August 2018 Financial Report

August Financial ReportFall is in the Air! August came and went so fast.  This month was a good overall month for us despite falling back a little bit in net worth.  Our primary residence took a hit in value this month for whatever reason.  Its been spiking the last couple months so it was only a matter of time before something changed.  We use Zillow as well as Redfin to figure out a rough value for our home each month, but lately these two different databases have vastly different estimated values of our home.  Last month Zillow estimated 246K and Redfin estimated 223K, while this month Zillow Estimated 235k and Redfin estimated 223k again.  Not sure the differentiation between the two services, but inventory around us has been extremely low, and the inventory on the market now is sitting longer than it was earlier this year.

Besides the Renovations listed below, we had a fun month.  We attended the Minnesota State Fair for the first time in years and we saw Lord Huron and Trampled by Turtles in the Grand Stand at the fair. Both bands we really enjoy.  One week later we saw Taylor Swift at the Us Bank Stadium downtown Minneapolis. What a show that was.  Im sure we’ll get judged for attending a pop concert but wow that was an amazing production.  We had great seats too! She brought back some old country tunes and we were belting they lyrics just as loud as the 12 year olds that surrounded us.  Such a great time.  This August we did a bit of property hunting too, not so much looking to purchase, but planning where we want to end up once we leave the cities.  I commute 54 miles one way to work out of town every day, and my wife will be attending school in the city very soon.  So it doesn’t make sense for us to move now, but in a few years when she is graduated, we will make a move closer to my work.  With her medical job, she’ll have a bit of flexibility on location.

TSwift

Taylor Swift in Concert

We’d like to live closer to our parents cabin, we really like it there and we’d like to live close enough to make it there for a midweek dinner and boat ride.  The great news is the cabin is only 20 minutes from my work so its really a win win situation.  Also because its further out of town, money goes a bit further per square foot.  We’re narrowing down areas we like, areas that are up and coming and areas that we aren’t interested in.  Its super fun.

We hope you had a great August, be sure to tell us about it in the comments!

Please check out our Book recommendations to get in the mindset that we have towards investing.

Landlord Report:

Our First Rental

Really quiet month this month as a landlord. We purchased a rental property in April of 2018, a single family residence 3 bed, 2 bath, 2 story home.  We currently have it rented on a 1 year lease to a single mom and 3 kids.  Our tenant recently went through a divorce and did not have full time work at the time of divorce so her credit was not good.  On the reports that we did during screening of potential tenants, she performed quite well with the exception of credit.  Her references and clients from an in-home daycare she ran all gave rave reviews.  We were able to speak with previous and current employers as well.  Because of the lower credit, we put her dad as a cosigner on the lease as more of a hedge against late rent.  We were able to drive by the property this month to check on it and it looks fantastic, of course we let our tenant know this.  We use an algorithm that combines the data of Zillow, Redfin as well as our own formula with recent nearby sales to estimate the value of our property over time.  This may not be the best way to track the value of our real estate but besides paying for an appraisal each month, we’ll call it a good estimate for tracking purposes.  We are very bullish on real estate as a prime investment vehicle for retirement.  We plan to finish renovating our current home, then selling to buy our new primary residence and another rental property.  My goal is to own 15-20 units by retirement.

The market where our primary residence is located was red hot in July but cooled off steeply in August.  Our algorithm we use to track the value of our current home dropped almost $10k this month.  Since our net worth is very low at the moment, this had a huge effect on our net worth for this month.  We went positive net worth for a few days this month, but overall our net worth dropped approximately 6K for August.  Our stock exposure did very well, but with only $50k in stock exposure, it didn’t have enough of an impact to push us above zero.

 

Net Worth (-$6083):

We track a 3 month and a 12 month rolling average (Which is skewed since we’ve only been tracking net worth for 6 months) and our averages look like smooth lines compared to the monthly values.  See image below.

 

Screen Shot 2018-09-03 at 9.39.40 PM

The yellow line is a 12 month rolling average, the red line is a 3 month rolling average and the blue line is the actual net worth value on the 1st of each month.  The idea is that if the blue line is above the red line, our net worth is accelerating, and if it dips below, our net worth is slowing down.  As you can see on the right had side of the graph our net worth hit a significant slowdown in August.  This was due to a couple reasons.  Our exposure to real estate was the main driver and higher than usual expenses in August also had a significant impact.

Renovation Update:

Our new shutters and mailboxAugust was huge month for renovations at the LFF (Live Fi and Free) household.  During a wiring project in the kitchen to add an outlet under the sink for a future dishwasher, there was an open neutral fault somewhere else in the circuit.  Upon tracing the source of this open neutral, I found it traced to a junction box behind one of the lights on the ceiling.  Upon removing the light in the kitchen, it revealed a nasty looking set of wires that was clearly modified by a previous homeowner.  There looked to be several issues in there maybe even dangerous.  So we decided to call in some help.  I started with calling a few handymen I had made connections with during my hunt for a rental property.  They both said these issues I was having are over their head.  So then I began looking for a electrician. Ceiling FanI really did not want to hire an electrician.  I feel they are one of the most expensive contractors out there.  To their defense, they have lots of codes they need to follow to maintain their license, but I still feel they largely overcharge for the work that they do.  But I could not find anyone else willing to do the work so I got some recommendations from family and friends.  Since we had an electrician coming to do work on our kitchen, we decided to have some other work done while they are there to take advantage of their expensive trip charges.   We had them add wiring for a future bathroom fan, an overhead light junction box in one bedroom and a ceiling fan mount and junction box in bedroom 2.  $2100 dollars and three days later, they finished.  This was about $800 more than we were predicting to spend.  But, the work is done, we are happy.  I was able to install a ceiling fan in bedroom 2 which will be really nice since I don’t like to keep the air conditioning very cold in summer.  Our other projects included some curb appeal projects. Our New Rug and Window BoxesWe added a new mailbox to replace our old rusted out one.  We added shutters to our front windows and we built some window boxes that we will eventually mount to the front of the house. The window boxes still need to be stained and weather sealed before they are mounted,  We also ordered a rug for out living room to break up the expanse of hardwood flooring.  It really warms up the room and is really nice on bare feet when lounging around.

 

Stocks Report: 

We do not actively invest in the stock market, but I do contribute to a Roth 401k to get the employer match through my work and we contribute to a Roth IRA for more experimental purposes than anything.  I plan to invest more in the stock market once the market cools off a bit.  China is taking a huge hit  and their economy is looking quite bearish right now.  I think there will be real big opportunities in China in the future, but for right now, we will focus on real estate.  Sheridan and I both have a Roth IRA, Sheridan has a self directed IRA that my dad manages, this money is from her 401k at her former employer.  And we have a joint IRA account.  Our total contributions this month to stocks was $367 dollars of post tax money.  Again, this is not our current strong point.  Despite my dad being a stock broker and financial advisor, I actually know very little about stocks.  Low cost index and mutual funds seem enticing to me, but I will have to study them much more before we invest.  I would however like to use Sheridan’s self directed IRA to purchase a coffee farm in Panama.  I am currently studying this.  I would like to own lots of agriculture and timber in our portfolio as they mature.  We are still in the studying phase of this however.

Goals for 2018:

Our goals for 2018 have been taped to the front of the refrigerator since the first day of the year.  See the status below.

Purchase a rental property with 10%+ Cash on Cash return — 100% complete

Go on one International Vacation: 0% Complete, leaving Monday Sept 10!

Go on one domestic vacation — 100% Complete, Tennessee in June

Finish All bedrooms and bathroom renovations — 20% Complete, behind here

Go To Gauley River (River Festival in West Virginia) — can’t go this year due to overlap with our international vacation.

Achieve our desired fitness goals for the year — way behind on this one.

We have been very good about scheduling vacations this year.  Vacations are very important to us.  When I was in negotiations for my new job that I started last November, I took a pay cut in exchange for an extra week of vacation time.  I think it is totally worth it.

Expenses:

August Expenses

Gas: $684.23

Food: $534.49

Drinks: $68.48

Recreation: $609.70

Other: $1262.82

Dog/Cat: $0

Home Improvement: $135.90

Bills: $1547.70

Charity: $293

Investments: $100

Savings: $2250

Cashflow (+$560)

Our cashflow is currently limited to our one rental property.  It spits out $560 gross cashflow per month. After accounting for vacancies, repair, capital expenditures and property management however, our net cashflow is approximately $195/month.  Not bad really for a nearly turn-key rental.  So far so good.  Cashflow is my main investment focus.  Primarily cash flowing assets that also tend to appreciate over time, and tax advantaged assets are even better.  Tax advantaged assets can be divided into 4 main categories that we will focus one.  The US government provides tax incentives to those that provide housing, jobs, food and commodities (Oil).  There are many tax advantages to every one of these, and two of them stand out above the rest due to the ability to use leverage.  Real Estate and Business.  A business however is a bit too active for my time allowance right now though so Real estate is the winner on tis list.  Real estate allows wealth to be built in 5 different ways.  Cashflow, appreciation (leveraged), principle pay down, depreciation (tax advantage), inflation hedging (decreased purchasing power of the US dollar).  And for these reasons, we chose real estate to kick start our wealth.

August Finance Report

August Summary:

Our August was a great month for our net worth, we hope to have more like this! Our home renovations are way behind but hope fully they will start coming together in August.

How was your August?  Be sure to leave a comment below.

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5 Income Generators of Real Estate

5 income streams of real estate

Real Estate has made more millionaires than any other investment.  But not just any real estate.  Here we’re talking about investment real estate, not your personal home.  Real estate has the advantage of multiple streams of income from a single asset.  We’ll dive into those income streams below.

1) Appreciation

Historically, real estate appreciates over time.  Real estate is very local, meaning that some areas will appreciate, while others may depreciate.  So these are general numbers from the US Census, but for the sake of argument, we’ll use a general assumption that these numbers are from a reasonable size metropolitan area with steady job growth and a diverse population.  Average appreciation between 1963 and 2017, was 5.8%.  There are up years, there are down years.  But on average, over the long term, real estate prices appreciate.  So lets put some numbers to this.  We’ll use our first rental property as an example.   The appraised purchase price was 134000, purchased with 15% down payment.  With closing costs, down payment and fees/small renovation cost to get a rental license, total costs came out to approximately $25000.  Assuming 5.8% appreciation, the initial appraised value of $134,000 will be $141,772. This is a gain of $7,772 or a 31% Return on Investment.   Wait, what? 31%?  Thats not possible.

Here’s how it is possible – Leverage.  Appreciation rates of real estate are actually pretty terrible compared to the 8-9% of the S&P 500.  BUT, there is one huge advantage Real Estate has over almost every other investment vehicle, leverage.  Here’s how:  When you invest in real estate, you’ll put your money into the deal, 15-25% usually, and the bank or some other person funds the rest.  We’ll call this other people’s money or (OPM) for short.   The 5.8% appreciation applies to your personal money AND OPM. So you get to reap the benefits of the gain of other people’s money.  This is crazy right? If this happened in the stock market, it would be the same as if a stock price went from 100 dollars per share to 106 dollars per share.  Except instead of paying 100 dollars per share, you only pay 20 dollars per share, and the bank or some other lender pays the rest of the 80 dollars per share, but YOU get to keep ALL the gain.  This is what sets real estate apart from other investments.

So remember, we’re at 31% ROI after step one.  Read on.

2) Cashflow

Cashflow is the bread and butter of Real Estate Investing.  This is often referred to cash on cash return.  Buying a cash flowing real estate deal is no easy task.  Most deals out there are not cashflow positive deals.  Cashflow positive deals are the ONLY deals a real estate investor should consider.  With Cashflow, an investor has the fund to keep the property maintained and in good working condition providing the tenant with a safe and clean place to call home.  In the event of an economic downturn, cashflow very often remains positive.  For the deal discussed above, the gross monthly rent is $1424/month, the debt service cost (Principle and Interest) is $686/month.  Next comes the expenses.  Taxes, Insurance, Maintenance, Vacancy, Capital Expenditures, and Property Management.  These topics will be covered in a later blog post, but net cashflow after all these expenses is $195/month or $2340/year.   This is a 9.4% Return on Investment in year one.

So to recap, we are currently at 31% Return from Appreciation, and 9.4% from net Cashflow.  40.4% Total.  Read on, we’re only at income generator number 2.

3) Principle Pay Down

This one is pretty self explanatory.  In your primary home, YOU are the one paying down the mortgage, but in an income producing rental property, you TENANT is paying down the mortgage in the form of rent.  On a 30 year fixed interest rate mortgage, the principle payment is not much compared to the interest payment, but it is still significant enough to take into consideration.   Lets look at the numbers.  With an appraised value of $134,000, and a 15% down payment, the principle payment for year one is $1457.43.  This was found by looking at the amortization schedule provided by the lender and adding up the first 12 month of principle pay down.   This equates to a 5.8% Return on investment.

If your are keeping score, we’re at 31%+9.4%+5.8% or 46.2% total.  Keep reading

4) Depreciation / Tax Advantages

The us government wants landowners to provide housing.  The way they do this is by providing tax incentives to be a landlord and pride safe, clean housing for people to rent.  Rental Property is treated like a business, so there are tax write-offs to offset rental income.  Besides the normal mortgage interest and property tax deduction, there is a huge deduction called depreciation.  In residential property (1-4 units) the value of the asset can be depreciated over 27.5 years or 39 years for commercial property.  For the single family home used for the examples in this article, the asset can roughly be split in thirds.  One third is the value of the land (non depreciable) and the other two thirds are depreciable assets.  There are many different segments of depreciation that can be done with a cost segregation but for the purposes of this article, we’ll just use 2/3’s of the appraised value or $89,332, depreciated over 27.5 years is $3,248 in write offs!  This write off alone will offset most of the rental income not written off by by mortgage interest, property tax, insurance and other basic business expenses.   And then when you go to sell, there is a great tool called the 1031 tax deferred exchange, where you can defer the depreciation taxes to the next property.  This is how you can make millions in real estate and pay almost nothing in taxes!  This is hard to put a value on because it depends on what tax bracket you fall in among many other factors, but for easy numbers, we’ll estimate this advantage at a conservative 4%.

Still keeping score? 31%+9.4%+5.8%+4%….thats 50.2%.  Almost there, keep reading.

5)  Currency Arbitrage

This is one that most landlords don’t take into consideration but it has a significant impact on your overall return!  Currency by definition, is designed to drop in value over time to help the government pay off its debts.   The Federal Reserve aims for 2% inflation per year.  This means that each year, your dollar buys less than it did the year before.   So over time, your mortgage debt payments will get easier to make.  To learn more about inflation profiting, check out this article Keith Weinhold did for Forbes.  This is also a hard income generator to put a value on, so for the article we’ll conservatively put this at another 2%.

Visit Staten Island (3)Lets add all of that together. 31%+9.4%+5.8%+4%+2%….For a grand total of a whopping 52.2%.  Over 75% of this investment could go wrong and you’d still end up with better returns that the average S&P 500 return.

Be sure to check out our monthly landlord report for a sneak peak of what its like to be a self managing real estate investor.  There’s definitely speed bumps along the way.  But for returns like this, its worthwhile.

For more information on Real Estate investing, I highly recommend picking up Rich Dad Poor Dad in the Recommendations section.  This book is a must read to get into the mindset of active investing and abundance.

5 Reasons Cheap, Crappy, High MPG cars are the best thing ever.

1992 Geo Metro

The greatest car there ever was

1)  Cheap on Gas

Now Im assuming we are talking about cheap, old, 3-5 cylinder cars that cost less than 5000 dollars.  These cars tend to get higher mpg’s than their modern counterparts.  My pride and joy was my 1992 Geo Metro, 3 cylinder, 49 Horse Power.  This thing got 45 mpg on the highway at 70 miles per hour.  It could easily get over 50 at 55 mph.  Before I purchased the Geo, I was Driving a gas guzzling Ford Expedition with a giant V8 engine.  That thing got about 14mpg average.  Don’t get me wrong I loved that car, but man it was painful at the pump.  This was back in 2015 when gas was approaching $4 /gallon here in the Midwest.  I drive a lot for work and for leisure activities on the weekends and my fuel bill was over $700 / month.  After I purchased my Geo Metro, my gas bill plummeted to around $200 / month.  What a difference!!   Even if your old crappy car doesn’t get as good of milage as a new car, you only paid $5000 for it ( or less!!)  So, the $20,000 you saved by not buying a new car will buy a tons and tons of gas.  My Geo Metro cost me $1100 dollars and I put a new clutch and alternator in it for under $500.  Old cheap cars are simply the best.

2) Cheap Parts

Old crappy cars typically have cheap equally crappy Chinese knockoff parts readily available at every auto parts store in town.  When my Geo needed new tires,  the tires cost me about 40 bucks per tire.  Thats less than half the price of any other car Ive ever seen.  Junk yards are a great place to find parts for these old crappy cars as well.  Since so many of these cars have gone to steel heaven, there are typically several other cold crappy versions of your car there with a whole lot of cheap parts.  Need a new fender? They have it.  Need a new captain seat? They have it.  How about a new bumper from when you hit the pillar in the parking lot last Saturday? Yep they have that too.  My buddy has an older Honda Fit, he got T-boned by an older lady that didn’t stop at a stop sign.  His insurance paid him out almost $3000 and he went to the junk yard, got a paint matched fender for $165 and invested the rest of the money.  Talk about a win win situation.

3)  Cheap Insurance

This isn’t actually a valid argument for this post because insurance costs these days are based on so many factor such as age, marital status, miles driven yearly, the zip code where you live etc etc etc.  HOWEVER, many people that drive cheap old crappy cars don’t really feel the need to have replacement coverage on their vehicle.  And since the car doesn’t have a loan on it since it was so cheap, you can carry liability insurance.  Which basically just covers your butt in the case of an accident.  But it will provide no coverage to you.   This insurance is typically very very affordable.  Insurance on my geo was in the neighborhood of $200 / Year.  SO CHEAP

4)  Damage? Rust?, Meh who cares

This is where having a cheap crappy old car really shines.  If grandma gets a little crazy with her shopping cart and scratches the crap out of the side of your car, you don’t care, it adds character.  If you decide to strap you buddy’s dresser to the top of the car when he moves apartments and it dents your roof in, you don’t care.  When your exhaust pipe has a leak making your car sound like a 1970’s diesel engine, you grin ear to ear.  When you have to manually pull your window up after you roll it down for that delicious Wendy’s Frosty from the drive through, you cant help but to laugh with pride.  You’ll show up at your white collar job, get out of your semi reliable rust bucket, turning heads and making a scene.  You’ll be the talk of the town.  Little do you know, people will start respecting you for being a boss driving such a joyous piece of crap.

5) You’ll Fall in Love

Sooner than later, your crappy rust bucket of a car will become a regular topic in conversation.  Bragging about how much coolant it burned last week and how you never have to change the oil because it leaks so fast you always have to put new oil in it.  This car will become part of your identity, and you’ll own it.  You will shed a tear when the car finally kicks the dust.  But deep down, you know you’ll find another piece of crap that will save you money and bring so much joy to your life.  You will be so much more prepared than all of your friends because you will have perfected all the tools that you regularly carry with you  to keep your baby running.  Pretty soon your car will be the car that has to jump start the brand new Audi your buddy bought because he was too busy showing off the fancy surround sound and killed the battery.  Or pulling your buddy out of the ditch after he tried to show off his new lift kit on his truck that cost him two kidneys and a few dozen trip to the plasma donation center.  Your old crappy car will become part of your identity and you’ll love every second of it.

why cheap cars best thing ever.png

 

Check out these guys! They nailed it!

 

Couldn’t agree more!

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What was your favorite car? 

Dude Where’s my Money!?

Visit Staten Island (2)Have you ever gone through a month and taken a look at you bank account only to realize you have no money? Unfortunately this happens every day for millions of people.  With society moving away from paper cash and more and more to a plastic society, it makes it so easy to spend money.  It’s so easy to just “swipe” anywhere you go.  A soda at the gas station, and extra frozen pizza at the grocery store or a quick after work beer with some coworkers.  It always seems to be only 5 dollars here and 8 dollars there.  SO WHERE DOES ALL THE MONEY GO??  At the end of the month it is absolutely incredible how fast these little expenses add up.  Just $10 dollars per day adds up to $3650 per year, yikes!!

Here’s some money saving tips that we use every week:

Driving fuel efficient Vehicles:

Here at the Braun household we have two very different vehicles.  We have a 2012 Ford Focus Hatchback and a 2000 Ford Ranger.   The Ford Focus was purchased new by a young environmental engineer, Sheridan.  For those that read other financial independence blogs, this is a big no no, BUT we’ll look at the math to find out.  The Ford Ranger was purchased last year as a vehicle for a lawn care business that I ran as a side hustle in 2017.  I quite enjoy driving the truck, but its quite impractical for me to drive financially.  There was a long stretch of time that Sheridan and I had 1 car, this was a huge money saver and was a great way for us to spend more time as a couple.  I had a 25 mile commute to my engineering job in a far Northwestern suburb of Minneapolis and she had an 8 mile commute to downtown Minneapolis.  By carpooling, it added about 5 miles to my commute, but we got to use the carpool lane which really made commuting fast and easy.  She often required a longer working day than I did as well, which made our schedules fairly easy to align.  It is incredible how much money can be saved by reducing to one car, especially one that is paid off.   One insurance payment, one registration payment, one gas bill, one oil change bill.  I cannot even start to express my excitement about the future of driverless cars.  People will no longer need to own cars.  But back to owning cars.  Fast forward one year to 2018,  I got a new job that is 54 miles from home, and Sheridan decided to go back to school for Occupational Therapy, and is working a job in purchasing for the time being.  Her new Job is 10 miles from home on the other side of Minneapolis.  So, it was no longer very efficient to car pool.  Especially since her job requires less hours than mine.  If I had a choice, I would drive our truck.to work, but at 16 miles per gallon and 26000 miles per year.  At the current gas price of 2.86/gal thats almost $4650/year just in gas! In the Focus, I average about 32 miles per gallon over the summer and winter averaged out.  (Closer to 40 in the summer).  But at 32 miles per gallon, that’s $2325 per year.  Thats half as much! Averaged out over 250 working days, thats a savings of $9.30 per day.  Thats a chipotle burrito every single day.  Prior to the Ranger, I owned a Geo Metro, for those that don’t know what that is, its basically a street legal go cart.  I bought it for $1100 and put about $500 in repairs into it.  It had no air conditioning, no cruise control, 49 horse power and 3 cylinders.  It took forever to get up to highway speed, BUT this beauty averaged consistently over 45 miles per gallon.  Insurance was like $20 per month, tabs were cheap, parts were cheap, tires were 25 dollars. It was a frugal manics dream car.  It will forever be my favorite car.  However, my wonderful wife made the intelligent decision for me to sell it due to safety issues.  The car weighed about 1200 lbs and had no airbags.  A collision with a small twig could have had tragic consequences.  So, we sold the Geo.  The point of this, is to show that a small gain in fuel efficiency, and more inexpensive insurance due to the age of the vehicle, can have a huge financial impact on a yearly basis.

At Home Entertainment:

I personally find it disgusting that people will spend over 100 dollars per month on a cable or satellite bill only for a sport channel or HGTV.  Although, the number of American’s cutting the cord is rising at record rates, there are plenty out there paying outrageous rates and it is killing your rate of financial independence.  Lets say for instance you pay 100 dollars per month for your cable package that includes some sort of NFL prime time package.  This costs $100/month or $1200/year. Now NFL season is basically only September through February (If your team actually makes it to the playoffs.  So lets say 5 months a year for easy numbers.  Thats 240 dollars PER MONTH just to watch NFL primetime. For 240 dollars, you could go to a bar, order wings and 4 beers every Sunday during the regular season, leave a big tip, and still come out cheaper than a cable bill for 12 months.  For those of you that just HAVE TO watch all those new shows that come out, there is a fantastic invention out there that you may have heard of before.  NETFLIX.  This has to be the cheapest entertainment out there today.  Here at the Braun household, we share an account with Sheridan’s parents.  Today in 2018, Netflix for two screens cost $13.99/month, this cost is split between two households, so thats $6.50/month, or $78/year.  Now, my wife also has an obsession with the Bachelor and the Bachelorette, this is not available on Netflix, so we also have a subscription to Hulu as well.  This costs us $7.99/month.  Id be lying to the readers if I said that I didn’t also watch the Bachelor and Bachelorette with my wife.  Its……entertaining.  I have an odd obsession with documentaries too, so having multiple platforms really helps diversify the selection.  For a grand total of $14.49/month or $173.88/year plus a few Redbox movies here and there, we’ll round it up to $200/year.  This compared to $1200/year for cable or satellite.

What about internet? This is something we struggled with for a little while.  When I bought this house in 2015, I signed up for an introductory rate through one of two local internet providers for $34/ month for a 24 month period, plus $100 for the modem. This was all fine and dandy until the introductory rate ended, then our bill Skyrocketed to over $70/ month.  We very quickly cancelled.  Then we decided to try something a little bit unconventional.  Sprint was having a promotion of 4 unlimited lines for $100/month.  With each one of these lines comes 10gb of personal hotspot.  We were looking for a replacement for our expensive AT&T plan anyways, so we thought we’d give it a try.   With our AT&T plan, we only had 2gb of data per month, and with the amount of time we spend traveling, we frequently went over the 2gb/month of data and racked up some serious fees often times just from the GPS directions on a trip.  The phones that came with the plan were garbage as anyone could have expected, but luckily Sheridan got to keep her iPhone.  I wasn’t as lucky.  Sprint reception was also much more limited than AT&T, but in our neighborhood it was fine.  With the hotspot on our phones, we never ran out of internet data, and we were even able to stream movies over Netflix onto our 32 inch TV without much trouble.  It worked for a while and allowed us to save some money in the mean time.  Then 1year later we started getting charged fees for these extra phones and promptly cancelled them.  I bought an old iPhone off craigslist since I couldn’t stand the free Android phones anymore.   We not have just two phones on the same Sprint unlimited plan.  We added internet back but this time went with the other local provider.  This provider is a cable internet provider.  The internet seems to be much faster and more reliable and for less money as well. We have a promo rate for $29.99.  I bought the internet through a local internet broker and they were actually able to get me a promo rate, and said just to call back every year to get the latest promotion.  I have a really hard time paying more then a dollar a day for internet when I can get it for free just about anywhere these days.  If it comes down to it we could probably make a deal with a neighbor to borrow their internet for a fee.  We live close enough to the neighbors that the signal strength would be more than sufficient.  I highly recommend using an internet brokerage if you have one in your area.  They were able to get me the cheapest internet I needed for my use and at a discount to the market rate.  Couldn’t be happier about the result.

Grocery Shopping:

This is a spending category that is absolutely necessary.  Unless you are living off mom and dad or work in a place where they serve food 3 meals a day, it’s almost inevitable that you’ll end up having to purchase food.  And because of this necessity, it is quite easy for this spending category to spiral out of control very quickly.  I have to admit, we’ve had months where our food and and restaurant spending went over $1000 in a single month.  Granted that month was our honeymoon, but still, its quite embarrassing to admit for two people. Attacking this spending category could be as simple as bringing a bag lunch instead of going out.  Or skipping alcohol when out to eat with friends.  By doing this though, its kind of a drag on the lifestyle and definitely reducing the quality of life in our opinion, within reason of course.  Mitigating costs while still going out with friends could mean shooting for happy hour, or ordering the daily special.  Where costs really add up for us however, is the convenience of a grocery store only 3 blocks away.  This makes it really easy to no plan ahead meals and just run to the store to buy whatever is needed…and then some.   We have taken drastic measures to combat this in recent months but stopping a discount grocery stores like Aldi and Trader Joe’s on the way home from work.  Stocking up on big items like meat when it goes on sale, and planning meals days in advance.  Food is a category that some like to go wild with and get crazy into coupon clipping, taking pictures of receipts with one of many grocery store apps.  It is incredible how much money can be saved by doing this.  Food is one of the biggest expenses most households have along with housing and transportation.  Take control of your food spending! But don’t forget to live once in while.

Reducing Utility Bills:

Utilities are the most pesky expenses every month because unlike a phone bill, the amount is difficult to predict.  Especially in a climate with multiple different seasons.  Here in the midwest, it can range from over 100 degrees to minus 20 in a matter of less than 3 months.  And due to this, you energy bills could swing right along with it.  Here at our household, the furnace and water heater both run off of natural gas, and the rest of the appliances are electric.  I’ve looked into many different ways of reducing  utillities and non of them have a significant impact, but all the little tweaks added together have a significant effect on the bill.  The single biggest change in energy bill came from one item, a programmable thermostat.  This house did not have one when I bought it, it had an old manual dial thermostat.  At that time all we had was a window A/C unit as well.  The programmable thermostat is a godsend to the bills.  In summer it allows us to keep the house at a balmy 80 degrees during the day while we are both at work, and then a comfortable 75 degrees during non sleeping hours and 73 during the overnight.  This is about the warmest temperature that we can both sleep comfortably.  Colder would be better, but warmer is cheaper.  This along has a huge impact on the electric bill in summer.  Its the same in the winter.  It allows us to keep the house at 50 during the day, and 65 when we are home.  The greatest part is, once its programmed, you rarely have to tweak it unless someone stays home from work, and then its as simple as logging into an app on your phone from the couch to change the temperature.  It really doesn’t get any easier.  What we found hardest to believe, is that our central A/C unit that we had installed last year uses less electricity than our portable window unit.  Now, its not an entirely fair comparison because the little unit ran on Max 24/7 just to knock the edge off the heat in the house.  But it was far better than the ice blocks in front of a fan that we used for almost an entire year.  Another saving tip that we have is to turn the water heater down to the lowest tolerable setting.  We have it set low enough where the shower can be cranked up to full heat and its barely tolerable.  Theres no sense in keeping a giant tank of water any hotter than absolutely necessary.

One thing we highly recommend looking into is power company rebates or programs that reduce your energy bill.  Our electricity provider Xcel Energy has a program where they install a “Saver Switch” to your central A/C unit.  What it does, is it links up with other saver switches in the neighborhood and it will turn off select A/C units for up to 15 minutes at a time during high electricity peaks.  From the interior of the home we have not noticed any difference in our air temperature or comfort level.  It does allow the power company to not have to turn on as many peaking generators during high use hours saving them thousands of dollars, and in return, they give us a 15% discount on the entire bill.  I think this is quite generous, especially for a switch that costs us no money, and causes no disturbances inside the house.  Definitely take a look for programs like this in your local area.

Be sure to follow us on our Journey and check out the About page to learn

 

 

July 2018 Financial Update

July 2018 Financial UpdateSummer is here in full swing!  This month was a very good month for us financially.  Our Net worth is within a couple hundred dollars of being over zero.  Last month it was approximately $-13300 and now it is approximately -$500.  Next Month we should be positive! Finally on our way to financial freedom.  We use a net worth spreadsheet that I created as a simple way to track our assets and liabilities the way they are spelled out in the book Rich Dad Poor Dad.   This book is an absolute must read to understand our most basic philosophy on money and assets.  This month was filled with kayaking for us.  I believe we kayaked every weekend this month.  I was able to volunteer at an event where we took injured veterans and their families down Class 3 whitewater in inflatable rafts as well as in kayaks for the more advanced folks.  It was an extremely rewarding event and was a great way to give back to our veterans.

Landlord Report:

Our First Rental

Fairly quiet month for being a landlord this month.  We purchased a rental property in April of 2018, a single family residence 3 bed, 2 bath, 2 story home.  We currently have it rented on a 1 year lease to a single mom and 3 kids.  Our tenant recently went through a divorce and did not have full time work at the time of divorce so her credit was not good.  On the reports that we did during screening of potential tenants, she performed quite well with the exception of credit.  Because of the lower credit, we put her dad as a cosigner on the lease as more of a hedge against late rent.  This month we actually had to use the cosigner to pay some of the rent.  She had warned us upon signing the lease that there may be a few months of the year where she will not be able to pay the entire months rent on the first of the month due to attorney fees and whatnot from the divorce.  We have worked it out so far with the cosigner to make up for those later payments.   So far so good.  She has very open and prompt communication, and tells us ahead of time when she will not be able to afford the rent completely on time.  The system is working pretty well so far.  She was a homeowner previously and seems to have a grasp of basic home maintenance.  I will be quite pleased with rent being a little late in exchange for keeping my property in tip top condition.  We are very bullish on real estate as a prime investment vehicle for retirement.  We plan to finish renovating our current home, then selling to buy our new primary residence and another rental property.  My goal is to own 15-20 units by retirement.

The market where our primary residence is located is a red hot market right now for first time home buyers.  Inventory is very low and demand is high.  We are in the lowest cost suburb of Western Minneapolis and only 8 miles from downtown.  There is a light rail station planned to be built only about half a mile from here that will take passengers right downtown.  Its a little bit of speculation on my part, but the number on our house don’t lie.  Houses in our neighborhood are on the market for a matter of days and often times go several thousand dollars over asking price.  Just a couple neighborhoods over we are starting to see houses of the same age as ours getting knocked down with much bigger houses getting built in their place.  I am looking forward to the day that this starts happening in our neighborhood.  Its likely several years off however.

Renovation Update:

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This month has been light on the renovation front.  Summer is a busy time for us and I often do more renovation in the winter.  I was able to finally finish the last couple things on the fence that I installed around our property starting last fall.  I was between jobs for about a week last fall and the new job had a much longer commute, so my dog walking time was significantly reduced.  I wanted plenty of playtime for our boys though so we pulled the trigger on a fence.  It took me about 4, 12 hour days to put most of it up.  Enough to use through winter anyways.  Its been a slow process but this month I finally wrapped that project up.  I put a second skim coat on bedroom number 2 this month.  I am hoping this is the last skim coat I will have to do.  All 3 bedrooms in our house originally had wallpaper on the walls that was painted shortly before we bought the place.  Unfortunately the wallpaper was peeling away from the wall, so in order to remove the wallpaper, the paint had to be scraped off and then the wall paper could be steamed off.  The problem is some of the paint was really hard to scrape and there were quite a few instanced where the drywall has a nice gouge in it.  DCIM104GOPROGOPR4482.JPGThus the reason for the skim coats.  The first bedroom is nearing completion, I just plan to install a ceiling fan/light combo and then that bedroom is complete.  In hindsight, I should have probably just ripped down all the drywall and paid a handyman to put up and tape the new drywall.  Would have saved a lot of time and probably wouldn’t cost all that much more in the end.  Its kind of fun working with drywall mud though.  To complete bedroom two, it still needs an overhead light, trim, paint and a closet door.  Two of the three closet doors were missing when we bought the place.  Another project I started and will probably not finish this month is installing a garbage disposal in the kitchen.  When I went to install a switch  to turn the garbage disposal on, I discovered some questionable electrical work in the wall, so I have a handyman friend of mine coming over to look at it early next month and determining if he can fix it or if I need to hire an electrician.  If I need to hire an electrician, I am going to have them do some other work as well like installing the lights in the bedrooms and a vent fan in our bathroom.  This will really speed up some our renovation plans but it will also take a hit on our budget.  Luckily since we use the expense tracker we only budgeted for two paychecks in August, but August is one of those two months a year where both of us will actually receive 3 paychecks.  So, if the electrical upgrades get kind of expensive, we will at least have a little hedge on our side.

Stocks Report: 

We do not actively invest in the stock market, but I do contribute to a Roth 401k to get the employer match through my work and we contribute to a Roth IRA for more experimental purposes than anything.  I plan to invest more in the stock market once the market cools off a bit.  China is taking a huge hit right now and their economy is looking quite bearish right now.  I think there will be real big opportunities in China in the future, but for right now, we will focus on real estate.  Sheridan and I both have a Roth IRA, Sheridan has a self directed IRA that my dad manages, this money is from her 401k at her former employer.  And we have a joint IRA account.  Our total contributions this month to stocks was $278 dollars of post tax money.  Again, this is not our current strong point.  Despite my dad being a stock broker and financial advisor, I actually know very little about stocks.  Low cost index and mutual funds seem enticing to me, but I will have to study them much more before we invest.  I would however like to use Sheridan’s self directed IRA to purchase a coffee farm in Panama.  I am currently studying this.  I would like to own lots of agriculture and timber in our portfolio as they mature.  We are still in the studying phase of this however.  I am also watching the community based nuclear power project that Bill Gates is pioneering.  As fossil fuels start to dry up in the coming decades, I can see nuclear power come into the picture as a major player along with the continual reduction of cost in other renewable energy sources like solar and wind power.

Goals for 2018:

Our goals for 2018 have been taped to the front of the refrigerator since the first day of the year.  See the status below.

Purchase a rental property with 10%+ Cash on Cash return — 100% complete

Go on one International Vacation: 0% Complete, booked for September 2018

Go on one domestic vacation — 100% Complete, Tennessee in June

Finish All bedrooms and bathroom renovations — 20% Complete, behind here

Go To Gauley River (River Festival in West Virginia) — can’t go this year due to overlap with our international vacation.

Achieve our desired fitness goals for the year — way behind on this one.

We have been very good about scheduling vacations this year.  Vacations are very important to us.  When I was in negotiations for my new job that I started last November, I took a pay cut in exchange for an extra week of vacation time.  I think it is totally worth it.

Expenses:

July Expenses

Gas: $684.23

Food: $534.49

Drinks: $68.48

Recreation: $609.70

Other: $1262.82

Dog/Cat: $0

Home Improvement: $135.90

Bills: $1547.70

Charity: $293

Investments: $100

Savings: $2250

July was a great month for our savings, we allotted an extra 250 to savings over a normal month.  We are really going to start attacking the food expense in August.  The 3 most expensive categories for us tends to be Taxes, Housing, and Food.  For gas, this rises and falls with the price of fuel.  I drive almost 27000 miles per year for work, so we control that by having me drive the more fuel efficient vehicle while Sheridan drives only 10 miles to work, so she drives our truck or bikes in the summer time, occasionally taking the bus as well.  Its getting harder for her to take the bus and bike however because she is doing so much volunteering for Occupational Therapy.  She has been really trying to rack up some volunteer hours in preparation for applying to grad school.  I think she’s going to do great!  We have taken huge strides in the past to reduce our housing expenses.  I called probably 30 different insurance companies to find the best rates for home and auto, I used a broker to find us a deal on high speed internet and I replaced our manual thermostat with a programmable thermostat to control our utility costs.  Lsat year we had a central A/C unit installed, which surprisingly has been more cost effective than window units.  We  had the electric company install what is called a saver switch, which allows them to control our A/C unit during peak demand, shutting it down for 15 minutes at time.  In return we get a 15% discount on our bill.   SO, long story short, we will be highly focuses on our food budget.  This includes groceries and restaurants.  We don’t really go out much at all.  Our food budget usually gets a little out of control from lack of planning that involves many small trips to the local big box chain down the street from our house.  It definitely is not the cheapest store in town.  We will be trying to plan meals, buy meats when they are on sale, and shop at discount grocery stores like Aldi and Trader Joes.  Aldi has the lowest overall prices by far, but Trader Joes has great produce and a little more variety.  Either way, they are both dramatically cheaper than the big box chain.  I look forward to seeing the results.  We are in the process of really controlling spending much more than usual in order to prepare for the potential of having to live off one salary while Sheridan goes to school.  I plan to monetize this blog as well once readership increases.

 

Net Worth (+$12,600):

July was a great month for our Net Worth,  I’ve been tracking our net worth only for about 5 months so I don’t have a lot of data to share yet.  It’s a little bit difficult to track since real estate is such a large percentage of our small portfolio.  Our Real estate have been appreciating well, but we don’t rely on this in our retirement plan.  Appreciation is merely icing on the cake.  What I am most interested is cashflow from multiple different income streams.  I’d like to have 7 or 8 different income streams at some point down the road.  Right now we only have two, our primary jobs and a rental property.  I’d like to add a business or two to that list, as well as a blog and other cash flowing assets.  My focus for now is on this blog. I really enjoy blogging and is a great way for us to be held accountable to our goals.  I have probably 30 business ideas in my head every week, most are ridiculous but it shows that I am constantly looking into the future.  I don’t plan to work in engineering forever.  I will definitely get burned out unless I progress to the top quickly.  I do many things my own way whether my employer likes it or not.  My last employer did not like me going off and doing things my own way, my current employer seems to welcome the creativity so far.  I am not afraid to say things when I disagree. This can be an asset but it can also just cause headaches.  Anyways, if I were in control of an operation I would really enjoy my work.  I like to oversee projects and delegate tasks.  My strengths are analysis and report, and right now I don’t do any of that.  I am a design engineer that specifies components and builds assemblies and drawings in computer aided drafting programs.  Its gets a little mind numbing after a while.

Cashflow (+$560)

Our cashflow is currently limited to our one rental property.  It spits out $560 gross cashflow per month. After accounting for vacancies, repair, capital expenditures and property management however, our net cashflow is approximately $195/month.  Not bad really for a nearly turn-key rental.  So far so good.  Cashflow is my main investment focus.  Primarily cash flowing assets that also tent to appreciate over time, and tax advantaged assets are even better.  Tax advantaged assets can be divided into 4 main categories that we will focus one.  The US government provides tax incentives to those that provide housing, jobs, food and commodities (Oil).  There are many tax advantages to every one of these, and two of them stand out above the rest due to the ability to use leverage.  Real Estate and Business.  A business however is a bit too active for my time allowance right now though so Real estate is the winner of this group.  Real estate allows wealth to be built in 5 different ways.  Cashflow, appreciation (leveraged), principle pay down, depreciation (tax advantage), inflation hedging (decreased purchasing power of the US dollar).  And for these reasons, we chose real estate to kick start our wealth.

July Summary:

Our July was a great month for our net worth, we hope to have more like this! Our home renovations are way behind but hope fully they will start coming together in August.

How was your July?  Be sure to leave a comment below.

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Download your FREE Expense Tracker   HERE

The expense tracker is a vital first step towards financial independence.  Being intimate with your money, knowing where every dollar is allocated will make it exponentially easier to invest those dollars in things that pay YOU!  That’s right, the key to building wealth is making your money work hard.  Picture every dollar is a little employee, going out there every day and working hard to make you more dollars.   But before you can train your dollars to work for you, you must first learn how to control them.

The user interface:

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This is the main page of the expense tracker.  The layout is quite simple.   Your net monthly income is on the upper left and your expenses are listed below under each respective category.  We use credit cards for almost all expenses, so it makes it very easy to open the credit card statement online to view our expenses and transfer them to the expense tracker.  Then on the bottom of the spreadsheet you’ll see each month of the year in a separate tab.  By breaking out by month it makes it easy to line your expenses up with your bank statements.  The last tab is a bonus tab, these graphs pull the information off the entire spreadsheet to allow you to track trends in your spending.  Below I’ll explain each of the areas of the spreadsheet in more detail.

Your Net Income:

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Your net income is not quite as obvious as you might seem.  This is NOT your yearly salary divided by 12.  This is your actual income for the month.  If you are paid bi-weekly like sheridan and I are, there will be two month every year where you’l receive three paychecks.  By only expensing two paychecks a month, your third paycheck is a “bonus” on your expense tracker.  This seems counter intuitive that you’d want less money on your expense tracker each month.  BUT what it does, is it trains you to live on slightly less.  This is where the magic of building wealth starts.

Bonuses, Cash Sales, Gifts:

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The extra’s and bonus input is for all the extra income that you might receive in a given month.  This is where the extra paycheck will go discussed above.  This is where the $20 cash you get from your grandma on your birthday goes or the old nightstand you sold on craigslist.  Anything “Extra” goes here.

What to do with CASH $$?

Sheridan and I do one of two things with cash.  We either put it in the bank right away, this is a way of forcing ” savings” OR we expense it in the “Other” category.  We do this for a couple of reasons.  Cash is incredibly hard to keep track of, especially if you aren’t updating you expense tracker every single day.  For this reason, we put cash into the bonus input, then immediately expense it in the “Other” category.  That way when you spend the cash, you don’t have to worry about receipts.  The easiest way to deal with cash though is to immediately input it into the bank and forget it ever existed.  If you deposit you cash into the bank, leave it off of your expense tracker.

What about withdrawing from an ATM?

When you withdraw money from an ATM, this money needs to be expensed immediately.  Put it in the “Other” category, unless you know that it’ll be spent on a  girls night out or some other occasion.  The category is not really relevant, what is important, is that this money makes it to the expenses and does not get included in the income.  This money was taken out of your savings or checking account, not from a paycheck.  Therefore this cash is an EXPENSE not a bonus.

PAY YOURSELF FIRST:

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SAVINGS.  This is the most important expense of the month.  Wait, expense? How can savings be an expense? Its simple really, if you treat savings as a recurring expense, like a cellphone bill or rent/mortgage, it forces you to live off what is left.  Savings should be the first expense of the month.  Its kind of like paying yourself first.  You pay yourself before you pay the Netflix bill and before going to that pizza and beer night with the guys.  Wealth building in action!

But I don’t know how much I should save?

This is a common problem. How much is reasonable to save in a month? Ideally the more the better, some bloggers on the interweb claim to be saving 60% or more of their gross income.  This however is extremely unrealistic goal for most just starting down the financial freedom path.  The higher your savings rate, the faster you’ll reach your financial freedom goals.  If just starting out, set a savings rate goal of about 15% of your gross monthly pay (two bi-weekly paychecks). Sheridan and I currently are able to save about 20% of our monthly income on a good month.  Our goal is to be closer to 30% but we’ve been racking up some home improvement bills recently.

How Much is Left?

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Just how much is left at the end of the month? This is highlighted in green in the picture above.  The goal is for this number to be above zero by then end of the month. If this number is positive at the end of the month, you are doing great!   Do it again next month OR maybe up your savings target for next month and challenge yourself on your expenses to reach that savings target,

So what if my left over is below zero?

DO NOT give up and go back to sitting on the couch and watching Dancing with the Stars.   This is time for reevaluation.  Was the savings goal too high? Did your expenses get out of hand this month? There could be several reasons why it might have happened.  What is important though is to continue driving forward and not giving up.  There are a couple of things that need to happen if your left over is less than zero.

  1. Lower your savings target.

This may not seem ideal, but when just getting started using the expense tracker, you must set a reasonable goal of what can be saved in a given month. You need to be able to hit your savings goal consistently each month or else you’ll get discouraged and quit.

     2. DO NOT let this money disappear

What do I mean by that? Lets propose a hypothetical situation where you had to reduce your savings goal for a given month to zero.  Maybe it was moms birthday and Christmas season all in the same month and your also had a girls night out.  The savings target for the month is zero and your left over is below zero. You CANNOT just start fresh next month and let that negative month slip by.  This means that your spent more than you earned in a given month.  You MUST take your negative amount from the previous month and put it as a negative amount in the “Bonus” section of the expense tracker.  This was it is reduced off of your income right away in the month.  DO NOT just reduce your savings target for the next month to make up for the previous month,  This is a recipe for disaster.

If your are diligent in using this spreadsheet, what your will find is that it gets easier and easier to hit your savings target and the unexpected expenses like car repairs or a trip to the doctor get easier to absorb into your monthly expenses.  Sheridan and I are to the point now where we actually expenses portions of a vacation into our monthly spreadsheet.  For instance, if we have a vacation planned for September, we’ll expense our plane tickets in June, Hotels in July, Car rental in August so that when September rolls around, almost the entire vacation besides things like food and gas have already been expensed.  And food and gas are expenses that normally occur in a given month anyways.

The whole point here with this expense tracker is to become more intimate with your money.  Money should not be a taboo subject and should not be feared.  Money is a tool that can be used to accumulate wealth. Money allows your to have the ability to buy assets that pay YOU.  And over time these assets that are paying YOU will generate more income than your monthly expenses.  At this moment, you are financially free.  This is where wealth building gets incredibly fun and exciting.  Join us on our journey!

Please leave a comment or suggestion below.  Let us know your progress! 

Expense Tracker 2018