Lazy Man, Author at Lazy Man and Money

One Solution to Planning College Expenses?

August 16, 2019 by Lazy Man 3 Comments

Nearly three years ago, I wrote, College Planning is Impossible (But Do It Anyway!). At the time My kids were just 2 and 3. The idea behind the article is that college costs vary so much, that there’s no easy way to plan for them.

If you want to be aggressive you could save a ton of money in a 529 Plan. That’s assuming you have a ton of money… which most people don’t. The downside to that (other than the lack of a ton of money) is that if you put too much in, you have to deal with penalties or other creative uses for 529 plans. Perhaps the best thing to do is just let the kids have the remainder for their kids… or maybe some schooling down the line.

Essentially, if you overshoot the 529 savings, your money is trapped. That’s not a terrible problem to have, but it’s less than optimal. You may even think that you are planning it well, but what if Jack/Jane gets a scholarship/grant or goes to a public school making the costs very different than what you planned?

College has just too many variables and you can’t plan for them…

… except we did. And I swear it was completely by accident.

Before I get to that I’d like to cover some ways to cover college expenses. Not all will be applicable to all families or students. There’s a lot of tools in the tool box and we hope utilize them all.

Covering College Costs

I focused on 529 plans above, because that’s the traditional savings vehicle for 529 plans. Sorry Mr. Coverdell… I have you, but you are mostly obsolete. Like Smelly Cat, it is not your fault. One of the reasons I got a Coverdell was that it could cover private school costs before college, but 529 Plans can do that now, thanks to the recent changes in the tax law.

How could one cover college expenses? Here are a few ideas:

529 Plans – That’s obvious one. It’s a great vehicle to saving money
Schoralships/Grants – It would be nice to get these. Some schools may give more than others, so our plan is probably to apply to a lot of schools?
Pay off adminssions – Just making sure you are paying attention. This certainly wouldn’t save you money. You might end up in the news… and not in a good way.
Student Loans – The old standby. It’s a big problem nowadays, so hopefully we can keep this down.
GI Bill – My wife’s military service gives benefits that we can split between the kids. I realize that not many people may have this option.
AP credit – If you can test out of a few classes, you can get some credit without having to pay for it.
Community College – Most community colleges are cheaper than traditional public and private universities. It may be possible to take some basic pre-requisits for cheaply and then transfer.

I feel that it is like having multiple income streams. The hope is that through some combination of the above (with minimal loans) paying for college won’t be impossible.

But we have one secret weapon that’s not listed above. We have rental properties. The mortgages will be paid off around the time the kids start college.

This means that we’ll likely have some $35,000 or so (after expenses) each year. Is it enough to cover college costs in 11-12 years? Who knows, but it will certainly help. The benefit of this accidental plan is that we don’t have to think about whether we are saving enough or too much in a 529 plan. If there’s extra money left over, that’s just living expenses.

So how might you be able to plan this more intentionally? Unfortunately, you’d need have the money for a good downpayment around when the children are born. Then with a 15-year mortgage, the timing should be right. Of course, it’s not great being a landlord while raising newborns. OF course if you have the money for a downpayment, you put it in a 529 plan and mabye expect it to quadruple (assuming 8% annual returns) by the time the child is in college. I think prefer the real estate plan, because it is more flexible.

I’m not saying you can do it too. Like my 6 year old’s new catchphrase, “Nope, not at all.” However, it is something that you may want to explore.

Alternative Income Update: July 2019 ($9,297.84)

August 13, 2019 by Lazy Man 1 Comment

It’s almost the middle of the month, which means that the tenants have finally got their rent checks in and we’ve got all of our mortgages paid off.

July was, quite simply, the best month I’ve had in years financially. It’s a little surprising, because we’ve been trying to maximize the most amount of family and fun time possible. Living in Newport, RI that’s the focus for these short summer months.

As you’ll see from the pictures, we went out quite a bit. We did a local carnival, beach concerts, movies (Toy Story 4), a Hellenic Festival (with some Greek friends), a few sunset dinners at the local Navy Base, and 4th of July Fireworks. There’s probably more, but this is what I was able to remember from looking at the pictures on my phone.

We did a lot of spending for the month. The carnival wasn’t a good value as the rides were cheap and quick… but at least the kids had fun and it was easy. We ate out a lot more than we probably should to be frugal, but that’s our form of entertainment. We usually get good value because we take advantage of the base or other restaurant specials. The restaurants have a lot of ways for locals to save money at them. I expect the all the tourists don’t know about these deals, which is good for us.

(Lots of pictures to share this month, so starting early.) The Red Sox implosion isn’t going to spoil my dog’s groove. The hat was my 6-year old’s idea.

There was also some big Prime Day spending. I spent over $1000. The good news is that I got around $2000 in value and much of that was on a new phone that should last me for a few years.

Oh, and as the title hints at, I had my best month making alternative/passive income ever.

I’ll mix in some pictures from the month throughout this financial update, because some people find numbers boring. (But not you or you wouldn’t be here!)

If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you’ll likely have a lot of questions about how I do these numbers.

Lazy Man’s Alternative Income – July 2019

I categorize our alternative income into 3 main sources that are largely represented in the passive income pyramid. I ignore the bottom section of career/job – that’s not passive or alternative at all. I combine dog sitting and blogging into one section of “slightly active” income. I leave real estate and investment income as their own separate main sources of very passive income.

My mother has been warning me about the shark attacks in Cape Cod, but this is the closest to a sighting we’ve had in Newport.

1. Blogging + Dog Sitting Income

The last month I reported, June, was a blockbuster. June is always a big dog sitting month in Newport, RI’s summer tourist season. It was one of our biggest months. At the same time we had our best blog income month. The combination of two was as close to perfection as I can think of.

Blogging income for July was almost as good as that record-breaking June. Some months advertisers love me and this is the second great one in a row. I can’t depend on that, so that’s one reason why it’s great to be diversified across all these income streams.

Dog sitting for July was an all-time record setter. It’s been a few years since we were close to these numbers. It helped that we didn’t travel much. We got so busy at a couple of points that I had to turn away some dogs.

In June, these combined for a total of $4,922.97. In July, it was:

Total Blogging + Dog Sitting Income: $5,713.84

The view from the Newport Navy base is incredible. The food and drinks are cheap too.

I’m going to enjoy this month for what it is. It’s not likely to happen again any time soon. August has been poor so far for advertisers and dog sitting. It doesn’t help that we haven’t been around for too many weekends. I’d love to continue to set new records, but it’s more important to spend time with the family.

Somewhat related to the month’s income report, my 6 year old had a summer camp at the local dog shelter. He already knows more about dogs than any other 6-year old I can imagine, but he loved spending time learning from the experts. My 5-year old is looking forward to camp next year when he’s old enough.

Here’s a historic chart with the red line being a 3-month average:

2. Rental Property Income

Zillow said our rental properties were worth almost exactly the same as last month. As with every month, we paid off a couple thousand of mortgage debt. That helped us gain around $2,000 in equity. It is boring, but in a great, slow-and-steady way.

We now have 56.90% of the equity in our properties with a combined rent of $3,325 after insurance, property taxes, condo fees, and estimated maintenance. I like to use that number, because it represents our net gain.

If you multiply $3,325 by 56.90% you get $1,892 in estimated monthly alternative income. When I started tracking this (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 30 months, we’ve seen the number grow $718/mo. That’s like giving ourselves an annual $8,616 raise until the end of time from where we were 2.5+ years ago.

As the years march on, the ratio will grow to 100% of the $3,325 monthly inflation-resistant rent. That’s what gets us to that annual $40,000 income I mentioned in the FAQ mentioned at the beginning of the article.

The Navy Base also has a fun annual event to slide into summer. Free bouncy houses and dollar sundaes.

In the previous report, the rental property income was $1,880. This number always moves slowly as it only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent. We’re raising the rents a bit next month, but it mostly negates rising HOA fees, so I’m not going to count as increased rent.

Total Rental Property Income: $1,892

3. Dividend Income

The Tariff Man is back and the markets don’t like it. As usual, it was timed at the beginning of the month, right when I start to compile these numbers. The markets have still be great to us overall this year.

For this section, I generally assume we’ll be able to make a 2.5% dividend yield on our holdings. That could be from a high-dividend ETF or from simply holding strong companies that have a long history of dividend growth. For that we’ll look at making passive income with dividend kings. I’ll get Sure Dividend’s newsletter (this link has a special coupon code if you are interested) to try to get closer to a 4% average dividend yield.

When the kids are at camp, sometimes the adults sneak off to Castle Hill for lunch and drinks. It’s more expensive than the Navy Base, but it’s a good change of pace.

With this month’s market hiccup we have a result of:

Total Dividend Income: $1,692

Last month, it was $1,725, so we went back a good deal. However, if we made this $1,692 every month, we’d have more than $20,000 a year in dividends. If our mortgage was paid off, we could this could cover most of our expenses alone. We would have to draw some money out or make more than 2.5% in dividends to be sure.

Very Close to Passive Income

Our “very close to passive income” is a combination of rental property income and dividend income. If there were some royalty income from books, movies, or music, we’d include that here (but we don’t have that).

The stock market goes up and down fast which makes the dividends calculation fluctuate a bit. The rental property income keeps going up because the mortgages are always getting paid down every month. Unless there’s a housing market crash, this should continue to happen.

I have a great Greek friend from college, and we’re making new Greek friends here. Incredible food, dance, and fun!

Having both types of income working together for us is going great. The diversification gives me great confidence that we’ll be better prepared than most people in the case of an unfortunate event. We’ll still likely get rent checks if the stock market crashes. We’ll still get dividend checks if a tenant is late paying for awhile. Of course a bad economy may impact both at the same time, but people reliant on one passive income source will likely have a tougher time.

Very Close to Passive Income: $3,584

Last month it was $3,604, so it’s down $20. This is the first down month in 2019. As you’ll see from the graph, it’s not a big deal.

This was at one of the beach concerts. The kids spend a lot of time looking up to me. It’s good to look up to them (literally) sometimes.

It has 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 $43,007. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, I’m looking forward to 8 years from now when the mortgages on the investment properties (and our primary residence) are paid off. Add in stock market growth (of a conservative 4%) and this number could reach $85K/year or more.

Final Alternative Income

When you add up “dogs and blogs” to the “very close to passive income” you get:

July’s Alternative Income: $9,297.84

That’s a new all-time record! A few years ago, the blog and dog sitting were doing better and we’ve had another one of those months. Add that to the rising passive income and it’s a good recipe of growth.

Sometimes dog sitting doesn’t go great and sometimes blogging doesn’t go great, but growing rental and investment income can cover a lot of the imperfections there. Annualized, the $9297 in monthly income would be $111,574.08. I have been trying to get this number consistently over $100,000 and I’ve been able to do it twice in row now. When most of the month goes well, I can get there. However, for the year it looks like we’re closer to landing the $85-90K range.

Finally, a picture of the local carnival. Next time, I’d like to go to a higher quality carnival. Maybe something in Old Orchard Beach Maine or the boardwalk in New Jersey.

That largely hypothetical annual income for writing on a blog, taking care of dogs, and investments feels like a dream. In the long term, $90K+ would be a lot more income than we’d need. Here’s what our expenses for the next 45 years looks like.

None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or some of the freelance work I’ve been doing over the last year.

As always, I’m still hoping to write a book someday – just to add some more passive-ish income. I’m may tip my toe into self-publishing sometime in the next year. I would love to talk to a real a publisher, but I don’t want to take on the “job” of writing. If you know someone who I could talk to contact me.

Net Worth Update

My net worth updates aren’t very exciting as I don’t share the exact numbers. That’s why it’s just a footnote here.

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. For more full disclosure, I haven’t made a dollar from that suggestion this year so I’m just suggesting it because I’m getting rich off it.

With the stock market getting hit hard, our net worth overall went down 1.35%. It’s just the second down month this year. Over the entire year it’s up 23.04%. A little more than half of that growth was from a large percentage of that was based on a website sale that I had at the beginning of the year. The rest has been simply investment gains and savings.

Some of our net worth going down was due to tapping our HELOC for some siding repairs. Every year we seem to have one really large expense and this going to be it this year. Hard work, good planning and very good luck has put us in a position where an $8K deposit and a $16K total job isn’t devistating.

I always have to remember that percentages can be weird due to the law of large numbers. Imagine someone with a net worth of $100 finds a $100 bill on the ground. Instantly it doubles his/her net worth. As our net worth grows larger, the percentage of growth will come down too. You’d rather have 10% growth of a million dollars ($100,000 gain) than 20% growth of a $100K ($20,000 gain), right?

Everyone is on a different place in their financial journey. I’ve been blogging about personal finance for 13 years, naturally, we may be further along in that journey. Don’t be discouraged by some of the numbers above if you are just starting out. Use it as motivation for what may be possible (depending on your circumstances.)

There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask Should I Include a Pension in Our Net Worth?. I decided that it does make sense to do it. It’s not easy, but I came up with some ways to figure out what a pension is worth. In the end, it seems my wife’s may be worth $2.3 million. However, like most of the money mentioned in this article, it isn’t immediately spendable cash.

That pension would ridiculously dominate our net worth, so I’ll note two separate numbers in our spreadsheet. Since I don’t share the numbers anyway, except for these hints, it shouldn’t matter much to you.

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

Yard Sales are Very Weird

August 7, 2019 by Lazy Man 6 Comments

This past weekend, my wife and I participated in a church yard sale. By “my wife and I”, I mostly mean my wife as she ran the show.

I usually have strong feelings about everything. It’s just in my nature to lean towards everything being either black or white. I know there’s lots of gray. I’m trying to get more comfortable with that as I get older, but it just isn’t natural to me.

Yard sales baffle me. They are one of the few things that I’m wishy-washy about.

Here are some thoughts about each side of the coin… I’ll leave it to you to determine the context on how I feel about each item.

As a Yard Sale Seller

So Much Work – There’s a reason why my wife runs the show at yard sales. It’s a lot of work… and I’m so very Lazy. That said, I was up an hour early making coffee and doing other household chores to help make the yard sale work.
So Little Money – A couple of years ago, my wife sold a ton of baby stuff at “high ticket” prices. It netted around $200. After the $25 table buy-in, we (she) made about $30. I won’t even look up what a per-diem pharmacist could get with a single hour of work… that would depress me.
No More “Stuff” – Kids grow and the old stuff needs to be replaced with new stuff. This includes books, toys, and clothes. We’ve accumulated so much of all it. I’m guilty for some of the toys, because I have zero impulse control on anything with “STEM” in it. Toys aren’t terrible… I can see how a new toy lights up the mind of my kids. It could be quite possibly the best feeling I can think of.
Recycling – I hate seeing anything thrown into a landfill. Kid stuff should last through multiple kids. They grow so fast (at least through age 5) that clothes are still good.
Bargaining – One person said that she bought clothes at $0.25 a piece at the last yard sale she was at. I wish I was quick enough to say, “It’s a $25 buy-in to a very good charity. So you are asking us to sell 100 pieces of clothes to just break even with our time here?

As a Yard Sale Buyer

Bargaining – I respect game. The person above had game. I think it’s best to take the game elsewhere. You are getting things for pennies on the dollar. I never bargain. Please don’t bargain at yard sales unless you know an item is overpriced.
Treasure Hunt – I love a modern-day treasure hunt, without the work of “hunting.” I went to see what other people were selling. I found a General Hospital board game from the early 80s for $4. It seemed like it could be worth more, but more importantly, my wife thought that she could use it for a possible social connection in her past. I didn’t think about money because those social connections are priceless.
I also bought a 260-piece Harry Potter puzzle for 25 cents. It says “8+” on it, which would turn-off my kids (age 5 and 6) normally. However, I pointed out that they are 11 combined, so they can work together and do it. The next day my oldest said, “Since I’m 6 and a half, and my brother is 5 and half, it’s like we’re 12.”

Perhaps the best 25 cents ever spent?

Another person at the yard sale spend about 15 minutes negotiating about the prices. He ended up buying about a quarter of our stuff. After the negotiattion, he pulled out a stack of $100 bills. He didn’t have change. This exploded my mind.

If you have a way to put my mind back together (or have other yard sale thoughts), let me know in the comments.

What’s Your True Investment Rate?

July 31, 2019 by Lazy Man 6 Comments

Usually, when I start an article, I have an idea where it’s going until the end. This is not one of those articles.

Part of the reason is that things have been busy over the last couple of weeks. I’ll explain more in the monthly report, but our dog sitting has reached new records. At the same time, my wife has been spending more time office. I honestly feel like my kids, at age 5 and 6, are more competent than their camp director or counselors (but I try to go easy on them as managing many kids can’t be easy.) Finally, I’m feeling that summer is passing us by as it does every year. It will be back to school in about a month.

The topic of school is a large part of what I wanted to cover today, but first I want to review some FIRE basics. Most FIRE people would say that your savings rate is what impacts you the most about being able to FIRE (be Financially Independent and/or Retire Early). Some bloggers are saving as much as 50% of their income and investing it. With the power of compound interest and 10-20 years, they’ve got a nice nest egg to retire on. That would be a accurate, though oversimplified version of our financial situation.

Our situation is a lot more complicated with my irregular freelance, side hustles, and businesses (blogging and dog sitting), and our investment properties. For this reason, I don’t bother to calculate our savings rate. Instead, I’ve recented used a net worth growth to income ratio. They are both high numbers for us, so that’s a good thing. For most people a savings rate would be easier to calculate.

Spending vs. Saving vs. Investing

You’d think after blogging about these for 13 years, I’d be clearly able to delinate all these things. It’s not always so easy. In fact, there are mashups of them like “spaving”, which is loosely defined as spending money to save.

It possible to have a high savings rate, but not invest it. For example, maybe you love the safety of having cash in the bank, but it’s not paying a good interest rate. Technically, you may be investing on that savings account, but it’s called a savings account for a reason. A high savings rate doesn’t mean a high investing rate.

In our situation, we have a good savings rate. If anything, we may invest too much and it might be better to keep more liquid cash on hand.

I suspect that for most FIRE bloggers, once they get a nice cushion of liquid cash in their emergency, they invest a vast majority of the rest. When I read some blogs, it seems like most of that 50% gets invested. You’ll see the typical brokerage and retirement accounts mentioned: 401k, Roth IRA, SEP-IRA, TSP, solo 401k. Occassionally, you even see a 529 plan for bloggers with kids.

These are all great investment vehicles. We have them too. As explained above, we have a lot of unusual things about our financial lives.

What About “Invest in Yourself?”

For the last few years, we’ve paid around $30,000 a year for school. You may notice that I didn’t wrote “paid” not “spend.” What I really mean to say is that we invested an extra $30,000 in education.

With my wife graduating in about a week, we’ll be down to around $22,000 for the next few years for just the kids. My wife’s investment was for an MBA to add to her Pharm. D. (We’ve messed up our health system so bad that we are asking our pharmacists to have masters in business as well.) It’s too early to tell if that MBA will pay off, but the “powers that be” at her employment have seemed to change course on valuing it when it comes to promotion time. I could write another 3000 words on the topic, but it wouldn’t help anyone and possibly cause more problems.

If my wife moves on from the military to the private sector, the degree will have a large ROI. However, she may choose to just retire, now that she has her pension.

The other $22,000 is a private school for our two kids. We’re “spaving” a huge percent of the typical costs with my wife’s military status. It’s still a lot more than an average private elementary school. Obviously we think it’s an exceptional school. Would you pay half price if you got into Stanford or Harvard? It’s not an easy question at the elementary school level.

What if that money was put in a 529 plan? Almost everyone would agree that’s investing, right? So is this different? What if it leads to a scholarship down the line?

In almost all these cases, they qualify as the old adage of “investing in yourself”, except it’s literally the people closest to me.

It feels like the rest of the community would consider this as spending, no different than if we spent an extra $22,000 on a sports car.

However, if I were start to really calculate our savings rate and investing rate, I’d create a “True Investment Rate” that included school tuition. It’s not in a brokerage account, but that doesn’t mean it’s any less valuable.

What do you think? This is a complicated topic and I’m sure people have different feelings. I can see a lot of gray areas. Is a vacation to Paris museums an education investment? Are tennis lessons an investment?

In the end, I don’t think the characterizations matter. You are the judge of what’s the best value for your money. I find value internally knowing that the money is invested in personal development that matters deeply to us. For a long time, I felt like we should be saving even more in brokerage accounts or wondering why we don’t feel rich. Once I started to think of education spend as investing, my outlook changed dramatically.

Designing a FIRE Community: Housing (Part 2)

July 26, 2019 by Lazy Man 2 Comments

While this is part 2 of the series, part 1 was a very brief introduction to what you could have guessed from the title. I’m imagining a FIRE community. A place designed to allow people to be financially independent as early as possible. It certainly won’t be for everyone, but it could be ideal place for many in the FIRE community.

Today, I’d like to explore the characteristics of housing in my ideal FIRE community. Housing is a natural place to start. Most people spend roughly 1/3 of their income on housing. If the average work career is around 45 years, everyone can retire in only 30 years if we just give them free houses.

Hmmm, in the off-chance that my free houses for everyone plan doesn’t work let’s come up with a plan B… cheap houses!

What’s the Cheapest House You’d Want to Live In?

That’s the question we have to answer. Unfortunately, most people will have a variety of different answers. My hope is that those who are focused on FIRE are willing to have more flexibility than most people when it comes to this very big expense. Let’s explore what characteristics some of these cheap houses might have.

1. Tiny Houses

Perhaps the best way to save money on housing is to have a little house. Not only are small houses cheaper to build, but they are cheaper to heat and cool. They also fill up faster which means less stuff to buy. You can’t hoard tons of Beanie Babies (or whatever your collectible of choice is) if you have no place to put stuff.

Here are some examples of bloggers who have talked about their tiny house lifestyle:

Two Cup House – A whole blog built around tiny house FIRE. Here’s the story of their tiny house.
Think Save Retire – They travel in an Airstream vehicle as their home. It’s hard to imagine tinier living than that.
Retire by 40 – Joe used to live in a sub-1000 sq. foot place (if I remember correctly from his blog), but now is in a bigger place, but not super big.

Personally, we live in an 1800 sq. foot home. I can be on the small size at times, but it’s not too bad.

In this community we’ll have places of different sizes, but nothing that would qualify as a McMansion. To help make the smaller house sizes work we’ll have an onsite self storage bin.

2. New Planning

One of the benefits of starting from scratch is that we wouldn’t have to support house design of decades or centuries old. There’s a lot of research going on to make cheap, quality houses. For example, this 20K House Project has be around for years. These designs are an amazing rabbit hole to explore.

While most of the 20K houses are also tiny houses, we can use elements of the design in any size house. Of course, we’ll include elements like solar panels to mostly eliminate electricity bills. We’ll also have rain water barrels and things like that.

3. New Processes

In that 20K project, they put a specific focus into keeping home builders in jobs. They mentioned that they could have saved money using “pre-fab” parts. I like home building jobs, but I’m fine using pre-fab parts. I don’t think we’ll be building enough homes to make a big dent in the home building job market.

We can even explore 3D printing for houses. I haven’t done much research on this, but it seems that making a 3D printed house cost between $4000 and $10,000.

Adding it all up

I think some of these housing estimates are a little extreme. I don’t really think we’re going to 3-D print houses for $10,000. If we can, that’s fine, but I’d like to budget quite a bit more. I’d like to think that we could do some pretty amazing things with $50,000.

Of course, we’ll have to cover the cost of land as well. That will vary tremendously depending on where the community is. That’s a discussion for another day. We’ll definitely not be choosing Silicon Valley for our location.

If we can limit our total costs of housing to $70,000 on average, I think we’ll keep either rents or mortgages sufficiently low. For example, a 30-year mortgage could be just a few hundred dollars. Working on this one thing alone could allow everyone in the community to retire 10-15 earlier than normal.