Lazy Man and Money

Costs of Living in California

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One of the things I was most concerned about moving from Massachusetts to California was the costs of living out here. I had 30 years to research every optimal deal around Boston. I didn’t have to sign up for The Grocery Game, because I had been living it for years.

I’m not quite as efficient out here in San Mateo county. Here are the ups and downs thus far:

– Housing – I have to rent, there’s zero chance of me buying a home. Renting isn’t that bad overall. It’s probably about the same as Boston.

– Utilities – This is going to be a pretty big win for our household. With the ideal weather I don’t expect that we’ll use the heat and very few places even come with air conditioning because it’s simply not necesssary. Our cable and Internet bill will be about $15 cheaper. In fact the package is actually cheaper with HBO – a solid bonus.

– Transportation – My fiance used to pay $200 a month in gas to drive to her job. Here, she’ll get $65 towards a metro pass from her job. That means that she’s going to have to come out with something like $20 to supplement that subsidy. My costs are going to go up as I am now the one that has to travel, but my math says it’s about 2 gallons of a day or about $100

– Food and Materal Possessions – Food and clothing is taxed in California! That’s a shock to us who have lived in Massachusetts where it’s exempt. We aren’t talking about a 5% state tax either, it’s 50% more or 7.5% overall. I haven’t been able to find the same grocery deals that I found back home, but Costco is about the same price as home, and I’m hopeful that Wal-Mart will be my friend on the grocery front. On the plus side, my job has lunch, snacks, and soda brought in daily. If I’m there late (7PM-ish), they’ll bring in dinner as well.

– Gym – The gym will be $10 less for my fiance. That was a great surprise, because the real estate for running a gym is more expensive. While she wants a full gym, I will take advantage of the small fitness center in the apartment complex – a savings of $40 a month for me.

All in all, I think the costs of living will be a little more expensive, but we really need to put together a budget before we are sure.

Are you wealthy and/or a good saver?

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All Things Financial breaks down a rule of thumb in the popular book, The Millionaire Next Door. I haven’t read the book, and I know I should, but the rule of thumb just doesn’t seem to work for me. I’m a huge fan of statistics and formulas (one of the reasons I like Baseball Mogul), but this one doesn’t seem to up to snuff.

According to the math a 22-year old just out of college making $65,000 (what some engineers can probably make in Boston), should have a net worth of $143,000. More than likely, the poor person probably has some school loans to pay and is in the negative. I’m a very frugal person. I’m about 100K less than where I should be according to the formula. There were a few years where I was unemployed which is definitely a factor. However, I’m still just 8 years out of college and I’m supposed to have around a quarter million saved?

I think I’ll have to work on a formula that just takes into account only the working years.

Why I don’t have an Emergency Fund

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Before you shoot me for the title, I do need an emergency fund. In fact everyone needs to have one. However, I had one that’s a little non-traditional. Of the people that have emergency funds, it seems like most have them in bank accounts earning very little interest. Some of them are smart and get an account like an ING or Emigrant Direct that pays a much higher interest rate. I can’t argue with that plan, but I chose to go a different route.

I set up a Home Equity Line of Credit (HELOC). I’ve tapped into it from time to time and it’s hurting me a bit to pay 8% on the loan. However, I’m making about 19% (16% after adjusting for risk) on my Prosper account. I’d make 8% by simply borrowing more from my HELOC and lending it out on Prosper. With Prosper being new and somewhat unproven, I’ve decided to hedge my bets and split my money between paying off the HELOC and lending out money.

Back to the HELOC as an Emergency Fund. I think people generally tend to be in the “emergency state” for 6 months and typically they are very rare. If I can earn better than 4-5% more on a 6 month safety cushion than I can in a high interest bank account, I think I’ll come out far ahead over 30 years.