Monthly Archives: March 2013

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Am I lucky?

My choice to be a stay-at-home dad

My neighbor said something interesting to me the other day. We were chatting about how I’m a stay-at-home dad with my 7-month-old son.

“You’re really lucky you get to stay home with him,” he said.

“Thanks,” I said. “I’m really glad I’m able to do it.”

Later, the conversation struck me oddly. Was I really “lucky”? Certainly it’s a privilege to be able to do it. And I realize not everyone is able to do it. But was it luck?

Nearly a year ago I quit my soul-sucking job to finish updating our kitchen and prepare for the arrival of our new baby. My wife and I were both home with him for the first four months. It was tough when my wife (significantly younger than me) had to go back to work. But we adjusted and both agreed it was best if one of us could be home with him. Given our situation it made much more sense that it be me.

My neighbor is now just a few years from retirement. He’s been commuting to the same company for decades now and certainly doesn’t hate his job. Their family has nice cars, their kids are gearing up for college, they have a vacation house where they spend much of the summer. His wife was able to stay home with their kids when they were  growing up. By almost any measure they have the perfect, traditional American life. And they seem quite happy overall.

But what struck me about the conversation was the subtle envy in his voice. I can’t say what he was thinking. Was he wondering what he missed out on? The joys and challenges of every day at home with a young one. A million mini-dramas a day all leading slowly, surely to that little child becoming a self-confident, independent adult. Was he thinking about all those purchases that kept him chasing the paychecks? Was he pondering his pension and what it cost him?

No, I don’t feel lucky. It was my choice. I know I’m giving up wealth and a comfortable retirement. But I’m getting something even better in return: My life.

Really, Costco? Really?

Bigger paper towels? Does this help anyone?

Bigger paper towels? Does this help anyone?

I have  a love/hate relationship with Costco. In many ways it represents everything that is evil about American capitalism: driving us to buy more than we need, buying cheap crap from China that we don’t need, buying more than we can afford on impulse, feeding the bigger is better crowd with the mentality that they should fill up their SUVs to the brim then store this crap in their own homes for future use, thus turning into their houses into mini-Costcos of their own. I much prefer the European model of picking up what you want to eat for dinner THAT DAY on your walk home from work. People laugh at tiny European refrigerators, but those people aren’t giving away free warehousing for a store. It’s a true just-in-time model.

I also hate the experience of shopping at Costco, with the overcrowded parking lot, idiots stopping to gape in mid-aisle and the moronic crowds circling around the endcaps for a mini-bite of frozen waffle. So far I have restrained myself from ramming anyone, which I think is a point in my favor.

On the other hand, a trip to Costco can be a money-saving experience. And the company has very progressive (by today’s standards) of worker treatment and fairness. They also tend to buy relatively high quality merchandise and have a great return policy.

We’ll typically do a surgical strike maybe four times per year and bulk up on certain essentials. But you have to be careful. Case in point: Costco’s paper towel selection.

During a trip to Costco last week, I found this abomination: new, larger paper towels. This is one of those cynical capitalist gimmicks that is so frustrating. Do we really need the actual towel to be larger? Obviously this is geared at making us use more paper towels!

Fortunately we don’t use many paper towels. But they’re occasionally handy. Main uses are wiping up cat puke, covering food for microwaving (although we rarely use our microwave) and cleaning something that I need to keep relatively germ-free (where a sponge is a bad idea). Even when we do use them, however, I almost never need a full normal-sized towel. Often I’ll just tear one in half and use the other half later. So when select-a-size paper towels came out, I was fully on-board. But none are available at Costco. Just ginormous paper towels. See, I don’t care what the cost per “roll” is: I care what the cost per “wipe” is. So I aborted and picked up a similar-sized pack of select-a-size towels from QFC. Oh, and if I happen to need a larger one? Guess what, I’ll just use 2-3 of the smaller select-a-size towels.

Which is my overall point about Costco: it can be awesome and handy, but don’t assume that just because you get something there (or anywhere), it’s a better deal. Do your homework.

What bargains or non-bargains have you found at Costco?

Update 9/11/13: Just a quick update to mention that I was in Costco recently and they have surrendered to the will of Pretired Nick and have added select-a-size paper towels to their offering. Another win for me!

How much money will it take to pretire?

Do I really need $1.3 million?

I started this draft quite awhile ago now and since that time I tripped across this piece on early retirement math from Mr. Money Mustache (may his whiskers forever remain crumbless). MMM explains the concept better than I ever could, so please go read the whole thing.

My own story begins in my early thirties when I was having a conversation with a financial adviser. My simple question was “What do I need to do to retire by 40?” The concept that is now “pretirement” hadn’t occurred to me yet. At least not as clearly. I just knew I didn’t want to HAVE to work after that point. That was the goal I’d set and I was going to figure out a way to get there.

So I sat looking at this adviser, pen poised above my notepad, awaiting the wisdom about to come forth. The answer came back in the form of a question: “Do you have $1.3 million saved up?” This adviser spends every day dealing with folks investing hundreds of thousands of dollars, even millions. The fact I could even get a meeting was amazing. So it was pretty understandable that she looked at me with an expression that said “Why am I wasting my time on this lazy loser?” (Little did she know I was working 16-hour days at the time.)

She saw my look of dismay and hopelessness and immediately softened her response. “It really depends on how much you need to live on,” she said. “And you need to think about inflation. And health care costs. Do you think you could live on less money?”

Her math was unassailable. To have a passive income approximating a reasonable salary, say $4,000 or so, and a safe yield in the 4% range, that’s about where you end up. But that conversation in a way is where my journey toward pretirement really began. Because I realized then that I COULD live on less.

First of all, I knew I’d be mortgage-free. I was living in a smaller house and was close to being able to pay it off even then. And certainly by 40 would be easy. Secondly, I was naturally frugal and was making good income. I just needed help figuring out the plan. Much of that changed as I grew older and became accustomed to life’s finer things. That doomed me to more years of working. Then the big economic collapse happened and much of my net worth evaporated.

Nevertheless the seed was planted. Complicated spreadsheets were created slicing and dicing income and expenses many different ways. All of them told the same story: The comfortable floor for my monthly costs was somewhere between $800-$1,500, mostly depending on how cushy I wanted my life to be. Inflation was definitely an important consideration, but did I really need $4,000/month? Something seemed amiss.

Now I’m not saying I would mind having $4,000 rolling in every month. Far from it! I’m just saying working for idiots for 30 more years wasn’t worth it.

So after much reevaluation, I decided the best path was a severe cost-cutting strategy, while adding on part-time work. So the goal now is $1,200/month, or $288,000 invested. (Worth noting that I already bring in more than that passively via a rental property on paper. Unfortunately unpredictable expenses and renters have made that too shaky to rely on for income. So I’m working on restructuring that now.)

I know I’m a broken record, but I have to repeat again, that for me $1,200 per month isn’t REtirement, it’s PREtirement. I won’t be dipping into my retirement funds and I still plan to work part-time while I stay home with my son. I may even end up going back to corporate America at some point just to speed things along or to keep myself entertained. The point is the freedom, not the goal itself. If I accidentally end up working for some lunatic like I did at my last job, I’ll be free to leave and never come back. That’s freedom. That’s wealth.

I’ll likely keep working at least part-time until I at least reach the $2,000 per month income level. That’s around half a million invested. Still a long way off for me but a far cry from the $1.3 million I was told I needed all those years ago.

What do you think the right number is to reach pretirement?

My advice to the young folks

The financial advice I wish I’d been given

When deciding to start writing this blog, one of the visions I had in my head was of some teenager (perhaps one of my nephews) stumbling upon it and realizing what was possible early enough to have an amazing life, even if they didn’t come from amazing circumstances.

You see when I look back to my younger days, I now see that I didn’t have much intelligent financial guidance. I got a few great tips here and there from teachers and relatives. Some of that advice included:

  • Never carry a balance on a credit card
  • Only have one credit card at a time
  • Never use store cards
  • Always pay cash for cars
  • Only use credit for emergencies, houses and education
  • Always balance your checkbook
  • Never charge more than the amount you have in the bank at any one time
  • Don’t be tricked by sales into paying interest on a card

And so on. All great advice and for the most part I did very well by following that guidance. In fact people who don’t have basic ability to manage their finances in this manner have no business even contemplating pretirement. Unfortunately that advice, as great as it is, is as basic as being taught to read. Reading is important, but if you want to, say, be a scientist, you need to learn much, much more. There are those very special people out there who figure out the puzzle on their own, but for most of us average folks, we have to decode this mystery on our own. If we’re lucky, we’ll figure it out before we’re too old to benefit.

So here then is the advice I wish I’d been given before I was out of high school. I’ll frame this somewhat as a life-path just to make it a little more concrete. (Oh, and I definitely would recommend all the bulleted advice above.) So let’s take a look. Jjust for fun we’ll say that we’re starting out at 16 years old.

16 years old – total savings: $500 (I’m assuming you’ve saved up some birthday gift money or can at least sell of some of your accumulated crap.)
Congratulations! You can now drive a car. The thing you want most right now are wheels! Caution – Hazard Ahead! Spending money on a car could screw up your next few years. So let’s do this the right way. If your parents are nice enough to buy a car for you — take it! But if they ask you to pay for your own insurance, politely decline and save your money. If they are paying your insurance for you, great! But, guess what? You get to drive your car rarely and only to support family errands — hey they bought you  a car, the least you can do is a few errands! All that gas money gets saved!
Now if your parents didn’t buy you a car, then you have really awesome parents! It also means you won’t be tempted to show off by driving it to school and wasting tons of money on car bling and other garbage. The bus should work just fine and you’ll come out way ahead later.
Personally I’m a fan of kids who are in school working only during the summer. You shouldn’t really need the money and you should be focused on doing great in school at this point. But we’ll assume you work a summer job and make a little money here and there over the course of the year and can make a bit of money, say $2,000.

17 years old – total savings $2,500 
You have a little more experience under your belt now, so you can start doing a bit more work for extra money this year. You’re still minimizing the driving and still excelling in school. Keep saving up. We’ll say over the course of the year you’re able to save up $4,000. Do whatever it takes to make that number, except for sacrificing school performance.

18 years old – total savings $6,500 
For your last year of high school*, you’re going to need to start planning for college. We’ll assume you’re going to college because you want to give yourself the maximum options for your future. There are way too many options for me to outline all of them for you, but a couple thoughts:

  • I’m a big fan of community college. It’s a great way to beat the system and get ahead of the game
  • I’m also a big fan of taking a year off after high school before you start college. Make some money, decide what you want to do. If you want to go to a school out of state, that year can be spent establishing residency so you can score in-state tuition rates.

Meanwhile, you’ll be doing even more work, while still staying focused on schoolwork. You save up $5,000.
*Obviously the month of your birthday can determine how old you are during which year of high school. My birthday was at the beginning the school year, so I laid out this timeline to match. Adjust as needed for your own.

19 years old – total savings $11,500
You’ve passed the $10,000 savings barrier. It’s time to start investing! You can do your own homework on where to invest, but basically you should plan on trying to hit a 6% yield on your investments. Some will argue it should be a higher or lower yield. I say since you’re young you can go higher than the 3-5% safe zone, but you don’t want to be foolish either. Now that you’re out of school, a million paths lay before you. Just to keep it simple, let’s say you decide to take a year off before starting college. I don’t necessarily recommend this to everyone, but it may make sense for some. You work at least one job this year (two would be better) and you stay living at home if you’re allowed. Stay car-free if at all possible. Basically don’t spend a single dime that you don’t have to spend. We’ll say over this year you manage to save up at least $10,000.

20-23 years old – total savings $22,500
Time to go to college. Again, taking on debt for college is something I support. BUT ONLY IF NECESSARY! Do whatever you can, including going to community college first, to stay out of debt as long as possible. Since you’re going to be focused on school, though, we’re going to cut back your working hours, so you only need to save $8,000 per year while you’re in school.
Meanwhile you’re going to keep investing your saved money. By the time you’re out of school, you should have already have around $63,000 invested. At 24 years old, you’ll have assets that generate more than $260/month without you doing a thing!

24 years old – total savings $63,000
You’ve done a great job being frugal. Reward yourself with a brand, new car! Take out a loan on a new Mercedes and live it up! Ha ha, just kidding. You wouldn’t be that dumb, would you? Unless you’re lucky enough to live where a car isn’t needed, it is, however, time to spring for that vehicle. (When you think about it, by rearranging your life in certain ways, you can build a lifestyle that doesn’t need a car. Don’t be afraid to challenge what everyone else is doing.) Get something clean and reliable and keep it under $6,000. We’ll assume you were snatched up by an employer right out of college (told you that studying would pay off!) and are able to start getting serious about your savings. Start by saving just $20,000 or so off your new salary. Can you do it? It won’t be possible for everyone just getting out of school, but for many it’ll be easy. Even if you make just $40,000 per year, by being careful, you could save $18,000 per year. Keep in mind, you won’t be able to keep up with your fun-having friends. No toys, no going out, you have roommates, it may not always be super fun.

25-35 years old
I won’t outline every year now that you’re deep in your career. But let’s say you save in the coming years an increasing amount. From the 18,000/year you started with, to $20K, to $25K, to $30K, to $40k, $50K, $60K and on up to $75K and $80K. Again, your mileage may vary. With that basic schema, however, you would be able to buy a house at age 32 and make the payments with your investments or keep saving and be a millionaire by age 37. Wow!

It’s time, then, to pause and think about we managed to do. By powering your earnings into investment income, you outsmarted all the suckers. By starting early, you were able to buy your freedom from corporate America while the wage slaves are trapped under mountains of debt. By investing those funds effectively, they were able to exponentially grow to power your pretirement forward.

From then on, it’s up to you what you do. Keep working and get super rich or stay home and raise a family. Volunteer, travel, it’s up to you. But unlike most of us old guys who were distracted from this path by the lure of consumerism, you’ll be sitting pretty living the life most people only dream about.

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