Introducing the Subway Footlong Index (SFI)

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I was reading Retire By 40 a couple of days ago and Joe had a good article about not forgetting about inflation in retirement. After all, if you are going to "Retire by 40", you've got to consider dealing with potentially 45 years (or more) of inflation. If you retire at age 65, you are looking at "only" 20 (or more years). (Yes, that's me getting 'mathy' by subtracting 25.)

Inflation over 45 years is a significantly bigger deal than over 20 years.

In the article, Joe mentioned the rising prices of the lunch special at a local Chinese restaurant. In a few years, the $5.50 special became a $7 one.

That triggered a thought about my own mental inflation index, the price of Subway footlongs subs. You might remember that back in 2008, Subway launched a $5 footlong promotion. From everything I've read, it was fabulous successful, so successful that it became part of the regular menu.

Over time the number of subs that were available for $5 dwindled. Then they disappeared except for a monthly special. That disappeared and, in my area, has been replaced with $3 six-inch sub. The $5 footlong became $5.50. Now the cheapest footlong is $6.25.

The Subway Footlong Index (SFI) is a good way to thin slice overall inflation because Subway can't reduce the product and still call it a footlong. (Though I supposed they could "thin slice" in a different way by making the meats thinner or smaller). It's different than the price of a computer which always seems to be the same or a "half gallon" of ice cream that shrinks to 1.75 quarts.

Another useful thing about SFI is that most of you know what I'm referring to. Sure in San Francisco, Hawaii, or New York, the same subs might be $7, but people have probably traveled to an area with a Subway that has typical pricing.

Let's look Subway prices and see if the SFI makes any sense with regard to traditional inflation indexes. I'm going to presume that you might have a $6 footlongs (I think I've still seen these). That means that prices have gone up around $1 (or $1.25 for me) in 8 years... from 2008-2016. We'll call it between 20-25% over 8 years.

That's around 2.7% per year compounded annually... which seems in line with other measures of inflation.

Maybe there really is something to this Subway Footlong Index? What do you think? Let me know in the comments.

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Posted on August 11, 2016.

Rewarding and Motivating Myself

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I have a problem. It's a "first-world" problem, so I don't expect any sympathy.

Father's Day is just around the corner and my wife asked what I wanted. I honestly couldn't think of much. I kind of want this Intel NUC to update our Windows Media Center that eliminates our cable box rental fees. The Dell Zino that I got 5 years ago is showing its age.

Unfortunately, Microsoft discontinued the software to make it go, so I'm reduced to experimenting putting Windows 7 on it (not easy) or putting an experimental build of WMC on Windows 10 (also not easy). I don't want to take on the project. I just want something that works.

Other than this, the only other thing I can think of wanting is this extremely expensive television. Hey it only costs a fraction of the $25,000 that the technology cost a few years ago, so it's a "bargain", right?

I don't see myself saying, "I think it's a good idea to spend $3000 on a television." I'm just not wired that way.

However, I realized that if I put aside a little money each month, it feels like an easier purchase. I saved specifically for it, so I can justify it.

I've decided I'd put aside 1% of my monthly revenue each month. So if I were to make $60,000 a year (I don't, this is just an example), it would be around $5000 a month. When I put 1% aside, I transfer $50 to a specialized account. That would be around $600 a year saved. So it's going to take me 5 years to save up for the television, right? Well fortunately technology becomes much cheaper over time. In a couple of years, I wouldn't be surprised if it was $1500 and I would have saved $1200 (in this example).

I'd still be a little short, but here's where the Father's Day solution comes in. If my wife adds $50 here or there the gap is bridged pretty quick. It's no big deal if it takes 30 months instead of 24.

This helps me in three ways:

  1. Budget for a big purchase - Some people just add it to their credit card and pay a ton of interest. Those people are not likely to be the ones retiring early.
  2. Motivate Me to Make More Money - Because I'm putting 1% away, the more money I make the faster I get to my goal. If I can grow from $5000 a month to $6000 a month, that means that I'm putting $60 aside each month. That would get me to $1440 after two years instead of $1200. I'll reach my goal quicker and get the television quicker.
  3. Reward Me for Doing Good Work - This is kind of big thing for me psychologically. As I mentioned in the beginning, I don't really want a lot of things. To expand on that, there aren't a lot of experience things I want at this time either as it's hard to do them with the 2 and 3 year old. All work and no play make Brian a dull boy, right?

What do you do to motivate and reward yourself? Let me know in the comments.

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Posted on June 14, 2016.

Planning Your Long-term Financial Objectives

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Managing your finances prudently and watching your wealth grow is one of the most fulfilling things in life. Since the beginning of the year 2016, the price of gold keeps going up and those who invested in the precious metal years back are now smiling all the way to the banks. You need to be among those making such wise financial decisions early on and build their own sustainable financial empires.

We all want to live a happy life free from the burdens of debts and financial shocks when emergencies occur in our lives. However, to get to that point where all is smooth sailing is not by accident; you need to take deliberate steps in securing your financial freedom both now and in the future.

Need for budgeting

It all begins with your spending and saving habits which then determine how much you are able to invest, and eventually determine how wealthy you become over time. If you are interested in building long-lasting wealth you need to analyze how much you earn and how much you spend and create a personal budget that will guide your financial transactions going forward. The budget should always be for a given period of time; and should include all your foreseeable costs and certain sources of income within the period under consideration.

Having the long-term view

The long-term view of life is very important when doing your personal financial planning with an aim of being financially free at some point in time. Your long-term objectives in life will determine your financial needs which in the end will influence the channels you decide to use to generate the income to meet those expenditures. This is the reason why it is always advised that you need to start with the end in mind as you come back to date.

Say for instance you want to own a ranch where you shall retire peacefully to and be tending to your herds of cattle. You will first have to consider how many years from today you want to buy and set up operations running in the ranch. Then you will have to think of how much it will cost to buy and set up the ranch. This will then advice you on how much money you need to start saving every month and investing today in order to have enough money to buy the ranch in say 20 years down the line. Of course there are other financial calculations involved in this in order to discount the future cash flows to their present value; but in a nutshell, the planning must be done today!

Setting of milestones

Once you have the long-term objective in mind it is then very easy to break it down into smaller manageable milestones. These milestones can be in a couple of years, annual, semi-annually, quarterly and finally monthly. At the monthly level, that is where you plan on how much you are going to set aside as savings towards your goal. You then need to decide which investment vehicle will best suit your savings in order to accelerate your path towards meeting your investment goals in the long-run.

Based on your risk appetite, you may prefer investing in the financial markets using the different instruments available there or you may decide to save your money. For those who go with saving, the decision on the saving mode you choose will be determined by whether you want to earn interests and capital gains on your savings or you just want to store the value of your savings. If interested with interest incomes, fixed deposit savings accounts will come in handy. However is interested with both capital gain and shielding your wealth from depreciation as a result of currency fluctuations, you may want to consider saving your money in gold.

Choosing your investment strategy

For investment enthusiasts, there are a myriad of options out there that await you; ranging from the passive to the active investment options. Under the passive investment strategy, you will use your savings to accumulate different assets and form an asset portfolio that will be managed by a third party. Your daily presence is not required and your investment manager is responsible of making investment decisions that grow your wealth based on the terms of agreement you have with them. Investment vehicles available under this category include mutual funds and unit trusts as well as real estate investment trusts among many more. For the active investment strategy, you shall be personally involved in the day to day management of your portfolio. Investment vehicles in this category include running your own business, active participation in daily forex trading or stocks trading among others.

Whichever investment strategy and vehicle you choose, always ensure it is aligned with your long-term financial goals and it helps you in achieving your medium term milestones.

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Last updated on April 16, 2016.

The Car that Lived Forever

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Several weeks ago, I received an email from regular reader, Jason Stone. You might remember him from his guest post, Jason Stone’s Journey to Financial Freedom.

He wrote about an old story that became very popular around 2012. Unfortunately, I didn't hear about it until Jason's email. He essentially asked whatever happened to Rachel Veitch's 1964 Mercury Comet Caliente.

What is Rachel Veitch's 1964 Mercury Comet Caliente

As this 2012, NPR points out, After 567,000 Miles And 48 Years, Florida Woman Parks Her 'Chariot'. I think a name like "The Chariot" needs to be earned and this car certainly did that, right?

It's an amazing enough story on its own. Here's a video of the car:

Here are my two favorite takeaways:

1. Regular Maintenance Matters

"She's had her oil changed every 3,000 miles — Veitch buys it by the case and purchases filters too, then stands right there to make sure the mechanic does things right every time."

I'm not sure that regular maintenance is the key to making a car last nearly 50 years. In fact, I'm fairly sure it isn't since we'd all be driving cars that are 50 years old. I note it because it is a great reminder to take care of things if you want them to last. Admittedly, this is something that I'm not always the best at.

I don't think the cars build today are built to last like they were in 1964, but that doesn't mean we shouldn't want to get as much out of a car as we can.

To take it beyond cars, let's take a minute to congratulate Rachel Veitch on her own maintenance schedule. At age 93, as of 2012, that's a longevity story in itself.

2. Take Advantage of Lifetime guarantees

"Chariot has outlasted the 'lifetime guarantees' on three sets of shocks, eight mufflers and 18 batteries. 'I'm the lifetime guarantee people's nightmare,' Veitch said."

I'm the worst at this. Fortunately, my wife is much, much better with keeping and logging warranties. It certain sounds like it can pay handsomely over time. We have cashed in a few warranties, but it certainly wasn't anything like 18 batteries.

What happened to Rachel Veitch's 1964 Mercury Comet Caliente?

I couldn't find out what ever happened to Veitch's The Chariot. Maybe you can? What I did find is that an 1964 Mercury Comet Caliente was auctioned for $17,280 in 2015. It's probably not The Chariot as it appears to be superb condition, but it's still interesting to me.

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Posted on March 28, 2016.

The Financially Independent Baby

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I had a crazy idea yesterday. Let's imagine that a blessed baby was born today. For lack of better name, we'll call him Baby Gronk.

The parents of Gronk aren't rich, but they are wise. In particular they are wise hen it comes to personal finance and compound interest.

These parents decide that they are going use that personal finance wisdom to spoil Gronk by covering some of his major life expenses on the day he is born. (For the person of this article, we'll push aside that Gronk should learn to "financially fly on his own.")

The question is, "How much should they put aside for Gronk?"

Gronk's parents proceeded to make a bunch of assumptions, many of which will turn out to be wrong. That's the nature of predicting the future. Their plan is to use the information they have at their disposal to make the best possible estimates and adjust as time marches forward.

They also realize that if their calculation is a little off, Gronk will pitch in the difference. They aren't going to let a quest for perfection stop them from a great attempt.

First Car (Age 16)

Gronk's parents have set up a budget of $6000 for his first car at age 16. Using the rule of 69/70/72, they realize that their money may reasonably double when Gronk turns 8 (a growth of ~8.5%). They also realize that it may double again when he's 16.

Working backwards from their budget, they decide to put aside $1500 hoping that it turns to $3000 (age 8) and $6000 (age 16).

College (Age 18)

Gronk's parents decide to make this calculation easy and limit this expense to tuition. (And one blogger is very happy that this fictional family made that decision.)

The big question is whether Gronk's parents want to fund in-state public college or private college. The price difference between the two is huge. Public in-state tuition is ~$9K while private is ~$31K. Multiply that out by four years and it is either ~$36K or ~$124K.

Since the calculations are so different, Gronk's parents decide to do the math separately.

Age 18 is very close to the age 16 exercise with the first car above. However, it's just different enough that Gronk's parents decide to break out a calculator instead of the rule of 69/70/72. They use the "y to the x" to calculate compound interest. They specifically type in "1.085", "y to the x", then "18" to arrive at 4.34... a key number we'll use. The 1.085 comes from projecting a 8.5% growth on the current investment (the "1"). Why pick 8.5%? Your guess on the growth of the market is as good as mine. I used a convenient number from the previous example for consistency, but feel free to substitute your own.

This tells us that every dollar we invest will yield 4.34 dollars... giving our assumptions and uncertainties in the market. We can mentally check this using the above example of doubling, and doubling again. Double a dollar once and you get two. Double it again and you get four. In this case we have a little more time (two years) so it's a little more than doubling.

Now that we know we can grow one dollar to 4.34 in 18 years, we just need to divide our total expenses...

... for public in-state college, we'd need to roughly put aside $8,300.
... for private college, we'd need to roughly put aside $28,571.

What's interesting to me is that this almost comes out to exactly one year of tuition. In fact, if we used an expected return of 8% it comes out to exactly one year of tuition.

Finally, to decide how much to put aside they flip a coin. Heads, they go with the in-state public tuition numbers and tails, they go with the private tuition numbers.

They flip the coin and it comes up...

Wedding (Age 25)

The average cost of a wedding varies greatly. Since Gronk is just a baby, the parents use this to estimate $30,000, a nice round number.

They use the same math as in the previous example and realize that at 8.5% growth a dollar is worth $7.69 in 25 years. This means that they need to put aside ~$3900 at birth to pay for the wedding.

(We'll ignore traditions of the other side of the family paying for it. Additionally, we'll presume Gronk's parents want to pay for the whole wedding instead of half.)

Down Payment for First Home (Age 25)

Who buys a home the same year they are married? I'm not sure and neither are Gronk's parents. Sometimes people buy homes before they get married and sometimes they get married before they buy homes.

Since we have the same age and the same interest rate, we have the same growth of a dollar - $7.69.

Gronk's parents decide to put in the 20% down-payment and not buy the house outright. (They've spoiled him enough, don't you think?)

They think a starter home should cost around $200,000. This depends greatly where they live and what they agree is a starter home. The parents budget $40,000 which is 20% down on that $200,000 home.

Anticipating a dollar grows to $7.69, they realize that need to only invest $5200 to cover the $40,000 down payment.

Retirement (Age 70)

Up to this point, many would say that Gronk's parents are ridiculous. They don't care. Instead they say, "In for a penny, in for a pound!"

They estimate that Gronk will want to retire at age 70. That's where the trend is nowadays with improved health care. They start with the rule of 4% that says, you can withdraw 4% of your investments to live on indefinitely.

They realize that they need to get him 2 million dollars at age 70 so that he can have $80,000 a year (4%) to live off of. (Yes, health care is expensive.)

Getting Gronk 2 million dollars sounds absurd, but Gronk's parents realize that time is on their side. At 8.5% a single dollar grows to $302 in 70 years.

They divide $2,000,000 by $302 and realize that they only need to put in $6622 at his birth to cover his entire retirement.


Smart readers should be screaming "Shenanigans!!!" I didn't factor inflation in any of the examples above. You got me. The idea of this exercise was never about accuracy. It's impossible to accurately plan out a person's expenses at birth. Instead, it was about illustrating an idea.

If Gronk's parents were able to put aside around $19,000 at Gronk's birth, he'd have most of life's major milestones covered. Surely $19,000 is not petty cash, but it certainly doesn't seem like a crazy amount to cover some of life's greatest expenses, right?

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Posted on November 23, 2015.

Rob Gronkowski, Personal Finance Guru

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Today sports media will spend their billionth day talking about whether air was deflated out of football instead of using simple common sense. Now that we have simple independent scientific analysis it should be clear that it had more to do with Roger Goodell trying to maintain credibility.

(Sorry, had to get that out there.)

The footballs have gotten more than enough attention (the NFL's witch hunt could use a lot more, but I digress.)

And now for something completely different.

If you haven't heard of Tom Brady's teammate Rob Gronkowski (Gronk), you probably soon will. The runner-up for the EA Sports John Madden cover this year will be on an upcoming episode of Celebrity Family Feud and probably a few things.

Gronk is known as the ultimate party machine. Or maybe that's just his party bus. Sometimes it gets him into trouble with the media. For example, there was the time he partied after the Patriots lost the Super Bowl. Or the other time he was caught partying while injured. And then there were the PG-13 pictures of him with adult actress(?) Bibi Jones. He'd be the first to tell you that the media catches only 69% of his antics. That's just his style of humor.

The other side of Gronk is the hardest working gym-rat/athlete the world may ever meet. He's talented enough to be a legit MVP candidate, which is unheard of at the tight end position. As that article says, "Rob Gronkowski probably isn't a real human being." The best comparison to him physically is Ivan Drago in Rocky IV, except with 28% more DNA from The Hulk.

I've read and watched dozens of interviews with him and he seems to have a two-track mind: party and football.

That was until yesterday when Sport Illustrated wrote about a possible third dimension. They quoted him as saying:

"To this day, I still haven’t touched one dime of my signing bonus or NFL contract money. I live off my marketing money and haven’t blown it on any big money expensive cars, expensive jewelry, or tattoos and still wear my favorite pair of jeans from high school... I don’t hurt anyone (except Gord with the occasional kick to the groin), I don’t do drugs, I don’t drive drunk, I don’t break the law... I’m a 23 year old guy just looking to have a fun time."

(Gord is his father who has a very similar personality.)

When I started this article, I didn't realize the last sentence revealed that he was 23 when he said this. He's 26 now, so the information is a little old. Maybe he's spent more money now? Maybe this quote isn't valid anymore?

I'm thinking it might even be more valid.

My guess is that he hasn't spent more of that money now. Why? Because at age 23, his marketing money wasn't near what it is today. I'm sure that income has grown exponentially as his football résumé has grown. While some lifestyle inflation is to be expected, the marketing money growth can probably cover it and then some.

More importantly, think of how much financial sense the average 23 year old has... especially one that has come into a lot of money. Either he's smart himself or he surrounded himself with some wise advice at an early age.

This is in sharp contrast to the statistics from ESPN's 30 for 30:

"By the time they have been retired for two years, 78 percent of former NFL players have gone bankrupt or are under financial stress; within five years of retirement, an estimated 60 percent of former NBA players are broke."

I like stories where athletes are being fiscally responsible (Daniel Norris qualifies too). It seems like a rare commodity these days.

If Gronk continues to live off his marketing money and invests his contract money, his net worth will be the real Gronk Spike. Of course these aren't half bad either (sorry piggy bank):

Correction: The quote above is actually from Gronk's upcoming book It's Good to Be Gronk. I had just read it in the Sports Illustrated column. (Side thought: Even if all of it was ghost-written, I'm very embarrassed that Gronk will be a published author before I am.)

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Posted on June 23, 2015.

How Much Emergency Fund Should You Have?

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Everyone in personal finance agrees that you should have an emergency fund. If you have one, you are already ahead of most people as 64% of Americans don't have $1000 in savings.

So the question becomes, "How much of an emergency fund is appropriate?" It's a question that has been debated for ages... and even after this post it will still be debated.

The problem is that because there's no clear-cut perfect solution for everyone. People have different risk tolerances. People have different job securities. People have different expenses. People have different assets.

News Flash: People are different.

Many magazines only have a couple of sentences of space to devote to emergency funds. The result is the quick quote of having 3-6 months of expenses. It is actually surprising useful for just a few words. Let's assume you want to go deeper.

Determine a Unit of Measurement

It might seem natural to just assume that we go with dollars. People save dollars... not goats (usually). However, let's not jump there yet. (Give goats a chance.)

The rule of thumb does a very smart thing. It forces people to calculate their expenses, which eliminates one variable. Buffy might have expenses of $2000, while Faith might have $5000 a month in expenses. Buffy's rule of thumb range could be $6,000-$12,000, while Faith's would be $15,000-$30,000. It is quite a difference, right?

So we aren't going to with goats as our unit of measurement. We're going to stick to months of expenses... and we're going to assume that you can roughly do those calculations.

Try your best to prepare for a doomsday scenario. If you have a rental property with a good tenant now, imagine that the tenant leaves and you have that expense without a corresponding income. Such a scenario could significantly raise your expenses, so I might only consider 50% of the rent, hedging for the likelihood of not having to get a new tenant at the time of the emergency.

Whatever number you come up with, I'd pad it by 20% to cover forgetting something and/or other surprises.

What Is Your Job Security

For a lot of people this is very difficult to answer. There's isn't going to be an answer like 3.141593. It isn't easy as pi. I'd recommend breaking it down into 5 areas such as: poor, fair, average, good, excellent. If you were a temp worker, you'd say poor. If you worked in a small start-up, you might go with fair. If you were a teacher with tenure, you might go with excellent.

You might have a spouse, which complicates things (usually in a good way). If both of you work, you have some extra security (but you probably have higher expenses.)

What Are Your Assets?

This is rarely discussed when it comes to emergency funds, but I think it is very important. If you have a Roth IRA or equity in your home, you might have a hidden emergency fund. Most people may not know they can pull their original contributions out of a Roth IRA with no penalty. These aren't necessarily the best places to get money from, but it is an emergency fund, not a "buy the best television ever" fund.

Imagine you have $5 million worth of mutual funds. While this far from a typical imagine how that might impact your emergency fund planning. You could have $1 million dollars in a relatively stable investment that could provide you with years of emergency protection. Some people have this... on a small scale obviously.

I recently wrote about having money in Lending Club (Review), which could pay decent income in times of emergency. In the meantime, it is making me 7% interest.

What Is Your Risk Tolerance?

I'm aggressive and I know it. I invest aggressively, because I'm young. Being aggressive has usually paid off for me. I should say that I perceive that it has, which may or may not be due to selective memory.

Maybe you are safe and conservative. It's cool, we welcome all kinds here.

Maybe you are somewhere in the middle. We can work with that too.

I wouldn't go too much further than to put yourself in one of those three categories.

Answers, Damn it!

Up to now I've given you more questions than answers. Time to fix that problem.

What I've really been trying to do is feed you with the information that you can use to find what is the right emergency fund for you. In a strange way, I tricked you into doing one of those quizzes in magazines. Did you catch me?

We start out with baseline of 2 months of expenses in your emergency fund. Now look at your job security rating. Rate it from 1-5 with excellent being a 1 and poor being 5. Add that many months to the baseline. So if you have poor job security you are looking at 7 months. If you have excellent you are looking at 3 months.

Next look at your risk tolerance. If you are aggressive add a month. If you are conservative add 3 months. If you are in the middle... well if you can't figure this out, you are doomed anyway. Now the possible range could be from 4 months to 10 months depending on those two factors.

Now we want to convert these months to dollars. The good news is that we already discussed this (and goats) above. The calculation is really easy, it is the calculation of expenses that is difficult.

Finally, take a look at your assets.

Your assets may already be worth tens of thousands of dollars in an emergency fund. It is my opinion (and I want to stress that), that if you can have half of your emergency fund in these assets. The other half you probably want to have in a cash or near cash equivalent.

The key to counting your assets as part of emergency fund depends on them being relatively stable. That means you don't count that Groupon stock you own. You have to be careful what you consider stable. Sometimes you may think they are stable, like home equity only to see a housing crash makes it all disappear.

Example: My Emergency Fund

My wife is a military officer and has excellent job security. I'm a blogger with what I'd say "poor" income reliability. The combination of the two incomes with the level of security puts us in the excellent overall job security section. Think of my "poor" income reliability as an extra bonus to my wife's excellent job security. That's worth 1 month.

As I mentioned above, I'm very aggressive in my risk tolerance. That's worth 1 month.

Add those two months to the baseline of 2 months and we need to have 4 months of an emergency fund. We have around $4500 in expenses for our rental properties so 50% of that is $2200 (remember we are presuming that tenants may not pay rent or move out). Add that to our own $2800/mo. mortgage, we'll need ~$5000/mo for housing. Add $2000 for car payments and child care and we are up to $7000 with just the big stuff. Add another $1000 for food, utilities, insurance, and other expenses and we are up to $8000/mo. Add another 20% for padding and we are up to $9600/mo.

That's a lot of money. A majority of that comes from housing in which all the mortgages were 15-year fixed. If we went with 30-year fixed like most people, the emergency fund would be cheaper.

Multiple that by 4 months and we should have an emergency fund of around $38,400. That sounds like a lot of money to keep around in cash. This is where having 50% of that in stable assets can really help. With more than a dozen years of maxing out Roth IRAs and equity in the homes, we have access to a lot more than $38,000 if we need it. Ideally we'll only count that as half of our emergency plan and count on keeping at least $20,000 around in cash.


At the end of the day, an emergency fund is a very personalized thing. It would be nice if I could have just said, "You need $10,000", but I can't. Hopefully this gives you a blueprint for how to know what is the right emergency fund for you.

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Last updated on May 28, 2015.

Digit Saved me Over $100 in One Week!

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Over the last month, I've been testing out a savings tool from a company called Digit. I test a lot of financial tools. Many times, they aren't very exciting and not worth sharing. In this case, I've been very impressed by the results... hence the exclamation point in the title.

Digit squirrels away money from a savings or checking account. It analyzes your account balance, spending, upcoming income, and upcoming bills to figure out how much it can safely move.

Personal finance experts may already know why this is an awesome thing. The average person may not.

The concept is as simple as "out of sight, out of mind." If you don't have money in that savings/checking account, you aren't going to spend it. Digit sneaks a little bit away and honestly, I didn't notice it. Here's how much money it moved for me since March 2nd when I joined:

Digit Balance

At this rate, it will hide around $2000 a year for me. That's a nice rainy day fund for some, right?

If I haven't been clear, I should say that Digit doesn't save you money in the sense that you have more of it to spend or that it buys more goods or services. It saves you money by hiding it sends a psychological trigger not to spend money you don't have.

You see lottery winners and sports stars spend all their money in a rush. I bet they think they feel like they have an infinite amount of money. Except that it goes quickly and they end up with nothing. This is like the opposite. You think you have less money, so you save it. And when the rain day comes, you have something there and waiting.

As a blogger, my income is very irregular. Over the span of a month it is somewhat predictable and over 3-4 months it is very predictable. However, day to day, it is very unpredictable.

This is where Digit really shined for me. For one week, my income coming in fast and furious. Digit adjusted to siphon off more than $100 in a week. Some simple math will tell you that it moved around $50 the rest of the month of the trial, not a particularly big deal. It was just what I would have wanted considering the income I had coming in and expenses coming up at the end of the month.

There are a couple of natural questions to ask.

One might be, "where is my money held?" The answer is in the company FAQ. It is held in a custodial account at Wells Fargo and is FDIC insured. Seems safe to me.

Another question might be, "how much interest do I earn?" You don't earn interest. That's definitely a downside, but considering the interest rates on savings/checking accounts is close to zero, I can't be too hard on Digit. I'm thinking about regularly clearing out the account every 2-3 months to put it in something that earns interest.

At the end of the day, you might be able to do something similar with some bank accounts you already have set-up. You could set up 10 transfers a month of $10 or even a big transfer once a month. I've done that myself in the past, but I had gotten away from it when I needed to use the money. I feel like this will stick since it is smaller and not a set of transfers that I set up myself.

One unexpected bonus is that I can manage my bank account balances via SMS on my phone. I originally thought this was weird, but getting a daily update about how much is in the account pushed to me is better than having to actively look it up myself. It is also very easy to do simple transfers, which was a surprise.

I can't think of a solid reason why anyone would not use Digit, even if they are putting small chunks away. Some of my savings have been as low as $1.26, the kind of money that I hope most people wouldn't miss.

What do you think? Let me know in the comments.

This post deals with:

... and focuses on:

Financial Planning

Posted on April 7, 2015.

Here’s What I’ll Spend in Retirement

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On Monday, I estimated our annual retirement income to be around $200,000. Let's hope all that comes to pass over the next 30+ years. (It never does, does it?)

Today, I'd like to look at the other side of the equation, what I'll spend in retirement. This is something that very few people sit down and try to calculate. The most diligent financial people I know usually use a rule of thumb of 75% of what you are spending now.

Rules of thumb can be helpful when you have to make a quick estimate. I've got nearly 30 years before I reach age 65, so why not carve an hour out to do some of the most important calculations in my life. Also, neither me nor you are a rule of thumb.

My attempt here is not to say this is the right way to do it. I don't think I've seen anyone else even attempt it, so it is uncharted territory as far as I can tell. I'd love any feedback you provide in the comments below.

I'm going to just throw my table at you. Then I'll make like Lucy and do some 'splainin'.

TypeSub Type Retirement
Real Estate (Residence)
Primary ResidenceMortgage (PITI)$400.00
Subaru Forester
Car loan$215.43
Gas + Maintanence$50.00
Acura MDX
Car loan$376.60
Gas + Maintanence$50.00
Total Transportation$868.50
Day Care
Cell Phones$70.00
Total Utilities$287.41
Dog Care$133.33
Total Insurance$65.64
Real Estate (Investments)
Condo 1Mortgage (PITI)$450.00
Income $1,500.00
Profit $1,050.00
Condo 2Mortgage (PITI)$400.00
Income $1,250.00
Condo 3Mortgage (PITI)$400.00
Income $1,250.00
TotalExpenses $1,250.00
Income $4,000.00
Profit $2,750.00
Total Personal Expenses $2,154.88
Profit from real estate
after personal expenses
Cable Television$86.71

There's a lot going on up in the table.

  • These expense numbers are monthly. That's because our bills tend to be monthly ones. This is in contrast to the annual income.

    The numbers are in today's dollars. It's just easier to understand it that way rather than projecting out 30 years of inflation. That projection could introduce errors if I choose an inaccurate rate of inflation.

  • You might notice weird retirement items such as day care with no money besides it. I create this table by taking what I spend money on today and pairing it down. It seemed like the best place to start, because I already have that data.
  • The obvious problem with taking today's expenses and pairing them down is that it doesn't factor in any new expenses. Just looking this over quickly, I realize that health care didn't make my chart.

    We are fortunate in that we'll have the military's TriCare for Life. That covers a lot of health care. When eligible for Medicare Part B we'll have to pay those costs which is the $272/mo. (which is based on being in a high income bracket). This area in particular will probably have a billion and a half changes in the next 30 years. The only thing we can count on is that it will be a crap shoot. We can also guess that we might be better off than most because of the TriCare for Life program.

  • You'll notice a section at the bottom of real estate investments. This is a result of it being a both an expense and an income. It wouldn't be fair to leave it off the expenses, because we do have to pay it. At the same time, it wouldn't be fair to characterize a profitable asset in the same way as a car loan. Missing from this is the maintenance of the properties, but it does include our condo fees.

    For fun at the end, I decided to subtract the profit from the rental properties from our expenses and was pleasantly surprised to learn that real estate investment alone will pay off most of our expenses.

  • I've amortized the costs of some of the items such as car loans. The cars we have now are on 5-year (60-month) loans at 0% and 1.99%. I've taken the payment and divided it half to represent the 5 years we intend to drive the cars afterward with no car payment. We intend to drive cars longer than that, but 10 years is a good average for most people.
  • You may notice that I have nothing for electricity. The big change this year is that we are going to solar power. The panels are rated at 25 years, so when we get to retirement age, we may have to spend on electricity again. The panels we are getting now, should still be 80% as efficient then. That might be enough, but if it is not, we should be able to supplement them with the latest 2045 solar technology.
  • In the effort of saving some time, I used some of the numbers from last year. The cost of car insurance didn't go up that much in a year. If it did, the cost of gas has gone down enough to balance it off.
  • These are just necessary expenses. It doesn't include entertainment, dining out, any kind of fun travel, or really anything else.

Will this be accurate some 30 years in the future? Of course not. However, it is a very good start. If I take the personal expenses and add in the health insurance that didn't make the table, our annual expenses come to around $29,120. It's always wise to throw some padding in, so let's call it $40,000 a year.

With that projected nearly $200,000 in income, it looks like we'll be able to budget a good deal of travel in. Maybe I can even convince the wife that we can splurge on a LG 65" 4k OLED television or whatever is the equivalent in 2040.

This post deals with: ... and focuses on:

Financial Planning, Retirement

Posted on February 25, 2015.

Where Will Your Retirement Income Come From?

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The foundation for a secure future is proper retirement planning today. Unfortunately, too many people avoid retirement planning. In fact, according to the recent Retirement Confidence Survey from the Employee Benefit Research Institute, less than half of American workers have performed a retirement needs assessment. This means that most people don't even understand how much they need to retire -- much less have a clear idea of where their retirement income will come from.

As you prepare your retirement plan, you need to figure out what you need to retire comfortably, but you also need to consider where that money will come from. You need to figure out your sources of retirement income, and determine how they will work together to provide you with exactly what you need to improve your overall situation.

Sources of Retirement Income

Most people, when they think of retirement, consider employer-sponsored plans like 401(k)s, or they think of IRAs. However, these aren't the only sources of income available to you. While a good portion of your retirement income will come from these types of accounts, you need to look beyond figuring out your withdrawal rate, and trying to build a nest egg big enough to handle your retirement needs.

Income diversity is a big deal in retirement, since there are a lot of things that can change between now and when you retire. Just relying on a single source of retirement income isn't any better than putting all of your income eggs in one basket during your working years. It's vital that you think about where else you will get income from in your golden years.

Some sources of retirement income to consider include:

  • Social Security: In spite of all the scary, scary rhetoric, Social Security isn't out for the count completely. While you might have to moderate your expectations in terms of when you can expect to start taking Social Security, and while you might need to prepare for cuts in benefits, the reality is that you will still likely be able to draw -- at least to some degree -- on these promised benefits.
  • Real Estate Income: While real estate investing isn't really my thing, I know a lot of people who do well at it. If you can build your real estate empire, you can create a source of retirement income that doesn't go away when the stock market drops. Even if you end up having to hire property management to help you run your real estate, you can still do well, and get a regular income from this.
  • Some Sort of Earned Income: Many people like working part-time in retirement. You might also work on your business, or start a side business during retirement. Doing some sort of work during retirement is smart, since it can keep you engaged, fulfilled, and provide you with a bit of an income stream.
  • Investment Income: This can include the income that you receive as a result of withdrawing money from your tax-advantaged retirement accounts. You might also have other investments, held in taxable accounts, or assets in other places, that generate income for you.

In general, the more sources of income you have, the better off you'll be in retirement. Your retirement plan should include ideas for cultivating multiple sources of income now, so that when you retire, you aren't dependent on just one revenue stream to keep you in comfort.

This post deals with: ... and focuses on:

Financial Planning, Retirement

Last updated on October 16, 2014.

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