Category Archives: Lifestyle

What Would Your Younger Self Say to Your Present Self?

credit: Unsplash

credit: Unsplash

“Waking up to who you are requires letting go of who you imagine yourself to be.” – Alan Watts

I’ve read many posts asking what advice you would give your younger self if you could go back in time. When it comes to personal finance, many people might tell their younger self to not live above their means, to not try and keep up with the Joneses, or to start investing earlier. And of course, there will be people who say they would tell their younger self to invest in Google! Your present self is older and wiser, learning much from experiences that your younger self has yet to go through. It makes sense that we would love to go back in time to impart advice to our younger selves to save him or her from making the same mistakes that we did.

In one of the comments from an article asking what you advice you would give your younger self, one person said that it wouldn’t matter what advice he would have given because his younger self wouldn’t have followed it anyway. He said that sometimes you have to experience those failures or mistakes to truly learn from them. In an interview, Tony Robbins said that he would not change anything about his past, even after sharing his experiences growing up where his mother physically abused him. He said those experiences shaped how he is today and he wouldn’t be where he is if he changed the past.

I think those, “What advice would you give your younger self” articles are fun to read. While there is obviously no time machine so you can’t go back and give advice to your younger self, a younger person reading your experience would hopefully learn from your own mistakes and hopefully avoid making them. Thinking about this question, I started to ponder the reverse of this question. What would your younger self say to your present self? I thought it would be an interesting question to ask. And a question that only you could really answer as only you truly know your past self and your present self.

Your younger self was probably not as wise and experienced so it would be tough to ask him or her for advice. But your younger self was probably more ambitious, naïve, more of a dreamer, idealistic and less cynical than your present self. Would your younger self be excited about what you’ve done with your life or would your younger self be disappointed that you didn’t fulfill the dreams you had when you were younger?

Thinking back to when I was in high school and college and trying to put myself into the shoes of the younger Mr. Living Rich Cheaply, I think overall my younger self would be proud of where I am now. My younger self always thought that at this age I’d be married with two kids and working as an attorney. So I have crossed those expectations off the checklist. I was a frugal person even when I was younger so I wouldn’t have been too surprised that I am still living below my means.

However, I’d be lying if I said that my younger self wouldn’t also be a little disappointed as well. My younger self may have been the type to live below his means, but he always thought my older self would have BIGGER means to live within! I’m pretty sure my younger self would have expected that my older self would own a house, especially with a family of 4, rather than in an apartment that is about 800 square feet. Sorry, younger self…housing is expensive in NYC! Also, while my younger self thought that I would become an attorney in the future, I probably pictured one in a prestigious position or one who was helping to change the world. Hey, I was young and idealistic, okay! I’m pretty sure I didn’t imagine that I’d be working in a back office, mostly writing and doing research. Not to say I dislike my job. It’s okay and I enjoy parts of it, but I’m sure my younger self wouldn’t be daydreaming about it.

What would your younger self think about how your present self is doing in life?

Overcome Your Fears

Credit: Daniel Delle Donne (Unsplash)

Credit: Daniel Delle Donne (Unsplash)

“A life lived in fear is a life half lived” – Baz Luhrmann

As a pimply and shy high school kid, I was a part of the “nerd” crowd and not the cool kids crowd. I remember the biggest fear I faced back then was asking out a girl, who I developed a crush on while participating in a school project. She would always greet me with a big smile and was friendly towards me. We would joke around and chat whenever we would see each other. The school year was ending and I knew I wouldn’t see her for a while. This was before Facebook and cellphones, so communication wasn’t as easy as it is nowadays. The night before the last day of classes, I decided I had to ask her out. That night, I remember tossing and turning in bed. I couldn’t fall asleep. I was consumed with fear.

How do you get over your fear?

Identify the Worst case scenario

In my teenaged mind, I could picture the worst case scenario. I would go up to her and ask her out. She would laugh in my face and say “No!” Then she would proceed to tell all her friends and they would all start pointing at me while laughing.

Be Rational

Fear is often irrational. The worst possible scenario that you play out in your head is generally unlikely to happen. Fear is often worse than reality. Take a step back and think rationally. Sure, the worst case scenario I imagined was possible, but was it likely? If it was a random person I didn’t know, then the chances of it happening might increase. However, I was friendly with this person and knew her personality so the likelihood of the worst case scenario playing out was slim. The most likely bad outcome would be her telling me that she was only interested in being friends. That didn’t seem like all that great of an outcome either. Wouldn’t it be awkward if I see her in the future, I thought.

“Don’t fear failure so much that you refuse to try new things. The saddest summary of life contains three descriptions: could have, might have, and should have.” – Louise E. Boone

The Fear of Regret

Okay, the rational portion of my brain gave me the green light, but there was still something holding me back. There was still a huge fear of failure and rejection. The fear of failure is strong and keeps many people from doing what they set out to do. But there is one thing worse than the fear of failure. The fear of regret. Regret is one of the worst emotions we face. Failures are tough but at least they can be looked at as learning experiences. The feeling of regret, the feeling of “woulda, coulda, shoulda” done whatever it is that you wanted to do can be a powerful motivator. “Failure is an option in life, but not pursuing a dream and then regretting it a few years later can be a continual source of self torment,” said Rosemarie Rossetti, Ph.D. I knew that if I didn’t ask this girl out, I would spend the rest of the summer regretting it. I would beat myself up for being such a coward. I would wonder what if the feelings were mutual and I would have missed a wonderful opportunity.

What does this have to do with money?

This is a personal finance blog. Well I’d like to think it is. So how does this relate to money? I’ve seen a lot of people fear investing in the stock market because they equate it to gambling. You can lose your shirt, they argue! The worst case scenario they paint is losing all their money in the stock market and being homeless. Okay, maybe if you put your life-savings in a hot stock, this is a possible scenario. However, if you think rationally and learn more about investing, based on the entire history of the stock market, it has always gone up. No, that doesn’t mean there won’t be ups and downs. There will be. The stock market can have wild fluctuations and it can be a little volatile but if you invest in diversified index funds for the long term, you will reap the rewards. If you put your money in a savings account in the bank, the value of that money will be eaten up by inflation.

I feel similarly about investing in real estate. At first, I had a big fear of buying a rental property, especially one that was out-of-state and one that I had not physically seen. People sometimes ask me what if that house was some run-down place in a horrible place where no one would ever want to rent. But while there are always risks in investing in real estate such as having bad tenants, vacancies, and repairs, this specific fear is irrational. I had an inspection and there was a home appraisal. I used a plethora of online resources as well as service where you can pay independent third-parties to check it out.

Not investing your money and having it work for you because you’re fearful is a mistake. You will not build any sort of wealth if you merely put money in a bank account or other similarly low yielding investing. However, the worst thing about giving into fear is not losing money to inflation…it is that you won’t live the life that you were meant to live. Are you afraid to take the leap and make a career change, to start a business, to retire early, to travel the world? “In the end, we only regret the chances we didn’t take, relationships we were afraid to have and the decisions we waited too long to make.”

Just in case, you’re curious as to what happened with the girl I wanted to ask out. Towards the end of that school day, I bumped into her in the hallway. Here was my chance. We chatted briefly and with my heart pounding and my hands sweaty, I asked her what she was doing that weekend. She told me that she had plans with her boyfriend! I told her to have fun and to keep in touch. I guess I’ll never know if she really had a boyfriend or if she was just letting me down easy. It doesn’t matter though. I was proud of myself for facing my fear and I was relieved that I wouldn’t feel the torment of regret.

How do you overcome fear?

Strive for FI or Take it Easy?

credit: Link Hoang

credit: Link Hoang

One topic that I’ve been obsessed about is the concept of reaching financial independence (FI) at an early age. It’s not about not working. It’s about spending time doing things that you want to do with your time. One obstacle that I face is that I live in a high cost of living city in NYC. Yes, I realize this is a decision that my family has made as moving to a lower cost area would definitely speed up our journey to early FI. However, we have no plans to leave the area because our family and friends are here.

I’ve always been a frugal person and a good saver. When I got my first job, I immediately signed up for my employer sponsored retirement plan. I also opened an IRA account thanks to the encouragement of my father. However, after reading stories of regular people reaching FI in their 30s and 40s, I started wondering if I could do it as well. While I had saved a good amount in retirement accounts, especially when compared to my peers, I was no where close to FI. I had to turbo-charge my savings and investing rate if I wanted to get there. I started to max out my 457 contributions and I increased my wife’s contributions. I also increased our contributions to each of our Roth IRA accounts as well. My wife and I are naturally frugal. Always have been. We had no consumer debt and never did. We were living well within our means, but having an audacious goal like early retirement/financial independence really motivated us to go from ordinary savers to extraordinary savers.

Saving Fatigue

Brandon from the Mad Fientist talked about how there were some dark times in his road to FIRE. He wrote that he went from being frugal to depriving himself and isolating him and his wife during his pursuit of FIRE. I am not facing that dark time. I am just uncertain whether early FIRE is attainable. And if it is not, would I be better off loosening the purse strings and coast to semi-early FIRE at age 55. If I was certain that I could hit FIRE, then by all means I’d push to get there. It’s hard to keep motivated when a goal is almost 10 years away. It’s even harder if you don’t know for sure if you’re reach it.

I’m already on track for semi-early retirement!

In my previous post, I wrote that I will have a pension at around age 55. I have no doubt that I would retire at that point. Actually, as a frugal family, I think we would be able to retire on the pension alone. But I wouldn’t want to do that. We save a good amount in our 457 plans as well as in our Roth IRA plans. Even if we loosen the purse strings, we would still save for retirement in these accounts. There is a calculator on my 457 provider’s website which tells you whether you are on track for retirement based on how much you think you’ll need, how much you’ve saved, and what you’re contributing to your retirement accounts. It tells me that not only am I on track for retirement at age 55, our savings rate exceeds what we’ll likely need in retirement. Of course, these are only estimates and being a bit risk averse, I’d prefer to overfund. Chances are if I don’t hit FI in my mid 40s, I’ll likely stick it out until age 55. Those golden handcuffs get stronger as the lure of a fully funded pension and subsidized health benefits might be too hard to pass up.

What would change if we ditched the early FI goal?

Many in the frugal and FIRE blog space write about value-based spending and intentional living. They write that if they came upon some extra money, they wouldn’t change anything with their spending. I have written that living a rich life doesn’t have to be an expensive life. That still remains true. But I would be lying if I said, my financial choices wouldn’t change one bit if I had an extra thousand dollars coming in each month.

No, I wouldn’t suddenly buy a fancy car or go out to expensive 5-star Michelin rated restaurants. That’s just not me. I’m never going to be a spendthrift wasting money on frivolous things. I do think that I would like to move to a bigger place at some point as we will likely outgrow our 850 square foot apartment. Housing is expensive here in this high cost of living area. This is the main area in our budget which would expand if we decided to loosen the purse strings. I’d be more likely to take on a higher mortgage or rent payment if early FI wasn’t the goal. I’d also be more likely to splurge on travel and entertainment activities too. And we’d be okay financially. We just wouldn’t be able to reach financial independence in our 40s.

Will I still want to retire early in 10 years?

Of, course I would, right? At first, it sounds like a silly question, but something that still needs answering. The main reason I’m obsessed with FIRE is because I feel like I have no time. My work days consists of a long commute as well as driving the baby to and from grandma’s for childcare purposes. By the time, I get back, it’s dinner time, bath time for the kids, and some household chores. When we wake up the next day, it’s the same routine. On the weekends, we try to run some errands while also making sure we do something fun with the kids. We also try to visit our parents. Many parents with grown children tell me not to miss these precious moments. Mr. Money Mustache and his wife retired early to rise their son together without the shackles of the 9 to 5 job. I’d love to have that freedom as well.

A lot can change in 10 years. By that time, my kids will be in the pre-teen to teenage years. Will they even want to spend that much time with good old dad? I haven’t really fleshed out what I would be doing in early retirement as it seems still far away. Sure, I’d love to spend more time on this blog, but would this blog still even exist? I would like to volunteer, spend more time with my wife, and travel. But, I have a decent amount of vacation days from my employer and my job isn’t too stressful. Is the extra freedom worth taking off my golden handcuffs? Would I enjoy spending a little more in the present rather than saving a whole lot for early FI?

So should I put the pedal to the metal and strive for FI or just take it easy?

Related posts: Just as I was facing this dilemma, I read some blog posts related to this issue. The blogger at Bayalis is the Answer said that you can’t fail at fire, because no matter what, you’ll get somewhere that is worth going. Likewise, Matt from Optimize Your Life, wrote that he is saving for FI because it gives you options even if you haven’t fully reached financial independence.

The Pension: My Golden Handcuffs

Working in government for New York State, I am fortunate to have very good benefits. One of the benefits is having a pension plan (defined benefit plan). All of my co-workers talk about their retirement date in terms of how old they are and how many years they have in the “system.” It has nothing to do with how much they’ve saved and many save very little if anything for retirement. They are solely relying on the pension program. Some don’t retire even when they have enough time in the “system” and are old enough, because they live above their means and cannot live on anything less than their current income.

Many who don’t have pensions are understandably envious of those who do have it. I am very fortunate to have one and I don’t want to seem like I’m complaining about this wonderful benefit, but there are a few downsides of the pension for me.

With a 401k plan, the money is often portable. You save money in it. Your employer makes matching contributions. It might take a year or a few years to vest, but the money your employer contributes is yours to keep. The gold plated pension of older employees has been watered down for younger employees. For new employees, the pension plan doesn’t vest until you’ve worked for the employer for 10 years. So if you leave before then, you get no pension. They’ve also increased the retirement age from 55 years old to 62 years old. I don’t like someone else deciding when I can or cannot retire. I’d rather make that determination based on how much I’ve saved and how much I will need, not some arbitrary thing like how many years I’ve got in the system.

Another issue with pensions is that if the company goes bankrupt, it’s very likely retirees will lose the pension or get a amount that is a lot less than they were expecting. I work in government which has a slightly lower chance of bankruptcy, though you can never discount it. Some states’ pensions are in better shape than others. If you work for the State of Illinois, well then, I think you might want to worry a little more. Currently, the state constitution in New York explicitly protects pension payments. However, that doesn’t mean there will never be an amendment to the state constitution.

Having that pension also makes it hard to pull the trigger on other job opportunities currently. I can’t say that I’ve really been wowed by another job which tempted me to leave or that I’m actively looking. However, when I’ve checked out prospective jobs elsewhere, a part of me does think, “if I leave, I won’t get that pension!”

As someone aspiring to become financially independent and possibly retire early at age 45 , the pension makes the decision to leave a lot harder. So what will my pension pay? If I stay until I am 55 years old, after having worked 30 years, I will get a pension which pays a yearly benefit of about 60% of your highest three-year average salary. Let’s say my highest three-year average salary is $100,000, I will get a yearly benefit of about $60,000. Yea, I know I know…I am very lucky to have this pension. However, if I decide to FIRE at age 45 with 20 years of service and let’s just assume the same three-year average salary of $100,000, the pension would only pay $29,200 based on the online calculator. Note: I would have to wait until age 55 to collect the pension. If I decided to leave at age 50 with 25 years of service, based on the same salary, I would collect $36,500. If I waited until age 54 with 29 years of service, I would get $42,300. Obviously, if I stayed until 54, I would just go one more year to get the full amount! Yes, having a pension is a wonderful benefit, but it can also be a handcuff, albeit a golden one.

Is there a golden handcuff holding you back from leaving your job? Do you have a pension and would you take the penalty to retire early?

Housing Dilemma

Gantry State Park

Last year, when our family went up to Buffalo to visit my brother-in-law, I saw a sign at the local supermarket. It was advertising some contest where you could win $250,000. It said, “Win $250,000 and buy your DREAM HOUSE!!” With $250,000 you can buy a beautiful house in a great neighborhood in Buffalo. With $250,000 in NYC where I live, you are most likely not buying a house…any house. Maybe a foreclosure or short sale in need of serious repairs in a bad part of town. With $250,000, you can put a 20% down payment on a dream house!

When I got back home, I told everybody how frustrating it was that $250,000 could buy a “dream home” upstate, but was not enough to buy anything down here. Most people said that they wouldn’t want to live in Buffalo anyway! Too cold and too much snow. That may be true, but there are many nice parts of the country where housing costs aren’t as high and the weather is a lot nicer. If I was single or if I was married but did not have children, there would definitely be more options. However, when children are added into the mix, most people who want a little more room as well as a neighborhood with good schools.

Reading various blogs, there are a few methods I see related to dealing with high housing costs. I think they are great methods, but they may not necessarily work in high cost of living areas. Here are a few suggestions I’ve heard to reduce housing costs and my explanation why it might not work in an expensive city:

House Hacking

House hacking is basically buying a multifamily house, living in one unit and renting out the other unit to cover all or most of your mortgage and expenses. Looking at multifamily houses in areas where I would consider living, which consists of a safe neighborhood, good school district, and decent transportation options, I’d be looking at around $1,000,000. With prices in that range, I’m not sure house hacking is a viable choice for most people in reducing their housing costs. The closest “hacking” I’ve seen in NYC is perhaps “rent hacking” when young and single New Yorkers share a 3 bedroom apartment which rents for $3000, paying $1000 each. This reduces their housing costs as it would cost about $1500 for a one bedroom in a similar location. Rent hacking is less ideal when you have a family.

Note: The numbers I’m using are rental and housing costs in and around my neighborhood. I live in Queens and not in Manhattan or a “hip” part of Brooklyn. It’s not a hip part of Queens either, but it has great schools, it’s very safe, and has great transportation options.

Buy a fixer-upper/Stay in your starter home

Another common suggestion to people who struggle with housing costs is to tell them to buy a fixer-upper. You can buy a house for cheap and slowly update the house as you live there. Some homeowners have the urge to upgrade to a bigger or nicer home when it makes more financial sense to just stay in their current starter home. I did a quick search in my neighborhood and surrounding neighborhoods where I’d consider buying. I saw a small 3 bedroom 1 bathroom starter house which is a short sale. Even being a distressed property, it is going for $649,000.

Move farther away from downtown

Those living in New York City have the longest commute compared to other big cities. Most people already live farther away from Manhattan where the majority of the them work. The data shows that NYC dwellers have the longest commute which is about 35 minutes, but many people I know have commutes of at least an hour or more. Some people move EVEN FARTHER away from their jobs to find a house they can afford by going to the suburbs of New Jersey, Westchester, and Long Island. Some even farther away! Three percent of the NYC workforce are “super-commuters” who travel at least 90 minutes or 90 miles each way to get to work. While living farther away might reduce your housing costs, you definitely wastes a large portion of your day commuting. Plus, you increase your transportation costs and many of the suburbs surrounding NYC have onerous property taxes which you better take into account when looking at the lower housing prices. In Long Island, many houses have annual property taxes of over $10,000.

Rent instead of Buy

Too expensive to buy? Just rent! Problem solved right? If the choice was to buy a $700,000 property versus rent for $1000 a month, the choice would be a no brainer. But what if the choice was between buying a $700,000 property or renting for $3000 a month? The decision becomes a little harder. In NYC and in a few other cities, there is a housing option known as a co-op. When you purchase a co-op, you do not technically own the apartment unit, but you own shares of a co-op corporation that owns the building. There is a monthly maintenance fees that covers expenses such as heat, hot water, property taxes and staff salaries. For many in NYC, co-ops are their best bet to own property (though technically they’re not property owners but shareholders). Co-ops are more attainable compared to a house, but they aren’t that affordable either. In my neighborhood, a three bedroom co-op would cost over $500,000 and have a monthly maintenance fee of at least $1100.

As I mentioned earlier, if I were single or married with kids, there would be many more options available. However, with two kids, I would love to find a place with a little more room in a neighborhood with good schools and decent transportation options. We live in a co-op that is about 800 square feet which is a converted 2 bedroom. The second room is very small but since my kids are small we can put them in bunk beds for a little while. So we have a few more years to figure it all out.

What do you do to reduce your housing costs?