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Archive for December, 2013

The Frugal Game: Errand Bundling

December 26th, 2013 at 06:59 pm

Mister Money Mustache has talked in several of his blog posts about the incessant one-stop errand running many of his neighbors seem to do. An early morning run for milk. A midday trip to the post office. Maybe even a late night drive to drop off an overdue rental DVD. I think that is nuts. Two or three errand runs a day is to me absolutely nuts. Even 2 or 3 errand runs a week seem to me a wasteful and unnecessary expenditure of my gas money and my time.

I am a fervent advocate of errand bundling. In my case, I group my errands up so that I can do them all in just one car trip a week. (Because I am retired, I also have the luxury of doing that trip on a midweek day, when store traffic is at its lowest.)

With my list of errands and things to do in hand, I do one loop trip, doing convenient target stops on the leg out to my most distant destination, and then knocking off any necessary side trips on the leg back. Keeping my errands limited to that one weekly trip saves me money on gasoline and vehicle wear and tear. And, just as importantly, saves me time and avoids the chopping up of too many of my days.

But what if I run out of something I need right at the time, you might ask. Well, my answer is that I don't run out. My "secret weapon" there is to always have backup supplies. A second printer ink cartridge... an unopened pack of paper towels... a backup box of cat litter. You get the idea.

What about perishables? The answer there is that I stock suitable substitutes. Cans of evaporated milk to back up the fresh milk. Cans of V8 juice to back up the fresh grapefruit juice. Cans of vegetables to back up the fresh ones. And so on. This way, I never run out of anything. "Emergency" errands are nonexistent for me.

The big deal, the real benefit of my errand bundling is more my savings of time rather than money (though there's that, too). I don't have my days interrupted by silly one-stop trips to get this or that. I can stay focused on my plan for the day. And my free time does not get broken up or nickeled-and-dimed away by needless errand running.

I save some money, too. Every drive into town I don't take saves me $6 in car gas and wear-and-tear. So, if my errand bundling is eliminating just 2 car trips a week, it's saving me $12 a week. That's $600 for the year. That may not sound like much. Yet it's more than enough to pay for 5 or 6 of my two-day Civil War hiking trips... or 15 dinners out with my wife... or 1 or 2 (or even 3!) nice new little tools or gadgets I decide I can't live without.

Errand bundling helps me stay in control of my precious time and lets me live just a little itty bit better. And to me, that's one more retirement win.

Do you errand bundle? Or are you constantly running off to go here and there like a crazy chicken?

My Love Affair With Hiking

December 23rd, 2013 at 03:01 pm

Yes, I really like hiking. Love it, actually. There is no other activity that does so much for me, or gives me as much.

Hiking is great for me physically. Traipsing along trails, up hills and over little creeks is good exercise. Works the muscles and burns the calories. And that's good.

Hiking is great for me spiritually. I'm getting all that exercise while enjoying the wonders of nature. And within just a few minutes of starting a hike, I'm already moving into a mind-clearing, peace-inducing zen-like mental state.

Hiking is great for me mentally. That zen-like state triggers a stream-of-consciousness flow of thoughts that proves super-valuable every time. With new ideas for blog topics. With refinements to my money management or my investing approaches. With possibilities for new places to travel. And out-of-the-blue revelations -- such as my most recent one that uncovered a "hidden desire" for stargazing and astronomy.

(All of which is, by the way, why I always carry on my hikes a pen and index card in my shirt pocket. Getting all that stuff written down keeps it from slipping back down my mental well.)

Hiking is also great for me experientially. Most weeks, I do my hiking along nature trails in county, state and national parks. But once a month I'll travel to a civil war battlefield park to do some heavy-duty historical hiking.

Those hikes are different. Instead of going into a zen-like trance, I go on a mentally focused time travel trip. With a clipboard holding battle maps and a mind holding a recently read detailed account of the engagement, I walk on the very paths along which infantry battle formations advanced. I crouch behind the remains of parapets where the defenders awaited those advancing formations. I stand on the exact high ground from which battle commanders viewed the field and issued their orders. And I imagine being there. What it looked like... sounded like... felt like. And I marvel at the courage and discipline of those soldiers, and at the clearheaded brilliance -- or blind stupidity -- of their leaders.

Yes, hiking. What a great thing to be able to do. And how wonderful to be master of my time so that I can do it whenever good weather beckons and the hiking spirit moves me.

Is there some activity that does that much for you? Want to tell us about it?

My High-Yield, High-Risk Investing Strategy

December 20th, 2013 at 03:07 pm

The stock market crash of 2008 convinced me never again to invest in any company that does not pay dividends to its stockholders. The crash also convinced me never again to leave the fate of my portfolio in the hands of mutual fund managers, whom I found were just as much at the mercy of crowd panic psychology as any "ordinary" stock investor.

At first, I saw dividends just as a psychological defense line that would buffer me from that crowd panic psychology by establishing an "income value" for my investment holdings independent of their market value and which would keep me from selling out of fear whenever the market value of a stock in my portfolio fell. But when I actually started screening stocks to build this income value portfolio, I saw that here was an opportunity to apply dividend investing as an offensive high-yield (and admittedly high-risk) strategy to grow my portfolio and reach the financial independence that a strong stream of dividend payments would give me.

And so the idea of pursuing a high-yield, high-risk dividend income investing strategy took hold of me. I am not a financial adviser and I am not saying that anyone should do what I have been doing since I had that epiphany 5 years ago. I am just saying that strategy has worked for me, and I'd like to tell how.

Managing The Risk
First I addressed the high-risk side of the equation. This strategy would be a stock-picking strategy. How could I protect myself against picking a stock that would crash on me by cutting or stopping its dividend? A three-part answer came to me: (1) screen the companies based on their financial fundamentals (I know, duh!); (2) diversify the portfolio so no one company's weight in it was too significant (double duh!!), and (3) monitor the news on the companies daily to catch early any indication that the positive reasons for which I had picked the company were turning negative.

Basically, I wanted to check the company's ability to actually keep paying its bills and its dividend. So on the balance sheet I would check to make sure that (1) current liabilities were less than current assets and (2) long-term debt was less than total assets minus the goodwill balance sheet line. I decided that I would bypass the income statement because too many non-cash and/or unrealized charges and credits incorporated into that statement could -- and too often would -- distort the company's real financial picture. And on the cash flow statement I would make sure that net operating cash was greater than the sum of interest expense -- no amortization of interest expense for me -- and dividends paid. (Otherwise, the company would be borrowing money to pay its interest cost and/or its dividends -- and that would be a very bad road to be on).

My personal sweet spot for diversification came down to the numbers 10 and 20. No more than 10% of my portfolio would be in any one industry -- so, I would invest in no less than 10 industries. And no more than 5% of my investment capital would go into any one stock -- so I would hold no less than 2 companies in any one industry and no less than 20 companies in my portfolio. Listening to my gut, I concluded that this would be enough of a hedge against a catastrophic business event hitting any one company (or any one industry) in my portfolio.

Finally, each morning I would monitor Yahoo Finance for company-specific news that might signal a significant change in fortune (good or bad) for a company in my portfolio and require quick action on my part.

Selecting the Stocks
Assembling a list of potential high-yield candidates turned out to be much simpler than all the document searching and mathematical calculating I would be doing to hedge against the high risk built into my strategy. By using my internet broker's customizable stock selection screen, I would be able to generate a list of dividend-paying companies ranked by their percentage yields. And, after thinking about it, I decided I would cut off the list at a minimum 6% yield.

Constructing the portfolio was then straightforward. I just started at the top of my ranked dividend-paying stocks list and worked my way down. I vetted each company based on my financial fundamental criteria. If the company made that cut, I "fitted" it into its allotted industry based on my diversification plan. The result was a list of 20 stocks, 2 to 3 per industry, and those 2 to 3 being the highest dividend yielding stocks in their industry that had passed my financial fundamentals tests.

Oh, and one thing I forgot to mention. NO financial company stocks. Even to this day, I cannot trust them or feel good about them.

Four years after I started on this investing road, I still use the same portfolio construction approach. Every weekend, I run the dividend yield stock selection screen and target industry gaps in my portfolio with the cash that has accumulated during the week from dividends collected and capital gains realized from triggered good-until-cancelled position sales.

As I said at the start, by no means am I recommending that anyone follow this approach to stock investing. But whether by method, skill, luck or a combination of all 3, this approach has worked well for me. Certainly I have hit my share of high-risk potholes on my investing road, but I have never been tempted to panic and on the whole my portfolio has moved steadily forward.

So Far, So Good
After cashing in my mutual funds in 2008, I started my high-yield, high-risk investing adventure with the $143,000 I had left in my IRA account after selling off the mutual funds. By late 2013, the portfolio's book value had grown to just over $344,500. Much more importantly to me, that portfolio is now yielding just over $29,000 a year in dividend income. (And that does not count the realized gains from profitable position sales!)

It's all very hands-on, I know. It requires a half-hour each morning monitoring stock news on the internet while I drink my coffee. It involves about 4 hours a week screening and vetting companies. It means analyzing quarterly reports and conference call transcripts for the companies in my portfolio (while sitting back in my recliner with a scotch!). It does take some work. But the payoff for me is that this high-yield, high-risk investing strategy has finally pushed me up and over the bar to make me financially independent YEARS before I otherwise could have.

How much risk would you be willing to take to cut years off your working life and add all of those years to a new financially free life? Or turn it around: how much longer are you willing to stay in your job in exchange for a less risky portfolio? Leave a comment and tell us!

My Financial Independence Key: Separating My Wants from My Needs

December 17th, 2013 at 11:26 am

When I started planning in 2009 for a financially independent retirement, I was very clear about one thing. For me, this was all about time. About shortening as much as possible the time I would have to spend in a daily commute-and-work grind. About freeing as much of the time I had left on this Earth -- which is limited for all of us -- to do what I wanted to do and not what somebody else assigned me to do.

When I started this journey in 2009, I had "perceived" personal annual expenses of $33,280. Now, 4 years later, I am FREE... free with yearly personal basic living expenses of $15,000 net of income taxes.

It was my focus on the overriding priority and importance of time over other considerations that got me free. I reasoned that if this was about time then it was not about accumulating (or holding onto) unnecessary things... or about keeping up with the neighbors... or about indulging in lots of optional cost-ridden activities. And what I did to stay focused was to specifically and clearly separate and keep track of my basic living costs and the costs of my wants -- in writing and frequently. By doing this, I was able to so lower my financial freedom budget -- AND accelerate the growth of my stash -- that 4 years later I had reached my goal in January 2013. My time is now mine (and I actually have ended up with plenty of "extra" income to fund lots and lots of "wants").

The real key, though, is a mental one. I had to learn to tell the difference between needs and wants, which is not necessarily that obvious in our consuming-driven society. It was and is vital that I not mix and mingle -- that I not confuse -- my basic costs of living with the price tags for my discretionary toys and playtimes. Recognizing and acting on the difference cut years and years off my working life, and made attaining financial freedom much much more doable.

A Vehicle or a Status Symbol?
A House to Live in or to Show Off?

I need a reliable pick-up truck for a vehicle, and I have one in a paid-for 1996 Dodge Dakota that I've kept in great shape. Recognizing that I do not need to trade it in for a newer $30,000 truck (even if I wanted one) has kept my basic living expenses from increasing by at least $3000 a year -- and saved me from having had to work an extra two years to accumulate the capital required to fund that $3000-a-year expense.

A newer truck or two more years of my remaining life lived in financial freedom? For me, it's a no-brainer. How about for you?

I need a modest-sized house (1500 square feet for 2) with a garage and a workshop on a couple of acres or so (because I learned the hard way I need to not have in-your-lap next door neighbors). But in 2009 my wife and I owned a much larger house in a suburban community plus a 100-acre vacation property. At best, we used (needed) half the space in the house; the other half we just wanted for show. The vacation property we obviously did not need at all, and ended up wanting to visit it less than 12 days a year. An unexamined financial picture had kept us tied to both those places. Four years later, we've sold both properties and used the profits to acquire mortgage-free the right-sized house we really need in a more rural setting that's also more pleasing to us. Recognizing that we did not need the bigger house or the occasionally used vacation property reduced my basic living expenses by $8500 a year -- and saved me from having to work an extra five-and-a-half years to accumulate the capital required to fund that $8500-a-year expense.

A bigger house or five-and-a-half more years of my remaining life lived in financial freedom? To me that's also a no-brainer. How about you? And so it goes for me, even with the smaller expenses.

Basic Need Or Optional Want?
I no longer have a mortgage. I do need to spend money on groceries, medical and other insurances of many types, utilities, truck operation and maintenance, property maintenance and taxes, pet care, investment fees, and income taxes. After a year of judicious cost-cutting that did not require giving anything up, I was able to cut the total of those costs by another $3000 a year. And that saved me from having had to work another extra two years to accumulate the capital required to fund that $3000.

Unexamined living costs or two more years of my remaining life lived in financial freedom? Another no-brainer as far as I'm concerned. What do you think?

I can now cover all my basic living expenses on $15,000 (net) a year and still have a jolly good time enjoying my freedom to hike, bike, canoe, read, blog, movie watch, video game, listen to classical music, and more.

If I want to have even more fun, I'll spend more money -- other money -- on civil war tour trips, national park camping trips, eating at restaurants, snow birding in Florida for the winter, driving off into the country, tackling home or truck improvement projects, and whatever else may strike my fancy. But I am crystal clear that these are all wants. The money I spend on them is separate from what it costs me to meet my basic living expenses. I don't need the wants. And I don't let them morph into needs -- or even quasi-needs -- by letting them slip into my baseline living expense calculations or budget.

Even though my passive income is more than 3 times $15,000 a year, it gives me a tremendous sense of control and peace of mind to truly recognize that my personal baseline living expenses are $15,000 a year. The rest of my money spending is optional, discretionary, for fun and unnecessary. So I keep it separate -- and pay for it out of a discretionary FUND -- in order not to confuse myself into thinking that I actually need a lot more than $15,000 a year to be financially independent.

Have you thought of looking at it that way? How much income do you really, really need to declare yourself financially independent and start living free?

Playing the Frugal Game is Fun!

December 15th, 2013 at 12:30 am

A couple of days ago, I was about two thirds through my errands run when I realized I was really enjoying myself. What's this, I said to myself. How can I be having such fun just buying groceries or picking up a ream of copy paper? And then it came to me. I was playing the Frugal Game, I was scoring point after point, and I was really feeling good about it.

Yes. Practicing no-sacrifice frugality puts me more in control. Helps me come out ahead. Gets me in a winning mood. And who isn't going to feel good about all of that?

Too often, when frugality is discussed it is on the assumption that by being frugal one is giving something up. Doing without. Sacrificing one's todays for the sake of one's tomorrows. But that definitely is not how I experience frugality. To me, it is -- literally -- a fun game.

On that errands day earlier this week, I went to the office supply store for some copy paper. Shelf price: $5.79 a ream. But I had gone online for a rebate coupon and I had a credit for bringing in a spent ink cartridge. My price net: $2.00 a ream for 2 reams. Score! And I got even better quality paper than usual, so I definitely gave nothing up.

Next stop, the grocery store. I had room in my refrigerator freezer for more meats and a $5 off coupon in my pocket that I could use if I spent $25. Hey, perfect combination! Ten minutes later, I was walking out with packages of country ribs, steak and chicken -- and a savings of not just $5 but over $15 thanks to my selections. Score! And I certainly won't be giving up good eating either.

(I almost danced a little jig in the parking lot with that one!)

To play the Frugal Game successfully, I find that I have to plan my spending ahead of time. Otherwise, I would not have had those coupons, would I have? Hunting for and finding the deal is definitely part of the fun of the Game.

Last week, I went on a little camping road trip. I planned ahead by making sure I had both my National Parks and Virginia Parks lifetime passes in my wallet. In just 2 days I saved $15 on vehicle admission to the Skyline Drive, $8 on camping in the Jefferson National Forest and $4 on admission to 2 Virginia state parks. Score, score, score! And I got all the same benefits I would have had without the savings.

On that trip, my endpoint destination was Natural Bridge (and Caverns), which sports a hefty $29 admission. But I scouted it ahead on the web and saved myself $6 by pre-buying the ticket. Score! And I gave nothing up on that one either.

I like playing the Frugal Game at home just as well. That's where some people are more likely to think that one has to give comfort up to play the game. But... not so much.

Every day, one of the first things I do on getting out of bed is to turn on my classical music internet radio station. That used to be Sirius, for which I paid a fee every month. But now it's Pandora, which is free. And you know what? With Pandora, I have been able to customize my listening experience so that "my" classical radio station only plays musical compositions I really like! Score on the savings and I improved my listening experience. And I get to start every day with that little win. How cool is that?

Another thing I do every day at home is to use electricity. But I now play the Frugal Game to win by not misusing and wasting electricity. I just got my bill for last month; $48.31 for 425 kWh. A year ago, my bill for the same month was $125.83 for 1107 kWh. Big score! (And another little jig.)

What in heaven's name have I given up by playing the electricity Frugal Game? I have lights on whenever and wherever I need them. I don't limit my computer or television time in any way. I don't keep myself from turning on ceiling fans if it gets warm or a heater if it gets chilly. I have NO idea what I have given up -- if anything -- except maybe the wasteful privileges of walking out of rooms (or the house itself) and leaving lights and electronics on willy nilly... or letting a near-empty freezer just keep churning away 24/7... or being so lazy that I would not take the time to switch out my inefficient incandescent light bulbs?

The bottom line is that my whole daily life is like this now. I am playing an ongoing Frugal Game that keeps rewarding me with little "happy jolts" practically every time I open a bill or whip out a credit card. And it's fun.

Maybe it's that it doesn't take much to make me happy. Or that I have a very strong Scrooge gene in my DNA. Or maybe -- just maybe -- it's that playing the Frugal Game puts me in touch with how much I am in financial control of my life. And that, as they say, is priceless.

How about you? Do you get the same kick out of playing the Frugal Game? Tell us how!

Sharing My Retirement Journey

December 13th, 2013 at 01:10 pm

I want to share my financial independence (retirement?) journey through posts on this blog. How I got to financial independence. What I do with it. What I have learned (and continue to learn) that could help others reach and enjoy their financial independence. And in the process to learn even more from the feedback I hope to get.

Some of my posts will be about money management. About what I call frugality without sacrifice. About how I manage to lead a pretty nice basic lifestyle for less than $18,000 gross a year.

Some of my posts will be about my investment "adventures." About how my $400,000 stash yields me $28,000 to $32,000 a year in passive income. And about the risks that involves.

And some of my posts will be about what I do with my free time and my surplus money now that I have (or think I have) full control of my time and money to do something with it.

My core money management strategy is frugality without sacrifice — what I call playing the frugal game. Cutting the waste and getting more for my money every time I spend any of it. I know that sounds like a "duh" statement. But I’ve been amazed (and you might be too) at just how much money can fall through the cracks when one takes one's eye off the frugal spending ball.

My investment strategy is based on creating and maintaining a high yield stream of dividend and interest payments. That also means that my strategy is more high risk than a lot of people are willing to accept. But it works for me. And many of my posts will be about how and why that is so.

I put a good deal of my time into investing and money management so that I can have the financial freedom to do what I want. But actually taking the time to do fun things is something of a problem for me. If left to myself (so to speak) I have a strong tendency to either let my time go to doing more chores (since there's always more) or to plop down to watch a DVD movie. And that's not how I really want to spend what’s supposed to be my free fun time.

So I am continuing to develop scheduling and routine-setting tactics to "force" myself into actually using my time to hike, take trips, write these posts, do serious history reading, and develop some real hobby-interests. And I'll be writing posts about how that is working out.

In short, it is very important to me to feel that I am in control of my life, to have goals, and to actually accomplish them. When all of that comes together, I feel good about my life and about myself. I'll be writing these posts to help me stay on that course.

Along the way, I hope some of what I've learned and what I will continue to learn helps you in your quest for financial independence. And I'm pretty sure I too will learn a lot from your responses to my posts.

How are you doing with your journey to retirement or actually living it? Please post a comment and let us know.