I can glean value from your information, but are different enough that our trajectories are not the same.

    • Correct. Current income is a new thing. Last year I was a poor student. Taxes will be substantially different for 2017.

      529s are on my list of priorities somewhere, so the $0 is there as a placeholder for the eventual plopping of money there. Most assuredly funding of 529’s will be prioritized after funding of pre-tax vehicles (401a, 457, 403b, HSA) as well as Roth IRAs.

      My state gives a modest tax break for 529 contributions, though it’s nothing to write home about. What I dislike about 529 plans are the high expenses. They charge substantially more in fees than what you can buy yourself in a Vanguard brokerage account. (i.e. 0.25% vs 0.05%). Over time the difference in fees matters more and more. But regardless, I will probably max out up to the state’s tax modest limit every year.

      I know my situation isn’t going to be the same as that of many readers, but I hope that my transparency will help someone out there. The simple mechanics of tax planning, investing, and wealth accumulation is all I’m trying to convey. If my income were 50% what it is today, the mechanics of what I’m doing now would still be completely sound, but the accumulation of wealth would simply happen at a lower rate.

      • We are the same – we contribute the max to a 529 for a tax deduction which is $3000/taxpayer in our state.

        Our income is lower than yours by about 25%, but we did not go back to school and have been earning at this level for a bit so our current net worth is substantially higher (for now – I am quite confident that you will blow by us in a few short years). We do not have all of the pre-tax vehicles available to us that you do – one 401k, one 401a and one 457 (we could do an HSA, but the out of pocket difference does not make since for us since one of our children needs constant medical care due to an autoimmune disorder and the current premiums we pay are less than $2000 for a family of five and excellent coverage.) We would like to retire in our 50s and I think we are on our way to doing that, but likely need to save more in taxable accounts.

        Thanks for sharing! I enjoy your straightforward approach.

        • Sounds like you are in a great situation. Maxing out both 401k’s and one 457 should lower your taxable income by $54k/year ($18k/year * 3, excluding employer matching). Your rationale on the HSA makes sense. Hopefully you’re maxing out your FSA to take advantage of the pre-tax benefits there (pre-payroll, pre-federal, pre-state).

          Best of luck to you on your journey! These kids certainly are great but somewhat expensive!

          Given your future savings in taxable brokerage accounts, you’ll have to be mindful to minimize taxes on that front. The name of the game here is low turnover. Buy an index fund and hold it for life. If it drops in price after you buy it, harvest the loss. But never sell winners before retirement. Over time, once retired, you can do capital GAIN harvesting as GoCurryCracker does, and substantially lower your tax burden this way (Mad Fientist also blogs about this).

          • Unfortunately only one 401k available, so just $36K available for pre-tax. My company doesn’t offer after-tax donations to the 401k either, so no Mega Back Door Roth conversion either. (Boo!) We utilize both an FSA and DCSA.
            The biggest question I have right now is that after 10+ years of maxing out my 401k, we have over $500K in it. Even if we contribute no more, it still has 25 years of growth. I think our RMDs are going to be pretty high and I also have a (non-govt) pension available at age 55 (somehow I got crazy lucky right out of school), so the taxes I am looking at paying in the future are potentially very high – higher than our current tax bracket. However, I don’t think it makes sense to not max it out while we are working because without maxing out the pre-tax accounts we don’t qualify for the child tax credit, so the tax savings is not just 25%.

            I’ve been reading a lot lately about how to retire early and then reduce the amount in your 401k to avoid a large RMD, but I’m not sure I understand it yet – more reading to do. Obviously a good first-world problem to have and if anything, I can use it to fund grandkids’ education and/or make large charitable contributions.

            The thing I like about personal finance is that it is personal. I am naturally frugal, but there are areas that I don’t ever thing twice about spending in, but I am also careful not to waste – healthcare, family vacations, healthy food, etc.

          • Wow, you are in a fantastic situation! I’m envious!

            You’re certainly correct that your and my problems are first world problems.

            You also bring up a really important point about the child tax credit and your EFFECTIVE marginal tax rate. You are certainly correct that the EFFECTIVE marginal tax rate is the one that matters when making 401k sheltering decisions. My tax calcualtor tool should show you explicitly what your EFFECTIVE tax rate is. This is specifically what I’ll explain in my GoCurryCracker post.

            Another reason for me to defer now in a 401k is due to geographic arbitrage. I’m in a high-tax state now and hope to move to a no-income-tax state in retirement.

            The way to defeat the RMD is to shelter like crazy now, retire early, then do roth conversions over time, similar to what GoCurryCracker is doing. After quitting, you could convert a ton of income to ROTHs at the 0%, 10%, and 15% brackets after quitting work. For example, you can convert 12.65k (standard deduction) + 4.05k*5 (personal exemptions) = 32,900 for free every year if you were to quit work tomorrow. Then you could convert an additional $18,550 at the 10% bracket, and (75,300 – 18,550) at the 15% bracket. That is a ton of conversion right there (75.3k + 32.9k=108.2k) at a weighted-average tax rate of 9.6% (32.9/108.2*0%+18.55/108.2*10%+56.75/108.2*15%). To me it’s a no brainer. Want to avoid RMD? Do this.

            Again, I’m happy for your situation. Your wealth is substantially higher than you give it credit for after taking into consideration your pension. Divide your annual pension distribution by 0.04 to get at the equivalent value of the wealth today.

  5. I am new to your blog and newly determined to minimize our tax burden. I sincerely appreciate your generosity and transparency. Wondering if you have made available (will make available) your Monthly Financial Report table as a read/write template for your readers–a la your your Federal tax calculator spreadsheet?

    • Bobby, thanks for the comment. I was actually thinking of making this public as well. I’ll post a version of it next month for public consumption. It’s a really powerful tool. It took me a while to develop, so it makes sense for people to not have to duplicate efforts here.

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