2013 New Year’s Resolution Follow-Up

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It’s time to check up on our 2013 New Year’s Resolutions, which I gave the eloquent theme “Get our crap together” (in case one or both of us dies). I will roughly follow this GYST checklist.

Will and trusts. We are fortunate to have a family friend who is an estate lawyer, and she was able to assist us with creating all of these legal documents. They included:

  • Designating a Durable Power of Attorney for financial and medical decisions, including backups.
  • Designating who would take care of our children, including backups
  • Distribution of assets and personal items. Mostly the money will go into a trust for the kid(s).

Living Will. In case one or both of us are incapacitated, this included:

  • Medical power of Attorney and backup in case of being physical incapacitated
  • Advanced directives
  • Discussions of our wishes with family.

If you can find a good estate lawyer, I would recommend that route as they should have the experience to explain all of the potential issues in your state including being prepared for future law changes. I may try to write about the general issues later once I learn more. I also meant to compare my documents with those produced by services like Legalzoom, but haven’t gotten around to that. As for costs, it will vary depending on how complicated your situation is and how many additional documents you need prepared and reviewed (power of attorney, trust, etc.).

Life insurance. We each have a $1,000,000 term life insurance policy. We think this number is more than adequate given our future expected needs and our existing savings. If one of us dies, the other will ideally not have to work anymore. If both of us die, there should be enough to cover all living expenses plus any educational expenses. To get an idea of cost, try Term4Sale.com.

Short-term disability. We both have short-term disability through our employers. I don’t feel it is necessary to buy an additional individual policy as we have sizable cash reserves.

Long-term disability. Mrs. MMB obtained an individual long-term disability insurance tailored to her profession. This was done through a recommended local insurance broker. I did not pursue buying a long-term disability plan. This is due to the fact that I felt our portfolio is large enough to provide a substantial cushion, and also due to the fact that the physical demands of my job aren’t very high and thus I worried it would be hard to qualify for benefits. Upon further thought, however, I do think I should at least price it out. Another thing to do in 2014.

Financial Education

  • Passwords. All major passwords are stored in an encrypted password manager, with most sites having a unique complex password such that one hacked database won’t affect the security of other accounts. My wife uses it all the time now and is familiar with it.
  • Cash reserves. We have one year of expenses in cash held in an FDIC-insured bank account. This will provide a cushion so that nobody will have to worry about money until life insurance proceeds arrive.
  • Spousal budget education. We did have a few discussions about our current monthly cashflow situation (income and expenses) and what spending levels could be supported with our current portfolio and with the addition of any life insurance proceeds.
  • Spousal investor education. Can my spouse manage the finances without me? Probably, but not as optimally as I’d like. I did very little in this area, and this will be the focus on our 2014 resolutions.

I think we did pretty good in terms of estate planning, but for 2014 I’ll need to be much more proactive in sharing my investing knowledge. I’d like to learn how to make some simple videos and share them on Youtube.

Part-Time Track Jobs For Mainstream Professionals?

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bwfatherBusinessweek’s cover story this week is about how fathers do the work/family balancing act. The article talks about how men want to be more involved in family life as well as women but face their own unique obstacles yada yada, but this part caught my eye:

When Trombley [research engineer at Ford Motors] was expecting his first child, he and his wife, who also works at Ford, weren’t thrilled with the child-care options available, and she wasn’t eager to become a stay-at-home mother. Trombley remembered that a colleague from several years back had worked out a novel solution with her husband, with both taking part-time schedules to allow them to split the week up and each be home with their kids for half of it. Ford didn’t offer paternity leave, but it did offer a part-time track so long as an employee’s manager approved it. When baby Dylan arrived, Trombley went to his bosses and told them he wanted to drop down to 70 percent and work from home two days a week. [...] There are now three other men in his department with similar part-time setups; there were none when Trombley started.

Is there a list of large, Fortune 500 employers that offer such a “part-time track” option? I only found some job board sites like 10til2 and FlexJobs. I did find this 2004 research paper Beyond the Mommy Track: The Influence of New-Concept Part-Time Work for Professional Women on Work and Family [pdf]. From the abstract:

Compared to their counterparts who worked full time, mothers who worked in these part-time positions reported significantly greater work/family balance and did not report significantly less career opportunity. The part-time group reported 47% fewer work hours and 41% lower income than the full-time group. These data support the notion that new-concept part-time work is a viable option to assist women in professional careers to successfully integrate their family career.

I’m selfishly fascinated by the idea of part-time work for salaried jobs (as opposed to hourly workers). I’ve met part-time doctors, engineers, professors, lawyers, even judges. For most of them it’s been a figure-it-out-yourself exercise, but hopefully the idea of breaking down the traditional “full-time” job into smaller pieces is gaining momentum in the corporate world. It would not only be great for mothers and fathers, but anyone who wants more control over their life.

Household Cashflow Diagram with Automated Savings & Bill Payments

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As part of our transition to parenthood (less time) and part-time work (less income), Mrs. MMB and I have been trying to get more organized with our finances. I’ve eased up on my control-freak ways and we’ve shifted as many bills as we can to auto-pay status. I still try to pay everything I can with credit cards in order to make things easy to track and of course, maximize credit card rewards. Here’s a rough diagram of our current situation:

Household Cashflow Diagram with Automated Payments

We’re still trying to stick with our existing simple budgeting system and only putting money into our checking account that we are willing to spend. That way we basically force ourselves to meet a minimum savings rate for the year by “paying ourself first” with a good chunk of our paychecks into savings-type accounts (401k’s, separate bank accounts, brokerage accounts, etc). If the checking balance still grows past a certain point (hasn’t been happening much lately!), then we skim off some and transfer it over to savings.

I would note that I don’t put the credit cards themselves on auto-pay, as I still want to spend the time and look over those statements each month. I know some folks do this as well to reach nearly full-automation.

Another backup use for this chart is for reference in case something happens to me, as I usually keep track of all the bills. This fits into our 2013 resolution to get our crap together.

Charlie Munger on Parenting and Childhood

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I just started reading a biography of Charles Munger, Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe, originally published in 2000.

Charles Munger is best known as Warren Buffett’s long-time friend, business partner, and vice-Chairman of Berkshire Hathaway. I find him fascinating on many levels – as a thinker, investor, philanthropist, and even philosopher. One of my favorite tips from him is to Work For Yourself An Hour Each Day, something I found in Warren Buffett’s biography The Snowball.

Here’s a memorable quote from the book dealing with his childhood:

Like Warren Buffett, Munger inherited no wealth. [...]

“While no real money came down, my family gave me a good education and a marvelous example of how people should behave, and in the end that was more valuable than money,” explained Munger. “Being surrounded by the right values from the beginning is an immense treasure. Warren had that. It even has a financial advantage.”

Right now, there is a lot of focus on teaching “financial literacy” – which is good – but if you’re a parent of young children I feel that you have to think differently. It’s not critical to give your kid some fancy allowance iPhone app or online savings account to teach them how to manage money. What you should really be conscious of is how you act around them. Positive character traits like self-discipline, being dependable (keeping your promises), and frugality (not being wasteful) are often best taught by example. Watching you and learning such traits will help them to avoid credit card debt more than showing them how APR works. If only I could just buy them a book or something. ;)

Don’t Forget To Be Awesome

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Originally posted here on December 3rd, 2005:

Thinking about goals and the future some more, I have this picture in my head of our dream future in 5-10 years:

- I work at a job I enjoy for only 20 hours a week
- My wife also works at a job she enjoys for only 20 hours a week
- We both share responsibility for taking care of our kids with minimal, if any, need for daycare.
- Our combined incomes still make it possible for us to reach our financial goals. However, we’re not really interested in being filthy rich.

We are gonna make this happen. Check back with me on 12/3/2015

Done.

We both really wanted this, even though we are more tired now than when we were both working full-time. (Even though we sleep at 9pm now instead of 1am.) Although I write about money daily (at times it may seem like an obsession)… it certainly didn’t feel like 8 years had gone by since I made this goal.

I recently bought a new print that will be in my daughter’s room eventually, but for now hangs in my home office. It says Don’t Forget To Be Awesome. I think we all have own personal definition of “awesome” – whether it’s starting your own business to being active in your community to simply being a good parent (even though that is anything but simple). Now, we are still far from reaching our “awesome”. But I think the phrasing is perfect; it’s so easy to forget to pursue our unique dreams in today’s hectic, noisy world.

We Paid Off Our Mortgage: History and Commentary

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We paid off our mortgage. We contacted Provident Funding and requested the full amount due including any accrued interest, the money was sent via bank wire, and the loan is recorded as paid in full. As you might imagine, I spent many hours contemplating this move. In a somewhat anticlimactic fashion, the letter below warning us we had to pay the property taxes ourselves was the first physical acknowledgement of the occasion. I found it amusing that it was addressed “Dear Homeowner”, as I never really felt like I owned my home until now.

A bit of history. When we first bought our home, we looked at the common rules of thumb regarding house affordability and ended up paying 20% down with a initial mortgage less than 3 times our combined income. Indeed, we qualified for the mortgage on my wife’s documented income alone. We thought about getting a 15-year note but went for the flexibility of the 30-year note, while paying it down at the 15-year pace. Over subsequent refinances, our interest rate dropped from 6% to 3%. Even though this made our required monthly payment much less, we kept up the higher monthly payments which had us on the pace of a 10-year payoff.

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2013 New Year’s Resolution: Get Our Crap Together

It’s already March, and I’ve yet to make a New Year’s resolution. Then along comes this NY Times article about a mother of two who’s young, healthy husband was killed while simply riding his bike:

In the many months of suffering after Mr. Hernando’s death in July 2009, she beat herself up while spending dozens of hours excavating their financial life and slowly reassembling it. But then, she resolved to keep anyone she knew from ever again being in the same situation. The result is a Web site named for the scolding, profane exhortation that her inner voice shouted during those dark days in the intensive care unit. She might have called it Getyouracttogether.org, but she changed just one word.

The site offers some basic financial advice, gives away free templates for a master checklist and provides starter forms to draft a will, living will and power of attorney. There’s also a guide to starting a list of all of the accounts in your life that someone might need to access and shut down in your absence.

Let’s be direct; The site is GetYourShitTogether.org. The site is okay, but I felt the story itself was more powerful.

After his death, this much was clear: The family with the six-figure income and the four-bedroom house that they had bought in the Mount Baker neighborhood one year before had a will with no signature, little emergency savings and an unknown number of accounts with passwords that had been in Mr. Hernando’s head.

I haven’t blogged about this as it brings up bad memories, but a few years ago a family situation resulted in us each hurriedly bought $1,000,000 of term life insurance. We didn’t comparison shop, I just walked into my State Farm agent’s office and asked to get the insurance as soon as possible. State Farm actually has some of the highest financial strength ratings available (AA S&P, A++ AM Best). The final rates we got were probably somewhat higher than I could have gotten with slightly lower-rated company, but I don’t regret the decision.

Having life insurance along with hefty savings gave me adequate peace of mind for a while, but now with a child I worry about the future differently. We have a lot left to do. We contacted a lawyer friend who specializes in estate planning and trusts to help us with our first will. We talked to family members about child custody if something should happen to both of us. We’re looking into long-term disability insurance beyond what is provided at work. I already track most of our passwords using software (1Password), but after reading this article I’ve been filling in the gaps in the database and quizzing my wife every day to make sure she knows the master password.

We are one of those households where one person takes on all the financial duties. I pay the bills, track our monthly budget, and manage our retirement investments. I need to teach her the essentials and lay out a simple plan for managing things if I’m not around one day. I don’t worry about the spending as she is a frugal and smart person, but I have nightmares of some high-cost, low-quality financial salesperson mismanaging her money. Lots of smart people end up trusting the wrong person. I thank Mrs. Reynolds for helping me make my 2013 resolution.

6-Month Baby Costs Update: Formula, Diapers, and Daycare

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A few readers asked for a baby update, and the 6-month-old mark felt like a good time. At this point, she is kinda-sorta sleeping through the night, kinda-sorta eating solid food, kinda-sorta becoming mobile, and 100% awesome! When people ask me how I’m doing these days, I paraphrase a quote attributed to Tina Fey:

I’ve never been so tired. I’ve never been so happy.

Before I go any further, let me say that parenting is a guilt-ridden minefield of books and experts saying “you should ALWAYS do THIS and not THAT”. But really, I feel like the longer I am a parent the less I judge others. What works for me may not work for you. What works for you may not work for me. Most of us are sleep-deprived and just trying to get through the day.

Baby gifts as risk-pooling. I haven’t really written about frugality and parenthood, and I blame it all on my generous and fantastic set of family, friends, and co-workers. I have never received such a large quantity of gifts in a such a short period of time. This gifting custom turns out to be a very clever form of “baby cost risk-pooling”. When a friend has a baby, you get them a gift, spaced out over decades. When you have a baby, 100 people give you a gift. We really didn’t have to buy very many things on our own, and still have a huge pile of unopened clothing and toys to this day. (Also see baby registry review and follow-up.)

Formula & Breastfeeding. Mrs. MMB was very determined and motivated to exclusively breastfeed our child, and she succeeded. I emphasis her, because if it were up to me, we’d probably at least supplement with formula since waking up every 3 hours for months in a row would have broken me. Both of us were primarily formula babies. The hospital was helpful in giving us lactation consultations.

Recent healthcare law changes now require insurance plans to provide a free breast pump for every new child. I don’t know about now, but this led to shortages in our area. We had to wait in line at a Target before it opened as if it was Black Friday, but half an hour later we walked out with a nearly $300 Medela pump for free. Pumping at work has been difficult at times, but with some effort she has obtained a private pumping area.
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Market Timing Prediction + House Payoff Focus

As you probably know, I’m not an advocate of market timing. Jumping in and out of stocks is usually based on fear – either fear of missing out on hot returns or fear of more losses. However, if you’re going to do it, I figure you should announce your move beforehand, as opposed to making self-congratulatory pronouncements afterwards. “I sold all my stocks and my houses in 2007, right before the crisis hit as I knew something was fishy.” You never hear “I sold most of my stocks in 2009 and missed the potential doubling of my money since then.”

This is the predicament where I am today. I don’t think the stock market is very attractively priced. I don’t think locking up 2% yields for 10 years is a very good option either. Everything seems to be up, and our investments have swollen significantly. So while I’m not complaining, from what I can tell none of the things that were previously broken in the world have actually been fixed.

In addition to me being “meh” about the current investment outlook, having a new child has refocused us on shifting into part-time work as opposed to going all-out towards a full early retirement. Having the house paid off will free up our cashflow needs significantly, as our mortgage remains over 50% of our total spending. Once that is taken care of, it’ll be much easier to shift into part-time work as we want avoid using daycare as much as possible.

So for the rest of the year and probably into 2013, I am going to focus on putting new money towards paying down the mortgage. (Our 401ks and IRAs are maxed for 2012, and our current portfolio will stay invested.) This will effectively gain us a yield of 3.25% (our mortgage rate) for however long it takes to pay it off completely. Yes, we just refinanced this year, but we actually netted a thousand dollars from that refi due to negative points. Today, the S&P 500 Index is at about 1,435 and the 10-Year Treasury yield is 1.66%. Let’s see how wrong I can be. :)

Financial Freedom and Parenthood

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Last week I finally got to meet the most beautiful girl in the entire world:

I’ve only been a parent for a matter of days and am actively suffering from sleep deprivation, but here are some thoughts which I can revisit later and probably laugh at my own foolishness and naïveté. :) I look forward to the adventure!

How does the arrival of children affect my journey towards financial freedom? Of course, having kids means I want to spend time raising them as opposed to paying someone else to, so not having to work would definitely help with that. However, I also imagine that when the kids are at school then I’ll have at least a half day free for other pursuits. We’re definitely talking more about a scenario where we both work about half-time. In fact, that day may be coming soon. Health insurance remains a concern here, I’ll have to report back on my search for self-employed health insurance.

The cost of raising kids. In general, I think my philosophy on raising kids will be to teach them how to fish as opposed to giving them fish. So I’ll spring for lessons for things like swimming and musical instruments – and even world travel in hostels with kids – but I’m fine with being the weird house with no cable TV, no video games, and instead having lots of books and a vast board game selection. Is it hard just to temporarily subscribe to cable once every two years only for the Olympics?

As for baby time, we plan on trying a few things to save money. Breast milk is obviously cheaper than formula. (Breast pumps are covered by health insurance now, as part of the Affordable Care Act.) As she grows, I expect her to eat pretty much what we eat, perhaps either blended or pressure-cooked. Cloth/reusable diapers seem to save money over disposable ones, especially if you can stretch them across at least two kids, and we do plan on having more children. We’ve got a ton of clothes as gifts, some hand-me-downs, and new grandparents itchy to spoil her, so we’re not worried about that part just yet.

College tuition? Seems so far away. I’m personally okay with them taking on some student loans, but Mrs. MMB got a lot of parental support for college, so she wants to pay that forward. Actually, we already started a 529 years ago ironically due to a credit card, I just have to switch the beneficiary once her Social Security number comes in. Let’s hope that the tax sheltering lets compound interest do its thing.

Babies R Us + Amazon.com Baby Registry Experience

The baby shower is over and we’re on the home stretch. As a follow-up to my baby registry comparison, here’s our experience using both the Babies R Us and Amazon.com baby registries at the same time. We are blessed with lots of generous friends and family, and as a result have more stuff than we ever imagine a baby really needing! ;) Baby Girl MMB isn’t even born and has more clothes than I do already.

Babies R Us (BRU) Baby Registry

We chose BRU since we have one of their big box locations nearby and it was best for people who wanted to buy something at a physical store.

Ease of use. We went to the store and used their “gun” to scan all the items we wanted, and then we could go online to edit the registry further. Overall, the process went smoothly. However, the only way to discover if someone bought an item off the registry is to check the website regularly. You don’t get any notification e-mails, and you don’t get told who bought the gift until it arrives.

Returns. If the item is on your baby registry, then they take it back for store credit without a receipt or questions. If the item is not on the registry, then a gift receipt is required. If you don’t have a gift receipt, then I believe you get credit for the lowest price on that item for the last 30 or 60 days. With items like clothing that goes on sale frequently, that can result in a greatly reduced refund.

(Tip: You can add things on the baby registry at any time. Since we were juggling two registries, to avoid duplicates we would have to delete things on the other registry. However, sometimes we weren’t fast enough or someone bought it without removing it from the registry. Therefore, we just made sure we added the item back onto the registry again before our BRU return run and that minimized any potential hassles.)

Completion Discount. We received the 10% off completion coupon in the snail mail as promised. It works on only one purchase, so make sure to bring a list of everything else you wanted. You can also use the 10% discount online the same day you used the physical coupon.

Amazon.com Baby Registry

We chose Amazon as it had lower prices, wider selection, and free shipping on most items.

Ease of use. Adding items to the registry was easy, but Amazon can be quirky as the default buying option isn’t always the cheapest after you factor in the free shipping. I noticed that some friends paid too much for shipping, even though we always looked for items “sold by Amazon.com”. They don’t offer notification e-mails either, but if you check online they do tell you who bought what. It’s even condensed into a handy “Thank You list”.

Returns. Even though they offer free prepaid shipping labels, we didn’t return anything to Amazon. Whenever we had a duplicate, we just returned the one from Babies R Us. However, looking back I think I might have preferred Amazon.com credit since we really have too much baby stuff.

Completion Discount. When you become eligible (30 days before event date), the 10% completion discount option shows up on your registry page. The fine print was pretty vague, but didn’t really list any specific restrictions. However, we discovered that even though you could add anything to the baby registry at any time, only items that were deemed baby-related were eligible for the 10% discount. So no 10% off Macbook Pros or power tools (I tried).

Baby showers and the baby gift-giving custom is a nice cultural tool to help expectant parents defer the cost of babies. Really, you can view it as a payment plan of sorts since instead of one big lump sum we just have to continue giving baby gifts for the rest of our lives. :)

Reflections on Fathers and Fatherhood

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I’ve been thinking about fatherhood and my own father/son relationship. When I was young, my father was a comfortably-employed engineer, with two small kids and a house in the suburbs. But he decided that he wanted to go back to graduate school. All of a sudden we were a family of 4 living in a small 2-bedroom apartment with both parents working long hours and still only earning a fraction of the income. But he eventually got his PhD, became a college professor, and I always remembered how he continued working long hours but told me about how it was great because he loved it and he had no boss. Nobody told him when to go to work or what to do on a daily basis.

I understood the autonomy part, but was always bitter about the lack of time he spent at home. Still, he was my role model. So as I went off to college, I pursued the goal of being a professor as well. I did all the right things and got accepted into one of the best engineering graduate schools in the country with a full fellowship, meaning I had full tuition covered plus a small stipend. I was set. I could make him proud… except for the little discovery that I didn’t like doing research.

Dropping out of grad school was one of the more difficult decisions in my life. I felt I was disappointing my father, as I wouldn’t be able to “do better” than him. At least I had employable skills. Still, I was unhappy. That led to starting this blog and learning about how managing your money properly gave you more freedom to do what you wanted. I was afraid, but I still felt I had to switch gears yet again and try something new, and today I work on my own terms and am well on the path to financial freedom and being able to live off investment income.

It took me a while to understand some of these things that my dad’s experiences taught me, but late is better than never. Happy Father’s Day!

  • A son always wants to make his dad proud, even if he won’t admit it to anyone including himself.
  • Sometimes you just know something is missing, and you have to take a risk. My father quit a safe job and took a long, cloudy road but eventually found the key ingredients to a satisfying career: autonomy, complexity, and a connection between effort and reward.
  • Being frugal and having the ability to live well on less money is a skill that allows you the flexibility to take on those positive risks and to weather those leaner times.
  • Having a supportive spouse or partner in your life is priceless.
  • As a soon-to-be father, I recognize the desire of having your kids exceed your own achievements. However, all I can do is provide them whatever life skills I can, and eventually let go and allow them take their own path. At least, I’ll try.