Why We Won't Be Owning A Boat

This past weekend was just gorgeous.  The sun was shining, it was warm and breezy, and we spent a good amount of time outdoors.  We played bocce ball, we barbecued, and we also went down to the nearby river to watch the boats drive by.

We are blessed to live by many rivers and lakes, and growing up I spent many summers at my grandparent's cabin swimming, boating and fishing.  I love the water, and being near it on a summer day seems to be a necessity.  We're not sure if we're going to stay here long term or not, but when we day dream about what our future life here might look like we often talk about buying a boat.

The cost of living is quite low where we live and so having a boat seems like a small luxury that will give us lots of enjoyment, but this weekend I found myself reconsidering.

My husband and I were sitting under a shady tree right on the water, and it was like heaven.  We had a lovely breeze, we had jugs of cold water and sandwiches, and watching the boats putter and the ducks splash gave me such pure joy.  I turned to my husband and asked him if sitting here on the bank was really so much less fun than puttering in a boat.  He immediately said that yes, a boat is more fun, but then I asked him why and he couldn't really come up with anything.

It'd be one thing if people were tubing or swimming, but unfortunately the river isn't very clean, so most people just boat to chat and feel the breeze.  Here we were though, chatting, enjoying the breeze and the smell of the water, under some shade that some of the boaters were sorely lacking, and near some public restrooms if necessary.

I know that a boat is fun.  I love driving a boat, especially really fast in open waters, but I don't know that I love it so much to derail our financial goals.

So let's look at the financial impacts:

• A used 2000 Stingray Speedboat will cost around $9500
• A boat slip for a year will cost $1,888 in my area
• Transfer and registration will cost $45.75 the first year and $32 thereafter
• Winter storage will cost about $25/month or $225 for the 9 months of the off season
• Gas for a weekend may be around $40 a weekend (based on a bit of research but it obviously will vary) so an estimate of $480 for the summer

The total cost of this boat will be $12,138.75 for the first year and $2,625 each year going forward.  While a boat is really fun, I don't think the extra fun I get from putting around the water versus sitting on the bank is worth that much money.  To put it in perspective, to afford the yearly cost after the original purchase we will need to have an additional $65,625 in our portfolio to be able to generate that amount based on a 4% return.  That is a whole lot of extra dough needed for a little bit of fun.

The other factor to keep in mind is the number of times we will actually be able to enjoy the boat.  Most weeknights we are too tired to go anywhere so we'd probably only use it on the weekends.  For 3 weekends of the year we are typically out of town, leaving only 9, and then how many of those will be bad weather or will we simply not feel like heading out?

Bottom line is that a boat, while fun, just isn't in the cards for us.  But that's okay because we can still enjoy the water just fine sitting on our blanket under a shady tree, with great food and good conversation.

Phoebe

Keep Your Money In Your Pockets Tip #32 - Don't Select Living Space Based On Once-a-year Events

I love watching House Hunters on HGTV.  Since we don't have cable I can only watch it when I'm travelling and so I make every second count and typically watch 4 or 5 episodes in a row.  I find it fascinating to hear what people are searching for, and besides being astonished by how picky people are ("I would have to re-do this entire bathroom - I hate gold faucets") it shocks me how often people factor in once a year events.

I get it though, I really do.  I have a mom that puts on a spectacular Christmas dinner.  Growing up we had a formal dinning room (we lived in an older house) and we ate in it 3 times a year (Christmas, Easter, and Thanksgiving).  It felt like a big deal when mom pulled out her green table cloths and it was clear that we had to dress up since an occasion that was held in the formal dinning room clearly called for it.  The occasion was festive and elegant.  I loved it.

So it's very tempting to want to recreate that in my own home.  Last year I hosted Thanksgiving and I fretted over not having a fancy tablecloth or a formal dinning room, let alone dinning room table.  We all ate at my kitchen table with mis-matched serving platters and you know what?  It was just fine.  It turns out the occasion is marked more by having our entire family together, giving thanks, and eating great food.

But, I'm not going to lie, I do still prefer the fancy dinning room experience.  But, I don't value that preference over being able to retire early.

If we were to plan for having guests over for these occasions it would go far beyond just needing a dining room table and a room to house it in.  We would also need to upgrade to have a guest room and at least one more bathroom (we currently have just one).  All of these things are considered givens for having overnight guests, but that would likely double what we spend on rent each month.

There was a time in my life where I would have gone for the upgrade.  After all, my main motivation was impressing others with my success so even if it happened just once a year, that was my priority.  But now, I find ways to make the once a year event work, while selecting a living space that makes the most sense for my family the other 364 days a year.

We put people up in hotels if we think they'd be more comfortable there, we purchased extra fold away chairs so people would have a place to sit even though our living room doesn't typically have a couch that's big enough, and we prepare a lot of great food, because somehow that seems to make a party.  All of this costs less than paying double the rent for the entire year and so it's a trade off we're happy to make.  It may not be as impressive as having a large home perfect for entertaining, but the people we have over love us for other reasons.

But this principle doesn't just work for homes.  I have a friend who told me he had to buy a new car because twice a year a conference is held in his hometown and his big boss came in and expected to hitch a ride.  He said that he had to have a nice new car since he was in sales and that image was expected.  Instead of buying a new car, I suggested that he stick with his trusty older model and simply rent a new car for those twice a year events.  He already spent a fortune having his car professionally cleaned for each event, so that cost would be eliminated, and the cost of paying for a rental 2 days a year would be far less than the cost of buying and maintaining a new car.

My friend's eyes lit up, and he was so relieved to have found a solution.  Now he could save face in front of his boss without derailing his goals.

So next time you're tempted to upgrade based on an event that happens infrequently, calculate the additional cost you will be incurring and see if there is an alternate approach that can fit your needs while keeping you on track financially.

Phoebe

Money Lessons From Breaking Bad

Over the last few months my husband and I have gotten into the show Breaking Bad.  We're a bit behind, since we just started watching it on Netflix and we're a bit addicted (pun intended).  The show follows a high school science teacher named Walter who finds out he has stage 4 cancer and decides to start cooking and selling meth in order to generate income to leave his family upon his demise.

Last night we watched an interesting episode where the leader of a drug cartel had dinner with Walter and was giving him a bit of advice.  He told Walter that he needed to "learn how to be rich."

In this case, I think he was referring to money laundering and breaking ties with a junkie partner, but it got me thinking about my own situation.  I'm still not sure what it means exactly, but I do think I have some things to learn about being rich.  Now being in debt and broke I've got down, but having money available to me is a whole new world and there's some things I'd like to get better at.

1. Investing - I didn't grown up in a family where investing was discussed and it's the one area of personal finance that makes me feel insecure.  I don't know much about the market, different investment options, and how our portfolio should look given our age.  I've done a fair amount of research but I still feel out of my depth.  I've read that the amount you save has a much larger impact on wealth than the investments you select, and so I've given myself a bit of a free pass on this front, but as we continue to grow our networth the amounts invested will become quite large and we could be leaving a lot of money on the table by choosing the wrong ones.

2. Having an Abundance Mentality - Because of the recession and the impact it had on my immediate family, I feel like I have been in survival mode for a few years now.  Even though we now have a substantial amount in savings, I find myself worrying about losing it all more than I should.  I think this is similar to people that lose a significant amount of weight and still feel like an obese person.  I still feel like someone barely getting by, or even in debt, and I'd like to work on feeling more security and gratitude for the progress that we've made.

3. Defining Enough - The entire purpose of this blog is to strive to define and achieve "enough" and while I've been able to successfully lower our lifestyle and find happiness in that, with more money comes more possibility in the future.  For example, I never before dreamed of having designer items, but on a recent work trip to NYC where we passed Prada and Gucci I found myself wondering if I'd ever be able to walk in and purchase something really extravagant.  My spreadsheet predicts that if I continued to work and save until a typical retirement age we would have over $40 million and the knowledge of that is making me day dream of items I had never even considered before.  Having money is intoxicating and I need to focus on what drove me to go down this path in the first place, the desire to have more time, not more things.

4. Taking Risks - Most people that make it big are fairly good at taking risks.  They start their own businesses, invest in new ideas and sometimes they win big and sometimes they lose.  This seems to be a big differentiator between the wealthy and the rest of us and it's something that I really struggle with.  In fact, I hate thinking of the risk that even comes with something like home ownership where a large expense may suddenly arise.  We've also discussed owning rental properties, but the fear of having a bad tenant paralyzes me completely.  I want to see money as a tool to generate more money and view taking risks as part of the journey.

5. Being Authentic - Living our small life with $400K in the bank can sometimes seem like a flat out lie.  Intellectually I know that isn't so, but I also know that as a society we judge how wealthy someone is by the things they own and do, and by those measures we would appear to have very little.  There are times that I feel like we're being quite misleading, or even lying about our situation and it can leave me feeling ashamed.  I'd like to find a way of being more authentic and open with those around us.  It may mean sharing our goals for retiring early, or perhaps just coming to terms with the fact that we have a lot of money but what we want others to see from us is that we have a lot of security, love, and joy in our lives, and take pride in that.

I had never thought about needing to learn how to be rich until last night.  You just accumulate a lot and spend it lavishly, right?  But I think there is something to it.  I think there are seismic shifts that take place as you accumulate wealth and it's important to try to continue to learn and grow in order to find your greatest happiness at this new stage in life.  Wish me luck!

Phoebe

Rebalancing Our Invesments

This week we did something pretty scary that we have never done before; we sold stock.  My husband and I each have 401K's, we have a taxable investment account, and I also have some company stock that vests on a quarterly basis.  Until now we have never sold any stock, but we decided that the time was right to sell some of my company stock to become a bit more diversified.

The stock has been a pretty good performer, and I was starting to have some panicky thoughts about how I would feel if it suddenly plummeted.  I had never had that happen to me, and I don't even really worry about that with our taxable investments because we are diversified in index funds and practice dollar cost averaging.  This way, even if the market plummets, we know we're buying a ton of stocks on sale, and since we're in it for the long haul we have confidence that things will eventually come back up.

But with a single company who also happens to be paying my salary, the stakes are much higher.  All it would take is one bad quarter and I may lose a whole chunk of my networth.  So, last week my husband and I set up an order to sell if our stock went to a price close to the previous high (which it had surpassed the day before).  The stock didn't hit that price that day, the next, or even the next.  The stock in fact fell a few dollars and we started to panic.  We so wish we had just sold it that first day, at whatever price was being asked, but it was too late.

We still thought the right thing to do was to sell and put the money into index funds, and while we hated the idea of selling it a few dollars down (mind you this isn't $600 a share sock we're talking about) we also hated the idea of waiting too long and selling it even lower.  So we made the decision to sell it at the current price and immediately felt better.

We spent a lot of time over the next few days asking each other how we felt.  We wanted to gauge if we were happy with our decision or if we had pangs of doubt so that we could take a different course in the future.  All in all we only sold about 12% of my total stock (though about half is not yet vested) so we will face this decision time and again and we want to handle it better the next time around.

Well the verdict is in, and even though the stock went back up a couple bucks (still not to the price we originally wanted to sell it for but about halfway there) we feel good to take some of our eggs out of my company's basket.  It's hard to live by the swings of one stock price, and having a little less in there helps us to sleep at night.  But, we aren't happy with how we went about trying to sell.  We were trying to time the market a bit and it gave me a lot of heartache.  I never feel like that about our 401K contributions or the amounts we sweep into our taxable investment account, and so there's no reason I should feel any different in this situation.

What we've decided is that going forward we will sell a percentage of my shares on a quarterly basis and then put them into index funds along with our regular investments, over 4 investment periods (we invest bi-monthly so that would be 2 months).  This is all so new to us so we'll be continuing to tweak our approach along the way, but for now I'm happy with this plan.

I'm glad that we'll leave some money in my company stock so that we still have the chance to hit it rich if something astonishing happens, but I also like it that we are systematically moving money out of the company stock and into index funds.  This will allow me to sleep at night, knowing that our networth won't jump up and down quite so violently, and that our future is more secured.

Those of you with company stock - how you do handle this dilemma?

Phoebe

How To Lower Your Lifestyle Organically

If you are facing a ton of debt, it's time to get focused and make some hard decisions.  With tens of thousands of dollars owed to someone else I felt scared and trapped and I decided to move in with my parents for a year in order to make some serious headway.  Unfortunately I owned nothing of significant value, otherwise I would have been selling off my possessions in a heart beat to get out of the mess I was in.

But now I sit here a few years later with no debt and no pressing need pushing me to decrease my spending and my lifestyle, yet I know that I want to in order to make early retirement in my mid-thirties a reality.  Ideally I'd like to be able to live off my husband's salary alone ($29K gross per year) so that we could transition slowly into full retirement starting with me quitting my job since I'm the one that travels and he is more passionate about his career.  But that means bringing our spending down by about $9K per year.  It sounds like  a tall order but Mr. Money Mustache and his wife spend about that each year, so it's worth a shot.

We're working on trimming down in all areas, and one thing we've started to do that has helped us to organically decrease our lifestyle is to not immediately replace something that has stopped working.  For example, a few weeks ago our electric toothbrush broke.  I had had that thing for about 6 years and like many small luxuries that creep into our lives I told myself that I needed it, that it kept my teeth super clean, despite the fact that the disposable heads cost a fortune and my dentist warned me that I was over brushing and wearing the enamel off my teeth.

I was just used to it and liked how it felt and since there was no way I could sell a worn toothbrush, didn't see the upside in getting rid of it.  So when it went on the fritz (which involved freakishly turning on and off at all hours of the night) I immediately started looking to replace it.  And I wasn't going to replace it with some cheap hand held battery version, because I still had a set of those expensive disposable Panasonic heads.  So I sat at my computer staring at this $150 device I was about to purchase and decided to wait a week or so.

We had already spent a lot in our "household" category that month, and I had been using one of the many free regular toothbrushes that we have on hand, and getting by just fine.  So I waited a couple of days, and the desire to replace the electric version has disappeared.  It turns out that a regular toothbrush, which we get free every 6 months from our dentist does a great job, gives me more control over the pressure that I brush with, and keeps $150 plus the cost of disposable heads in our pockets.

It would have been kind of painful to get rid of my electric toothbrush a few months ago because I would have had to simply imagine the savings I would get by no longer purchasing the disposable heads, but not replacing it is much more satisfying because I know that I got to keep the $150.

We had another breakdown in the Phoebe household last week which yielded different results.  Our kitchen timer stopped working, and I thought that employing the same strategy might save me some dough.  So I used the timer function on my iPhone to give it a try.  I'm going to buy a new kitchen timer.  Cooking at home saves my family so much money and a simple $5 timer makes it so easy for us to put some potato fries in the oven, and work on something else while they cook away.  My iPhone was challenging because I tend to carry it around to other rooms and leave it places and so when the buzzer goes off I may or may not hear it.

So delaying a replacement may not take away the desire for that item, but at least you'll know that it is something that greatly adds value to your life, and is worth your hard earned dollars.

So next time something breaks down, give yourself a few days before running out to purchase a replacement and see if it's something you can live without.  If you can, great you just downsized your life in a very easy way, and if you find that you need that item then you can feel really good about making the purchase.

Phoebe

Keep Your Money In Your Pocket Tip #31 - Avoid Disposable Items

We are a society that is fast moving and all about convenience.  We want to have tools that allow us to complete tasks with the greatest of ease, and when we're done with them we want them out of our sight.  Welcome to today's throw away culture and I think we're all guilty of it.

Back in the day I was known for getting overwhelmed at times when work was stressful or I was trying to achieve some goal, and just to get me through a tough time I'd use plastic plates, cutlery, and cups to avoid the inevitable pile of dishes that would accumulate in and around my sink.  Somehow these tough stretches would last a bit longer than they'd have to, and because of my laziness I would send countless pounds of unnecessary trash to the landfill.

But I didn't stop there.  Another not so fun task that I tend to get behind on is household cleaning.  Dusting, mopping floors, and the like are not my idea of a good time and because I wanted a clean home to live in I felt I needed to make the task as easy on me as possible so that I actually had a chance of doing it.  So I diligently purchased a series of Swiffer products.  I bought the Swiffer duster with the one-use dust trapping cloths, the Swiffer floor cleaner, and of course the one-use Swiffer dry cloths and the one-use Swiffer wet mopping cloths. 

Yes, my house was pretty clean, but I was spending a ton of money on refills, and I had a sneaking suspicion that this was exactly what P&G had intended when rolling out this product line.  Still, I dreamed of upgrading my basic Swiffer mop to a top of the line version that would also require the special cleaning spray refills.  One can dream.

To make scrubbing the toilet, arguably the worst cleaning task in existance, a bit more bearable, I would purchase the Clorox toilet scrubbing brushes with a one-use disposable cleaning head.  That way I wouldn't have to have a disgusting toilet brush sitting around when not in use.  Next I would make sure to stock up on paper towels every week.  We would use them as napkins as well as rags to clean up spills and for cleaning surfaces.  These generally didn't hold up very well and so for a particularly bad mess we'd use perhaps half a roll, but that's what everyone does, right?

Well not anymore.  As I started to reign in my budget it became glaringly obvious to me that I was spending a ton of money on things I was literally throwing away.  Instead of purchasing and using the items I've discussed, we switched to these alternatives:

• Real plates, cutlery, and glasses which we wash nightly
• Cloth napkins instead of paper towels
• Cloth rags instead of paper towels
• Cloth dusting glove instead of Swiffer one-use dusters
• Rubbermaid Swiffer-like mop with refillable chamber for cleaning solution and washable cloth cleaning pad instead of Swiffer one-time use dry mop cloths and one-time use wet mop cloths
• Toilet cleaning brush with an angled side brush to clean under the rim and some cleaning solution instead of the Clorox toilet scrubbing brushes with one-use disposable cleaning heads

The remarkable thing is that in making these switches we have actually become more efficient in handling the household tasks these items were meant to make easier.  For example, a damp cloth rag works far better on a tough spill than half a roll of toilet paper.  Yes, we have to be a bit more diligent and make sure that we wash our rags and napkins each week, and wash our dinnerware each night, but it makes us feel better to do so, and we feel great knowing that we are generating less trash as we go along.

But, there are still things that we purchase and throw away:

• Toilet paper
• Tissues
• Make-up removal wipes
• Zip lock bags
• Feminine products
• Trash bags

Some courageous folks have found alternatives to these items like family cloth, using handkerchiefs, and a Diva Cup.  I'm not there yet, and I'm not sure I ever will be, but I do still have some strides I'd like to make.  I'd like to have more Tupperware items to remove the need for zip lock bags, for example, but I am pretty happy with where we are right now.

We're at a place where we've cut out the bulk of our waste, in a way that works with our lifestyle.  If you use disposable items, that certainly doesn't make you a bad person, but it's great to evaluate these items to determine if it truly makes sense to keep up with your strategy or if it makes more sense try out an alternative which may be more efficient and also save you money.

The key is intentionality.  Don't just go along because some marketers are telling you that these products will change your life, but instead review them with a critical eye and make the best choice for you and your family.

Phoebe

My Thoughts On Paying For College

We don't have any kiddos yet, but the topic of paying for college is one that frequently comes up in the Phoebe household.  The reason is that whether we plan on helping out with college, and to what extent, will have a huge impact on how much we need to have in savings before we retire.

A big impact on our decision comes from how our parents approached the situation.  My parents told me that they would pay for a local state school that is quite good and ranked in the top 50 colleges in the country.  Their only exception was if I got into my dream top 10 school that I had wanted to attend my entire life. Their reasoning was that if I worked my butt off to get the grades to get there they'd pay for it, otherwise they'd pay for a very good state school.  If I wanted to go to a different private school I'd have to pay the difference.  I couldn't believe it when I got into my dream school, and neither could my parents, but they held up their end of the bargain.

It was tough though, because my parents got hit when the stock market fell in the early 2000's and paying my tuition was no longer a no brainer.  Halfway through my time there, they had to take out some small loans, and I also took out a $20,000 loan for a summer semester that I elected to take.

My husband's family did not adhere to these kinds of conditions and simply paid what they could.  My husband went to a state school and got some loans and grants, but not a large amount.  When his sister attended a private school, his parents paid what they could, which was more at that time.

Now since we don't yet have any real kiddos to plan around, I reserve my right to change my mind on this, but at the moment we're thinking about giving each of our kids a lump sum to use as they see fit.  We're thinking around $100,000 each (in today's dollars).  Our thought process being that they can elect to budget that money however they want.  If they want to attend an Ivy League university, they can take out loans to cover the difference, but in that case they are also likely to have a higher earning potential, where I would hope their debt would not be crushing.  I have friends who came out of school with over $100,000 in the hole, and they have all paid off their loans since then (in less than 10 years).  I know it can be really hard, but working off my debt was one of the best learning experiences of my life, and seeing my friends succeed I know it can be done.

On the other hand, if they elect to attend a state school, or work hard to get scholarships or grants, they can use the remainder of their money to start their life by purchasing a house, starting a business, travelling, or funding a year with an unpaid internship.  I'm also hoping that knowing that each dollar they spend is their own will motivate them to graduate in 4 years and actually attend class and value their education.

But there are some concerns that I have and some very serious potential pitfalls.  First, part of me feels guilty for not planning on paying for the entirety of college, regardless of the costs, since I have the earning potential to do so.  I also feel a bit bad because my parents paid almost all of my schooling and it seems that I should pay it forward and do the same for my children, but my counter argument is that my goal is to raise the best kids possible which may or may not mean paying for their higher education in full.

Next, giving an 18 year old $100,000 sounds like a bad idea.  If I had gotten that kind of money I probably would have started a band and tried to go on tour, which in the grand scheme of things is probably one of the better things a young person could elect to do.  On the much scarier end of the spectrum, the money could  be used to purchase a designer sports car or even fund a drug habit.  I think putting very specific rules around how the money can be accessed and used may help with this, and we could look into trusts or things of that nature, but doing so also takes away the element of allowing them to truly budget as they see fit.

I also worry that our kids will have a sense of entitlement.  $100,000 may not pay for an Ivy League school, but it is a lot of money and more than many parents contribute to their child's education.  Will my kids start to sit back and skate through high school, not apply for scholarships because they know we're footing the bill?  I was fretting about this the other day when my husband pointed out that we are in charge here.  If we want to insert some conditions about what they are contributing we certainly can.  For example, we can match any amount they are able to save on their own or raise via scholarships.  This is an interesting idea that I'd like to explore further.

Lastly, here I am completely against debt and I may be encouraging my kids to take it on when I could simply work a few more years and have them covered.  I hate the idea of having my kids start their lives this way, but at some point kids need to grow up and be allowed to make their own decisions and mistakes.  I heard all about the dangers of credit card debt, but only truly understood it after I had dug myself a very deep hole.  We can educate our children about debt and how the choices they make when selecting a school will impact their finances, but in the end, I'd like it to be their decision and one where they are the ones to deal with the consequences.

So what do you think?  I'm by no means sure of my plan, but am just leaning this way at the moment.  Do you plan on funding your children's college education?  If so, are there any conditions around it?

Phoebe