jlcollinsnh Money - Life - Business Wed, 26 Aug 2015 11:30:20 +0000 en-US hourly 1 Mr. Market’s Wild Ride Tue, 25 Aug 2015 19:28:55 +0000 Mom

Bad Market!

Bad, bad, bad Market!

Can’t I even go on a little vacation without you tearing up the place while I’m gone?

I turn my back for one second (well, OK, maybe two months) and you start sliding?

And then that 1000 point drop? What’s up with that? Yes, yes, I know. It was only about 5% and not anywhere near your worst behavior. But still. You knew full well that 1000 figure would drive the pundits bananas!

Since I’ve been gone, you’ve managed an ~11% decline from your record close back in May. Just over the 10% needed to be called a correction. Happy now?

At least you’ve given the media something to obsess about other than Donald’s latest remark or Hillary’s email server.

And now I’m back and you’re up ~2%?* You think this makes the mess you left me OK??

I’ve got readers asking what my take on your bad behavior is, and I’m still just moved in to the new place yesterday and haven’t even begun to unpack. Bad Market!

OK. Here’s my take:


Yawn by Uzlo


Wake me up when it’s down 25%+ and it’s worth doing a little rebalancing to buy more stock

I have no idea what the market is going to do next. Nobody does. Not even (especially not!) those “experts” popping up all over telling you they do. The principles of Investing in a Raging Bull apply equally to investing in a Raging Bear.

As we’ve discussed through the Stock Series, Mr. Market always does the right thing over time. But he’s a drama queen and an attention whore. Periodically he’s going to have these hissy fits. And as with any temper-tantrum throwing little monster, we can just ignore him till he settles back down. No matter how long and loud he wails, settle back down he ultimately will.

Or, we can take advantage of him.

If you are in the Wealth Building Stage we introduced in Part VI and talk about throughout the Stock Series, you are already aggressively saving and investing on your path to financial freedom. Your regular investments, which hopefully you have automated, will have you buying on these pull backs. Anyone in this Stage should be rooting for corrections. You’ll be taking advantage automatically.

If you are in the Wealth Preservation Stage you can take advantage simply by rebalancing your portfolio. But I wouldn’t bother unless we get more of a pull-back.

Personally, that’s what I’m rooting for: A nice fat plunge.

I’ve always regretted not taking advantage of the crash in 2008 to move to all stocks. I’ve never really liked holding bonds all that much and in these days of low interest rates I see them as pretty risky. I’ve kept them for three reasons:

  1. They smooth the volatile ride of stocks.
  2. They provide a pool of money to draw on to buy stocks on market dips.
  3. They provide interest income.

My pal Go Curry Cracker has a plan to unwind his bond postion and move into 100% stocks which I rather like and might well follow:

“If a 25% drop happens, then I’ll move 1/2 of our bond position into VTI**. If the market drops another 25%, I’ll move the other 1/2″

**VTI is the ETF version of VTSAX, both hold the Vanguard Total Stock Market Index portfolio.

How would this effect my three points above?

1. The volatility of the stock market really doesn’t bother me anymore. Those who’ve read my Stock Series won’t be surprised at this. Partially this is attitude, partially that I’ve been thru enough plunges not to be fazed and largely because even a major crash would have little effect our lifestyle.

We live well below our means and are flexible in our spending. Plus the prospect of geographic arbitrage (moving to a less expensive part of the world) would be an adventure rather than a hardship.

2. While this pool would be gone, it would be gone buying stocks at a 25-50% price discount. Mission Accomplished.

3. VBTLX is currently paying 2.46% interest. So I’m not giving up all that much income.

So, come on Mr. Market. Show me what ya got!

Meanwhile I’ve got boxes to unpack and pictures to hang.

*Oh, so now just to spite me, you’re going to close down today 1.35%? So that how it’s gonna be…

Addendum 1:

If after reading this you are still agonizing over the drop in your holdings, think of it this way. Last I checked Warren Buffett was worth ~72 Billion. So in this 10% correction he has “lost” $7,200,000,000.00

I’d still trade net worths with him.

Addendum II: Or get yourself some Exposure Therapy

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Gone for Summer, an important note on comments and random cool stuff that caught my eye Sun, 28 Jun 2015 13:57:33 +0000 Beach St. John's

Courtesy of Noelle Hancock

(more from Noelle at the end)

The time to disappear for our summer travels has come. Happy Time! But it will get quiet here around the blog. So…

This important note about the comments:

From now until September I will be unable to answer your investing questions in the comments. So please don’t post them now. If you do, you might miss the answer by the time I get to it come September. In the meantime, you might consider continuing to read the posts and the comments already there. The chances are very good that your question has already been asked and answered. If not, post them come Fall and I’ll do my best to help.

Other comments are welcome as always!

Our Summer

It has been busy like hell these past few weeks.

June 30th we are moving and so have been going thru the packing and purging leading up to when the truck arrives to haul away our, hopefully fewer, things.

Regular readers will remember we sold our house a couple of years ago and moved into our current downtown loft apartment. It is in a 200 year old refurbished mill building. Brick walls, high ceilings, wood floors, exposed heating ducts. A very casual, industrial vibe we’ve enjoyed greatly. It even has a bonus room in a former staircase that fits my office needs perfectly.

But one of the reasons we love now being renters is, it is far easier to indulge our restless spirits. It’s time for a change and change is easy when all you have to do is let your lease run out, pack and hire movers. Plus the purging inherent in moving keeps the clutter from trapping you.

We are going to a building only a couple of blocks away, so we get to keep the same neighborhood. We’ll still be walking distance to the cafes, restaurants and theater we’ve come to enjoy but in a more upscale, elegant apartment. We’ll be on the 8th floor facing West with a river view. We are told the sunsets are spectacular.

This is actually the building we first had our eye on two years ago. At the time we needed more space but now the second bedroom, we kept mostly for our daughter’s visits, can become the office.

She, in turn, is headed for South East Asia for two years with the Peace Corps. She’ll be teaching English. Since the Peace Corps strongly discourages volunteers from leaving their host countries to travel home, we will be traveling there instead. New adventures!

To make matters more interesting, the apartment we want isn’t actually available until August 24th. Which, since we travel for the summers, works out rather well. Specifically, like this:


Jake indulging in one of his favorite hobbies

  • June 29th I take Jake the Wonder Dog to stay with his pal Smitty in the New Hampshire countryside. Jake doesn’t like moving days or hotels.
  • June 30th the movers load up our stuff and take it to storage.
  • Meanwhile, our daughter gives away the last of her stuff and leaves her apartment in Massachusetts.
  • We meet up here:


Wentworth by the Sea

This is one of the grand old hotels scattered around New England that were built at the turn of the last century. They fell into disrepair but now most have been beautifully restored and refurbished. Not cheap, but we had been meaning to treat ourselves one day anyway. And we have almost two months of rent to play with!

  • July 3rd we put our daughter on the plane to LA and exotic points beyond for the next phase of her life’s adventure.
  • That same day we retrieve Jake and head west to Wisconsin and Shamba.
  • We’ll spend the rest of July at Shamba on Lake Michigan as we did last summer.
  • From August 1st to the 24th we’ll…
  • …well we haven’t figured that part out just yet. :)
  • August 24th we move into the new place, where we should be fully settled by October when…
  • …I head back to Ecuador for the Chautauquas and the side trip to the Galapagos Islands.

While at Shamba I hope to finish the final rewrites and polishing on the book. The manuscript is currently out to readers and fact checkers, and with their input in hand I should finally have it done. Of course, there are many more steps between finished manuscript and published book. But it is getting there and should be out in the next few months. I’ll put up a post when it is.

So have a wonderful summer and to get started, here for your amusement and edification are some random cool things that have caught my eye of late:

Socially Responsible Investing This is a question that regularly comes up in the comments here and the link is my pal Darrow’s interesting take.

barvarian castle

“I want to go there”


Lonely Houses

cabins abandoned-waiting-for-owners-to-come-5

Abandoned cabins

Body switch magic


Dave Barry reviews Fifty Shades of Grey: Best book report ever!

Bridge between walls

Mysterious Bridges

Understanding the economy video, by Ray Dalio

Pushing the lions off their kill Awesome demonstration of what courage can do. It’s amazing the lions don’t think, “Oh look. More meat. And it’s coming right to us. Gotta love the service on this savanna!”

How many mutual funds routinely rout the market?

50 reasons we are living thru the greatest period in history

Milky-Way what we can see

Where are our interstellar neighbors?

AI — If you’re going to be interested in this, you already know what “AI” is.

A History of Time


“If you’re constantly thinking you need a vacation, maybe what you really need is a new life”

Why I gave up a $95,000 job to move to an island and scoop ice cream

Hand Stand

Courtesy of Noelle Hancock

See you in the Fall!

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Around the world with an Aussie Biker Mon, 22 Jun 2015 22:19:44 +0000


The motorbike I found parked in my Guatemalan hotel lobby; here in the Moroccan desert

In March 2014 I was spending the month in Antigua, Guatemala, where they will kill you for your shoes. Or maybe not.

One day I returned to my hotel to find a motorcycle parked in the lobby sporting an Australian license plate. A quick inquiry to my landlady, who was by this time also my friend, and I was pounding on the poor fellow’s door. Regular readers know I have a motorbike and so I wasn’t about to let this opportunity pass.

That evening I dragged him out to dinner at Sobremesa owned and operated by my then new pal Alex. In addition to being a restauranteur, Alex is an artist and I’ve featured his work in my posts here, here and here. He is also a novelist with several books to his credit, but that’s another story.

Turns out Dave was just about a year and a half into a 3-year round the world motorcycle ride. Over a fabulous meal he shared a few of his stories and, when things slowed down, Alex joined us and over drinks we closed up the joint.

Somehow we missed each other before his departure, but not before exchanging emails and my learning that his travels would put him in New Hampshire around September. Of course I invited him to visit and offered to show him some of our better local roads.

A day or two later he sent me this email:

March 16, 2014


Had hoped to catch up before I left, but us ‘loners’ are hard to pin down. The fates willing, it would be good to catch up around September. I’ll stay in touch.


As promised, come September he reached out again and we shared a number of emails leading up to his visit. In ( ) I’ve added some explanations for clarity:

September 11, 2014


It’s September and I am now in Newport, Rhode Island for a couple of days, visiting the annual boat show. I will then head down to NY and meander up the Hudson River. I also have a couple of other rides flagged in the region. If you wish to catch up and talk travel/boats, let me know.

I hope life is treating you well.


The boat show attracted him because, after wrapping up the motorcycle journey in Indonesia, he plans to build a boat and spend a few years sailing around the world.

September 15, 2014


Good to hear from you. I am currently headed for Saratoga Springs, and will then swing West to see Niagara Falls. Then it’s further West to Milwaukee, to see the HD (Harley Davidson) factory/museum. There are also some good rides in the region. So, I can swing back your way later in the month – by which time hopefully there will be some Autumn colours (might be wishful thinking though!)

I am due to fly the motorcycle and myself out of Montreal on 12 October, so I can, head for Canada after catching up with yourself.

I will stay in touch and let you know of my progress and expected ETA.


September 28, 2014

Hi James! Hope you are well.

I am currently near Watkins Glen to check out the (Finger Lakes in NY State) lakes, and will be headed your way in a few days. Thought I’d get your address, to better plan my approach. Will you be around next week?


PS: The Fall colours are well on the way!

September 29, 2014


Am currently at Williamstown (truly the quintessential American movie set town – quite beautiful) taking the long way round via Rutland. Could be there tomorrow, but let’s say Wednesday – I will be seeking out a new front tyre as I make my way there.

I hope this is convenient


Once Dave made it to our place we had a great time for 3 or 4 days before he had to move on. It was mostly off the bike as he enjoyed a break from the ride. On his final day I rode about half way up thru NH with him toward his final destination that night.


Dave and me just outside Naughty Nellie’s Cafe where we last parted company

We next heard from him just before Christmas….

December 23, 2014


Have a MERRY XMAS and a great 2015!

I am currently wintering in the Western Sahara/Morocco, however there has been a slight change of plan.


The view from my hotel in the Moroccan desert

But first, since last I wrote, I have travelled far. All went very smoothly getting me and the bike to Portugal, and I landed in a very wet and heavily flooded Lisbon. However, the couple of hours spent clearing the bike had me on the road again in the dry and headed North up the coast.

There were only a couple highlights running the coast, and the weather remained indifferent. However, when I went inland, things improved dramatically. Absolutely loved Portugal and Spain once on the minor roads and off the beaten tourist path – prices fell appreciably too!

Had a great three weeks of sunny dry weather as I explored the villages and towns – and what a rich history they have!

Fabulous old walled cities and majestic buildings, wonderful narrow cobbled streets and stunning engineered structures (aqueducts etc) – ‘I’ll be back’.And so into the magical/mystical Morocco. Not much of a transition early – a change in language (French/Arabic), food, currency……and they all tend to run around in their hospital nightie’s (but not with their bums hanging out) – and that’s about it. Oh, and prices are down.


The pool….every Bedouin has one, don’t they?

Landed in Tangier, and immediately headed South for warmer/drier climes. (I am told Tangier is Tourist Central, with all the cruise ships bringing in the sheep for fleecing).

There was a bit of rain about in the North, so headed for Chefchaouen, then onto Fez. Chefs’ Medina  is wonderful (a composite of very narrow streets wending and winding their way up and down the side of a steep hill. The whitewash blue colours they paint the walls with looks sublime at times – hard to describe (no photos). It is a tourist ‘hot spot’ though!

Then it was across the Atlas Mountains to the desert – my favourite place.

Spent time in the Sahara – did a camel trip into the desert to stay at a bivouac (I had the place to myself – great!) then a 4WD trip around the oasis areas. Touristy stuff, but fun. The ‘real’ Morocco begins after Fes, heading down toward Errachidia and Erfoud (as I remember it – in 1977 – but times change!).

‘Progress’ has taken it’s toll over that time, with small villages now towns and cities – and not always attractive. Again ran the great mountain passes of the mighty Atlas Mountains, at times above the snow line, and across to Marrakech. Spent several days here – enjoyable but all too frenetic and it does wear you down. Too much hard-sell. Must be getting too old and cynical to fully enjoy it, and was pleased to move on South and toward the coast.

The state of the roads has made it a bigger adventure with mud/rock slides, ‘creek’ and puddle crossings (nothing your Scrambler wouldn’t handle though!) and bits of roads simply vanished into ravines/rivers – NOTHING handled that!

Then it was into the Western Sahara, where I spent a few days in a rather nice little coastal town called Dakhla. Thought it would be just a fishing village, but is a very modern, civilised place. The ride onto the peninsula was spectacular, with quite a surreal landscape. This is real desert country, with the landscape covered in a haze of wind-blown sand and having to occasionally dodge and weave sand dunes encroaching on the road.

The REAL Morocco – love it down here!! Temps down this way are VERY pleasant, up around the mid-20’s (centigrade). Seem to have left the ☁️⚡️☔️ behind too. Really nice riding weather (but windy).

The only bugaboo is running the checkpoints. Had six checks one day: four within five kilometres; and two within eyesight (150 metres) of one another! – a military check followed by a police check, both recording the same info!! Go figure? The good point is they are all super friendly and want to chat (they all tend to speak a bit of English).

There is a heavy military presence, and I have even seen UN peacekeeping (?) vehicles. Big white 4WD’s, of course! – more money that could be better be spent elsewhere, being pissed up against the bureaucratic wall.

I am now settled into a really nice beachfront hotel just South of the Megopolis 😉 of Tan Tan for the Xmas/new Year period. It’s a quiet little town – probably only a couple of thousand people, if you count the 🐪🐫 and 🐐. Be nice to have a quiet time before heading to the Big Smoke (Casablanca) early in the New Year to organise …….my return to Australia!

And so for the change of plan…

Just recently, a young lady friend has asked me to return to Oz for a while to do the Kokoda Trail Trek in PNG (Papua New Guinea) with her! Says it’s IMPORTANT to her – but she is not keen to venture off alone, and her mum understandably is not keen either – and I’m the only one she knows who would be interested/could physically do it! (remains to be seen 😳).

I will leave the motorcycle in Morocco (The Missus I believe has to be stored at a Customs warehouse while I’m out of the country – more paper work) and fly to Australia on 6 February (before my current visa runs out) and return late April (29th at present) – the bike has a 6-month entry, ending 13 May, so good timing.

The Kokoda has been on my Bucket List back-burner for some time now (and I’ve never been to PNG), so it would be a good opportunity to tackle it. Another (obvious) motivator is that at my age, I don’t get too many offers to go adventuring with a lovely young woman these days!

Also, truth being, there is also a LOT I can better arrange in Oz for my onward travels back into Europe and beyond (carnet, green card insurance etc). Also breaks up my time in Morocco, which I was thinking might get boring after a few months, and puts me back into Europe in more favourable weather in early-May.

Another ‘plus’ is if I follow the most favourable global weather pattern, it will extend my travels to mid-2016, rather than June next year – and I have been looking for reason not to go ‘home’ – something which even now looms large! The longer I’m out here, the less appealing THAT prospect appears.

Several more months in Europe/Turkey and SE Asia holds a lot more interest! 😊 Inshallah! (God willing)

So, I hope you both have an Xcellent XMAS and NEW YEAR 🎉🍸🎊, and have a 🍷or 🍷🍷 for me. (We did!)

PS: Just when I thought I had this international motorcycle adventure travel beat – 85,000km in and unstoppable, having conquered mountains, jungle, deserts, and terrorists/assassins disguised as motorists, I met the insurmountable – the one thing that brought fear to my heart……the squat toilet! O…M…G!!! The agony and the ecstasy. 😬

I do exaggerate a little tho’ – I have yet to use one (except for a pee) and it is the prospect that has my knees shaking. It’s been a long time between squats! 😩

PSS: James, I hope you have plans for more travel to exotic places in the New Year. Whatever you do, travel safely both of you.

Part II

A few days ago it occurred to me I hadn’t heard from Dave in awhile and so I sent him a note, which produced this reply…

June 21, 2015

James, great to hear from you!

Sounds like you have your hands full with the move and finalising your book! I hope all goes smoothly. Your daughter’s ‘posting’ (to South East Asia) sounds like a wonderful experience, but I’m sure you have a parents’ trepidations!

I think I indicated I was heading back to Oz (Australia) to join a friend on the Kokoda Trail trek in PNG. Completed that (managed to hobble my way through after twisting my knee in training/preparation for the event!). Am still trying to recover from the injury 3 months on – but it only hurts when I WALK – perfectly fine while riding, thank goodness!!

Returned to Morocco on 2 May and picked the bike up from Customs (a five minute job) and back on the road into the desert once more.

After crossing from Morocco, I went up through Spain into the mountains, dropped in to Andorra (heavens know why – little to recommend it. Yuppysville in ski boots!)

Then spent a week with friends in France. Hadn’t caught up in 21 years, so it was great to touch base.

French farmhouse

Their house. His wife resurrected it from an old farmhouse. The real estate values in this region make you cry. The population in this area continues to decline, and real estate values plummet along with.


The fairytale continues

From there into Switzerland to stay with a fellow rider (KTM 650) I met in Colombia/Panama. A lovely lady.

Then thru Lichtenstein into Austria and on to Germany, where I rode the ‘Romantic Route’ – a series of beautiful medieval towns over about 450kms up through central Germany as far North as Nuremberg. If you must visit just one medieval town- make it Rothenburg ob der Tauber – simply stunning!! (as all the tourists attest/verify!)


Prague. Claimed to be the most beautiful city in the world – no argument from me! (Or me!)

I then was at a loss to do with myself – but they say Prague in the CZ (Czech Republic) the most beautiful city in the world – and so it proved. Stayed a few days and went all cultural, taking in Swan Lake and two classical strings recitals – the last being in a medieval cathedral and backed by the organ!

Then on to Vienna – which didn’t do it for me this time round. Too much traffic, noise and glass high rise. Progress has eroded the character. Then, maybe I just didn’t find that ‘special’ town square or plaza. Moved on and stayed in a lovely little village called Krems, at a lovely old hotel that has clung to the best of ‘old fashioned’ – but no WiFi!!


But Cesky Kumlov in the CZ might just be the most beautiful village

Had a brilliant ride along the Danube and then back into CZ to look at another ancient town which gets great wraps – Cesky Krumlov – and no wonder. Just beautiful. Perfect hideaway for a dirty/romantic weekend! Then back into Germany to Munich to get culture of a different kind – the BMW museum!


A typical Austrian/Tyrol village

Am now in the Austrian Alps to do the Stelvio Pass in Italy (top of the bucket list) and several other alpine rides: then it’s a quick spin around Lake Geneva in Switzerland (a VERY X-pensive country to travel); a flit into France to check out Niece and Monaco; then off to Italy to run the west coast (might ship over to Corsica/Sardinia while I’m in the area) down to Sicily and round to Brindisi to ferry across to Greece. I have around one month before their holiday season begins and the hordes descend – so I better motor!

Auf wiedersehen.

jlcollinsnh again:

One of the many things I love about travel is the interesting people you meet. People who just go ahead and pursue their dreams while others smugly claim it can’t be done.

Of course, your dream doesn’t have to be about travel. It’s yours and it can be anything you chose. Just be sure you are actually choosing, and not just going along with some predestined flow.

This blog is, mostly, about money and investing it. But in the bigger sense, it is about freedom.

Dave is in his fifties. Over that dinner he made an interesting observation. His intention with this motorbike trip and the coming sailing voyage around the world was to burn thru all his savings and die broke. It’s not working out.

Seems since hitting the road and after covering all his expenses, his net worth keeps growing. Poor guy!

Living a life of adventure, it turns out, is a whole lot cheaper than owning a McMansion and keeping up payments on an Escalade (starting at $72,970!) or two.



For those who asked about financial details and other questions Dave emailed me to politely decline engaging in the comments here, saying “….don’t want to get too tied into a lot of on-going correspondence.

“Truth is, most CAN afford to do what I do, it really comes down to the WANT, as to how we channel/allocate our resources. Money is not the limitation, the desire and conviction to put yourself out there is the limiter – and money does not buy that (but it’s a nice ‘holding deposit’ underpinning!).

“In my case, I find it is not courage that drives me, but rather FEAR – the fear that time is running out, and I may not get to realise my dreams!

“Am currently in Switzerland, having ridden the sox off the Tirol! Many great roads and stunning scenery all the way. This is biking nirvana, and there are more motorbikes than grasshoppers in a locust plague! And push biking is just as popular – people of all ages out there tackling mountains while the weather lasts!

“However, the Grey Nomads predominate, both on push bikes, and more notably on motorcycles! There are a lot of ‘oldies’ out there making the most of the time they have left. Inspiring!

“Ciao for now.”


Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

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Case Study #13: The Power of Flexibility Fri, 12 Jun 2015 20:57:11 +0000 Gordian Knot Golden HD

The Stock Series here is designed to slice thru the Gordian Knot of investing. To debunk the idea that investing is too complex for mere mortals and to dispel the fear surrounding it and our financial security.

Routinely, I hear from people who lament

  • “I’m 32. If only I’d discovered your blog when I was 22.”
  • “I’m 42. If only I’d discovered your blog when I was 32.”
  • “I’m 52. If only I’d discovered your blog when I was 42.”
  • “I’m 62. If only I’d discovered your blog when I was 52.”

Certainly the earlier you start, the better. The magic of compounding takes time to blossom. But is also amazing what can be accomplished with focused effort in only five or ten years.

That said, financial independence is every bit as much about controlling your needs as it is about accumulating assets. If you can live on $20,000 per year, having $1,000,000 makes you very rich indeed. Using the 4% rule, your needs are only half of the $40,000 your investments could provide. If you need $80,000 you are in serious trouble.

Most of the scary scenarios in the major media are centered around the idea that people have no flexibility in their spending. If that’s true for you, you have a bigger hill to climb. You are engaging only one half of our *accumulating assets/controlling needs* package.

In today’s Case Study, we are going to visit with Arnold, a 65-year-old man unemployed for the last 10 months. He is concerned about finding a job to meet his expenses.

After a lifetime of work, he has $73,000 to his name. He attributes this to having “…squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions.”

He implores, “…please, younger people, don’t make the same mistake as I did…” in living the lavish lifestyle now gone.

Given my emphasis on the importance of accumulating F-You Money, you might expect this Case Study to be a cautionary tale. Certainly it would be in the major media: Another unfortunate who fell through the cracks.

But this discounts the “controlling needs” side of our equation. As I say at the end of this post:

“True financial security, and enjoying the full potential of your wealth, can only be found in this flexibility.”

Clearly, had he lived a bit less large and invested according to the principles we discuss here, he’d be better able to continue his former lifestyle. But I think there is a bigger and more important lesson to be learned:


The Power of Flexibility

Arnold writes…


I’m so pleased I found your blog. Thank you for the wonderful service you provide to so many people all over the world and your excellent advice!

I hope you don’t mind guiding me as well.

I am 65 years of age, in an informal domestic partnership relationship with a lovely lady, and recently “semi-retired”. I have $40,000 sitting in a zero interest money market account at Bank of America and two work-related 401(k) plans worth about $18,000. I also have about $15,000 in cash stored in a safe.

At this time, I have no income and for the past 10 months, have been drawing money from my savings to live. Fortunately, I am pursuing a frugal lifestyle and my living expenses are at about $800 per month – I can possibly trim it down another hundred or two a month. I will soon have to start working again part time to fund my living expenses.

Needless to say, I have so many regrets that I did not save and invest in my youth and during my adult working life and plan for my retirement. I squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions.

The end result of these actions is that I now will have to rely on social security to sustain me for the remainder of my life. Who knows what will happen or where I will land up when I become too old to take care of myself.

Jim, would you mind if I interjected a brief word of caution at this stage to the younger people reading your blog – please, younger people, don’t make the same mistake as I did…don’t…

I am not yet receiving social security -I am trying to delay claiming it for another 5 years until I’m 70, at which time my payout will be the highest, about $1700 – $1800 a month.

The money I have in the bank, the two 401(k)s and the cash in the safe is ALL I have. During the recent recession, I turned a blind eye to the concept of investing any money into mutual funds or stocks, as I had a fear of losing it all, as many others did.

Truthfully, I really didn’t understand investing, the stock market and mutual funds – I still don’t, but I’m doing a bit better now and am learning more and more each day, especially from your blog.

I am fully aware that my money in the bank is losing at least 3% of it’s value every year as a result of inflation whilst at the same time, I am deriving no income from it whatsoever.

I have read your posts in which you strongly recommend to people that they invest their funds into Vanguard VTSAX and you are not the only person making this suggestion.

In an ideal world, and I emphasize IDEAL, I would like to invest the $40,000 into a fund that will generate an income of $800 per month to cover my income for the next 5 years till I’m 70, without any depletion of the principal. I would then turn down the heat so to speak, to a safer allocation of funds at percentages that would allow me to sleep at night….That would be the ideal, but I presume it’s not going to happen in the present financial climate and that I’m going to have to work part time to supplement my income – like it or not- or alternatively claim social security sooner.

After all of that, my questions are:

Is your recommendation to invest into Vanguard VTSAX geared more towards younger folks who still have years of investing time ahead of them, or does it apply equally to someone such as myself who has already reached retirement age?

If it applies to me, could you please suggest whether I should invest the full $40,000 into Vanguard VTSAX?

Alternatively, do you have another suggestion as to an investment into another kind of Vanguard fund that will produce a better monthly dividend?

Thank you very much in advance and I will look forward to your reply!


My reply:

Welcome Arnold…

…and thanks for the kind words.

Instead of directly answering your questions, let me give you three paths to consider. But before we get into that, let’s take stock of your situation.

We’ll get the bad news out of the way first:

There is no investment that can reliably return $800 a month ($9600 per year/24%) on $40,000. If we use the 4% withdrawal rule, generating $9600 a year would take $240,000.

This rule comes from an analysis of the Trinity Study and has become a popular benchmark for what can be considered a safe withdrawal rate. That is, a rate that allows for a portfolio to survive at least 30 years of inflation adjusted withdrawals.

That said, here’s the good news:

  • You only need $800 a month and we can make that income happen pretty easily.
  • You indicate that you could trim another $100-$200 from that, indicating some very serious flexibility.
  • Flexibility in spending is at least as important as assets on hand. I salute you!
  • You have $73,000 in investable assets: $40,000 in the money market, $18,000 in your old 401(k) and $15,000 in cash.
  • At age 65 you are only one year away from your full retirement age of 66.
  • If your Social Security benefit will be $1700 at age 70, it will be about 75% of that at age 66: ~$1275 per month.
  • The break even for delaying Social Security until age 70 is ~83 years old. Unless you are pretty sure you’ll live past 83, taking it at 66 might be the better choice. Of course if you plan to marry your lady and your benefit would be greater than hers, she could take it over upon your death. That would make waiting on your Social Security an advantage for her.

With those tools in hand, we have three very interesting options.


Path 1: Draw on your savings and delay Social Security until age 70.

Roll your $73,000 into the Vanguard Balanced Index Fund, VBIAX. This is a balanced fund that holds 60% stocks/40% bonds, has a low ER of .09% and a dividend of 1.87%. It is less volatile than VTSAX (which holds 100% in stocks), and it will offer more growth potential than the cash you currently hold, giving you the the chance to keep pace with inflation.

Once it is there, instruct Vanguard to sell enough shares each month to transfer $800 to your bank account for your spending needs. I’d also have them send the dividend to your bank. At $73,000 x 1.87% that’s $1365 a year, paid out quarterly. I’d use this for extra “free” spending. (If you call Vanguard they will walk you thru getting this all set up.)

Looking at the math, we can see that drawing down $800 a month, $73,000 will last for 91 months or 7 1/2 years. (73,000/800=91)

Of course, the market will fluctuate over that time. If it moves in your favor, your money will last even longer. If it moves against you, your money should still last thru the five years until you reach age 70.

If it’s a disaster, you’d just have to go on SS a bit earlier. As we’ve seen, this would mean monthly checks ranging from ~$1275 to ~$1700-1800 at 70. Since you only need $800, you’d be golden even then.

Once you reach age 70 and start taking Social Security, you’ll  no longer need to draw on your VBIAX fund. You can just leave it to grow or continue to spend the money, but now as extra. It depends on whether you want to leave money to any heirs. If you do, you might also consider switching to the more aggressive 100% stock VTSAX at that point for better growth potential.

Path 2: Take Social Security starting at age 66.

As we calculated above, at age 66 your benefit should be ~$1275, very comfortably over your needed $800. Taking Social Security at age 66, you can either enjoy an expanded lifestyle with the extra $475 or invest it.

Your $73,000 you can invest in VBIAX and either let it grow, or draw it down as above to have still more to spend. This would give you a monthly income of $2075. ($800 + $1275 = $2075)

If you plan to leave it untouched for your heirs, you might consider the more aggressive VTSAX for more growth.

Please understand that both VBIAX and VTSAX will be volatile. You have to be prepared to ignore the inevitable periodic market plunges and stay the course for either of these plans to work. If you are used to holding cash this can be very unsettling.

If it is too unsettling, consider…

Path 3: Keep your money in cash, but otherwise implement Plans 1 or 2.

In the Path 3/1 scenario you’d skip investing in VBIAX and continue to hold your cash. Then you’d draw down on it at $800 a month. As we’ve seen, the money would last 91 months/7.5 years. This takes you comfortably to age 70 and the highest Social Security payout.

In the Path 3/2 scenario you’d start drawing your Social Security at age 66 and just hold the cash as you have been doing.

Of course, as you observed, holding cash means watching it erode at ~3% a year to inflation and giving up the chance for growth. For this reason, Path 3 is my least favorite.

Regardless of which path you choose, the truth is you are in excellent shape due to your modest needs of $800 a month, coming Social Security and $73,000.

Hope this helps, and enjoy your journey!

PS: This is a post you might enjoy — What it looks like when everything financial goes wrong

Addendum 1: This post is an expansion of my original reply to Arnold in the comments. If you are curious, you can read that conversation here.


Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

]]> 24
Stocks — Part VIII: The 401(k), 403(b), TSP, IRA & Roth Buckets Tue, 02 Jun 2015 04:19:16 +0000 Old wooden buckets

So far in this Series we’ve examined the market and looked at some sample portfolios built from our two key index funds and cash. Those funds are what we call investments.

But in our complex world we must next consider where to hold these investments. That is, in which bucket should which investment go? It is important to understand that 401(k)s, IRAs and the like are not investments themselves. Rather think of them as the buckets that hold the investments we choose. Broadly speaking, there are two types of buckets:

  1. Ordinary Bucket
  2. Tax-Advantaged Buckets

Now at this point I must apologize to my international readers. This post is going to be very US centric. I am completely ignorant of the tax situation and/or possible tax-advantaged buckets of other countries. My guess is that, at least for western style democracies, there are many similarities. Most modern economies recognize the value of investing and seek to encourage it. Hopefully it will be possible for you to extrapolate the information here into something relevant to where you live. If not, feel free to skip ahead. You might find these posts particularly useful:

Here in the US the government taxes dividends, interest and capital gains. But it has also created several tax-advantaged buckets to encourage retirement savings. While well intentioned, this has created a whole new level of complexity. Volumes have been written about each of these and the strategies now associated with them. Clearly, we haven’t the time or space to review them all. But hopefully I can provide a simple explanation of each along with some considerations to ponder.

The Ordinary Bucket is where we hold investments that are not part of any tax-advantaged plan. It is, in a sense, no bucket at all. This is where everything would go were there no taxes on investment returns and no opportunities to defer them. We would just own what we own. Easy peasy!

This is where we’ll want to put investments that are already “tax-efficient.” Tax-efficient investments are typically stocks and mutual funds that pay qualified dividends (dividends that receive favorable tax treatment) and avoid paying out taxable capital gains distributions. Such distributions are typical of actively managed funds that engage in frequent trading in their portfolios. VTSAX is a classic example of a tax-efficient investment. The dividends it pays are modest and mostly “qualified.” Because trading (buying and selling) in the fund is rare, so too are taxable gains distributions.

Investments that are “tax-inefficient” are those that pay interest, non-qualified dividends and those that generate taxable capital gains distributions. These are things like some stock funds, bonds, CDs and REITs (real estate investment trusts). These we want to keep ideally in our tax-advantaged buckets as their payouts are then tax-deferred.

There are several variations of tax-advantaged buckets, and we’ll look at each. But first let’s look at our three investments and consider where they might fit:

Stocks. VTSAX (Vanguard Total Stock Market Index Fund) currently pays around a 1.8% dividend and most of the gain we seek is in capital appreciation. It is tax-efficient and we can use our ordinary bucket. However, since this will be a large portion of our total holdings and since any investment can benefit from the tax-advantaged bucket, we will also hold it in our tax-advantaged buckets.

Bonds. VBTLX (Vanguard Total Bond Market Index Fund): Bonds are all about interest payments. Other than tax-exempt municipal bonds, they go into our tax-advantaged bucket.

Cash is also all about interest but, more importantly, it is all about ready access for immediate needs. Ordinary Bucket.


None of this is carved in stone.

There may be exceptions. Proper allocation should trump bucket choice. Your tax bracket, investment horizon and the like will color your personal decisions. But the above should give you a basic framework for considering the options.

Before we look at the specifics of IRAs and 401(k)s, this important note: None of these tax-advantaged buckets eliminates your tax obligation. They only defer it. Fix this in your brain. We are talking about when, not if, the government will be expecting the the tax on these accounts to be paid.

When the time comes to withdraw this money, taxes will be due. So will penalties if you withdraw before age 59 1/2. And come age 70 1/2 (except for Roth IRAs) you will be required to begin withdrawals based on what the actuarial tables say your life expectancy will be. These are called RMDs, or required minimum distributions.

Don’t let this scare you; simply be aware. The benefit of having your investments grow tax-sheltered over the decades is no small thing and in most cases you should fund these buckets to the maximum the law permits.

There are strategies that seek to access this money tax-free, or at least at the lowest possible rate. These involve structuring your earned and investment income so as to fall under the limits the IRS establishes as being tax free. So while the money you withdraw is legally subject to tax, your tax bracket is such that the amount actually owed is zero.

Staying under these limits can also provide the opportunity to shift money tax-free over time from your Traditional IRA to a Roth IRA, thus further avoiding taxes when you withdraw and spend it.

These are well worth considering if your situation allows for them. You can find details in these posts…

From Go Curry Cracker:

From The Mad Fientist:

There are many, many variations of 401(k)-type and IRA-type accounts. We’ll look at the basic types here. The rest are branches from these trees.

Employer-based tax-advantaged buckets

These are buckets provided by your employer. They select an investment company which then offers a selection of investments from which to choose. Many employers will match your contribution up to a certain amount. The amount you can contribute is capped. For 2015 the cap is $18,000 per year and $24,000 for those age 50 and older. You can contribute to more than one plan (if you have access to more than one) but the cap is the total for all together, not for each separately.

In general:

  • These are very good things, but not as good as they once were. Unfortunately many of the investment firms operating these programs have seized upon the opportunity to laden them with excessive fees. This is outrageous and offensive, but the advantage of having your investments grow tax free is not to be missed. Hold your nose and max out your contributions. I always did.
  • Any employer match is an exceptionally good thing. This is free money. Contribute at least enough to capture the full match.
  • Unless Vanguard happens to be the investment company your employer has chosen you may not have access to Vanguard Funds. That’s OK.
  • Many 401(k) plans will have a least one index fund option. Scan the list of funds offered for the ones with the lowest expense ratio. That’s where you’ll find the index funds, if any.
  • When you leave your employer you can roll your 401(k) into an IRA, preserving its tax advantage. Some employers will also let you continue to hold your 401(k) in their plan. I’ve always rolled mine over. It gives you more control, greater investment choices and allows you to escape those ugly fees.
  • You can contribute to both a 401(k) and a Roth 401(k), but the total must fall within the annual contribution caps.

401(k) and 403(b) Type Plans

  • Contributions you make are deducible from your income for tax purposes.
  • Taxes are due when you withdraw your money.
  • Money withdrawn before age 59 1/2 is subject to penalty.
  • After age 70 1/2 your money is subject to RMDs.

Roth 401(k)

  • These are relatively new and not yet widely available. It is worth comparing these bullet points to those of the Roth IRA below.
  • Contributions you make are NOT deducible from your income for tax purposes.
  • All earnings on your investments are tax-free.
  • All withdrawals after age 59 1/2 are tax-free.
  • Once you reach age 70 ½ RMDs take effect.
  • There is no income limit for participating.

TSPs (Thrift Savings Plans) 

These are retirement plans for Federal employees, including military personnel. Think of them as a 401(k), but better.

Unlike the fee heavy cesspool too many 401(k) plans have become, a TSP offers a nice—but not overwhelming—selection of very low-cost index funds.

Looking at the government’s chart of TSP expense ratios going back to 1999 these have ranged from a low of .015% in 2007 to a high of .102% in 2003. The reason for the variation, to quote the government site, is: “The TSP expense ratio represents the amount that participants’ investment returns were reduced by TSP administrative expenses, net of forfeitures.”

Even at their worst, these are very low expense ratios—often lower even than Vanguard index funds, and that’s low! Good deal.

There are five basic TSP funds:

  • The C-fund replicates the S&P 500 index.
  • The S-fund replicates the small cap index.
  • The F-fund is a bond index.
  • The I-fund is an international stock index fund.
  • The G-fund holds a non-marketable short-term U.S. Treasury security unique to TSP.

Own both the C and the S in about a 75/25 balance and you’ve basically got VTSAX. But personally I wouldn’t bother. I’d just hold the C-fund and be done with it.

In addition, there are the L-funds. These are “Lifecycle” funds made up of the other five held in various allocations designed for a particular time horizon. L-funds are very much like Target Retirement Funds.

TSPs are a no-brainer. If you are fortunate enough to have access to them, max them out. And in this one case, because of the ultra-low fees, I wouldn’t roll them into an IRA once you leave your job.

Individually-based tax-advantaged buckets: IRAs


IRAs are buckets you hold on your own, in addition to and separate from any employer sponsored 401(k)-type plans. You have complete control in selecting the investment company and the investments for your IRA. This means you also control costs and can avoid those companies and investments that charge excessive fees. Mine are all with Vanguard.

You can only fund these with “earned income” or money you roll over from an employer-based plan. Typically, earned income is money you are paid for the work you do.

There are three types of IRAs. For 2015 the total annual contribution cap is $5,500 and $6,500 for those age 50 and older.

As with the 401(k) and Roth 401(k), you can contribute to both an IRA and a Roth IRA but again the total must fall within the IRA annual contribution caps.

Deductible and Roth IRAs both have income restrictions for participation. Non-deductible IRAs do not. These income limits change year-to-year and vary according to tax filing status and employer plan coverage.

Deductible IRA. 

  • Contributions you make are deductible from your income for tax purposes.
  • Deductibility is phased out over certain income levels.
  • All earnings on your investments are tax deferred.
  • Taxes are due when you withdraw your money.
  • Money withdrawn before age 59 1/2 is subject to penalty.
  • After age 70 1/2 your money is subject to RMDs.

Non-Deductible IRA. 

  • Contributions you make are NOT deductible from your income for tax purposes.
  • There are no income limits for participating.
  • All earnings on your investments are tax-deferred.
  • Taxes are due on any dividends, interest or capital gains earned when you withdraw your money.
  • Taxes are not due on your original contributions. Since these contributions were made with “after tax” money they have already been taxed.
  • Those last two points mean extra record keeping and complexity in figuring your tax due when the time comes.
  • Money withdrawn before age 59 1/2 is subject to penalty.
  • After 70 1/2 your money is subject to RMDs.

Roth IRA. 

  • Contributions you make are NOT deducible from your income for tax purposes.
  • Eligibility to contribute is phased out over certain income levels.
  • All earnings on your investments grow tax-free.
  • All withdrawals after age 59 1/2 are tax-free.
  • You can withdraw your original contributions anytime, tax and penalty free.
  • You can withdraw contributions that are conversions from regular IRAs after five years, tax and penalty free.
  • You can withdraw as much as you like anytime to fund a first-time home purchase or to pay for college related expenses for yourself and/or your children.
  • There is no RMD.


In short, these can be summarized like this:

  • 401(k)/401(b)/TSP = Immediate tax benefits and tax-free growth. No income limit means the tax deduction for high income earners can be especially attractive. But taxes are due when the money is withdrawn.
  • Roth 401(k) = No immediate tax benefit, tax-free growth and no taxes due on withdrawal.
  • Deductible IRA = Immediate tax benefits and tax-free growth. But taxes are due when the money is withdrawn. Deductibility is phased out over certain income levels.
  • Non-Deductible IRA = No immediate tax benefit, tax-free growth and added complexity. Taxes are due only on the account’s earnings when the money is withdrawn. Contributions can be made regardless of income.
  • Roth IRA = No immediate tax benefit, tax-free growth and no taxes due on withdrawal. A better Non-Deductible IRA, if you will. But eligibility phases out over certain income limits.

Now, if you’ve been paying attention, you might be thinking “Holy cow! This Roth IRA is looking like one very sweet deal.  In fact it is even looking like it violates what Collins told us to fix in our minds earlier: “None of these eliminates your tax obligations. They only defer them.” True enough, but as with many things in life there is a catch.

While the money you contribute to your Roth does indeed grow tax-free and remains tax-free on withdrawal, you have to contribute “after-tax” money. That is, money upon which you’ve already paid tax. This can be easy to overlook, but is a very real consideration.

Look at it this way. Suppose you want to fund your IRA this year with $5,000 and you are in the 25% tax bracket. To fully fund your deductible IRA all you need is $5,000 because, since it is deductible, you don’t need any money to pay the taxes due on it.

But with a Roth, you’d need $6,667: $1,667 to pay the 25% tax due and still have $5,000 left to fund the Roth IRA ($6,667 – 25% = $5000). That $1,667 is now gone forever and so is all the money it could have earned for you over the years.

Were you to fund your deductible IRA, instead of your Roth, you’d still have this $1,667 and it could then be invested. Of course, it is subject to your 25% tax bracket. After paying taxes on it, you’d have $1,250 left to invest ($1,667 – 25% = $1,250).

Curious as to what that might look like? Recalling that the average annual return on the S&P 500 for the 40 years from 1975-2014 was 8.88%:

$1250 invested each year for 30 years @ 8.88%= $166,616

Of course, if you fail to invest the tax savings you’ll lose this advantage and the Roth would have been the better choice.

It can be very emotionally satisfying to fund a Roth, pay the taxes now and be done with them. But it might not be the optimal financial strategy.  If you are still undecided, this series of pros and cons might help.

Because I’m the suspicious type, and the long-term tax advantages of a Roth are so attractive, I start thinking about what might go wrong. Especially since these are such long-term investments and the government can and does change the rules seemingly on a whim. Two potential threats occur to me:

1. The government could simply change the rules and declare money in Roth IRAs taxable. But this is doubtful. Roth IRAs have become so popular and are held by so many people, this seems more and more politically unlikely. Politicians are loathe to take anything away from voters.

2. More likely, the government could find an alternative way to tax the money. Increasingly in the US there is talk of establishing a national sales tax or added value tax. While both may have merit—especially as a substitute for the income tax—these would effectively tax any Roth money as it was spent.

With all this in mind, here is my basic hierarchy for deploying investment money:

  1. Fund 401(k)-type plans to the full employer match, if any.
  2. Fully fund a Roth if your income is low enough that you are paying little or no income tax.
  3. Once your income tax rate rises, fully fund a deductible IRA rather than the Roth.
  4. Keep the Roth you started and just let it grow.
  5. Finish funding the 401(k)-type plan to the max.
  6. Consider funding a non-deductible IRA if your income is such that you cannot contribute to a deductible IRA or Roth IRA.
  7. Fund your taxable account with any money left.

Let’s finish this post with the recommendation that, whenever possible, you roll your 401(k)/403(b) (but not your TSP) accounts into your personal IRA. Usually this will be when you leave your employer. Employer plans are all too frequently laden with excessive fees and your investment choices are limited. In your IRA you have far more control.

Personally, I’ve always been slightly paranoid about having my employers involved in my investments any longer than I had to. The moment I could roll my 401(k) into my own IRA, I did.

Note 1: 

We’ve touched a bit on tax laws in this post. While the numbers and information are current as of 2015, should you be reading this a few years after publication, they are sure to have changed. The basic principles should hold up for some time, but look up the specific numbers that are applicable for the year in which you are reading.

Note 2:

This is an update of a post and its addendum that appeared originally May 30, 2012 as Part VIII of the Stock Series. Click here if you are curious to read it. I also suggest you check out the conversations in the comments there.

Note 3:

As mentioned in the post, there are many variations of 401(k)-type and IRA-type accounts (457b, Backdoor IRA, SEP IRA and Solo 401k plans come to mine) and clearly we haven’t the time or space to review them all.

But you’ll likely find discussions of them in the comments. In fact, for 457b and Backdoor IRA, they are already there!

Addendum 1: 2015 Tax Brackets, Standard Deductions and more

Addendum 2: 2014 & 2015 Income limits for IRA Deductibility and Roth Eligibility.  Note that you must click between the buttons near the top to go from Roth to T-IRA.

Addendum 3: 

In the comments below, reader David raises a great question/concept: Can we avoid RMDs if we rollover a Roth 401k to a Roth IRA?

Based on my research, I can say this:

First, once leaving your employer, you can definitely roll your Roth 401(k) int0 a Roth IRA. Just like rolling a Traditional 401(k) into a T-IRA.

Second, a Roth IRA definitely has no RMD requirement.

But I am unable to find anything on the IRS site or elsewhere addressing how the funds rolled over might be treated regarding the RMD. It appears to be something the IRS has yet to rule on. How it will fall out is anybody’s guess at this point.

If any readers have or find an IRS ruling on this, please post the info in the comments with a link. Thanks!

Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

]]> 60
Stocks — Part XXVIII: Debt – The Unacceptable Burden Thu, 26 Mar 2015 13:24:27 +0000 Debt ball & chain

A couple of years after I was out of college, I got my first credit card. They were tougher to come by in those days. Not like now when my unemployed pet poodle has his own line of credit.

The first month I racked up about $300 or so. When the bill came, there was each charge listed by vendor, with the total at the bottom. In the upper right-hand corner there was a box with a $ sign in it and a blank space beside it. Under this in bold letters it read: Minimum payment due: $10

I could hardly believe my eyes. I get to buy $300 worth of stuff and they only require me to pay them back $10 a month? And I can still buy more? Wow! This is awesome!

But still, in the back of my mind I could hear my father’s voice: “If it sounds too good to be true, it is.” Not “it could be” or “it might be.” It is.

Fortunately my older sister was sitting nearby. She pointed out the fine print. The part about them planning to charge me 18% interest on the $290 they were hoping I’d let ride. What? Did these people think I was stupid!?

As a matter of fact they did. It was nothing personal. They think the same of all of us. And unfortunately all too frequently they’re not wrong.

Pause for a moment and take a look at the people around you, literally and figuratively.

What you’ll often see, if you scratch the surface just a bit, is an unquestioning acceptance of the…

Ice wall

single most dangerous obstacle to building wealth: Debt.

For marketers, it is a powerful tool. It allows them to sell their products and services far more easily, and for far more money, than if it didn’t exist.

Do you think the average cost of a new car would be pushing $32,000 without E-Z financing? Or that a college education would cost over $100,000 if it were not for readily available student loans? Think again.

Not surprisingly debt has been promoted as, and largely embraced as, a perfectly normal part of life.

Indeed, it is hard to argue that it has not become “normal.” As I write, here in the US Americans carry a total debt burden of ~12 Trillion dollars:

  • ~8 Trillion in home mortgages.
  • ~1 Trillion in student loans.
  • ~3 Trillion in other consumer loans such as credit card debt and auto loans.

In the future, these numbers will undoubtedly be higher. And most disturbingly, almost no one you know will see this as a problem. In fact, most will see it as their ticket into the “good life.”But let’s be clear. This blog is about guiding you to financial independence. It is about buying your financial freedom. It is about helping you become wealthy and putting you in control of your financial destiny.

Look around at those people again. Most will never achieve this, and their acceptance of debt is the single biggest reason why.

If you intend to achieve financial freedom you are going to have to think differently. It starts by recognizing that debt should not be considered normal. It should be recognized as the vicious, pernicious destroyer of wealth-building potential it truly is. It has no place in your financial life.

If your lifestyle matches—or god forbid exceeds—your income you are no more than a gilded slave.

leeches covered

Carrying debt is as appealing as being covered with leeches, and has much the same effect. The idea that many, indeed most, people seem to happily cover themselves with debt is so beyond my understanding it is hard to imagine how, let alone why, the downsides would need be explained. But here are a few:

  • Your lifestyle is diminished. Set aside any aspirations to financial freedom. Even if your goal is living the maximum consumer lifestyle, the more debt you carry the more of your income is devoured by interest payments. A (sometimes huge) portion of your income has already been spent.
  • You are enslaved to whatever source of income you have. Your debt needs to be serviced. Your practical ability to make choices congruent with your values and long-term goals is seriously constrained.
  • Your stress levels build. It feels as if you are being buried alive. The emotional and psychological effects of being saddled with debt are real and dangerous.
  • You endure the same type of negative emotions experienced by any addict: Shame, guilt, loneliness, and above all, helplessness. The fact that it’s a prison of your own making makes it all the more difficult.
  • Your options can become so narrowed and your stress levels so high, you risk turning to self-destructive patterns that only reinforce the dependence on spending. Drinking perhaps, or smoking.  Or, ironically, shopping and still more spending. It’s a dangerous self-perpetuating cycle.
  • Your debt tends to focus your attention exclusively on the past, present and future in the worst possible way. You become fixated on your past mistakes, your present pain and the disaster looming ahead.
  • Your brain tends to shut down on the subject with the vague hope it will all resolve itself in some magical way and in the magical time of later. Living with debt becomes hardwired in your financial attitudes, habits and values.

Countless articles and books have been written about ridding yourself of debt. If after reading this post you feel you need more guidance and help, by all means embrace them. But be careful not to let the pursuit of the methods get in the way of the doing. The truth is, there is no easy way. But it is pretty simple.

Here’s what I’d do:

  • Make a list of all your debts.
  • Eliminate all non-essential spending, and I mean all of it.* Those routine $5 coffees, $20 dinners and $12 cocktails add up. This is what will free up the money you need to pour on the debt flames that are burning up your life. The more you pour the sooner you stop burning.
  • Rank your debts by interest rate.
  • Pay the minimum required on all your debts and then focus the rest of your available money on the one with the highest interest rate first.
  • Once you’ve blown that one away, move on to the second highest and right on down the list.
  • Once you’re done, send me a note and let me know. I’ll then be raising my glass in a kudos salute to you!


Here’s what I would not do:

  • I would not pay a service to help. This only adds to your cost and such credit counseling services have no magic formulas or techniques to make this less painful. You, and only you, can do the work.
  • I would not worry about trying to consolidate your loans in to one place, not even for a lower interest rate. You are going to pay these puppies off fast and hard. Once they’re gone your interest rate will be Zero. That’s your goal, not merely taking your rate from 18% to 12%. Focus your time and attention there, rather than on exploring clever strategies.
  • I would not pay off the smaller loans first for the psychological boost. I know this is a key part of at least one popular strategy, and if it makes you more likely to stay the course so be it. But as you’ve learned reading this Stock Series, I’m not a fan of such crutches. Better to “toughen up, cupcake” and adapt yourself and your attitudes to the numbers than to adapt the strategies to your psychological comfort levels.

In short, nothing fancy. Just do the work and get it done.

This is not going to be easy. Simple, yes. Easy, no.

It will require you to rather dramatically adjust your lifestyle and spending to free up the money you need to direct toward your debt.

It will require serious discipline to stay the course over the months, maybe years, it will take to eliminate your debt.

But here’s the good news, and…

girl jumping-for-joy-85505

…it really is awesomely good.

Once you’ve ingrained that lower spending lifestyle and made diverting the excess cash to your debt your path, you will have also created exactly the platform required to begin building your financial independence.

Once the debt is gone, you need only shift the money to investments.

Where once you had the satisfaction of watching your debt diminish, you’ll now have the joy of watching your wealth build.

Waste no time. Debt is a crisis that needs immediate attention. If you are currently in debt take out your sharpest knife and start scraping the little bloodsuckers off. Nothing else is more important.

Look again at those people around you. For most, debt is simply a part of life. But it doesn’t have to be for you.

You weren’t born to be a slave.

A few cautionary words on “good debt.”

Occasionally you will hear the term “good debt.” Be very cautious when you do. Let’s briefly look at the three most common types.

Business loans.

Some (but not all) businesses routinely borrow money for any number of reasons: Acquiring assets, financing inventory and expansion to name a few. Used wisely, such debt can move a business forward and provide greater returns.

I include small scale investment real estate by individuals in this category.

But debt is always a dangerous tool and the history of commerce is littered with failed companies ruined by the debt they took on.

Astutely dealing with such debt is beyond the scope of this blog, other than to say those who use it successfully do so with great care.

Home mortgages.

Taking on a mortgage to buy a house is the classic definition of “good debt.” But don’t be so sure.

The easy availability of mortgage loans tempts far too many into buying houses they don’t need or that are far more expensive than prudent. Shamefully, this overspending is often encouraged by real estate agents and mortgage brokers.

If your goal is financial independence, it is also to hold as little debt as possible. This means you’ll seek the least house to meet your needs rather than the most house you can technically afford.

Remember, the more house you buy the greater its cost. Not just in higher mortgage payments, but also in higher real estate taxes, utilities, maintenance and repairs, landscaping, remodeling, furnishing and opportunity costs on the money tied up as you build equity. To name a few.

Houses are an expensive indulgence, not an investment. That’s ok if and when the time for such an indulgence comes. I’ve owned them myself. But before letting yourself be blinded by the idea that owning one is necessary, always financially sound and automatically justifies taking on this “good debt,” run the numbers.

Student loans.

When I was in college at the University of Illinois from 1968-72, the total annual cost was $1,200. This $1,200 covered everything:  Tuition, books, rent, food and even a little entertainment.

Each 12-week summer I worked taking down diseased Elm trees. I was paid $20 a day over a six-day week. I saved $100 a week and by Fall had the $1,200 needed for the school year.

Of course, I lived in one room of a dilapidated old house that should have been condemned. White rice and ketchup served as dinner two or three times a week.

Fast-forward to 2010-14, my daughter’s college years. The all-in yearly cost averaged $40,000 at URI, also a state school. NYU, her other option, would have run $55,000 to $60,000 per year. As a former colleague of mine once said, that’s like buying a new BMW, driving it for a year and throwing it away. Then buying another. For four consecutive years.

Inflation certainly played a role. Using the CPI (consumer price index), what cost $1 in 1970 took $6.36 to buy in 2014. A six-fold increase.

In the same time period, a 4-year state school college education went from $4,800 to $160,000. A 33-fold increase.

Make no mistake: easily obtained student loans have flooded the system with money.

Universities have been and continue on a building boom. Fancier prices require fancier settings.

The average salary of a university president in 1970 was ~$25-30,000. Today it averages around $500,000 and can run into the millions.

Not only has this driven up the cost of everything college related, it has virtually eliminated the option of living cheaply.

That ramshackle house I lived in? Torn down to make way for fancy new dorms.

Eat in on rice and ketchup? No worries, my friends did the same. It was a source of pride. Today, it would be a source of embarrassment as all your student loan funded pals go out for sushi.

Moreover, one of the more unfortunate results of spiraling college costs and debt is the way it has warped the very concept of higher education. Rather than the pursuit of learning and culture, it has become the pursuit of job training in an effort to secure employment that will justify the astounding cost and debt incurred.

Even successfully applied, this shackles young people to jobs long after the appeal has faded. Youth should be spent exploring—building and expanding one’s horizons—not grinding away in chains.

Here’s the real kicker: Unlike other kinds of debt, as truly awful as they are…


you can never walk away from your student loans.

They survive bankruptcy. They will follow you to your grave. Your wages, and even Social Security, can be garnished to pay them.

No wonder banks are falling all over themselves to issue this debt.

I am a firm believer in personal responsibility and debts freely taken on should be faithfully repaid. But the ethics of encouraging 17 and 18-year-olds—who likely have little financial savvy—to almost automatically accept this burden gives me serious pause.

We are creating a generation of indentured servants. It’s hard to see the ethics or benefits in that.

Addendum I: While the mantra here is “avoid debt at all costs,” if you already have it, it is worth considering if paying it off ahead of schedule is the best use of your capital. In today’s low rate environment, here’s my rough guideline:

  • Less than 3%, pay it off slowly
  • 3-5%, whatever feels most comfortable
  • More than 5%, pay it off ASAP

Addendum II: *Want to know what “Eliminate all non-essential spending, and I mean all of it” might look like?: If we woke up in debt

Addendum III:   Some common sense on credit scores

Addendum IV:  The College Conundrum

Meanwhile and unrelated, recently…


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Chautauqua October 2015: Times Two! Thu, 12 Mar 2015 04:48:17 +0000 Ecuador, mi lindo

Mi Lindo Ecuador

If you have read this blog for long, or any of my Chautauqua posts, you know that for the last couple of years we have taken small groups to Ecuador for a week of adventure and conversation surrounding life, freedom, happiness and investing.

We call it a Chautauqua, an old Native American word Robert M. Pirsig, the author of Zen and the Art of Motorcycle Maintenance, translates loosely as

“…an old-time series of popular talks intended to edify and entertain, improve the mind and bring culture and enlightenment to the ears and thoughts of the hearer.”

Each time now we’ve attracted an incredibly diverse and fascinating group of people. Almost everyone has described it as one of the (if not the) best weeks of their lives. To give you a flavor of what goes on, here’s my recap of last Fall’s: Lighting Strikes Again.

We all know that, in reading blogs like this one, we are walking the path less traveled and frequently not understood by those in our daily lives. But for this one week we get to be surrounded by others who “get it.”

el encanto buildings

The fact we get to do this in a stunning beautiful country while staying at the majestically situated El Encanto (The Enchanted) Hosteria built into foothills of the Andes mountains, still leaves me a bit slack-jawed.

I first stayed at El Encanto in 2012 during my trip to Ecuador to meet Cheryl and to discuss the creation of these Chautauquas. While she hosted me the first few days at her farm (a remarkable experience in itself), I also wanted to have first hand experience with one of the places we were considering for these events. I was, well, enchanted and have been wanting to return ever since. This is the year!

El encanto

Clouds at Birth

El Encanto has been carved out of a hillside overlooking a lush subtropical valley. The view is spectacular and you can actually look down to see clouds being born from the river below.

Moreover, this place is exactly on the Equator! It runs right though it.

Each morning I’d take my coffee out and decide: Shall I have it today in the Northern Hemisphere? No, wait. Let me step over here to the Southern! Sip. Ah! That’s good! But let’s step back and have a bit more in the Northern. There we go. Sip. Oh, that’s good too! Wait, wait! I know. Let’s put one foot here in the North and this foot here in the South….

In addition to going to El Encanto, the other thing that is new this year is that we will be offering two Chautauquas back-to-back. As before, each will have four speakers:

October 17-24, 2015

  • Mr. Money Mustache
  • Paula Pant from Afford Anything
  • Cheryl Reed from Above the Clouds Retreats
  • Jim Collins from jlcollinsnh

October 24-31, 2015

  • Brandon from The Mad Fientist
  • Jeremy from Go Curry Cracker
  • Cheryl Reed from Above the Clouds Retreats
  • Jim Collins from jlcollinsnh
  • And a guest appearance by Mr. Money Mustache

So, who are these people?

Cheryl Reed

Cheryl Reed is the owner and founder of Above the Clouds Retreats and one of the most relentlessly happy people I’ve ever met. Here’s a story:

The son of her farm worker borrows her truck and promptly rolls it. Her response to this very poor young man: “There are three responsible parties for this. You, who rolled the truck. I, for letting you take it. God, for permitting it to happen. You will pay a third of the cost (bartered in his labor as he had no money), I will pay for a third and I will see what I can do about getting the final third from God.”

This delivered with a smile, a wink and a laugh. Clearly, Cheryl is someone I can learn from. Maybe you can, too. Her talk is Following Your Bliss and she’ll be the first speaker at both events.

paula pant

Paula Pant is a journalist, globetrotter, entrepreneur and investor who has traveled to 32 countries. She’s her own boss and lives on her own terms, and she’s figured out how to live and work anytime, anywhere in the world. She writes the wonderful and wonderfully named blog Afford Anything.

Her talk is Three Rebellious Roads to Financial IndependenceIf you’re ready, Paula can teach you how to shatter limits and maximize your life.

I’m proud to call her a friend.

Mr. Money Mustache - Above the Clouds Retreats

Mr. Money Mustache is a master of many things: Software (formerly), family life, carpentry, building, writing and finance. But most of all, in my opinion, effective life-style design.

In his talk he’ll dismantle the false connection between spending and happiness, and show you how to craft a deeply rewarding approach based on fostering your own inner badassity. You’ll learn to eliminate weakness and dependency while developing your personal ruggedness in all areas of life. Fear will slip away, replaced by an inner peace built on confidence and a powerful appreciation of “enough.”

You’ll see first hand why the Mustachianism has become the cult phenomenon it is today. Plus he’s just plain fun to hang out with!

Mad FI, Brandon

That’s the Mad Fientist in the picture above looking relaxed and tropical. He should. He’s hanging out in Thailand at the moment, having quit his job last Spring immediately after getting his free Ivy League Graduate degree. At least he tried to quit his job. When he did, they said “No, no. We can’t have that. Of course you can work from wherever in the world you happen to be. Oh, and how about some more money?”

His talk will be The Shortest Path to Financial Independence. It is not often these days I find a writer who truly expands my financial horizons. Someone so clear and insightful that when we disagree I find myself re-evaluating my thinking. But what a thrill when I do.

Thrilling enough that I asked him to write the first (of only two) guest post on my Stock Series. It has proven to be one of the most popular and if you want to know what I really think about this guy, you’ll find it in my introduction there.

By the time Chautauqua rolls around, he’ll be traveling from Scotland to join us. But that doesn’t qualify him as our furthest flung speaker….

Go Curry Cracker pic

That international man of mystery above is none other than Jeremy, one half of the Go Curry Cracker team. He’ll be coming to us from ( “I’m going to sit in a flying tube of aluminum for 36 hours each way just to participate…”) Taiwan, where Winnie will be better occupied with their newest team member — the soon-to-be-born GCCjr.

I came across GCC about two years ago and was drawn in by what, to me, is the perfect international life. I couldn’t get enough of his travel posts and in my own journeys I just missed him in Mexico and then again in Guatemala.

Then, occasionally, he started including some financial ones. They blew me away! How about: Never Pay Taxes Again? Or reaching total financial freedom in 10 Years and a Day?

Would you like to travel the world financially carefree? Or sit on your porch sipping coffee and leisurely deciding what this day will bring?

In this session on becoming your own International Person of Mystery, Jeremy will show you exactly how team GCC uses the investing strategies of jlcollinsnh (aw, shucks) and the tax minimization strategies of the Mad Fientist to live a luxurious itinerant lifestyle for less than you might think.

This is theory put into action. And along those lines, later in the week and after our talks, MF, GCC and I will host a panel discussion to further explore with you how this all works together.


Then, of course, there’s me.

Here at jlcollinsnh we discuss mostly why you need F-you money and how to grow yours. In our conversations, Cheryl and I agree that money for the sake of money is almost completely uninteresting. But it is a wonderful tool, as AA, MMM, MF and GCC each illustrate everyday.

Financial independence allows for far greater freedom and range in the pursuit of happiness. That’s why my topic at both Chautauquas will be How to Harness the World’s Most Powerful Wealth Building Tool.

So these are your speakers and hosts. But unlike many events, we won’t be just getting up, giving our talks and disappearing. We’ll be hanging out with you all week, sharing meals and adventures. This is part of what makes these Chautauquas so special for us and for the attendees.

You’ll also have a chance to select one of us for a private one-on-one-session. Each will be an hour-long and you’ll have a chance to discuss whatever issues are most pressing for you.

To have time for these is one key reason why we limit attendance. While we’ll try to accommodate everybody’s first choice, slots will be allocated on a first-come-first-served basis. So if you want me, or if you want to be sure not to get stuck with me, you’ll want to sign up early.

Of course we’re not going to bring you to Ecuador and not explore a bit of it. Together we’ll:

Plus you’ll have plenty of free time to enjoy the pool, sauna, jacuzzi, hike or nap. If past Chautauquas are any guide, my guess is you’ll be doing all this hanging with your new friends. People who, like you, “get it.”

Speaking of giving back, as with every Chautauqua, a full 10% of all profits will go to the The Project One Corner.

Should you decide to join us, and I hope you do, here is the…

  • registration page for October 17-24: Mr. Money Mustache, Afford Anything, jlcollinsnh and Cheryl
  • registration page for October 24-31: Mad Fientist, Go Curry Cracker, jlcollinsnh and Cheryl

As before, attendance is limited. If the event you chose is filled, you’ll have the option to select the other or go on the wait list in case of cancellations.

Want to know more about what this adventure feels like?

Both posts also have links to what the other speakers and attendees have written.

And check out these posts from the other Chautauqua 2015 speakers:

Addendum 1: March 19, 2015

Exactly one week after this post went up, I have just received word both Chautauquas have sold out. We are thrilled and humbled at this incredible response. Last year it took two weeks.

But we also regret now having to turn people away. However, Cheryl will be compiling a “wait list” and if you are interested I strongly urge you to go to the registration pages (see links in the post) and put in your name. Life being life, it is not unusual for some to have to cancel as the time grows closer. No guarantees, but having your name on this list gets you a step closer.

And if not this year, hopefully we will see you in 2016!

Addendum 2:

How to travel to Ecuador for Free!

Or close to it. My pal Brad operates the blog Richmond Savers. He is a master at travel hacking and provides personal coaching in the art. He just emailed me generously offering to personally guide each Chautauqua attendee thru the process of hacking their travel to Ecuador for little or no cash outlay.

Plus, he is doing this for Free!

Not only will this potentially save you ~$1000 in airfare (depending on where you’re coming from), you’ll pick up valuable $$ saving skills for future travel.

If you are interested, after you register send Brad an email with “Chautauqua” in the subject line:

Meanwhile, and unrelated to the Chautauquas, recently…

I hope you’ll check ’em out!

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YNAB: Best Place to Work Ever? Tue, 24 Feb 2015 05:08:23 +0000 You want this:


Not this:

office workers

Trust me.

The second hand made its agonizingly deliberate sweep. All eyes were locked to it. Ever so slowly it erased first the seconds, and then the minutes, on the plodding march to 4:45.

The workers sat, bundled in their winter hats and coats, their belongings at their feet, with their heads raised to it as in silent, patient prayer to a powerful god.

Along about 4:35 they had begun to put away their work and prepare for departure. Years of daily practice had made them efficient. Most were done well before 4:40, leaving nothing to do but wait. There they’d sit, staring at the big clock that hung high on the bullpen wall.

When that second hand passed 12, marking precisely 4:45, it was as if a giant vacuum had been attached to the door and switched on. By 4:45:10 the place was empty.

I stayed till 4:50. I was widely viewed as the hardest working person there.

This was my first professional job out of college. It was with a small publishing company in Chicago that had been started in the 19th century. Its work rules were right out of the 19th century, too.

Most of the staff worked in a large open windowless bullpen. Offices lined the outside of this room, and those got the windows. As the advertising manager for one of the two magazines we published, I was fortunate enough to have one of those offices, which I shared with one of the two people who reported to me.

Work started at precisely 8am. We were allowed a 20 minute break in the morning and another in the afternoon. My pal Dennis worked in the shipping department. Each morning around 10, we’d take the elevator down and walk across the street to the local cafe for coffee and sweet rolls.

That elevator was manned by an elevator operator. He’d manually open and close the elevator doors and then sit on a little stool while he pressed the buttons to go up or down. He’d had the job for decades. Same building. Same elevator. Up and down.

My boss, Carl, was an older gentleman, president of the company and a very nice man. Sometimes he would join us on break. It didn’t take long to figure out that if we talked about anything we wanted for the first 15 minutes and then got Carl talking about the “good old days” in the last five, well that 20 minute break could easily stretch into an hour or more.

When you leave and return with the president of the company, nobody says anything about your 20 minute break now being 60.

Quitting time was 4:45 in the afternoon. Come what may, you didn’t dare leave a moment before. With rules like that, clocks have god-like power.

No wonder having F-you money was an early goal.

Lest you think this was a only relic of the dark ages, here’s another more recent story. Again with a small publishing company dating back to the 19th century.

This was twenty years later, in 1995, and after being heavily recruited, I had accepted a job as publisher.

My first day one of my fellow publishers, Denise, invited me to lunch. We walked across the street to a local cafe at around noon. We had an great conversation filled with useful information that proved helpful in my efforts to hit the ground running. We returned around 2 pm.

Not 15 seconds later my new boss, the owner of the company, was in my office.

“Where were you?”

“I was at lunch with Denise.”

“It’s 2 o’clock.”

“Ah… OK…”

“Lunch here is only an hour.”

“Well once lunch was finished, we just continued our business conversation there.”

“But lunch here is only an hour.”

“It wasn’t just lunch, it was a business meeting. Does it really matter where we converse? There or here?”


Bear in mind this was a conversation he was having with a new executive level hire. With a matching salary. With full P&L responsibility for a key part of his business. One that, if I might brag a bit, would go on to make him a ton of money. (Did OK myself, too.)

I still shake my head in disbelief. At the attitude, and that I stayed.


I was reminded of all this a couple of weeks back when an email from my pal Jesse Mecham arrived. It was this help wanted ad for a Server Side Developer, what ever the hell that is.

Jesse runs a company he founded called You Need A Budget, or YNAB for short. I don’t know what a Server Side Developer is or does, but were I still in the job market I’d figure it out, become one and go to work for Jesse at YNAB. Assuming he’d have me. Which might be assuming a lot.

YNAB might not be the best company in the world to work for, but it is hands down the best company in the world to work for I’ve ever heard of.

I first met Jesse when he showed up as an attendee at our inaugural Chautauqua. We were all very impressed with his story and how much fun he was to hang with. A few weeks later I saw him speak at FinCon. He barely finished his talk before I was asking him to be a presenter at Chautauqua 2014.

He did a fabulous job and brought along one of his key executives. This fellow had been living in Italy for the last three years. YNAB is based in Utah. Yeah, I was intrigued too.

Unfortunately, Jesse won’t be joining us for Chautauqua 2015.

El encanto

He’ll miss watching clouds being born in the valley below our new venue:   El Encanto

He says he doesn’t have the time. He cites the demands of running the increasingly thriving YNAB. His wife. His five kids. His intense exercise program. (He is the FinCon annual pull-up champion three years running, after all)

Some people have no priorities…

But I guess, when you are running the best company in the world to work for, you only have so much time.

OK. That’s a big claim. How do I back it up?

Well, if you look at that help wanted email I linked to above you’ll see that about half of it is about the job and the qualifications for it. The other half is about why you’d want to work for YNAB.

I don’t ever recall any company ever caring enough to spend any time explaining to me why I’d want to work for them.

Jesse does. Here’s what he says in that email:

A Bit About US

We build the best budgeting software around, called “You Need a Budget” or “YNAB” for busy people. For over a decade, people have been buying YNAB and then telling their friends what a difference it has made in their lives. (Google us, or read some of our reviews on the app store, and you’ll see what we mean.) We love building something that has a huge positive impact on people’s lives.

We’re profitable, bootstrapped, and growing. YNAB started in 2004 and we’re in it for the long haul. We haven’t taken any outside investor money, and we haven’t borrowed any money.

We have one overarching requirement when it comes to joining our team: our Cultural Manifesto has to resonate with you, you know, pretty deep down. If it strikes a chord with you, you’ll probably fit right in. We’re excited to hear from you.

First, let me sell you on the idea of working with us at YNAB. Then we’ll talk details on what we’re looking for.

How You’ll Work at YNAB

We work really hard to make working at YNAB an amazing experience. We have a team full of truly exceptional people—the kind you’d be excited to work with. Here’s how we operate:

Live Where You Want

We’re a distributed team, so you can live and work wherever you want. Proximity doesn’t influence productivity. As I write this, Taylor (our CTO) is in Italy. I’m not sure where he’ll be next. Not all of us travel so extensively, but the fact that he does is totally okay because we’re all adults. Just make sure you have a reliable internet connection.

No Crazy Hours

We rarely work more than 40 hours per week. There may be a few times where things go a little crazy and people log some more time. Most make sure to take some extra time off so it all balances out. We’re in this for the long haul. Don’t go crazy on the hours.

Take Vacation (Seriously)

We want you to take vacation. In fact, we have a minimum vacation policy of three weeks per year (plus two extra weeks for Christmas break). It’s important to get out and do something. Post pictures of your vacation in our internal chat room, creatively named #office_wall.

The YNAB Meetup

We get the whole team together every 12 months and have a great time. Best Western conference room, powerpoints for hours…and budget talk. Just kidding. Last year it was in Costa Rica. This year is a gigantic cabin in the mountains. We do really fun things, but the highlight always seems to be just hanging out together and having a blast.

International is Absolutely Okay

If you are Stateside, we’ll set you up as a W2 employee. If you’re international, you’ll be set up as a contractor. Employee or contractor, it’s all the same to us. You’re part of the team. (We are spread all over the world: Australia, Switzerland, Pakistan, Scotland, Canada, and all over the United States.)

If You’re Stateside…

We have a Traditional and Roth 401k option. YNAB contributes three percent whether you choose to throw any money in there or not.

Other Tidbits

  • Once you start, we demand (in a friendly way) that you fill out your “Bucket List” spreadsheet with 50 items. (That’s harder than it sounds!) YNAB then helps you knock off a significant item every few years.
  • The bucket list also really helps in deciding what we should give you for your birthday and Christmas.. No giftcards here. We tried that. Super boring.
  • We have a bonus plan, based on profitability. You’ll be in on that with day one. YNAB wins, you win. That kind of thing.
  • We’re all adults. There’s no need to punch a clock, or ask for permission to take off early one afternoon to go see the doctor. We look at what you’re accomplishing, not how long you sit in front of a computer.
  • Did I mention we make a huge, positive difference in people’s lives? You may not think that matters much, but then a few months down the road you’ll realize it’s made your job really, really enjoyable. Don’t underestimate this one!

If this sounds like your ideal environment, read on because now I want to talk about you.

Then he goes on to describe the ideal candidate.

I’ll be honest, if I had a company I’m not sure I’d be bold enough to run it like Jesse runs his. Too much old school training hammered in to me. But that’s a shortcoming in me. I sure would work for one.

My guess is, Jesse has his pick of top talent. That’s worth thinking about if you own or run a business. Given the choice, is that talent going to you? Or to YNAB?

While most of us will never get to work for YNAB, at least now we have a standard by which to measure other employers.

What we all can do, however, is benefit from the YNAB budgeting software. After all, you can’t grow a great company like this without great products driving the business.

Personally, I don’t use YNAB. But that’s only because I created my own spreadsheets back in 1993 when that was the only option if you wanted such things. Unlike Jesse, I wasn’t smart enough to turn them into a business.

But he has, and by all accounts YNAB is the very best option out there. I sure wouldn’t bother to create my own today. I’d turn to the folks who’ve already done the heavy lifting:

If you like what you see and buy after clicking on that link, four things will happen:

  1. This blog will get a small commission.
  2. You’ll get a 10% discount.
  3. You’ll have a powerful new aid in your quest for financial freedom.
  4. You’ll be supporting a company that treats its people the way people should be treated.

If you already use YNAB, why not post a comment and let us know what you think? Thanks!


Nothing to do with this post, but…

I was recently interviewed on:

Mike & Lauren YouTube: Why your house is a terrible investment. In the Q&A we also discuss asset allocation, bonds and even dating.

1500 Days: 10 Questions with jlcollinsnh This will be followed in March by three installments of an extensive interview. Answering all his wide-ranging questions was great fun for me. If you enjoy this one, stay tuned for those!

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Case Study #12: Escaping a soul-crushing job before you’re 70 Wed, 11 Feb 2015 05:04:36 +0000 crossroads

When Tom’s comment/question showed up February 5, 2015 in Ask jlcollinsnh it immediately captured my imagination as a potential Case Study, mostly because it offered something different. He has arrived at a crossroad.

On the surface it was just a couple of simple questions. What retirement accounts to use? Can they be accessed before age 59.5? Questions I’ve answered many times here and have discussed in several posts. But the truth is, simply answering those wasn’t going to help Tom much.

Tom’s real issue was in the line: “I simply do not want to work a ‘regular’ job until 59-½, the thought of that is soul crushing…”

At some level Tom knew that’s what he was asking and so he provided some detail as to his situation.

In review, it was clear Tom has arrived at a crossroad. He could continue down the path he’d created hoping to escape or he could make a hard turn down an entirely new path, and actually escape.

The following is a combination of his original note and some additional information he provided in an email exchange. Let’s take a look….

Tom writes:

Hello Mr. Collins,

I am a follower of your site, and point anyone who seems interested here as well. I would find it very helpful to hear your advice for our situation, when you have a chance.

Personal Situation –

  • My wife and I are 35 and 37 years old, expecting our first baby this year.
  • I have a regular job, with Fidelity 401k and ROTH 401k plans available.
  • I currently contribute 15% to the 401k. Plus the 3% company match.
  • My wife works from home, has no company retirement plans available.
  • Together our annual income is ~$115,000
  • I also have additional income of ~$18,000: $1,500+ per month before tax, from side hustles, and intend to grow this further.

Assets –

  • 401k (me): $20k (VTSAX)
  • Rollover IRA (me): $88k (VTSAX)
  • Non-Vanguard Rollover IRA (wife): $75k (Target Date Fund)
  • Cash Savings: $30k
    Total: $213k

Properties —

  • Townhouse (Rental): Value $150,000, $165,000 mortgage @ 4.125% (This property is essentially break even, until we need new tenants, or a repair comes up). Equity = -$15,000
  • Current House: Value $195,000 (hopefully, it is a tough market), $178,000 mortgage @ 4.625%. Purchased one year ago. Equity = ~$17,000

Other Liabilities –

F150 and boat

Not actually Tom’s

  • Boat: $14k on the Loan (Fishing is my one indulgence…important to my mental health :) )
  • Future Car to Replace Wife’s Vehicle: $TBD

Vehicles (both paid for)

  • 2003 Jeep Liberty (high miles and the one we want to replace)
  • 2003 Ford F150

I simply do not want to work a “regular” job until 59-½, the thought of that is soul crushing…yet we couldn’t access any of our investments thus far until 59-½ anyways.

How do we get out of that ‘box’? In what order would you recommend investing in the various retirement account options in our situation?

There is a lot of information out there to clutter one’s mind. I feel stuck and unsure how to go forward, or what changes I need to make. I suspect just dumping everything into the 401k is not the best plan. Your thoughts are always appreciated.



jlcollinsnh replies:

Hi Tom…

Thanks for the kind words and welcome.

I’m happy to give you my thoughts, but you might not like them. You are asking mostly about your investments when it is your lifestyle that stands in your way.

You say the thought of working to 59.5 is “soul crushing” and yet you’ve constructed your financial life as if you plan to work into your 70s. So let’s start with a reality check.

With the side gig, your annual income is ~$133,000. You don’t say what your annual expenses are but, since your only savings is the 15% to the 401k, they are running very high.

Let’s assume you are going to get those down to half your income: $66,500. Using the 4% rule, you’ll need $1,662,500 to generate that income. You currently have $213,000, plus basically zero equity between the two houses.

Your current savings rate is ~15%, less actually as that is simply against your job income. Take a look at this chart*:


The chart assumes an 8% annual investment return and that you’ll live on the classic 4% withdrawal rate, which implies assets of 25 times your annual needs. So, this is not a gospel, but a guideline.

At a full savings rate of 15%, you’ll be retired in 33 years, when you are 70. Double that rate to 30% and you’re there by ~59.5. If you want to get there by age 47, you’ll need to save ~65%. Maybe a little less as you have a $213,000 head start.

At this point it should be clear that getting there is going to take a major shift in your priorities. Assuming you’re game, let’s take a look at what those might be:

—You need to max out your 401k and an IRA for your wife. You want these to be deductible to defer taxes and to keep as much of your money growing and working for you as possible.

—Don’t worry about not being able to withdraw tax-deferred money before 59.5. There are ways around that as described here: Early Retirement Withdrawal Strategies. But more importantly…

—Your new savings rate is going to allow plenty more money to invest in a taxable account accessible anytime. Read the Stock Series on how.

—Unload the rental townhouse. Break-even is a terrible position to be in and, as you correctly observe, it leaves you vulnerable to large, random expenses. This is going to mean a hit to your cash reserves as you are underwater. But that is a sunk cost and it is important not to let such thinking keep you trapped.

–As an alternative, you could sell your house and move to the townhouse. This would preserve your cash and might (?) offer less expensive living.


–But if it were me, the truth is I’d dump them both and find the cheapest apartment I could tolerate. Ideally close enough to walk to work.

—Dump both vehicles and replace them with one small used indestructible Japanese sedan. Spend less than what you get for the Jeep and Ford on this. Should be easy. With gas prices down, economy cars are cheap just now and the price for your truck will never be higher. Try to bank at least some of the money.

–With your wife working at home, you only need one car. Yes, I know this will be inconvenient. But we did it right thru our teenaged daughter’s driving years. It just takes a little planning and coordination.

–The Jeep you say is used up and an F150 is way too expensive to operate if you are serious about reaching for FI.

–But wait, what about towing the boat?  Well, about that…

—You borrowed money to buy a boat?? Look, I’m all for indulging myself. I own a motorcycle (bought used for less than $4000 cash) for that purpose. But then, I’m FI.

Before I was, my biggest indulgence and what was most important to my mental health, was buying my freedom. That meant investing every spare cent I could scrounge up. It is not my place to tell you how to spend your money, but you do need to decide what you truly care about:

Escaping a soul-crushing job or fishing from a fancy boat. If it were me, I’d dump the boat and fish from shore. Hands down.

Finally, congratulations on the little one on the way.


Courtesy of Sketches by Angela

There is no real reason a new baby needs to be an obstacle to your FI goals. But there are a lot of phony ones.

You are going to have to learn to avoid the “babies must be expensive” syndrome. No fancy strollers or SUVs because it’s easier to fit in the child seat. No cute new baby clothes that will be out grown in three weeks. The world is filled with barely used baby clothes. Kids need love, not stuff.

At this point, if you are like the vast majority of folks, you are recoiling in horror at most, if not all, of these suggestions. Precisely. This is why most folks will never reach FI. You have a choice to make.

Your obstacle to becoming FI isn’t one of investing, but one of lifestyle. And if you really want to escape that soul crushing job before you’re 70, reviewing the points above should give you an idea of what the task looks like so you can decide just how serious you are.

If you decide to go for it, turn next to Mr. Money Mustache. More than any other blog out there, he is the one who can show you in detail how to inject into your life the baddassity you’re going to need. But, be warned. He’s not as soft and fuzzy as I am. Here’s a sample of his take on driving a pick-up truck and this guy didn’t even have a fancy boat to tow:

“Holy shit, brother, how many heads of cattle and pigs are you hauling on that roundtrip, while simultaneously carrying international heads of state in the stately cabin? That is a fucking ridiculous vehicle for ANYONE to drive except the rarest breed of Farmer/Diplomat.”

 Mr. MM would say your situation calls for a face punch or two. I’ll just say, you have some decisions to make. Oh, and now that you know how to shed that soul crushing job, should you chose not to make the changes needed, you’ve officially forfeited your right to complain about it. :)

My guess is, once you get started and see your stash begin to grow, those things that felt like sacrifices to give up you’ll come to see as the blood-sucking leeches they are.

Good luck!

*Chart courtesy of my pal (Can I Retire Yet?) Darrow’s book:




The original title of this post was “Tom at a Crossroads.” J Money picked it up as a featured post in Rockstar Finance.  In the process he retitled it much more compellingly as “Escaping a soul-crushing job before you’re 70.” With his kind permission, I’ve changed it here as well.

Nothing to do with this post, but…

I was recently interviewed on Mike & Lauren YouTube: Why your house is a terrible investment. In the Q&A we also discuss asset allocation, bonds and even dating.

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Case Study #11: John, a small business owner in transition Fri, 30 Jan 2015 06:03:25 +0000 IMG_6190

Each year I have the privilege of joining ~25 readers for a week in Ecuador at our now annual Chautauqua event. During the week I get to meet one-on-one with several of these folks to privately discuss their situations and to answer their questions. Cheryl, the owner of Above the Clouds Retreats, once said to me, “They all look so happy afterwards!”

The reason is pretty simple. As often as not, I’ve been able to tell them: “Yes! You are financially independent.”

Now these are all very smart people who have a clear sense of their assets. (They rarely have liabilities.) But having worked for some time and with great focus on their goal, they frequently have crossed the finish line without noticing. I then have the distinct honor and privilege of being the one who gets to point it out. Great fun, that. And smiles all around.

So too with today’s Case Study. John reached out in the Ask jlcollinsnh section a little while back and, in laying out his situation and questions, I was reminded of several of those one-on-one sessions. Here too was a guy who has worked hard, lived frugally and built his assets; and now I get to tell him he has arrived. Whoo Hoo!

This despite an unfortunate and fairly large at-risk investment with a relative.

Which reminds me of an important fact: The single most important factor that will determine your success in reaching financial independence is your savings rate.**

Certainly investing well is important, and that’s mostly what I talk about here on the blog. But you can make a lot of investing mistakes and, if your savings rate is robust enough, you’ll still get there. The truth is, I got there myself along a great trail of investing blunders and before ever investing in my first index fund.

That’s what a powerful savings rate will do for you. Of course, if I’d accepted the simplicity and power of indexing sooner, I would have gotten there far more quickly and with far less grief along the way. But then, I’m a slow learner.

But now let’s meet John, see where he is at the moment and see what adjustments he might make for the future.

John’s note:


I’ve really enjoyed reading your website, blogs, etc., your outlook on investments, business, life, etc., make a lot of sense to me. If you could give me your input I would be so grateful.


I know that all decisions are mine and I am responsible solely for their outcomes.

I am in midlife change. I am 56, single, no children, owned a small business for many years so I wanted to stay as liquid as possible.

I rent a 1 bedroom apt. in the Northeastern U.S. and live a simple, frugal, life, and love being outdoors cycling, hiking, and walking.

cycleing past old house

Not actually John

I left a job in 2014, and am looking at options currently ranging from possibly not working, to working part time in the business world.

My living expenses are about $1,600 monthly or $20,000 annually, and I don’t have any debt.

I am not sure at what age I will stop working; anywhere from now until 70 years old, I don’t plan on taking social security until 70 years old.


  1. Retirement $190,000 in Vanguard, (includes $6,000 in individual stocks, a small amount in the Vanguard target date 2025 fund, but in total 9% in stocks, 3% in bonds, 88% in money market)
  2. Non-retirement Cash $410,000 in bank account receiving 1.05 % interest
  3. Emergency Fund $5500
  4. Small Business investments $275,000

This is a total of roughly $880,000.


1. Retirement. Obviously I need to put the Vanguard retirement money into action. I’m thinking about putting it into the Vanguard total stock market index fund, and the vanguard total bond market index fund, the allocation maybe at 70/30 between stocks and bonds, using admiral shares.

I’ve read that you like putting it in as a lump sum rather than DCA (dollar cost averaging), but I’ve felt that we’re due for a correction, and, yes, I know that you don’t believe that one can successfully time the market. What would you do with the $190,000?


Where do you think the market is headed?

2. Can I afford to stop working now? Would you advise that? What should I do with the $410,000 in cash if I stop working? It seems that whether I stop working or start to work on my own now, I need revenue to pay my current monthly expenses, or I start drawing down on my savings.

3. What would you do with the $410,000 in cash if I go back to work and start earning money? Buy a home? Do nothing and stay liquid? Put it in the same Vanguard funds but in a taxable account (?)-seems like duplication. Make loans in lending club, betterment, etc.? Invest in T-bills, tax-free bonds, or a vanguard dividend paying stock fund? This probably would be short-term money, 0-5 years.

4. The $275,000 is investments in businesses with a close relative, I am nervous about being paid back, and this has caused me worry and stress. Any thoughts?

5. The property that I live in was sold recently, it is a 3 family built in the mid-1800’s, including an apt that I live in, and a large garage that can be rented out. I could have paid cash for it. I decided not to because of its age, I would not do the bigger repairs myself, and I was nervous about buying this before getting paid back on my business investments. If they went south I could be stressed financially, and I also wasn’t sure if I wanted to be a landlord. It is likely that it would have thrown off positive cash flow immediately. The fact that I passed on the acquisition has been bothering me, wondering about your opinion on this?

6. I live in what I call a “stupidly expensive” part of the country (the Northeast), due to the housing prices and cost of living. It doesn’t seem worth it, but maybe I’m just mad that I didn’t make a ton of money in the housing market!! I have some family here but other than that there really is nothing keeping me here. I’m considering looking at other parts of the country, where I can enjoy the outdoors more, either the mountains or the ocean. I’m tired of the “grey” winters and early darkness here, maybe I should go somewhere else for the winters, at least initially. I am considering Tucson, Albuquerque, Sedona, Santa Fe, Pueblo, Co., I have enjoyed not working, and spending days hiking and cycling in the desert southwest sounds appealing.

Any thoughts?

7. I like a simple life, and feel that there is value in that. I’ve read your opinion on renting vs. buying, but long term do you think I should look to purchase a home?

Finally, I know that these are questions that are personal choices, and it isn’t even fair to ask for your input, but any opinions that you have would be greatly appreciated.



jlcollinsnh replies:

Welcome John…

Let me start by saying “thank you” for your kind words but, even more, for your clear understanding of the limits of my inputs and the personal responsibility you bear for any and all actions you take.

I make this abundantly clear on my Disclaimers Page, but it is an important reminder. It is only when this is understood that I can offer any thoughts and advice to the best of my abilities and my understanding of any given situation.

Next, let me offer kudos for having constructed what sounds like a joyful life that has avoided the consumer spending traps that too often are substituted for happiness. Your simple, frugal lifestyle embracing such healthy and free activities as hiking, cycling and walking has, as we’ll see, put you in a strong and financially free position. Although, given your focus on outdoor activities, I can see why you have an interest in getting away from the  Northeast’s winters. (In fact, there is a major blizzard closing in as I type this!)

Since you’ve also done a great job of laying out your situation and questions, let’s just walk through them one at a time, but a little out of order: 1, 3, 4, 2, 5, 7 and 6.

1. If you want your investments to grow and keep pace with inflation, you have far too much held in cash. While most see cash as ultra-safe, the truth is that it is a guaranteed long-term loser. Each year inflation erodes its spending power a little more. Death by a thousand cuts, if you will.

Stocks are, of course, far more volatile but they offer the growth needed to power a successful portfolio over the decades. In fact, the more stocks held in your portfolio, the more likely your investments will last.

Bonds, in turn, diminish growth but we hold them to smooth out the volatility of stocks. So in determining your asset allocation a key question is how big a price are you prepared to pay for that v. how important is growth.

You are also correct in that I am not a fan of Dollar Cost Averaging, nor can anyone time the market. Jack Bogle is fond of saying that in his 60+ year investing career not only has he never met anyone who can time the market, he’s never met anyone who has met anyone who can time the market.

I certainly can’t, although each year I make predictions in my annual contest designed to mock the very idea. If you want my predictions for 2015, you’ll find them there. Just remember that any resemblance to my predictions and what actually happens is pure chance. This, by the way, is true of EVERY expert out there making such forecasts. No matter how credentialed they may be.

That said, I would take $190,000 you have in Vanguard retirement accounts and the $410,000 in the taxable bank accounts and look at them as a whole for allocation purposes.

Your proposed allocation of 70/30 stocks and bonds sounds reasonable to me and I like the idea of using VTSAX (Vanguard’s Total Stock Market Fund) and VBTLX (Vanguard’s Total Bond Market Fund) as the investments.

But if you are very nervous about the market, you can increase your bond allocation. This is the better strategy than trying to time your entry into the market. Your allocation, not timing, is the right tool for mitigating risk.

Finally, because it is less tax-efficient, hold your VBTLX in your tax-advantaged retirement account. That said, your allocation design comes first. This means it is OK to have some VTSAX in your tax-advantaged account or some VBTLX in your taxable account if required.

3. In this question you asked about investing your $410,000 but, as you can see, I’ve already deployed it in the VTSAX/VBTLX allocation above.

You emphasize your desire for simplicity and I strongly second that. Those two funds are really all you need and, in owning them, you are very broadly invested in a diverse range of stocks and bonds.

You really don’t need to concern yourself with lending clubs, Betterment, T-bills, tax-free bonds or sector funds such as dividend paying stock funds.

4. The $275,000 you have invested with your relative has me worried, too. If you are not comfortable with the situation you should seek to get cashed out, even if it means taking a loss.

If you are unable or unwilling to do so, you need to make a clear, hard-nosed assessment of how much of that $275,000 is really secure. This is the number you should use in figuring your net worth and you should err on the conservative side.

Since I have no idea about the situation or how to value it, for the purposes of the rest of this Case Study I’m going to subtract it from your $880,000 total and work with $605,000 as your net worth.

2. Using $605,000 and the 4% rule (which should work nicely with your 70/30 allocation) your portfolio can support ~$24,200 a year. Since your annual expenses are only $20,000, the great news is that you are fully FI and with a withdrawal rate of only 3.3%.  Congratulations!

Pulling the 4% is my post on how to go about doing this.

Continuing to work is now entirely optional and the decision should be based on what gives you the most joy.

As for Social Security, your plan to wait until 70 years old to take it is a good one, provided you are in excellent health. The break-even for delaying payment is ~82-86 years old. Die before that and you would have been better off taking it at 66. The longer you live past that, the better your decision to wait until age 70 becomes.

Further, despite all the scary talk, Social Security is secure. It will be especially nice to have those larger checks as we become very old and our mental capacities diminish.

Personally, I too plan to wait till I’m 70. Actually, I will be surprised to live to be 82, but my wife is very likely to live well into her 90s and she’ll benefit from my larger checks. And, of course, I might get lucky!

5. I think you dodged a bullet in not buying the three-family house.

dodge a bullet

Courtesy of Chow Hon Lam

Investing in real estate can be profitable, but it is also a part-time job and a very specialized one at that. It is not something to be done on a whim or without extensive research. If you are going to be a landlord, you had best become an expert in land-lording. Plus a building that old is likely to need an ongoing range of maintenance and repairs. I don’t read any desire for or interest in any of this in your note.

Here’s a cautionary tale, appropriately titled The Rental from Hell, written by a guy who also backed into it as you almost did. And, if you’re curious, here’s Part I of my own nightmare after doing the same.

If you want to invest in real estate, there will always be properties to buy. But first, spend the time needed to educate yourself as to what’s involved. Only then can you make a sound decision and a profitable investment.

7. If you like the simple life, I certainly wouldn’t buy a home. Especially given that you are uncertain as to where you want to live.

Most often, houses are an expensive indulgence. Expensive indulgences are fine, if you can afford them and if they are really what you want. It is fairly easy to run the numbers and see where you stand, but it is worth remembering that houses are almost always terrible investments.*

Renting is likely to be cheaper, more flexible and more likely to permit you to continue living on $20,000 per year as you currently are.

Here’s an idea. Perhaps once you extract whatever money you can from that business venture with your relative, you can use some of that to buy a house if you’ve decided you really want one. Presuming that happens a few years down the line, you should also have a better idea where you want that house to be. Which brings us to…

6. Where to live. Like you, we live in the Northeast but here in New Hampshire things are slightly less “stupidly expensive” than in many other parts.

New Hampshire

New Hampshire

While we’ve loved it here, sometime in the next couple of years we might very well move. We’ve been here awhile and we like change.

And, like you, we are closely considering the Southwest, specifically New Mexico. We’ve traveled there many times and have friends in the state. We find it stunningly beautiful and the endless visas are amazing. While NH is equally beautiful, the type of beauty is entirely different and, as I say, change is one of our motivations. We also prefer a dry climate.


New Mexico

That said, we do know people who have moved there from the more lush and verdant areas east of the Mississippi and who grew to hate the relentless browns, dust and lack of water. Will that be us? Who knows? But one of the beauties of renting is that it is easy to move on. Another reason to be slow to buy a house.

My pal Darrow recently made the move out there and he and his wife are thriving. You might be interested in his story on finding The Ideal Retirement Location.

You also mentioned liking the ocean and, of course, living on the water in the US is very expensive. But if you are willing to look to Latin America, all kinds of ocean side living options open up.


San Clemente Beach

I’m personally partial to Ecuador and I’ve enjoyed the time I’ve spent in the little fishing village of San Clemente. But there are many others.

Once you are no longer tied to a job, the world opens up and the limits are only your imagination.

You are in a great position to create the rest of your life as you see fit. Good luck, keep us posted and maybe I’ll see you out there!


*Just this week I was interviewed on Why your house is a terrible investment with Mike & Lauren YouTube. In the Q&A we also discuss asset allocation, bonds and even dating.

**If reaching financial independence is important to you, the chart below will give you a good idea as to just how powerful your savings rate can be.


The chart assumes an 8% annual investment return and that you’ll live on the classic 4% withdrawal rate, which implies assets of 25 times your annual needs. So, this is not a gospel, but a guideline.

The chart is taken from my pal Darrow’s (Can I Retire Yet?) book:

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