<![CDATA[The Aspiring Adult - Blog]]>Wed, 17 Jul 2024 09:59:18 +0000Weebly<![CDATA[Why I don't automate my ETF investing]]>Mon, 15 Jul 2024 09:00:00 GMThttp://theaspiringadult.com/blog/why-i-dont-automate-my-etf-investing
It's pretty typical in the personal finance space to recommend to people to automate their investing. The reasoning goes that if you set it and forget it then you won't spend the money and you also won't forget to do this "boring" task each month. But I have taken a completely opposite position that seeks to create a different kind of non-boring relationship with investing.
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Each month, I have already set aside the amount of money that I plan to invest and then I spend what is left (rather than spending first and saving what's left). I manually move this money transfer from my checking account into my brokerage account. From there, I select the investment, "add to basket" in a sense, and complete the purchase.

But why not automate this "mundane task"?

Because our brains get this so-called "dopamine hit" from buying stuff in shopping carts. It makes us happy. Imagine going to Zalando or Amazon, finding the thing you want to buy, adding it to your shopping cart, and then hitting "buy now". Doesn't it feel really good? I'm doing exactly that. But rather than buying useless clothing and gadgets, I'm buying my financial freedom. I'm buying future time. If I were to automate my monthly investing, I would have less of a happy relationship with that outflow of money. Byy manually executing my investing, I'm treating my investments just like any dopamine generating consumer purchase.

Mindset shifted. I love it.
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<![CDATA[Buying vs renting housing: which is the better financial choice? A case study Part 2]]>Sun, 23 Jun 2024 14:00:24 GMThttp://theaspiringadult.com/blog/buying-vs-renting-housing-which-is-the-better-financial-choice-a-case-study-part-2
Back by popular demand: another case study on buying vs renting. My most popular blog post comes back around to look at the death of San Francisco real estate. I take on the myth and cult of home ownership to show that renting is sometimes the better financial decision and you aren't throwing money away if you choose to rent instead. Let's look at the opportunity costs of the buyer and the renter that took advantage of them.
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​Meet The House in our case study

In the last episode of this blog, I actually used my own house in Denver Colorado that I sold in March 2022 at the height of market values right before interest rates went up. I had the records to support the analysis and got comfortable with some assumptions and basics I could use to work out an imagined case study on another property (one that I have never seen or owned).

In this episode, I spent a few hours browsing properties in San Francisco to realize the horrors of crashing prices there. Like this gem that sold for $665,000 in 1997; $1,200,000 in 2000; and $725,000 in 2024. From 1997 to today, SPY, which is an index investment fund that tracks the S&P 500, has returned 1,022.58%. This piece of property has returned a measly 9% over 28 years. And if you were the person that bought in 2000, you definitely lost a lot of money.

But today, we're going to analyze less of an outlier, ​1624 Filbert St APT 1, San Francisco, CA 94123. It was purchased in June 2015 for $895,000. It was sold again in June 2024 for $800,000 which is an obvious loss but is an even bigger loss than it seems (which we look into in this blog). Though the home was sold again in between I'm going to just stick with these two dates and numbers for the case study as the average American home owner will own their home between 10 to 12 years.

First the numbers, then the breakdown

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The inputs

  • I assume that the renter and the buyer are the same person but that just made a different personal choice to rent vs buy the exact same property. This means that their income and personal circumstances are mirror images of each other.
  • The $179,000 downpayment (20% made by the buyer) is assumed to be a sudden gift or bonus at work. The results are even more astounding when we consider instead that this individual had been diligently saving up for this downpayment in the years prior (more on that later - Bonus Material).
  • I assumed a mortgage rate of 4% which was roughly accurate in 2014/2015.
  • I assumed annual maintenance costs quite low and adjusted by 3% each year. These costs are low to be conservative because this is an apartment/condo. I also assumed this was a move-in ready apartment that didn't require any renovations during the 9 years of home ownership which is also conservative.
  • I was able to obtain the annual property taxes from Zillow. I was able to obtain the current monthly HOA from Zillow which is a shocking $700 per month in 2024! I worked backwards for the prior years assuming a conservative 3% annual increase.
  • Building insurance (for disasters) is usually included in the HOA so I have not added that on extra. I also did not factor in contents insurance (for personal belongings inside the apartment) because both the buyer and renter would be paying for that so it doesn't create a difference in the outcomes.
  • I can see on Zillow that this home was listed for rent in 2022 for $4,100. For 2015 and the first few years I assumed a $4,000 rent which is likely vastly overinflated given that the average rent in San Francisco for a 1 bedroom in 2015 was $2,900. I increased the rent to $5,000 for a few years and then dropped it again to $4,000 as we have seen rents drop the past few years post-Covid with the real estate crash. This can also be seen in other listings where in 2022 and 2023 people have been listing apartments for rent and slowly dropping the prices.
  • I assumed that the tenant had some maintenance costs on move-out like cleaning and painting.
  • The most important input is the opportunity costs of having (or not having) invested in the S&P 500 via an index fund like SPY, VTI, VOO, or VTSAX (as examples). I used the real returns each year and made the important assumption that the person renting would be taking the money that they didn't spend as the owner (column "Cash Diff") and invested it in the S&P 500 instead.

Interpreting the results

  • I am assuming that both the renter and the buyer are effectively the same person that made different choices, which means that they both earn the exact same income. As such, in the years that the renter is spending less of their money on the house than the buyer would be, they have extra left over to invest in the stock market (I choose VTI as my example). This outcome is reflected at the bottom reconciliation on the line "Stock Market Returns" and represents actual returns on VTI for each year. Compounding growth is amazing. 
  • The house that was purchased for $895,000 in 2015 would need to sell for $1,718,547 about 9 years later just to breakeven with having rented those 9 years. If the sales price were less, then renting would have been the better financial choice -> only on the basis that the tenant was investing the savings difference in the S&P 500.
  • In this specific case, the sales price is well below the breakeven point being sold at $800,000 in June 2024. The person that lived in this house and investing the savings difference would have been financially better off being the renter.
  • With a mortgage interest rate of 4%, equity does not get built fast. In around 9 years the mortgage went from $716K to $580K. The early years of a mortgage are mostly being paid towards interest which is equally as "throwing your money away" as paying rent is perceived to be.
  • When you rent, you are paying the ceiling price. When you buy, you are paying the floor price. Home ownership is expensive and unpredictable.
  • Am I cherry picking this house for my case study? Absolutely yes. That is because real estate investment evangelists do the same thing, they use their own personal story to convince people that real estate is the best path to wealth. So I'm here to cherry pick stories on the other side to show that renting and investing the difference can give you the same or better financial outcomes. There is no single correct answer.
  • I'm not here to prove that real estate is or is not a good investment or that the stock market always returns (in the short term, it may not). I'm here to disprove the myth that buying is always the better financial choice, and show cases where renting can be the better financial choice. If you are renting then you are still a fully formed adult who may be making the better financial choice, not to mention the non-financial reasons for preferring renting over buying. 
  • Side note: the American Dream of Homeownership was invented by the banks to sell mortgages, and make money on interest. People in the US mostly rented before that. I'm a big fan of the German attitude, where over 50% of people rent their homes (long term).

​"BUT you're not factoring in ...."

I already thought of whatever you're about to say and it's covered in Part I here. Even if those assumptions are incorrect, they would not wildly move the needle on these numbers to have made buying the better financial choice. We have a $1M difference in this case study.

Key takeaway

Of course, many people buy property for more reasons than the financial ones. But for those people that do not feel the urge to own the roof over their head, who enjoy the freedom that renting provides, and who hate renovating and maintenance: I need you to know that you are a fully formed adult that could be making the better financial choice for your life and geographical situation. You are not throwing money away on rent. Every city and personal situation could render a completely different outcome. The point is that it is not a slam dunk that buying is always financially better than renting.
You do you.
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Bonus material!

Surprise, the numbers turn out even better for the renter if I change one input. In the original inputs, this individual received their $179,000 downpayment suddenly one day as either a gift or a bonus at work. In reality, most people save for a long time for their downpayment. Let's consider a person that saves $1,500 per month for 10 years (2005 to 2015) would have $179,000 in cash for that downpayment. They likely would have been putting that into a savings account that yielded very little interest income to them.

So what if instead they had been investing that $1,500 per month into the S&P 500 via index fund over those 10 years? They would have had $351,709 in 2015. And what would be the compounding growth of that up to 2024? See below.

Not only does the break even house price go up to over $2M, but we can see at the bottom that "wealth in hand" of the renter is $1,205,778 and the homeowner that sold for $800,000 has just $169,084 (of course ignoring other investments that this individual would have made during this time outside the facts of this story).
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<![CDATA[Hindsight is great: bad investments]]>Fri, 01 Mar 2024 11:00:00 GMThttp://theaspiringadult.com/blog/hindsight-is-great-bad-investments
My financial literacy journey really started in late 2015 when I got an email from a financial advisor at Northwestern Mutual. We ended up working together, putting up a savings and investing plan, and got to work. He recommended 2 mutual funds to me which I poured any spare money into. Fast forward to February 2021 and I sold these losers. Now we look back and see how bad these were and one reason he recommended them to me.
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Enter: the financial advisor

My NM financial advisor got my email from a friend of mine. That friend had worked with "John" (made up name) and wanted me to benefit from his services. It turns out, that was how John would drum up more business. He got financial plans made for people, and then asked them to recommend 5 friends to him. John is no longer a financial advisor, he's a programmer/engineer. To this day, I still think he had the best intentions but was doing what he was taught by the financial services industry. In our first meeting I asked him: "You deserve to make money. How do you make money from me?". He answered honestly that 1) he gets a commission on some life insurance products he sells to me, and 2) he sees the long term potential of working with clients and making money off of them later as they grow their wealth rather than early on when they have almost nothing.

Because I worked for a mutual fund manager, John recommended that I buy the mutual funds offered by my employer because I would get them "for free". That means here is no load charges / commissions involved in buys or sells, as a special benefit to employees.

What mutual funds did I buy?

From 2016 to the end of 2018, I put all of my investable savings into two funds. After 2018, I started investing in other products but left these 2 to "grow" because I had been taught that I bought these for the long term so I should set it, forget it, and wake up in 30 years rich.

Well I'm glad I didn't wait 30 years to wake up and realize I was invested in losers.
OYMIX - $12,000 invested
PIYFX - $6,000 invested
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Notice that OYMIX is 35% fixed income. A completely inappropriate allocation to low-risk investments for someone in their mid to late 20s with 30-40 years in their investing horizon. PIYFX was even worse with 48% fixed income and 38% cash!!

Opportunity costs

I finally realized what losers these were in February 2021 after having discovered the FIRE movement. I opened up my online account and realized that after 3-5 years of investing (since I invested over time, not a lump sum in 2016) I had an overall net loss of (-$500) between the 2 investments. I immediately sold those losers and moved my money over to Schwab where I invested in VOO (S&P 500). These days I invest in VTI (total stock market).

So what did I miss out on during that time?

Considering between 2016 and February 2021 when I sold, I had a cost basis of $18,500 (what I paid for my investments) and sold for a value of $18,000 (a loss of $500). If I had been invested in VTI instead, then in February 2021 my investment would have been worth $25,800. A gain of $7,300.

What if I had really "set it and forget it" and still owned OYMIX and PIYFX today? My investments combined would be worth $20,000, a gain of only $1,500 over 5-8 years. But if I had been invested in VTI instead, then today my investment would be worth $33,300, a gain of $14,800 over 5-8 years.

Do I resent John?

Mildly, but mostly no. John was doing what he was trained to do. I resent the financial services industry for making everything so vague and complex that we feel that we need a financial advisor. Most importantly though, I am grateful because John got me on the right track with actually knowing where my money was, what I was doing with it, planning for the future, investing, and taking control of my own personal finance journey. To this day I still credit a lot of my good habits to his guidance (though I don't credit him with my good investments).

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<![CDATA[2023 in Numbers]]>Fri, 16 Feb 2024 12:29:49 GMThttp://theaspiringadult.com/blog/2023-in-numbers
I keep a lot of spreadsheets to track my income, expenses, savings, investments, wealth, and more. Here is my breakdown of how 2023 went for me on my journey towards financial independence. I will also share some backwards looking charts to show where I've come from.
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Summary

I started freelancing in 2021, 2022 was a great year for me, and 2023 was steady. I have a very niche speciality in my field. I am compensated well for my time since there could be many months in between projects which is a huge risk for me.
  • Net Profit - Freelancing: $170,500 (after deducting all of my business expenses)
  • Taxes: ($35,000)
  • Living Expenses: ($76,300)
  • Investments in index ETFs: ($24,300)
  • Repayment of mortgage principal: ($12,700)
  • Cash Retained: ($22,200)
Savings rate: 21%

Reflection
This is a disappointing savings rate to me as I want to be at 50% or higher. In 2022 I wrote that 2023 would shape up better as I moved to Italy and would experience a significant tax savings as a result (down from around 40% effective tax rate down to maybe 15%). While I did save a significant amount in taxes (40% down to 25%) my living costs were higher because I was staying in a very expensive apartment just to get my life off the ground. I also made $45,000 less money in 2023 than in 2022, that's the life of an entrepreneur. I also had some large medical bills from a surgery that was not covered by insurance. In 2024 I should see my expenses drop because I will be moving out of my expensive apartment (€1850 per month) into a cheaper one in a smaller city (aiming for €800 per month or less).

Expenses breakdown

  • Housing (rent/mortgage): $21,762
  • Condo fees: $973
  • Property taxes: $892
  • Utilities: $894
  • Groceries: $2,549
    • I hate cooking
  • Restaurants/Cafes/Alcohol: $7,711
  • Household: $2,905 (unexpectedly needed a new washing machine)
  • Self-care: $1,180
  • Insurance: $3,971
  • Internet: $691
  • Phone: $776
  • Hobbies: $1,885
  • Pets: $1,486
  • Local Transporation: $556
  • Travel (excludes food): $15,417
  • Other: $12,930 (unreimbursed medical bills from surgery)

Reflection
My target budget for expenses is $55,000 each year. Life happens, unexpected expenses come up. I'm starting to save money on my eating out but I only began that process around November 2023 so I should see much lower restaurants/cafes in 2024.

​The historical progress charts

They say that the first $100,000 is the hardest and this is absolutely true. It can take you 7-10 years to reach $100,000 and then only 7 more years to reach $1M. 

This first graphic represents my net wealth by asset class through time. You can see that in 2023 things were recovering from a bad 2022 and I'm coming closer to the $1M by the end of the year.
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​This second graphic represents the detail of my wealth through accumulation. The lines that are dotted ("Gross Income" and "Taxes") are non-cumulative so that's why they stay relatively flat. The "Cum. Gross Income" is meant to show the vast difference in time between my lifetime earnings and what I've been able to save. "Cum. Employer Matches" and "Cum. Contributions" together show you my basis in my wealth as this is what I've put in through time. So everything above that in the vertical columns is compounding interest and market growth.
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<![CDATA[A solo woman's retirement manifesto]]>Mon, 06 Mar 2023 10:00:00 GMThttp://theaspiringadult.com/blog/a-solo-womans-retirement-manifesto
It's important to have guiding principles in life. Otherwise why do we do the things that we do? I know that a lot of people survive on this earth living on the "life escalator" (and the "relationship escalator") which really doesn't require you to have guiding principles. As long as you stay on the escalator, it gently takes you along and you do the things in life mostly "because that's what adults do". Which is a trend I like to buck with this blog. Today I write my own retirement manifesto, so I can check in with myself on my "why" when faced with difficult decisions and to make sure I've not gone off track with my purpose.
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"What do you want to be when you grow up?"
"I want to be someone that gave more than they took."
    - some quote I could be remembering correctly or incorrectly from the amazing TV series "Bones".
Motive. Intention. Policy.
  • I want financial independence so that I can work on discovering and solving problems without any money motivation.
  • Building relationships with friends is my priority, while maintaining my solo autonomy. My sexual and romantic health is of equal priority to my companionship health. 
  • I make conscious choices to say no to "couples privilege" benefits, unless opting into that system will benefit someone else (rather than myself). E.g. I opt out of visas or other immigration that could gain me access to a country I desire to live in, if it means that I must get married.
  • Don't hold too tightly to plans, don't invest too much in planning too far in the future if it will restrict the autonomy and freedom of a future version of Ryan (me).
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  • Money is an abundant resource. But accumulating and keeping more than I need takes it away from someone that does need it. I therefore aim to die with zero ($).
  • Time is not an abundant resource. I will say no, and I will accept that "No." is a complete sentence.
  • I deserve financial independence and I will not be ashamed of my path. Many people will doubt my life choices or be envious of how I achieved them.
  • I will acknowledge and act on the privileges that I have. I will support government politicians or policies that actively helps others with less privileges than me.
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<![CDATA[The evolution of my relationship with money]]>Mon, 20 Feb 2023 09:00:00 GMThttp://theaspiringadult.com/blog/the-evolution-of-my-relationship-with-money
Last year after talking to a friend about FIRE, she said something that struck me "I didn't grow up in a household with aspirations". Dazed and confused, I realized that I didn't either. So I wanted to see "how did I bumble along through life and eventually stumble into my current financial independence trajectory?". Let's look back together with both a money lense, and a motivations/values lense.
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I think it's good to start with my earlier blog post to learn the origin story of this blog and you will get a small primer on the "versions of myself" that I have inventoried. I've taken the graphic from that blog and replicated it here so we can start bucketing sections of the timeline.
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V1: 1985 to 2003 (birth to 18 years old)

In V1, we have childhood and adolescence. It's not in the graph above as it was simply a time in my life that I was developing into a human and coming into my own personality.
  • I grew up very poor. Neither of parents had any strong financial literacy. When I was 5 years old our house burned down in a California wildfire. That event permanently changed my trajectory as I learned that possessions meant nothing. It also opened my eyes to the strangle hold that possessions have on people like my mother who is a borderline hoarder. When you are very poor, the scarcity mindset can do incredible damage to your well being. I have watched it as my parents left poverty and came into money, only to spend all of their money on frivolous belongings. Who needs 5 vacuum cleaners and 25 pairs of scissors?. You never know when you could lose the income again so scarcity mindset causes my mother to spend it while she has it and enjoy life. And then if you do become poor again then you at least have the stuff you need to survive.
  • When I was around 8 years old my father was building and taking apart computers in our living room. He helped me install an accounting software on one of them and I loved sitting on the living room floor balancing my checkbook for the savings account my grandparents opened for me with $100.
  • I had one pair of jeans in middle school (around 11 years old). Kids made fun of me a lot. 
  • Around 13/14 years old I started earning money by babysitting the neighbor kids. I suddenly had disposable income and could buy myself clothes and music. Around 15 years old I started working in the basement of my neighbor's at-home business for cash. I spent everything I earned. I would buy things for my friends without thinking, because it felt good to be the one with money. It also felt good to feel independent and say "I pay my own bills!" (even if I didn't pay rent or utilities).
  • I was a math genius as a kid. Various male math teachers would tell me "you should make a career in math!" so I naturally asked "like what?". To which they would respond "you can be a math teacher!". Of course the world needs math teachers but I found it hard to believe that the only reason to learn math was to teach it to other people. So I asked what else could I do. They would suggest being an accountant or an actuary. Not very ambitious thinking for a young (female) math genius. I could be sending people to mars but... spoiler alert: I'm not.
  • Around 16 years old I could legally be employed in a legitimate business. I first worked as a cashier in a hardware store and then making sandwiches and pizzas at a convenience store (gas station). I bought a car in my own name, getting a loan from the bank and making the monthly payments myself. 
  • At the age of 17 I graduated high school a semester early (December rather than May). I got my first accounting related job from my high school accounting teacher who recommended me to a local CPA that needed tax help during busy season. I worked 16+ hours a day between my tax/accounting job and as a cashier at the gas station. I was saving money for university that would start in 9 months.
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V2: 2003 to 2008 (18-23 years old)

In V2, I remember hearing from people "oh just wait until you get to the REAL world!!". As if I was in some doll-drums that wasn't reality. It created this perception of delay. That choices we make today aren't a big deal because none of it is "real". I modeled as a hobby and traveled the country having fun in between studying. But I also took on scary debts (that luckily didn't ruin me). 
  • Very proud of myself, I had saved $4,000 over 9 months of earning somewhere between $5-$6 per hour for 16 hours most days of the week. My tuition and books at my university were around $3,000-$3,500 per semester. So my college savings was all gone in one semester of school. Luckily my second semester was paid for with a few scholarships. My parents had certainly not saved anything for my university but growing up poor I had never even thought that was their responsibility to do so.
  • I had no mentors as a child nor was I surrounded by aspirations. I was told by teachers I should go into accounting because I was a math genius. Because I took an accounting class in high school and I was good at it, I decided that I would pick this as my university major. My logical brain loved that debits always equal credits.
    • News flash nobody told me: accountants don't do math. 
  • To pay for my university after the first year, I won some $500 scholarships here and there. I also had my wages that netted me about $700 a month. I decided around 19/20 years old to move out of my parents house to "become an adult" so my monthly expenses were: $263 for rent, $150 car loan repayment, $100 for my teeth braces, $50 for my phone, and a $50 credit card minimum payment. Which meant that I needed to find money to pay for a) tuition and books of $3,000-$3,500 and b) fund all my remaining living expenses like gas, insurance, food, and traveling. I was eligible for federal subsidized student loans but I maxed those out each semester at $2,500 per semester. My options were: 1) a private bank loan at 14% interest, 2) a 7-8% loan co-signed by my parents which they would have to repay in case I died, or 3) put everything on credit cards which at the time had lots of 0% introduction periods and then changed over to 5% interest rates. I chose credit cards. The credit card companies would give me $5,000 limits so I opened a bunch of cards and slowly maxed each one out (over 4-5 years). 
  • So in my early 20s at university I was earning about $14,000 gross income per year while studying. I had no real time for extra curricular activities during the week because I had to study and then go straight to work. On free weekends and in the summer, I would travel to other cities for modeling gigs.
  • In December 2008 I graduated with $25,000 in federal subsidized student loans with a 6% interest rate and $15,000 of credit card debt with a 5% interest rate (though some jumped to 10% a few months later even on existing balances). I graduated in the peak of the financial crisis but luckily still had a job lined up. My halloween costume in October 2008 was literally "The Economy" and I won a costume contest as one of the scariest costumes.
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V3: 2009 to 2016 (23-31 years old)

In V3, almost all of my life choices were driven by being on the "life escalator". You just do stuff because "that's what adults do" and you don't question it or know how to find alternatives (or to calculate opportunity costs). 
  • Midway through university I was offered an internship. I accepted. During the internship I was offered a job post-graduation. I accepted. I never considered any other options nor did internships with any other companies. I had no aspirations I just took whatever was set in front of me.
  • I started my full time job in January 2009 and from there I was doing a minimum 5-8% 401K contribution through work but had no idea what I was putting it in. My employer match went into a cash interest pension earning about 3% per year (which I didn't realized at the time)! I was paying down debt fast and furious. Any time I got a raise or a bonus it went straight towards debts. I paid off my car and had no plans to buy a new one, with that monthly payment redirecting to credit cards and student loans.
  • By 2011 all of my credit card debt was paid off (since they had variable interest rates that were climbing). But then I sold my car, sold everything I owned, and moved to Australia for one year for a work assignment. I really credit that year of my life with helping me open up and discover the big wonderful world out there waiting for me. I had zero stamps in my passport before that move. I did not contribute to retirement during that year but saved loads of money anyway due to a low effective tax rate.
  • In 2012 when I returned to the US, I used the savings from Australia to make a downpayment on a brand new $30,000 car. But I also kept about $10,000 in my savings account back in Australia because it earned 6% interest! Then I started thinking “should I buy a house?” solely because that’s what adults do. I never questioned it or knew how to do the math on buying vs renting.
  • Returning from life abroad also made me set my eyes on living abroad again. I realized I needed to get in the drivers seat of my career and stop making choices based simply on the options that other people set in front of me. I went on another work assignment in 2012 but this time it was for 4 months to India. Because work was paying for our rent, food, and bills I had some coworkers dropping 100% of their paychecks into their 401Ks. But I still had to pay my rent and insurance back in the US so I didn't do that. I didn't really save that much during those 4 months.
  • In 2013 after returning from India I quit my job to figure out what was next for me. I applied for a job I wasn't qualified for and I got it. Reminder to the ladies out there: apply for that job even if you don't tick all of the boxes. Reminder to recruiters out there: see the potential in candidates even when they don't tick all of the boxes and actively seek out those candidates.
  • In 2014 I started thinking "I wonder how much money a person needs to buy a house?". I got in touch with a realtor friend and asked her the question. This set in motion a house search and a few weeks later I was transferring my $10,000 of savings sitting in Australia over to the US for a downpayment. I only wanted a 1-2 bedroom house but my realtor convinced me to buy a 4 bedroom because of the resale potential. I got lucky winning the bid on my property because the listing went up on a Thursday, I saw it that evening in the dark and made an offer on Friday with a deadline to accept before weekend viewings. The owners wanted a buyer that was flexible on move-in date which was my one power I brought to the table. They accepted my offer for their listing price.
  • In 2015 my monthly housing payment was $1,400 including mortage principal, interest, property taxes, and homeowners insurance. I rented out my basement to a lovely couple for $900 a month. After 5 months of dating, I convinced my boyfriend to leave his $1,000 apartment and move in with me. My then-boyfriend moved in and paid me $400 while we lived on the top floor together. So I paid $100 for my housing and we all split the utilities 4 ways.
  • The year was 2015, and at almost 30 years old it was also the first year I was put in touch with a financial planner. I was in the work force for 6 years at this point and I'm pretty sure my 401K was just invested in a Target Date Fund or "Conservative Investor" profile because I knew nothing about investing so that seemed like a safe idea. My financial planner set goals for me like saving up 6 months of living expenses (which I now know is completely unnecessary) and helping me open a brokerage account to buy my first $1,000 of mutual funds from my work because I wasn’t using my no-fee benefit (I worked for a mutual fund company). Just simply having a plan really helped me see my vision and I quickly paid off last of my car loan (the one I took out in 2012) and made the last payment on my student loans. I asked good questions of the financial planner like how would he make money off of me. I knew he got a commission on insurance. And I let him sell me a Permanent/Whole Life Insurance policy as an investment tool. I'm an accountant, and I still didn't get it. It was so complicated that it HAD to make sense. Though I can now look back with gratitude that I'm not following ANY of his financial advice today, I also have gratitude that he finally got me moving on setting goals and taking action. It was what I needed at the time. It's scary looking back and realizing that I was an accountant, and a math genius, who was not saving and investing properly for so many years. 
  • In 2016, with my eyes set on living abroad one day, I convinced my boyfriend to move to San Francisco California with me so I could start working for a global firm that had offices around the world. I hoped I could get them to transfer me one day to a foreign office.
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V4: 2017 to 2021 (31-36 years old)

In V4, I realized I was on both a life escalator and a relationship escalator. In V3 I had simply been following the path that society writes for all of us because I didn't know there were any other options. I realized that a long-term monogamous relationship was not serving me in the way I had been told it would. I discovered relationship anarchy and set my eyes on getting out of the US to rediscover myself. There was a somewhat terrifying realization for me in V4: I had been convinced my whole life that the purpose of life (one worth living) was finding your one-true-love that served all purposes for all of time, getting married to them, and then dying. And when V4 of me realized this was no longer my purpose, this empty void sat staring back at me asking "then what is the point of it all?". My search for purpose commenced.
  • Living in San Francisco was expensive but I was paid a very high salary. My employer matches to my 401K and my bonuses really supercharged my net wealth. Owning a car was expensive so rather than paying $300 a month for parking in the city, I found someone on Craigslist that would rent out a spot in their driveway to me further in the suburbs and then after dropping my car off I would take the metro home. I only needed the car on the weekends anyway. So in anticipation of leaving the US, I sold my car in early 2017 and just rented a car when I needed one.
  • Then in the end of 2017 I got my opportunity: I moved to Ireland and took a 50% pay cut. But moving into 2018 I realized I was surviving but not thriving. I couldn't afford to live alone (something I could afford in San Francisco). And I hated my flatmate. Financial and mental health disaster were at my front door.
  • By the end of 2018 I was trying to find my way out of Ireland. Moving to Ireland was always the right move because it got my foot in the door to Europe. Then in April 2019 I got the call asking me to move to the Netherlands for a job. Not only would I get a 30% salary bump (Ireland wages are garbage) but I would also receive the highly skilled migrant tax ruling which gives you a 30% discount on your taxable wages. 
  • 2019 also gave me a few other wins. I got a letter from the company I worked for right out of university, the one that was putting my employer matches in the pension earning 3% each year (for the last 10 years). When I left that company I wasn't allowed to take that pension with me. I would have to wait until retirement. But now they were giving me the option to take a distribution and roll it into an IRA. I submitted the paperwork immediately while I frantically opened a brokerage account and IRA at Schwab to roll it into. The other win in 2019 was that I discovered my perfect financial advisor. He has a reasonable one time setup fee and then I pay $8 a month for his no non-sense financial planning. He really got me set on the right path of simplification and helped me discover that I needed to get out of the Permanent/Whole Life Insurance Policy I had been paying into for 6+ years.
  • Though 2020 hit us hard with COVID-19, I'm so grateful of my timing luck. I decided to exit that Permanent/Whole Life Insurance Policy in February 2020. I had paid about $25,000 of premiums over the 5-6 years and my cash out value was $15,000. A loss of $10,000 that I could not deduct for taxes. But luckily, I got the check from Northwestern Mutual in March 2020 and dumped it into the stock market on one of the lowest days of the market tanking. Today as I write this, that $15,000 I put into VOO in March 2020 is now worth $23,000. I got lucky with my timing. But it was not luck when I asked my financial advisor "should I just stick with the investment since I'm so far in, until I at least get it back to $0 since I can't deduct the loss for taxes?" to which he responded "a bad investment continues to be a bad investment, exit once you've realized it's bad so you can get your money working for you in a good investment". 
    • If I had stayed in the insurance policy, today I would have a basis (what I paid in) of $36,615 and the cash value would be $34,350 (what I could withdraw in cash from the policy if I wanted to cancel it). Instead, considering that I've diverted my $655 monthly payments to investing in the stock market instead of paying those premiums, I now have $45,523 thanks to VOO.
    • If I had never bought that insurance policy and had instead been investing my insurance premiums in VOO the last 7 years, today I would have $68,000.

​V5: 2021 to now (36-38 years old)

In V5, I made a shift away from searching for purpose and moved into discovering my values. Purpose tends to be outward facing and "how can I serve others" where our values are inward facing and "how can I serve myself". So I quit my job since I discovered I didn't need to prove anything to anyone and that I should make decisions that give me the life I want to lead. I started freelancing and discovered the FIRE movement through the ChooseFI podcast. A movement that I previously thought was about eating ramen noodles and sacrificing. 
  • In 2021 after quitting my corporate job and setting up my freelance business, I also took a shot at entrepreneurship. I had an idea for a solo travel app, started a business, and entered an incubator to find out if my idea was viable. I'm grateful I spent $700 on the incubator to discover I didn't want that path in life, rather than having spent $30,000 to blindly build an app.
  • In 2021 I also worked for a start-up for 8 months and got my first investment into a private company (not publicly traded on a stock market).
  • After discovering Choose FI and Mister Money Moustache, I realized I could "retire" in 5 years by making changes in my thinking and strategy (which mostly involved simplification). I started tracking my earning, spending, saving, and investing. I also went back through time to chart where I came from and how I arrived where I am today (see below).
  • Because COVID-19 caused us to rethink how we work, I can now do my work from anywhere in the world. And I am earning double what I was making at my wage-based corporate job which allows me to make decisions based on spending money to save time. In 2022 I saved almost 30% of my income and in 2023 it will be an almost 50% savings rate.
  • In 2022 I moved to Italy to get back to my favorite hobby: hiking. The related but secondary benefit is that I am cutting my effective tax rate from 40% to around 15%. In 2022 I sold my rental property in Denver because I was too highly concentrated in that single asset. I haven't sold my house in the Netherlands yet but I've decided I won't buy property again (for now) as I much prefer the freedom of renting. Real estate is too risky and overly complicated for me. 

I am excited to see what V5 has in store for me and setting up future versions of myself for success. Part of my work in V5 is learning to spend more money to save time. As someone who grew up poor, it can be difficult convincing myself to spend money on a house cleaner (as example) because my whole life I considered that a "rich people luxury". I struggle with this today as I try to find tasks I can give to a virtual personal assistant. 

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<![CDATA[My 4 FIRE turbo boosters]]>Mon, 06 Feb 2023 09:00:00 GMThttp://theaspiringadult.com/blog/my-4-fire-turbo-boosters
I have always lived a relatively frugal life. I grew up on the border of poverty and suffered through my house burning down as a child. Some of us learn that possessions mean nothing when we've lost them all. But I was heading along the "escalator of life" certainly making financial choices because "that's what adults do". Until I discovered the FIRE movement in 2021 and my world was turned upside down. Here are my 4 success factors that have put me on the track to reach financial independence 5 years from now at the age of 43. And they do not include giving up avocado toast (love).
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1. Finding community and the ChooseFI podcast

I subscribe to the idea that you are the average of the 5 people you spend the most time with. The ChooseFI podcast and community counts for at least 1/2 of a person to me. It has changed my mentality, my outlook, my feelings, my ability to block out noise, and most importantly my behaviors. All for good while finding balance in reality and well-being.
Click here to discover the ChooseFI Podcast.

2. Diversifying by selling my Denver rental property

When I started tracking my net wealth I realized I was quite wealthy! But only because my house in Denver accounted for over 50% of that wealth. And after learning about the cult and myths of homeownership, I started to realize that I had so many eggs locked up in this one basket. Like having 50% of my net wealth in Tesla stock. This basket in one city, in one neighborhood, with tenants that may or may not take care of it, and so on. Luckily, I sold at the perfect time in March 2022 and after paying my taxes I dumped all of it into ETFs. While most of the proceeds went into VTI, I did split about 10% of it between two REITs so I could keep exposure to real estate but through actual diversification. REITs are investment vehicles where you get the benefits of owning property but without doing any of the work. REITs hold hundreds or thousands of properties, not just one. I can finally sleep at night now that I am rid of that house.
Click here to read up on the case study I wrote about buying vs renting, using the house I sold in Denver.
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3. Simplified my strategy, and always seeking ways to reduce (or prevent) complexity

I stopped overthinking my investments and took the least sexy path: the simple one. I started dumping all of my money into VTI (a Vanguard index ETF). I also stopped hoarding money after I realized I did not need an emergency fund of $20,000. I now only keep what I realistically would need in liquid cash, meaning enough cash to cover expenses that are not insured for or can’t be put on a credit card like an apartment deposit during a move. For me, that's $5,000. And any time I get the urge to buy a cheap property in Europe I remind myself "that's going to add 20 more open tabs in your brain, more complexity, so don't do it".

4. Geo-arbitrage and relocating to Italy

When I quit my job to start freelancing in 2021, I did it primarily because I was being paid effectively $50 per hour but my employer was charging me out to clients at $500-$900 per hour depending on the geography and project. I knew there was enough of a niche in my market that I could go out on my own. TThanks to Covid, I could do all of my work truly remotely and use geo-arbitrage to maximize my Foreign Earned Income Exclusion and Foreign Tax Credit in my US taxes. I of course pay taxes in the country I live in, but now that I've relocated to Italy I have dropped my effective tax rate from 40% (the Netherlands) to 10-15% (Italy).

TLDR

  • Pre-2020 my savings rate was always below 20%
  • 2020 my savings rate was 23.40%
  • 2021 when I discovered FIRE my savings rate jumped to 35.66%
  • 2022 my savings rate dropped to 28.52% because of TAXES
  • 2023 my projected savings rate will be 50% now that I've cut my tax burden

I did this by finding community and the ChooseFI Podcast, selling my Denver rental house, simplifying my investment strategy (and life), and geo-arbitrage.

What are not my boosters? I do not penny-pinch on coffee or eating out. I do not penny-pinch on living solo. I do not penny-pinch on my hobbies that bring me the most joy. 

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<![CDATA[2022 in Numbers]]>Mon, 23 Jan 2023 09:00:00 GMThttp://theaspiringadult.com/blog/2022-in-numbers
I keep a lot of spreadsheets to track my income, expenses, savings, investments, wealth, and more. Here is my first time sharing the breakdown of how 2022 went for me on my journey towards financial independence. I will also share some backwards looking charts to show where I've come from. My savings rate dropped significantly in 2022 because my tax rate went through the roof. But even though my savings rate as a percentage dropped, it was my highest contribution year in terms of actual dollars.
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Summary

I started freelancing in 2021, and 2022 was a great year for me. Who knows what 2023 holds. I have a very niche speciality in my field. I am compensated well for my time since there could be many months in between projects which is a huge risk for me.
  • Net Profit - Freelancing: $217,000 (after deducting all of my business expenses)
  • Taxes: ($87,000)
  • Living Expenses: ($68,000)
  • Investments in index ETFs: ($62,000)
Savings rate: 28%

Reflection
This is a disappointing savings rate to me as I want to be at 50% or higher. However 2023 will shape up better as I have moved to Italy and will experience a significant tax savings as a result (down from around 40% effective tax rate down to maybe 15%). Yet, I am still grateful for my high income and grateful that the actual dollars I was able to invest is the highest of any year so far.

Expenses breakdown

I moved to Italy in 2022 so there were some extraneous expenses like buying double health care policies (long story) and buying some household items for the new place.
  • Housing (rent/mortgage): $23,700
  • Condo fees: $950
  • Utilities: $450
    • There was a government subsidy pushed out that I benefited from, my gas/electric/water would normally run me about $1,200 per year
  • Groceries: $2,700
    • I hate cooking
  • Restaurants/Cafes/Alcohol: $8,300
  • Household: $2,300
    • This includes a cleaner that comes twice per month
  • Self-care: $1,800
    • This includes gym memberships, skin care, makeup, therapy, etc.
  • Insurance: $6,600
    • I got LASIK eye surgery which insurance didn't pay for, I took a big hit prepaying for a whole year of health care for my move to Italy, and I'm paying double for a few months until I get my Italian residence permit issued
  • Internet: $600
  • Phone: $500
  • Hobbies: $1,700
  • Pets: $2,000
    • This was about $1,000 over budget because my two cats are 15 years old now so needed a teeth cleaning and blood/urine tests
  • Local Transporation: $1,200
    • Bicycle subscription, metro, tram, etc.
  • Travel (excludes food): $9,700
  • Other: $5,500
    • There was a 2 month period where I spent money refreshing my wardrobe, I had realized that my mental health had been nose diving and I rarely left my apartment because I simply didn't like the way I looked in the mirror. There was a realization I had gotten sloppy with my appearance and this was contributing to that feeling. I spent around $2,500 on some new clothes

Reflection
My target budget for expenses is $55,000 each year. I'm disappointed that my expenses skyrocketed however I knew this would happen with my move to Italy. I am also paying for an incredibly expensive apartment right now in Italy until my residence permit is finalized and then I can move to a smaller village and cut my housing in half. 

The historical progress charts

They say that the first $100,000 is the hardest and this is absolutely true. It can take you 7-10 years to reach $100,000 and then only 7 more years to reach $1M. 

This first graphic represents my net wealth by asset class through time. You can see that in 2022 I made some big changes including selling my rental house and suffering through a bear market. The drop off in my net wealth is both a factor of the bear market but also that I had to pay capital gains tax on the disposal of the house.
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This second graphic represents the detail of my wealth through accumulation. The lines that are dotted ("Gross Income" and "Taxes") are non-cumulative so that's why they stay relatively flat. The "Cum. Gross Income" is meant to show the vast difference in time between my lifetime earnings and what I've been able to save. "Cum. Employer Matches" and "Cum. Contributions" together show you my basis in my wealth as this is what I've put in through time. So everything above that in the vertical columns is compounding interest and market growth.
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<![CDATA[Italy relocation costs breakdown]]>Mon, 09 Jan 2023 10:00:00 GMThttp://theaspiringadult.com/blog/italy-relocation-costs-breakdown
In 2021 I re-evaluated my life through my FIRE-lense and realized that I needed to move back closer to the mountains to do my favorite hobby: hiking. I made a short list of countries in Europe with good hiking. I narrowed that list to countries with a self-employment visa/residence permit. Lastly, I narrowed that list down to countries I could save money (e.g. cost of living, and taxes). Italy ticked all the boxes. It took about 1 year of bureaucracy but I'm finally here, and now I share with you the breakdown of the €14,000 total expenses to make this happen (and how I will recoup that in 1 year).
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Cost categories for a solo person

I bucketed my costs into the following categories, keeping in mind that I already lived in Europe and my cats already had their vaccines and pet passports from previous moves:
  • Immigration costs - private: the costs related to hiring my lawyer to get my visa entry as it is impossible to obtain the "lavoro autonomo" by yourself unless you already live in Italy (such as on a student residence permit). Only 500 are handed out each year by the Italian government and they never use up the quota because most applicants fail to meet the requirements or provide correct documentation. This also includes a flight, Airbnb, and metro costs of an immigration visit that I had to make to Italy during the process (2 nights stay).
  • Immigration costs - government: just to separate these from my private costs, I made a line item for the costs I have paid the government through my immigration process.
  • Temporary housing costs for visa application: this cost me €0 but I mention it as many people may have this expense. In order to apply for most visas you need proof that you have long term accommodation. Many people buy property for this evidence. I did not want to buy property or pay rent on an apartment with the real chance that my application would be denied. So I found a friend in Italy that sub-leased me a room in his apartment for free (since I wasn't actually staying with him during this process).
  • House hunting trip costs: I needed to visit Italy for 2.5 weeks in order to find an apartment to live in once my entry visa was approved. I flew from another city in Europe, stayed in an Airbnb spare bedroom, and travelled by metro. I do not include my meals in these costs. Many people will need more than 2.5 weeks, I'm just not very picky.
  • Moving costs: I rented a return trip car from the Netherlands in order to drive my stuff and my cats to Italy, and then drive the car back to the Netherlands. One-way rental cars would cost 4x the price of round-trip. I returned the car and then flew one-way back to Italy. So these costs include the rental car, gas, tolls, parking, cat sitter for 4 days, and reduced by €75 I received from 2 riders that joined my drive via the website BlaBlarCar. 
  • Tax advisor: I run a sole trader business and normally take care of all of my own bookkeeping. But because I am not yet fluent in Italian, I was not going to risk screwing things up in a country famous for its bureaucracy. So I am paying a "commercialista" to handle my taxes which was not an expense I had in my last country of residence.
  • Extras: When I flew to Italy to do my "real" house hunting trip, I applied for 2 apartments before settling on the second one. I forfeited a deposit to the first apartment. I also paid a lawyer to review my lease contract and other issues I was having. Lastly, I paid an Italian woman to join me for apartment viewings and translate Italian to English for me.
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The breakdown, in Euros

  • Immigration costs - private: €7,140
  • Immigration costs - government: €245
  • Temporary housing costs for visa application: €0
  • House hunting trip costs: €1,925
  • Moving costs: €1,232
  • Italian commercialista for 1 year (tax advisor): €2,000
  • Extras: €1,302
Total costs = €13,844
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How soon will I recover these costs?

Italy has a tax scheme for new or returning residents where for 5 years (and sometimes 10) you are only taxed on 30% of your income (or 10% if you live in some of the most southern cities).
Click here to learn more about the tax scheme.

In my previous country of residence, my annual effective tax rate was 40%. Now in Italy it will be around 10-15%. I will earn back the costs of my move in my first year living in Italy simply based on the reduction in my tax rate.

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<![CDATA[Entrepreneurship isn't for me]]>Mon, 26 Dec 2022 10:00:00 GMThttp://theaspiringadult.com/blog/entrepreneurship-isnt-for-me
Back in 2020, I had an idea for an innovative travel app. I was so energized by this new business idea that I was seriously contemplating dropping $30K of my savings into paying developers to build it. Then a friend recommended that I go through an incubator, which is a program that helps entrepreneurs "incubate" their idea. Most people will never complete these programs because they don't have a viable idea that will make money. I dropped out 1/3 of the way through for mental health reasons, fully intending to restart at a later date. But after reflecting on everything I had learned, I took away the most important lesson possible....
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That lesson was: I love solving problems. I hate trying to make money solving problems. I consider the incubator a success because it cost me $700 not to waste $30,000. A great investment.

Where does that leave me? I'm a great #2. Or #15. Just not #1.

Being an entrepreneur is hard. Incubators are typically less about nurturing the idea itself and more about nurturing the entrepreneur. It is said that most investors in early stage ideas believed more in the founders than they did in the product itself. Many entrepreneurs that enter incubators with an idea will end with a vastly different business launch (if they make it to the end).

But it seems that society tends to oversell the idea of entrepreneurship. That being your own boss is the dream. Something we should all aspire to. Being your own boss is the ultimate path to freedom. Yet, if we all were #1, then who would be left to be #2, #15, and so on? And isn't the #15 at Facebook or Airbnb still massively better off than all of the #1s at most businesses that never gain any traction?
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I want to live free, with less stress

When I was first diagnosed with ADHD, I remember being told that having ADHD makes me very well suited for entrepreneurship. This is because of our hyper focus and keen interest in new shiny things. But I counter that not everyone experiences ADHD the same and for some of us, being able to "turn it off" when we come home is important for our well-being. Entrepreneurship can come with the crushing pressure that you can never get out from under, like...
  • How will I pay my employees next week?
  • Am I paying my employees fairly?
  • Are my employees well taken care of?
  • Where will funding come from when we run out and what compromises will we have to make to appease those new investors?
  • How will I pay the bills tomorrow?
  • Do people like my product/idea?

Having to make compromises on your idea to appease investors, and having to add features you don't want to because they are the ones that will start generating revenue.... felt like limiting my creativity and not nurturing it. Going through the incubator showed me the compromises that great ideas have to go through just to make money which gets prioritized over solving the real problem.
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After stepping back from the incubator, and discovering the FIRE movement, I realized that once I reach financial independence then I will have the the freedom to pursue solving problems without worrying if I make money at it or not. 

Bonus material: calling it a side hustle is just slapping lipstick on a second job

Poor people have 2nd and 3rd jobs. But aspiring rich people have side hustles. Same same?

I think it is important to differentiate these 3 things:
  1. entrepreneurship
  2. income diversification
  3. running side hustles

Let's break it down further:
  • I think of entrepreneurship as sinking everything you have into a single dream.
  • Income diversification, when done well, means that the income you live on comes from 6+ different streams so that if one runs dry you aren't immediately going to become homeless. Most of society is built on employment relationships where every fiber of ourselves is invested into a single stream (the paycheck) and if we get laid off then it is devastating. Someone doing income diversification well doesn't have a single full time employment and they also don't have a single full time entrepreurial dream they are sinking themselves into. They might a) househack their spare room on Airbnb, b) blog and earn affiliate marketing revenue, c) drop ship, d) make a training course and sell subscriptions, etc. 
  • The side hustle is really only a side hustle if after an initial active investment of time and money then it becomes a passive income generator to supplement your main income (like employment or main business as an entrepreneur). 

What isn't a side hustle? Dog walking. Driving for Uber on the weekends. You can't automate that and turn it passive (unless you hire employees but then voila you are an entrepreneur). We need to stop letting 2nd and 3rd jobs masquerade as side hustles. There is too much hype on social media about the side hustle these days, people get the FOMO that they need one. But there isn't enough education to help people distinguish side hustles from 2nd and 3rd jobs which leaves people sacrificing their time for the extra money. Let's try these two out:
  • How would you like to add an extra stream of income to your monthly budget with a bit of upfront costs until it automates itself into a side hustle?
  • How would you like a 2nd and 3rd job?

I'm not here to teach a course on side hustles. But it was worth mentioning as the topic is very closely related to entrepreneurship. If you otherwise didn't have it in your head that you needed a 2nd or 3rd job, then don't feel bad not jumping on the side hustle band wagon.
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<![CDATA[Even if we love our jobs, we still need FIRE]]>Mon, 12 Dec 2022 10:00:00 GMThttp://theaspiringadult.com/blog/even-if-we-love-our-jobs-we-still-need-fire
I've heard it said that if you love your job then you never need to worry about retirement or financial independence. Or that the FIRE movement is a symptom of people hating their jobs more than anything else. I've been noodling on this for the last 12 months and still arrive at the same answer: financial independence gives the future versions of myself a platform from which to take flight.
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I touch on the topic of our future selves in an earlier blog post about The Aspiring Adult origin story. TLDR, humans are really bad at making good health and financial choices for future versions of ourselves because we have an impossible time imagining that this version here today is not the final version.

This means that it is very easy to preach about loving your job if you in fact love your job today. Or even if you plan to make a change in the very near future that allows you to love your job then. But we cannot imagine that there are versions of ourselves out there, 5, 10, 15, and 20 years from now that will have different interests or tastes. That doesn't mean that we are destined to hate a job that we love today, though that does happen for some people that turn their hobbies into careers. Instead what this means is that we simply grow apart from certain careers or interests and develop passions for new things we cannot even imagine today. 
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FIRE gives us choice.

Over the past year I have done a lot of self discovery and work on myself. And I realized that I love solving problems. But I hate trying to make money solving problems. I want to live in a world where I can just spend nerdy amounts of time researching and thinking about difficult problems and ways that they can be solved. And FIRE will allow me the financial freedom to do that. And maybe there is some future version of Jessalyn that wants to drive a bus of kids to school every day. And maybe there is some future version of Jessalyn that wants to build rocket ships.

So even though I can or do love my job today, there is a whole big world out there of fun things I could also be doing with my time and FIRE gives me the choice and time to do those things. Or not. Choice is the gift that FIRE will give me and future versions of me.

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<![CDATA[Transfer up to €100K for a flat fee of €3]]>Tue, 22 Nov 2022 14:54:02 GMThttp://theaspiringadult.com/blog/transfer-money-with-atlantic-money
I cannot contain my excitement at sharing my new discovery with you: a new payment disrupter called Atlantic Money targeting the exchange and transfer of money cross border for large value transactions. Wise and Revolut really cover the small value market but their fees increase as the transaction value rises which makes their service far less attractive. Sold your house in Berlin and now need to move €100,000 to your US bank account for low cost? You can do that for €3 with Atlantic Money. Read on to find out my review.
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If you read my earlier blog post about money transfers, you will know that I saved ~$600 by using a combination of Revolut+Wise to exchange and transfer money cross border instead of using Wise on it's own. Using a Revolut+Wise combo saved me ~$1,100 over using traditional banks. But earlier in 2022, Revolut removed their 1 free international transfer per month which removed their advantage over Wise and left us with no cheap options for moving larger values of money from EUR or GBP in a European bank account into USD in a US bank account.

Before we begin:
  1. I will start by saying that this blog is not sponsored. I discovered this product on my own and write this only to share the great news on how to save money. I am also not going to share my referral code just to prove I have no incentive here.
  2. I still use Revolut+Wise to send USD to EUR which is described in the link above. I also suggest reading that blog post for a good primer on why international exchange and international transfers are so complicated and expensive.

Enter the disrupter: Atlantic Money

For a flat fee of €3 you can send a transfer of EUR or GBP into USD and send to a US bank account, up to €100K. No more €50 transfer fees from Wise or Revolut to send €5,000.

I recently discovered Atlantic Money and it was created by 2 expats in London that were tired of paying higher fees for high value transfers. Wise and Revolut both admit that they really nailed the market on lower value transfers but because their fees increase with the value, the fees can end up being hundreds€€€. Atlantic Money launched their product last year and charge a flat €3 fee per transfer for moving GBP or EUR cross border into 8-9 currencies (and growing), and they give you the Interbank exchange rate (same as Wise and Revolut).

https://atlantic.money/eu

  • The app is incredibly simple. Easiest signup process I've ever experienced. You will be asked for ID verification to send larger amounts for anti-money laundering purposes. If you want to send BIG amounts of money, you will likely be asked for more paperwork about the source and destination.
  • You can send GBP or EUR into about 8-9 other currencies, including USD. This means that for now, until they launch more currencies, Atlantic Money does not currently work for moving USD from US->Europe. I hope this changes soon!
  • You cannot hold money in the account. The beauty is the simplicity of just moving money. I entered in the recipient details (my own bank account in the US), then I was given instructions on how to fund the transfer. I was instructed to send a bank transfer from my EUR bank. So I logged into my EUR account, sent a bank transfer to the details they gave me, and it arrived and was confirmed in the Atlantic Money app in minutes. A friend of mine tried it and it was confirmed in a few hours.
  • Once the receipt of my EUR transfer was confirmed, I then was informed the USD would be on its way shortly. I started the transfer on a Friday, and it indicated that the USD would arrive in my US bank account by Thursday the following week which is ~5 business days. You can pay an extra €5 fee for speedier delivery. But, I logged into my US account on Tuesday and the USD had arrived. So ~3 business days.
  • First transfer is free. €3 for each transfer. Amazing.
  • This is a new kid on the block, it does not have the same track record as Revolut or Wise. So use at your own risk. But I am EXCITED about this startup serving an unmet need in the market for those of us living abroad and needing to move large amounts of money back and forth to the US, either on a regular or one off basis.
Real example of the fees you would pay with Revolut or Wise (all 3 services give the Interbank exchange rate):
  • Moving €5,000 in Revolut -> €12 fee (+ €85 fee for annual premium)
  • Moving €10,000 in Revolut -> €24 fee (+ €85 fee for annual premium)
  • Moving €5,000 in Wise -> €25 fee
  • Moving €10,000 in Wise -> €50 fee
If you moved €5,000 every month from your European EUR account into USD in a US account, you would pay €300 to Wise or the much cheaper €36 with Atlantic Money.

Here are screenshots from all 3 apps on the same day. To get $10,000 to arrive in a US bank account it would cost you:
  • ​Atlantic Money: €9,741.24 (winner!)
  • Wise: €9,785.27
  • Revolut: €9,763.34 (though I already paid my €85 annual premium fee which gives me a discount on the transfer)
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<![CDATA[Monthly budgets won't change your life, and why I don't have one]]>Mon, 14 Nov 2022 10:00:00 GMThttp://theaspiringadult.com/blog/monthly-budgets-wont-change-your-life-and-why-i-dont-have-one
For a long time, I thought one of the most obvious financial health tools was to have a budget. I even told my friends they should have a budget. And then one day I realized... "I don't have a budget". My immediate thought was to make a budget, because we all know you need one, rather than stopping and asking myself "but do I need one?". In this blog I lay out why I don't have one and what I use in its place.
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Budgets are stressful. In my experience, they required me to focuse on spending a little bit less on each bucket of things each month. This caused me to lose out on small joys by causing me to feel bad about myself: "I hit my budget on going to the movies this month so to reach my financial goals I can't go to any more movies at the theatre".

In reality, the most direct path to financial independence is carved by simply changing habits rather than penny pinching each month. A change of habits with your largest expenses is really done once or twice per year. The top expenses are:

1. Housing
2. Transportation
3. Food
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Bonus: utilities as they are directly related to your housing situation (e.g. bigger space requires bigger heating bills)

Order of operations matter, and most of us are doing it backwards

Here is how most people start their budget. I also used to do it this way:
  1. They calculate their take-home pay, this is what paycheck hits their bank account after taxes are deducted and sometimes other costs like retirement-contributions through work, health care premium, etc.
  2. Then they take that times 30-40% and say "this is what I can afford in rent" (or mortgage etc). Why 30-40%? Because "smart people said we shouldn't spend more than this on housing" so people normalized that this is the what you should spend. 
  3. Then we deduct the utility bills that come with that big home we just signed up for.
  4. Then we deduct our transportation costs.
  5. Then we deduct our estimate of grocery and eating-out expenses.
  6. Then we deduct our other bills (e.g. phone, internet, student loans, etc).
  7. Then we estimate an allocation to entertainment because we deserve to have fun.
  8. IF anything is left, and for most Americans there isn't, we earmark this for savings (either towards an emergency fund or towards retirement).

Why are #2 and #7 in bold? Because I want people to get in the mind set of switching them.

Here is how I start my budget: 
  1. I calculate my take-home pay. 
  2. I earmark the amount of money I need to save each month to reach my retirement goals.
  3. I deduct an estimate of average utility bills for the smallest home I might need. 
  4. Same as above.
  5. Same as above.
  6. Same as above.
  7. Same as above.
  8. I see what is left and this is what I can afford in rent/mortgage. 

Naturally, if the number you come up with in #7 is completely out of scope of the city you live in then most people immediately just throw in the towel and go back to the status quo (the first budgeting tool). But really this is an opportunity to do something hard: really think about what is causing this outcome and make a change. Are your housing standards too high/fancy for the income you make? Is the reality that you simply cannot afford to live in the city/area that you want to live in? If your priority is not reaching financial independence, then you probably aren't reading this blog. But if you are reading this blog, then you can happily revert to the status quo and continue living paycheck to paycheck and cross your fingers for the future. But if you are serious about reaching financial independence, this is the most important budget reversal tool you can use to get you there. 

Adjustments to housing, transportation, and food costs is really a once per year wake-up to go "wow, I have to make this huge change". Once you make these changes, you realize that overspending $50 on entertainment this week or overspending $30 on avocado toast isn't what's changing the needle and really just makes you feel shame when you don't nail the smaller line items every month.

When do I make budgets? When I'm moving

Moving cities or countries is the only time that a budget is useful for me. But I only use it in the estimation of what salary I need to earn, how much I can save, what costs are going to be surprisingly larger or smaller than I'm used to, etc. Once I have made the move, I am back to my default position discussed above. If my budgeting outcomes tell me that the amount left in #8 is below the price of rent in the area/city I want to live in, then I will reconsider even doing the move at all.

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<![CDATA[Tax danger of buying non-US real estate as a US taxpayer]]>Sat, 15 Oct 2022 11:13:30 GMThttp://theaspiringadult.com/blog/tax-danger-of-buying-non-us-real-estate-as-a-us-taxpayer
I hate alarmist content, but my friend is F**KED. Like, $87,000 of taxable income fucked with no money to pay the 32% tax. Many subscribers of FI/RE dream of moving out of the US (if that is their place of origin) to save money in retirement. Dropping money on a home in their new country of residence could be a dream come true. Until so-called "phantom foreign currency income" taxes whack you over the head with a baseball bat. Read on for the dangers of buying real estate outside of the US so you can discuss with your tax advisor BEFORE you buy.
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Let's start with the TLDR example

My friend lives in Europe and earns wages in EUR. He is single and has no connection to the United States other than being a US citizen and former resident of the US. He bought a house in Europe in October 2020 for €460,000 EUR. For the sake of simplicity, let's assume that the loan with the bank was also €460,000 (which isn't too far off because many banks in Europe will 100% finance a primary residence). On that date in October 2020, the EUR->USD exchange rate was 1 EUR = 1.17238 USD. Which means that in the eyes of the US Internal Revenue Service (IRS) he bought a house for $539,294 USD with a mortgage of $539,294 USD. He got an interest rate on his mortgage of 1.65%.

Fast forward to October 2022 and he is moving back to the US to be near an ailing parent. He lists the house for sale, and due to rising rates in Europe he is offered €460,000 EUR by the potential buyer. If he accepts the offer, here is his European side of the transaction:

Proceeds from sale:         €460,000
Mortgage payoff:             (€435,900) (balance as of Oct 2022)
Local tax:                                       €0 (exempt as Primary Residence)
US capital gains tax:                     €0 (sale is a loss on paper due to currency changes)
Cash left:                              €24,100 (=$23,427 on Oct 15 2022)

Here comes the big baseball bat to the head, foreign currency income under US IRC Sec. 988...
Original mortgage:           $539,234 (exchange rate from Oct 2020)
Principal repayments:       ($27,336) (exchange rates varied over two years)
Mortgage payoff:             ($424,887) (exchange rate from Oct 2022)
Taxable income:                  $87,011 (ordinary income on his Form 1040 Schedule 1)
US ordinary tax:                  $27,844 (the income itself pushed him into the 32% tax bracket)

He owes $27,844 of US tax on the sale of a house that netted him $0 of profit (bought and sold for the exact same price, zero economic gain). And since he only has $23,427 of cash in his hands after paying off the mortgage, he has to come up with an additional $3,744 to pay the US tax bill. If this set of transactions had occurred in USD he would have paid $0 of tax and would have $23,427 of cash in his hands to invest for his future.

It is important to know that this can also happen if you refinance your mortgage! If you only roll an existing mortgage to a new property then it likely isn't an issue but check with your tax advisor. When re-financing your mortgage, you are paying off one mortgage and starting a new one. This is an even worse outcome because you have $0 in your hands to pay the tax (since you haven't sold the house) so you have to come up with $27,844 of cash.

Another example, with exchange rates going the other direction (a "less bad" outcome)

I made this one up to illustrate the problem when the exchange rates go the other direction. I also had to accentuate a (possibly real) scenario where there is an actual gain on the property.

Let's go back to June 2001. Imagine you bought an apartment in Amsterdam for €200,000 when mortgage rates were about 5%. On that date in June 2001, the EUR->USD exchange rate was 1 EUR = 0.8484 USD. Which means that in the eyes of the IRS, he bought a house for $169,680 USD with a mortgage of $169,680 USD.

Fast forward to June 2008 and he is moving back to the US. He lists the house for sale, and he accepts an offer of €350,000 EUR by the potential buyer. At this point, here is his European side of the transaction:

Proceeds from sale:         €350,000
Mortgage payoff:             (€175,890)
Local Tax:                                      €0 (€150,000 gain exempt as Primary Residence)
Cash left:                           €174,110 (=$274,328 on June 1, 2008)

On the US IRC Sec. 988 foreign currency income/loss side...
Original mortgage:           $169,680 (exchange rate from June 2001)

Principal repayments:       ($29,497) (exchange rates varied over 7 years)
Mortgage payoff:             ($277,132) (exchange rate from June 2008)
Foreign currency loss:     ($136,949) (disallowed loss)

He repaid more debt than he agreed to (on paper in the eyes of the IRS), but only because of the exchange rates. He didn't actually pay more debt since he earns his wages in EUR. 

HERE is where the baseball bat comes in on the capital gains tax side
Proceeds from sale:         $551,460 (exchange rate from June 2008)
Original basis in house:  ($169,680) (exchange rate from June 2001)
US capital gain:                 $381,780
Less exclusion:                ($250,000) (amount exempt as Primary Residence)
Taxable gain:                     $131,780
Capital gains tax:                 $19,767 (assumed the 15% rate for simplicity)


You might naturally think that the foreign currency loss could be used to offset the taxable gain, but you would be wrong. That loss is an ordinary personal loss (not capital) so it cannot offset the capital gain on the sale of the house. In his local home, he had an economic gain of €150,000 EUR which is below the 250,000 exemption value for a single person. From an academic and policy perspective, and in my opinion, this economic gain should be entirely exempt from US capital gains tax. But here he is, owing $19,767 of tax. Now, you might scream at me "but he has $274,328 of cash to pay it!!". Yes, but he doesn't conduct his daily life in USD so he doesn't have USD in his bank account. After paying the $19,767 of US taxes, he has €161,565 left in his bank account. Still a very health amount of money to pocket for his FIRE future but only after throwing away tax on a gain that would have been fully exempt ($0 of tax) if it had fully happened in USD. I guess we can rest at night knowing in this case that he does have the cash to pay the extra tax.

How does this happen? For the nerds.

The US taxes its US citizens and US greencard holders (even if expired) on their worldwide income. Under Internal Revenue Code (IRC) Section 1.985-1, a US taxpayer's functional currency is USD (unless they run a business which we aren't discussing here). IRC Section 988 requires that foreign currency income/gains and losses be calculated where a transaction is executed in a currency outside of the  taxpayer's functional currency. This means that the purchase and sale of non-US assets, and the issuance and repayment of non-US debts, can have currency rate fluctuation exposures if those purchases, sales, issuances, and repayments are not in USD (e.g. EUR in our example of my friend).

Why don't the house and debts offset eachother? Because the IRS sees the real estate transaction as completely separate from the mortgage transaction. They have no relationship to eachother in the personal circumstances of natural people (though different outcomes could occur for businesses). And personal losses can never be deducted (with some very small exceptions).

As recently as 2022, the US Treasury has proposed some rules to remedy this issue. However, as you can see on page 90 of the 2023 Greenbook, they only propose allowing the losses on the mortgage to be netted against a gain on the house. That seems to me to the lesser problem since you at least have cash to pay the tax when there is a gain. There is no mention of fixing the foreign currency gains/income.
https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf

Now what for my friend?

I am not a fan of being an alarmist, but, he is trapped with that house.

He could rent it out (if local laws allow it) and then move back to his European house when his parent is better. Some might say he could rent it out while he waits for the currency exchange rate to go back the other direction. But I have to say, currency exchange rates are not like the stock market which will experience turbulence but always goes up. Foreign currency isn't meant to do that and is controlled through government monetary policy. It can take a really long time to go back the other direction and you could then be sitting on a poor financial choice for other reasons (e.g. opportunity costs, market changes in the value of the house, etc).

Next time, he should talk to a tax advisor before buying real estate in case he can setup a business or other structure to buy the property instead. However, that comes with its own entire host of other tax problems and costs that might skew the outcomes in negative ways (and completely ignoring difficulties and costs in obtaining a mortgage that way). 

Personally? I really hate that I have to deal with this and it makes the economic gains of owning real estate essentially nil (or even negative). Does it always play out this way? Of course note, but I've already got strong feelings about buy vs. rent and this risk just gives further weight to my position especially while living abroad. I'm not buying foreign property again unless I renounce my citizenship or unless the US fixes this problem.

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<![CDATA[My list of financial mistakes]]>Mon, 19 Sep 2022 10:00:00 GMThttp://theaspiringadult.com/blog/my-list-of-financial-mistakes
I've made mistakes. I've made sub-optimal choices. But they were always based on the information that I had at the time of the decision. Here I've made a short form list which I'll add to as I keep learning on my journey. Drop in the comments any item you want to hear more about in it's own blog post, so hopefully you can make more informed decisions on your own journey.
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Maybe this is really "how I have still succeeded with dumb luck"

It's worth pausing and acknowledging that:
  • I'm still succeeding at my FIRE target in spite of the list.
  • I've included things that accidentally turned out ok but normally would be a disaster, because I had some dumb luck or a convenient economic environment
  • Being born with white skins means I have one less contributing factor to my set-backs and one more contributing factor to my successes. 

Ok here is the list

  • Earning loads of cash doing odd jobs as a teenager and spending all of it to impress my friends.
  • Not taking more Advanced Placement (AP) courses in high school to earn college credit for free.
  • Not taking my basic courses at a Community College and then transferring to a 4-Year University.
  • Not putting in effort to apply for more university scholarships.
  • Using credit cards to get through university. I graduated after 5.5 years with $15,000 of credit card debt and $25,000 of student loans because I had maxed out the federal subsidized loans and private bank loans were going for 14% interest rates. I don't regret using 5% credit card debt to get through university but damn I got lucky and never recommend this to anyone. This could have been a disaster.
  • I bought a Whole Life Insurance (really, I was sold a Whole Life Insurance policy by a Northwestern Mutual representative as part of my free financial plan). These are also called Permament Life Insurance policies. I was paying like $600 a month for that thing. 
    • Ultimately I did sell it at a loss after 6 or 7 years, but I don't regret the circumstances that got me into it because that NM representative set me on my first path of planning for my future. And with dumb luck, I sold that policy at a loss in February 2020 and dumped the cash into VOO at Charles Schwab in March 2020 at the lowest point in the COVID crisis market crash. I made back my losses in just a few months.
  • ​Buying too big of a house. 
  • Buying a house to put a roof over my head because I believed that housing is the most important investment we can make in our lives.
  • Buying some useless bond-heavy mutual funds because my NM representative advised me to, without understanding what the portfolios consisted of and why someone would buy them. I sold them in 2021 after owning them for 6 years and literal 0% growth. I dumped the proceeds into VOO (now I use VTI).
  • Maxing out my 401(K) contributions.
  • Maxing out my Roth IRA contributions.

Which one should I deep dive into? Drop in the comments any item you want to hear more about in it's own blog post.
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<![CDATA[ADHD and the To-Do List for my To-Do List]]>Mon, 05 Sep 2022 10:00:00 GMThttp://theaspiringadult.com/blog/adhd-and-the-to-do-list-for-my-to-do-list
If you have ADHD, you know the vicious cycle called "The To-Do List For My To-Do List". Keeping track of our thoughts can be chaotic and so overwhelming that we completely shut down and end up doing nothing at all. Each person and their experience is unique, but today I'm sharing two tools I am successfully using to manage my life and thoughts. Read on to learn what works for me, and a bit about what doesn't work.
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Why calendar blocking doesn't work

Many people cite calendar blocking as a useful technique to get things done. And I'm happy for them for that. This doesn't work for me for a few reasons:
  • My calendar would fill up very quickly and that would stress me out, causing me to shut down, feel behind, feel guilty, and ultimately do nothing productive instead.
  • My calendar would literally fill up so quickly that people who might need to actually get an appointment in my calendar for a meeting wouldn't find any openings, then DM me to see if I'm flexible with other appointments, which leads me back to my calendar to find ways to move things around, and then feel stressed out...see point 1.
  • Most importantly: I don't know that on Thursday I'm going to be motivated to do whatever I blocked to do on Thursday "write blog about ADHD", leading me to stress out, shut down, feel behind...see point 1 again.

What I do find effective is putting in a block for 2 hours on Monday through Thursday for "Personal Focus Time". During that time, I go to my To-Do list (discussed next) and select an item I feel motivated to work on. Then I feel inspired and get shit done. And it's contained in those 2 hours so if I don't get anything done outside of those 2 hours, that's ok because I checked off a bunch of stuff in those 2 hours. As a result, my view of my calendar is it is only for appointments where I'm held accountable to another human being (work meeting, coffee chat, lunch date, webinar registration, doctor's appointment, etc). If it's not an appointment with another human, then it doesn't belong in my calendar (with the exception of the Focus Time block on Monday to Thursday).
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ToDoist + Notion

I split the world into 2 kinds of To-Do Lists: 
  • The Today List - I use an app on my iPhone called ToDoist (thanks to the ChooseFI Podcast for turning me onto this)
  • Long Term To-Do - I use a website on my laptop and app on my iPhone called Notion

The Today List is small things on a daily basis that I don't want to forget that I need to do, because I have a bad memory. Text someone to remind them to drop by with the shoes, pickup the package at the counter, book the appointment at the doctor, and all of the other random things that pop into my head in daily life. The problem with The Today List, is it's so easy to dump everything into it that comes to mind that when I open the list first thing in the morning, my brain is overwhelmed by 20+ items, shuts down, closes the list, and ends up doing none of them, and then carries a 6+ month old "overdue" red-reminder-of-shame in an endless cycle for a task that probably would take 5 minutes if I had just done it. 

The Long Term To-Do are things I would like to do one day, and I don't want to forget about it, but it doesn't need to be done today or even next week. These might be things I occasionally feel inspired to research or execute on like learn Italian, take horse riding lessons, research getting a will drafted, take the Udemy course on blockchain technology, paint the ceiling on the terrace, etc. Some people will say to me "why do you even need to write those things down? If they really need to get done you will just remember them". Yes this is true, however I may randomly do bits of research here and there and I need a place to store that information so I don't lose it. Like maybe I've already decided my paint colors so where do I write it down? Or I have favorited a few horse riding schools, gotten a few recommendations for a lawyer, and so on. Having a Long Term To-Do list is not just about the task itself but also any interim research, blogs, websites, recommendations, or other information I don't want to lose track of when I finally pick up the task 6+ months from now.
ToDoist guidelines for my ADHD brain
  • When I drop a new item into ToDoist I quickly make an assessment "will this take me 10 minutes or less to do?". If yes, I leave the item white. If no, then I give it a blue color using the Priority flags.
  • I never use red or green colors, those send specific messages to my brain (sometimes bad ones). Blue is a neutral emotion.
  • When I open the app each day I have it set to only display "Today"s tasks. If I see any more than 2 blue tasks, I pick the 2 that definitely need to get done today and then push the remaining ones to another day in the future. I set my limit on 2 blue items because any more than that is a higher liklihood of feeling overwhelmed and shutting down.
  • If I see 5, 10, or even 15 white items when I open the app, my brain is unlikely to shut down because it knows white =  tasks that take less than 10 minutes each. Achievable.
I'm learning embracing using color techniques to train my brain into the right frame of mind for productivity.
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Notion guidelines for my ADHD brain
There really aren't many guidelines for Notion other than:
  • Use lots of pictures and emojis/icons
  • Invest 5 hours watching YouTube video tutorials on using it to help overcome the learning curve and use it to its maximum potential
  • If you don't have 5 hours today, just start with a simple check list like you see in the screenshot below, and you will slowly layer in more functionality as you try new things bit by bit - don't let the learning curve overwhelm you into shutdown / inaction: make one small change today
It's worth noting here that I have tried Evernote and Trello and did not like either of them. I used Trello for a while but its usefulness is very limited to task progress boards and did not give me the nice tree structure for locating lists/content. I used Evernote for like 1 week and then gave up because it did not give me user friendly, attention grabbing icons/emojis/cover photos and there was no tree structure for locating my content. I'm a very visual person and Notion is the best I've seen for this, as well as giving me options for displaying the same information in 6 different views (gallery, board, database/list, timeline, etc).
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<![CDATA[A solo person's guide to dying in a digital world]]>Mon, 22 Aug 2022 10:30:00 GMThttp://theaspiringadult.com/blog/a-solo-persons-guide-to-dying-in-a-digital-world
On top of doing FI/RE solo, I'm also a serial migrant. This creates more complexity than a digital nomad, as I move to a country for 2-3 year periods where I become a local taxpayer, open local utilities/bills, and create local assets (like buying a house or pension investments). I'm the only one that knows what I have and how to access it. Though planning for my own death may seem morbid, having organized an up-to-date treasure map for my beneficiaries means that they can spend more time on grieving their loss and less time being buried in hunting down my recurring bills and assets. They'll remember me fondly rather than cursing me and my missing paperwork. Read on for how I set this up.
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Not solo?​

Check out this ChooseFI podcast episode 125 on the "Emergency Binder" which might be useful when you have a partner involved. Read on to find some useful tidbits anyway.

The complications of dying solo

I might die next week or I might die 20 years from now. But I like to plan like it could be next week. I desire a plan with these outcomes:
  • keeping my cats alive; fast action to get them food and water (and their new home)
  • proper knowledge of who to contact on my death; I have friends that aren't on social media so I want them to learn about my passing 
  • access to immediate cash for my relatives to fly to whatever country I'm living in and deal with my body, cats, and apartment
  • knowledge of recurring bills that need shut off or ongoing payment (and knowing if they are on auto pay or manual payment)
  • distribution of estate (e.g. inherited investments, cash, pensions, house, etc.)
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My death as a solo person in a digital world is complicated by:
  • Moving around a lot, I am constantly creating new accounts and closing ones I no longer need
  • Logins / passwords change frequently
  • Logging into my account after my death could violate the Terms of Service of the bank or other website so the institutions should be contacted directly to handle the correct way
  • Logins / passwords are so sensitive that I don't trust anyone to have them
  • Writing everything down on paper and storing in a binder is unsafe in case of theft or if I died in a fire (my house has burned down before)
  • Bank safety deposit boxes shouldn't be used for something (like documents) that my beneficiaries will need urgently since the banks won't release access to anyone that doesn't have keys or isn't the executor of the estate; I need this information to be accessible quickly before bills start going into collection or otherwise depleting the inheritance value
I'm the only one that knows what I have and how to access it. I needed a way to give knowledge to my family without making it too easy that the information could be accessed while I'm alive.

For the remainder of the discussion, I will use the following trusted individuals in my life for reference but they could be different for you (and maybe even not blood related):
  • Uncle 1 (lives in US State 1)
  • Sibling 1 (lives in US State 2)
  • Sibling 2 (lives in US State 3)

The setup: an unused email address, a spreadsheet, and Swiss data inheritance secure cloud storage

In this blog, I am going to mention tools that I personally use. I am not currently compensated by any of these providers (nor have I been in the past).

My tools:
  • SecureSafe.com account (for the immediate days following death):
    • Free version will be suitable for 1 data inheritance beneficiary
    • $18 annual price for the upgraded version and you can add more data inheritance beneficiaries
  • Notepad (.txt file)
  • My selected email provider; and a newly created email address that has never been (and will never be) used for any other purpose except what is described in this blog:
    • the knowlege of it's existence should be only known to me and not the internet (i.e. don't sign up for blog reminders using this email!)
    • all 2-factor authentication or other "logging in from unknown device" security protocols must be disabled
    • a very complex password should be used that is longer than it is convoluted, like: badgers funky streets anchor bloble [this is not my password and please don't use it for your own account]
  • Excel spreadsheet
  • Google Inactive Account Settings (activates 3 months following my death)
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I asked myself "if I went missing tomorrow, who is likely the first person to find out?" and the answer is my neighbors. Someone would call the police, they would send for a welfare check, and my neighbors in my apartment building would be asked about the last time they saw me. My neighbors have a key to my apartment. This kicks off the following chain of events:
  • Once inside of my apartment, there is a piece of paper taped next to the door which says "In case of emergency". This paper gives my neighbors 3 phone numbers to call to reach my Uncle 1, Sibling 1, Sibling 2, and a local friend to come pickup the cats.
  • Uncle 1, Sibling 1, and Sibling 2 all have been given access to a Google Sheet which tells them the next steps to take. All 3 individuals are reminded on an annual basis about this Google Sheet and that they should favorite it inside their own Google Drive. One tab reminds my Uncle 1 to activate the SecureSafe "Activation Code" and if he can't remember what that is then it reminds him to search his email for the same phrase. A second tab gives a list of individuals to contact and inform of my death, it is just names, email addresses, and phone numbers. This is important to specifically itemize people that will not find out about my death via social media because they don't use it. A third tab gives directives about my personal wishes (none of which are legally enforceable but my relatives may wish to use as a guideline).
    • Important: there are no assets, websites, logins, passwords or other sensitive details in this Google Sheet. It's just a phone tree really.
  • Uncle 1 finds the SecureSafe Activation Code and visits www.securesafe.com/activate to begin the data inheritance process. A screenshot of the instruction sheet he was given is at the end of this blog as Annex 1 and is generated by SecureSafe when I setup Data Inheritance.
  • A blocking (waiting) period of 3 days is set (which I can adjust shorter or longer) in which time I will be contacted to confirm my death. If no response is received from me, then after the 3rd day the distribution to Data Beneficiaries is initiated. If I login to my account during the 3 days window then I can cancel the process.
  • Sibling 1 and Sibling 2, both identified as Data Beneficiaries in my SecureSafe account, will receive emails or phone contact to inform them that my data is eligible to be downloaded.
  • Once my data is downloaded, my SecureSafe account is closed.

The below screenshot shows my account with Data Inheritance activated, and 1 data beneficiary setup. This is my view, my beneficiary will only see files assigned to them once they have access. We will discuss the .txt file next. 
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The below is the Data Inheritance settings page after I filled in my details and those of my beneficiary. I did not have to provide any details of the "activator" -> I just received the code in a downloaded PDF (see Annex 1) which I can provide to whomever I like. If I later decide that I don't want that person to be the activator anymore, then I come back to the activator settings and generate a new code. Generating a new code (and PDF instruction) automatically invalidates any previous codes.

The unique feature that sold me on SecureSafe is the activation code keeps a segregation between the person receiving the information and the person informing of my death. So if Uncle 1 and I have a falling out, he can only activate my death but he won't receive any information because I did not set him up as a beneficary. And if Sibling 1 and I have a falling out, they cannot activate my death because I never gave them the code. It is of course always possible that Uncle 1 and Sibling 1 conspire together while I am still alive, which is an unlikely risk but also mitigated by the blocking period.

I only added 1 beneficary in my example for screenshot purposes but I recommend upgrading your free subscription to the paid version to add a 2nd beneficiary just to be safe.
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So what data does the beneficary receive from SecureSafe? The one file I assigned to them -> a note pad file titled "Open This - On Death.txt"

This .txt file contains the email address and password I setup specifically for my death. 

Now my relatives can access the email account to download the Excel sheet found inside. The Excel spreadsheet provides the treasure map to everything my relatives would need to know about my financial picture. The sheet has 2 tabs:
  • Summary: this is a high level balance sheet of my assets and liabilities (i.e. total net worth). It is simply summarized by asset or liability types like "Bank 1 - Cash, Bank 2 - Cash, Brokerage 1 - ETFs, Brokerage 2 - 401K" etc. but I use the actual institution names and not "Bank 1".
  • Details: this is a 100+ row sheet giving the details of all of my accounts someone may need to settle such as phone, utilities, mortgage, taxes, gym recurring debits, social media, internet, Spotify recurring debits, and so on. The columns contain a category, the institution name (e.g. Spotify, T-Mobile, Fidelity, AIG, Chase Credit Card, etc), account number (if any), website, customer service phone number, and email address used to register the account. There is a last column which identifies if there is a recurring bill payment setup and which account it pulls from (e.g. Chase CC, Schwab Direct Debit, etc). This same column identifies any manual payments that are non-automatic (very few but actually my credit cards are not setup for auto-pay). There are no passwords listed on this sheet, the relatives will have to contact customer service at each institution directly to take any desired actions.

Sibling 1 is also listed as a co-owner of a checking account at a US bank where I store my USD $5,000 emergency savings. They can immediately withdraw this cash on my death as a co-owner. The account does not go to estate probate. Probate is a fancy word which means all assets of an individual are frozen on their death while courts decide how to distribute them, which can take months or years. Some assets by-pass probate which means they don't get caught up in the red tape of the courts.

Because I don't give out any of my login/password details, my relatives are losing the benefit of direct access to all of my financial records (e.g. copies of tax returns) which are stored on Google Drive. So I enabled the ​Google Inactive Account Settings at https://myaccount.google.com/u/2/inactive. You can follow the prompts on the page which informs you that if your account is inactive for 3 months, Google will make multiple attempts to contact you and if unsuccessful then will distribute access to the beneficiares that you assign. I added Uncle 1, Sibling 1, and Sibling 2 as beneficiaries. You can also choose which specific areas of your Google Account to grant access. So maybe I want them to access my Google Drive but not my Google Mail then I can toggle Drive on and Mail off. This feature on my account is not my primary way of distributing information because it only activates after a minimum of 3 months. Additionally, I have the SecureSafe Activation Code PDF saved on this drive in case anything goes wrong with Uncle 1 activating the data inheritance process but the 3 month waiting process with Google adds an extra layer of protection.

The keys to the treasure map are complete. My relatives will have to go through estate probate to actually access any probate assets that I own (e.g. sole named brokerage accounts, 401K, etc). but at least they know where and how to find it, and won't miss lost assets or unpaid bills/creditors.
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A few other notes

  • I do not currently have any trusts or a will. All of my relatives are financially comfortable and I honestly don't care what happens to my money when I die. If in the future I have specific wishes for my assets then I can draft one. I could store a copy of any will in PDF form in the SecureSafe account to distribute to a specific data beneficiary (e.g. my lawyer and Sibling 1).
  • Why not just store the Excel spreadsheet in SecureSafe and skip the secret email? I could do that, but I like the extra layer of protection. In case something happened to SecureSafe or someone otherwise got access to the Activation Code, and I couldn't stop the data inheritance process before the 3 day blocking window expired, then I could still intercept the process by changing the password to the secret email address. For those with less paranoia, you could simply store the Excel spreadsheet directly in SecureSafe. It comes with 50MB of storage in the free version.
  • What about a physical bank lock box? Well, this was literally my existing solution up until yesterday. Years ago, I wrote down the anonymous email address and password on a sheet of paper and put it inside of a bank lock box in the United States. That bank told me that on my death, someone would simply need to show up with my death certificate and their own ID and they would be given access to the box even without a key. I found out yesterday that this is not true and documents should not be stored in a lock box that are urgently needed (like this piece of paper). The bank will only grant access to the executor of my estate which would take time to identify and get proof/documentation.
  • Regarding the USD $5,000 in a joint checking account with Sibling 1: distributions of assets in estate probate can take months or years and this account grants Sibling 1 direct access to cash but also while I am alive. For those that don't have a person that they can trust to setup a joint account, you can also setup an account in only your name but list a beneficiary as a "Payable on Death" or "Transfer on Death" setup. This prevents that individual from accessing the funds while you are alive but by-passes estate probate on your death (i.e. quick access to the cash).
  • I have a quarterly reminder to login to SecureSafe and to Google Inactive Account Settings and check the email address and phone numbers of all beneficiaries and even myself (since I move countries and change phone numbers often). I have an annual reminder to my Uncle 1, Sibling 1, and Sibling 2 to remind them of the setup. 
  • I have a quarterly reminder to update the Excel spreadsheet with new accounts and to remove old accounts. I only do this at home and never on a public, unknown, or unsecure WiFi.

TLDR: why make a death spreadsheet

Making my death a low-burden treasure map means that my loved ones can spend more time on grieving (or celebrating my life I hope) and less time on hunting down all of my bills and assets. I recommend using a combination of:
  • A SecureSafe.com account with Data Inheritance activated (available on the Free account)
  • Anonymous email address storing an Excel spreadsheet of all of your assets, liabilities, bills, and social media accounts
  • An enabled Google Inactive Account Settings
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Annex 1

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<![CDATA[Buying vs renting housing: which is the better financial choice? A case study]]>Mon, 08 Aug 2022 10:00:00 GMThttp://theaspiringadult.com/blog/buying-vs-renting-housing-which-is-the-better-financial-choice-a-case-study
Since discovering the FIRE movement I've been intensely studying the myth and cult of homeownership. This concept is also tied up in societal noise that if you are renting then you are throwing your money away. Or that you haven't reached adulthood if you are still renting. I wanted to find out in a case study if renting could give you the financial upper hand over buying. I took 7.5 years of records owning my house and renting it out once it was no longer my primary residence. Read on to see the numbers.
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Meet The House in our case study

I bought a house in Denver Colorado in November 2014. I lived in it until 2016 when I moved away and never returned. During this time, I kept impeccable records as a proper accountant does. I went back through and organized the numbers to show a column of what the person who rented this house spent to live here. Then I added in a column of what the buyer residing here would have spent to live here. I tracked the cash difference in the last column. I excluded any costs that I incurred which were related to being a landlord such as property management fees or other leasing expenses that I would not have incurred by being the owner occupier.

The numbers laid bare

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And if you want to know the general maintenance and renovation expenses they are:
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Interpreting the results

I am not the first to argue that buying the roof over your head may not be a good investment. Nor am I the second. I was inspired to do this case study by Episode 047 of the Choose FI Podcast. But it is much more illustrative to give a live example with real numbers to back it up.
  • I am assuming that both the renter and the buyer are effectively the same person that made different choices, which means that they both earn the exact same income. As such, in the years that the renter is spending less of their money on the house than the buyer would be, they have extra left over to invest in the stock market (I choose VTI as my example). This outcome is reflected at the bottom reconciliation on the line "Stock Market Returns" and represents actual returns on VTI for each year. Compounding growth is amazing. 
  • The house that was purchased for $252,500 in 2014 would need to sell for $366,481 over 7 years later just to breakeven with having rented those 7 years. If the sales price were less, then renting would have been the better financial choice.
  • In my specific case, my sales price was indeed above the breakeven sales price at a whopping $576,000 in March 2022. I was lucky. But what is clear in either the breakeven sales price or the actual sales price is that "building equity in the house" is an insufficient argument for buying. I needed to actually believe that real estate in the Denver market would substantially appreciate, and more than the national average, during the period of ownership. 
  • I added an additional figure below my actual sales price which is the estimated sales price based on the 3.5% national average over 50+ years of real estate growth. We know that the 2022 price is an outlier, and that if this was an "average" year then I might have expected a sales price of $315,166. As you can see in my second point above, this would have been less than the breakeven price and I would have been financially better off being the renter. You can plug in different cities and different periods of time to see real estate returns using this cool calculator.
  • With a mortgage interest rate of 4%, equity does not get built fast. In around 7 years my mortgage went from $239K to $205K. The early years of a mortgage are mostly being paid towards interest which is equally as "throwing your money away" as paying rent is perceived to be.

Interested in another case study? I made a Part 2 in June 2024 to look at the market in San Francisco! Read on by clicking here.

"BUT you're not factoring in ...."

  • Taxes? You are right. I excluded any supposed tax benefit from deducting mortgage interest and property taxes because in this case study the total each year is well below the standard deduction. It may have provided a small benefit in the past but for someone looking to calculate into the future, you would use the current standard deduction as your measurement tool ($12,500 for single and $25,100 for a couple) which renders the "tax benefit" point moot for most Americans. Only 10% of Americans are estimated to itemize after the increase in the standard deduction a few years ago.
  • Oh one more tax benefit I excluded: capital gains taxes. That's because the renter could use a strategy of slowly selling the stocks and taking advantage of their 0% tax bracket to pay no capital gains taxes on disposal. The homeowner would benefit from the primary residence exclusion and also pay no capital gains tax (up to $250,000 of gain for single and $500,000 for a couple).
  • "If I own my house for decades, I will pay it off and save money when I’m old”. That might be true, but inflation still effects your cost of living and you are more likely to encounter surprise expenses than if you choose to rent. Let's break this important argument down into smaller bites:
    • The longest living parts of our homes are the roof and the sewer, 15-20 years and 50-100 years respectively. Everything in a house is going to keep turning over as its useful life expires and as our personal tastes change. Imagine you will need to renovate all parts of the house every 20 years and replace the fridge / AC / furnace / washer / dryer etc every 7-15 years.
    • The property taxes will continue rising with values (if you live somewhere with property taxes, though there might also be discounts for older people).
    • The homeowners insurance will continue rising at least with inflation but also with global warming potentially causing increases to the rates.
    • The cost of repairs and renovations mentioned above will continue rising because inflation increases the costs of parts and labor.
    • All of these variable components can account for 50%+ of your ownership costs. However, once your mortgage is paid off, these costs account for 100% of your ownership costs. Renting can lock in rates especially in rent controlled areas.
    • Rent is also predictable year-on-year while homeownership comes with surprise costs like a burst sewer line, leaking roof, and so on. Nobody wants surprise costs when they are old and living on limited income.
    • It's also important to remember that life is not just two options. Imagine being the renter up until you are 60 years old, investing all of your savings into VTI that you didn't spend on a house in your younger years, and then you can buy a house in cash that is move-in ready and suited to your elder care needs.
    • From a financial perspective, there is no superior argument that you need to buy the house when you're 30 and sit on it until you die. Here are a few interesting articles about how people don't factor in the enormous costs to make their home habitable as they age:
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Key takeaway

Of course, many people buy property for more reasons than the financial ones. But for those people that do not feel the urge to own the roof over their head, who enjoy the freedom that renting provides, and who hate renovating and maintenance: I need you to know that you are a fully formed adult that could be making the better financial choice for your life and geographical situation. You are not throwing money away on rent. Every city and personal situation could render a completely different outcome. The point is that it is not a slam dunk that buying is always financially better than renting.
You do you.

UPDATE November 2022, I'm going to start adding links to other blogs/websites that have published similar number crunching:
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<![CDATA[Why I don't take financial advice from my friends: Part 1]]>Mon, 25 Jul 2022 00:00:00 GMThttp://theaspiringadult.com/blog/why-i-dont-take-financial-advice-from-my-friends-part-1
There are very few things I can definitively tell my friends “you should do that thing” when it comes to money, and vice versa them to me. I was recently asked by a two different friends: “Should I buy iBonds? 7-10% interest is really good!”. I started laying out all of the different questions I asked myself to determine if those iBonds are appropriate for my situation. I shared the thought process with my friends. When a friend says you should do something specific with your money, you don't directly know their circumstances that led to that decision being the right one for them. In many cases “7-10% interest is really good" was the only reason (and it's not a good enough reason for me). I will use this blog to walk through specific money decisions I might need to make, the questions I ask, how the answers map to a decision, and the opportunity costs of one option over another. If you've ever asked yourself “Should I....?” about a money decision, I hope this exercise gives you some more direction for your own situation.
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Why Part 1?

I made a really long list of stuff. It's too much for one read. Heck this blog covers only 4 topics and it's already too long to read. Drop in the comments any questions you want added to the list.

This list will not be exhaustive. It will be based on my own experiences. The objective here is that it gives you a framework to build your own. Here is the list, and you can scroll down for the ones relevant to you. That means that this blog is literally not advice. I don't want you to make decisions based on how I made them. I do want you to understand my decision making process. I, and your friends, will have a different outlook / outcome than you. 

Should I...
  • Buy or rent my housing?
  • Buy a house now, or wait for the market to cool down?
  • Buy US Treasury I Bonds?
  • Buy whole / permanent life insurance?

But first...why do you have cash sitting around?
To setup some of the questions and their answers, you first have to evaluate your money needs in each of these buckets. If you have money sitting in your hands that you could be spending on something / buying you need to understand how you have funded these first. We will revisit this diagram throughout the discussion. 
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When someone is going to make a financial decision that requires locking up a large chunk of cash, the first question I ask is "why did you have that cash sitting around in the first place and when are you going to need it again?". For example, if you have $5,000 to do something with but this is your emergency fund then it's accessibility and risk factor is much different than needing that $5,000 sometime 20 years from now. If someone has their emergency fund sorted and no planned expenses in the next 6 months (e.g. home renovation, etc) or 2-5 years (e.g. quitting a job, etc) then I fit it into "the future" bucket. The future bucket can withstand large swings in market volatility. Everything in the first 3 buckets cannot.

Should I ...​ Buy or rent my housing?

Here are some questions I ask myself:
  • Do I believe real estate always goes up in value over time?
  • Do I like the idea of home maintenance?
  • Do I plan to live in my house for 10+ years?
  • Am I deeply effected by an emotional / cultural / societal pressure or connection to owning the property that I live in? 
  • Is the estimated mortgage payment 70% or less than the price of renting? 
  • Do I actively invest my savings into ETFs (e.g. if I have a downpayment ready, and decide to keep renting, will I invest that money into the stock market)?
  • ​Do I feel secure that I could keep paying the mortgage if I lost my job (e.g. I could easily get a new job paying a similar or better wage, I have a partner that makes a sufficient income to rely on, etc)?
  • Do I understand the long term costs of owning of a home (e.g. personal tastes / styles change, most improvements have a useful life of maximum 15 years useful life except roof, the costs of a complete retrofit when you're older to make it safe to live on your own, etc)?
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My personal assessment:
I do not believe that real estate always goes up. Real estate does have typical cycles though when compared to the stock market and has returned less when investing in the long run (obviously ignoring year-on-year cash flows which we won't get into because this is about the roof over our head and not investment properties).

I have no emotional attachment to owning the property I am living in and really hate the idea of maintenance and renovations. I've done renovations on homes before, and it sucks. Finding quality contractors, living in a mess, and on and on. No thank you. I also have come to accept that I'm a serial migrant. The chances of me living in a property longer than 10 years are incredibly low which means the huge upfront costs of buying never pay off for me (the first 10 years of a mortgage are mostly interest payments so I'm not actually building much equity in the property before that). If mortgage rates are really low (like my recent 1.65% mortgage) then I will consider buying a property, but otherwise I won't fall into the myth of "homeownership builds equity". Simple example: I bought a house in 2014, took on a mortgage of $239,000 and sold the house in 2022 with a mortgage payoff of $205,000. It's shocking how little of the mortgage was paid off. 

Most people ignore the cost of maintenance and renovation when running the numbers and the reality is most people will do some level of renovation when they move into a new home purchase so it can be exactly as they want it. So if I'm paying $1,500 a month in rent then I need to factor in a monthly payment that is 70%, or $1,050, to account for renovations and maintenance that I don't pay for as a renter. This is just back of the napkin (but I will do a case study another day on actual numbers) to find out my breakeven between renting and buying. Renters can save a lot of money compared to buyers because they aren't paying for major maintenance and renovations, but as a renter I need to invest that savings into ETFs (I love VTI) to come out better than the buyer.  
I used to think that homeownership gave me more freedom than renting because if I decided to move, I could simply put the property up for rent and have someone else pay the mortgage. With a lease as a renter, I could be locked in for many months. But then I realized this wasn't reality because being a property manager is stressful. There is nothing passive about it unless you get the world's best property manager. Even then, I stressed over having so much of my wealth tied up in a single property: what if tenants didn't treat it well? What if something happened to that neighborhood to reduce it's attractiveness? I could be better off financially by paying a penalty to end a lease early when compared to all of the cash I've invested in upkeep while keeping the house. Additionally, without a mortgage I have the freedom to quit my job and move in with friends or family temporarily, or even travel the world living in free accommodation (via Trusted House Sitters or Work Away). A mortgage is a debt that must be repaid and it removes freedom from my life.
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The other freedom factor is building wealth and then living off of it once I retire early. But if I want to leave a primary residence and turn it into a rental property, I could only live off of the rental income streams and not the equity in the house. What if the property has grown to 50% of my net wealth? Now I'm in retirement and can't access that value unless I sell it. Now if I want to sell it then I have to do it in one go, and take the tax hit on capital gains. But if I had been investing in ETFs the whole time, then I can sell those stocks a small bit at a time and pay no taxes through controlling the gains I recognize (and keeping them in the 0% US tax bracket). 

I used to believe that buying a house was always a better financial decision than renting because "you build equity and renting is throwing your money away". I was also bought into the idea that "
I'm not a fully formed adult unless I own the roof over my head". I educated myself, learned none of this is always true, and now I operate from a place of "rent unless there is a financially compelling reason to buy". And the only compelling reasons for me to buy are:
  • an interest rate < 2%
  • low / no up front costs to buy (which rules out most of the US buyers market)
  • low maintenance (like an apartment / condo)
  • move in ready suited to my style (I don't need to make any renovations)
  • located in a hip neighborhood

Want to read my case study, with actual numbers, on buying vs renting? Subscribe at the bottom of this blog post to get notified when I publish it.

Should I ... ​Buy a house now, or wait for the market to cool down?

Here are some questions I ask myself:
  • Is this house a roof over my head or an investment? 
  • If this house is a roof over my head, do I need a new one now (like a growing family, or to move closer to work, etc)?
  • At current prices, will the monthly payment be less than 30% of my net pay?
  • If this house is an investment, do I believe that real estate always goes up in value over time?
  • If this house is an investment, do I plan to live in it for 10+ years? 
  • Do I feel secure that I could keep paying the mortgage if I lost my job (e.g. I could easily get a new job paying a similar or better wage, I have a partner that makes a sufficient income to rely on, etc)?
  • Can I, or anyone I know, predict the future?
  • Do I know anyone that has ever “waited for the market to cool down” before buying their house and indeed got a better price?
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My personal assessment:
Preface: this would be an assessment I make only if I have already decided that buying is the better choice than renting. That question is covered previously.

This is a roof over my head. While real estate does not always go up, it is generally spending more time on the "increasing" activity and shorter amounts of time in the "decreasing" activity. Actual studies on real estate cycles show that it usually spends 14 years increasing and 4 years decreasing (totaling 18 year markets in much, but not all, of history). I cannot predict the future and I do not know a single person that has ever "waited for the market to cool down" and timed it perfectly to end up better off financially. If I find mortgage interest rates on offer to be reasonable (low cost of borrowing, 4% or less), the monthly payment is less than 30% of my net take home pay, I plan to stay in this home for 10+ years, and my job to be secure, then I am not going to wait: I will buy in a hot market. 

Example: I bought a house in Denver Colorado in 2014. People around me told me I was crazy and they were going to wait for the market to cool down. If they waited, they still wouldn't have a house. I sold that house in 2022 for more than double what I bought it for.

Example: Let's imagine I bought that house in July 2007 at the height of the market in Denver Colorado and then 2 years later the value was cut in half. If I was planning to stay living in that house for 10+ years then it wouldn't matter than I bought in a hot market, I had a roof over my head and a reliable job that doesn't fluctuate wildly with recessions. I could still pay the mortgage so the value of the home wasn't relevant during the recession. 

I used to get caught up in the "but the market has to cool down" when I had the concept of the roof over my head mixed up with the idea that real estate can be an investment. Once I disconnected the two, and no longer see the roof over my head as an investment, I could sleep better at night with my purchasing decisions.

If you do view the roof over your head as an investment, you might consider reading my recent blog post "Price cuts: should I sell my house during a recession or wait for recovery? A case study".

Should I ... ​Buy US Treasury I Bonds?

Here are some questions I ask myself:
  • When do I need the cash I'm sitting on?
  • Am I in the "window of doubt"?
  • What are the alternatives? Can I invest my money better somewhere else?
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My personal assessment:
The window of doubt is this time where stock markets are down (like...right now) and it seems that everything else is a better place to store your money, like real estate, bonds, even cash. We can't predict the future to know how long this window will last. I view the window of doubt as this time when psychology will tell me "stock market = bad, other things = safe / good" when in reality, if I don't need the money in the next 2-5 years, I should do the complete opposite of psychology and invest in the stock market.

If I need the money in the next 2-5 years then bonds could be a good thing to choose, but if I have no need for that money in the next 2-5 years then I will lose out on huge market gains because buying stocks low (on sale!) is the best time to buy (though it's always a best time to buy). Keep in mind that many bond investments require you to lock up the funds for 1-2 years. So if I need the money in the next 6-12 months then I will simply put it in a 6 month bank CD (Certificate of Deposit) or a high yield savings account (basically cash) and call it a day.

I did a quick back test to 2008 and while US Treasury Bonds weren't paying 9% interest, they were still paying better than the stock market. I did two snapshots comparing a $10,000 investment in VTI in January 2008 with a $10,000 investment in a US Treasury Bond fund (so mimicking buying the bonds). If I needed the $10,000 4 years later, I would have $4K more in my hands having invested in the US Treasury Bonds and would have lost $500 investing in VTI.
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But if I was that person sitting on $10,000 and thought "Hm US Treasury Bonds look like a safe place to put my money right now" I may have left it there not knowing the right time to pull it out (since timing the market never works well). Not needing it for anything, I likely "set it and forget it" and would have lost out on the huge gains (almost $23K more than having left it in the US Treasury Bonds). It's a big bumpy ride in VTI but if I don't need it now, then I will just dump it in and worry about it again when I come into that 5 year window before I'll need it again (and reassess).
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Should I ... Buy whole life insurance?

Here are some questions I ask myself:
  • Can I explain how it works in <3 sentences?
  • Do I currently have any children, dependents, or elderly parents that would rely on my income in the case I died or became unable to work / earn income?
  • If I do have someone that would rely on my income, would they continue relying on it beyond 20 years (e.g. are they expected to live longer than 20 years or will they become independent on their own income within 20 years)?
  • Am I financially independent already and if I died would my assets fund those dependents for the time horizon needed?
  • Is the insurance policy going to invest in the same things I would invest in on my own?
  • Is the insurance policy going to invest in less desirable investments than I would invest in on my own?
  • Am I going to be able to keep paying the premiums through the required time period (e.g. do I plan to quit my job, take a long leave of absence, etc)?
  • What are the alternatives? Can I invest my money better somewhere else?
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My personal assessment:
I bought a whole life insurance policy once. I was sold this policy by an agent of Northwestern Mutual who was putting together a financial plan for me. I knew he would get a commission on the policy. But I was also convinced by all the fancy and complicated paperwork that it was a good investment. I was wrong and had no business owning that thing because at a simple starting point: I have no dependents that rely on my income that would need it replaced in the case of my death.

Even though I'm an accountant myself, I simply couldn't explain how the product worked in less than 3 sentences. I would defend my choice by explaining to other people how I was using the life insurance policy as an investment vehicle. Once I hired an independent financial advisor (that wasn't selling me anything) he asked me "yea Ryan but if you took those premiums each month and just invested them in VTI you would have more money because you wouldn't be paying the high fees associated with this complex product". He was right. I hadn't really computed the "but could I invest my money better somewhere else?" because I simply didn't know any better. It's also difficult to find out what the whole life insurance policy is directly invested in but I can only assume it was not as great as VTI, plus all of the buried costs of the insurance company dragging down the long term returns. The whole life insurance policy also added a level of complexity and restriction on my investments that would have hindered my early retirement strategy. Buying VTI, I can do with it as I please and when I please.

IF I ever have dependents that rely on my income, I might consider a whole life insurance policy. But even then, if I have reached financial independence then the pure fact that my entire wealth will pass on to them may be enough to fund them and renders the policy moot (otherwise called "self insured"). 

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<![CDATA[Price cuts: should I sell my house during a recession or wait for recovery? A case study]]>Mon, 11 Jul 2022 11:00:00 GMThttp://theaspiringadult.com/blog/price-cuts-should-i-sell-my-house-during-a-recession-or-wait-for-recovery-a-case-study
I am not an economist. I cannot predict if we have entered or will enter a recession. But it's hard to ignore the news talking about it (I call it "noise"). Recently I have been approached by a friend who is considered selling their house in order to "take the money and run". So the question became: with the tides turning, mortgage interest rates rising, demand dropping, supply rising, and price cuts increasing, should they hold off on selling the house until the economy turns around? Read on to learn my case study response from the 2008 recession.
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Let's meet Sam for this case study

The following case study will not consider all possible angles of homeownership motivation, asset diversification, inflation, equity building, real estate cycles, personal non-financial preferences, or any other number of factors that go into a decision sell a piece of real estate.

What the following case study will consider is one specific journey that may either resonate with other people on their FIRE journey or provide an illustrative way to look at a problem and assess possible outcomes using your own circumstances.

This is the story of a solo individual, named Sam. Sam does not crave homeownership. They previously lived in a residential home that they purchased in Denver, Colorado but moved abroad 2 years ago. Since then, they have been renting the Denver house out to tenants. The rent covers all of the expenses and turns a small profit each month. The profit is mostly reinvested into the property through repairs or improvements. The Denver house is Sam's only piece of real estate that they own. Sam has been listening to FIRE podcasts (like ChooseFI) and decided that they prefer renting their primary residence rather than buying. Their monthly outflows for their current rent are roughly equal to the monthly outflows they would have if they owned the property that they live in (this is not relevant to the case study but I know someone will ask about it anyway).
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Sam recently put some spreadsheets together to track their net wealth and discovered that the Denver house represents 50% of their net wealth due to substantial growth in the housing market. Sam is deeply uncomfortable with 50% of their wealth being tied up in a single asset, and feels that to be able to reach their FIRE goal and live off of their wealth 15 years in the future, they should sell the Denver property. They plan to invest the cash proceeds into the VTI index fund (which can be easily purchased  in 5 minutes on platforms like Schwab, Vanguard, and more). Sam feels more diversified owning VTI as it is a pool of 3,000+ companies versus 1 house in Denver Colorado. 

As Sam has already decided that they want to sell the Denver house, they now face the psychological burden of "an impending recession" (according to the news). They have read in the news that they missed the chance to sell high, and will get a lower price if they list now, either by having to cut the price or having to offer seller concessions to the buyer (or both). Sam's question becomes "should I wait it out since I missed my chance? Should I keep the house a bit longer since it isn't costing me any money to hold onto it?"

Since none of us can predict the future, let's go back to 2008 and put ourselves in the shoes of sellers that may have been asking similar questions after experiencing price cuts, but without any knowledge of what the future would hold. 
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brb going to 2008.

The 2008 recession in a nutshell

I'm not an economist. I don't have lots of smart things to talk about regarding the 2008 recession and housing. I do recommend reading the book The Big Short which was insightful for me. But in a nutshell, 2007 was the peak of US housing prices across most of the country. When the recession hit in 2008, most housing prices across the US tanked by 15% or more (in some places 40% or more). Denver actually experienced some price increases or simple stagnation, depending on the neighborhood. By the end of 2012, the recession was considered "over" meaning that the general sentiment was positive (if you can correlate general sentiment with what the news would proclaim at the time since people are generally effected psychologically with whatever the news is saying). In Denver specifically, housing prices had recovered to their 2007 prices (the first city in the nation to do so). It was not a smooth ride back up though, with 2009 and 2010 facing lots of ups and downs.

Researching public pricing records

I set out to find a sample of properties in Denver, including the neighborhood the Sam owns a house in. I was looking for houses that sold around 2009 and that we can reasonably assume experienced significant price cuts or seller concessions at the time. But I was also looking for houses that sold again sometime 2-4 years later. Giving me data on the "waiting it out". The goal was to find out "if Sam had sold in 2009 and invested the proceeds into VTI would they have been better off compared to waiting a few years, selling, and then investing the proceeds into VTI?". I have not provided the exact addresses I found so as not to invade the privacy of these random homeowners. 

The table below is more important but here is some flavor to the columns:
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  • Column A was the last known sale price showing in the Zillow public records aggregator and while it was not relevant to my case study, I knew some people might want to know this information. It shows how much prices dropped or otherwise stagnated prior to the sale in 2008/2009. As mentioned above, some neighborhoods actually experienced price increases.
  • Column B is what we can reasonably assume was "the bottom price" this seller experienced, most likely taking price cuts to arrive at the final sale figure (many of those price cuts are even recorded in the public accounts I viewed which confirmed my assumption).
  • Column C was the price the property sold for a few years later. In many of these instances, the seller still experienced price cuts to their listings between 2010 and 2013. I chose a variety of years to broaden the illustration. It's important to note that we do not actually know the psychology at play during these sales and many of these were not people that "waited it out to sell". They simply sold in both time slots I was researching and therefore gave me pricing in the windows I wanted. 
  • Things get feisty in Column D which is the value of Column B if it had been dumped in VTI and never touched.
  • Column E is the value of Column C if it had been dumped in VTI and never touched. Note that Column C has later investment dates than Column B so it has less "time in the market" than Column D.
  • Column F was not relevant to my case study but is a current reference price for people that would want to know this information. While Zillow Zestimates are not reliable, they give us something to look at which is better than nothing.
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Interpreting the outcomes

In all cases except the first one, the seller was better off selling in the "worst time" being 2008/2009 and gaining on "time in the market" with their VTI investment rather than waiting a few years (aka "timing the market").

I can't tell Sam what the right answer is because I can't predict the future. But in response to Sam being psychologically hesitant to sell now, I say "You are weighing a number of factors in whether selling the house is right for you, and what you'll do with the money. Looking at the evidence in Denver during the 2008 recession, if the sellers had sold early and low, and invested the proceeds in VTI, then they would have turned out just fine even after suffering price cuts". Tying this back to our original introduction to Sam: this case study only ends this way if Sam actually invests the sales proceeds from the Denver house into VTI (or another broad based index fund of their choice). If Sam plans to take the proceeds and invest in another residential real estate property (as example) or spend the cash traveling the world in luxury, then this analysis and it outcomes are irrelevant

Astute readers will also note that while home prices today seem eye wateringlyy high, they are very disappointing when set next to the returns on VTI.

"BUT you're not factoring in ...."

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If I missed one, drop a comment below or send me an email explaining a) what I missed and b) how it would significantly change the outcome of the analysis. You have to keep in mind, this was simply a "should I wait it out" question and nothing more. This was not a blog about "renting vs buying" the roof over your head. However, I am doing that case study with real numbers so subscribe to blog notifications below to get notified when it's posted.
  1. I did not factor in any mortgage payoff so you could say I just assumed the seller had the mortgage paid off. This was just for simplification and would not move the needle.
  2. I did not factor in any taxes, which in many cases could be true if there was either a) a loss or b) the gain qualified for the primary residence exemption (which Sam will qualify for).
  3. I did not factor in any home improvements someone likely spent money on to encourage a sale in a down market, since that is unpredictable.
  4. I had to use January start and December end dates for investing in VTI since I couldn't start an investment in other times of the year with the tool I used www.portfoliovisualizer.com
  5. I don't really mind that "this isn't the 2008 crisis" and "this is totally different" because this is simply an illustration of "time in the market" vs "timing the market". That's it. The economic factors surrounding housing price cuts or the depths of the cuts (3% vs 15%) would not significantly change the outcomes. What would significantly change the outcomes of this analysis would be a situation in the past where housing prices rebounded faster than the S&P 500. I'm not aware of that ever happening or being likely to happen.

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