Fire Can Be Fun

As a property owner, this question or some version of it has come to mind at least once or a few times, “How do you sleep at night with 600K of debt?”. The 600K of debt that I’m referring to are two unpaid mortgages that I still carry. We know it’s not exactly ALL debt because it’s an appreciating asset, etc etc, but I wanted to dive into this a bit further.

I have two mortgages. They are being rented and are cash flowing properties, but they are still debt that I’m carrying. This post will look at the absolute worst-case scenario. As a property owner, you should know or at least think about how long you could survive if you had to cover the full cost of your mortgages if your tenants were unable to pay the rent. It’s not a great thought but it is a necessary one. Without knowing what the worse case scenarios could be then you can’t protect yourself from it.

How To Prepare For An Apocalyptic Time Like Covid

Due to Covid, many people lost their job, perhaps lost the top earner or all earners in their household, virtually overnight. Things were shutdown with no clear end in mind. Government help took time as they had millions to assist as they scrambled to come up with a plan. Although events as tragic as these are rare, they still happen. You wouldn’t want to be caught without a plan, so let’s make one.

Define the Worse Situation As a Property Owner

First, let’s define the worst-case scenario as a property owner: You lose your job and all of your tenants stop paying rent. Looking specifically at my situation, my monthly debt would sum up to $6363.55. This includes two mortgages, student loan payment, a car note, car insurance, phone bill, food budget, dog food, and utilities.

Know Your Total Savings: Liquid & Non- Liquid

My emergency fund consists of $154,000 of liquid assets with $60,000 of that being easily accessible cash. The easily accessible cash I’m referring to is a combination of security deposits and cash in my brokerage accounts. The rest of the cash is in my 401K, Roth IRA, or HSA account. It would take longer to access these funds.

Know Your Exit Strategy

My first plan of attack would be to use the money I have in my savings accounts. During the start of Covid, the market dropped by at least 30%. If I immediately sold what was in my brokerage account I would lose 15K in a similar scenario.

Using my savings I could cover 2 months worth of expenses, leaving me with $47,247. After two month I would expect my unemployment to be approved. I’d received $713 a week, the max weekly unemployment benefit based on my salary for New Jersey. That would bring my monthly expenses down to $3511. Although due to covid, there was an additional $400 benefit that was provided by the government, I will exclude this as I’m planning for the worst case. Unemployment benefits last for only 6 months, so at the end of 6 months I would be left with $26,181. That would allow for an additional 4 months of survival before I would have to tap into my retirement accounts. In summary, I would be able to stay afloat for about a year on my savings.

Nothing is worse that facing a disaster without a plan. Thinking about what could go wrong doesn’t mean you’re focused on things going wrong. It mean should things go wrong you’ll be better prepared for the situation.

Quick Recap: Remain a Property Owner

1. Save up an emergency
2. Know how much cash you have
3. Know how you could access your cash
   • unemployment benefits
   • security deposits
   • retirement accounts

If you have a 403(b) keep reading. A member of my F.I.R.E. group has horrible 403(b) options and for this reason, I’m writing this post. Surprisingly, he is dealing with high fees from his 403(b) accounts which will take away about 20% of his gains over time. Yes, you read that correctly, 20%! Together with this 20% loss, there are employment taxes as he’s contributing them into a Roth 403(b).

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The Question: Brokerage or 403(b)?

Specifically, “Would it be better to contribute to a brokerage account instead of my 403(b)“? He’s considering this option to avoid the forced 1% management fee and the expense ratios, which in fact, would result in about a 20% loss over time.

Impact on Retirement Savings with Varying 403(b) Expenses

	Plan A	Plan B	Plan C
*Gross Annual Return*	7%	7%	7%
*Expense Ratio*	0.58%	0.80%	1.30%
*Net Annual Return*	6.42%	6.20%	5.70%
*Assets in Year 40*	$1,831,422	$1,728,534	$1,441,189
*Difference from Plan A*	–	-$102,888	-$390,233
*Shortfall in Assets in Year 40 vs. Plan A*	–	6%	21%

Here are some options we considered:

1.  Do you expect your taxes to be lower when you retire?
   • Upon retiring, will you be moving to a state with lower taxes?
   • Will you be making less income when you retire?
     • Specifically, will you be in a lower tax bracket?
   • Do you have an employer match?
2. Can you contribute to a 457(b)?
   • Are you eligible for a 457(b)?
   • 457(b) vs 403(b)
3. Should I contribute to a brokerage account instead?
   • Do you have an employer match?
   • Are you eligible for a 457(b)?
   • Will your contribution be pre or post-tax?

403(b): When you retire, do you expect your taxes to be lower?

If this is the case, I recommended contributing pre-tax. Although you will get taxed 20 percent over time through the fund, you will be in a lower tax bracket upon retirement. You still pay less in taxes.

Should I contribute to a brokerage account instead?

Specifically, if you are trying to determine what will be the best option, consider these things. Firstly, does your 403(b) options all have very high fees? Secondly, does your employer not offer contribution matching? Thirdly, will you be contributing post-tax and are currently are in a higher tax bracket? Lastly, you cannot contribute to a 457(b).

To sum up, the best option would be to contribute to a brokerage account to save money on 403(b) fees. Furthermore, I hope this helped you if you’re in a similar situation.

You can read more of my posts here!

I hear this so often and it makes me cringe a bit every time, “I want to invest but I’m going to wait until the market dips to buy in”. While purchasing stocks on sale is the goal you can not time the market. There’s no way of knowing when the market will go up or down. Anyone who says they know are guessing or speculating.

Instead you should do one of two things. The first is what I recommend and follow:

1. Dollar cost average: divide up the total amount to be invested across periodic purchases of a target asset. Be sure you pick a long enough time period to reduce the impact of volatility on the overall purchase.
2. Do sufficient and proper research on individual stocks so you know what the sale price is, then purchase that stock when it’s on sale and wait for it to grow

The second is more risky and not something I recommended, but if you are dead set on purchasing individual stocks then do your proper analysis. I use Phil Town’s methods described in Rule #1 as it follow Warren Buffet style analysis which look at:

• Business
• Management
• Financial measures
• Value

The path to wealth is a journey not a marathon, be patient you will get there. Here’s how I got started on my journey

The goal of this food haul is to cut my spending on groceries while still getting the nutrients I need from my food. This food haul is expected to cover 90 meals and 16 snacks.

I’m going to go shopping once every two weeks so things don’t spoil and will be making all of my meals at home. I have the staples at home, such as olive oil, oats, peanut butter, rice ramen, eggs and seasoning so I won’t have to purchase that since they’ll be leftover from my last shopping trip.

I used Instacart, a grocery delivery service so I’m able to shop at a few different stores to get the best prices

Shopping Trip:

Food Haul Store #1: Aldis – $51.26

Family Pack Chicken Thighs, 36oz Ground Turkey, 4 Plantains, 2 Bags of Spinach, 2 Green Onions, Celery, Cilantro, 2 Frozen Pizzas, Deep Pie Shells, Graham Cracker Pie Crust, Condensed Milk, Instant Corn Masa, Dry Yeast, Rising Yeast, 3 8oz Baby Bella Mushrooms, Dates, 2lb Red Onions, 2 14oz Organic Tofu

Food Haul Store #2: Costco – $36.16

4lb Berry Blend Frozen Fruit, 40 Pack water, Minced garlic, 48oz Beef Bulgogi Mandu

Pantry – Leftover from recent shopping trip $40

Flour, Almond Milk, Eggs, Pinto Beans, Peanut Butter, Spaghetti Squash, 8 Oui Yogurts, Quinoa, Oats, Frozen Stir Fry Vegetables, 3lbs Deli Meat, Baking Soda, Baking Powder, Mozzarella Cheese

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I’m going to list the meals I’ve planned for the month based on what I purchased. It’s separated out into Breakfast, Lunch and Dinner. I repeat a lot of these meals so it wouldn’t be worthwhile to list out each day, but the total meals yielded will be about 60 – 90 meals with me eating 2-3 meals a day. I sometimes do intermittent fasting which is why my meals would be 2 large meals instead of 3 smaller meals.

Hope you’ll enjoy!

Breakfast

Berry Oats Smoothie – I don’t usually follow a recipe for my smoothies as I eye ball it but this is about the closest to ingredients I add to my smoothie (minus spinach + cinnamon).

Peanut Punch Smoothie

3 Eggs & Arepa

3 Eggs & Sweet Plaintain Arepa

Overnight Oats with Berries, Honey & Cinnamon, Peanut Butter

Tortillas with Eggs & Black Beans

Biscuits with Eggs

Eggless Waffles / Eggless Pancakes if you don’t have a waffle maker

Omelet

Lunch / Dinner

Spaghetti Squash Lasagna w/ Ground Turkey

Quinoa with Habichuela & Stew Chicken

Beef Bulgogi Mandu w/ Vegetables

Frozen Pizza

Turkey, Eggs & Spinach Wrap

Homemade Tortillas Tacos w/ Ground Turkey

Quinoa with Curry Chicken

Curry Tofu w/ Potatoes (following same curry chicken recipe but substituting tofu)

Roasted Sweet Potato, Quinoa, Black Bean Salad

Mushroom Ramen

Snack

Sweet Potato Pie

Sweet Potato Chips

Potato Chips

Yogurt

Candied Nuts