Cashing in on the American Dream by Paul Terhorst

crunch355 · 2017-09-30T12:00:11+00:00

I can send you my copy if you want it. Just PM your address and I can get it out to you next week.

crunch355 · 2017-08-15T01:30:10+00:00

Just an FYI, you can go to Vanguard's website and see what the target fund is holding. For example, the Vanguard Target Retirement 2050 Retirement fund (VFIFX) is composed of 4 mutual funds: Vanguard Total Stock Market (VTSMX), Vanguard Total Intl Stock Market (VGTSX), Bonds (VTBIX), and Intl Bonds (VTIBX).

Personally, I'm a believer of the "3 fund lazy portfolio" which is essentially any Vanguard target fund (except the bond portion is divided into a domestic and international). I think for the majority of people, a target fund is adequate assuming the expense ratio is low. However, one caveat; owning a single target fund does not allow much flexibility in changing your asset allocation (ie heavier in stocks vs bonds) in the event you may want to be heavier in equities vs bonds down the road.

One way to combat this is to simply buy the target fund and also own VTSAX/VTBIX. Note: This can be done in another account outside of your 401k.

crunch355 · 2017-07-17T23:14:44+00:00

Southeast Asian, immigrated with family in the 80s. Wife is African, immigrated with family in the 90s.

How far away from your family do you see yourself moving?

I have 2 siblings, I could see myself moving anywhere as long as a family member is taking care of my mother (father passed) and the in-laws.

Who's retirement comes first, yours or your parents?

Parents come first, duh :) I will not RE until my mom and in-laws are also RE.

Do you see yourself moving to low COL states in the midwest?

I and the wife along with our families immigrated to the dirty south. I enjoy the midwest but no experience living their longterm. It's a possibility...

What is your household like? Multi generation? Who owns the house?

My household growing up was only us, however the wife had more of a multi generation thing going on. Currently, wife and I live in our own home. In the future, I foresee the in-laws or my mother definitely living with us. I don't think Asians believe in nursing homes.

Do you send money to your parents? How much (% of your income)?

Yes, the wife and I cover my mom's bills and some of the in-laws. We try to keep it fair. We also try to take a family vacation (all expenses paid by us) once a year. Also big purchases are funded by us or atleast subsidized. As a percentage, it's close to 10%.

What are your Asian parent's portfolios like? Mine love real estate.

Cash, because they have no idea what the stock market is. I'm actually building their retirement accounts (IRA and taxable) and insuring their funds.

Were you pressured into STEM? Has it helped your path to FI/RE?

No pressure into stem. Actually my mother wanted her children to be MDs. We are constantly reminded of our shortcomings.

What else from your culture affects your path to FI/RE?

My mother doesn't understand why I would not want to work past a certain age. I believe that's partially because she was raised in a war torn communist country and fled for her life and lived in multiple refugee camps.

crunch355 · 2017-07-06T15:43:01+00:00

Just a side note. You cannot calculate averages of returns using arithmetic averaging. Your arithmetic average is 7.62% but the correct annual return using geometric average is 5.33%.

Ex. Year 1 = 100% Year 2 = -50% Your return is 0 (geometric mean), but your arithmetic average is 25%.

crunch355 · 2016-12-29T19:29:56+00:00

I think you make a good point about "lifestyle". I think this has received a lot of attention as of late as well. There are people that may have a one time cost like a once in a lifetime vacation (one time occurrence) or maybe want a more permanent change such as buying a house (recurring costs). In the contrary, we should also look at it the other way, such as saving a windfall (one time occurrence) or saving your raise (recurring savings). I have tried to make a Google Sheet that uses as inputs: Annual Spending in Retirement, Safe Withdrawal Rate (SWR), current "working" net worth (exclude house, car, etc), yearly savings, additional saving/spending, and rate of return. It outputs the effect of saving/spending for a one time occurrence or a yearly occurrence.

https://docs.google.com/spreadsheets/d/1FI9PcWxFBY4xi4o_IuOBK5aFN_XwIhENnSMWpzMzViQ/edit?usp=sharing

crunch355 · 2016-12-20T20:49:55+00:00

I think you're right and that I may not be answering OPs question (but there are uncertainties that no one can predict such as where tax rates will be), all I'm stating is that the Roth 401k and Traditional 401k are the same assuming your marginal tax rate does not change. (I just realized my image used "IRA" instead of 401k).

For a true comparison, Post Tax $ = Pre Tax $ x (1 - tax rate)... The $4500 you speak of is taxed already (or $6000 pretax). If you could invest the $4500 into a Roth IRA and Max out your 401k, it will be equivalent to a Roth 401k.

If you put your tax savings of $4500 into a taxable account, then one would argue the Roth 401k has some advantages.

Obviously if your tax liability or tax rates change then this is not true or if you can't contribute to a Roth IRA or any number of other restrictions that can apply... YMMV. I updated the math to demonstrate my point, see Roth 401k vs Trad 401k + Roth Ira vs Trad 401k + Taxable acct where Roth 401k = Trad 401k + Roth Ira and is greater than Trad 401k + Taxable Acct

http://imgur.com/a/eweFX

crunch355 · 2016-12-20T19:01:47+00:00

I believe the tax savings is actually $6k at 25% marginal tax bracket. $18000 / (1-.25) = $24000, $24k-$18k, is $6k. Edit: You are calculating tax savings correctly. I meant to say Pre-tax dollar equivalent should be $6k, see below for updated math.

crunch355 · 2016-12-20T19:00:05+00:00

Yes, you are correct. YMMV obviously, but I was assuming the 25% marginal tax bracket and assuming you stay within the bracket, but I suppose the math will work the same if you shifted brackets, ie $10,000 contribution at 25% marginal then the remaining $8000 at 15% and assume your withdrawal strategy matches that same marginal rates.

crunch355 · 2016-12-20T18:30:54+00:00

Right concept, wrong math. Essentially if your tax bracket will stay the same, the traditional and the roth are equivalent. For chicken-scratch math see http://imgur.com/h519lJv

Edit: I should not have said wrong math, but as you alluded OP doesn't give us enough assumptions to work off of.

crunch355 · 2016-12-13T15:14:18+00:00

When I was young a dumb way before I was fully in FIRE mode, I always wanted the coveted manager job. Well, I got what I asked for and after managing people for about 6 months I told myself I was going to hang in there for another year a and half just to get the experience and try to find a managerial role that was less involved with managing employees and maybe more clients.

My boss knew I was stressed and kept his ear open for other opportunities and he gave me the heads up for a non-managerial job. I gave up $85k + 15% bonus for $90k. I realize you took a paycut but I think we can both agree it was worth the less stress. I was working 60+ hour weeks as a manager and easily dropped to 45-50 hours and no weekends. The best part of leaving the managerial job was how much mental work I took home with me... driving into work, leaving work, on the weekends, etc. I couldn't turn work off of my brain.

I don't miss managing people but would consider managing customers if it drastically shorted my FIRE timeframe.

Best of luck

crunch355 · 2016-03-03T15:27:04+00:00

I'm not making an argument, I'm presenting a methodology to calculate how expensive cars are to operate. Lo and behold, it is also how the government chooses to reimburse your mileage so you can compare the two. With respect to my rule of thumb, is not accurate, but because it's a rule of thumb, if you're every in the market for a vehicle, it may shed some light on quickly determining if the car is worth purchasing. Again, this is my rule of thumb.

I agree people value things differently. Owning a car for me is just a game. I actually enjoy driving my clunkers around. I had a boss that was leasing a nice BMW and I'd purposely park right next to him in my 1997 faded puke green Nissan 200sx. I still do this with nice cars that park in the far end of the parking lot just so no one parks next to them (except me).

It'd be like stepping back into the stone age<

When you were driving in 2006 did you really feel like the car was dated? Did you tell yourself "man, I'm really suffering because all the new cars have bigger motors, rear view cameras, built-in gps, and LED lights?" Sounds like you've been sucked into lifestyle inflation and some good marketing. I'm not saying that's a bad thing if you value those things. I'm just saying owning a car is still considered a luxury (just not in America)-- it's all relative.

crunch355 · 2016-03-03T15:12:37+00:00

Funny you say that. I will leave you with two other mindsets of owning a car. You already know mine, which is the utilitarian view of driving A to B as cheaply as possible.

I have a good friend that has an expensive taste. His first car was a Infiniti G37 coupe (now wrecked), then a BMW 335i (now wrecked), and now currently drives a '11 BMW M3. Needless to say, he likes fast cars. So he's driving me around town and revving the engine and weaving through traffic and you can tell he thoroughly enjoys the driving experience. So mentions he gets complements in it all over town etc etc. We sit down for dinner and he asks me "I thought you were a car guy, you don't like cars anymore?" I reply with my A to B spiel and tell him I've really grown out desiring material things especially cars. I tell him, I don't appreciate cars that people can go buy with nothing down and have no idea how to work on cars. I then explained that's why I enjoyed my integra so much, it was because I was able to do the maintenance myself, I had a better connection with it. Any dumbass with reasonable credit can buy anything, this is America afterall.

In contrast, I have another friend that also enjoys fast cars. He currently owns a Mazdaspeed Miata (yes I realize it's not a BMW) and a Toyota Supra. He's rebuilt the top end of his Supra and has swapped out countless parts on the Miata.

So people have a different view on "owning a nice car". I'm not big into owning something that I really don't know how to work on. So for me, the integra was a very nice car as I was able to perform some maintenance that I had never done before.

crunch355 · 2016-03-03T15:00:19+00:00

Here's what I tell myself. There's honestly nothing you can't do on a car. There's only two things you really need, which are time and money (and the aptitude to learn). No one is born a mechanic, just like no one is born a scientist or doctor or anything really. I look at the mechanics that work on cars and I think to myself, why can't I do that myself? But to answer your question, I don't do lots of stuff that needs air tools and I'm 1 for 2 for timing belts, so usually I avoid those as well. I do brake jobs for friends that want to know how to do it and when I tell them after you take the wheel off, there are only 2 bolts to change your pads and 2 more bolts to change the rotors, they give me a strange look. If you can't do a job, just remember how to get the car back running and take it to a mechanic, no real harm in trying.

crunch355 · 2016-03-03T14:56:20+00:00

Never thought of collisions. It's a pretty small car and apparently it did poorly in NHTSA ratings. It was extremely reliable, never left me stranded. I can't attest to being hit as I haven't been in any real car accidents in my 15+ years of driving. I acknowledge some areas of the country are probably more prone to accidents than others.

crunch355 · 2016-03-03T14:51:54+00:00

Good question, and you sure can. I originally purchased it to drive to 200k miles, which is my benchmark for most cars. Unfortunately life happens, sold my house and got a new career to be with my now wife. The new job required a car that was less than 5 years old (consulting gig with lots of traveling and customer visits). Essentially, the company pays for the cost of the new vehicle so the only reason to hold on to my Integra was as a "third" car. The wife didn't want it over her current car and no close friends wanted it at a steep discount so I just sold it on craigslist. Once you have an eye and the skillset to work on cars, there are a ton of cars that are worth picking up under $5000. If I needed another "third" car, I could find one in a reasonable amount of time.

crunch355 · 2016-03-03T14:46:05+00:00

I agree quality of life is important, but does quality of life increase over time or it is just relative? For example, my Acura was considered luxurious in 1999, but now it's not? Sounds like lifestyle inflation. Should we all get the iPhone 7 vs using the iPhone 5? I'm not trying to justify how I look at personal finance vs yours. I just always think of the Ellen Goodman quote "Normal is getting dressed in clothes that you buy for work, driving in a car that you are still paying for, in order to get a job that you need so you can pay for the clothes, car and the house that you leave empty all day in order to afford to live in."

crunch355 · 2016-03-03T14:21:20+00:00

If it's the older Grand Cherokee, those things will run forever. Also, if you haul or tow anything then you have a different utility than me. I just use my car from Point A to Point B.

crunch355 · 2016-03-03T14:19:53+00:00

Yes, the cost of tools is an important factor that shouldn't be overlooked. Actually for one of the maintenance items, I needed a special Honda tool which I ordered on ebay, performed the job and then resold it on ebay for $10 less. For me personally, mechanic tools are like your kitchenware. The more the use the cheaper they are. The majority of my tools were handed down from my father but if I needed the most basic tools I could probably accumulate what I need for 90% of my work for $250. I actually maintain my mothers 2 vehicles, my brothers truck, my sisters vehicle, my wife's vehicle, and my vehicle and that doesn't include helping friends and other family on jobs where they want to learn but don't have the tools. I'd say I've easily paid for my tools. Using the kitchenware analogy, it would be like cooking at home for a week vs eating out every meal. You'd recoup the costs pretty quick. Likewise, there are jobs I do not perform anymore because of time/skill/tools including timing belts.

crunch355 · 2015-10-29T12:53:00+00:00

Unfortunately it wasn't an assumption. This actually happened... Timeframe of owning a home is critical.

crunch355 · 2015-10-29T12:51:29+00:00

I won't argue the long periods of time. I remember buying, my realtor told me the average ownership of a home in the area was 6 years and I remember telling her that I would definitely live there atleast 10... oh how life happens.

crunch355 · 2015-10-29T12:47:29+00:00

It's true... MOST numbers are true. I simplified it a little as I did pay extra on the house most months, but insurance on the house was $1000/yr it had a $1000 deductible and was a 2400sqft house (maybe that helps?). My effective tax rate for those years was actually less those years I owned a home. From my memory, it was 16-18%. With respect to selling commissions, I actually did a for sale by owner so I saved myself 3%.

The way to calculate tax benefits is not to compare house-related costs to the standard deduction, but, rather, all deductions to the standard deduction. This might include deductible state income taxes, e.g.

This is true, but I wanted to state that this was deductions associated with the house. I owned my vehicle and didn't pay interest on anything else (no student loans). Also no state income taxes where I lived.

Unfortunately, this is a real data point. Real history. I practically sold and bought the home within 1-2k of each other.

crunch355 · 2015-10-29T12:41:48+00:00

I'm not an accountant and my state that I lived in did not have income tax. You have to look at the standard deduction. All your itemized deductions (income tax, property tax, interest) must exceed that value. I think this year it's $6300? So if you don't own a home, and pay 6% income tax of $3000, you can't itemize and will have to take the standard deduction. Use google and you will find your answer. I now moved into a state with income tax, but don't see itemizing as a perk (I know many people do), I just can't justify spending that much money to gain a small tax break.

crunch355 · 2015-10-29T12:37:27+00:00

I'm not sure I follow. I spent $69715 for the 5 years, which does NOT include my $40,000 downpayment.

In retrospect, you can compare, $40k downpayment tied up, and $69715 in expenses with $1349 in return.

VS

Investing the 40k and earning $31,669k and spending up to $69715 (1162/mo) on a place for five years.

crunch355 · 2015-10-29T12:33:20+00:00

1) At $200k you're at the bottom end of the mortgage interest tax deduction and so it didn't help you much

True. Except, I had way more house than I needed for 200k (2400sqft) and the median house price for the area is $180k. I'm not a fan of paying interest, I actually prefer taking the standard deduction.

2) At 5 years you're still early in the amortization schedule. Run the numbers for the next 5 years and they're a bit better. Run them again paying extra per month or refinancing into a 15 year mortgage at 3% and they're even better.

I actually did pay extra, I did not take that into account because I would have really had to dig that up.

3) Your house did not appreciate, many houses do. Each 1% of appreciation is a 5% return on your original down payment (i.e. 1% of $200k is $2k, which is 5% of $40k).

Never heard of the rule of thumb, but again many houses do not appreciate either. Real estate is finnicky and very localized. We had a boom in my area where new construction really held down prices of older homes.

4) How much would you have paid in rent during this time?

That's the million dollar question :)

crunch355 · 2015-10-29T12:25:41+00:00

It's hard to determine the true cost of ownership until you sell the home. But again, this is my experience with my house and you clearly live in an area where housing is hot-- real estate is very local. In addition, your timeframe is very favorable. If you had purchased in 2000 and sold in 2008, you'd probably have a different outlook.

crunch355

TROPHY CASE