Month: February 2019

I am a little behind schedule on this post but here is my analysis of my monthly income and expenses for January 2019.  As per usual, below I have listed a running three month look for comparative purposes.

First, here are the numbers:

Category:	Nov 2018	Dec 2018	Jan 2019
Total Monthly Gross Pay:	100%	100%	100%
Taxes Withheld:	20.69%	15.96%	23.02%
Other Withholdings:	5.53%	3.82%	4.85%
401K Withholdings:	1.06%	0%	12%
Diverted to Investments Account:	4.92%	27.14%	36.2%
Diverted to Savings Account:	0%	24.34%	0%

So, looking at this month’s numbers, there are a few things for discussion.  First are the taxes withheld jumping from the previous month.  This is due to the fact that the calendar turned to a new year and therefore, I must contribute to Social Security withholdings once again.  This contribution has a maximum value per year and once you hit that, money is no longer diverted to this fund for the remainder of the year.  Late last year I hit that limit and therefore in December I did not have these monies removed from my paycheck.

Also, of note is the jump of 401K withholdings.  Once again, last year I was able to max out my 401K contribution.  This occurred in early November.  That can be seen by looking at this line above.  In November I had a small contribution that topped of that contribution for the year and then in December there were no contributions.  Now that we are into a new year, those contributions start back up again.  At present I am contributing 12%, but I will look for opportunity to increase this in small increments any time that I think I can do so without impacting my monthly budget.

Lastly, I was able to divert quite a bit to investments this past month.  I have regular automated contributions that are scheduled to occur on the same day as I receive my paycheck.  I was contributing $525 per pay period to start December but by the time of the second period, I had moved that up to $550.  I will continue to look for opportunities to increase this amount anytime I can permanently eliminate a recurring expense to ensure that I can lock in those savings for the long term.  In addition to my regular automated contributions, I found I had more cash in my checking account than I needed for my regular budgeted expenses.  I took advantage of this by diverting that additional money to my taxable investment account.  I am working on creating a more comprehensive budget and once I get to that, this type of situation will be eliminated since my plan is to use a zero-sum budget where every dollar is accounted for.  At present, while I do “budget” for most of my monthly expenses, I still feel that I am mostly reactive and increase payments to savings or investing vehicles based on the balance in my checking account.  In the future I plan to be much more deliberate to ensure that I can capture all savings and ensure that each dollar is put to the best use.

It never ceases to amaze me how negative folks can be.  Especially on the internet where you can hide behind anonymity or you write something outrageous just to ensure clicks to your site.  As an avid consumer of personal finance information, I have come across many of these people, whether in the comments or their own sites.  Today I would like to address of few of the bigger ones that I have seen.  I would have to turn in my personal finance blogger membership card if I didn’t weigh in on these topics (haha).

Topic #1- Suze Orman’s take on Financial Independence

You cannot call yourself a consumer of personal finance information without having come across the controversy stirred up by an interview on Paula Pant’s Afford Anything podcast with the self-proclaimed matriarch of personal finance, Suze Orman.  Ms. Orman has made a career of giving personal finance guidance and advice.  Her style is to be in your face and bombastic.  Therefore, I was a little surprised to see people get so up in arms about her comments surrounding her hatred for the financial independence community.  I consider myself a small part of this community and I heard the comments and my initial reaction was …. “meh.”  First, Suze Orman is in the business of being extreme and over-the-top, which she was here.  Second, she lives a current lifestyle that is VERY different than most in this community.  She made a statement that you cannot retire without at least $10 million saved up.  Well, since the FI community views FI or retirement readiness through a lens of math, namely that you need 25 X your current expenses, then why would it be such a stretch to believe that Suze needed such a high figure to reach her version of FI?  I think the problem lay in the fact that she has a large audience and people in this community fear that her communicating such a thing would be detrimental to the FI movement.  My take on this is…. “So, What?”  Suze has her audience.  They are not necessarily part of the FI community.  Allow her to preach to her followers in any way that she wishes.  Secondly, if she didn’t find value in the FI community, she would not have come on a podcast that is firmly a part of the FI community in order to push her latest book.  Finally, she was also smart enough to recognize that her comments were not met well in our community and has since backtracked

Topic #2- The “Latte Factor”

Another topic that seems to get much ink (can you call it ink if it is all electronic?) is people weighing in on David Bach’s overall premise that has been dubbed the “Latte Factor.”  The concept is that you can dramatically change your financial situation if you cut out that daily latte.  Personal finance bloggers across the internet seem to take this quite literally and love to criticize this idea or say that it simply won’t get the job done.  My take is that the “Latte Factor” is not about saving that $3.00 per day, but it is about the behavior surrounding that.  If you can ween yourself off the daily coffee purchase by making coffee at home, then that is a behavioral change that will be replicated across other aspects of your life.  I can’t understand why people are ready and willing to discount all of Bach’s writings based on the fact that they simply don’t see the impact of saving such a small amount.  There is no silver bullet that will automatically change your financial life short of winning the lottery.  I think the “Latte Factor” is a vital mental shift required to change anyone’s situation.  If that coffee brings you tremendous joy and satisfaction, then go ahead and keep on buying it.  But even that decision has embraced the “Latte Factor” since you viewed it through the lens of weighing its value against its cost.

Topic #3- Dave Ramsey

The third topic that seems to be a requirement for personal finance bloggers to attack is the Dave Ramsey method.  This one is somewhat tricky since most PF bloggers will go out of their way to talk up Dave Ramsey and his work in helping millions of people get out of debt but they also all seem to have an obsessive need to bash one aspect of Dave’s teachings.  This is Dave’s assumption that followers of his path can earn 12% returns annually on mutual fund investing.  Personally, I disagree with this assumption myself.  I tend to have a much more conservative approach to projections and tend to go lower.  The same people who bash Dave’s assumptions of 12% with go on to use a number themselves in the 7-8% range.  Even that is a guess rooted in that person’s experiences and personal thoughts.  All these figures are assumptions, they are not set in stone.  Dave’s numbers come from his experiences and beliefs.  Honestly, if you were to follow all of Dave Ramsey’s famous Baby Steps and get out of debt, stay out of debt and set up investments, the performance on those investments will dictate how you behave in the future.  Dave is not someone advocating for an extremely early retirement where your investment returns may impact your ability to support yourself for many decades.  At the point where followers will be impacted by their investment returns, they have already educated themselves and cleaned up their personal financial picture and therefore should be in a better place to self-manage their finances whether the projections play themselves out according to someone else’s ideas.

 
These are just a few of the common trolling topics that I constantly come across as I dive deeper into personal finance content.  I am sure there are other topics that impact each of you as well.  Feel free to discuss them in the comments.  I would love to hear from you.

This is a continuation of a monthly theme where I document what media I am currently consuming.  In addition to sharing books, articles, and podcasts that some may not be aware of, it will help keep me honest and ensure that I continue to consume more and more information myself.  Here is this month’s entry.

What am I reading?

In January I have swerved a little and have been reading fiction.  I recently put a poll on Facebook asking for book recommendations from friends.  Out of that exercise, a friend mentioned a fiction series featuring the main character John Rain.  This character is a Japanese-American assassin with something of a moral compass.  I read a few things online about the series and quickly determined that I would like this type of book.  I quickly reserved the first book in the series, Rain Fall.  Since this was not a newer book, I received it quickly.  This was a very quick moving and interesting book.  I enjoyed it a lot and have since reserved the second book in the series as well.  This first entry introduces the character and thrusts him into action almost immediately.  It opens with him stalking a target and eventually overtaking him.  John Rain’s specialty is to perform the assassination while making it look like a death by natural causes.  His moral compass comes into play when he describes his internal code which dictates that he will not accept a job unless 1) he is the only team hired for this job, 2) the target is not a woman or child or 3) the target is the target and not a family member or other target designed to send a message to the primary.  The book is filled with plenty of action and intrigue.  If you like action and espionage stories, this one will not disappoint.

What am I listening to?

Another podcast that I been listening to is Founders hosted by David Senra. The host is a student of business, specifically business founders.  Each episode of this podcast surrounds a biography of a business founder that the host has read.  He reviews the book, highlighting specific passages or chapters that he felt were key to the story.  I enjoy this podcast as the host’s enthusiasm is very evident.  Additionally, he is quite approachable.  He will often mispronounce words and will be quick to laugh at this own expense on this.  Another factor that makes me enjoy this podcast is that the host is a podcast listener and as such understands that excessive advertising can really take away from the subject.  This is something that has been bothering me quite a bit lately and the user feels the same way.  He does not use any advertising inside his podcast.  He tries to support the podcast by creating a subscriber model where listeners can voluntarily donate money to keep the podcast going.  He will also use affiliate links for each book so that if any listener orders the book through his links, he gets a small commission on that sale.  Listening to this podcast has introduced me to many business founders and leaders that I was previously not familiar with and this has led me to read several new books that I have enjoyed tremendously. 

What am I watching?

With the weather turning extremely wintery in January, I have been forced to walk on a treadmill instead of being able to go outside.  I find walking on a treadmill to be very boring and the way I survive this is to watch shows or movies while I walk.  In January I have been watching the series Boardwalk Empire.  This is a series that lasted 5 seasons and ran from 200-2014.  The series centered on the character Enoch “Nucky” Thompson, who is loosely based on the real-life Politician and reputed kingpin of the same name.  I had started the series a few years ago and never finished it.  So, I recently picked up where I left off, which was in season 4.  I have since finished that season and am almost finished with the final season as well.  I have really enjoyed the various storylines and characters in this show.  If you are a fan of gangster films or shows, this is one that will not disappoint you.  I will give fair warning, however, there is quite a bit of graphic violence so any viewer should be prepared.

When I started my first full-time job and was offered entry into the company’s 401K retirement savings program, I immediately diverted 10% of my salary.  At that time, my annual salary was an amount that today’s 20-somethings would consider below the poverty line.  I was coming from an upbringing where my parents had no savings, let alone retirement savings, and I was highly motivated to not repeat the mistakes I witnessed.  It did not occur to me that others did not feel this way.

Now that I am in the middle (or hopefully later) years of my working life, I have tried to evangelize the importance of retirement planning to the younger workers in my company.  I recently had a conversation with a 24-year old co-worker about this.  I made a flippant comment acknowledging that they had obviously opened their 401K retirement savings account upon hiring.  This person did all but laugh at me.  They commented that they couldn’t afford to save.  This person and I were close, so they had shared certain details of their income and expenses with me.  I knew that this person’s salary was more than double what mine was when I began investing in my 401K.  I understand that many years have passed between these two events but regardless, all numbers are relative.  

When I continued to harp of the need to start a retirement savings plan, this co-worker asked me to help them better understand their finances and find a way that they could afford such a savings plan.

My first approach was to try to explain the tax advantages of such a savings plan.  I asked them if they could afford $100 per month.  They explained that they could not.  I then tried to draw on the white-board to show that $100 per month diverted to a 401K was only approximately $65 out of their monthly pay.  Since our company pays twice per month, this was less than $35 per pay check.  They acknowledged that this was definitely more affordable but that they still didn’t think they could afford it.

They then went on to explain that their take home pay was approximately $2,600 per month.  Of that amount, $700 went to rent, $700 went to student loan payments, $400 went to a car payment, $110 went to monthly subscriptions and the rest went to utilities, lunches, happy hours and other general spending.

We agreed to tackle this from the highest monthly responsibility.  The first was $700 per month in rent.  This person had a smaller apartment that was shared with a roommate.  I asked if they could add a third person and therefore split the rent 3-ways instead of two.  They didn’t not feel comfortable with even considering this option.  I asked if they could move back in with parents for a year or two in order to get a financial foundation set.  They were not even willing to consider this option either.  They felt that they were an adult and should not have to live with parents.  I did not push.

Next, we looked at student loan payments.  While this person knew they paid approximately $700 per month on various loans, they were not aware of the overall balances or interest rates associated with those loans.  They simply knew the monthly payment requirement and assumed that this payment would always be part of their monthly budget.  I tried to encourage them to research these loans and talk to someone who is an expert in student loans to see if there were opportunities to refinance or consolidate those loans to ensure that this obligation was being repaid in the most efficient way possible.  My co-worker agreed to do so but there was a slight roll of the eyes as they agreed to this.

We next discussed their car payment.  This person was driving an economy car, not a luxury model and felt that by doing so, they were being fiscally responsible.  However, they purchased car new and carried a sizable debt on the vehicle.  Their monthly payment was $400 per month and they owed a total of almost $23,000 on the vehicle.  By doing a quick search on Kelly Blue Book, we learned that the value of the vehicle was a little more than $15,000.  My co-worker simply wrote this off as “unfair” instead of acknowledging that perhaps they had made a bad decision on purchasing a vehicle in such a fashion.  Once again, they simply focused on the monthly payment, rather than the overall financials.  I explored the option of selling the car, paying off the remaining loan and buying a lesser vehicle for all cash.  I quickly learned that this was not something they would be willing to consider.  Again, a comment about being an adult came out.

The last spending category that we explored was subscriptions.  This person was spending $60 per month on a monthly subscription that sent new clothes each month.  In addition to the $60 per month paid for the subscription, if you decide to keep any of the clothing sent, you can purchase it at a discount.  They also spend $40 per month on a service that sends dog treats and toys.  Lastly, there was $10 per month spent on Netflix.   We finally found an area that I felt even the stubborn adult could not deny could be trimmed.  Well, I was wrong.  This person dug in their heels and refused to even consider that these subscriptions were expensive and unnecessary.  

My first reaction at this point was to be exasperated.  I simply could not understand someone who put a higher amount of value on shipped dog toys than their own future.  I quickly realized that this person was having trouble putting value on retirement savings because it was just so far away for them.  They felt that there would be so much time between today and retirement that they could wait to get started.  They will make more money in the future and can start saving later.  Once I realized this stark difference in mindset, I tried to approach this conversation in a different way.  I took one item—the dog toy subscription—and asked them to cancel the subscription but still put that $40 per month aside in an envelope.  I asked them to commit to this for 3-months.  I told them to continue to spend that money on their pet.  I explained that this would be even better than the subscription since they would handpick the treats and toys that their pet received.  They were skeptical but agreed to this.  

After three months, we spoke again and they acknowledged that while they did go shopping the first month and purchased treats and toys for their pet, they had not done so since.  Even during the first month, they admitted that they did not spend the full $40 on these items.  They were now ready to commit these funds to starting a 401K account.  I then revisited the tax discussion and showed them that $40 in after-tax money was the rough equivalent of $60 per month in pre-tax money.  They agreed to set up a 401K account and divert $60 per month into this account.  The last thing I asked of my co-worker was to revisit this conversation after 6 months to see if they have suffered monthly and decide if the amount needed to be adjusted.  While I phrased it as a safety net, hinting that we could adjust the amount downward, my real intent is to show how little they even noticed the money being diverted and at that point we could discuss increasing the amount.

My biggest takeaway from this whole encounter was that you cannot force others to think or feel a certain way.  My firm belief in retirement savings comes from the whole of my life experiences and those are going to be different from everyone else’s.  However, I do truly believe that such a thing is more important to your future than making sure you rush to “grow up” and fall directly into the lifestyle inflation traps that most of us have fallen into… getting into a housing situation that we cannot comfortably afford or buying more car than we need or can afford.  In order to help others, you must meet them on their own terms and perhaps more importantly, you must realize that sometimes others will have to make their own mistakes before they understand that they are in fact mistakes.  After all, I only know these things because I made (and continue to make) those mistakes.