Happy Holidays!

Happy Holidays to you and yours! I'll be taking a short break this week and next as Christmas and New Year's roll around. Regularly scheduled posts will return on January 7th with a progress update for the month of December.

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Multiple Streams Of Income

If you've been following my goal update posts, you'll notice that I have some sort of additional income just about every month. This usually comes from various side projects that I have going on. It doesn't amount to much - usually just a couple hundred of dollars - but it's extra* money that I can funnel directly to a particular goal, which in this case is buying a Tesla.

*By "extra," I mean it is money that is not regular income and is not included in my monthly budget.

My real estate background has impressed upon me the wonders of passive income. I love having my money working for me, 24 hours a day, seven days a week. I love going to the mailbox and finding a check waiting for me. (Although these days, it's more like logging in to my online bank account and seeing a deposit has been made.)

While I was starting out in real estate and still learning the ropes, I heard a lot of people raving about Robert Allen's book Multiple Streams Of Income. I never read the book, but I understand the concept. You want passive income coming in from multiple sources. I'm completely in agreement with this idea. I've got money coming in from stock dividends, hard money loans, ebook royalty payments, blog advertising, and on-line courses. Right now, it's nowhere near enough to make a living on and that's fine. I'm creating all these income streams (or income trickles, really) in my spare time and whatever income they generate is extra money to me that I can apply 100% to my "fun" goals. Thus, I can work towards getting toys without taking money away from more important goals, such as building my emergency fund, saving for retirement, etc.

(Fun fact: That link to Allen's book has an embedded Amazon Associate's tag in it and I'll get a few pennies from Amazon if you click it and buy the book, or anything else from Amazon, during that browser session. This type of marketing was my very first foray into passive income.)

If you want some extra money, think about your hobbies and what you enjoy doing in your spare time. There's probably a way to earn some income from it. If you enjoy making things, you can always make things and sell them. While that will get you some extra money, that is not really passive income because you still have to work to make the items. As soon as you stop making them, the money stops coming in. But maybe you can create a blog about your hobby, or make a video course on how to make that item. Now, when that goes out on the internet and people click on the ads on the blog or buy your course, that becomes passive income. Your content is out there generating income for you 24/7, no matter what you are doing.

It's an income stream! Get it?

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Other Tesla Blogs I Read

While I don't yet actually own a Tesla, I do like reading the stories of people who do. From their experiences, I can get a better idea of what to expect when I do get mine. Here are some of the other blogs and forums I read:

Tesla Motors Club - Tons of good information here, although, like any large public forum, it can be hard to find the good bits of info scattered throughout all the posts. I tend to read mainly the threads about Tesla owners who live in Arizona.

Tesla Owner - Blog run by a person who started out with a Roadster, then sold it and bought a Model S when those came out. After reading his experiences with the 21 inch wheels and high performance tires, I've decided that I'll be getting the 19 inch wheels on my Model S. The author is an engineer and lives on the West coast.

Tesla Living - A blog I found fairly recently. The author is also an engineer, so we have similar backgrounds. (I guess Teslas attract the nerdy engineering-type guys.) The author lives on the East coast. I liked reading his cost-analysis spreadsheet comparing owning a Tesla to a new Acura. It reminds me of the spreadsheet I made to determine who much I need to save to buy my Tesla with passive income.

I like the different perspectives the two blogs provide from the different coasts. Not only is it interesting to read about living with a Tesla in both warm and cold climates, it's interesting to read about having a Tesla where SuperChargers are relatively numerous (West coast) and relatively rare (East coast, near where the Tesla Living blogger lives).

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Goal Progress - End Of November 2014

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 November, 2014
Current value: $9,652
Change from last month: +464
Percent of Goal:  8.88%

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: The upward trend continued in November. Besides my regularly budgeted contributions, I added just $88 from sales of my online courses. That's one of the lowest monthly totals I've had. Udemy pays two months in arrears because they offer students a 30 day money back guarantee, so this payment represents weak sales in September. But I'm looking forward to January's payment, which will be for sales made in November. Udemy offered instructors a chance to participate in their Black Friday sale. This sale was actually a two week long sale that started two weeks before Black Friday. Prices for participating courses started at just $10 and increased by $1 per day until Black Friday. I was hesitant to join the sale. The normal prices for my courses range from $99 to $69. I only get between 25% and 50% of the sales price (depending on how the student found the course), so dropping the price to $10 seemed like I could be losing quite a bit of money. As it turned out, opting into the sale was one of the best decisions I've made. As I write this, there are still a few hours left in the sale and the number of students enrolled my courses has already more than doubled and my income for the month has shattered my previous monthly record! There is also the potential for more future profit because later on, I can cross-promote my other courses to those students who only picked up one or two of my courses during the sale.

I received another small royalty payment from my ebook - just $8 or so. It's small change, but I love the fact that I continue to be paid each month for work I did once in the past.

At the end of the month, the amount of cash I had in the account was over my threshold to buy stock, so I picked up another 10 shares of Realty Income. I'm approaching another milestone there, which I'll talk about once I reach it.


Some of you may have noticed I've added some advertising to this site - just one ad in the upper corner. I don't expect to earn much. I have a total of three blogs and I run Google ads on all of them, but very sparingly. I think I earn about $100 per year, which is just enough to cover the hosting costs. Still, it's another revenue stream.

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Don't Leave Money On The Table: Dry Cleaning

This is one in a series of short articles about claiming all the benefits you are entitled to – be that discounts, freebies, or whatnot. I’m not going to go to the length of, say, extreme couponing, but I have found there are often discounts or bonuses you can easily take advantage of that can save you money without making major changes in your spending patterns or behaviors.

The following is a perfect example of what I mean by "don't leave money on the table." By making two extremely simple changes to my routine, I saved a couple hundred dollars a year. I didn't have to switch brands or start patronizing a different business. I simply took advantage of everything that was offered to me by a company I was already doing business with anyway.

What you wear to work each day depends greatly not only on your profession, but also on your company. When I worked for a video game company, I could come in to work wearing shorts, a T-shirt, and sandals. Now that I work for a credit union, it's Dockers and a button down shirt or nicer. If you have to wear nice clothes every day, odds are you will be doing a lot of dry cleaning and that can add up. It's a significant enough expense for me that I actually have a line item for it in my monthly budget and track it via Mint.com.

Given that dry cleaning is a recurring expense for me, it makes sense to look at ways to reduce it. One way, which I actually did when I was on a strict debt-reduction plan, is to wear more clothing that does not need to be dry cleaned. That turned out to be a mixed bag. Although my dry cleaning costs dropped, I ended up with more laundry to do at home, which was more work for me :-)

I noticed that my dry cleaner had a website and they offered an email newsletter you could sign up for to receive discounts. The "newsletter" turned out to just be a once a week mailing that had a link to a weekly "secret code phrase." The email is sent out on Monday and, if you take your clothes in on Tuesday and tell the employee that week's secret phrase, you get a 15% discount on your order.

For me to get this discount, I had to make some minor changes to my routine. First off, I used to drop my clothes off on Monday and pick them up on Friday. Changing to dropping off on Tuesday was easy to do and didn't really affect me at all. My clothes are still ready to be picked up by Friday. Second, I head to work before the cleaners open and I drop my laundry off in their night drop on my way. I never speak to a person, so I can't tell them the secret phrase. I contacted the owner with my dilemma and he had an easy fix - just print out the secret phrase and put it in the little pouch that is on my drop off bag. Piece of cake! (I actually prefer this because I'm extremely introverted and probably wouldn't say the phrase to someone in person anyway - especially when the phrase is sometimes something like "rubber baby buggy bumpers.")

These super simple changes to my routine save me an average of about $6.50 per week. That's almost $350 a year in savings!



Do you have any tips for not leaving money on the table? Leave them in the comments!

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Are Home Energy Audits Worth The Cost?

I live in the Arizona desert and in the summer, temperatures regularly reach 110+ degrees. We run our home air conditioner a lot. Even though we keep it set at a relatively high 78-79 degrees, our electricity bill in the summer, particularly August, often nears or surpasses $400, compared to around $100 during the winter months. I'd love to do something to get that cost down.

A couple of years ago, I installed a small solar powered fan I bought at Costco in our attic to help remove some of the hot air up there. At the time, there was a federal tax credit that reimbursed me for about 30% of the cost of the fan. I installed it myself and, since it's solar powered, it doesn't cost me anything to run. I'm not sure it has had a significant effect on my electric bill, but I like the thought that it is pulling at least some hot air out of the attic at no recurring cost to me.

The local electric companies, of which there are two, promote energy audits as a means of identifying areas where your home wastes energy and steps to take to make it more energy efficient. I've wanted one of these for some time. I knew our house was drafty - after big haboobs, I would often find dirt around the bottom of doors and a couple windows inside the house. We definitely had some leaks.

Approaching haboob, as seen from my backyard. Five minutes later, we were enveloped.

Getting An Energy Audit

Three months ago, I decided to bite the bullet and get an energy audit done. I selected a company that was approved by my electric company and had them come out for a $99 audit. The process was fairly painless. They sealed one door and put a fan in it, which blew air into the house, creating a slight pressure difference between the outside and inside. They then checked all the windows, doors, outlets, and recessed lights to see if there was air leaking out. They also went into the attic and measured the amount of insulation I had and checked the air conditioning ducts for leaks at the joints. They had a cool infrared camera and took pictures of walls that had hot spots, indicating insulation deficiencies. As part of the deal, I also received a box of about 10 compact fluorescent light bulbs, a switching power strip, a low flow shower head, and a $50 Home Depot gift card.

A couple days after the audit was performed, the company came back out to go over the results. This is where they try to sell you their services to fix the problems. You don't have to have them fix anything. If you want, you can take your audit results and fix the problems yourself or hire someone else to fix them. But because they are an approved company, my utility offered rebates if I had them perform the work.

I bought my house new and it is currently just over 10 years old. I wasn't expecting too many issues, other than the ones I knew about. In fact, there weren't many issues found. We had some minor leaks in our AC ductwork. As expected, we had some doors and windows that needed to be re-sealed. They recommended putting insulating boxes in the attic over our recessed lights (we have 19 of them) to prevent air leakage to and from the hot attic. Our attic insulation had also deteriorated and more needed to be added to bring us back up to the recommended insulation rating. They had some other recommendations, but they would only provide marginal improvements and I opted not to have them done.

The Cost

The total cost for the work I had done was about $5,000. But, the salesman assured me, I would receive a $500 tax credit from the federal government for the improvements and $600 in rebates from the electric company. I went ahead and had the work done, much to my wife's chagrin. After all the work was finished, the company came back out and retested the house to see how much of an improvement they made. In my case, they reduced the air leakage of my house by 25%. I'm sure the added attic insulation helped as well, but they didn't have any sort of test for that. We have programmable thermostats, so I know our AC is always set consistently to the same temperature. After the work was done (during the summer), our house was noticeably colder and I actually had to reprogram our thermostats to be set 1 degree higher.

About Those Rebates...

As for the rebates and tax credits... Well, funny thing about those. It turns out the federal tax credits expired in 2013. And, two months after the work was done, I finally got a notice from the company (who has to file the paperwork with the utility company for your rebate) that my rebate was not the $600 I was told it would be, but only $350.

So I did what any internet-savvy consumer would do - I went on the internet and left scathing reviews on Yelp, the Better Business Bureau's website, and any other website I could find that talked about this particular company. I felt I had been completely mislead, if not outright lied to. There is no excuse for their salesman not knowing that the federal tax credit expired 7 months prior to him talking to me.

In an amazing coincidence, two days after I left those reviews, I got a call from the company saying my utility company changed their rebate program to match those offered by the other electric utility in town and I would now be getting an $800 rebate. They never mentioned my online reviews, so it is theoretically possible this was a coincidence, but the timing is definitely suspicious. (Note: I have since contacted the third party company who is administering the rebate program and confirmed that yes, this was in fact, a coincidence.)

Was It Worth It?

So... was the energy audit worth it? I'd say the audit itself was definitely worth it. For $49 ($99 less the $50 Home Depot gift card I received, and not counting the other stuff they gave me), I received a fairly detailed energy analysis of my house.

Was the work done worth $5,000 (or $4,200 with the rebate)? On the rebate form, the company listed all the work done and an annual estimated savings for each step. My total annual estimated savings is $232 dollars. That means it will take just over 18 years to recoup my $4,200 cost. So, no, the work performed was not worth it, at least from a strict cost-analysis standpoint.

However, I think the company was seriously overcharging for the work they did. I'd be willing to bet if I had taken the energy audit findings and made the repairs myself or hired a handyman to perform them, I would have spent a lot less. (Of course, I would have also not been able to claim the rebate from the utility company.) I feel like a fair price for the work performed would be in the $1,500 to $2,000 range, which would equate to a 6 to 8.5 year recoup time. That seems acceptable to me.

The savings are not just theoretical. I am seeing some concrete signs of improvement. If I compare my electricity usage for September 2013 with September 2014, I used 210 kWh less electricity this year. However, the average daily temperature for the month was 1.2 degrees cooler in 2014, so that might explain some of the decline. Comparing October 2013 to October 2014 gives a better picture: In 2014, I used 372 fewer kWh despite the average daily temperature being 1.7 degrees higher than 2013. That works out to a $40 savings for October.

All in all though, I am glad I had the extra insulation installed and the leaking doors and windows fixed, even if I did overpay. Being green makes me feel all warm and fuzzy.

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Want To Know Your Credit Score? Good Luck.

Several years ago, the passage of the Fair And Accurate Credit Transaction Act required credit bureaus to provide consumers with a free copy of their credit report once a year. This was a great boon to consumers. We no longer were kept in the dark about our credit history and the information credit agencies had in our file. The law also spelled out a clear process for consumers to dispute inaccurate information and set up rules on how and when the credit agencies have to respond to such correction requests.

However, in addition to a credit report, most credit bureaus also produce a credit score. This score is generated by taking all the information found in our credit report and running it through some proprietary algorithms, which reduce it to a single number. This number is NOT required by law to be disclosed to consumers and, in fact, many of the credit bureaus will charge you to find out this information. If you are in the market for a new loan, you may be tempted to purchase this information. You may also be hit up to purchase this information when you request your annual free credit report. Don't bother.

First of all, many companies are now providing this information for free. For example, about a year ago, Discover credit card starting providing their card holders with this information with their monthly statement. I've noticed other credit card companies, banks, and some brokerage firms have started doing the same. (Mint.com will also give you your credit score for free.) You may also get your score when a lender pulls your credit report during the loan approval process. Granted, if you want to find out your score before applying for a loan, this is a bit too late, but if you are just curious, there is no need to pay for this information.

The biggest argument against paying to get your credit score is this: you have no idea which credit score your lender is going to use. That's right - there is more than one credit score out there. Just as there is more than one credit bureau that has a credit file on you, you also have more than one credit score. Each credit bureau has their own score and some have more than one.

Here's a real world example: On a recent Discover card statement, my credit score was reported to be 847 out of a maximum of 850.

About one month later, as part of a refinance, I was given a copy of the credit report and credit score my credit union obtained during the loan approval process. Guess what? It was different than what my Discover card reported.


In general, when you hear someone talking about a "credit score," they are referring to the FICO credit score - by far, the most widely used credit score. It was developed by a company called Fair, Isaac, and Company (hence "FICO") in the late 1980s and the number was based on the information contained in your credit reports from the three major credit bureaus - Equifax, TransUnion, and Experion.

The exact formula for coming up with your score is not public information, but it's roughly calculated as follows:

• 35% is based on your credit payment history, i.e. do you pay late or on time.
• 30% is based on how much debt you have, i.e. how many accounts you have open, your debt to available credit ratio, remaining balance on installment loans, etc.
• 15% is based on your length of credit history, i.e. how long have you had your credit cards.
• 10% is based on the types of credit you use, i.e. credit cards, mortgages, etc.
• 10% is based on recent credit inquires, i.e. how many times has your credit report been pulled recently.

As you can imagine, these factors change monthly, so your credit score will change monthly as well. That right there is your first clue that you will never be able to definitively say "My credit score is X."

But it gets more complicated. As I mentioned earlier, the FICO credit score isn't the only score out there. Each credit bureau has their own score they generate. And even if FICO was the only company creating a credit score, you STILL wouldn't be able to tell what score might be reported to a lender because FICO itself offers FIVE different versions of their score, each one calculated a bit differently.

You might have heard credit scores range from 300 to 850 points. That's for the first model FICO came up with. Some of their other models have ranges from 250 to 900 or 150 to 950. And that's just at FICO. The other credit bureaus' credit score have different ranges. Some go from 1 to 999, others from 250 to 850.

To make matters worse, some of these scores are not available to consumers at all, for any price. They are only provided to other financial institutions.

Let's go back to the scores I received with my refi. Here's what I got:

Notice the type field for all scores is "FICO". The Brand identifies which of the various FICO scoring methods was used to calculate the score. And also note the possible ranges for the scores vary (and none match the score or range reported to me by Discover card on my statement). Furthermore, realize that each credit agency may not have the exact same information in your credit report as other the other agencies do, so even if two companies use the same type and brand, they may still arrive at a different score.

The bottom line is this:

Don't bother paying to get your credit score.

Odds are high that whichever one you buy will not be the one used by your lender. If you must have a number to fixate on, look for a credit card or brokerage firm that provides this information for free. Then, realize your credit score is not a hard and fast number. It will vary, depending on who calculates the number and from month to month. But in general and across all credit score models, the higher the number, the better. And the more positive information your credit report contains, the higher your credit score will be, no matter which calculation method is used. Just keep your financial life in order and your score will rise to the upper limits of all of the various formulas.


(The day after I wrote this post, Two Cents, Lifehacker's personal finance blog, posted a story about this topic with lots of ways to get your credit score for free. Check it out here.)

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Goal Progress - End Of October 2014

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 October, 2014
Current value: $9,188
Change from last month: +1,864
Percent of Goal:  8.45%

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: After last month's decline, October saw a healthy rebound. The stock price of Realty Income bounced back up to the $45-$46 per share range, which is where it was around August. I was lucky to pick up a handful of shares during the recent dip to $41 at the beginning of the month. That accounted for the majority of the increase and is a nice real world example of the benefits of dollar cost averaging.

In addition to my regularly budgeted contributions and stock price increase, account growth this month included a couple of bonuses. First, my employer paid out another quarterly bonus of a couple hundred dollars, which I funneled to my Tesla fund. Second, I received my first ever royalty payment for my ebook! Granted, it was only $15.34, but still... It's my first ever royalty payment! I also received close to $200 from my on-line courses and ad revenue from my real estate blog.

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Don't Leave Money On The Table: Home Insurance

This is the first of what I hope will become a series of short articles about claiming all the benefits you are entitled to – be that discounts, freebies, or whatnot. I’m not going to go to the length of, say, extreme couponing, but I have found there are often discounts or bonuses you can easily take advantage of that can save you money without making major changes in your spending patterns or behaviors.

Since this is the first article in this series, I have to mention what is probably the most important advice on not leaving money on the table:

If your employer offers a 401(k) match, contribute enough to get all of it!! This is a no-brainer. It's free money!!

I've talked about this before. It's an automatic 100% return on your investment. Don't pass it up.

With that out of the way, let's talk about home owners insurance.

If you're like me, you have never read your entire home owners policy or even the policy's declaration pages. It's pages and pages of legalese and numbers specifying exactly what the policy covers and the limits and exclusions of the coverage. Boring stuff.

For some reason, the last time my property insurance was due, I found myself, if not actually, reading the policy declaration pages, then at least skimming them. My policy gives me discounts because my home is fairly new and therefore has a relatively new roof and heating and cooling units. I also get a discount because I have a monitored alarm system for both fire and theft. But then I came to one of the last pages in the document. This was a list of discounts I may be eligible for.

I glanced over the bolded text. New heating and cooling units, new roof - doesn't apply to me. Protective device, i.e. monitored alarm system - that applies and was a discount I was getting. I almost stopped there, since there were no other bolded items on the page.

But what about that last section? Properties located in qualifying... Hmm.. Properties in gated communities and retirement communities are eligible for a discount! Hey! I live in a gated community! Furthermore, it fits the definition provided. Bingo!! There's a discount I wasn't getting that I was eligible for!

That, dear reader, is what I mean by leaving money on the table. For the ten years I have been living in my house, I was eligible for this discount, but was not claiming it. All it took to claim it was a 5 minute phone call to my insurance agent and I was saving an additional $18 a year. I asked if I could get the discount applied ten years retroactively, but was told no. Well, it was worth a shot...


Do you have any tips for not leaving money on the table? Leave them in the comments!

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This Is The Stupiest Tesla Story Ever!

So there is apparently a company that does nothing but break apart products and see what they are made of. They must hire only stupid, easily impressed people, based on their comments about a Tesla they took apart.

http://www.cnbc.com/id/102111095


"In breaking apart a Tesla, IHS found the head unit alone holds nearly 5,300 individual components, more than four times the number of parts in an iPhone 5s."

Shocking! Just shocking!!! Who would have thought that a CAR has more components than a PHONE?!?! Incredible!

"Another factor that intrigued Rassweiler? "The simple fact that there's a 17-inch display controlling the vehicle. Kind of like a large iPad controlling your car.""

Apparently, they have never seen a Tesla before they bought this one.

What morons. And people actually pay them for this information???

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How To Reduce 401(k) Fees (Part 2): An Example

Last week, I wrote about my work in restructuring the money in my 401(k) to move into funds that had a lower expense ratio. When I was done, the weighted average expense ratio, meaning, the amount I actually pay based on the amounts I have invested in each fund was 0.749%, down from the 1% range I had before. That's not too bad, but I wanted to see if I could do better.

So this week, I took a deeper look. For this analysis, I looked not only at expense ratios, but also the 12b-1 fees (which are advertising fees the company collects to advertise the fund) and the maximum sales charge the fund may charge (which is the maximum amount the fund will charge you when you buy or sell shares). Note that funds can charge the sales charge either when you buy the fund (called a front load), when you sell the fund (called a back load), or continuously while you own the shares (called a greedy money grab). To tell when your fund charges the fee, look at the share type. Type A shares are front loaded, Type B shares are back loaded, and Type C shares bleed you to death by sucking a little bit of blood every year. Obviously, you do not want to buy C shares.

In addition to fund expenses, I also want to make sure my investments are diversified. I want the funds I own to invest in different areas of the economy and the world. This helps protect you from wild fluctuations in the stock market. For example, if you had all of your money invested in one or more mutual funds that invest in real estate in the United States and the real estate market crashed, as it did recently, your investment would lose quite a bit of value. But if instead, you had only part of your money invested in those funds and the rest invested in other areas, such as retail companies in the U.S. and real estate in foreign countries and government issued bonds in the U.S., then the real estate crash would have less of an effect on your overall portfolio.

To analyze all this data, I logged into my 401(k) provider's web site and downloaded the prospectus for each fund they offered. They offer about 50, so it took a while to go through everything. I made a spreadsheet and noted the expenses for each fund, as well as their 5 year and 10 year returns. I also noted what my existing allocations were (after I made the changes I talked about last week, which dropped my overall expense ratio down to 0.749%). Then I looked for different funds that had lower expenses, decent returns, and provide some decent diversification.

I should point out that my 401(k) plan does also offer a range of target date mutual funds. These are mutual funds that invest in a mix of stocks and bonds and change that ratio as the target date approaches. So if your target date (i.e., retirement date) is 30 years away, the funds will initially be more heavily invested in stocks, which are riskier investments, but have the potential for greater returns. As the target date draws closer, the fund will gradually shift it's holdings into more safer bonds, which typically offer a lower return, to preserve capital and insulate you from stock market volatility. I did not bother looking at these in detail, as the fees were on the high side. There are also some problems with these types of funds, which people have written about before.

I ended up with the selections below. The Current column was my previous allocation and the New column is the new allocation I have decided on. Looking at the rightmost column, you can see I am more heavily invested in funds that invest in large and mid cap companies, but I have some small exposure to global investments, fixed income investments, and some balanced funds. Given my age and years to retirement, I'm comfortable with this mix.

Click to embiggen

Once I rebalanced my portfolio to my new funds, I re-ran the analysis I did last week, using my new allocation. I managed to drop my weighted average expense ratio from 0.749% to 0.675%! (Note that this analysis only looked at the gross expense ratio and did not factor in 12b-1 fees or sales charges.)

Click to embiggen

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How To Reduce 401(k) Fees (Part 1): An Example

I've written before about how mutual fund fees, in the form of expense ratios, can really cost you in your 401(k). While an expense ratio of 1% or so may not seem like much, over the course of 25 to 30 years, it can cost you tens of thousands of dollars in lost returns. Look at the below table. If you have a starting balance of $25,000, get an average 7% return, and pay 0.5% in fees, after 35 years, you'll have $227,000. But look at what happens if you pay 1.5% in fees:

How Much Does That Fee Cost You?

Initial Balance	Average Return	Fee	After 35 years
$25,000	7%	0.5%	$227,000
$25,000	7%	1.5%	$163,000

That one additional percentage point in fees may not sound like much, but because it is taken out of your account every year, year after year, it ends up reducing your final total by 28%! That innocent sounding one percent fee can cost you almost one third of your retirement savings!

 This is why you need to look at the fees your investments are charging you.

The impetus for writing my previous post about this came from my investigation into my company's 401(k) offerings and their expense ratios. When all was said and done, I rearranged my 401(k) funds so that I was out of the most expensive funds and tried to move most of my money into offerings that had ratios under 1%. My 401(k) doesn't have a huge selection of choices, but I think I did pretty good with what was available to me.

Recently, I received notification that one of the funds I had invested in was being removed from the 401(k) plan and replaced with another fund because the old fund did not meet the performance objectives defined by the plan. I took this as another opportunity to review the funds I was invested in. I was not looking to move money into new funds, but rather just to review my current selections and see if I should rebalance my investments among them.

I started out by listing all the funds I currently owned and their performance, as defined by their 10 year return. (Because I'm a buy and hold investor, I'm not worried about shorter term returns and I prefer to look at longer term returns to gauge performance.) I next noted the expense ratio each fund charged. And finally, I noted the amount of money I had in each fund (which isn't that much because I've only been with my current company three years).

I threw all these numbers into a spreadsheet and stared at them blankly for a while. What did this tell me? I am invested in 8 different mutual funds with expenses ranging from 0.5% to 1.31%. I can see the fee each fund charges me, but I don't really have a good idea of what I am paying in fees over my whole account. So I took the average of the fees the funds charged. In my case, that worked out to 0.82%.

But that's not the whole story. If I was invested in each fund equally, that would be the expense ratio I am paying, but I'm not invested equally. For example, I only have 5% of my balance invested in a fund that has a 1.31% expense ratio and I have 25% invested in a fund that has a 0.51% ratio. So clearly a straight average of expense ratios will not work. What I need is a weighted average, that will give me a number based on the percentage I am invested in each fund.

To make matters more complicated, because each fund performs differently, my allocation percentage, or the way I direct my contributions be split between the funds, is not the same as how my overall account is actually split between the funds. Some investments have more gains or losses than others, and so, over time, the actual distribution has drifted from my specified allocation percentage. (This is why you sometimes need to rebalance your portfolio once in a while.)

The first step in creating a weighted average, is to calculate the percentage of your total account a particular fund represents. This is simply the amount invested in that fund divided by the total value of your account. I did this for each fund I own, and it is shown in the screenshot below in the column labeled "% of total portfolio."

Next, I took that number for each fund and multiplied it by the fund's expense ratio. This is shown in the column "weighted % * fee".

The weighted average of the expense ratios is then found by just adding up this column. You can see that, although the average expense ratio for the funds in my 401(k) is 0.82%, what I am actually paying is 0.749%, because I am more heavily invested in funds with low ratios and less invested in funds with higher ratios.

I should note that, although I did all this manually using a spreadsheet, the website Personal Capital will do all of this for you automagically. Personal Capital is like Mint.com, but more geared towards investment accounts and their performance (whereas Mint is more geared toward budgeting with checking and savings accounts). I have not used Personal Capital because they do not support the company my 401(k) is with, but I learned about them from the Listen, Money Matters podcast and this page on their blog shows how Personal Capital does exactly what I did here manually, only with pretty graphs. They also calculate how much money those expense ratios will cost you over time.

Now that I've got my 401(k) set up with funds that have acceptable expense ratios, my next task will be to look at other funds my plan offers to see if there are any that might be better than what I am currently invested in. This will require a bit more research because it's not simply a case of finding the funds with the lowest expense ratio. I also need to take into account the fact that I want to be diversified across different investment areas. I'll post my results next week!

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Tesla Owner Tracks Stolen Model S With Tesla Phone App

I came across this story and just love it! A woman's Model S was stolen. She called police and then
remembered that the Tesla phone app can track that car, providing it's location and speed. They scary thing is that, as the police chased the vehicle, she could see it reached speeds of 100 MPH. Yikes! I would be so nervous watching my $100,000 car being driven like that. The police eventually stopped the car by using spike strips.

What I didn't know was, according to this story, the phone app can disable the car when it is not in motion. That's an awesome feature and has got to be a huge theft deterrent!

The best part is the owner's comment: "After this, I'm not going to get any other car for sure." How many times have we heard Tesla owners say that?

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Goal Progress - End of September 2014

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 September, 2014
Current value: $7,324
Change from last month: - $140
Percent of Goal:  6.74%

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: This month's account value is actually less than last month, despite the fact that I contributed $450 to the account during September. The decline in value was due to the drop in price of Realty Income Corporation's stock. As my balance gets larger and the number of shares I own grows, the value of this account will fluctuate more and more with the price of the stock. I now own 177 shares and over the last month, the price went from around $44.50 per share to around $40.80 per share. This doesn't concern me too much. As I have mentioned before, I buy this stock for the monthly dividend and my holding period is middle to long term. Once I get around $20,000, I'll sell the stock and move the money into a hard money loan. Until I reach that level though, I expect the monthly updates to be more volatile from here on out as the share price will have a more pronounced effect on the value of my account.

The $450 I added in September came from a variety of sources. Some was from my regularly budgeted contributions. About $165 was from sales of my on-line courses. I sold my Lord Of The Rings Online lifetime account for $150 and those proceeds were thrown into here. I also received $35 in dividends from the stock.

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Tesla After Market Customizations

A couple of months ago, I mentioned that I really like the red brake calipers that are included with the Model S performance package. They are about the only thing that interests me from that package, so I don't think it's worth the extra $10,000 to get the package just to get the calipers.

I discovered today that a third party makes red brake caliper covers! And they're only a couple hundred dollars. Nice! I'm sure as time goes on, we'll start seeing more after market products come out.

On another note, here is also a nice write up of the Model S from a former mechanic.

And on yet another note, my sister-in-law took  the below picture of a Tesla she saw near her house (which is also near my house here in Arizona). That doesn't look like the standard Tesla blue and it's pretty darn shiny. This has to be a custom paint job. The photo almost looks computer generated.

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Have American Companies Lost The Will To Innovate?

Fair warning: I'm going to rant.

Sometimes it's pretty depressing to see the current state of large American corporations. It's hard to find any evidence that they are trying to improve service, provide a better experience for consumers, or improve their products in a meaningful way. From my perspective, it seems companies are intensely focused on short term profits and have no appetite for long term projects to improve their wares.

Case in point: The Automated Clearing House system. This system is used by banks and the Fed to move money between banks and businesses. Every month, I get a payment for some online courses that I teach. That money is sent via PayPal. I then transfer it to an account I have at Captial One 360 (formerly INGDirect), then I move it to my checking account at a credit union. (I have heard too many horror stories in the past of PayPal going into someone's bank account and withdrawing funds unilaterally to settle a dispute, so I keep an intermediary account with virtually no money in it between PayPal and my main financial institution to prevent that.) From my checking account, I then move the funds to my brokerage account, where I keep the money I'm saving for my Tesla. This whole process, a total of 3 electronic transfers done via the ACH, takes a week, sometimes up to 10 days. Why? It's totally automated. In theory, it should be able to be done in seconds.

I wrote about this 8 years ago on my other blog, in relation to moving money to and from an account at Prosper.com, the peer to peer lending site. I actually got comments from the then CTO of Prosper.com, an engineer at Prosper.com, and an employee of Electronic Payment Networks, the only private ACH operator in the country. Their comments basically boiled down to "That's how the ACH works."

It wasn't until many years later, that I happened to catch this episode of NPR's Planet Money podcast that I got the real explanation. The show compares transferring money electronically in the U.S. with doing the same in England. In England, the process is virtually instantaneous - about 15 seconds. The show had a man in England transfer funds to his daughter, living in the U.S. His transfer went through immediately. A similar transfer in the U.S. between U.S. banks took five days.

The show mentions the fact that the system does not process transfers on weekends or holidays. "Why?", the hosts asked. Computers don't need time off. There was no answer, other than the fact that the system was built in the 1970s. Over 40 years ago and pre-Internet.

It's not like we can't improve the system. The Fed has been talking to banks about improving the speed at which the ACH operates. In 2012, there was a meeting to discuss implementing same day transfers - not even instantaneous transfers, mind you. Just transfers that would complete by the end of the day. But the ACH governing body, which is comprised of bank representatives, voted it down. Why? There were some concerns about fraud and the fact that it would be a big hassle to change. But, in a survey of people in the online payments industry taken about this subject, 20% of respondents said the biggest obstacle was "financial institution opposition due to cannibalization of existing revenue." Meaning, if faster transfers were possible through the ACH, fewer people would send money by wire transfer, which banks charge a hefty fee for.

So companies don't want to improve the system because it would require a lot of work, and hence create expenses, and it would reduce existing revenue. In other words, long term improvements are not being made because they would hurt short term profits.

But you can bet that if it would generate revenue for companies, it will be built. When I withdraw funds from an ATM, the money is deducted immediately from my bank account. When I make a purchase with a credit card, the sale is instantly posted to my credit card account. There's no 7 day wait here. Coincidentally, these systems were designed from the start to NOT use the ACH.

That's just one example. I see the same situation everywhere. Since this is a Tesla-related blog, let's look at the auto industry. There have been some half-hearted attempts at electric cars (*cough* Volt *cough*). Toyota was the first major car company to come out with a hybrid car - still not a full electric, but it's a start. Honda followed and slowly, American car companies are following suit. (Note they are following the lead of foreign automakers, not innovating the industry on their own.) Their hybrids are pretty much an afterthought, though. They only get about 25 - 35 MPG, compared to the Toyota Prius, which gets 50 MPG. It's pretty clear that American car companies just slapped an electric motor into an existing product to come up with a hybrid, rather than spend the time and money to develop one from scratch.

But American minivans have about 18,456 cups holders, TV screens that unfold from the roof, and hatchbacks that you can close with your foot!

This is the sorry state of American innovation today. The only innovations are cosmetic ones that are easy to implement without an impact to the bottom line. Major corporations are too concerned with short term profits to try anything that might disrupt the status quo. It's one of the drawbacks of a completely capitalistic system.

I firmly believe the only way we will see truly industry changing products, world changing products even, in this country is from new companies, such as Tesla, that are willing to upset the status quo because they have no vested interest in maintaining it. Once in a while, you may get an Apple, a company that changed the portable music player and mobile phone industries when they released the first iPod and iPhone. But look at how they did that: they made revolutionary change by entering markets they were never in before. Prior to the iPod, Apple made personal computers and software. Nothing else. Again - no competing pre-existing vested interest.

The problem with this environment is that overturning the status quo is difficult, even more so for a start up company. Just look at the opposition Tesla is getting from car dealerships and state legislatures that are preventing them from selling directly to customers. The dealership model is over 100 years old and was created to solve a problem that no longer exists. (Listen to this Planet Money podcast for more amazing facts about the dealership model that will blow your mind and also explain why you are treated so poorly at most dealerships.)

To overcome such huge opposition, Tesla has to do everything right - it has to make an outstanding, world class product, provide amazing support, and do so at a reasonable price. So far, they are doing it. But any potential stumble can give the established companies that they are displacing a chance to destroy them and cause the industry to revert to the current status quo, where the biggest improvement in next year's minivan will be that it now has 18,457 cup holders.

Luckily, Elon Musk seems to have the financial ability, the smarts, and the product to take on the establishment - and not just in the automotive industry, but also in the space industry with Space X. And he did it previously in the finance industry when he created PayPal. America needs fewer cup holders and more people like Elon Musk.

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Gigafactory #1 To Be In Nevada

Telsa announced on Thursday that the Gigafactory - their lithium battery production facility - will be located in Nevada. Here's what I find really interesting about this announcement:

• The plant is expected to have a one hundred BILLION dollar impact on the economy over the next 20 years. That's five billion dollars ($5,000,000,000!) a year. I think there has to be some sort of financial slight of hand to come up with a number that big. I mean, they must be including every possible effect they can think of. Still, it's a huge win for Nevada.
• The plant will have a carbon-neutral footprint. It will use solar, wind, and geothermal power to power itself. This wasn't mentioned in the above linked press release, but it was mentioned here. That's amazing.
• The plant will be bigger than all other lithium battery plants in the world combined. Sweet Jesus!
• In order for the deal to be official, the Nevada legislature still needs to approve a $1.25 billion tax incentive package. I'm sure they will.

There wasn't mention of it in any of these articles, but I wonder if there are still other sites under consideration. Musk has said he was planning on starting construction at multiple sites to mitigate the risk of construction of one plant falling behind and jeopardizing plans to roll out the Model 3. I do remember reading somewhere that that the selection of Nevada would pretty much rule out California, as Musk had that two plants that close to each other would constitute an unacceptable risk for a geographic catastrophe. That means Arizona, another possible Gigafactory location, is also probably ruled out. Arizona, in my opinion, was always a long shot. After all, we've got a law on the books forbidding Tesla to sell cars directly to consumers. There was a minimal effort to repeal that law last year, but thanks to the efforts of the car dealership lobby, it never went anywhere. Thanks car dealers and state legislators. You just cost your state $100 billion dollars.

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Goal Progress - End of August 2014

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 August, 2014
Current value: $7,464
Change from last month: + $774
Percent of Goal:  6.86%

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: August was a good month. I was hoping to hit 7% of my goal, but I didn't quite make that. My refinance is done and with my new budget, I am now regularly putting money towards this goal, rather than just putting any extra money I get towards it, as I was doing earlier. I sold one more signed Stephen King book, which accounted for about $250 of this month's savings. Nothing else stands out - it's just the accumulation of regular weekly contributions, plus stock price appreciation. I had some small income from my online courses, but nothing major.

The next big milestone - $10,000 is in sight!

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Tesla's Image Management

A couple of weeks ago, Elon Musk announced that the Tesla’s drive unit warranty would be extended to 8 years and unlimited mileage. This was generally seen as a reaction to Consumer Reports’ one year review of the Model S, in which it stated the car had “more than its share of problems.” Tesla has been quick to respond to anything that might damage its reputation as a high quality vehicle – remember when it added the titanium underbody shield after a couple of cars caught fire after a crash? These are all wise moves and I applaud Tesla for making them. Electric cars are still at a critical time in their development. If they get the reputation, deserved or not, of being unsafe, temperamental, or a pain to own, the whole electric car industry will collapse. Musk is making shrewd moves to prevent consumers from forming negative opinions about electric cars.

But I’m concerned about the future, specifically when the Model X and Model 3 hit the stores. Their lower price will mean more and more people will start driving electric cars. In general, this is a good thing. But the increase in drivers also means we should expect an increase in the number of news stories about people getting stranded because they ran their cars out of power. If this happens to people, they will get an experience that is quite different than running out of gas in an internal combustion engine vehicle. When the Tesla Model S runs out of power, the car shuts down. Hard. There will still be enough power to operate the emergency flashers and door locks, but the console and dashboard will turn off. Additionally, you will need to put the car into neutral or Tow Mode before everything shuts down. Once this is done, you’ll need to block the wheels so the car doesn’t roll away. Failure to get the car into tow mode before the power is completely gone will mean a tow truck operator will have to drag the car onto a flatbed without the wheels turning. Ouch.

Once lower priced Tesla models are for sale, I fully expect to see a slew of news stories about people being stranded in their Teslas because they ran out of juice. The news agencies will probably play up stories about how people had a hard time getting the car towed or how they supposedly had enough charge to get to their destination, but they still mysteriously ran out of power. These stories could feed into the range anxiety people feel, and hinder the widespread adoption of electric cars. The bad thing is there is no action Musk and Tesla can take to counter these stories (short of building more supercharger stations). There is no quick fix Tesla can implement or additional warranty coverage they can provide to counter these stories. Further, Tesla will need to walk a fine line in their responses to such stories to not come off sounding like they are calling their customers stupid for failing to properly plan their trips. But in reality, that’s the problem – people are stupid. And the more Tesla owners you have, the greater the chances that many of them will not understand battery power levels and range.

It’s too bad. You have the exact same problems with ICE vehicles. People run out of gas every day and it’s not a news story.

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Details Of My Refinance

The biggest monthly expense in most people's live is their housing payment, be it rent or a mortgage. So if you are trying to reduce your expenses, it makes sense to start by taking a look at your biggest payment and see if there is any way you can reduce it.

In my case, I knew I could. I bought my house 10 years ago using a 30 year fixed rate loan at 6.375% interest. Since that time, interest rates have dropped considerably. I probably should have refinanced two years ago, but, for various reasons, I did not. Thankfully, interest rates have remained low and, this month, I finally completed a refinance. I switched to a 20 year fixed rate loan at 4.125% interest.

The Problem With A 30 Year Loan

Why didn't I get another 30 year loan? I've been involved in real estate investing for over a decade and one of the areas I invested in was foreclosures. When buying properties at foreclosure or just before they go to foreclosure, an important piece of information a potential buyer needs is the outstanding amount of the mortgage. That information is not publicly available, but, because the mortgages themselves are publicly recorded documents and they include the length of the loan, the original loan amount, and the interest rate, it's relatively easy to calculate this figure using loan amortization tables.

My rule of thumb was that if a 30 year mortgage was five years old or younger, virtually none of the principle had been paid back. Those first five years of payments go almost entirely towards interest. Now, this isn't strictly true, as we shall see, but it was close enough for my purposes while investing.

30 Year Amortization Chart

Given that I have been paying my mortgage for ten years, I had already passed the five year threshold and was making noticeable progress on paying down the principle. I didn't want to get a new 30 year mortgage and start that five year clock all over again. My age also played a bit of a role in the decision to go with a 20 year loan - I don't want to still have a mortgage while I am in my mid-70s.

30 Year Loan Vs. 20 Year Loan

Let's look at my rule of thumb and see how close it is to the actual numbers. For simplicity, we'll assume a $200,000 loan at 6.375% interest. On a 30 year loan, after the first five years of payments, the outstanding balance would be $186,950. (You can use an amortization calculator like the one found here to figure this out.) You would have paid off about 6.5% of the original loan amount.

So my rule of thumb wasn't too far off - very little of the principle has been repaid after five years. (From a foreclosure investor's viewpoint, it's actually more accurate because by the time a home goes into  foreclosure, the bank has already added on several months of late fees and other penalties which would also need to be paid off.)

Now let's look at a 20 year loan. Again, we'll go with a $200,000 loan at 6.375% interest. In this case, after the first five years of payments, the outstanding balance would be $170,837. You would have paid off 14.6% of the loan.

In other words, you would have paid back an additional $16,000 in that first five years. Of course, that comes at a price - your monthly payment on a 20 year will be higher than on a 30 year loan.

20 Year Amortization Chart

I Refinanced From A 30 Year Mortgage To A 20 Year Mortgage And My Payment Went DOWN

In my situation, I had a couple of things that were working in my favor that made this possible. First, of course, is that interest rates have gone down drastically since I took out my original mortgage. My original loan was at 6.375%. The rate on my new 20 year loan is 4.125%. Also, because I had been paying my original loan for 10 years, I had achieved a fair amount of principle repayment. My refinanced loan was approximately $36,000 less than my original loan. The result of these two factors is that I was able to refinance my 30 year mortgage to a 20 year mortgage and still see a reduction in my monthly payment of about $200!

Had I opted instead to get another 30 year loan at 4.125%, I could have saved even more money per month. However, I would have had to go through those first five years of almost no principle reduction again.  Let's see how that would have turned out.

Taking our hypothetical $200,000 loan again and a 4% interest rate (instead of 4.125%, just for simplicity), after five years the outstanding balance would be $180,895. I would have paid back 9.6% of the loan principle. Not bad. Definitely better than the 6.375% scenario.

Using a 20 year repayment, after the first five years, the outstanding balance would be $163,847. I would have paid back 18.1% of the loan principle. Wow!

By refinancing with a 20 year loan instead of a 30 year loan:

• I'm repaying my principle (or, to put it another way, building my equity) almost twice as fast
• I'm still saving over $200 a month compared to my original loan payment
• My home will still be paid off completely at the same time it would have if I had not refinanced

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Are Car Payments Inevitable?

I'm probably in the minority when it comes to attitudes about car payments. I hate them. I try to get them
paid off as soon as possible. I'm not one of those persons that advocates paying cash for cars, but I also am not one of those that figures a car loan to be an expense that you pretty much always have, like a rent or mortgage payment.

My wife and I bought new cars at the same time back in 2010 - we each got a new Prius. (Aw, hubby and wife have the same car - how adorable is that?) This was nice in that buying two cars at once helped us get a better price from the dealer, but it did produce some additional strain on our budget that we wouldn't have had otherwise. We took on two new cars loans at once, with payments due the same time each month. And because we bought them at the same time, our license renewals are due at the same time each year. All in all, I'm not sure I would buy two cars at once again for those reasons. (Although I probably could have requested the loan payments be due on different days, had I thought about it.)

As soon as we had the cars, I concentrated on paying off the car loans. I paid off the loan on my car first, simply because my trade-in was worth more, so that loan balance was smaller. I think I paid off the original 5 year loan in a little under two years. Last month, I paid off the loan on my wife's car, so we are now car-loan free.

A Life-Long Loan...

I ran across this blog post a while ago about car loans. The article advocates avoiding new cars and saving money to have as small a car payment as possible. I don't agree completely with the part about avoiding new cars, but really, that's just a personal opinion. I'm well aware that buying a new car means you take the brunt of the depreciation expense. There's nothing wrong with the approach the article advocates. What struck me, though, was the title - "Car payments: 'Til death do us part." That's the attitude I think some people have and I don't understand it.

My In-laws buy a new or used car every two years, like clockwork. I've known them for about 12 years and they have purchased more cars in that time than I have in my entire life. I find that amazing. Clearly, they are people who figure a car payment is one of those expenses you will always have in your life and they have no problem with that. That's fine.

...Or A Lost Opportunity?

To me, however, a car payment represents a lost opportunity. That's a big chunk of change every month that is going towards something that is depreciating in value. It is money I could be put to some other use, particularly investing. As the blog post I mentioned states, if you invest $471 a month (the average new car loan payment) in a savings account paying 4%, you'll have over $31,000 after five years. And I know I can invest at more than double that rate, so I'd have an even bigger lump of cash after five years.

This view of car payments is more or less the whole basis for this blog. My goal is to buy a Tesla and to do so by investing enough money that the income from that investment will cover my car payment, so clearly, I'm not completely anti-car payment. I do however, want to stop spending money on a depreciating asset. I'll let my money work to pay for the car and, when the car is paid off, that money will still be working to pay for something else.

Now that my car loans are paid off, I'll be putting some of the money that was going toward the loan towards investing, but I'm also going to start up a new car fund (besides my Tesla fund) and put some of that cash there. There will come a day when we will need to replace a Prius and I'd like to have some cash on hand for that.

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