Lazy Man, Author at Lazy Man and Money

Alternative Income Update: September 2018

October 16, 2018 by Lazy Man Leave a Comment

It’s the middle of the month. That means that I have the final numbers on September 2018 and can finally put this out there.

September is always the “month of change” for us. The boys transition from summer camp to school, which dictates a whole new schedule. It’s also the busy season at my wife’s work. I think there was a span of two weeks where she was home for four consecutive waking hours only once.

Ouch.

While my wife was away, I took the kids to an extreme bouncy event on the military base. A dozen bouncy houses… and they bounced for hours. The kids also learned to swim! I’m not sure there’s a point in time that “swimming” happens, but the new swim school is amazing and it looks like swimming to me.

September was also the month our whole family went to FinCon in Orlando. Financially, it was a less-than-ideal plan. However, I wasn’t going to miss my son turning 6. It’s strange, but sometimes less-than-ideal plans work out far better than one could hope for. The kids got to spend a lot of time with mom, which was important after that busy stretch. They got to do the Crayola Experience and Legoland. We also put in nearly a full day at the hotel pool as a family.

Unfortunately we didn’t get to ride on that Patriots’ Jet.

There’s some truth to the rumors that I wore my bathing suit to a couple FinCon sessions. (It was dry.) One of the transformative things that happened when I turned 40 is that I stopped caring so much what other people thought. The FinCon sessions should have been in the pool anyway, right?

That’s a whole of TMI (on so many levels), so let’s get to the good stuff:

Alternative Income Update: September 2018

For those that don’t know the term, “alternative income”, I started using it around 12 years ago to be purposely vague. I needed something to cover the small amount of blogging income I was making, while I growing my peer-to-peer lending portfolio as an income stream. (The P2P worked for a bit, but I’ve soured on it over the last few years.) Blogging income can be very erratic, but there’s a residual nature to it as well. Some popular bloggers are still struggling to categorize the nature of the income. I think alternative income was more passive back in 2007 before social media, podcasting, and video. Today it seems like every blogger talks of hustling (as in moving quickly, not grifting people) and by that they mean “being everywhere.” I feel like the only one dumb enough to just keep writing blog posts… blog posts that often don’t have cool “pinnable” images.

Last month I sprinkled in images from the past month for the first time. I’ve seen other bloggers do it and readers tend to love it. My only rule here is that I’ll show pictures of food if the presentation is amazing, such as an actual size Leaning Tower of Pisa made of grapes and toothpicks. (I will never understand why people take pictures of their food.)

In general, I call alternative income everything that comes from passive investment and these side hustles. The best way to think of it is income where you aren’t directly trading your time for money. This report is about all my alternative income. To include my investments into that paradigm, I have to fudge the numbers a bit. You’ll see what I mean as we go along… or you can see a more detailed explanation back in January, 2017.

The last month I reported, August 2018, my alternative income added up to $7,104.78. August was just a $25 drop off from July, which was a drop in the bucket.

In any case, August is ancient history now, so let’s move on to more recent history… September.

Lazy Man’s Alternative Income – September 2018

In looking at our alternative income, I break it down to 3 main sources… each with their own caveats.

1. Blogging + Dog Sitting Income

My “real world” friends have asked me, “What do you do?” I’m not a fan of the question… because it’s simply rude. I feel it’s used to size up or pigeonhole someone. My responses of “software engineer” has received very differently reactions than “dog sitter.” Nonetheless, some response is required. I rotate among all the things that I do. What are those things:

I suppose the best answer is that I’m a stay-at-home dad. The kids go to school for about 6 hours a day. So my “non-Dad stuff” is 30 hours a week. That gives me time to do some basic family errands (shopping, cooking, dishes, laundry, walking my own dog, etc.) and dog sitting and blogging fills in the gaps.

Sneaking a picture of the kids in here, just to make sure you are awake. Southwest made them a crown out of pretzel bags and dirty martini olive spikes (not sure there’s a name for them). In any case: LUV, right? (Not a sponsored post and I’m not a shareholder.)

At blogging conventions a popular question is “Are you a full-time blogger?” I say yes, but then explain that I spend many more hours doing things other than blogging. I don’t think most people grasp the concept of not having a full-time job, but still having a full slate of activity. I’m doing much, much more now than I ever did at a full-time job. If you really cared to read much more this gives you even more on that. I think everyone assumes that Boss Lazy Man will tell Employee Lazy Man to take the day off from the blog to do non-blogging stuff. That’s not really how it works. People with standard jobs have a lot of insulation where they can say, “See, my boss says that I’m not available.”

I’ve spent too many words on it, but if you want a very short list of what I’m doing check out my “Now” page.

I don’t publicly break out the difference between blogging income vs. dog sitting income. One impacts the other. When I have a lot of dogs, I don’t have as much time or the focus to blog. When I’m blogging a lot, it’s usually because I don’t have too many dogs to sit… and there isn’t some other great catastrophe going on.

You may be asking right now, “Isn’t alternative income about NOT trading time for money?” Isn’t dog sitting and blogging TRADING time for money? That’s a solid point. However, I don’t do it directly. Let me explain:

Sitting dogs itself isn’t a time-intensive job… at least with the number of dogs I typically have. However, there is considerably more overhead than you might think between booking dogs and meeting dogs for suitability. The important differentiation with dog sitting is that I can “double-dip” and earn money from another side hustle, such as blogging, at the same time. It’s very different than being an Uber driver. The police tend to frown on blogging and driving. (Hmmm, maybe if I had a voice recorder and translation software I could compose some rough drafts. Nah… I’m sure clients wouldn’t want to climb over my kids’ child seats. Also studies show that Uber drivers make far below minimum wage when accounting for their expenses.)

If you are interested in dog sitting, I wrote a very detailed article on the subject: Pros and Cons of Dog Sitting on Rover.

Blogging is usually much more time-intensive than sitting dogs. (The summer months are the exception). However, it isn’t directly trading time for money either. If I write an article for the blog today (such as this one!), I don’t necessarily get any significant money for it. The money I make from blogging now is a direct result of having built a reputation and a collection of nearly 2500 articles over 12 years of blogging.

September was a weak dog-sitting month. Labor Day was busy, but after that people didn’t seem to go on vacation much. I also lost out on some business with FinCon and another weekend I had to take off.

Blogging income was above average in September. August was poor, so maybe advertisers were just waiting for the summer to end?

While on the topic of blogging, I’d like to add that it isn’t all about the money. I highly recommend personal finance blogging. I wouldn’t aim for creating the greatest blog in the world. Instead, I’d think of it as a way to keep yourself accountable. That’s worked for me. Here’s how to get started blogging with any type blog you might be interested in.

In August, these two categories combined for a year high of $3,888.78. But for September it was…

Total Blogging + Dog Sitting Income: $3,312.81

While that’s a step backwards, it’s very close to the average for the year. It’s amazing to me with the two types of income complement each other.

In addition to the dogs and blogs, September was the second month where I spent significant time on the two new ongoing freelance jobs. The income from them is similar to the blogging and dog sitting, but I don’t include them, because there’s really nothing alternative about them at all. I still feel the need to mention them, because it’s time that I’m not blogging.

2. Rental Property Income

Here is where I need to fudge the numbers. Sorry, but it’s necessary.

We have three rental properties in our real estate accidental “empire”. (“Empire” is in quotes for a reason – it is a joke.) They are all on 15-year fixed mortgages. This means that we don’t make money on them now, but we are paying down those mortgages more quickly than most people. In 9 years, we should be able to collect an estimated income of $40,000 a year (in today’s dollars, after expenses) on them.

So here’s why I have to fudge the numbers. For the purposes of this report, it doesn’t make sense to count the properties as zero income. I don’t want this report to push me towards a bad decision. It might make me sell them and invest the money differently just to make the numbers look better. For example, if someone offered you a million dollars in 10 years or $10 per year right now, you’d wait for the million (I hope). However, for this report, the $10 per year would give you better numbers.

It’s an extreme example, but it shows how sometimes the short-term plan is the enemy of the long-term plan.

Here’s how I’ve decided to fudge the numbers.

I add up all the properties equity and values. Zillow is accurate for these condos as it has a lot of data points to work with. Next I calculate an equity-to-value ratio. In short, this is the percentage of the property value that we own vs. the bank. Then I calculate the rents of all the properties as if they were owned free and clear. Thus we can say that we are “banking” (in a completely fudgey sense) a percentage of the rent that we would expect to have in the future (rents are typically in line with inflation in the simplest sense).

If you are confused (and you probably are), this article on calculating cash flow of cash flowless real estate explains it in more detail.

Here are the numbers for September. We have 51.21% of the equity in our properties with an estimated combined rent of $3,350. (This number is after insurance, property taxes, and condo fees.) We were able to raise the rents earlier this year a little bit as the rental market has been good and we turned over to new tenants.

Yay, we own more than 50% of our rental properties.

If you multiply $3,350 by 51.21% you get $1,703 in “fudged” monthly alternative income. At the beginning of 2017, we only owned 36.4% of the properties and they had lower rents. The math worked out to $1,174 back then. So in 20 months, we’ve seen the number grow $529/mo. As the years march on, the ratio will grow to 100% of the $3,350 monthly inflation-resistant rent. That’s what gets us to that annual $40,000 I mentioned above.

In the previous report, the rental property income was $1,685. This number usually moves slowly, so we’ll take the $18 increase. This number only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent. I don’t control the housing market, so I can’t change much here. Tenants are typically locked in for at least a year. The monthly paying down of the mortgages creates some equity each month. That’s where we saw the gains in September.

Slow and steady wins the real estate race. In previous reports, I hoped that by the end of this year, we’d be looking at having 50% of the equity with $3,325 in rent or $1662.50 a month in fudged alternative income. As the properties have appreciated we’ve passed that mark a little early. Maybe we can get to 53% for $1762.25 for fudged money by the end of the of 2018 and push for 62% by the end of 2019.

Total Rental Property Income: $1,703

3. Dividend Income

Like the rental property “income”, I’m going to play a game with the numbers. You can decide if the game is fair. I always appreciate comments!

We don’t focus on putting our money in dividend stocks, but I’m going to imagine that we do for sake of this exercise. In reality we a vast majority in index funds, but I do some stock picking with a small percentage of our portfolio. Though the index funds do pay dividends, it’s not their core goal. I’m also fudging the numbers in another way. The money I’m referring to here is in our retirement accounts, so it isn’t something that we would tap as “income.”

Even though all this money is in retirement accounts, we could pull the money out and use it. We’d get tax penalties so we won’t do that. However, like the mortgages on the rental property, there’s real value here that I feel should be accounted for. My goal here is to capture the nearly 20 years of mostly maxing out retirement contributions.

Just like the rental income, we can pretend what the portfolio would earn if we moved all the money into dividend stocks or indexes. For the sake of pretending, I estimated that we could earn 2.50% in dividends. Most people estimate a 4% safe withdrawal rate, but withdrawal is not our plan here. We are only thinking about the cash that these investments could yield to pay for our living expenses.

September was a poor month for our portfolios. The stock market went down a little bit. These numbers are from October 6th, so it’s before the big crash that we’ve seen lately. (October isn’t looking good.) The end result is:

Total Dividend Income: $1,522

Last month, it was $1531, so we lost $8 of theoretical monthly money from theoretical dividends. Yes, this is boring, but that’s the nature of this beast. Like the rental property number, slow and steady wins this race.

Very Close to Passive Income

Most people consider rental property income fairly passive income. It’s not, because you have to deal with tenants. However, when things are going well, there might only be “work” every couple of months. For sake of argument, I think we can agree it is “more” passive than writing blog posts and sitting dogs. I spend a lot more time on the later than the former.

Of course dividend income is completely passive, so I don’t need to argue much there.

This “very close to passive income” category is a combination of “rental property income” with “dividend income.” (Yes, that’s a lot of quotes.)

It’s interesting to me that these two numbers are so close for us. It’s like the stocks vs. real estate debate, but for our personal finances. I think of it as putting them in an arena to fight out which is the strongest. The dividend income started out the year with a big, nearly $50, lead. In June the real property income is up over the dividends by $105.

The stock market goes up and down which makes the dividends fluctuate as well. The rental property income keeps going up, because the mortgages are always getting paid down every month. The stock market can move a lot faster than the housing market. In any case, I like having both of them working for us.

September’s Very Close to Passive Income: $3,225

Last month it was $3,216, so it’s up $9 in total. That’s grown from a combined $2,354 in January 2017. Since then, this has gone from an estimated annual income of $28,252 from these two sources to $38,700. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, looking forward to 9 years from now when the investment properties are paid off and how the stock market might grow (assuming a conservative 4%), this number could reach 80K a year. I estimate our long-term expenses to be around $35,000 a year (with the house paid off).

Yes we ignored some minor (but important) details. Details such as our investments being in retirement accounts and an unwillingness to sell some rental properties to pay off others. It’s possible that these two could cover our future expenses (without drawing down on principle).

Final Alternative Income

Adding up “dogs and blogs” to the “very close to passive income”, this month we on the investment stuff had $6,537.81 in monthly “alternative” income. That would be $78,453.74 a year. I’m excited even if it is a little fudgey math. That number is down nearly $600 from last month. I couldn’t have gotten it so consistent if I had tried.

That largely hypothetical $78,453.74 a year on investments, writing on a blog, and taking care of dogs is fantastic. In the long term, we can get by on half of that income, and it doesn’t include any of my wife’s bread-winning pharmacist income, her potential military pension if she retires next year, or any of the freelance work I’ve been doing.

This is the part of the article where I mention that I’m still hoping to write a book to boost my alternative income. I had always planned it to be an eBook, but if any readers out there know a publisher, I’d appreciate the hook-up. Seriously… it seems everyone in personal finance is getting a book deal except for me. I think I can make a compelling argument for a book that you’d see in a bookstore… that is if bookstores still exist by the time I’m done writing it.

Net Worth Update

Since I don’t share real numbers of our net worth, this isn’t very exciting. That’s why it’s just a footnote.

I truly believe that net worth is one of the most important numbers in personal finance so it is worth sharing in some way. Showing relative growth can be useful, I think? (Let me know in the comments.)

I use Personal Capital to track my net worth and it makes everything easy. It’s free and you should give it a try. For full disclosure, I might make a few dollars if you do.

In September, our net worth went DOWN 0.53%. Boo! This is the first time it’s gone down in awhile. Almost all of it can be attributed to Zillow changing its view of the value of our primary residence. In other words, nothing that really means anything for us for the foreseeable future.

For the year our net worth is up 9.76%. With the market going south right now, this will probably go down quite a bit when I look at how October went.

As a reminder, percentages can be weird… Imagine with someone with a net worth of $100 finds a $100 bill on the ground. Instantly it doubles his net worth. As our net worth grows larger, the percentage of growth will come down too.

How was your September? Let me know in the comments.

We Own Two Cars!

October 10, 2018 by Lazy Man 8 Comments

I hope you had a good Columbus Day. Yes, I’m a day behind (as usual). I’m still trying to figure out what kind of holiday it is. The kids and wife didn’t have school or work, but the stock market was open. At this point, if I don’t haven’t figured it out, I probably never will.

That four word title has been nearly 6 years in the making. Let me recap:

The Subaru Forester

In late December 2012, we bought a Subaru Forester. The move back to New England with a newborn made my old Ford Mustang not practical.

I wanted to buy a gently used car to take advantage of someone else paying the depreciation. However, there were very few gently used Foresters in New England. I think people tend to drive them for years. The dealership had a couple of used Foresters, but the discount was only about 8% off a new one, not a big savings. In addition, there were some dealer incentives with the new cars that weren’t available with the used ones. I felt like they wanted to keep those used ones around to bring in new customers into the showroom.

One of the dealer incentives was 0% financing over 60 months. Why yes, we will take your interest-free loan, Mr. Subaru!

Many personal finance gurus will say we made the wrong financial decision buying a new car. The numbers worked out better with the new car. It was a reasonable new car purchase at $25,000. Finally, we put a premium on safety with the newborn. We had an incident with the old car and it reaffirmed to us that life is very different when you are new parents with a newborn.

The Acura MDX

Eight months after the Forester, we found ourselves buying an a luxury SUV, the Acura MDX. We were expanding the family with another son. It made sense to move sell the Jeep from 2004 with 125,000 miles and get one that is bigger than the Forester for longer family trips. Two kids, big dog, and strollers take up a lot of space. When we travel with luggage to the airport, we get very close to using every square inch of space.

From a personal finance perspective, a new luxury SUV breaks ALL the rules. It’s a cardinal sin. There’s no way to justify spending a lot of money on a depreciating asset, right?

Wrong.

As I wrote in that article, my wife’s previous two cars had been the “junk college car” and the “need a car right now” car (2004 Jeep). At the time of the car purchase, she’d been a pharmacist for a dozen years. That’s another way of stating what I wrote at the time, “she’s earned a luxury car and then some.” She commutes 90 minutes a day a couple of times a week to her office – a tremendous reason for a luxury car. Finally, did you notice from the above that she was pregnant twice in a very short time?

We went through a dozen luxury cars (as mentioned) and eliminated a lot of the 70K+ luxury SUVs. The Acura MDX checked off all the luxury boxes. It also was only $42,000. I realize that “only” in this case may mean different things to different people. Personal finance is relative. However, when you are looking at spending $70K, $42K is a bargain.

We financed the Acura through USAA which had a partnership with TrueCar. It was 60-months at 1.35%. If someone wants to loan me thousands of dollars at a nearly 1% interest rate, I’m not going to say no. Unfortunately, it’s not as good as Subaru’s deal.

Fast forward to today. The 5 years (60 months) have passed and we have the titles. We moved from “buying” two cars to “owning” two cars.

The plan is to drive both cars for many more years. I’m hopeful that we’ll get 8 more. At that point this 50-year Lazy Man will have yet another mid-life crisis and buy the Mitsubishi 3000GT that caught his eye in college. (I try to plan my next mid-life crisis because that means I’ll live forever, right?)

Like everything in life, plans change. We’ll re-evaluate all the time like we always do.

Should You Invest in Condo Hotels?

October 6, 2018 by Lazy Man 6 Comments

Happy Beach Dog — Beach Dog Says: I love my new condo hotel home!

I started writing Lazy Man and Money in 2006 due to a unique wake up call: My fiancé was going to retire at age 43, with a military pension due to 20 years of service.

Who wants to work another 22 years after their spouse retires? At the age of 30, I could look to retire in about 12 years with her, or work 3 times as long and retire at 66.

My mission: Explore and build income streams.

I didn’t know you could make money with a blog, but I did know that it could help you connect with like-minded people. (This was when social media was defined by MySpace.)

Around that time I had read that investing in hotel rooms was a hot new market. This isn’t just buying shares in publicly traded hotel company. This is buying something called a condo hotel.

What is a Condo Hotel?

A condo hotel is exactly what you may imagine it is: a combination between a condo and a hotel. Basically it works like this: You buy the hotel room as if it’s a condo. You can stay in that room whenever you want (it’s your room after all). Alternatively, you can release the room back to the hotel for a split of the proceeds when it’s occupied (the hotel gets money for managing it). The rules seem to be different for each property, but that’s the gist.

It’s legally managed like a condominium, but the operated as a hotel. When I first heard of this back in 2006, it seemed like a crazy, but cool idea. Nowadays, it makes more sense to think of it as a condo that you buy with the intention of turning it into an AirBnB.

Sounds like an exciting investment right?

Why I seriously considered buying a Condo Hotel

I find that often get enamored by the best case scenario.

Even if I had to pay fees for maintenance, at $150 a night is over $50,000 a year. This was also around the time that Paris Hilton was starring in the Simple Life. Not everyone is able to start or buy a whole chain of hotels. However, one room? That’s something that an individual investor might be able to do.

Around the same time that I was reading the article above, I had heard that the The W in Las Vegas was looking for investors. The main big investors were in place, but they were looking for individuals to buy in. That helps with their building costs too, right?

I was definitely attracted by four things:

It’s tempting to be a landlord and an hotel owner without having to do any of the maintenance, right? (Of course I’d still be paying for the maintenance, it’s just great not to get those 3AM calls about a broken water heater.)
The premium W brand and quality. At the time, I had a friend who traveled a lot for business and he really loved the W brand.
The premium tourist location – Las Vegas. When I think of people vacationing in Las Vegas, I presume that a certain large number have a lot of disposable income. I like the combination of people with a lot of money looking to spend it on a luxury experience.
The pre-construction pricing, which I presumed would be the best rates. While this is not always true, it feels like the early bird should get the worm, right?

Ultimately, I decided not to buy into the W condo hotel opportunity. If you’ve read the Wikipedia write-up that I linked above, you know I made the right decision. It sounds like it was an unmitigated disaster.

Why I didn’t buy a Condo Hotel

One of the easiest ways not to buy something is to literally not have the money. I might have been able to make some terrible financial decisions like sell off some retirement accounts (absorbing a big penalty) and leveraging a mortgage. That’s not a good idea for almost any investment scenario.

Let’s pretend that wasn’t an obstacle. When I reached out to the the organization planning it, I found that it was impossible to get all the numbers. For one, they didn’t know what vacancy rates might be. They certainly had a better idea than me as they were in the business and familiar with the area. I was working with no knowledge. If the place has a high vacancy rate, there’s not going to be a lot of profit for me to sell my room. (I’m not ready to buy a white lounge lizard suit so I would have needed it to be rented.)

However, even if they had good vacancy and nightly cost estimates, they couldn’t give them to me. If they give out that information, the condo hotel qualifies as a security to the SEC and gets regulated much more rigorously.

Where Can I find a Condo Hotel?

Typically condo hotels are in resort places like Orlando or Miami in Florida and, of course, Las Vegas.

I wish I knew some reputable companies to work with. This is why I felt a little better working with a big trusted brand. I don’t think I would have given my business to Joe’s Condo Hotel Sales ‘R Us. If you know a trusted, household name that works in this area, I’d love for you to leave a comment with that corporation’s name.

Lessons Learned from My Condo Hotel Experience

When I decided to do this review, I wanted to pluck out all my nose-hairs for even considering it in the first place. However, I as I reflect more about it, I am taking a more balanced view. I’m not sure if all condo hotels are a bad idea. Perhaps it could work for some people in some situations. I’m trying not to make a blanket judgment based on one ill-suited (to me) condo hotel that seemed to have difficulty.

After all, this condo hotel example is precisely why I started this blog. I wanted to share ideas to sort out which are good and and which are not so good.

I did find one example of someone who did find a condo hotel that works great for them. My friend J$ did the heavy lifting in an < href="http://www.budgetsaresexy.com/we-bought-hotel-room-called-condotel-live-in-it/">interview with someone who lives in a condo hotel.

I hoped that readers would help me by keeping me grounded from bad ideas. Along the same lines, I wanted to help others where I can as well.

It’s always great to have discussion around a topic. That why I am begging you to leave comments at the end. If there’s one topic that needs more discussion, it’s condo hotels. I rarely see anyone talking about them.

Why is College in America So Expensive?

September 25, 2018 by Lazy Man 2 Comments

I’m going to be at FinCon this week. For those who don’t know, FinCon is when many of the personal finance bloggers get together to network, learn, and just be around their own people.

It’s always the busiest time of the year for me. This year, I’m juggling bringing the family as well. On the day we get back, my wife may turn around and fly 90% of the way back to do a 2-week Hurricane Florence deployment. It’s a good thing it’s not my 6 year old’s birthday, their dentist appointments, or school picture day on that first week. Oh wait, it just happens to be all those not-so-oddly-specific things.

Aside from that, I’m super-excited for the closest I’ll ever have to a happy version of “Bring Your Children to Work” Day. I’m sure it will be much better than the alternative, “Turning Over a Tenant” version of the day.

P.S. If you are a blogger at FinCon and want to make some friends, just say almost anything related to Pokemon with my kids around.

I still got a lot of loose ends to tie up before I go, so today, I’d like to tackle something short and easy:

Why is College in America So Expensive?

Hmmm, that certainly doesn’t seem short or easy. In fact, it’s neither. The Atlantic recently wrote around 3000 words on that topic.

It’s a very good read. If you have the time, I suggest you just dig in.

It took me a few days to read over a number of sittings. (I generally work with very small blocks of time.) Here’s briefly what I learned. I’ll put it in a book report summary form to match with the topic of education.

The high cost of college in the United States is unique. It’s nearly twice per student of the average developed nation ($30,000). Two thirds of developed nations keep their college costs at $2400 a year or less, with many free.

There are few reasons why colleges are so expensive. I covered a couple of them 3 years ago. One of the reasons colleges got expenses is because they’ve spent a lot of money in luxury amenities such as lazy rivers, steakhouses, and ski resorts to lure students. However, the bigger reason is that student debt is the problem.

At the time, my thinking was:

“Access to money has gotten too easy for colleges. It seems to be a never-ending cycle. Raise tuition to build awesome stuff to recruit students. Students get bigger loans to cover tuition. Student debt grows and grows. It seems like the housing bubble to me.”

As one would expect, The Atlantic goes quite a bit deeper in their reporting.

For example, we learn that students in America spend around $3300 on things like housing, meals, health care, etc. In many other countries, students go to school closer to home and need fewer dorms and on-campus meals. The health care is covered differently. You could view some of this stuff as just showing up in a different line-item because there’s an inherent cost to feeding and housing students whether it is at home or at college.

In other words, it isn’t necessarily those lazy rivers that I suspected. I’m sure it doesn’t help, but we have to do dig deeper.

The Atlantic proposes one answer: It’s the cost of paying people’s salaries itself.

The argument (from a couple of cited researchers) is “… college is a service delivered mostly by workers with college degrees — whose salaries have risen more dramatically than those of low-skilled service workers over the past several decades.” The researchers argue that it isn’t much different than “doctors, dentists, and lawyers” who have risen at the same rate since 1950s.

The Atlantic agrees that this may be part of it. However, it makes a note that other countries have similar economic trends, so it doesn’t explain why American colleges are still twice as much.

Next, The Atlantic looks at the public university system where a large majority of students get their education. Funding for these schools have dropped off a cliff (my words) leaving them to try to recruit wealthier students with “nonteaching staff”:

“Some of these people are librarians or career or mental-health counselors who directly benefit students, but many others do tangential jobs that may have more to do with attracting students than with learning. Many U.S. colleges employ armies of fund-raisers, athletic staff, lawyers, admissions and financial-aid officers, diversity-and-inclusion managers, building-operations and maintenance staff, security personnel, transportation workers, and food-service workers.”

The Atlantic also points a finger at the college rankings. Published research ranks highly in the rankings and published professors are expensive. That doesn’t necessarily help the students. Student-to-teacher ratio in the US is slightly smaller. This may seem like it would the students, but there’s conflicting reports on that.

There is also a case to be made that the “net” cost of college, after grants, isn’t that far off from other countries. Costs may start out of higher, but come down quite a bit when you look at the final price.

This leads to a predictable problem that I’ve been struggling with (fortunately, I have a decade to figure it out). The “the price varies wildly depending on the place and the person.” It’s one of the reasons why college planning is impossible. While you might be able to figure out the cheapest (or the most expensive) college, it’s really hard to know what is going to be the best value so far in advance.

The Atlantic analysis takes a turn and compares college expenses to health care. In each case, America is terribly inefficient by paying twice as much for less than stellar results:

“Hospitals and colleges charge different prices to different people, rendering both systems bewilderingly complex, Staiger notes. It is very hard for regular people to make informed decisions about either, and yet few decisions could be more important.”

Finally, the Atlantic seems to get to the reason why I thought colleges were expensive all along:

“Ultimately, college is expensive in the U.S. for the same reason MRIs are expensive: There is no central mechanism to control price increases… In places like the United Kingdom, the government limits how much universities can extract by capping tuition. The same is true when it comes to health care in most developed countries, where a centralized government authority contains the prices. The U.S. federal government has historically been unwilling to perform this role. So Americans pay more for pharmaceuticals—and for college classes.”

The article then asks the question if Americans are getting more value from their colleges. That would obviously help justify the cost. Unfortunately, it seems like the end result of the education is not anything special in standardized testing. Graduates are getting more value in terms of earning more money:

“It’s a diabolical cycle: Colleges are very expensive to run, partly because of the high salaries earned by their skilled workers. But those higher salaries make college degrees extremely valuable, which means Americans will pay a lot to get them. And so colleges can charge more.”

The final conclusion uses a few words to sum up just how difficult college pricing is:

“This convoluted, complicated, inconsistent system continues to exist, and continues to be so expensive because college in America is still worth the price. At certain colleges, for certain people. Especially if they finish. But it doesn’t have to be this way, and almost everywhere else, it isn’t.”

Sometimes it feels like it is enough to make my head explode. I want my children to have every opportunity to succeed, which seems like it’s necessary to engage in this game of Plinko. I just wish it made a little more sense.

Travel for Free by Hacking Your Taxes?

September 18, 2018 by Lazy Man 3 Comments

Many personal finance bloggers love to write about travel hacking with credit cards. As you can tell by that link, I’m one of those bloggers who have written about it in the past.

Last year, we had a lot of expenses in renovating some investment condos. It required us to put up a significant amount of money into the projects. It’s money we had in our various emergency funds. My wife and I applied for quite a few credit cards that had bonuses for spending a minimum amount. Most of them earned us the equivalent of $500 in travel if we spent $3000. That’s the equivalent of getting more than 16% back as long as you use the points.

Back then, I would keep track of what all our points/miles and worth. It was around $6,000 which is pretty exciting! It wasn’t all from the credit cards. Some of it was from saving up Marriott points for years at our timeshare. Some of it was from my wife’s work travel.

We used some of them late last year and will use some more this year. We’re saving up a large portion for a potential return to Australia. Hopefully our trip won’t collapse the United States’ Financial system like it did 10 years ago.

You’ll notice that this article has been about my travel hacking last year. Why? We haven’t been able to do it much this year. Many of our expenses aren’t ones that we can pay with a credit card. Our mortgage can’t be paid with one. The kids’ school can’t be paid with one. We don’t pay for electricity due to our solar panels. I like to reduce our expenses on all the other stuff, so there’s often no guarantee that we’ll get to the minimum spending necessary to earn the rewards.

Then I read an article from Joe of Retire by 40. He’s hustling for free travel using credit cards. I’ve been following Joe’s blog for a long time and we have a lot of financial similarities. One of the differences is that he’s paying estimated taxes on his blog earnings. We don’t pay estimated taxes. I’m an employee of my blogs S-Corp (and have taxes taken out as part of payroll). My wife also chooses to withhold a little more money on her day job.

It turns out that you can pay taxes with a credit card. The processing fees vary, but it looks like it can be as low as 1.87%. (Why would anyone choose the other options to pay more?) If you had to pay $10,000 in taxes that’s $187 in fees. At first it sounds like a raw deal.

However, if you are putting it on three credit cards that have $3000 minimum spending, it could earn $1500 back in travel points depending on the credit cards. Would you pay $187 for $1500 in travel rewards? Of course, right? If you are going to travel anyway, that’s $1300 in free money.

I have to admit that I really haven’t looked at changing our withholdings. It’s been nearly a couple of decades since I even thought about how it works. I usually like, “Set it and forget it.” It fits with my whole Lazy Man brand. However, I’m willing to change my ways if it means an extra thousand or two a year in free travel.

I have to admit that I’ve never heard of anyone doing this. (That doesn’t mean it hasn’t been written about before as it is pretty close to Retire By 40’s plan.) Maybe there’s a gotcha that I’m not seeing?

So to recap, here’s the plan to hack free travel with credit cards and taxes:

Increase ~~withholding~~ allowances so less tax is taken out of your paycheck. (Needed a correction there.)
Get a credit card that offers a $500 reward for spending $3000 in the first 3 months. (That’s an example. I’ve seen a lot of these around.)
Use the credit card to send a tax payment to reach the minimum.
Pay off your credit card from the money that wasn’t taken out of your paycheck in step 1.
Repeat steps 1-4 quarterly or as often as you can depending on how much tax you need to pay.
Enjoy your reward bonuses (minus a little in fees for using a credit card) of travel.

What do you think? Does it work?

Alternative Income Update: September 2018

Alternative Income Update: September 2018