Financial Update – April 2018

Each month I will post an update on my finances to both give you, the reader, some insight into my situation and to give me markers of my progress on my financial journey. My updates consist of two parts:

  • Financial Progress Table – Tracks net worth progress.
  • Spending Table – Compares monthly spending to an average (for me) “bare bones” budget, keeping me accountable for additional expenses.

For now, monthly updates include only my personal net worth and spending. As my fiancé and I combine our finances, updates will shift to cover going values instead.

Financial Progress

Each net worth goal in the Financial Progress table is broken down into undisclosed units of money. My current goal is to reach “Financial Freedom.” By the time I reach this goal I will have:

  • A retirement account that can support us when my fiancé hits 65
  • Two college savings funds funded for four years of in-state public university tuition, room, and board
  • An emergency fund for six or more months of living expenses
  • Sufficient liquidity for my fiancé and/or I to make a career change with one to two years’ runway
  • A mortgage less than two times my gross salary without bonuses

Once “Financial Freedom” is achieved, the focus will then working be towards “Financial Equilibrium”, where the income from investments covers all our ongoing expenses.

april 2018

Spending

I’ve created a “bare bones” budget which represents the average minimum amount I can expect to spend each month. This is the minimum amount I need to comfortably live in case of a job loss, emergency, etc. I expect to frequently go over my “bare bones” budget in a number of categories (here’s looking at you, “Groceries & Dining”), but I want to remain accountable to myself when I do so.

For privacy reasons, there are two things I do not include in my spending updates: my monthly mortgage and charitable donations (pegged at 10% of my net income).

april 2018 spend.png

Monthly Summary

Second to last month of upward net worth trajectory, woohoo! I managed to squeak in some extra money into my Mega Backdoor Roth IRA this month and will be adding more aggressively during the next. Right now my income has been helping me keep up with the slow-rolling bear market, but soon that will no longer be true.

The crunch continues at work and should be going until middle of May. I’ll be so glad when this slew of deadlines is finished and I can finally start transitioning my ongoing responsibilities to my coworkers. I’m so ready to be done.

In terms of spending, I feel like I did okay this month. I don’t know, for some reason I was under the illusion when I started blogging my monthly spending I’d be closer to my “Bare Bones” numbers? Austere I am not, obviously.

Notable things that happened this month include:

  • The sun finally came out for spring. Unfortunately, so did my allergies.
  • Revamped my resume in earnest and started applying for new positions.
  • Work, work, work toward the finish line.
  • Took Little Sis for some pool/air hockey/bowling for her birthday.
  • Attended a joke science conference with fiancé.
  • Made significant progress on wedding planning, including caterer booking and selecting outfits (or at least patterns, fabric) for the big day.

How were your finances in April?

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My Staged Plan For Unemployment

Six weeks and counting until I leave my job. Time flies by quick.

I’m waist-deep prepping for work deadlines that wrap up right before I leave so I’m in adrenaline rushed, get ‘er done mode. Even though the burnout part of my brain is ready to check out, I’m doing pretty well at making sure all the big things go smoothly. I want to make sure my teams are in a good place by the time I depart. I haven’t told most of my colleagues I’m leaving yet. We’re all in a crunch so I’m waiting to announce until things slow down around mid-May.

There was a period that I considered contracting for my company part-time. With Fiancé’s new job, I’d be able to make enough for us to live on pretty readily. I’d still be open to the possibility if it works out, and management seems to be on board, but the bureaucracy doesn’t seem to be able to get it together in time for us to have a contract in place by the time I leave. And I refuse to stick around in limbo all summer hoping that changes.

So I’m now outlining the plan assuming I won’t be contracting and I won’t find a new job before I leave. Originally I drew it up still relying on a separate finances model. (Honestly, I’ve been putting off combining my finances with fiancé because of my upcoming unemployment. I really hate the idea that right when we merge our financial lives, I’m no longer contributing to the family pot. He’s been very supportive about everything– pointing out that I’ve contributed the lion’s share while he’s been unemployed before and that I’ll probably be back to work again soon. Still, it feels weird and vulnerable and while I like that we can rely on each other, it’s very scary to loosen my grip and feel less in control.) But I’m coming around to basing things off our proposed joint budget.

Introducing a staged approach

Because this period of unemployment is going to include my first real summer in the six years since I graduated college, I really want to make the most of the time to decompress. But in order to make that happen, I want to set boundaries so that I feel free to really enjoy this time and not rush myself into hasty decisions going into my next job.

According to my monthly net worth projections (based on my monthly tracking), I’ve done pretty well enough adding to our cash position that even if I stuff most of my upcoming paychecks into my Mega Backdoor Roth 401k, we’ll be sitting on more cash than we would typically want or need in our emergency fund. How freaked out I plan to be will be based off of where we are in terms of that cash position: well above normal emergency fund, getting close, at or below, or in the red.

Here’s my unemployment in four potential stages:

Stage 1 – Guilt-free decompression

  • Primary goal: relax.
  • Spend money as I would normally.
  • Put together revised resume and LinkedIn. Otherwise, no obligation to search for jobs.
  • Only accept job offers from companies that align with my values as well as my professional and personal goals. No accepting low-balls or any position I don’t feel 95%+ about.
  • Duration: until 1/3 of “excess” cash position is spent, approximately two months (June 2018 – July 2018)

Stage 2 – Strategic workforce re-entry

  • Primary goal: get a good job.
  • Spend money according to joint budget.
  • Apply for jobs in product management. Use variety of avenues — recruiters, LinkedIn/Glassdoor/Indeed/AngelCo, Meetups, alumni networks, personal network
  • Accept job offers that align with professional and personal goals.
  • Duration: until remaining “excess” cash position is spent, approximately four months (August 2018 – November 2018)

Stage 3 – Aggressive workforce re-entry

  • Primary goal: get a job.
  • Spend money according to joint budget but cut personal allowances.
  • Apply for multiple types of tech or tech-adjacent roles- product management, software engineer, data analyst, QA, technical writing. Continue using variety of avenues. Use side hustles to supplement income while waiting for full-time work.
  • Accept job offers which meet minimum salary requirements, that I could deal working at for 1-2 years.
  • Duration: until half of emergency fund is spent, approximately nine months (December 2018 – August 2019)

Stage 4 – Drastic times call for drastic measures

  • Primary goal: stay afloat.
  • Revise joint budget and cut personal allowances.
  • Apply for work within and outside tech. Continue using a variety of avenues. Get in touch with temp agencies. Beg for my old job back? Use side hustles to supplement income while waiting for full-time work. Consider renting out second bedroom to roommate or on AirBnB. Investigate strategies for tax-effectively liquidating assets as needed (brokerage > half retirement > home > rest retirement).
  • Accept any non-illegal job that’ll keep household afloat.
  • Duration: ???

I refuse to write out a stage 5 plan. I’ll worry about it if we get there. Here’s hoping I stay in stages 1 and 2!

What would you do if you left your job? Would you start finding a new job immediately? At what point and by how much would you lower your standards during unemployment? What would you cut first?

How Much Is Liquidity Worth?

Here’s my first world problem of the day:

My company offers post-tax 401k contributions. I have never contributed to my 401k post-tax, thereby paving the path toward a Mega Backdoor Roth, because my employer hasn’t allowed for rollovers from my 401k. Which means I’d either have to not invest those contributions for a long time or instead deal with super annoying tax stuff on the post-tax gains being rolled over from a Traditional to Roth account that I didn’t want to bother with.

But then I realized: I’m leaving in less than two months.

Which makes Mega Backdoor Roth contributions a lot more approachable and a lot less rife with confusion.

The catch, though?: I’m leaving in less than two months. Which means I might not have a salary until who knows when. Which further means liquidity is at a premium. Which means maybe I should favor getting my salary in cash to sit on like a greedy dragon rather than stuff it into my retirement fund for favorable tax treatment.

That said, fiance did just finalize his job offer, so we’re probably in decent shape for a while? We can’t live just off his salary, but a back of the scratch pad calculation indicates his pay plus our emergency fund will last for about three years assuming we more or less follow our joint budget plus personal allowance plan. My last few paychecks would add another six months or so to that runway. That’s assuming I don’t make one red cent (but also that we don’t face any truly expensive emergencies). I can’t imagine being unemployed for that long given how strong the job market is right now, particularly for tech.

On the other, other hand, if I take the cash now, then fiance can contribute correspondingly more money into his pre-tax 403(b) when he starts his new job. Which brings us to the old “take the tax break now or later” debate.

I think I might take the middle-of-the-road path and dump half my pay into Mega Backdoor Roth and the other half keep in cash. If by Q3 I have decent job prospects, we’ll up fiance’s 403(b) contributions so we can utilize both our pre- and post- tax investment space.

Anyway I’m interested in hearing some opinions on the matter:

How much do you value liquidity? Would you go for the Mega Backdoor Roth contributions, pre-tax 403(b) contributions, or stockpile some cold hard cash?

Financial Update – March 2018

Each month I will post an update on my finances to both give you, the reader, some insight into my situation and to give me markers of my progress on my financial journey. My updates consist of two parts:

  • Financial Progress Table – Tracks net worth progress.
  • Spending Table – Compares monthly spending to an average (for me) “bare bones” budget, keeping me accountable for additional expenses.

For now, monthly updates include only my personal net worth and spending. As my fiancé and I combine our finances, updates will shift to cover going values instead.

Financial Progress

Each net worth goal in the Financial Progress table is broken down into undisclosed units of money. My current goal is to reach “Financial Freedom.” By the time I reach this goal I will have:

  • A retirement account that can support us when my fiancé hits 65
  • Two college savings funds funded for four years of in-state public university tuition, room, and board
  • An emergency fund for six or more months of living expenses
  • Sufficient liquidity for my fiancé and/or I to make a career change with one to two years’ runway
  • A mortgage less than two times my gross salary without bonuses

Once “Financial Freedom” is achieved, the focus will then working be towards “Financial Equilibrium”, where the income from investments covers all our ongoing expenses.

march2018

Spending

I’ve created a “bare bones” budget which represents the average minimum amount I can expect to spend each month. This is the minimum amount I need to comfortably live in case of a job loss, emergency, etc. I expect to frequently go over my “bare bones” budget in a number of categories (here’s looking at you, “Groceries & Dining”), but I want to remain accountable to myself when I do so.

For privacy reasons, there are two things I do not include in my spending updates: my monthly mortgage and charitable donations (pegged at 10% of my net income).

march 18.png

Money Summary

Lots of volatility in the market the last couple months, but my annual bonus erased my losses. I am kind of annoyed that I front-loaded all my 401k contributions into the first quarter this year especially if it turns out we’re in a prolonged bear market. I had been planning on waiting until the second quarter to max it out, but I didn’t manage to change my withholdings in time. Oh well, so it goes.

For the next couple months before my planned departure I’ll be stockpiling cash. I’m in negotiations right now with my employer to see if they’ll hire me on as a contractor to finish off my existing projects, but there’s a lot that can go south so I’m not holding my breath on that one.

I spent a lot of money in March. About half of the excess was comprised of planned one-off expenses; emergency supplies and career coaching came to about $550 on their own. A quarter was shopping for books (because, books) and replacement shoes as my Merrells fell apart from heavy wear. The last quarter was a function of stress spending. In particular: food spending.

When I’m feeling stressed out, particularly as I have been at work, I’ll get more delivery or “treat” myself with fancier foods. I realize part of this has to do with the way I use food, particularly the kind I couldn’t afford when I was younger, as an emotional crutch. Affording “good” food reminds me I’ve made it. I’ll admit it’s probably not the best habit, but it’s I’m not going to beat myself up over it. Something to keep an eye on and rein in, though, lest it get too out of hand.

Notable things that happened this month include:

  • Endured seven bazillion snow storms.
  • Tried selling my body to science and was in return informed that science doesn’t actually want me all that much.
  • After six months of unemployment, fiancé finally got a job offer. Woohoo!

How were your finances in March?

Financial Update – February 2018

Each month I will post an update on my finances to both give you, the reader, some insight into my situation and to give me markers of my progress on my financial journey. My updates consist of two parts:

  • Financial Progress Table – Tracks net worth progress.
  • Spending Table – Compares monthly spending to an average (for me) “bare bones” budget, keeping me accountable for additional expenses.

For now, monthly updates include only my personal net worth and spending. As my fiancé and I combine our finances, updates will shift to cover going values instead.

Financial Progress

Each net worth goal in the Financial Progress table is broken down into undisclosed units of money. My current goal is to reach “Financial Freedom.” By the time I reach this goal I will have:

  • A retirement account that can support us when my fiancé hits 65
  • Two college savings funds funded for four years of in-state public university tuition, room, and board
  • An emergency fund for six or more months of living expenses
  • Sufficient liquidity for my fiancé and/or I to make a career change with one to two years’ runway
  • A mortgage less than two times my gross salary without bonuses

Once “Financial Freedom” is achieved, the focus will then working be towards “Financial Equilibrium”, where the income from investments covers all our ongoing expenses.

feb18

Spending

I’ve created a “bare bones” budget which represents the average minimum amount I can expect to spend each month. This is the minimum amount I need to comfortably live in case of a job loss, emergency, etc. I expect to frequently go over my “bare bones” budget in a number of categories (here’s looking at you, “Groceries & Dining”), but I want to remain accountable to myself when I do so.

For privacy reasons, there are two things I do not include in my spending updates: my monthly mortgage and charitable donations (pegged at 10% of my net income).

feb18spend

Money Summary

Oh hey look, I was too busy and tired to spend money this month. Except food, always the food.

Seriously, though, February was b-u-s-y. Lots of business travel and new (actually interesting!) projects going online at work. My social life recently has been limited to planned game nights with fiance’s friends and rock climbing at the gym with my own. To be honest, that feels like more than enough for me right now. Keeping my personal life simple helps during these crunch times.

Notable things that happened this month include:

  • Took my Little Sis rock climbing for the first time.
  • Got a job offer, which I ultimately turned down. (post to come)
  • Went to multiple meet ups including one by my alma mater and a PF meet-up with Chief Mom Officer, Zen Cents, Countdown to Tranquility, and Mr. and Mrs. Seeking the Dividends.
  • Brought fiancé to see the lion dances for Chinese New Year. My hometown growing up had some small choreographed dancing, but nothing like they do out here with actual offerings and firecrackers going off on the street. It was chaotic and wonderful.
  • Sat in the most I just can’t even cab ride of my entire life, wherein a senior client berated our former refugee, now Green Card holder cab driver for not being sufficiently grateful for living in the US. Client paid for the ride but I ended up giving the driver all the cash I had in my pocket as tip (~$30) on my way out with a quick “oh my god, I’m so sorry.” I’d’ve tried steering the conversation away too, but I was waist deep in altitude-induced nausea at the time.

I think I’m going to stick with this “notable things” list each month in lieu of doing one exciting thing as I outlined in my resolutions for this year. That way, I’ll have a better accounting of my life in 2018. Plus, I tried wracking my brain for exciting things to do and it all felt very much like I was trying to force serendipity. Also, maybe I’m just boring? I’ll stay open for new opportunities and seek things out as they interest me and when I have more time.

On the money side, this month reflects a much truer accounting of what I contribute to my net worth, as opposed to previous months that have all been due to the market. In spite of my plan to be more conservative and start hoarding cash, I didn’t end up changing my 401k contributions in time to avoid the withholdings. Not a big deal— I’ve told my manager of my plan to leave and they haven’t fired me yet, so… at least for now I’m not worrying about being caught flat footed without cash.

I also had to pay taxes this month which was particularly annoying because I thought I’d be getting a refund this year. Turns out, I didn’t account for paying down my mortgage as much as I did. Reason #721 to let my low-rate mortgage just be instead of paying it off right away.

How were your finances in February?

Solar Panel Finances: One Year In

About a year ago, we got solar panels installed on the roof of our condo. In that time, our panels have generated around 6.58 MWh of power (/work?). Enough to power our home, eliminating our electric bills and then some.

Our home is up in the cold, dark, often rainy Northeast. The roof with our panels are non-optimally placed, they face somewhat south (to our benefit), but also mostly eastward. Even so, we’ll likely recoup our investment in the panels in about nine years of its purchase. And then for another eleven years we’ll benefit from the free energy to come.

I don’t often write posts like this with lots of external tutorials, advice and how-to’s. But I’m a big fan of our solar panels and know that the idea of investing so much in a new technology for your home can be a big daunting process. So I’ve outlined below what our financials have looked like with solar: the cost, the benefits, and some tips on how you could get started as well.

Cost

Our solar array consists of 23 270 kW Canadian Solar panels (which, despite the name, are manufactured in China). These panels are attached to micro-inverters, which allow more individualized panel monitoring and energy input, and are lined with snow guards that prevent roof-valanches from burying our neighbor without warning in the winter. Our installation comes with a 10 year warranty and the panels themselves are guaranteed for 20 years.

roof.png
Our solar array design

The sticker cost of our solar array was $20,004.20. However, we got $6001.26 back in the form of federal tax credits and additional $1000 back due to incentives from our state. So on net we only paid $13,002.94 for the panels and installation.

Because of the cost of the panels, we’ve increased our homeowner’s insurance to the tune of $60/year. In addition, we paid $275 to our real estate attorney to amend our condo agreement. That way, it was clear and on the record that 1) our neighbor approved the build and 2) our unit alone owns the panels.

  • Upfront cost: $13,277.94
  • Ongoing cost: $60/year

SRECs and Net Metering

As we generate electricity, we are issued SRECs which can be sold to public utilities to meet their state-mandated portfolio quotas for renewable-sourced energy. Note that these SRECs are independent from the buying and selling of the energy itself. We get 1 SREC for each 1.2 MWh of energy we produce. That averages out to about 20.925 cents/kWh of energy our array generates. The value of our SRECs will decline over time by 5% per year and we will cease to generate SRECs by the 10th anniversary of our system’s installation.

In addition, we live in a net metering state. That means that our meter backslides and we get paid for excess solar energy generated by our array and fed back into the grid during the day. We are paid around 18.462 cents/kWh of energy we pump back into the grid. Last year we used only 3615 kWh for our own electricity use, a little more than half of what we generated.

These net metering credits do not get sent to us in the form of cash, but instead just credits on our electricity bill. This isn’t super useful to us since, well, our electricity bill is always $0 (we’re using solar, remember). But, there is a way around this. By filling out a little bit of paperwork, we can instead have our energy credits applied to someone else’s bill instead of our own. In this way, we sell our energy credits at a 20% discount to a couple of our friends. It’s a win-win: they get a discount on their electricity bills and we get to off-load otherwise-useless credits.

  • First year SREC income: $1376.87 (estimated, not yet paid out)
  • First year savings on energy bill: $607.40
  • First year energy credit reselling income: $437.92
  • Total first year gross: $2422.18
  • Total first year net (post-tax, after insurance): $1,683.97

Projected Revenue and IRR

Given our current projections for revenue, our panels should break even in about nine years:

solar.png

Over the period of twenty years, we’re looking at a 13% IRR for the solar installation based on gross revenue and 7% IRR based on net post-taxes. That is to say, not bad for a home improvement project. The return would have been much better had we financed the whole thing like Gen Y Finance Guy did with his solar installation.

What To Do If You Want To Install Solar

  • Make your home energy efficient. Before investing the big bucks in solar panel, first start by optimizing how you use energy in your home already. We’ve found that easy, cheap solutions like LED light bulbs and insulation pay for themselves within a year. Look to the “energy efficiency pyramid” for guidance on where to start.
  • Determine whether your roof is a good candidate for solar. Online services such as Google’s Project Sunroof will help estimate how many hours of light your roof gets and which portions of your roof are most optimal for solar panels. Project Sunroof also gives a breakdown of the expected cost and payback period for panels on your roof, which I’ve found to be close to my real numbers at least a year in. They even factored in federal tax credits, state tax credits, and SRECs into the calculation.
roof2.png
Solar estimate for our home by Project Sunroof.
  • Get comparison quotes for solar installers in your area. I personally like Energy Sage (not a sponsored link) as a means for generating quotes and comparing prices on costs for local solar installers.
  • Determine financing options in your area. For example, our state subsidizes banks that lend money for residential solar arrays. That means, had we financed our panels, we could’ve paid nothing up front and gotten rates as low as 1% interest (no, that’s not a typo). So even if you don’t have the money up front for a five-figure solar installation, you might be able to get a ten-year loan, perhaps never spending more than your current energy bill to do so.
  • Consider community solar projects or alternative utility providers if solar doesn’t work for your home. If you’re a renter or if your roof isn’t well-positioned for solar, but you are interested in bringing renewable energy to your home, try participating in a community solar project in your area. Or consider connecting your utility account to an alternative energy provider such as Arcadia Power. By telling your public utility that you want renewables for your home, you can help signal the growing public support for solar and wind investment in your area.

Have you considered installing solar panels? What sort of “green” additions have you made to your home?

Stock Market Dip: How Are You Reacting?

I am not a financial planner nor a financial advisor. This post reflects my own uninformed opinions and does not contain financial advice. 

After a comeback rally Friday, the DJIA closed at ~24,200, still down about 9% from its high at the end of January.

For those of us with a long time horizon, this downturn is a blip. Whether the market bounces back or craters in the next year or two isn’t make-or-break for me, though it may shift my FI plans, depending on timing of the recovery.

That said, the recent stock market volatility has tipped the scales on at least one borderline decision:

Because I plan to quit my job, I have decided to build up my cash cushion a bit before maxing out my retirement accounts. I still plan to fill my 401k before I leave, but I want to make sure I have cash on hand first in case my employer terminates me early. I’ve dropped 401k contributions down from 50% of my income down to the match; I’ll push it back up after my cash cushion reaches optimal levels. The stock market volatility has, in effect, tipped the balance toward this more conservative course of action.

Other than adopting more conservative sequencing in preparation for my sabbatical, though, I have no plans to change my behavior. I’m pretty happy with my investment allocation. Charitable contributions continue apace. Given that I’m looking unemployment in the face, I’m feeling remarkably unfazed. That said, give it a few months and a potential recession and see whether I’ve changed my tune.

At least for now, though, all there is for me to do market-wise is to watch and to wait. And to idly speculate what may come next (mostly because it’s fun). With no real basis whatsoever– no data, not a finance person, etc etc etc hedging– my guess is this correction is going to be “the big one” we’ve all been waiting for. Maybe it’ll last a few months, maybe even a year. I wager– again, based on no knowledge, wisdom, or reliable intuition into these matters– this’ll end up being a 30%+ correction and the DJIA will drop below 20,000 once more. I’ll be DCA-ing in anyway, I’ve been wrong about this stuff before. But, hey, we all try to think about what’s next during crazy times, don’t we?

How are you reacting to recent market fluctuations (if at all)? How low do you think we’ll go?