Done To Zen

I read this book a couple of days ago. Most of the advice in this book can easily be found distilled in various blog posts on the Internet and in numerous other finance books, but the book is small, the writing is clear, and steps are easy to follow.

Your retirement is more important than your daughter’s prom dress

What I remember the most from the book is the author’s insistence on never sacrificing your needs for other people’s wants, no matter who those people are. According to the author, women are especially bad at this. The author’s example involved a grandmother who was disappointed with her (good for nothing) son; however, she wasn’t willing to let her grandchildren suffer and so she let them rob her of her retirement.

The author brings up an excellent point: what would you do if you found out that somebody were stealing the social security payments of a sixty-year-old lady to puchase motorbikes and concert tickets? Wouldn’t you agree that he or she was disgusting and moral-less? Yet, many people allow their family to do exactly that. What kind of lessons are you teaching your children if you give preference to their $1000 prom dress instead of your retirement?

Seeing your savings grow

An interesting advice given by the author is purchasing silver when you’re starting out. The reason for this might surprise you: buying silver allows you to watch your net worth grow, which provides powerful psychological boost. To many people, it’s much harder to visualize $10,000 in a bank account than a jar full of silver coins. Of course, silver also provides the added benefit of not being easily spendable, unlike $3,000 in your emergency fund, which is just one to two clicks away.

The Lessons

If you have even passing understanding of personal finances, you can get 90% of the book’s value by simply reading the table of contents:

Lesson 1: Decide to be wealthy

In which Mr. Evans tells you to commit to a goal. Crystal-clear goals are easily the most important first step in any accomplishment, including financial freedom.

Lesson 2: Take responsibility for your money

In which Mr. Evans talks about budgeting: how much money do you have right now (starting position), what are your sources of income (the more the better), where is the money going (minimize this, of course), and, finally, how much of your money is working for you (as opposed to other people)?

Lesson 3: Keep a portion of everything you earn

In which Mr. Evans tells you to save some portion of everything you earn, no matter how little you earn. Habits are built over time. Everybody can and should save what they can. If you are making $30K a year, you might not be able to save $1K a month but can you save $100? $50? $25?

Lesson 4: Win in the margins

There are two main ideas presented in this lesson: earn more and spend less, and altering your mindset to value financial freedom over materialism. Mr. Evans also stresses the importance of protecting your nest egg through good insurance.

Lesson 5: Giving back

The more you give, the more you get back.

Overall, I liked the book. It was fun to read and presented some material in a new way.

I found this article on rent based on income from My Money Blog:

The legislation bars landlords from increasing rent above 33% of a tenant’s income and allows tenants to add roommates other than family members to help pay rent, even if their leases forbid it. The laws also limit banked-rent increases, in which allowed annual rent increases are saved up and imposed all at once.

What do I think about this? Well, setting aside the obviously concerning move by the government to further encroach the free market, how can anyone think that this is a good thing? According to the article, 88% of the units are already subject to rent control and, according to My Money Blog, rent increases are capped at 2% per year (which is less than inflation, so the landlords are already losing money each year), and now they want to add further restrictions? How is this even remotely fair?

If this law does end up getting passed, I wonder what the motivation would be to continue owning property in San Francisco. As we saw, we can’t count on property appreciation. The general wisdom in rental properties seems to be that cash flow is king. It seems to me that if this new set of laws are passed, it makes owning rental properties a lot less enticing.

Many property owners oppose the legislation because they say it will put added strain on landlords, who are already struggling with higher costs and vacancy rates. Landlords may be forced to stall building repairs and cut amenities for renters, said Janan New, executive director of the San Francisco Apartments Assn.

What am I missing?

The month seemed to have been marked with several downswings and only minor upswings in the stock market, so I wasn’t sure whether June would see an increase or a decrease in my net worth. Fortunately, it’s an increase.

Highlights

1. Cash went down because I moved another $3000 into brokerage account. I don’t know whether this was a good move or not, since I now have less than 3 months of funds in my emergency fund, but I’m fairly young, in a reasonably safe job, with no fixed expenses other than housing bills, and I’m pretty sure my family will bail me out if needed.

2. My Exxon Mobil DRIP finally went up. It was only a dollar, but it was in the right direction.

3. Most of the increase in the brokerage account came from the emergency fund. I invested the funds in the Vanguard Dividend Growth fund, however. Was this a bad or good move? Should I be holding non-dividend funds in taxable accounts to take advantage of the 15% tax rate?

4. Lending Club charged me a “lending fee” of 1¢. What is this fee and why did they charge me? I don’t know yet. I’m still investigating.

5. My 401K balance reflects only one half of contribution for June. My second half doesn’t seem to have made it in yet, so this isn’t accurate. Hopefully, I will be able to show a corresponding increase in July.

6. I wasn’t able to contribute anything to my Roth IRA, I’m afraid, because I’ve been using all discretionary funds to pay off my 0% credit card before rate expires. I am still planning on maxing out this account before April.

7. I’m proud of the balance on my daily use card — how small it is, that is. I feel like I did very well in the month of June, but I’ll need to do a full analysis before I can tell for sure. In a future post, I think.

8. Balance on the 0% APR card keeps going down steadily. At this rate, I will have to dip into my emergency fund in September. Cry.

Overall, the month went well. I’m still on track for my year-end goal of $85,000. To make it, I will have to save just $1865 a month. Since I usually save almost double the amount in a typical month (during which the stock market doesn’t take a nose dive), maybe it’s time to revisit the goal.

Net Worth Progress

Not much to say, other than that it’s inching in the right direction.

2million wrote about how he upped his contributions from $25 to $50 for his baby’s 529 college fund after she was born.

I also started an automatic monthly contribution to her 529 plan. I started at $25/month thinking I just wanted to get the regular contributions started. However the more I think about it, right now seems like the best time to make more serious contributions. Her expenses will only go up as she gets older so I doubled our monthly contribution to $50/month. I think that puts us in a manageable position going forward. If our monthly cash flow improves over time we will up the contribution more.

This made me rethink of the benefit of starting early. Suppose that you can only afford $25 a month. Just how much can you help your kid? Assuming you have a baby at 30 and get a 10% interest rate in your tax-advantaged 529 account:

You start when baby is born: $25 a month for 18 years = $15,047.73 (contribution = $5,400)

You start 5 years earlier at age 25: $25 a month for 20 years = $18,900.75 (contribution = $6,000)

You start 10 years earlier at age 20: $25 a month for 25 years = $32,454.53 (contribution = $7,500)

You start 15 years earlier at age 15: $25 a month for 30 years = $54,283.03 (contribution = $9,000)

$25 a month is probably affordable even by a 15-year-old, but even if you start at age 20, you will have over $30,000 by the time your kid is ready for college. Look, too, at how your account’s balance exponentially even while your contributions rise linearly.

The point is: compound interest favors time. You don’t need to be able to set aside $1000 a month. Even $25 a month will pay real dividends if you save consistently.

1. I called my daily use credit card company and upped my credit limit to $13,000. Given that about 30% of your FICO score comes from how much of your credit you are utilizing, this will only help raise my score. On the other hand, my typical utilization is less than $500, so I don’t know how much improvement I’ll see. While this doesn’t help me directly save money right now, it will if I ever want to refinance or take an auto loan.

2. Instead of spending $7.25 on a book, I requested it in the library, instead. I transferred the money to my brokerage account.

3. I (successfully) completed a major project at work, which will, of course, come in useful in December upon review time. I also volunteered for other work, which might potentially make my boss see me as someone who takes initiative.