WorkatHome's Journal

[workathome]

I need to better exercise my two wealth levers. Expense reduction and passive income expansion. Was thinking about updating occasionally until the passive income crosses the expenses threshold.

Situation: Family of 3. I am the only income source. Paying too much for basic necessities and learning to invest.

Monthly Expenses:

Phone $37.54
Cellphone $68.99
Internet $46.99
Netflix $8.47
Utilities $125.70
Water $18.48
Mowing $100.00
Health Ins. $475.00
Garbage $20.35
Auto Lease $700.00
Groceries $500.00
Fuel $75.00
Medical $200.00
Clothing $50.00
House Goods $25.00
Car Repairs $50.00
Home Maint. $250.00
Car Insurance $158.33
House Ins. $205.92
Misc. Budget $300.00
Property Taxes $375.00

Total / Month: $3,783.77
Yearly: $45,405.24


Investment Income

TBA


Plan: Lease expires in 3 years. Planning on moving to a less expensive situation in 1-2 years. In 3 years should have expenses down to a maximum of $34,000/year. Hope to chip away at additional problems and hit max $30,000/year expense level by then. Reading MMM's family budget, Michigan appears to be more expensive than Colorado. Our home is worth 50% of his, though our property taxes are 100% more (though our area is certainly not doing as well as Longmont/Boulder area, weird??).

[George the original one]

Personally, I'd find a way to ditch that car lease sooner. You're paying $908/mo for the privilege of using $75 of fuel.

And what's the story about paying $100/mo for lawn mowing? MMM would punch you for that

Medical plus health insurance is costing you $675/mo. That's not bad for a family of 3, though I wonder if there's an alternative.

[workathome]

The best option seems to be to buy out the lease and flip it. I might have to take a big loss, but maybe it would end up saving $20k or so. It's a very good point! If there's no benefit to having it, I need to look at the loss in terms of the long-term gain.

[Dragline]

Yeah, that car is the big ugly that jumps out. I take it you own your home free and clear?

Property taxes are vastly different state-to-state and locality-to-locality and are often off-set by other taxes. But all else equal (which it never is), if you live in a lower-than-average cost home for your area like MMM, your taxes will be lower because your high-value neighbors are paying more.

[workathome]

Yeah, that car is the big ugly that jumps out. I take it you own your home free and clear?

Property taxes are vastly different state-to-state and locality-to-locality and are often off-set by other taxes. But all else equal (which it never is), if you live in a lower-than-average cost home for your area like MMM, your taxes will be lower because your high-value neighbors are paying more.

Yes, we are fortunate to have no debt. Though in hindsight we could have been better off simply buying an index fund with the money.

Looks like Michigan is one of the most expensive states:

http://taxfoundation.org/sites/taxfound ... n_rate.jpg

It seems my county is one of the more expensive within Michigan, lol.

[workathome]

I made a few minor cuts.

Expenses:

$3,688.30 / mo

Investment Income:

$2,083.33 /mo


I placed my money in a few private offerings. There were four, but an 8% bond already went south after only returning 10% of principle. I had trusted the advisor (i.e. commissioned salesman), without necessarily understanding the risks involved. That is, I assumed the advisor (i.e. salesman) did all necessary due diligence. Fortunately, I appear to be learning an expensive lesson. The other three offerings are continuing to pay quarterly distributions and appear to be higher quality with real assets backing them.

[JohnnyH]

Hm... Move to less expensive state, or at least house?... I'm guessing you own your house since I don't see a monthly for it... However, associated costs are ~$845/month (taxes, upkeep, utilities). That would rent you a very comfortable 2/1 or 3/2 in most of the country, freeing up your principal for investment.

+37: cancel landline; if you need it Ooma, or equivalent.
+39: $30/prepaid plan(s)
+95: DIY mowing.
+700: Take the hit, get out of car lease. Get mid 90s Corolla.
+120: Insurance on said Corolla will be less than $50.
+35: less gas from more efficient car + less driving.

[workathome]

[bigchrisb]

> Family of 3. I am the only income source. Paying too much for basic necessities and learning to invest.

Is having one of the other two earn an income possible?

[workathome]

Is having one of the other two earn an income possible?

No, she's our full-time offspring asset manager

[workathome]

[George the original one]

I'd be inclined to take a combined approach. Sell everything except the half dozen big names you recognize because you at least know approximately what they are.

[workathome]

[workathome]

Budget Update

Phone $32.00
Electricity & Gas $116.57
Water $18.48
Health Insurance $445.00
Garbage Pickup $20.35
Audi Lease $693.00
Groceries $500.00
Fuel $50.00
Medical $200.00
Clothing $25.00
Household Goods $25.00
Car Repairs $50.00
Home Maintenance $250.00
Car Insurance $148.73
House Insurance $107.75
Misc. Budget $200.00
Property Taxes $375.00

Monthly: $3,256.88
Yearly: $39,082.56

While living in a 2,300 square foot house, spending a little over 200% the median on property taxes, and leasing a $50,000 Audi, our family of 3 currently lives 24% below the median household budget and at 200% the poverty level. We are excessively wasteful, so what does the median buy?

[borisborisboris]

Interesting Question. I think I could have some fun listing some budget-eating items that I have seen in people's houses with that approximate level of income: Hot tubs, jet skis, trampolines, dirt bikes, 4-wheel vehicles that are kind of like dirt bikes, motorboats, truck that is used to haul motorboats and dirt bikes, leather sectionals, fancy kitchens and bathrooms, costco-sized bags of beef jerky, satellites hooked up to very large TVs, kids that go to daycare and/or private school, handbags with the names of Italian designers stamped on them...what am I missing?

If the above sounds pejorative, I don't mean it that way - a few of those items are in my own house...we can all do better!

[bigchrisb]

Thought I'd give some perspective on some of those international stocks that you may not know about. I own a fair few of these. Not sure if you qualify for franking credits, so yields are presented in net/gross terms.

BHP - Worlds largest resources company, and a significant oil/gas producer. An easy way to get a diverse exposure to the resources sector. Yield 3.4/4.8%. Operates a progressive (increasing each year) dividend policy. Its averaged 14% annual dividend raises over the last 10 years. I own BHP.

Newcrest. Gold miner. Has been very beaten up over the last few years, cut its dividend. Who knows if it is a turn around story, or a basket case. Thus far I've lost money on this one. I own it. Was a star performer (price and dividends) up until the last few years.

Origin. Energy company in Australia. Operates electricity and natural gas generators, electricity networks, LNG export, and some exposure to coal seam gas. Yield 3.5/5%, 16.9% average annual dividend growth over last 10 years. I own this.

Woolworths. One of Australia's largest retailers (mostly supermarkets, but petrol/liquor/home improvement and others in the mix), and part of the supermarket duopoly in Australia. Yield 3.9/5.6%, 12.8% average annual increase in dividends over the last 10 years. I own this.

So, it would seem to me that at least the Australian stocks in there are pretty reliable dividend paying stocks (and certainly ones I have in my portfolio). Depending on your investment goals, they may or may not be right for you, but if you want these sort of dividend payers in your portfolio, I'd question why sell them, particularly if you will realise a taxable capital gain?

[workathome]

@borisborisboris - That is a very accurate list!

@bigchrisb - Thank you for the insight. I'm still holding most of the positions you mentioned! I sold a few of the Asian companies that were very unfamiliar. I sold off all the individual miners the brokerage had bought for me and moved into GDX which keeps ~5% in Newcrest. I feel more comfortable owning the miners sector this way.

[workathome]

Feeling burnt out the last couple weeks. I want to transition more into a full-time student (at home), especially with regards to investing and business analysis. Yet I don't feel comfortable giving up my income stream. My net income is down about 60% from a year ago, but it's still enough to cover all my expenses - especially since cutting back - and to continue to contribute to savings and at least replace any inflation losses while I sit on cash. I've been extremely wasteful the last few years, so it was easy to drop from spending ~100k+/year to ~40k/year by just not being stupidly wasteful.

I have a "problem that is good to have", in that I've saved some money, but made poor decisions with regards to trusting brokers (yikes) and feel pressured to try and grasp adequate investment knowledge so I can start earning a high enough SWR to live off long-term. 4% over inflation would do it after some additional expense reduction (no lease, moving, being more self-reliant), but I don't feel comfortable simply indexing right now, and bond rates are too low. Portfolio size is down because I had ~35% in metals/miners (I didn't/don't know much, but was really paranoid about inflation - note: fear sells). While a simply SPY portfolio is up 30% this year, my net worth is down 12% or so even after contributing heavily to savings.. the broker picked a few good companies, but too many miners (not "diversified") and some apparently off-the-wall shitty Asian companies that went to 0.

Seems I will be sitting on mostly cash/short-term bonds for a few years until knowledge-is-acquired or there's a major market crash and I'm happy simply indexing.

[workathome]

Income took a 40-50% haircut yesterday. The main company I've been working with for at least two years is making big cuts. I should still be at a 60% savings rate after this, but income has been on a down-trend for over a year now. New projects haven't been successful for a while, I probably need a vacation and time to reframe/exit a rut.

Still planning on moving somewhere smaller soon, still need to decide where though.

DW has learned to eBay and enjoy it, so a lot of our depreciating junk has been disappearing.

With regards to investing, I'm using the essential Permanent Portfolio asset allocation percentages while giving myself freedom within each. So Gold = mix of Gold & Silver ETFs. Bonds = Short-term instead of 30-year UST (no thanks!). Equities are the 10 cheapest foreign index funds based on a slightly modified CAPE ratio. So we have GREK
RBL, EIRL, EWI, EWO, EWP, EWK, EWS, EFNL, and NORW.

The equity strategy sort of fit my goals in regards with "what to do" with the individual positions transferred over from the "full-service" brokerage. Instead of Singapore Telecom and Keppel I have EWS (which includes both), instead of the Norwegian stocks i have NORW, etc. while following a strategy that makes sense to me.

ERE-type mindset is more incorporated into my daily actions. Like not driving somewhere for 1 item, but combining things into weekly outings. I stopped paying for haircuts and bought a $20 razor that does the job well enough. eBay sales were leveraged into $30 worth of discounted hair product that will last 1-2 years. Enjoyed raking my leaves for the free exercise. Enjoy taking it slower and thinking through purchase decisions (do I REALLY need BBQ sauce? How is it made? Oh.. it's ketchup, sugar, vinegar, and choose your own spices).

[workathome]

A quick update:

We've sold ~$3,000 worth of old things on eBay. We're also making definite plans to move this Spring/Summer and getting the house ready to sell. The move will put us into a nicer community 15-20 minutes from Lake Michigan, save $1,000-$1,500/year in property taxes and ~$1,000 year in energy costs. Should be able to shave a little off home insurance as well.