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TDSF Power Plant is now operational!

TDSF Power Plant is Now Operational

Part 1: How do at-home solar panels work?

When I mention with not a small amount of enthusiasm that we have installed solar panels on our roof, I get a lot of questions:

  • How do solar panels work?
  • Am I using the power from my solar panels?
  • What happens if I generate more power than I need?
  • What happens when the sun goes down (or if it’s cloudy, rainy, etc)?

Let’s start with the basics…how do solar panels work?

As the sun shines on solar panels, the panels create DC (direct current) electricity – the same thing a battery creates. However, you need AC (alternating current) electricity to run your house. So the panels are wired to a box called an inverter, which converts DC -> AC. The inverter connects to your home’s power panel (where your circuit breakers are located).

Your house continues to operate as it always did – when you need electricity, you draw it from the power panel. 

All of this is illustrated below:

http://clipart-library.com/clipart/8TxrRX5nc.htm

This drawing came from an Australian site so the terminology is a little different. What they call the switch board we think of as the circuit breaker box or power panel. What they call the mains grid is our electric utility company. So it flows like this:

Power Panel is where your circuit breakers are located.

Am I using the power from my solar panels?

If the power panel is getting enough power from your solar panels, you do not use any electricity from the grid (your utility company). You are using the electricity you generated on your roof.

What happens if I generate more power than I need?

If the power panel is getting more electricity from your solar panels than you need right now, the excess electricity goes back to the grid – which means you are now a power plant! Your neighbors will use this power (and pay the utility company for it). You get credit for this excess power – your electric meter runs backward!

What happens when the sun goes down (or if it’s cloudy, rainy, etc)?

If the power panel is not getting enough power from your solar panels, the grid will supply the difference (and you are charged for this). Your panels can absorb sunlight even when it’s cloudy or raining (though much less than on a sunny day) – UV rays get through even when it doesn’t appear sunny out. It’s possible that you’re using more power than your panels are generating under these conditions. In that case, the power to your outlets is a combination of the solar power you are generating and power from your utility company. 

At some point, as it gets dark, the panels stop producing power and all of your power needs are supplied by the grid. Basically, your house works just like it does before you had solar panels – the power flows from the utility company through your meter to the power panel and to your outlets. 

In Part 2 I’ll explain how solar panels can save you money on your monthly electric bill, and maybe even generate income – stay tuned for Part 2 next week!

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My Car’s Anniversary

Tie Dye Senior FI

Today my Subaru Forester turned 10.

Some interesting numbers:

Total Miles: 58837

Miles Driven this past year: 4257  – I had challenged myself to stay under 5000 miles for the year!

Gallons of gas this year: 226.263

Dollars spent on fuel this year: $508.43

Average MPG this year: 18.81  – not great.  At 30 MPG I would have used about 86 less gallons.  For this amount of miles though, not budget breaking.  As most of my trips are short it would be hard to average 30 MPG with most cars.  On the highway over any distance this car gets close to 29 MPG depending on specific conditions.

Avg Cost/Gallon this year: $2.25  (this is lower than average pump prices due to using our grocery cents off gasoline bonus program when we can).

Fuel Cost/Mile this year:  $ 0.119

 

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Is Your Home Part of Your Net Worth?

In the ChooseFI community if someone posts a question about housing such as:

  • should I buy or rent?
  • should I pay off my mortgage early?
  • is my house part of my net worth?

A long thread will begin with many great arguments on both sides of these questions.  Posters have strong opinions on these topics.  As the group is now Over 15000 members, if even 1% respond, that is over 150 posts.

This post will address whether to count your house as part of your net worth,  especially as you get older and as the house is paid off.

My story:  it took us 22 years to pay off our mortgage.  With 5 years to go, we refinanced the last $87,000 on a five year balloon, amortized over a 30 year period, at 2.625%, with bi-weekly payments.  This amounted to paying .0101% interest every two weeks.  (Thirty year amortization means the payment is set to the equivalent of a 30 year mortgage. )

A balloon mortgage means that at the end of the balloon period, five years in this case, we would have to pay the balance of the mortgage off.  This would normally be quite risky (if one made the minimum payments as if it were a 30 year loan) but in this case they had an out:  for $200, one could get another 5 years at the rate current at that time.

I did some calculations and realized that if I kept my mortgage payment  the same as it had been before refinancing, I could pay this off in the 5year window, which is what I wanted to do anyway, so I saw no downside.  My  old mortgage was a 10 year term at 4.75% and would have taken me a bit longer to pay off.

Worst case, if something happened to my income, I could have reverted to the minimum payments (which were very small) and taken the second 5 year term.  This did not happen and we paid off our mortgage a couple months before I turned 60!

Back to the question – but is this part of your net worth?  Financial advisors, who earn their living managing what they call your ‘investable assets’ do not count your home’s value.  Not maligning them, but I think this is because they cannot make money off this asset – they often make their money from the assets you place under their control to invest.  I can understand why they do not count it.

Another factor is liquidity.  Stocks, bonds, mutual funds, CDs,  and similar investments can all be converted to usable cash fairly quickly (within a few days at most).  These are called liquid investments.

Real estate, whether it is your house or a rental property, cannot be sold and converted to cash quickly under normal circumstances.  A property needs to be cleaned, fixed up and staged (made to look attractive for buyers).  It needs to be advertised or otherwise promoted.  The potential buyers need to be vetted and the title company will take time to arrange for the closing.  Real estate is therefore deemed an illiquid investment.

But you can make money off your house.  It plays an important part in your retirement strategy.

I recall watching a number of westerns that feature a widow who has turned her house into a boarding house in order to earn enough money to keep it after her husband has passed.  The Shootist comes to mind.  Today we call this house hacking.  We have tools like airbnb to manage this.

Can I picture doing this in my own house?  Not now.  But if push came to shove, it is an option. (But, I suspect Mrs. TieDye wouldn’t approve.)

Another approach is to use the house like an ATM.  Another topic that generates a long thread on the ChooseFI site (and other sites as well) is whether one should maintain an emergency fund.  A counter argument to the emergency fund is to have all possible dollars invested.  This line of reasoning posits that one could open a HELCO (Home Equity Line of Credit) and tap this for emergencies.   Please note that interest rates on HELCOs are variable.  Perhaps not a great idea in a time of rising rates.

Confession:  we almost had our first house paid off in the mid-late 1980s.  We had borrowed in the early 80s when interest rates were very high.  In 1983 I had purchased two rental units for ‘no money down.’  This was not literally true, but it was close.  Turns out that for a time they became cash flow negative.  At the same time, interest rates were dropping.  So I refinanced our house and paid off one of the rentals.  Now I had about the same amount of mortgage debt, but at a much lower rate.  I figured I could now use the positive cash flow from this rental to pay down my first mortgage.  I also used a HELOC at some point in this process.

Be honest now, how many of you tapped the equity in your house to buy a new car or pay for a an expensive vacation or some other large purchase?  Hopefully you learned that you were still making payments long after the asset had declined in value (or disappeared altogether) and determined that you wouldn’t do that again.

If you don’t mind risking losing your home to foreclosure, you can always tap the equity in retirement.  (I hope you can tell by the way I wrote this sentence that I don’t really recommend this.)  I did it when I was young and had time to recover should something have gone south.  I don’t think I would ‘bet the farm’ in or approaching retirement.

So, If I we are ruling out house hacking and using your house as an ATM, why is it still part of your net worth?  For 3 reasons:

1. Imputed rent – If we downsized our life we could in theory move to a two bedroom apartment (especially after my son moves out, which he asserts will happen this year).  If we stayed in this area, we could end up paying $1800 – $2000 per month rent.  Our utilities would be cheaper and we would not have property taxes.  The net difference at the $2000 level would be around $1500 – 1600 per month (although no maintenance costs).  That would be about $20,000 a year we would need in our budget or at least $500,000 more in net worth.  So not renting (in this area) is worth about that much.  As long as I am working we are bound to living in this area.   Note that we would have the net from selling our house and moving, so that is a large chunk of that $500K, but not all of it.    Oh, by the way, rents tend to go up over time!

Not to mention we’d have less privacy.  We have a one-acre property, as do our neighbors.  We are close enough that we see them and can visit if we want,  but far enough to be just right.  Apartments don’t quite offer the same level of privacy as a large backyard!.    I like my neighbors,  my neighborhood, and my trees.   I cannot imagine living in an apartment complex if I did not need to.

So it seems fair to count my house in my net worth as it helps me avoid a large cash flow expense, in the same way that invested assets provide an income stream to pay for other cash flow expenses.

2. Geo-arbitrage – Some FI-ers who live in a high cost of living area (HCOL) are able to pay down their mortgage while they are earning the big bucks.  At retirement they sell the expensive real estate and move to a LCOL area, buying a new house debt free and banking the difference.  This is called geo-arbitrage, profiting from the difference in prices between two locations.

In our case, it may not be that easy.   My wife and I are not very good at de-cluttering which is a pre-requisite for moving (in order to sell the house as mentioned earlier in this article).

For others though, it seems fair to count the house as part of one’s net worth if this strategy is a real possibility.

3. Reverse Mortgage – This is the last card to be played in the financial deck.  Assume for sake of discussion you did the best you could to lower your expenses, you saved an amount you thought would be enough to see you through and you tried hard to live on 3-4% of your invested assets (plus pensions, social security, side hustles and any other source of income).  Despite your best efforts, you reach your 80s and you realize you are going to outlive your assets.  If it is unrealistic to sell your house and move to an LCOL area, or to rent in the same area, you could always get a reverse mortgage.

A reverse mortgage is somewhat misnamed – it is a mortgage like any other, except no monthly payments are required; the debt is settled when you die (or move permanently into a nursing home).  The debt accrues interest according to the contract.  At settlement time the lender may get fully repaid if the house appreciated faster than the loan, and/or you did not live too long.  If you remain healthy and are able to stay in the house a long time, the lender may lose on the deal.  Suffice it to say they can do the math better than you and will probably make a safe bet most of the time (or they will go out of business).   They purchase insurance to cover themselves for their worst case outcome.

Because of the way the math works and their desire to stay in business, the lender will not lend near the full amount of the house.  They have to preserve a margin for the interest to accrue so they will be able to collect.  There are also larger fees for a reverse mortgage (that insurance I mentioned? Your fees are what’s really paying for the insurance, not them).

The upside of a reverse mortgage is that you do not have to make payments and you get to stay in your house until you can’t.  The downside is that the mortgage costs more and in most cases there will be nothing to pass to your heirs – (your heirs will be offered first right of refusal to pay the mortgage off and retain the property, but they must do so in a short period of time).

While I characterize this as a last resort, it is still another reason you can count your house as part of your net worth.

As I See It:  If you are young, not close to retirement, have extra money to invest, and have locked in a low interest mortgage, you may not be in a hurry to pay it off – it took us 22 years and the last 10 years were at a low interest rates (comparatively speaking).  However, once paid off, your living expenses decrease, and the amount you need invested to support your retirement is less.  There are ways to convert your house into money (although make no mistake, this is an illiquid investment).  Therefore, it is appropriate to count this asset in your net worth.

 

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The Perils of Extrapolation – Why Buying Lunch Will Not Deprive My Retirement

Tie Dye Senior FI

The first part of this post is for humor’s sake.  If offended, please note that I am just gently poking fun at one of our current excuses for taking offense.  Just go with it until I get to the bigger point.

If five men can build five ships in five days, how long does it take one man to build one ship?

The conventional answer is that it takes one man five days to build one ship.  Either five men are working together to get a ship built each day, complete the ship and start on the next one on day two and so on… or each man works on one ship by themselves and all complete their ships at the end of day five.

Some gentle readers might protest that I used the terms ‘men’ and ‘man’ in the question, preferring that I used women, children, martians, or most correctly shipbuilders – as in how long does it take to one shipbuilder to build one ship.

Must be gender neutral.

Point taken. Let’s see if I can do better.

Next question:

If one man can have one baby in nine months, how long will it take nine men to have one baby?

I think I messed up again!

The second question correctly asserts that nine women cannot have a baby in one month – I first learned this analogy in  The Mythical Man Month by Fred Brooks.

The point of this post is that extrapolation can be a dangerous thing.  But only if taken to extremes (laughs or groans, either are OK).

Now we get to the meat of this post.

I have seen a number of postings that go something like this:  Joe laments that he cannot save any money.  But we noticed that Joe spends $10 a day on Java at the local coffee shop, and that is $3650 that Joe could have invested.   If invested for a 7% annual return, that $10/day would yield $4 billion dollars in 30 years (or whatever number they really put here).  The actual value 30 years later for this one mythical year’s worth of savings invested and doubling every 10 years, is $29,200.  So, Joe, is that cup of Java (cup of Joe?) you are enjoying today really worth $29,200 to you?

I get the point, we make choices, and choosing to increase our savings rate will increase our wealth due to the magic of compounding.  Many people think they have no money to invest.  The stoic frugalist sees this purchase at the local coffee shop as a huge missed opportunity.  It’s also ‘proof’ that Joe the lamenter has no intention of becoming wealthy, or is missing many opportunities and if we just point them out, then voila!, our lamenter will be rich and happy (but much more tired for lack of caffeine).

But does anyone really spend $10 a day every day, 365 days a year on anything (except cigarette smokers  and drug addicts of course).  I doubt it.

Here is another example from a facebook site called I love travel and adventure:

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This has been bugging me, probably because I feel guilty about my discretionary spending habits.  I do spend money on some ‘extra’ things.  Maybe often.  But not every day.

The example that is often used is packing lunch vs buying lunch.  So let’s take a look at a real-life example: my lunchtime spending.

For the first 15 years or so at my current company, I lived 1-2 kilometers from work.  (Just went metric, deal with it).  I came home for lunch most of the time and ate leftovers or a peanut butter sandwich (no jelly) or something like that.

I used the time at home to get non-work phone calls done (with some privacy) and chillax from any work stress for an hour.

First point:  whatever I ate, it was not free – maybe low cost, but not free.  So the amount I spend buying lunch is only a bad deal financially if it costs significantly more than what I pay for the lunch I would otherwise eat at home.

About five years ago the company moved, tripling my commute to 3.4 miles (back to the English system).

It is just a tad too far to rush home, make lunch, eat lunch, and return to work.  It no longer made sense.  Luckily, there is a small but nice cafeteria in the adjacent building so I use the time instead to go for a walk in the woods and listen to some podcasts.  I pick-up lunch on the way back.  At least this is the ideal.  Sometimes we are scrambling from meeting to meeting so I just pop over and get something and pop back.

I typically spend about $4.00 at lunch – one guy rings it up as $3.97 and everyone else rings it up as $4.13.  Whatever.

Now the extrapolators go wild.  260 workdays a year * $4 a day, that’s over $1000 a year.  Why in 50 years that could be ….

Slow down math genius.

Yes, there are 52 weeks a year and 5 days in a work week, so I get why you used 260.  But we all know that is not right.

For starters, there are about 10 company holidays.  Additionally, I get 30 days a year leave.  Sometimes the company brings food in for lunch.  Sometimes vendors bring food in or take us out to lunch.  Sometimes I work from home.  Sometimes I go to conferences, training, or other business trips.  I do not spend that $4/day for lunch every workday.  Not even close.

Since I always use my credit card I just checked.  In the last 12 months, I paid for lunch at the company cafeteria a total of…. drum roll… 88 times.  The bill was $351.16.   Now subtract $2/day for the lunch I might have packed, $176 and I blew the princely sum of $175 last year on lunch at work.

As I am 61 now, I don’t have that much time for compounding left.  If I got three doubles (one every 10 years), that $175 would be worth $1400 30 years from now.  I’m good.

And that is my second point – I am already investing plenty and have accumulated a decent portfolio.  Could have done better for sure.  But objectively, $1400 30 years from now will not affect my withdrawal strategy today.  I’ll be OK.

I realize the lecture was not really meant for me, but still, please be careful of too much extrapolation.  It’s bad for your health.  To my knowledge, no extrapolator has lived to 120.

Finally, let’s round this post out with a little fairness, because I did not tell the full story.  We often go out to eat on Fridays and I do spend more at a restaurant than at the cafeteria.

To be clear, I said often.  I do not mean every Friday.  Last year, the number was about 30.  I am not certain because the transactions seem to post late and there is a branch of one of the restaurants close by (so I may have grabbed dinner or a weekend lunch there a few times) so 30 is tops.  Total spend was $326.75, or about $11 per event.  If I had eaten at the cafeteria, I would have saved about $210.  If I had packed a lunch I might have saved about $270.  Thirty years from now, these sums might be worth $1680-2160.  Ouch.  Such a waste.  Bear in mind that I will be 91.   I might be eating baby food then.  Again, I’m good with these decisions.

Note that I enjoyed the food and the company and the time out of the office for all of this reckless spending.  I can live with this. What’s the point of life if you don’t enjoy yourself occasionally?

As I see it: The total tab for this hedonistic, over-the-top, out-of-this-world, lifestyles-of-the-rich-and-famous spending:  $327 + $351 = $678.   Not $1000, not $3650.  If I had packed a lunch those 118 days, that would have been $236, so I ‘wasted’ (your opinion, not mine) $442.  Less than 1/4 of 1 percent of our annual household income and a ridiculously small percentage of our net worth.   I can afford it.  My retirement will not suffer.

Postscript:  I have received a few reactions that I want to share.

1. My daughter edited the post for me to make it more understandable – she told me she likes it.  Her editing was helpful and much appreciated.

2. My son read it and said it was too combative.  Probably true.  I feel that extrapolation is being overused as a tool of persuasion.  He pointed out that the extrapolations I cited were not meant for me.  They were meant for people who have not started or are earlier in their FI journey.  Also true.

3.  I left out a major point – trends do not continue.  Periods of inflation either result in a new government or currency or a more intelligent end to the inflationary spiral.  Countries do not stay economically stagnant forever.  Stocks go up.  Then they go down.  Then they go up again.  Malthusians posit that eventually a population runs out of food or energy or other critical resources and war/famine/pestilence follows and the population reduces.  The Population Bomb makes this point.  This did not happen either.  Nor have we run out of oil (at least not yet) or any other critical resource as predicted by this book and others in the 1960s and since.  We find other solutions.  At least we have so far.  That is really why extrapolation taken too far is a dangerous thing.  My lunch costs are a trivial example.   I am not suggesting it should not be used.  Just that it should not be over-used.

4. The comments section is not working – I need to figure out why.  Please post in the ChooseFI site until I get this fixed.

 

 

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My Work History – Part Two

In part one I covered my work history from a sixteen year old through my first post-college professional job plus two side gigs, plus getting my masters degree.  In this post I will bring the history up to date and will talk about lessons learned.

One of the goals I read about for people thinking about retirement is travel.  As we will see in this post, my wife and I have traveled a reasonable amount, much of it in conjunction with work.

My first job started as a full-time internship at a government agency.  This internship taught me computer skills.  I became professionalized, which required coursework, passing a difficult exam and writing a professional paper.  I graduated three months early and earned two promotions, coming out of the program as a grade 11.  The program only guaranteed one promotion and only gave top graduates the second promotion.

You would think then that I would get a great assignment.  Think again.  I did get a trip to the Boston area to study a specific programming language.   In January 1983 my wife and I took a trip to Florida to see my grandmother, her aunt and Disney-world.  We also saw the Kennedy Space Center, St. Augustine and other sites.  It was a great road trip.

I returned to the office to find that the project I was on had been cancelled and I had been re-assigned to another project, with no say in the matter.  The office they assigned me to was working on some very old computers.  They wanted me to learn the new technology for the replacement system.  They sent me for three weeks training driving daily to somewhere in Virginia.  It was an arduous drive that exhausted me.  I remember pulling over to the side of the road and sleeping one afternoon on the way home.

A government job may be more secure than a private sector job, but that does not mean the work will be useful or interesting.  I was upset at the loss of control of my career and decided to take my power back.  I began interviewing for a new job.

In May of 1983 I landed a job at with a federal contractor.  My salary went up from $25,500 to $30, 000 (not sure why I remember these numbers but they are burned in my brain).  I had to wait a few weeks for my clearance to transfer so I brought my new Commodore 64 into work and taught myself about 8 bit personal computers (and Zork).

They sent me back to the same place I had been working, but with a different customer.  I was given creative work to do, learning about a new and upcoming technology called relational databases (different things excite different folks, what can I say).

For the next 12 years or so I had a variety of challenging and interesting assignments.  Even though I was no longer a government employee, my customer got the dollars back they had invested in me during my intern program.  I was able to do more as a contractor than as an employee.

I also had fun and piggybacked business travel with pleasure.  A couple of years into my first assignment I was sent to a conference at the Disneyland Hotel in California.  These conferences I came to learn set aside one night for ‘customer appreciation’ (can you say party?) .  This one included a conference only admission to Disneyland (for one section of the park).  My wife flew out to California at the end of this conference and we did Disneyland (the whole park) together.   We also toured a studio, saw a taping of the $20,000 pyramid and I tried out (but did not do well enough on the test for further consideration) for Jeopardy!  My airfare was paid for by the company, so we only had to pay for travel for my wife.  Call this business travel hacking.

In 1988 I was on another project that required travel.  They sent me to Hawaii for 19 days (I liked to joke that nobody said that fighting communism was easy, but someone had to do it).  Most of my work time was spent deep underground and because Hawaii is so far south, sunset is always around 6 PM, give or take about 30 minutes.  When I returned my VP joked that I was the only person who spent 3 weeks in Hawaii and did not come back with a tan.  Note that I am sun-phobic so this was somewhat on purpose.  I did tour Oahu extensively though, finding time on weekends to explore the island.

Towards the end of the trip my wife flew out and we spent time together on the island.  I took her to some of the places I had found.  On the way home, we stopped in San Francisco.  This was my first trip there and it was not a good one, at least when dealing with the customer service folks in hotels and restaurants.  I don’t know if it was because SF is not Hawaii, because I had not been home in over 3 weeks, or if it was something else, but I found all these customer facing folks to be very rude.

We did have some good experiences there though.  My wife was navigating while I drove a rental.  She tells me to turn left.  Next thing you know, I am executing a series of hairpin turns and laughing my ass off.  I had never heard of Lombard Street before.  Great memory.  We also toured the cable car museum and saw the cable car turn-around at the end of the line.

When traveling for government work you got the government rates for hotels and a government per diem.  If you managed your meals well, you could come out ahead on this deal.  I was learning the art of travel hacking early.

The 1983 project I was on grew to a larger number of people and became unwieldy.   As a founding father of the project I was trying to rescue it, to no avail.  All I got for my trouble was an ulcer.  My lesson learned:  a small team of sharp people can get great things done; a large team of average people cannot get anything done.  I became determined to stick to small teams going forward.  Sadly, this project never did achieve its mission.

Around 1984 or 1985 my wife and I took a week long trip to London – this one was paid for 100% out of our pockets.  We did take a charter flight and it was a package deal and the exchange rate was favorable, so we did OK.  It was a great trip.

The 1988 project I was working consisted of a couple of other members from my company and a couple of government employees.  We were assigned to deploy a system to a number of locations beyond Hawaii.  I spent a four weeks in Germany, including two weeks in Berlin.  Toured a lot on the weekends, including a day in Austria.  My wife did not come on this trip.  It was the longest time we have ever spent apart and I still remember missing her.

This paragraph is not to be taken seriously – I spent two weeks in Berlin in 1988.  In 1989 the Berlin wall fell and by 1990 the USSR fell as well.  Mission complete.  Or post hoc ergo proctor hoc.

I also returned to England that year.  We were in the middle of the country.  On the weekend we drove up to Edinburgh  and toured the castle.  We also saw Hadrian’s wall.  We in this case was my partner on the project.

Working on another assignment for the same customer in 1992 I was asked to return to England.  I had a friend from high school who was on assignment in Edinburgh.  After college he had moved to the Spokane area and I had moved to the East Coast so it was difficult to see each other.  I booked a trip for my wife and I to see my friend and his wife in Edinburgh a week ahead of my assignment.  Work paid for the majority of my travel.  My daughter was born in 1991.  She was six months old when we took this trip.  After a great visit, I had to put my wife and daughter on a plane by themselves back home across the pond.  Then I did my work assignment.

Somewhere along the way I think I went back one more time.  I have two distinct memories.  I was exiting one site onto a country road.  There was no traffic.  I fell into my normal habit and was in the right lane until an oncoming lorry honked his horn.  Oops.  The other memory was that I had to visit several sites and I traveled the Motorways (Designated M1, M2, etc, like our interstate system).  Somewhere along the way I think I passed Stonehenge but was never certain.

During this period I had one last longer travel assignment, this one to Colorado.  I remember calling my wife when she was bathing my daughter.  Until this time she liked my traveling, as it gave her some alone time that she cherished.  This particular conversation was different.  Apparently the bathing was not going well.  The sentence I remember was ‘This is no fun anymore.’   That was my last longer travel assignment.  I would occasionally go for training or to a conference but always kept future trips to a week or less.

I think I need to write a separate post about my real estate adventures, so I will just skip to the part where we found a piece of property and built a house in 1994, moving in a week before Thanksgiving.  My son was born about six weeks earlier.  I also took an evening class that summer in C++ programming.  So in 1994 we launched and completed the construction of a new house, had our second kid, while I was taking a college level class – and by the end of the year I kind of lost my job.   Way too many irons in the fire.

My last work assignment with this customer was in a section I did not want to be in, on a technology I was not interested in, with a customer manager I did not like.  With all the other stuff going on.  Let’s just say we did not get along.  She told me to find another position by the end of the year and then told everyone I interviewed with that they should not take me on.  Yikes.

By 1994 I had received a number of promotions and was in a more senior position.  There are not as many of these positions available on these contracts.  Fortunately I found another customer.  I did not lose my job in a technical sense in that I stayed with my company.  But instead of driving 10 miles each way to work, I had to travel about 22 miles through some very rough roads and dense traffic.  Still, it paid off well.  My new boss and I got along very well and I was sent for training to become an Oracle Database Administrator (DBA).  I loved it.  That assignment only lasted eight months and was the last time I worked on a government contract, but it changed the direction of my life.

Post Government Work

In my next assignment, I left the government world, as it turned out for good.  I was sent to an insurance company to help on an Oracle project as a DBA.  I saw that the commercial world was a better place to work than the government world.  Still, contracting was an issue in that one always had to worry about the next assignment when the current contract ended.  Having two kids and a real house with a real mortgage now (previous mortgage was much less as the townhouse we lived in was worth much less), I needed some stability.  So when the company I was contracting with offered me a permanent position, I jumped at it.  I liked these folks and looked forward to a nice career with them.

Listen up please, especially those of you who think you do not need an emergency fund, that you can put every spare penny in the market, nothing is for certain.  Six weeks after I took this job, the company I had joined was sold to another company based out of Chicago.  I traveled to Chicago to meet the new owners and they came down here.  No matter how hard I tried, I did not like these new owners or share their vision for the future.

In the meantime something more serious happened.  In the summer of 1995 we learned that my wife had a stage 3 cancer.  Over the next year she had chemo, surgery, a near lethal dose of chemo followed by an autologous stem cell transplant, and then radiation.  She is a very determined person and no one else was going to raise her kids so she beat this cancer into oblivion.  Obviously she could not work during this time.  While we had incredible help from family, I had an extra burden of childcare in addition to my work duties and taking care of her.

But the lawn still had to be mowed and the bills still had to be paid.  Fortunately, we had taken a private disability policy on my wife, who was self-employed.  Still, paying the bills was challenging.  Somehow we got through this.  Her treatment was finished by August of 1996.  I left my gig as a contractor in early November 1996 and the sale of the company I had just joined was announced in mid-December 1996.  By April of 1997 I was miserable, feeling trapped and vulnerable.  Would the new company even keep me on?  I began interviewing.  In May I was at a conference on the west coast I think when I got news of a favorable job prospect.

The place I had been working was about 22 miles away (about the same distance as my assignment in DC, but in a different, more travel friendly direction).  The new company I was to interview with was about a mile away from my house.  I interviewed with them several times in June and July and started in early August.  I technically took a small pay cut, but the cost of commuting was about to go way down, they offered a sign-on bonus which more than covered the difference, the job had a built-in bonus structure and stock options.

Welcome to the late 90’s.  Turns out, lots of tech companies were structuring deals like this.  In addition to the quarterly bonuses, they were giving bonuses at project completions.  I could (and did quite often) go home for lunch.  They also bought lunch  for us quite often (and sometimes dinner).  Within a month of joining our team was invited to go on a catered harbor cruise.  The CFO and CEO were on the ship.  Vendors were bringing us shirts and the company was buying shirts with project logos.  I had never worked for a company like this before.

While I have remained at this company for 20 years now, this picture was not always so rosy.  The company was fast growing, but their were times when we grew backwards too.  When I joined I was about the 700th person hired, so given some turnover there were about 600 employees.  We grew with some fits and starts to about 2000 employees.  Then the dot-com bust occurred around 2001.  We shrunk back to about 1200 employees.  I had to lay off some of my staff.  Not my favorite day at work.

Along the way we acquired a lot of other companies and for the most part integrated them into our culture.  However, these were all smaller companies.  About 8 years ago we acquired a division of another company that was 50% or so larger than us in terms of employees and would provide something like 2/3 of our revenue.  I traveled to Ottawa, Canada to help with this acquisition.

The Ottawa airport is a bit provincial and it is common for flights to be cancelled.  Already a couple of days late, I was running out of clothes, medicine, and patience.  I rented a van and drove home – it took about 10 hours.  There I went taking control again.

As the process unfolded it was our company that had to accommodate the company we acquired.  We wondered who bought whom.  Still, the people I have worked with from Canada have been quite talented.

There have been bumps and conflicts along the way.  I disagreed with some of my managers and found myself in another department with new challenges.  I had the support of other management though and thrived in the new assignment. That sent me on trips to Massachusetts, Georgia, and New Jersey.  I have also been taken golfing at Half-Moon Bay in California (I did not really appreciate the significance of this at the time).  I traveled to Dallas, Denver, Florida, North Carolina and California for conferences and training, and back to California for a number of business trips.

The managers I disagreed with left the company (not necessarily of their own volition) and I returned to my old job with an additional assignment. That led me to a set of trips to Guadalajara Mexico, Northern Ireland, and Memphis Tennessee, among other places.  I grew my team, which has become international.

While I may never reach the most senior echelons of management, because my style is a bit too candid and forceful for some, I have had the ear of senior management and the ability to influence the direction of my team and our technology.  One of the reasons people do not like corporate work is that they do not feel listened to.  I have have had the opposite experience.  I was given the opportunity to solve problems that made working easier for others and I took pride in that.  I have also tried to ensure that my team is listened to as well.

Not everything goes my way and not every day is fun, but I have been well rewarded financially and have felt like my contributions have meant something.   Today I take pride in growing my team’s skills and preparing them to take over.

So I have had opportunities to learn many new skills,  accumulate some wealth, and help people by solving their problems.  I hear people talk about wanting to travel when they reach FI.  I have already had the opportunity to travel to many places.  There are a few others I might hit in retirement, but that is not what will make the decision as to when to retire.

Here is the main point of this whole odyssey:  a rubber band is only useful when it is being stretched.  We need to continue to be challenged. That is probably the second thing holding me back from retiring.  The first is the challenge of medical bills.  My wife recovered from her cancer but is facing other challenges these days that require expensive medication.  I am working on a solution, but as they say in India, this may take some time.

I think I would like to help others reach their FI goals.  When I can best figure out how to do this (probably earning some money at it as well) and when I have solved the medical bill challenge, I will be ready to take on the next adventure.

 

 

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My Work History – Part One

 

(This post is already pretty long so I am splitting it into two parts.  Part One covers a wide range of jobs I had from age 16 through 25.  I did not realize how busy I had been until I put all of this down.  There is a bigger point to this story, which I will make in Part Two.)

I had a lot of jobs during my younger years, though not quite this list!

When I asked my son to get a job the summer between high school and college he asked me why.  I don’t remember my answer but he did get a job at a local sub shop.  This episode brought back the kung-fu flashback when my mom told me to go get a job.  (In the Kung-Fu TV show David Carridine would be reminded of a lesson he learned as a young monastic student in a flashback).

Like my son, I was young and afraid.  I had no idea how to get a job.  I got my first job as a 16 year old at Clark’s Hardware.  A friend had the job but was leaving for his next, better step up the income ladder.  He put a good word in for me so when I timidly went to see Mr. Clark, the process was only a little painful.

This was the early 1970’s, before Home Depot and Lowe’s controlled the market, when there were still mom and pop hardware stores.  I learned how to cut glass, mix paint, check in inventory, wait on customers, and use the cash register.  I also had to clean the bathroom and the paint mixer.  The worst part of the job.

Mr. Clark only paid $1.35 an hour, thirty cents less than the minimum wage at the time.  Small businesses were allowed to pay less than minimum wage back then.  Today (at least where we live now) for a child to work, forms must be filled out and signed by the school.  There are limitations on how many hours and which hours children may work and what kind of jobs they can hold.  In Texas in the ’70s they did not seem to care.

This was important because I came to love work, and the paycheck, much more than I loved high school, which I considered to be a baby-sitting exercise (I still do).  Note with pride though that both of my kids excelled in high school and received great scholarships so this is a do what I say, not what I did article, especially in this day of ridiculously high college costs.  In Texas in the ’70s college was almost free.  I also started college while in high school, cementing my low opinion even more.

About four months into the job, in the fall of my junior year, I learned that the grocery store a few doors down might be hiring.  I checked it out.  They paid minimum wage.  While I had enjoyed working at the hardware store and learned a lot from Mr. Clark, it was my turn to climb the income ladder.  I joined the grocery store.  I think I worked at the hardware store on Saturdays until he found a replacement.

I worked at the hardware store on weekdays from 4-6ish PM after school, helping to close.  Yes, mom and pop stores closed at 6 PM.  I rode my bike home by 6:30.  Still time to do important things like watch TV (or do homework which I did not do much of).

At the grocery store I worked until closing at 9 PM.  Got home by 9:30.  Even less time to do homework.  Did not like homework.  Liked my paycheck.  Win-win.  I sacked groceries, escorted customers to their car, and loaded them in the trunk.  Sometimes I got tips.

In today’s grocery store world, I bring my own bags, use a store-supplied scanner to scan the prices, pack my bags, and check myself out (in truth I often use a human register because coupons have a high failure rate).  Bob Dylan, cleanup on aisle 3.

The grocery store I worked at was called Tom Thumb.  When not sacking groceries, I was putting soda bottles in their respective cages (Dr. Pepper, Coke, Pepsi) for pickup.  These bottles had deposits and the customers returned them.  We had to organize them by vendor for pickup.  I also mopped floors after the customers left and cleaned bathrooms.

After some months doing this I wanted to earn more money.  The stock crew was the next step up.  I asked to join.  I had to wait for an opening but one came after a bit and I joined.  I did not get a raise immediately.  I had to prove myself, but one came after a few months in the new position.  Until I got the raise, it was sort of a decrease in pay, as I no longer got tips for loading groceries in shopper’s cars.  But I did not have to clean the bathrooms anymore, so it was worth it.  I think I got more hours as the stockers stayed until the job was done, which was often quite late.  As mentioned above, there were no student job police back then, but there was mom.  She laid down the law with the store manager – I had to be released at 11 PM, done or not.  This probably did not do well for my standing among my fellow workers!  I was pretty tired in the mornings at school as it was, so thanks mom.

This is the tool (it is called a Garvey) I used to mark cans:

I worked that job through high school and college.  I got assigned my own aisle in the store – it featured soups, canned tuna and similar items, macaroni and cheese and similar boxed items, beans, and pig’s feet.  I ordered products for the aisle and came to learn about supply chain issues.  Sometimes there was not enough shelf space allocated for some products given the demand.  Some suppliers were not reliable.  The goal of ordering was to have enough stock on hand without running out, while minimizing the amount of stock in the back room (we called this back stock, but that term has another meaning as well).  I became expert at minimizing back stock while keeping stock on the shelf.  I took a lot of pride in this. When our store manager had visitors to the store, including his bosses, my aisle was the one he made sure they came down, knowing it would be in great shape.

Today the scanning systems in the supermarket do this job, determining when to order more based on how fast product is moving through the register.

At some point while in college I got promoted to another job, working the cut and mark crew.  By this time I was in another store (my boss had been promoted and I followed him).  It was a larger store that was stocked at night.  I was part of a two man team that unloaded the truck, validated the inventory, separated the inventory by aisle, cut the boxes opened and marked the prices.  The night crew then loaded their boxes on the dolly, trucked them to their aisle and stocked the already marked items.

I did this job full time during the summer.  It was a five day a week job, one of the days being a weekend and one a short day in the evening.  I had one full day off during the week and most of the other day off as well.  Occasionally I got bored with this much time off.  I filled that time with one day assignments at Manpower, helping some business with some odd job or another.  One time I attached TV sets securely in motel rooms to they could not be stolen.  Interesting experiences.

My mom had been working in a Market Research firm and she invited me to work there on some of these other days off.  So I worked a telephone, calling people to see if they had seen a certain TV show the night before and if so, did they see the Jello commercial, and if so, what did they like about it.

Unlike high school, I cared about my college grades.  As I was continuing to work around 25 hours a week the first two years of college, I only took 12 hours a semester.  I attended a local community college so I was able to live at home.  This allowed me to save money.  I managed to get the rest of my credits through some summer school and clep tests.  Those first two years I got all As and one C (see my post  ‘Success has Two Cs.’ Continue reading “My Work History – Part One”

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Keep the debt or not?

One line of thinking in discussion groups runs that one should not pay low interest debt off early, putting one’s extra cash into the market instead.

When you pay extra against a 3% student loan or mortgage you get a 3% guaranteed return on your money.  Why settle for 3% when you can get 7-8% or more in an index fund, right?  Even more so, why not take advantage of that 0.9% auto loan, even when you have the cash to pay for the vehicle outright?

On a best use of money basis, this argument is flawless.  Time in market beats timing the market and you can never again invest in last year’s 401K (or equivalent).

However, there are other considerations.

For those of you who have positive cash flow on a number of rentals and a lucrative side hustle, perhaps a pension and maybe some other sources of income, this discussion does not apply – do what makes sense financially, get the most out of your money.

But for the rest of us, the vast majority of us, the job is the primary source of income.  If you lose it, those debts will be a major burden in your life.

There are a number of ways you can lose that nice steady paycheck:

  • Outsourcing or offshoring – your job just moved to a cheaper country.
  • Business goes belly up – you show up at work one day and the doors are locked.
  • Business is  bought by a competitor  and you have one of those support jobs that present ‘synergy’ value to the acquiring company.
  • You suffer an injury that keeps you from working and you forgot to pay for long term disability
  • The line of business you support is no longer needed and neither are you.
  • The company switches technologies and you know nothing about the new technology.
  • New management comes in and downsizes the organization you work for.
  • You are a contractor for a large customer – the customer does not renew the contract.

I feel like I am in that insurance commercial with the moose and the swing where I can say I have seen all of these things before.  Just learned today that a former colleague’s company has just been bought out.  He may be a victim of synergy post-merger.

My first job out of college was with the Federal Government – one never loses these jobs, right?  I came back from vacation to learn that I had been moved to another project (with no say as to which one).  It was a dead-end job.  I was not fired, but might never have gotten promoted again.  So while I was not fired, I was incentivized to find something else.

I found a job at a federal contractor, back with the same customer, but was empowered to use my skills and contributed a lot.  Got a lot of great travel and training as well.  I rose quickly through the ranks.  Turns out, when you are a contractor in a senior position, there are not as many positions on contracts for you and I had to scramble to stay employed as each contract came to an end.  This all led to a good job with a growing company that I have held for twenty years, so my story has had a happy ending.

Back to the debt issue – student loans are not dis-chargeable in bankruptcy.  While the other debts would be, who wants to go bankrupt?  This has got to take a severe emotional toll on anyone accustomed to providing for their family and honorably paying their debts.

It took us 22 years to pay off our mortgage and it was an incredible feeling.  The last 5 years, the loan was at 2.625% so I did not pay it off quicker, but the principle was relatively low so by then we would have survived.  We have one small debt left on a rental property, but the property is doing well such that we pay extra once a year (instead of taking cash out, similar to declaring a dividend).  I could pay the loan off if needed, so there is no real burden here.

So please consider the possible downside consequences of carrying too much debt and have a strategy to handle the alternate scenarios.  Any one of them may be relatively rare, but all of them together present a real risk.

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What to do in retirement?

Browsing various FI forums (fora?)  I see this issue discussed, what to do in retirement.

Not this

I’m going to need something to do.

Some ideas:

Exercise:  I like walking, especially walks that start from my house.  I have worked out a number of routes that are about 2.5 miles each and one that is about four miles.  Fortunately these walks also include a lot of hills.  Today I tend to do them on the weekend and on days off.

On Sunday mornings I do the four mile walk.   I have been doing this even in the recent bitter cold and I do it in the rain as well.  It is just a matter of having the right gear.

Many weekends I try to get two walks in.  In retirement I might be able to do this every day.  But would I?  Would it get boring?

Another activity I like I call a walk-eat-walk.  There are a number of restaurants nearby, ranging in distance from about one mile to over three miles away. Mostly I walk by myself but for a w-e-w I like to do this activity with friends.  Of course if these friends are working…

I don’t have any hobbies that I can turn into income (I doubt anyone is getting paid to do jigsaw puzzles).

I have lots of books to read, so I could catch up on this.

Another thought that occurred to me: my local community college offers lots of courses, both credit and non-credit.  I think I can pay one fee each semester and take whatever I want.  Perks of my age.  This one is a real possibility.

More likely than not, I will end up getting another job, probably part-time.  I have been working since I was sixteen, sometimes more than one job at a time.  I like working.

Sounds like I might be talking myself out of retiring 🙂

What do you plan to do in your retirement?

 

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The Bathtub Metaphor for Cashflow and Net Worth

FI is about increasing cash flow to have more invest-able dollars.   So earn more, spend less, invest more.  Simple, right?

To have more money to invest, you must get control over your cash flow.

Imagine a special bathtub – the faucets pour money into the bathtub and the expenses drain it out.  The amount of water (money) in your bathtub is your cash flow.

Each faucet is a source of income.

If you only have one person holding one job (one wage-earner) for the family, you have one faucet.  If you have two wage earners you have two faucets.  If one of the wage-earners also has a part time job, that is a third faucet.  If you have rental property, that is faucet number 4.

You control the number of faucets and the amount of money they pour into the bathtub (well you can try and control this – life may get in the way).

Ways to increase the amount of flow from a given faucet:

  • get better at your job, get promoted, get higher ratings, or get a better job to earn more.
  • charge more rent if the market will bear it (be aware of your market)
  • invest in smarter mutual funds, ETFs, or (I would caution against this) individual stocks.
  • shop for better rates on your savings accounts and CDs, wherever you are storing your emergency fund.

Multiple faucets are a hedge against unexpected circumstances: getting layed off, getting injured, anything that takes away your primary source of income.  These faucets can provide a great cushion.

Interupting this Post for a second – just got my annual bonus.  This made me realize that my job actually has multiple faucets as well:  My salary, my annual bonus (which is a function of achieving corporate and financial goals), my ESPP income, specific project bonuses, business travel rewards (I don’t earn a lot of them, but others do) and my cell phone.  Some of this is expense avoidance, but it all helps the bottom line.   Learn what income sources are available at your job and use them to your full benefit.

Of course the other end of the equation is the drain.  Expenses are a drain!  If the money is going down the drain faster than the faucets are filling up the tub you will of course have an empty tub – you will be broke – you will end up borrowing money from another faucet called debt.   Not a good idea*.

So your other goal is to stop/slow down the money going down the drain.  There are many suggestions on many websites on how to do this.  Some basics:  Ditch the expensive cars and car leases, get intense about getting out of debt, reduce eating out, if you don’t have the cash, don’t put it on the credit card.

If you are not intensely aware of your expenses, start recording them and develop a basic budget.

Your goal is first, to have more money coming in then going out every month and second, to get past living paycheck to paycheck.  You will begin to gain control of your finances when the money used to pay a given bill was earned some number of paychecks ago.  The more the merrier.

A wise man once told me that it is easier to solve the problem of having too much money to spend than not having enough.  That is where you want to be.  Then you will start learning to invest.

If you need some pressure to get going, the smart thing to do is to pay yourself first.  Arrange for money to be deposited in an account other than your checking account each pay period.  This money becomes your emergency fund and then your investment pool.   Survive on what goes into your checking account.  You will force yourself to make smarter choices.

Net Worth

Your net worth is simply the difference between your assets and your liabilities:  What you own minus what you owe.  For the FI community the asset focus is on invest-able and income producing assets:  Your retirement funds, your post tax savings and investments, your real estate.

Pay off debt except mortgage, then invest as much as possible into various investments to create multiple faucets.  Your increase in net worth will fund your retirement so get started!  You want this bathtub to hold as much water as possible as soon as possible, so the best time to start is NOW.

When your investment income covers your expenses you are financially independent!  

*Debt used to fund some investments, under the right circumstances can work, as it provides leverage.  However, leverage is a double edge sword.  This tool must be used with caution.  One secret of building wealth is OPM, Other People’s Money.  Get control of the fundamentals before you explore this idea.

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Success has two ‘C’s

Tie Dye Senior FI is a reasonably bright guy, maybe not a SPITR*, in a world with lots of smart people.  In undergraduate college I only got two ‘C’s.  Turns out these classes were ones that helped me earn my living.  Sometimes it is the hard stuff that helps the most.

The first ‘C’ was in Income Tax Accounting.  This was a class designed to teach how to prepare an income tax return.  I did reasonably well on the tests, ‘A’s as I recall.

The problem was the final.  This was a full income tax return.  This inch thick package was given to us as a take home assignment, due in one week, with permission to work with others in the class.  Unfortunately, I had not made friends with others in the class.

The package was complex.  I could not figure out where to begin.  I would pick and poke at it but never really got off the ground.  I turned in a poor excuse of a return.  Then we watched the teacher do the return.

That is when my schooling began.  He solved this like the elephant eating problem, one bite at a time, working from the outermost layer.  When all the outer forms were done, only then did he take up the 1040.  I learned a lot watching this approach.

I got a 19 on the final and a ‘C’ in the class.

My first side hustle (we called them part time jobs back then) after college was doing income tax returns!  I did this for a number of years.  Today I use Turbo Tax for my own return but my understanding of how this is supposed to work helps me to optimize.

Getting your taxes right and structuring your income streams to make effective use of the tax code is very helpful in accomplishing FI.

The second ‘C’ was in a computer class that dealt with peripherals – tape drives, disk drives, etc.  How they worked, uses, advantages and disadvantages, etc.

At this point I should note that I was a liberal arts major, not a tech major.  This was the late ’70s.  I had intended to go to law school.  I majored in Poly Sci (they called it Government) but I really tried for a well rounded education that involved a few computer courses.

I should also note that I am a night owl, not a worm eater.  If I recall this class was at 8 AM.  I overslept it a lot and probably slept through it while I was attending.

Years later I am working in the technology world.  On one assignment I am designing a unix workstation solution for my customer, receiving the solution at the dock, assembling the components, loading the OS and the applications, etc.

On another assignment many years after this, I was put in charge of a data center and the backup systems.  We had inherited some old tape backup systems that were slow and expensive.  I had to design a new solution.

The point is to file away all knowledge as you never know where it will come in handy for making money, and just because you got a ‘C’, doesn’t mean you didn’t learn anything and cannot use the information.

*SPITR – Smartest Person In The Room – I get very uncomfortable when I see people trying to outdo each other.  A lot of useless spittle is spent.