Lazy Man and Money

Rewarding and Motivating Myself

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I have a problem. It’s a “first-world” problem, so I don’t expect any sympathy.

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

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

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

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

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

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

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

This helps me in three ways:

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

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

The Car that Lived Forever

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

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

What is Rachel Veitch’s 1964 Mercury Comet Caliente

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

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

Here are my two favorite takeaways:

1. Regular Maintenance Matters

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

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

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

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

2. Take Advantage of Lifetime guarantees

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

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

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

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

Rob Gronkowski, Personal Finance Guru

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

(Sorry, had to get that out there.)

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

And now for something completely different.

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

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

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

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

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

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

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

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

I’m thinking it might even be more valid.

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

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

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

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

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

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

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

How Much Emergency Fund Should You Have?

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

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

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

News Flash: People are different.

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

Determine a Unit of Measurement

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

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

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

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

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

What Is Your Job Security

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

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

What Are Your Assets?

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

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

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

What Is Your Risk Tolerance?

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

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

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

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

Answers, Damn it!

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

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

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

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

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

Finally, take a look at your assets.

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

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

Example: My Emergency Fund

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

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

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

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

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

Conclusion

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

Digit Saved me Over $100 in One Week!

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

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

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

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

Digit Balance

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

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

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

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


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

There are a couple of natural questions to ask.

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

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

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

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

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

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