A brief history of Winning Williams

budget, cut expenses, debt, early retirement, financial independence, FIRE, frugal, get out of debt, how we win, personal finance, retirement, savings

Many on the path to financial independence often talk about a big moment where they decided to give up their spendy ways forever and start saving for an early retirement. Our story has no such moment, sorry folks. Saving was never an issue for either of us. But, there was a time before we discovered the FI community when we blindly saved without early retirement or a specific goal in mind

So how did this all happen? When we met (and fell in love, and held hands, and made googly-eyes at each other), we were both already big money nerds. We both had spreadsheets, although Mr. WW’s spreadsheet was pretty sick.

At the end of 2012, I, Mrs. WW (still a Ms. at that time) repaid my student loans and Mr. WW repaid his mortgage. We celebrated with a wild and crazy night on the town – hot dogs and ice cream sundaes for a whopping $12 (after coupons). Wild AND crazy!

We had prioritized debt repayment and with that out of the picture, we had a surplus every month without any direction to funnel it into. We looked over our budget and asked some questions: “should we put all this extra money into trips?” “could we try to retire early?” “nah, we don’t have that much money.”

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So, we did what any typical American couple would do… we spent it. But, not in a “jet planes, islands, tigers on a gold leash” kind of way. We did the monthly dinner at a local restaurant with our church group. I bought a few groupons to get my nails done, had my hair done regularly, and started getting a monthly Birchbox. Mr. WW got two fancy SPF shirts. In all, our additional spending didn’t really make a drop in the bucket.

Somewhere during this time, we got engaged (YAYAYAY!) and we had direction for our extra money now. (No!) We knew that we wanted to be true to ourselves when planning the wedding, so while it wasn’t free, it was nowhere near the national average cost. A few months before the wedding, Mr. WW stumbled on a website called “Early Retirement Extreme.” This got us thinking, and sometime in 2013 we took the 21 day challenge.

While we didn’t buy into many of the changes (we wanted more than roman noodles, lentils, and beans), it opened us up to challenging common thinking and eventually led us to many other blogs (including MMM, Frugalwoods, and most recently Our Next Life). This all took place about six months before we got married in 2014. A great time to have these financial conversations, but too late to back out of our dream wedding so we still enjoyed that big expensive party!

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In 2013, the master spreadsheet was born and financial tracking began. This has taken a life form of its own. We primarily started tracking all of our spending by category, Net Worth by quarter, and savings rate. We made progress detailing each line item and asking ourselves if that expense aligned with our priorities and values. It has now morphed into a 20+ tab spreadsheet highlighting different financial aspects (tax planning, asset allocation, FI planning, etc.)

The reason we are now striving for FI is to live life completely on our terms and without the day to day necessity of a job. By removing the chains, we can travel freely (and perhaps cheaply via slow travel), spend more time with family, and enjoy what this world has to offer. By living this frugal lifestyle, we know we can handle what life may throw at us (layoffs, downturns, other challenges) and with less stress.

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So how does any of this personal information help you? If you are like us and want something more out of life, then check out the vast library of information available in the F.I. community. If you read through the blogs and think “wow, that’s great for them, but my story just isn’t that exciting,” well guess what ours isn’t either. We were big savers and now we are big savers with a purpose. It doesn’t matter how big of a change you made to get you to FI it just matters that you get there on your own terms.

Iceland: Tips, Itinerary, and How we saved $1500!!

budget, expenses, frugal, how we win, travel

Sorry for our long delay in posting, we’ve just returned from the first travel-hacked trip to Mars:

winning williams mars

Land near Lake Myvtan in Northern Iceland looks just as open, empty, and red as Mars!

Just kidding, we went to Iceland and saved a ton of money leveraging all that we learned from Travel Miles 101. Yet again, our travel savings are north of $1,500 dollars. Here is what we did, how we saved, and how you might be able to use some of our tips on your own trip:

Epic Ring Road Iceland Itinerary

-Specific tips to maximize your experience and help you save-

We just returned from an awesome, awe-inspiring trip to Iceland. For those of you thinking of traveling to Iceland we have some tips that might help you make the most of your vacation!

Our trip was taken in May 2017, considered shoulder season in Iceland. We prefer to travel during this time for three reasons:

1) the weather was improving and great for hiking

2) there were fewer tourists than in the high season, making navigation and hot spots less populated

3) pricing hasn’t reached peak levels given the moderate tourist levels.

While the weather was improved, it was still Iceland. Keep in mind that when you travel there the weather can be volatile no matter the season. You can easily experience multiple seasons in a single day, and that we did on multiple occasions. For this reason, you need to be prepared to be somewhat flexible in for plans and prepared for what Iceland is going to throw your way.

Before we get into our itinerary, here are some helpful tips to help you have a smooth stress-free vacation to beautiful Iceland:

Tips:

  1. Credit Cards / Gas

Using credit cards in Iceland is easy; we used ours for every transaction and did not pay for anything in local currency (Icelandic Krona). This made it very convenient and the exchange rate was pretty straightforward in May 2017 (roughly 100 Krona per $1 USD).

Make sure your credit card does not charge fees for foreign/international transactions. Many don’t, but it is wise to confirm before your trip. You should also let your credit card company know that you will be traveling internationally (and what dates) so they don’t freeze your spending while in Iceland!

One of the most important things you need to do with your credit card is to set a PIN number associated with it. This is one of the functions of the new chip cards. Pretty much all over Iceland, the gas pumps took credit cards, but for international visitors (like us) it required that we enter a PIN number with our chip card. No PIN, No gas! We did not do this beforehand (oops!) but, found a workaround at N1 stations.

One of the most prevalent gas stations in Iceland is the N1. Great gas station, many of which (not all) come with a restaurant / shop of some sort inside along with updated road conditions. Inside you can buy a prepaid gas card in various increments (roughly $10/$30/$50 increments) and use that at the pump outside. Naturally this is much less convenient than being able to fully fill up without having leftover krona on your prepaid gas card. However, we bought several prepaid gas cards along the way at N1 locations (sometimes with maps.me described below), and they always seemed to be in reach.

NOTE: You will also want to fill up your tank as much as possible. Some days we would be driving for hours before seeing a gas station. If you have a half a tank or less and see a gas station, it is time to fill-up.

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Oh you know, just the glacier behind our hotel…

  1. Maps.me

The Ring Road is a simple drive on the perimeter of the country that offers breathtaking views at every turn. We made several stops for hikes, lodging, etc. along the road

Instead of getting an Icelandic SIM card, using cellular data, etc. we went old school with a couple hard-copy maps and printed Google directions to each stop. However, this couldn’t help us if we made a wrong turn (a couple times the sign we needed was blocked by another vehicle) or in one case when Google Maps was wrong (which did happen).

Our saving grace was Maps.me. We didn’t need it often, but the couple times we did absolutely saved us from getting lost, potentially to back-track, or just simply ditch whatever stop we had hoped to make.

Maps.me is a free app you download to your phone. You then select it to download Iceland (before you leave for your trip when you are on wi-fi) and then you can zoom in and put pins at each of your desired locations. We literally pinned every hike and lodging we stayed at. While in Iceland, my phone was on airplane mode to make sure I didn’t get hit with any roaming charges, etc. Maps.me allowed us to see where we were the couple times we got misguided and showed us how to get back on track.

I was shocked it could actually tell where we were when in airplane mode. Nonetheless, Maps.me was absolutely crucial the couple times we needed it and was completely free. It also allowed up to zoom in when we were near a town to determine where the closest N1 gas station was for our aforementioned prepaid gas card needs.

 

  1. Parking into the wind.

Icelandic wind is no joke. Apparently it is third most windy country in the World. When we picked up our rental car, they told us to park into the wind (so that it would be difficult to open your door). The opposite could be detrimental. The wind can be so strong it can literally rip the door of the hinge. Of course, you don’t always have that option to park into the wind. Simply hold on tight and be ready for the wind to gust at any moment. Just something to be cautious over.

 

  1. Bring Food / Buy Groceries / Eating Out

Iceland food is very expensive (easily $15-$20 per person for lunch or $35-$50+ per person for dinner) depending on your tastes. That shouldn’t come as a surprise given it is an island near the arctic. Food needs to get shipped in, as goes gasoline needed to transport the food around the country.

Nonetheless, check the Iceland Customs and Border Patrol website for permitted food. We went to Iceland largely for the hikes, not the food (okay, well their famous hot dogs were on our list) and bought food in the U.S. and stored it in our checked bags. This will save you SIGNIFICANTLY on costs. I think each person is permitted to bring 3.5 pounds of food, avoiding the obvious items, raw meats etc. (again check online). We brought peanut butter, jelly (utensils & Tupperware), multiple bags of trail mix, almonds, a dozen tuna packets for dinners, cheerios, power bars, etc.

Upon arrival in Iceland we went to Bonus (big yellow sign and pink pig on it), which is Icelandic’s discount grocery store. There we picked up the breads and wraps for our sandwich making, additional snacks/treats, and some bananas and apples. This served a majority of our meals (breakfast was largely covered by our lodging).

FOOD COSTS

-Groceries packed in our checked bags: $40.00

-Groceries while in Iceland: $33.92

-Meals out: $78.51

That’s right, it cost us more to eat two meals at the airport, one meal in country, and an ice cream date than it did to buy groceries that fed us for the rest of the week. 

  1. Car Rental

We rented from Cars Iceland and had a good experience. While I can’t compare it to others, they seem to provide newer cars and provide additional insurance as part of their price. Iceland comes with certain challenges you might not be accustomed to (gravel roads, sand/ash, etc) and as such we went with the full insurance package. We picked up our small automatic Toyota Yaris with less than 6,000 kilometers on it. It came with heated seats and enough zip to survive the mountain passes, etc. We did go much slower than recommended on the gravel roads to make sure we avoided rock damage as much as possible. Unless you plan on going inland to the marked F-roads we believe a car of this size is perfectly acceptable over a larger more expensive and less gas efficient SUV. Gas is EXPENSIVE in Iceland! Think $8/$9 a gallon.

 

  1. Get OFF Ring Road for a short distance to avoid some gravel roads

The majority of the Ring Road is paved and easy to drive (even with high winds). However, at one junction in East Iceland (along the East Fjords) you have a choice to stay on Route 1 and go inland (outside Breiðdalsvík and on the way to Egilsstaðir) or stay on the coast with Route 96, connecting to Route 92, which meets back up with Route 1. We chose to stay on Route 1, the weather was fine and the first part of the journey was enjoyable.

There were some gravel roads, but we were able to manage them slowly. However, at one point the fog and winds significantly picked up and this was while going up and over a mountain with gravel roads. Visibility was just a few feet and the roads were very narrow. This was truly a scary drive and we were extremely fortunate nobody was either behind us or coming ahead. Maybe we had bad luck with the weather at that moment. Nonetheless, I would highly consider the connecting Route 96 to Route 92 even though it will take you a little out of the way.

When we did our research many sites just said “oh, you can stay on 1 or take 96.” For our purposes, if we had known this stretch of Route 1 was gravel we likely would have opted to take 96 instead to spare our little rental the hassle of trying to get over the unpaved roads.

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Sitting on the edge, watching the water fall, and loving every minute!

Itinerary

Iceland Tips aside, here is a 7-day Ring Road Itinerary that could be used as a guide with your individual planning. Note: we arrived bright and early (in the rental car shortly after 8 am) from the U.S. and had a FULL day to start exploring the beautiful country:

Day 1:

  • Krysuvik-seltun – geothermal area
  • Reykjadalur Hot Springs
  • Bonus Grocery Store
  • Seljalandsfoss / Gljufuafoss – beautiful waterfalls
  • Skogafoss Waterfall, plus trails (at the top of the waterfall and continuing back)

Day 2:

  • Dyrholaey – top of the cliff
  • Reynisfjara Beach
  • Fjaorargljufur (canyon)
  • Skaftafell National Park (Vatnajokull)
  • Svartifoss (part of Skaftafll) / other hikes
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Reynisfjara Beach

Day 3:

  • Jokulsarlon Lagoon
  • Hengifoss (if there is time, this was the instance where Google Maps led us astray and Maps.Me saved us from missing this amazing hike)

Day 4:

  • Dettifoss
  • Asbyrgi Canyon – NOTE: the roads to get here were closed in May 2017. So we would recommend checking to see if the roads are open. If the roads are not open to Asbyrgi Canyon – explore the Myvatn area:

Lake Myvatn:

  • Skutustadagigor
  • Hverarond/Hverastrond Sulphur Springs
  • Krafla
  • Namaskard
  • Grotagjarvegur cave
  • Haverjfall
  • Dimmuborgir
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Hverastrond Sulphur Springs

Day 5:

  • Explore Myvatn (list above, unless you explored yesterday)
  • Godafoss
  • Explore Akureyri (second largest city in Iceland)

Day 6:

  • Glymur (longer hike). Part of the hike involved crossing a river that you had to navigate on foot while holding onto a wire cable. The water was “refreshingly” cold.
  • Start Golden Circle – Þingvellir. (we stayed between Þingvellir and Geysir/Strokkur)

Day 7:

  • Continue Golden Circle:
  • Geysir (strokkur)
  • Gullfoss
  • Faxi
  • Explore Reykjavik
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Stokkur Geysir

Day 8:

  • Depart ☹

 

Savings

  • Travel during shoulder season
  • Bring your own food and avoid dining out. Many people travel to Iceland for the breathtaking views, not the food.
  • We used the Travel Cash Back rewards from the Barclay’s Arrival Card ( we each have one) and a Capital One Venture card to earn $1,524.97 back on our travel costs associated with the trip (total cost was just about $3,000). The majority of our travel costs came from hotels, our car rental, and airfare. There are few chain hotels making it difficult to save on lodging.
  • We didn’t find a way to use points for our Icelandic Air tickets and with a direct flight option available from Orlando ( a short drive from Tampa) we jumped at the chance to go on our dream trip.
  • All of our hikes and stops were FREE. We could have gone to the Blue Lagoon or taken a Whale Watching Tour, but we found other alternatives that were really fun and free. Our only costs were hotels, groceries, gas, and two excellent hot dogs and farm fresh ice cream 🙂
  • Feel free to message us if you have any questions or comments!

Why you should never get a 30-year mortgage

budget, debt, personal finance, savings

To own a home is said to be the American dream. And for many, this is true. A dream of fixed monthly payments over 30-years vs. an unknown amount of rent increases, landlord dealings, and potential moves. You acknowledge the short-comings of home-ownership: maintenance issues, property taxes, home insurance, etc. However, these items offset the uncertainties that come with renting AND you get to build equity in the process. Many believe that equity is as good as easy money that they can one day tap into.
The chart below as provided by fool.com, highlights this fact that a significant chunk of America’s Net Worth is tied to their homes.

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The scary part is this money is tied up and is not available to spend.

The problem is the 30-year mortgage. Our inability to stay in one place for any length of time doesn’t help the situation either. Generally speaking, home ownership is only beneficial financially to the owner, if one stays at a location for a significant length of time (at least greater than 7 years). Transaction costs are enormous and equity is generally built in the back of the mortgage given the amortization schedule.

Other pitfalls of purchasing a home include the other players involved in the transaction. Who are your counterparts when purchasing a home? Real estate agents (profiting off the more expensive and larger home you buy) and bankers / finance agents, who yet again profit with a more expensive and larger home. While their interests are supposed to align with you, they don’t. They make more money by getting you into the largest home and financing the largest amount you can afford. The 30-year mortgage is the conduit to get you into that home. That leads us into the first issue.

Key Issue 1: a 30-year mortgage helps you purchase more home than you could possibly need.
Your income dictates the amount of money a bank is willing to lend to you. Several factors go into this calculation, but generally speaking a lender is willing to offer around 30% of your income towards a mortgage. We’ll use $1,500 a month as a proxy ($60K annual household income equivalent) and this will include P&I (principal and interest on the mortgage) as well as Property Taxes and Property Insurance.

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For simplicity: property taxes, property insurance, and interest rate were held constant. In reality, each of these variables would be less expensive for the 15-year mortgage scenario and would save an even greater amount than what is presented below. The larger home would also cost an additional amount of maintenance (generally estimated at 1% of a home value annually), utilities, etc.

In summary, both scenarios require a payment of $1,500 a month, but the 30-year mortgage gives you the “opportunity” to purchase a home that will set you back an additional $100,000.

If you can’t afford to purchase the home you want with a 15-year mortgage, you should wait to buy.
This would mean that a significant amount of people who think they are ready to purchase a home, would have to continue renting. Or, perhaps rethink the size of the house and associated cost to bring down the cost to an affordable 15-year option. The supersize me lifestyle has certainly affected what we perceive we need in a home. From 1973 to 2013, there was a 91% increase in square foot per person. In 2013, this resulted in over 1,000 square feet per person. The following graph shows that while the average household size (number of occupants) decreases, the average size of a residence (sq. ft.) continues to shoot upwards.

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You’ll need to ignore your real estate agent telling you what amazing house you can afford and instead focus on the core fundamentals of what you need in a property and what you can afford on a 15-year basis.

Key Issue 2: You pay significantly more in interest expense during the 30-year term.

You pay a proportionally larger amount of interest expense using a 30-year mortgage. Let’s continue the example from above and show how much money you’ll save by purchasing the home you can afford with the 15-year mortgage.

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You pay more than three times the interest in the 30-year mortgage scenario.

On the 30-year mortgage, you pay $217K in interest expense, or nearly 50% of your payments. This is $7.2K of interest expense per year on average, a majority of which is paid during the first half of the mortgage. You pay more per month in interest than in principal until you reach month 186 (more than 15 years into the mortgage).

On the 15-year mortgage, you pay $66K in interest (less than 30% of your payments are for interest). This is $4.4K of interest expense per year on average. You only pay more in interest than in principal for the first 6 months of this 15-year mortgage as compared to 186 months on the 30-year.
This is a difference of $151K, money that could be invested and working for you, instead of going down the drain in interest expense.

Key Issue 3: the lack of equity built during the early stages of a 30-year mortgage is restrictive.
This is also one of the key rationales for renting vs. owning. We don’t know what life is going to throw our way. Job opportunities, or even job loss, marriage/divorce, aging parents to care for, etc. While renting provides the most adaptability and flexibility to change, the 15-year mortgage provides a similar advantage vs. the 30-year mortgage.
Let’s say for whatever reason, you need to move after four-years of purchasing a home.

  • With the 15-year mortgage, you will have paid principal of roughly 20% of your mortgage. Combine that with your 20% standard down payment, even with no growth in your home value, you will have material equity in your home available to you.
  • With the 30-year mortgage, you will have paid principal of roughly 6.5% of your mortgage. This highlights the disadvantage of the 30-year mortgage. This means you only have about 1/3rd of the equity as compared to the 15-year mortgage. Side note: if you can’t afford a 20% down payment, you are not ready for home ownership. There are too many “hidden” (intentionally ignored) costs that come with home ownership. If you can’t save appropriately for a down payment, are you going to save properly to fix the A/C, roof, water heater, etc. that will certainly happen at an “inopportune time”.

Key Issue 4: you are tying up key capital that you could put to work for you.
Your personal residence is NOT an investment. Home values have generally kept up with inflation over the long run. Add in maintenance upkeep, taxes, insurance, etc. and your home certainly is not a long-term wealth generating investment. However, the stock market is. The stock market is also extremely easy and inexpensive to diversify unlike your personal residence which is completely location specific with no diversification. It also doesn’t have huge fees and expenses that are associated with home expenses.

The 15-year mortgage scenario from above included a lower down payment of $20.4K (difference between the 15-year and 30-year down payments). Invest that in the stock market for 15 years at a 7% average CAGR (compound annual growth rate), you will have $56.3K at the end of the 15-years.

Oh, also at the end of those 15-years, you will be MORTGAGE FREE. You won’t have an additional 15-years of mortgage payments where you will just start to materially pay down the mortgage balance!

Do yourself a favor, purchase a home you can actually afford and that means a 15-year mortgage at the maximum.

Homeowners No More!

budget, early retirement, expenses, financial independence, FIRE, how we win, income, investing, personal finance

We love our budget, it is the most tricked-out budget that you could ever imagine. It has tabs for retirement forecasting and color coded stock allocation metrics. We know that not everyone aspires to our level of nerdiness when it comes to using Excel or maintaining a budget, but we wouldn’t blame you if you did. About a month ago we did something that made our complex and awesome budget a little less complex… we sold our house!

Yes, the lull in posts from your favorite frugal couple wasn’t just something that you imagined. We spent most of the spring and summer handling the sale of the house and this article surmises a rundown on why we sold it, how we sold it, and why we probably won’t be purchasing another one in the near future:

Why We Sold

A few key items to remember about our housing situation: the house that we owned, which Mr. Winning Williams bought near the height of the housing bubble in 2007 (and fully paid off by 2012), was being rented out. In January 2015, we moved into a condo (that we rented) that was walking distance to work for Mrs. Winning Williams. Between the Florida housing market still trying to recover to previous levels, the idea of obtaining a source of cash flow from rental property, and a bit of sentimental attachment to the house, we rented it out. Caught up? Good!

Do you also remember that awesome trip that we took to see the Great American Southwest where we saved over $1500 on our travel expenses? It was a truly amazing trip, but it was definitely stressful in its own way.

The day that we left for our trip we found out that our tenants weren’t getting along. That’s actually a pretty tame description, but during the entire trip we were fielding calls from the tenants, their respective lawyers, and trying to think out a possible scenario in which we didn’t have to go to court and/or evict one or possibly both tenants. It was not fun at all. What had been our stress-free means of supplemental income had become a nightmare. In the end both tenants moved out with only minimal repairs required to the home.

We knew that taking on the responsibility (and liability) of becoming a landlord would be a new challenge, but we definitely underestimated the mental effort required. The level of stress that we both experienced and the amount of time spent worrying over and working out this situation helped us to both realize that we wanted to sell. As we have been embracing a more minimalist lifestyle we knew that the mental clutter of managing a rental property would be a great source of stress to eliminate.

 

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Whether or not we are headed for another bubble, we took advantage of the higher prices because: $$$$$$

 

It also helped that the housing market in our area was on a tear this summer. However, we thoroughly vetted the financial implications, including cash flow analysis, return, etc. and the numbers definitely supported our decision to sell. We’ll follow-up with a post on this soon. We would definitely consider owning rental properties in the future, but for now it didn’t make sense.

How We Sold

After our tenants vacated near the end of May 2016, we went to work getting the house cleaned up. We spent all of Memorial Day Weekend cleaning and repairing and getting the house to look great for a meeting with a realtor. We thought the house looked amazing, even better than it did when we first showed it to prospective tenants in January of 2015. We were so excited and ready to sell.

Then we met with the realtor and quickly realized that what would work for us, would not work for the many prospective home-buyers on the market whose minds had been brainwashed by endless hours of HouseHunters and Love It or List It.

house-hunters

Cue mega eye-roll in 3..2..1..

All of the items that we had discussed upgrading but never got around to when we lived in the house, became must-do items for preparing the house for sale. We spent every single weekend working away at applying new paint, refinishing the wood cabinets, and scrubbing the baseboards. (Our 1800+ square foot home had a LOT of baseboards.) We slept on an air mattress in the living room of our empty home and had one last summer to say goodbye to the house where we fell in love, hosted our post-wedding reception party, and spent a good amount of time together.

power-washing

The joys of power-washing sidewalks include all kinds of crud spraying back onto you. (Check out those clean baseboards though!!)

When the house was finally ready to go onto the market we waited, very impatiently, for the offers to start rolling in. As the summer was drawing to a close and families were starting to settle in for the school year we started to think of back-up plans. If we couldn’t sell within the first two months or if the listing price dropped below a certain price we would take it off the market and look at renting it again. But this was a last resort.

Fortunately, it never came to that. We had a cash offer from a company that purchased homes to rent in our area. Their inspection was beyond thorough and we had to pay for a few more items, but the house was sold. We got our big fat wire transfer and began working on our plan to invest the profits to help us get to F.I.R.E that much sooner.

A Future Free of Homeownership (for now…)

One of the questions that we have been asked many, many times this summer and fall is “so, where are you buying your next home?” To some it isn’t even a question that after selling our house that we would immediately purchase another one. (The same assumption also includes that this house would naturally be much bigger than our previous one with more tricked out appliances and fancy architectural features that make no sense).

To answer everyone all at one: WE ARE RENTING, FOR NOW.

While we know the advantages of homeownership, we also know the hefty cost. Not only do homes need to be insured and maintained, but they tie up a lot of our savings for new roofs, new air conditioners, and all of the myriad problems that can, and will, arise.

Since our current location is still ideal in the sense that we are saving A LOT on transportation costs is we don’t see a reason to move just for the sake of moving. We also save significant time and stress from reduce commutes. And until we are sure that we want to be in one specific place for a long time (like 20 year – the rest of our lives) we don’t think that the costs of purchasing a new home will be justified.

celebrate

Our modest but completely necessary post-sale celebration!

Let’s add the sale of the home into the “WIN” column for us WinningWilliams and look out for more in depth articles on the cost of home-ownership. If you have specific questions that you would like us to answer directly or address in an upcoming post, please let us know in the “comments” section.

How to Spend that Extra Money

budget, financial independence, FIRE, frugal, get out of debt, how we win, income, investing, personal finance, retirement, savings, savings ratio

Yes, the WinningWilliams have been awfully quiet this summer. Have we given up our thrifty ways for a lifestyle of shallow extravagance? Heck no! But we did give up something really big – our house!

We’ll be doing some posts about our decision to sell, the financial pros and cons of home ownership, and what we are planning to do with the proceeds. Cue this post.

Like others, we wondered what we would do with the large surplus of cash from the sale of the house. Maybe you’ve had a situation where you suddenly have extra money: a birthday present, a winning lottery ticket, a visit from the tooth fairy after a game of amateur ice hockey. No matter how you acquired that extra money, it now needs to be put to good use. Below are some factors to consider when weighing the options for how to spend that cash.

Taxes

This is the least exciting option for everyone involved except Uncle Sam. He’s a greedy jerk, but you have to pay him. Depending on the type of windfall and the means by which you acquired it, you will likely have to deal with taxes. Be sure to look up the tax rules related to your windfall. Examples would include capital gains, inheritance, and/or income.

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Debt

If getting out of debt is your number one priority, then this extra money could certainly help with that goal. Depending on what debt you have outstanding, you may be able to pay something off, or at least significantly decrease that burden. Factors to consider:

  • The interest rate on each separate line item of debt. At what interest rate is it better to pay-off debt or invest your cash balance? As of writing this article, we are in a super low interest rate environment with savings rate yielding next to nothing (online savings rates might get you close to 1%).
  • Say you have an outstanding loan with an interest rate of 4%, when you pay down or pay off that loan you are guaranteeing a return of 4% on those dollars because you have locked in that payment. Future you will save on making future interest payments. However, long-term stock market returns on average yield much higher than this and thus would provide a better long-term value (with a potential rocky ride).  WinningWilliams Rule: if the rate of your debt is less than 4%, then invest, between 4%-6%, your choice, and any debt with a rate above 6%, pay that off immediately.

Investing

This is our favorite option because of the ability to turn some money into a lot more money over time. After weighing the options, that is the way we are planning to channel our windfall. Factors to consider:

  • The size of the windfall will indicate the type of investing. If it is smaller (less than $5,000) you may be able to invest the entire amount at once into the Total Stock Market Index Fund. If the amount is larger, then you may want to Dollar Cost Average. (Check out this post for more insight into DCA v. Lump-Sum Investing)
  • In addition, you should have a high-level idea of what investments to make based on your asset allocation. Your asset allocation depends a number of factors, but most importantly, your risk tolerance and time-frame to invest. WinningWilliams is sticking to a roughly 75% Stock/ 20% Bond/ 5% REIT Allocation. We might give up some return over the long-run with 20% Bonds, but it gives us the comfort to sleep at night. All of our investments are in broad / diversified index style funds with low expense ratios (as J.L. Collins and many other FI gurus recommend).

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Savings

If you want to keep some liquidity you can put this extra money into savings. Maybe you don’t have a large purchase coming up immediately, but you anticipate a high-ticket item in the next few months. Keeping some in your rainy-day fund or a specific savings account may help. If possible, use an online savings account over a standard savings account. The online savings account interest rates are still pretty low, but these are better than the significantly lower rate at traditional banks.

Donate it

Have you made a million excuses for why you can’t give to a worthy charity? Well, now you have fewer excuses. Your money can make some good in the world if you give it a chance. Research the charity of your choice to see how your donation will be used or put a stipulation on your donation to earmark it for a specific fund.

Spend it!

Okay, we know. We have been preaching saving and thriftiness as much as we can. However, sometimes it makes sense to have a little fun. You have worked hard at saving and you may feel that you’ve earned a lunch out with coworkers or a day out with friends. We plan on going out to a nice dinner with some of our extra cash, but let’s be real we are way under on our dining-out budget for the last few months 😉

Review of J.L. Collins’ Book

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Mr. J.C. – some might call him and the Lord and Savior of the investing world… No, not really. But J.L. Collins did write a fantastic book that has been taking the investing community by storm. Mr. Collins took the success from his online blog, which centered on a well-known and well-referenced stock series, and turned it into a decently written, well-informed book on the practices of investing. The book was reviewed by many of the well-known financial bloggers, including the famous Mr. Money Mustache, who provided a forward on the book. Most of these reviews were positive, pushing the need for any investor, novice to experienced, to read this book. Well, they were probably given a free copy of the book and were already connected with Mr. Collins. Our review on his book will be from the point of well, yes, of a free copy (only because we checked it out from the library), and with no personal connection to Mr. Collins.

So should YOU read The Simple Path to Wealth by J.L. Collins? Absolutely.

Financial advisors stress the complexity of investing. The media inform us that the world is about to collapse. Your friends, family, and coworkers all have individual takes and perspectives on spending/saving/investing. With so much input, decision paralysis can easily take hold when we should be taking action to secure our future, AKA saving a large percentage of our income and investing the rest. If you don’t take care of your own future, NOBODY ELSE WILL.

That is what this book accomplishes. It directly gives you the answers on how to secure your future by making investments in the stock market, bond market, etc. Not only does it give you the answers to the most important questions, but it puts in perspective with analogies, examples, and real life stories. The point of the book is to make you comfortable enough to make the decisions on your own and with pure confidence. In doing so, you are given the simple guideline to avoid expensive financial advisors (do you really know how much they cost and are they really smarter than the market?), make decisions on how much you split between stocks, bonds, cash (your asset allocation), and how to do such things as you move through your different life stages.

Basically, it will give you the answers to solve a majority of your financial needs. Not all. But enough that if you follow his basic guidelines, will provide you with a very safe and secure financial future.

Drawbacks. The book is repetitive. VERY repetitive at times. However, this was to ensure the main principles were driven home. This is probably good for a novice investor to read, but if you are well read on the subject, you too will likely concur with the repetition. (We  read A LOT on this topic, so we tend to sense the repetition in most books of this type)

I would have also liked to have seen some additional information around some a bit more advanced topics such as tax loss harvesting. He did discuss types of accounts and where your assets should be placed for maximum tax efficiency, but the next step would be how to effectively tax loss harvest, which can provide additional tax benefits. Also, how to plan against catastrophic health issues, perhaps the need to move into a nursing home for a long period of time? It seems this is an often glanced over issue that advisers and specifically the early-retirement community overlooks. But this is definitely a concern.

Nonetheless, read the book, especially if you can get it for free. If not, spend time and read over his stock series at: Stock Series.

Seeing is Believing: Why You Need a Budget

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A frequent debate on the financial blogs is whether a budget is an essential requisite to succeed in your financial progression. On one hand, if you are appropriately managing your expenses and save a good chunk of your income (over 25% towards investments and retirement if you want accolades from the WinningWilliams duo), then my initial thought was that maybe you didn’t need to create one.

Not true. False. Incorrect.

I’m now on board with the idea that every individual, unique in his or her desires, quirks, and personality, can drastically improve their financial outlook via taking a look at the tangible numbers behind their spending, saving, and net worth. Accurate and discrete analysis of these items will assist in your development as a person and thus potentially improve your happiness.

Budgeting = Direction = Happiness

And this is true no matter what stage along the financial health spectrum you fall.

Stage 1: In Debt

At this stage, looking at a budget might feel depressing. Depressing does not equate to happiness and is therefore something you easily would then want to avoid! You might have more liabilities/debt than assets and a negative net worth. How would showing that in a budget make you happy? You create a budget that will give you direction. You realize that today you become accountable for your actions. Today will be the turning point to getting yourself out of debt.

To get started with the creation of your budget:

  • Open Excel, or if your old school: paper, pen, and calculator. Anybody still doing that?
  • List all your income coming in and all of your expenses going out. This will let you know how much money you have left to paydown your debt. We’ve detailed several posts on reducing your expenses.

Note: Every dollar in expenses that you reduce can be used to paydown debt. Bonus benefit: not only do you get the benefit of permanently lowering your debt balance, you are lowering the amount of future interest you owe. This is your first step in getting money to work for you and not against you. Think of the difficulty of running up a hill, the greater your debt burden, the greater the incline. But think of what happens when you get to the top of the hill and have your debt repaid. It’s a beautiful view from the top and it gets much easier with having money work for you on the way down via investments! Therefore it is vital to identify what are your essential expenses and eliminate as much of the non-essentials as possible. Be honest.

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That incline is your debt, but as you get closer to the top of the hill you can look forward to the decline (which in this extended metaphor is saving!)

  • The next part is listing each of your debt balances by source. Listing the interest rate could help you identify your higher cost of debt to tackle first.

There are generally two schools of thought for paying down your debt: 1) focus on your highest interest rate debt first or 2) take the Dave Ramsey snowball strategy, paying off the lowest balance debt first and then rolling that into the next debt and paying that off, and so on.

  • In any case, start paying it down today.

The driving force for these actions is to create a visual depiction of your progress. Create an Excel chart that shows your debt balance going down each month. How BEAUTIFUL is that? How motivating is that to see the progress based on the actions you took today? And that my friends, is why you must start a budget, even if you are in debt. After a few months of seeing that progress, you can ensure some of your “essential expenses” will be further reduced. You have learned the power of your action and the impact you can make. Both seeing your actions reduce your debt and subsequent elimination of all debt will certainly provide a feeling of pleasure.

 

Stage 2: Wealth Building

At this stage, you likely have no debt outside perhaps a mortgage. You have control over your finances, have a rainy day / emergency fund in place, and are saving toward retirement / financial independence.

You still need a budget.

And again, it all comes down to the visual depiction of your progress to stay on track. In our consumeristic world, hedonic adaptation reigns. The Joneses just bought a second house, added a pool, TV, car, boat, jet-ski, 50 yard-line season tickets, are traveling internationally, and purchased a miniature horse for their kids, who of course go to the most expensive private school since that how else can they grow up in this mean and crazy society? Buy hey, you are doing well, have so much more saved that your peers, why not splurge?

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OK, OK! This lil guy is pretty darn cute!

Because splurging and unconscious spending won’t make you happy.

The graph below takes a look at WinningWilliams invested accounts (only brokerage and retirement accounts). We’re heading down the hill and are picking up steam. You’ll just have to guess at the scale and actual numbers since you’re not getting that J This is just one representation of how we look at our numbers. But the visual representation goes to show that we are succeeding in our efforts and our “delayed gratification” will give us significant opportunities such as early retirement, freedom from financial stress, and giving back to others. Items that studies have proven to make you happy.

fire line 5

We still have a little ways to go to reach FIRE, but we can see our progress every quarter!

So maintaining a budget in Stage 2 is integral to making sure your actions align with your beliefs and interests. By continuing to track your expenses, you are holding yourself accountable. Is your spending in line with your values? After all, isn’t where we spend our time and our money one of the best indicators of what we value the most? Continue to track your expenses, continue to track your net worth, and align it properly with your values.

So, for our stage 2 readers, you basically replace the debt sequence with your goals and ambitions. Perhaps saving for a large down payment for a house, a special vacation experience, etc. etc. It still provides that visual cue that you are making progress.

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The view from the top looks great!

At WinningWilliams, we take pride in living a lifestyle that conforms to our beliefs. We check our expenses to make sure we haven’t unconsciously picked up habits that don’t harmonize. We don’t mind if our expenses increase, as long as they are adding to our happiness.

WinningWilliams challenges you to take control today. We have to fight some inherent flaws of human nature to gain a true and long-term happiness, especially with marketing gurus telling us how inferior we are. A budget is a tool to systematically “check-in”. It doesn’t need to be an elaborate or intricate model. If you don’t understand Excel, then this is the time to learn it.  Maybe you’ll turn into nerds like WinningWilliams, getting hours of satisfaction from budget review time with your significant other. Oh and that’s free too. Challenge one another or even a friend to meet your goals. Nonetheless, what you did yesterday is in the past and doesn’t matter, but what you do today does.