Financial Update Dec 2017

Another month, another update. A few random comments.

Good Reads/Listens/Watches

  • Sebastian Thrun on Machine Learning & AI.
    • Found through “TED Talks Daily” Podcast. Youtube link here: https://www.youtube.com/watch?v=d_QrGglKG64.
    • Sebastian is optimistic on the future of AI unlike many others. I liked the following quote: “Today 75% of us work in offices and do repetitive things. We’ve become spreadsheet monkeys. And not just low-end labor, we’ve become dermatologists doing repetitive things, lawyers doing repetitive things. I feel we’re at the brink of being able to take an AI [to] look over our shoulders, and make us maybe 10-50x as effective in these repetitive things.”
  • Comically tragic WSJ article of people losing access to their Bitcoins
    • James Howells, an IT worker in Newport, Wales, lost 7,500 bitcoin he mined in 2009 after a hard drive with his private key was accidentally thrown away during an office cleanup. His story went viral this month as the value of the hard drive’s contents rocketed to more than $100 million. Now he’s attempting to excavate the landfill and dig through four years’ worth of trash to find it.
  • Jonathan, the pharmacist at ChooseFI, is quitting his job to work on the podcast full time. Thought it was a pretty interesting episode:
  • Warren Buffet finally won his 10 year, $1M wager in which he pegged the S&P500 index against any hedge fund.

Life

  • I taught a 90 minute personal finance lecture for a friend’s class comprising of a dozen soon-to-graduate grad students. Here was a note I received from one of them:
    • That was without a doubt the most interesting lecture of the fall semester. I wish someone would’ve taught me this during undergrad or graduate school studies. I appreciate you giving us a nudge in the right direction! I’m excited to maximize my savings and wealth once I start working full time. Thanks again for coming and speaking with us… I really enjoyed it.
    • For the life of me I can’t figure out why the basics of personal finance aren’t taught in K-12, undergrad, or grad school. Why are university systems sending recent college graduates (undergrad + grad + phds) into the world without arming them with the understanding of what an index fund is, what the difference between a Roth & trad IRA is, and the mechanics of how a progressive tax code should shape their decision making?
      • Perhaps I’ll eventually expend the personal capital to convince my department to let me develop and teach that course.
  • For some reason (I was an idiot) I had dragged my feet on enabling two-step authentication on my investment accounts, fearing it would interfere with account aggregators like Personal Capital. I enabled two-step authentication this month on all accounts. Personal Capital works just fine with two-step authentication. You simply add the second step token within Personal Capital.
    • Everyone should enable two step authentication on all investment accounts.
    • I found this site helpful for navigating sites where it wasn’t obvious how to turn on: https://www.turnon2fa.com/
  • Took advantage of the free Global Entry membership (usually $100) using my BOA Premium Rewards Card. They allow one credit every four years.
  • Started climbing at the university gym. Easily one of my favorite things to do. Such a fun combination of strength, strategy, and endurance. I took my wife and 5 kids one Saturday. I need to do that on a weekly basis.
  • Continued biking to work in 20-30 degree weather. Had wind gusts of up to 30-40MPH one day. Luckily most of the time the wind is at my back in the evenings making for a quick ride home. I drove one day this month and instantly regretted it. I’m convinced that bike commuting highly correlated with happiness.
    • A friend forwarded me a link to this running/biking visibility product, which is like battery operated blinking glow-sticks for your body: https://www.noxgear.com/tracer360.
      • 2 weeks into owning the product and I’m a fan. I purchased it to improve my side visibility as well as provide an extra layer of redundancy in my lighting in case my primary lights die.
  • My wife and I took advantage of free skin cancer screening: https://www.aad.org/public/spot-skin-cancer/programs/screenings/find-a-screening. My wife’s primary care physician recommended that she see a dermatologist.
    • I highly recommend the program. A participating physician wasn’t available in our home state so we went to one while on Christmas vacation out of state.
    • Upon returning home, my wife is going to follow up and get a mole removed and biopsied as a preventative measure.
      • One of her brothers had melanoma in his 30’s but detected it early enough to survive unscathed. Skin cancer is terrifying.

This month’s finances

  • The good:
    • Crossed $500k of net worth. Though an arbitrary milestone, it feels good to be growing that number month after month.
    • Followed my own advice to save over $1k in 2017 taxes. If we were not in AMT territory, we would have benefited an additional $3k through early payment of 2017 property taxes. Bummer.
      • Prepaid next month’s mortgage payment to save $300 in taxes next year. 5 minutes of work for $300 in savings is a pretty good ROI.
  • The bad:
    • $2,500 insurance deductible for deer + $120 check engine light investigation at dealer ($500 car rental showed up last month).
    • A neighbor’s friend knocked over our brick mailbox. We repaired it for $850 and the driver refused to get insurance involved. After much pestering them they coughed up half while still refusing to involve insurance. I was convinced by smart friends to not pursue the matter further and file a police report.
      • A wise friend told me recently that he budgets around $500/year in people screwing him over. That way, when he is screwed over in real life like we all are, it doesn’t upset him. It’s known as “mental accounting.” I think there is a lot of wisdom here.
    • Spent $400 on a Crocs order (20 pairs of shoes which should last our family another few years).
      • Have I mentioned we like Crocs?
      • I might be a hoarder.
    • Splurged on two $90 MoviePasses from Costco: https://www.costco.com/MoviePass-and-Fandor-12-Month-Subscription-eVoucher.product.100395930.html
      • We have several family members with passes and they all rave about them. I’ll update later with our experiences.
      • The local theater a mile away from our house participates in the program, so that should be a cheap and easy date. Looking forward to it.
    • High restaurant expenditures is deceptive. We purchased fifteen (7 for us, 8 for gifts) $8 cow calendars from Chick-fil-a.
      • They give you a “freebie” every month which is usually pretty good.

2017 Year in Review

  • Finances
    • Paid 13.6% of income to taxes
    • Spent 24.2% of income
    • Saved 62.2% of gross income; 72.0% of net income
  • Family
    • Pulled kids from organized sports due to too much craziness
    • One extended road trip including a getaway to British Columbia with spouse (and no kids!)
    • Two camping trips
  • Personal
    • Bike commuted most of year (except during horrible winter months)
    • Body weight exercises 3x/week
    • One 50 mile backpacking trip in Uintas
    • Started a blog (technically end of 2016)
    • Officially became a doctor, but not the useful variety (kind of funny)

Goals for 2018

  • Finances
    • Keep doing the painfully simple things that generate wealth:
      • Living significantly below means
        • Keep staving off lifestyle creep
      • Keep maxing out all tax-advantaged accounts
      • Keep investing in low-cost index funds, trying best to ignore market fluctuations along the way
    • Don’t hit a deer (5% of 2017 annual spend)
    • I’d like 2018 annual spending to drop to $50k
  • Family
    • Do another extended road trip
      • One of these years I want to do a national parks tour…probably not in 2018 though
    • More quality time with kids
      • Minimize phone usage in front of kids
    • More camping trips
  • Personal
    • Complete coding course at: https://www.freecodecamp.org/
    • Incorporate olympic lifting into training
    • Climb >= 3X/month
    • Start training for 2019 half ironman???
    • 50 mile backpacking trip (Wind River Range, WY?)
    • Limit online rotting (phone & computer)
      • No incessant checking of news or Reddit

Full version is downloadable here (link).

Footnotes:

  1. Don’t lend money to friends/family.
  2. I lazily approximate home value as my historical purchase price.
  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. $20 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.
  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 1%. 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. ETF’s are a pain to own relative to holding index funds directly. You have to deal with bid-ask spreads as well as the inability to buy partial shares. With a simple index fund, you don’t have to deal with either of these issues. I am currently invested in VTI b/c it’s $10/year cheaper than VTSAX in my Saturna HSA.
  10. The one blight in my expense ratio analysis is my 529 plan. The underlying Vanguard fund is almost free to hold (0.02%), but the high administrative fees bring the total cost of holding the fund to 0.32%. I abhor fees and would likely avoid 529 plans if I didn’t get to deduct up to $10k of contributions per year on my state return, saving myself $700/year in state income taxes.
  11. The only other administrative cost not captured by my expense ratios is a $19/year administrative fee for my HSA at Saturna Capital ($15 per transaction + 4*$1/dividend reinvestment).

Disclaimer:
This site is for entertainment purposes only, as disclosed here: https://www.frugalprofessor.com/disclaimers/

7 thoughts on “Financial Update Dec 2017

    • My preference going forward is to teach them good principals and let them get control of their finances (teaching them to fish rather than giving fish).

      Otherwise it’s just a band-aid on a gaping wound.

  1. Agree with both of you on the lending to friends and family. Don’t, but if money does change hands, make it a gift and not a loan. It makes it much less complicated.

    How do you account for charitable giving? Expense?

    • Charitable giving: I’ve accounted for it as a mix of transfers out and “other expenses”. Going forward, I prefer the “transfer” approach so as to not confuse living expenses from donations.

  2. First response – but long-time reader 🙂

    I really appreciate this blog and the level of detail you offer! I plan to use your spreadsheet this year and want to thank you for offering it to the general public. I downloaded it months ago but have just been using Personal Capital to track net worth and my own excel spreadsheet for budgeting. Looking forward to getting all the info in one place. I also especially like the beginning section of your monthly updates that discuss life stuff and offer great links. Once I have your spreadsheet filled out I will submit it for review and maybe a reader case study (if you have the time!). Thanks again for all you do and Happy New Year!

    • Greg, thanks for the comment. Glad my incoherent ramblings are somewhat helpful to someone.

      Here’s an updated version of my spreadsheet if you’re interested. https://www.dropbox.com/s/vs2opizrk7x9g3f/Financial%20update%20-%20Public%20V2.xlsx?dl=1

      I copy paste from Personal Capital to the yellow columns of the “Backup” sheet. You’ll have to tweak it to your own situation, of course, but you can see how I coded things as an example. My dream is to make some software to auto-generate these financial statements for people.

      Regarding a case study, I’m happy to take a look whenever you want. Just email me at professorfrugal@gmail.com. I have to be honest though that I don’t have any secrets other than what I’ve shared 1.) live below your means (preferably much below), 2.) shelter the hell out of your income, and 3.) invest the savings in index funds. I’m convinced that those three steps will make most anyone a millionaire over time.

      • Thanks for the updated spreadsheet! We have been working these 3 strategies for a while now and are happy with the results! Once I get everything in order I’ll run it by you just for another’s perspective. I feel we are most lacking in #2… Thanks again!

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