Lazy Man and Money

I’m Being “Furloughed!”

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This is from regular writer Kosmo. I put furloughed in quotes because when he first told me about it he said he was getting a mandatory week off of work without pay.

We got news that we will be furloughed for a week – either in July or September. This was a bit of a kick in the wallet, as it’s basically a 2% reduction in pay for the year. On the flip side, we won’t be working that week, so it’ll be time to recharge the batteries a bit. In normal circumstances, that wouldn’t be bad. Right now, honestly, my batteries are pretty well charged. I’m no longer spending 60-90 minutes per day commuting, not taking the kids to their activities, and not going out to restaurants and stores. We’re even getting to kids to (reluctantly) do some household tasks. That has free up a lot of time.

Many companies have been hit hard by COVID-19. If a one week furlough ends up being the only impact I feel, I’ll be pretty happy. More realistically, my bonus will take a hit, because it’s tied to company performance. I assume we’ll still get raises next year, but that’s not certain. Hopefully, this is the only furlough week we’ll have, but I wouldn’t be surprised if we have another.

My wife’s employer is the major hospital in the area. Since basically all non-emergency care was banned for a couple of months, they had a huge drop in revenue. They’re going to be doing something to cut expenses, but it’s not clear what. Hopefully, it’s just a furlough of a week or two.

Overall, my employer has been handling the situation very well and has been very transparent about the whole process.

What is the financial impact?

My wife and I are pretty secure in our jobs. Nobody is ever perfectly safe, but we’re both positioned pretty well. The impact on us will be mostly short term. We’re going to lose thousands of dollars in income. Hopefully, this is in the low single digits. Bonuses and future raises could also be impacted.

Unlike many people, we’re not living paycheck to paycheck. We’re both mid-career, and we don’t have particularly expensive tastes. While we don’t save quite as much as we’d like (largely because we have kids) we put a pretty healthy chunk into retirement savings every month, have a great start on 529 plans for the kids, 50%+ equity in our house, and have enough in liquid assets to weather a short-term storm.

We also qualified for a partial stimulus payment, which we put into savings. Our expenses have also dropped quite a bit in the past few months. Our driving has dropped to almost nothing, which should delay the purchase of a commuter car to replace my 2007 Elantra. Additionally, I’m pretty sure I’ll qualify for unemployment during the furlough(s). Put this all together, and it’s likely that our financial picture won’t be impacted too much – with the lower expenses offsetting the decreased pay.

How will I spend my time?

I’m going to have several days where I don’t have to think about work at all. How will I spend my time?

First of all, I’m going to take some naps. Why not? [Editor’s Note: I highly recommend naps.]

The garage could use a cleaning. Mostly, I just need to get rid of random crap that I no longer need and organized all the containers of screws, bolts, and nails I have. I have no idea what the school situation will be like, but if the kids are home, they can pitch in.

We have a ton of stuff to drop off at Goodwill. There’s a decent-sized mountain in our storage room, and it would be nice if we could reclaim that space. Again, the kids will be able to help with this – sorting things into piles so that we can get everything properly categorized and logged for tax purposes.

I’ll probably spend a bit of time writing. I’ll probably write a couple of articles for this site, and maybe dust off my novel.

Time for stamps?

Will I have time for stamps? Of course.

One activity that has taken up quite a bit of time lately is my jump into philately. I’ve been scouring auction sites for good deals and spending quite a bit of time and money getting my collection off the ground. What do I have to show for it? A lot of half-empty album pages. Many of the early pages have only a few stamps.

There are 665 New Zealand stamps issued between 1855 and 1970 if you ignore specialist variations (which I do). At this point, I have specimens of 298 of those stamps in my album (in some cases, multiples of the same stamp) and another 30 are currently in transit. COVID-19 has been brutal on international mail – I’ve been waiting 40 days for some of the albums, and 25+ for several. So I have purchased about 330 of the stamps I’ll need.

When I get those stamps in my album, I’ll be halfway done – in just two months. That means I should have the whole collection wrapped up by about Labor Day, right? Not quite. Although I’ve picked up a few higher-end stamps, most of the stamps in my album are the cheaper ones. I’ll probably be able to fill another 200 spots in my album without spending too much on any particular stamp. But as I get close to the finish line, it’ll start to get a lot more expensive.

Also, I’ve picked up an interest in covers (envelopes). Each cover is somewhat unique. A different addressee, postmark, or even physical placement of the stamps. I actually have my eye on several that I’ll be purchasing soon. Now I just need to figure out how to store them.

An interesting note: I’ve become irrationally drawn to postage due stamps.

Working from home until next year

Other big news from my employer is that we’ll be working from home until next spring. Some employees might start coming back to the office in September, but it’ll be a slow trickle for a long time. I’m in IT, and since we should know how to be productive with remote tools, we’ll probably be last.

I’ve been getting by with a single 22″ monitor for the last few months. When I was last in the office (March 12), we weren’t allowed to take equipment with us. They relaxed the restriction a few days later, but at that point, I had no desire to go back into the office.

We bought a spare monitor and dock for my wife so that she has two LCD monitors in her workspace upstairs. I really didn’t want to repeat that expense downstairs. Most of my recent work has been analysis and planning. Lately, it’s been shifting into testing work. Testing is a lot easier with two monitors, and if we’re going to be working from home for nine more months, I needed another monitor.

So I got my manager’s approval to go back into the office to grab stuff. I grabbed a monitor (24″), a dock, and my Lazarus Android tablet, which had died for several weeks, been replaced, and then suddenly came back to life. I had Lazarus stashed at work since I had a better tablet at home. I also grabbed my stash of cables, and my Cyclones hoodie and jacket. Then I went to work cleaning. I always have a lot of food stashed in desk drawers. Everything was sealed and had not yet attracted rodents. Pretty much everything was expired. The whole lot went into the trash.

How are you being impacted

How are you being impacted by COVID-19? What changes have you had to make in your daily routines?

MLM Scams and “a Few Bad Apples”

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This may not be the right time for this conversation. Many may say, “Don’t we have enough on our plates with COVID-19 and addressing centuries of racism.”

I wouldn’t argue that. That’s where our attention should be.

However, the topic of “a few bad apples” got surfaced as part of the racial injustice discussion. Rhis Chris Rock video below specifically addresses the problem of “a few bad apples” with regard to cops when reacting to people of color:

That’s a clip from 2018, which shows that it wasn’t a George Floyd reaction. This isn’t new.

Clearly the conversation now (well way before now) should be about systemic racism. Chris Rock in the video above makes a great point that in some jobs (such as the police), you just can’t have any bad apples. Pilots from the video is great example.

In addition to that Vox Media addresses the “few bad apples” with regard to George Floyd. That’s a tremendous article and I recommend that everyone read it.

For this article, I’d like to focus on just this small somewhat insignificant paragraph:

Curiously, the people who recite this trope rarely reflect on the second half of the expression: “A few bad apples spoil the bunch.”

That’s where I’d like to transition this and apply it to MLM. I’m not trying to steal from this discussion. (I’m not sure a small blog as insignificant as mine can do that.) I simply know that if I don’t write about this now, I’ll forget about it. I have the attention span of a tsetse fly and the grit of a sloth.

There has been some discussion about a “few bad apples” for a long time in the MLM space. I’ve spent too much of my life addressing it in comments. I understand if MLMs aren’t your thing, or something you are particularly concerned about at this time. If that’s the case, please feel free to move on. I have broader personal finance content planned for later this week.

Imagine a career, like pilots, where there can’t be any bad apples. That’s one side of the spectrum where I think we can safely agree that success depends on being a good apple. If you are a bad apple, you probably aren’t going to be a pilot for long. (We just hope it ends safely, right?)

But let’s look at the career thing that an MLM distributor does. Since MLM is not a business it would be too much of a stretch to say it can qualify as a profession or career.

The MLM distributor is the opposite of the pilot. The most successful (in terms of making money) have recruited the biggest pyramid below them. The FTC doesn’t go after many MLMs, but when they do, the top distributors with the biggest pyramids are quick to go down too. You can often them in videos on YouTube making illegal business opportunity claims such as, “You too can make 6 figures”, when the truth is that it is mathematically impossible for that to be generally true.

MLM Distributors and Bad Apples

In the comments of my MLM articles, I always get the same excuse that Chris Rock mentioned… “it’s just a few bad apples.”

Here are some examples:

From my Beachbody Shakeology article:

“There is no denying there are really crappy, horrible MLM’s out there that are legitimate pyramid schemes. And it definitely sucks because the business model of MLM can be used for extortion and theft. But; so can regular businesses (Enron? etc.). There are bad apples in every bunch and they sour it for the rest of us. The danger is when you start painting with a broad brush without looking at intent.” (Source)

Note: It was soon obvious that Nick himself was a bad apple.

Next we have this from my DoTerra article:

“There may be many ‘bad apples’ in the network marketing business, but until doTERRA does ‘it’ whatever ‘it’ is, you can’t claim they are a scam or fraudulent. (Source)”

I had only mentioned the things that doTERRA had done and my opinions to the best of my knowledge. That included a warning letter from the FDA back in 2014. Additionally, just a couple of months ago, they were warned by the FTC for COVID-19 claims.

I think we can all agree that the FTC is calling doTerra out for having “bad apples.”

(I don’t even want to address how anyone using the term “network marketing” is a bad apple for trying to hide that it is MLM.)

Next we have this from my ASEA article:

“The Asea has done wonders to relieve chronic spasms in my entire back, making it possible for me to be on my feet for much longer than I’ve managed for years! I’m a real person, not being paid to do this, but want the real truth to be told about this product. It’s not a scam. It’s literally changed my life and has given me some life back. There are always bad apples in the mix with anything, sad but true. Always some that don’t do all of their homework or even try it for themselves or see what it can do for others around them.” (Source)

That sounds like a convincing testimonial, until you realize that ASEA was debunked in 2012 as being $70 salt water. The commenter may not have been a bad apple, but it’s easy enough to say, “Get the product approved for the medical condition if it works.” If there is anyone who isn’t taking the MLM company to task with that… they are a bad apple in my book. The company itself is a bad apple if they aren’t getting their product FDA medically-proven for back spasms (in this case). I hate to be the bearer of common sense here.

Finally we have this from my Visalus article:

I am looking for a unbiased article or blog and for me if you are totally down i.e. your summary is it’s all bad or it’s all good. There is something wrong, some kind of agenda. There are bad apples in everything banking, schooling, non-profits, government, hospitals, business in general. However, there are also good apples. (Source)

I’d love to read his review about domestic violence. I wonder if he’d say there’s some good in it? What about his view of pickpockets? It’s hard for me to see the positive side of pyramid schemes preying on the disadvantaged.

BTW, ViSalus imploded as well. In 2012 they were in the advanced stages of going public, but reports came out that they were a pyramid scheme.

I could probably go on citing commenters from many of my other articles such as Le-Vel Thrive, Plexus, It Works, and Shakeology.

Instead of boring with all that, the former Chairwoman of the FTC, Edith Ramirez made a blistering keynote at the 2016 MLM convention (misleadingly titled the Direct Seller Association, which doesn’t address the MLM aspect).

She goes into great detail about how bad the bad apples are in MLM. She cites that when the “business opportunity” to recruit people into Burnlounge was legally taken away, interest in the product “plummeted from over $475,000 to less than $11,000.”

Feel free to check my math, but it seems that the MLM consisted of 97% bad apples. From my reading it seemed that Edith Ramirez held that out to be a typical example.

Celebrity as MLM bad apples

It’s not just the distributors who are bad apples. Celebrities can be bad apples in sponsoring pyramid schemes. Here are some examples:

Jenny McCarthy pushed Vemma’s scam and the FTC took them down. Drew Brees pushed Advocare’s scam and the FTC took them down. Even my beloved Red Sox pushed Monavie’s scam and… it imploded before the FTC acted on it.

I give the celebrities a bit of a break. They probably don’t have the time to do all the research into these pyramid schemes. That’s why we need the FTC to actively investigate them instead of waiting 10-25 years and then acting… which unfortunately isn’t unusual.

Final thoughts about MLMs and a “few bad apples”

One may claim that the people who appear as “bad apples” just didn’t get the right training. I don’t believe that, but if I were to play Devil’s Advocate, that’s a systemic problem with MLM. MLM assumes that the person who recruited a distributor can train that person. The problem with that is that a bad apple spoils the barrel as the bad training spreads down the line. It’s like the children’s game of Telephone gone wrong – all the misinformation that can recruit people are spread like… well… to bring it into recent terms… COVID-19.

John Oliver did one of the best comedy routines about MLM, because it delivered real information. I’ve found it exhausting covering the “what about this one” of the 1000 out there. There are systemic problems in MLM scams and I covered them here.

I invite you to click on that link, but also enjoy the John Oliver video below.

Passive Income Update: May 2020 ($7087.12)

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Let’s review the last few months shall we:

February: I complain that my annual Seasonal Affective Disorder (SAD) seems to be kicking in. I start to research some light devices and other home cures…

March: We have almost half a normal month, but the COVID-19 lockdown canceled our vacation and homeschooling starts…

April: Full month of COVID-19 lockdown, homeschooling two young kids, and it rained everyday…

Passive Income Pyramid
My Passive Income Pyramid

May came and it got worse. The lockdowns are still on canceling the most important things like school and camp. Distance learning (still) doesn’t work. Almost the whole nation woke up to systemic racism and police brutality almost overnight. In my own little bubble of personal finance bloggers, a controversy blew up and the FinCon conference that has connected thousands of bloggers each year for nearly 10 years will never be the same.

Those are the broad strokes of May. However, when you look at through the prism of the pictures that I share below, it will look like it was a 1950’s family sitcom. I don’t know how to process the dichotomy of the pictures and the perceived reality. I want you to know that even when you see a bunch of happy pictures, that’s a thin slice that doesn’t necessarily represent reality. I think it’s important so that you don’t compare your life and say, “He has everything going awesome and doesn’t have a care in the world.” In my opinion, too many bloggers and social media people play up those slices and it can make others feel worse about their own lives.

[Kids showing off their Pokemon masks on a hike. They didn’t need them, but I had them put it on for the picture.]

That’s enough lead-in… let’s get to the Passive Income report. In the past, I called it the Alternative Income report, but it seems like that term didn’t catch on. Everyone loves passive income better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ. 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. They way I calculate these numbers does require some explanation.

Lazy Man’s Passive Income – May 2020

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

1. Blogging + Dog Sitting Income

Last month we did zero dog sitting. In May we did zero dog sitting. Thanks a ton, coronavirus. (It does look like we’ll do some dog sitting in June.)

Blogging income was about the same as it was the month before… almost scary how close it was. I can’t do much about it while we have coronavirus. Advertising is down, spending in general is down. Few people are searching for information about retiring early. I’m spending almost all my time with the kids until camps start. From 6AM to 8PM, I don’t even try to work. I’m setting up some educational activities, cooking food, doing laundry, washing so many dishes, doing the educational activities, walking the dog with the kids to get fresh air, and fighting through their bed time routine.

[One fun school project was to make something Mexican for Cinco de Mayo. This is a rare picture, because letting this kid run around with a knife without an adult closer isn’t a wise idea.]

On the topic of camps, we’ll get those back early next month. They are approved to open as we have had zero COVID-19 new cases in the community over the last 7 days. So there’s a chance of real work being done for a majority of July. There’s also a 98% chance that my wife and I take the time to enjoy the beach and some cocktails.

In March, dogs and blogs combined for a total of $2,067.93. In April, it was:

Total Blogging + Dog Sitting Income: $2,167.12

In the olden days of pre-COVID-19, I would say that dog sitting is great because my kids are old enough to pitch in and help. I could pay them a legitimate earned income (a small percentage of the overall income). This allows them to save money in their kid Roth IRAs, money that they’ll never pay tax on. I’m starting to rethink that. The kids may play a more meaningful role in the blog going forward.

(Note: The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

2. Rental Property Income

Zillow estimates seem to be finally factoring COVID-19. The value of our properties went down a bit. At least tenants continue to pay us. That’s a load off my mind, since we lose money on these properties every month. (We’re accidental landlords for the most part, making the best of the situation. However, we also have 15 year mortgages in hopes of turning them into an income stream in several years.) As with every month, we paid off a couple thousand dollars of mortgage debt and grow some equity.

[This is what homeschooling looks like in our house]

We now have 63.81% of the equity in our properties with a combined rent of $3,325 after insurance, property taxes, condo fees, and estimated maintenance. I use that number because it represents our net gain.

If you multiply $3,325 by 63.81% you get $2,212 in estimated monthly passive 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 40 months, we’ve seen the number grow $1038/mo. That’s like giving ourselves an annual $12,456 raise until the end of time. It’s a very nice gain from 3+ 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 above. I may need to update that $40,000 number as well – it’s looking closer to $30,000. In either case, it should be enough money for us to live on with our own home paid off (plus our solar panels, frugal shopping, and military healthcare.)

In the previous report, the rental property income was $2,112. 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.

Total Rental Property Income: $2,212

3. Dividend Income

For this section, I assume we will earn 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. If I wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get closer to a 4% average dividend yield. That link to the newsletter has a special discount rate and in full disclosure I make a few dollars if you sign up for it.

[The kids camped out on the floor a couple of nights.]

The last snapshot on May 5 had the markets coming back. When I took these numbers on June 6, the market was doing great. Maybe the market loves the free money that the government is giving out. Maybe it’s looking forward to vaccines and opening up the country for business. I’m scared by all this, but I can’t deny the math. The market has done very well over the last month.

Last month, we continued to get a profit sharing check since I bought (a lot of) a company. The business is still doing well. It’s actually almost ideally positioned due to its virtual nature. The investment income from this is essentially the same as dividend income. It is taxed differently, but for the purposes of this report, it makes sense to group together all stock ownership in this bucket.

Total Dividend-ish Income: $2,798

Last month, it was $2,612. A couple of months ago, I wrote, “even in a bad-case scenario, we’d be north of $2500.” We weren’t obviously, but we are back there now, with some room to spare.

Hopefully we’ll beat COVID-19 and the economy gets fully back to normal. I expect that it will take at least 2 years and probably a lot longer. However, if that happens, this number will grow even stronger than before. I bought shares of companies at depressed prices throughout the drop.

[People say buying a new sports car isn’t smart. I tend to agree. However, 20 years later, we’re still making these memories.]

Annualized, this monthly $2,798 is $33,574. If our mortgage was paid off, we might be able to scrape by on this by itself. However, because most of our investments are in retirement accounts, we can’t use much of this income for now. (We can use the profit sharing check as it goes straight to our checking account.) We’ll let the rest of this income continue to compound for at least another 15 years, but hopefully a lot longer.

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, I’d include that here. I’m too tone-deaf to have a rockstar music career, but maybe there’s room to have a book someday.

The stock market goes up and down fast, even more so nowadays. That makes the dividend calculation fluctuate a lot more than it normally would. We don’t even know if companies can reliably pay dividends anymore. Without customers, and profits, many companies have cut their dividends.

[This is the view from the first time we were able to go out to dinner. Yay outdoor dining is allowed!]

The rental property income typically 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. That housing crash may be coming, but for this month it hasn’t happened.

For a few years, I’ve been saying:

I love having both types of income working together for us. I think everyone interested in FIRE should have stocks and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most people in the case of an unfortunate economic 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 that’s what an emergency fund is for.

Here we are in an unfortunate economic event. Our stocks went down a lot, but then went back up. Our real estate has held steady. We’re just lucky because many tenants can’t pay rent.

[Let’s end with picture of a very happy dog]

While the stock market is doing well, the real economy is terrible. No President wants to see long food lines, six figure homeland deaths, and an unemployment rate balloon to ~15%. The best answer is a bailout of nearly everyone and everything at a cost of several trillon dollars… and it may go up from there. If only the people in political power believed that an ounce of prevention is worth a pound of cure, we’d be in much better situation. It would have, figuratively, saved our bacon.

It seems like we don’t know which way things are going to go. Since we are easing up on social distancing, it might go poorly again. Some states are seeing increased problems.

Very Close to Passive Income: $4,919

Last month it was $4,724. We had lost $500 a couple months ago, but we are $100 away from being back to the highs. All things considered, that’s not bad at all.

This “very close to passive income” has grown from $2,354 in January 2017. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for that profit sharing check). Add in stock market growth (of a conservative 4%) and this number could be real, non-fudged $100K/year. I’m especially looking forward to 7 years from now when the mortgages on the investment properties (and our primary residence) are paid off. That’s going to be a huge financial swing for us.

Final Passive Income

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

Passive Income: $7,087.12

That’s reasonably good for another month of everything being shut down. We’re getting back to our frugal roots, so one could argue that this lower number overall could put us in a better long-term financial position. That all depends if we continue be frugal after coronavirus, which may not be likely.

This nearly $7000+/mo income is $85K+ a year. That largely hypothetical annual income for writing on a blog, taking care of dogs (not this month), and investing feels like a dream. In the long term, $85K would be a lot more income than we’d need. Here’s what our necessary expenses look like… for the next 45 years. Of course those necessary expenses isn’t everything, but it’s a large percentage of everything.

I always say that you never know what bad news is lurking around the corner, but this gives us the financial flexibility to fight it. With the coronavirus closing schools/camps and my wife on the coronavirus response team, we need this flexibility to continue to care and educate our two kids.

None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or the freelance work I’ve been doing over the last 18 months (which isn’t passive at all). That’s the fuel that drives the passive income engine.

As always, I’m still hoping to write a book someday. That would add some more passive income. My wife will probably get her book out first. She had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime next year. I would love to talk to a real a publisher, but I don’t want to take on the “job” of writing. That’s probably a deal breaker. If you know someone who I could talk to contact me.

My favorite thing about the graph below is that it doesn’t dip down too far. It’s been above $6,000 for awhile now. I thought that it may be tested with the coronavirus, but maybe it won’t be after all.

(Once again, the blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

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.

Like most investors in May, our net worth did very well. After losing more than 10% in March, we gained 8.84% in April… and another 5.26% in May. For the year, our net worth is UP 3.43%.

Our real estate value is going down just a little bit. The lesson here is that diversification helps a lot in bad times. Even when the stock market was way down, we were still grounded with our real estate. We can’t control the market, but we can be happy that the amazing river of compound interest has been working well for us over the years.

I feel it’s important to acknowledge that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 14 years. FIRE wasn’t a “thing” back then, but it’s in the news all the time now. We naturally are further along in that journey than some younger readers who may be beginning their journey. I hope you won’t be discouraged by some of the numbers above if you are just starting out. I didn’t start many of these graphs until year 11 of blogging (year 13 of early retirement planning). Please try to 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 whether to include a pension in your net worth. I decided that it does make sense to include it. She could have earned more direct monetary compensation if she didn’t work for the government. That would have boosted all the numbers across the board. Calculating pension value is not easy, but here’s the best way to know what a pension is worth. In the end, it seems my wife’s pension may be worth $2.3 million. However, like most of the money mentioned in this article, this isn’t money we can spend right now.

Because the pension would ridiculously dominate our net worth, I’ll note two separate numbers in my personal spreadsheet. I don’t share the numbers anyway, aside from these hints, so I don’t think it should matter much to you. It’s not like I’m suggesting that you might want to make a financial based decision on a pension.

I always end this article by asking how your last month went. That doesn’t make much sense after the March that everyone had. Feel free to use the comments to vent – it doesn’t even have to be about personal finance.

Pandemic Finances

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The following article is from regular contributor Kosmo. It was submitted earlier last week, before most of the conversation in the United States has rightfully focused on race and police brutality. I’m busy homeschooling a 6 and 7 year old through finals week (who knew there were kindergarten “finals”?). There’s great unrest in the personal finance blogger community as well. Everything around me seems to be an onion of fighting – just layers upon layers of fighting – home with kids, professional, politically, human rights, science (COVID-19) – did I miss anything?

We’re now about 2.5 months into the COVID-19 pandemic.  Some businesses are starting to open, while others will still be closed for a while.

My wife and I have both been working from home since mid-March.  It’s likely that she’ll be returning to the office in the next month.  My employer has announced that we will be working from home at least through Labor Day.  Even then, offices will only be at 25% capacity for a while.

It’s been a roller coaster ride of good and bad financial news:

Bad news: Investments

The pandemic has cost most people money, and we’re no exception.  The biggest hit was investment accounts.  We’re tracking slightly ahead of the Dow, but are still down for the year.  We’re mid-career, and although we haven’t saved quite as much as we’d have like (thanks, kids), we still have more in investment accounts than most people our age.  That means that we’ve taken a decent hit.

Some of our retirement assets are in pensions from my previous and current employer.  The pension from my previous employer is defined benefit, so there has been no impact.  The pension from my current employer is defined contribution, but can’t lose money.  It basically pays a dividend within a fairly tight range, based on bond rates.

Bad news: Compensation

Unfortunately, my bonus for next year will likely take a hit.  Last year, my bonus was around 10%.  The company will likely struggle to meet some of the ROI-related goals for the year, which will impact bonuses.

My wife’s employer is a hospital, and they have seen significantly decreased revenue.  They are looking at more drastic action, which will likely include some sort of temporary pay cut.  We’re just hoping it’s a small cut.

Bad new: home office costs

We didn’t go crazy setting up home offices, but my wife did need a few things.  She’s a CPA, so a second monitor (and the dock to make it possible) was a must, and she quickly got tired of the chair, so an office chair was a must.  Overall, the costs were about $350.

I didn’t have any costs for my own setup.  Currently, most of my job is involving analysis.  If I was doing a lot of heads-down testing, a second monitor might be a necessity.  For now, I’m happy hunkered down in the corner of the dungeon basement.  (It’s actually a finished basement, so it’s not a bad setup at all.)

Not all bad

I don’t want to dwell too much on the negative.  We’re better off than most people.  My wife’s pay cut will only be temporary, and I’m confident that the market will eventually rebound.  We did qualify for most of the stimulus check, which should offset some of negatives.

Good news: no day care

My kids are 12 and 10.  We’ve been paying people to watch them since they were born.  Day care, BASP (B and After School Program), and summer care.  For the last 2.5 months, they’ve been at home.  We’re still paying a holding fee (because if you lose your spot, you’re screwed), but the cost is much lower.

My daughter won’t be going back.  She’ll be in 7th grade next year and will be taking the bus to school.  It would have been nice (and cheaper) to have that as an option in previous years, but we’re 1.9 miles from the elementary school, and kids must be 2.0 miles from the school in order to qualify for a bus.

My son (going into 5th grade) will be going back at some point.  But by the time I go back to work, we will have saved more than $2000.

Note: the IRS is allowing people to change their flex spending for dependent care, but only if their employer allows it.  If you won’t need your entire flex spending amount, check with HR to see if you can decrease your election.

Good news: long hair

I’m the only member of the household who has had a haircut since March.  No, I’m not a jerk who sneaks out to the barbershop in the dead of night.  For the past twenty years, I’ve used a home haircutting kit to cut my own hair.

My son’s hair is getting a bit shaggy, and we’re currently planning a trip to the cuttery next week, with all possible precautions.

Haircuts are expensive.

Good news: lower discretionary spending

We’re spending a lot less money on discretionary things.  We’re not dining out (although we’re doing delivery a couple of times per week), not buying random stuff at the mall, not buying gas, not incurring wear and tear on the cars.  No date nights, no movies, no sports gambling (because there are no sports).

Instead of buying snacks at the vending machine at work, I’ve been getting 2 liter bottles of generic cola (99 cents) and bags of candy bars.  That’s saving a few dollars per day.  I could save even more if I snacked on water and carrots, but who are we kidding?

[Editor’s Note: Our investment in a custom SodaStream kit has kept us with plenty of fizz. Flavorings, such as diet coke, or calorie-free fruit is very cheap.]

We run a lot of household expenses through our Fidelity Visa, since it automatically puts the 2% cashback into 529 accounts for the kids.  The monthly costs has been about half what it is in a normal month.

What are we spending money on?

We’re still spending some money, of course.  The grocery bill has skyrocketed, since those groceries are now providing nearly every meal.  In  a typical week, the kids would eat at school (2 kids X 5 meals per week = 10), and we would eat several meals out.  So the cost of the typical meal is lower, but almost all of that cost is on the grocery bill now.  (Speaking of food, it’s lunch time for me – time to microwave a Banquet Salisbury steak TV dinner.)

[Editor’s Note: I’ve been occasionally splitting Hungry Man dinners for lunch with 7 year old. It’s hard because he doesn’t eat a lot of different foods.]

As mentioned in my last article,  I have begun collecting stamps.  I’ve spend too much and money on stamps in the past month.  It’s a drop in the bucket compare to what we’ve been saving, but it has definitely become a bit of a money pit.  The good news is that I should be done buying supplies for a while.  I have my tongs, magnifying glass, stock pages, and storage boxes.  So I’ll just be buying stamps now.

I also spent a few bucks buying digital codes for the Jurassic Park and Hunger Games movies.  For a total cost of about $30, I was able to get nine movies.  In a normal situation, I don’t have much time to watch movies.  Lately, I’ve had quite a bit of free time.

We also decided to upgrade tech for the kids.  They currently have Fire 6 tablets.  We actually got a great deal  of them at the time.  By taking advantage of a Prime Day deal and signing up for an Amazon credit card, our total cost was $47 – or $23.50 per unit.  The downside is that they kinda suck, and that they’re now five years old.  Battery life has always been an issue, and it’s getting worse.  Surprisingly, the kids haven’t complained yet, because Minecraft still works.

I found a deal on the 8″ Lenovo Tab 3 and bought two of them.  I have a Lenovo Tab 10 for myself, and it has been a very good user experience.  The Tab 3 doesn’t have the same specs, but it should be good for their needs – Minecraft and streaming video.  We ended up paying $59 each.

Non-financial news

We were planning a vacation to Door County, Wisconsin in a few weeks.  Our AirBNB was very nice and was within walking distance from Lake Michigan in 2017.  We planned a return trip last year, but had to cancel due to a family medical situation.  So we made the same plans for this year.  Unfortunately, with all the uncertainly, we decided to push this back to next year.  Finger crossed that everything works out next year.

What about you?

How have your finances changed?

529 Plans: 29 Thoughts for 5/29

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Happy 5/29 Day! Regular readers probably already know that a 529 is a college savings plan. New readers who didn’t know that, just learned something.

529 PlanI first started looking into college savings plans in 2007, when my nephew was born. I wanted to give him a little head start. I loved the idea my gift would be multiplied thanks to the power of compound interest.

Unfortunately college savings plans can be a little difficult for a new parent (or uncle) to understand. This lead to my How to Choose a 529 Guide.

I put in a little money to seed the account and added more on birthdays and holidays. My nephew got himself an awesome little sister, so I opened up an account for her too. Grandma occasionally pitched in some money as well.

Today, their accounts have more than $6,000. More than half of that is from market gains. Hopefully that will buy a few hours of lecture by the time by the time they are in college.

Nowadays, we’re a little more focused on saving for our own kids. We’ve got some work to do on that front, but we do have $20,000 saved. That’s enough about our situation though. We have my wife’s GI Bill. We’re investing in their education with the best private school in the area, so they better earn scholarships too, right? Finally, we want the kids to have some of their own money in their own education so they don’t skip classes.

In short, there are a lot of ways to save for college. Today we’re focused on 529 plans. Let’s get into 29 thoughts of 529 Plans on 5/29.

1. When money from a 529 plan is used for a qualified education expense, there are no taxes to pay on the investment gains.

2. Unfortunately, it’s difficult to get great gains on a 529 plan since they are typically compounding for less than 20 years.

3. You might be able to reasonably double your money twice in that 20 years. Thus one dollar invested at a child’s birth may be worth four after high school graduation. This assumption uses the rule of 69 with 7-8% investment growth.

4. Thus, if you put one year of tuition in a 529 account at birth, it could fund their entire college education. (Unfortunately, very few people have tens of thousands to invest when a new child is born.)

5. 529 plans are run at the state level. As soon as you are done with this article, you’ll want to look at your own state’s specific plan.

6. Some states give you an extra incentive to open a 529 plan. My state, Rhode Island, gives a $100 grant if you sign up for a 529 plan when your baby is born.

7. I used this idea to help motivate a blogger friend to start a 529 plan. I offered $25 and a couple of other bloggers joined in.

8. Some states allow for a tax deduction or credit for saving in a 529 plan.

9. Some states have better investment options than others. When I lived in California there was no tax incentive for me to invest in the state plan. I decided it was best to invest in Ohio’s plan which had Vanguard funds with low expenses.

10. 529 plans can be rolled over to a new beneficiary such as a child. This can be done indefinitely, possibly creating a family legacy of education funding and compound interest.

11. 529 plan money can be used to buy computers. See this IRS page for more details.

12. 529 plan money can also be used to buy computer software subject to the same IRS rules mentioned previously.

13. 529 plan money can even be used for internet service.

14. 529 plan money can be used for tuition at private or religious elementary or secondary schools.

15. 529 Plans can be used for community and technical schools

16. 529 Plans can be used for some nontraditional schools such as the Golf Academy of America, the commercial diving program CDA Technical Institute, and the Le Cordon Bleu College of Culinary Arts. Yes, golf, diving and cooking can qualify.

17. 529 Plans can be used for online schools

18. 529 Plans can be used for hundreds of international schools. Check with the government searchable database first.

19. 529 Plans can be used for online schools. Again, check with the government searchable database first.

20. There’s a limit of $10,000 per year for elementary and secondary use.

21. If your state has a tax deduction for 529 plan contributions, you may want to funnel money through a the plan to save on your state tax.

22. If the beneficiary gets a scholarship an equivalent amount of the money in the 529 plan can be used penalty free. However, taxes on the gains will apply.

23. Alabama and Illinois have a 529 Rewards Visa card where you can earn 1.529% rewards on your spending. A small annual fee may apply. As always, it’s best to pay off your credit cards every month to avoid the huge interest charges.

24. One of best ways to grow a 529 is simply to create an automatic monthly transfer from your income. This “paying yourself first” creates forced savings.

25. A wealthy relative can use a 529 plan to circumvent the gift tax by “superfunding” 5 years of contributions ($70,000) in one year.

26. Almost 300 private colleges and universities belong to a Private College 529 Plan. It’s the only 529 plan not run by a state and it allows you lock in tomorrow’s tuition at today’s rates. It’s not an investment.

27. However, if you plan to contribute to the Private College 529 Plan and go to a school that doesn’t participate, you may have done better investing in a regular 529 plan.

28. It’s possible to combine a Private College 529 for tuition and a regular 529 for other expenses such as room and board.

29. As 529 plans are intrinsically linked to taxes, please consult with your tax advisor before implementing anything mentioned here.

If you’ve made it through all 29 thoughts, I hope that you’ve been inspired to investigate at least a few of them further. Let me know in the comments if you have followed any these down the rabbit and what you’re experience with 529 plans are.

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