We spent the 5 days with my extended family over the 4th of July on a beach house vacation just south of Santa Cruz.
A few years ago my parents bought a house in a 55+ community and they’ve been renting out my childhood home. This past December their sails finally caught the surging market winds and they sold the house they lived in for ~35 years. With some of the proceeds my folks decided to treat our large extended family to a vacation, our first full family vacation since my brothers and I were kids.
After the holidays last year I started the hunt for a vacation rental. In addition to my folks I have three older brothers, each with a family with at least a couple of kids and one has a daughter-in-law with a family of five. All total, we were shooting for a rental to accommodate 23 people!
That was no small task as the options are very limited with a group of our size. I found some lake houses, ranches and a couple of beach houses, but they were more expensive than we were shooting for. I found some more reasonable rentals, but they wouldn’t fit our group.
Eventually, we settled on a location, Santa Cruz, which was a couple of hours from most of the family and about seven hours from us. I couldn’t find anything to fit everyone, so the search broke up to two places.
What is a flex spending account?
My company offers two types of flex spending accounts (FSA). Both let employees set aside pre-taxed money into an account that could be used to reimburse expenses. One type of FSA reimburses medical expenses and the other dependent care expenses.
Throughout the year you contribute pre-tax money up to a limit defined by the IRS. The medical FSA limit is $2500 and the dependent care FSA limit is $5000. Pre-tax money is deducted from your paycheck and placed into a FSA account. After you have a qualified expense and you’ve already paid out-of-pocket for it you can reimburse yourself from your FSA account.
One ‘catch’ is that if you don’t use the money in the account by the end of the year you lose it, so you need to be confident you will spend the money.
Also, you have to sign up for the upcoming year during open enrollment, which is usually in late November. If you have some dental work or a need to incur some other medical expense toward the end of the year it’s usually a good idea to schedule the work to be done early the following year if possible, so you can sign up to contribute to a FSA. The best way to use a FSA is to reimburse predictable expenses.
Awesome, a FSA match! Not so fast…
Before 2010 my company offered a $0.25 match per $1 for dependent care FSA’s. Basically, if the employee contributed $4000 my employer would fork out the final $1000 to reach the cap. When you take into account the $4000 is pre-tax money and if you’re in a 25% tax bracket you’re contributing the equivalent of $3000 post-tax money to fund your dependent care FSA with $5000. Sweet deal! Continue reading
At night as I go to sleep I tend to look back on the day and think about what I accomplished. Did I get a workout in? Did I manage my time at work efficiently? Was there any room for improvement so I could spend more time with my family? Could I have been a better version of myself? Every day there is always room for improvement and many days there a ton!
Most of the time my biggest area for improvement is using my time more efficiently. Any more time I can spend with my family or improving myself in some way is time well spent. Aimlessly passing time at work or vegging out in front of the TV at night is usually a waste, but I find myself doing them both way too often. Here are a couple of my trouble areas:
Mrs. Bonner works early on Tuesday’s and Thursday’s, so I stay with the boys until our sitter comes to our home at 9am. The boys are usually up around 6:30am, so this gives us a ton of time to get situated before I need to head to work. Most days we just bum around as we slowly make our way through our morning routine.
Once in awhile I’ll muster up the motivation to load the boys into the double jogger and head out for a nice morning run. The boys usually really enjoy going for a run (sometimes we’ll head by a construction site with tractors or on trails with the occasional rabbit/lizard sighting) and I feel like I’m starting the day on the right foot.
The problem I usually have is motivation or procrastination. I’ll wait and wait and wait to start loading the boys up and by the time I get around to it I’m pinned up close to 9am, so I’ve missed the window. Sometimes I just don’t feel like running or exercising and some days I have the intention, but just miss the window because of some lame excuse.
Here’s the thing…I’ve never regretted going for a morning run. Every single time I go I feel great afterwards and I’m really happy that I got myself and the boys out of the house. It’s a great workout for me and I think it sets a really good example for the boys. When they think back on these times I want them to remember their dad dragging them out all over the place including morning runs because it was a good thing to do.
Craigslist is a great resource for so many things. As a seller it’s a great place to help declutter and as a buyer there are amazing deals to be had.
As sellers we usually only sell things in reasonably good condition that might be worth a little money. Most other items we usually give away or donate. I don’t usually like having random people come to our home, so we probably don’t sell as much as we could online.
One of the main things I use Craigslist for is to scout out sporting equipment. Craigslist is by far the best place to get equipment because it’s the land of unrealized dreams. How many times have you watched the Tour de France or the Master’s and thought you’d like to get out there and be like those guys? You head into your local bike store or golf shop inspired by what you’ve seen and the salesman does his job to escort you to the latest, greatest carbon fiber ultra lightweight engineering marvel. Of course once you see and feel the high-end equipment everything else seems pedestrian.
Fast forward 6 months to a couple of years and that awesome $2000 investment in your new hobby has gathered quite a bit of dust. So, why not try to recoup some of your wasted money by selling it on Craigslist? That’s where I’ll step in to gladly take it off your hands so I can get started in the same sport for something closer to $200.
How to make it work for you
Rather than entering a new sport via a retail shop I usually try to pick up lower to middle quality items on Craigslist. That way, if I lose interest over the next year I’m not too financially invested and I can usually unload the item back on Craigslist for not much less than I paid. If after a couple of years the new sport/hobby has kept my interest and I see this as something I’ll stick with then I usually have a better understanding of the real benefits of upgrading equipment. For bikes this would be qualities like lighter, stronger or more reliable components with better function (ie. smoother shifting). Continue reading
I feel like we’re at somewhat of a crossroads in life right now. We’re in our mid 30’s with two small boys in a condo that we purchased as our starter home and we’ve been working for about 8 years.
As we anticipate sitting in this transition period for the next few years I can’t help but think about where we’ve been and where we’re hoping to go, which brings me to the topic of this post: The financial stages of life. Defining the stages for everyone is beyond me since many people will have learned different life lessons at different stages. Here are the stages I’ve gone through in my life and the ones I anticipate going through as we get older.
Ah, the good ‘ol days. Who gives a F about money when they’re a kid!?! Currency comes in the form of trains/trucks then Legos then eventually bigger toys like remote control cars and video games as you get older. I was oblivious to whether we were well off or poor. It didn’t matter anyway, we did a ton of camping and road trips. They were a blast! I had a small allowance and a little birthday/Christmas money to spend on junk. Simple and easy. Life was good.
I have 3 older brothers that were entrepreneurial-minded. I started mowing lawns with one brother who started a gardening/landscaping business after he graduated high school. It was a blast spending the summer days outside earning a solid $20 for a day of work. The smell of certain bushes and freshly cut grass still bring back fond memories. This is when I first started earning money and started associating my time/effort/pay with the ability to buy things I wanted. Can you tell I wasn’t much of a saver?
During junior high and high school my family also started up a couple of pumpkin lots and Christmas tree lots (hands down the best job ever!) as well as a few franchised pizza parlors. I was still living at home rent-free, but I was in school, participating in sports, boy scouts and working during whatever spare time I had. I don’t think I could classify this stage of my financial life as anything but a consumer. I earned and I bought. No debt, but no real savings. I did what I wanted with my money and had fun, but never thought further ahead than the next Kenwood CD player.
Last time I talked about our plan to buy a house we had a plan to borrow from my 401K to pay down our condo so we could get to the magical 20% equity threshold to enable us to refinance under the awesomely low rates. The added benefit is that eventually when we buy a house we would likely be able to rent our condo for enough money to cover all the expenses (mortgage, HOA dues and property taxes).
Well, as with most things the game has changed a bit. There was some good news and some bad.
Last week we had our condo appraised. The guy was in here all of 5 minutes…tops! The time he spent and frankly anything he did wouldn’t really bother me as long as the number he came up with was nice and high. The higher the number, the less we need to pay down to get to that magical 20% equity threshold. I thought I had a pretty conservative estimate of the value of our condo and our mortgage broker also had a number in mind that was a little under my estimate.
Well, we were both pleasantly surprised that the appraiser’s assessment was WAY higher than the number we had in mind. It was nearly 10% more than we were thinking and now it brings up the possibility of ditching the whole plan to borrow from my 401K. Best of all…we’re no longer underwater! I have to say I was pretty excited about the high appraisal and the fact that we already have a bit of equity. It feels great to finally be treading water! With that awesome news I was all fired up to get the refi moving forward until…
A month or so ago when we started down this path and talked with the broker we discussed interest rates and it seemed like it was going to be no big deal to lock in around 3.5%, which is a big improvement from the 5.25% we refinanced into 3 years ago. If you look at what’s happened to interest rates this past month and imagine the chart as being a trail, well, let’s say you’d be breathing pretty hard once you get to today. I talked to our broker on Friday and he said the best rate available now is 4.125%…a far cry from 3.5%. Look, I get the whole ‘interest rates are still historically low’ line, but that little disparity could end up costing us a crap ton of money.
I had never heard of dollar value averaging until a few months ago and since then I’ve read a bit about it that I would like to share with you. I’m fascinated by the strategy and I plan on implementing a form of it after the dust settles from our ongoing refinance.
What is it?
It is a method of investing in regular intervals where you predetermine your rate of return and adjust the amount of money you invest at each interval to meet your rate of return. In other words you invest more money as stock prices go down and invest less money as prices rise or even take out money if it rises enough so at each interval you end up right at your target. Aside from your investment you establish a cash or money market account where you pool your money so you have it available to buy more shares when your investment is down.
It is often compared to dollar cost averaging where you invest a fixed amount at regular intervals, say $100 a month toward stock XYZ. With dollar value averaging you would adjust how much you put in based on how your investment performs.
If your investment rises $100 that particular month you would not invest anything since you met your expected rate of return and you could then add that money to your cash or money market account. If your investment stays flat then you would invest $100 to meet your goal and if it dropped $100 you would then need to invest $200 to meet your goal. If your investment does well and rises $200 then some that follow this strategy would not do anything while others would take $100 out of the investment and add it to the cash pool.
How does it stack up?
Quite well, actually. Intuitively, it seems to make sense that dollar value averaging has a big advantage over dollar cost averaging because it scales the amount you invest based on the actual performance of your investment. I’m not going to go over an example of some investment over the last X number of years because, frankly, if you google ‘dollar value averaging’ you’ll find many articles and blogs that have done that.
I’ll start off by saying this post is a primer for my next post on this topic coming Monday. Today’s post will be short and to the point, so check back in early next week for an interesting alternative to dollar cost averaging.
Whether you are familiar with Dollar Cost Averaging (DCA) or not there’s a good chance you are already doing it, especially if you have a 401K or similar employer-sponsored retirement plan.
What is dollar cost averaging?
It is a form of investing where you invest a fixed amount at regular intervals.
As an example, let’s say you contribute $100 from every bi-weekly paycheck into your 401K account to purchase shares of your favorite targeted retirement fund (my employer offers the Fidelity Freedom 2040 Fund, FFFFX). Every 2 weeks you buy $100 worth of FFFFX regardless of the price of FFFFX. If the price of FFFFX goes up then you are buying fewer shares with your $100 and if it goes down then you end up buying more shares.
Dollar cost averaging is a great option for the set it and forget it type of investor. It’s easy to implement in most online trading and/or retirement accounts. Continue reading
I’m not sure how many people were aware of it, but Bike To Work Day was last Friday. Hooray for all you who mustered up the will to forego the comfort of your car for the fresh air of the bike lane! Okay, maybe there’s a little exhaust in addition to that fresh air as you wheel out of a stop sign next to a diesel truck that hasn’t warmed up yet, but other than that the fresh air can’t be beat.
As I woke up Friday morning with intentions to ride I checked the weather on my phone and it said there was drizzle at the coast. My commute to work is head west 6 miles until I get to the beach, then I follow the coast south 15 miles. I’ll admit I’m a fair weather rider (I’m a bit spoiled in southern California) and so that was my excuse to skip riding even though I had been looking forward to BTWD for a while. In hindsight I’m actually kind of glad I skipped it because I had to put my wipers on for a good chunk of my drive to work. Definitely a foul weather day! I think I ride a pretty good amount, so missing the one celebrated bike day doesn’t really bother me too much
Savings from riding a bike
Biking to work is the only activity I can think of that is a great workout while padding our pocketbook. Out of curiosity I decided to probe further into how much biking to work saves me and I found that driving is more expensive than you might think. Let’s run the numbers.
If you are like most employees you have a 401k or similar retirement plan through your employer. If your employer offers a match then I think most advisors would advise you to contribute as much money as needed to take full advantage of the match.
After you take advantage of accepting the free money from your employer you might want to think about what to do with the remainder of the money you want to stash away for retirement. One thing people often consider is whether to continue contributing to their 401k’s or to open up a Roth IRA. Here are some of the main differences:
You contribute pre-tax money.
Withdrawals are taxed as income. Continue reading