Tag: teacher early retirement

Personal Financial Forecast

By

On January 23, 2022

In Financial Goals, Financial independence, Net worth

This is something that I recommend to everybody trying to do better financially regardless of where you are at in your financial journey.

Every year I make sure that I take the time to set up financial goals; realistic ones! Based on what I know, meaning my incipient financial literacy, and what I have experienced in terms of my investments’ performance I start each year setting some new expectations for the new year.

Last year, just like the previous years, I surpassed my goals, which is totally fine and it actually boosted my confidence. With that said, I still keep myself grounded and continue to base my expectations on my real numbers.

Last year was truly exceptional with a 67% net worth increase. Part of that increase was a 50K legal settlement, but even without that windfall the increase would have been 48%, which is still amazing. Especially for a household of 2 adults and 4 kids living on one teacher’s income.

For this year this is how I see things going down…

My paper-pen planner is all I need to figure out the year.

First, I start with a very broad and general appreciation of 3% of the total amount of our real estate assets, including the home we live in. That’s the first big number at $39,300.

Next is our tax return that usually comes at around 10K. I get a lot of deductions because of the 4 kids, and all the morgage interest we pay. I am starting to think about changing my witholdings so that I can invest the money right away instead of loaning it to Uncle Sam for free.

Then, there is the break-down of the rental income. We have two rental properties, and we just bought a vacation rental in Michigan. We are in the process of figuring out how much we could rent it for. It seems like, according to market prices, we could rent it somewhere between $1,800 to $2,300 per week. So, I calculculated the rental income of this properrty at $1,850. We get about 10 weeeks out of the whole summer season and we are planning on using it for 2 weeks. 8 weeks will pay for the mortgage, and even at the lowest rate we should be left with about $900; maybe for unexpected expenses.

Finally from my teacher salary I manage to save $716, which was originally our student loan payment and after paying it off we repurposed the payment into our savings pot/bank. That amounts to $8,592 yearly.

Investments: I haven’t really put much effort into my 403B plan(Same as a 401K) because we have focused more in real estate investing. Why? Because I like the idea of building more cash flow and the leverage you get with real estate investing. My current balance is $74,441 in FSKAX(Fidelity Total Market), VTASX( Vanguard Total Market), FXAIX ( Fidelity SP500), and very little FXNAX(Fidelity Index Bonds). However, I think I am getting to my limit of how much property managing I want to do. From now on, I will use the cash-flow from our rentals to fuel my 403B plan. Once I hit 100K, I will move on to build up a 457 fund, in case I retire early, quit my job and want to access some of the money earlier than 59 1/2.

All this income comes to a total of $84,911, or 20%. This is how much I am hoping to increase my net worth in 2022. I will be more than thrilled if I shattered my goal/prediction like I have done in the last 3 years. We’ll see!

I just realize I have a disparity between my Mint and Personal Capital net worth. Mint shows $412K and Personal Capital $437K. I am not that concern about it. Mint lately has given me a lot of issues synching with Zillow, so I may consider going by my Personal Capital net worth of 437K instead.

If you read this, I hope this gets you excited about the power of getting a hold of your finances. The hardest thing is getting to the point of starting, committing and wanting to do it. Once you start everything falls into place.

If you have any question or I can be of any help I will be more than happy to share ideas with you for free. Just drop a comment below.

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buying a used car

Should I buy a brand-new car or a new-used car?

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On December 5, 2018

In Uncategorized

Ohh cars! You gotta love them. How not to? They are such an art! They are designed with such ingenuity. They represent a summary of generations’ hours on end of trial and errors, trying to achieve efficient engines and fuels in order to combust progress and economic growth. Their interiors become every day more and more comfortable, to the point that their seats look more appealing than our couches. They are also loaded with technology that allows you to navigate the radio airwaves or demand phone calls with the command of your voice; as long as you don’t have an accent like mine, that is… a plethora of bells and whistles such as cameras to help your driving, integrated navigation systems so you don’t forget where you grocery shop, heating systems to warm up even the parts of your buddy that never see the sun, safety airbags ready to save your life, and in case you forget to use the brakes they got you covered… Gosh! How not to love them?

Well, unfortunately, it doesn’t matter how much we pay for a brand new car and how new it is, the fact is that it will break down sooner or later. Having a brand new car is no guarantee that it won’t break down, or even worse that it won’t be involved in some sort of collision where you may total your investment and get just a fraction of its cost after the insurance company makes the depreciation calculation. Now, that might be the argument for some people to go ahead and purchase a brand new vehicle and enjoy the perks of a warranty for the first two years or so, plus a hefty insurance policy, just in case.

However, when you calculate the number of hours of work you must invest, and consequently hours of your life, to pay for …what many consider such an investment, you might reconsider your spending.

According to Carfax and similar sources, a brand new car is bound to depreciate 15-20% in the first year of ownership after being driven out of the lot. Twenty percent! To add insult to injury, long gone are the days when you could find a simple car with just the basics. Now with all the bells and whistles that cars are sold with, it is extremely difficult to find a family car for less than $20,000. And once that you are sold into spending $20,000 in a vehicle, why not to spend a few more thousands in all the luxury that everybody craves. What difference does it make if your car payment of, let’s say $500 becomes now $550 for some extra safety features or technology “coolness for your ride?” Right? Just a few extra bucks!

About six years ago my family and I were in need of another car (The one we had got a trans problem). Convinced by a good friend of mine we made it to the Toyota dealer. At the time we were interested in a minivan Sienna. The financing, of course, is always a hook; especially when they offer to finance your 30K+ vehicle at 0%. I just couldn’t wrap my head around the idea of paying such a high price and for such a long time. Also, for something that I knew would end up needing car repairs regardless of how much I care for it.

We moved on from the idea of buying new,  we spent some time thinking about it and came up with the final decision; we were buying used! We spent some time on Craigslist looking around for options and right away we found plenty. We chose a 2005 minivan. It was year 2015, so at the time it was a ten-year-old vehicle. In the pictures, you could see some rust but in general, it looked great. We went to see it and it was solid. There were no noises, oil leaks, rattling underneath or anything like that, and the engine felt very responsive. Needless to say, we made a move. For $2,000 we bought our next car hoping it would last at least two years. I figure, if it lasts 2 years it would cost me about $83 a month. Much less than the car payments of $550 a month that the dealer had offered me previously for a new Sienna.

We have used that car now for 3 years and it’s still running strong. We take it on vacations, to the beach, everywhere. The best of all is that I don’t care if the kids walk in with muddy shoes or sand. If I have to go and buy some wood at the hardware store I am totally comfortable loading up bags of mulch, pavers, cement or whatever I need. If the dog leaves some hair behind after going to the park or beach I can care less. I own the freaking car; the car doesn’t own me emotionally or defines my life. I am paying, after 3 years $55 a month for this car. If I keep it for 2 more years, which I am planning on doing it, the price will come down to $33 a month ($2,000 divided by 60 months).

The best yet is that if I do decide to sell this car, the Kelly Blue Book trade-in value is between $300-700. My guess is that I would be able to sell it privately for $800 to $1,000. Even choosing the worst case scenario of $700 would leave the price of this car at $1,300. After five years of driving it: $1,300 divided by 60 months= $23. How does that look next to any car payment out there?

When I compare our minivan against my Corolla the difference is significant. I bought my Corolla brand new in 2004. It was pretty basic.  I paid $16,000 for it and paid it for 6 years. Dividing $16,000 by 14 years and 12 months, it comes up to $95 a month even after all these years. I still have that car and it runs great but it is still almost double than what I pay for my used minivan.

I don’t know you but I don’t think I will ever buy a new car again. When the need arises I will buy something that is at least 2 years old. Although I think that a car between 5 to 8 years old would have more potential for some serious savings.

You may feel very apprehensive about buying something used. I understand. I get it. Here is my recommendation to you: First of all don’t get the same ideas that some of my fellow teachers get. Don’t switch cars every 5 years or so. There is absolutely no need for that. That is the biggest waste of Benjamins!

Second, if you are uneasy about buying a used car, just hire a mechanic! How much can it be? $150? Even if it was $300, it is still worth it. You are saving thousands of dollars that will make a great deal of wealth in your 401k/403B.

Third, internalize that cars are disposable. With that said, understand that as you junk them you are also throwing thousands of potential savings. Literally tens of thousands of dollars!

 

Should teachers invest in 403B plans? Maybe…

By

On November 26, 2018

In Uncategorized

Conman

Maybe you are investing in your 403B plan at the same time you are financing a retirement plan for a financial adviser.

If you are a teacher or have a teacher in your family you may know that in most cases these folks with nerves of steel have very few options to make their working time worth more; in other words, it’s not easy to get raises. The only raises teachers get are either based on years of service or additional credit hours of professional development.

Many people may read this and wish for a political debate; not my intention with this post.

However, if one thing is true is that teachers’ opportunities to grow their wealth are limited. And the reason is two folded. On one hand, you have to either spend years of service in the trenches or take more coursework that requires an upfront investment.

Another option that is available to teachers and other public institutions is a 403B plan. A tax-deferred account that allows you to save money. The way it works is you let your employer know how much money you want to be taken out of your paycheck and your money, free of taxes, gets put in a special account with an investing company. Once the account is set and the money is transferred you can invest it in the stock market. You will not be able to touch this money until you are 59.5 years of age, and with the magic of compound interest you will have a decent a mount of cash to supplement your pension or retirement fund.

With that last word I probably lost YOU because many people think of “the market” and Wall Street as some sort of hocus pocus. A too complicated form of money investing for the common Jane or Joe. I get it. That’s what I always thought myself. Moreover, if you lived through the 2008 crash you are probably thinking of potential massive cash losses.

But with all and the market crashes, nothing could be farther from the true. All it takes is a bit of casual reading and few podcasts to get your mind set on track.

Most importantly, don’t make the same mistake I made. Let me tell you my 403B story. Well, not a pleasant one but definitely one that I learned a lot from and should help you avoid some of the pitfalls of investing as an educator .

When I first started working in the public school system I became acquainted with the P.E. teacher of my building. He was about 4 years away from retirement. He was animate about getting me to open a 403B account through my district. I had no idea what it was or how it worked. Coming from a different country, that was something totally out of sight for me. In my mind I had no business trying to invest in the U.S. stock market.

Somehow though, I ended up throwing $40 into it each month with Fidelity. I figured it couldn’t hurt. My P.E. friend told me where to put the money. I did and forgot about it.

A few years later, I remembered about it and went to check how much money was there. Wow! To my surprise, there were $6k+. Not that it was a huge amount of money, but it was a decent amount of cash for someone who was living from paycheck to paycheck.

At the time, when I was working with Fidelity I had no clue about what to do, where to invest or whatever pertain to investing. I did have the desire though of continuing seeing my money grow.

Sure enough, someone I knew from work happened to also work for an investment company. More importantly, it was part of the School District’s 403 plan providers list. He explained to me that the great thing about working with him was that he was also a financial adviser, which could certainly help me finding the right allocation for my money and bring the best yields. What can be wrong with that right? He also let me know that there was a fee of up to 2.5%. Nothing wrong with that I figured. At the time, I was paying 3.6% with my home mortgage; in my mind, I was getting a deal!

You can’t know what you don’t know, right?

I worked for about 3 years with this individual and his company. My money was invested in a lot of Vanguard stuff; remember I had no clue. However, in the midst of all this fog, there was something in me saying that I had to figure out my money. I always had that feeling of being blindfolded and I wanted to take the reins. My ignorance and the convenience of having someone resolving my finances were costing me more than what it should have and I wasn’t even aware of it.

It wasn’t until one day sitting on the couch with my wife, after listening to Dave Ramsey in a YouTube video that I got thinking about my 403b again. Few searches got me to the doors of the Financial Independent community. I started with the MadFientist podcasts. I listened to “Why you should retire before you hit your number” with Chris Hutchins and I WAS HOOKED! My gears really started spinning.

I felt enlightened. What I thought was a great deal of 2.5% for placing my money in Vanguards funds, I realized I could get it for 0.017% by managing my own money. In other words,  what was costing me $850 a year I could get it for $6.8! Holy s***!!! I am not a math genius but I knew that was a huge difference. Even worse when you think about this same difference if you get to have half a million dollars. $12,500 Vs.$85. Nope. It’s not an error. That is the difference of having half a million dollars and paying 2.5% a year or 0.017% in fees.

Needless to say, I pulled my money from that company and went back to work with Fidelity. My then financial adviser argued that he could actually help me to stay invested in the market if it went down and I panicked, and that argument was supposed to justify his fees.  Really? This was laughable to me.

I have kept on reading and listening to awesome podcasts like the ones from Afford Anything with Paula Pant. I read a few books and I feel confident about what I am doing with my money. I am escaping high fees and the hocus-pocus BS of financial advising from someone that is just trying to skim my account and profit from me.

If you are a teacher, or if you are thinking about investing in your 403B, which I would highly recommend to any friend or co-worker, make sure you are not paying high fees. What is a high fee? For me anything above 1% I would have to challenge it and find reasons as of why I am choosing that fund over a total market index fund with fees of 0.017% or at least under 1%.

Currently, there are a lot of school districts handing out their 403B plan management to third-party administrators, also known as TPAs. Unfortunately, no all investment companies are willing to work with TPAs because they work as gatekeepers. TPAs charge a fee to investing companies like Fidelity and Vanguard to serve individuals in the 403B plan of any given institution. As a consequence, many times you have that most of the companies available to employees to invest are garbage. Why garbage? Because they charge an arm and a leg in commissions. They rip you off! It absolutely sucks! Particularly beware of annuity programs. On the other hand, companies that do offer low fees for their services like Vanguard and Fidelity become off limits to you because they are not willing to pay any fees to the the Gate keeper TPA company. Otherwise they couldn’t offer the low fees they offer to their investors.

What to do? Is there a solution?

First and foremost, be in charge. Take the reins of your money and get involved. Nobody will make better choices for you. Learning this stuff is not that hard, and you really don’t need to know the ins and outs of Wall Street to figure that you don’t need a financial adviser to manage your 403B. A financial adviser might have its time and place but I would highly suggest paying an hourly fee before having someone completely in charge of managing your wealth.

Companies like Fidelity and Vanguard, make it easy for people like me. They offer what they call target funds, which are portfolios already preset according to your estimated age of retirement. Do you think you can find a way to outperform the market by finding “that one stock” that will make you a lot of money? Well, don’t. That’s your first lesson as an investor: Don’t try to outperform the market or you will get burned. Shoot for market average, low-cost index funds. Market average is great and all you need.

Also, very important, challenge your current options with your district. It’s your money. You work for it, so you should have a say about where you want your money to be invested. It might take some pressure but don;t just comply with whatever. Talk it over with coworkers, educate yourself and push your administration to find the best possible options for you. Remember, it’s your money; you are not begging.

You may also be paying Union fees regularly with every paycheck, so this is something that all Unions should be talking about and fighting for. Teachers need good and sound 403B plan opportunities. You Union should be fighting this at state level. If you are not in a Union you should find a collective voice about this matter. It’s your money, it’s your life.

I would love to hear about your 401K/403B opportunities in the comments. Do you feel that your company or District selects providers in your best interests? Do they care about the fees some providers charge?

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