How to Take Advantage of Your Employer Benefits

I recently just started working full time right out of college. I’ve worked full-time internships before over the summers, but this is the real deal, probably one of the top 5 largest changes in my life. So far, I really like my job and I can see how you can get lulled into complacency with a job that you like. When your job isn’t terrible you need to find the motivation to save money and pursue financial independence from somewhere else.

In the meantime, I have made it a goal to get the most value out of my employee benefits. This is perhaps the easiest starting point for someone who wants to increase their savings rate or increase their net worth with very little change.

401k

I am very lucky that my employer offers a 401k and I am even luckier that they offer a full employer match up to 5%. It SHOULD be a no-brainer that if your employer is willing to give you free money that you need to take advantage of it, yet many people don’t. When an employer matches your 401k contribution you are essentially getting an immediate 100% return on your money. For example, if your gross salary was $100,000, if you contributed $5,000 to your 401k and your employer matched that 5%, then you would have a balance of $10,000 in your 401k account.

Another advantage of the 401k contribution is that it is taken out pre-tax, meaning the contributions are not taxed. In the example above, you would not be taxed on that $5,000 contribution, saving you about $1,500 on your tax bill. You will also never see this money because it will be taken out of your paycheck before you receive it. This is a way of forcing savings by taking the willpower out of the situation.

Healthcare/Dental

This one is pretty much a no-brainer. Healthcare is so expensive in the United States that you really don’t have a choice other than paying for the health and dental insurance through your employer if they offer it.

Gym

Another perk that I recently found out about was access to the gym. There is a gym at my job that anyone can use for free. This saves me at least 40 dollars per month that I would be spending on a gym membership elsewhere. It also saves time because I can go to the gym during my lunch break which gives me a boost of energy and also frees up my day before and after work.

Life Insurance

In my case, I was automatically enrolled in a life insurance contribution that was only about 9 dollars per paycheck, but I chose to opt out of it. I would rather put that money towards building my assets and cash reserves that could essentially be used as a life insurance policy.

The Cost of your Commute

“In guarding their fortune men are often closefisted, yet, when it comes to the matter of wasting time, in the case of the one thing in which it is right to be miserly, they show themselves most extravagant.” -Seneca

Over the past few days, I have been looking at houses and apartments to potentially rent when I start working. My top consideration is probably the monthly price but right behind that is the distance from my job. I would like to minimize my commute as much as possible. When I tell people this almost everyone disagrees and thinks that it would be better to live around 45 minutes away from work so that I can live at the beach. My first response is that if I lived at the beach, I would not be utilizing what the beach has to offer on the five days that I work through the week and that I would rather drive 45 minutes to the beach on the weekend instead of 45 minutes to work five days a week.

Even after explaining this, most people tend to disagree, and I think it has to do with people undervaluing their time. I wanted to do some math to calculate just how much a long commute is costing people. When commuting there is the obvious cost of gas but, more importantly, there is the opportunity cost of your time that most people don’t think about.

For example, I’m going to compare two hypothetical commutes of 45 minutes and 10 minutes.

Cost of a Long Commute

Gas

Let’s say the 45-minute commute is 30 miles. This means a round trip of 60 miles. If we conservatively assume that gas costs $2.00 per gallon and your vehicle gets 23 miles per gallon, you would be spending about $5.21 on gas every day that you are driving to work. This may not sound like much, but it is not an insignificant amount to dish out every day.

Time

The 45-minute commute means you are driving for a total of 1.5 hours every day. If we assume your hourly rate is $25 per hour, then you would have an opportunity cost of $37.50 per day!

Total = 5.21 + 37.50 = 42.72 per day

Cost of a Short Commute

Gas

Let’s say the 10-minute commute is much shorter at 5 miles. This means a round trip of 10 miles. If we conservatively assume that gas costs $2.00 per gallon and your vehicle gets 23 miles per gallon, you would only be spending about $0.87 on gas every day that you are driving to work.

Time

The 10-minute commute means you are driving for a total of 20 minutes every day. If we assume your hourly rate is $25 per hour, then you would have an opportunity cost of only $8.33 per day!

Total = 0.87 +8.33 = 9.20 per day

The Compounding Difference

This means that by shortening your commute from 45 minutes to 10 minutes you would be saving about $33.51 per day, or $167.59 per week, and $670.35 per month! If you look at the cost of your commute in this light, then you might be more willing to pay a little more to live closer to work. This works out to a savings of $8,044.28 per year. This is more than most people save for retirement every year and could be used to max out a Roth IRA and more.

It should be noted that all the numbers in this calculation were very conservative and the difference in commutes could be much greater with a less efficient vehicle or higher gas prices. Also, you could cut your gas price to zero if you managed to ride your bike to work or even take public transportation.

I think the reason so many people underestimate the cost of their commute is because they don’t value their time as much as they should. Valuing your time more than you value money is the driving force behind the financial independence movement and if you wish to achieve that independence you need to start being greedy with your time.

How to Become a Millionaire

I just listened to a great podcast by Bigger Pockets where they interviewed Graham Stephen. Graham became a millionaire through real estate at the age of 26 and shared his personal formula. My favorite part was how Graham admitted he got lucky multiple times in order to make so much money from real estate, but the point is you need to set yourself up to get lucky. If you aren’t even looking for real estate deals in the first place you will never “get lucky” and find a great deal. Everyone gets lucky somehow, you just need to have the ability to recognize it and act on it.

In the podcast, Graham and the host Brandon Turner share what they think to be the formula for becoming a millionaire. There are a few points that were left out such as having a high savings rate, but the topics discussed were crucial.

Start Early

Everyone has seen the examples of the person who started investing at 21 versus the person who started at 31. The person who started earlier ends up with hundreds of thousands more in net worth because of the power of compounding. This is an obvious reason to start investing as early as possible, but another one that people don’t think of as much is risk tolerance.

For example, the 21 year most likely has very little responsibility. This allows him/her to take huge risks in their career because what’s the worst that could happen? Worst case scenario you have to move back in with your parents for a few months until you find another job. My point is you can take on much more risk when you are younger than compared to when you are 50 and have a family to provide for. Most people don’t take advantage of this and that is a mistake.

Love What You Do

Another point that was made that you don’t hear as much is the need to love what you do. This is exactly why you need to take risks in your career when you are younger so that you can find the job that you love enough to contribute most of your time to and hopefully increase your income. This is why, when you are young, it can be smart to take the lower paying job in a smaller growing company or even work for free underneath someone who is massively successful.

Gary Vaynerchuk always gives the advice of finding the person that you want to be the most in life and offering to work for them as an assistant for free or for a very low wage. This way you can learn as much as you can and then go and become that person after you know how it’s done.

Invest in What You Know

The co-host of the podcast, David Greene, made the observation that many real estate agents will invest outside of real estate even though they know real estate and come across deals every day. This was absurd to him because it is crucial to invest in what you know.

I think people need to not get caught up in what is trending at the moment and stick with what they know. You shouldn’t invest in a mobile home park if you’ve never even seen one. On the other hand, if you feel you are not familiar with anything worth investing in, or you do not want to spend the time on it, then your best bet is to invest in a broad index fund in order to get the market average returns.

January Side Hustle Report

One of my recent favorite personal finance bloggers is Financial Panther. This guy makes thousands of dollars every month outside of his 9-5 job and highlights every detail of it. I highly encourage you to check out his blog if you want to get inspired to make some extra money. That’s exactly what happened with me. I have been slowly building different streams of income over the past few months and I would like to start highlighting them each month on Cougar Money.

This should help keep me accountable and make me take a hard look at my side hustles to see if they are worth the time. I should mention that none of these side hustles would be considered passive income…..yet.

My total for the month of January came out to $476.97. This may not sound like a huge amount of money but if I were to keep this up every month for a year, I would just about be able to max out a Roth IRA if I chose to. These small additions when I am young will grow to huge sums through the power of compounding.

Uber Eats ($115.52)

I recently started delivering for Uber Eats on my bike and wrote a review of it here. This income was due to around 11.5 hours of having the Uber app turned on. If you do the math this only comes out to around 10 dollars an hour but I have since figured out how to bring that per hour rate way up to the 15-20 dollar range. Some of this time also spent waiting for a delivery so I was able to do other things around the house in the meantime, so not really hard work.

eBay ($33.44)

This past month I sold a couple old textbooks that had been laying around on eBay. This took a very small amount of time and was an easy way to make some cash while clearing out my room.

I’ve noticed the minimalism crazy going around lately and I am all for it, but I think that people should try to sell their old stuff before they just throw it away or donate it. You would be surprised what you can sell on eBay.

Bank Bonus ($300)

This was by far the easiest 300 bucks I’ve ever made. All I had to do was open a checking account with Chase Bank and they deposited $300 within a few days. I wrote a review about this bonus here. This is something I plan to take advantage of more consistently and it is an easy boost to your side hustle earnings.

Selling Old Things ($28)

I have also been trying to get rid of things that have been laying around and I don’t need. I found an old beach cruiser that had been sitting unused in our shed for years and sold that for $20.

bike

I also sold an old clicker that I had to use for a lecture when I was a freshman for 5$.

Finally I have been trying to downsize the pile of books that I have accumulated. I am trying to get rid of all of my books that I will not read again in the future, which is about 80% of them. I try to sell books on eBay or give them to friends. Whatevers left after that I will sell to a used book store or give them to Goodwill. In January I took a small stack of books to the resale store and got $3.

January Expense Report

Around a year ago I realized the power of tracking. Someone important once said, “That which gets tracked, gets improved”. Since then I have done my best to track all my earnings, expenses, investments, credit score, and net worth. I keep all this information on an Excel sheet which I update monthly. This way I can see my improvements or where I was lacking. This is probably the single greatest habit for someone to start who is looking to get their financial life in order. I listen to the BiggerPockets Money podcast and at the end of every episode they ask the guest for advice for someone who is just starting out and tracking your spending is the most common answer.

Nowadays there are many apps and programs that can quickly accumulate all your financial information and break it down for you within seconds such as mint or personal capital. I prefer to do my expenses the old-fashioned way by going through my credit cards and bank accounts for the previous month and recording every bit of spending in a certain category, such as food or gas. I prefer this method because I have found that apps like mint will miscategorize spending every once in a while. However, this does not happen very often.

Below are my expenses for January of 2018.

  January Average
Groceries 148.49 N/A
Restaurants 109.35 N/A
Rent/Utilities 0 650
Gas 97.26 96.85
Alcohol 177.47 88.31
Clothes 116.80 N/A
Other 242.01 141.82
Total 891.38 1050.15

 

Groceries

This month, I was curious as to what portion of my food money was spent on groceries compared to restaurants, so I decided to split the expenses up. In January I spent 148.49 on groceries. I do not have an accurate average for groceries because I used to combine grocery and restaurant spending. However, I still feel that $150 on groceries is low.

Restaurants

I spent a little over 100 bucks on restaurants this past month and all of that is due to the trips I took. I went on a ski trip to North Carolina and I visited a friend in South Carolina. The majority of the meals on these trips were eaten at restaurants.

biscuit

Rent/Utilities

December was the last month of my sublease while I was finishing up school and since then I have been bouncing around between vacations, my parents’ house, and friends houses. The perk of this lifestyle is that you don’t have to pay rent or utilities.

Gas

My gas spending was right at average for the month of January. I have made a couple long drives in my truck but besides that, I will ride my bike everywhere, so it evens out.

Alcohol

January was another big spend month for alcohol. Again, I contribute this to going on multiple trips and not having to work 40 hours a week yet. My ski trip involved little spending on alcohol because we stopped at a grocery store instead of going to bars but I did spend a large amount of money at the bars in South Carolina.

Clothes

This is another new category that I added because I want to start getting more specific with my expense reports. I spend around 120 bucks on clothes for work. This included 3 pairs of pants that were at a huge discount. One of the pants ended up being only 8 dollars!

Other

This spending is attributed to random splurges. For example, I purchased a wetsuit that was $120 because I want to start surfing more in the winter.

Summary

Overall, my spending for the month of January was lower than my average but that can be wholly attributed to my lack of rent and utilities. In every other category, I was over the average. I do like to remind myself that this has been a far from an average month and that it was expected my expenses would go up. I am in no way upset with my spending because I had a lot of fun. The only thing that I think could have been improved was spending a little less money on alcohol.

Do It Yourself

I have attached the blank Excel sheet that I use to track my income, expense, net worth, and credit score. It is a work in progress and can most definitely be improved but I wanted to share what I have so far in order to help you get started. After all, the hardest step is the first one.

sample spending tracker

Book Review: Real Estate Riches

Most people on the path to financial independence are familiar with Robert Kiyosaki and his book “Rich Dad, Poor Dad”. Along with this book he has written and published countless other books. I have only read a handful of them but in my opinion, the other books that he authored did not have much substance and at times felt like an ad to buy his other books and seminars. On the other hand, the few books that I have read on the topic of real estate that were published by his company (but not written by him) have been informative and useful.

One of these books that I recently bought at a used book sale for less than a dollar was “Real Estate Riches” by author Dolf De Roos. This book was an easy read but I’m glad that I picked it up and it will be going into my Hall of Fame book collection.

The first thing that caught my attention while reading the back cover was that the author claims to never have had a real job. He said that as soon as he graduated with his Ph.D. in Electrical Engineering, he was offered a job with an annual salary of $32,000. The week before he had closed a real estate deal that netted him $35,000. After that he basically said screw this, I’m just gonna go into real estate full time.

Leverage, Taxes, and Volatility

The first half of the book is basically just selling you on why Real Estate is such a good investment. Like many other real estate books, he goes on to give examples of how you could buy x amount of stocks, or you could buy 10x amount of real estate through the power of leverage. Even after hearing examples like this countless times, for some reason, it still motivates me and gives me inspiration every time.

De Roos also touches on how there are countless tax advantages to owning real estate and how, if you do it right, you can pay little to no taxes on your real estate income.

Another aspect of real estate that he mentions is the reduced volatility when compared to stocks. He makes the claim that real estate has very rarely gone down in the past. At the time of writing (2001), this was true, but shortly after that in the financial crisis of 2009, real estate prices did go down… a lot. This just goes to show that just because something has happened for a very long time does not mean it will continue to do so. The author, however, makes valid points that real estate is much more gradual than a stock and you have more control over the valuation.

100:10:3:1

De Roos highlights the power of consistency when he explains his 100:10:3:1 rule. He states that for every 100 properties you look at, you may make offers on 10, try to arrange financing for 3, and only end up buying 1. This is a thought that is touched on in many real estate books and shows the importance of looking at many houses in order to find a few. The way to maximize this formula is to look at more houses. De Roos goes on to explain how to generate more leads using ads, magazines, real estate agents, and off-market sales.

Residential vs. Commercial

Throughout the book, the author is impartial to residential vs. commercial real estate but in this chapter, you can tell that he heavily leans towards commercial real estate.

residential vs commercial

From his explanation, you would assume that commercial real estate is much more lucrative than residential properties, but he does acknowledge that residential is something that everyone is familiar with. Everyone knows what is needed in a house for it to be habitable and will usually have a low barrier to entry when compared with commercial.

Summary

This book does not go into heavy detail on every topic, however, it does have some very actionable tips such as asking a real estate company for an agent that deals mostly with investors. Overall, I think this is a book that anyone should read if they are thinking about getting into real estate investing.

What A Passive Investor Can Take Away From “The Intelligent Investor”

I’ve been reluctant to read “The Intelligent Investor” by Benjamin Graham not for lack of acclaim (it is frequently quoted as the best book on value investing) but simply because I do not consider myself a stock picker. I am invested entirely in broad range index funds with low fees. However, I was recently gifted the book and finally got around to reading it. I was surprised to find that there was a lot to be learned from the book even if you do not want to pick individual stocks. There are many great pieces of general investing advice, which is why it had stood the test of time and continues to be so popular.

Speculation

The book starts off much like some other investing books do, by addressing the difference between investing and speculating. According to Graham, investing “promises the safety of principal and an adequate return”. Speculation, on the other hand, is buying something and hoping that it will go up in price. This section of the book reinforced why I invest in index funds instead of individual stocks. I believe it is possible to beat the market as a stock picker, but it would require one (or most likely both) of the following things: a large amount of luck or a large amount of time invested in research. I do not like to bank on luck, and I do not want to spend all of my time researching stocks when I can just buy index funds and get average returns.

Inflation

This is something that a lot of investors do not take into consideration. We are currently in a time of relatively low inflation, so we take it for granted. We fail to think about times in the past when annual inflation rates were in the double digits. This is entirely possible in the future and should be accounted for. The author recommends always having a certain portion of your portfolio in stocks as well as bonds. He recommends never having less than 25% of your portfolio in either one.

The commentary of this chapter mentioned other inflationary hedges as well such as real estate investment trusts (REITs) and treasury inflation-protected securities (TIPS). Both would be effective if inflation were to rise.

Another note about inflation that is not mentioned in the book is that most real estate investments will provide you with inflation protection. If you have a rental house, you will most likely be able to raise the rents every year to keep up with inflation.

Asset Allocation

As I touched on before the author recommends that investors allocate 25-75% of their portfolio to bonds as well as 25-75% of their portfolio to stocks. The more conservative investor relying more heavily on bonds and vice versa. A common theme that I see in the financial independence community is to be 100% in an index fund such as VTSAX which is a total market fund. This may seem like an attractive option because stocks have been far outperforming bonds for a few decades. The author takes a step back and points out that stocks have not always outperformed bonds and just because stocks are doing better now does not mean they always will.

In my opinion, many investors tend to be short-sighted. They claim that stocks have averaged 10% over the past 100 years! If you think about it 100 years is only slightly more than one lifetime and it is not guaranteed that the next 100 years will be similar. For example, I am in my early twenties and I hope to have at least 50 more years of investing ahead of me. That is half of the sample size that most people quote when talking about averages.

Summary

Graham emphasizes the importance of figuring out which type of investor you are and allocating your portfolio accordingly. It is important to not get caught up in what the crowd is doing and to learn about the tried and true basics from time to time. I would recommend this book (at least the first half of this book) to any investor new or old.

Why I Don’t Want to Retire

I’ve recently graduated college and have about 2 months off before I start my first full-time job. I’ve tried to fill this space with as much travel and fun as I can but the reality is, even if you are traveling full time, there will be days that are not action-packed and will be slow days. It is much like the theory of hedonic adaptation. If you are doing something exciting all the time, the excitement will eventually wear off. Because of this, I have had many slow days and I can honestly say I am excited to start working full-time just because I am getting bored at some points.

This leads me to my unpopular opinion: retiring sucks. That is, the type of retirement that most people think of. The type of retiring where you cease all kinds of work for a life of leisure and sleeping in. This is something that I feel many people in the FI community get wrong on their journey to financial independence. They think that if they could just quit their job then everything would be great. This is understandable when you have a mind-numbing desk job, but this shouldn’t be the goal. There are many stats of how most people will die within a few years of retirement and researchers have related it to a lack of purpose.

If you are just lounging around all day you will very quickly get bored and most likely depressed. That is why, I think (again, just my opinion) the goal should be to find a job that you love to do, instead of just retiring. Research has shown that making money will bring you happiness only if that money is bringing you above the poverty line. Extra money beyond that will not make you any happier in the long term.

I think that people should focus more on finding work that is in harmony with what they like to do and brings value to other people. You might find that a job like this can bring in money and even substantial money in some cases.

Work=Happiness

The research shows that people are happiest when they are doing work that is meaningful to them, provides challenges, and brings value to other people. This type of work does not need to come in the form of a desk job, however, it certainly can. This is not to say that you shouldn’t focus on achieving a high savings rate on your way to financial independence. It just means that you need to remember why you are striving towards financial independence in the first place. You are going for financial independence so that you can design your life exactly the way you want to live it.

This means that if you are on your path to FI and your dream job becomes available to you but the pay is less, you should put some serious thought into why you need financial independence money in the first place. If you want to be financially independent so that you can live life how you want it, and taking that job before you are financially independent will let you live life how you want to, then it seems like a no brainer.

Whenever I think about this topic I remember the story of the fisherman and the businessman:

“There was once a businessman who was sitting by the beach in a small Brazilian village.
As he sat, he saw a Brazilian fisherman rowing a small boat towards the shore having caught quite few big fish.
The businessman was impressed and asked the fisherman, “How long does it take you to catch so many fish?”
The fisherman replied, “Oh, just a short while.”
“Then why don’t you stay longer at sea and catch even more?” The businessman was astonished.
“This is enough to feed my whole family,” the fisherman said.
The businessman then asked, “So, what do you do for the rest of the day?”
The fisherman replied, “Well, I usually wake up early in the morning, go out to sea and catch a few fish, then go back and play with my kids. In the afternoon, I take a nap with my wife, and evening comes, I join my buddies in the village for a drink — we play guitar, sing and dance throughout the night.”

The businessman offered a suggestion to the fisherman.
“I am a PhD in business management. I could help you to become a more successful person. From now on, you should spend more time at sea and try to catch as many fish as possible. When you have saved enough money, you could buy a bigger boat and catch even more fish. Soon you will be able to afford to buy more boats, set up your own company, your own production plant for canned food and distribution network. By then, you will have moved out of this village and to Sao Paulo, where you can set up HQ to manage your other branches.”

The fisherman continues, “And after that?”
The businessman laughs heartily, “After that, you can live like a king in your own house, and when the time is right, you can go public and float your shares in the Stock Exchange, and you will be rich.”
The fisherman asks, “And after that?”
The businessman says, “After that, you can finally retire, you can move to a house by the fishing village, wake up early in the morning, catch a few fish, then return home to play with kids, have a nice afternoon nap with your wife, and when evening comes, you can join your buddies for a drink, play the guitar, sing and dance throughout the night!”
The fisherman was puzzled, “Isn’t that what I am doing now?””

It is a simple reminder of keeping your goal in mind.

My Ideal World

I think that my ideal career path would be to work an engineering job with a decent salary for a few years while saving as much money as possible and dumping it into stocks and real estate. After I have built a small amount of wealth and I have some financial runway I want to take a little more risk in finding a job that I love. This could mean an engineering job that is challenging and fulfilling, it could mean going full-time into real estate investing, or it could mean anything else.

“If you want to see God laugh, tell him your plans” -Woody Allen

I hope to never lose sight of the goal and to always be designing my ideal life.

Related articles:

The Money-Life Manifesto

Going Back to Work After Early Retirement

The Case for Efficiency

The name of the game when it comes to personal finance (much like most things in life) is efficiency. As an engineer, it makes me happy when something is running as efficiently as possible. This means that you are getting the most return out of something that requires a minimum amount of resources. Being efficient in most things you do will also indirectly save you money.

Vehicles

Most vehicles take gas (resource) and give you a distance traveled (return). It’s quite obvious that an efficient car will save you money because it will use less gas, which isn’t cheap. In order to increase efficiency, you need to either have a car that will go farther on the same amount of gas or perhaps use a vehicle that requires a cheaper resource. You can have a vehicle that runs on electricity instead, which, currently, is much cheaper than gas. I think the best option, however, is to use the resource that is you, by riding a bike. This resource is free and benefits you greatly in the form of exercise.

Exercise

You have a few main options when it comes to exercise, the most popular ones being running or lifting weights. I am a fan of both, and they can both be done efficiently. Running is efficient by nature because, just like biking, the only resource is your own power (and maybe a pair of running shoes). Running can also be fairly quick unless you are running a marathon, which means you are being efficient with the most important resource of all, time.

Lifting weights requires considerably more resources but can still be done efficiently. You can either pay a gym membership every month, or you can buy gym equipment for yourself, preferably used. You can assemble a gym consisting of only a few items buy purchasing a squat rack that also has a bench, straight bar, pull up bar, and weights. You do not need all the fancy machines that everyone uses in the gym. My personal method of increasing efficiency when lifting weights is to only do compound exercises that work multiple muscle groups, these include squats, deadlifts, bench, shoulder press, and barbell rows.

Energy

You should aim to make your home as efficient as possible. This includes heat/AC, washing clothes, cooking, doing dishes, and lighting. Usually, the most expensive line item on a utility bill is either the AC or the heat. Both items should be used as little as possible and you should take full advantage of windows and fans. For example, you know that heat rises so instead of turning on the AC you should open a few windows on the upper floor of your house and use a fan to blow the hot air out. On the other hand, when you need heat, you should take full advantage of the free resource that is the sun. Make sure that the blinds are open on the sunny side of the house to let the heat in. It also helps to just develop some thick skin and live with a slightly uncomfortable temperature, just think back 100 years ago and be grateful you were born when you were.

Not Just About the Money

There are many more points I would like to touch on involving being efficient and I plan to in future posts. I really think that adopting the mindset of efficiency will tremendously help you financially but also in many other aspects of your life. When you use fewer resources, you are benefiting the environment by living a simpler life. By minimizing your things, you focus more on what is really important in life instead of being addicted to things.