Author: Mr. MFI

Our 2021 FI Progress: Joining The Double Comma Club

Post author By Mr. MFI
Post date January 23, 2022

BLUF: Fueled by a massive bull market and a high savings rate in 2021 our invested assets grew by over $275k. We officially joined the double comma club having over $1M in invested assets.

In a previous article, I covered how we saved $140,000 last year in 2021. Today I’m going to dive into where we stand with our investable assets and how that tracks to our overall FI number.

I’ll cover where the investments are located from an account type perspective (brokerage, 401k, crypto). However, what we’re invested in from an asset allocation perspective will be a topic for another post. In general we’re 75/20/5. 75% stocks, 20% bonds, 5% cash and crypto. Mostly invested in low cost mutual funds.

It feels a little odd to be writing about our financial progress last year right after a few weeks negative volatility (week ending Jan 21st, 2022) in the stock and crypto markets.

It’s pretty minor from my perspective, but some people that have recently enjoyed 25% returns last year are freaking out! Some newer investors are getting their first real taste of dealing with their emotions when things aren’t going up. Welcome to investing.

The Tax Triangle

The US tax system is complicated with lots of rules, exceptions and nuance that can bite you. It’s important to understand the taxation of your investments on the way out because that directly impacts how much you need to have to be FI. I wouldn’t recommend trying to use the Wesley Snipes accounting method.

The tax triangle refers to three different groups of investment accounts that each receive their own tax treatment: tax free, taxable and tax deferred.

Tax Free – No taxes due on the withdrawal of this money as long as the correct rules are followed. Examples: Roth Accounts, HSA’s used for qualified medical expenses.
Taxable – Gets preferential long term capital gains (LTCG) tax treatment for qualified dividends and assets held longer than a year and a day. 0%, 15% and 20% LTCG taxation rates in 2022. Examples: Brokerage accounts, crypto brokerage account.
Tax Deferred – Was saved pre-tax on the way in. Taxed as ordinary income when withdrawn from the account at your marginal tax bracket. Examples: t401k, tIRA, 403b, 457b, TSP, etc.

I introduce this idea briefly right now because that’s how you’re going to see my investible assets bucketed.

How I Track Progress

There are two main tools that I use to track our financial progress right now: personal capital and a spreadsheet.

Personal Capital (PC) does a good job of connecting to each of my accounts, aggregating that data and keeping it current. As account security has gotten tighter it does get a little more annoying as every month or two I need to resubmit credentials. You’ll see a few areas where I didn’t do that for a while and the charts look flat.

However, I also like to be able to see where that money is stored according to the tax triangle to help me see the amount in each area and what that breakdown in percentage wise. That information helps me understand if I need to make a change as to where to direct future investment dollars.

2021 Investment Account Values

Without further ado, here are the details! I’m going to use January 1st 2021 to January 15th 2022 as the period of review here because I took a snapshot of the accounts on January 15th. There are also a couple of bugs in the personal capital data so the chart dollar amounts don’t quite line up with my spreadsheet data but the spreadsheet data is right.

Summary Data

I think it’s easier to start with the high level summary and then dive into the details from there.

Current Investments (no house) is all of our investment accounts and cash but excludes our home equity. Net worth I’ll explain later in the article.

Breaking this down to the tax triangle, here is the distribution of those investment by tax treatment.

We have a situation that’s not uncommon – we’re heavy in tax deferred accounts. I’m still comfortable with contributing to a t401k because we’ve got a plan to draw down or Roth convert a good portion of that money when our income is much lower.

Some CFPs refer to this as the tax planning window between retirement starting and social security (SS) payments starting. Our tax planning window will likely be between ages 55 and 67. Income from jobs will have stopped and social security won’t have started so we’ll be in the lowest tax brackets.

Total Investments and Cash Accounts (+$275,500)

A strong saving year plus a strong market year where the S&P500 gained 26.9% contributed to great gains overall. The +$275,500 is the total change in account balance. In other words, it includes both contributions and investment gains.

There’s a $15k mistake here because one of Mrs. MFI’s accounts wasn’t synching right and the value that personal capital charts see is “frozen” in time. So, the PC amount below should be +$261k for the year in investments, but then add in the cash accounts and we’re in the $281k range. I’ve rounded numbers all over the place for simplicity so the numbers don’t perfectly add up.

Tax Free Accounts (+$83,300)

Cash, our Roth accounts and our HSA accounts make up our “tax free” accounts. Savings account interest is taxed as ordinary income but the amount being made here is trivial so I put it here.

Including HSAs in this bucket might seem a little unsual. HSAs could actually be put into a couple of different places. As I covered in this post, the money coming out of an HSA is tax free when used for qualified medical expenses. Right now I’m planning to use it for that purpose including long term care.

After 59.5 years old you can withdraw from an HSA for non-medical expenses and it will be taxed as ordinary income. If I wanted to plan on that outcome we could stick it in the tax deferred bucket to plan for ordinary taxation on that money.

Cash (+$20,000)

Cash listed here is cash held in non-investment accounts so it’s not part of the $1.19M listed above.

Why so much cash? Well, there are three high level sub-buckets:

$10k – Old vacation funds – My employer changed vacation systems from an accrued system to “unlimited.” I have $10k stuck there until I separate from service.
$10k – Checking/Sinking funds – I have a number of sinking funds in my YNAB managed budget. They’ll get spent eventually.
$25k – Mrs. MFI savings – She feels good about having a decent amount in her savings account. We’ll get some of that invested soon but her feeling good is more important here than the financially optimum approach.

Roth Accounts (+$54,500)

We only started contributing to Roth accounts 6 or so years ago so we’re playing catch up here. I’m very fortunate to have a mega backdoor Roth (MBR) capability using my work 401k and have used that to maximize what the IRS will let me put into a Roth account. I’ll keep doing that as long as I have the income and the politicians don’t kill that option.

My work 401k makes the MBR a little tricky so I only plan to do one transfer a year. MBR #1 below is the transfer of funds accumulated in both late 2020 and early 2021. MBR #2 was because I was worried about the Build Back Better Act killing the backdoor so I proactively did a second transfer just to be safe.

Due to some poor planning by me, we were potentially going to run into an issue of making too much money to contribute to a Roth the traditional way. As such, I backed out Roth contributions by re-charactizing them to an IRA and then backdoored them back into Roth a month later.

Health Savings Accounts (HSA) (+$8,800)

As I covered in this post, HSAs are awesome if you’re on a HDHP. Our accounts are quite new and small so they aren’t compounding much…yet. We continue to max them out and pay for medical expenses out of pocket so they should be north of $100k combined in about 7 years.

Mr. MFI HSA Investment Account

Mrs. MFI HSA Investment Account

Taxable Accounts (+$58,000)

Our two taxable accounts are a traditional brokerage account mostly invested in stock index funds and a new crypto brokerage account.

Brokerage (+$44,500)

The traditional brokerage contributions were lowered in priority as I was shoveling money into the crypto account when the prices started to fall near the end of year.

Crypto (+$13,500)

In late 2021 I decided that I had stayed out of the crypto space for long enough and started buying Bitcoin and Ether to diversify a bit into that space. I also moved some cash funds into stable coins to learn how they work and see how safe those 8% returns really are. I’m much more motivated to learn once I have some skin in the game.

Bitcoin peaked in price on November 8th so I timed that perfectly to “buy high”! The price has steadily dropped since then so I’ve been dollar cost averaging all the way down. Still waiting for the bottom! I have a small amount of crypto in another account besides what’s shown in this chart.

Tax Deferred Accounts (+$134,200)

Since these accounts are our oldest and largest it should come as no surprise that they saw the biggest jump in value. We put $50k into them courtesy of maxing them out plus employer matches and they saw another $84k in growth. That is some sweet compounding gains.

Mr. MFI 401k Accounts (+$89,200)

Mr. MFI 401k part 1

Mr. MFI 401k part 2

Mrs. MFI 401k Account (+$45,000)

Mrs. MFI 401k

Net Worth – Post House Sale

Net worth is a financial measure that takes into account all assets that you own minus liabilities. However, it doesn’t take into account the cost of liquidating fairly illiquid assets like houses. That’s a very real cost that you shouldn’t ignore.

In our case I wanted to account for those costs in a simple way so I’ve deducted 10% of the home value from the remaining equity number. This is 6% for realtor fees and another 4% for other expenses related to selling the house like repairs, moving and storage fees.

Our house went up in value like almost everyone else in 2021 and we paid down a good chunk of our small remaining mortgage. Since this is a primary residence and the capital gains are less than $500k it will be tax free for us as a married couple.

That $130k extra is what you see in the net worth (house sold) line. I haven’t included our paid off cars in our net worth. They’re only worth about $20-25k total and will keep depreciating.

Progress To Our FI Number

Those numbers are great, but where does that put us on our FI journey?

What Is Our FI Number?

Like the status of a dysfunctional relationship, the answer is complicated. All of these calculations involve taking an educated guess at your future retirement expenses and then applying your desired safe withdrawal rate to that.

Changes to your plan for family, lifestyle, location, healthcare and a million other variables make this a constantly moving target. My advice? Don’t drive yourself crazy trying to get it in the ballpark until you’re a year or two from retiring. Below is my current snapshot but I know this plan will change.

Retirement Expenses

Our expenses from last year were $55k, but I need to know our retirement expenses. I’ve added $5k as a health insurance placeholder for now.

I’ve also added an average 10% tax expense since we’ll have to pay taxes on most of the money coming out of our accounts. Don’t forget that the 4% rule of thumb didn’t take into account taxes! That’s an important line item that you need to have in your plan.

A 10% effective tax rate should be a good educated guess since we currently have a 15% effective tax rate on our ~$250k combined income. Taxes will likely go up but on $60k in income we’ll likely have an effective tax rate of less than 10%.

For those reasons, I’m using $66k/yr as our projected retirement expenses right now.

Our FI Number(s)

The FI community likes to use the 4% rule of thumb as their measure of hitting FI. Many debate if a 4% safe withdrawal rate (SWR) is too conservative or aggressive.

Regardless of where you fall in that debate, the initial study was based on a 30 year retirement. I’m planning on a ~45 year retirement from 50 years old to 95 and you just can’t extend the timeframe 50% longer and assume that the same SWR will be successful. For those reasons we’ll shoot for a 3.33% SWR which is 30x your annual expenses.

Another idea that I’m playing with is whether to add an additional bucket of fun money. An extra $200k (or some other number) that can be used to spend more in your early “go go” years when we’ll have more energy to have ridiculous adventures.

One thing to note is that this rough calculation assumes zero social security or other income in “retirement.” I need to refine this and see the impact of adding in some income.

Tracking to Our FI Number

With our $66k retirement expenses and a 3.33% SWR, how are we tracking to FI? We’re at $1,248,000 currently in relation to a $1,980,000 FI number which puts us 63% of the way to our FI number! That’s 18.9x our projected retirement expenses.

Thanks for reading! Where are you on your path to FI? How was your 2021? Drop a comment below.

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Tags FI, Financial Independence, yearly summary

Saving

How We Saved $140,000 in 2021

Post author By Mr. MFI
Post date January 2, 2022
4 Comments on How We Saved $140,000 in 2021

BLUF: Thanks to our highest ever income and intentionality we saved the most ever and spent the least in 2021 while still doing all the things that we wanted to do.

Year end wrap-ups like this are one of my favorite things to do. We’ve spent the year working, tracking, budgeting, investing and living so a wrap up is a way to step back and see the results. I am an engineer and finance nerd so I love to dig into the numbers.

In 2018 I started compiling an annual spreadsheet overview of our income, savings and expenses so we could see how well we did for that year. It’s morphed a little over time in how I categorize and track things. After a year of blogging I’m taking a step that I never thought that I’d take. Making it public.

My goal here is not to brag. After all, for most out there this is anonymous and they don’t know who I or Mrs. MFI are in person. In 2022 I intend to be more open and transparent about our numbers and where we are on this path to FI. I know some people want to see the numbers and details because it helps them assess their own situation.

Personally, it’s helpful for me to review and talk through each component because sometimes I realize that there are parts of my plan that I need to change. Am I spending too much or too little? Am I saving and investing in the right mix of tax diverse buckets?

If you’re new to the blog, Mrs. MFI and I are a couple of 40 something dual income no kids (DINK) professionals who do our best to spend intentionally so that we can save aggressively for our future. Neither one of us feels like we live a deprived life at all.

With that, lets dive into the numbers.

Financial Overview

We made $262,631 in total compensation in 2021 which I’m thrilled about. That income was then taxed, saved and spent in the following high level breakdown.

Income: $262,631

Photo by Andrea Piacquadio on Pexels.com

I’m disclosing a lot in this blog post but I’m not going to break down the exact split of this income. I will give you the different sources that contribute to this number. This is the most money that Mrs. MFI and I have ever made in a single year.

Mr. MFI W2 Income
Mrs. MFI W2 Income
Mr. + Mrs. MFI W2 Bonuses
Mr. + Mrs. MFI company 401k matching contributions
Miscellaneous Income ($2k) – Selling stuff on Ebay, selling stuff on FB marketplace, credit card rewards cash back.

Income Taxes: $62,886

Photo by Karolina Grabowska on Pexels.com

This includes all payroll taxes for both of us. Federal income tax, state income tax, social security tax and Medicare tax.

Some people like to include these as expenses in their budget breakdown but I like to keep them separate. Being W2 employees without a business, aside from taking advantage of all the tax advantaged savings funds there isn’t much we can do to control our taxation.

We currently do maximize all these options to reduce our taxable income like contribute to traditional 401ks and HSA’s. In the future we max give up some tax efficiency to contribute to a Roth 401k but at the moment we’re staying the course.

Savings: $144,064

Photo by Skitterphoto on Pexels.com

For savings I’m going to break things down into sub-categories that I’ll define as we go along. Now, some people are not going to agree with some things that are included in my savings number and that’s okay. Personal finance is personal.

In future blog posts we’ll go deeper into what securities we’re actually invested in but in general it’s index funds in some form or another.

Tax Deferred -$50,919

Tax deferred are traditional pre-tax savings accounts that lower your taxable income. In the future when we withdraw that money for use it will be taxed as ordinary income when our overall income is much lower. In our case these are both employer 401k plans. Being in the 24% tax bracket we maximize these to try and lower our adjustable gross income (AGI).

Mr. MFI 401k Contributions – $19,500
Mrs. MFI 401k Contributions – $19,500
Employer 401k matching contributions – $11,919

Tax Free – $45,059

Tax free are accounts where taxes have already been paid before the contribution and are therefore tax free in the future. This is the case for our Roth contributions as well as my mega backdoor Roth contribution. Read here for a step by step guide to see if the mega backdoor Roth is something that you can do.

One thing that might surprise you is me including our HSA contributions here. These are pre-tax contributions but because of how awesome the HSA is the money is tax free for use with medical expenses. Since we intend to use this money exclusively for medical expenses in retirement I keep it here.

Mr. MFI Roth Contribution (backdoor) – $6,000
Mrs. MFI Roth Contribution (backdoor) – $6,000
Mr. MFI Roth Contribution (Mega backdoor) – $25,859
Mr. MFI HSA Contribution – $3,600
Mrs. MFI HSA Contribution – $3,600

Taxable – $25,916

Taxable accounts are your typical brokerage accounts and crypto accounts where all investments that are sold are a taxable event. If investments are held for at least a year and a day then they get special long term capital gains treatment.

This year I got off the sidelines and am making a concerted effort to get 1-2% of our investable savings into crypto. Mostly Bitcoin and Ether but I’m going to toss some play money into metaverse associated coins.

Brokerage Account Contributions – $18,202
Crypto Account Contributions – $7,714

Mortgage Principle Paydown – $7,146

The home that you live in is an asset that historically will maintain it’s value and grow in value at roughly the inflation rate. For that reason I expect to get that principle back out of the house when we sell it and therefore consider that savings. The mortgage interest portion of the monthly payment shows up in our expenses.

Monthly Mortgage Payment Principle Paydown – $3,871
Extra Principle Payments – $3,275

Cash Account Value Increases – $15,025

This is the delta increase in our various traditional savings account balances. Some is increasing the value of our emergency fund. Some is money that Mrs. MFI has saved but we haven’t gotten over to our investment accounts (a little bit of a project).

Cash for our emergency fund – $1,125
Cash for future investment – $8,000
Cash accumulated in sinking funds for future expenses – $5,900

The last bullet referring to sinking funds is cash that has accumulated in my checking account while saving up for future bills. YNAB makes this simple to set aside this money. The values on the far right (ignore the colors) are the dollar amounts sitting in my checking account waiting for a future bill or car repair. For example, I have $326.82 for future car repairs. I have $2,660.46 already set aside in cash for my property taxes due in February.

I still include this in our savings because none of these sinking funds are for some big, one time purchase. They’re there when we need them but when they’re depleted we’re going to save them back up to where there were before.

Expenses: $55,680

There are two main blocks of expenses. There’s everything that I pay for and track via YNAB and then there’s Mrs. MFI’s own spending. I’ve approximated her spending at $6k for the year which goes across a number of categories but isn’t included in the pretty YNAB charts.

Household bills and Mr. MFI spending (YNAB tracked) – $48,098
Mr. MFI Direct Paycheck Healthcare Insurance Premiums – $1,190
Mr. MFI Direct Paycheck Charity Contributions – $1,392
Mrs. MFI spending – $5,000

If you read my articles on expense tracking and budgeting then this breakdown will look familiar. Core expenses are those bills that you need to spend money on to live monthly. It’s what we would keep paying if we lost our income. Discretionary are the fun adders in life like travel, eating out and shopping. Business are blog related costs and expenses from selling stuff on eBay.

Core Expenses:

Here are a few notable things that impacted the major items in this area.

Mortgage principle is up in savings so that $3,300 moved from last year.
Groceries – switched to Aldi’s as our main store and saved $1,742 compared to last year!
Pet expenses – lost our beloved black lab Oreo to cancer and adopted a new recue Evie. The vet bills, end of life services and adoption fees make up most of that $3,700.

Oreo, we miss you so! He gave us 12+ amazing years and gave me a permanent love for the lab breed.

Later this year we welcomed a new adoption to the family, Evie. A 4 year old rescue from Texas. She’s a sweetheart and a couch potato with a love of all the attention and pets that you’ll give her.

Healthcare – I had a mysterious GI issue in May that landed me in the ER. That led to me getting almost every test under the sun in 2021 (endoscopy, colonoscopy, ultrasound, CAT scan). Cost a fair amount and hopefully won’t be repeated in 2022 as they fortunately didn’t find anything wrong.

Discretionary Expenses:

Travel
- Took an amazing 2 week trip to the Grand Teton National Park and Yellowstone National Park. Flights were free with travel hacking and one week of the rental car was free from saved up points.

No photoshop or editing. To say the Grand Tetons are spectacular would be an understatement.

Oh look, Bison out our front porch!

Took a long weekend to Maryland to see an artist NF that I like in concert.

Fun and Entertainment
- Took our first hot air balloon ride!

Bought the most expensive concert tickets ever for us (~$800 for 2 tickets) – Elton John (for 2022)

Went to Virginia to spend time with family and took a ride on this 3 mast schooner.

Ran 1,500 miles including two ultramarathons. Here’s a gorgeous early morning view at the start of one.

Shopping and Miscellaneous – A few larger purchases this year
- Dell Laptop ($800) – I wanted to blog and write without being chained indoors to a desktop so I purchased this laptop. It’s been great and has me writing a lot more than I otherwise would.

Solo Stove ($230) – I wanted to spend more time outdoors and love a fire, yet we never used our fire pit in the backyard. Mrs. MFI didn’t like the smoke and this is supposed to smoke less so giving it a try. We’ve also moved the fire to the driveway as it’s more convenient. Jury is still out on whether this will be a good purchase.

How Do We Save This Much?

That info is great and all, but lets talk about the decisions and changes that allow us to save this much money. Hopefully some of these ideas resonate with you and you’re either already doing them (great!) or you can make a change to improve.

A Big Income

We’re obviously very fortunate to have the income that we do and this enables the level of saving that we have. Some additional information on the intentional steps that I’ve taken to increase my salary in a future post.

Maximizing Tax Advantaged Accounts

We max out all of our pre-tax saving options using a 401k and an HSA. This lowers our tax advantaged income by $46,200 ($19,500+$19,500+$3,600+$3,600) which in the 24% tax bracket is over $11,000/year more going into our savings than to the IRS.

Using backdoor Roth and Mega Backdoor Roth options, we’re able to save $37,859 this year into Roth accounts that now will grow tax free forever.

Automated Saving

It’s important to get your brain out of the decision to save and pay yourself first through automation. We use this method through our 401k plans, brokerage account and Roth accounts. When it isn’t automated I still budget for it in YNAB.

Living Within Our Means / Value Based Spending

Housing: Our house is a 1,500sq/ft, 3 bedroom, 2 bathroom house worth $180,000. It has no granite countertops. I has no on suite master bathroom. We don’t value big fancy houses and have a $456/month mortgage payment ($100k, 30 year) and low utility and maintenance costs as a result of it.

Cars: We own 2014 and 2016 Mazda’s that are paid off. I simplified my life years back selling my Corvette and reducing our deductibles to lower our insurance. As such our car costs dropped substantially.

Food: We went from $11,000/yr to $7,800/yr between groceries and eating out. Changed to shopping at a discount grocer Aldi’s instead of Wegmans for everything. We still eat out but we don’t default to it so much. It’s consciously chosen as a special thing to do. I also bring my lunch to work every day.

Shopping: I used to buy all sorts of crap on Amazon. A lot of supplements to go with working out. A lot of stuff on a whim. Now I’m a lot more intentional with my spending there because I don’t want more “stuff” to deal with in the house as we have been trying to get rid of stuff.

Detailed Expense Tracking and Budgeting

I know many are resistant to the idea of tracking what they spend. They’re even more resistant to the idea of making a budget. Both have been important to seeing where our money is going so that we can decide if we like what we’re doing. How can you know if your money is going towards things that you value if you don’t know where it goes?

I use YNAB for all of the above to track my spending and zero base budget. It’s been empowering to know exactly where my money goes and it takes very little time each week. As a side benefit I quickly see any fraudulent charges that I’m not expecting. I hate looking at my credit card statements across multiple cards so this lets me sidestep that.

Working As A Team With My Wife

5am Joel has a great chapter in the book Money Mastermind about this topic. Have you ever seen a plane with one jet thrusting forward and the other in reverse? Of course not, it would spin in circles.

It’s really important that you and your spouse are working together towards whatever goals you have. If Mrs. MFI saved diligently and I spent frivolously there would be friction and we wouldn’t save how we do. Have you talked about your goals with your spouse recently?

Mrs. MFI and I are both on the same page with what our goals are and how we live. We review the finances together at least quarterly and talk openly about money. We discuss big purchases with each other before making them. We focus our spending on what makes us happy.

Key Takeaways:

Saved a lot of money and did a good job of investing it in a diverse group of tax advantaged locations.
Despite having our lowest expenses ever over the last 4 years of tracking we had plenty of fun and didn’t say no to anything that we wanted to do. We’ve cut down expenses on all the main areas that we don’t enjoy and we spend lavishly on the stuff that makes us happy (travel, experiences).
Some very intentional choices and actions over the last year and beyond set us up for this level of saving and spending. This all pushes us closer to our FI goal.

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Tags Expenses, income, Saving

General FI

2022 Plans and Blog Focus

Post author By Mr. MFI
Post date December 29, 2021

Photo by Bich Tran on Pexels.com

BLUF: Blog posts are going to get more technical in 2022 as I increase my technical knowledge and investigate the possibility of becoming a financial advisor.

It’s been a interesting year of blogging, FI knowledge growth and self reflection about what the future holds. It’s funny how we use this arbitrary calendar year dividing line to often reflect on the past and decide to change our ways in the next year.

Things I Learned In 2021 – A Future In Financial Advising?

Photo by mentatdgt on Pexels.com

In my recent post about my blogging year in review I went into the details of what I learned from blogging. What I didn’t mention in there is that through the process of blogging and expanding my financial knowledge a future side hustle or career 2.0 option has peaked my interest. Fee only financial coaching / advising (no asset management).

This feels like the best of all worlds to me. I’ve always enjoyed coaching and teaching others. I currently do that at my current job when it comes to providing career advice and general guidance. Through the blog I’ve tried to do a little bit of that by explaining complicated financial topics like the mega backdoor Roth in easy to follow ways that include lots of examples.

Helping others really lights me up so the idea that I could make money and help people is really appealing to me. The other piece to this puzzle is that I’d really like a location independent option to earn money. Mrs. MFI and I are interested to hit the road and see all that North America has to offer. A remote only service like financial advising would allow that.

What Comes Next in 2022?

So what do I do next? I still am 5-6 years from FI and am far from being able to just up and quit my day job. My plan is to try and test out this financial coaching thing on a friends and family level while I study for my series 65 exam. Passing that exam would be one large step towards the possibility of charging clients for a service.

In the meantime, another way to focus on that goal is to start focusing the blog on more technical topics. In 2021 I wrote a fair amount about happiness and mindset topics but what resonated with readers the most are my more technical articles. Staying more technical would also force me to ensure that I know a topic backwards and forwards before trying to explain it in a blog post.

So, going into 2022 you can expect more technical topics. Since I’m personally 5ish years out from FI there’s a lot to cover in asset allocation, asset location, tax diversification, safe withdrawal rates and a drawdown plan. If you have topics that you’d like to see covered please contact me at contact@managingFI.com to met me know.

General FI

First Time Blogger Year 1: The Cost, The Time, The Takeaways

Post author By Mr. MFI
Post date December 19, 2021
4 Comments on First Time Blogger Year 1: The Cost, The Time, The Takeaways

BLUF: I learned a tremendous amount about blogging, internet businesses, social media and myself in my first year with ManagingFI. It reinforced the idea that there is no better way to learn than to just start and do it. The lessons you learn along the way are by far the most valuable.

Why Did I Start A Blog?

Around this time last year (November 2020, to be exact) I finally decided to take some action and give this blogging thing a try. I had been interested in personal finance and investing for many years but had never blogged. Ever. It was also hard to ignore influential FI sites like Mr. Money Mustache that exploded making big money.

Why try a blog? Honestly, I was interested in building skills around online businesses where you could make money and be location independent. That’s a long term goal for Mrs. MFI and I since we love travel. I stumbled across websites like Empire Flippers where you can buy cash flowing web businesses and that was intriguing. But how on earth can I expect to run an online business successfully when I have no experience building or managing websites or online businesses?

Clearly, I needed to build skills and I’m a big fan of finding low cost and low risk ways to do that. Blogging seemed like a logical place to start.

My Experience When Starting

As mentioned in my about me page, I hadn’t done anything related to websites since the early internet days and I did the really basic stuff like make a personal web page. I’m a computer engineer, yes, so I know my way around a computer and have programming experience in my past.

However, there’s a big difference between that and starting up a website and learning a completely new space like blogging. I’m trying to drive home the fact that I was very much a rookie when I started. I didn’t know anything about wordpress. I had never purchased a domain.

I should probably also mention that I never wrote anything creatively! Before I started blogging I would have told you that I’m “not really a creative person”. I would have said I was a left brain person.

Left Brain vs. Right Brain

I thought of myself as a fairly good communicator from my professional experience presenting and e-mailing a lot. I’ve done some mentoring and teaching informally along the way but I had never written an article on a topic.

My First Year In Review

Lets dive into the details of what happened in that first year. How much did it cost, how much money did I make, what kind of traffic did I have and what did I learn from the experience.

What Did It Cost?

This is highly variable depending on who you host with, the quality of service and the wide range of services and plugins that people will try to sell you. You can spend a LOT of money if you really want to.

Domain Registration & Hosting – $169.83

Like many first time bloggers I went with a low cost hosting option and used BlueHost. You get price breaks for multi-year hosting so some of these costs are for 3 years and some are for 1 year.

Some added details:

Basic Web Hosting – BlueHost providing you server space on a shared server and e-mail. This is very basic hosting and their lowest tier of server speed.
Domain Name Registration – Cost of registering ManagingFI.com for 1 year.
Codeguard basic – a backup option for restoring your site should it get hacked or corrupted.
Domain privacy – This lets you hide your personal information from a general WhoIs domain lookup.

Blog Logo – Fivrrr – $40.75

At some point, you need a logo. Not the most critical thing in the world but I decided to get one. Fivrrr is an amazing resource to connect you with independent contractors that offer various services.

I had no concept of what I wanted. The graphic designer looked at my site and I told him a little about the content and in a few days I had a whole about 10 different options. A steal for $40 in my book and far better than I could have ever done.

USPS PO Box – $134

Why does one need a PO Box for a blog? Well, only if you want to build a mailing list and don’t want to put your home address. You’re required to have an address on your e-mails and since I use a low cost MailChimp service they don’t provide an address. Some higher end mail list services will provide an address for you but I didn’t want to pay for that.

Canva Subscription – $145.95

I am not a graphic designer. I’m an engineer with no background in Illustrator and can only do the very basics in a program like photoshop. Honestly, I don’t have the motivation to learn either.

However, I wanted to be able to make nice looking diagrams, charts and cover photos. Canva really has a great selection of photos for me to pull from and it makes it super easy to create professional looking graphics. It’s money well spent in my opinion.

I tried the monthly subscription at first to make sure that I was going to use it regularly and then purchased the $120 annual subscription.

If you like what you see and want to support the blog, consider using my referral link to check out Canva.

FaceBook Ads – $117.38

Somewhere along the way I took a small course on FaceBook ads and started to play around with them to see how effective they were at driving traffic to my blog. I didn’t put a ton of energy or money into it but I did experiment with them to see how well they worked to drive views, clicks and engagement.

The thing is, when your website doesn’t have a product to sell or generate revenue from traffic, there’s really no point in paying for ads. In the top ad below ($50 spent) it linked to my article on making $265/year buying groceries. If anyone signed up for that card with my affiliate link I’d get $75 in rewards (per card open).

I figured, I just need one signup to cover the cost! I went big with $50 in ads. 409 link clicks and 0 signups later it just became another payment towards my online education.

Podcast Mic – $57.23

You’re probably wondering why I’m listing a podcast mic with my blog costs when I don’t have a podcast. Well you see, there’s a story to tell here.

I connected with another content creator along my journey during a creator webinar conference and they were interested to interview me on their podcast and talk about my happiness dividends article. Me, trying to be professional, decided to buy something better than a webcam mic to use for the event.

Long story short, I got ghosted. That creator pushed the interview date due to getting Covid and then they went completely radio silent to my repeated messages. It really disappointed me because I was excited to both be on a podcast and talk about one of my favorite articles. On the plus side, that creator did introduce me to Canva which I’ve been happily using ever since.

Total Cost: $665.14

If I really wanted to go bare bones I could do without the PO box, ads and Canva subscription and do the first year for about $360. Going forward I don’t plan to do ads so annual cost should be about $350/yr on average unless I decide to upgrade my hosting service or pay for plugins.

How Much Money Did It Make?

This is a short section, $0! Well, technically I earned a Marcus referral bonus of an extra 0.2% APY for 3 months. On the $7k that I had in there at the time that was $3.50! Guess I shouldn’t quit my day job just yet.

To be fair though, a blog doesn’t just magically make money. You need to put effort into driving traffic to it and then add advertising, get sponsored, get affiliate income or sell a product. I didn’t pursue any of these in year 1 so I can’t expect to make income.

How Much Time Do I Spend?

It’s basically a part time job to run a blog if you put the effort into it. Many of my articles require research, running calculations, making graphics and creating examples.

On average I say it’s 6-8 Hours on a typical article. 10-12+ Hours on really detailed articles with lots of visuals, calculations, references or research.

For example, this article on downsizing was a 6-8 hour one since it was more storytelling about our experiences and what has happened.

While this article on HSA’s was a LOT of research in the IRS documentation to ensure that I had my information right. That was definitely a 12+ hour article.

Outside of this is the time to do any kind of website changes or fixes. For example, when WordPress last updated it broke my pop-up e-mail list signup. On average I spend 5-10 hours per week writing content and doing work on the website to publish content every 2 weeks. I created 30 articles in my first year.

Blog Traffic

The big question – how much traffic did the site get? About 22,000 page views and 16,000 visitors in the first year. I honestly have no idea if that’s “good” or not. About 60 views a day on average.

As you can see though, it’s very inconsistent. Early on the blog had very few visitors. During my best month of August it had over 4,000 views or 132 a day on average. During that month I happened to post some articles that really resonated and I was picked up by some FI e-mail newsletters.

Where does the traffic come from? For the most part, a lot of hustling and sharing on Facebook. I post my content in about 6 different FI / personal finance groups that allow it. I also reference my articles when helping answer other peoples questions.

As you can see, FB dominates my referrers. Search engines are slowly starting to pick up my content and funnel visitors but that takes a long time. It took a solid 7 months before I hit 50 search engine referrals in a MONTH. I’m sure there is more I could be doing for search engine optimization (SEO) but that hasn’t been a big focus.

Monevator, Apex Money and the Montley Fool picked up articles in their newsletters causing some small traffic spikes.

E-mail Lists

They say that an e-mail list is important because no matter what you own it and have that as an audience. I use MailChimp combined with a pop-up form to get signups. It took 4 months to get my first subscriber and since then 1-2 a week on average.

What Did I Learn?

“If you build it, they will come”…is bullshit.

The internet is a big place with a lot of content. You don’t just make content and hope that people will find it. You have to make good content that people find useful and want to read first and foremost. The won’t just magically find it on their own. Search engines take a long time to find your content. You need to get the content in front of people.

FB FI groups has been the main method is me spending a LOT of time answering peoples questions and supplementing my written answers with an article. It takes a long time and really good content before other people start sharing your content for you. Even a year in this doesn’t happen very often for me.

Perfect is the enemy of done.

You can ALWAYS spend more time proof reading, polishing, adding more details or adding another example. I really struggled early on with worrying about putting content out there with typo’s and other mistakes. It actually used to stress me out and then I realized nobody really cares. Get it 80-90% and hit publish. You aren’t writing for the NY Times. It’s good enough.

Don’t report on pending legislation

This article on the backdoor Roth possibly going away has been a major source of stress. I really believe in putting out accurate, well researched content. Well, in a rush to be “early” to report something I learned that I didn’t know as much as I thought about the US legislative process.

I had to keep adding updates since it’s still an ongoing situation and I was stressed because I didn’t want to mislead people. I updated various parts of the article as things developed but needless to say I’ll never be doing that one again.

Keep Going. When One Door Closes, Another One Will Open

Remember how I got ghosted on that podcast? Well, I kept creating and opportunities continue to present themselves. I’ll be talking about that same happiness dividends article next month at this live FI event in Irelend in January. Just note that it is starting at 5PM GMT (Ireland time).

Click here if you’d like to buy a ticket for either the live event or the replay.

I’m more creative than I thought.

You have no idea if you’re actually creative or not unless you put real effort into actually trying to create something. There are many different mediums out there so don’t have that self limiting belief.

Blogging is not get rich quick. It takes a long time to build momentum so make sure you love what you’re writing about.

I didn’t have this illusion of get rich quick. However, it’s a lot of time invested and some people may rip your content apart. Just like a diet or physical training you need to be consistent and “put in the reps”. It’s going to take a long time to make money and you need to focus on actually monetizing.

You can get addicted to website views just like social media.

This was a big surprise but it makes sense in hindsight. The same dopamine inducing behaviors that happen on social media carry forward to content creation. It’s exciting when something you wrote takes off and goes viral. It’s hard to not want to sit there and look at the views.

It’s also hard to not let that views data skew what you write about. This article on FU money really resonated and had my most views ever in any one day. It’s easy to think about why people liked that article and consider writing more things that might cause a similar response. That’s a slippery slope to me as the blog could quickly become another job that you don’t enjoy if you’re writing it for the approval of others.

In Conclusion

Quite a year it was. It reinforced that there’s a lot to learn by doing so keep doing new and challenging things. I’ll keep writing but I’ll also keep experimenting with different ideas.

If you are new to blogging or interested in starting and have any questions don’t hesitate to reach out at contact@managingFI.com. I’d be happy to help where I can.

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Tags blogger, Blogging

Books

Book Review: Money Mastermind

Post author By Mr. MFI
Post date December 8, 2021

BLUF: There’s a lot in this book. Regardless of where you are on your financial journey I expect you’ll get quite a bit from this book whether it be adding technical knowledge or improving your money mental game.

Read This If: You want a book that will give you broad exposure to a number of different personal finance topics from a number of different viewpoints. I think everyone can find articles in this book that will give them value but someone in the beginner to intermediate stages of their personal finance education will get a ton of value from it.

I’m quite advanced in my financial education and I got great value from it. I actually picked up more the second time going through it.

This Might Not Be Your Favorite If: You are looking for a book that dives very deep in one particular area. Some articles do go into good levels of depth on a narrow topic related to personal finance but the goal of the book is more breadth than depth. Some might not like the variation in writing styles that comes with multiple authors.

If you’d like to buy this book you can do so here. I don’t get any money if you do decide to buy this book. Click to buy the Money Mastermind book.

Book Organization

The book is divided into different topic areas so you can absorb different but related topics all at once. These areas are:

Personal Finance Basics
Money Psychology
Investing Basics
Advanced Investing
Money and Family
Making More Money
Further Reading

Writing Style

One thing worth noting that a book that is written by so many different authors is going to feel very different from article to article. Each has different levels of writing ability, different styles and goes into different levels of depth.

Some are previously published authors, most have some blogging background and many are proficient on financial twitter. As such, don’t be surprised by the generous use of white space, less formality and more personality as compared with a traditionally published book.

Book Details

I was debating how to handle a “review” of a book that’s so diverse in topics. I decided to give you a little more detail on exactly what’s in the book on each topic and a little bit of my personal commentary. I hope it gives information for you to decide if you want to buy this book.

Personal Finance Basics

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Emergency Savings Fund: How to Set One Up & Maintain It – By Fiona, The Millennial Money Woman

What an emergency fund is, why they’re important, how to build one, where to store them and how to open a High Yield Savings Account (HYSA). She goes into great detail talking about HYSA’s and things to look for when you’re looking at the options.

I also have a two part series on emergency funds with some additional perspectives: How to size an emergency fund (part 1) and where to store it (part 2).

Budget Myths You Believe (But Shouldn’t…) – By Hipster Finance (Website)

Hipster finance goes into the importance of budgeting and helps you get past some limiting beliefs that you might have that are keeping you from taking action. There are also 5 tips related to the topics of tracking spending and budgeting.

I would have liked to see some more prescriptive steps to guide someone that wants to budget to know how to get started and do that. People that are new to the idea often need that to take action. Certainly good info in here though.

If you’re looking for some additional info on budgeting basics you can read this.

The “Big Income Deception” – By Steve Adcock (Website)

An interesting discussion about the difference between having a good income and that translating (or not) into becoming wealthy. Steve goes into different ways where a high income can actually translate into financial problems for you. It’s got some good things in mind if you’re trying to pursue (or already are in) a high income situation. If you make the right choices you can turn big income into big wealth instead of big debt.

Investing vs. Paying Down Debt – By Syed at First Step Finances

Syed discusses the age old question of when should you pay down debt and when should you invest. He walks through things you should consider for each option and also lays out his own version of the financial order of operations to help you make the right choice.

Side Hustles Are OVERRATED! – By Brandon-Richard Austin at Rinkydoo Finance

A discussion about side hustles but from a slightly different point of view. We often hear that you should be doing some form of side hustle. Brandon does a nice job of challenging some of the common arguments for why everyone should be doing a side hustle. I thought this was a nice counterbalance to the common advice that might make you think twice about your current and future side hustles.

Money Psychology

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Get Rid of “Analysis Paralysis” in Your Finances – By Ceci Marshall at Finances Reimagined

An important topic since personal finance often has many big and complex decisions where this phenomenon can creep in. An exploration of where analysis paralysis comes for you from your personal history and then a series of steps to help you eliminate it.

Make Your Bed. Improve Your Finances. – By Mark Palmer

A discussion about habits and the role that they play in your financial life. It explores why it’s so important for you to create good foundational habits and why it’s critical to get back on track if you slip up. References some concepts from another one of my favorite books – Atomic Habits.

Money & Neuro-Linguistic Programming – By Leandra Peters at Female In Finance

This one was brand new to me! As Leandra says “Neuro-Linguistic Programming (NLP) is a way for you to change your thoughts and behaviors to achieve a specific outcome.

The article helps explain how you can change the way you think about a money question or idea and completely change your thinking. A Jedi mind trick of sorts to help you get over your own limiting beliefs. I found this really fascinating and will certainly look for ways to use this idea in the future with myself and others.

You Can’t Predict. You Can Prepare – By Jesse Cramer at The Best Interest

None of has a crystal ball but with the proper preparation we can be ready for anything that life throws at us. This articles explores how a budget, emergency fund, insurance and diversified investing can prepare you for that unknown future.

Investing Basics

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Stocks, Mutual Funds, and ETFs – By Brennan Schlagbaum, aka “Budgetdog”

Diving into the basic elements of most investing portfolios Brennan makes sure you understand mutual funds and ETFs. Then build upon that to add in index funds (which can be implemented in either a mutual fund or ETF).

The difference between actively and passively managed funds is covered before diving into some discussion about diversification and the risk reduction advantages that funds have over single stocks.

Bonds, Real Estate, Commodities, and Beyond! – By Brandon-Richard Austin at Rinkydoo Finance

The title of this article says it all! A good overview into bonds, real estate (including REITs), commodities and futures and a deep dive into options. An important topic to understand since you can make and lose a lot of money with leveraged investments like options. Go search for Wallstreet bets on YouTube or Tick Tok if you don’t know what I’m talking about.

I especially liked the discussion Brandon-Richard added on understanding risk in investing, your personal risk tolerance and what aggressive vs. conservative investing means. Wrap it up with the difference between speculating and investing.

Index Funds: The Core of A Portfolio

This article is a great piece about all things index funds. What they are, how market cap weighting works and how index funds give you diversification. There’s good information on how to choose a great index fund and the pros/cons of index funds.

I especially like the detailed comparison between index funds and actively managed funds showing the true cost of fees to an investor. The author makes a compelling case for why you should stick with the boring low cost index funds instead of those “sexier” actively managed funds.

There’s a pretty extensive section on the efficient market hypothesis and what that means for an investor. This might be of interest to some hardcore personal finance learners but I think it’s a bit too much for the target audience of this book.

Understanding Fees and Where to Find Them – By Roger Lopez at Upshot Wealth

A deep dive into investing fees and expenses with a specific focus on those in your 401k (which should also apply to your 403b,457 and TSP). This breaks down expense ratios, administration and management fees. How to locate the fees, what fees are reasonable to pay and what these fees can cost you over an investing lifetime.

Just START! The Power of Investing While Young – By Ross, the Dividend Hero

All about the power of compounding to highlight the importance of getting started as early as you possibly can. I really like the energy that Ross puts into his writing to make you want to take action. It’s a positive article motivating you to get up and get started NOW regardless of how old you are.

Timing the Market: Worst, Best, or Slow-and-Steady – By Jeremy Schneider at Personal Finance Club

An article that everyone needs to read. In a world where new investors dream of selling at the top and buying at the bottom Jeremy uses some classic case studies to highlight a key lesson. Time in the market beats timing the market.

The Starter Portfolio: Just Be “Lazy” – By Business Famous

All about investing portfolios! Business Famous takes you through a variety of example portfolios from the very simple one fund portfolios to slightly more complicated 2-5 fund portfolios. Most of these are centered around low cost index funds. Wrap things up with an explanation of what rebalancing is and how to do it with your portfolio.

The Hurdles of Real Estate – By Tyler at Defining Wealth

A motivational article from Tyler explaining how he got started in real estate and how you can too! Tyler really goes through some of the limiting beliefs that people use to explain why they can’t invest in real estate. Have no money? Tyler has ways to get around that. In a “bad” market for real estate? There are ideas to work around that too. Makes you want to go out and buy some doors!

How “House Hacking” Helped Us Beat Debt in Our 20s – By Ali and Josh – The FI Couple

A great overview of the concept of house hacking. This is a key concept since housing is usually peoples largest budget expense. Ali and Josh take you through ways to house hack different property types and then explain how you can leverage those savings to hit your goals.

Trust Your Numbers! – By Uncommon Yield at Uncommon Yield

A well done article comparing a classic decision for those buying a home. Do you take out a 30 year mortgage and invest extra or take a 15 year mortgage and pay off the house faster. Uncommon yield going into the numbers to make you understand the tradeoffs at play in a decision like this. He makes a strong case for why you should really consider a 30 year mortgage.

I should have guessed that Uncommon Yield was an engineer like me because this article is full of great data, graphs and examples.

Explaining Bitcoin in Simple Terms – By Jesse Cramer at The Best Interest

This is a really comprehensive introduction to Bitcoin and it builds up the user to understand it from two different perspectives.

First there’s an in depth discussion about what money is, how it works in the US and who is in charge of that money. This is an important setup because you need to understand those basics to understand why Bitcoin was created and it’s purpose as a digital currency and store of value.

Second, the article helps you understand all the different pieces that go into how the Bitcoin system works: blockchain, updating the ledger, mining, cryptography, proof of work. It really helps you understand every step in the process from a transaction occurring all the way through the blockchain being updated.

I came into this article with a basic understanding of many of the concepts and this article really helped pull it all together for me. If you don’t know a lot about how cryptocurrencies work then you’ll get a lot of value from this article.

How I’m Going to Leverage the Next Crypto Crash! – By Your Friend Andy

This article takes you on Andy’s journey through the 2017 crypto peak, subsequent crash and how he used that event to springboard himself into the crypto space. I wish I had taken action at that time like Andy did but better late than never?

Almost more importantly is a discussion about the mental side of dealing with a bear market or crash. These events are hard but Andy sprinkles in some advice on how to deal with these events so that you profit in the long term and don’t sell at the worst time. These are important mindset principles regardless of whether we’re talking about crypto, stocks, commodities or any other asset class.

Ethereum: The Future of Crypto? – By Stephen Wealthy at Stephen Wealthy.com

Building upon Jesse’s article, Stephen gives you an overview of the Ethereum network and the associated second most popular cryptocurrency, Ether.

Stephen goes into great detail to explain different use cases for the Ethereum network and why you may want to invest in it. I found this very useful since often the conversation is around owning cryptocurrencies and not around the technology and what it could do for people. Digital ownership and NFTs are all the rage at the writing of this so its interesting to see the tie in to Ethereum.

The Power of Leverage – By Nate Dean

Nate talks about the concept of using assets that you own to finance buying other assets cheaper. The use of leverage and collateralization are introduced using an example situation. The problem I have is that the article doesn’t really give you enough information to see if this concept has merit. The example given to illustrate the concept where a CD is used as collateral to buy a car is not realistic.

I’m only familiar with the infinite banking idea at a high level but I assume that’s what’s really trying to be introduced here. To get you interested in a concept so that you seek out more information. I’m just not sure what’s so secret. Are we using margin borrowing with stocks as collateral? Other debt options with whole life policies as collateral?

What is Dividend Investing? And How To Execute It. – By Alex, a.k.a. “The Dividend Dominator”

All about dividend investing! This article goes in depth to explain all the basics of what dividends are and what it means to be a dividend investor. There’s a nice overview of the important difference between an investor searching for yields and a dividend growth investor (which is much better). He also addresses a common debate: dividend investing vs. growth investing. Which is “better”, you’ll have to read.

I’m glad that Alex went beyond the basics and gave you information to take actions. There’s a detailed portion to help you understand what to look for when trying to select a particular dividend stock if you’d like to do this type of investing. There’s really a lot of great content here.

In full disclosure I’ve yet to be fully “sold” on dividend investing although Alex makes a good argument for it’s merits. A few of detractors for me and dividend investing are single stock risk, taxes and the added work researching and picking stocks or funds. My mind is a bit more open though having read this article.

Money and Family

Investing for a Family – By Jose Hernandez, “The Millennial Money Mentor” at Financial University

A great discussion on generational wealth. Jose does a nice job of discussing ways that you can setup the next generation for financial success. This is two in depth parts with different ways that you can invest money for the benefit of your children.

Part one is all about 529 educational savings plans including both and overview and details of how to open one for yourself.

Part two discusses custodial investment accounts in depth helping you learn the basics of the two most common account types (UGMA and UTMA).

I like that Jose made sure to discuss the interplay between these accounts and college financial aid impact because that’s important to understand.

Getting Your Partner Onboard with Financial Planning – By “5AM” Joel O’Leary

Joel goes into a really important topic of why and how to ensure you and your partner are aligned with your goals financially. This is such an important topic because two people who are working towards different goals will go nowhere. Some great tips here of how you should (and should not) talk to your partner about money to get you both working as a team together.

When “Personal” Finance Becomes “Familial” Finance – By Jared Fannin

A discussion about how finance is an important pillar to your family. This financial pillar is broken down into four areas and Jared goes into detail on the importance of each, what they are and things that you should consider. These areas are insurance, investments, emergency funds and budgeting / tracking spends.

All really important areas and I have some detailed articles on each:

Making More Money

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Side Hustles for Busy People – By Mark Allan Bovair at Frugability Finance

A discussion about side hustles with an important discussion about finding the right side hustle for you. Mark is a single dad so he needed to find side hustles that fit into his life.

Mark goes into 7 different side hustle factors that you should consider when determining if a side hustle is a good fit for you. For example, #1 is whether it is scalable or not. Driving Uber is a time for money trade. Writing a book like this an upfront investment of time but is far more scalable.

I love thinking frameworks like this because it helps people figure out what’s best for them. The only thing I would have liked to see more of here was examples of side hustles and how they fit into these different factors.

5 Ideas to Make Extra $$$ in Your 20’s – By Kolin, the “Decade Investor” at the Decade Investor

A look at side hustles providing you with 5 very real examples of ways to make $500/month. Kolin also gives tips on how to make each of these hustles work better for you.

What NOT To Do When Starting a Small Business – By Your Friend Andy on YouTube

Andy gives you 10 great tips for things to avoid when starting a business. These tips will help you focus your time and energy in the right places to help get that business profitable and efficient.

Tip #1 – Don’t focus on being perfect is a great one that I can attest to personally. This blog was my first and sure the first articles weren’t great. But I still wrote the articles and the experience of putting out work that was good enough let me learn and grow. Early on I stressed about proof reading, errors, grammar. You need to get it good enough and hit the publish button or you’ll never get anywhere.

The $mart Sales Mindset – By Josh @ $mart Money

An interesting perspective about how sales is a key part to success in life. An overview of a general sales framework that can be applied to a variety of interactions in life.

Selling yourself to a prospective partner (dating), selling yourself to a prospective employer (interviewing) or selling an idea to prospective investor or customer (business/sales) are all areas where these concepts can be used.

I think Josh is onto something with how critical these skills are. Sales often gets a bad rap but in life you always need to be able to convey your ideas and value to other people. The people that do that the best are going to be far more successful.

Raises, Negotiations, and $67,000 – By Jesse Cramer at The Best Interest

An interesting story about how Jesse secured a 30% raise. More interestingly it goes deep into some key observations about the role of HR at a company (hint – they’re not there to pay you more). There’s some great actionable tips here to help you pursue raises yourself by understanding how they’re playing the game so that you can win.

Being a manager at a large company myself I can confirm that Jesse is spot on with this article.

The 15 Finance Books To Boost Your Bank Account – By Unleash The Knowledge

Any excellent group of finance books that cover both the technical and mindset side of money. Includes some personal favorites of mine like the Psychology of Money (Rational vs. Reasonable concept) and Your Money Or Your Life. I’m looking forward to reading some of the others that I’ve heard are good but haven’t gotten around to yet!

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Happiness

Creating A Low Stress Holiday Season

Post author By Mr. MFI
Post date November 21, 2021
2 Comments on Creating A Low Stress Holiday Season

BLUF: The holidays are full of pressure to do things that can make you spend more, take your time and stress you out. Take control, make changes and turn the holidays into the season that you want for your family.

In the US there’s a commercial machine cranking up in November that’s doing everything in it’s power to separate you from your cash. Tis the season to put you in debt and make you spend money that you otherwise wouldn’t. Marketing goes into overdrive sending nonstop messages that you need to show people you love them by spending money.

Mercedes always has some ad showing that Santa actually drives a Mercedes and you should give one for Christmas.

https://www.youtube.com/watch?v=6vSv0bAOcK0

If buying a Mercedes is a little out of your price range, how about a GMC? Oh wait, we’ll take that to an absurd level too with the idea that you’ll buy his and hers GMCs without your spouses input. I think Mrs. MFI would be gifting divorce papers if I pulled that crap.

https://www.youtube.com/watch?v=Yqfr-fCyyNc

Yeah, stupid. I thought that SNL perfectly captured the absurdity of these commercials in their own parody.

Under Pressure To Spend

Everywhere you look, there’s pressure to celebrate the holidays a certain way and often the emphasis is on spending. It starts with the infamous black Friday which pre-pandemic had bled into Thursday causing some families to cut Thanksgiving short in the name of shopping. Really?

Photo by Max Fischer on Pexels.com

After that there’s small business Saturday, Cyber Monday and on and on until Christmas. That’s when you return all the gifts you hated, spend the gift cards you received and spend more on the after holiday sales.

How bad are the holidays for people when it comes to money, time and happiness? Well, here are some head shaking stats:

22% of the US population goes into debt from holiday shopping each year.
In 2020, Americans spent $1,000 on average. $650 for gifts. $230 for decorations, food, cards and other holiday goods. $117 in non-gift buying.
On average American women spend 20 hours gift shopping and men 10 hours during the holidays.
62% of Americans expect to get a gift that they don’t like.
Sources: https://capitalcounselor.com/holiday-spending-statistics/

Let’s recap: Every year people spend $1,000 on average and go into debt spending massive amounts of time to buy gifts and some people aren’t going to like. Is this really the most wonderful time of the year for you?

My Holiday Stressors

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When it came to Christmas as an adult, it always stressed me out. Not from a financial perspective, fortunately, because we weren’t huge spenders. There are a number of things I was started to dislike about how we did Christmas:

It was stressful figuring out gifts for Mrs. MFI . She’s not a very materialistic person so I always struggled with what to get her. She doesn’t buy clothes, jewelry, house decorations or things for herself. We do experiences and trips together and she reads free content a lot.
I hate shopping with every fiber of my being. I’m probably not unique in this as a guy but shopping to me is exhausting. I aim to research, select and buy whatever I need with as little energy spent as possible. You will not find me bargain hunting from store to store. I can run for 9 hours in an ultra marathon but standing around a store for 3 hours feels more tiring. Don’t judge.

Gifts with relatives seemed ridiculous. Let me know if this sounds familiar to a conversation that you’ve had with a relative or friend:
1. Me: “Sis, what do you want for Christmas?”.
2. Sis: “A Target gift card. You?”
3. Me: “An Amazon gift card.”

I mean, come on. We’ve about to go out and spend effort to just exchanged a more restrictive form of money with each other. You’re also trying to figure out the “right” amount to give each other so that someone doesn’t feel like they gave too little.

Or, does the gift exchange turn into the same safe gifts swapped year after year? Candles, wine, food items, pet items. It was all a lot of effort to figure out and shop for something that the other person probably doesn’t really need or care about. It’s all a lot of time, energy and stress to show “love” when there are better ways to do it!

I hated coming up with a Christmas list. I don’t really need a lot and if I want something I really need during the year I buy it. It was always stressful and hard coming up with ideas because it always felt forced in this window of time around Thanksgiving. Sorry, I’m too busy stuffing my face with pie to think about gifts. To come up with a list I need to research exactly what I want and where you can get it. It’s like doing all the parts that I hate about shopping and then not actually getting the item for a month later (maybe)!
Making your house look festive. What do I dislike second most in the fall behind raking leaves? Putting up Christmas lights. I never went overboard but even the thought of putting strings of lights up on a couple of outdoor trees was not appealing. Sorry, there’s football on TV. I don’t want to be Chevy Chase making my house look like Christmas Vacation.

We also used to do an indoor Christmas tree with fancy matching colored bulbs. It looked nice when done but I wasn’t motivated to help because I didn’t enjoy the activity of it much.

Creating Our New, Low Stress, Holiday Season

Sorry if that seemed like a lot of negativity. I don’t hate Christmas. I loved seeing my family and eating many of my favorite foods. What to do about it?

The answer was to start making changes with a focus on the things that you can control.. Specific, thoughtful changes that would let us keep all the things that we loved and improved or eliminated all the things that we didn’t love. I’ll let you in on a secret that should be obvious.

You can do the holidays any way that you want!

No, really. Contrary to popular beliefs, you don’t have to cave to the social pressures of what the holidays should be like. It’s your life and it’s possible to both balance your desires with the desires of others. Here are the changes that we’ve made so far.

Buying Gifts

This one topic has been the largest focus in our holiday changes because it has such a ripple effect. It takes time to: come up with gift lists, research gift locations, shop for gifts, get wrapping paper/bags, wrap the gifts, transport the gifts, spend the gift cards you received, return the gifts that you don’t like and give away the gifts that you can’t return.

We have experimented and changed gift giving over the last 5 or so years in an attempt to reduce those stressors and pain points. In summary, we made the following changes in chronological order:

Normal gift giving, no spending limit – pre-FI thinking and before Mrs. MFI and I were married. Probably spent $200-$500 on each other depending on the year.
Normal gift giving with a total dollar limit – Give whatever gifts you want but stay within a total per person budget of $100. We both selectively ignored this limit which caused problems.
“Stockings only”, lower total dollar limit – Smaller gift giving that is intended to fit into a stocking although not absolutely required. $50 limit.
No presents for each other – No wrapped gifts and no stockings. Just doing things together leading up to and after Christmas. Still exchanged gifts with extended family.
No presents for each other and extended family – Extending our present-free activities to include gift giving that used to occur with select extended family.
No presents for each other and extended family, adding charitable giving – Keeping our plan the same as last year excepting now adding in adopting a child and adult for Christmas (this year). We have an 8 year old boy and their caregiver to shop for. Mrs. MFI is very excited to get them Lego’s and an RC car that’s on their wish list!

Photo by Anthony Shkraba on Pexels.com

As you can imagine this is years worth of changes. The more Mrs. MFI and I started to talk about what we liked and didn’t like, the easier it was to start making meaningful changes to improve our holiday experience.

Getting my extended family to be okay with no gift giving with each other was surprisingly easy. I simply proposed it via e-mail and everyone was pretty onboard. The takeaway from that experience is that others were likely feeling similar to us but didn’t bring it up. You might be surprised to find that others might feel like you do if you just have the courage to talk about it.

One change that you might have noticed was that we added BACK some gift buying at the end. That’s actually a change for this year (2021). Mrs. MFI really enjoys black Friday and the idea of gift giving. I enjoy charitable giving myself and helping others.

As a result this year we’re still not giving gifts to each other but Mrs. MFI has taken the lead on adopting a family and shopping for them. It’s a great compromise to both fill a gift giving desire and help out people in need.

That’s the thing to remember about making changes and trying things. There’s nothing that says that you can’t change something back if it isn’t working for you.

Streamlining Other Holiday “Obligations”

There are a number of other things that we used to do around the holidays that I won’t call fun, but felt obligated to do.

Holiday Cards

Sending holiday cards to friends and family. This is one of those things that costs time and money and can vary widely for either depending on how you do it.

Why send them at all? We still enjoy receiving photo holiday cards from others and don’t keep in touch with everyone via social media so this is one way to stay connected.

We both hate writing things by hand inside cards so we’ve moved from blank cards that we write in to photo cards made by Shutterfly. Mrs. MFI designs them and we order then in early November to get the best discount.

To minimize the work we make a Word document setup in label format with all the names and addresses and then print out the labels at home on a laser printer.

For the return labels I collect the free return label stickers that are sent to us throughout the year by organizations that we’ve previously donated to. I’ve yet to have to buy any of these but I’d definitely spend the $5-$10 on Shutterfly if necessary to avoid the writing.

Simplifying decorations

I love the way holiday lights look. I hate putting them up and taking them down. I used to wrap my outdoor evergreens with lights but that got old. The solution? Buy a couple of sets of these LED spiral trees. They store flat and take about 10 minutes each to setup.

We’ve always had a fake tree which keeps things pretty simple when it comes to setup and teardown. There’s a little work to replace bulbs that burn out or are loose but it’s kept this tree going for 15 years now.

One of the ways that we get happiness dividends is by putting up our Christmas ornaments. You see, everywhere we travel to we buy something that can serve as an ornament. Putting ornaments on the tree serves as a trip down memory lane helping us recall and talk about the great trips that we’ve taken.

One thing we have simplified is our ornaments. Mrs. MFI used to also put up colored bulbs but while it looked nice, it was extra work. So, we don’t do that anymore.

Planning Experiences

The great thing about reducing the gift portion of the holidays is that it frees up time to do all sorts of other activities. We, like many, have a variety of seasonal things that we like to do.

As we get into November we start to map out the different things that we want to do:

Plan a day or two to drive around with hot tea and look at the best light displays at local houses.
Go to a local holiday celebration of lights, music and food.
Go to a Christmas festival put on by local amusement parks.
Make holiday cookies
One new thing that we’ve never done before. This year we made our own glass ornaments by hand!

Rotating Holiday Traditions & Experiences

I love spending money and time on experiences and traditions. However, the more you do something, the less special they become to me. For that reason I like to sometimes skip a year or two of doing something that we’ve always done year after year.

It make me appreciate it that much more when we return to doing it the next year. It also frees up space to try more new things. You never know what new thing that you try will turn into a new favorite!

Making Your Own Holiday Season Happier

I’m not special. All of us have the ability to step back, reflect on what things we’d like to change and take action! It doesn’t matter how small the change, just take action.

Take a step back and think about what you like and don’t like about the holidays.
- What traditions do you look forward to each year? What activities make you light up?
- What things do you hate doing? What stresses you out? What takes up the most time for you?
If the change involves others, have a conversation! Nothing will change unless you let the world know what you want. It starts with being honest about how you feel. You might be surprised that others feel the same way but were afraid to speak up.
- I’d recommend starting with an easier topic if you’re nervous. The “optional” gift exchange at work that you hate but feel pressured to do each year. Exchanging gift cards with extended family members.
- Be clear about what you don’t like and propose an alternative. If you’re open to other ideas then ask the other people what they think.
Nervous? What is the worst thing that can happen by making this change? Often times the worst thing that can happen after making a change is that you aren’t happy with the result and you just go back to the way things were before.
Make a change, even a small one. Reflect on that change.
- Was that change better? Worse? What did you learn? What could you do differently next time?

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Tags Christmas, Holiday

Expenses Investing Saving Taxes

Health Savings Account (HSA): The Best Tax Advantaged Account

Post author By Mr. MFI
Post date November 14, 2021

BLUF: The health savings account (HSA) is one of the best tax advantaged accounts that you can have. Use the tactics in this article to save big on taxes and create a money machine to fund retirement medical expenses.

Oh, it’s that time of year again. Benefits election time for all of us working those W2 jobs and for those using a variety of other healthcare sources. It felt like an appropriate time to talk about the amazing tax advantaged account that I and Mrs. MFI ignored for far too many years. I am talking about the Healthcare Savings Account (HSA)!

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Yeah, not the most exciting topic on the surface. You know what is exciting? Sticking it to the tax man and keeping more of your sweet sweet money. This account can also help you retire early and worry a bit less about long term care costs. Intrigued? Read on…

What am I going to cover? Three basic areas:

HSA Overview – All the key foundational details about HSAs: What they are, who can open one, what you can buy with them and why they’re awesome.
HSA Basic Tactics – What are some simple ways to take advantage of that account?
HSA Advanced Tactics – Some much more creative ways that you can use this account to your advantage over the long term.

HSA Overview

If you already have knowledge of HSA’s feel free to skim through this next section. It’s dry, but necessary because it defines the rules around these accounts. The devil is in the details!

What Is An HSA?

Right from the IRS:

A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA.
No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.
https://www.irs.gov/publications/p969#en_US_2020_publink1000204023

Who Can Have An HSA?

Here are the requirements to qualify for an HSA:

You are covered under a high deductible health plan (HDHP) on the first day of the month.
You have no other health coverage except what is permitted (see the IRS here for details under Other Health)
You aren’t enrolled in Medicare.
You can’t be claimed as a dependent on someone else’s tax return from last year.

The key requirement for most is making sure that you have a HDHP. Not sure if you have one? Read here for how to tell.

Each person covered by an HDHP is allowed to have their own HSA account. Or, in a family situation, a single adult could have the family HSA and cover the expenses of the other spouse and dependents. There is no such thing as a “joint” HSA.

If you’re married and have a family plan then your spouse can have their own HSA if they’re covered by your family HDHP!

Quadruple Tax advantage

Why is this account awesome? So many tax advantages. HSA, oh how I love thee helping me stay tax free. Let me count the ways:

Tax free going into your account if paid via a payroll deduction – No federal, state OR FICA taxes paid on the contributions.
Reduces your taxable income – HSA contributions reduce your adjusted gross income (AGI) so you save taxes from your highest marginal tax bracket.
Grows tax free – An HSA can be invested in stocks, bonds, ETFs and mutual funds and all growth is tax free. You can buy and sell within the account without any tax consequences.
Tax free withdrawals for qualified medical expenses – As long as you use the HSA to pay for the IRS defined qualified medical expenses then the money comes out tax free as well.

An HSA is truly a special account.

Who Can Use The HSA Funds?

More than you might realize. Qualified medical expenses are those incurred by the following persons.

You and your spouse.
All dependents you claim on your tax return.
Any person you could have claimed as a dependent on your return except that:
1. The person filed a joint return;
2. The person had gross income of $4,300 or more; or
3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2020 return.

That means that even if you have partner #1 on a HDHP and partner #2 on a traditional HCP then you can use partner #1’s HSA for expenses incurred by partner #2.

Who Can Contribute To An HSA?

Anyone currently covered by a HDHP and has an open HSA can contribute money to it up to the annual limits.

How Much Can You Contribute?

The amount that you can contribute to an HSA varies each year so be sure to check to see what the latest limits are by searching for “IRS HSA contribution limits XXXX (year)”. The information in the tables below are for people that had plans for the entire year. Review the IRS website here for information on partial year contributions.

2021 HSA Limits	Under Age 55	Age 55 or Older
Self Coverage	$3,600	$3,600 + $1,000 extra
Family	$7,200	$7,200 + $1,000 extra per spouse over 55

2022 HSA Limits	Under Age 55	Age 55 or Older
Self Coverage	$3,650	$3,650 + $1,000 extra
Family	$7,300	$7,300 + $1,000 extra per spouse over 55

Unlike your 401k, employer contributions to your HSA DO count towards the annual max. For example, in 2021 if a single employee had an HSA and their employer contributed $1,000 to it then the employee could only contribute $2,600 more to hit the $3,600 annual max.

How Can HSA Funds Be Used?

What is reimbursable by an HSA? There are a LOT of things actually. Here is a selection of both common and unusual items that are covered:

Artificial Limbs
Birth Control Pills
Capital expenses to your home for medical care (widen doorways for a wheelchair, for example)
Dental Treatment
Eyeglasses
Fertility Enhancement
Guide dog or other service animal
Medicare Part B,D premiums
Menstruation Care Products
Nursing Services
Over the counter (OTC) drugs without the need for a prescription
Therapy
Transportation and Lodging to another place for the purpose of a medical procedure

Unfortunately, private health insurance premiums aren’t covered except in very narrow circumstances (COBRA). Sorry, no medical marijuana either.

Full list of qualified medical expenses here:

Be careful to not take unqualified distributions from the account before age 65. If you do those distributions are taxed as ordinary income AND subject to a 20% penalty. Ouch.

Do HSA Funds Ever Go Away?

No. To have and to hold, until death do you part. When you die your HSA will pass tax free to your spouse and they will enjoy the same tax free benefits. There are also

But what if I end up with more in my HSA account than I could possibly use? Easy, after age 65 you can withdraw money for non-healthcare expenses and it’s taxed as ordinary income.

HSA Tactics – Getting The Most Bang For Your Bucks

Now, lets talk about the fun topics. What are the different strategies that you can use to get the most of your HSA. I’ll present a variety of tactics and you can choose what best fits your situation.

I’m going to list these roughly in order from the more basic approaches and then heading to the more advanced and niche.

Use An HSA Debit Card To Pay For Expenses

Starting with the most basic approach. Save money in your HSA account in cash and whenever you have a qualifying healthcare expense, use your debit card to pay for it. The $4,928 listed below are all expenses that I paid directly from my HSA earlier in life.

It’s simple, convenient and is letting you use pre-tax dollars to pay for expenses that otherwise would be post tax. How much did that save me?

Well, our effective federal tax rate is about 15%. That means that we would have had to made about $5,800 in wages to pay for $4,928 in medical expenses net of taxes. $872 saved!

Investing With An HSA:

Saving money is great, but being FI minded we want our money to work for us. A beautiful thing about an HSA is that this isn’t just some crappy bank account where the money earns no interest. Oh no my friends, you can invest it!

You can connect the HSA to an investment account with firms like Fidelity (Mrs. MFI) or TD Ameritrade (Mr. MFI) and invest the money. It varies by HSA provider, but you generally need a minimum cash balance ($1,000 to $2,000) before they’ll allow you to start investing HSA money.

My HSA actually has two pieces: A cash account in a bank where all distributions are paid from and an investment account which are linked together but are operated by different companies. Mrs. MFI has a similar arrangement but with a different bank and investment company.

My work HSA is connected to TD Ameritrade and every paycheck it sweeps money to the TD Ameritrade invested HSA. I have the account setup to leave $1,000 (the minimum) in the HSA bank cash portion and sweep anything more into my HSA investment account.

Here are those auto sweep transactions happening every two weeks when I get paid.

That money can then be invested in whatever I choose on the platform. I’ve got the money invested in an ~80/20 split of VTI and BND. It’s a tax advantaged account so I can rebalance or change investments (sell) without any tax consequences.

Quarterly I’ll go in and make a purchase with the cash that’s accumulated. Looks like I’ve been slacking and have $1,280 accumulated that needs investing.

Clearly this year has been incredible unusual as far as US stock growth. YTD this basic invested HSA is up almost 50% or $6,000. Far more than I’m allowed to contribute to the account in a single year.

Vanguard for some reason has decided to stay out of this HSA market for the time being.

HSA Advanced Tactics

Now, for some fun stuff. How can you actually take the use of this fancy HSA to the next level and stack these benefits? Let’s explore that. I love nothing more than to find legitimate ways to game the system. Some of these ideas you can stack and use together.

Pay For Medical Expenses With A Cash Back Credit Card

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A key thing to understand about an HSA is that you can reimburse yourself tax free from that account, regardless of how you pay for the medical bill.

Knowing that, why would you ever use an HSA debit card to pay for a medical expense? I’m a huge fan of credit card rewards so I put as much as possible on my cards. I use the Citi DoubleCash credit card for 2% cash back on everything. If you spend $3,000 a year on medical bills that’s still $60 cash back for nothing.

Then you can submit to your HSA provider for reimbursement of that expense from your account. Here’s a key point. Your HSA provider isn’t necessarily going to check that what you’re submitting for is a legitimate expense. The IRS is the one that may come knocking and ask for proof that these were legitimate expenses.

For that reason, it’s important that you keep sufficient proof that the bill that was paid by your HSA was for a qualified medical expenses. Here’s what the IRS says you need to keep for records:

Source: https://www.irs.gov/publications/p969#en_US_2020_publink1000204088

How should you keep these records? I’m a big fan of Google Drive. I recommend keeping a copy of record which has the details of the service, proof that you paid the bill and when it was paid.

If you’ve read the blog then you know I’m a fan of credit cards for travel rewards. A key part of travel rewards is to open a card with a great sign up bonus (SUB) that’s paid when you hit a minimum spending level.

No better way to hit a minimum spending level than to charge medical bills to a new credit card. Then you can use your HSA to pay yourself back. Medical bills are a pretty good candidate for this since there’s a big lag between the service and the bill arriving. Plenty of time to apply and get a new card. The bigger risk might actually be that they take TOO long to bill you.

One thing to be aware of is that if you pay a bill with a credit card then you give up your ability to negotiate down a larger bill. So, make sure that you do that first before paying the bill.

Take a medical tourism trip and partially reimburse yourself with your HSA.

This one seems like cheating but it’s in the rules. If you have a trip that you’re taking for medical tourism purposes then you can pay for transportation and some of your lodging with your HSA. By that I mean that you’re traveling to another location for the main purpose of having a medical procedure done.

Mexico is popular for very cheap dental care so if you had an expensive surgery this would be a great option. Take the trip, save a lot on the procedure, pay for it all on your favorite credit card. Then reimburse yourself for part of the trip and the surgery with your HSA. How sweet is that?

Source: IRS Publication 502 – Medical and Dental Expenses, Page 14

Pay For Medical Expenses Out Of Pocket, Let Your HSA Grow

Up until now we’ve been talking about paying for your medical expenses out of the HSA because it’s all tax free. The next idea might seem counter intuitive but you could pay for medical expenses out of pocket and NOT reimburse yourself from your HSA right away.

Why might you do that? The power of compounding. If you constantly spend the money that you contribute to the HSA then that money never gets a chance to compound. However, suppose that you let those HSA contributions grow to $50,000. By the 4% you could withdraw $2,000 a year and have a high likelihood of not running out of money over 30 years.

A Secret Emergency Fund

Here’s another trick. If you pay for medical expenses out of pocket you can reimburse yourself anytime in the future from your HSA. For example, I spent $3k this year on medical expenses (not my best year) but paid out of pocket.

I have those receipts and 10, 20 or 30 years from now I can use those receipts and pay myself back that $3k. It’s like having a special investment account that I can draw on anytime in the future when I need it. I love safety nets.

Long Term Care Self Insurance

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One concern of many is the cost of long term care in our later years. It’s understandable as nursing homes can cost $100,000+ a year.

What if you saved diligently, didn’t spend that HSA and then let compounding do it’s thing? Say that a couple is able to save $100,000 in an HSA by the time they’re 50 years old and never contribute another dime. They pay out of pocket for expenses to do that.

If that $100,000 grows by 7% annually then when they hit 80 years old the accounts will be have $811,000! That’s a healthy balance to handle your long term care.

What if you don’t need that much money? Well, after age 65 you can withdraw HSA money penalty free and it’s taxed as ordinary income. Problem solved. Did I mention that it’s not subject to required minimum distributions (RMDs) either?

Use It To Cover Insurance Premiums

Maybe you aren’t worried about long term care but you are worried about other medical expenses in retirement. You can’t use an HSA for private healthcare insurance but you CAN use it for Medicare part B and D insurance after age 65.

Below are insurance options that DO qualify for HSA reimbursement. As always, these change over time so consult the IRS website for the latest rules.

Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

Action Steps:

If you have a HDHP and don’t have an HSA, open one!
Setup your account to contribute to it every paycheck. Even if it’s $10 a paycheck, get started.
Look into how much you need in your HSA to start investing.
Once you have enough to start investing, open an HSA investment account. Fidelity is one of the top providers.
Setup your HSA to autosweep funds to your investment account.
If available, setup your investment account to auto-invest the proceeds.

Additional Resources:

IRS HSA info: https://www.irs.gov/publications/p969
List of qualified medical expenses https://www.irs.gov/publications/p969#en_US_2020_publink1000204083

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Tags Health Savings Account, HSA, Investing

Investing Taxes

What If The Backdoor Roth and Mega Backdoor Roth are Closed?

Post author By Mr. MFI
Post date November 6, 2021

12/16/21 Update: Build Back Better Bill Senate voting pushed until early 2022. Backdoor Roths are safe for now! Check out my Mega Backdoor guide here.

11/19/21 Update: Build Back Better Bill passed the House with the changes to remove the backdoor Roth. We’ll have to wait and see if it can get through the senate. Personally, I’ve completed my MBR for the 2021 year and backdoor Roth conversions for both Mrs. MFI and I just to be safe.

11/8/21 Update: I jumped the gun a little with this article. It’s far from a done deal yet that these backdoors go away but still possible. I still think it’s prudent to take steps now to plan as if the backdoors do go away.

BLUF: Pending legislation would close the backdoor Roth and mega backdoor Roth contribution loopholes. There’s still time to take action for 2021 and good options for wealth building in 2022 and beyond.

There’s an old proverb that says that “all good things much come to an end.” I hate that proverb. Who wants something good to come to an end?

Unfortunately in this case one thing proposed to come to an end are the beloved backdoor Roth and mega backdoor Roth contributions.

If you’ve followed the blog you’ve read my extensive Mega Backdoor Roth article and know that I love and use that loophole.

I don’t read or watch the news as a practice to keep myself happier. However, being a personal finance nerd I did start to pay attention to the Build Back Better Bill discussion once they started talking about a variety of changes to the current retirement savings system that many of us use. We’ll know more soon but there likely won’t be much time to act if this bill passes.

What’s in there? What could come to an end are two sweet loopholes that allowed people to get money into Roth IRAs despite making too much income to contribute to them directly (the front door). In 2021 a single filer needed a MAGI of less than $140,000 and a married filing joint less than $208,000 to contribute to a Roth. What were these backdoor options?

Backdoor Roth IRA Contributions

The standard backdoor Roth IRA contribution was a two step way to bypass these income restrictions.

Contribute to a traditional IRA (tIRA) with after tax money.
Convert the tIRA money to a Roth account

Just that simple. Anyone can contribute to a tIRA regardless of income level, you just don’t get a tax break at a point. Since the money went into the tIRA after tax there’s no tax owed when that money is converted to a Roth account. The pro-rata rule made this impractical if you had other tIRAs with large pre-tax amounts in them but this was still a nice option for many that were otherwise locked out.

Photo by Harrison Haines on Pexels.com

Mega Backdoor Roth IRA Contributions

The regular backdoor was great and all, but with contributions limited to $6k under 50 and $7k over 50 years old, it had limited savings potential. The mega backdoor however, blew the doors off of the regular backdoor.

If you had an employer retirement plan (401k/403b/TSP) that allowed after tax contributions and some other features then you could get $38,500 extra into your Roth. A year. It’s how I’ve been able to personally put $41,407 into my company 401k so far this year which is a combined total of pre-tax and after tax contributions. About $25,000 of that is after tax contributions ready to be rolled into a Roth via the mega backdoor.

If you want to read the fine details of how the mega backdoor Roth works you can read them here in my step by step guide.

Build Back Better Act – Slamming Shut The Backdoor

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It’s amazing how much good you can undo with one simple sentence. As you can see below, the act kills the backdoor options by preventing after tax contributions to your qualified plans (401k, 403b, TSP, etc) from being converted to a Roth.

It also prohibits any after tax money in IRAs from being converted to a Roth. You can still contribute after tax money to IRAs (which now would make no sense) but the money can’t go to a Roth. All of this becomes effective on December 31st, 2021.

Source: House Committee on the Rules Summary

The wording seems unclear to me on exactly what they’re going to enforce. For example, are after tax contributions made in 2021 able to be converted to a Roth in 2022? Seems like I could interpret that in either way to allow them or not allow them.

Other retirement changes that are less likely to impact the less affluent investors:

In 2032 single filers over $400k in income and married filers over $450k in income won’t be able to do Roth conversions.

Source: House Committee on the Rules Summary page 170.

$10M cap on all retirement accounts. If the cap is exceeded the money in excess of $10M needs to come out.
You can’t contribute to a Roth or traditional IRA if your retirement account balances exceed $10M.

Source: House Committee on the Rules Summary page 169.

If you’d like to see it for yourself you can read the summary here. If you want to read the actual bill text you can find it here. Warning, it’s painful to interpret.

2021 Isn’t Over Yet – Take Advantage Of The Backdoor Roth Options

All of these backdoor benefits seem to go away at the end of the year but there’s still almost two months to go. As previously stated, it doesn’t seem clear to me if you’ll be able to convert 2021 after tax contributions over to a Roth in 2022 so I’m assuming for now that you can’t.

There’s still time to take one last advantage of these backdoors before they go away. Here are some options to consider if you have these backdoor options in process or available to you:

Do a Backdoor Roth Contribution from Scratch

There’s still time to do a backdoor Roth even if you haven’t done a thing this year. The basic steps:

Open up a tIRA account immediately.
Contribute the max ($6k or $7k depending on your age) to the tIRA.
Wait a little bit of time. There’s no hard and fast rule here and it might not matter anymore but I would wait at least 2 weeks. This is to avoid the step transaction doctrine although I’m not sure how much that’s ever been enforced for backdoor contributions.
Convert the tIRA money over to your Roth IRA.

Vanguard makes this conversion process very simple as they have “Convert to Roth IRA” link right on the balances and holdings webpage.

Complete Backdoor Roth Contributions

Same situation as above but perhaps you’ve made only some of your intended tIRA contributions for the year or you haven’t done the conversion step.

Complete Mega Backdoor Roth Contributions

You’ve got after tax money in your qualified retirement plan, get it into your Roth! Per the language in bill summary it says that after-tax contributions made after December 31, 2021 can’t be converted to a Roth. That implies that you might be able to complete the mega backdoor transfer in 2022 (or beyond) on those older 2021 and early after-tax contributions.

Personally, I’m not going to screw around with it and will be completely my mega contribution before the end of the year. The language seems open to interpretation and I don’t want to risk that money getting stuck because of it.

Follow my step by step guide if you aren’t sure how to do that.

Backdoor Roth and Mega backdoor Roth are Closed – Now What Do You Do?

Hopefully you’ve had a chance to breath deeply, calm yourself. Let the rage subside. Or…

I’m all about trying to stay level headed and focusing on what you can control. The bill has passed and what’s done is done. With those options closed, what options do we have to save and invest wisely towards FI? Let’s explore that once you buy a new keyboard and monitor.

Turn Off After Tax Contributions

This could apply to both your qualified plans (401k, etc) or your IRA but make sure that if you have some auto deductions / transfers in place that you turn them off by December 31st.

It sounds like these after tax contributions to retirement accounts will still be allowed in 2022 but I’m not sure why you’d want to do that. You have no tax advantages (after tax), your money is stuck in a retirement account (harder to access) and you can’t get it into a Roth.

It’s stuck there until you pull it out of your IRA one day (likely after 59.5 years old) where it’s going to be subject to the pro-rata rule. Any gains on your after-tax investments are considered pre-tax and are taxed as ordinary income.

Are Normal Roth Contributions (“Front Door”) Really Shut For You?

Nobody really calls regular contributions directly into a Roth as the front door method but that’s effectively what it is in relation to the backdoor options. To contribute directly to a Roth you need to have earned income and overall income that’s under the income limits.

For 2022 the income limits have been raised for those that want to make a standard Roth contribution:

Single Filer: Can contribute fully to a Roth at $129k or less of MAGI, fully phased out at $144k
Married Filing Jointly: Can contribute fully to a Roth at $204k or less of MAGI, fully phased out at $214k.

The important nuance here is that these limits are based on Roth Modified Adjusted Gross Income (MAGI) specifically. This gets very confusing because there are multiple formulas for determining MAGI so make sure you use the one specifically for the Roth.

The simplest ways to reduce your adjusted gross income and therefore your MAGI are to contribute to pre-tax savings accounts such as your qualified retirement account (401k, etc) and an HSA.

For example, for a married couple filing jointly in 2022 they’ll be able to contribute up to the following:

$20,500/ea in their 401k/403b/TSP = $41,000
$3,650/ea or $7,300 total as a family to HSAs

That means that they’d be able to make $252,300 together for 2022 and still be able to contribute the max each to a Roth IRA! $252,300 – $41,000 – $7,300 = $204,000 (Roth income limit). That’s the simple stuff. Capital losses can also reduce your AGI.

Looking at the Roth MAGI worksheet there are even more things that could reduce your income. Consult your tax professional if you need help planning and figuring out what’s possible for you.

Source: IRS Roth MAGI Worksheet

Invest in a Roth 401k/403b/TSP Instead

If your long term goals involve getting a money into a Roth then you should look into whether your employer offers a Roth option to their retirement plans.

Some let you split the money between plan types so that you could do $8,000 in a traditional 401k and $12,500 in a Roth 401k in 2022, for example. That could be a nice compromise if you want to invest some pre-tax and some post-tax. A Roth 401k would still be able to be rolled into a Roth IRA in the future.

Invest Using A Traditional Brokerage Account

It’s easy to get excited about all the different retirement accounts with special tax treatment and forget about the humble brokerage account!

Brokerage accounts are after tax investment accounts that are offered by a variety of different companies. Vanguard, Schwab, and Fidelity are the big ones but there are plenty of smaller new players such as M1 Fiance, Robinhood and Webull.

You invest in stocks, mutual funds, ETFs or crypto with your after tax money and when you sell those securities you pay taxes (booo). If you hold the security you buy for one year or less they are taxed as short term capital gains which are taxed as ordinary income. However, if you hold them for a year and a day or longer they get special long term capital gains tax treatment.

Magical Long Term Capital Gains

What’s magical you ask? Well if you’re married filling jointly it means that you can pay $0 in long term capital gains on all taxable income less than $80,800.

Investopedia: https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp

For example, let’s say that you invested through the years buying stock index funds for an average price of $100/share. Many years later you were able to sell those index funds for $500/share. That’s a $400/share capital gain when you sell it.

If you’re a married couple filling jointly with a standard deduction of $25,100 then how much in index funds could you sell and pay zero tax?

$25,100 standard deduction is taxed at 0% for long term capital gains (LTCG)
$80,800 is taxed at 0% for long term capital gains
$105,900 of LTGC’s are tax free for this couple.

However, that’s not what goes into their bank account. If they wanted to sell as much as possible and pay no tax they would sell $105,900 / $400 (gains/share) = 264 shares.

264 shares @ $500 (current price) /share = $132,000. Tax free.

The other key is that brokerage account funds can be accessed at any time. No special steps required to use that money before 59.5 years old.

Action Steps:

Make sure you take action on closing out any backdoor contributions for 2021.
If necessary, stop auto contributions of after tax money into your qualified retirement accounts and IRAs.
Check if you’re able to still contribute to a Roth directly.
Invest in other after tax vehicles like a brokerage account or real estate.

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Tags Backdoor, Backdoor Roth, Mega Backdoor Roth

General FI

Couples Finances: Should They Be Separate Or Joint?

Post author By Mr. MFI
Post date October 24, 2021

BLUF: There’s no one sized fits all advice for whether you should combine your finances or keep them separate. What’s important is that the couple trusts each other, is aligned on their long term financial goals and have a plan to manage the day to day money. If you get that right I don’t think it matters if you merge your accounts or keep them separate.

For better or worse, money is a large part of life. A lot of our time and energy is spent working jobs to make money and then spending it in some way to live. It’s a source of emotions in our lives. Stress when we don’t have money and gratitude and happiness when we have enough to be free to do as we’d like.

Many of us want to share our lives with another person through some form of a relationship. Only naturally then, at some point during your life, there’s probably going to be a crossroads where your life is going to be combined with another persons in a relationship. But what about the money?

Relationship Finance Decisions

There are many decisions to be made when joining two peoples lives together and one common source of stress and potential conflict is how their financial lives should work as a couple. It’s not surprising as there are a lot of decisions to make and questions to answer:

Should you combine all your bank accounts?
Should you have a common checking account that all paychecks go into?
How do you split responsibility for paying the bills? 50/50?
Does each person get their “own” money? If so, how much?
When do you have to ask for permission to spend money?

I come at this topic from a unique perspective because Mrs. MFI and I actually have ZERO shared accounts even though we’re married. Some would call that crazy and not the way that a married couple should handle their finances. I would challenge that idea and say that there’s no one size fits all approach to making a couples finances work.

This article is going to explore this topic of finances in a relationship. I’ll talk about how Mrs. MFI and I make ours work and walk through a framework for thinking through how to make things work best for you in your own relationship.

Our Story: For Richer or Poorer, Our Finances are Apart

It’s by pure coincidence that I happen to be writing an article about combining financial lives around our wedding anniversary. Mrs. MFI and I started dating in our early 30’s and were married around 35 years old so we had fairly established financial lives as individuals at that point. I was divorced at 30 and had gotten used to paying for a house and everything in my financial life on my own. Mrs. MFI had her own apartment, job and savings when we started dating. As a product of her upbringing she’s always been quite frugal and saver.

Mrs. MFI eventually moved into my house which naturally brought up the conversation of splitting bills, what she should pay and it should be paid. There’s an important variable in this equation though. I make a lot more money than Mrs. MFI. Probably 2.5x as much as her at the time. All the bills were in my name and I was on top of the bills so she would write me a check for about 1/3 of the household bills and I paid the other 2/3rds.

A Strategic Decision To Maximize Our Savings

My mom dying, our marriage and Mrs. MFI’s strong saving habits really pushed me to start saving more and got us talking about the right choices for our future. I was geeking out more with personal finance which included learning more about retirement accounts, investing, compounding and tax optimization.

After learning more about the benefits of a 401k, Roth’s and HSA’s we decided that it should be a goal to try and max out all of these accounts. There was a catch though. For Mrs. MFI to do that it would be about 60% of her gross income! She’s quite frugal but it wouldn’t have been possible (or reasonable) for her to do that while paying 1/3 of the household bills let alone other personal expenses like car insurance, gas, vacations, etc. We were making $150k together at this point so there was substantial tax savings to be had by maxing out those pre-tax buckets.

We made the team decision that to reach our long term goals, I would take on all of the household expenses, gas, insurance…etc. Basically everything short of Mrs. MFI’s personal spending and gift giving. After that our accounts and responsibilities looked like this:

Mrs. MFI being an independent person had a really tough time with this. She felt like a mooch at first and maybe a little bit to this day.

However, this move has really accelerated our retirement savings and saved us a ton in taxes from the 22% tax bracket. $19,500 for each 401k * 2 and $3,600 * 2 for each HSA. Saved us ((19,500 * 2) + ($3,600 * 2)) = $46,200/year. At the 22% tax bracket if we took that as income and just saved it in a brokerage account we would pay $10,164/yr in federal tax on that money and only be putting in $36,036 ($46,200 – $10,164).

Our Split Finances Continue

From there on out it made even less sense to get a joint account. I’m on top of the bills paying everything that is our living expenses and Mrs. MFI is basically saving and investing 90% of her gross pay. Sure, we could both dump our paychecks into a joint checking account but it wouldn’t buy us anything at this point. Our system works and we trust that each of us are doing our part to work towards are larger savings goal of FI.

Our brokerage account is the one account that has a mix of money that we have both contributed towards and that will eventually get turned into a joint account. That’s just a paperwork change at this point.

Mrs. MFI is an authorized user on my Amex Cash Preferred that we use for 6% back on groceries and 3% back on gas as well as my Citi DoubleCash. That lets her easily charge normal household spending to those cards which I manage and pay.

A Framework for Relationship Finances

In figuring out what works for us I’ve realized that what works for each couple is going to be different. Each individuals money behaviors and mindsets are a complex mix of the world that we grew up in, what our parents taught us and the financial experiences that we’ve had along that way.

All of those things make each individual person have a unique perspective on money management. By extension each couple is going to need to figure out the individual approach that works for their team of two.

To help you come up with a system that works for your household here’s a framework of questions to walk through to help figure this out for yourself. This helps to ensure that you have a plan for the role that each person will play, how you will manage the day to day expenses and how all of that contributes to your long term goals.

Understand each persons long term goals.

It’s important to talk through what each partners long term goals are so that you can figure out a plan that will work for both people. If one person wants to retire early and the other person wants to live for the day spending everything then there’s going to be a lot of financially induced conflict in the relationship.

Talk through the specifics of what each person wants and any goals that they have. What does your dream life look like? If you think you want to travel the world being nomadic then you may make very different decisions along the way than if you want to buy a huge house near your kids and have all the grandkids come over.

Having a long term goal gives you a north star to guide your decisions and keep you tracking to something. It can certainly change over time, but you need to work towards something.

Discuss how each persons spending wants and wishes

Every person is going to have certain things that they like to spend their money on. Some people like horses. Some people like fast or fancy cars. Some people like elaborate vacations and travel. Some people like fancy clothes, jewelry or watches. Some people love personal care treatments like skincare, hair, nails or massages.

As the Afford Anything podcasts says, you can afford anything but not everything. For items that are major cost drivers in the budget each person needs to be able to put their desires on the table so that you can come up with a line in the budget for it.

Understand each persons strengths and weaknesses and figure out your money roles

Both people have a vested interest in the finances of a relationship. However, not everyone is good at the different skills required to track spending, pay bills on time and get money invested.

See if one person is more suited for one or multiple of these roles. If one person is already good at it and wants to do and the other doesn’t then it’s an easy decision. If you want to split the role that’s fine too but often one person likes to take the lead.

Keep accounts separate or have joint accounts?

Most will come into a relationship with their own checking and savings accounts at a minimum so you need to discuss if you’re going to have separate accounts or join them. The main place to start is with a checking account as you need to decide if you want all bills paid from one joint account, completely separate accounts or some hybrid.

If you aren’t sure where to start, begin with something easy and talk through how it would work. If you opened up a joint checking how much of each persons paycheck would go in there per paycheck? What expenses will be paid from that account?

Create a plan for how things will work day to day, week to week. Talk through it in detail!

It’s really important to have a common understanding of how the finances are going to work on a day to day and week to week basis. How much of each persons paycheck will be put towards the household bills? Will each person be expected to save a certain amount? Does each person get their own spending budget of money that they can do whatever they want with no permission required? Is their a dollar amount for a purchase where the couple is expected to discuss it before the purchase is made?

Give things a try!

Don’t spend forever agonizing over each detail only to never really get started. It’s okay to not get a perfect understanding of how things will work at the beginning but be prepared to track your spending and talk through and questions that come up regarding spending that the other person has.

The faster you can come up with a system that works for both people, the faster that you will have a system that just happens so each person knows what to expect. Jumping in and getting started will expose any holes in the plan. Predictability = efficiency and conflict avoidance.

Make a plan to meet regularly to talk about what’s working, what’s not.

It’s important to meet regularly, probably weekly at first, to review the spending and how the system is working. That gives each person an opportunity to see how things are going and discuss any issues. As you find a groove you can meet less often but I’d recommend at least quarterly.

If something isn’t working, make a change and repeat.

Plans are great but they’re just a starting point. Don’t be married to a plan no matter how much work went into it. If something isn’t working anymore, sit down and figure out how to change it!

The Framework – Applied to Our Situation

I think it’s helpful to see an example of the framework in action so here it is applied to Mrs. MFI and I.

Understand each persons long term goals.

Fortunately Mrs. MFI and I are on the same page that FI so that we have security and the option to leave our office jobs and travel is very important to us. We both love to travel so we’re working towards some period of time to try out nomadic living and see where we might want to live more permanently someday. Upstate NY has a lot of snow and not much sunshine so we’d like to move away from that. Oh, and the awful taxes (we pay $5,600/yr in taxes on a $150,000 house).

Because of that FI and nomadic goal we’re downsizing a lot of our stuff and being very careful about what we buy. Fortunately we’re not that materialistic anymore so that isn’t a huge challenge.

Discuss how each persons spending wants and wishes

The largest line item of spending for us both is travel. We budget about $6,000 a year for vacation. Our entertainment budget is about $3,600 a year and it’s mostly stuff that we do together. I enjoy spending money on fitness related events like running races and the shoes that go with them. Mrs. MFI spends money on craft related things.

Understand each persons strengths and weaknesses and figure out your money roles

It’s probably not a huge surprise that the guy writing the personal finance blog is taking the lead on the household finances. I’m the CFO and Mrs. MFI is chairman of the board in our two person company. What does that mean? She has oversight of the budget, the spending and how we’re doing to plan and I’m the one making it happen. I track the spending using YNAB, budget with YNAB, calculate our FI number and leads our travel rewards efforts.

Keep accounts separate or have joint accounts?

As previously mentioned, we have basically separate everything for our accounts. But each person knows about all of the accounts and can see what’s in them whenever they want. There are no hidden accounts.

Create a plan for how things will work day to day, week to week. Talk through it in detail!

Each of our paychecks go into our individual checking accounts. I handle all of the household bills from my checking account and use YNAB to manage the spending and budgeting every two weeks. I also pay our credit cards that are used for the household expenses every two weeks. We have a single account travel fund that all travel expenses come from.

We each have savings accounts that make up the more liquid portion of our emergency fund although most of it is invested in our brokerage account. You can read about my 3 tier emergency fund here.

If either of us are going to spend more than $100 on something we talk to the other person about the purchase unless it’s a gift.

Action Steps:

Walk through the framework with your partner and answer each question. If there’s disagreement – great! Get it out on the table and figure out a compromise. Better to figure out the issues early on.
Meet regularly and check in with each other. How is it going? It’s critical that you’re honest with each other if something isn’t working.
If something isn’t working, make a change! Life changes. People change. Your plan and systems are going to need to change based on the season of your life. Don’t resist change, embrace it.

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Tags finances, relationships

General FI

Downsizing Our Life at 40: Playing with Minimalism

Post author By Mr. MFI
Post date October 10, 2021

BLUF: The researching, acquiring, maintaining and disposing of stuff that wasn’t making us happier wasted valuable time and money. In becoming intentional with our spending and downsizing our stuff we’ve simplified our lives, taken back time and sped up our path to FI.

It feels really strange to think that at 40 years old we may have hit the peak of our accumulating things. It goes against the grain of everything in our consumerist US culture. The blueprint for the classic American dream is something along the lines of:

Buy a new car
Buy a house
Fill house with stuff
Upgrade your cars
Get a bigger house
Upgrade your stuff inside the house
Buy a vacation house
And on, and on, and on.

Always reaching for more stuff. However, a combination of learning about these people called minimalists, learning about FI principles and the 2020 pandemic really started to shift our mindset about what our American dream looked like.

A Change In Perspective

2020 really was an interesting year in the ManagingFI household. You see, I found the concept of FI at the end of 2019 and I dove down the rabbit hole of podcasts, YouTube videos and blog posts.

This video from Mr. Money Mustache was one of the most influential in making me step back and think about stuff and what would make me happy. It’s also the first video that I showed to Mrs. MFI about FI to help try to explain to her this “financial independence” craze that her husband was now obsessed with learning about.

In true MMM style it was an over the top PowerPoint showing how ridiculous the pursuit of more can be if you just keep scaling it up. This point hilariously shown below by illustrating that if a mansion, Benz, Bentley and butler makes you happy then even more of each will obviously make you happier!

Credit Mr. Money Mustache from his World Domination Forum talk

Somewhere along the way I came across the concept of minimalism as well since some people simplify their lives massively to reduce expenses and reach FI.

A Vision of Our Future and Stuff

In the process of being exposed to all these different concepts and points of view I was starting to form a few different hypotheses:

We don’t know where we want to retire to but know that it isn’t NY (the tax state). We should travel around and try living in different places when we’re FI.
Spending money on stuff wasn’t making me happier and would make FI harder to reach.
The researching, acquiring, maintaining and disposing of the same stuff that wasn’t making me happier takes up my time.

The idea of traveling around and living different places evolved over time. We’ve always loved to travel and in 2017 Mrs. MFI and I took a 2,000 mile RV road trip across the southwest in this sweet, sweet ride.

It was our first RV experience and it planted the seed that this method of exploration could be for us since we expect to have a dog. By 2019 that seed of future nomadic living via RV life was starting to grow. Mrs. MFI was getting more onboard and interested in the idea and we took a look at what was out there for RVs. We found out that you can spend a lot of money on an RV and get one that’s even fancier than our house.

I should point out that this nomadic vision is still many years off in our mind at this point since we didn’t really know what was possible for FI or early retirement. I was tracking our spending to some degree but I hadn’t learned about the 4% rule or figured out what our FI number was. We just knew that downsizing and hitting the road in some form was something of interest in the future. That was our general direction.

Questioning “The Stuff”

I’m not quite sure where I would fall on the scale between minimalist and …maximalist? when it comes to stuff. Mrs. MFI is pretty simple in her needs and has never been much of a shopper. I was never shy about spending money but I generally dislike clutter.

I’m not one to waste a lot of money on decorations, clothes or furniture but I did buy quite a few technology items and gadgets along the way. The most absurd example of this along the way was probably this 50″ plasma TV. I bought this on sale during black Friday in 2005 for $2,000. Yeah, absurd. On the plus side I still have that TV along with a ham of a dog 🤣.

During the 2020 pandemic as we were stuck inside I started to realize that the things around me were often not adding value to my life. On the contrary, many of these things were causing me to spend my precious life researching, buying, maintaining and eventually disposing of them.

Things like this DeWalt table saw. Purchased brand new for $500 and probably used 5 total times as you can see by the fact that it still looks brand new. How many hours did I spend researching which one to buy and where to buy it? How much time did I spend buying it, getting it home and putting it together? How many hours of work did I do to pay for it? All of that for it to spend 99% of it’s life sitting on the shelf in my garage. What a waste.

The Corvette

Over the years I had become a “car guy” enjoying autocross, drag racing and speed in general. I had a motorcycle for many years and after selling it I was itching for something fun. We were saving a fair amount of money at the time but pre-FI we didn’t have a goal with our money so buying this wasn’t an issue. I found a great 2009 C6 Corvette in New Jersey and drove down, bought it with cash and drove it back in one epic day.

I loved the car. It was a 6-speed manual with 430hp of head turning, pin you into your seat with acceleration, adrenaline inducing fun. It was a beautiful looking car that I probably bought as much for the “look what I have / look at me” factor as I did for the performance.

The corvette came into focus in 2020 as one thing that I both loved and hated at the same time. I was working from home 90%+ of the time so I was hardly driving period, let alone the Corvette. Mrs. MFI is not a flashy person and felt uncomfortable in it so we often didn’t take it together. If I wasn’t sure of the safety of the area that we were going to or I didn’t know the parking situation I wouldn’t take it for fear of scratches, dings or vandalism. Having 3 cars means 50% more inspections, oil changes, repairs, tires, brakes and car insurance premiums. I was fortunate to have a big enough garage to store it during the harsh NY winters but I had to play a game of car Tetris every spring and fall to do it.

The final straw was probably in the summer of 2020. I just got the car back from the shop and they forgot to do the oil change that I had asked them to do. It shouldn’t have been a big deal, but it was just another thing to do that I didn’t want to deal with. It put the wheels in motion in my mind that this wasn’t worth it anymore. I decided that it was time to make a change and with that, I sold it shortly before my 40th birthday.

There are days when I miss having it of course. But, on the whole I do think that my life is happier for having sold it. I’ve reclaimed a lot of my time and money and simplified my life.

Everything Must Go! (Okay, not everything)

Mrs. MFI actually led the charge in downsizing our stuff long before 2020. She got interested in the idea of decluttering your life and embarked on a “40 bags in 40 days” challenge. The challenge is to do just that: remove 40 bags of “stuff” from your house in 40 days. On the surface it sounds absurd, but even in our modest 1,500 square foot house she was able to accomplish the feat.

In the summer of 2020 Mrs. MFI and I both hopped on the idea of taking a hard look at our stuff and asking ourselves a variety of questions:

Why am I keeping this?
Have I used this in the last year?
Am I going to use this in the next year?
Is holding onto this thing making my life better?
If I get rid of it, could I rent or buy this again if needed?
When we go mobile, would I keep this?

With that in mind, we start to sell and give away a variety of stuff. We sold things on eBay. We sold things on FaceBook marketplace. We gave things away using our local buy nothing group (which is fantastic if you’ve never heard of it). Things that couldn’t be sold were given away to Goodwill. We sold 40+ things for $3,200 not including the Corvette in 2020!

Letting go of stuff is actually a really hard thing to do mentally at first. I think the longer that you own something, the easier that it is to become attached to it. It’s easy to fall into the trap of “I might need this someday” and default to holding onto something that you haven’t touched in years.

For that reason we kept it simple and started with the very easiest stuff that we were the least attached to mentally. As we got into the process of letting go I felt momentum building and I was able to let go of things more easily. There’s still plenty of harder choices in the future as we get closer to downsizing out of house but we’ll cross that bridge when we get there.

Impact Of Downsizing Our Lives

This shift in mindset from accumulation to downsizing and simplicity has really had a number of different benefits. Once you latch onto the idea that less is better, you become a lot more intentional with your spending. You really think about purchases and the necessity of them before bringing them into your life.

Time Saving

Photo by Tima Miroshnichenko on Pexels.com

There are a number of ways where we’ve observed time savings from being more intentional about what we buy and also downsizing our stuff.

Research Time: The less you buy, the less time you spend researching online. I’ve also become less concerned with finding “the best” of everything and just choosing something that’s good enough.
Buying Time: The less you buy, the less time you spend and physically going to stores to buy, return and exchange things.
Maintaining Time: The less you own, the less there is to break and be maintained. I’m sure I saved at least a day a year of time getting rid of the Corvette. This is especially true of electronic things that have to be configured or break easily and mechanical things that require regular maintenance.
Upgrading Time: Once you “must” have something in your life it’s easy to either upgrade to the better thing or replacing it over time to keep up with trends. These days there’s no shortage of tech toys like this: computers, tablets, smart watches, Amazon Alexa/Google Home, smart home devices, vacuuming robots, electric cars, 4k TV’s and on and on and on. All of that takes lots of energy and time.
Disposal Time: Eventually everything must go. Whether it goes in the trash, must be recycled, is sold or is given away it all takes time. Everything that you bring into your life you’ll eventually have to spend time and energy to do something with it.

Speeding Our Path To Fi

A funny thing happens when you become more intentional with your spending because you don’t want to accumulate extra stuff. Your spending goes down! As I detailed here, we’ve dropped our spending progressively through the years on various spending categories. This is especially true of my shopping category which was $5,700 in 2018 and is on track to be $2,000 in 2021. If spending goes down then obviously saving and investing can go up.

Additionally, if you have some sweet stuff to sell in downsizing then you’re going to generate additional money that can be invested. Selling the corvette and all that stuff allowed me to stuff a huge extra chunk of money into our taxable brokerage account. Thanks to the crazy bull market I have some substantial unrealized gains from that car.

Quite the financial swing when you factor in all the money saved in maintenance, insurance and depreciation. I saved 44% on my insurance with dropping the corvette being a big part of that.

Lower Stress

This one is harder to quantify but I find that having less clutter around the house is just more relaxing. It’s easier to clean. There’s less to be put away or moved around. It’s easier to find the things that you do care about.

When you have less stuff there’s less to break or be maintained so my to-do list of things on a recurring basis has dropped as well. No more car Tetris!

Action Steps:

If you have a lot of clutter, consider doing a 40 bags in 40 days challenge. Challenges are a great way to get and keep you motivated.
If you have things packed up in boxes from the last time that you moved, start there. If they aren’t sentimental, why are you keeping them?
Walk around your house and look for things that you haven’t used in a year and don’t plan to use in the next year. Is this adding value to your life?
For clothes, try the reverse hangar trick to see what things you haven’t worn in a year to consider getting rid of them.

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Tags Downsizing, Minimalism