Credit (High) Score

Being a personal finance nerd, credit score is something that has always fascinated me.  All of how we behave financially is boiled down to a single number for the sole purpose of determining the risk when lending us money.  Trying to maximize this number is kind of fun.  Like trying to achieve a high score in a video game.  But other than that, I feel that we, as a society, put too much focus on a credit score.  After all, in my entire life, having a high credit score has really only been important once.  And more recently, my view and approach to my credit score has turned from something worth preserving to something not worth even worrying about.

When we bought our home, ECA and I had a good enough credit to get a rate of 3.375% on a 15 year mortgage.  And although the loan cost us basically nothing (considering the growth we’ve seen in the stock markets these past few years), we began to pay down the mortgage as quickly as possible since we absolutely abhor being in debt.  This may not have been the best use of our money, but it felt pretty good to get the mortgage down from about $230K to about $20K in around 3 years.

Since then, my credit score has continued to improve.  I’ve even started to churn credit cards, opening 5 in the past year, and not seen any impact to the score.  Unfortunately, I wasn’t checking my score very often before, so the data isn’t great, but since Chase has started what they call their “Credit Journey” where you can get your TransUnion credit score for free with weekly updates I’ve been following a bit more closely.  I started this back in February, where my score was 808.  After opening a couple of cards somewhat rapidly, my score did actually dip down to 800 at one point, but it very quickly raised back up.

credit score

This service gives a few other interesting data points such as your current outstanding credit balances, your credit utilization (although mine says 0% so, that’s not quite right), your available credit, how many accounts you’ve opened in the past year (7 for me), how many inquiries in the past year (5), and the depth of your credit (only 7 years, well, I am only 30 after all).

There’s also a score simulator where you can simulate what different things might do to your score.  Which there’s basically nothing I can do to really raise my credit score.  Paying off all the cards would increase it by 3 points apparently!  Although I already pay them all off every month anyway…

Due to the value we gain from churning and the fact that we have no intentions to get a big loan anytime soon, thinking about my credit score basically has no effect on my behavior.  I used to want to get it higher, but I would gladly trade points on my score for real money, something much more tangible.  The only reason why my score is so high is because I’m a safe bet to give loans.  Save a catastrophic event, if a bank gives me money, they’ll get it back.  Of course, the only reason is because it’s worth it to pay it back since it costs me less.  It would do me no good to default, or to not pay off my credit cards each month.  I guess it’s just a mutually beneficial situation: banks win and I win, high score achieved.

The Airbnb Challenge – Converting the Living Room into our Bedroom

ECA and I have been hosting on Airbnb for nearly two years now.  We have a townhouse with two bedroom suites upstairs which works very well since we don’t need to share a bathroom.  We have been managing everything, and cleaning the room between guests to maximize our profits.  Last year, we grossed around $20,000 and after considering extra expenses such as utilities, we made around $16k before taxes.

Which really got us thinking, what if we could expand this?  Considering our expenses, if we were able to double this amount, we could theoretically maintain our lifestyle off of the income from Airbnb alone (although we don’t plan to do this), and if nothing else, we could make a considerable amount of money.  So, we set out to convert our living room into a third bedroom and try to open our suite on Airbnb.

Continue reading “The Airbnb Challenge – Converting the Living Room into our Bedroom”

The Wonderful World of Credit Card Churning

We have been using credit cards for all our purchases for a very long time.  We always pay off the balance every month and never buy any more than what we would anyway, so there has been no cost to do so.  And other than the shear convenience, with cash-back on every purchase that all of our credit cards offer, we have made a few hundred bucks every year.

But then there’s credit card churning which is on a whole ‘nother level.

Continue reading “The Wonderful World of Credit Card Churning”

Sparky in Trouble!

Sparky is the name of our car, it’s a 2013 Chevy Spark and I like it quite a bit.  It’s small (just under 12 foot long) so it can fit in basically any parking space.  It seats 3 passengers, so if I do need to drive anyone other than EC Aunt, it can.  It gets fantastic gas mileage (I’ve been averaging over 38 miles per gallon consistently).  It tells me when it needs an oil change, which has been about 3 times per year, and in general it doesn’t require as much maintenance as other cars I’ve owned.  However, recently, I ran into a problem with its battery… Continue reading “Sparky in Trouble!”

2016 in Review

Happy New Year!  One of my favorite annual pastimes is to review the previous years and find out how we did financially and I’m happy to say that 2016 was a very frugal year!  EC Aunt and I have only been out of college since 2012, and there’s a huge difference in our costs from then and now, so I really am only able to compare our expenditures from the last 4 years, but this year we managed to spend the least!

expenditures

This does exclude buying a car in 2016 which I prefer to distribute over several years if possible (assuming that I will be able to continue to drive it during that time).  This does include the cost of my previous car which we did not keep very long, so it’s cost was pretty much entirely in 2014, although we did have it for a bit in 2015.  These expenditures also do not include some costs of buying our house incurred in 2013 such as the closing costs on the house.  The biggest concern for costs not shown on here regarding our path to financial independence is the lack of health insurance, which I currently receive as a benefit through my employer.

Trends:

A few trends that are noticeable for the past few years is the decline in transportation cost, an increase in bills, a fairly consistent expenditure on food, a huge decrease in shopping this year, and a large decrease in vacation.

The transportation costs have been reduced primarily from getting a more efficient car, a slight drop in average price of gas, and the fact that EC Aunt’s work now provides her with a monthly pass for the public transportation.  I would expect once we retire that this cost would actually be even lower since the primary expenditure in this category is the cost to get to and from work.

The increase in our bills over the last few years are primarily due to moving into our townhome in 2014 and starting to pay for our HOA in addition to the other bills we already had and again increasing in 2015 and 2016 as we started to rent out our spare room.  Although I feel like these numbers are high, we’re better off in this position overall since the cost to lease would be higher than the cost to own and we’re actually making a decent amount of money on the house through renting out the spare room and the appreciation of the value of our home.  I’m really not sure how this category will be affected by retiring.  It depends on what we plan to do, and we haven’t quite yet figured it out.  I believe we will sell our home due to the high costs of bills such as the HOA, but whether we buy a new home, or rent, or just travel around for long periods with short rentals to break up trips is still up in the air.

Food costs have been relatively stable, and although we spent quite a bit less on fast food and restaurants, we spent a bit more on groceries this year.  This cost would also be quite variable in retirement depending on how much we travel and when we settle down again.  Traveling generally would make this cost go up quite a bit I expect, but it depends on where we are traveling since the cost of food might also be lower or higher in certain countries.

The decrease in shopping is almost entirely due to a huge cut-back from EC Aunt.  After getting her new position, she has decided that working for money is too hard and it’s easier to just not spend it!  The expenditure was especially high in 2015 for this category as well since EC Aunt bought a new MacBook Pro, an expensive LV purse, and an IPhone 6s…  Of course, she’s still using these, so their cost should carry over a few years as well.  She also cut back on buying clothes this year, although I don’t think her sense of fashion has suffered for it!  We also cut back a bit on our entertainment spending, opting for less expensive activities like clamming on the coast and playing Pokémon Go, heh!

The last major category that we can control actively is vacations.  In 2016, we simply did not travel as much as the last few years.  A big part of this was that EC Aunt felt she was traveling a bit too much with her new job and didn’t want to do it as much.  We were also both very busy with work and finding time to plan out a longer vacation is difficult.  There’s also the fact that we really want to spend more time in each location when traveling but when work is waiting for us to return to, it’s difficult to really enjoy the time we travel.  Of course once we retire, I expect this to be the largest portion of our budget so, this trend is not something I expect to maintain, nor do I want to maintain this low amount.

The only other trends worth mentioning would be the difference in the cost to lease and mortgage interest and property tax.  In 2013, we didn’t have a full year of a lease, so the cost was quite a bit lower for these categories.  We did buy the house that year, but the first payment was not realized until 2014.  Of course, if we continued to lease, the price would have gone up as well, so I’m pretty happy about buying when we did.  Over the last few years, we have been paying off our mortgage at a very accelerated rate.  We owe about $32,000 currently.  This has brought piece of mind and a greatly reduced cost of interest which of course has many pros and cons.  A considerable portion of our expenditures though is our property tax which has been going up and up every year and will go up even further now that Seattle has passed a major expansion to the public transportation system…  Still, as mentioned before, we’re better off owning the house than we would be to lease, so it’s just the cost of living and working in a growing city and really can’t be avoided.

The Breakdown and Its Impact on Financial Independence:

On average in the past 4 years, we have spent just under $28,000 a year, with a high of just under $34,000 and a low of just under $22,000.  Using the 4% rule (ignoring whether or not it is completely valid), we would need at least $550,000  using the low, $700,000 using the average, and $850,000 using the high number.  Furthermore, the high number might not actually be high enough for our retirement since we plan to travel more, we plan to have a modest budget at around $40,000 per year to cover everything, which would allow us a great deal of freedom, but would leave us plenty of room to fall back into super-frugal mode if anything goes badly.  For this, we would need $1,000,000!  So, to be extra sure, EC Aunt and I are shooting for a net worth of a bit over $1,000,000 in our retirement accounts in addition to the house.

balances

Our Progress to our Goal of Financial Independence This Past Year:

This year, we managed to save much more than previous years, not only because we were able to reduce our spending, but also due to the fact that we just made more money.  EC Aunt and I both maxed out our 401ks for the year, saving $18.000 each.  My company matched me $3210 for the year, contributed $3100 into my HSA, and a 401k bonus of $6,100.  Ending the year with a balance of just under $73,000 in my 401k, an excellent gain from my starting balance of $37,200.  We also contributed the remaining amount allowed to max out the HSA with an additional $3550 for a total of $6,550 contributed for the year, putting the final balance at $23,500, up from the starting balance of $14,470.  EC Aunt put in $18,000 into her 401k and received a match of $2850, she also started a Roth IRA, maxing it out for the year, ending her retirement accounts at $84,000, up from their starting balance of around $52,100.  We paid off a great deal of the premium on our mortgage this year!  We started the year with a principal of right at $100,000 and now we’re down to $32,000!  We also started a brokerage account this year which has a balance of $41,500!

In total, we managed to save just under $170,000 for the year, an amazing feat!  We also gained around $16,500 from growth of our accounts.  I expect that we should be able to maintain this rate of savings for the next few years, putting our timeline for Financial Independence at 5 years without any gains!  As long as the markets don’t crash, we could achieve this even sooner!  Here’s to 2017!  Hope it’s a wonderful year!

Uber Frugal Month Challenge – Homework Part 1

ECA here!  One of my fav FI bloggers Frugalwoods is leading the Uber Frugal Month Challenge. We have been very frugal people to start with. I am participating to learn some more frugal tips and share our knowledge with other people. If you would like to participate as well, you can join read all about it in the link above.

Mrs Frugalwoods left us homework, and I will be doing them here in ER Uncle. Continue reading “Uber Frugal Month Challenge – Homework Part 1”

Call Your Bank, ISP, Insurance Company, etc.

I recently opened a new credit card and much to my chagrin, I received a late fee after missing my due date.  I thought I had set up auto-payment which I have for all my other cards, but I was wrong.   But not to be dismayed, I called my bank and asked if the late fee could be waived since this was abnormal for me.  They did it, no questions asked! Continue reading “Call Your Bank, ISP, Insurance Company, etc.”

EC Aunt’s Fav #4 – After a long day at work

Although the blog is intended for ER uncle to share his personal finance ideas, I decided to hijack his blog to share my fav items that bring me constant joy. Every time I pick up the item, I get this immersive feeling of satisfaction and can’t help to think “I am so glad I got this”.

Check out previous posts

EC Aunt’s Fav #1 – Lip Steal vs. Splurge

EC Aunt’s Fav #2 – Make up in the Car

EC Aunt’s Fav #3 – Tropical Vacation

My work has been really busy these days. I am working about 9-10hrs a day. So not crazy long hours compared to lots of other people. But that combined with all the craziness at work can be very stressful and exhausting. Here are some things I love after a long day at work.

Continue reading “EC Aunt’s Fav #4 – After a long day at work”

EC Aunt’s Fav #3 – Tropical Vacation

Although the blog is intended for ER uncle to share his personal finance ideas, I decided to hi-jack his blog to share my fav items that bring me constant joy. Every time I pick up the item, I get this immersive feeling of satisfaction and can’t help to think “I am so glad I got this”.

Check out previous posts EC Aunt’s Fav #1 – Lip Steal vs. Splurge & EC Aunt’s Fav #2 – Make up in the Car.

We had our first snow this week. This totally makes me miss all our tropical island vacations. It’s funny that I always love packing and preparing for our vacation. Writing this post about my favorite things for a tropical vacation is a good opportunity to re-live all the sweet memories.

Continue reading “EC Aunt’s Fav #3 – Tropical Vacation”

EC Aunt’s Fav #2 – Make up in the Car

Although the blog is intended for ER uncle to share his personal finance ideas, I decided to hi-jack his blog to share my fav items that bring me constant joy. Every time I pick up the item, I get this immersive feeling of satisfaction and can’t help to think “I am so glad I got this”. Check out previous post EC Aunt’s Fav #1 – Lip Steal vs. Splurge.

Today we are going to talk about my make-up essentials to quickly complete a cute look for work. These items are compact and easy to apply. In the morning, I carpool with ER uncle and I am able to finish my make up within 15 mins sitting in the car. They fit into a small make up bag that I pack with me when I travel.

Continue reading “EC Aunt’s Fav #2 – Make up in the Car”