Tuesday, January 23

How I am Avoiding Creeping Recurring Expenses

Just as passive recurring income contributes to a higher quality of life, monthly recurring expenses - usually subscriptions of some kind - can eat away at cash flow.  This is why I audit my expenses on a regular basis.

Satellite Radio

I practically live in my car.  While many people consider satellite radio subscriptions a luxury, I value the commercial-free stations, and the ability to listen to my stations wherever I go.  I was on a month-to-month plan with SiriusXM which included streaming in our home.  By agreeing to a 12 month contract, I was able to upgrade to the best plan available and keep the streaming option while almost halving the cost of the subscription.

Estimated Savings:  $200/year

Newspaper Subscriptions

A while back I redeemed airline miles to gift a subscription to Barron's to a friend.  After the first year, my credit card began being charged a monthly fee.  It was only $13.00, easy enough to ignore every month.  Today I canceled it.

Estimated Savings:  $156/year

Internet

I pay $45/month for home Internet.  This is something we have to have, and when you consider how much bandwidth we use, it's not that expensive.  But relative to our other bills, it is on the high side.  Put into perspective, the electric bill during winter months is around $60.  I power the entire house for a little more than I pay just for Internet.  I called my provider, Wow, to see if I could lock in a lower rate.  By agreeing to a 12 month contract I was able to reduce the monthly cost to $31/month.

Estimated Savings:  $168/year

Well, that was easy.  It took me less than 20 minutes to save $500 in 2018.  Companies are eager to retain their customers, and I don't mind agreeing to remain a customer if it means saving money.  I'll continue looking for ways to save money without sacrificing.  What tricks have you used to save money?

Sunday, January 21

Passive Income from Rental Properties

In 2006 I became a landlord, mostly by accident.  I was living in a 2 bedroom townhouse about 30-45 minutes away from my job.  I wanted to be closer to work, and I found a brand new subdivision merely a 10 minute drive from the office.  The market in the area where my townhouse was located was weak for sales, and my best friend and his wife were looking to move back to Birmingham.  I suggested he rent my townhouse, and the rest is history.

Passive income - income that requires relatively little effort on my part - is a huge part of my plans for financial independence.  I began buying up rental properties, mostly foreclosures.  In 2008 I moved from the house I bought in 2006 to another new house and rented that house out.  Fast forward to 2018.  I have 10 rental properties.  I've held all my properties except one, which I sold in 2015.

Today I'm going to take a look at how I'm doing.  Below I have included properties I own as well as the two held in my retirement account.



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2014201520162017
Income$95,076$93,305$83,874$91,728
Expenses$34,553$36,689$44,861$33,919
Cash Flow$60,523$54,616$39,012$57,809

Maximizing Income

Last year was a solid year for income.  Every year I will experience vacancies, but in 2017 most of the properties were occupied and rent was paid.  I haven't added any new houses to my portfolio since 2014.  I look at how much I am charging every year and, if warranted, I raise the rent.  I try not to be too aggressive because it is better to keep existing tenants than find new ones.

Minimizing Expenses

I have some control over my cash flow by deciding how much money I will spend on my properties.  The townhouses are in a declining area, and I am especially careful not to overspend.  My single family homes have more potential, so I try to make those very nice to attract the best tenants.  This strategy seems to work:  across the 3 nicer homes I own, one tenant has stayed 9 years, another 8 years, and the third is in her second year. 

What do I do to keep expenses low?  Over time I've simplified things.  I am currently working on a vacant property, and my handyman is repainting the entire house, walls and ceiling, white.  I have removed carpet and replaced it with vinyl peel and stick tiles.  I'm thinking about removing dishwashers from these properties, and I have already removed most of the garbage disposals.  The goal is to minimize service requests by using more durable products and eliminating anything that can break.  I'm also deferring some maintenance.  For example, the wooden fences around my townhouses have been in bad shape for years, but I have put off replacing them. 

One last note about expenses.  I don't include depreciation in my calculations because it is not an actual cash outflow.  If I included depreciation, which basically amortizes the cost of the property over its useful life, my income would be much lower.

Passive Income is Awesome!

Becoming a landlord is one of the best decisions I have made.  Everyone needs shelter, and the properties have dependable cash flow regardless of how the stock market performs.  Over time I'd like to not be an absentee landlord, because being so far away increases my costs.  Having a steady stream of income while I am doing other things is so important to my financial independence.

Friday, January 5

My Frugal Miser - December Expenses: $1,643


I was happily frugal in December.  We enjoyed a week vacation in Las Vegas and Phoenix, where my winnings at the blackjack table more than paid for the trip.  I bought new brakes and rotors for my car, purchased $200 in restaurant gift cards, and prepaid some of my 2018 health insurance premiums.



December Expenses:  $1,643

$337 Auto ($79 for gas, $258 for service)
$0 Bank Fees
$72 Clothing
$0 Computer
($1055) Entertainment (movies, gambling, alcohol) - gain this month
$620 Food
$0 Gifts Given
$0 Household/Housing/Home Repair
$0 Homeowner's Insurance (annual payment)
$1,027 Health and Dental Insurance (prepaid a portion of 2018 health insurance)
$0 Investment Expense
$54 Interest Expense*
$26 Medical/Dental (income)
$0 Miscellaneous
$0 Personal Care
$31 Subscriptions
$0 Taxes
$52 Sharing Economy Expenses (tolls, car washes, etc.)
$172 Utilities
$307 Vacation

*Interest expense includes student loans and the loan on my car.  As both rates are below 2%, I am completely comfortable paying the interest each month and investing the money that I would otherwise use to pay off these loans.  In December, I paid $38 to E*Trade for "hard to borrow" interest on a short sale of stock. 

Wednesday, January 3

My Frugal Miser - December Income: $11,529


My income was solid in December.  I received the bonus on the mystery shopping route I finished in November and worked a few meetings.  Most of the work I did though was driving for Amazon.  Two of my rental properties aren't producing income still.  I also realized some healthy stock gains.


December Income: $11,529

$1,583 Mystery Shopping and Hospitality Jobs
$16 Uber
$0 Lyft
$0 Postmates
$2,007 Amazon Deliveries
$5,720 Rental Income
$185 Dividends and Interest (Investment Accounts)
$1,987 Realized Gains (Losses) on Investments
$31 Other Sources

Notes:  
  • I don't include transactions in my retirement accounts.  This includes rental income, dividends and capital gains and losses.
  • I include merchandising and hospitality work in the mystery shopping category since the companies that I shop for provide this extra side work. 

Monday, January 1

My Frugal Miser - 2018 Goals

It's time once again to set my goals for the year.  Publishing my goals will keep me accountable and on-track.  My 2018 goals will be similar to 2017.  Why change what works?

Here are my goals for 2018

  • Simplify:  consolidate financial accounts and do business with fewer companies.
I will likely start over with Quicken.  I've been using the same database for years, and it's junky.  This alone will clean things up tremendously.  Doing business with fewer companies is all about reaping the benefits of loyalty and reducing paralysis by over-analysis.  I'm going to cut back on Groupon deals.  In the past we've gone to a restaurant 10 or 15 miles away because I got a good deal on Groupon.  Sure, I may have saved $10 on the meal, but I also wasted time and gas in the process, and had to worry about when the deal was going to expire.  When we travel, we will focus on Choice Hotels and IHG properties.  I still have a Marriott and Hilton credit card, but we will probably only stay at those properties when someone else is footing the bill (for work) or when I redeem points.  Basically, I want to spend less time making decisions when it comes to trivial things.
  • Debt:  Reduce outstanding debt to less than $125,000.  Pay off car loan and both credit card balance transfers.
I'm ending 2017 with about $163,000 in debt.  I have two large credit card balances from when I used 0% checks to pay off a mortgage.  Those will be paid off ASAP.  I also want to pay off my car loan.  Although the rate on the car loan is only 1.99%, the mileage on my car (over 130,000) is getting pretty high and I will probably need to purchase another car in 2018.
  • Spending:  Spend less on vacations and entertainment.  Cut spending on alcohol in half.
We drink too much.  Alcohol is empty calories.  The best way to measure whether or not we are cutting back on alcohol is to look at how much I spend on it.  For vacations and gambling entertainment, I don't necessarily need to cut back a lot.  I just don't want to spend more than I did last year.  2017 was a happy medium in terms of our vacationing enjoyment.
  • Personal Improvement:  Lose weight and get stronger.
My body is letting me know it is getting older.  I often deal with sore feet and a painful lower back.  My weight is close to an all-time high.  I have to do something about this.