I hope everyone had a great Christmas! Today I just have a quick referral for you. Recently, I had someone named Chris email me about a post he wrote on credit. He scoured the internet for information as he put this together and found my blog among many others in the process. His goal was to create the most comprehensive source of information about credit anywhere on the internet. After reading the post, I have a couple of takeaways. First, it is extremely thorough. Clearly he put a ton of time and effort in. Second, it talks about credit both in the US and the UK. So if you live in either country (or both) and want to see how the systems stack up to one another, this is a great post for you to check out.
You can find Chris’ post here. Thanks for reaching out, Chris, and good luck to you!
We’ve done it! We’ve reached the last of my Annual Expenses posts and we’ve gotten through them all with just a few grains of sand left in the 2019 hourglass. I plan to do an aggregated, “year in review” style post that will pull together the highlights so be on the lookout for that in the coming weeks. My last expense category is vehicle depreciation and I spent an average of $2100 on it over 2017 and 2018. I believe a “bare minimum” budget number would be about $500.
When people talk about deciding between buying a new car or keeping the old one around a while longer, you will often hear phrases like “this one is paid off” or “I don’t want to have a car payment again.” Those statements come from a cashflow oriented viewpoint. But I prefer what one of my customers, a lifetime wheeler and dealer, likes to say: “You make money when you buy, not when you sell.” In reality, that “paid off” car still costs actual money each month, cash or not.
This expense is called depreciation. For a simple example, let’s say you purchase a car for $35k, roughly the average new car price today. You drive it for five years and then sell it for $15k. Your depreciation cost was $20k over the life of the car or $4k per year, regardless of your monthly note payment or when you paid it off.
So how can you reduce this expense? Exploit the depreciation curve, which starts out very steep but flattens quickly. Almost any car is going to lose roughly half of its value in the first five years. But most cars will only have 50-75k miles on them at that point and a good, well maintained one can go 100k or more relatively trouble free miles from there. This is reflected by the fact that the average car in the US is nearly twelve years old. The secret is out and that is the only reason the depreciation curve isn’t even steeper from the outset.
But it still makes sense to follow this principle and you can do it with two simple rules. One, only buy cars that are about five years old. That way, you will always pay half price at most. Two, only buy cars that have been taken care of well. If you aren’t personally mechanically inclined, insist on having someone who is inspect any car before you buy it. It shouldn’t cost you more than a hundred bucks or so, which is nothing compared to repairing even a single major issue if you wind up buying “someone else’s problem.” By following these two rules, you can buy almost any car within reason for $20k or less and run it long enough to keep your annual depreciation expense at $3k – or less.
But what if you want or need to keep the number much lower than that? It’s going to require more shopping around and more know how, but it can be done. You’re looking for something later in the depreciation curve, likely priced around $5k or less. In that price range, you’re going to be looking for higher mileage cars (100k+), cars that start out priced lower than most, or cars that depreciate faster than most. I would avoid that last category altogether, since there tends to be a good reason cars depreciate faster than average. Chrysler products, for example, are widely known to be unreliable. You’re not looking to lower your depreciation expense by simply increasing your maintenance expenses.
Instead, I would look for quality, high mileage cars in exceptional condition. They are out there and they don’t sell for all that much since most people aren’t willing to take chances on them and they are very difficult to get financed. One trick is to look for signs of mostly highway mileage, which puts a lot less wear and tear on a car than city mileage does. There are plenty of good guides on how to do this online, like this one. In this price range, inspecting the car thoroughly is crucial. Here is an excellent place to start learning how to do it, although if you’re uncomfortable with it, it’s well worth it to bring someone who is.
The payoff? If you buy a quality used car for $5k or less, it has already depreciated close to as much as it’s going to and you have a great chance of keeping your depreciation expense at $500 a year or even less. When I was a young lad, I bought my first handful of cars on the extreme end of the depreciation curve, all for less than $1k. In most cases, I drove them for about a year and ultimately sold them for within a few hundred dollars of what I had originally paid. I don’t need to do that today and I like to have something a little fancier to drive around in, but it’s nice to know I could if I needed to.
That’s about all for now. I provided links to a couple of great videos in this post. As for this blog, I wrote about which car brands are the best and worst here and about basic maintenance here. And the nice thing about the internet is that there is a whole universe of information out there at your disposal. If you don’t know much about cars, I recommend browsing around and doing some research until that has changed. The more effort you put in and the more you know, the better a position you will be in to score a huge win on your next car. Have a great Monday and a Merry Christmas!
Happy Friday! I know most of you are in a hurry to get work over with and go home, so let’s get right into this. Recently, my employer’s HR department sent out the dreaded annual insurance email – you know, the one where they tell us how much more we will be paying for coverage in the new year and how much worse said coverage will be. To some extent, I’m lucky and thankful to be joking because at least with the health insurance, our coverage is actually relatively excellent and the company makes a very serious commitment to keeping our contributions towards the premiums very reasonable for what we’re getting. But nonetheless, we do pay at least a little bit more for less every year, just like at every other company I’ve worked for over the last several years. What can I say? Combining government and healthcare was a very, very poor decision some power hungry, vote buying politicians made a long time ago and we’re all going to continue paying for it until someone with very big balls comes along and fixes that mistake.
Anyway, this year, the health insurance only changed to a different insurer while the coverages and premium contribution stayed about the same. That’s a win in my book. But for whatever reason, the company has never had a great dental insurance option. This year, the deduction stayed the same: $20 per pay period ($40 per month). However, the $100 “lifetime” deductible we had with last year’s insurer turned into a $100 deductible without the lifetime language with this year’s. In my mind, $580 is too much to be paying for two dentist appointments a year and even in the unlikely circumstances I would need anything more than those two appointments, the insurance has the same stingy $1500 cap as last year’s.
So this year, I decided to do some checking and see if I could improve the situation. And boy, was I surprised. When I called my dentist’s office to find out how much appointments cost, it quickly became apparent that I had struck a nerve. She described a dystopian clusterfuck that basically involves providers getting screwed by the same insurers that are screwing the patients on the other side, much like health insurance. It sounds crazy, but by my not having insurance, my dentist can literally charge me less money AND make more.
How much? The standard annual protocol is one cleaning/exam/x-ray appointment and one cleaning/exam appointment. And the costs? $80 for a cleaning, $42 for an exam, and $46 for x-rays. In other words, for the $580 I paid last year, I was getting the equivalent of $290 worth of appointments. That means I was paying $290 to insure against the chance of incurring up to $1210 in additional costs. And keep in mind that if there were additional costs above $1500, I would have been paying for them anyway. And the last time I had a non-routine dentist appointment? Probably when I had my wisdom teeth removed about fifteen years ago. To sum it up, I’ve been getting robbed for however long I’ve been paying anywhere close to this much for dental insurance.
But wait, I can hear you saying. I won’t save a full $290 since the $480 in premiums would have been tax exempt, thus costing me closer to $300. And that’s true, but I’ve got it covered. In conjunction with declining the dental insurance for 2020, I also began contributing $30 a month to an FSA (flexible spending account), which is also tax exempt. Mind you that I don’t like FSAs since they are “use it or lose it” money. But in this case, I know I will use $360. $290 of it can go to the dentist appointments I just mentioned (yes, dentist appointments are FSA eligible). The rest is spoken for by a regular prescription I have. So while I will lose a tiny bit of tax shield, it will only be to the tune of $120 a year or roughly $50 in actual dollars. In the end, I will be saving about $240 in 2020 thanks to getting rid of my ripoff dental insurance.
The brilliant part? Anyone can do this kind of thing. I absolutely don’t recommend doing it with health insurance, as that would be unacceptably risky. But in the case of dental insurance that would only cover a max of $1500 a year, it’s a pretty solid win. And if you’re lucky enough to pay a lower tax rate than I do, all other things being equal, you save even more than I am. This is why I’m not terribly concerned about inflation. I can almost always find little ways to cut expenses without losing any value whatsoever. This tiny adjustment saves me close to 1% of my annual spending by itself! With just a few more like it, I will easily recoup the 2-3% inflation is likely to take away. Brilliant. Have a wonderful weekend!
The Matrix was an amazing movie. Yes, the entertainment value was excellent. But what really made it special was the way the concept got people thinking. It can apply to so, so many areas of life. The Red Pill community has literally based its name on the movie, and with good reason. The concept of unplugging oneself from an entire system of intentional, insidious deception, whether living in an entirely virtual world, as in The Matrix, or in a feminine dominated reality that is blindly accepted by almost everyone in our society, is powerful. Today I want to challenge you to do it with the supposed connection between consumption and happiness. And what better time than just before Christmas?
Look around you. Everywhere you go, someone is trying to convince you to spend your Christmas dollars with them. And everywhere you look, someone is rewarding that effort by doing just that. There are literally people taking out loans or loading up their credit cards because of the social pressure they feel to participate in this annual spending orgy. And these poor decisions aren’t just being made on an individual basis; to the contrary, this is a movement of self destruction that has a nearly religious fervor.
Don’t get me wrong. As a member of society with family, friends, etc, I participate in all of this to some degree. It is definitely possible to derive joy from the act of giving. But my giving is entirely grounded in my ability to do so. If I were living paycheck to paycheck, struggling to pay down a mountain of student loan debt, unemployed, or in any other form of financial difficulty, you can bet my efforts would be focused on putting out that fire. I happily give out gifts at this and other times of the year solely because I have excess available to dedicate to that purpose.
But save for a short, unfulfilling period of my early twenties, I have never completely subscribed to the “buying more crap will make me happy” mentality we see all around us. Bigger houses to fill with more and fancier furniture, more expensive vehicles, stuff galore, it doesn’t matter. The theme permeates everything. More is better. But there’s just one little problem. It isn’t. In fact, quite the opposite has been true for me. And I don’t believe I’m alone in that.
I lived a relatively simple life before I moved from Wisconsin to Texas. My commercial quality home gym was by far my most prized set of possessions. But I still had to get rid of over a thousand square feet worth of stuff before I could move because I had decided to live in a nice, but small apartment while I got acclimated to my new home. Every item I had accumulated over the years was something I had just had to have when I originally bought it. And most of them had seemed too important to get rid of at any point before that. But when suddenly forced to get rid of all but a small, carefully chosen selection of my earthly possessions and move into a much smaller space, a funny thing happened. I felt better.
Today, I have almost no desire to buy or rent a larger home in spite of the fact that I could easily afford to do so. In fact, the mere thought of doing so stresses me out. If I bought a house and suddenly had more space, I would almost certainly fill it with similarly pointless possessions to the ones I had previously thought I wanted, but had felt liberated by getting rid of.
Now let’s look at the other side of this equation. By avoiding being one of the many people whose very life embodies an obsession with the word “more,” I’m able to save and invest over half my income. This has given me something intangible that no “stuff” could: peace. For example, my industry is currently in a deep, ugly recession that has destroyed jobs, businesses, and even lives. And at the moment, no end is in sight. But I have over a year’s worth of living expenses in cash alone and much, much more in other forms.
Is a man like me likely to be unemployed for an entire year? No. Unemployment is extremely low and I’m a high achiever. And besides, already growing very weary of the sucking dick for money that is most W2 employment, over the last year, I’ve already taken the initiative of starting three businesses. One was a fairly quick failure but another has been a modest success so far and will likely continue to be that at a minimum. And I believe the third, and latest one, has a strong possibility of not just paying my expenses, but replacing most, or even all, of my current income by the end of 2020. So in the midst of relentless job attrition in my industry, and even within the smaller world of my employer, I sleep great at night. In fact, if I were offered any sort of reasonable buyout today, or forced to take one, as is the more likely scenario, I would gladly take it. I’m confident that between my currently small, but rapidly growing business income, my investment income, my cash, and if all else fails, getting another job, I will be just fine. To me, that is worth more than almost any possession I could possibly have.
But this isn’t just because I’m good at making money. It’s also because I keep my expenses reasonable, thus setting myself a low bar to clear. With the combination of the two of them, I’ve set myself free from the shackles that keep most people trapped in enormously stressful lives that are so far from ones they would truly love. And you could do the exact same thing. But it would probably require challenging some assumptions you’ve been programmed to believe – like “more is better” or that any worthwhile people might love you less if you don’t give them the right gifts.
So this Christmas, why not enjoy some time with the people you love while also being thankful for free will? Why not use that free will to start questioning your expenses one after another – are they really making you happy in a way that you wouldn’t be without them? Are they really worth more than the step closer to freedom that money could be instead? It’s your life. You have every right to live it the best way you can find. What a tragedy it would be to spend the entire thing as a plugged in consuming machine without ever even trying anything else.
This blog has been in existence for just over a year now. But in that time, I have never addressed the most important reason of all for saving money and building wealth. This is the elephant in the room that no one seems to want to talk about. It is the biggest reason I cringe when I hear people saying things like “I can’t afford to save for retirement, so I’ll just work till I’m dead.” I’m not trying to be alarmist, but it’s time for a dose of reality. Most people think of 65 as a typical retirement age, but the median age is actually 62 and the average is 60. And that’s for current retirees. It is almost certain that those numbers are going to be much lower for my generation.
Why? Automation. Have you toured a factory recently? Hundreds, if not thousands of people probably worked there at one time. Today, you might see ten or twenty people out on the floor, mostly either sitting at computers or maintaining machinery. Yes, some of our manufacturing jobs went to China or other countries where labor is cheaper. But most of them didn’t. Most of them simply don’t exist anymore. And manufacturing was only the very beginning.
In spite of an economy that appears to be stronger than it has been in some time, today’s labor force participation rate is only 63%. In other words, 37% of people who could potentially be working, are not. Mind you, the rate peaked at 67% in 2000 so it’s not quite as dramatic as it sounds…yet. But in a country of 300 million people, that 4% difference amounts to over 10 million. And the trend isn’t likely to reverse, but to accelarate.
For example, tens of millions of people work in retail. Not only do the vast majority of those jobs pay poorly to begin with, but most of them are not going to be around for long. Remember when automated checkout lanes started popping up? At first, they were a novelty. Today, they are in as many stores as not and taking up more and more lanes. Instead of four or more cashiers, there is now one employee supervising all those checkouts. And it won’t stop there. Walmart is already piloting robot janitors that clean the floors and others that keep aisles stocked. Once they start replacing employees with these robots en masse, the economy of scale factor kicks in, the robots become much cheaper to buy, and other stores will quickly start following suit. They will have to. If they don’t, Walmart’s costs will be lower, allowing them to cut prices and take market share.
Suddenly, tens of millions of not so great jobs don’t even look very safe. The technology already exists to replace many of the jobs in fast food restaurants. Those people who have made the news over recent years demanding $15 an hour may not realize it, but by the time anyone makes that much money to work in fast food, the job will likely involve maintaining robots and computers. And there will be far fewer people doing it than there are now.
Millions of people drive for a living. What happens when the autonomous driving technology every auto manufacturer on the planet is working on cramming down our throats as quickly as possible becomes viable? Even more people sitting at home with no way to earn a living. This technology is no more than a decade or two from reaching that point. And technological progress tends to move faster than anyone expects it will.
By the way, if you think this will stop once most jobs lower skilled have been eliminated, you haven’t been paying much attention. Every day, companies are asking employees to do more with less. And even still, no job seems to be safe. It is never enough. That’s because eventually, technology will replace almost all of us. In some cases, it isn’t capable of doing it yet. In others, it’s just a matter of increased production bringing the cost down before it’s goodbye human employees. There are literally computers out there that can compose music. As in nothing was there before and suddenly, now there is a totally original set of notes. I have friends who work pretty high up in the technology world and every now and again I hear about these things from them. And if computers can create music, they can do a lot of other things that may not seem possible right now as well.
We as a society have some serious thinking to do. For as long as technology has existed, the question has only been “can we do it?” I believe we have long since passed the point where we should have started asking “should we?” We’ve already seen what happens when human labor becomes less and less in demand with each passing day – ugliness. More and more people have found themselves on the losing end of things and are living the consequences. It’s not just a lack of money. It’s a loss of purpose. We’ve seen mental health issues skyrocket and this is one of the biggest contributors, if not THE biggest. What is it going to look like when the majority of people are literally economically obsolete because there is a robot or computer that can do the same things they can, but more efficiently and effectively? We are a lot closer to that day than most people are willing to admit. In fact, the technology already exists right now. I’d say a decade or two is an optimistic estimate of how much time we have.
I don’t have the answers. I don’t know if some sort of universal basic income scenario is going to work. From what I’ve read, the experiments that have been done thus far have not yielded encouraging results. What I do know is this. Whatever the not so distant, mostly automated future looks like, I would rather face it with assets at my disposal than without. A lot of people talk about early retirement like it’s an optional luxury. For many people, I expect it will be totally the opposite. So to those who are taking a “let tomorrow take care of itself” approach to preparing for the future, please, let this be a wake up call. Fail to plan, plan to fail. And there is at least some chance that in our lifetimes, failure will have much starker consequences than it has ever had before.
Happy Monday! I almost feel a little silly writing this post as I haven’t taken anything beyond a few day vacation in about four years now, but it’s the second to last post in my Annual Expenses series, so I’m doing it anyway. Over 2017 and 2018, I averaged $300 per year in vacation spending, which included nothing at all in 2017 and short trips to Wisconsin and Tampa Bay in 2018. The minimum level of spending in the vacation category would, of course, be zero, since this is an entirely optional category. That said, I sure could use a vacation. Anyway, let’s get into it.
My first piece of advice on cutting vacation expenses is to use the specific advantages you have. If you have a job that involves a lot of travel, you may be able to use rewards programs with hotels, airlines, rental car companies, restaurants, etc, to very nearly eliminate the need to spend money on those areas altogether when you go on vacation. If you live near a cruise port or somewhere else awesome, you can probably get a last minute deal for practically nothing if you’re vigilant. Don’t overlook the low hanging fruit.
My next best tip is to use credit card churning to pay for some or all of your vacation. While the situation has deteriorated dramatically over the last year, there are still some cards available with large enough bonuses to cover a round trip flight or two, several nights at a hotel, etc. Keep in mind that you need to plan ahead to make this option work. I recommend four to six months, unless you’re looking to get multiple cards, in which case you probably want to start working on it a year out. Some people don’t like churning for various reasons. My take is that if you do the math and figure out what you’re getting “paid” per hour of actual effort (keeping in mind that this is tax free), it makes a lot of sense to work through whatever issues you have. Very few people make THAT much per hour in their day jobs. If you want to look into this option, this post or this post talk more about churning and this website is probably the best source I know of for detailed, up to date information on what specific cards are offering at this particular moment, whether it’s a good deal or not, etc. You can also check out www.reddit.com/r/churning/.
Vacation doesn’t necessarily mean going anywhere exotic, or even outside of the United States. Road trips are a great way to go on a vacation without spending a fortune. The more people in your family or group, the better the value since each additional person in your vehicle will reduce your gas mileage only slightly, but would require an entire additional plane ticket if you flew. Think of all the amazing things there are to see and do near where you live. I bet you haven’t even been to them all yet. And there are 49 other states full of them, just waiting to be discovered. You can even get suites in extended stay hotels that have kitchens in them, allowing you to avoid eating some of your meals in restaurants. This type of hotel is usually on the more affordable end. For example, Marriott’s Townplace Suites is usually around $100 or so per night in my experience. Or if you’re adventurous, you can even bring camping stuff and avoid some hotel nights altogether. I myself am not that variety of adventurous. But if you are, more power to you.
One other idea is to use online travel sites. Many of them just aggregate the same deals you could get buying from airlines, hotels, or car rental companies directly. However, some of them offer “blind” deals that can save you some serious money. With those, you commit to buying before you find out exactly what you are getting. But with the hotel deals, for example, you usually get to pick an area of a city and the number of star hotel you want. I remember paying less than $50 a night for a few hotel rooms that regularly went for $100+ doing that back in the day.
And as usual, Costco can save you money here as well. They have an entire travel division offering a wide range of vacation options. They also offer rental cars, which have been the best deals I could find more than a few times. But then, if you’ve been reading this blog for any length of time, you already know that my answer to just about anything is going to be “check Costco first.” It won’t save you money every time, but often it will give you a great product or experience for about the same price as a significantly lower quality one.
So there you have it – some ways to save money on traveling from a man who travels for work and almost never for vacation. But remember, that is only my current state. One day when you’re sitting on a beach somewhere, you’re going to look over and see me enjoying some delicious vacation-y looking drink in a seriously relaxed fashion. You won’t know it’s me, of course. But if you follow some of these tips, maybe, just maybe, you will have spent as little as I did to get there. Have a great day, Everyone!
Happy Monday! I hope everyone had a great Thanksgiving break and filled it with happier and less stressful activities than work. Today, I’m going to tell you how I keep my utility expenses down. Over 2017 and 2018, I spent an average of $1100 a year on utilities. While I spent 2017 living in a three bedroom house in frigid Wisconsin, in 2018, I enjoyed the advantage of living in a 700 square foot, one bedroom apartment. My cost per year in my current situation is closer to $600. If you have a 2500 square foot house, you’re obviously going to be spending more than I do. So that is actually the first example of how I keep this expense down – I simply have less space.
First, let’s address one other advantage I have today that many households do not: choice. In most places I’ve lived, there is one utility company in town and they raise rates with impunity every chance they get. Not so in Houston, the energy capital of the world. While I believe there are only two electric companies here, there are almost countless service providers to choose from. And each of them has multiple plan options. There are plans that are oriented to save money for all different levels of use. The key is that you have to figure out how much you use, do the math, choose the best plan, and then repeat the process and switch at the end of the term when your rates would otherwise be raised through the roof. Living in Houston, it is possible to keep your electric bill under $100, or often even $50, at almost any reasonable level of use. And since the weather is good enough that I’m often still using the AC in December, there really isn’t much need for natural gas. So in many cases, all you have are the electric bill and the water bill (usually about $30 a month in my case).
But in spite of the seemingly infinite population living in Houston, most people do not, in fact, live here. What can you do if you don’t? Use less. There are a million tips out there on how to reduce your electricity and natural gas consumption so I won’t go into too many here, but in general, your biggest electricity hogs are your refrigerator and whatever is connected to your thermostat. So optimizing those items will probably be the best place to start. You can adjust the temperature of your refrigerator and freezer to find the best balance between spending a fortune and having food go bad (I never really had a problem when I tried it). Programmable thermostats are great, but the most effective method for battling that thermostat is resilience in the face of slightly uncomfortable temperatures.
From there, you may want to try something like the Kill-A-Watt Electricity Use Monitor. If nothing else, it will get you thinking about electricity use and give you a better understanding of which types of devices use a lot and which don’t. As for water, you can get low flow faucets, toilets, showerheads, etc, that will help cut down on use. But usually this is a fairly cheap bill.
Saving on utilities isn’t anything groundbreaking – it’s mostly all about use. Choosing a modest housing option in the first place is a huge part of it. From there, investing a little bit of thought into what you’re doing goes a long way. To be honest, this would have been a much better post years ago, when I was paying over $100 a month total and that was still on the low end for my area. Utility costs are so low in Houston that I’ve had the luxury of getting lazy and have nearly forgotten most of the measures I used to use to keep them that way.