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

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

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.

Maximizing Your Maternity and Paternity Leave Options

As new parents-to-be, we have been exploring our options for paid and unpaid family leave from work. This is not meant to be an exhaustive list, but I was pretty surprised by all the possible permutations that you could do. I would add that while knowing your legal rights is important, I also support the idea of working with your employer and co-workers to make the process easier on everyone.

Your Work Contract
Most employers offer their full-time salaried worker’s some length of paid maternity leave, and it’s usually spelled out clearly in the lawyer-ese language of your work agreement. A few employers even offer paid paternity leave. Making an appointment to discuss all your options with Human Resources can be time well spent. Keep in mind that you are subject to the laws of the state where you work, not where the company is based.

In addition, you may be eligible for a longer unpaid leave-of-absence. For example, a big company may allow you up to one full year of leave and your same job (or comparable) will still be yours when you come back.

Short-Term Disability Insurance
Depending on your insurance plan and local laws, being pregnant or taking time off to bond with a new child may be covered under short-term disability insurance. This means you may be eligible for an additional period after your paid maternity leave where you will get a disability benefit that is somewhere around 50% of your normal pay (subject to caps).

Family and Medical Leave Act (FMLA)
The FMLA entitles an eligible employee to take up to 12 workweeks of job-protected unpaid leave for the birth or placement of a child, to bond with a newborn or newly placed son or daughter, or to care for a son or daughter with a serious health condition. You may or may not be required to use up your paid vacation days first. To be eligible for FMLA benefits, an employee must:

  • work for a covered employer;
  • have worked for the employer for a total of 12 months;
  • have worked at least 1,250 hours over the previous 12 months (~24 hours per week average); and
  • work at a location in the United States or in any territory or possession of the United States where at least 50 employees are employed by the employer within 75 miles.

Under some circumstances, employees may take FMLA leave intermittently – taking leave in separate blocks of time for a single qualifying reason – or on a reduced leave schedule – reducing the employee’s usual weekly or daily work schedule. If FMLA leave is for birth and care, or placement for adoption or foster care, intermittent leave is subject to the employer’s approval. To get that permission, you should approach your employer in a way that suggests that taking the leave in chunks would disrupt the office operations less than taking all 12-weeks at once. For example, you may propose a 4-day workweek over a period of several months to a year, as opposed to leaving entirely for three.

State-Specific Family Leave Laws
Each state can have their own separate family leave and/or disability laws that may grant you more time and/or pay. Running a Google search for “[Your State] Family Leave Act” or “[Your State] Family Leave Laws” should locate the appropriate information.

Let’s take the most populous state and the California Family Rights Act (CFRA). Under federal law, any leave taken for a pregnancy-related disability is part of your FMLA 12-week limit. However, in California, an eligible employee who is disabled on account of pregnancy, childbirth, or related medical conditions is entitled to take Pregnancy Disability Leave (PDL) for up to four months. In addition to that, an eligible employee could then take 12 weeks of family leave to care for and bond with a new child under FMLA/CFRA. That adds up to a total possible leave of 7 months.

Sources: U.S. Department of Labor, CA Dept. of General Services, CA Fair Employment and Housing Commission

First Baby New Expenses? One Family’s Experience

The following is a guest post is from Elle at Couple Money. They live on one income, and have fun with the second!

When I read MMB’s questions about baby expenses, I shared a bit of our own experience with him. We are just a year ahead of him last summer we had our first baby, a little girl. It has been a wonderfully fun ride so far, with everyday bringing new milestones and challenges.

During the pregnancy my husband and I decided to track the baby expenses on Couple Money as we’re going through this process. We’re not the first parents to have questions about the finances of raising children, so I share our expenses and have asked others to give their input. Some wonderful bloggers have decided to join in the fun and share their own stories, tips, and advice on what works, what doesn’t, and what’s not worth stressing over.

Are Kids Really That Expensive?

For us, most of the expenses are just small bumps in our monthly budget. I think the main reason is that we made some financial decisions before we became parents that lent itself to reducing baby bills. For one thing, when we first were married we made it a family goal to keep all necessary expenses on 1 income. That allowed us to use the second income to pay down debts, save for goals, and invest for later.

Health Insurance and Doctor Visits
During the first trimester I was dehydrated enough that I needed to go to the ER to replenish; that was about $150 out of pocket. For the most part, though, my pregnancy had been uneventful. The health insurance policy we had when I was pregnant had a $2,500 deductible, so we saved a bit in our general funds to cover the deductible when our baby girl was delivered. Saving up to pay the bill in full allowed us to also get a 15% discount with the hospital.

Once our daughter arrived we quickly added her to my husband’s health insurance policy. That’s been the biggest change to our family budget – our premiums went up about $200/month for the family option.

Housing
No change in our housing bills. We bought our townhouse before we had our daughter. It had 3 bedrooms, so we converted the guest room into her nursery. We don’t have any plans on changing our location, right now we’re focusing on paying down the mortgage.

Daycare
I know that for many parents daycare is a huge expense. From what I saw last year it was about $1,200/month for an infant. Right now I work from home and our daughter stays with me. While it has cut back on the hours I work, the savings from not having her in daycare offsets it.

Food
Since we’re breastfeeding our food bill has increased just a bit to accommodate the extra calories I need to keep up. Since becoming pregnant, we changed our eating habits a bit. We’re focusing on making more meals at home and we a part of a CSA program with weekly deliveries during the part of the year. It’s been helping to keep groceries manageable and we’ve also discovered new recipes and dishes. Our daughter has baby food and some of what we’re eating in addition to breast milk.

Transportation
Even before we found out we were going to have a baby my husband and I were saving up for the vehicle as we’re trying to avoiding taking out a car loan. However we saving up a bit more to purchase a family sized sedan, like a Sonata. Our budget is $10k for the next car. We have the money saved and we’re currently searching for a deal. It’s not an immediate need (tight fit in my Jetta, but fine), so we’re going to make sure we look around a bit before securing the next car.

Clothing/Baby Gear
The first 2 months our bills were higher than normal as we bought a few items we didn’t receive from the baby registry. We waited until our daughter arrived to see if we really needed them or if they were nice to have items. Fortunately most of the necessary stuff was already bought. After the first 8 weeks, our expenses have smoothed out.

We have received gifts from family and friends – both new stuff and gently used. We didn’t have to buy a baby swing, since a buddy’s son didn’t seem to like it. It was practically new and our daughter loved it.

Right now diapers are about $20/month give or take through Amazon Mom and they are delivered right to our door. We get her wipes through Costco where a huge box costs about $20 as well (lasts a couple of months). Any clothes that she needs we pick at Target, Old Navy, or the consignment store around the corner. That’s about $30/month.

Thoughts on Having Kids

This is just a snapshot of our family’s baby expenses. As our little one gets older we know things will change. I’d like to hear from you – what expenses to you have to cover for your little one? What has been the biggest unexpected expense? What’s been the best surprise?

First Baby! Things To Buy, Things Not To Buy? (Ask The Readers)

After a long period of trying and a month before our planned IVF procedure, we recently found out Mrs. MMB was pregnant! We were being carefully optimistic so we kept things rather quiet until now. We just had another ultrasound at 20 weeks that indicated we were going to have a little girl. We are beyond excited.

Of course, this discovery has also opened the floodgates to baby shopping and Mrs. MMB is itching to start nesting. As this is our first child, we started reading a lot of books but are still rather lost.

For the parents out there… In financial terms, how was having a baby different than you expected? Did it cost more money than you thought? Less money (ha)? What items were really important to buy properly? What things did you buy that weren’t very useful? General advice, specific recommendations, whatever. I know you readers are quite smart, so I’ll take whatever advice you have to give. :)

I know that there are many other blogger with newborns, so I should look for some applicable posts as well. I noticed that we are about a month behind J. Money of BudgetsAreSexy. I already have a good amount of material simply about the costs of infertility itself. The level of assistance possible today is incredible, but it takes time, energy, and a lot of money.

What Do People Regret The Most On Their Deathbeds?

Bronnie Ware was a nurse who spent several years working in palliative care, caring for patients in the last weeks of their lives, and recorded her experiences in a blog. She wrote an excellent post about the most common regrets of the dying, which became so popular she expanded it into an entire book The Top Five Regrets of the Dying: A Life Transformed by the Dearly Departing about how we can live better lives by addressing these common regrets. (The blog post has been reprinted in various places, I found it in an AARP magazine.)

1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
It seems natural that unfulfilled dreams would be the greatest regret. I still have plenty of things on my life To Do list. The key aspect of this regret is that it’s about failing to pursue their dreams, not the fact that they didn’t achieve them. Remember, the Declaration of Independence says we have the right to the pursuit of happiness, not actual happiness. Prioritize your actions in life.

2. I wish I didn’t work so hard.
Ware says it best herself:

All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence. By simplifying your lifestyle and making conscious choices along the way, it is possible to not need the income that you think you do. And by creating more space in your life, you become happier and more open to new opportunities, ones more suited to your new lifestyle.

3. I wish I’d had the courage to express my feelings.
My interpretation of this one is that you should not be afraid to cut out the negative influences on your life, and also be sure to nurture the positive influences. Life’s too short to deal with people that bring you down. Meanwhile, we should let the awesome people know how much we appreciate them.

4. I wish I had stayed in touch with my friends.
If I died today, this would be a major regret. Every time I move, I leave behind great friends that I lose touch with.

5. I wish that I had let myself be happier.
Happiness is a choice. I remember reading this concept in the bestseller Seven Habits of Highly Effective People by Stephen Covey. I prefer the phrase that life is a choice. Conscious living is pretty much the common base of any life improvement exercise, which includes all personal finance blogs.

Pay Your Kids To Fund Their Own Roth IRA?

You’re probably aware of the wonders of the Roth IRA and how it allows your money to grow completely free from taxes, even upon withdrawal. An added wrinkle is the lack of age restriction, so that even kids with earned income (wages, salaries, tips) can contribute to a Roth IRA up the lesser of their taxable income or $5,000.

Along those lines, I received a PR e-mail from a site called 1417power.com. The idea is that you pay them “tuition”, and in return they pay your kids official job income that makes them eligible to contribute to a Roth IRA. They claim to follow all applicable child labor laws for those aged 14 to 17 (thus the name). Your kids do thing like fill out marketing surveys, but you’re essentially buying them a job. Digging through their fee structure, roughly 50% of what you pay them is skimmed off to go to the site owners.

Naturally, my question was – why can’t I just do this myself? The idea of paying your kids to do things like babysitting, lawn care or landscaping work, or manual labor seems simple enough. However, this Fairmark article argues that paying your own kids for chores is usually not considered taxable income, so you can’t “switch it” to taxable income for Roth IRA purposes when it benefits you. I’m not completely convinced, but for the sake of argument let’s explore other options:

  • Have the teenager earn money via traditional jobs like grocery bagger, cashier, food delivery, waiting tables, etc.
  • The child earns income from other neighborhood families doing things like babysitting, lawn care, or painting. The pay rate would have to be at reasonable market rates. You could even work out a “I’ll pay your kid if you pay mine” agreement, if you find a like-minded parent.
  • If you run your own business, you could pay the child for more clerical or administrative-type duties such as proofreading, delivering documents, or office organization.
  • If the teenager is especially industrious, they could be doing more skilled work like graphic design or making iPhone apps.

There would still be some loss, as their gross income would be subject to payroll taxes like Social Security and Medicare, as well as a small amount of federal income taxes (less than 10%). But if your child has the discipline to not touch the money for decades, the tax-free growth could be enormous. You’d have to be comfortable with the fact that they could do whatever they wanted with the money at age 18 as they can withdraw the money after taxes and penalties.

The Parental IRA Match
Another move taken from this Forbes article for those that are already parents of teenagers with part-time jobs is to match their earned income. If little Jane earns $3,000 being a lifeguard, then let her spend her all or part of her take-home pay, but help her fund a Roth IRA to the full $3,000.

Effect on College Financial Aid
From my quick research, it appears that retirement accounts like Roth IRA are not considered an asset by the generic FAFSA form, but individual universities may deem them as a student asset. This could make for example 25% of the IRA to counts toward the student’s expected contribution, which doesn’t seem too bad.

Here’s a question for the parents out there – have you done anything along these lines? What did you do and why (or why not)?

The Last Lecture: Legacy, Achieving Goals, and Gratitude

The late Randy Pausch became well known as a Carnegie Mellon professor who made a inspirational “last lecture” called Achieving Your Childhood Dreams (over 14 million views) after his diagnosis with pancreatic cancer. He later then wrote a book called The Last Lecture with Jeffrey Zaslow. As a former bestseller, you can now find copies on the cheap. It is a short and worthwhile motivational read. All the quotes are from the book.

Legacy

Time is all you have. And you may find one day that you have less than you think.

One of the things I think about a lot more these days is legacy. As a human, I think most of us have a desire to outwit our own mortality.

What wisdom would we impart to the world if we knew it was our last chance? If we had to vanish tomorrow, what would we want as our legacy?

I think children help fulfill that need, as they allow a chance for a part of us to live on forever. For him, the Last Lecture itself was a legacy project for his family so that his young kids would know him better when they grew up. He also talked about his professional legacy:

Now a computer science professor at Washington University in St. Louis, Caitlin (oops, I mean, Dr. Kelleher) is developing new systems that revolutionize how young girls get their first programming experiences. [...] (You can keep tabs on their progress at www.alice.org.) Through Alice, millions of kids are going to have incredible fun while learning something hard. They’ll develop skills that could help them achieve their dreams. If I have to die, I am comforted by having Alice as a professional legacy

So his legacy projects were three things: his family itself, something for his family, and something to leave the world a better place. I think this is good framework for creating my own legacy.

Achieving Goals
Now how did he achieve those childhood dreams, as well as his legacy goals? More or less it was just hard work and persistence. What stood out to me was the idea that some things should be hard to achieve, and if you get it anyway you should be proud of it. Time spent complaining is time wasted.

The brick walls are there for a reason. They’re not there to keep us out. The brick walls are there to give us a chance to show how badly we want something.

…The brick walls are there to stop the people who don’t want it badly enough. They’re there to stop the other people.

Gratitude
Pausch didn’t get there on his own, even with all the hard work. He showed gratitude to his parents, his wife, the professor that got him into grad school after he was rejected, his kids, and many other colleagues.

ThredUP.com: Swap Outgrown Kid’s Clothing With Other Parents

Update: ThredUP is no longer a clothes swapping site, but you can get a free $10 credit towards your first purchase of clothing at the new store.

Kids grow. Clothing doesn’t. That’s the basis for a new swapping site called ThredUP, which I’ve seen in multiple news articles recently. Another similar site is Zearly, but it seems like they are on hiatus.

Got clothes that doesn’t fit any more? Box up about 10 items (tops, bottoms, dresses) that fit the same age level and gender. They send you free boxes, you print a prepaid postage label online, and have it picked up from home or drop off at the post office.

Want some cheap clothes? Browse other people’s boxes and pick one. There appears to be feedback rating system for users. Each box costs $15.95 ($5 + $10.95 shipping). Some boxes have toys and books as well.

I don’t have kids, but I think I would definitely try this if I did, especially for babies and younger ones. At about $1.50 an item (regular price), it seems like a reasonable system. Any users out there?

Capital One 360 Launches Savings Account For Children

Capital One 360, with their popular 360 Savings Account, has just launched a Kids Savings Account specifically to help children learn to save and manage money. Here are the ways that the Kids account is similar to the Adult version:

  • FDIC-insured savings account.
  • No fees, no minimum balance requirements.
  • Pay interest, currently 1.00% APY.
  • Kids can log in and check their balance at any time with their own personal customer number and PIN.

Here are the main ways that the Kids account is different to the Adult version:

  • Kids cannot move money, only check balances.
  • Adult must sign in with their own separate customer number and PIN to transfer money in and out.
  • When the kid turns 18, the account will automatically convert to an adult 360 Savings Account.

I’m not sure how I feel about this account. I think I’d rather have kids using paper money that they can touch, and let them visit a human teller to deposit and withdraw money. Seeing the interest accumulate online would be nice, but the small 1% rate of growth right now might be discouraging. That said, everything is so digital now. I’ve met 8th graders that know more about Facebook and editing digital videos on YouTube than I do.