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Money Lately: Pension, Taxes, House Projects, Bonuses

October 24, 2014

Retirement Options

I got an offer from an old employer to exchange my pension benefit (vested, as I no longer work there) for approximately $20k to rollover to an IRA, or $75/month starting in January lasting until I die.  The second option just seems odd!  I think the offers generally were for people much closer to retirement.

I did some math, and will probably be keeping the pension benefit as it stands.  It is a better deal by at least 20%, and with the majority of my retirement funds being invested in defined contribution plans, maybe having a fixed benefit is something to keep.  Still, it’s really tempting to try to get it in my control RIGHT NOW.  Who knows what might happen in ~30 years?

2015 Planning

I want to revamp my accounting system for 2015.  One thing that bothers me about most budget templates I’ve seen is that they work completely off of your take home pay and neglect taxes.  For day-to-day money management, that makes total sense.  However, I don’t do a lot of day-by-day budgeting, I am focused on the big picture.  Understanding what percentage of our income we are really paying in taxes would be interesting, if not super useful.  I can also see the tax implications of owning a home more clearly.

House Projects

We are getting a new furnace, and it is completely not exciting.  It was a planned expense.  Yay, efficient heat?  We are removing the asbestos that is surrounding the old duct work, and getting new ducts.  It’s all really expensive, but the alternative was to have them build some special adapter to fit the new furnace to the old duct work, which was hardly cheaper.  There are some rebates right now, and I’m kind of excited to have new clean heat, given my allergies to dust.

I just hate spending the money.

I also want to build / create a little mudroom / entryway  We need a bench with storage for shoes, coat hangers, and shelves, sort of like this in function (not in style):

T is against hooks because he doesn’t like coats visible.  I agree in theory, but they need to go somewhere, and the coat closet is not right by the door.  They end up all over right now.  On  a hook is better than on the couch, the bar stool, etc.  This will be an exciting project, but it is going really really really slowly.  Meaning, we have nothing except ideas so far!

Bonuses

The bonus process at my company is annoyingly black-box-esque, so I have no idea what to expect. But I should get something!  Bonuses were sold as a big part of our compensation package, but it isn’t clear what that means in terms of dollars.  I was only there for 3/4 of the fiscal year, but I was consistently staffed to projects.  I didn’t get “most amazing ever” reviews, but they were solid.  My current guess is that it will be $17k, but it could be significantly less or a bit more.  (For the record, I do not like “black box” compensation methods.)

At any rate, I plan to save most of it, maybe put some towards the mortgage principal, some in our home maintenance fund, and some in short term savings for future travel.  I don’t even have anything on my wish list right now to splurge on.

House Spending

October 5, 2014

If this blog is to be useful (even just to me!), there are a few details I would like to share.  Here is a long / housekeeping post to capture all of this.

First, our home purchase / mortgage are not gold standard PF choices. They are not high risk options, but I tend to be ultra conservative and would prefer to have bought in all cash if possible.  I won’t go into a lot of details for privacy reasons, but ‘ll share a little known fact:  many academic jobs in pricey cities have perks related to housing as part of their recruitment packages. My husband’s job came with some of these perks, and we are using them. (The academic job market is like it’s own planet. Or maybe several planets, depending specifically at where in academia you end up falling.)

So, we did not put 20% of our own money down, but we do not have to pay expensive PMI. There are some other benefits and risks that are specific to our situation, and trust me when I say we spent a long time considering the pros and cons.  It came down to the fact that 1) we need to live somewhere 2) not buying yet is also a risk and 3) we could afford to do this.  Buying wins over renting in a relatively short time frame. Buying is expensive, but so is renting.

Our primary risk reduction strategy was to ensure we could afford this on one salary.  We have this covered, albeit it would require more care with our finances. The other important risk reduction plan is to reduce our mortgage balance to the equivalent of 20% down (or more) – I’m working to define our timeline and tactics for that goal.

Second, we have/had $15 – $20k set aside after for repairs and furnishings.  (We also have our $27k emergency fund and money for property tax bill set aside.)  Here is what we are doing with it.

We bought some furniture:

  • We spent $2k on a chair and side table.  Yes, this is a huge LOT of money. We bought used (on ebay, local pick up), and it is a classic style we could sell tomorrow (or 5 years from now) and recover our cost.   (It is in the MOMA!)
  • We bought a sleeper sofa for the guest room, used off craigslist.  I was going to buy a second bed (new), but we may turn the room into a nursery within a few years.  A sleeper sofa could be moved to the office when time comes.
  • We found an area rug for the bedroom for $100, and need one for the living room.
  • I bought some crappy bar stools for about $60 for two.  They are functional, and for some reason, bar stools are expense.
  • We’re in the process of putting up UV window film on several windows.  We don’t need blinds for privacy, so the film will protect our floors and belongings while preserving the view.
  • I want some new lighting in the living area – the fixtures are ugly.  This is a low priority and may not happen.
  • We’re on the craigslist lookout for a bench for the entry way and patio furniture on the cheap.  I might make my own bench, but this doesn’t actually save all that much money – it is just awesome.

And we scheduled some repairs:

  • Furnace / duct work: This is expensive because we have some asbestos on the outside of the duct work.  My research says this actually is not a big deal and we could just leave it – but the furnace can’t be worked on.  The furnace is approaching the end of its life, and there are some tax incentives for getting a more efficient furnace.  Due to climate, we won’t save much on our bill, but I want to get this done anyway.
  • Painting:  Mostly just the ceilings, because everything else was painted for the staging in colors we are OK with.
  • Earthquake retrofitting:  We have earthquake safety measures in place already, but we’d like to modernize a few things.  We will be doing this within a year.  There is a pretty major tax incentive to help with this one.  We may wait until May or June to do this one.

In short, there has been a lot going on in our finances in the past two months!  Things should be back to normal this month!

Net Worth & Finance Updates

September 1, 2014

In the weeks we were preparing to buy our house, it felt like money was flying around everywhere. From one account to another, a cashier’s check, wire transfers, checks to inspectors, escrow refunds, insurance premiums, ikea, home depot, target… Finally, we got our August paychecks, and everything is more settled financially.

Here are some tidbits about the net worth of the SP household:

  • I added a new category to our net worth: home equity.  I’m going to use Purchase Price – Mortgage balance, unless there becomes a reason to believe that the market value has fallen below the purchase price. 
  • About 70% of our net worth is in our retirement accounts.  
  • My retirement accounts are quite a bit larger than T’s, but he’s catching up.  
  • Sort of.  He’s contributing about 2x the amount I am, but our balances have increased almost the same amount.  Thank you, investment gains!
  • We’ve had a 30% increase in our net worth so far this year.  Yay!
  • I don’t expect major net worth growth for the rest of the year due to: property taxes (not impounded), a few home maintenance projects (boring stuff like furnace, seismic, drainage – not redoing the bathrooms), and reduced cash flow.

My near term financial goals are:

  • Continue retirement savings at this pace through end of 2014.  Then, we’ll likely reduce T’s a bit to support the 3rd bullet below.
  • Complete the house projects listed above.
  • Reduce mortgage balance.  I want to put at least $5k extra within the first year, but maybe more.  I don’t like throwing out numbers without doing the calculations, but $5k is a number I’m comfortable just throwing.  :) 

What We Gave Up For Our Home

August 11, 2014
After congratulating me and being generally excited about our new house, one friend mentioned that she was just spending all her money on travel.  I didn’t respond in the moment, but the comment stuck with me.
While our house is freaking expensive, we chose carefully such that we could afford the payments without a lifestyle shift.   It isn’t an either-or situation.  We plan to have a house, and to travel.  In the long run, buying should actually be cheaper than renting for us.  It seems impossible that this math works, but it (in theory) does.
What I don’t think that my friend recognized (and I wasn’t willing to point out), is that I’m much older.  She he is literally just starting her career, while I’ve been saving (while traveling) for years.  Not to mention the fact that I’m buying it with my husband, and there is also a fairly significant salary differential.
That said,  we are no longer planning to go to Patagonia this winter.  I really want to, but T has two awesome conference I want to tag along on early next year (one in the middle east, one in Asia).  It didn’t make sense to do another trip this December.  Time is just as much of a factor as money is.  The choice has little to do with the home purchase, though it made the answer more definitive.
Anyway –  I’m not giving up travel.  We’re also “over saving” in retirement, which we won’t need to do forever.  I want to do it this year since T was a little bit behind, but we’ll re-evaluate in 2015 or 2016.  But, I’m not sacrificing retirement savings either.  So, what am I sacrificing to buy a home?
  • Freedom to move with minimal notice and minimal hassle.
  • Short term cash on hand.  After having so much in the bank, it is sad to be dwindling down to just our emergency fund and some cash for near term expenses.
  • Ability to save cash at a quick rate while also funding retirement at this pace.
  • Ability to quickly reduce living expenses (by moving).

In summary, it is more risky in a lot of ways.   It restricts our options. This makes me nervous, as both T and I are quite risk adverse with money.  Continuing to rent had some other risks (rising home prices, rising rents, we have to move to a new apartment within another year anyway.)  I’m thrilled about our purchase, but I’m not blind to what we are giving up to have it.

What else, homeowners (or happy renters)?  What did buying a home require you to sacrifice?  Or what are you not willing to sacrifice to buy a home.

We’re buying a house! (Still…)

August 4, 2014

We are in escrow, and everything is going smoothly.

The general inspection ($570) was helpful and yielded no major surprises.  We have some immediate projects slated, and some items on the watch list. The geotechnical inspection ($460) was really helpful.  Among other things, he informed us that we are on a geologically sound site and our house is likely to be habitable after a major quake.  We have no foundation issues.  We are possibly on bedrock (best case), but if not, we are very close.  We are getting earthquake insurance anyway.  A lot of native California’s don’t (it’s expensive), but I can’t really imagine not.

Immediate projects / fixes:

  • Seismic upgrades (more shear walls, remove unused chimney), cost is TBD
  • Fix a venting issue with the dryer, quoted at $600
  • Pest control, $600
  • Stair handrail
  • Some basic roof maintenance
  • Clean up the landscaping

Eventually:

  • Finish decorating.  I imagine we’ll start slowly.  We don’t really need all that much above what we already have.  A guest bed, a new desk, and a chair or two for the living room, and a few patio chairs.  Window things.  Rugs, eventually.  We’d like a new dining table, but it isn’t urgent.
  • Upgrade windows and doors.  Many are original (it’s an OLD house), but in remarkable shape for their age.
  • More complete electrical upgrade (as needed)
  • More complete plumbing upgrade (as needed)
  • Bathroom upgrades.  We have 2 baths, and they both are fairly old.
  • New roof.  This should be several years off, but we’ll know more after the basic maintenance is taken care of.
  • New furnace.  Again, a few years off.

The kitchen is already updated and good.  The paint colors are neutral enough to be OK for now, and we haven’t thought enough about what we want to do with them, so we’ll leave them alone to start.  Also, there are hardwood floors in most of the house.  I’m super excited about this.  Not only do they look great, but I’m allergic to dust mites, and dust mites can’t survive on hardwood.   I’m not allergic to anything else (recently tested!), so this should help a lot.  I guess we’ll have rugs, but it still should help.

The loan is approved, the inspection contingencies are removed, the appraisal is complete.  I’m honestly not sure what is going on in the next couple of weeks while we are waiting for close of escrow, but I’m getting impatient!  And excited!

 

First Offer for a Home

July 30, 2014

We put in our first offer on a house last week!

We struggled for a while on the question of whether or not we should buy a home now, or if we should wait a bit longer.  I did numerous rent vs buy calculations, varying my assumptions.  I read articles speculating whether or not we are in a housing bubble.  I analyzed how much it would matter to us personally if we were indeed in a bubble.  I considered the risk of buying.  I considered the risk of continuing to rent.  I looked at our budget, our savings, and our plans.  We know we’ll be here at least 7 years, and we think that it will be much longer.  We talked, and talked, and talked.

Finally, we decided we did want to buy, if we could find something that worked for us.  We’ve been going to open houses all summer, getting a feel for what we like, what the market is doing, and where we want to live.   T loved this, while I found it a bit tiring.  We watched homes we liked go for WAY more than we wanted to spend.  We heard horror stories of people who’d made 10 offers and were still trying.   We didn’t see anything we wanted to make an offer on.  Most things we liked we knew would sell for too much, or were in areas we weren’t ready to consider yet.

Finally, after months of looking, we found something we loved that we thought we had a chance at.  It is a home I can see us in for at least 10 years, maybe even more.  There is enough space, but not too much.  The neighborhood is perfect for us.  We both really liked it, and decided we’d put in an offer.

I’ll give you a quick explanation of how homes shopping works here, as it seems like it varies a bit.

  • Houses are listed and have 1 – 2 open houses with a specific date set for offers being due, usually Tuesday or Wednesday after the final open house.
  • It is typical for houses get from 4 – 10 offers
  • If you really like a home, you may pay for a pre-inspection and remove the inspection contingency in advance of your offer.
  • Houses nearly always go above list price by 3% – 40%.  The average is closer to 8% or 10%.
  • About 30% of all sales are cash (supposedly).
  • Most decisions are made within 24 hours of the offer date.  Our agents said that if we didn’t hear within the first few hours, we probably didn’t get it.

The offers were due last Tuesday, so we spent Monday evening finalizing everything.  We’d done our own research on the comparable properties and decided what it was worth to us and what it might take to get it.  Our agent speculated that the home may go for another $50k over what we offered, so we didn’t get our hopes too high.  We knew if it went for that much, it wasn’t for us.

By 3 p.m. Tuesday, I started to guess we probably didn’t get it.  At about 5:30 p.m., our agent called and confirmed we didn’t get it.  The winning offer had already removed their inspection contingency and had offered more money.  We were offered the back-up position, and since there was no reason not to, we took it.  But most offers do go through, so we were sad and started to move on.

On Thursday morning, we took off for a 5 day backpacking trip in the Sierra Nevada mountains:

We planned to postpone the trip if our offer was accepted, but with that out of the way, we were excited to escape town for a bit.  We spent 5 days and 4 nights in the mountains, enjoying the alpine lakes, mountain views, and quiet life.

We came back to civilization (and cell service) early Monday afternoon to discover that first offer fell through on Thursday morning, and we had advanced to the primary position!  (At our realtors advice, we had written a “dear sellers” letter and mentioned our love for nature & backpacking – the sellers must have quickly realized we weren’t kidding when we were out of touch for 4 days while we were supposed to be moving forward with inspections!)

So, we might be buying a house soon.  There are still quite a few steps to get through before we are sure this is the home.  The sellers provided a recent inspection, so there shouldn’t be HUGE surprises, but you never know.  Since this is California, we are also getting a geotechnical inspection to make sure the soil is good.  If all goes well, close of escrow will be late August.  Keep your fingers crossed for us!

Home Browsing in the Bay Area

July 12, 2014

In short, it is frustrating.   I think home shopping ANYWHERE has potential to be frustrating, but here is what I’ve seen in our casual browsing of the local real estate market.

Links to virtual tours that are really just a slideshow of the photos already found on the site.  WHY?  I don’t care that there isn’t a virtual tour, but why pretend?

Earthquake / soil / fault information is not available until you get the disclosures.  And even then, I’m not sure what you get (we didn’t get that far yet).  I am generally not freaked out about dying in an earthquake.  You are actually statistically quite likely to survive.  I am, however, freaked out about spending hundreds of thousands of dollars on a home, and having it get destroyed in an earthquake.

Every time I find an interesting home I have to check if it is in the fault zone (EVERYTHING is going to be near a fault, but I don’t want something that has a risk of surface rupture).  Or in a liquefaction zone (google this, it is freaky).  Or in a landslide zone.   SO MANY hazards!

I wish redfin and the like would just summarize for me:  how many feet from fault zone, soil type (bedrock = good, fill = liquefaction risk), and any known landslide risks.  Also, can’t they just TELL me when the floors are slanted?  You are going to make me go to the house to find out about that?

Listing price is arbitrary.  It could go for slightly more.  It could go for WAY more.  In rare cases, it may go for less.  But don’t put much weight on the list price.  This is so annoying and seems like some serious psychological manipulation to get people to pay the most possible for a house.

$1M+ for an average, nothing special home.  What?!  Why?

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