Gilberto de Piento's Journal

[Gilberto de Piento]

Hi everyone! I'm here to post my progress so that I have some accountability and to get any feedback you might have.

I've paid off my student loans (ugh) and have built up an emergency fund ($10,000), a house down payment fund ($9500) and a retirement fund ($48,000) over the last 7 years since I entered the workforce.

My current goals are 1) to save a down payment for a house, 2) to pay off the house, and 3) to become financially independent. While progress is definitely happening things are moving much too slowly. I've got to cut costs and increase income if my life is going to move onto a different track.

Thanks to this site I've discovered mint.com and have connected all my accounts but my emergency fund (haven't been able to get the credit union to set up my online account). I've also made a copy of m741/akratic's Google Docs spreadsheet and have been trying to decide how much of it to use.

My next steps are 1) get the credit union connected to mint, 2) figure out where the money is going, 3) report October 2013's income and expenses on this site, 4) enter data in the spreadsheet so I can start to think about what specific goals are realistic.

[m741]

Sounds like you're on the right track already.

Any particular reason your first goal is a house? Just curious as it's something with high transaction costs that keeps you tied in place.

Let me know if you come up with anything interesting in the spreadsheet. I'm always interested in improving my tools!

[Gilberto de Piento]

Sorry for the long response, I'm excited thinking about this.

Thanks for replying! I found your journal helpful. Congratulations on all your success.

I agree that I'm on the right track, now I want to get the train moving faster. My situation was much more "interesting" when I made $38,000 a year and had double that in student loans.

I've spent some time thinking about why I want a house. I can see the advantages of an apartment as well.
1) I should have explained that I'm planning on making it a duplex and renting out one side and having a roommate and myself on the other. I could (hopefully) pay it off quickly and be closer to FI, though I need to do some calculations to confirm this. I agree that the transaction costs are high but eventually it would make money or at least save money over my current apartment. I should do the math on this.
2) I have a relative who owns a number of rental properties. I'd like to do the same to diversify/increase my income.
3) I'm not that worried about being tied down. I'm ready to settle down somewhere. Buying a place would get me closer to what my idea of an "adult" is.

The spreadsheet is great though I still need to spend more time with it. I did change the income and expense categories to match the categories that mint assigned so I could more easily import the data. Unfortunately I don't know the values as of 10/1/13 or 11/1/13 for the Net Worth sheet so I had to estimate. I've set up a reminder to myself to enter data on the 1st of each month from now on. I think I'll probably have some questions about the calculations you used but I need to spend more time with it. Thanks for making it available!

[qBert]

Hi Gilberto,

ever thought about decreasing your emergency fund?
I've got $2,000 in my emergency fund and a CC for the emergengy-emergency (my highest emergency was about $900).

[Gilberto de Piento]

Hi qBert,

Thanks for the reply! The only distinction between the emergency fund and the house fund is that the emergency fund is in a CD while the house fund is in checking. They are both at 2%.

If a house came along that I wanted and I didn't have quite enough I would feel comfortable using the emergency fund to a point. The emergency fund is mostly there in case I lose my job and can't find another. There's nothing indicating that will happen but it's best to be prepared.

I need to finish the spreadsheet and track things for a couple months so that I know how many months the emergency fund would cover. If I did feel comfortable reducing it that would put me ahead.

[Gilberto de Piento]

I've made some progress. I got the credit union to set up my online account and connected it to mint.com. Now I can see everything in one place.

I entered October 2013 in the spreadsheet and came up with some interesting numbers. Note that this was an unusual month, with a lot of extra income from consulting as well as expenses from a vacation. Total savings was $3471.7 or 63%. The below is after taxes and 401k:

Income:
Paycheck 4198.41
Amazon 95.67
Google 185.24
Consulting 1002.13
Emergency fund interest 17.45
Checking interest 15.61
Total +FI 5514.51

Expenses:
Air Travel 75
Alcohol & Bars 62.19
Business Services 26.97
Cash & ATM 280
Charity 10
Clothing 94.94
Doctor 8.86
Fast Food 15.74
Groceries 218.29
Gym 41.15
Hotel 95.19
Mortgage & Rent 940
Parking 84
Pharmacy 5
Restaurants 40.49
Television 44.99
Uncategorized 19.08
Total -FI 2042.81

The air travel, clothing (really a suitcase), hotel, parking, and most of the cash & atm costs are the result of the vacation. These will be less or nonexistent next month.

The biggest opportunity for savings is the rent at $940. Unfortunately there's not much I can do about that right now. I have a one bedroom apartment and the lease isn't up until the middle of next year. Even then, most decent apartments cost this much where I'm located. I need to do a lot more investigating but I think the best approach there is going to be to buy a place and pay it off fast.

I've also been thinking about ways to increase my income. One option would be to get a new job. This is something I need to do but has been on the back burner for a variety of reasons. I've considered more consulting but I'd prefer not to do trade hours for dollars and do more of the same work as my day job if possible. That leaves increasing the income from Google and Amazon (I have some websites that make money). I'm going to focus on improving that income stream next but I'll have to think about what a good goal would be.

[robby152]

Hi Gilberto,

Have you factored in taxes to the numbers above? I assume you have taxes taken out of your paycheck, but what about your consulting and online income?

Thanks,
Robert

[Gilberto de Piento]

Hi Robert,

Thanks for responding! The paycheck has had taxes taken out but the consulting and online income have not. I hadn't thought about that before but I'm inclined to leave it as is for the purpose of this analysis since it keeps things simple and the amounts are not that large relative to the total annual income. Unless I'm missing something it just causes November to have slightly more income than it really does (other months won't have the consulting income). I wouldn't want to base any long term plans on just this month but once I have a few more months to go on I can make accurate predictions.

I actually haven't had to worry about this before since I haven't earned any income beyond my normal paycheck so I don't know much about the tax implications. My understanding is that these earnings will be reported as 1099 and I will have a smaller tax refund (or may even have to pay in) since they will take out the tax I didn't yet pay on these earnings.

Is there something I should be doing instead?

[robby152]

Well, I am no accountant, but most people that make 'side' income that is reported on a 1099 make estimated quarterly tax payments to the IRS via the eftps dot gov website. You just create a profile on the site and send in a guess as to how much your non W2 income needs for taxes. So, if you are in the 15% tax bracket and you make an extra 1K the first quarter, by mid April you should send in 150. This is credited to you when you file your taxes. I would just hate for you to have to pay some penalty since you didn't pay throughout the year. Kind of a pain, but no big deal once you do it once.

[Gilberto de Piento]

Wow, you're right, it looks like I may need to start paying taxes quarterly on my side income. Thanks for pointing this out! I didn't realize it until I added it up just now but I made just under $5000 from 1/1/13 to today. I'll probably make another $500 or so before the end of the year. I'm assuming for IRS purposes all of the side money is combined regardless of where it came from.

According to the IRS site http://www.irs.gov/Businesses/Small-Bus ... ated-Taxes it looks like I need to pay quarterly taxes if I owe $1000 or more in taxes. Even with this income I'm in the 25% bracket. I'll probably make $5500 in side income this year for 25% x $5500= $1375. If I'm understanding the link above correctly I probably should file quarterly for this income. I am wondering if I first need to do this for the 1/15/14 filing since that is the first time that the income will have exceeded the $1000 in tax. It seems like there's probably a lot I don't know about this.

I've also been told I should consider creating an LLC. I think it might be time to talk to an accountant/tax preparer to make sure I'm doing all of this correctly. I thought all of this could just roll into my normal taxes.

[George the original one]

The alternative to filing quarterly, if you have a regular W-2 income, is to have more withheld by your employer.

[riparian]

This is not advice, just my experience:

I'm pretty sure there's only a penalty for not quarterly filing if you're reporting $100k+ on a 1099. I always mean to pay quarterly but usually only end up doing it 1-3x/year. Increasing your W2 witholdings can certainly do the trick.

Don't forget all your deductions when doing your 1099. Whatever percentage of your home office, phone, Internet usage, etc is for your business is deductible, plus business lunches, courses, advertising, etc.

I have a similar tax situation and haven't gotten around to filing an LLC in the last 10 years. There are advantages to it, but if you're basically an independent contractor I'm under the impression that you don't need to be an LLC.

Do you feel like sharing your passive income strategy? What's your long term goal - savings plus passive income?

For the rent, have you considered airbnb? I have a friend who rents luxury apartments in LA and NYC and makes her rents back every month by renting the one on airbnb while she's in the other.

[Gilberto de Piento]

@riparian: Thanks for replying! I don't really have anything I'd call a passive income strategy at this point. I'm still trying different ideas as they become possible. Right now I have two passive income sources - websites and interest from CDs/savings. The websites are a lot of work up front and some pay off while others don't make anything. The web is very unpredictable but the barriers to entry are very low. The CDs are extremely reliable but pay very little for the amount of money invested. They are more a place to park my emergency fund than anything else. In the near future I plan to expand my web earnings and get into rental property. I'm also interested in investing in stocks and have done a lot of research but haven't yet had the funds to make it happen.

I don't think my current situation would work with airbnb since my apartment is a one bedroom and I don't leave for extended periods. When I used to have a two bedroom I would find short term renters through Craigslist. This worked well but I was very picky about who I rented to. I always looked for want ads (never placed an ad looking for a roommate) and selected only people who seemed reliable. Med students on rotation, grad students in town for a semester, and business people in town for a temporary project make good short term roommates.

[Gilberto de Piento]

November 2013

Sorry this is so long. See bottom for summary.

November was a great learning experience. I'm already seeing ways to improve by using Mint and m741/akratic's spreadsheet. I didn't earn as much a last month (no consulting) and the way the paycheck schedule fell. I think this is a typical month for me so I am getting closer to being able to do accurate predictions.

Income:
Paycheck 2924.71
Amazon 105.57
Google 189.97
Consulting 0
Emergency fund interest 16.92
Checking account interest 18.11
Total +FI 3255.28

Expenses:
Air Travel 0
Alcohol & Bars 0
Bills & Utilities 87
Business Services 17.98
Cash & ATM 320
Charity 10
Clothing 35.91
Doctor 23.77
Fast Food 0
Gas & Fuel 61.84
Gift 49.9
Groceries 331.77
Gym 41.15
Hotel 0
Mortgage & Rent 940
Parking 45
Pharmacy 0
Public Transportation 7
Restaurants 77.59
Television 44.99
Uncategorized 0
Total -FI 2093.9

Net worth: $72,722.15
Savings rate this month: 35%

The good:
1. My 457b broke 50k for the first time!
2. I saved $1500 toward a house down payment
3. I earned about $300 passively through websites and CDs

The bad:
1. I spent about the same amount as last month but made less for a savings rate of only 35%.
2. I'm spending about $320 a month in cash from the ATM. I have only a vague idea of where this is going. Grocery and restaurant spending is also too high.
3. The spreadsheet predicts I won't be able to retire until 62. Not what I had in mind.

Goals for next month:
1. Spend less than $1600, a decrease of about $400, for a savings rate of at least 50%
2. Set up an LLC to protect me from litigation due to side income (this is an overdue goal from October)
3. Take concrete steps to improve internet income to $1000 per month. I'm having trouble getting motivated on this to be honest. Money alone isn't a very good motivator for me.
4. Take concrete steps to move to a different state and get a "better" job (more personal than financial but relevant)

TL;DR: I made less and spent more for a savings rate of only 35%. I did meet some goals but I'm not going to retire early at this rate so I need to make some changes.

[George the original one]

You're spending $45/mo on TV? Are you watching so much TV that this makes sense compared to over-the-air or internet or DVDs?

[Gilberto de Piento]

Hi George,

I'm not really spending $45 on tv. Unfortunately "Television" is mislabeled - it's actually for the internet alone. I think Mint is labeling it television since it comes from the cable company. The small amount of TV I watch comes through the internet and so doesn't cost anything. Sorry for the error. I appreciate your feedback!

[George the original one]

Whew!

[fuyu]

Not sure if you already know this, but if you read further down on the IRS site, as long as you meet the exception below and you AGI is below 150k, you don't have to worry about adjusting your withholding or make estimated tax payments this year.

"or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. "

[Gilberto de Piento]

Hi fuyu,

I did not know about the exception you point out and it does look like it applies to me. Thanks!

[Gilberto de Piento]

December 2013

Income:
Paycheck 2922.87
Amazon 85.88
Google 205.16
Emergency Fund Interest 17.51
Checking Account Interest 20.68
Christmas Gifts 120
Total +FI 3372.1

Expenses:
Alcohol & Bars 17
Business Services 258.17 (half of this was web domains that needed to be renewed and the other half was the LLC fee)
Cash & ATM 200 (Christmas fun and food)
Charity 13
Coffee Shops 2.22 (work meeting at a coffee shop)
Gas & Fuel 65.74
Gift 28.18 (Christmas)
Groceries 80.08 (way under the $200 budget!)
Gym 66.15
Mortgage & Rent 940
Office Supplies 127.49 (used computer, new mouse
Pharmacy 12.64
Shipping 12.35
Shopping 321.71 (kindle for my mom, 2/3s of this will be paid back by my dad)
Sports 32.70 (ski wax and brush)
Television 44.99 (internet really)
Total -FI 2222.42

Net worth: $74,990.98
Savings rate this month: 34.1%

The good:
1. The 457b is over $51,000. I noticed a large increase yesterday and found out that index funds pay dividends (well, the stocks inside it do).
2. I've been working on a new website. I'm not quite back in the saddle but I at least figured out where I left the horse.
3. I earned about $300 passively through websites and CDs again. I'm surprised it's been this consistent.
4. I set up an LLC for my web/consulting business in case someone sues me.
5. I bought a used computer ($100) so that I have a permanent "office" at home for working on websites. It's helped already.
6. Grocery bill was very low this month.

The bad:
1. Another month with a savings rate of only 35%. Damn! I thought I could do better than this! It looks like this is my "normal". It's been a bad month for some legitimate reasons at least: 1) I teamed up with my dad to buy a kindle for my mom for Christmas. I paid for the whole thing ($300) and he hasn't paid his 2/3s share back yet. That will add $200 back into this month. 2) I bought the used computer mentioned above. If this gets me working on the web more it will pay itself back.
2. I didn't meet my goal of saving $1600 a month.
3. At this rate I won't retire until 60. That hardly seems "extreme"!

Goals for next month:
1. HIT MY SAVINGS GOAL
2. Invest about $5000 of the $13000 that's in my savings account into stocks. In my first journal post I said this was house money but I just don't see it happening any time soon if ever. I want to move to a new city and if I do I wouldn't buy anything right away (if I could even afford to buy) so I'm better off investing in something where there is risk but more possibility of reward. I'm worried about the market dropping given how well it's done recently but I think it's the right way to go. I don't think I'll ever "need" a house on short notice so I can wait for an opportune time to cash out, or it just becomes FIRE money. Hopefully I don't regret my stock picking strategy but I want to try something besides indexing (sorry Bogleheads! You still win in the 457b)
3. Keep working on websites.

TL;DR: About the same performance as last month, with a disappointing savings rate of only 35%.

Thanks for reading!