Category Archives: Personal Finance

5 Nights in Cancun on Points

I am by no means a travel hacking professional, but I am trying to learn more and move past being an amateur. I’ve probably opened a new credit card once every six to twelve months or so for the past few years, but haven’t been that strategic about it.

I have a friend (let’s call him Mike) who I would classify as a semi-professional travel hacker / credit card churner and he’s been egging me on to get more serious about it like him. I have obliged somewhat, but when I start mentioning FIRE to him, he doesn’t return the favor.

Mike went to the brand new Hyatt Ziva Cancun all-inclusive resort right when it opened at the beginning of 2016. He was only there two nights but couldn’t stop raving about it. He told me “YOU HAVE TO GO!” I brushed him off for a while, but then started getting the vacation itch. The girlfriend and I were trying to think of what we wanted to do next for vacation. Europe was high on the list and we talked about it for a couple of months. We discussed the different destinations and possibility of visiting some friends over there. But in the end schedules didn’t work out and we decided to put this off until second half of 2017 most likely.

Then I started putting my travel hacking hat on. I started inquiring with Mike and reading some travel blogs. It seemed that Hyatt was offering a smoking deal for it’s Chase credit card. If you signed up for the card you received a $50 statement credit along with two free nights at ANY Hyatt property once you spent $1,000 in the first three months. The annual fee is waved for the first year, and then $75 per year after that. On every anniversary of receiving the card, you also receive a free stay (some restrictions) which will easily offset the $75 fee. This seemed like a no-brainer to me. I discussed with my girlfriend and she agreed, so then we both applied for the card.

Once we received the cards and both spent the $1,000 (we just did this with our normal spend), we were armed with a total of four free award nights. After doing some more research and talking to Mike, we were super pumped about booking the Hyatt Ziva in Cancun. I thought “if we’re flying down to Mexico, let’s try to stay another night.” So with a little more research I found out booking a 5th night was only 25,000 Hyatt points. I had 11,000 from work travel, my girlfriend had 5,000, so I only needed to come up with 9,000 more. Luckily Hyatt is a transfer partner for Chase Ultimate Rewards. The Chase Sapphire card is my everyday card so transferring over 9,000 for an extra night was nothing!

I was a little nervous how much of a pain booking it would be since we were using my two nights, my girlfriend’s two nights, and 25,000 in points. I called with both of our Hyatt Passport numbers and booking it was easy peasy. It took less than 10 minutes. At the end of booking the reservation the Hyatt representative said “you know… if you booked this with cash it would have cost about $3,200!” I also have Hyatt status so she said there was a good possibility we would be upgraded. As a reminder this place looks like the bee’s knees and is all-inclusive.

Flights were pretty simple as well. We’re traveling in January which is pretty far away so I wanted to book flights that wouldn’t cost me an arm and a leg to change or cancel. When you book with Southwest using points, you can change or cancel your flights with full redemption of points and fees. So we booked two round-trip tickets to Cancun on Southwest for 47,000 Southwest points (transferred from Chase Ultimate Rewards) and $157 on fees. The Points Guy values Southwest points at 1.5 cents each so our flight “cost” us 47,000 x 0.015 + 157 = $862. Since there is no repercussion for canceling these flights, I’m going to be keeping an eye on flights using cash and if we can get a good deal, I’ll save the points for another day.

As you can tell we’re extremely excited for this trip but it’s still far away. In the meantime I’ll be enjoying the summer and having a winter trip to look forward to.

Am I still a travel hacking amateur? Have you used points for a recent vacation? If so, share your story.

Note: I am not affiliated with any of these brands and the blog is not monetized. This story was just too good that I had to share.

Mid-2016 Update

Man have I been busy, and not paying much attention to Fervent Finance. The month of May included packing up my old apartment, selling furniture, moving to the Midwest, traveling for work, traveling back to the Northeast for a wedding, finding a new gym, researching purchasing a bike, and many more things I’m probably forgetting. June, so far, has included traveling for work, buying a bike, and another wedding.

The move to the Midwest has been a great transition for me so far. I am enjoying being back in the burbs with lots of room to roam and with my significant other. I have a nice home office setup which has worked out great.

From my picture at the top of this post you can see I just bought a bike! I’m super excited about it. I have spent about $350 on the hybrid bike and accessories so far (accessories not mounted in the picture). There are bike paths and trails all around me that I’m pumped to explore. I’ve found I live in a pretty decent biking community. This is a pretty big expense for me, but it’s much cheaper than buying a car! I hadn’t biked since I was a kid and forgot how much fun it is. Definitely no regrets so far.

My finances have been way more boring than my actual life. My expenses have averaged $2,453 per month for the first five months of 2016. My goal for 2016 is to spend less than $30,000 (or $2,500 per month), so I’m on pace. I think I should definitely hit that goal since for a little over four months of this year I was living in Manhattan, and now I’m in the Midwest. My savings rate is hovering around 60%, but this should go up the remainder of the year due to the fact that my compensation is somewhat concentrated in the last four months of the year due annual raise and bonus time falling then.

I’ve recently ratcheted up my 401k deferral to 60% in an effort to max it out in July. It is a little tough to see my paychecks shrink, but will be nice to have my paychecks for the final five months of the year be without 401k deferrals. My brokerage account will definitely feel the love during that period.

The girlfriend and I have already devised a nice system for splitting expenses. It’s working great so far. Personally I believe since we discuss finances regularly, it puts us ahead of the game, and gives us one less thing to argue about.

I’m attempting to up my amateur travel hacking game and am currently in the process of booking a free trip to Cancun for the winter. Haven’t locked it down yet but I have the award nights and points in the bank to do it. I haven’t been to Cancun since spring break in college and think it will be a nice change of pace to go with my significant other, rather than during spring break with my college friends. Can anyone say cocktails, naps, and the beach?

The blog has definitely fallen to the wayside due to me spending more time with my significant other, getting into biking, continuing to work out, and traveling for work. But hey, priorities tend to change and I like to be outside during the summer months (at least when work lets me get away from my computer for a while).

How is the start to your summer going, personally and financially? Do you find yourself concentrating on different hobbies and projects as time goes on and seasons change?

The Move

The Move is officially complete and I’m publishing this post from the Midwest. The last month has felt like a blur. With a bachelor party, grabbing dinner and drinks with friends/coworkers in the city before I left, actual work, cleaning my apartment, throwing junk away, donating clothing, and selling furniture (I ended up selling basically all of my furniture and netted about 440 bucks which I was pumped about), I’ve been quite busy.

Figuring out how to get myself and my stuff to the Midwest was stressful to say the least. I learned that moving companies price their one-way truck rentals based on supply and demand of each location. The big name truck rental companies wanted about $1,200 for a one way truck rental. I almost spit out my coffee when that popped up on my computer screen multiple times. Apparently they need trucks in the Northeast and don’t need them in the Midwest. If I wanted to drive a truck from Atlanta to NYC, it would of only been around $200. Renting a truck quickly fell off my list of ways to move.

So then the wheels started spinning in my head of what to do. I could rent a bigger car or SUV and drive it to the Midwest with my stuff. But then I would have to sell all my furniture. I ran into the same pricing issues with driving the truck rental one way. I’m way too frugal to spend an arm and a leg on a car rental to move my not-that-valuable crap to the Midwest.

Then the best plan of them all came. My sister volunteered to drive her SUV the 2.5 hours to my apartment in Manhattan and help me load it up and bring it to my parents’ house. I thought this was great idea, because it would really force me to pair down my stuff and then I could find a cheap flight to the Midwest and call it a move. I’ve been trying to welcome more minimalist qualities so this ensured that I would have to sell my furniture, donate a ton of clothes, and throw away stuff I didn’t use. This option was a win on all accounts.

This plan worked to perfection. I paid my sister for her gas and troubles, and took her out to lunch. I then booked a $150 flight out to my girlfriends’ in the Midwest (I also got upgraded to first class and was able to check three bags for free, that has to be a good omen for the move and relationship right?). The approximately $200 in moving costs definitely trumped the driving time and potential $1,200 plus gas I would have had to spend on a truck rental or $500 plus gas I would have had to spend on a car/SUV rental.

My parents are doing me a big one by letting me store a bunch of stuff at their house. I luckily (or unluckily, depending on how you look at it) have to come back to the Northeast about a half a dozen times this year for weddings and other events, and will fill a big suitcase every time I swing by my parents. Aren’t parents great?

The stress of the process was a pain, but I’m very happy the move is finally over and that it went according to plan. Now I can concentrate on living the Midwestern life, my girlfriend, and my FIRE goals.

Other happenings

On a side note, some of you saw my tweet a week ago about how an email saved me $2,000. Without going too far into the weeds, when I moved to NYC work loaned me $2,000 with the expectation that I’d pay them back when I moved out. Well that time came and HR emailed me to start figuring out my repayment plan. I obviously would rather keep the $2,000 for myself so I replied to the email noting that I didn’t think it was necessary for me to repay the amount for XYZ personal situation reasons. I didn’t hear back for about a week and then I got an email noting that forgiveness of the loan was approved and it’ll be treated as income, but they’ll foot the tax bill as well! It never hurts to ask people

My boss, who I discussed in my last post, took a group of us out to dinner for my farewell. It was a great time. The core group of guys I work with are the reason I haven’t left my company, even though I could make more elsewhere. We enjoyed a great dinner at a nice restaurant, with a few bottles of red. I felt appreciated which was nice and these types of events funded by work are something I’ll definitely miss when I leave.

I’ve had a string of good fortunes lately which I cannot deny. I hope I don’t revert back to the mean anytime soon with a string of bad luck. I hope everyone’s Mays are off to as good of a start as mine.

Any big life changes on the horizon? Anyone moving to another state?

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

The Land of Wonky Tax Deductions

It’s tax season everyone! This is the time of year where people complain about taxes if they owe any money, or rave about their huge refunds. If they owe, they blast the government and those who run it, and if they get a refund they brag to their friends about their new vacation plans to coworkers since they showed Uncle Sam who is boss! When in reality they were just bad tax planners for the previous year. (Just as a heads up, this post is meant to be tongue-in-cheek and not political by any means)

I read A LOT of articles, blogs, and books about personal finance, financial independence, business, etc. I always love when someone from the FIRE community gets featured in a big financial news outlets, and all the comments that come with it. Sometimes when the general public catches wind of tax loss harvesting, Roth conversion ladders, or ACA subsidies they flip out and claim that people are taking advantage of or gaming “the system” and have some harsh things to say.

By no means am I trying to pick sides or say anyone is in the right or wrong, but this whole issue brought an idea to my head. As most of you know I am an accountant by trade and have done my own personal taxes since I was 15. Through my personal finance and tax reading (I’m an exciting guy) I have run into some pretty wild tax deductions out there. Many of them are allowed for people with six figure incomes as well. So what am I going to do about these wonky tax deductions? Make fun of them of course!

I believe many of these deductions have been around so long that people are so used to taking them, they don’t take a step back and think about how amusing some of them are and ask who they are benefiting. Let’s take a look at some of my favorites below! As a heads up, with regards to a majority of the deductions mentioned below, there are income limit phase outs which limit the use of these deductions as your income goes up, so not everyone can take advantage.

  1. Mortgage interest deduction – This is the probably the most common deduction people are aware of. You are able to reduce your taxable income by the amount of mortgage interest you pay. Some may think that there would be some kind of limit on the amount of interest you can deduct, because certainly you wouldn’t think a person owning a McMansion would be able to deduct all of their mortgage interest. Well you are somewhat correct. You are able to deduct all your mortgage interest on up to ONE MILLION dollars worth of debt. It doesn’t stop there, it’s not only for your primary residence, but also your secondary residence. So you’re able to deduct all the interest related to your $600k primary home mortgage along with the interest related to your $400k mortgage on the lake house. This makes me a sad renter (not).
  2. HELOC interest deduction – If deducting the interest on your primary residence and your lake house isn’t cool enough, you can also reduce your taxable income by the amount of interest you paid on your Porsche that you bought with your home equity line of credit. Have a little equity in your home? Go to the bank and take out a HELOC. You’re able to use this money on anything you want, not just making improvements to your house. So obviously you should use it to buy a Porsche! You’re able to deduct the interest you paid on up to $100 thousand of home equity debt, no matter what you spent the money on.
  3. PMI – So back in 2006, you bought your dream home. The bank was nice and didn’t make you put anything down! One problem with a no-money-down mortgage is that you have to pay private mortgage insurance. Well the government feels bad that you bought a house that you can’t afford, so they let you deduct your private mortgage insurance!
  4. Moving expenses – Live on the East coast and got a new bang up job in in Silicon Valley? Your moving expenses are tax deductible!
  5. Tuition expenses – Your rich parents make too much to take this deduction but they want to pay for your college. They’re allowed to gift you $28 thousand a year, tax-free and then you’re able to deduct $4,000 a year in tuition expenses. That’s $4,000 of your internship money, tax free, plus a free education! Not too shabby!
  6. Loss carryforward – Lost your hat in investing in that solar company that some guy at the bar pitched you? Well there is some light at the end of the tunnel. You’re allowed to deduct up to $3 thousand a year from your income for investment losses. You lost $10 thousand you say? That’s okay you can carry forward the $7 thousand you couldn’t take this year, and carry it into the following years until it is all used up.

Now the next item isn’t related to most individuals but I think is the craziest tax rule out there, so I figured I’d share it with you all:

Carried interest – This by far, in my opinion, is the craziest rule with regard to personal income taxes. Without getting too into the nitty gritty, partners in a hedge funds or private equity funds get compensated based on the performance of their fund. As long as their fund performs well, they get a huge fee that you read about in the news. So when Mr. Hedgefundtitan makes $200 million dollars in a year, since he’s doing such a service to the public, he’s allowed to defer his income and pay capital gains rates on that income which caps out at 20%. If he was you or I earning that money, we’d have to pay 39.6% since we aren’t partners in a hedge fund… womp womp. That’s a savings to Mr. Hedgefundtitan of almost $40 million!

In closing, there are a ton of laws and rules out there that may benefit certain individuals, and sometimes that individual may not be you. Nothing ever is going to completely make sense in terms of who is benefiting or not benefiting, so personally I like to control what I can and brush off the things that are not in my power. Oh and of course I love to poke fun at some tax laws in the process.

Will you be getting a refund or owing this year? Do you love or hate tax season?

2015 Net Worth and Expense Recap

2015 has drawn to a close. Last week I wrote about how great my year went in terms of my goals, and then discussed my 2016 financial and non-financial goals. Now I want to get into the nitty-gritty money details, since that is what everyone cares about anyways.

The last time I reported my net worth was at the end of July when my net worth crossed six figures for the first time ever. Now I’m at $120k which is about $10k higher than what I originally planned for 2015, which is great, but this also lets me know that I am bad at projecting since the equity markets were basically flat and all appreciation was due to my contributions. There are just too many variables which go into projecting your net worth that I don’t really put to much effort into the exercise. In 2016, my income WILL change, I will NOT predict equity market returns, I will NOT predict my exact savings rate, etc. And that’s just projecting 12 months out! Projecting 10 years out is just asking to be completely wrong, but I do appreciate that the exercise is educational and gives me somewhat of an idea of where I could be. But on this journey to financial independence, I’m going to concentrate on what I can control, which is mostly working hard to increase my income, monitor my expenses, and invest the difference.

123

Cash – Checking account, plus savings account, minus outstanding credit card balances.
Post-tax investments – Mix of a couple individual stocks (which I’ll most likely divest from in 2016) and Vanguard index funds in brokerage accounts.
Tax advantaged accounts – Pre-tax and Roth 401k, Roth IRA, and HSA. The Roth 401k is from previous years, I know better than to contribute to something other than pre-tax now!
Pension – I have a cash balance pension plan with my current employer that I’m fully vested in. I believe if the balance remains small I can roll into an IRA when I leave, but if it gets higher I unfortunately would have to leave it alone until standard retirement age.
Student loans – Only one left at 3% and I’ll pay this off in 2016.

Let me be honest here – I don’t do a good job of tracking my expenses and I am by no means as frugal as some in this community. Personally, I’d rather spend more effort on increasing my income instead. Throughout 2015, I just made sure my average expenses each month were below $3,000 and I left it at that. As you can see below I’ve easily exceeded that goal with total 2015 expenses of $32,056.

In December I really decided to buckle down and monitor my expenses. I’m going to do an internal monthly review in 2016 and really see where my money is going. I used Personal Capital to compile the expenses below, but I’ve noticed it isn’t always right and has double counted expenses before, so this year I want to be on top of that. Therefore I created a great excel template to track my expenses in 2016. I plan on getting my expenses below $30,000, and this will definitely be doable if my remote work arrangement plan is successful.

I won’t go into too much detail about each expense category below but I’ll talk about a few of the big ones. As you can see my rent is my largest expense by far. I live in Manhattan, but actually have a pretty good deal on a place within walking distance to work that I split with two of my friends. Travel is high due to the fact I like to travel, had some weddings to attend, and am in a long distance relationship. The “other” category is something I plan on really locking down in 2016. This is basically ATM withdrawals, expenses I didn’t want to break out on their own, and other miscellaneous items.

15 exp

I don’t include student loan payments in my expenses, because the accountant in me knows that it is all balance sheet (except for a small portion of interest). But I did paid off $6,300 of student loans in 2015, and plan on paying off the last $4,200 in 2016.

2016 is going to be a year of many changes for me, but I’m hoping to use what I learned in 2015 to earn as much as possible and invest as much as possible, all while having a great time. I plan on moving out of Manhattan in 2016 which may shift my expenses dramatically, and hopefully in a good direction. I am a person who is totally comfortable with change, and am looking forward to what 2016 has in store for me!

I know I mentioned up above that I don’t really like to project my net worth, but to have some fun I’m shooting for $180k, while keeping expenses below $30k.

Did you hit your net worth and expense goals in 2015? How closely do you monitor your expenses?

2015 Year in Review & 2016 Goals

Boy did 2015 fly by! It was my first full year of living in Manhattan and my first full year of living the financial independence lifestyle, and I was busy as ever.

I did a lot of traveling and visited the following countries and states for work or personal trips: Bahamas, Grand Turk, Ohio, Michigan, Illinois, Colorado, Florida, Georgia, New Jersey, Connecticut, Rhode Island, Massachusetts, Louisiana, and Minnesota. I saw lots of friends and family, earned some mileage and hotel points, and ate at some really neat restaurants on work’s dime.

Now although I had a ton of fun in 2015, it did not effect my progress against my financial goals negatively. Back in July of 2015, I wrote a half year update to see how far I had progressed against my 2015 goals. Below were my seven goals for 2015 and some explanations for how I finished off the year.

  1. Max out pre-tax 401k – I was planning on maxing out my 401k by November, but I got antsy and decided to apply most of my bonus in September to my 401k to max it out. PASS
  2. Max out Roth IRA – I maxed out both my 2014 and 2015 Roth IRA in 2015, with my final contribution occurring in September during bonus month. PASS
  3. Max out my HSA – As of my mid-year update I wasn’t sure if I would hit this goal, and was planning on missing it by a couple hundred bucks. After I posted the mid-year update, I realized how silly it was to miss a goal by a couple hundred bucks, so I went in and changed my contribution amount, and this will max out in my final paycheck of 2015! PASS
  4. Pay off my student loans – I go back and forth with this on a monthly basis. I officially have one loan left at 3% and the math tells me to pay it slowly but my mind says get rid of the stupid thing. I paid off two other loans in 2015, way ahead of schedule, but I think I’ll pay off this last one off in 2016, so that I’m able to be completely debt free. FAIL, but on purpose.
  5. Never finance a car again – Well I’m still living in Manhattan, and still car-less so this one is a big, fat PASS.
  6. Save at least 75% of every raise and bonus – As noted above I used my bonus to max out my 401k and IRA for 2015, so I definitely saved 100% of that puppy. I’m also always looking at ways to decrease my spending, not increase, so I’ve definitely been socking away 100% of my raise as well (the portion that doesn’t go to Uncle Sam). PASS
  7. Once all tax advantaged accounts are maxed out for the year, begin funneling all savings into my after-tax brokerage account – Ever since September when I maxed out my 401k and IRA, I’ve been funneling all excess cash flow into my after-tax brokerage account like clockwork. PASS

In 2015, I hit 6 out of 7 of my finance related goals, did a ton of traveling for work and personal, and was able to find time to blog and workout. My other main interest besides travel and financial independence is lifting. I targeted getting to the gym 4x a week in 2015, but fell short and probably averaged 3x per week. I’ll discuss my progress and routine below when I get to my 2016 goals.

Here are my 2016 financial goals:

  1. Max out pre-tax 401k – I plan on doing this in September again.
  2. Max out Roth IRA – I don’t really have a time line for this but it will get done in 2015.
  3. Max out my HSA – the way my employer does my contributions, this will occur in December again.
  4. Pay off my student loans – I only have about $4k left at 3%, but I will pay this off in 2016.
  5. Save 100% of my raise and bonus – 75% was too lenient on myself, lets jack it up to 100%.
  6. Contribute to my after-tax brokerage account as much as possible – I plan on making more in 2016, while keeping my expenses at bay, and therefore these contributions will go up. Looking for a big increase year in the net worth department in 2016!

Here are my 2016 non-financial goals:

  1. Get to the gym 4x per week and hit a 315# squat, 225# bench, and 405# deadlift – I follow a powerlifting routine, and my progress is dependent on how regularly I get to the gym. 2015 was ehhhhh in this department. I tend to go on vacation for a week and not lift, or travel for work or work late for a week and not lift. These are excuses I plan on addressing and hope to get my average attendance closer to 4 times per week in 2016.
  2. Try and negotiate a remote work arrangement for at least six months – I think this is doable if I sell it well. I work for a big bureaucratic company, so usually this request would fall on deaf ears. But I work in a smaller division and we operate fairly autonomously, and my main boss seems to consider my well-being for the most part. I’ll start with a six month ask, which would span from spring to fall and then basically leave it open to working out of an office after that to sweeten the deal for them. I’m still figuring out when and how to request this, but I’ll write about my success or failure (cross your fingers for success) once I request it. My Manhattan lease isn’t up for a few months, so I have some time to plan. Can anyone say geographic arbitrage?
  3. Read more books in 2016 – I’ve definitely read more in 2015 than I have in the past. I just need to stop trying to convince myself to read fiction, as I’m a non-fiction guy. The fiction I like has to be on TV, so I’ll stick to non-fiction books related to finance and biographies as they peak my interest the most.
  4. Travel – I did a lot of this in 2015 but am planning just as much, if not more, in 2016. I have already booked a cruise for February where my girlfriend and I will visit a few places I haven’t been before such as Belize. I also have quite a few weddings, and depending on if this six month work arrangement ends up, who knows where I’ll travel to! I’m also debating if a trip to San Diego for FinCon is in the cards.

I was lucky to have a great 2015, and hope 2016 is just as great. Thanks for being part of my journey, and Happy Holidays and Happy New Year! I’m so pumped for what 2016 has in store!

How was your 2015? What do you have planned in 2016 that has you ready for the new year?

Financial Independence All Around Me

I’ve been on this financial independence journey for less than two years, but in those two years I’ve never really heard of anyone in the “real world” talking about financial independence. That’s partially the reason I started this blog so that I could share my journey and discuss financial independence with like-minded individuals, because it seems to be voodoo outside of this community.

Something happened the other week that took me by surprise. Financial independence and related topics reared their head THREE times in one week! I was happier than a kid in a candy shop. I remember texting my girlfriend right after one of the encounters because I was just so happy and had to tell someone. My first encounter was in a very public environment, which made it that much more surprising.

The Conference

About two weeks ago I was at a work conference in the Midwest. I was in a room full of around 400 accountants and people with financial jobs. At one point during the conference there was a panel of three people with some pretty fancy financial titles from some big companies giving a talk. When it got to the end of the panel discussion, they asked the attendees to ask questions. One woman asked if they could discuss any adversity they have encountered in their careers and how they overcame it.

One of the panelists told a story about how when he was about 30, he was asked by his boss to do some sketchy things at work (accounting things). He hated this and it stressed him out greatly. He told his boss he wouldn’t do what he was asked and called his wife to warn her he might get fired. He told himself that day that he would live a life of financial independence, and subsequently paid off his mortgage and all his debt so that he never had to rely on his biweekly paycheck to live again. Right here I was wondering what was going through everyone else’s head as they listened.

He didn’t want to have to do something his bosses said that he didn’t feel was right, just because he needed the paycheck. I don’t believe he was fired, and it seems like it was a happy ending.

Unfortunately I didn’t muster up the courage to walk up to him after and ask him about his financial independence journey, but he is probably in his mid 40’s now and I am definitely curious if he’s actually financially independent and working because he enjoys it, or for other reasons.

The Business Owner

A cool part of my job is I get to meet a lot of business owners and entrepreneurs. I had a meeting with a business owner down South. I never know what to expect when I go to these meetings as the personalities I’ve encountered are always something different. This time I was pleasantly surprised.

The business owner pulled up to the meeting in a Honda Accord, he wore a Timex watch that had to of cost less than $40, and his khakis which he was wearing were probably given to him for Christmas ten years ago. He was in his mid to late 50’s and had removed himself from the day-to-day operations of his business, which I don’t see very often with many of the type A business owners I run into who have trouble letting go and passing the reigns on to other qualified people.

He had left the room at one point and one of his managers he had in place to run his business couldn’t say enough nice things about the owner – “He is the type of person who knows when enough is enough, it’s a great quality, and you don’t find it in many people anymore.” If I didn’t know otherwise, I would of thought he was an 8th grade science teacher and not a business owner with an eight figure net worth.

Saving His Whole Salary

I was at a work dinner and my boss started talking about his career projection. Who doesn’t love learning the nitty-gritty about their bosses? He talked about how when his wife graduated from law school while they were in their mid-twenties and started working at a law firm, they saved 100% of his salary and about 15% of hers. This continued for eight whole years until his earning potential surpassed hers and she decided to stay home with their kids. I was so into the story as I thought it was awesome, until he started talking about his mansion which he now owns. Of course I Zillowed it and now know where all his net worth is. I’d rather have financial independence instead of a 6,000 square foot home, but to each his own.

I love seeing people practicing financial independence, or at least living within their means. It took two years for me to hear people discussing it in the real world, and somehow related topics came up three times within a one week period. Unfortunately I was brought back to reality on Sunday when my roommate was complaining about how he had to work on Sunday, and I told him to start saving his money so that he doesn’t have to work until 60 and his response was “that’s stupid.”

Has anyone in the “real world” discussed financial independence in your presence? If so, share your story below!

Unicorns Hiding From Index Funds

We are going to change subjects a little bit today and discuss unicorns instead of financial independence. Now by unicorn I don’t mean the mythical horse-like creature with a horn on its head, I mean the startup companies, which are usually in the technology industry, and reach billion dollar valuations in just a few short years.

Back in 1997 a little company known as Amazon was looking for some capital and was ready to expand. So they did what every other company did when it got to this point, it tapped the public equity markets. It had an IPO (initial public offering) and raised $54 million, and after its IPO its valuation grew to $438 million. IPOs give a company capital through selling equity shares, which they use to invest back into the company, and also give shareholders of the company an easy way to “cash-out” and liquidate their investments, and at (hopefully) a decent price. When 99.99% of your net worth is tied up in a tech company you founded, it may be a good idea to sell at least a few shares to diversify a little, wouldn’t you think?

Let’s fast forward to December of 2015. Amazon now has a market cap of $315 billion (yes billion with a “b”). What this means is if you invested $10,000 in Amazon’s IPO in 1997, you would have approximately $4.4 million today (according to Business Insider). For the many index investors in this community, this type of unicorn is a great thing. By investing in total stock market index funds we unfortunately invest in some companies which go bankrupt (luckily the most you can lose is your investment), but at the same time we’re able to ride these unicorns which appreciate our original investment exponentially and in essence wipe out the losses of the companies which go belly up.

But something structurally has changed in the past few years in the way which companies seek to raise capital. Unicorns today don’t act like Amazon. A couple unicorns that come to mind are Uber which has a current valuation of over $50 billion and Airbnb which has a current valuation over $25 billion. Unlike Amazon, we have been unable to ride these unicorns since they didn’t seek our money as an investment through an IPO, but rather tapped the venture capital and private equity markets, which are extremely tough for people without seven plus figure net worths to invest in.

There are a few reasons why these technology companies have not IPO’d like similar companies have in the past, which I have outlined below:

  1. Today, companies are getting venture capital and private equity investments at some pretty high valuations, which back in the 90’s was much more possible through an IPO. These venture capital and private equity markets weren’t as lush as they are today.
  2. There is less regulation for non-public companies. No quarterly reporting requirements, less compliance, no SEC or PCAOB regulation, and less investors and analysts to answer to.
  3. There is less public scrutiny over your business when you aren’t public. Public companies get beat up pretty hard in the public eye. Miss one quarter’s earnings target and the media acts like you’re going under. When the only people seeing your financial results are a few investment firms, it becomes easier to manage expectations.

Now you’re probably asking – so what FF? What does this actually mean? That’s a good question. Could it mean smaller returns for equity index fund returns? Maybe. Could venture capital and private equity money dry up and growing companies start tapping the public equity markets again and find their way into our index funds? Maybe. Could it mean absolutely nothing? Maybe.

If Uber or Airbnb do IPO someday, they’ll be doing it with valuations over $25 billion and not $438 million like Amazon did in 1997. Therefore when our index funds buy these companies’ shares when they IPO, the potential ride higher has definitely been cut short due to how late in the game they are IPOing. I guess for the time being I’ll sulk a little knowing unicorns are hiding from my index funds, but at the same time I notice they may come back in the future.

Have you tried investing in venture capital or private equity? Does it even matter to an index fund investing strategy that companies like Uber or Airbnb are choosing to tap private equity / venture capital markets instead of IPOing?

Fringe and Other Workplace Benefits

I feel like at least one of my friends is always looking for a new job. Reasons range from hating their bosses, to being bored out of their minds, to working too much, to the most frequent reason which is seeking more compensation. A mistake I see a lot of people make is they only concentrate on their salary and potential cash bonus, but don’t factor in other benefits which their employers may provide. Not all of these benefits are monetary, but should definitely be weighed when determining if you are fairly compensated or if it is worth your while to seek other employment.

Below I’ve put a list together of fringe and other workplace benefits that need to be considered when determining total compensation, including non-monetary benefits.

  1. 401k – This can range from small companies who offer no 401k at all, to an oil services firm offering an 8% match, to government contractors contributing 25% of your pay into your 401k, even if you don’t contribute. Personally my match stinks, but my employer’s plan is with Vanguard which is awesome.
  2. Pension – I bet you’re all thinking “ha!” but they actually still exist. I even have a small one with my current employer. Some unions who have a decent amount of bargaining power still are able to get their union members some pretty lucrative ones.
  3. Employee Stock Purchase Plans / Stock Options – I’ve never been offered a plan like this, but I’ve helped others with theirs. Depending on the discount given by the employer, these can be no-brainers to max out just like your HSA or 401k. But you have to be careful, because if the discount stinks or the stock of your employer hasn’t appreciated in 10 years, they can be worthless.
  4. Health – This one is huge. As people know, healthcare in the U.S. is NOT cheap. Luckily my employer offers a cheap HSA plan in which they even throw in a biweekly contribution. I’ve known employees at small companies and startups where health insurance is fully paid for by the employer, which is a huge benefit. Other companies usually just pay for a certain percentage of your premiums. Employers may also offer onsite gyms or will chip in to your monthly gym membership. Healthy employees are happier employees, and cost less to insure.
  5. Life insurance – Many employees don’t even know they have employer paid for life insurance. From what I’ve seen a common “freebie” is a 1x your annual salary deal benefit.
  6. Food – Some in the tech world get all their meals provided at their jobs in Silicon Valley. Others, like myself, will get free food if they work late or on the weekends and for work travel. Also I seem to be invited to random work sponsored fancy dinners for the hell of it as well, which I don’t complain about.
  7. Travel – If you like to travel, what’s better than employer/client paid travel? Free hotel points, airfare loyalty programs, and meals at nice restaurants in destination cities. I don’t travel that much for work but I enjoy when I do. If you work for a large employer, they potentially have preferred hotel affiliations where you can stay at the ritzy joints for cheap. Whenever I travel to a big city I stay at some pretty nice places I would never pay for out of pocket during personal travel.
  8. Flexibility / Remote Work Arrangement – My buddy Steve at Think Save Retire has no commute whatsoever, and neither does Mr. 1500. They both get to work from home and never have to worry about commutes or traffic or public transportation. I don’t have this luxury but I do enjoy the flexibility to work from home some Fridays or work remotely if I’m visiting out of state.
  9. Computer / Cell phone – My laptop and iPhone 6 were both paid for by my employer and so is my cell phone bill with unlimited data. Some employers even supply tablets if you’re lucky.
  10. Vacation / PTO – This varies greatly due to industry, experience, and employer. Personally I get a pretty sizable amount of PTO which is a great benefit. Even if I don’t go on vacation or fly somewhere to visit people, it’s great to take this time to recharge and get motivated.
  11. Maternity / Paternity Leave – Not a topic which I’ve researched in detail, but I know it is important to a lot of people, and I’m sure I’ll research it more down the road. We all heard the stories about Netflix instituting a ridiculous maternity/paternity policy, but this also highlighted how poor many other employer’s policies were.
  12. Education – Some employers will pay for you to further your education, get more credentials, and expand skill sets. I know in banking it is possible to get your MBA fully funded which can be an almost $200k benefit. Personally my first job pitched in ten thousand bucks for my master’s degree.

For me the most important workplace benefits are flexibility and PTO. I’ve considered leaving for more money, but then I think about the time off I’m allotted now and the ability to have a flexible work arrangement when I need it. These are definitely not guaranteed if I left my current employer, and I think a hefty PTO allowance is something I couldn’t backtrack from.

Next time you’re considering a new job opportunity or helping a friend or family member, make sure to think about these 12 potential workplace benefits.

Does your employer offer you any benefits which I did not discuss? Which ones are the most important to you personally?