Thursday, September 22, 2016

What Are Mutual Funds?

Today I wanted to step back to some of the basics of investing again. If you don’t already know, we love investing in the stock market, and have chosen to go 100% into stocks. We can feel comfortable doing this because of our long investment horizon and because we only invest in mutual funds which decreases our investment risks.

Basic explanation -mutual fund is an investment shell.

Within this shell are a large number of investments, typically stocks and/or bonds. When all of these investments are grouped together into a fund, people can purchase shares in the mutual fund. So, having a share of a mutual fund means that the  investor owns part of the investment shell – and thus a small portion of all of the shares contained in it. This allows the investor to invest in hundreds of companies at once and reduces risk because poorer performing companies can be offset by better performing companies in the fund.

But who then is picking the stocks?

If I needed to remodel my house I could either choose to hire a professional to do it or I could try doing it myself. If I do it myself it will definitely take a lot longer and I could potentially do more damage than good, but it could be done. Similarly, while picking your own stocks successfully is possible it can be very difficult without professional intervention. Mutual funds are managed by an individual or team of professionals with a very high level of investment expertise called fund managers. These fund managers have a tremendous influence upon the success or failure of their mutual funds, which is why a fund manager’s track record can be an important element in deciding whether to invest in that fund.

If the fund managers decide what is put into each fund then how do I know what I’m buying into?

Each fund has stated investment objectives that guide fund managers as they decide which categories of investments to buy. The stated objectives are intended to define what a fund is invested in, other third parties – like Morningstar – assign a style to each fund based on their own analysis. Styles help investors make meaningful comparisons between funds by assigning them to categories based on common category traits. Styles usually reflect some or most of the following characteristics:
·         Type of investment – ie stocks or bonds
·         The country or geographic region of the investment – ie Domestic (US) and Foreign (Outside the US)
·         The economic conditions of the country – ie Developing Countries
·         The size of companies in which the fund invests – ie Large Cap, Medium Cap and Small Cap
·         The relative value of company’s stock – ie Value, which means the stock is undervalued and expected to gain value
·         A sector of business – ie Energy, Precious Metals or Real Estate

For instance, the backbone of my portfolio are funds which attempt to track to the S&P 500 (VFIAX at Vanguard and FXAIX at Fidelity). If I type in VFIAX into the Morningstar search box I am given the following Style Map which tells me that it generally invests in very large “core” type stocks. 

By investing in these funds I can be confident that as long as the 500 biggest companies in America are continuing to make money then so will I.

Thursday, September 15, 2016

Which is the Wiser Choice – Buying a New Car or Making Your Existing Car Last

Today we have a great post for you from our friend Ethan over in the UK. He shares some good points with us that can help us save thousands on transportation expenses.

"Once upon a time, when the month of September rolled around, it marked the arrival of the next year’s car models, and with them, a rekindled lust among motoring enthusiasts and common folk alike. And while the cars might have changed dramatically, the lust has not, and millions of consumers find themselves faced with a true first-world dilemma: Do I take the plunge for a shiny new car, or hang onto that aging Mini or Citroen for another year? Left to our lust and ego, the choice would be simple, but in the aftermath of a nearly decade-long financial and employment crisis, we begrudgingly allow our logical selves to creep in and speak their piece. Sometimes, we even listen to what that annoying logical self has to say.

Can you afford a new car?

Next to your house, your car is likely the second most expensive purchase you'll make, and as such, warrants careful consideration. Even if you’re feeling a surge in confidence that financial hard times are in our rear-view mirror, you can’t really ignore the fact that while most people’s earnings have stagnated over the last few decades, the prices of new cars have done anything but. Even today’s modest economy models are priced much higher than many exotic vehicles from a couple of decades ago, while the more prestigious luxury cars now command a price higher than what many people spend on their homes.
These changes, along with many others – perhaps including our own rising level of maturity – are naturally increasing the volume at which our logical selves addresses us. The result is an apparent polarization in the marketplace, with most buyers looking to the extremes and purchasing either the most economical models or to an even greater extent, the more prestigious premium brands. The median-priced models have seen their popularity shrink.

Two prominent factors in buyers’ decision making are the availability of streamlined purchasing methods and the emergence of creative financing programs that serve to lower the monthly payments. The latter is a concern shared by buyers who can only afford a modest monthly payment as well as those who opt for the highest levels of luxury and/or performance, but must still be able to squeeze the monthly cost into their budgets.

Many people at both ends of the auto-buying spectrum are feeling that squeeze. While new car sales figures for the last few years have been increasingly impressive, for a significant number of motorists, the monthly payments for a new car simply aren’t affordable, and their decision is to hang on to their existing car and keep it running for as long, and as efficiently, as possible. But even those who purchase new cars can benefit greatly from keeping their cars operating at their peak.

Keeping your car in tip-top running condition

It can be tempting to put off car maintenance tasks, especially when it seems to be running smoothly with no issues. But you should realise that adopting such a cavalier attitude toward keeping your car in optimum condition makes as much sense as the stereotypical attitude toward dentistry, where minor issues are ignored for years, until they become major problems.

Having your car fully serviced at least once a year can save you money, not only by averting the need for major repairs, but in the day-to-day costs of driving as well. Thanks to improvements in automobile technology, we’ve become accustomed to treating our cars like they are immortal appliances, but there are a few things that we really need to look after if we want the car to continue running well and to last as long as possible. Here are a few items you’ll want to attend to.

Tire pressure and condition – Keeping your tires at the recommended pressure can increase your petrol mileage considerably, but many people don’t even think about tire pressure until one goes flat. In addition, maintaining proper pressure will extend the life of the tire by thousands of kilometers by reducing heat build-up. Finally, uneven wear on the treads can be an indication of a mechanical problem that left unattended could cause a breakdown or even a crash.

Changing the oil – Unless your car is old, with many thousands of kilometers on the clock, you should not need to add oil between changes, and really shouldn’t add oil even if it runs a bit low. Merely adding oil serves only to redistribute the filth and metal shavings that are suspended in the lubricant. Draining and refreshing the oil at least as often as the manufacturer’s recommendation will reduce friction in your engine, helping it to run more efficiently while reducing wear and extending its life.

Other items as recommended in the service manual – Manufacturers have a good idea as to how long the components in your car can last, and recommend replacing some of the more critical ones well ahead of their expected failure point. Ignoring those recommendations can prove quite costly. For example, replacing a worn fan belt can save you from having to pay for a tow when the belt breaks and your car dies. And many cars have rubber or Aramid timing belts to keep things humming inside the engine. When one of those fail, the result can be and often is an engine that cannot be repaired. Saving the few hundred pounds it costs to replace the old belt is a lot easier to deal with than having to pay thousands of pounds for a new engine or replacing the whole car. This is one item that new car buyers needn’t be concerned about, since most manufacturers recommend replacing the timing belt at 70,000km or more.

Other tips for servicing and maintaining your car can be found on the Money Advice Service charity website, and a familiar, trusted mechanic can help guide you through the most effective and economical steps for keeping your car in shape, whether it is a fresh from the showroom model or a classic that reminds you of the youth you imagine having lived through. In either case, properly maintaining your car will increase the likelihood that it will be around and serving you well for years to come."

Thursday, September 8, 2016

Overcoming Money Stress

Can I let you in on a little secret? I really hate spending money. I often view money as more of a safety net to get us the necessities of day to day living than a tool to be consumed to gain the luxuries of life (ie. Quilted Northern toilet paper).  When I walk into a store where I am required to make a purchase my blood pressure quickens and I start inventorying every possible (honest) solution that I can think of to allow me to spend as little as possible or, my preference, nothing at all.

A great deal of this comes from the traumatic financial experiences that I had while living in Zimbabwe for two years during one of the worst periods of inflation in recorded history. While I loved my time in Zimbabwe and look back on it with a great deal of fondness, I think that this is one of the leading causes of my Acute Financial Stress (AFS) disorder – real thing that you can learn more about

I know that my fears and anxieties have caused unneeded stress on our marriage as my wife and kids have been asked time and again to forgo activities and products that we can afford so that we can maintain peace at home. After 6 years of marriage I can see why money and Facebook are among the leading strains for marriage.

But, while I still have a long way to go, I can look back and see a vast degree of improvement. Looking at the numbers in my spreadsheets I am often shocked at how little we use to spend while we were in college. While we still live a very consciously frugal lifestyle I can see the amount of lifestyle creep that we’ve allowed into our lives. I would say that over the last 4 years we’ve gone from “Absolutely Absurd” to “Extreme”, how I pray that we never make it to “Spendthrift” status.

This article wasn’t meant to be a confession though. The reason that I started this article was to share with you all one little trick that I have to use sometimes when I feel the anxieties building.

Take Deep Breathes!

When our 5 year old starts to get angry or upset about something we coach him to breathe. Nice big, deep breaths for a few seconds until he can calm down and think rationally before he acts out of emotion. After walking him through the exercise I’ve found myself starting to practice it as well. Sometimes I have to just take a few seconds to breath, tell myself that it’s alright and that we can afford it, or sometimes physically remove myself from the situation and let my wife make the decisions.

While I know that I’ve been doing this for months now, I think that yesterday was the first time that I actually caught myself doing it consciously and realized exactly what I was doing and the effect that it’s had on me. It was in a simply situation, which is part of the reason why it was so noticeable to me. I was on my way up the stairs to grab something from the bedroom and about halfway there I realized that I had just passed the kitchen and noticed that the light was left on, with nobody in there, while the sun was still up. I literally paused on the stairs, turned around, and was about to go back to turn it off because I couldn’t help but see it as a waste of electricity. But then realized that as soon as I grabbed the thing I was going upstairs for I was going to be heading into the kitchen and would be needing the light on anyways. I turned around and stood there for a few more seconds, and realized that I was talking to myself and taking deep breaths. Telling myself that “it’s alright, its 30 seconds of electricity, we can afford it, it’s not even going to be noticeable on the electricity bill, just keep walking, you can do this.”

Sound ridiculous? It is. That’s why I chose this example. Because we can all identify it as insane, scoff about it, and agree that it’s something that wasn’t worth the effort of worrying over. But the truth is that all of us have something like this that drives our financially minded self a little crazy. So whether you also suffer from AFS or not, take a few minutes next time you feel the anxieties starting to take over, breath deep, and remind yourself of the truths that you are forgetting.      

Thursday, September 1, 2016

Monthly Progress: August 2016

The first day of the month is always a big day for me with my personal finance spreadsheets. While I update them nearly every day there are a few things that I do and track on a monthly basis, so the first day of a new month means that I get to hard code the actuals of the previous month and see how we did. I LOVE IT!
So, how'd we do in August?

1)     Net worth: $178,074.39, up $3,465.76

I am a bit obsessive but I actually track my net worth every morning that I work, just because I love seeing the graph it makes and knowing what's going on, and it only takes me about 10 minutes using Personal Capital if I go slowly and analyze anything (if you’re not already using Personal Capital please click on the banner ad for them on the right of this article, they are 100% free and I love them and use their android app nearly every day). But over the past month our net worth has increased from $174,608.63 to $178,074.39, for a total gain of $3,465.76 for August.

2)     Investment income: ($386.82)

Another detail that I measure on a monthly basis is how much we've made (or lost) due solely to our investments. This helps me to see what I would have to live off if I didn't work at all and choose to live exclusively off of investments, which is the goal. The current amount needed from investments each month is $2,600, which means that at a 4% withdrawal rate we would need roughly $780k in investments (easy calculation: $2,600*12*25=$780,000). On the first of every month I document what all of our investments are worth and back out the beginning value of the previous month and all of the investments that we made during the month.
In August we started with $105,363.86, invested $2,315.63 and ended the month with $107,292.49. Meaning that, in August, we “lost” $386.82 on our investments. After having increases for the past 5 months it wasn’t fun to see the loss, but it’s not much of a down turn and we’re going to just keep plugging away at our goals and continue to invest regardless of the twists and turns. Now that we are 8/12th of the way through the year we have seen an investment increase of 8.10% this year which, if things continue at this pace, could set us up for a 12.15% return this year. That would be awesome since my conservative models that I’ve built to project our future retirement date (October 29, 2033) assumes a 6% annual increase, so that extra 8% this year would be padding for future years when the market might drop some.
Now we just have to wait and see what happens with this potential Fed Rate Hike that could go down tomorrow or in December and possibly sting the markets pretty bad. But either way, 10 years from now it’ll just be a blip on a graph. All is well. 

3)     Financial plan savings: $964.32

I'm not going to go into the details behind the calculations on this one since it's more lengthy but you can read more about it in my post about 
Our Current Financial Plan. But after all of our income, expenses and planned savings for the month we ended up with an extra $964.32 in our checking account to use for investing in our future.

We have actually made one small change from our previously stated plan and instead on dividing this 50/50 between our mortgage and Vanguard we have begun dividing it evenly 4 ways, adding 2 more buckets for remodels and vacation. So this time we invested $241.08 in our medial industries mutual fund VGHCX at Vanguard.

Then I called up my bank and scheduled a payment for an additional $241.08 to go to the principle on our mortgage. So after our regular mortgage payment that automatically pays on the 1st of each month and this extra payment our mortgage dropped down to $110,964.28 today. Which means that, as of today, we actually own 36.227% (roughly 681 sq. ft.) of our home. We bought 10 sq. ft. this month, that’s almost the whole half bathroom down stairs!!!

So, by and large our August turned out just fine. How did things go for you? 

And here's to having a great September ahead of us.

Tuesday, August 30, 2016

Travel Doesn’t Have To Be Expensive

Hey all. I don’t travel all that much, mainly because of the perceived costs associated with it. So in looking for ways for you to save some money on travel related expenses we’ve called in the experts to speak about the experience that I lack. With that I’ll turn the time over to Dan to tell you all about the great solution that he has found to alleviate the financial strains caused by exploring the world.

“As you know, vacations cost families a lot of money. You'll need to pay for a flight, rental car, hotel, activities, souvenirs, and lastly food. All that adds up fast when you're trying to budget for that family vacation.

How much does it cost to go on vacation? 

Let's say you want to take the family of 4 to Disney World in Orlando for 7 nights. We'll go ahead and price out the hotel and car rental portions of the trip using a major travel website.

Comfort Inn Maingate: $1,039.54 x 2 rooms = $2,079.08

Car Rental: 
Full-Size Car through Dollar Car Rental: $259.95

So just the hotel and car rental alone will be $2,339.03. That doesn't include flights, park tickets, food, and souvenirs. The question you're probably asking yourself is "where can I find a better price?".

Something very few people know is that the major travel companies have spent millions on advertising to convince you that their sites offer discounted prices on travel. The truth is that they are pretty much the same as their competitors. That's because they're contractually obligated to charge the same price. The hotels and other companies don't really want to compete on pricing so they force anyone selling their products to sell it at the same price they do. Is there an alternative option that offers genuine discounts on travel? My answer is yes.

Here's where it gets good. 

That alternative is called Vacation Savings Dollars. They offer discounted hotels, car rentals, cruises, flights, and activities. Vacation Savings Dollarsreceives wholesale rates from their providers up to 50% off the major travel websites and pass those savings onto you. Before we go too much further, let's run that same example using Vacation Savings Dollars.

Comfort Inn Maingate: $539.55 x 2 rooms = $1,079.10

Car Rental: 
Full-Size Car through Dollar Car Rental: $244.18

The total through Vacation Savings Dollars is $1,323.28. That's a savings of $1,015.75, which amounts to 43% off the major travel websites. How can they do this you ask? They require that you sign up for a FREE membership which allows them to get around the contractual obligation of price matching. There are no blackout dates or hidden fees, and they provide a 110% price guarantee. If you find prices cheaper elsewhere then they'll credit you 110% of the difference.

In 2015, $947.1 billion was spent on travel in the United States. By using Vacation Savings Dollars you can make yourself a smaller part of that statistic. The membership is free and there's no obligation to buy anything. There's no reason not to sign up today, so check out Vacation Savings Dollars for yourself, you won't regret it.”

Thanks Dan. I know that I love places that I can easily check to see if I can find a better rate for something that I am planning to do. I figured that this looked like a good option for quenching some of my concerns and I hope that you all find them useful in the future as you plan out your next trip.

Tuesday, August 23, 2016

My Target Graphs

Mornin’ y’all. I wanted to take a few minutes and share with you guys something that I’ve spent quite a bit of time creating lately (don’t tell my boss please ;)). For a little over t years now I’ve started off every work day by logging into Personal Capital and logging my net worth in a spreadsheet that I made for my personal finances. A few months into this schedule I started breaking it out and noting how much I had in each type of account. i.e. Bank Accounts, Credit Cards, Mortgage, Home Value, Investments. So, now I have almost two years worth of data summarizing the nearly daily change in our investment situations.
Up till now I’ve been using these daily values for some other things in the spreadsheets but not very often, and I had never really looked at the story they tell as a whole. But now I am going to unveil to you the whole story they have and how I’ve found to use them more effectively.

Introducing my Progress to Target Graph.

Shortly after I started tracking my investment position daily I turned 27 and set myself a series of financial goals. One of the long term goals that I had set was that I wanted to have a net worth of $500K in 10 years. Since then I’ve re-evaluated that as being too easily achieved and instead set myself a stretch goal of reaching my ER (Early Retirement) number of $780K by age 37 instead.

Really? Being able to retire at age 37 when I didn’t graduate from college and begin a real career until I was 26 while raising two kids (and hopefully more) on one income of around $60k a year? I’ll agree, it sounds pretty lofty, but I’m also pretty confident that it can be done if I can play the cards correctly.

Like any worthwhile goal that you are going to go out and actively pursue though, I needed a way to track my performance and see how I am doing compared to where I need to be at to achieve the goal. So I tapped into my two years of basically unused data and created this graph.

This view shows me the trajectory that I need to maintain to reach my goal within the 10 year time frame. As you can see. After the first two years we are maintaining the path and keeping our heads a little above water. But it’s also clear to see that the road ahead is going to become increasingly more and more difficult to maintain as the compounding returns start to increase the slope of the line towards the end. That’s why it’s crucially important that we can set a solid foundation now and get as much set aside in investment vehicles as possible so that we have something bringing in the needed returns later on.

However, while it’s nice to keep an eye on the big picture like this it is too difficult to see the small movements from this view. This is why I more typically look at this view which shows just the time period that we have completed.

From here we can more easily see that over the past two years we have had times where we have been well above the line, then after purchasing a car for my wife with cash and a downturn in the market we have had months where we were clawing our way back up out of the whole. But luckily the market has done good lately and our cash position has remained stable and thus left us with a nice little $3,500 buffer over the target. While I’m painfully aware that this could dissipate very quickly, we at least now have a way to measure and track how we are performing relative to our goals.
Now it’s your turn. Try it out. Make a little graph to track your performance relative to your goals. (If you don’t have any goals like this set then please take some time to do so. Here are some articles that might help you get going: What Is Your Motivation?SMART Goal SettingDeveloping Your Action Outline). Then if you need some help setting up a graph let me know but I think that it’s more beneficial for us to build our own spreadsheets so that we understand the processes involved in updating them, otherwise we won’t do it and it will be of no benefit.

By way of information, I have chosen to include all of the money contained in my checking and saving accounts, all investments, and credit card liabilities in this number that I am tracking.

Have FUN with it!

Saturday, August 20, 2016

Quick Debt Survey

Hey all, can you help me? I have a quick survery that I was hoping you guys would take a few minutes to fill out for me. These questions that I have listed below were given to me on a preparedness survey that I saw recently. I already have several responses from it but was hoping that you guys would help me collect some additional data on the subject. In a hope to build your trust in me I'm going to share my answers with all of you.

All information that is shared with my will be kept confidential. Please email responses to

1) Are you debt free?   Yes or No.  (I am not debt free :( )

2) What type of debt do you have (select an that apply):
     Home mortgage     (yes, $111k)
     Car                            (no)
     Credit Card             (no)
     Student Loans        (no)
     Other                        (no)

3) Are you actively following a plan to become debt-free?     (Yes, additional information found here)

4) Estimate how many years/months before you become debt free.     (25 months is our stretch goal, 60 months is our worst case deadline)

5) Age     (29)

6) Country     (USA)

Hope seeing my answers was helpful to you, and hopefully we can get enough to make some significant observations that I can let you all know about.

Thank you Savers