You guys knew this post was coming. Last night, I applied for the Chase Freedom Visa and the Barclaycard Arrival World MasterCard. Why? I’ll get a $200 statement credit for spending $500 on the Chase Freedom Visa in the first 3 months and $400 worth of points for spending $1,000 on the Barclaycard Arrival World MasterCard. I have about $1,100 of planned spending in the next few weeks that doesn’t take American Express, so that’ll be perfect for the Barclaycard. I was also pretty excited because the Chase Freedom Visa is now my highest limit card – it’s over $10,000! And I was instantly approved for BOTH of them!! That has NEVER happened to me before. You guys, my credit is finally good! Maybe my income being just shy of $200,000 helps a bit too and me actually declaring that. Since it’s so close to the end of the year, I used this year’s income including RSUs, interest, and investment dividends. Earlier in the year, I was using last year’s W-2 income which was much lower.
My plan is to use the Barclaycard Arrival World MasterCard for just enough purchases to meet the $1,000 limit and then leave it alone until I make a travel purchase of $400ish and then I will probably cancel it after a year.
My plan is to use the Chase Freedom card for my first $500 of purchases after I satisfy my debit card requirements and then only for the quarterly categories:
- Jan-Mar Gas stations, movie theaters, and Starbucks
- Apr-June Restaurants (and Lowe’s)
- July-Sept Gas stations (and Kohl’s)
- Oct-Dec Amazon.com, Zappos.com, and select department stores (looks like it includes Nordstrom, Macy’s, and JC Penney)
I’ll probably keep it around as a long-term card for now and just use it for the rotating categories. For the last quarter of 2014, I almost don’t even need to keep it in my wallet since I can set it up to just automatically pay for all of my Amazon.com purchases instead of the only 3% my Amazon.com visa gets. It’s also not that annoying because it has the same login information as the Chase Amazon.com visa I already have. It’s also not like you can get the bonus again and there’s no annual fee, so it’s not that bad to keep it.
It also looks like if you have a Chase checking account, you get 10% bonus points still! So now I’m on the lookout for a bonus to open one of those in early 2014 since it’s a new calendar year! Otherwise, I won’t open it because my estimated return on $1,500 by doing that is 0.48% and would be < $10. So if I did open the checking account, I would possibly still close it after 6 months. Now to go back to cleaning my actual apartment since I am off work…
I never thought I would wrote this post. Until I experience a major life change, I’m done optimizing my finances. I’ve stopped worrying about money. I’m done. A friend asked me why I thought I had hit this point and I’m not quite sure why exactly it is.
Is it because I bought my condo and now have no real financial goal to save for other than retirement? (That was my friend’s assumption.)
Is it because my income has basically hit $200,000 per year? Is it because my net income exceeded my expenses by more than $100,000 this year?
Is it because I have not touched my cash reserves in almost two years? (Knocking on wood…)
Is it because on a normal month, I can save $2,500/month after maxing out my 401(k) and HSA? To put that into perspective, that is about or more than what each of the following cost: 1) moving apartments last year, 2) closing on my condo ignoring the down payment, 3) almost the cost of my bedroom furniture set, 4) the cost of my living room furniture set, 5) my patio furniture, 6) my health insurance deductible, 7) my annual insurance costs, 8) my property taxes for the entire year, 9) my car insurance deductible, 10) my homeowner’s insurance deductible, 11) my entire budget ignoring the mortgage but including wants like travel, 12) my two week trip to Japan including flights, 13) the cost of having closet organizers professionally installed in two closets in my condo, 14) two months of mortgage payments, and the list could go on forever. Basically, I can cover many minor extra costs with my extra cash flow each month rather than dipping into savings.
Is it because I have enough available credit to cover over a year’s worth of credit card spending? (Not that I would actually use it, but the fact that it is there is freeing.)
Is it because my bare bones budget is less than a quarter of my monthly gross pay?
Is it because I could live off of my liquid funds for over a year without reducing my budget?
Is it because I am enjoying my life today?
Well, I’m done optimizing. I’m done worrying about my finances. I’m not going to optimize my credit cards, savings accounts, investments, or checking accounts further. Everything is mostly on auto-pilot and it’s awesome. Now all that’s left is to enjoy life with my boyfriend and kick butt at my new job! This is what financial freedom feels like!
Simple goals, simple implementation, right?
The vast majority of my income comes from my W-2 day job. This is separated into regular salary, which is paid out monthly, and stock of which I will see two comparably sized vests this year. I am expecting my overall W-2 income (before deductions) to be somewhere between $160,000 and $200,000 for the 2014 year. This assumes a modest 2% increase and the 52 week low and 52 week high +20% stock prices for the RSUs. I anticipate my income surpassing the Social Security tax maximum ($117,000 in 2014) with my September or October paycheck.
My RSUs see a flat 25% of federal income tax deducted from them, which isn’t quite enough tax because my base pay alone takes me into the 28% federal income tax bracket these days, so I need to compensate for that with my W-4 allowances. My spreadsheet suggests that at this point in time, I should set zero (0) allowances on my W-4 for 2014. I will re-evaluate this after each RSU vest and raise.
I plan to:
1) Contribute the 2014 maximum of $17,500 to my 401(k) for the year, spread out throughout the year:
- H3 = annual base pay (gross)
- J2 = Yearly max to the 401(k) – $17,500 for 2014
- I2 = ROUNDUP(J2/H3,2) = the % that I should contribute monthly from my paycheck to max out the 401(k) over the course of the year, e.g. if it is XX.3%, I will set it to XX+1%. I will most likely reduce this by one percentage point for my April and subsequent paychecks.
2) Make my 2014 Roth IRA contribution of $5,500 through the backdoor on January 2nd, taking the funds from my savings account.
3) Continue contributing the maximum to my Health Savings Account until the plan year ends partway through 2014. I will then re-evaluate health insurance plans and whether I will contribute to the Health Savings Account again (depends on which plan works out the best).
4) Set aside my 2015 Roth IRA contribution from my final RSU vest for the 2014 year in a savings account. This will probably either be $5,500 or $6,000.
All funds that are not set aside for spending, my 401(k), my Health Savings Account, or my Roth IRA will be thrown at the mortgage. My estimate is that this should be around $2,500/month on average, plus RSU vests.
This exercise is similar to what I did for 2013. As of 12/12/2013, my investments portfolio is worth ~$130,700. I estimate adding about $25,000 to the portfolio this year, including my 401(k) contributions, my employer match, and my Roth IRA contribution, putting an estimated year end balance at $156,000.
(Note: when I wrote this post last year, I estimated that my end of year balance would be $98,100. It is $34,600 higher than that as of November 30th. Crazy!)
My target asset allocation at the end of 2014 will be:
- 27% Fixed income
- 36.5% US stocks
- 36.5% International stocks
Based on this, let’s calculate my ideal portfolio at the end of 2014 and compare it to where my portfolio is now:
I will add my $5,500 Roth IRA contribution to the Vanguard Total Stock Market Index Fund Admiral Shares, which means I only need to add another $2,922 to US stocks for the year. Subtracting out my 401(k) match from there leaves my 401(k) contributions as follows for the year:
- 4% or $654 to add to US stocks (S&P 500 index fund)
- 52% or $9,073 to add to international stocks (total international index fund)
- 44% or $7,773 to add to fixed income (stable value fund)
There, we can set and forget for the rest of the year!
I will re-balance the Extended Market index fund vs S&P 500 index fund amounts in January 2015 when I make my Roth IRA contribution for that year – for now, I just care about US vs international vs fixed income.
I’m going to have my entire pay direct deposited to my credit union checking account and then pay the mortgage from there with the leftovers each month. My credit cards are all on auto-pay from here and all of my bills are on auto-pay to a credit card.
I will continue to withdraw any health expenses from my HSA after putting them on a rewards credit card through the end of this plan year. I will re-evaluate my HSA plans during open enrollment.
My plan for expenses is as follows:
- If purchase is in person and < $15, use debit card until I reach N transactions. This should earn me just under $200 in interest for the year, i.e. meets my $100 gain for the year rule.
- All Amazon.com purchases go on that credit card (this is mostly automatic, so no big deal), as well as restaurants and in-person places that don’t take American Express.
- All non-foreign purchases that take American Express go on the Fidelity Amex card
- All other purchases (including possibly foreign ones) go on the credit union cashback visa (I love this one because it does automatic redemption every month, no matter the amount!)
This algorithm should net me about $400-550 in cashback rewards for the year, based on 2013 spending levels.
Based on my spending patterns and my rule that I will only add a credit card if it will gain me at least an additional $100/year in cashback rewards and I think I could use the card effectively for at least two years, I can’t really optimize any further than this. I could add the US Bank Cash+ Visa Signature card for 5% cashback on restaurants, but with my spending levels, that may or may not actually make any sense. My credit history is still new enough at this point that I don’t want to churn yet (under 4 years), but I will re-evaluate that in 2015.
I’m really enjoying how simple this plan is and I can’t wait to let it be implemented! Here’s to an awesome 2014!
This year’s goals are so simple that I feel silly publishing this post! I’ll follow up with an implementation plan later this week.
1) My first priority in 2014 is to continue to develop my relationship with my boyfriend. Things are going great and I want to continue to prioritize that.
2) Rock out at my new job. Without the high-paying job I have, I wouldn’t be able to accomplish any of my financial goals.
3) Max out all tax-advantaged accounts available to me. This means $17,500 to my 401(k), $5,500 to the Roth IRA on January 2nd from savings and $5,500 to a savings account to fund the 2015 Roth IRA.
4) Pay down the mortgage. I would like to get it under $91,284.28. That should keep me on track to paying it off by the end of 2015.
5) Spend less than $39,000 for the year. If I can accomplish this, it would be my cheapest year since graduating from college! This would map out to 4.4 years of expenses saved up, which is about 17.6% of the way to FI if you count it as having 25x annual expenses saved up.
Overall, I’m anticipating a net worth increase of about $115,000 for the year to increase my net worth to about $465,000. (For reference, I expect my gross income in 2014 to be between $160,000 and $190,000.)
Notice how in my blog’s title it doesn’t say anything about financial independence or retirement? My goal isn’t to retire early. I’m not against having the funds to do so, but that isn’t my goal per se.
My real goal is balance:
- A home I enjoy
- A sense of community, possibly including a healthy romantic relationship
- A way of being intellectually stimulated on a regular basis, possibly with a career
- A good level of fitness
- A way of providing for myself financially, whether that is through paid work or investments
On my home
As I’ve talked about many times, I absolutely love my condo. I love the location, the rooms, and everything about it. This home really does make me happy.
I am incredibly happy with my boyfriend. We have actually been friends since college, which is a pretty awesome way to start a relationship. He accepts me for who I am and I accept him for who he is. I’ve also gotten the go ahead to ease back into playing sports, which I would have been far more excited about if I hadn’t also caught a cold around the same time. I think that’s finally gone now :)
On intellectual stimulation
As you guys have probably deduced from some of my posts lately, I haven’t really been happy in my current job. I’ve spent quite a bit of time introspecting on what I like and dislike about my job and what I would change about it if I could. I eventually realized that I couldn’t change my current job into a job I would like and started the process of 8 am and 5 pm coffees to find a new job. I talked to many groups within my company and ended up choosing a job with the first group I talked to. I’m excited about the manager, the product the group is working on and the part of the product they’re working on, as well as the opportunities for growth there, and my future coworkers seem pretty cool too. Once I accepted the new job, I felt a huge relief to have that stress off my shoulders. I’ll be starting the new job in the new year and taking a bit of time off between jobs, so I don’t have much time left at my current job. It’s hard to focus when I know I’m leaving and I’m excited about my new job!
I love walking places instead of driving. It is not only less stressful
My plan was always to save the residual. I never set out to save 50% of my income. I set out to spend the money I wanted to spend and then save the rest since there’s no reason to spend money I don’t want to.
For people who are naturally savers, I think that saving the residual is actually a better way to go about things than saving first. For people who are naturally spenders, I think that saving first is probably better. (I wouldn’t really know though since I’m more naturally a saver.)
Since I stopped paying Social Security tax with my July paycheck, I’ve been saving about $3,000/month AFTER maxing out my 401(k) and HSA and on top of saving all of my bonuses. But my spending plan also calls for spending ~$3,400/month if you include the mortgage. I don’t think that you can really call me all that frugal anymore when you add all of my expenses up. $3,400/month to spend for a single person is a LOT of money. But then when you look at the fact that I’m saving close to 80% of my net income, it no longer seems like a lot. I am on track to increase my net worth by about $135,000 this year. That means I had $135,000 (*figure includes investment gains) in income that I saw no reason to spend.
If you look at my budget, there is a ton of lifestyle inflation. I live by myself and spend about $1,700/month on housing when you throw in all utilities. I spend ~$4,000/year on travel. I eat out a fair amount – upwards of $200/month worth. I spend $100/month on sports and fitness. But, other than all the moving last year, I have been reasonably consistent in my spending since graduating from college. So it’s not like my lifestyle has increased with my income increases (which have been pretty significant!) I will come close to my 2011 spending this year.
I don’t coupon. I don’t hound myself for spending so long as I enjoy the thing I spent my money on. I think I’ve finally found my balance with my finances.
I’ve been keeping track of my credit card spending in a Google doc and otherwise not checking on things other than to enter receipts into my overall spreadsheet once a week and reconcile with my bank accounts once a month. Everything is on auto-pay and it is surprisingly awesome.
On retiring early
Most people who retire early find some other way to occupy their daytime hours, often with self-employment. As I’ve learned from the last few months of boredom at work, I am not someone who could sit around doing nothing. I will always find some activity to keep my mind and body active. I’m most happy when I’m reasonably busy. That’s even when my apartment is the cleanest! Perhaps at some point, I will find a career that I enjoy more than writing software and transition to that or take an extended sabbatical to travel or something similar, but that is not my intention now or in the near future. I’m simply saving my large residual of money after enjoying my life, to provide myself with some more options down the road when I do want them.
I’m going to continue to save the residual and to enjoy my life while hopefully also enjoying and kicking butt at my new job!
|assets – debts
This month was pretty good financially! My huge 401(k) contribution from my October paycheck posted, as well as a good-sized bonus. My spending was also average for the year. I used the bonus to contribute the maximum for 2013 to my Roth IRA through the backdoor, to set aside my 2014 Roth IRA contribution, and to pay down the mortgage. The almost $30,000 net worth increase this month is my new record.
That gap between monetary assets and debts has narrowed quite a bit this year! I’m expecting that to be in positive territory around January to March 2014 and then I’ll start tracking the gap between my taxable assets and debts since when that goes to zero, I could technically pay off the mortgage with the taxable assets.
Expenses: I spent $2,400 in November. That puts 2013 so far at $29,030 or an average of $2,639/month. This would project forward to $31,669. I’m now past my stretch ($24,000) goal and will very likely surpass my target ($30,000) goal in December. However, as of the end of November, I have spent $11,600 less than in 2012, so I should still beat my 2012 spending by a fair margin. It looks like I will surpass my 2011 spending though as I’m only $500 behind it.
Some of my controllable expenses broke down as follows:
- $840 Clothing (two pairs pants, five sweaters, several bras)
- $254 Entertainment/Social ($205 average this year): 20% cash withdrawals, 15% books, 22% meals out with my boyfriend, 36% dinners out with friends, 8% concerts and TV shows
- $0 Eating out by myself ($26 average this year)
- $145 Groceries ($155 average this year)
- $57 Work lunches ($75 average this year, $171 average last year)
- $99 Presents
- $11 Cell phone (buying SIM card for the Nexus 5)
- $31 Internet
- $22 Household goods (dishwasher detergent, bathroom cleaner, microfiber cloths)
- $21 Medical (waiting on about $800 of bills)
- $20 Eyebrows
- $92 Toiletries (some over-the-counter injury related purchases, hair dryer, razors, handwashing soap)
- $430 Furnishings (recycling bin, way to lock up my bike in my parking spot, Christmas tree, tinsel, new fitted sheet)
- $52 Fuel ($34 average this year so far, $38 average last year)
- $60 Out of pocket parking at work / parking meters
- $135 Taxis to/from work
- +Work parking reimbursement from October
I’ve separated out my dinners with my boyfriend from my regular social eating. It’s still being lumped into Entertainment, but at least I can see the data later now.
November started out being a pretty good month for spending and then got worse near the end. About 1/3 of the spending was in the first half of the month and the other 2/3 was in the second half of the month. Overall it turned out to be an average month. The Clothing spending looks a lot worse than it really is because I do my bra shopping online and when I return the ones that don’t fit, I will get that money back.
I was pretty excited for the Christmas tree :) It’s a good size and in my living room! So nice to know that I will be able to use this same tree for many years to come and I can just store it down in my storage unit over the spring/summer/fall.
I’m going to start taking the bus to/from work instead of driving/cabbing, which will free up some money.
Savings: $27,600 (up $3,700)
These funds are spread across a Chase savings account (opening bonus!), a general online savings account, a checking account that gets free ATM fees anywhere in the world, a condo furnishing sinking fund, and my health savings account.
The change here comes from:
- Spending down some of the condo furnishing sinking fund
- Transferring the tuition fund to the mortgage
- Paycheck contributions to my health savings account
- Setting aside $5,500 for my 2014 Roth IRA contribution
Investments: $132,700 (up $11,400 or +9.4%)
This includes my Roth and Traditional 401(k), my 401(k) employer matching (fully vested!), my Roth IRA, my taxable investments including stock index funds and Series I Savings Bonds.
The change here comes from:
- 401(k) contribution from my October paycheck, including employer matching
- Contributing the maximum to my Roth IRA for 2013 through the back door
- Modest market increases
Mortgage: $192,100 (down $9,000 or -4.5%)
My mortgage is a 5/1 ARM at 2.5%. Before the refinance, it would have been paid off November 1, 2038.
I paid just enough on November 1st to bring the balance to round under $200,000. Next, I cleared out the tuition fund savings account and threw that at the mortgage since I’m going to pay off the mortgage first. Lastly, I threw the rest of my bonus at the mortgage once I’d maxed out my Roth IRA for the year and set aside the funds to make the 2014 contribution. Now that the balance is under $200,000, it really feels like it’s going somewhere soon. I can’t wait to pay it off!
I estimate with the extra principal payments in November that the payoff date is now at September 1, 2033. I shaved 7 months of payments off with this month’s pre-payments! And I’ll save about $16 in interest on the December 1st payment based on these pre-payments.
The mortgage balance is so far ahead of where it needs to be by the end of 2013 to stay on track with the five year pay-off plan that I’ve adjusted the plan to pay it off by the end of 2015 or two more years. I’m currently about $11,200 behind where I need to have it at the end of 2013 to stay on the two more year payoff plan. I have now paid down 32.8% of the original mortgage balance and am getting so close to 50% in equity! (I have $13,350 more in mortgage principal payments to go before I have 50% in equity.)
TOTAL: $340,200 (up $29,800 or +9.6%)
I ended 2012 with a net worth of $211,300, so I’ve seen a change of $128,900 or +61.0% so far this year. (For reference: my net worth increased by $78,800 in all of 2012.) I surpassed the original y-axis on this graph of $315,000 in November, so I increased it to $350,000. I am currently projecting to get very close to $350,000 by the end of the year, for a total yearly increase of about $135,000.
Lastly, to check in on the goals I made at the end of October:
- Read books! SUCCESS! I’m not sure exactly how many books I read, but I definitely went through at least one or two.
- Go back to the doctor again. SUCCESS! I’m not fully healed, but I’m doing a LOT better. I had more tests done and I’ve been going to physical therapy. I hit the deductible on my health insurance plan, which isn’t so bad because I still have another four months left on the year and now I’m only paying 10% of the cost :)
- Finalize the work thing I was introspecting about. SUCCESS! It’s not 100% official, but I would say it’s about 95% official at this point. I’ll talk about what I ended up doing once it is 110% official.
- Make my Roth IRA contribution for 2013 and re-balance accordingly. SUCCESS!
- Set aside the rest of my bonus and paycheck for my tuition fund. PASS! I ended up setting it aside for the 2013 and 2014 Roth IRA contributions and the mortgage instead.
- Start Christmas shopping. (Ugh, I hate buying presents.) SUCCESS! I bought presents for my boyfriend, my sibling and SO, and part of the presents for my parents. Now I just need to finish the rest of my parents’ presents and I’ll be done!
Now for some goals for December:
- Finalize the work thing 110%.
- Read 3 books.
- Follow the directions of the physical therapist.
- Make a plan for my time off at Christmas – I possibly only have 15 working days in December :)
- Set goals for 2014!
My investments have been mostly plodding along this year. Occasionally, I have adjusted how much of my 401(k) contribution went to what (S&P 500 index, total international index, and stable value fund) and then left it alone again. For example, my September and October contributions went about 50/50 to the stable value fund and the total international index because the US stock markets had been doing so well.
But now that it is time to make my 2013 Roth IRA contribution, I am going to re-balance by exchanging some funds around. Back in May, I wrote a post on Tax-Efficient Investment Placement Over Time, which I have referenced so many times that I should really bookmark it.
First, what are the balances in my various accounts?
- $23,600 Roth IRA (with $5,500 new contribution)
- $8,200 Old tax-deferred CDs
- $10,100 Series I Savings Bonds
- $15,700 Taxable account
- $74,500 401(k)
- $132,000 Total investments
What is my asset allocation?
If we follow my ordering from my post on tax-efficient investment placement, what does that ideal portfolio look like?
- My employer match to the company stock
- Series I Savings Bonds that already exist in taxable
- CDs that are already in my Roth IRA
- The remaining portion of my fixed income allocation to the stable value fund in my 401(k).
- (not necessary)
As much of my remaining fixed income allocation to Total Bond Market in my Roth IRA as possible
- (not necessary)
If my tax-advantaged balances weren’t enough for all the fixed income necessary, added $10,000 in Series I Savings Bonds (possibly early for future-proofing)
- (not necessary)
Any other fixed income went to a tax-exempt bond fund in taxable. As much of my international allocation in taxable as it allowed (in the first few years, my entire taxable balance; in later years, the entire international allocation)
- Next, I added any of the remaining international allocation into my 401(k).
- The remaining 401(k) funds went to the S&P 500 index fund. Call this amount X.
- (X/0.8)-X is how much I put into the Extended Market index fund in my Roth IRA (minimum of $3,000).
- The remaining Roth IRA funds went to Total Stock Market.
- (not necessary)
The remaining taxable funds went to Total Stock Market.
|Taxable||Total international stock index (admiral shares!)||$15,700||$15,700||(same)|
|401(k)||Total international stock index||$22,100||$33,200||+$11,100|
|401(k)||S&P 500 index + employer stock||$38,000||$25,300||-$12,700|
|Roth IRA||Extended Market index fund||$8,400||$6,300||-$2,100|
|Roth IRA||Total international stock index||$9,700||$0||-$9,700|
|Roth IRA||Total Stock Market index fund (admiral shares -soon!)||$5,500||$17,300||+$11,800|
Note that these numbers are all rounded, so they may be slightly off if you try to make calculations with them, but they should still illustrate my example sufficiently.
The main thing here is that I’m moving my Roth IRA from being mostly Total International Stock Market index (TISM) with a bit of Extended Market index to being mostly Total Stock Market Index (TSM) with a smaller amount of Extended Market. I’m also going to exchange all of my company stock into the S&P 500 index fund to diversify better. (So many people don’t know you can do this!)
I’ll perform a few transactions to accomplish this:
- Contribute $5,500 to the money market account in my Traditional IRA. – done!
- Convert the $5,500 from my Traditional IRA into the total stock market index fund in my Roth IRA once the funds settle. – done!
- In my 401(k), exchange all of the company stock money to the S&P 500 index fund.
- Next in my 401(k), exchange ($11,100 – company stock money = $12,700) from the S&P 500 index fund to $1,700 in the stable value fund and $11,000 in the total international stock index fund.
- In my Roth IRA, exchange $2,000 from the extended market index fund and the entirety of the total international stock index fund into the total stock market index fund.
And that’ll be the last re-balance I make by exchanging until early 2015 when I make my Roth IRA contribution for 2015 – all other rebalancing will be done by adjusting which funds in my 401(k) get how much of my contribution each month.
Happy Friday, all!