Wednesday, August 8, 2018

The One In Which I Buy A Tesla

A couple weeks ago, my wife came back from the mall and said "I saw the color of the Tesla we’re going to buy!" This was a small joke between us because she and I could not agree on what color our future car should be. I wanted blue (my last two cars have been blue) and she wanted silver (her last two cars have been silver). I am opposed to silver because it’s a fairly common car color - the beige of the car world, as far as I am concerned. She is opposed to blue for who knows why. So we were at something of an impasse on the color, but I figured it wasn't a pressing issue. There was still plenty of time to figure it out.

Then she told me she was walking by the Tesla store in the mall and saw a car that was a bluish grey that she loved. She actually went into the store to ask the associate what it was called, which is pretty surprising if you know my wife. Turns out, it is called Midnight Silver. The image of the color on Tesla's website doesn't give a good indication of what it actually looks like. It's a metallic paint and looks multicolored in the sunlight. It's still more grey than blue, but there are definite hints that it's not quite what it seems. A Model 3 owner who has this color posted some photos here that show the various hues the paint can take on.

Anyway, while talking about the color, she said "You should just buy one before they stop selling that color."

Hmm. Did I hear that right? Did she just give me approval to spend a crap-load of money? I think so, but was I willing to do that?

It took a week or so of thinking about it, but, as the image above shows, I decided to go ahead a put in an order. We went back to the Tesla store, ostensively so I could check out the color myself, and I pulled the trigger. The car is due to be delivered at the end of September.

How I Talked Myself Into It

If you really want to buy something, it's pretty easy to talk yourself into buying it - just ask any of the millions of people in over their heads in debt. While I'd like to think I didn't just go inventing reasons to justify getting the car now, there is likely some part of that in my decision. That's just human nature. So here's my reasoning. You tell me if you think I am just blowing smoke up my ass.

The Incentives

Telsa recently sold their 200,000th vehicle. This means the federal tax credit of $7,500 will start to be phased out. The full credit is still available for people who take delivery of their cars by the end of the year. Conveniently, that now includes me :-)  However, buying now means I will need to take out a loan for the car. Based on my rough estimates, if I put down about 30% and finance the rest, I'll pay about $6,501 in interest charges on a 6 year loan. So the tax credit more than pays for the loan interest. I also plan to pay the loan off early, leading to even more savings. These numbers will be subject to change once I get all the final paperwork done and the numbers are nailed down, but it's looking good on this front.

Tesla currently has a promotion going on where if you get a referral from a current Tesla owner, you can get free Supercharging for as long as you own the car. This is a feature that was included for early car purchasers, but it was recently scaled back. Now, you only get 400 kWh of charging per year for free. I'm sure this is due to the expected increase of Tesla owners now that the Model 3 is starting to roll out in force. Anyway, I found out about this offer on a Saturday and it was due to expire on the following Tuesday.

This is a pretty big deal for me. I know there are a lot of people abusing the free charging, but I don't plan on being one of them. I would like to be able to drive on long trips and not have to pay for energy, but I'm not going to bother charging for free during my daily commute. I just don't have the patience for that. Rather than stop for 15 minutes on the way home to suck up 75 cents of free energy, I'd rather just head home and plug in. The free charging for road trips was a big reason why I wanted to get a Tesla in the first place and I was sad when I thought I was going to miss out on this feature.

To be fair, the "owner advisor" I spoke with at the Tesla store did tell me that Tesla has extended this offer a couple of times, and may do so again. Truthfully, he said, a lot of people complained about it going away and Tesla was finding it hard to stop offering it. Sure enough, the day after the offer expired, Tesla once again announced that it would be extended, this time through September 16, and this time the offer is also good for buyers of the Model 3 Performance model. (Previously, it was only good for Model S and Model X buyers, as well as Solar buyers, before.)

By the way, if you are interested in buying a Tesla, please use my referral code, shown on the right, or click here :-)

The Taxes

The recent tax bill passed by Congress for 2018 limits the federal income tax deduction for state income taxes to $10,000. Washington is one of the few states that has no state income tax but the federal government allows residents of those states to deduct sales taxes paid instead. Our sales tax is a hefty 10%, but that deduction is also capped at $10,000.

I'm sure this is the first step in removing the state income tax deduction altogether. I fully expect this deduction to be further reduced or be completely eliminated in the coming years. I might as well claim it while it's available. Sales tax on the Telsa will be over $10,000.

The new tax bill did double the amount of the standard deduction. For those like me, who are married and filing jointly, the standard deduction is now $24,000. My mortgage interest payments will be about $20,000 in 2018, so I was planning to just take the standard deduction and not bother itemizing. But with the sales tax paid on a new Tesla, I'll have more than $24,000 in deductions, so I will itemize to get a bigger refund come tax time. When you include the $7,500 tax credit, I should be looking at a nice sized refund next year.

Borrowing Is Cheap

Telsa is offering buyers a loan at a 1.74% interest rate. That's pretty darn cheap. I'm sure that's only for the most qualified buyers, but I'm pretty sure I'll fall into that category. Both my and my wife's credit scores are over 800 and we'll be putting down about 30% for the purchase.

My Planned Investments Are Going Away

The planned main investment for my passive income stream has been the real estate backed mortgages I have been investing in with my partner for over 15 years now. I was earning anywhere from 8% to 12% returns on my money. Recently, my partner has run into some difficulties and it looks like the opportunities have been drying up. I'll still likely invest in real estate, but it will have to be with someone else, whose track record is unknown. That means I will be facing more uncertainty and possibly lower returns in the future. That, in turn, means my target savings goal number would have to go up, probably by a significant amount.

We Can Afford It

Look, to be honest, my wife and I make a very good living. She nearly doubled her salary when we moved to Washington and I got a big bump in mine as well. Depending on which source you read and what year's data you use, we may or may not be One-Percenters, but we most likely are at least Three-Percenters. Don't hate us because we're beautiful.

I've already written about how I love budgets. I've got all kinds of savings accounts as line items in our budget - retirement, emergencies, vacations, car and home maintenance, etc. Our emergency fund recently reached a milestone of 5 months worth of mortgage payments. That was my goal, so I'm okay cutting back on that. If I take the roughly $1,500 a month I was putting towards that, plus the $600 per month I was saving towards the Tesla, we can easily cover the car payment and then some. Additionally, I'll still be putting my online income towards the car. It's just this time it will go towards paying off a loan instead of into an investment account. So bottom line: no net change to our budget, even with a huge car loan, and we'll still be saving money in other accounts.

Yeah, mathematically, it's not optimal. Paying off a 1.74% loan early is like earning a 1.74% return on my money and I know I can do better than that with other investments. But apart from a house, this car is the most expensive thing I have ever purchased and I'm not quite comfortable with such a huge loan hanging over my head. I'd like to get it paid off ASAP.

The Intangibles

This month, I turn 50. It's not that big of a deal for me - just another number - but I do realize that there are now likely more days behind me than in front of me. By no means do I feel like this purchase is a mid-life crisis car. I'm not trying to regain my lost youth or anything. However, it is something I would like to enjoy for several years, at least. Based on my savings rate to date, I figure it would be another 5 years minimum until I would be able to save enough to purchase the car using passive income, as was my original plan. That would put me at 55 years old. I don't want to wait that long.

Also, I have multiple sclerosis. I was diagnosed 18 years ago and, apart from a slight loss of vision in my right eye, I have, thankfully, remained largely unaffected. However, it's an unpredictable disease and it is conceivable that sometime in the future I may not be able to drive. It would suck if I never got my Tesla before that happened.

A friend on Facebook reminded me that there are opportunity costs. What will I miss by holding off on purchasing a Tesla now?  Possibly a lot of enjoyment, that's for sure.

So What Now?

I'm sorry I was not able to buy a Tesla with passive income. I know in my heart that it can be done and that it would be a totally cool thing to do. I just don't have time to amass the capital needed. If I had started 5 or 10 years earlier, I am confident I could have done it. My daughter is young enough that I know she can, should she choose to.

Now that I've abandoned my goal of buying a Tesla with passive income, what will happen with this blog? I plan to keep posting, but the focus may shift slightly. I'm pretty sure I'll be posting a lot about the Tesla experience, everything from the buying process to my adventures driving it, so hopefully, you'll continue to visit.

Rather than a percentage counting up towards a savings goal, I'll probably start counting down until the loan is paid off. (Yes, I'll be paying it off early!) This blog was, really, a means to force me to continue to save towards this goal. Publicly posting my savings was a good motivator to keep saving and not abandon my dream. I'm sure public postings will be just as strong a motivator towards paying off the car loan early.

What are your thoughts about my decision?

Wednesday, August 1, 2018

Goal Update: End Of July 2018

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of July, 2018
Current value: $48,409
Change from last Month: +$2,285
Percent of Goal:  44.52%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

My SQL courses on Udemy generated $128.15 of income. My courses on SkillShare earned $92.80. Big gains this month came from stock appreciation. It was a relatively quiet month in terms of online income, but summer months typically see a slowdown in student enrollment. I do have one piece of rather big news to share, but I'm going to hold off until next week for that.

Net Worth Update

Our net worth hit another all-time high, rising almost $30,000 to $876,448. This completely surprised me, as I haven't made any changes in my saving plans. In checking the numbers, it seems the biggest increases came from my emergency fund account and general retirement accounts. These are invested solely in a Vanguard index fund and a Schwab S&P 500 index fund.

I think I've reached some sort of critical mass of investments where I'm going to start seeing huge swings in value each month depending on how the market moves. The change in value caused by market fluctuations dwarfs any increases caused by my monthly contributions. (Hopefully, these will be fluctuations to the upside!) In other words, an inflection point. This is something many FIRE bloggers talk about. A good post about it can be found over at The Green Swan.

In a surprise development, the value of our house actually dropped by about $3,500. I think that's the first time it has dropped since we bought it about 8 months ago!

June 2018
July 2018

If you have any questions or suggestions for topics, please drop me a line in the comments section!

Wednesday, July 25, 2018

Educating My Daughter On Negotiation And Finance

My wife and I got a text from our daughter the other day that said

"Yo peeps. I need more money!"

In further texts, composed in a similarly elegant style, she explained that she wanted to start buying some clothes and other items. She wasn’t just asking for a handout. She was looking for more work to do to earn money.

In fairness, it was probably time to revisit this subject. We haven’t changed her allowance in years. That being said, she doesn’t buy a lot of stuff, either, so there hasn’t been much of a need to adjust things. But, she’s now 14 and will be entering high school in two months. I remember  when I was in high school, I spent a lot of money on records and tapes. (I'm dating myself here. CDs started getting popular right as I was entering high school, but the players were still pretty expensive. I didn’t buy my first CD until I was in college.) I went out to restaurants with friends and hung out at arcades. Basically, entering high school brought many changes to my life, most of which involved spending money.

So my wife and I sat down with our daughter to hash out the details. We purposely let her lead the discussion, curious to see what she would ask for and would she would offer in return. She was willing to take on extra chores and also was looking for additional one-time jobs she could do to earn some additional cash. But this is where things got a little.. surreal.

In an attempt to teach some negotiation skills beyond “yo, I need more money,” we asked her how much more she wanted, expecting her to ask for some crazy increase. Instead, she asked for less than my wife and I had decided to give her! This was not the direction I expected the conversation to go, so instead of agreeing to the lower figure, we added a couple more chores to the list and offered the figure we had in mind (which again, was more than she asked for). She was OK with the additional work, but actually wanted less money. Yikes. At this point, I looked at her and said “Don’t turn down someone offering more than you asked for, especially for the same amount of work. That’s just stupid!

It was surprisingly difficult, but we did finally get her to accept the larger amount. It turns out, she was worried about the effect she would have on the household budget. She often hears me and my wife talking about the various different budgets we have for running the household and she was worried her raise would upset that. So cute…

Then came the next hurdle.

We've always split her allowance into two parts – money she can spend and money she has to save. When discussing her new allowance, we were willing to say her increase could be entirely used for spending and she didn’t have to save any of it. Surprisingly, she balked.

She said she didn’t feel right spending all that new money. “Mission accomplished!” I thought to myself. After some further discussion, she ended up saving the same percentage of her raise as she was for her current allowance – 30%.

So all in all, I feel this was something of a mixed bag. On the one hand, she tried to turn down extra money, but on the other, she made sure to keep saving a big chunk of the increase. I think the saving lesson is the more important one and I’m glad that she had the response she did. As for turning down more money, well, I obviously still have some more teaching to do there!

Wednesday, July 18, 2018

Tesla Hits Milestone - Tax Credit Going Away

My Tesla just got a little bit more expensive.

According to Ars Technica, Tesla has now sold enough cars in the US that the $7,500 tax credit is starting to get phased out. Once Tesla sold 200,000 vehicles, the phase out period starts.

For the remainder of 2018, if you buy a Tesla and it is delivered before the end of the year, you can still get the full $7,500 tax credit. Teslas delivered in the first six months of 2019 are eligible for half of that tax credit or $3,750. Those delivered in the final 6 months of 2019, get half again, or $1,875. Cars delivered after that are no longer eligible. On the bright side, the remaining tax credits are now limited by time, not how many cars Tesla sells.

Individual states may still be offering tax incentives.

It will be interesting to see how much this will affect sales. I know the incentive is a big selling point. If buyers are looking for that tax credit, they might decide to buy a Model S or Model X rather than a Model 3, because the Model 3 deliveries have such a backlog. This will also put some pressure on Tesla to deliver cars as fast as possible before the end of the year. I know if my car was delivered on Jan 1, 2019, I would be pissed at Tesla for delivering one day late and costing me $3,750.