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11:22 PM James 0 Comments

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FIRE (Financial Independence Retire Early) is a grassroots movement that excites me greatly. It's been fascinating to follow the many blogs and podcasts of people self-confident enough to go so against the grain of American consumerism. And there's good reason to: while American households make an average of $74k per year, two-thirds of them would have trouble coming up with $1,000 for an emergency like a hospital bill or a car repair. I can't imagine wants to go through life like that, being stressed about unexpected events that turn into financial emergencies.

But until FIRE, our culture has so much attached baggage to good financial behavior:
  • That's what rich people with stock portfolios worry about, not me, I'm just a normal person. 
  • Only geeks can understand all that math and financial concepts, I don't get it and I don't want to be a weirdo.
  • People who obsess about their money are greedy and antisocial. I like hanging out with my friends and having fun. Besides, I don't want to be one of those 1%ers who don't care about the rest of us.
  • Everyone has (credit card debt, student loans, home loans, car loans, etc). I have my whole life to work, so why wouldn't I (go on that trips, buy that car, buy that house, go to that school)? YOLO.
FIRE, on the other hand, is a welcome antidote:
  • People in the FIRE community practice asking not what you do for a living, but what you enjoy doing outside of work.
  • They acknowledge that not everyone wants to have to work their entire lives or until they're 65. This is something most of us can agree on and get excited about!
  • As a consequence, the discuss pretty quickly turns to how to achieve the option to work less or stop altogether. This is something that many Americans think is utter fantasy. Financial advisors treat this (early retirement) like super-extra credit or a luxury for the rich. But it's not - it's just cause and effect. Want to work less and enjoy life more? Figure out how.
  • FIRE isn't made up of rich people - just people who are willing to think about and make tradeoffs to make their lives better. And that usually involves saving money somehow, either by making more (career hacking or side hustles) or saving more (frugality, index funds, retirement accounts, tax strategies, credit card rewards) - all of which are within anyone's reach, once they realize they don't want to have to work forever to support their lifestyle.
  • No one judges you for not having the newest, best, or most expensive thing. If you do sometimes, it's fine, as long as it fits your values and goals. 
  • There is a bit of one-upsmanship in the areas of extreme frugality and travel hacking, but that's just certain subgroups' version of coupon clipping. People like to make games out of anything. Those things are options but definitely not requirements. And it's nice that if there is any social pressure, it's in a direction that saves people money.
That said, where do I stand on the tenants of FIRE? I'll go through a few of them:

Credit card rewards 

The FIRE community has dove deep into maximizing the value of their credit cards. Some use churning, or opening new cards in rapid succession to cash in on sign-up bonuses. Some chase the best hotel and airline point exchange rates. Some use travel hacking, and build their trips around the best bang for their points.

This is all great, but I'm too boring for that (OK, that's my polite version - I think it's a waste of my time). I have a 2% cash back card (MasterCard Double Cash) and stick to that. I tried churning for a year, but I felt like having all the points in different places was really inconvenient. I also realized that after that year, I had a bunch of accounts with short lifetimes, which actually hurt my credit score. At my point in my life, lower mortgage rates save me thousands per year, so I prefer to have a decent credit score than a free plane trip now and then.

If I were still a frequent traveler or a single person, I would probably give travel hacking more of a shot. It seems like a practice that anyone with discipline could master.

High savings rates

While the average American's savings rate is less than 5%, and 15% is Dave Ramsey's stretch goal, the FIRE community is claiming savings rates of 30%, 40, even 50%, and sometimes more. The shockingly simple math of early retirement is highly motivational in this regard: while folks saving that 5% may never retire, getting to 30% will allow you to easily retire at 50.

My favorite financial planner, Pete The Planner (who has a phenomenal podcast), prescribes saving at least 20% of your income, and really wants Americans to get to 35%. I'm more in his camp - which would make me more like the FIRE community than like the typical spendthrift American - and I'm somewhere in his recommended range. But I doubt I'll take my savings rate past the 50% mark until my career hits "baller" status and I have a title with the word "president" or "chief" in it. 

Why? I live in a high cost of living (HCOL) area in southern California with an amazing wife and kid, which ups the YOLO factor for me. Sure, everything's a balance, and I try to stay on track for both college and retirement. But there are lattes to sip, choo-choo trains to ride, dates (and playdates) to enjoy, and occasionally, non-travel-rewards-trips to embark. 

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I used to be the ultimate long-term planner. I saved everything, spent nothing, and that may have been the right thing to do... when I was in my 20s. But with a family, I have a responsibility to take care of them... and that doesn't just mean in the long term. The Bible says tomorrow is not promised, and Jesus says not to worry about tomorrow, because today has enough trouble of its own. I don't want to be a spendthrift, but I also can't in good conscience deprive my family of experiences that bring us joy and show them I love them. It's not right to save everything for retirement, at the expense of today.

Side hustlin'

Many FIRE followers say there's nothing that'll give your FIRE plan a shot in the arm like a side hustle. Conceptually, a second income stream that lets you up your savings rate from good to better is like a Tesla upgrade that takes you from Fast up to Insane Mode. Of course you'd want that. But like the Tesla, there's always a cost. Time. Or effort.

There's a reason why Americans watch over 30 hours of TV a week (apparently a true statistic, despite how impossible it seems to me) - apparently it's easier and more fun than actually doing a side hustle. So, side hustles are hard. I mean, there's Uber, which is easy: you just drive, but the money won't change your life. Then there's the 4-hour workweek (which is really more like a 10,000 hour career pivot): it'll make you money, but not the alluringly high hourly rate you might expect.

My version of a side hustle has been real estate investing with my wife. It's passive enough that it doesn't feel like a part-time job, but active enough to require serious research and bold decisions. And like I've written before, the money can be pretty good. We like that it's made us experts in the local market and taught us a lot of little life lessons over the last 5 years.

Real estate isn't going to be the right thing for everyone. Heck, with the market as hot as it is, I'm not even sure it's the right thing for me anymore. So I'm looking at other ways to keep hustlin':

  • Helping my in-laws take their online store to the next level
  • Helping my wife get a design business off the ground
  • Doing something with an online course I created, and thinking about making another
  • Consulting, teaching, or getting more involved with my local community
FIRE as yoga

I do yoga. Yoga means different things to different people. For some, it's a total religion, with the "ohms" and mantras and chakras and kombuchas (hey, I live in SoCal, give me a break). These people probably attend a high-end studio, drink fermented herbal teas, and definitely go to retreats.

For others, it's a helpful practice where you take what you can, when you can, and challenge yourself to do more when it works for you. These people probably drop into a class at 24 Hour Fitness or ClassPass, drink craft beer, and wear shirts that say namaste in bed.

FIRE is kind of the same. Some people clearly get into it much more than others. While the most popular voices skew to the religious side, that makes total sense, because they're the innovators. Why would people want to read a blog by a dude who's lukewarm about FIRE, when they can read about people who pay zero income tax, travel the world for free on credit cards, and sell their cars so they can bike around town and plan intentional communities? I love reading and hearing about that stuff, even though I'll probably never do a lot of it.

I do FIRE too. My view on FIRE is that it's a helpful practice. I'm better off for being aware of FIRE, getting inspired by the amazing community, and thinking outside the box of nihilistic American consumerism. By being part of the FIRE community, I'm getting new perspectives every week, and learning things I can incorporate into my life.

So what if my definition of early retirement is 50 instead of 30? So what if my definition of frugality is buying a $4 dinner at my work that would cost me $20 at a restaurant? Or grabbing my wife one of their free iced lattes on my way home? FIRE is a big tent. And I guess I'm in that tent. And the cool thing is, the door's open to anyone.


Oh hey look, another remodel

1:00 AM James 0 Comments

Oh hey look, another remodel.

Don't worry, it's not as bad as the previous one.

Fresh off the heels of our previous renovation, my wife convinced me to do another one.

How does that make any sense?

It's a different property, and it arguably needs it, with about 15 years of age and some clear signs of wear and tear. When we got it last year, it was nice enough to live in. But after a year and a half of renters, it's ready for a refresh.

OK, if you say so. What are you in for?

  • Generally, update the look from Y2K to contemporary. There's a lot of red floors and cabinets, and too many different colors on the walls. Replace the scratched-up floors and blackened carpets with hardy wood laminate. This'll take a little demo.
  • Simplify the color palette and class up the joint with rich coffee brown floors, calm white walls, and maybe one sophisticated accent color. Replace yellow halogens with energy-saving warm LEDs
  • Make the kitchen and living room feel bigger by removing awkward elements and enhancing the flow.
  • Replace the countertops to make the place fully Y2K-compliant.
The total scope of this remodel is much smaller: $20-25k (and it'll only take 2-3 weeks). But it should bring up the value by about double or triple that.

When my wife showed me those numbers, backed up by the local comps, I was sold.

Is it going any better than last time?

It's off to a great start, so I'll post another update when we're done (about 1 more week). Seeya then.


Live-in Flip: Lessons Learned

12:41 AM James 0 Comments

We're done renovating the live-in flip! From your perspective, dear reader, that may have happened in a flash. But for your truly, it was quite a process. Here's a rundown by the numbers:
  • Duration: almost 5 months. Why so long? I'll tell you.
  • Cost: $140k down payment. About $80k in renovation costs. We're in for $220k. Why so much? I'll tell you.
  • Number of contractors: about 20. Why so many? I'll tell you.
  • Number of stressful moments: a lot. Why so many? I'll tell you.
  • Number of lessons learned: many many lessons about home repair and managing a renovation.
  • Value-add: $200k in home value. 
  • Expected ROI: If we sell next year, we'll pull out $330k after all expenses. That's a 50% return on our $220k investment.
Why did it take so long?

We closed in March. We finished in August. We originally estimated this would take 2-3 months. Instead, it took twice that long. From my engineering project management experience, I've learned that all project estimates will be wrong, but the less you know about the tasks and resources, the more wrong you'll be. And this was our first time doing this kind of project. We'd done tiny things like replacing shutters, lights, and installing a door peephole (and I thought that was tough), but with this project, we had no idea what we were in for.

The first lesson I learned is that this blue-collar project management bore little resemblance to the white-collar variety I perform in my day job. This may sound classist, but it's not: you're working with people who are themselves managing other jobs (and come and go as they wish), who are selling themselves to you (over-promising), who have widely varying professional and ethical standards. Here are some unexpected personnel problems we had to deal with:
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  • A high-priced plumbing company who told us they also did tile, but made big mistakes on everything, wouldn't fix their work without additional fees, were unable to reach for days, and charged exorbitant rates. (Not cheap, not fast, not good)
  • A high-drama flooring contractor with serious cash-flow problems stemming from serious personal problems, who hit us up for cash before he'd finished his jobs, who disappeared for days working other people's projects, and who also wouldn't show up unless we promised to pay him. (Cheap, not fast, fairly good)
  • A day laborer who threatened to shoot said flooring contractor, who we had to meet and pay because said flooring contractor stiffed him on his pay. (Cheap, somewhat fast, not good)
  • A day laborer who we fired because he came to work smelling like he just got out of Cheech & Chong's van.
  • An electrician with fragile masculine ego who wouldn't take direction from my wife, only me...
  • Kitchen remodeler who was super helpful on the pre-install, but wouldn't fix anything post-install.
  • Typical run-of-the-mill mess-ups and do-overs. 
  • Every variation of the Cheap/Fast/Good triangle.
We learned some important lessons on the hiring and managing side:
  • The more you're there in person, the better results you'll get. You can remind people of what you want, fix mistakes earlier rather than later, make sure people show up, and call them on BS.
  • Make the effort to get trusted referrals for every resource you hire. Good Yelp reviews don't cut it. We had much better luck with Nextdoor referrals from our neighborhood, and personal referrals from friends.
  • Get everything in writing, even when it's inconvenient, especially when it's inconvenient. Know who's getting paid, when, how, and for what tasks. Stay on track.
  • If a job is going to be expensive or if a mistake would be costly, try to use a licensed, bonded, insured company, or a company that has a track record of responsibility. If and when someone goes wrong, it's easier to work with a legitimate company to fix it. Our HVAC company made a mistake during the job, but owned up to it and fixed it. We ended up using them again for a different property, despite the mistake, because we know we can trust them to make it right.
  • Money is power. Hold it over people to get them to do the right thing. Once an unethical person gets your money, they have no reason to care about you or what they promised you. 
  • Similarly, employment is power: if someone's doing shoddy work or not showing up, tell them they'll lose the job if they don't straighten up. If you have to threaten them, don't give them more than one second chance. Fire them and get someone new. It's less stress for everyone involved, and it keeps them from taking advantage of you.
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Why did it cost so much?

Well, we had to do a TON of work on the place. For a full look, check out the remodel before & after photos on Houzz. This included asbestos abatement, full HVAC replacement (replace furnace, new A/C, repalce ductwork), demolition (kitchen, 3 bathrooms, flooring), walls (resurfacing, sealing, priming, and painting), doors, windows, plumbing (water and gas), electrical, hardwood flooring, complete room remodels (kitchen, bathroom, laundry room), framing (opening up the kitchen entryway, creating new cabinets and closets), city permits, hauling, trims and baseboards, roof repair...

Like I said, we spent about $80k total. The heavy hitters are what you'd expect: kitchens and bathrooms rank high. But we paid probably thousands more for plumbing that we should've, because we trusted a Yelp review instead of doing our homework. We also paid a couple thousand for city permits and fees. As the project wore on, we also paid a couple thousand too much for the flooring and general contracting, because we didn't address schedule slips and performance problems early on. 

Why did we use so many contractors?

When contractors quote you, they give you a time estimate, and for better or worse, they believe it, no matter how optimistic. Trouble is, they're also working and bidding other jobs at the same time. If a job drags on, like ours did, they want to move on to new jobs so they can get paid more. It's understandable from their perspective, but it incentivizes them to slack off after a while, and that's why you hear about contractors falling off the earth and never coming back to their jobs. That happened with our flooring / general contractor before he finished up, so we had to finish the project with a patchwork of handymen.

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Why did this stress us out so much?

I didn't make this process sound stressful enough for you already? Well, besides being in the hole for that much money, here are a few reasons:
  • We were both working full-time, raising our first child, an infant who grew from 9 to 14 months during this project. This alone is enough to strain a relationship without a major home remodel
  • We were living with my in-laws all the while. My in-laws are wonderful, but our living situation had gotten old for everyone by the middle of the project.
  • We ran into some problems with our homeowners' association. Certain people didn't like living next to a remodel, hearing construction noises day in and day out, seeing the occasional mess, etc. Unfortunately, some of them became harsh with our contractors and even broke into our unit before we changed the locks. When I pushed back, they tried to make our remodel more difficult than it had to be: calling the city, levying fines, inventing unwritten rules that only applied to us. This made us expend energy on workarounds that shouldn't have been necessary in the first place.
What did we learn from this?
  • Maaaaybe don't take on a big project like this until we have more stability. We've taken steps to simplify our life since the remodel, prioritize our relationships, and not stretch ourselves too thin. It feels great not to have a project hanging over our heads when we get home from work! I love being able to focus more on my wife and baby girl after a long day at the office.
  • Tread lightly with neighbors. Even though I tried to be respectful, I had a couple flashes of self-righteousness that antagonized them more than necessary, which made the rest of the project harder than it had to be. Being right isn't the most important thing (and that's hard for my engineer mind to accept sometimes), getting along is often more important.
  • Change your locks the day you close escrow! I cannot stress this highly enough.

So... would I do this again?

Man... yeah, probably. We're going to come out fine financially, and the education was priceless. My wife and I are both grateful to have learned so much in such a short amount of time. Despite the problems, I'm so impressed and proud that my wife handled such a large and complex project so well, and that she really carried her vision through from beginning to end. If and when we do another renovation, I'll be happy to let her take the reins and help where I can. Not that either of us are in a big hurry for that to happen. Now that the house is livable, it's time to just LIVE for a while.