Category Archives: Consumerism

The Stigma of Subsidized

Everyone has been given money, services, or goods at some point in their lives. Usually the main givers are parents. In most cases they at least provide food, shelter, and clothing until the age of 18, at a minimum. In addition, some parents even provide vacations, private music lessons, college education, inheritances, house down payments, cars, investing lessons, and passed down heirlooms. Everyone’s situation is different, but does that mean any one way is “more right” or “more wrong” than the other?

I am a big fan of reddit. In the Financial Independence subreddit there are over one hundred thousand subscribers, many of which share invaluable stories and information which help thousands of other people get ahead financially and reach their FIRE goals. Some people ask advice about how to start on the path to FIRE. Others share how they FIRE’d at 35 years old. Others ask what to do with a recent windfall.

Time and time again I’m shocked at the responses people receive if they received a leg-up financially. Parents paid for college? That is cheating on the path to FIRE! Aunt Ada worked as a secretary until she was 70, always saved money, and left all her grand nieces and nephews $30,000? Well those grand nieces’ and nephews’ financial accomplishments from then on aren’t earned. I don’t know where this negativity stems from. Maybe it is jealousy or it is just internet trolls who have nothing better to do.

I honestly could care less how you got to the financial position you are in? What people have to realize is everyone’s family and upbringing are different. So inherently their financial lives are going to have different paths than yours. In my mind, someone who was taught about retirement accounts and saving half their income growing up will be much better off than the person who received a free college education and $30,000 gift coming from a family that didn’t talk about money.

From growing up in a very rural town, to working in Manhattan, to now living in the Midwest, I’ve seen all sorts of financial situations. Some friends have fully supported themselves since 16, others are in their late 20’s and receiving large amounts of parental financial support such as Manhattan apartment down payments from their parents.

Personally my parents provided the necessities (and more) until I was 22. They would of done it longer but I wanted to act like a grown up and move out on my own. My family covered a little over one year of college and I footed the rest of the bill. Does that mean I’m better than my peers who had all four years paid for by mom and dad? Do my financial accomplishments matter more? HECK NO!

I know that if anyone was to hand me a check for ANY reason, I would put a huge smile on my face and say THANK YOU! Does that make me wrong? I sure hope not.

What is your take on being subsidized financially? Do you receive all gifts (even monetary) with open arms? Why the stigma?

I Have Lost My Damn Mind

On April 1st I tweeted that I had lost my damn mind. No it was not an April Fool’s joke. And no I don’t think I’ve actually lost my mind. I did turn 28 years old last month, so maybe my age has something to do with it. I haven’t owned a car for over two years now, but for whatever reason I put a deposit down on a new Tesla Model 3 expected to enter production in late 2017.

Tesla was founded by Elon Musk who also is a founder of PayPal and SpaceX. I’ve always been intrigued by Mr. Musk and a couple of months ago I read his biography written by Ashlee Vance. I’ve been hooked on Mr. Musk and his companies ever since. Mr. Vance paints an intriguing picture of Mr. Musk and his abilities to do great things. Who couldn’t like a guy whose passions include green energy and colonizing Mars?

Here is a little snapshot of what sold me on putting a deposit down on the Model 3, besides the fact that it was created by Tesla and Mr. Musk:

  1. 215 mile range on a full charge
  2. Fits 5 adults comfortably
  3. $27,500 net price tag ($35,000 minus federal tax credit of $7,500)
  4. Supercharging capable (80% charge in 30 minutes at Supercharger location – and some are even powered by solar!)

Production isn’t set to begin until late 2017. I made my reservation about eight hours after the deposit window opened, so there is a good chance I wouldn’t receive mine until 2018, which is two years away. This gives me a LONG time to decide if I want to ask Elon for my money back (my $1,000 dollar deposit is fully refundable anytime before I sign a purchase agreement). In all honesty I’ll probably let him hold onto it for a while, and then by the end of 2017, I will either ask for it back or actually go through with it (only if for some reason my net worth is WAY past my goals).

I think its fun to dream. Who didn’t want to be an astronaut when they were a kid? It’s great to see people like Elon Musk still living out those dreams well into their 40’s (and probably for the rest of his life since i don’t see him stopping anytime soon. I believe Elon Musk (along with others like Amazon found Jeff Bezos) are exactly the type of entrepreneurs we love in America. Always pushing the envelope and trying to make the world better places. Hopefully I’ll be able to help in someway, even if it is by just buying a car.

Did you hand Elon $1,000 for a deposit on a Model 3? Have I gone bat shit crazy for even considering a $35,000 car?

Photo cred

Lifestyle Inflation Talks

Not everyday does something happen in my personal or professional life where I can talk about personal finance and the related topics which we so freely discuss online in this community. So obviously when the opportunity presented itself when I was riding in my boss’s car, I hopped all over it.

I know that my boss makes multiple hundreds of thousands of dollars a year. It’s no secret in my profession. He owns a large home within commuting distance to Manhattan, and also a summer home which I visited during this trip which I’m discussing. I being nosey, Zillowed the address afterwards and was pretty shocked at how much he paid. Let’s just be honest and say you don’t get much bang for your buck when buying a beach home within driving distance to NYC.

After our trip, he gave me a ride back to the train station so I could get back to Manhattan. During the car rise we started talking about money, relationships, and how they intertwine. First thing we discussed is buying a home. My boss made a statement that millennials don’t want to purchase homes. My response was my normal rant about how a primary residence is NOT an investment. He actually agreed! And then noted that he has made money on both of his home sales in the past, but his current primary residence he has lost his shirt on and may never recuperate the costs. Basically he bought a dumpy house in a really nice neighborhood and basically had to scrap it and build again. I was pretty impressed as most people aren’t willing to share their money mistakes and admit that their primary residence is not an investment.

Next topic of conversation was relationships. He had just purchased his wife a new SUV (she stays at home) of the $40 thousand American made variety. Well they were riding with another couple one weekend, and they were in that couples’ $70 thousand foreign made SUV. My boss went on to discuss that after that night, he could sense that his wife was disappointed about her cheaper SUV after riding in luxury. I think it stung him a little because he had just shelled out 40 G’s on his wife’s car, which she now seemed to not like as much.

After the car conversation, he transitioned into explaining that he doesn’t actually live in the real world and it’s actually a little bubble. He must for his wife not to like a $40 thousand SUV and actually expect to have something more expensive. He lives in an upscale neighborhood, and he knows everyone has to make lots of money to afford homes in the area. On top of the homes that hover around low seven figures, $70 thousand cars aren’t even really a big deal. He kind of questioned how he found himself in his current situation. He was not born into this life, not by a long shot. From my observations, it’s pretty simple to figure out how he got there. He grew up lower class, wished and hoped to make it rich, busted his ass, and now he’s found himself upper class. Sad thing is… I don’t think it is as sweet as he first imagined.

I could definitely relate (to an extent). From the time I was a kid through probably 25 years old, I aspired to live a life just like this guy. Make the big bucks, have two houses, and nice cars. My first “big boy” car purchase when I was 22 was a Cadillac for Pete’s sake. But then here I am in a car with the person I wanted to be for so long, and he was basically admitting it wasn’t all it’s cracked up to be.

So as you can imagine, I really enjoyed this car ride. My boss could easily retire in the next few years if he didn’t let the lifestyle inflation effect him in his bubble which he and his family lives. But I bet he’ll continue to grind, work long hours, and stress to keep up the lifestyle. He’s now got a wife and kids who are used to the life, and I bet would not be easily convinced otherwise. Honestly I don’t think he could even convince himself to “turn it off” even though he notices how crazy it all is. To each his own, but as I bet you can guess – I don’t think it’s worth it. At least not for me.

Have you ever found yourself in a riveting personal finance question with a boss or coworker? How did you handle it?

Financial Independence Stealth Mode

As people on the path to financial independence know, it can sometimes be hard to stay true to your financial goals while still being very involved socially with your friends, family, and coworkers.

I learned this lesson this past weekend. I was asked to go to a dinner that was $50 prix fixe. Add in NYC sales tax of 8.875% and 18% gratuity and you’re looking at about $64. Plus subway there and back, and I would have been down 70 bucks for a dinner. So I commented back “that’s out of my price range.” Boy did I regret that. The person who invited me responded with “what do you need to save for? YOLO. A ring only costs $10 grand.” Next time I’ll just say I’m busy.

For reasons similar this, I’m in what I like to call “Financial Independence Stealth Mode.” Sounds pretty bad ass if you ask me, but in actuality it is more of a pain in the ass than anything. I really got excited the other day when a coworker told me about a new fancy Starbucks coffee machine that was installed at work. He told me it’s a life saver since the coffee tastes good, and he spends too much on coffee and is trying to lower his expenses. I really wanted to blurt out “I know exactly how much money I waste on coffee, and I’m currently trying to cut this expense out to speed up my financial independence date.” But in reality I just ended up saying “you and me brother.”

I’ve noticed in life you are always going to have friends and family that never really take charge of their finances and will live paycheck to paycheck for their foreseeable future, and not ever set financial goals or plan accordingly. The last thing these type of people want to hear about is how you are contemplating your domestic/international mutual fund allocation in your brokerage account or how you are struggling to decide how to deploy your capital since you’ve already maxed out your 401k, IRA, and HSA for the year. It’s tough to know when to share your experiences and personal finance advice, and when to shut up. With close friends and family, I’ll usually just say “If you want to get to X financial goal, I’ve done a lot of research and here is how you should approach it.” But with coworkers and friends who aren’t that close, I usually just keep my mouth shut.

Decisions about who you surround yourself with on this journey have to be made and those decisions can be tough. True friends and family will understand your goals, and be accommodating. Those that are spendy-pants and aren’t willing to take charge of their personal finances are people I’ve been removing from my circle over the past year or two.

Sadly, in “real life” only four people know about my goal to retire in my 30’s. It’s sometimes tough to differentiate between my personal life and Fervent Finance who is allowed to speak his mind freely about financial independence without any repercussions. Therefore I’ve realized it is great to have some outlets to be able to share your goals and discuss financial independence. Personally this blog has been great for this. I can share my ideas with like-minded individuals, learn about what has worked and not worked for others, and spread the financial independence gospel. Also I’ve learned, as Justin at RoG wrote about, optimal spousal selection is key. I’ve been very lucky to have a girlfriend who is sipping the financial independence Kool-Aid with me. It’s so much easier to be on this journey when you have a partner in crime who shares similar goals. She’s great when I want complain about how bad some people are with their finances, as I know readers don’t want to hear about that all the time.

While it may be a pain to be in Financial Independence Stealth Mode, I’ve found it works best for me. If someone wants to talk personal finance with me and is open and willing to listen without judgment, I’ll be happy to share my story. In the meantime I’ll confide in this amazing online community and bug my girlfriend every time I get excited when I make a deposit to Vanguard.

P.S. – The picture in this post is of the hyped up Super Blood Moon from Sunday night, from a midtown Manhattan vantage point. More like super disappointing if you ask me.

Are you in Financial Independence Stealth Mode? Have you had to make some tough decisions lately to keep your life and goals in line?

Anything is Negotiable

This post was sparked by an event that took place the other day. I have an HSA (health savings account), and therefore I have to pay the full bill for any expenses I incur until I meet the deductible for the calendar year. Well I’m a fairly young and healthy guy (knock on wood) so usually when I get a bill from the doctor, I’m paying the full amount since I’m no where near my deductible.

As I discussed in Managing Your Float I tend to not rush to pay bills that have no consequences for paying late such as interest or late fees. This includes medical bills. I put paying these off for a couple of reasons. Mainly, I think the cost of health care is insane (in the United States at least) and I try to put off paying them while I can think of a way to reduce the bill.

Back in January I thought I had a sinus infection and went to the local walk-in clinic in Manhattan and they ended up billing me $215 for a 5 minute appointment! Well when I got the bill, I tucked it away and thought “this is outrageous, I’ll deal with it later.” Well I finally got around to the bill last week. I decided to negotiate how much they were charging me, because I’ve learned everything is negotiable. I called the number on the bill twice, but due to call volume my call was sent to voice mail. So then I shot them an email explaining how I didn’t think the $215 bill was the fair value of the care I received. I described how I felt I waited too long in the waiting room and how they didn’t answer the phone the two times I called them during normal business operating hours. I received a response within 24 hours which said they were working on my request, and within 48 hours I received the following email:

Thank you for contacting the billing department. I apologize for any inconvenience that this may have caused you. I have reviewed your account. Based on the information that was provided to me, I have reduced your balance down to $125.00. I hope that you find this reduction satisfactory. Should you need further assistance, please contact the billing department at XXX-XXX-XXXX. Our hours of operations are Monday-Friday from 9:00AM to 5:00PM.

SHABOOM! Factoring in the two calls I made at about two minutes each, plus the three minutes it took me to draft my email, I saved $90 for seven minutes of work. I’d trade my seven minutes for $90 any day of the week.

Anything is negotiable when it comes down to it, especially if you feel it was not worth what you are being charged for it. Below is a list of examples of things I’ve negotiated over the years successfully:

  • Medical bills – see above
  • Cell phone – Luckily my work now pays for my cell phone bill, but in the past I’ve called with success. I’ve just asked for current deals they are running and if they can help me lower my bill. Usually they oblige as they don’t want to lose you as a customer. Never hurts to threaten to move to another carrier as well.
  • Cable / Internet – I usually call my cable and internet provider every six months or so to see if they have any new deals. This usually lowers my bill a little bit, and then you’re never blindly rolled into a standard contract where the rates are outrageous once the promotional rate ends. Like with the cell phone bill, saying “I’m not really happy with the service I’ve been receiving and have contemplated switching to XYZ” never hurts.
  • Satellite radio – I used to have satellite radio in my car when I had one. The base price that XM would bill me was pretty high. But every six months or so I’d call and threaten to cancel and they’d cut my bill in half after a 10 minute or so phone call.
  • Used cars – When I purchased a used car after college, I mentioned that CarMax had a better deal when I was there earlier in the day. As soon as I said that the used car salesman said “we’ll never lose a sale to them, how’s $1,500 off sound?”
  • Salary / Sign-on bonus – These are always negotiable, especially if you convey that you are qualified and would be a great asset to the organization.
  • Gym membership – I offered to prepay for 12 months and got an additional 6 months free for doing this.
  • Flights – This one can be done after the fact, but if you get delayed or your flight gets canceled, and you email the airline explaining how their delays or cancellations messed up your trip, they might give you a credit towards your next flight. This is not a 100% effective as it depends a lot on the reason for the cancellation or delay. I recently just used a $75 credit from United that I got from doing this.
  • Items and services in foreign countries – I went to Mexico quite a few years back on vacation and we negotiated everything from cab rides to cigars. In the touristy area the local businessmen tried to take advantage of our ignorance and charge us $20 for a $5 cab ride, or $80 for a box of cigars that should retail for $20. We learned quick not to let them take advantage of us (I’m sure this happens to foreigners in other countries as well, including the United States).

What have you negotiated? Anything out of the ordinary?

How much house can you afford?

I was perusing the CNN Money website, and I came across a link for “How much house can you afford?” so obviously I clicked on it. It asked for three inputs: 1) annual income, 2) down payment, and 3) monthly debt. So of course I tossed in some quick numbers resembling my scenario and it popped out a house value of over $500k! Let me repeat that, 27 year old me can “afford” a home of over $500k! I almost spit out my water when I saw that number pop up. And remember, I’m an accountant so none of those three numbers were anything special.

Of course someone in our online personal finance community would never make a life changing decision like determining how much house they could afford by using some calculator online that only takes into consideration three inputs, but then it got me thinking. Who are the people that would use this calculator? Unfortunately, those are the people without any financial background or interest in personal finance. They don’t research how to open up an IRA, just contribute enough to their 401k to get the employer match, have a car payment, and pay the minimum on their student loans.

So I decided to run an experiment with this calculator to see how appropriate it is. Our lucky participant is Sally from New York (upstate, not the city). She is a 25 year old nurse earning $65,000 a year at a hospital in NY state. She has lived at home for a couple years and saved up a $20,000 down payment for a home. The only debt she has is some student loans from nursing school at $275 a month (she purchased her used car in cash), and she knows that credit cards are not meant for reckless spending so doesn’t carry any balances on them. Interest rates are at an all time low so her friends and family members have convinced her to purchase a home as it will be a great investment.

So as you can see, Sally’s scenario isn’t too bad. She definitely would have a leg up on most people utilizing this online calculator. So let’s input her information into the calculator and see how much home she can afford. Lucky Sally! She can afford a home valued at $302k!!!

number1

From there I went to the payroll processor ADP to utilize their online Salary Paycheck Calculator to see how much Sally would take home from her job to see if she could really afford this $302k house. Here are the assumptions I used:

Salary – $65,000 annually
State income tax jurisdiction – New York
Exemptions – 2 federal exemptions as Sally is single and has only one job
Deductions – Only deduction I used for Sally was a 10% pre-tax 401k contribution. Sally once read an article that said contributing just enough to receive the employer match was not enough and to aim for 10%.

Her monthly take home pay with those assumptions would be $3,557.

Now let’s look at her expenses. The CNN Money calculator came up with a monthly mortgage payment of $1,675. This payment calculator assumes a 30 year loan at 3.84%, annual property taxes of 1% of the home’s value, and annual home owners insurance of 0.4% of the home’s value. Since Sally only had a $20k down payment, she’s going to need to pay private mortgage insurance (PMI). Using goodmortgage.com I calculated a monthly PMI payment of $169. See below for her total guestimated budget (before you tear up the budget, I put it together off the top of my head just using experience and from what I have been told by homeowners over the years in the northeast).

number2As you can see, per the budget to the left, at the end of the month Sally only has a $63 surplus. You might have noticed I have not included health insurance since this can vary greatly from person to person. Also, $350 a month to heat and cool a home in the Northeast may be a little bit of a stretch depending on the age of the home. For instance I once rented a bedroom in a 3-bedroom house in New England and it easily cost over $400 a month for electric and heating (annualized) for the whole home.

The $100 a month budgeted for home maintenance isn’t going to get her very far if she needs a new roof or furnace, especially since she drained her emergency fund for the down payment. And she will definitely have to take out a car loan to purchase her next car unless she can earn more, pay down her mortgage enough to rid herself of the PMI, or cut down her budget.

So as you can see, the people these calculators are meant to help are exactly the wrong people who should be using them. With only $63 left over at the end of the month, Sally is really going to reconsider her “investment” especially since since she’s living paycheck to paycheck now and has to cut back on her more expensive hobbies.

Do you think the Sally can actually afford a $302k house? Is the CNN Money calculator dangerous for uneducated users?

City Living

At the beginning of 2014 I moved to NYC from New England to start a new position at my current employer. I had been offered a position in NYC which I could not turn down. It was in a different service line, one I was very interested in and they were footing the bill to move me to NYC, so I could not turn it down. I had never lived in a city, never mind NYC, so I made sure to do my due diligence before moving to make sure this was not going to bankrupt me or be a stressful transition.

As soon as I moved to Manhattan, I sold my car that same weekend. I loved that car, but I had priced out parking it in the city and any decent garage that was somewhat close to my apartment would run me about $400 a month. I don’t think so! Then I thought of leaving it at my parents a few hours away, but then I would still have to pay personal property taxes, car maintenance, insurance, etc. Plus it would just be capital sitting in their yard that I could put to work elsewhere. Although my parents would not have minded babysitting it, I decided to sell. I went straight to CarMax and sold it on the spot. It was really easy and I had a check in hand within an hour. I definitely could have squeezed out another thousand bucks or so if I took the time to advertise it and sell it on Craigslist, but I had just moved to NYC, was starting a new job, and had no time for that. I feel the quick process was well worth it compared to the time and effort I would have had undertake to sell it privately and try to squeeze out more cash.

Before I had even got to NYC I had decided to lease an apartment that was within walking distance to work. Luckily there was a friend of a friend with a bedroom opening up in his apartment at the same time my new job was starting. It is less than a 15 minute walk to work and I actually enjoy the walk (not so much lately when the temperature goes negative). Many people who live in NYC and commute to work have a monthly MetroCard to use the buses and subways for about $120 a month. But as I can walk to work, that is straight cash in my pocket!

Like I mentioned above I live with roommates, two to be precise. We live in a 2 bedroom apartment that was converted into a 3 bedroom. Because of that and the fact it isn’t a newer fancy building with a doorman, our rent is pretty reasonable for Manhattan. I would like to have my own place, but when I weigh out the pros and cons, it’s not even close due to the value I get by splitting everything with two other guys.

Unlike my previous apartments and houses I’ve rented in New England, heat is included in our rent. Although this may not seem like much, it is a big saver during the winter months as they can be harsh in the Northeast.

One thing I was really shocked of when I got here was the grocery costs! When I go to the grocery store I am shocked that some items can be over double the cost that I am used to paying (or triple – I pay $3.49 for a dozen eggs at the corner grocery store). Well luckily I found a remedy to this situation but unfortunately it is not a secret. Trader Joe’s offers prices that are no where close to the other grocery stores in the area, but everyone else seems to know this as it is always mobbed. Not only are the prices better, but I feel everything is fresher as they skip the middleman and order fresh from producers (unfortunately I am not affiliated…yet). It is quite the spectacle as the line for the 40 or so cashiers wraps around one whole level of the store. The closest one to my apartment is about 20 blocks away, but it is worth the trip!

Now that I’ve covered how I handle the big costs of city living, I’m going to talk about the other side of the equation – income. I would not have moved to NYC without a bump in income from my previous position. The mistake I see people making is moving to NYC making the same amount they would have made in their hometown or college town where the cost of living is much less. Wages in NYC are higher than anywhere else in the U.S. for most industries (maybe San Francisco for tech) so it is imperative to not settle for a low salary.

City living doesn’t have to drain your pockets. If you can secure a higher salary, and cut costs along the way, you can actually parlay the move into jump starting your financial independence!

Keeping up with the Joneses

A few weeks ago I was invited over a buddy’s apartment for a little poker game with a few guys I went to college with. One of the guys, we’ll call him Lenny, had just recently married and bought a house with his wife. Lenny had told me about the house and where the neighborhood was. Sounded like a nice place, a newer construction home in a development right near a golf course in the greater New York metro area. On the way back home to Manhattan one of the guys was telling me how he feels bad for Lenny, as he is having trouble paying his bills with the wife and the big mortgage.

So obviously as soon as I got home I Zilllowed the neighborhood where Lenny and his wife bought their house. What I found was a neighborhood where the houses start around $500k, 2,500 square feet, and $10k per year for property taxes.

What ever happened to the starter home I thought people bought when they were young and just got married? Lenny and his wife are in their late 20’s, don’t have any plans of little Lenny’s in the near future I believe (and hope for their sake), and Lenny was complaining about his student loans as well. What gives!?!?

I don’t know Lenny all that well, but besides the ginormous mortgage payment and his student loans, who else knows what he is dealing with. Maybe a car payment? Most likely not contributing a healthy amount to his retirement with all those bills to pay, and probably is lacking in the emergency fund department as well. But who am I to judge? Everyone is different and have different goals and aspirations, risk tolerance, backgrounds, personal finance knowledge, etc. Lenny has a degree from a good undergrad business school, and therefore I can’t understand why he didn’t figure out his budget before he made the big leap into a large mortgage? If you’re having trouble paying the bills when you are DINKs*, maybe you overreached… just a little.

-FF

* A DINK is “dual-income, no kids”