Have you heard that the College Board is adding an adversity score to the SAT? This is designed to place the SAT score in the context of a student’s advantages and disadvantages in life. On average, wealthy students earn higher scores than middle-class students. They can afford tutoring and can take the SAT multiple times. Students from low-income families don’t do as well on these standardized tests. Life is not fair.
The adversity index will help the college admission boards normalize the score. Each college can decide to use the score or not. One positive progress is that race isn’t a factor in this score. The adversity index will be calculated with 15 factors in 3 categories – neighborhood environment, family environment, and high school environment. Personally, I think this is a better idea than affirmative action. There are rich minorities too and they have many advantages in childhood. Race should be a very small factor if at all.
The adversity score will range from 0 to 100. The average score is 50. If you’re above 50, then you’ve some disadvantages. We know the broad outline of how the adversity score works, but the calculation is secret.
Aha! Why don’t we have a little fun with the adversity score instead of complaining about it? That’s why I created the RB40 adversity index (TM.) However, I couldn’t quite get to the same range. I just added a bunch of adversities I could think of. The average turns out to be around 15. That’s a regular normal childhood. Anyway, take it and share your score in the comment section below.
The RB40 Adversity Index
This is a pretty long list. You can open up the calculator app and tally your score there or you can use this Google sheet. Also, feel free to give yourself partial points. Now, imagine back when you were 17…
You had a normal stable family. +0
Parents were divorced. +2
You had a single mom/dad. Basically, one parent was mostly out of your life and didn’t help out much. +3
Moved out of town more than 5 times. +2
Abusive people in your life. +5
Teenage parent. +2
Parent did not finish high school. +2
In trouble with the law. +2
Parent had a problem with drug, alcohol, or gambling. +3
No parents. +5
The parent was too strict or too permissive. Either extreme is bad. +2
You went to good schools. +0
Bad schools. +5. This is a good place to get partial points. If your schools were mediocre, then you can get 2 points or something like that.
You lived in a wealthy or middle-class neighborhood. +0
You lived in a poor neighborhood. +5. Here is another good place for partial points. We moved around quite a bit when I was young and lived in all sort of neighborhoods. I gave myself 2 points here.
Got free lunch at school. +2. This means your family didn’t make much income.
Was a victim or perpetrator of a crime. +5. Partial points here if the crime was a misdemeanor, vandalism, petty theft, or something like that.
Gangs in the neighborhood. +3
Drugs in the neighborhood. +2
Your family was financially stable. +0
Family struggled to pay the bills. +3
Not enough food to eat and/or had to use SNAP (government assistance.) +5
Experienced homelessness. +5
Had more donated clothes than new. +1
No cool toys. +1
Family immigrated from a different country. +2
Experienced war or famine. +8
Experienced discrimination due to race, gender, religion, sexual preference, caste, etc… +5
Was bullied or ostracized. +2
No car. +1
Had a physical or learning disability. +5 This one is good for partial points too. For example, RB40Jr has a hearing disability. It is causing some problems, but he can still function pretty well in school. I’d give him 2 points here.
Mental illness. +5
Worked regularly. +2
Grew up in an unloving environment. +5
This adversity index quiz test isn’t perfect. It looks like the bar is quite high here. The average score is probably around 15.
I thought I had some adversity when I was young and I only got 23 on this quiz. RB40Jr gets 2 points for his disability and that’s it. Of course, he is still very young. He has 10 more years left to go before he has to think about this adversity score.
This is my interpretation of the score.
0 to 10: Privileged. You had a privileged childhood and probably reached your SAT score potential.
11 to 20: Normal. You had a regular Normal Rockwell childhood.
21 to 30: Minimal adversity. You’ve seen some adversity, but generally had a good childhood.
31 to 40: Some adversity. You went through some tough times.
41 to 50: High adversity. Life was difficult when you were young. There were many obstacles in your way.
51 to 60: Serious adversity. I think you deserve special consideration for college acceptance.
61 to 70: Awful adversity. Really bad stuff happened.
70 to 80: Extreme hardship…
81 to 90: Damn! Did you live in Dystopia (the fictional worse country in the world.)
91 to 100: Inconceivable! I hope nobody got this high.
Okay, what was your score? I got a 23 and I don’t think I needed special consideration from a college. I applied to 4 universities and one accepted me. If I didn’t get that acceptance, I was going to attend community college for a couple of years. I’m glad I went to a 4-year university, though. It was a great experience and I’m still good friends with many of the people I met there. Also, I met Mrs. RB40 there. That alone is worth paying for the 2 extra years.
*This proprietary quiz cost $50 to take. You can send the money to my PayPal account. If you need help with your adversity score, I have a consulting service with a 100% satisfaction guarantee. Your kid’s adversity score will improve immensely for just $999. (Discounted from $2,500 for our readers.) This is dirt cheap. It’s your kid’s future we’re talking about here. ***I hope you realize I’m joking here. *** But, if you want to support RB40, you can buy an SAT Prep book from Amazon.
What was your score? Did you encounter adversities when you were young?
Do you have the right personality for FIRE (financial independence, retire early)? This is a tough question. If you think about it, financial independence and early retirement are quite different. They are two distinct phases. Achieving financial independence is mostly about building wealth. Early retirement is about maximizing your life. Of course, there is a big connection – money. It’d be tough to retire early if you’re not financially independent. I guess it is possible to retire without the financial means to support yourself. You’d be relying on charity or social support, though. Most of us would not enjoy that kind of lifestyle.
In my opinion, financial independence requires one personality and early retirement requires another. To excel at one is difficult enough. To succeed with both of them is quite an ordeal. Some people burn out on the FI phase of the journey and give up FIRE. Others become FI and retire early, only to go back to work later. Today, I want to explore why FIRE is like threading a needle.
Achieving financial independence isn’t easy, but it’s pretty straightforward. You have to consistently save and invest a big percentage of your income. If you do that long enough, you’ll get there. It’s basic wealth building. Here are some personality traits you need to become financially independent.
Driven to succeed – It’s possible to reach financial independence with low income, but it’s much easier if you make a good income. You have to be somewhat successful to make money. That’s the reason why most FIRE bloggers had/have a well-paying career. Most people in the lower income tax bracket have their hands full making ends meet. There is no time to think about financial independence if you’re poor.
Goal oriented – Financial independence can take a long time. You have to focus on the long term goal and make short term sacrifices. If you can’t maintain that focus, then financial independence will be much more difficult. Regular people tend to get distracted by fancy cars, big homes, and luxurious vacations. It’s not easy to save for the future.
Discipline – You need a lot of discipline to save 50% of your income. Most of your friends and coworkers save 10% or less. They spend conspicuously and live it up. It’s hard to ignore that and live like you’re making much less. You need the discipline to save every month for years and years.
Some people slide right into retirement with hobbies, volunteer gigs, and spending more time with families. Others struggle with anxiety, depression, and the loss of routine. It’s not uncommon to have trouble adjusting to retirement. We all worked diligently for years and retirement is a huge transition. There are no goals to follow and very little structure. You have to figure it out on your own. There is no HR department in retirement. Ironically, the people most successful with FI aren’t really geared for the RE part. Here are some traits that are helpful for early retirement.
Family oriented – One of the main reasons why I retired early from my engineering career was my son. We didn’t like sending him to daycare. I prefer to be a stay-at-home dad than an engineer. That might sound like an easy choice, but it’s not. It’s easier for most people to work than to take care of a baby. The timing was right for me, though. My career was going sideways and it was time to get out. If work had been better, I might not have retired early.
Lack of career ambition – Retiring early requires you to give up a career. This can be very difficult for a doctor, engineer, and other professionals. If you keep working, you might become more successful. Most people enjoy success and they can’t give that up. Retirement means a loss of identity because their jobs define them. If you’re not ambitious with your career, early retirement probably will be easier for you.
Self-motivated – The biggest challenge of early retirement is the unstructured schedule. Every day is Saturday. I know it seems like a good thing, but it really isn’t. Most people are used to a more structured lifestyle. Saturday is only awesome because there are weekdays. Once every day is like Saturday, it’s not as fun anymore. You’ll have to fill the hours with something. I think this is why so many people have a tough time with retirement. They need to be self-motiving and set their own schedule. It’s not as easy as it sounds.
Lone wolf mentality – To succeed at work, you need to be a team player. It’s not good to go against the grain at the office. However, I think the lone wolf mentality makes early retirement easier. You are self-sufficient and don’t depend on others to survive. A lone wolf doesn’t need acceptance from society. They can go it alone. Society expects us to work until 65. Your friends and family members won’t understand why you want to retire early. If you seek approval from other people, then early retirement probably isn’t for you.
Threading the needle
So this is my theory on why FIRE is so difficult. You need to have one personality to become financial independent and another to retire early. I suppose they’re not mutually exclusive. After all, some people pull it off. Personally, I’m closer to the “RE” personality. I’m not ambitious, but I have discipline. I live modestly and was able to save a big portion of my income. Maybe that’s why it took 16 years to achieve financial independence. If I had been more driven, I might have accomplished it faster. But then, I might not have been as successful at early retirement. It really does take more than money to retire early.
This post was very tough to write. I wanted to explore the difference personality traits that are helpful for FI and RE, but I feel like I’m missing something. Let me know in the comments what you think. I can incorporate your input and update the post later. Thanks!
Achieving financial independence is kind of like cooking. If you’re lucky enough to find a good recipe, it will be much easier. However, the stake is much higher with financial independence. A terrific meal will make you happy for a few hours, but financial independence can last a lifetime. Of course, the execution phase is much longer for financial independence. Cooking a nice meal doesn’t take that much time. Achieving financial independence can take 10, 20, 30 years, or even longer.
Today, I’d like to share the ingredients that helped me achieve financial independence. It’s the recipe for my success. But it’s not 100% like cooking. Life is different for everyone. Your experience is vastly different from mine. Some of these ingredients are unique to me, but some are universal too. Some of these are applicable to everyone. Anyway, let’s go through my list and figure out a conclusion at the end.
My childhood was pretty good, but I experienced some adversity too. My family immigrated to the U.S. when I was 12. It was a tough few years for us. In Thailand, my dad was an entrepreneur and my mom was a professor. After we moved here, they had to work minimum wage jobs with no security and no benefits. I remember taking care of my 2 younger brothers while they worked late. Sometimes, they were both unemployed. It was a tough transition.
Once, my dad was delivering a pizza and the guy refused to pay. He hit my dad with a bat and broke his arm. Going to the hospital was expensive and my dad couldn’t work for a while. That was probably the low point in my childhood. Getting hurt is a big deal when you don’t have a safety net.
We always had enough to eat, but saving money was a struggle. (That’s the side benefit of working in the food industry in those days. The staff got free/cheap food.) Eventually, my parent purchased a small Thai restaurant and our finance improved. Entrepreneurship is the ticket out of the lower class. You can’t get far on minimum wage jobs.
Anyway, the adversity was good for me. It toughened me up to deal with the real world. My current problems pale in comparison to what my parent went through. That’s one big worry I have for our son. Life has been very cushy for him. How will he deal with adversity in the future? I guess most middle-class kids are like that. He’ll just have to toughen up on his own later.
2. No debt
It’s really sad so many young adults start their lives with such huge student loan debts today. Higher education was much more affordable in the early 90s. My parent paid for most of my college education. They were doing better financially by then. I worked part-time in college but didn’t really make that much.
Starting with no debt was really helpful. It means I could start saving right away without having to worry about debt. We plan to do the same for our son. He should work part-time to have some skin in the game, but I don’t want him to start off in a big hole. That’s why we’re investing in the 529 college savings plan. I don’t expect any inheritance from my parent and our son shouldn’t either. A good start is all a kid need.
3. Good stable income
I was an engineer at Intel for 16 years. I made a good income and my job was relatively stable. It seems like a different world now. People change job every few years and most jobs aren’t very secure anymore. Intel had a few layoffs when I was there, but I was in the core business (CPU) so I was pretty safe. The stable income enabled me to invest consistently and power through the stock market crashes. I kept investing during the bear markets and it paid off handsomely. If my job wasn’t stable, I would be a lot more hesitant to invest aggressively in my 20s and 30s.
4. Start investing early
When I started working full-time, I didn’t want to invest in my 401k. Like any young new grads, I thought retirement is 40 years away. Why save now? I lived in a cheap apartment and drove an old Toyota. I wanted to spend some money after being poor for so long. However, my dad convinced me to start investing in my retirement fund right away. He knew you need to save first before spending. The 401k deduction took the money out of my paycheck before I saw it. So I had to live with whatever was left. It was still plenty of money compare to being a poor college student. I had enough to go out and have fun.
The artificial constraint on spending was good. It helped me learn to live with less. Investing early is essential for wealth building. Compound interest is huge when you start early. Those early investments work the hardest for you. I also learned a lot from investing early. Like many people, I lost a lot of money in the dot com bubble. But it taught me to keep investing when the market is down. When the financial crisis came around in 2008, I knew I needed to invest as much as I could. You learn best from experience. Lots of young people never went through a big stock market crash. The next one is going to be rough for those folks.
5. Minimize lifestyle inflation
Start investing early really helped. It took me a few years to start maxing out my 401k. I didn’t keep good record back then so I don’t have the exact number. Let’s just look at a hypothetical new engineering grad today.
An entry level engineer can expect to make about $60,000 per year. If she maxes out her 401k contribution, then her pre-tax income would be $41,000 per year. After taxes and deduction, she probably will have about $2,400/month to spend. That’s not a lot, but it’s enough for a comfortable lifestyle.
The hard part will be minimizing lifestyle inflation. The more you make, the more you tend to spend. Even people in the FIRE community can’t escape that. For example, doctors spend quite a lot. They’ll need to save more to achieve financial independence. To many physicians, spending $100,000 is very frugal. Our new grad will have to do her best to minimize lifestyle inflation as she gets promotions and earns more money.
Lifestyle inflation is unavoidable, though. Today, I drive a nicer car (2010 Mazda5) and live in a more comfortable home (our duplex) than 20 years ago. But I think I did a pretty good job overall. Most of my friends from college drive much nicer cars and live in more expensive homes. They are still working full-time so it’s a tradeoff. The more you can minimize lifestyle inflation the easier it’ll be to achieve financial independence.
6. The right partner
This one is probably the most important ingredient. Achieving financial independence is much easier when you work as a team. I met Mrs. RB40 in college and we’ve been together for over 25 years (married for 20.) She was very frugal so we got along quite well. We’re pretty much perfect for each other. Our journey wasn’t always smooth, but when one of us was down, the other one was there to pick up the slack. Having the right partner helps tremendously.
Luck also plays a huge role. I’m a very lucky guy. My parent immigrated to the U.S. and gave me an opportunity to thrive in the best economy in the world. I graduated at the right time and was able to make a good income for many years. College wasn’t that expensive back then either. The stock market crashed when I was young, but it taught me a great lesson. I kept investing and it worked out incredibly well. Mrs. RB40 went off to Uzbekistan for Peace Corp for a few years after college, but she came back. I retired in 2012 and the stock market has been doing very well ever since. Life has been quite good to me.
It seems to me like the Millennial is having a much more difficult time. Higher education became a lot more expensive and many owe a ton of money. The job market has been fickle and it’s hard to find a stable job. The housing market is already expensive by the time they are ready to buy. It just seems like the timing wasn’t good for them. I suspect wealth building will be more difficult for my son too, but who really knows?
Cooking up financial independence
So that’s my ingredients to achieving financial independence. I know this is highly individualized. Nobody has the same experience I did. That’s what makes us human. Everyone is an individual. But some of these ingredients are quite common. You’re halfway there if you can get a stable job with a good income, start investing young, minimize lifestyle inflation, and marry the right person. The rest is execution and a little luck. I hope to pass some of these lessons on to RB40Jr. He’ll need a lot of luck in the future, but the right ingredients would help a lot.
What’s your secret ingredient to achieving financial independence? What would you teach your children?
Wealth Building Recommendation
Wealth building isn’t easy, but the right tool can help. You can easily keep track of your finances by signing up with Personal Capital. I log on almost every day to check on our investment and cash flow. It’s very convenient to see all my financial info on one page and check our net worth. Check them out if you don’t have an account yet.
Did you enjoy the rollercoaster ride on the stock market last week? It was pretty crazy. Every time Trump tweeted a threatening message, the stock market dropped. Investors were expecting a deal to be reached, but it didn’t work out. The tariff on $200 billion of Chinese goods increased from 10% to 25% on Friday, May 10th. That’s a huge deal. Now, China will have to retaliate. Who knows where we will go from here. Buckle up because we’re going on a wild ride.
If you’re an investor, you might think it’s time to sell and sit on the sideline for a while. I already changed our asset allocation to be more conservative earlier this year so I’m not worried. Our asset allocation is now about 50/40/10. That’s stocks/bonds/alternatives. With this allocation, I can ride out the volatility without much stress.
However, that’s timing the market. It rarely works out. The stock market was on a tear earlier this year and our portfolio lagged behind. That’s the price of being more conservative. I don’t mind it for the short term because our situation is temporary. My excuse is we’re selling our old condo. Once that’s done, we can use the money to increase our stock position.
Selling has always been painful to me, though. Is it possible to avoid selling completely? Life would be much simpler that way.
Reasons to sell
Let’s examine some of the reasons why we sell our investments. I’ll start from the best reason to worst.
You need the money
The main reason why I invest is to save for retirement. When we’re older and don’t have any active income, most of us will need to sell some of our investment to pay the bills. Personally, I think this is the best reason to sell. It’s why we saved up all these years.
This reason isn’t legitimate when you’re in the accumulation phase, though. If you are earning income, then you shouldn’t need to sell your investment to buy something. The exception is when you need to buy a house. A house requires a big lump sum down payment and most of us don’t have that much cash lying around. I sold some stocks when we purchased our first home. That’s the only time I sold stock to buy something.
Selling to fund your retirement is good, but there is another way. A better alternative is to generate enough passive income to cover your expenses. We’re working on it by investing in dividend stocks, rental properties, real estate crowdfunding, and mutual funds. Once the income from these investments exceeds our expense, we won’t have to sell anything even after we stop working completely.
Another good reason to sell is to rebalance. The idea is to figure out your target asset allocation and stick to it. If you don’t know how about asset allocation, read this post first – How to figure out your asset allocation. The stock market can be volatile and most investors can’t stomach it. You can stabilize your portfolio by adding some bonds to the mix. You’ll still get most of the benefit and your portfolio will be less volatile.
This strategy is also much less stressful for the investor. You can set your portfolio to the target asset allocation and forget it. You just need to rebalance once per year. It’s the easy way to invest.
One way to get around this is to rebalance by adding new money. This is a great way to rebalance. It works well when your portfolio isn’t that big. However, new investment doesn’t change our asset allocation much anymore. Now, we need to sell to rebalance.
Long term business prospect is not good
Our tax-advantaged accounts are all invested in low-cost Vanguard funds. We don’t have to worry about selling there. However, we have individual stocks in our taxable brokerage account. These are our passive income generator. The dividend will help pay our expenses when my wife retires. Generally, I invest in solid dividend growth companies and rarely sell. However, if the long term business outlook doesn’t look good, I’d sell.
For example, we can look at Sears, JC Penny, Macy’s, and other department stores. That business model is done. I’m not sure why anyone would buy these stocks today. Can they really turn it around? I’d sell if I own any of these stocks.
Sometimes, it’s hard to tell when the turning point is. The tobacco companies are still making good money and the dividend is very nice. However, they are also killing their customers. There are fewer and fewer smokers every year. That doesn’t sound like a sustainable business. I still have a few shares of Altria (Marlboro) and probably should sell them.
Capital loss tax deduction
In the US, we can write off losses against capital gains. Sometimes, it makes sense to sell stocks to reduce your tax bill.
I did this a few times in the past, but it never really worked out for me. Last December, I sold Shell to take the tax deduction. The stock went down a bit more, but it doing pretty well this year. That always happens when I sell to take the tax deduction.
I know you can buy the stock back after 30 days, but it doesn’t work for me. I never get around to it. Selling stocks for the tax write off just isn’t a good reason to sell for me.
Last week was tough on the stock market. The trade deal didn’t work out and the tariff increased. That’s bad news and many investors sold some stocks. That’s why we see these sharp drops. Investors and banks sell their investments when they hear bad news.
However, bad news is not a good reason to sell as long as the companies you own still have a good long term business model. Apple products will become more expensive if this trade war continues. Their numbers might worsen for a while, but this trade war isn’t permanent. Eventually, it will be worked out and Apple will continue to make a ton of money. Their business model is still fundamentally sound.
What if I never sell?
Those are all the reasons why I sold stocks in the past. Selling is stressful for me and it rarely worked out well. What if I just stop selling? Is this a way to make life easier and improve the performance of our portfolio? Let’s see if it’s possible.
Rebalance – Unfortunately, I don’t see a way around this. I have to sell to rebalance, right? I guess I could go to 100% stocks until we’re 60. That way we won’t have to rebalance for a while. I’m too conservative to do that at this point, though.
Business going bad – I think I might be able to live with this. Even if a few companies crashed, it would be okay if my dividend portfolio is diversified. We’ll lose some money, but not a big percentage. It’s not ideal, but I probably can handle it.
Tax deduction – I could live without the tax deduction. It’s never that much anyway.
News – This one is tough. I try not to pay attention to the news, but it’s not easy. I think one way around this is to have a range on my asset allocation. So our bond/cash allocation can be between 20 to 40% of our portfolio. This gives me a little room to react to the news.
Ugh! It seems my attempt to move from “buy and hold” to “never sell” isn’t going to work. I still think rebalancing is a good idea. I could limit the rebalancing to the retirement account. It’s easy to rebalance there because there are no fees.
Our dividend portfolio is a good candidate for the “never sell” strategy. It will take a while to execute, but I will go through our stocks and see what companies don’t make sense in the long run. I can get rid of those and diversify the portfolio. Once that’s done, I can just focus on buying good stocks and don’t worry about selling. Alternatively, I could just invest in a good dividend growth fund. That’s a much easier way to go.
Anyway, this post was inspired by Jason’s post – Why I will never sell another stock. I believe all his investments are in a taxable brokerage account and the allocation is 100% stocks. He doesn’t need to rebalance so this strategy is a good fit for him.
What do you think about the never sell strategy? Can you do it?
Saving for retirement is a big problem in the United States. Many retirees have no savings at all and they will have to keep working to pay the bills. Social Security helps, but that isn’t enough for most people. It’s a tough situation to find yourself in at that age. My retirement saving is in good shape compared to most people, but I still worry. You never know if you will be able to work or find a good job when you’re older. When it comes to retirement savings, having extra is better than not enough. That’s why I’m still saving more in my 401k.
When I retired from my engineering career in 2012 to become a stay at home dad/blogger, I wasn’t sure if I could continue to save for retirement. My original plan was to use my small blog income to help fund our expenses. That way we could put off withdrawal and let our retirement savings grow. However, life rarely turns out as planned. In my case, that’s a good thing. The last seven years of early retirement has been much better than expected.
Mrs. RB40 is still working full time and her income increased significantly since I retired early. Amazingly, my blog income also grew from $10,000 per year in 2011 to $75,000 in 2018. It’s simple, our income exceeds our living expense so I continue to save. Today, we’ll take a look at my solo 401k and how it did over the last few years.
I’m sure most of you are familiar with the employer sponsored 401k. Almost every employer offers this plan which everyone should take advantage of. It’s one of the easiest ways to save for retirement. You will be very well off in retirement if you always max out your 401k. The solo 401k is similar to your regular 401k, but it’s only for self-employed people. Let me tell you more about this plan.
The solo 401k (aka individual 401k) is only available if you’re self-employed with no employees or just the spouse. My goal is to contribute as much as possible to my solo 401k. The more I contribute the less tax I have to pay. You only pay tax on the traditional retirement account when you make a withdrawal. Here is how much you can contribute to the solo 401k in 2019.
As an employee, I can contribute up to the standard 401k limit. The 2019 maximum contribution is $19,000. If you’re 50 or older, you can add $6,000 catch-up contribution limits.
As an employer, I can contribute up to 20% of my “net earnings from self-employment.”
These two components add up to a significant amount. However, the total contribution can’t exceed $56,000 in 2019.
It’s even better if you have a full-time job and a small business on the side. You can contribute to your employer-sponsored 401k and also contribute to your i401k account on the side. That’s what I should have done during my final year of working full time to reduce our taxes.
In 2018, I made $74,597 from blogging and my contribution limit was $36,649. I contributed $18,500 as an employee and $18,000 as the employer. That’s $36,500 of tax deduction. We needed as much tax deduction as possible because Mrs. RB40 still works full-time. I don’t want to pay more taxes than necessary. Now, let’s take a look at how my solo 401k is doing.
My solo 401k
The solo 401k is really great because I was able to save more than I ever did as an employee. Here are my contributions over the years.
$7,000 by 5/1/19
That’s a lot of money stuffed into a retirement account in 6 years. I’ve been very lucky so far because the stock market did quite well since I started investing in my solo 401k. Now, the balance has grown to nearly $200,000. Here is the graph from Vanguard.
The green area is where I contributed since 2013. For the most part, I consistently add a fixed amount every month. The amount is the employee maximum contributions divide by 12. That’s dollar cost averaging at work. Also, I add the employer contribution periodically.
The blue area shows the investment returns. 2018 started off really well, but we had a rough Q4. My account got hit pretty hard because I had a significant percentage in the emerging market. We’re doing a bit better in 2019.
Investing with Vanguard
I wrote a more detailed post about Vanguard’s solo 401k plan a while back. You can read more there if you are considering working with them. My experience has been largely positive. I’ll give a quick summary of that post here.
Cost– $20 per year for each Vanguard fund held in the Solo 401k account. This fee is waived if you have more than $50,000 invested in Vanguard funds.
Investment choices– More than 100 Vanguard mutual funds. Previously, we couldn’t invest in the Admiral shares, but this rule changed in 2018. Now I can have Admiral shares in my account. That’s great!
Roth option– Vanguard is one of the few companies to offer Roth 401k. I’m going with the traditional 401k for now because we need the tax deduction.
No Loan – You can’t borrow from your i401k account at Vanguard. This isn’t a big deal to me because I don’t plan to borrow anyway.
IRS– You will have to file form 5500 EZ with the IRS if the i401k plan asset is over $250,000. See the IRS page on form 5500for reference. This is the rule no matter where you have the solo 401k. Unbelievably, we’re getting close to $250,000. I might have to file this form soon.
In 2018, I had 4 funds in my solo 401k. The value of my solo 401k is over $50,000 so they don’t charge me the $20 per fund fee anymore.
VTSMX– Vanguard Total Stock Market Index Fund
VGTSX– Vanguard Total International Stock Index Fund
VBMFX– Vanguard Total Bond Market Index Fund
VMFXX– Vanguard Federal Money Market Fund
This year, I moved a big chunk into the money market fund. I’m just very nervous about the stock market. Now, I only have two funds.
VMFXX – Money market fund. 90%
VTSAX – US total stock market fund, Admiral Shares. 10%
All in all, I’m pretty happy with Vanguard. The solo 401k plan improved immensely this year when they let us invest in Admiral Shares. I’m being very conservative right now. I plan to move the money back into the stock market at some point, but I’m not quite ready yet.
Lastly, I’d like to remind you to check your asset allocation at least once per year. The stock market did very well so far in 2019 and your asset allocation might be out of balance if you haven’t checked in a while.
I maintain a spreadsheet to keep track of my net worth and investment, but I don’t update it very frequently. It’s easier to log in to Personal Capital to get a quick glance on my asset allocation.
Personal Capital takes all our accounts and calculates the asset allocation. It’s a quick way to check your asset allocation. Sign up with Personal Capital if you don’t have an account yet. They also have a very good retirement planner/calculator and other useful tools. I highly recommend them for DIY investors.
Are you self-employed? If so, are you saving for retirement? It’s difficult to save for retirement if your income is unstable, but you need to plan for the future.
Disclosure: We may receive a referral fee if you sign up with a service through the links on this page.
Hey everyone, did you have a good month in April? The weather is finally nicer here in the Pacific Northwest. RB40Jr is wearing shorts to school every day now. That’s the real benchmark. Unfortunately, this means we have to buy a new set of clothes for him. Kids grow so fast and their clothes don’t last very long. Actually, the size doesn’t matter that much. Junior is so hard on his clothes. All his pants have holes in them after one season. That’s okay. I’m happy that he is an active kid.
On the financial side, we did well in April. Our net worth increased a bit because the stock market did very well. Our cash flow looked good too, but it was mostly due to luck. We got a big boost from an insurance payment. As for expense, we did well, but we also had a big tax bill. The extra income helped tremendously with that. All in all, it was a good month.
Okay, I’ll go over my goals first and then share the details of our net worth, cash flow, and savings.
Here is my goal scheduling spreadsheet. It works really well. Try it out if you have a problem keeping up with your New Year goals. The key is to update the spreadsheet once a month to check progress. That will remind you which goals need attention.
Passive Income> $60,000. This one might be too ambitious. In 2018, we had $56,628 in passive income. This year we probably will have less than that. We’re consolidating our properties so the rental income will drop. I’ll use the proceeds to invest in dividend stocks and real estate crowdfunding. I’m not sure if we can generate $60,000 this year, but we’ll try. After 4 months, we had $14,768 in passive income. That’s really behind the pace.
FI Ratio > 100%.This is my main goal for 2019. The FI ratio is passive income divided by expense. Once we reach 100% consistently, then we’ll be set to retire in style. Last month was great. Our FI ratio got a big boost and increased to 111%. The big improvement was due to a payment from our tenant for the damaged flooring. Our monthly spending is also pretty low now. That helps a lot.
Save and invest > $100,000.Last year, we saved and invested about $102,000! That was awesome and I hope to repeat it this year. However, we probably won’t be able to do it. In 2018, my blog income was excellent, but it slowed down significantly this year. Consequently, it’s going to be very tough to save $100,000. So far, we saved and invested $28,777. That’s actually really good. Our saving rate is 51% so far. I’ll grade this one on an academic scale.
Update Retire by 40. I need to clean up the menu, sign up with some new partners, and rework a few affiliate posts/pages. This isn’t that difficult, but I have to find the time to do it. Then I’ll hire someone to install a new theme. This kind of work is very tedious for me so I usually put it off. I’m having a really rough time with it this year. All my attention has been on selling our condos. Everything else comes second this year.
Travel Hack 100,000 points.Yes! This one is done. Both of us signed up for the Capital One Savor card and received a $500 cash bonus each. This is a great card, don’t miss out. Click through on the banner below and see if you can find the right card for you.
Consolidate down to 1 property. We are making solid progress here. We moved and both of our condos are for sale now. However, the real estate market in Portland slowed down tremendously. If these condos don’t sell soon, I might have to rent them out.
Drop weight to 125 pounds. I rarely make a weight loss goal because it never worked before. However, I think I’ll be able to do it this year. I’m intermittent fasting* and plan to exercise 5 days per week. Currently, my weight is 130 pounds. It’s not changing much now so I might have to just be satisfied with that.
*Here is how I do intermittent fasting. I only eat from noon until 8 pm on the weekdays. This cuts down on the calories and I don’t miss breakfast much. I’m busy getting RB40Jr off to school on the weekdays anyway. Try intermittent fasting if you want to lose weight. It really works. If you can’t do it by yourself, I highly recommend Martin Dasko’s Fasting Course. It was very helpful when I first started.
Keep my happiness level at 8 or above. This is totally subjective. I’ll give myself a score at the end of the month and try to average about 8 this year. For April, I rate my happiness level at 7. The condos haven’t sold yet and that adds stress. Carrying 3 mortgages is no fun.
Visit Chiang Mai for 6-10 weeks. I haven’t even started here. We’ll deal with this after the condos are sold.
Net Worth (+7.5% YTD)
I’ve been tracking our net worth since 2006 and it is very motivating to see the progress we’ve made. 2019 is turning out to be a very good year so far for the stock market. That’s unexpected. I’m being more conservative this year so our net worth lags behind the S&P 500 quite a bit. I’m still very happy with our net worth gains. 7.5% is really good in the grand scheme of things.
Here is a graph of our investment portfolio on Personal Capital.
Here is a quick summary of our passive income. You can see all the details on my Passive Income page.
Generally, things look good. The rental income is slower than last year, but that’s expected. We’re consolidating down to one property. That will reduce our rental income, but our cost of living will be lower as well. It seems to be working out. Our FI ratio* is looking pretty at 111%. Hopefully, it will stay above 100% for the rest of 2019.
FI ratio = passive income/expense
Once we sold our condos, we will have some cash infusion. I’ll invest it in real estate crowdfunding and dividend stocks. Our passive income should increase with these additional investments. But it will take time to execute. You’ll have to follow along and see how it plays out.
2019 Cash Flow
Our cash flow was pretty good in April. It was mostly due to luck, though. We had to send in our tax payments so I wasn’t optimistic. However, we got a boost on the income side. I got a big payment from insurance and a $534 bonus from a credit card. These two helped us pull out a win in April.
Here is the Sankey diagram for April. You can get a quick overview here and see the details below. The big hit was the taxes and deductions.
Gross Income (target > $12,000/month)
For 2019, our gross income target is $12,000/month. I think we should be able to meet this goal almost every month. In previous years, I tracked take-home income and it was all over the place due to the deductions. This year, I’ll track gross income. In April, we grossed $17,427. That’s much higher than normal. See the side hustle bullet below for the detail.
Mrs. RB40’s paychecks: $8,444.
Blog Income: $2,304. April was actually a really good month, but we had to pay taxes too. So the blog income was just so so. You can read more details on my Blog Income page. RB40Jr is on the payroll now as model and photographer. The income will go straight into his Roth IRA. I’m excited to see how this experiment will turn out.
Side hustle: $5321. I got a big check from insurance in April. A bicycle ran into the back of our car and made a huge hole and several dents. Their insurance sent me $4,787. That’s more than our car is worth at this point so I’m keeping it and fixing the hole myself. It looks like crap, but I can live with it. We also got $534 bonus from the Capital One Savor card. Mrs. RB40 signed up for the card and we used it to pay taxes. We spent $3,400 and received the $500 sign up bonus + $34 extra. It was awesome. If you’re looking for a new credit card, I highly recommend it. Cash is king, way better than points.
Monthly Expenses (target < $4,000/month)
For the rest of 2019, our monthly spending budget is $4,000/month. I decreased it from $5,000 per month. Our housing expense is significantly lower since we moved into out duplex. This makes a huge difference. In April, we spent $2,712. That’s really good. We had a couple of big expenses in the health and parent category. You can see the detail below.
Overall, it was a good month.
Housing: $1079. Our housing expense looks good. Let’s hope we can keep it low for at least 5 years. This category includes mortgage, HOA fees, property taxes, utilities, and maintenance.
Groceries: $433. We had a good month with groceries. I’m happy if it’s under $500. Check out what I cooked.
On the left is Okonomiyaki. This is a really easy dish to make at home. It’s basically lettuce pancake with bacon on top. You can make the topping sauces at home, too. It’s a great dish. Next is Tteokbokki, an interesting Korean dish. It seems like you can toss whatever you have in it. The essential ingredients are the rice cake and Korean hot pepper paste.
On the left is spicy Thai cashew nut chicken. This dish is really easy, too. Here is a good cashew nut chicken recipe if you’d like to try. On the right is the Bhindi Masala, okra curry . This is my favorite vegetarian dish so far, it’s really good. I got a big bag of frozen okra and it works just fine. The only problem is our son doesn’t like it. Oh well, he can have the Murgh Makhani (butter chicken) from Trader Joe’s. Here is a good recipe for Bhindi Masala.
Here is RB40Jr’s 2nd favorite dish – hamburger and fries. First place is pizza. I made this on our carbon pan, it worked out very well. Lastly, I made BBQ pork sliders. This one was an easy weekday meal. I cheated and used Trader Joe’s BBQ pork. The Hawaiian rolls and coleslaw rounded out the meal.
Transportation: $105. I got some epoxy, Bondo, and touch up paint to fix the hole at the back of our car. It looks like crap, but that’s okay. I don’t really care how it looks anymore as long as water doesn’t get in. At this point, I rather keep the cash than get it repaired by a professional. $4,787! I also filled up a couple of times.
Parent: $500. My parents are going to visit Japan. I’m helping them with this trip.
Bills: $124. Insurance (auto, home, term life, and umbrella).
Health: $58. RB40Jr visited his doctor and the gym membership fee.
Clothing: $186. Mrs. RB40 replaced a pair of shoes. We also got some bigger clothes for Jr. Kids grow so fast.
Entertainment: $114. We ate out 3 times in April.
I don’t count these as personal expenses. We paid a big tax bill in April. If we didn’t have the extra cash infusion, we would have had a negative month. Whew! This year, I’ll try to send in enough estimated tax.
Taxes and deductions: $6,282. We underpaid our taxes last year so we had to send in some money to the IRS and Oregon Department of Revenue.
401k and Roth: $6,980. I contributed $1,500 to my 401k. Mrs. RB40 contributed $1,480 to hers. We also contributed $500 each to our Roth IRAs. Lastly, I contributed $3,000 as an employer to my 401k plan for 2018.
Extra Savings: $1,453. This went into our checking account for now. I’ll invest it when I can.
We saved $29,331 so far in 2019. Our current saving rate is 52%. That’s really good. I’ll try to maintain it around 50% this year.
Joe’s 401k: $10,000.
Roth IRAs: $4,000
529 College Savings: $0
Extra savings: $9,461
YTD 2019 saving rate = 52%.
April 2019 Wrap Up
All in all, we had a great month. Our net worth increased nicely and our cash flow was solid. The expense was higher than usual due to taxes, but we got some cash infusion to soften the blow. Everything worked out quite well.
How about you? Did you have a good April? Are you making some progress on your New Year goals?
How do you measure happiness? This is a tough question because it is so subjective. Our happiness level depends on many internal and external factors. Stress, age, health, money, generosity, government, and our internal baseline all contribute to how we feel. Personally, I’m a pretty happy go lucky guy. If all goes well in 2019, my happiness level should be 7 by the end of the year. (This is on a scale of 1 to 8 to be consistent with the World Happiness Report.) But life is unpredictable. We’re trying to sell our condo and it is slow going. That’s one source of stress. My mom is dealing with dementia and that’s another big issue. Life doesn’t always work out like we plan.
That’s just on the personal level, though. What about on a national level. This is actually more important than you think. If you’re a happy and optimistic person, does it really matter where you live? It does, according to the World Happiness Report. Apparently, the national level of happiness is quite important. It’s like a baseline. If you move to a happier country, you’ll become happier. The inverse is true as well. So don’t move to South Sudan, Central African Republic, or Afghanistan. It’s not a good idea.
World Happiness Report
Anyway, have you seen the 2019 World Happiness Report? This is the UN’s effort to rank the national happiness level. The result is interesting, but the report is quite dry. I tried reading the whole World Happiness Report and I still couldn’t quite figure out their formula (chapter 2.) From what I understand, 6 factors make up the bulk of the score for each country.
GDP per capital – money! The more you make, the happier you are. To a point.
Social support – If you were in trouble, do you have someone you can count on to help you?
Healthy life expectancy – Of course, health is very important. Money doesn’t mean much if you aren’t healthy.
Freedom to make life choices – Are you satisfied with your freedom to choose what you do with your life.
Generosity – Have you donated in the past month?
Perceptions of corruption – Is corruption widespread throughout the government and businesses?
Dystopia* + residual – Other factors such as confidence in government, democratic quality, delivery quality, economic inequality, and trust. Each of these factors makes a small contribution to the happiness level, but they all add up.
*Dystopia is the imaginary unhappiest country in the world. So every country is better than Dystopia. It’s just something they used as a benchmark.
The weighting is really the difficult part to understand. They provide a coefficient table, but it doesn’t answer anything. For example, the generosity factor is very small. The formula doesn’t really make sense to me. Anyway, let’s just focus on the result for now. You can download the spreadsheet here if you want to check it out. The data is on the sidebar, near the bottom. Actually, the spreadsheet is quite interesting.
World Happiest Countries
Here are the top 20 countries.
Well, what do you know? The Scandinavian countries are still on top. The colder you are, the happier you are? That’s not quite it. Russia is way down at #68.
Let’s look at a few other countries I’m interested in. I made a chart so we can see how their ranking changed over the years.
United States #19 in 2019
The U.S. looks okay. We’re still in the top 20. Unfortunately, we’re slowly sliding down in the ranking. The World Happiness Report has a whole chapter on Americans. Chapter 5 – The sad state of happiness in the United States and the role of digital media. Americans are doing better financially, but we have a lot of stress in our lives. Apparently, social media is making us very unhappy, especially the kids. We are spending too much time online and we’re not getting enough sleep and in-person social interaction. Thanks for ruining our lives Mark Zuckerburg. Americans also worry about healthcare and we still struggle with obesity.
Digging a bit deeper, our healthy life expectancy subscore is quite low. If we can improve this to Canada’s level, our happiness score would improve significantly. We’ll probably get into the top 10. Now that’s a reason to vote for Medicaid for all. Our corruption score is quite low too. Apparently, we don’t trust our leaders and representatives. No surprise there. I’m still glad to live in the United States. #19 is still quite good in the grand scheme of things.
Canada just squeezed into the top 10. Nice job! The scores for the U.S. and Canada are quite similar. Canada has better scores on healthy life expectancy and freedom to make life choices. I’m happy for Canada. If the SHTF, we can always drive north, right?
Those Scandinavian countries, I don’t believe it. How happy can you be with so little sun? I read somewhere that they feel pressured to say they’re happy. That’s the culture. If someone says they’re unhappy, it’s like they’re asking you to do something about it. Hmmm….
Costa Rica #12
Great going, Costa Rica! I can see this. We visited Costa Rica a few years ago and everyone is really laid back. Although, the data looks a little funny here. Their residual score is so high. If you look at just the 6 main components, the score is almost the same as Thailand. I guess the little things add up.
Wow, this is surprising. Thailand didn’t do so well in the happiness ranking. Their residual score and GDP aren’t good. The government isn’t stable there so maybe that’s a big issue. It’s disappointing because Thai people are generally relaxed and happy. Hopefully, Thailand won’t drop much further. I plan to live there part-time in the future.
Taiwan did quite well and came in at #25. They improved quite a bit since 2013. Taiwan is actually the highest ranking country in Asia. Thailand is the third so maybe #52 isn’t so bad after all. I guess it makes sense. GDP is a big part of this equation and most Asian countries aren’t that wealthy.
Yikes, that’s low. I guess life is still tough in China. China has the 2nd largest economy in the world, but there are still a lot of poor people there. The inequality is really bad there. There are super-rich tycoons, but most people are really poor. That’s a recipe for unhappiness unless you’re one of the tycoons.
There are 156 countries in the ranking. So if your country is on the first page, that’s already pretty good. I really hope Thailand doesn’t fall any further. They’re at the bottom of this first page.
Personal happiness score
Okay, enough about countries. Let’s see if we can use the same formula to calculate our personal happiness score. I’ll use myself as an example. The scores are from 1 to 8.
GDP: On an individual level, this is equivalent to income. Our active and passive income is good this year. I’ll give myself a 7 here.
Social support: If I really need help, I can count on my brothers. My score is 7 here.
Healthy life expectancy: On an individual level, we probably should just look at current health. I’m generally healthy so I get a 7 for now.
Freedom of choice: Life is great 7 years after early retirement. I have a lot more freedom than most people my age. Of course, there are things that tie me down too. Our son is still young so I still need to do a lot of stuff for him. All in all, I’m really good here and I give myself the full score – 8.
Generosity: This is my downfall. I’m usually not very generous. However, I donated $100 to help a kid with cancer this month. It really feels good to help someone. I get a 3 here.
Perception of corruption: Jeez, this one is tricky. I don’t trust our leaders and representatives at all. They’re all crooks and cheats. However, I know it’s a lot worse in many other countries. In Thailand, they’ll put you in jail if you say anything bad about the royal family. Anyway, I don’t want to complain too much. I’ll give this one a 5.
Okay, let’s put all these numbers in the fuzzy World Happiness machine and ….. My overall score is 6.85*. Not too shabby! That’s exactly what I expected at the beginning of this post. Well, I’m a bit stressed out about selling our condos right now. Once they’re gone, my personal happiness score should be a solid 7 (out of 8.)
*I made up the 6.85.
How do you measure happiness? Is the UN missing something? Having a good family life is a big part of happiness, but it’s not a part of their equation.
Earlier this year, we moved into our investment duplex. We purchased this duplex in 2014 and planned to move into it at some point. In February, one of our tenants moved out so we executed our plan. It was getting more expensive to live in our condo anyway. The property tax and HOA fees kept increasing every year. Also, the duplex is in a great neighborhood and it has a backyard. RB40Jr and his friends used it quite a bit since we moved in so that part worked out exactly as planned.
The financial side has been great too. Our housing expense dropped about 50% since we moved. Housing is the biggest expense in an average household budget. It’s a big win if you can reduce it. Today, I’ll share the pros and cons of living in an owner occupied duplex.
Pros of living in our duplexMany expenses are halved
It’s expensive to own a home. The mortgage isn’t the only bill homeowners have. You have to pay property tax, insurance, repair, maintenance, utilities, landscaping, and more. Living in an owner-occupied duplex is very helpful financially. I can deduct 50% of these expenses against the rental income.
Shared utilities – water and trash.
Shared appliances – washer and dryer.
Exterior maintenance – paint, gutter, roof, deck, and landscaping.
Insurance, property tax, and mortgage interest. (I’ll have to double check these when I do tax next year.)
All these helped reduce our housing expense significantly. The mortgage at our duplex is also a little smaller. That helped too.
Now that we’re down to one rental unit, we make about $250/month in passive income from our tenant. That’s not a lot, but it is way better than nothing. We’ll also save about $1,200/month by living in a duplex instead of our old condo. These two add up to almost $1,500 per month. That’s a big swing.
Learn to be a landlord
Living in an owner-occupied duplex is a great way to learn to be a landlord. Real estate investing is a proven way to build wealth. However, most people don’t know if they can handle being a landlord. Living in an owner-occupied duplex is the easiest way to try it out. It’s not much more work than owning a single family home. The only big difference is that you’ll have to manage one tenant. If this is too hard, then you will know that rental investing isn’t right for you.
Less down payment
Usually, investors need to come up with 25% down payment for a rental property. However, the down payment can be much lower if you live in a unit. The FHA guideline allows you to buy 2-4 plexes with as little as 3.5% down. If you don’t qualify for an FHA loan, then you’ll have to go with the conventional mortgage. You’ll have to check with the bank, but I believe the minimum down payment is 15% for an owner occupied duplex.
Easier repair and maintenance
Repair and maintenance are way easier when you live onsite. Our old condo was just a few miles away, but it was always a pain to work on anything at the duplex. I’d forget to bring a tool or the keys and had to go back home to get them. Last week, I fixed our sidewalk and got it done relatively quickly. I checked on it occasionally and it turned out okay. It would have been very annoying to come by a few times throughout the day to check on the concrete. It’s just easier to work on repairs now that I live here.
A corner of the sidewalk cracked and sunk. It was a tripping hazard so I fixed it.
The duplex gives us a lot of flexibility. Currently, we live in one unit and rent out the other one. We could take over both units when our son is older and needs more space. Once he’s off to college, we could rent the other unit out again or put it on Airbnb. I think this is better than buying a bigger home and then downsize to a small home as the family situation change. Real estate transactions cost a ridiculous amount of money. It’s best to avoid moving if you can.
Cons of living in your duplex
Of course, there are some cons too. Nothing is 100% positive, right?
The biggest issue with living in a duplex is sharing the space. We share the basement, laundry area, and the yard. It isn’t a big deal to us because we lived in a condo before moving here. We had to share the common area there too. However, it might be tougher if you come from an SFH.
Also, our tenant lives in the upstairs unit. Luckily, he’s a relatively quiet person. We hear him walking around, but he doesn’t watch much TV or listen to loud music.
Working with a tenant
Our long-time tenant is awesome. He’s a very nice guy, not too noisy, and he has a secure job. To top it off, his girlfriend lives in Europe so she’s rarely here. Basically, he’s the tenant from heaven.
However, even the best tenant needs a little managing. For example, I had to remind him to change the address for the rent payment to our new address. Also, we worked on clearing out the basement a bit when we moved in. It was getting crowded with junks. Lastly, his balcony door rotted out and water was seeping in. He didn’t mention it until I notice a leak downstairs. Tenants just don’t pay attention to these issues. I’m not complaining at all. Our tenant is great, but it’s just easier when you only have to deal with your family.
Oh, I almost forgot. We had to watch ourselves more in a duplex. Occasionally, I get mad at my son and yell at him. Now, I feel I have to keep it down so our tenant doesn’t think we’re dysfunctional. I guess that’s a good thing.
A duplex can be hard to find
It can be hard to find a multiplex in the right location. When we lived in the suburb, I wanted to buy a duplex, but couldn’t find anything near my old work. There weren’t many multiplexes in the cookie cutter suburb. There were a few, but they were all on the wrong side of the track. Those areas served low-income families and they usually have more problems.
Fortunately, our current duplex is in an urban area and it’s a great location. IMO, it’s really hard to find the right multiplex in the suburb. I assume they are pretty much nonexistent in the rural area. There is more availability in dense urban areas. Even then, it’s harder to find than a condo or an SFH.
House hacking by living in a duplex
All in all, I think living in an owner-occupied duplex is a great way to reduce housing expense. Housing expense is so high on the west coast now. The median home value in Portland is over $425,000. This is cheap for a big city on the west coast. The median price of a home in Seattle is almost twice that. Forget about owning a home if you live in San Francisco. The median price of a home there is over $1.6 million. That’s crazy.
One way to reduce the pain is to live in an owner occupied duplex. It’s working out very well for us so far. This is what I should have done when I first moved to Portland in 1996. Oh well, that’s life. We make mistakes and learn along the way.
Okay, it’s your turn. Is housing expense your biggest monthly expenditure? What do you think about living in a duplex to reduce housing expense?
If you don’t want to be a landlord, you can still invest in real estate. REITs have done extremely well over the last decade. You can invest in them through your brokerage. Alternatively, you can try real estate crowdfunding. It’s a new way to invest, therefore riskier than being a DIY landlord. However, it’s a lot more passive. You can read more about my real estate crowdfunding investment here.
Recently, I heard on the radio that auto loans are at an all-time high in the US, over $1.2 trillion. The average price of a new car is also very high at $37,500, according to Kelley Blue Book. Whoa, that’s a lot of money. I guess I shouldn’t be surprised, but it is disappointing to see the lesson from the financial meltdown didn’t stick. You shouldn’t buy a car you can’t afford. Personally, I hate having a car payment and paid cash for the last vehicle we purchased in 2010.
The average price of a new car is pretty shocking to me because we haven’t shopped for a car for a long time. $37,500 seems really expensive to me. In 2010, we got a new Mazda5 (small minivan) for about $17,500. It was the perfect vehicle for us. The car had 3 rows of seating and can fit 6 people comfortably. We usually only use 4 seats, but the extra seats came in handy when we had visitors. It’s great to have a cargo area to haul stuff too.
I know it’s not really that cheap, but it is way more affordable than $37,500. Stay tuned until the end to read about the cheapest car I ever own. Anyway, I plan to drive our Mazda5 for 10 more years. We don’t drive much so it’s running pretty well. It only has 55,000 miles on it. The average cost per year should be quite good over our ownership period.
Now that we’re more comfortable financially, we could afford to buy a nicer car. But the average price of a new car looks excessively high to me. A recent accident reminds me why I still prefer a cheaper car. Life is easier with a cheap car. Read on…
1. I like money
I like nice cars, but I love money much more. If we were shopping for a car, I’d pick something not too expensive again. It’s all about priority. Right now, saving is more important than a car. Maybe that will change someday. Luxury and performance are nice, but they are not that high on my priority right now. Having money to invest is way better. Investment will appreciate. A car will only depreciate.
2. Less depreciation
A new car starts depreciating as soon as you drive it off the lot. In general, a new car is worth just 40% of what you paid after 5 years. If you paid $37,500, that’s $22,500 down the drain. You’ll lose less money with a cheaper vehicle. My Mazda5 depreciated about $10,500 in 5 years. I don’t like losing money, but I’m losing way less than the average new car.
A better way to win the depreciation game is to buy used or a classic car. Used cars already lost a lot of value so depreciation won’t be that painful. The right classic car can hold its value or even appreciate over time.
3 Dings and dents
Believe or not, we used to have a BMW Z3 roadster. I used to get so mad when I see a new ding or dent on that car. Why are people so inconsiderate with their car doors? Now that we have a cheaper car, dings and dent don’t bother me that much anymore. We have to park on the street after we moved so it’s great to a little apathetic. Bumpers are meant to be used in this neighborhood.
Accidents are even worse. A bicyclist ran into the back of our Mazda earlier this month. The bike made a big hole and several dents. The cost of repair is $4,600. That’s crazy! Fortunately, their insurance paid up. I’ll DIY the repair and I pocketed the payout. The total cost of supplies is about $50. That’s $4,750 in the bank. Oh yeah. (The insurance gave us an extra $200 to rent a car for 5 days.)
When you have a cheap car, it doesn’t have to look great as long as it runs well. If this happened to the BMW, I’d probably fix it up instead of pocketing the cash.
4. Maintenance is cheaper
One lesson I learned from owning a BMW is that repair and maintenance are absurdly expensive for luxury brands. It seems like every time I took it in, the dealer charged over $1,000. I also felt more pressure to take the BMW to the dealer.
With our Mazda5, I don’t mind going to a local garage and see what they can do. Maintenance cost way less with a regular car than luxury cars. For example, I paid about $400 for a set of new tires a couple of years ago. New tires would have cost much more for the BMW Z3. Those performance tires are sticker, wider, and skinner – more expensive.
Another reason why I love our Mazda5 is that it is so anonymous. A gray minivan is basically invisible to the highway patrol. I haven’t gotten a ticket for years now. IMO, a flashy new car is much more likely to attract a speeding ticket. The police officer naturally points the speed gun to a flashy car first when a group of car appears. By the time he switches to my car, I’d have slowed down.
Oh, I also make sure not to be the fastest car on the freeway nowadays. That’s probably more important.
6. Side hustle
You can use your cheaper car to work side gigs with no quam. You could be an Uber driver, deliver pizza, or share out the car. I’d hesitate to do any of those if I have a nice car.
7. Cheaper license and registration fees
This one doesn’t apply to everyone. We have a flat registration fee here in Oregon. However, some states use the value of the vehicle to calculate the registration fee. In California, you’ll pay more if your car is worth more. A cheaper car means paying less for license and registration.
8. Cheaper insurance
I always assumed those expensive cars cost more to insure. According to CBS, the 10 most expensive cars to insure are all luxury makes – Mercedes, BMW, Aston Martin, and Porsche. It looks like I’m mostly right. Regular cars are less expensive to ensure than luxury models.
Another way to lower insurance expense is to go without collision and comprehensive coverage. Our Mazda5 is 9 years old and it isn’t worth that much. I canceled collision and comprehensive insurance a long time ago.
Collision insurance – helps pay to repair or replace your car if it’s damaged in an accident with another vehicle or object.
Comprehensive insurance – helps pay to repair or replace your vehicle if it is stolen or damaged in an incident that is not a collision.
9. No need to baby it
I have a question for those of you with expensive cars. What do you do when you need to haul a few bags of compost home or bring a moldy cabinet to the dump? Do you just toss it in the back like I do? It’s just easier with a cheaper vehicle. The nastiest thing we ever did with the car was to haul our old toilets to the recycling center. Yuk! I wouldn’t do that in a nice BMW X5. Would you?
I guess if you are wealthy enough to have a luxury car, you can pay people to haul crap to the dump. My contractor wanted $100 to dispose of an old cabinet for me. That’s ridiculous. I spent 5 minutes breaking it apart with a hammer then dropped it off at the dumpster. That’s a $100 saved.
10. Luxury features are not a big deal
Luxury and performance aren’t a big deal to me. As long as a car is reliable and has a good safety rating, that’s enough. I don’t drive fast so performance doesn’t matter.
I don’t care about the luxury features either.
Leather seats – Cloth is good enough. I don’t need to sit on a dead cow to drive.
Proximity key – Come on. You can’t push a button? That’s why we have thumbs. In the old days, we had to use a key to open the door. Now that’s barbaric.
Adaptive cruise control – I only used cruise control when we drive long distance, probably 2-3 times per year. The old-style cruise control is good enough for me. Adaptive cruise control probably would make me sleepier anyway.
Backup camera – Ok, Mrs. RB40 would love this. I don’t need one, though. That’s what the bumper is for.
Heated steering wheel – Seriously? How did people survive before this feature? Toughen up!
Seat warmer/cooler – This one sounds good to me. Although, I probably wouldn’t use it much. Portland doesn’t get that hot or cold. Also, cloth seats don’t get that cold like leather seats. I don’t need it.
I’m not a car guy anymore
Some people are passionate about cars and that’s okay. I’m just not one of them. A car needs to get us from point A to point B safely. That’s the main feature I’ll pay for. A regular car can be just as reliable and safe as a luxury car these days. I don’t see a point of shelling out more for an expensive car.
Okay, here is the promised story about the cheapest car I had. I got an ancient Subaru GL wagon for $500 as a second car. I used it to practice driving a stick shift and drove it to work. After a couple of years, I sold it to a friend for $500. See, I told you classic cars hold their value. That car was not safe, though. I wouldn’t put my son in it. I don’t think it even had airbags.
Alright, leave us a comment. Do you drive a cheap or an expensive car? Why pay more?
How do you define success? And do you consider yourself successful? These are just some of the questions I received when I wrote – It takes more than money to retire early. My first reaction was to say yes, I’m successful. My family enjoys a modest lifestyle and we’re happy. We are financially secure and we’re not lacking for anything. I consider that successful. However, the questions stuck with me. Now, I’m not so sure. Am I really successful? We live in a small home, I drive a banged up car, and we rarely go out to spend money. That doesn’t sound like success.
Recently, my son’s friend told me he went to see a Portland Trailblazers game (basketball.) The whole team gave him a high-five. His dad got him lower level seats for a playoff game (apparently $750.) The kid told me, “My dad is rich.” Wow, I’m jealous. Other dads at my son’s soccer game talked about making a million dollar deal in Beijing. Now, I don’t feel too successful. It’s difficult to grade objectively with these acquaintances.
I think we have to look at success in a more granular manner. You can’t just say someone is successful just because their lifestyle looks good from the outside. You don’t see the whole story.
How do you define success?
First, what does success mean to me? I must admit, my definition of success is pretty conventional. It means a beautiful house, a nice car, a loving family, a highly paid job, and other highly visible trappings. Mrs. RB40 used to read Architectural Digest and Travel + Leisure magazines. The lifestyle depicted in those posh magazines looks like success to me. They never seem real, though. Those lives look too perfect.
Now that I thought more about it, I realize that’s not quite true. That level of success isn’t very realistic. Is it truly possible to be successful with everything? Even the richest person in the world failed at marriage. Those high-power dads are working all the time and don’t have much time for their kids. Are they more successful than I am? Maybe professionally, but probably not when it comes to family life.
Anyway, success isn’t just about career and money. There are many facets of life. As a former engineer, I always say – when in doubt make a spreadsheet. Check it out.
Hmmm… My overall success score is not great, just 5.93. Let’s go each line item.
Material things – 5
I give us a 5 for material things. We have everything we need, but we live relatively modestly. Our home is small for a family of 3, around 950 square feet. Our car is a modest minivan, a 2010 Mazda 5. It’s even more banged up now that a bicycle crashed into the rear liftgate recently. Our 720p TV is older than our car. It’s still working so I’m hesitant to replace it.
All in all, we’re not lacking for anything, but we don’t live luxuriously. Someday, I’d like to spend more on nicer things, but not yet. These things aren’t that important to me so I don’t mind living a modest lifestyle. I would like a nicer TV, though. A 55” 4k TV cost less than what we paid for our old 42” TV in 2006. (I thought electronics have built-in obsolescence. Why is this TV lasting so long? Apparently, we don’t watch enough TV.)
Experience – 8
Everyone is touting experience over material things these days. Personally, I like to give them equal weighting. I love new experiences, but I enjoy nice stuff too. However, I’m a bit looser with money when it comes to spending on experiences. We traveled to many places and enjoyed all our trips. We went rafting, snowboarding, skydiving, and experienced many other fun activities. It’s been good. I give myself an 8 here.
Marriage – 10
I split the family category into two parts, marriage and kids. I lucked out with my marriage, big time. Mrs. RB40 is the perfect partner for me. We enjoy each other’s company and we’ll celebrate our 20th anniversary in a few months. We make a great team. On the other hand, we’ll need to be vigilant and continue to improve our marriage. People still get a divorce after 25 or 30 years. You have to work on it to keep a marriage strong. Hopefully, we’ll go the distance.
Kid – 7
This one is incomplete because our son is quite young. We’re trying to do a good job, but it’s hard. He still gets in trouble at school occasionally. Just last week, he was sent to the principal office. He got in a little altercation with a friend at school. Fortunately, he’s in trouble less often than in previous years. Anyway, if someone hits you, you gotta hit back. Can’t fault a kid too much for fighting back, right?
Luckily, he’s smart and enjoys reading so we don’t have to worry about school work. He is doing well academically for now. Lastly, he’s slowly growing more resilient. He is able to shrug things off better now. Last year, he’d cry if he fell down during a soccer game, but now he shrugs it off and get back to the game without too much trouble. He’s making progress, that’s great.
All in all, our son is doing okay. Truthfully, I’m not sure why I give myself a 7 here. I just feel like I could do a better job. The biggest issue we have right now is screen time. He spends too much time with the tablet. I need to sign him up for more outdoor activities now that the weather has improved.
Engineering career – 3
Professionally, I wasn’t very successful. I was a good engineer and I liked the technical work, but I wasn’t able to move up professionally. I disliked the leadership role and couldn’t get ahead as a senior engineer.
Unfortunately, I didn’t make any meaningful contribution to the field. The things I worked on are all obsolete now. It’s somewhat disappointing, but I guess that’s the same for most professionals. Only a few people make a lasting impact in any field.
Blogging – 7
As for my 2nd act, I feel more successful as a blogger. I’ve been blogging for 9 years and I still enjoy it. Retire by 40 isn’t the biggest blog or make the most money, but it’s doing better than I ever thought possible. I’m quite content with how Retire by 40 is doing.
I give myself a 7 here because there is room for improvement.
* Starting a blog is a great way to build your brand and generate some extra income. You can see my tutorial – How to Start A Blog and Why You Should. Check it out if you’re thinking about blogging.
Money – 9
I think we’ve done very well financially. Our net worth is good and we feel financially secure. The only debt we have is our mortgage. Our retirement savings is excellent compared to the average US household. We’re not rich, but we’re in better shape financially than most people.
My main financial goal is to have enough passive income to cover our living expense. We’re almost there so I feel good about our finance. Once our FI ratio exceeds 100% for 3 consecutive years, I’ll give myself a 10 here.
Fame – 7
Fame is not important to me at all. Why would anyone want to be famous? It seems like a pain in the caboose. To me, fame seems pretty much useless. I guess you can parlay fame into income somehow.
That’s said, I think I have plenty of fame from blogging. Many people have visited Retire by 40 over the years or have read about me. I’m quite happy with this level of fame. I guess it is equivalent to a D-list level celebrity…
Power – 3
Hmmm… Power is important to some people, but not me. I guess I have some influence as a blogger, but that’s not much power. I’ll give myself a 3 here and I’m happy with that.
Who really cares about power anyway? Politicians and managers, I guess.
Legacy – 3
Legacy is tough. I don’t feel like I’ll leave much impact on the world once I’m gone. That’s normal, though. Most people just live their regular lives the best they can. I admire people who make a big positive impact, but that’s just not me.
I guess I’m one of the first FIRE bloggers so I made some positive impact to a few people’s lives. I’m not sure if the FIRE movement is a fad or not, though. All these FIRE blogs and podcasts probably will fade away with time. Anyway, I give myself a low score here, just a 3.
Philanthropy – 2
Sadly, I’m horrible at philanthropy. I give a little bit, but probably much less than most people. I hope to improve in the future. It’s just not a priority at this time.
Spiritual – 2
This one is tough for me. I’m just not very spiritual. My parents are Buddhist, but I only know a little bit about it. There aren’t any temples nearby and I’m not too interested.
I don’t think many of us have time for spirituality these days. We’re all too busy with our lives. I’d like to learn about Buddhism when I’m older. It should be easier once I spend more time in Thailand. I plan to live there half-time once our son goes off to college.
Health – 8
I’m doing well with health. We usually cook healthy meals at home and I exercise regularly. Also, I don’t have many vices. I enjoy a drink once in a while and that’s about it. No drugs, cigarette, or loud music. Yes, I’m pretty boring. My genetic isn’t that great, though. That’s why I don’t have a higher score here.
Freedom – 9
This one is personal freedom. I have a ton of freedom now and I love it. Being self-employed is the best. I don’t have a boss and I could work at my own pace. Life is really good now. Retiring from my engineering career was the right choice for me.
I was successful at seizing my freedom when the opportunity presented itself. Early retirement worked out really well for me.
Contentment – 8
This is the one that matters most. I think it’s even more important than the overall score. I’ve been successful with some items and didn’t do so well with others. However, I’m quite content with my life. I’m successful enough at the things that are meaningful to me and my family.
I got low scores on power, legacy, philanthropy, and spirituality. But they don’t mean that much to me so those failures don’t impact my contentment much. I wish I was more successful in my engineering career, though. It would have been nice to make a meaningful contribution to the field.
Family, health, money, and personal freedom are much more important to me. I’ve been largely successful in those categories. That’s why my contentment score is pretty good.
Do you consider yourself successful?
Now we come to the crux of the matter. Do I consider myself successful?
I’m successful in some facets of life. However, I’m also unsuccessful in others. It’s a mixed bag. Even my Success Matrix doesn’t tell the whole story. My overall score is mediocre, but I’m quite content with life. Ultimately, who’s the judge of success? It’s you and your immediate family’s opinion that matters the most. As long as you’re successful in those eyes, you’ve done well.
In conclusion, I consider myself a moderate success. Good thing I’m still relatively young. I still have years to improve my success score.
How about you? Do you consider yourself successful? How do you measure success?