I Have A Problem

Lunch boxes. Like the one I left at home.

I forgot my lunch the other day.

I’m cheap.

I bought the cheapest sandwich (with a side of carrot sticks) that I could find.  It was going to cost me $5.87.

While standing in line to pay for my lunch, I pulled out my cell phone and divided $5.87 by 0.04 (mental math is not my strength).

My stupid cafeteria lunch just cost me $146.75.


Create Exponential Growth As Quickly As You Can

Mind the gap.

Everyone in the personal finance world has some version of this sentiment, including the folks that run the London Underground.  There are hyper savers and Uber earners.  There are some that are cool with both.  I definitely fall into the third category. I don’t really care how you build a gap between your income and expenses; just make it as big of a gap as possible!

I would like to use this post to explore why it is so important.

Image from Go Curry Cracker. Check out their excellent post on how to achieve financial freedom.

A friend shared this savings curve from the awesome team of Winnie and Jeremy over at gocurrycracker.  I did some additional tracing, and Mr. Money Moustache has a similar post.  He also linked to networthify (not https) which may be the original source for this set of bloggers.  So, let’s dig into this a bit more. First, the graphic itself.
The idea is that if you save x % of your gross income every year (and maintain your current expenses indefinitely), after y years, you will achieve Financial Independence.

  • Mr. and Mrs. Money Mustache completed their journey to financial independence in about 9 years by saving 66%+ (and making a few mis-steps along the way)
  • Jeremy and Winnie completed theirs in 10 years and a day by saving north of 75% of their take home pay (and making some pretty big oopsies of their own)

This was eye-opening for me!  I fancy myself pretty good with money.  Let’s see how we’re doing by this standard.  Here’s our 2016 expenses Paretoed out into big buckets.

And the answer to how well we’re doing is: pretty crappy!  …although, not relative to the average US person, actually.  Turns out on average, Americans only save ~6% of their after tax income.  We’re putting away just over 30% (with a 1 yr old).

Relative to how we were doing pre-kid and compared to other extreme early retirement bloggers, we’re not socking away as much as I would like.  And, you know what?  That’s OK.  We’re parents.   And, this early retirement thing is just creeping into our consciousness.

For another post, I’ll have to dig into what our numbers were leading up to the purchase of the rental property.  Speaking of the rental property, I’m actually a bit more bullish on our ability to retire early because of our real-estate portfolio.  Let’s quote George Box again, “All models are wrong.  Some are useful.”  These models strictly look at investments as having a fixed percent (5%) growth.  They also assume a fixed 4% withdrawal rate in retirement based on your current expenses.  Both are conservative and your expenses may vary quite a bit…I hope we’re not still paying for child care when we retire!

Last thing before I sign off: see how the relationship between savings and time is curved?  That’s because of two basic factors:

  1. Compound growth
  2. Constant expenses

The more you can do to save early, the more your best savings tool gets to work for you.  By the way, it’s the tool that anyone selling you something doesn’t mention: time.  In case you missed it from school, compound growth follows an exponential growth curve.  Practically, that means the more time you give your money to grow, the more it works for you.  Here’s $1000 invested for 20 years at 7% (compounding monthly).

Point two is where this gets exciting.  If your investment grows at an exponential rate and you withdraw at a constant rate, your investment will continue to grow even as it supports your retirement.  There’s some caveats to that, but at it’s core, that’s why the 4% withdrawal rate is such a nice way to plan for retirement.

Think on that for a while.  Then, think about what structural changes you might be willing to make in order to bring retirement closer to today.

Real Estate Investing: It’s Not That Passive, But It Beats Working For Your Boss.


600 hours.

And that’s just what I kept track of once we had an offer submitted.

I’m going to delve into what I’ve experienced during the purchase, renovations, and management of our first rental property over the 2 years we’ve been involved in it.  Keep in mind that we’re brand new to this business.  There’s a lot of startup activity we’ve gone through to get to this point (and probably some more to come).


Even this ole dog can get up and move if properly motivated. An income stream for life? Let’s go!

On The Hunt

Let’s start with some data that I don’t have.  If you’ve read any other post on this site, you can probably guess that I like data. During our search process, we digitally screened North of 150 properties. I made 2 spreadsheets for this task.  One mimics the Multiple listing service but adds a few more columns.  With this first tool, I could see all inputs from the listing and get a rough estimate of cash flow.  For properties that looked interesting, I would fill out a more detailed sheet.

Spreadsheet#2 calculated several measures of profitability (or loss) based on some more specific details.  I filled out upwards of 40 of these detailed sheets.

Finally, we went to see about 5 places.  We made offers on two.  We were outbid on the first.  And, the second took 10 months from the time we wrote our offer to the time we actually closed.  I would guess we spent about 200 hours screening for our rental in 2014. Let’s amend my total at the start of this post to 800 hours.


Ah, the thrill of the chase…is so much better if you get the treat at the end.

The Grab

In October of 2015, we found a short sale: a 2 bed, 2 bath condo that priced about 25% below market.  We walked through the unit and saw lots of potential.  No major problems, just an interior badly in need of updating.  So, we put in an offer almost on the spot.  We made a list of the major things we needed to do with 3 point estimates to complete each.  And then we waited.  We filed contact extensions.  We waited some more.  In summer, we went on vacation and then updated our financing pre-approval.  We found out we were pregnant…and filed another contract extension.  About 8 months from the time we put in our offer things started moving.  Finally!  All told, we spent about 20-25 hrs between the end of 2014 and August 2015 keeping the contract alive.


Now, there were lots more forms to fill out from the sellers’ bank.  We coordinated the appraisal and the inspection.  The bank finally set the closing date for September 30, and things went more smoothly.  We made a more detailed punch list of our renovation activities and a schedule.  That’s the time you see in September: about 63 hours of effort to get us through closing and actually into the unit on the 30th.


Sometimes you get in over your head. Almost.

The Flip

You bought it, you broke it.  … Or something like that.  I admit that at times it felt like we were barely keeping our heads above water.  We were both working full-time and then trying to renovate our condo and get it on the market ASAP.  We spent almost $15,000 taking our condo from ugly builder’s white and grimy to a chic penthouse apartment in one of the most desirable locations in the area.  In addition to the cash and contractors’ efforts, it took us about 400 hours of our time spread out over 2 months.  We contracted for the counter top installation, HVAC replacement, and appliance haul away/install.  We did every other bit of paint, flooring, fixtures, cleaning, etc. by ourselves or with the help of one great friend.  But, we kept our vision firmly in front of us and pressed onward.


You might think that cutting floor boards on a Saturday is beneath you.  Or that you’ve progressed beyond replacing the fill valves in a toilet tank.  If so, you’re right.  Go work in your cubicle for another 30 years before you can retire.

For everyone else, I can tell you that there is no more liberating feeling than swinging a hammer to build your own system.  To quote Sam at Financial Samurai, “don’t be too proud to be rich.”


Worth IT.

The Aftermath

Now that things are up and running (we’re entering our 10th month of having the unit rented), we are enjoying the result of all our efforts.  I’ll follow-up with more detail in future posts.  For now, our aggregate has been about 100 hours of total effort to handle rental operations.  Despite the monthly ups and downs, we’ve brought in a gross income of over $17,000.  Divide that by 800 hours, and we’re making $20/hr!  That puts us squarely in the basic Human Resources and Gaming Supervisor categories. Woo hoo!


Before you scoff, remember this is income that:

  • Comes in whether I’ve had a bad day at work or not.  In fact, it comes in whether or not I show up to work at all.
  • Will get better over time (both the hourly rate and the annual gross).
  • Currently has a mortgage associated with it, taking a big chunk of the gross income.  Someday it will be paid off, and then we’re that much closer to financial freedom.  Better still, someone else is paying our mortgage for us.  All of our cash outlays are complete!  More on that in another post too!
  • Allows us to learn about and claim a number of potential tax deductions/business expenses.

Now this is a seedling I am excited to nourish.  Grow little money tree, grow!

Even When You Track Every Penny, You Still Have Uncertainty!


Source: US Mint. Do you know where all of your Lincolns are?

My friend and I were discussing, Your Money Or Your Life the other day.

There’s this cool graph where they extrapolate current earned income, current expenses, and investment income.  At some point, investment income surpasses (hopefully!) expenses.  At that instant, you’re financially free.  It’s a profound idea.

Now, don’t get me wrong.  I think tracking your expenses is a crucial start to to developing financial freedom.  But, I also don’t think it is a silver bullet.

As someone who has tracked expenses for almost 6 years, I’ve really struggled to apply the Your Money or Your Life view for myself. Maybe it’s because we’re 35 and have a new daughter.  I can tell you firsthand, she has injected more financial uncertainty into our lives than I thought possible.  Maybe it’s simply because financial freedom seems so far away.  Or, maybe it’s because there is lots of volatility in day to day, week to week, month to month, or even year to year financial ins and outs.  Let me show you what I mean.

Here’s our tracked expenses from Mint.com since 2010:

Mint's auto expense tracking is super convenient. Here's our chart of monthly expenses since 2010

Mint’s auto expense tracking is super convenient. Here’s our chart of monthly expenses since 2010

And here’s, my spreadsheet version…yes, I track things in 2 spots.  Ugh, and I’m admitting that publicly.

And because I'm a nerd, I also track spending within each pay period to ensure I don't go over budget.

And because I’m a nerd, I also track spending within each pay period to ensure I don’t go over budget.

First, they provide different results.  Mint.com automatically bucketizes things.  It’s super convenient, and I use it less for monthly tracking than for long term trends.  I also use a modified envelope method to keep savings funds for things like home improvement/repairs, rental property expenses, insurance premiums, etc.  My goal is to take big periodic cash outflows and bake small amounts of savings into my budget so that when the expense hits, I’ve already saved for it.  Unfortunately, Mint doesn’t do such a good job of managing these type of periodic expenses.

My Excel version is completely manual and is really used tactically.  How much do I have left in my budget for this pay period?  Can I go out to lunch with the work crew tomorrow, or am I brown-bagging it?  So, the bucket granularity is much different.

The first thing that jumps out at me is the upward slope of the trend-lines.  Yes, our real expenses are increasing.  That much is clear from both charts.  So, is it time to finally cut the cable TV cord!?  Should we start eating Ramen?  Probably not.  In this case, we’ve purchased our first rental property.  That’s the big set of spikes at the end of 2015.  And, our little girl is costs us way more than our two dogs do!  So, while the upward trend is disconcerting, it’s also understandable given everything that’s been going on in our lives.  To me, this is the power of tracking every penny you spend (twice!).

The real reason that I think tracking every penny still leaves you with uncertainty is the volatility.  I put trend-lines into each plot to also illustrate how far from “average” our expenses are in any given month.  Some months, they’re high.  Some months, they’re low.  This volatility also makes me pause when I try to extrapolate a trend-line 20 – 30 years from now.

I would like to explore this topic further in future posts.  I think there is great wisdom in tracking one’s spending.  I also think with thoughtful analysis, using income and expense trend-line extrapolation can reveal deep insight about one’s financial freedom trajectory.

Has anyone else tracked their expenses manually vs. using an automated tool like Mint.com?  Have you tried to forecast your financial freedom point? What did you learn?