Journey to retirement on Martha's Vineyard

Secret Beach Access is Cool

2008-05-19T10:18:00.009-04:00

My family recently visited Martha's Vineyard for a week renting a house in Edgartown. As an added benefit this house came with a "Beach Key". A Beach Key is basically a key that gives you access to a private association beach. Its actually a non-buildable, deeded piece of real estate that sells for $225-$350k.

You might wonder why anyone would want to pay that much for essentially access to a beach but it is a very nice amenity.

First I must say that everything on the island is so cryptic. The directions to this special beach are some like ...

" drive .9 miles past XXX, then take a left at a row of mailboxes then bear left at the Y in .5 miles and take the second right 1.1 miles from the mailboxes and take the dirt road that dead ends at a gate"

It took us two attempt to find this secret gate. (Honestly they could have said take a left then your second right, but I think the cryptic directions are part of the charm!)

Secret Locked gate

Path to the ocean

Path through the dunes

Ahhhh, private beach

General Stores are an old time favorite

2008-05-19T09:00:00.000-04:00

One of the things I love about Martha's Vineyard are the General stores. You can find almost anything in a General Store from Coffee to a Hammer. Each time I visit the island I make it a point to visit a store and hopefully uncover a new one. Here is a list of the General Stores that I know of on the island.

1) Alley's - West Tisbury
Probably the most well know General Store on the island is Alley's in West Tisbury. Its in a great location and has that olde time appeal and I challenge anyone to try and find something they don't have in stock.

2) Chilmark Store - Chilmark
This General Store is located in "downtown Chilmark" and only opened seasonally. Its very well know for the great green rocking chairs on the front porch. They have awesome pizza and amazing homemade pies. More than once I've found myself rocking on the porch and saying 'hey I know that person' - so I guess its also a good celebrity watchers spot as well.

3) Chappy General Store
I haven't actually been inside this store. If you ask me it looks a little bit like a scene out of the movie Deliverance. I've heard they charge some pretty outrageous prices as people really have no choice. This is the only commercial store on the island.

4) Granite -Edgartown
Initially I wouldn't have considered this a typical General Store as it lacks the outward charm of a traditional store. However, as you step inside you can quickly realize they have everything from Toys to Hardware.

5) Katama general store
I know their is a general store in Katama but on a recent visit I couldn't find it. I'm pretty sure this is it and it was probably not opened for the season yet.

As far as I know there are no General Stores in Aquinnah or Tisbury.

Car buying is frustrating

2008-04-28T10:58:00.002-04:00

We've needed a second car for over 3 months now but I've continued to push off the act of car shopping because of my extreme distaste for the process. Unfortunately, we could no longer wait so we purchased a car this past weekend. This was my first new car purchase since 2001 and while I used the internet heavily to research and price our choices the whole process was pretty much just as horrible as I remembered.

We used the following research tools;

Vehix.com - This site had some video test drives although they are the kind which basically don't tell you anything wrong about the car or model you are looking at.
Cars.com - I found their reviews, which were mostly third party, very helpful with quick easy access to picture. (I actually used the mobile very of this site during some of our visits at different dealers.
Comcast - Searchlight - This is a cool feature of On-Demand which actually includes video reviews which would tell you things to watch out for
Dealer/Brand sites - I found Jeep.com to be the most useful site which allows a user to build a car then search dealer inventory (many sites have this feature, but I found Jeep the most accurate).

Overall, These sites were basically useless. The reason - Ultimately, when buying a car you are buying of the availability of the lot. If you build a car online selecting your option you still have to settle for the type of cars on the lot that best meet your needs.

We were looking for a mid sized SUV which could seat up to 7 so looked at the following cars:

Volvo XC90 - Very small, the third row couldn't fit an adult. We liked the safety features of course but overall the car was very plain and featureless. The pickup was slow (we test drove the V6 model). Also, I really disliked the salesperson, who basically assumed we were ready to buy the car after a short test drive. He also had no idea about the car so much so the finance guy had to come over and answer most of my questions.

Saturn Outlook - This car was huge. Even in the third row an adult would be comfortable. It had good pickup for the size and features like navigation which we liked a lot. This would be the perfect car if we lived in the suburbs and had 3 kids. Unfortunately, as we live in the city it can be difficult to navigate the narrow road much less fit in our small driveway. The salesperson was great and even let us take the car home for the weekend as a test drive. The only negatives were Front wheel drive and the size.

Jeep commander - We decided to check this car out at the last minute and I'm glad we did. It is much smaller than the Outlook but still has a third row which can be used in a bind (plus it was roomier than the Volvo). It came fully loaded with Navigation, DVD, etc. and 4 wheel drive. The salesperson was great, the warranties were even better so we bought it. The sticker price was about 4K lower than advertised on the Jeep site. Net net we basically got it for the advertised price on the Jeep site including tax, titles, and an extended lifetime warranty. They really sold this lifetime warranty which basically extended the 3 year, 36K mile warranty for life provided you have the car inspected every 5 years. We usually own cars for 6-10 years so I went for it (against my better judgment, knowing someone is getting a commission) however we all the electronic equipment in the car is probably worth the additional $2k.

Taxes are making me a better recordkeeper

2008-04-24T11:48:00.003-04:00

I've always done my own taxes. I've filed electronically since 2000 using Turbo Tax. I've always felt the need to do taxes on my own perhaps so I could get a better appreciation for my finances and my own contribution to the Federal and my State's income. I've managed to do (in my own opinion) a decent job of navigating the arising life complexities like buying/selling a house, getting married, earning more money, selling stocks - all while still reducing my tax basis to a comfortable level.

This past year was somewhat different. We earned more and sold a lot of misguided stock holdings (e.g a couple hundred shares of Qwest Communication which hover around $2 per share).

During Tax season I learn two lessons;

Cost Basis record keeping is very important

Unfortunately, most of the stocks we sold were legacies from my wife. It was very piecemeal and didn't amount to much plus we had very little knowledge of the cost basis. This was a huge project to research and guesstimate. One action that I walked away with was the HUGE importance of keeping track of your cost basis on all investments. After finishing our taxes, I checked all of our current holdings and was surprised that even using Quicken that a number of our investments didn't record cost basis. As a result, I spend a lot of time researching and recording the cost basis manually for everything in Quicken so if and when we sell another stock it won't be such a tax nightmare. This is especially true if you invest in DRIPs!

2. Our deductions started to disappear due to income

I was somewhat disappointed to realize the typical actions that I've done each year to reduce my tax basis stopped working this year as effectively as they have in the past. Even with an interest only mortgage, charity contributions and a loss on selling stocks we actually ran into some of our deduction getting limited. We didn't get nabbed for AMT but our combined income pushed us out of previous deductions and reduced others. My action item this year is to better understand what type of actions I can take to help reduce our tax responsibility. Having a child this year we hopefully help. I found it frustrating to get our deductions limited because we live in a very high cost of living area and earn just living salaries. Too bad the IRS doesn't take into consideration your zip code, cost of housing, commuting, etc.

I strongly believe everyone should do their own taxes even if it is just one time. I constantly hear people only reference the difference in the amount they over or under paid (e.g. I'm getting $1K back or I owe $5k). However, very few people reference the actual tax paid (e.g. I paid $10k or $30k, etc.)

Increased Savings Goal

2008-03-24T11:16:00.004-04:00

The biggest impact to my overall net worth in 2008 will occur as a result of a significant savings effort. To date, I've identified 4 major savings goals.

DRIPs ($30k)
401k ($31k) Complete
529 plan ($8k)
Cash Reserve ($24k)

I have completed goal number two so far (you can see my progress on the right). I recently increased the Cash Reserve savings goal from $22k to $24k. I did this primarily to get to an even number - if I attain my goal that will increase my cash reserve from $76k to $100k. My cash reserve account is money set aside for a vacation/retirement home.

I've started to tackle my DRIP contributions and I'm in midst of researching 529 plans which has taken more time then I figured initially. I've yet to decide on a specific 529 plan but hope to do this by the end of the week so I can begin to make contributions - to date I just have $500 allocated to open this up.

Interestingly enough, my net worth has not changed since the end of 2007 (even with saving over $36k so far this year). This is primarily due to the down market. It can be a little depressing to save so much yet see no material impact on net worth - however, I know that I'm laying the right foundation and it should pay off in the long run...

New arrival brings financial uncertainty

2008-03-18T18:41:00.003-04:00

We added a beautiful baby girl to our family this March. This is our first child and it has been super exciting and I can easily say that seeing her for the first time was the greatest moment in my life. I'm a planner so I've been constantly thinking about the impact of a child regarding our personal finances. Honestly, I'm at a little bit of a loss for how it will impact our ability to acheive financial independence.

I see two major impacts which include;

Daycare - Will my wife go back to work?
Goals - How will my goals including retirement change?

Will my wife go back to Work?

I was fortunate to have a stay at home mother growing up. As a child I feel the support that my mom provided truely helped create a ideal childhood environment. We never really wanted for anything - as a matter of fact I felt pretty blessed to have most things I needed or wanted. Looking back on it we didn't have the biggest house or the means of many of my friends but as a kid I never realized that - probably cause it just doesn't matter if you have a loving household. The more I think about it I'd be very happy if I could create a similar environment for my kids. Having my wife stay home will certainly impact our short and long term finanical goals but it might be the better option. Of course, this is dependent on my wife's interest to be a stay at home mom. So far, I know she is committed to at least a reduced work schedule.

How will goals change?

At this point I feel like my goals including my view of retirement are staying the same. Having a child has given me even more ambition to make my goals a reality. I'd like to share my love of the Vineyard with my daughter (it might be a while till she appreciates it). We will take her first trip there in a couple of months. I have taken a longer term approach to securing a second home. Given the uncertainty of the current markets and not knowing the true cost of a new child I think I will continue to take a wait and see approach.

First savings goal of the year complete!

2008-03-07T14:24:00.003-05:00

I established 4 savings goals for 2008.

Save $30k in my 5 DRIP accounts
Save $31k in 401k contributions
Save $8k in a 529 plan
Save $22k toward my vacation house

This is really the first year that I've established formal savings goals so its been very helpful to track progress. We are basically trying to focus more on savings versus gains from investments. Well, I can check off goal #2 as my wife and I aggressively tackled this goal first. To date, I've been a little disappointed in my progress against establishing a formal savings plan to achieve the remaining 3 goals. Next up, DRIP accounts.

Are Vineyard houses getting cheaper?

2008-03-05T21:40:00.002-05:00

I noticed the following article stating that housing prices on cape cod have declined 6%. It goes on to say that the Nantucket and the Vineyard have experienced sales volume decreases of 28% and 70% respectively.

This sounds positive for a potential buyer, however these types of stats need to be viewed in the right manner. I personally feel like sales volume doesn't have much impact on price in a niche market like Martha's Vineyard or Nantucket. For example, outside of the 15,000 year round residents on the Vineyard no one really needs to buy a house there. I would venture to say also that a large majority of second home owners on the island purchased their "fishing shacks" prior to the most recent real estate bubble (5-10+ years ago) or they simply have very high discretionary income; but either way they are not under any real pressure to sell. Those two scenarios, people don't need to buy a second house & people who have second houses which don't typically need to sell, creates an interesting environment. Of course, this is an overgeneralization but a pretty good one in my opinion.

I tend to keep track of the real estate market on the island each week. Each time I visit the island I spend time driving around and looking at properties on my own to get a better feel for each area of the island. I also look at the real estate transactions each week and many times I recognize the properties that are sold. Often times I recall the original price which allows me to compare it to the sold price giving me a better feel for the market. I also notice a ton of real estate transactions where I have never seen a listing. These are usually recorded at below market prices and I can only assume they are some kind of inside deals between known parties.

It also seems to me that everything on Martha's Vineyard is for sale, for the right price. I get this feeling that long term home and business owners will occasionally put their property on the market at an outrageous price and see if someone bites. Of course, many people probably have an interest during the summer months but I'd imagine that quickly goes away after Columbus Day.

Real estate is a tricky thing because there is really no set price. A house is worth only what another person is willing to pay for it. That said, I've had my eye on two houses which have been on the market for a little while. One in my preferred retirement town of Chilmark and another in Oak Bluffs which I would use as a rental (stepping stone to getting to my retirement goal). I have noticed price declines or I should say smaller premiums on a each of the properties. The one in OB has actually gone below my associated value for the property. My dilemma of course is that I would prefer to secure a property in my choice town as that would allow me to lock in the sales price and know that each dollar I spend or pay down is eventually funding my retirement. Going down the rental route I have no guarantee that I'll be able to afford/find a house in my preferred town in the future. The kicker is the house in Chilmark cost 4x the house in Oak Bluffs - slightly out of my second home price range at the moment ;)

Craigslist is starting to feel like a second income...

2008-02-27T13:40:00.009-05:00

I just have to say how much I love craigslist.com. I'm sure at this point everyone is familiar with this site which basically acts as a message board for a community connecting local buyers and sellers.

We've been prepping our house for our new baby for the last three months. The first thing we realized was we have a ton of STUFF. I mean, over the years we have just simply collected different odds and ends which inevitably haven't been used in months - even years. So, in order to make some more room for the ton of baby stuff (all of which we may or may not need) and perhaps pad the baby fund my wife and I began a campaign to sell stuff via craigslist.

I think its been a huge success. To date we have generated over $650 and I haven't missed anything were sold so far.

Here's an example of some of things we've parted with:

Ikea Furniture
Massage chair
Old TV
Small Microwave (from my college days)
Skis
Gold clubs (from high school)
Old dell computer/scanner
bike rack

None of these things did much more than take up much needed room. Other than a random no show the entire process has been a cakewalk with very friendly buyers. And in some cases they have made out (e.g. We let our 4 year old computer in great shape, with Bose speakers, scanner, etc. go for less than $150).

We have basically used these additional funds toward baby stuff like furniture, some clothes, diapers, etc. This has been so successful that I've been scouring the house looking for new candidates to be sold... I have my eye on a couple of old Ipods...

Real estate taxes must be considered in my retirement plan

2008-02-26T15:41:00.006-05:00

My goal is to retire on Martha's Vineyard relatively young (mid 40s) and perhaps start a second career. My view of retirement includes some of the following;

Finding the place you want to live for the rest of your life
Living in your last house
Being active in your community and establishing roots
Having flexibility with your weekdays (e.g. work or don't)
Spending at least 20% of your time on a hobby

A huge component and quite frankly the biggest obstacle is housing. I already know where I want to live for the rest of my life now its just a matter of how do I make it possible. Many people look at just the primary cost of a house and some studious folks will consider the maintenance, but I think many overlook the impact of real estate taxes.

I know how they can be a big impact on expenses from personal experience. My parents were of the mindset that you always had to own your house (so no one can ever take it away). As a result they worked to have a house free and clear but in reality, mortgage or not, a house will only remain yours if you continue to pay your real estate taxes which come around each year and tend to rise over time. To this date, my parents often struggle to afford the annual real estate tax bill.

My preferred choice for retirement is the town of Chilmark which boasts the lowest property tax rate in the state of Massachusetts, unfortunately as of last year it also had the highest median home price in the state. Below are the 5 lowest property taxes by town in Mass. I highlighted the Vineyard towns. Note: Edgartown and Aquinnah have not release their 2008 property taxes yet but I would imagine they would make the list based on 2007.

According the the 2007 property tax records the Vineyard towns ranked as follows;
1. Chilmark 1.87
2. Edgartown 2.94
3. Aquinnah 4.03
4. West Tisbury 4.38
5. Oak Bluffs 5.59
6 Tisbury 5.63

So other than the fact that Chilmark is the type of town that I would like to live for the rest of my life for various reasons it also has a history for keeping its property tax rate low and I like that a lot! A low tax rate would encourage me to pay off my future house completely and still have a manageable annual cost. Granted an unaccounted area is price appreciation but I'm not sure that could ever be avoided.

1k bound, again

2008-02-26T15:13:00.004-05:00

Well this year is turning out to have the same level of business travel for me as last year. I actually plan to reduce my business travel (as much as I can control, of course) in 2008. My wife and I are expecting our first child any day now and I'm sure that I'll have even less desire to travel once I'm a parent. I use to travel primarily domestically but now my work is expanding requiring more international travel. Last year I took over 6 international trips and this year I could easily have more.

I've mentioned in previous posts that I fly United (star alliance) primarily to attain 1k status (100k miles) which comes with the benefit of upgrades. One of my goals this year is to try to limit my travel to international destinations and delegate most, if not all, of my domestic travel obligations to other members of my team. The biggest reason is I want to work smarter not harder. Let me give you an example.

Travel in my line of work is required

As a result of my need to travel for work I would like to attain airline status to benefit from upgrades

The worst part of travel is delays and/or discomfort in getting to and from your destination

Domestic flight have a greater likelihood to have connections and delays
Greater competition exists for upgrades on short flights

I find international travel and the corresponding work more fulfilling

Delegating some domestic travel obligations to other members of my team will expand their career growth opportunities

As a result, I figure trying to stick with just International travel I can attain airline status easier and continue to focus of work that I enjoy.

To date this year, I have just taken 3 business trips (2 domestic and 1 international) and gotten out of at least 4 other trips but its easy to see how only a couple of international trips can add up quickly.

Trip 1 - Los Angeles, qualifying miles round trip 4,575 miles
Trip 2 - Chicago, qualifying miles round trip 1,224 miles
Trip 3 - Beijing, qualifying miles round trip 20,760 miles

Note: Most international trips allow me to fly business class which comes with extra qualifying miles. The main benefit of the status is the ability to upgrade to first which allows you to sleep on a flat bed for those 14 hour flights!

Savings Bond Sanfu

2008-01-29T12:57:00.001-05:00

About a month ago, I got a call from my Mom who recently discovered a number of US Savings bonds in my name in an old safety deposit box. I quickly cashed them in. Well, it turns out they were previously redeemed bonds. I discovered this after receiving a nice letter from the Dept. of Treasury. It turns out that I had reported these bonds as missing in the early nineties (completely slipped my mind) and they were re-issued and cashed.

So unfortunately for me that means I now need to write the Dept. of Treasury a check. While its not the most positive experience a couple of things impressed me about this process;

1) They figured it out quickly. I cashed the bonds less than two weeks ago.

2) They included photocopies of the original bonds, and the reissued bonds.

3) The letter came from the same person who had re-issued the bonds in 1994.

I have to imagine this must happen pretty frequently especially now that many people use online accounts versus paper securities. Fortunately, you are now able to convert your paper US savings bonds into electronic format. I'll make sure to do that with my existing paper bonds to avoid anything like this in the future....

Preparing for our new arrival

2008-01-25T14:41:00.000-05:00

So, my wife and I are expecting our first child in less than a month and a half. As a person who focuses a lot on planning I've been somewhat surprised by the lack of baby expenses to date. Of course, the baby hasn't arrived yet, but after constantly reading about how expensive kids can be I find that I might have been preparing for the perfect storm instead of just a slight adjustment in how we manage our cash flow.

I see the major expenses as Food, Diapers, Baby Stuff (crib, Strollers etc), Clothing, Medical, College Savings, and Day Care. So far, I'm comfortable with how we might handle each of these expenses except Day Care.

Food/Diapers - My wife will plan on nursing to start. We also plan to join a warehouse club like Costco to take advantage of bulk purchases for things like diapers. They offer a general membership for $50 or an Executive Membership for $100 which includes a 2% rebate on most purchases up to $500 per year.

I actually think having a baby will help us manage our "going out to eat" & grocery expense more effectively. We are pretty good about going to the grocery store and cooking at home. However, we don't spend a lot of time thinking about our grocery list or clipping coupons each week so we often overspend or forget things and pick them up at a local more expensive neighborhood store. We also have bouts of laziness and eat out at least 1 or 2 nights a week. This should be reduced with bulk purchases.

Baby Stuff - Getting prepared for a child means outfitting your house with all sorts of baby contraptions many of which may or may not be completely necessary. My wife has had two baby showers, one from friends/family and one from work, and fortunately we pretty much lucked out with most of what's needed.

Clothing - I see this as a potential money pit but I too get choked up when looking at mini sneakers or a pretty outfit. A quick look at the price tag usually snaps me out of it. Its crazy to spend $50 on an outfit that might be used for 3 month, if that. Fortunately, most people can't resist buying cute baby clothes so I'm sure Aunts & Uncles will be showing up with cute little outfits. My wife's sister already had two kids so we've also benefited from 2 huge boxes of used clothes. As a matter of fact a couple pieces are brand new because her kids never had a chance to wear them.

Medical - Adding another member to that family will increase our medical expenses by $13.24 a week. Under our health insurance most of the routine visits don't have a co-pay. This is one area which I thought was going to be steeper than $600 or dollars a year. I'm sure this expense will growth with age.

College Savings -I will open up a 529 plan with $2k saved so far. As noted in my goals for 2008 I'll look to add another $8k before the end of the year. I'm not very worried about saving for college. I'll explore my reasoning in a future post.

Day Care - I'm a little scared about this expense. We have yet to do a whole lot of research on the subject because I think subconsciously both my wife and I would love to have a stay at home parent. We'll need to explore this option in more detail, but it might even fit into our retire early strategy of living on less. We'll need to start looking into day care options immediately cause if my wife does go back to work we'll need a plan real quick. I've heard a full time daycare is about $1,300 a month in my area, Ouch!

Baby Showers are like Christmas

2008-01-25T13:07:00.001-05:00

Well, my wife had two small showers but boy did we get presents. First of all I should say that I think many of these Baby items are a bit excessive. I don't recall having the majority of items as a child but I'd advise against trying to make that argument with your pregnant wife.

As a case in point, let's examine all of the items our new child will be able to sit or lay down on.

Necessary

Pack & Play

Stroller

Car Seat

Crib

Highchair

Baby bath pad

Baby Bouncer

Excersaucer

Not so necessary

Bobby newborn lounger

Papasan cradle swing

BEBE pod plus

Baby Gym Mat

Of course, as this is my first child, I really have no clue so all of the above and more might be necessary to keep your sanity......

Overall, we netted most of our required items except a breast pump, high chair and some minor toys. Over the last 5 months we have slowly been selling unused stuff like chairs, old skis, golf clubs, old TV and computer, etc via Craigslist. We've make a little over $400, which we'll use to buy the outstanding items.

Quicken Upgrade (required)

2008-01-24T11:07:00.000-05:00

Quicken will no longer support my 2005 version as of April so I bit the bullet and upgraded to Quicken 2008 yesterday. As an existing Quicken user they offered me a $20 discount on the Premier version plus a free Will writer and Encyclopedia Britannica. Actually, a few quick Google searches uncovered that basically anyone can get this deal.

I've used Quicken for the last 3 and half years to get a better handle on my finances. I find that its helped me to focus more on my cash flow and investing progress because its easy to see a snapshot of my overall finances. It actually makes me uncomfortable to see credit card debit under my cash flow so I feel like using this tool has given me extra motivation for paying off any credit card debt immediately just to avoid seeing a red, negative number.

Admittedly, I don't use the majority of the tools offered in the program like bill paying or the reports. I've also found it frustrating sometimes when I have an account that doesn't have online access to Quicken or when I have a tough time recording a tricky transaction like an interest only mortgage (still haven't figure that one out yet).

The 2008 version is full of slick new graphs and all sorts of tools. As a result, I'm going to make an effort this week to review some of the new functionality, especially the reports, to see how I can better managed my overall finances. I'd like to start using Quicken to more effectively manage tax implications such as cost basis and donations.

Carpets Vs. Comments

2008-01-17T13:33:00.000-05:00

I'm a frequent traveler.

As I began to travel more and more for work I quickly realized that consolidating my business and leisure air travel to one alliance would help me attain status quickly.

I selected the Star Alliance Network which is the only alliance with two US carriers (United and US Airways). It also includes Lufthansa which goes pretty much anywhere in the world. I achieved United 1k status (means you fly at least 100k miles a year) in August of last year. I've found it interesting to see the changes (and sometimes lack of changes) in how United treats me as I go from a nobody to their highest membership level. Below are the United Mileage Plus membership levels;

General Member - <30>

As a General Member, you are basically the bottom of the food chain. I noticed that often times United would not assign me a seat upon check in. I'd have to wait prior to boarding and usually did not get my preference (Aisle, close to the front) and of course I'd be in the last boarding group. Occasionally, I'd luck out and get placed in the economy plus section (United's version of more leg room in economy). And upgrades? - don't even bother.

Premier - >=30 Segments or 25k miles

Premier Executive - >=60 Segments or 50k miles

As a Premier and Premier Executive member you always get boarding group number 1 which is useful for getting overhead storage. I also found that I could always get economy plus seating and normally an aisle seat. One huge benefit is that you get to use the premier check in and security lines. I also got introducted to the Upgrade. United delivers (4) 500 miles upgrades upon attaining status (and with each 10k miles flown) which you can use based on the length of the flight. As a Premier Executive you have a greater clearance window for upgrades which is pretty much the only difference that I found between Premier and Premier Executive.

1k - >=100 Segments or 100k miles

As a 1k you get a boat load of upgrades including regional and system wide upgrades and of course you have the greatest clearance window. United recently tried to call out how "special" you are as a 1k but installing a special red carpet area in the boarding area. Honestly, I feel like its a little silly (first class/1k's to the right and everyone else to the left when boarding). First of all most people rush the boarding area and have little clue regarding the different boarding areas much less their boarding group number. As a Premier Executive, I imagine it can be frustrating to fly up to 99k miles a year yet still be lumped in with folks with no status.

As a frequent flier, I think I'd much rather receive recognition via a nice comment from the boarding agent or flight attendant than walking down a red carpet. I've heard of 1ks receiving a welcome note from the pilot although I've never experienced it so I'm not sure if its something that every really happens. I appreciate that United is trying to distinguish their most loyal travelers but I think they've missed the mark. They could learn something from the hotel industry. Many hotel programs provide a minor amenity upon arrival or simply a cheerier welcome. On a recent flight from the west to east coast I was able to get on an earlier flight. I happily jumped aboard the early flight forgoing my upgrade to first and settled into my economy plus seat for the 5 hour flight. In my haste, I realized that I didn't hit the ATM before boarding and so I wasn't able to do the buy-on-board meal ($5 cash only). As a result, I sat hungry during my 5 hour daytime flight. Allowing me to buy with a corporate card or providing a free buy-on-board to 1ks in economy would mean a whole lot more to me than a red carpet.

As a 1k member you have to spend, at a minimum, 100k miles in the air per year. I would venture to say that most frequent travelers are more concerned with making their life easier than with overt displays of recognition.

For me, here are the things that are most important to me.

Safe trip
Premier check in/ Security lines
Upgrades and/or seat preference
Comfortable waiting area/lounge access
On time arrival/departure
Automatic rebooking in case of delays/cancellations
Constant flight notifications

I really don't get much more from United for flying more than 100k miles a year. Yes, I'll earn more miles and upgrades but that just means more flying. Unfortunately no domestic airline is really different so I may be tempted in trying for status on an additional airline. I've recently heard that Virgin America really focuses on creating a relaxing and inviting ambiance so I might have to give them a try once in 2008.

Tracking progress on my savings goals

2008-01-16T17:04:00.000-05:00

Its been really interesting to see the market decline and hear the Recession chatter. If you read anything about personal finance you'd be less worried about the declines and more interested in how to secure some bargains!

I'm a little disappointed that the decline didn't happen in December when I purchased additional shares of Berkshire and JP Morgan. Its hard to see my portfolio take an almost $30k hit but of course its best not to do anything reactionary, so I'm staying put.

I expect to increase my retirement net worth in 2008 mainly via aggressive savings goals. To help me keep track of my progress I've added a savings progress report on the right.

Here is my progress so far against my goals just two weeks into the year.

Grow my 5 DRIP stock account balances to $10k each (Current balance=$20k, remaining $30k Total)

I will begin saving in March.

Fully maximize 2008 401k contributions for myself and my wife ($31k Total)

Currently saved $4k and should be complete by early March. In order to quickly hit the max, we are contributing a 100% of my wife's salary. After she hits her target we'll do a 100% of my salary.

Contribute maximum to both our IRAs using Cash Reserve Fund ($0k Total)

Done

Open up a 529 account with initial $2k investment from Cash Reserve Fund & Contribute additional $8k or $666 monthly, ($8k Total)

Need to conduct some more research.

Increase Cash Reserve Fund (Vacation house down payment fund) to $100k (Current balance $78k, remaining $22k Total)

Ongoing

Maintain $50k emergency fund ($0 Total)

Ongoing

Starbucks, Could I be sipping away my investments?

2008-01-07T08:37:00.000-05:00

It's a good idea to review your expenses regularly to see if they are better saved or spent elsewhere. As a coffee drinker, Starbucks is certainly an expense of mine. Below, I've charted out my contributions to the Seattle brewer over the last couple of years.

2005 - $36.25
2006 - $196.49
2007 - $344.98
2008 - $10.98 (To date)

I track my expenses in Quicken so it was pretty easy to calculate how much I spend on my morning beverages. I included a 10% increase as I'll occasionally buy a coffee with cash. I was a little surprised by the 2007 increase because I switched from being a Latte drinker to a regular coffee drinker. I guess I drank more coffee thinking because it was cheaper (average $1.85) versus a Latte (average $3.85) I was saving more money.

The numbers look big to me when reviewing the whole year's coffee drinking expense. I suppose I could give up coffee and save the approximately $345 (maybe even turn it into $2k in 30 years given an 8% return). But more realistically, I'll keep on drinking coffee.

So, I have been entertaining the idea of purchasing a Tassimo coffee maker ($169), which now offers Starbucks coffee ($9.29 for 12 discs). After, the initial investment for the coffee maker, I could enjoy my favorite beverage from the convenience of my home for about $0.77 a cup.

2008 Savings Goals

2008-01-03T20:54:00.000-05:00

Grow my 5 DRIP stock account balances to $10k each (Current balance=$20k, remaining $30k Total)

This is pretty straightforward. I will begin by establishing automatic monthly contributions of $200 to each stock. Next, I'll monitor each stock on a monthly basis and contribute additional small amounts as feasible.

Fully maximize 2008 401k contributions for myself and my wife ($31k Total)

I'm actually trying something different this year. My wife has changed her 401k contribution to 99% of her salary. Our goal is to quickly reach her contribution level and get a feeling for how it is to live off of one salary. I'll plan to contribute modestly in the start of 2008, then up my contribution toward the end of the first quarter to the highest amount possible to max out during a planned bonus.

Contribute maximum to both our IRAs using Cash Reserve Fund ($0k Total)

I'll make these contributions within the next two weeks as it is essentially transferring funds between accounts. My wife's IRA is a time based balanced fund while I'm looking for something more aggressive. I currently invest my IRA in a REIT but would like to tap into an either an Energy or Emerging markets fund as a supplement.

Open up a 529 account with initial $2k investment from Cash Reserve Fund & Contribute additional $8k or $666 monthly, ($8k Total)

This investment will likely occur around March. I've begun researching different 529 plans. I'm not a fan of my state's plan. In my opinion, it has high fees and poor investment offerings. However, it does offer a state tax deduction so I'll have to weigh that into my decision. Knowing that I can easily transfer to another state plan might make my decision easier.

Increase Cash Reserve Fund (Vacation house down payment fund) to $100k (Current balance $78k, remaining $22k Total)

After taking out $12k to fund our IRAs and start a 529 plan Cash Reserve Fund will be down to about $78k. I loosely call this our Vacation house down payment fund because I see these funds as a start to getting our retirement home on the Vineyard. Its likely that we'll need to get a vacation house first until we meet our retirement goals, perhaps trading up along the way to our retirement home. To replenish this account, I'll expect to add an additional $20k in small amounts as feasible.

Maintain $50k emergency fund ($0 Total)

Sounds easy, but I'm expecting a couple of large expenses in 2008. One will be a new vehicle for my wife.

Total 2008 Savings objective is $91k. ($31k will be via pre-tax 401k contributions, the remaining $60k will be after tax savings. If we discover living without my wife's salary, during her 401k contributions, works then we'll shift the majority of her income into meeting our savings goals.)

Retirement Progress - Net Worth - December

2008-01-03T17:57:00.000-05:00

So I've decided to track my retirement progress on the 3rd of each month. My most recent progress report is down, which I expected, due to the market drops on 1/2. Overall, I'm please with my progress. I started 2007 with a retirement net worth of $477k and ended with a retirement net worth of $591k (+$114k).

2007 - January

2008 - January

In my first retirement progress post I mentioned my lack of formal goals (other than wanting to retire by 45 to live in my version of paradise). So I've actually come up with some 2008 goals.

Grow my 5 DRIP stock account balances to $10k each (Current balance=$20k, remaining $30k Total)

Fully maximize 2008 401k contribution for myself and my wife ($31k Total)

Contribute maximum to both our IRAs using Cash Reserve Fund ($0k Total)

Open up a 529 account with initial $2k investment from Cash Reserve Fund & Contribute additional $8k or $666 monthly, ($8k Total)

Increase Cash Reserve Fund (Vacation house down payment fund) to $100k (Current balance $78k, remaining $22k Total)

Maintain $50k emergency fund ($0 Total)

Total 2008 Savings objective is $91k.

Retirement Net Worth Goal is $717k.

Couple of things to note with goals above - You'll notice that I will access about $12k from my Cash Reserve fund to invest in our IRAs and 529. Obviously, goal 3 is a cake walk as I'm just shifting funds between accounts and goal 4 also has a head start. However, I plan to replace those funds and then some with my goal 5.

I'll talk a little bit more on my strategies for completing each goal is my next post.

DRIP, DRIP, DRIP....

2008-01-02T13:48:00.000-05:00

I'm a big fan of Dividend Reinvestment Plans (DRIPs). Its a simple way to get your feet wet investing in stocks which doesn't require a lot of money. I actually opened my first DRIP account shortly after graduating college. I contributed regularly for about 8 or so years, sometimes as little as $10 a month. I eventually had enough for a down payment on a condo ($15k) which after a couple of years turned into a lucrative investment, as I happened to sell during the peak of the real estate market.

In 2004, I reopened a DRIP account via Computershare.com. Many companies will allow you to purchase your first share and make regular contributions directly via Computershare, avoiding hefty broker fees. Unfortunately, other companies require that you obtain at least 1 share (incurring broker fees) then you can join their DRIP. All the stocks provide the option of reinvesting your dividends. I really believe in the power of reinvesting your dividends. It may not mean much with a small balance but over time those dividend can grow to represent the cost of a single share or more. Dividend reinvestments helps in the "set it or forget it" type of investing.

I have read that DRIPs are likely not the most effective investment vehicle because determining your cost basis can be a nightmare without good accounting and dollar cost averaging usually doesn't see the same returns as a single buy. I've also heard this from my broker who recommended that I receive dividend into my money market account until I have enough money to repurchase full shares (somehow, I imagine that would be in his best interest commission-wise). Overall, I find it an easy way to save small amounts in stocks.

I currently have the following stocks in my DRIP account;

My current strategy has been to add funds in $100 increments periodically, trying to get each stock over the $5k mark. Its been a real joy to see the balance increase over time. I plan to make my savings more formal in 2008, maybe adding $50 to each stock monthly electronically.

2007 - Stock Cleaning

2007-12-28T14:49:00.000-05:00

Let me start by saying I'm not a fan of full service brokerage firms!

My wife and I are buy and hold type investors. During the first year of our marriage we slowly combined our individual stocks into her brokerage account (minus our DRIPs which hold an additional 5 stocks). We quickly realized that we had over 18 stocks in our brokerage account and we lacked investing direction.

After examining our portfolio we decided to exit 9 of the 18 stocks in our brokerage account (Att, Citadel, Idearc, Comcast, Disney, Home Depot, Time Warner, Qwest, Rowan) and reinvest the proceeds (about $28k) into two existing holdings Berkshire B shares and JP Morgan.

We decided to exit these stocks for a number of reasons including;

We held less than 30 shares of ATT, Citadel, Idearc and weren't likely to reinvest
Our cost basis loss for Home Depot, Qwest and Comcast more than offset the profit on our other stocks
We don't have long term confidence in Disney, Time Warner, Qwest.
After examining some of our existing holdings (mutual funds) we realized that we already had exposure to Comcast and ATT.
We want to start 2008 with a cleaner, more focused portfolio and clear out any tax implications prior to our kid's arrival.

Now back to why I'm not a fan of Full Service Brokers. The above transactions (@$28k selling 9 stocks/buying two stocks) resulted in $840 of commissions - Completely ridiculous. I suppose it would be a different story if I relied on my broker for advice but he was simply taking an order. I'll need to find a better solution for our stock portfolio. I took a quick look at Fidelity and the above transaction would have only been $220 (9 sells/2 buys).....

So we'll enter 2008 with 9 stocks in our brokerage account and 5 in our DRIP account (all of which we have confidence in). We'll continue to contribute to our DRIPs in 2008. Originally, I planned to merge our DRIP stocks in our brokerage account when they reached a certain level, but now I think I have to rethink that approach.

Early Retirement Strategy

2007-12-27T13:08:00.000-05:00

In a previous post, I've hinted at the range of money I think would be needed to retire comfortably. I read a lot of personal finance magazines and they constantly repeat the same thing over and over regarding retirement. As I plan for my early retirement, I've been leaning toward a new strategy to get to my goal quicker.

Let's take some of the general rules of retirement. (I've skipped the basics covered in previous posts.)

You'll need about 85% of you current income to have a comfortable retirement

You can draw 4% of your investments without hurting your principle

Every $20k earned via a part time job in retirement is like having an extra $500k in savings.

I never really gave point #3 much thought but it might be the golden nugget to reaching my goal much earlier than expected. I know that I want to have some type of job in early retirement. However, I've always thought of that job as a way to keep busy and do something I enjoy not really as a source of income, which will naturally be a byproduct. Taking the general rules above, I've created a chart that gives me some indication on how I could retire based on my savings and income thresholds.

First, Here are the earnings I could expect conservatively based on a 4% withdrawal. For these charts I've made the assumption that $4 million is the minimum retirement goal.

Now, Here is a chart which shows how much income would be required in addition to savings to meet my retirement goals. The white space shows the potential retirement areas. In the chart I've made the assumption that $4 million would be the minimum retirement level. So for example, If I had $2 million dollars in savings, a part-time household income of $80K would be like having $4 million in retirement savings (every $20k =$500K). I could choose to live off only the part-time income and continue to reinvest my earnings (at 4% on $2MM that would be $80K). If this would be possible then that $2 million savings would double in about 18 years (using the rule of 72 - 72/4%=18 years).

Of course, the challenge with this approach is that you will always need to work and earn sufficient income. This approach has given me some more to think about but I don't think its the final answer. I'd like to be able to have a job that I enjoy and not focus on how much or how little income it produces in retirement. This type of retirement would continue to keep the pressure of maintaining certain income levels throughout retirement.

My goal is to retire on Martha's Vineyard. The biggest obstacle will be securing housing (which I'll cover in another post). Once I secure a house on the Vineyard then I feel that my overall expenses will drop considerably (e.g. commuting costs, general expenses, savings, etc.)

Personal Finance - the broken record?

2007-12-27T12:01:00.000-05:00

I'm a regular reader of a handful of financial blogs, and magazines like Money, Smart Money, and Kiplinger (my favorite). I guess like many people I keep on reading expecting to find out some new or creative way to meet my goals.

I do have one success story on reading about personal finance. My first job out of college I received a $660 bonus one quarter. That very day I happened to pick up a copy of Investors Business Daily and read an article about Direct Reinvestment Plans (DRIPs). The article profiled what an investor could buy with $600. I took their advice and about 9 years later with regularly monthly contributions ranging from $10 to 250, I had enough money for a down payment on my first condo.

Since then, I have yet to find another compelling story or strategy. In general, here is what personal finance magazine will tell you over and over again.

Debt is bad - Duh, they do tend to advise that paying down debt before investing often leads to a higher return (e.g. paying down a credit card at 13% is equal to getting a 13% return)
Compounding is King - I agree this is the most important statement. The more you save earlier in life the better time will be to you interest-wise. This is often the most difficult rule to follow as most younger people are not discipline enough or focused on investing. You can find out how long it will take for your money to double by dividing the interest/return rate by 72. Not the most accurate method but a guideline nonetheless.
Save via tax deferred accounts - Every working being with a 401k option should invest the minimum to get an employer match (if offered) to avoid losing free money. They constantly talk about Roth IRA accounts, however these account are not available to everyone based on income limits. In my mind, many hard working folks are priced out of this great savings vehicle.
Save for retirement first, College second - You can always get a scholarship, loan or grant for college but not for retirement. I love this advice. I constantly hear people fretting over college savings, but I'm less worried. I had to work and take loans out for college so I don't see why my future children couldn't do the same.
Invest a majority of your savings in the market - Stocks have a higher historical return of about 11%. While they may go up and down, if you invest for the long term then you should be in good shape.
Don't put all your investments in your company - Pretty solid advice given some high profile fallouts like Enron and Qwest.
You'll need 85% of your current income to retire - Not sure that I agree with this statement completely. Often times people find they are living to work - meaning that in order to get a high salary you have to live in a high cost of living environment. If you remove the need to live in a high cost area and the need to save aggressively (as you are already retired) then the replacement income would be more like 50-75% and often less depending on what you plan to do during retirement.
You can take out 4% of your savings without any impact on the principle - Basically your money should earn no less than 4% so you are safe spending that amount each year.
A part time job in retirement can make up for any short fall - A $20,000 income in retirement is equal to an additional $500k in savings.
You might be saving too much - This is a statement I've begun to see a lot more. Generally people are scared into thinking they will need a huge retirement nest egg (I'm no exception) when in reality that might not be the case for the following reasons; expenses during retirement are likely to be a lot lower, any income during retirement will offset expenses, some form of social security will likely exist.

Why I like Interest Only Mortgages...

2007-12-11T22:08:00.000-05:00

I live in a big ticket real estate market - Washington DC. Three years ago, at the height of the roller coaster DC real estate market I bought a row house using a 25% down payment(I had recently done well selling my first real estate purchase). As this was a big purchase, I went with an Interest Only 7 year ARM. I did this in spite of the horror stories people were telling me about interest only loans.

I have to admit that I'm almost embarrassed to tell people that I have an interest only loan for fear of being scorned. However, my experience over the last couple of years has been very favorable.

I think for the following reasons;

Low Rate - At the time of purchase, the interest rate was considerably lower than a 30 year jumbo.

Long Window - A 7 year safety net makes me comfortable. If I'm honest with myself, I know that I will not stay in this house longer than 7 years. As a matter of fact three years into it we are actually already shopping around for a bigger place.

Flexibility - You are basically just paying flat interest divided over the loan time (in my case 7 years). You can choose to add to your interest only mortgage payment which reduces the principle amount. The more principle you pay the less your interest only payment will be each month. I've actually found that I have paid more principle with this interest only loan then I did during the same time period (3 years) on my previous 30 year fixed mortgage.

Interest, Interest, Interest - I think this is the best. At the end of the day, we are all just renters (unless you are in your dream home already!). I find that the interest only loan affords me a low mortgage very comparable to market rate rents in DC which I can fully itemize come tax time.

I guess the negativity of interest only loans comes from the lack of equity - especially for people who put no money down. In those cases it could easily turn south if you needed to move and found yourself in a negative equity position. If you are putting at least 10-20% down, expect to live in a house for less than 10 years, I really can't see why you wouldn't do an interest only loan. I'd be curious for people's feedback.

If possible I'd like to use an interest only loan to finance a vacation home in the place I want to retire. Even though my goal with a vacation home is long term focusing on building equity I still think an interest only loan might be the right starting vehicle for me. Here's why:

Down payment - I'd plan to put down at 20%
Payment Flexibility - I can create budget after budget but you never know what unforeseen expenses might pop up. There is very little room for error with two mortgages to pay each month so I'd welcome a lower initial payment. At least, until I could get a handle on the true annual expenses of a vacation home. I would also plan to rent out the property in an effort to defray some costs. I won't know exactly how much I can raise in rents consistently for at least two seasons.
Time Frame - I'm in it for the long haul. I'd imagine using an interest only option for maybe 5 or 7 years depending on how favorable the rates are at the time. After the initial rate lock I would expect to refinance. Depending on the rates I'd refinance at a fixed rate or if the rates are too high I'd probably be ok with refinancing another interest only. This might result in higher fees over time but depending on how I handle my tax situation many of the fees could be deductible.
Principle Flexibility - I would have the flexibility to pay down principle on my terms. For example, perhaps I make additional principle payments during the summer when I might collect rents, but just do the interest only payment during the winter.

The only negative complaint I have about interest only loans is that Quicken 2005 doesn't handle them very well.

Can I get rich while wearing $300 shoes?

2007-12-11T15:16:00.000-05:00

Business casual is mode of dress for my work. About three years ago I discovered that I was forking over anywhere from $100-150 every six months or so for a new pair of shoes (nothing fancy - e.g. Kenneth Cole, etc). It wasn't out of vanity or desire for a new pair of shoes. I just found that most of the shoes I was buying only lasted that long before getting cracks or creases making them look sloppy.

I was always reluctant to spend more than $150 on work shoes, but as it turned out I was investing close to $200-300 a year buying new shoes every 6 months. I decided to bite the bullet and bought a pair of Allen Edmonds Leeds oxfords (market price: $315). I settled on this style because it was simple and looked good for business causal, in jeans and even a suit.

Here's the value proposition from my point of view;

Real Leather - These shoes don't crack! As a matter of fact they start to look better with age. My first pair actually are so comfortable they feel like I'm wearing slippers.

Recrafting- Allen Edmonds actually offers a program where they resole and re-finish your shoes for $99. I did this after 2 years for my first pair and actually felt like I got a new pair of shoes in the mail.

Versatile - When traveling for short business trips I only wear my Allen Edmonds cause I can pull them off with business casual and jeans.

Financially, I feel like I made a smart choice (although my wife still gives me grief over my $300 shoes). My first pair of Allen Edmonds cost $285 on sale and I've had them for three years and they are going strong! I paid $99 to have them refinished once. So a $384 ($285 purchase + $99 recrafting) investment over 3 years is lower (about $128 a year) than my previous $200-$300 annual shoe investment.

That's my logic, so I've now added a second pair.

Learning how to fly frequently

2007-12-10T21:56:00.000-05:00

For the last couple of years I have traveled pretty frequently for business. As you can imagine traveling for business can be a hassle so I've spent some time streamlining my approach. Two years ago I use to book any carrier randomly based on the best price and flight times. I soon realized the following makes for a more effective travel experience;

Stick to an Alliance - United is a part of my company preferred travel plan so I consolidated all my flying to United. As a United 1K, I'm a member of the Star Alliance network which includes two US carriers United and US Airways. It also has Lufthansa with great Europe and Asia Pacific routes. I take about 5 international trips or so a year and have found Lufthansa to be an excellent choice with Frankfurt being an easy connection hub.

Status means everything - Miles are nice, but I'd forgo the miles simply for an elite frequent flier designation. As a United 1K you are also a star alliance gold member. On a value scale of 1-5 (5 being the best), here is how I rate the benefits of elite status;

Preferred check-in (1) - Not a huge benefit for me. On international trips my company pays for business class which comes with this benefit. On domestic flights I check-in online and carry on.

Preferred Security Line (5) - When this works it is by far the greatest benefit. There have been times when I've been able to bypass at least a 1-2 hour wait.

Preferred Seating (5) - As a frequent traveler I've realized that I find the front of the plane more comfortable. United restricts the types of seats you can select based on your status. I've found by logging in as a 1K that more seats are available for my selection.

Preferred Boarding (5) - Anyone who has ever flown knows that its a mad rush when a flight opens up for boarding. As I carry-on for domestic flights I just want to make sure I get my things in the overhead bins before novice travelers fill them up with coats and bags 10x too large to fit.

Lounge Access (5) - While this is only a benefit for international travel it is still great even if you are already on a business class ticket with access to a business class lounge. I've found as a star alliance gold member that I can get access to nicer lounges for me and a guest (e.g. Lufthansa Senators lounge).

Upgrades (3) - People might be surprised at my low rating for upgrades. As a 1k member I've built up a bunch of regional and system wide upgrades. Using an upgrade is a great benefit but for me I just want my travel to be easy - get me to and from my destination as efficiently as possible. Upgrading with United can get complex, in the past year I've had upgrades clear for planes without a first class cabin that I've checked-in for without any notice from the gate agents (talk about confusion when boarding the plane). I used a system wide upgrade recently for a trip to Scotland and it involved a couple of calls to book and confirm availability of the upgrade.

Miles (2) - I guess they are convenient to use for a vacation or a last minute flight. I recently used a chunk of miles to fly my wife over to Scotland to join me after a business trip. The availability restrictions for using miles often make them useless for me.

Recognition (1) - United recently rolled out a red carpet to recognize their elite members. This does nothing for me. If United wanted to recognize me I'd much rather it come from a flight attendant in the form of a friendly "thanks for joining us again". Or even better have a service for Elites to notify them of delays or cancellation and re-booking options that is actually accurate and on-time.

Get there early - I have a random rule to leave my house 3 hours before each flight. It typically takes me 20-60 minutes to get to one of the 3 local airports. Often times I get to the airport with plenty of reading time which is ok with me as it reduces the stress of travel. This rule has saved me in cases of extreme traffic and security snafus. I've also found that I now have a "go to" parking space at each airport.

Pack Right - About a year ago, I invested in a carry-on expandable Tumi rollerboard and expandable laptop bag. They have made my traveling life so much better as I know they fit in any overhead. I've also surprised myself on how much I can actually fit in both bags (e.g. worked for a 5 day trip to Jakarta). I also keep a pre-packed toiletry bag which I just drop in my carry-on. It does wonders for not forgetting crucial items like toothpaste or a razor.

Invest in Bose quiet headset - Personally, I throw on my noise cancelling headset on every flight even if its just an hour. Listening to my ipod just makes for a more relaxing trip.

Use your corporate card for everything possible - Often I run into taxis who are reluctant to accept Amex or I just pay cash for that quick bite at the airport. This adds up over time so I now always request a taxi that accepts credit cards (almost 95% time this works in the US). Why should I front the $50 cab ride, right? I've also become a fan of using the card for quick meals at the airport which are a qualified expense but often never made it to reimbursement as I forget or lose the receipt.

Join Membership Rewards - If Amex is your corporate card these points add up quickly if you are a frequent traveler. Not sure how I'll use these points but based on the online catalog they appear to have much more value than frequent filer miles.

Vacation Home - Should I do it?

2007-12-10T17:16:00.000-05:00

Goal: Retire early (defined as before 45) on Martha's Vineyard.

As this blog states our goal is to retire early on the island of Martha's Vineyard. Now the amount of money and path taken to reach an early retirement can be taken many different ways.

Ultimately, I figure I'll need the following to qualify (in my mind) for early retirement;

1) Place to live - Enough money to cover a primary home. As this would likely be our final family house it should be at least 75% paid off. My thinking here is that I don't want a huge mortgage to dictate our lifestyle and/or dip into our savings.

2) Savings - Its hard to decide on a firm number but it will be no less than $1 million. The more the better of course. I view this as basically a safety net and would not plan to tap into savings until maybe age 55, ten years into my early retirement plan or later.

3) Job - A job? I thought this was early retirement? Yes, I would still like to have a job however it would be significantly different than what I consider a job today. My focus would be on doing something that I enjoy -probably starting a small business. I'd like to have a job for a sense of purpose rather than an extreme need to pay a huge mortgage/bills. The side benefit of working is that it should defray most of our living costs if we have done well at #1 & #2.

The earlier that I can qualify myself for the 3 items above the sooner I can begin my early retirement. I need to figure out a strategy for attaining each goal.

Job - I'd like to use this opportunity to start my own business and do something that I enjoy. As Martha's Vineyard is a seasonal place I could potentially have a seasonal business which could afford a nice "early retirement" lifestyle. The big challenge is to keep my expected expenses low so I wouldn't be required to earn a huge amount of money. I'm still unsure of what type of business I might like to start. I'd also expect my wife to either support the business or work very part time (e.g. 20 hours or less).

Savings - This seems more straight forward. Our goal would be to continue to focus on saving the maximum toward our tax deferred retirement accounts and consistently save regularly in our investment accounts no matter how small the contribution.

Place to live - Well, I've been thinking that I could leverage my primary home equity as the down payment for our Vineyard house. I estimate that we have about $200k in home equity on the higher end of the conservative scale. Of course, we are likely going to move prior to retirement so this equity will be used to fund a larger home in the DC area and there is no telling how the market will perform over the next 10-15 years. Let's just say hypothetically, that we still would have $200k in home equity upon retirement - that certain won't be enough to secure 75% of our new home on the Vineyard given the prices in the location that we like are going for $1MM-$3MM at 2007 rates!

So one strategy, I have been toying with is buying a vacation home on Martha's Vineyard. In a perfect world we could purchase a starter home in our preferred location with the opportunity to expand it. Unfortunately, we've fallen in love with the most expensive town on the island where starter houses don't exist unless you inherit one. So what about buying a very rent-able house in one of the more popular towns, with the goal of using its equity to assist in funding our house of choice for retirement?

Growing Family - Impact to savings?

2007-12-10T15:55:00.001-05:00

My wife and I are expecting our first child in early 2008. We are both very excited and probably a little nervous. To date, we both work full time, focus on savings but still liberally do and buy what we want (all within reason) without much thought. Our only major expense is our mortgage. I have a six year old car which is paid off and my wife is fortunate enough to be able to use public transit so having one car has worked so far.

This year we also managed to save pretty diligently.

Retirement
401k - $15,500 We both contributed the max 2007
IRA - $4,000 We both contributed the max for 2007

Investments
DRIPs - We started trying to save the left over of our 401k contributions after we hit the max limit, probably around $1-2k per month. However, we haven't had a great track record given higher vacation expenses and a major car fix ($2k).

Undoubtedly, having a child will put a kink in our savings ability and opportunity.

Maternity Leave - My wife will take off 3 months with the birth of our new addition. Currently, her employer only covers 6 weeks of full pay for a regular birth and 8 weeks with a c-section. The remainder of her leave will be non-paid. Had I thought about that earlier, I might have signed up for an external short term disability plan (they usually have a 10 month premium window) to recover some of her lost wages.
Baby Stuff - Babies cost a lot, so I'm told. Its really amazing the amount of gear required to raise a kid including toys, clothes, food, etc.
New Car - We'll have to bite the bullet and get a second larger car.
College - This is one area I'm not as worried about, rightly or wrongly. I've always believe we should focus on our retirement savings first as there will always be loans available for college. I mainly used scholarships, grants and loans for my undergrad and it seems to work out fine.

For now, I'd like to create a plan to continue to max out our retirement savings prior to the enviable unforeseen costs that will arrive with the stork in early march.

Retirement Progress - Net Worth - November

2007-12-10T12:13:00.000-05:00

I haven't really set any goals or targets before for my retirement progress. As a matter of fact, I never took a close look at which accounts are up or down just at the final number. Just for the record, I define retirement progress and net worth differently. Retirement progress being pretty much savings/investments minus expenses. I don't consider my primary residence value or mortgage as a part of my retirement progress. Mainly because any value in my house is pretty much useless to me unless I move to a cheaper place and free up the cash (which is very unlikely given the area I like in). I also don't include the value of my car - once again its pretty useless unless I sell it to free up the cash and walk everywhere - once again unlikely. Many people might disagree with not including my house, car and other valuables because of leverage but I like to track it this way. It gives me a better idea how close I am to my retirement goal while still having a place to live and a car to drive.

Real estate prices on Martha's Vineyard are similar to DC so I could feasible exchange the expense of a DC row house for one of a MV house. (Although, I'll likely want to trade up).

I've started to track my retirement process on a monthly basis as perhaps a motivator. Below is my November progress.

As you can see I currently have a high cash position. This is comprised of a $50k emergency fund and the remainder is a cash reserve fund earning a decent 5.17%. I've been saving this money as a down payment for a vacation house on Martha's Vineyard. To date I've been very hesitant to do anything with the cash reserve because I'm not quite ready to buy a vacation home and I'm unsure of whether to invest in stocks as I feel earmarking these funds to a specific goal (vacation home) will make it more likely that I achieve that goal.

It was really eye opening to view my accounts in this fashion. While most accounts saw a decrease mainly due to declining markets. I could see my stocks increase mainly from deposits to my DRIP accounts. It is even more telling to view my YTD progress

Merging two single lives financially

2007-12-10T11:27:00.000-05:00

After more than a year of marriage we have just about merged our financial lives. I've always been a diligent saver actively looking at ways to increase my retirement and investment savings. My wife is probably the exact opposite, however, fortunately her parents took some good savings measures for her as a child (e.g. stocks).

I've been using Quicken for the last two years and find that spending just an hour or so on my finances a day goes a long way. It may sound like a lot of time but for me I've found that a small focus on our finances keeps us on track.

While our accounts are now consolidated, we still have a lot of undesirable stock positions. I've always been a buy and hold type person partly as I'd like to avoid any tax implications for as long as possible. Althought, now that are financials are merged I think we'll need to start looking at streamlining our positions. My initial thoughts are to do the following;

1) Fund DRIP accounts to a balance over $5k each, then transfer to my brokerage account
2) Sell any stock under $5k (except Comcast which I think is still a good position) This should raise about $15k which could be used to enforce existing positions probably in Berkshire or Comcast.

Retirement Goals

2007-12-10T11:10:00.000-05:00

Retire early
I suppose its easy to say I want to retire early but what does it really mean?

For me its really about financial freedom. I still want to work and couldn't imagine ever stopping no matter how old or rich I become - mainly because it adds purpose to my life. Retiring early for me means that I could work on my own terms. For example, I've always had the desire to open/run my own business but have avoided the risk mainly due to my career.

I have a Huge fear of running out of money during retirement so how much would it take me to walk away from the "corporate" world? I've thought of a couple of net worth scenarios below....

$6 million - I guess I equate this number to being rich. Conservatively, a $6MM portfolio will throw off $240K at 4% without any impact on the principle. Unfortunately, the likelihood of me achieving this net worth at an early age (40-45) is extremely unlikely.

$2 million - Conservatively, this could be $80k a year at 4% without any impact on the principle. While a million or two certainly is not rich nor does it have the buying power of 20 years ago it still very solid. If I intend to work during retirement an extra $80k would defray the pressure of maintaining a six figure income. It is also a more likely achievement for age 40-45.

$1 million - I've long since discounted ever being able to retire with just a million dollars. Given inflation and myriad of things that could occur between an early retirement and death it just doesn't sound like enough of a safety net (depressing, huh). No matter, I still think a million dollars is a huge milestone and a very likely achievement for early age 40-45.

Towns of Martha's Vineyard

2007-12-10T10:48:00.000-05:00

Many people might think of the "Vineyard" as a blue-blooded summer vacation spot where the rich jet-set away for the weekend between visiting their other houses around the world. While I'm sure there is some truth to that - the Vineyard I've come to know is significantly different.

Most people are surprised to learn the size of the island. As a matter of fact, its over 100 square miles (that's bigger than Washington, DC at 60 square miles). My wife and I got married on the island and many of our guests were shocked to learn it took over 45 minutes to go from the church to the reception.

Basically, there are six formal towns each with their own unique features. Geographically people often refer to down island (Western) or up island (Eastern). Most visitors typically stick to the down island towns (Unfortunately for them).

Down Island
1) Tisbury (Vineyard Haven)
This is the largest town on the island and home to the most year round residents. The Steamship Authority (ferry) calls this town home and provides year round service. This is a dry town.

2) Oak Bluffs
Probably known by most visitors as the party town with the campground cottages it is one of two towns on the island that serve/sell alcohol.

3) Edgartown (includes Chappaquiddick/Katama)
The second wet town known mostly for its stately white houses and brick sidewalks. Its probably the most elegant town and the cause for much of the snooty rep. that MV gets.

Up Island
4) West Tisbury
Mostly, known for its farms and general store, this town is the first up island town where you start to see the beauty of the up island towns.

5) Chilmark (Includes Menemsha)
This arguably is the most scenic town on the island. Here you'll find rolling hills and rock walls defining gentleman farms and hidden estates.

6) Aquinnah (Gay Head)
Home to the Wampanoag Indians, breathtaking cliffs and not much else.

Why the Vineyard?

2007-12-01T08:43:00.000-05:00

Growing up we lived in New England and my dad use to rent a house in Oak Bluffs (OB) in the Sengekontacket community. We'd drive down to the Vineyard with my Aunt and Unlce and spend a week swimming, playing cards and having lobster bakes.

It was a pretty fantasic vacation that I always looked forward to each year. As we got older, we eventually moved overseas and stopped our vacations to the island. The older I get the more I realize I'd like to recreate that experience for my future family.

About two years ago, after turning 30 I started to go back to MV with my then girlfriend (We are now Married). We've been hitting the island every other month since. Its been a great experience getting to know the different towns and attractions and we look forward to learning more and more.