Ordering replacement parts from the manufacturer

The handle on our crockpot lid broke.  DH jury-rigged a replacement handle with parts he found at Home Depot, but that, too, broke.

This time he went to the rival website and lo: they had replacement lids and other replacement parts for sale.  $10 plus shipping seemed kind of steep, especially if the lid was just going to break again, but after some thought and looking at replacing the crock-pot with a fancier model, we decided it was worth it.  But alas, there was no button to actually make a purchase on the website (DH saw that the source code has a note:  “put button here”).  So he called the company to make the purchase.

The nice lady on the other end asked how it had broken.  When DH said it had just fallen apart with regular use, she said they’d send him a new lid for free.  Yay.

And the moral of the story is that if part of something has broken, you can often get replacement parts direct from the manufacturer rather than replacing the entire thing.  And sometimes you can get those replacement parts for free!

Why I like stocks over real estate

There are two main reasons one might prefer stocks (and bonds) over real estate for the small time investor.

The first reason is diversification risk.  Houses are expensive, and unless you’re extremely leveraged, it is difficult to buy a lot of houses across a lot of different markets.  If your small area takes a hit or something goes wrong with your single rental, you don’t have a lot of other investments to balance that out.  It’s also more difficult to manage houses over a large number of markets than it is to just buy an index fund.

Now, you could just do a REIT, which is like stocks for real estate, but again, that’s focusing your money into one market.  Having some REIT makes sense as part of your portfolio if you don’t own your own house, or your own house is a tiny portion of your overall portfolio.  However, on average the REIT is going to match the stock market, so only focusing on real estate doesn’t trade off enough return for the lack of diversification.

The second reason is laziness.  It is easy to buy and sell index funds.  There’s always a buyer at market price.  If you need to unload stocks quickly by a certain date to turn into cash, you can.  You don’t need a good credit rating or the bank’s permission to do those kinds of things.  You just need money or stocks.

Directly managing real estate lowers those transaction costs that you have with longer-distance diversified real estate, but also adds more hassle.  You’re the one who has to deal with tenants, contractors, etc.  It’s a pain.

In addition, there’s a time factor.  Buying or selling an index fund takes no time at all.  Directly owning investment real estate can take hours.  Yes, your effort produces more value, but so would your effort in other directions.  Some people enjoy the small business aspect of real estate, but I do not.  I would rather earn more money through my day-job or other side projects.

Again, if you enjoy the process of buying and selling real estate, and you like dealing with repairs and tenants and so on, real estate investment can be a fun side project.  But if you don’t get utility from such actions, index funds are just as good on average and take a ton less time and emotional energy.

Have you ever dipped your toes into real estate investing?  Do you know anybody IRL who has done well with it?  Any horror stories?

On definitions: Retirement

In economics, “retirement” has no definition.  Or rather, it has several definitions, none of which are any good.

First off, there’s self-defined retirement.  When do people say they’re retired?  Turns out it depends, and it depends on a lot of things.  Women in certain cohorts, for example, will have their retirement status depend more on what their husbands are doing for work than what they’re doing.  Their self-defined status will also depend on whether or not they have children still living at home, and so on.  People can still be working and say they’re retired.  People can be out of work and say they’re not retired.  As people get older the lines between unemployment and retirement start to blur.

So then there’s working vs. not working, (sometimes not including those who self-identify as unemployed), but that doesn’t capture people who have ramped down considerably, now working a part-time job or a retirement job.  And, of course, how unemployed folks are treated matters as those lines between unemployment and not in the labor force start to blur when you’re open to new employment opportunities but you’re a discouraged worker.

Earlier versions of retired might include whether or not you’re receiving a pension or drawing down social security money.  Of course, with defined benefit pensions disappearing, that’s going to exclude a lot of people who aren’t taking social security just yet.  And there are plenty of folks who retire from a law enforcement kind of job in their 50s and go on to an entirely full-time new career following that.  And what about folks who never got to have a job that offers a pension?  Or who didn’t work long enough to vest?

Finally there’s all sorts of hybrid definitions that researchers use.  Working at a “career job” for at least 10 years, then stopping working at that job and now working fewer than 30 hours per week or less at a different job (or at no job) or moving from working for an employer to self-employment.  And variations on that theme.

Anyhow, this is all to say that we at grumpy rumblings think it is lame when early retirement bloggers argue about what the definition of retirement is.  There is no technical definition.  They don’t own the term.  Nobody really does.  Except, of course, the self-defined version, and we social scientists know that the self-defined term means different things to different people.

And that’s ok.

(Seriously folks, the term “financially independent” was invented for a reason.  It fills that void.  It’s not a dirty word.)

When will you consider yourself retired?

April Mortgage Update: Still wrestling with next year’s money goals

Last month (March):

Balance: $82,617.28
Years left: 6.666666667
P =$881.26, I = $333.14, Escrow = 621.66

This month (April):

Balance: $81,065.97
Years left: 6.5
P =$887.38, I = $327.03, Escrow = 621.66

One month’s prepayment savings:  $2.62

So, as we’ve discussed, this past year we’ve been contributing $500/month to each of the DCs’ 529 funds.   DH and I have been contributing to various forms of IRAs (now all Roths) since we graduated from college.  We’ve been putting money in 403(b)s and 457s as well, and are now pretty much caught up to where we should have been retirement-wise had we not wasted our youth frittering away our time in graduate school.  We’ve also been paying around $600 extra each month on the mortgage (though that varies with our escrow).

All of that is going to stop being automatic next year, other than my mandatory 403(b) contributions (~12% of my salary if you include the match).

We will have some extra money on top of our emergency fund at the end of the summer because (in theory) I’m getting summer salary.  This will be somewhere between 18K and another number (depending on things like emergencies, whether/when DH gets consulting, and so on).

Last semester when DH was thinking about quitting his job, we wrote out a list of priorities of what to do with extra money above and beyond our emergency savings.  #1 was 529 plans.  #2 was DH’s Roth IRA, #3 was my Roth IRA, and so-on.

Now I’m questioning the wisdom of putting money in the 529 plans before funding the IRAs.  On our current path, our children may very well get financial aid, which is something we hadn’t been planning on when we started the 529 saving.  Mint tells me that DC1 has over 40K at this point and DC2 has over 4K.  Do we really need to keep putting 12K/year away in these funds?

Earlier when I talked about this, I suggested filling up DC1′s 529 and not doing much with DC2′s, even though we are planning on paying for four years of college for each.  The reason would be that if DC1 doesn’t use all of hir money, it could easily be transferred to DC2 and we could stop saving for DC2.   People didn’t like that because they didn’t want DC2 to feel like a lesser loved child.  I want to emphasize that we will be paying the full college tuition for both children to the schools of their choices, even if 529 pots are unequal sizes (which they will be, even if we contribute the same amount just because of the vaguaries of the stock market).

Also, I would love to just put money into the Roth IRAs now, but there’s always the chance that DH will make a full salary before the next fiscal year is out and push us over the limit.  Undoing that sounds like a hassle.  Though maybe that’s too unlikely a proposition to keep us from waiting until January.

Anyhow, here’s our dream list of savings:

$12K/year in 529 plans (6K/kid)
DH Roth IRA (5.5K)
My Roth IRA (5.5K)
Mortgage prepayment (up to the amount left)
My additional 403(b) (17.5K/year)
My 457 (17.5K/year)
A SEPA or other self-employment retirement vehicle for DH (up to the amount he earns or 51K whichever is smaller)
Taxable stocks (infinity!)

Keeping in mind that I already must contribute 12%  to my 403(b), that we’ve caught up with where we should be an our ages and income on retirement, that our mortgage is as described above, we want to pay full tuition to college for two children, we’re in the 25% tax bracket (we were also in that bracket before DH left his job), and we have a healthy emergency fund in cash, In what order would you put extra money and why?

Residual effects of February challenge

Damn it.

I’m still thinking about spending.  Even though we’re not longer under a challenge, it’s harder to just get something to eat without major pre-planning.  And when I do, there’s some regret.  If only I’d put more stuff for me on the grocery list.  Then I wouldn’t have had to pay for that overpriced mediocre salad at the cafeteria.  Earlier me would have said, it’s only $7, and I should probably get this mediocre $6 california roll too just in case.  Obey my hunger!

I ran out of larabars is the problem.  Also we ran out of any fruit but apples.  And we ran out of rice cakes.  And cheese.  And yogurt.  And tortilla chips.  And EGGS.  And nuts.  And used up the cooked rice and cooked quinoa.  And I think wheat products have started giving me hives on my arms on top of the potentially imaginary symptoms I was having.  (Thursday night, after DH and DC had pizza at a birthday party, DH accidentally got the regular sweet and sour chicken at pei wei instead of gluten free for me because our cupboards were bare, other than wheaty things.  I ate it anyway because I was hungry.)

We obviously didn’t get enough at the grocery store that Saturday and we should probably have gone again mid-week, but I kept thinking, we’re going into the city this coming Saturday, surely we can wait.  In the end we went grocery shopping on Friday anyway after I ate out twice (and again in the city the next day).  If we’d spent enough the previous Saturday, we’d probably have saved more down the line.  Or maybe everything will eventually get eaten anyway and it doesn’t matter when we buy it.  Except that when we have easy-to-transport wheat-free food, I don’t end up eating overpriced wilty salads.

Larabars are expensive at $1 each.  But they’re less expensive than snacks at the cafeteria.  Once I’m no longer nursing I should be able to cut back on them.  We have stocked up.

I did go crazy in the city that weekend, mostly without guilt.  I feel a little bad about what was spent, but also bad that I feel bad.

Also bought presents for people this month and spent what was right for the present rather than cutting back.  Next year the perfect present we think of will be less expensive, I’m sure.  (Thanks, Rumpus, for the TONX suggestion!)

So I don’t think we’re really spending less than we would be without having done the Feb challenge, but we’re feeling worse about the spending we do.  I wonder if this will wear off, or if we’ll eventually tighten our belts or what.

Urgh.  So we need to either spend less, make more, or figure everything will just work out.  It is so much easier when your income is far more than your enough!

What is financial independence?

So we’ve talked a lot about financial independence as a side-note and we’ve talked a lot about the book Your Money or Your Life (and some about Mr. Money Moustache and Early Retirement Extreme), but mainly in the context of other things like what to do if you’re not enjoying your career, or why are hardcore bloggers so popular.

I was looking for a link to define financial independence when replying to a comment the other day, and it turns out we don’t have one.

What is financial independence?

Well, my dad says that success is when the money you make from investments is greater than your salary income.  That’s one version of financial independence– being able to replace your earned income with passive income.

Your Money or Your Life defines it as when your income from passive investing covers your living expenses.

A somewhat simple definition is:  You have enough money from other sources that you don’t have to work for pay.  You only work if/because you want to, not because you have to.

There’s some disagreement with the nitty-gritty details.  Do rental properties count if you’re the one doing the property management?  Does drawing down stocks at 4% count or do you have to live off the dividends alone?  (Note:  draw-down vs. dividends is kind of a red herring–depending on the tax structure you may prefer a company that reinvests profits to one that spits out dividends.)  Does having a working spouse paying some of the bills mean you’re not financially independent?  It can be hard to say.  And in the end, it probably doesn’t matter except for getting into silly arguments on the blogosphere with all your new-found free-time.

How do you get to financial independence?  Well, you get rid of your debt.  You get your living expenses as low as you can/want.   You save a lot of money.  You put that money in places that are going to make money for you in a relatively low-risk setting.  (Note:  the stock market is low risk over the long term but high risk over the short-term… diversification is *very* important to manage risk.)   You keep saving and investing until you hit a magic “crossover” point, in which the money you make from your investments is “enough” to cover your “enough”.  Then you’re financially independent.

At that point you have the freedom to walk away from your job.  To take a risk on your current job or on a new job.  You can stop working, keep working with the freedom that you could lose the job and still be ok, or change work entirely.

Financial independence is freedom.

Now, you may not want to achieve full financial independence, or may not be able to achieve it any time soon (because your “enough” is too large compared to your income), but you can still achieve partial financial independence.

Partial financial independence is when you have a very large emergency fund and you’re on track or ahead of the game with your other saving.  Partial financial independence means you’ll eventually have to find another job, but you can still leave employment or take risks with your employment and you’ll be ok for a while.  (In the academic context, it’s a nice thing to have when you want to take a sabbatical and aren’t sure on funding sources.)  Many people call this type of financial independence having an “FU fund.”

In the US, of course, there are sticking points for those under the age of 65.  Health insurance is the big one.  Hopefully it will become easier to get affordable health insurance not tied to your job as the Affordable Care Act continues to be rolled out, but health costs will still be increasing over time.

Have you thought about what it would take to be fully or partially financially independent?  Is this something that, absent of getting a large inheritance or other windfall, would be of interest to you?

Ask the grumpies: Lower cost pampering substitutes

In Monday’s post, Debbie M brought up the point that if you figure out what it is you really want when you’re thinking about that Caribbean vacation or whatnot, you can often figure out a way to meet that need much less expensively.  (I believe this may be mentioned in YMoYL, but don’t quote me on that.)

She says:

And then there’s also strategizing about what makes you happy. If you want to feel pampered, do you need to visit a tropical island? Or would you be just as happy with an in-town spa or fancy hotel, a massage, a facial, or, in my case, fresh-out-of-the-oven chocolate chip cookies and a good book? Basically, whenever you’re about to spend money (or time), you can try to back up and figure out what your real goal is and then try to brainstorm if there is any better way to achieve that goal.

That got into a conversation in the comments section:  what other ways can you pamper yourself at a lower cost?

Debbie M asks:

And maybe oilandgarlic can share a list of Frugal Substitutes! We can always use more of those!  And Flavia, I’d like to hear more examples you’ve found where you can convert more expensive indulgences into cheaper ones.

At grumpy rumblings we are big fans of buying whatever you want at the grocery store, thus saving money from unsatisfying meals out.  (Though we do eat meals out!)

We re-read things sometimes instead of buying new.  And, in general, reading about things is a nice substitute for inventing a fantasy travel device.

But I dunno… we’re not big Mani-pedi people, so it’s hard to think about what is a substitute for something else and when what we do we’re doing because it is better than something else.  We actually prefer staycations.

Donna Freedman had a recent post about having a pretend breakfast cafe with her nieces and nephews as the staff.

Grumpy readership, help Debbie M out– how have you converted expensive indulgences into cheaper ones?

Latte factor vs big item spending

One of the good points that Laura Vanderkam makes in her book,  All the Money in the World, is that if you don’t buy the big ticket item, if you spend less on your wedding, take the cheaper vacation, buy the less expensive house, hold on to your car a few more years etc., then that money can easily buy a large number of lattes, weekly housecleaning, and so on.

Earlier personal finance books, such as those by David Bach, mention the other trade-off.  By not indulging in those lattes, you can get that fancy vacation, the bigger house, the wedding of your dreams, and so on.  (Of course, he also makes the point that if you’re not saving for retirement, the latte should probably go until you’re making ends meet and providing yourself a safety cushion).

Elizabeth Warren with her balanced money formula combines these two views, by saying that really no more than 50% should be going to the mandatory items like your housing, and something like 30% can go to either lattes or vacations (or both)– your choice. 

What view is right?  Well, it all goes to diminishing marginal utility.  At some point you have had enough lattes that another one isn’t going to make you marginally more happy than saving the equivalent amount for a big ticket item.  At some point with housing, your house is nice enough that rather than paying for more housing you should allow yourself little treats.

The problem, Vanderkam notes, is that people tend to misjudge the happiness they get from small daily treats compared to larger ticket items.  Most people would be a little happier indulging a small amount regularly compared to having the large annual vacation.  Although, with anticipatory happiness while saving for the big ticket items, those happiness numbers may be more equal than some happiness studies claim.

So should you get rid of that latte factor in order to buy the house or the vacation?  Or should you buy a smaller house and scrimp on vacations so you can have a cleaning lady or Starbucks without guilt?  Only you know the shape of your utility function and where it hits your budget constraint, and only you can make that decision.

Are more a saving up for big purchases kind of person or a sweat the big stuff so you don’t have to sweat the small stuff kind of person?  Or has your budget constraint shifted so you can have both?

What did I learn from the February Challenge: And March’s mortgage update

Last month (February):

Balance: $84,162.48
Years left: 6.833333333
P = $875.17, I = $339.24, Escrow = 621.66

This month (March):

Balance: $82,617.28
Years left: 6.666666667
P =$881.26, I = $333.14, Escrow = 621.66

One month savings:  $2.62

Too bad the stock market didn’t keep those gains– we had been at the point in which the taxable e-trade account was bigger than our remaining mortgage.  Now we’re two months away again.  I shake my tiny fist at Mint for showing me stock market updates more frequently than I want to see them.  It’s a bit unnerving to have one’s net worth fluctuate so wildly.

I spent the month of February with conflicting feelings… On the one hand, I hated having this stupid challenge in the back of my mind and having to be mindful about my spending and DH’s spending.  On the other hand, I had a paper deadline for Feb 28th and kind of didn’t want the month to  end until that got finished(!)

Well, we did it.  Spent $1,227 of non-childcare non-DH’s-allowance out of our take-home pay.  That’s less than $2000.  This makes up for the profligacy of the previous two months and we’re back on track for summer, even if my summer salary gets sequestered (it shouldn’t– it’s from the last fiscal year or something).

Where did it go?  $550 to groceries (that’s a lot for us!).  $303 to utilities (that includes stuff like the insect guy and the internet/phone etc.)  $125 on “shopping” (a catchall for books, diapers and other things).  $86 on gas.  $71 on restaurants (much less than usual).  $34 at the dentist.  $25 on Netflix.  $20 on charity.  $12 on heart medication for the cat.

Now, lest you think we’re an angelic family of four, that doesn’t include bills that we pay once a year (like private school) and it doesn’t include the $1,260 that we spent on childcare and out of DH’s allowance.  This month was full of coffee bean experimentation (DH’s current hobby).

This week, btw, we didn’t spend any money before the month ran out.  (DH ordered parts for the fridge, but that hasn’t been charged yet.  Update:  I spent $26 on gas on the 28th.)  I also got a check for doing a referee report.  And we got a $50 cash back check from the credit card company.

What did we learn?

1.  Not having an emergency is nice.  DH bought an engine/fan set-up for the freezer to replace the one that keeps freezing up (after stalling out).  That should cost around $50 and will hopefully work.  If not, then one of our soon-to-happen emergencies is going to be buying a new fridge.  We’ll probably get something reasonably nice this time around.

2.  We’re kind of tired of the restaurants in town anyway.

3.  We have a lot of food in the freezer.  And some of that food should be thrown out because it didn’t taste good when we froze it either.  (I’m looking at you, disastrous Jambalaya.  I do think we’ll be able to eat the last of the Turkey Turnip Chickpea stuff eventually, but only when someone is craving an ultra-healthy chicken soup.)

4.  Not going into the city saves quite a bit, but also creates a bit of wanderlust.  We may go crazy sometime in March.

5.  Fancy cheeses sometimes go on good sales.  Buy the ones that are on sale when you’re trying to save money instead of not buying any.  Failing that, get one of the inoffensive cheddars.  Don’t come home with no cheese or you will be sad when you need a snack.

6.  After a couple of weeks I stop  the “wanting to buy things just because I can’t”.  I must get acclimated or something.

7.  I still hate having to think about money.  After years of not having to do that, it is nearly impossible to make thinking about it again “a game” or anything other than annoying.

8.  We have a lot of individual bills.  For some reason it doesn’t seem like as many when they’re listed on the cc bill as it does when mint updates with them every few days.

9.  I really want to go into the city and spend a lot of money just because I can.  I won’t though.  Well, no more than usual, anyway.  Well, maybe a little more– I am hitting a milestone birthday.

In the end, I think I’ll keep Mint.  I do like being able to see how much we’ve been spending.  I don’t think I’ll keep such a close eye on the individual items going forward, however.

Do you track your spending?  Do you budget?  How does (or does not) that work out for you?

I don’t get regular clothes shopping and a challenge update

The kind you do when you already have a closet full of clothes still with tags that have never been worn.

The kind where you complain about how your huge walk-in closet is stuffed and you have to declutter and you can never find anything to wear.

The kind where you set yourself a challenge to spend *only* $100/month plus the several hundred you have on gift-cards plus whatever you get from doing consignment for the stuff you declutter so you can make room for new clothes.

Granted, I, like Cloud, hate spending time clothes shopping.  It’s not even that I’m pudgy or anything or that I can’t afford it.  I just don’t want to spend the time.  But even if I had a ton of time, my closet has enough stuff right now, I have plenty of variety, and nothing looks too shabby.

When I do go clothes shopping it’s because I need specific items.  A pair of black pants.  Some new suits.  Colorful shirts.  Anything I buy I have to be able to see in a completed outfit.  When it’s just me, these outfits tend to be very simple (skirt or pants + top), but shopping buddies will often put together something complete and I just have to memorize it.  (I always get compliments when I wear a shopping buddy chosen outfit.)

So I go shopping once every few years, generally at the January or late Spring/early Summer changing of the season sales.  I go with a shopping buddy who loves shopping (and has a closet full of clothes, many still with tags).  I stick to Ann Taylor, Ann Taylor Loft, and Brooks Brothers.  Though in my youth before I had a real job, I was more of a J.Crew, Gap, Banana Republic, and Marshall’s kind of shopper.   (I still wear my Paul Harris Designs suits– wish they were still around.)  And lots of online comic t-shirts, not to mention this guy.

It’s not that shoppers necessarily want more diversity in their clothing.  I actually wear more variety than my shopping buddy.  She has favorites that she wears once every week or two, whereas everything in my closet gets worn or it gets put in the goodwill closet.  (With the exception of a small number of “fat” clothes and an even smaller number of “skinny” clothes because occasionally I do hit size 12 or size 6, but not for long enough to replace the wardrobe.)  I only buy things that I like enough to wear regularly and make me look great.  Since I’m so busy with mental load, I set up my closet so I can just pull the next “teaching” outfit or the next business casual outfit.  (This semester my teaching days are such that each suit will get worn twice.)  Only my weekends take any planning and that’s just figuring out the temperature and which top to wear with my (anthropologie) jeans or (ann taylor) shorts.

It might be something about keeping up with fashion, which is something I don’t tend to understand.  I tend to buy what looks good on me whether or not it’s “in” and never go so deep into fashion that it looks off years later.  I tend towards classic styles.  My friends don’t go crazy with fads either, but they do tend to be aware of the seasonal colors and styles and so on.

It could be something about the shopping itself.  My current shopping buddy loves getting a “great deal” and clothes shops at least once a month.  She’s also single and goes shopping with a lot of other single friends and they give each other hundred dollar gift cards to clothing stores at Christmas and birthdays.  So she gets endorphin rushes and it’s one of the ways that she socializes and networks.

Or maybe clothes are just Gazingus pins for some people.

And now,  a challenge update:

A nasty GI thing kept us out of the grocery store last weekend, and DH made up for it with a mid-week shopping trip on Wed: $60
He went again on Saturday: $120
DH and DC1 had pizza for dinner as a treat because DH had to host a review session right after picking DC1 up from school: $11
DH bought gas: $33
And went to the dentist: $34
Utilities: $35

DH also hit Starbucks but that’s out of his allowance.  We got a little income too– a cash settlement from a class-action suit against Honda and an honorarium for an NSF panel (but not counting that either).

Why do you think some folks spend so much time and money clothes shopping?  If you do, why do you?